The lending arena remains a far from simple one. It is one which is constantly evolving and in some ways still trying to find its feet as the post credit crunch ‘hangover’ continues to influence various economic factors.
The balancing act of juggling interest rates, rising household costs, risk, business volumes, swap rates, LTV and affordability remains a difficult task.
This is not to say it is impossible, far from it, and you won’t hear lenders such as Barclays reaching for the violins anytime soon, as there is business to be written.
However, while demand is evident, there are still barriers in place and it is vital that lenders tread carefully to ensure we don’t revisit the mistakes of the past.
Naturally the mortgage market has had its ups and downs in recent years. Intermediaries have suffered and have had to survive on low levels of lending and even some lenders turning their backs on the intermediary market by targeting the consumer directly.
Yet, it seems reasonable to say that the lending arena now appears to have found a more even keel and is showing tentative signs of progression.
The CML has recently increased its gross mortgage lending forecast for 2011 from £135bn to £140bn. It has also predicted gross mortgage lending of £150bn in 2012 and increased its net lending forecast for 2011 from £6bn to £9bn.
These are still modest amounts and ones that will not immediately set the intermediary market on fire, but at least they are heading in the right direction.
The CML believes lenders have made good early progress in repaying the funding advanced through official support schemes and large-scale refinancing of wholesale funding. The availability of credit to support mortgage lending remains constrained, but has eased a little.
Lenders are working hard to try to come up with innovative and competitive solutions. As I mentioned, there are still boundaries to which we must adhere, although we are seeing these boundaries getting slightly broader.
It is positive to see that new lenders appear to be embracing the intermediary market and those that may have been slightly dismissive of it in recent years are realising its true value.
Indeed, figures released from the CML show that brokers accounted for 63% of first-time buyer mortgages, 60% of remortgage loans and 53% of home mover loans in Q1 2011, compared to 63%, 56% and 52% respectively in Q4 2010.
Based on value, remortgaging via intermediaries rose to 63% in Q1 2011 compared to 59% in Q4 2010. Home mover lending remained at 54% and first-time buyer value dropped slightly to 60% compared to 62% in Q4 2010.
The pointers are that this proportion of business will continue to grow with more lenders looking to enter or re-enter the market in coming months. This is especially apparent in the specialist lending arenas.
Another section of the market that has found it tough going in recent times is the one surrounding first-time buyers. This has had a boost recently by the launch of the government’s FirstBuy scheme which will include more than 100 house builders and lenders including Barclays, Halifax, Nationwide and the Melton Mowbray Building Society.
The scheme is aimed at helping first-time buyers get on the housing ladder by providing a 20% equity loan from the government and a house builder, which together with a 5% deposit from the borrower will allow them to take out a 75% LTV mortgage.
Loans will be repaid on resale of the property, with the government’s share available for reinvestment in more affordable housing. The first homes are expected to come on stream in September this year.
As one of the lenders backing this scheme, it is important that this is implemented in the right way.
Specific products will be built by Barclays for borrowers who opt for FirstBuy, which will be tailored to their needs. Applicants must also meet our affordability criteria in assessing their ability to repay the loan over the term of the mortgage and meet all other aspects of our shared equity lending policy.
Whilst this isn’t the answer to all first-time buyer problems, it is a start and I’m sure there are many other initiatives and innovations that lenders are working on to try and help kick-start this sector.
Supply is key to this and it’s clear that, while there is still a huge demand for new housing, house builders need to focus on more than simply the construction and development aspect.
At the moment, the new build market, quite rightly, continues to take tentative steps but developers are working closer with lenders and the CML to understand the needs of potential homeowners and the mortgage market. This is a much needed and welcome transition.
Looking back at general lending conditions, with recent falls in swap rates and the economic turmoil in Greece impacting rates, many lenders are currently passing on these cuts to borrowers by reducing rates on shorter term deals.
The interest rate scenario and speculation will continue in the coming months and lenders will inevitably still try to entice existing mortgage holders into switching their mortgage in readiness for rate rises that are on the horizon.
As such, there are currently some of the most competitive deals available that the market has seen for some time. As such, it’s up to lenders and intermediaries to work closely to ensure that clients are making the most of these deals to help them secure their short and long-term financial well-being.
As ever, the lending arena remains a work in progress and it will continue to investigate and implement ways to help existing and potential borrowers.
While there is no immediate quick fix, let’s hope we have all seen the back of the unparalleled ups and downs of recent years and build on some decent foundations that have been laid in the last 12 months or so.
