Mortgage Advice

2011 is now behind us and although for the wider economy the news has in general been somewhat downbeat it was a year for the mortgage market where further stability returned and a significantly greater degree of confidence was re-established particularly within the intermediary sector.

The final year end gross lending numbers for 2011 are at the time of writing still to be published however although the overall total is unlikely to be above 2010, activity during the four months prior to December had been running slightly ahead of the corresponding months a year earlier.

2012 is unlikely to see any pickup in overall volumes, indeed the CML are forecasting that the overall market this year may be slightly lower than 2011 due in part to the challenge on disposable incomes, fears around unemployment etc,  but we do envisage significant price competition to remain in the main mortgage market sectors. Most lenders have lending targets which for the majority will be similar to 2011 but for several of the mutual organisations will be significant step up on last year. This augers well for new borrowers and should mean we continue to see a healthy degree of price competition and some further product development and innovation.

Already since the beginning of the year we have seen Aldermore one of the more recent mortgage brand entrants increase their maximum loan to value on their buy to let proposition from 75% to 80%.  Accord Mortgages have joined other recent re-entrants in the shape of Woolwich and Nationwide in offering 90% loan to value mortgages to residential borrowers enabling more buyers to access the market with lower levels of deposit or equity.

Overall mortgage product numbers in the market ticked down a little during December as you would expect due to the seasonal slowdown but a number of brands have refreshed and re-priced their mortgage propositions already for the new year and we expect to see numbers continue a slow rise providing further choice for borrowers as we move further into 2012

Although the mortgage market is nowhere near the size of four and five years ago it is in much better shape than we dared to hope in the later part of 2008 and early 2009. Assuming that the politicians are able to come up with a credible plan to address the sovereign debt crisis, that the  Eurozone does not suffer some cataclysmic meltdown and as a consequence cause the sort of paralysis that affected us all three years ago we should see the market continue to build on the progress that has been made.

Today has seen the publication of the much anticipated Mortgage Market Review with the FSA setting out its proposals on changes it wants to bring about in the mortgage arena. Key requirements include; – lenders must verify income and be able to demonstrate that the mortgage is affordable, they must also take account of future interest rate increases and how this may impact on borrowers. Mortgages must be assessed on a capital and interest repayment basis; lenders cannot accept speculative repayment strategies, such as reliance on increased property prices.

Lenders will be allowed to waive affordability rules for new mortgage contracts, providing the borrower has a good repayment history. Intermediaries will not have to assess affordability but will be required to determine whether the consumer meets the lender’s expected eligibility criteria.

Non-advised sales will be banned, this measure in particular will be seen by intermediaries as leveling the playing field as currently many bank and or building society customers receive a level of service termed  “information only” when engaging directly with these organizations but in many instances believe they are receiving “advice” when in fact they are not. Consumers such as high-net-worth individuals will be allowed to opt-out of receiving advice and purchase on an execution-only basis.

The trigger points for presentation of the KFI will change reducing information overload for consumers. A KFI need now only be provided when a recommendation is provided whereas formerly rules required a KFI had to be provided each time a consumer received information about a product specific to the amount they wished to borrow.

The current Initial Disclosure Document (IDD) will be removed with a requirement for firms to disclose “key messages” to the consumer and these would include any limitations to their service in the form of products.

A number of former proposals that the FSA were advocating have been dropped from the latest document and this change of direction we believe will in general be welcomed by the intermediary and lender community. This change in requirements suggests a more realistic and pragmatic approach by the regulator in delivering its objectives of a more stable and sustainable mortgage market. The industry now has a period in which it can consider the proposals and feedback its responses to the consultative paper before the implementation of the proposed changes which are likely to take effect during 2013.

The last few weeks have again been a rollercoaster ride on the world stock and bond markets with the occasional positive day being outweighed by the sheer number of negative ones due to the ongoing crisis gripping the Eurozone.

With the G20 recently having failed to provide the type of support that the Eurozone was seeking and having been told in no uncertain terms to put their houses in order on the domestic front before they can expect to receive any further international support, we have witnessed changes of government in Greece, closely followed by Italy and in the last 24 hours or so in Spain also.

What is interesting in the former countries is that both new Prime Ministers have been parachuted into the job with neither having being elected by the voters. What this means for the democratic process presumably only time will tell, but in the case of Greece and Italy the markets had lost patience with the former incumbents and the cost of borrowing for those nations has reached a level which is deemed unsustainable.

Further concerns have now been raised around the borrowing needs of France demonstrating how contagion spreads in markets. Borrowing costs have even risen in recent days for nations including, The Netherlands and Austria both of whom have growing economies and fairly robust debt to GDP levels relative to their more heavily indebted peers and neighbours within the Eurozone.

UK bank exposure to Greek debt is comparatively small but with what appears to be a rising threat emerging in Italy, Spain and possibly France also, the potential impact in the event of a default or write down of that debt for UK banks has serious implications.

What happens in Europe really matters for our economy as more than 50% of UK exports go to the Eurozone. If as nations they cannot pay their way in the world our export markets will dry up very quickly and the impact on our economic output and our already deteriorating unemployment rate will be significant.  The politicians be they elected or otherwise need to agree a plan of action sooner rather than later!