It seems as though everything has been turned upside down in the past few weeks. Having seen Prime Minister Gordon Brown take the credit for masterminding the Lloyds/HBOS merger deal, now a £10bn loss has been announced it seems it was not his idea after all.
And just when you thought things couldn’t get any worse for the mortgage market the Bank of England base rate plunges to 0.5% just to ensure the re-mortgage market is totally paralysed rather than simply limping.
Think of the lenders that raise money by attracting retail savings. They now need some magic fairy dust to attract savers because the interest rate isn’t going to do the trick. In turn, this will make it more difficult for them to lend and lead to the mortgage market becoming even more depressed.
And to add insult to injury, the number of mortgages available to intermediaries has plummeted by 90% in the past year, according to Trigold’s latest index of products.
Sadly, in recent weeks some of my friends and colleagues have had to close their businesses including Chase De Vere and Cobalt Capital – both giants of our industry. We have shared many a conference table or discussion group, swapping views openly because of the mutual trust and respect we have.
I know I’m not alone in being somewhat shocked and extremely sad about these firms’ demise. I wish all those affected well and hope to see them back on the circuit again soon.
And there’s potentially more bad news on the back of Lord Turner’s report and rumours that the Financial Services Authority may consider limiting lending to 3 x income.
If this happens it would be a backward step given that most lenders have moved to an affordability model which on the whole is fair and works well.
It could also have dire implications for the remortgage market, with borrowers who need more than 3 x income being stuck with their existing lenders and at their mercy in terms of rates.
This crisis is a result of wholesale funding issues rather than irresponsible retail lending but we face a situation whereby we may end up throwing the baby out with the bath water.
On a more positive note, the Royal Bank of Scotland has benefited from buoyant corporate banking activity in its key markets since the turn of the year, its chairman Sir Philip Hampton has revealed, offering a rare glimpse of optimism for the bank.
In an interview with the Financial Times Sir Philip flagged other positives in 2009 for the partly nationalised bank including increased business as a result of the rise in corporate debt issuance and equity underwriting.
Sir Philip’s disclosure followed Barclays announcement that it enjoyed a strong start to the year. Citigroup and Bank of America also issued positive trading statements.
I was interested to read that Exact is calling on the government to reinstate local authority mortgage lending to fill the public lending shortfall. The firm is lobbying the government to divert funding to reinvigorate local councils as a force in the mortgage market.
It argues that the interest rate below which local authorities are prohibited from lending – known as the standard national rate or SNR – was set too high to make council mortgage lending competitive with the private sector. But now the SNR has fallen to 3.93% – its lowest ever level.
Alan Cleary, managing director of Exact, says reinstating local authorities as mortgage lenders would mean the government could bypass bank red tape and get cash back into the hands of people who want to buy houses.
He believes the government is currently relying too heavily on one part of the mortgage market – the big high street banks.
Exact highlights that the government’s bailout plans may be stabilising high street banks but these lenders are hoarding money to rebuild their tattered balance sheets – they are not passing it on to consumers.
Cleary says these banks can’t afford to lend as there’s too much damage to be repaired first. But he believes the government is ignoring a significant part of the mortgage market, which is littered with specialist lenders that are paralysed by the lack of wholesale funding.
If the government is serious about boosting the cash available to borrowers in the high street, Cleary wonders why it does not give some of its billions to councils which could then lend to consumers using specialist lenders’ origination expertise, putting taxpayers’ money directly into the hands of those who will spend it. All food for thought in these testing times.
As I look for rays of light in this landscape I spy a golden nugget. Yes, Abbey has unveiled that now almost mystical beast – an exclusive product. And its move was followed by another exclusive being released by RBS, seemingly in the blink of an eye. At last, some positives from which to draw strength.
Let’s cling to these treasured bits of good news and hope they are the first of many, and that the cash injection the government has talked about for so long is starting to filter its way down to those who need it.