There are many inconsistent and ambiguous meanings attached to the word “risk” and ones that can certainly raise larger concerns than others.
Perhaps one of the least dramatic definitions is that “risks are future problems that can be avoided or mitigated, rather than current ones that must be immediately addressed”.
Risk in the mortgage market has always been around, but as we are all aware, attitudes to this important word, however it is defined, have differed and some even spiralled out of control entirely.
In the modern mortgage market, risk is, quite rightly, continually under the microscope and this has worked to form even more distinct lending boundaries.
These constraints have been evident for some time, but in order to move forward, lenders have to look at ways to try and loosen some of these shackles, albeit in a wholly responsible manner.
The balancing act for lenders is no secret.
Lending tranches have to be managed properly through every single product launch, rate reduction or increase. Products have to be priced correctly, serviced correctly and distributed correctly.
Of course, there are times when things do not go 100% according to plan, but that is inevitable in any business whatever the industry.
As a lender, Woolwich has to remain competitive – but sometimes not too competitive – and innovative – but remain within the aforementioned boundaries. All this, while ensuring that we look after our core customers, whether consumers or intermediaries.
All in all, no lending decision is taken lightly by any provider. This is not to say that historically there was a gung ho attitude to lending, but due diligence are two words that have to be firmly satisfied at all times.
The lending arena remains a challenge, as does borrowing, but the fact is that the spotlight continues to shine brightly on the mortgage market and this will not let up.
The main barriers remaining for both first-time buyers and remortgagers are the size of deposit and loan-to-value percentages, but this is improving.
The Hanley Economic Building Society has recently widened the distribution of its 90% and 95% LTV mortgages to its six intermediary partners, which is a small but positive step.
Here at Woolwich, we have just re-entered the 90% LTV sector after much scrutiny and due diligence, and the reaction from the intermediary market to this move has been wholly positive.
There is certainly room for intermediaries to be far more optimistic regarding this important area of the market.
Indeed, this trend looks set to continue with more lenders entering the higher LTV arena, which in turn will help support customers, the economy and therefore business in general.
In addition, it will provide a welcome boost to the house building market; an area that has been in the doldrums over recent years.
The future is looking palpably brighter, despite confidence issues regarding the eurozone.
This is especially apparent in light of recent research from the Intermediary Mortgage Lenders Association (IMLA) that found most intermediaries remain optimistic, with 49% reporting that mortgage market conditions improved during Q3, compared to 14% who thought that conditions had worsened.
While the remaining 37% said that conditions remained unchanged, 34% of all intermediaries believe standard mortgage business levels will improve during the fourth quarter of this year.
It is clear from recent CML statistics that market conditions reflect steady momentum, but certain types of borrowers are still struggling to get on to the property ladder, particularly those at the periphery of the mortgage market.
I can only echo the comments of IMLA executive director Peter Williams when he said: “For those seeking a mortgage, intermediaries remain the best conduit to find the right deal as they have the skills and knowledge to match lenders with borrowers. But our research highlights the continued tough conditions in the market when even they are struggling to secure finance for some customers.”
The pressure being placed on borrowers was underlined by e.surv research showing that the number of approvals for borrowers with a deposit of 25% fell by almost 1,000 in September, while purchase approvals dropped to 17,260 from 18,239 in August. At the peak of the market in Q2 2007, 20% of all deals were in excess of 90%. In Q2 2011, it represented just 2% of all business.
While we should not really compare these markets, the contrasts are marked. Yet, having said all this, LTVs are slowly creeping up in the responsible manner that is needed.
Moneyfacts data in early October suggested that the average two-year fixed rate at 90% LTV had fallen to its lowest rate since January 2008, while the average five-year fixed rate at this tier fell by 1% in the previous six months.
In addition, Mortgage Brain’s October product analysis found that the number of products with a LTV ration of 80% or above has increased by around 30% over the past six months.
A welcome pattern is emerging with higher loan-to-value mortgages at competitive rates coming through into the market via large and smaller lenders. Application fees are also falling to make these deals even more attractive to borrowers.
These factors ensure that increasing numbers of opportunities are unfolding for the intermediary market, as mortgage eligibility levels grow, and intermediaries need to grasp these.
Let us hope the back-end of 2011 and beyond continues to see a swell in innovation and competition to ensure the market keeps moving in the right direction to open even more doors for intermediaries and their clients.
