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The month at a glance

A self-serving Budget speech was a disappointing climax to March, with chancellor Alistair Darling’s belated attempt to help first-time buyers coming at the end of a period that contained a mixed bag of news for lenders

Reading out the figures he proved in detail that they had more oats and turnips than in Jones’ day.’ George Orwell Animal Farm
Reading out the figures he proved in detail that they had more oats and turnips than in Jones’ day.’ George Orwell Animal Farm

March marks the start of spring, the time of new beginnings, yet there was little in the way of a fresh start from the government in this year’s Budget.

It was the same old story as chancellor Alistair Darling delivered a speech that again missed the point and avoided offering genuine help to the economy.

Darling may have won some fans by hiking the Stamp Duty threshold for first-time buyers to £250,000 but the consensus is that this was too little, too late. When first-time buyers can’t get funding, what does it matter where the Stamp Duty threshold is?

But even before Darling unveiled the contents of the red briefcase several other stories grabbed the lending headlines.

The month began with the news that Lloyds Banking Group was to scrap guarantor mortgages for its Halifax and Cheltenham & Gloucester brands.

Guarantor mortgages allow parents to act as guarantors for their children buying their first homes.

The lender says these mort-gages have waned in popularity compared with Lloyds TSB’s Lend a Hand deal. Lend a Hand requires borrowers to have a 5% deposit and the backing of someone who has savings equal to 20% of the property’s value.

In the first week of the month building societies reported a mixed bag of results for 2009, with Yorkshire Building Society seeing pre-tax losses of £12.5m. This represents a big fall from 2008 when it recorded a profit of £8.3m. Provisions for mortgage losses went from £25m in 2008 to £59m 2009.

Darling may have won some fans by hiking the Stamp Duty threshold for first-time buyers to £250,000 but when first-timers can’t get funding to buy homes, what does it matter where the threshold is?

Gross mortgage lending was just £900m for the year while mortgage assets fell by £1.3bn.

Chelsea Building Society, which is poised to merge with the Yorkshire, also made a hefty pre-tax loss of £27.1m for the year.

But some mutuals reported healthy figures, with Skipton Building Society seeing pre-tax profits of £63.5m for 2009, up £41m on the previous year’s £22.5m.

Skipton now plans to merge with Chesham Building Society, the UK’s smallest mutual.

Chesham cites low interest rates and falling profits from mortgages as reasons behind its decision to get together with Skipton.

It says it has been under pressure since the Bank of England lowered the base rate to 0.5%. This resulted in its earnings falling substantially as many of its deals are linked to the base rate.

This, along with the fact that the cost of acquiring and retaining retail deposits has remained high, resulted in the need to hold higher levels of short-term liquid assets.

Some signs of spring
There was good news in the lending market when it emerged that Aldermore is gearing up to launch a range of mortgages for brokers in the next few months.

The lender plans to offer prime residential and buy-to-let mortgages but also wants to cater for prime borrowers who are unable to meet other lenders’ tight underwriting criteria.

The mortgage arm at Aldermore is headed up by Colin Snowdon, former chief executive of Wave and the man who launched The Mortgage Business and Britannia Building Society’s Verso. Richard Spinks, former director of product development and credit at Wave, is commercial operations director at the firm.

The Aldermore brand was created following a merger between Ruffler Bank and Base Commercial Mortgages last July. The bank has been offering commercial finance to small and medium-sized firms, plus savings products.

Meanwhile, it was announced that Metro Bank had finally obtained a banking licence from the Financial Services Authority after first applying for one in early 2008.

The company says it will be the first bank to open on the high street for more than 150 years. Metro Bank branches will be open seven days a week and the first two are scheduled to open in London in Q2 2010.

Metro Bank’s non-executive directors include Stuart Bernau, former retail director at Nationwide, and Keith Carby, former chief executive of Openwork.

And there was a positive sign in the secured loans sector with the resurrection of Link Loans.

In October 2009 the company’s sister firm, bridging lender Link Lending, was wound up but Link Loans continued to operate on a reduced scale.

The lender has since secured fresh equity funding. David Johnson is back as chief executive officer, as is Philip George is man- aging director.
Link Loans will offer loans up to 75% LTV for the employed and 70% LTV for the self-employed, with rates from 11.9%.

