Much has been made of the shock interest rate cut by the MPC and whether lenders’ subsequently acted with propriety towards borrowers. But what was perhaps more surprising was that only two of the nine members voted to hold rates and that, given Sir Edward George’s previous statements, the governor voted alongside the majority.
This has led to much soul searching from lenders as they debate how to balance the needs of their borrowers against their savers, and just how low they can drop their SVRs before profit margins dissolve.
This last issue has affected the centralised lenders just as much as those on the high street, with most deciding against passing on the full cut, and looking with renewed concern at the prospect of a drawn-out conflict in the Gulf which could see rates, and therefore margins, fall further.
But what has been more noticeable is the narrowing of the gap between the rates in the prime and the sub-prime markets which have been drifting ever closer, and have now almost met. Mortgage Solutions’ sub-prime survey (see page 29) shows just how close the rates have become.
In addition two former stalwart non-conforming lenders, Future Mortgages and Southern Pacific Mortgage Limited (SPML) have announced that they are to enter the prime market. It was only a year ago that many high-street brands were looking to enter the sub-prime market, albeit usually by purchasing an existing lender as a going concern, and now it looks as if the market is going back the other way.
It will be interesting to see if this becomes the common trend this year, at least among those sub-prime lenders with substantial financial backing from large global corporations. And especially when the accepted wisdom is that the margins in the prime market are small and rely on huge volumes to make them profitable.
On another note, Mortgage Solutions has launched its fortnightly, electronic bulletin to great acclaim. The bulletin contains up to the minute news and views from the key players within the industry, as well as the key events for your diary. To subscribe, visit: www.mortgagemag.co.uk
Ben Marquand, editor