The news that the daddy of UK mortgage distribution, Premier Mortgage Service, was rebranding as PMS and that these letters would henceforth stand for Protection Savings & Mortgages was the wake-up call brokers had been waiting for. It was a clear sign that all was not well in this dwindling community.
Love it or loathe it, there’s no getting away from the fact that PMS has an 11% share of the gross mortgage market – including direct lenders – and up to 20% of the broker market. When a company like that changes a trading style that has been around since 1996, you know something’s up.
The firm, part of Bankhall, said that it had been more than a mortgage club for a long time and the rebrand was an attempt to demonstrate this.
Martin Reynolds, development director at PMS, said that for the past 18 months the club’s message to members had been diversification and that it was putting its money where its mouth was.
He said: “It’s important that companies constantly reassess their business models. We have been talking about diversification for the past 18 months and felt that by having the word ‘mortgage’ so prominently in our name we were not following our own advice.
“Our new-look website will allow brokers to access the product areas we have developed in the past 12 months.”
Despite the market downturn PMS was confident about its future. In 2007 the amount of business the company facilitated was £42bn and for 2008 that figure was £27bn.
Reynolds added: “This year will be challenging but we aim to be at the forefront when it comes to helping brokers.” Lenders welcomed the move and said PMS was showing brokers how to survive the downturn.
Matthew Wyles, group distribution director at Nationwide, said: “PMS can see what intermediaries need to do to survive and is taking action to support them.”
And Ricky Okey, managing director of intermediary distribution at Abbey for Intermediaries, had a similar message.
He said: “Through its diversification, PMS has shown that it plans to remain a leading player in the market.”
Meanwhile Nigel Stockton, managing director for HBOS Intermediaries at Lloyds Banking Group, said the move was designed to maximise income and the lender understood and supported this.
In the same week BM Solutions and Bank of Scotland revealed they had withdrawn from the self-cert and sub-prime sectors and also tightened criteria on their new-build and buy-to-let ranges.
Paragon Group also confessed that it had until April to find new funding or it would be forced to limit its secured loan lending to existing customers.
In a London Stock Exchange trading update the group revealed that its funding would be exhausted by April 12 and that it would cease accepting new business from the end of February to allow it to manage its pipeline business.
John Webb, managing director of Paragon’s secured loans division Paragon Personal Finance, said: “I know brokers will be desperately disappointed by this news but they should be reassured that PPF believes in the future of secured lending and remains committed to the market.”
The update also revealed that Paragon Mortgages had bought the remaining 67% of buy-to-let and commercial packager The Business Mortgage Company. Paragon had taken a 33% stake in the firm in January 2007.
But the downturn in the market had caused TBMC’s business to suffer and Paragon bought the remaining part of the firm from TBMC’s chief executive Andy Young and managing director Paul Rockett for what was termed ‘nil consideration’.
The Paragon update added: “The group remains financially strong and continues to manage its portfolio carefully. While the wholesale markets remain closed we welcome outline proposals from the government to reopen the securitisation markets.”
Then it really was an interest rate cut too far when the base rate fell by 0.5% to just 1%, meaning that some lucky interest-only customers are now paying as little as 8p a month for their mortgages.
Lloyds Banking Group’s Cheltenham & Gloucester brand has some borrowers on a tracker deal at base rate minus 1.01%, leaving them with payments of 8p.
As incentives to kick-start lending go, cutting interest rates is pretty weak. There is now zero incentive for consumers to save, cutting the lifelines of many len-ders. No saving, no lending – it’s that simple.
With most lenders slashing their SVRs by the full 0.5%, the throat of a remortgage market al-ready on its last legs was effectively slit. Meanwhile, HSBC came up with what it described as an SVR-beating fixed rate of 2.99%.
Then there was growing unrest in the industry over the subject of claims management firms, with some saying networks have been instructed by lenders to steer clear of such companies.
One network source, who asked not to be named, said: “We have been told in no uncertain terms by lenders that they will not tolerate us developing relationships with claims management firms, or our advisers using them.”
Mal McConechy launched Loan Resolutions last year, which specialises in complaints relating to the Consumer Credit Act.
He said that 95% of all the cases he deals with are settled out of court but he believed this could be for fear of legal precedents being set.
Elsewhere, the topic of how much the industry is paying for the Financial Services Authority was brought into sharp focus.
The Association of Independent Financial Advisers has called on the National Audit Office to look into whether the FSA offers value for money.
The Treasury is conducting a review into the work of the FSA during 2007/08 and while giving evidence to this, AIFA questioned the value the regulator provides.
It asked whether there had been a cost-benefit analysis of the £50m the regulator spent on implementing principles-based regulation and if any financial benefit that may have been gained from this would be passed on to brokers.
Figures from the Council of Mortgage Lenders revealed that the number of repossessions in 2008 hit 40,000 – up 54% compared with 2007. On the plus side, this was 5,000 less than it had predicted. The CML’s prediction for 2009 remained unchanged at 75,000.
Then a government committee recommended that lenders that repossess too quickly should face tough sanctions.
