t is without doubt nigh on impossible to predict anything with certainty given the current financial crisis gripping the globe. At the time of writing, there is turmoil in the markets with European countries fighting to protect their own banking systems and the UK Government weighing up significant intervention in the form of the provision of capital in return for a stake in the banks themselves.
We could all be forgiven for wondering how we have reached this situation but, for now, at least, we must accept that we are where we are. While I believe it is quite wrong for the Government to prop up badly run, failing companies, it would seem to be a necessary evil at present especially for the larger banks, although as the US bail-out has shown there is certainly no guarantee of success with this type of action. Just when we seem to be reaching the beginning of the end, another bombshell hits and we must reset our expectations.
In the intermediary mortgage space there are major concerns for both lenders and brokers. Clearly, for mortgage lenders access to funding is all important, particularly so for intermediary-only lenders who may not have access to deposits from a parent company or benefactor. However, intermediary-only lenders face a fundamental issue in terms of the Government’s Special Liquidity Scheme (SLS). There is no level playing field in this market and it is particularly galling that ‘non banks’ such as ourselves are unable to access the SLS. This puts us at an immediate disadvantage and means we have additional hurdles to jump if we are to gain the funding to offer our products.
There is scant good news about for mortgage intermediaries either; they are working in a market unrecognisable from just 12 months ago. Some lenders who they may have come to rely on in the past no longer exist, while others have temporarily withdrawn from the market in order to fight another day. For the first time in an age brokers have been unable to place clients. Recent research from IMLA revealed that 68 per cent of brokers have been unable to source a mortgage for a client since July. Reasons for this include the tightening of criteria by lenders – maximum LTVs are much more likely to be in the 70/75 per cent region now rather than 90 per cent-plus – and there is a simple shortage of mortgage products.
Sectors such as buy-to-let and self-certification have seen a dramatic decrease in product availability. In fact across the board products have disappeared as lenders either exit the market or become much more ‘picky’ in terms of the business they will accept. Many will say of course, that this is as it should always have been, and they will have a point.
The flight to quality we are now witnessing from those lenders still lending is here to stay. Lenders who took phenomenal risks in their lending, funded through securitisation, have for want of a better phrase, bitten the dust. With the wholesale markets closed, this type of lender model has been shown to be unsustainable and, while I am not predicting that it will never make an appearance again, brokers should not expect to see it any time soon.
This of course means that vast swathes of clients who were able to obtain mortgages via these lenders will not be so lucky in the future. The sub-prime mortgage market still exists but the competition and the product availability do not. Left behind are lenders who steer well away from credit-adverse customers, only wanting to take lower-risk borrowers onto their books with structured and controlled distribution strategies to do this.
Because of the Credit Crunch and liquidity crisis the way mortgages are distributed has shifted. Intermediaries have already been given the cold shoulder by those lenders who looked to shore up their direct business at the expense of their intermediary ‘partners’. Dual pricing of course has always existed – however this is one of the first times that brokers will have been on the wrong end of the practice from so many quarters. At a time when brokers need every client to count, one can understand the frustration at being unable to access the products that could mean the difference between keeping the client and not.
In this new environment mortgage brokers must come to terms with the fact that lenders are operating under different circumstances. For example, CHL has traditionally been a lender which has opened itself up to numerous relationships with a variety of distributors be they packagers, networks, mortgage clubs and brokers. In the past, some of these relationships have been strong and mutually beneficial, others often existed in a semi-threatening ‘you have to do business with us’ tone.
It will be apparent to all when we return to the market that we will only conduct business with distributor partners who share our fundamentals about quality lending built on a relationship in which all parties benefit. We will not be working with all and therefore intermediaries who are aligned to a certain number of distributors will be unable to access our products.
This will not be a method of accepting business only adopted by CHL. Intermediaries can expect valued relationships to be maintained by lenders but will see those that have only worked for the benefit of one side disappear. Therefore, intermediaries should think closely about their current relationships, for example, with their network or club, and ask whether this will continue to offer them access to all the products they wish.
I believe there will always be a demand for quality, professional mortgage advice. Consumers will find themselves in a difficult situation in terms of accessing mortgage funding and there is no better reference point for them than the mortgage adviser. Yes the market has changed, product numbers have been cut, criteria has been tightened. Brokers have to find a way to put themselves in a strong position with both their clients and with lenders so they can continue in their role as intermediary between both parties.
