Advisers expect market to deteriorate

The review of advisers' confidence for the third quarter revealed that 45 per cent expect business to get worse over the next three months, compared to 33 per cent in Q2 and 16 per cent in Q1.

L&G said adviser confidence had taken a decided turn for the worse, with many more advisers holding a pessimistic outlook.

A third of advisers (33 per cent) are now predicting flat sales growth over the next quarter, although this figure is broadly in line with the predictions made three months ago.

The outlook for the proportion of house purchase mortgage business is particularly unfavourable, with business expected to shrink. Two-thirds (66 per cent) expect house purchase to represent between 0 and 20 per cent of their mortgage sales over the next three months.

Only 15 per cent of advisers said they expect to write more than 40 per cent house purchase business over the next quarter. This compares to 22 per cent in Q2 and 31 per cent in Q1.

Predictions for remortgage business are evenly split, with 16 per cent of advisers predicting a very high proportion (81 to 100 per cent) of their mortgage business will be remortgages. This figure is up from 11 per cent in Q1 and 15 per cent in Q2.

The view of those in the protection market is somewhat better, with 39 per cent of advisers expecting protection sales to improve over the coming quarter and a further 38 per cent expecting sales to remain the same.

This is only marginally down on levels reported for Q2. Although one in four advisers (24 per cent) do expect protection sales to drop over the next three months.

L&G director of housing Stephen Smith said: "House purchase business as a proportion of overall mortgage business is expected to drop again. Two-thirds of advisers say that house purchase clients will represent less than a fifth of their mortgage income over the next quarter.

"There will come a point when buyers who have been holding off start to come back into the market. Once we reach this tipping point, the market will start to recover.

"A lack of investment in new housing stock is limiting supply, and the release of pent up demand from the last twelve months will eventually start to counteract house price falls."

Meanwhile, one in five advisers (20 per cent) expect the Monetary Policy Committee (MPC) to hike rates by 0.25 percentage points next month. Most advisers (58 per cent) expect the bank base rate to be held at 5 per cent in September.

Smith added: "The MPC’s decision to hold in August reflects a prudent sensitivity to the fact that in the face of an economic slowdown, inflation ought over time to return to more manageable levels.

"This is a welcome view, as for now at least this protects borrowers from an increased level of financial pain. When rates do start to fall, we hope that it will go alongside a package of other measures from the government stimulate the market and free the lending logjam."