Turbulent times indeed.
I started writing this piece early last Monday morning and this text originally remarked on a number of house builders such as Persimmon rallying against the backdrop of a ‘falling housing market’. By the time it came to file the copy, the stock market was down 5.5 per cent to 5,578.
Who knows what it will be when you read this.
Food and oil prices are driving inflation but retailers under pressure to offer discounts in order to increase sales volumes could be the antidote we’re hoping for to stop the situation getting out of control.
Thankfully, the US is dramatically cutting rates and throwing $100 billions of tax cuts into its economy to stave off a recession.
Unfortunately it is a true fact of life that at the beginning of the 21st century the US economy is one of the few forces that could send ours spiralling down. The other is, of course, talking ourselves into recession.
Some just can’t stop the ‘scab picking’. Let’s all leave it alone and start espousing the virtues of a wholesome lifestyle with improved margin and credit risk. LIBOR is stabilising, but we all know inter-bank sentiment won’t improve until the reporting season has run its course.
A blip rather than recession
Our view has long been that this is a blip rather than a long decline into a full blown recession. Why? Well, shelter is a basic human need.
Housing demand is rising inexorably as development land is scarce, immigration is outstripping emigration and the social drivers are increasing single occupancy.
And, anecdotally at least, our members are reporting that January hasn’t been as bad as their forecasts were predicting. Maybe the early Bank of England Base Rate cut was a tonic and we all look forward to another cut next week.
A glimmer of hope but, as I have seen mentioned more than once in the last couple of months, Keynes’ quotation that ‘the market can stay illogical longer than you can stay solvent’ has never been more relevant.
We’ve seen some closures due to lack of cash flow, a flurry of prudent early redundancies and much talk of consolidation. So what will the distribution landscape look like in January 2009?
Consolidation is the word
Undoubtedly there will be fewer lenders, directly authorised (DA) intermediaries and packagers. Consolidation is the word of 2008.
After the mega-merger of Nationwide Building Society and Portman Building Society in 2007, it has been well tipped that the building society community is set for another round of consolidation and 2008 for some organisations spells the ripening of some tasty specimens that cannot be resisted.
Look out for who’s not talking to who at the Building Society Association conference in early May.
There’s also a potential opportunity for some of the new entrants to the lending market to retire gracefully back over the water. It is publicly known that Lloyds TSB was a hairsbreadth away from rescuing Northern Rock, subject to a three-year funding facility at Base Rate.
I wonder if it would take a sniff at couple of new entrants if they would grant a similar facility? A flight of fancy I agree, but I’d be tempted to put a fiver on it.
We could see a shift from DA to appointed representative in the small firms territory if some are bamboozled by the imminent ‘Treating Customers Fairly’ management information requirement.
However, this could be offset by growing medium-sized firms that wish to take more control – and importantly in these times of reduced volumes, more margin – of their business.
For packagers, the recent report by NMG pointed at a positive outlook for a score of ‘super packagers’ with the scale, innovation and efficient processes to be able to provide extra capacity to lenders and value added services to intermediaries. This would mean the inevitable demise or consolidation of satellites.
Demand for advice
The one overwhelmingly positive attribute of the present time is the increasing consumer demand for intermediary service and advice.
Borrowers have been recognising the value of brokers in the last couple of years; however, the credit crunch has created an awareness of seriously considering all options when it comes to taking out or refinancing a home loan.
They are also voting with their feet to receive a more convenient service from the broker community.
With the busy lifestyle mentality firmly rooted in the nation’s psyche, DIY is being replaced by GSI – get someone in.
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