Before we have even finished one year and begun another, some experts in the industry are already anticipating that the mortgage market in 2007 will be a tougher place. Without wanting to sound Scrooge-like, in part I tend to agree, but that doesn’t mean to say that it is all going to be doom and gloom. Yes, the market could be a harder place next year. However, as long as brokers and packagers understand the drivers that can re-shape the market then they will be able to adapt and keep ahead of the competition and continue to bring in new business, regardless of which direction the market moves.
There are many things that can drive a market. The general consensus has always been that these drivers can be placed into the following categories, which are not mutually exclusive:
- Political
- Economic
- Social
- Technological
Just recently, the government proposed legislation to evict antisocial individuals from their homes for a period of three months. This is an example of a proposed change that can happen on the political landscape which could affect the mortgage market. I for one believe this proposed legislation will have an insignificant impact on the market. We should all be aware of it, and landlords should be made fully aware of this proposal because in theory, they could be faced with periods of rental voids. However, in practice, I believe this will actually affect so few landlords that its impact on the market will not be noticed.
This is just one example of the political landscape. Another one is the example of Home Information Packs (HIPs) that was proposed this year. Awareness of this proposal was of paramount importance. Had the initial legislation regarding HIPs come into force, there may well have been a serious jolt to the mortgage market, as was seen with the removal of MIRAS in 1988. The detrimental impact of HIPs was highlighted by independent economic modeling work, undertaken by Oxford Economic Forecasting (OEF) who has also undertaken work for HM Treasury, the Department of Trade and Industry, the International Monetary Fund and the World Bank. The rest is, as they say, history.
Going back to 2005, we saw the introduction of the Enterprise Act. In a nutshell, this made insolvencies easier and is one reason why this year we have seen the number of bankruptcies and Individual Voluntary Arrangements reach record levels. This is one factor contributing towards the continued growth of the non-conforming lending sector.
Going back a bit further, we can’t forget ‘Mortgage Day’. This has been a real market driver and will continue to reshape our sector in the future. Interestingly, since the Financial Services Authority (FSA) took over responsibility for regulating mortgage lending, we have seen the share of mortgage business that goes through advisers increase. Regulation has had a massive impact on this increase by giving greater confidence to consumers.
The final point I’d like to make on political and regulatory issues is the report by Kate Barker that suggests a relaxation in planning laws. One aspect of this is to make it easier for people to extend their homes, so we could see remortgage business buck its current downward trend – giving opportunities for packagers and intermediaries.
Up and up
This year we have seen interest rates rise. Further interest rates hikes are being predicted for 2007 and should this happen it will drive the market. Unfortunately it will drive it in the wrong direction. An interest rate rise would dent consumer confidence, which then has a knock on effect to economic growth and confidence within the housing market. Confidence is often overlooked in economic circles, but it shouldn’t be.
Now some perspective here – this will not be the likes of what we saw in the early 1990s as rates remain historically low. But an interest rate rise will dampen the market. After all, that is the objective of the rise. In his Pre-Budget Report, Chancellor Gordon Brown declared that inflation was now 2 per cent and on target. Efforts to keep inflation down to a minimum remains key and should inflation increase, it will have an adverse effect on the market. Going into 2007, the Chancellor is optimistic that inflation will remain low and economic growth will continue to increase. This will be a key factor in determining the extent to how much the mortgage and housing market will grow, especially if interest rates continue their upward path.
Everyday people
Some of the biggest factors driving the market at the moment have nothing to do with the economy, politics or regulation. Instead, social changes such as high divorce rates and an increase in student debt are other reasons behind the growth of the non-conforming market. Such lifestyle factors have contributed to the changing shape of the non-conforming profile and the same can be said of self-certification and buy-to-let. With regards the former, the number of people becoming self-employed continues to rise as does the number of people who have second jobs, many of whom are employed by day and self-employed by night.
With regards buy-to-let, some of the market growth has been driven by greater job mobility, leading to an increase in the demand for rental properties. Another social change that has affected the buy-to-let market – and the mortgage market as a whole – is the decline of the first-time buyer. There are several reasons behind these lower first-time buyer levels. In part, as always, it is down to affordability, but research – ‘First-Time Buyers: Understanding New Trends’, sponsored by GMAC-RFC – revealed that lifestyle factors are actually just as important in terms of making that ‘buy or not to buy’ decision. The research showed that would-be buyers would prefer to rent in fashionable areas close to friends than commit themselves to a mortgage and a property in a new area.
However, this slump in the first-time buyer market has been offset by the growth of the buy-to-let market, therefore plugging any gaps created by the general decline in first-time buyer activity. Recently, the buy-to-let market has experienced a boom. In part this has been accentuated by the increase in the number of people looking for an alternative investment to compliment their retirement plans. With people living longer, this is a trend that looks set to continue.
Technological aspirations
Aside from the drivers already discussed, in my opinion the biggest driver of today’s market is the increasing role of technology. Over the past year technological advances have shaken up the mortgage market more than anything else. These changes have benefited brokers, packagers and consumers alike. A considerable number of brokers and packagers are already taking advantage of automated valuation models (AVMs) and instant offer mortgages. AVMs are time and cost-effective for all involved and enhance the service intermediaries can offer their clients.
For mortgage intermediaries and packagers technology creates more opportunities to generate business, by speeding up the mortgage process and freeing up more of their time. If brokers continue to keep pace with technological developments then the industry will thrive. They can use technology to attract more clients and expand their business. Lenders and intermediaries who do not keep up will struggle to attract business and lose their share of the market to other more technology savvy competitors.
Investing in technology means brokers can often offset any decline in the market that may have been caused by any political, economic or social changes. As I mentioned at the beginning of this article, next year will be a tough year for the mortgage market. Further rises in rates are expected and guaranteeing a substantial share of the market will be more difficult. Brokers who take advantage of new technology can be assured that they will find these times a great deal easier than those who lag behind. Technology has the power to re-shape and drive the mortgage market forward and 2007 will be a year where technological capability continues to dominate.
The market continues to change and driven by a number of factors that can fall into political, economic, social and technology. Each will have a different and varying impact but the important thing is to keep abreast of changes and developments to keep ahead of the competition.
