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Green shoots

by: Phil Whitehouse
  • 12/07/2010
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Phil Whitehouse looks at how product innovation is helping to pull the market out of its dormant phase and into the light

As we tiptoe into the second half of 2010, it seems that many in the industry are looking forward to the summer break with renewed confidence, despite the underlying economic worries. The political arena has unsurprisingly dominated the financial services environment in recent months and the fallout from the election will inevitably create some further obstacles. But thankfully, the reaction from many quarters to the recent emergency budget, on the whole, has been ‘could have been worse’.

Looking back to the start of the year, there was predictably much scrutiny of the intermediary distribution channel. Of course some firms and sectors have suffered far more than others. We continue to hear of high profile networks struggling to cope with the financial stresses and strains and consolidation has become commonplace. Indeed, all areas of distribution have had to change. Mortgage clubs are no longer entirely relevant to the modern mark, and intermediaries need to look at other products and services to remain in business and prosper. But it is important to remember the core business which fundamentally remains the writing of mortgage business. This has obviously been a struggle with product numbers dwindling across various sectors. Last week, Mortgage Brain suggested there were signs that things were looking up as it announced there were over 6000 mortgage products available, which was the first time this level has been breached since November 2008.

LTVs on the rise

So while these product numbers obviously pale into insignificance when compared to those of 2007, it is important that we all remain fully aware of how different the market is compared to those heady precredit crunch days. The first half of 2010 has certainly started to see some relaxation in the LTV levels of some lenders, with many gently reintroducing 80%, 85% and even 90% mortgage deals, which is a welcome sight for brokers and obviously first-time borrowers. Choice is vital in any healthy market, and while not setting any targets – as it is important not to revisit some of the mistakes of the past – we can expect this upward trend in the overall number of products to continue.

Hopefully, this will also be reflected in the number of deals which intermediaries will have access to as lenders, especially as new entrants or those re-entering the market appear to realise the value of brokers and their distribution channels. One thing we can draw from TrigoldCrystal’s May Product Index is that the rise in mortgage product numbers was exclusive to the intermediary sector. The average number of products available in April was 5,125 which rose to 5,577 in May, a rise of 9% overall. TrigoldCrystal says the rise was entirely down to a 14% rise in intermediary products which went from 3162 to 3614, a total rise of 452 products. It also reported that the number of sources conducted by TrigoldCrystal Prospector users, accounting for over 70% of the market, conducted an extra 68,000 searches in May compared to April.

According to Moneyfacts, May also saw mortgage rates hit a seven-year low as the average rate on two-year fixed rate mortgages fell to 4.52%, its lowest level since September 2003, when the average stood at 4.51%.

Moneyfacts reports that fixed mortgage rates have been falling since September 2009 as lenders try to tempt borrowers off record low standard variable rates (SVR). The statistics provider rightly claims that lenders are trying to persuade borrowers onto new fixed-rate deals by making significant cuts. It adds that a fifth of lenders have moved to increase their SVR since the Bank rate was kept on hold after finding its previous level unsustainable.

Other data from the CML showed that in terms of product choice, only 46% of new loans were fixed-rate deals back in March. This figure has remained broadly unchanged for the first three months of 2010, but is down from 60% in the last quarter of 2009, from a peak of 80% last July. Tracker rates accounted for 37% of new mortgage lending, gain broadly unchanged, but upfrom last July’s low of 12%.

Meanwhile, away from the mainstream, the specialist markets are still experiencing funding problems. But there are some heartening, if not totally overwhelming, signs that this area of the market is starting to find its feet. It is certainly premature to suggest that brokers are flooded with business. Product choice has only increased marginally but let’s be thankful for a few positive moves after so much negativity.

Having said this, the argument remains that until a few more specialist lenders manage to release additional and innovative products into the non-prime lending areas it is doubtful that we will see any major effect on the intermediary market as a whole. This remains a waiting game in terms of funding.

There is no requirement to go down the line of anywhere near the adverse levels of old but surely there has to be some room for manoeuvre in the near prime corridor provided products have common sense underwriting at their core. So much so that the words ‘complex prime’ appear to have become synonymous with the current mortgage market. This phrase has become commonplace as the industry strives to find more opportunities to help those non-standard borrowers possessing a good credit rating who can prove their ability to afford the mortgage beyond any reasonable doubt.

There is no doubt that good quality business is still being declined by some lender’s automated underwriting systems. So it was with some degree of renewed hope that specialist lender Kensington launched a new range with lower rates and higher LTVs in March, albeit with prime deals. The lender has certainly been far more prominent in 2010 than of late, and in May it announced plans to expand its range again with a new suite of buy-to-let products designed for existing landlords to help them expand their portfolio.

Property investment

There has also been some further evidence of renewed confidence in the buy-to-let intermediary market with the entrance of Aldermore and Precise Mortgages. Aldermore has just announced the completion of its first mortgage. It did so just eight days after the application was submitted. The deal was a three-year fixed rate remortgage on a buy-to-let application, which again signifies positive news.

The specialist markets appear to be turning a small corner but we have to remember that lenders, whether operating in the mainstream or specialist market, have to keep strict controls over their lending volumes and the reality is that many lenders of all sizes are still feeling the pinch in some form. Most have not, and still do not, have access to funds in order to lend at the levels the industry came to expect in previous years.

In terms of exclusive products, there are some creeping back into the market as lenders continually review their distribution policies but these are still relatively few and far between. This is certainly going to be a slow process and we cannot expect to return to the unprecedented levels of a few years ago any time soon.

I think it is fair to say we all hope that the second half of 2010 will see the number of available products rise across all sectors especially within the intermediary market as the dual pricing band becomes slimmer. The TrigoldCrystal findings show evidence of this, so let’s hope this trend continues; the importance of brokers is increasingly recognised and the sector is invigorated now and for the foreseeable future.

Phil Whitehouse is head of The Mortgage Alliance

 

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