Ben Marquand: What did you think of the recent Budget in terms of its impact, in particular the announcement that Professor David Miles will be reviewing the UK mortgage market?
Sue Anderson: The study into the long-term fixed rate mortgages is of major interest of course, but we must be careful not to throw the baby out with the bath water. While long-term fixed rates would bring welcome certainty for borrowers, they would need to incorporate the flexibility and value that UK consumers have become accustomed to.
Steve Sandiford: While long-term rates might seem attractive, the level of advice given to consumers is crucial, and we must not get carried away. We need long-term stability for the mortgage market, and the economy at the moment is very much a plus point for long-term rates. However, we need to ensure that people are given the right product to suit their individual needs, and that will be down to the level of advice people are given.
Sue Anderson: You have to try to understand why other countries have more long-term products ‘ it may be because of a lack of borrower choice. Funding structures are also different in other countries.
Rob Clifford: Funding structures are crucial ‘ choice exists today because we have achieved sensible interest rates. We are ‘best of breed’ in the UK and there is a risk of stifling that.
Jonathan Cornell: The Chancellor’s reasons are less altruistic. He wants to minimise volatility in the housing market. I used to work for a high street bank that, only a few years ago, was offering a 25-year fixed rate mortgage at 9.99%. People were not getting a good deal when rates dropped considerably. Plus the redemption fees were set quite high and borrowers ended up trapped as the redemption fees were more than the balance of the mortgage.
Ben Marquand: What do you perceive to be the greatest risk to borrowers in terms of sustainable homeownership, both now and in the future?
Jonathan Cornell: The purchase price relative to salaries. Some lenders are piling on multiples in an attempt to get people on the bottom rung of the market, but this only makes sense in the present low interest rate market.
Sue Anderson: This is part of the Treasury’s argument in favour of fixed rates; if there is a level of predictability it is a lot easier to service these large multiples. But most payment difficulties occur because of a change in the borrower’s circumstances, not because of the initial lending criteria.
Andrew Sinclair: In Cornwall prices are the third highest in the country ‘ 7% of homes are bought by people as a second home ‘ yet the salaries are on average 70% of those in the South East. There is a real affordability issue in some areas of the country.
Ben Marquand: What would be the ideal borrower uptake of MPPI, bearing in mind that that the Association of British Insurers and the Council of Mortgage Lenders have now admitted that a take-up of 55% is unrealistic?
Steve Devine: MPPI is not a panacea for all problems, as divorce and separation can also lead to mortgage arrears. Affordability of MPPI is a bonus as high street lenders sell it at a flat rate. Whether you are 24 or 54, you can even claim, get back to work and re-qualify and claim again.
Sue Anderson: Getting people to take out any kind of insurance is a problem. To move from the 55% target for MPPI you have to look holistically. The majority of people who need this insurance do not have it and those who have it are usually much better placed in terms of their risk profile.
Steve Devine: Figures show that accident and sickness account for 54% of MPPI claims and unemployment 46%. As far as I know these ratios have always been stable.
Jonathan Cornell: But a lot of unemployment comes about as a result of voluntary redundancy, which kills a policyholder’s ability to claim on an MPPI policy. It is a problem for many people to work out whether it is better to take voluntary redundancy or a lesser amount when it becomes compulsory.
Rob Clifford: What concerns me is in the recent past, certain policies are in danger of getting into disrepute due to brokers selling protection products inappropriately such as five-year single premiums. I have not heard a single good argument for selling single premium policies and yet it still goes on in considerable numbers. This causes a lack of portability, bringing MPPI into disrepute.
Steve Devine: MPPI is the sort of product we as brokers have shied away from. 80% is sold by lenders and just 14% by intermediaries.
Steve Sandiford: Why are brokers not taking it up?
Steve Devine: They are used to selling other products.
Ray McHugh: Our rate of sales for MPPI is 30%. We do it as a discipline to protect ourselves from future compliance issues and require a reason from the client as to why they have not taken it up. However I do agree that IP is a better product.
Andy Wilgoss: I think brokers are to blame for a lot of mortgage protection going unsold, brokers should be selling much more than 14% considering the percentage of mortgages arranged by brokers. Hopefully this will change once regulation comes in but I think there is a need for these products to be included on the ‘reasons why’ documents, with reasons why given if it is not bought.
