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Innovation must be unleashed

by: Alison Beech
  • 07/12/2010
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Innovation must be unleashed
The last time the bottom fell out of the property market, I was living in South London having moved there from Lancashire. The property I’d bought five years earlier had tripled in value and I ploughed the profit into a flat at the maximum mortgage I could afford.

Just three years later, I was made redundant and, as a single parent with a new baby, I had to move home to find work. Every scrap of equity had gone and I considered myself relatively lucky not to be in negative equity. Seeing no way out of the problem, many homeowners with higher LTVs were handing keys back to lenders.

It never occurred to me though, despite my fingers being somewhat charred, to exit the housing market. Although my new job meant that I had no problem affording a mortgage, I was now faced with the different issue of having no equity at all.

Luckily, I saw some PR for a well-known London broker offering 100% mortgages – just what I needed.

The first 75% tranche was at market rate, with the remaining 25% offered by a life insurance company at a higher but affordable rate. I also had to take out two new endowment policies to add to the two I had already.

It seemed like a good deal at the time and, whether or not this was the case, the point is that the market had found a solution to the issue that many were facing – lack of equity preventing a move or a purchase.

Fast forward 18 years and the challenges facing buyers seem very similar, albeit for a different reason.

The responses appear to have changed, however. The difference seems attributable to the lack of liquidity and funding that lenders are currently suffering.

But is it?

There is evidence of lender creativity, but on a very small scale and largely limited to individual arrangements with borrowers rather than genuine product innovation.

In a market where lenders don’t have to compete for customers’ loyalty, it seems there is a general reluctance to create new products. Is it only competition that drives innovation?

Inventors are often motivated to solve a problem for the sake of solving the problem. Product providers only seem driven to solve a problem if it will increase their market share – not something that’s important right now.

Is nothing happening because there is nothing new under the sun or because the market doesn’t need or want to give attention to innovation?

If the UK market falls asleep on the job, there’s a risk that new entrants will lead the change.

Whilst a new entrant seems an unlikely prospect today, the current hiatus won’t last forever. Prudential necessity and funding constraints notwithstanding, let’s hope that providers can start to consider how to address the needs of their customers and unleash some of the pent up demand.

Alison Beech is business relationship director at Spicerhaart

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