The mortgage market for 2011 is expected to achieve a similar performance to 2010, with gross lending forecast to be in the region of £140bn.
The key difference for this year is that the focus of the market is likely to shift towards remortgages and, in particular, fixed rate products as we move closer to the inevitable base rate rise. This is particularly pertinent given the latest inflation figures.
Meanwhile, buy-to-let lending is also expected to strengthen due to the strong rental market and increased competition from providers.
When it comes to remortgaging, we expect to see competitively priced remortgage fixed rate products emerging across the first half of this year, which will start to tempt existing borrowers off their respective standard variable rate mortgages.
With continued uncertainty over house prices and other economic issues, such as unemployment and inflation, now may be the best time for advisers to start working through that long list of clients who have been waiting for the right time to remortgage.
There are already signs that lenders are increasing their fixed rates in response to higher swap rates and in anticipation of a base rate rise.
As part of this remortgage review process, advisers should consider the merits of products, such as offset mortgages, which have many advantages over standard mortgage products.
Defaqto’s analysis shows that the number of offset mortgage products has increased from 81 in January 2009 to 229 now, with 27 providers offering new offset mortgages.
Advisers should see this as an opportunity to help their borrowers make their financial circumstances work to their advantage. In particular, offset deals are beneficial to higher rate taxpayers and borrowers with savings that are receiving very low interest rate returns.
Additionally, borrowers who maintain a current account in credit, but do not receive any interest in return, could benefit and help to repay their mortgage quicker.
As part of their fact finding process, advisers should look beyond the initial product pricing and focus on the features that each product has to offer. These recommendations can be backed up by referencing Defaqto’s Star Ratings for offset mortgages which provide an independent assessment of all the products in this market.
The house purchase market is likely to remain subdued with first-time buyers unable to access the available mortgage funding without a sizeable deposit.
There appears to be little support for first-time buyers from providers who are more focused on operating in the low risk, low LTV market. This is driving purchasers towards renting, which is causing upward pressure on rental prices and this is fuelling the demand for buy-to-let landlords to add properties to their portfolios.
Buy-to-let mortgages are expected to become regulated this year, but this should not be a cause for concern for advisers.
With expected growth in business volumes and increased competition from providers returning to the buy-to-let market, advisers are well placed to take full advantage of this opportunity, particularly given that nearly all buy-to-let business is transacted via the intermediary channel.
Buy to let continues its revival. Defaqto has found there are now 11 more buy-to-let providers and 125 additional products available in the market now compared to November 2008, with the average rate having reduced from 6.97% to 5.17%.
The FSA’s Mortgage Market Review has been the subject of much discussion over the last few months and with key policy changes still to be determined it appears that more consultation will occur this year before decisions are reached. Ultimately, this is good news for mortgage brokers.
The key issues are new affordability guidelines, income verification for all applicants, regulation of buy-to-let mortgages and restricting high risk mortgages.
One key change that is expected to be made policy is the requirement for advisers to state whether they provide advice and recommend on whole of market mortgage products including those sold only via the direct channel.
Clearly, advisers who recommend a product that can only be arranged directly with the lender will want to be remunerated for their work as they will not receive a procuration fee.
As such, advisers should consider charging a nominal fee for their advice, confident in the knowledge that they can recommend the cheapest, most suitable product for a borrower.
