Name: Linda Will
Company: In the Loop Mortgages
Clearly 2009 has been a year of consolidation for many lenders. Indeed a number have elected to shrink their balance sheets in a drive to improve their capital position. At the same time, there has been enormous concentration on retail inflows to boost liquidity and meet FSA prudential requirements. All of these actions have been agreed between lender and regulator to strengthen each firm’s financial position at a time of unprecedented stress in the market.
The big challenge that remains is to rebuild margin. That may seem a strange thing to say when Bank base rate is only 0.5% and LIBOR has dropped dramatically, but the fact remains that the drive for retail funds has been achieved at a significant cost. Many tracker mortgages are at all-time lows and the combination of these two factors means painful margin compression. The virtual collapse of “cheap” wholesale funding (LIBOR is no reflection of the true cost to most players) and the growing requirement to hold liquidity in very safe, but low yielding instruments merely exacerbates the problem.
So the obvious way to repair margin is to lend again. Clearly the funding must be in place but that may well come in the form of redemptions (HSBC is making significant inroads) and overpayments, as many customers take advantage of hitherto unseen low monthly costs. As long as the risk can be correctly priced and the right margin can be achieved, there is no reason why we should continue to see the return of more lenders and products.
Name: Katie Tucker
Company: Mortgageforce
November has been busy for the big lenders. Some changed their rates repeatedly with only a week between amendments. Alliance & Leicester offers a two-year fixed-rate deal at 3.15%, a tiny 16 basis points above the top direct-only product (from Cheltenham & Gloucester).
Nationwide has some good deals up to 70% but its 85% tracker is one of the best at 5.03%, Northern Rock cut its 70% tracker deal by 10bps so it could nip in front of Abbey and Nationwide.
The pricing of longer-term fixes implies that lenders are counting on borrowers believing that rates will recover to around 1.5% higher in two years’ time, and more for each concurrent year. Nationwide is a good example, adding roughly 0.7% to the rate for every year of fixed rate.
The lenders appear to be pricing to meet their lending targets. However, we cannot expect improvement to be distinct or continuous.
The lenders are at the mercy of both the wholesale costs as well as strategically pricing their products against their competitors so as to attract the right borrowers while not getting swamped with applications.
The cost of variable money has lifted only very slightly in the last month, but this is a contrast to the consistent falls since August. It means that lenders will not be able to assume they can maintain low tracker rates and keep offering them. It is more likely now that the rates and criteria improvements of the top lenders will be short experimental bursts, resulting in a gently improving average.
Name: Alan Margolis
Company: Cheval Property Finance
As everyone knows, the mortgage market has been through a period of unprecedented turmoil. Some lenders and many brokers have disappeared, products such as adverse and buy to let have become scarce, and self-certification is on the way out, if it is not already dead and buried.
Given that the above was taking place in the context of near hysteria over the state of the global economy and real concern that the western banking system was on the verge of meltdown, it seems almost like a near miracle that we are still here to talk about it all and now look forward to the future.
2009 is almost over, and for most people and many businesses, while it has been a difficult year, it has not been the terrible year that so many commentators were predicting.
Given that even the UK is now expected to come out of recession in either Q4 this year or in Q1 2010, it is no surprise that some sort of normality, in the form of increased competition, is beginning to emerge between the surviving mortgage lenders – even if that market is potentially distorted by the fact that so many key players are now fully or partially state-owned.
Like bears emerging from hibernation after a long winter with a need to eat, lenders will soon have a hunger to lend, and therefore we should anticipate increased competition, even if lenders’ product rates begin to rise in anticipation of, and in line with, future base rate increases.
