The mortgage market has once again taken centre stage on the political landscape in December, with Government-commissioned reports and the Chancellor’s pre-budget statement hitting the headlines and being interpreted in the media with varying degrees of accuracy.
No one would deny that it is vital to raise the profile of the industry. A greater awareness among borrowers of mortgages and housing economics is essential to the future health of the economy as a whole, and should promote quality advice. However, the concern is always that while shock headlines do help to sell papers they do not reflect the true situation and there is always the danger that people will start to believe there is no smoke without fire. The British mentality has long been to build something up before knocking it down. We have seen it all year with the buy-to-let market, and then more recently with self-certification.
Now we have the first part of the Miles review, examining the viability of moving towards longer-term fixed rates. However, some of his remarks have been picked up by the media and turned into sensational headlines about how lenders are deliberately ripping off borrowers by using customers on the back book to subsidise those on headline rates. The real story is the inertia shown by the British public to take up the best rates on offer, and the sterling work being done by intermediaries who source around 60% of all mortgages arranged in the UK.
Then there is the issue of long-term fixed rates. No one would deny that long-term fixed rates may well be the best deal for some borrowers, but not everyone is comfortable with committing to such long-term deals, and until prices become comparable with short-term discounts then they will remain unpopular. This is what the industry has been saying all along. Consumers will make the decision according to their financial needs at the time; the lure of a lower rate is something that is endemic in the British psyche.
We await Miles’ recommendations with interest, as the availability of competitive long-term rates is dependent on the SWAP rates while building societies are hamstrung by wholesale funding and securitisation issues. Whatever he suggests is unlikely not to have been tried before, and lenders who try to equalise the pricing gap lose market share. Nationwide famously tried it and was lauded for doing so, but was eventually forced to backtrack.
Let us hope that next year the headlines will be more positive, and that whatever Miles suggests is innovative and that the market can continue to move forwards.
Ben Marquand, editor