A report from the Communities and Local Government Committee on the subject of housing in the credit crunch argued that lenders’ attitudes to repossession should be monitored by the government.
MPs are calling for more effective sanctions against lenders that do not comply with repossession guidelines. They also want the Office of Fair Trading’s recommendation that sale-and-rent-back should be regulated to be implemented as a matter of urgency.
The committee would like to see guidance for lenders repossessing privately rented properties to ensure these homes are professionally managed in the event of repossession.
Members want the government to enact measures to restore the mortgage market as well as clarification on how promised borrowing for social housing will be paid for.
There was a glimmer of light from the British Bankers’ Association which revealed that mortgage approvals for January increased slightly to £7.6bn. But this was still a massive 60% fall compared with the same period in the previous year.
House purchase loans were up marginally at £2.9bn from £2.7bn in December.
Meanwhile, gross mortgage lending remained flat at £9.9bn – a decline of 45.2% since January 2007.
Net mortgage lending rose by £2.9bn in January compared with £3.3bn for the previous month and annual growth in net mortgage lending was up 10%.
But with the mortgage market effectively stalled, the Liberal Democrats decided to get creative and come up with their own bespoke mortgage product.
The party unveiled plans for a new type of deal intended to bring stability to the market.
The product is a five-year, fixed rate no-fees mortgage. The so-called SafeStart product would be offered at 85% LTV and based on a rate of 4.5%, with the LTV falling to 75% LTV after five years provided borrowers maintain their repayments.
Funding would be provided in the form of guarantees, which the Lib Dems say would come from insurers or possibly the government. Nationwide and Lloyds Banking Group are awaiting further details but are broadly supportive of the move.
But will it work? The Lib Dems have gone out on a limb as the first political party to try to reshape the lending landscape. But with their 85% LTV deal, not only have they forgotten the first-time buyer sector – which needs to be revived to kick-start the housing market and the economy – but also what makes the lending industry tick.
Innovation is the key here and to be truly competitive as well as offer the widest possible choice to consumers, lenders can’t be constrained by such tight criteria.
A vanilla government-backed mortgage with a rate of 5% fixed for five years for borrowers with 5% deposits, renewable five times and available up to 5 x income would be a more sensible starting point.
Government-backed lenders could compete on price and the resulting flow of money would let them develop other products. But until such products come to the market, companies will continue to suffer.
Moneysupermarket.com posted its results at the end of February. Along with a pre-tax loss for the year of £51m, it revealed that it was considering a number of options in respect of the intermediary business.
The intermediary division saw a 41% fall in profits from £10.6m in 2007 to £6.3m in 2008.
The firm had already revealed that it was integrating its Mortgage 2000 sourcing system Encore with rival Mortgage Brain.
Mortgage 2000 was set up by Moneysupermarket founder Simon Nixon and was the foundation on which the comparison website was built.
Stuart Glendinning, director of mortgages at Moneysupermarket.com, warned that “in this market there is no room for nostalgia”.
Nixon himself was made executive deputy chairman of the company, with Peter Plumb taking up the reins as chief executive.
Plumb warned that the group was trading at levels well below last year and that his first task would be to reconfigure the business in the face of this lower level of revenue.
He said: “We will review our cost base, extract more value from lower online and offline marketing spend, re-engineer our systems and get closer to our providers and customers.” The relationship between brokers and estate agents is also set to go under the spotlight as the Office of Fair Trading revealed that it was launching a study into home buying and selling.
The study will consider relationships between estate agents and other parties including brokers and surveyors.
It will focus on competition on price and quality between service providers, with particular attention being paid to estate agents.
Heather Clayton, senior director of infrastructure at the OFT, said: “Given the economic downturn we need to ensure that consumers get good service when buying or selling homes from a market that is competitive, innovative and functioning well.” Northern Rock may start offering 90% LTV mortgages againNationalised lender Northern Rock revealed that it would boost its mortgage lending, making up to £14bn in new loans by 2011 – a move that could see it return to the 90% LTV market.
The bank is thought to have been given approval by the Treasury to lend up to 90% LTV.
It will take on about £5bn in new mortgages this year and up to £9bn from 2010.
Northern Rock announced recently that it was reversing its decision to scale back its mortgage lending after trying to remortgage customers with different lenders.
The extra money is expected to come from new deposits, repayments on existing loans and the government.
Finally, the CML hit out at the government in the wake of Prime Minister Gordon Brown’s pronouncement that 100% mortgages may be banned.
While the trade body accepted that a debate about the future of regulation of the mortgage market was necessary, it maintained that this would not be the right time to have it.
It also pointed out that any decision on 100% LTV loans could also affect the government’s shared equity schemes whereby borrowers do not pay deposits.
The CML said: “Banning 100% mortgages is essentially irrelevant since neither borrowers nor lenders have any appetite for them. Of course, it is right to consider how 100% LTV borrowing should be dealt with in the longer term, although all sorts of unintended consequences may flow from banning it.
“What we need is better understanding of risk among borrowers and lenders, and better protection against this throughout economic cycles.”