We have a much more ‘normal’ marketplace and lenders (in most areas) are working not just to the letter of law but within the spirit
Bob Hunt is chief executive of Paradigm Mortgage Services
We are close to the one-year anniversary of the MMR’s introduction and clearly much has changed in the mortgage market over the past 12 months.
This time last year there was a certain sense of foreboding amongst many in the mortgage market with the rumour-mill working overtime about which lenders were ready, which would be working right up until the deadline and which might fail either internally with requirements, new systems and processes or perhaps externally when dealing with introducers.
I think it’s also fair to say that the period post-MMR was a serious unknown for all stakeholders simply because we couldn’t be sure how the market would react and, perhaps notably, how significantly lenders and ultimately their borrowers might be impacted by the changes.
If you look at that mid-2014 period then lending growth momentum doesn’t appear to have suffered too much (if at all), although there appears to have been a degree of pre-MMR loading from some lenders. The FCA itself suggested that, when it came to securing non-affordability-checked business pre-MMR there was some ‘filling of boots’ which this was probably in anticipation of a planned slowdown in the immediate month’s post-MMR.
However, what is the situation 12 months on? Clearly, the MMR has had a considerable impact on lending and lender behaviour – not surprising as after all, this was the whole point of the rules being introduced in the first place. A number of lenders, by their own admission, pulled back too far from the marketplace in those post-MMR months and in a number of cases their compliance or lending policy wasn’t just in line with the rules but far beyond them.
Now, however, with systems and processes having bedded in, we have a much more ‘normal’ marketplace and lenders (in most areas) are working not just to the letter of law but within the spirit.
I say ‘most areas’ because there are clearly some issues still to be overcome – as the FCA has repeatedly stated some lenders are not utilising the transitional arrangements as they were intended and, borrowers who fit these categories, are still being subject to the full affordability rules when there is no need to.
Some might not blame lenders for adopting more stringent practices in order to satisfy themselves however, given that the lending community were the ones in favour of the transitions, to now not use them seems counter-intuitive. Perhaps this is an area where a brave lender can step forward and show the direction for others?
Certainly, the MMR's impact has – at least for now – favoured a number of groups, namely intermediaries and their clients. The anticipation is that the intermediary market’s share of total business will reach 70% this year, a seismic shift from the low 40s of only four years ago, and undoubtedly our distribution channel is now the pre-eminent one when it comes to distribution.
This last 12 months has seen HSBC begin utilising intermediaries, it is the year when a number of new intermediary-only lenders have launched, it is the year when borrowers have sought out professional advice like never before, and therefore it is the year that some might feel the intermediary sector regained its ‘mojo’.
Competition amongst lenders is strong – as strong as it has been since pre-Credit Crunch times – however this time it comes with a more stringent regulatory backdrop and far more focus on the housing and mortgage markets in general. This should however not be an environment where competitors can get carried away with themselves, and even though we have heard talk of, for example, 100% LTV mortgages returning, we should not believe this is the start of a return to the bad old days.
To my mind, there are too many regulatory bodies watching our market and the powers they have to intervene are much more stringent. Coupled with clearly more informed and one might even say wiser and responsible management style in both manufacturer and distributor environments, I believe we are all far better positioned to serve consumers. There’s no doubting too that should, for example, house prices begin to rocket or lending show signs of irresponsibility then the regulators will quickly move in.
Of course, one thing we all know is that regulatory change is a constant. In amongst all the FCA’s own reviews into the market we have the delivery of the European Mortgage Credit Directive next year which will clearly impact our environment. The MMR was supposed to future-proof much of the mortgage market for the European changes – and one has to say that it did a pretty good job – but there will be changes and with these comes further upheaval for all mortgage market players.
At the moment however the market appears to be in a good spot – who knows what the General Election might bring, but I don't doubt that any politician is underestimating the importance of the housing and mortgage markets to UK plc and therefore the outlook appears positive, whatever party or parties form the next Government.
