Speaking at the Mortgage Advice Bureau conference, Miguel Sard, managing director of homebuying and ownership at Natwest, acknowledged that there was a “cashflow issue” for brokers as there were fewer new business cases and more product transfers, which pay a lower procuration fee.
He continued: “I get that, and I will ask you to believe when I say we, as lenders, are having the lowest margins we have had for a long period and probably next year is going to be more difficult for lenders. This is because interest rates will go down and when rates go down that is not great for our balance sheets and our income.”
“So, let’s agree that I understand your issue if you understand mine.”
Sard noted that it was challenging for lenders to control their top line but what they could manage was their processes, and that is where the focus should be.
“If we start charging more fees into the product transfers someone needs to pay that, and I don’t believe that is the route that we need to go down. The question is can we do the product transfers in a different way so that instead of spending three hours on it you spend 10 minutes.”
He continued that lenders and brokers need to use technology to align the product transfer journey to make it easier for customers and to improve efficiency for the broker so that it takes less time.
A survey of MAB brokers showed that 50 per cent were taking one to three hours per product transfer application.
“We need to find a way to make the journey much easier for you guys, because all of us we are making great journeys to make things much easier. That’s what we need to work on,” Sard said.
Sidney Wager, mortgage intermediary partnerships director at Barclays, continued that he understood that in the current environment product transfers would take longer but agreed with Sard that the stretch on margins made harmonisation of procuration fees more challenging.
He explained: “I think the reality is it’s going to be a challenge as the margins that we are all seeing will be stressed and they’re going to be stretched.
“I think the really key thing to remember is that if we were to harmonise up…those costs will need to be passed on to someone. They’re not going to be consumed necessarily within the businesses.”
Wager said that if the cost started to be passed on to the consumer in an environment where some were already struggling with the cost of living crisis, the interest rate shock and mortgage rates nearly doubling then that could “cause the market and whole industry a big challenge”.
Biggest challenge will be swaps
Wager said that the “biggest underlying challenge will be swaps and the geopolitical impacts on those swaps”.
“What we have seen is incredible volatility one way or the other, most of which we can never determine. For instance, deflation in China led to a massive movement on swaps and we can’t determine why,” he explained.
Wager said that there was opportunity for trackers, especially early repayment charge-free trackers, and people were starting to see people using pent-up savings built up during the pandemic but the impact on savings balances going forwards would be “challenged”.
“I think one of the trends that we need to consider as lenders, is product simplification, we need to make them more simple, and we probably need to look more innovatively at the way we do stuff,” he noted.
He pointed to intergenerational lending as an example, whether there were other ways to tap into the equity of empty nesters and make such family support products more accessible.
Sard said that he thought lenders had been “quite creative trying to find sectors and trying to grow” but there was an issue with affordability driven by cost of living and interest rate rises.
He explained that with cost of living pressures, borrowers had less disposable income and the interest rate rises impacted lenders’ stress tests and how much they could lend.
Sard said that once interest rates start to go down, which is expected at the end of next year or the beginning of 2025, then stress rates would start to go down and then lenders can start to lend more.
Housing sector does not need ‘sugar high policy’
David Fenton, chief economist at TSB, said that looking ahead to the General Election next year that the “last thing we need is a sugar high policy before that election”.
He continued: “That’s just bribing voters with their own money. So, within reason, if this [proposed housing policy] is a targeted response to an established problem, then I’m all in favour of it.”
Fenton noted that this could be stamp duty, supply of homes and regulation, however, on the supply issue this has been a thorn in the side of both parties for a long time.
Wager said that stamp duty cuts felt “inflationary” which counteracted the government’s plan and “number one priority”.
“There isn’t a great deal of money, so I’m not sure that there are many options. You do start to think about; is it schemes of one description or another? Or is looking at potentially transitioning to green, something that’s actually really important, and make that make sense to the wider population? Or is it something put you on hold?” he added.
Wager said that “affordable housing is actually what we need”, so a policy that supports that or looks at it in a different way would be valuable.
However, he said that the timing of the General Election was still uncertain with some suggesting that it could be pushed back to January 2025, putting a lot of housing policy up in the air.
‘The market is huge, and customers need your support across the board’
Sard said that going into 2024, he would give brokers a message of “optimism and realism”.
He noted that while the market was tough, hypothetically if there was £200bn of gross lending next year, then it would be a £400bn market next year, which is probably as much as Germany, France, Spain and Italy combined.
“The market is huge, and customers need your support across the board. There’s a lot of things that you have to do for your customers, and they are going to be there with new business or product transfers,” Sard added.
Wager said that looking ahead for next year brokers should be “obsessive about customers, because they need us.
“They need this whole industry more than they’ve ever needed it before, and I think whilst there is some downside, now’s the time to think about how you make yourself fixed and futureproof because we will come out of this,” he added.