The recent Crosby Review (mortgagesolutions-online.com 29/07/2008), which published the interim findings of former chief executive of Halifax Bank of Scotland Sir James Crosby’s exploration into the mortgage finance markets, served as a formal recognition of three things we already knew: mortgage funding is withering, the industry is struggling, and something needs to be done about it.
The first part of this ‘revelation’ can be easily quantified by some stark industry figures. For example, the latest figures from the Bank of England (BoE) report that the increase in total net lending to individuals in June (£4bn) was below the increase in May and also the previous six-month average. On top of this, the 12-month growth rate slowed further to 7.4%, according to the BoE. The Council of Mortgage Lenders (CML) also published figures recently showing gross mortgage lending to be down in June by a substantial 11% compared with the same month last year.
One inevitable consequence of the lending slowdown is casualties within the intermediary market – something that Crosby also acknowledges in his interim findings. But I agree with Ray Boulger at John Charcol, who said you do not need a government report to realise that a declining market will result in job losses.
However, the combination of fewer brokers and a market in which funds are restricted and lending criteria less and less accommodating is a worry for consumer and industry alike. Chris Cummings, director general of the Association of Mortgage Intermediaries (AMI), said that the anticipated consolidation in the market will see product innovation stunted, and admitted that this means a bad situation could get worse for borrowers.
But paradoxically, while the number of brokers may diminish, the path to their door has never been more trodden. Peter O’Donovan at Bestinvest said broker firms are seeing an influx of enquiries – though admittedly, not all of them are converted into sales: “It shows that people are taking more time to care to navigate the market and, while brokers may not be able to help some of them now, they should store up clients for the future.”
The percentage of first-time buyers who used a broker last year is also up on the year before, according to anecdotal evidence from leading brokers. This is in spite of lenders’ best attempts to provide cheaper mortgage products direct through dual pricing. This is tantamount to an admission by banks and building societies of how much they need the intermediary market – even in offering much cheaper mortgage products, they did not attract borrowers to the branches.
But no intermediary would suggest we are out of the woods yet. In fact, many believe we have not yet hit the thick of it. Crosby estimates the drought in mortgage funding will continue for at least another two years but adds that, without government intervention, a recovery could take much longer than this. Michael Coogan, director general of the CML, echoed the thoughts of the industry when he said: “Without action, the situation in the housing market will be worse than it needs to be. The housing correction will overshoot, and the knock-on effects on the wider economy will be significant.”
This intervention, according to Crosby, could represent a package of a further £40bn in Government bonds that could be swapped for new mortgages to boost lender confidence and free up lending. This way forward is not without its controversy but is widely acknowledged as one way out of the situation we find ourselves in.
Surprisingly, Crosby also states that market problems are compounded by a lack of industry consensus. Yet I think responses from various camps during the past week have been pretty consistent. What really unites the industry is a call for speedy ‘on-the-ground’ action from the Government.
Crosby’s final report will be published in the autumn and presented to Alastair Darling for consideration ahead of the Pre-Budget Report. But while the Chancellor scratches his head, the clock is ticking. We are fast approaching the first anniversary of the closure of the wholesale money markets, and with no new liquidity, prices will rise. Consumer detriment is unavoidable. The brokers who survive will be invaluable in helping consumers to get the right deal. n
