Luckily for me last month was the latter so there’s lots to comment on.
Much has been said about the Budget but this article will focus on one vital measure that was missing from it – lending targets for mortgage lenders, just as with Project Merlin – and the impact this will have on the market for the rest of 2012.
Unfortunately, in the absence of any lending targets I feel Q1 will be looked back on as the best for volume and availability in 2012. Why? Let’s begin with some significant and long-lasting interest-only restrictions and criteria uplifts that we’ve seen recently. This will help many lenders control their sales volumes.
I predict the gross lending market will be between £126bn and £136bn in 2012, down from £140bn in 2011
It seems that 50% LTV on interest-only is now de rigueur, trapping a huge number of people in their existing mortgages and leaving them unable to move.
This is a double whammy for the marketplace as it affects both mortgage and house sales, which are widely acknowledged as being crippled by a lack of stock.
My concern is that the criteria restrictions will get tougher as large lenders continue to micro-manage their business flows. Both Santander and the Royal Bank of Scotland have moved this way, which might have unfortunately forced smaller lenders to react.
From a lender perspective, if funding has got tighter and you have any questions about liquidity you restrict availability – that is inevitable. Before anyone comments, I did it at Lloyds Banking Group myself.
That said, I think some lenders have used the Mortgage Market Review as an excuse to sort out their flows and funding.
It was interesting to note that the Council of Mortgage Lenders has reported three-month LIBOR at 1.10% in February 2012 versus 1.05% in November 2011, which hardly justifies the actions we’ve seen of late.
Whatever the reason – certainly for large lenders there are always other internal pressures on liquidity and funding – there seems to be little appetite for the remortgage business.
We have seen a tightening of criteria and price rises to restrict flows, something government-backed mortgage targets could address and would be good for the whole market.
The timing of this crackdown on interest-only and remortgage products is interesting, especially in light of recent research which suggests 1.6 million mortgage customers, or one in seven UK households, have interest-only mortgages with no repayment vehicle.
These so-called mortgage prisoners, to use a phrase coined by Countrywide chief executive officer Grenville Turner when the recession was in full swing, are a ticking time bomb although the CML feels this is a bit of an exaggeration.
And what of product price rises? Well, there is no downward price pressure at the moment so tell your clients to buy now as prices are going to increase simply because nothing is preventing lenders from doing so.
With the government failing to implement mortgage lending targets and support a wider market recovery, this prevents mortgage prisoners from affording the increased deposits and repayment terms that many rising interest rates and SVRs now ask of them.
Here are couple of examples using Abbey for Intermediaries and Lloyds group, based on price changes that both lenders made between November 2011 to February 2012 on a core product.
I’m not picking on them, just using them as an illustration, particularly as these two will be brokers’ biggest supporters in 2012.
Abbey: 75% LTV two-year fixed rate with £995 fee
- November 2011: 3.09%
- February 2012: 3.69%
An increase of 0.60% or so on a typical £120,000 loan over a 25-year term, repaying capital and interest, would equate to a monthly increase of £39.26 -from £580.05 to £619.31.
Halifax: 75% LTV two-year fixed rate with £999 fee
- November 2011: 3.39%
- February 2012: 3.79%
An increase of 0.40% on a £120,000 loan over a 25-year term, repaying capital and interest, would equate to a monthly increase of £26.47 – from £599.52 to £625.99.
Given that the interest rates spreadsheet issued by the Bank of England in November 2011 claimed the average rate was 3.14% compared with February 2012’s 3.36%, a 0.22% increase is difficult to explain, especially as funding was up only 0.05%.
Once again, in the absence of any lending targets we will continue to see all this jockeying to avoid significant gross lending.
I now predict that the gross lending market will be between £126bn and £136bn in 2012, down from £140bn in 2011.
Dual pricing will also impact the broker channel in 2012 and while HSBC continues to dominate the direct channel, it seems other lenders feel that they have to try to match it to get their share.
But consumers need choice, convenience and advice more than ever and I believe brokers will prove flexible, nimble and surprisingly resilient.
No matter how successful a lender might be in their own branches, brokers are the profitable, risk-free channel of choice.
Further good news comes in the shape of the new-build sector andI expect all major lenders to play a part in the NewBuy Guarantee scheme.
If I’m proven right NewBuy will get more competitive in Q2 and Q3 2012. Criticising this product at these early stages isn’t helpful so we all need to get behind the products and work with developers as I expect this sector to have double-digit growth in 2012.
Buy-to-let also looks positive in 2012 and if we’re taking bets then I’d expect this market to increase by more than 10% in 2012.
Meanwhile, in the transaction market, it seems Virgin Money and Nationwide, Yorkshire, Coventry and Leeds building societies are all looking to lend more, so if you pick your markets and your partners there is no reason why your business shouldn’t achieve its goals this year.
It will all be about hard graft and looking for the soft spots in lenders’ product rosters.