The industry “Godfather” says incoming mortgage market regulation will cause a “seismic shift” in the UK’s housing market with more people forced to rent in the long term, spelling disaster for mortgage brokers.
Over next few years more people will be forced into the rental sector because the supply of mortgages will be so constricted they will have no other choice.
But Malone says new opportunities will emerge, especially in the protection market, and that brokers should act now before it’s too late.
“Brokers have to engage with their client who is no longer able to borrow but is going to rent,” he said. “A lot of these people will come to an estate agent or adviser looking for a mortgage over the coming years but the lender’s answer will be no.
“Those people will be forced to rent, but brokers have to remember that there is still an opportunity to sell these clients protection.”
CONSPIRACY THEORY
The industry veteran also believes that regulation proposed in the Mortgage Market Review by the Financial Services Authority to ban self-certification, fast-track and possibly interest-only mortgages is part of a larger plan by the Bank of England, Treasury and regulator to “restrict lending”.
“It might sound far-fetched, but I think the authorities want to be much more in control of the country’s finances and they don’t want the UK to be run on the back of equity in people’s property anymore,” he said. “There is social engineering going on in the background I think.”
As well as suggesting the private rented sector will grow, Malone is also forecasting a shift in the shape of the private rented sector.
“I think we’ll see a move towards longer term rental agreements than the current norm of six months,” he said. “Renting will become a more permanent life choice.”
And alongside this shift in tenant mentality, Malone believes landlord profiles will change as well.
“I would think we’ll see large corporate landlords – insurers, lenders and pension funds – coming into the landlord market,” he said, adding that savvy brokers would have an opportunity to develop relationships with corporate landlords and manage tenant relationships in terms of protection needs.
PROTECTION CHALLENGE
Ray Boulger, senior technical director at brokers John Charcol, said tenant need for protection was clear and Malone’s view was highly relevant for brokers even today.
“Clearly John’s right about whether you’re renting or buying, your protection needs are still important,” he said.
“The challenge will be how brokers can reach those clients because although 60% of people looking for a mortgage go to a broker, no-one looking to rent currently seeks financial advice on that.”
But Boulger added: “The potential is there for brokers but I think the ability to reach that potential will be extremely challenging.”
LONG TIME COMING
London and Country’s David Hollingworth said he thought any major market change would take considerable time to take shape but that would mean brokers would have plenty of time to adapt accordingly.
“Brokers need to be aware of a seismic shift like this happening so they can get into the process before it’s a done deal,” he said. “But you’re looking at a step change in how people think with a wider take up of rented accommodation. That’s a big move in mentality.”
And he added: “But if people are going to think about renting for longer there will be issues they need to address including income protection. Life cover will also still be necessary if you’re renting with a family longer term. I think we’ll see more mortgage and protection brokers as opposed to pure mortgage brokers as a result.”
Sally Laker, managing director of networks Mortgage Intelligence and Mortgage Next, said she thought Malone was right to anticipate a growing private rented sector.
“I think people are already accepting that renting is now part of everyday life rather than a means to an end,” she said.
And she said some brokers were already embracing tenant relationships through their buy-to-let clients.
“We have a number of brokers who specialise in the buy-to-let market and already sell protection to their clients’ tenants,” she said.
“That opportunity exists for a lot of brokers. Where landlords are already clients, brokers can go back to those clients and talk about protection for their tenants.”
And she added: “It’s another means of contacting the customer and looking after your client in every which way you can. A protected tenant helps the landlord too.”
