MortgagesDec 16 2015

The winter’s tale

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The winter’s tale

Well yet another year without an interest rate hike. I suspect the CML’s original prediction of a £220bn market in 2015 had at least one rise factored in. If we get to March next year without a rate change, which is highly likely, we will have gone an unprecedented seven years without a move.

In fact if we get past July 2017 it will be 10 years since the bank base rate last rose leaving a whole generation of borrowers without ever having experienced a rise. We could yet see Mark Carney, the governor of the Bank of England, potentially leaving the bank in 2018 without once ever calling a bank base rate change.

So to mortgage volumes, 2015 is turning out to be a mirror image of last year. While mortgage volumes at the beginning of 2015 were negatively affected by the changes made in the Mortgage Market Review, the beginning of 2014 saw volumes spike ahead of the MMR being implemented. The slow start this year led the CML in July revising downwards their gross lending prediction to £209bn – now arguably on the low side as completions in the last two months are at a run rate of over £240bn and I expect them to finish around the £212bn.

It has been a big year for buy-to-let, which now accounts for nearly one-in-five new mortgages, and nearly a quarter of mortgages arranged by brokers as landlords tend to use a broker rather than going direct. But is the bubble about to burst?

With the changes announced in the chancellor’s July Budget on limiting landlord’s tax relief, and restricting the ability to obtain relief for wear and tear, followed by the changes being recommended to increase stamp duty on buy-to-let transactions, in the Autumn Statement, the landscape has got more complicated. What is certain is that brokers will probably work most closely with a tax adviser, or at the very least recommend that tax advice is taken.

The Mortgage Credit Directive will be implemented 21 March next year, so the preparatory work is gathering pace at lenders and distributors. While these changes are sponsored by the FCA, as it is a European directive these are mainly tweaks.

Nevertheless, there are some fundamental changes, particularly in the second-charge market. Unfortunately, back in 2004 when the mortgage market was regulated by the FSA, they ignored the responses to the consultation papers to regulate second charges at the same time. The result has been a polarisation of the two markets with first-charge brokers regulated through Mortgage Conduct of Business rules and second charges regulated by the toothless OFT.

Distribution in second charges is dominated by master brokers; equivalent to first-charge advisers having to go through a packager to get to a lender. It will take a while for this market to develop and in the meantime most mortgage brokers will either omit seconds from their scope of service or refer onto a master broker who will then advise the client. Whatever happens ‘hold onto your hats’ - it will be a rocky ride and my prediction is the average loan size in this market will reduce significantly as the MCoB affordability rules bite.

This year is the tale of new lenders. The re-entry of TSB under Roland McCormick placed a high focus on service encouraging every lender to raise their game. Additionally, Bank of Ireland launched into Northern Ireland through First Complete and also re-entered the UK through a limited number of distributors. Other notable new entrants were Foundation Home Loans and Fleet Mortgages.

A gold star goes to Charlie Morley and Metro Bank who have not only included intermediaries in the design of their new product portal but launched product transfer fees, joining the likes of Lloyds, Woolwich and Clydesdale. I expect more to follow suit introducing product transfer fees next year.

Finally, Steve Weston is leaving Barclays; he has always been a big champion of intermediary distribution and his insights and wit will be sorely missed

Legal & General de-risked signalling to the FCA they were no longer prepared to take on the regulatory risk of running a network. A bold move, as many lenders, especially new entrants to the market, seek refuge in working with networks rather than mortgage clubs. The developments at Sesame have also been interesting, Aviva’s merger with Friends Life has left them owning a distributor which has not traditionally been Aviva’s model.

The transfer window opened early in the distributor world with a number of changes, and managers taking their back office with them, but it will settle down and a new norm will exist.

David Copland is director of TMA