A broader prospect
The short-term prospects for the mortgage market have worsened due to a combination of factors.
Borrower apathy has been matched by higher costs of lending. In a market recently dominated by six lenders, several banks have announced plans to deleverage, which has reduced funding capacity and competition in the market - and we have had the all-pervasive uncertainty created by the eurozone crisis and recession.
A slowdown in the mortgage market was to be expected following the end of the stamp duty exemption in March. The CML published its first feedback on the immediate impact with gross mortgage lending in April declining by about 19 per cent from March to £10.2bn, only marginally above the £10bn figure in April 2011.
With the market having improved modestly over the last year, it will be interesting to see whether this combination of factors dampening activity and consumer and lender confidence leads mortgage lending levels down to below 2011 equivalent periods.
Are there any rays of sunshine on the horizon? Last month, I attended the Building Societies Association annual conference in Manchester and saw signs that the current environment might give the mutual sector an opportunity to regain some of the market share lost since the crisis started in 2007. The sector has reported six months of growth in net lending. This followed an extended period of shrinking, as building societies and other mutuals responded cautiously to growing regulatory expectations on capital strengthening and building liquidity.
The standard bearer of the mutual sector is Nationwide Building Society. It published its preliminary results announcement for the year to April 2012 and showed impressive growth by increasing gross lending by 44 per cent to £18.4bn, (compared with a market increase of 5 per cent). Its net lending growth was £2.7bn, an estimated 35.5 per cent of the industry total. This growth was part funded by a 67 per cent increase in savings receipts to £1bn. Group residential mortgage accounts more than three months in arrears fell slightly to 0.73 per cent and remains comfortably better than the CML industry average of 1.96 per cent.
It is not realistic to expect every mutual to succeed in growing its business to a similar degree, but most societies reflect a similar picture of fewer legacy problems whether from mortgage arrears, complaints about selling payment protection insurance or mortgages, or numbers of interest-only loans without repayment strategies. Many have a growing aspiration to be more active in the market.
One of the benefits of the mutual model is that a longer-term view can be taken about business performance. For lenders that have been in the market for more than 150 years, the volatility of the next six months (and the last five years) is less relevant than being around to serve their communities over the next 10 years and longer.