Last week, I asked what the industry should do about the news that HSBC offered to match borrowers’ current fixed rate deals – but only on a direct to borrower basis. In what was another blow to beleaguered centralised lenders and all those who have a partial dependency on the packaging and sale of mortgage loans to raise funds (just about everyone else), HSBC boasted that it could steal market share because its healthy deposits gives it the liquidity that others can only dream of.
Snapping into action at the beginning of the week, the Government called a meeting with the largest financial institutions in the UK to discuss how it could help to increase liquidity in the market. It emerged that the Bank of England and the Treasury are already working on a plan in which Government bonds can be exchanged for lenders’ mortgage-backed securities. If the scheme unfolds as initial reports suggest, the Bank of England will loosen its lending criteria and accept lower quality assets, such as 70% LTV from lenders in exchange for cash, rather than the 50% limit it has at the moment.
At last, some involvement from the Government. While we began pondering how this nationalising of risk but not profit might be enforced to protect the Government (and more importantly, taxpayers), HBOS made its response to the HSBC move by cutting procuration fees across a number of its brands. This is not quite the move that brokers were hoping for, and worryingly, where HBOS leads, other lenders are bound to follow. It cannot be long before this is replicated across the industry.
Procuration fees rose as the market grew and competition for borrowers increased, but in this market, lenders need to cut costs and will not be sentimental about doing so. We can expect more of this in the coming weeks, and fees will not recover, if at all, until lenders feel more confident with market conditions.
This leaves brokers in a hole that will push the industry towards fee charging. If fees are cut, we need guarantees that brokers will be allowed to act on behalf of clients for all products – especially the ones available through branches. If not, then this hole will become a deep pit. n