But things were not so rosy in the equity release market as Stonehaven temporarily suspended lending due to lack of funds. The provider says it is focussing on its adviser arm and servicing its extensive back book. Offers made by Stonehaven will now be valid for six months instead of the usual three.

Saffron Building Society and Coventry Building Society suspended equity release lending in 2009, along with Northern Rock.

And it was all change at Abbey for Intermediaries following managing director Ricky Okey’s decision to leave.

Alan Mathewson, currently director of parent Santander’s bancassurance division, will assume the role of managing director at Abbey.

He will also take on the role of managing director of Santander Private Banking UK following Alvario Morales’ move to Miami to become chief executive officer of Santander Private Banking International.

It is not known where Okey is headed but company names in the frame included Towergate Financial, Personal Touch Financial Services and Openwork.

The FSA continued to get tough, announcing it is to visit lenders in the next couple of months to check their systems are robust enough to detect fraud.

The move followed a report from the National Fraud Authority and the Metropolitan Police that revealed the regulator intends to shift its focus from brokers to lenders.

The report highlighted a range of key vulnerabilities including corruption or negligence among key professionals in the mortgage and conveyancing process, and noted that weaknesses in lenders’ systems and controls are being exploited by fraudsters.

The NFA has launched a Mort-gage Fraud Forum to develop an understanding of the tactics fraudsters are using. The forum includes lenders, solicitors, sur- veyors and trade bodies.

The NFA estimates that the annual value of mortgage fraud is £1bn and that action taken by the Solicitors Regulation Authority against lawyers who facilitate fraud has so far saved lenders around £20m.

Meanwhile, the Council of Mort-gage Lenders called for a review of the way solicitors are regulated. The trade body opposes proposals by the SRA, which is campaigning for a principles-based approach.

There was some welcome news in the lending market when it emerged that Aldermore is gearing up to launch a range of mortgages exclusively for the broker market in the next few months

The CML says if confidence in the regulation of solicitors is not restored lenders are likely to scale down their panels.
The regulator was also making waves in the societies sector in March as it beefed up its guidance for mutuals to stop them taking unnecessary risks.

Spring arrives but fresh political ideas remain thin on the ground
Spring arrives but fresh political ideas remain thin on the ground

The FSA introduced additional guidance to ensure that any sociSpring arrives but fresh political ideas remain thin on the groundety diversifying from its traditional model has the risk man- agement systems and skills necessary to operate safely.

In its guidance the FSA says that societies are free to select any business model and offer any products they want as long as they implement appropriate risk management processes.

It suggests that if societies want to offer high LTV products they should use mortgage indemnity guarantees. And where they do not have the risk capabilities to self-insure they should not offer risky deals.

Adrian Coles, director-general of the Building Societies Association, says the body is concerned the guidance may disadvantage societies by imposing a tougher regime on them than banks.

He says the new rules are premature and do not take account of research undertaken for the Mortgage Market Review.

The FSA says it might be possible for societies to reclassify historic sub-prime lending as prime once loans have been performing for five years.

The end of the month brought two newsworthy events – the publication of the Retail Distribution Review and the Budget, the former containing slightly more content than the latter.

Charging changes
The RDR states that the FSA will ban payments from providers to platforms and stop rebates to consumers amid a raft of measures seeking to unbundle platform charges. It also states that providers will not be required to monitor adviser charging.

Aside from the Stamp Duty announcement there was little to write home about in the Budget.

RBS and Lloyds group have committed to provide £94bn in business loans, the Inheritance Tax threshold is frozen for four years, the Office of Fair Trading is to review barriers to entry in retail banking and secured loans will come within the FSA’s remit.

So after a blatant piece of electioneering with a Budget so low on substance it could have been delivered in a five-minute briefing Labour now has to wait and see what the voters say. But one thing’s for sure – the lame attempt at helping first-time buyers is unlikely to be a deal-sealer.


Election time

So the parties are ready, the date is set and they’re off!  The election will now take centre stage for the next month and there will be plenty of column inches filled with the pros and cons of each of the main contenders as they do battle to outwit their opposite number. 

John Murray: Consulting Editor, Lending Strategy

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