First-time and next-time buyers have been stuck for several years because of the high LTV demanded by lenders. The Government’s latest scheme will have little effect unless this problem is tackled
In the past few weeks, the Government’s Funding for Lending scheme has launched with high hopes on the part of the Government that the latest subsidies will kickstart lending for those who have struggled over the past four years.
This scheme has been designed by the Government to help support the wider economy as we have slipped back into recession once again.
As the last first-time buyer scheme, in the form of the stamp duty holiday, expired back at the end of March, transaction levels dipped and we have not got back to March’s level of activity ever since.
Hopefully, this scheme will help more than just the first-time buyers and boost lending to a much wider range of people who want to get a mortgage but who have not been able to so far.
However, it does make me think that the Government needs to get better at aligning its ideas with definitive, desired outcomes.
Funding For Lending means that lenders get some more money to lend at cheap rates but where will the impact be? If all this results in is more mortgages that are at sub-60 per cent LTV, for example, there will be virtually no change for potential borrowers that need higher end LTVs, the very bracket that need the most help.
This initiative would then boost remortgage volumes but lenders are already falling over themselves to lend to people who have 40 per cent equity and these are the people who could move anyway, so this will not help housing or construction and it wwill not help the wider economy.
What the market is crying out for is more reasonably priced lending at the higher end of the scale at 80 per cent to 90per cent LTV. The Government has estimated that there are one million frustrated buyers unable to raise a deposit to buy a home and these are the people that we need to help in order to stimulate the housing market.
The good news is that in my conversations with lenders over the last few days, there does appear to be a growing appetite for 90 per cent lending under this scheme.
If lenders really do enter this arena with some competitively priced mortgages then we could see the market start to move again right across the spectrum. This will help first time buyers, but it will also help next time buyers, many of whom have been stuck in a trap with a property with little or no equity from which they can neither move nor remortgage.
Once this tier of borrowers can make the move then it may well be the stimulus that the market and the economy are looking for as change can then happen up and down the housing chain in a way that hasn’t been possible for the last four years.
We should get to know our clients – just like Tesco Bank
There has been a lot of talk since Tesco finally launched its mortgage proposition that it has mis-judged the market, pricing too high in a way that will attract only the most loyal Tesco customers. However my opinion is: don’t underestimate Tesco.
Tesco has not yet launched into anything in order just to be a bit part player or sit on the side lines, and Benny Higgins who is chief executive officer of Tesco Bank has a long history in the mortgage market with HBOS and RBS and so knows the market well.
It makes perfect sense to me that Tesco would launch with a relatively low LTV high cost proposition at first, in order to test their systems and make sure they work fluently.
But it has spent considerable time and effort to get their proposition this far, so it is therefore unlikely that they won’t later launch some very competitive low rate mortgages when they know that they have the procedures in place and their systems are up to the job.
It is likely, given the huge wealth of information that Tesco has on its customers and their spending habits, through its club card system, that this will enable it to pin point exactly which customers are most likely to be in need of, and will take out, a Tesco mortgage. I strongly suspect that these customers will then be the subject of a relatively intensive marketing campaign when Tesco Mortgages really takes off.
Indeedin 2010 it was widely reported that Tesco was looking to take a ten per cent share of the financial market after only launching Tesco Bank in 2008, although admittedly this was an evolution of Tesco Financial Services, its partnership with RBS which started 15 years ago.
And this year it is its stated aim “to be as strong in everything we sell as we are in food”.
Tesco Bank already has a turnover of £1bn and revenue growth of 14% in the last year driven by insurance sales, so it’s clear that mortgages are not something Tesco aims to play with but something that it will take seriously, not only for the value of the mortgages but also for the cross sales opportunities they present on its way to becoming a full service retail bank.
While Tesco has never sold through intermediaries, its wider aim to cross sell into a full scale banking operation is yet another reason why selling through intermediaries is not something that it is likely to consider in the short or medium term as it is direct access to the customer that is key for them so that they can benefit from any additional sales the customer might be persuaded to make.
However given that currently, the Tesco mortgage offering is an over the phone, non-advised service that is not available in stores, its initial offering will still only appeal to customers if it comes out with some very enticing rate driven deals.
The benefit for advisers? Tesco’s offering is a completely non-advised, information only proposition. While this might suit a number of customers, there are many more who will still want advice in order to know that they are doing the right thing.
But don’t write off Tesco just yet, this gentle foray is just the start, and we are likely to see some much more cut throat deals – more in line with what we are used to from HSBC.
But, maybe we can learn something from the Tesco approach of knowing our customers intimately, knowing what appeals to them and what they are likely to buy, and making sure we are the first port of call for all their financial needs, so when Tesco does up the ante, it’s not our customers that they poach.