The credit crunch has led to a number of mergers and acquisitions among financial institutions and I have no doubt we will see yet more in the coming months.
But consolidation will not simply be restricted to lenders – it will also encompass networks, clubs, insurers and firms of financial advisers. Consolidation results in greater financial strength and more marketing clout, and in a tough market, these are critically important attributes. To date, consolidation has been forced on individual organisations by circumstance. They have had no option. But for intermediaries, mergers provide both benefits and drawbacks. They ensure the continuity and stability of product providers, and hopefully, competitively priced products from institutions, which are willing to lend again. The drawback is that fewer institutions means less choice, both for brokers and borrowers.
The credit crunch will almost inevitably lead to a resurrection of tried and tested underwriting techniques. Automated online underwriting and instant offers at point of sale will take a back seat, as lenders ensure mortgage applications are thoroughly assessed and vetted by experienced underwriters. The days of brokers being order takers has come to an end and intermediaries will need to work more closely with lenders to ensure their clients’ mortgage applications move successfully through to completion.
Mortgage products will also evolve in response to the credit crunch. It seems unlikely, for example, that we will see a re-emergence of sub-prime lending in the same way that it was undertaken prior to 2007. However, products will be developed to cater for the needs of borrowers with adverse credit records, but with the emphasis being placed squarely on rehabilitation and cleaning-up borrowers credit records, rather than simply pricing for risk. For borrowers who have hit hard times but are committed to getting their finances back in order, there will be options. For those who are habitual debtors and were happy in the past to keep remortgaging themselves out of trouble, the future looks bleak.
Likewise, I cannot see self-cert lending surviving unscathed in the future. There will be an increasing reluctance among lenders to let borrowers certify their incomes, without verifying the information being provided. However, that does not mean that the door will be shut in the faces of the self-employed. Lenders will provide products designed to take into account their differing financial circumstances, such as the fact that many business people pay themselves predominantly via dividends rather than salaries, but there will be a need for borrowers to demonstrate that they can afford the financial commitment they are taking on board.
There will be other good news stories as well. Equity release is continuing to go from strength to strength, and as the elderly population continues to expand, a growing number of them will inevitably turn to equity locked up in their properties to help finance their retirement.
The buy-to-let market also has a solid future. The credit crunch may have created problems for speculative investors, but long-term professional investors remain committed to the market. Demand is increasing for rental properties, rents are rising and the private rented sector is now a core component of UK housing supply.
The first-time buyer market will also present opportunities. First-time buyers are the essential life blood of the housing and mortgage markets and they remain a priority for the future. The issue for first-time buyers is meeting the costs associated with buying property. Lenders will have to rethink the hefty upfront fees that borrowers currently have to meet.
Regulation is inevitably going to become more of a burden as well. Government and consumer groups are going to be pushing hard for the FSA to ensure there is no repeat of past errors, and it will oblige.
Has the market bottomed out and are we now on the road to recovery? I certainly hope so, but whatever stage the crisis is at, now is the time to start thinking about the future and how your business can capitalise on the opportunities that will present themselves. n
Paul Field is divisional director (residential lending) for West Bromwich Building Society