Ben Marquand: In the Budget the Chancellor mentioned that one of the key drivers of housing demand was the shortage of supply. The Government is obviously aware there is a problem, but do you think it will be able to increase the amount of affordable housing, perhaps through more shared homeownership (SHO) schemes?
Andrew Sinclair: In Cornwall we have a terrible problem with affordable housing. Many people retire to Cornwall, many have second homes. We are working closely with housing associations and local MPs but it is a hard nut to crack. It is hard to find funding because few lenders are prepared to lend, and there are still some who know little about it.
Ben Marquand: Why do lenders shy away from shared ownership properties?
Steve Sandiford: I cannot profess to speak for all lenders, but the complexity involved in this type of mortgage is a sticking point for lenders. There is a complex plethora of schemes available and their structure makes each one individual. Lenders on the other hand are attempting to streamline their processes. However I do think lenders are beginning to realise their responsibilities to the market as a whole, rather than just creaming off the top of the market.
Sue Anderson: I would not underestimate the complexity of shared homeownership. There is a plethora of schemes. Baroness Dean has set up a homeownership taskforce and the CML is represented on that taskforce to streamline the number of schemes.
Steve Sandiford: Sue is right to underscore the complexity. It runs counter to what lenders try to do ‘ there is a fear of the long-term.
Ben Marquand: Will brokers be able to get more involved, and should they? Is it something that they should be advising on and are there any benefits for them?
Andy Wilgoss: Any enquiries about shared homeownership are a broker’s nightmare. These products have a certain element of being politically correct. We will not turn cases away but tend to go straight to the high street, as these lenders seem to feel they have a duty to offer shared homeownership products, while the rest of the market ignores them. The problem for us is the complexity involved, for example how is affordability calculated when there is also an element of rent that can change?
Andrew Sinclair: It is the same argument for the intermediary as the lender ‘ dissemination of information
Andy Wilgoss: Perhaps we need a CAT standard approach.
Ben Marquand: What about flexible mortgages? Do they mean that fewer borrowers will need to take out mortgage protection as they can build up a cushion, especially at the moment when interest rates and unemployment are so low?
Steve Sandiford: Overpay is great, but how many overpay that much so they can opt for a payment holiday? In practice most of the overpayment is at a low level, £50 per month or so. It would take two or three years to get far enough ahead to take a payment holiday. While the product is good, it is not a panacea.
Steve Devine: The products have not been road tested in adverse economic conditions. Most people with this type of deal are just using the overpay feature; it is why people take it out, and how it is advertised. Few people have found themselves in a position of needing to use the payment holiday feature.
Ben Marquand: How realistic is the concept of sustainable homeownership?
Steve Devine: I would like to see more common sense and a more joined up approach, with public and private organisations working together. This has already started with the SHO initiative. The next stage is to build up more consumer awareness so that people can make responsible decisions based on information that is readily available.
Sue Anderson: It depends, if you are talking about 100% of people staying in their homes 100% of the time, no it is not realistic. But I do think we can improve from where we are now by continuing to tell borrowers what is available.
Ray McHugh: Our biggest concern is unemployment. We have not touched on IP but I think insurance companies could help. Insurance companies will counter claim the cost of providing the cover. I think they could actually help brokers to service an important need and be more sympathetic.
Rob Clifford: I do not anticipate much change as far as sustainability is concerned; I think it will be more of an ebb and flow.
Steve Sandiford: For me sustainability is about educating politicians, lenders and consumers about what is realistic. I agree that having 100% of people in their homes 100% of the time is impossible. Are we going to give people the flexibility of renting? We are in a sustainable environment but we need to educate people.
Jonathan Cornell: It is due to economic circumstances. If interest rates rocket how many people will be able to hold on to their houses? It is sustainable but only with a benign economy.
Steve Hoare: I agree but first time-buyers must get onto the ladder somehow. Education is a huge issue. If only 14% of MPPI is sold through intermediaries it is a very low rate. They should be selling more of it ‘ it should be an automatic part of the sale. There are a lot of challenges going forward and things we need to be looking at.
Andrew Sinclair: It is almost cultural in the UK that it is a right to own a property. We must remember that homeownership in the UK is very high, but we should not forget the rental sector either. There will always be a need for rental properties. 100% ownership is not necessarily achievable.
