An audience of influential figures from industry and the media heard strong opinions on topics including market growth and intervention, product advice, innovation, pricing and distribution. The stellar panel was chaired by John Wriglesworth, chief executive of The Wriglesworth Consultancy and featured David Finlay, IMLA Chairman and Barclays managing director, intermediary channel, retail lending, representing intermediary lenders.
Other panellists included HSBC’s head of assets and retail banking Jonathan Byrne representing direct lenders; Robert Sinclair, Association of Mortgage Intermediaries chief executive representing brokers.
Representing the consumer press was Jeff Prestridge, Mail on Sunday personal finance editor and Ceri Stanaway, Which? head of research and content Creation, money and travel was representing consumers.
Housing bubble remains a myth
David Finlay emphasised his view that the market is “edging towards genuine recovery” and a long way from experiencing a house price bubble, despite growing media debate and variation in regional property inflation.
Recalling the bubble experienced in Ireland, Jonathan Byrne agreed with David’s view and reminded the audience that the market was in need of “intervention, support and liquidity”.
He welcomed government steps to improve access to loans but struck a note of caution on market growth, which he said needs to happen at a pace the wider economy can support.
Robert Sinclair highlighted the difference between the London market, which is heating up and “never cooled”, compared with the market north of Watford which remains “benign”.
He recognised that interventions have revived the premium on new build homes, but argued that land availability and construction need more attention rather than “panicking about necessary intervention”.
Transparency and monitoring will be essential to avoid unintended consequences, Ceri Stanaway suggested. While first time buyers and their parents will be relieved to receive government support, she also pointed out that poor savings rates since the Funding for Lending Scheme (FLS) came in have created a vicious cycle whereby some people are less able to maximise their savings, and therefore their ability to quickly build a housing deposit, and may be trapped into paying high rents.
Despite describing himself as “a horrible cynic”, Jeff Prestridge rejected the idea that encouraging growth in the property market was politically motivated.
He agreed that the FLS has been a fantastic stimulant for the market – praising innovative products that have improved consumer choice – but that state support for mortgages has done nothing for savings and long term retirement prospects.
Industry well served by broker advice
Jeff Prestridge disputed the suggestion that 2-year fixed mortgages are brokers’ standard recommendation, stating that 5-year products have become more common and are what he often points consumers towards. He was “scandalised” by revelations about differing proc fees for fixed deals of different lengths.
Which? research was quoted to back the suggestion that 5-year fixes have become more common than 2-year fixes, with some borrowers fixing for as long as 15 years. Ceri Stanaway made the point that consumers should be made aware of all available options so they can make a fully informed decision.
Robert Sinclair’s view was that the industry is “well served” in terms of transparent advice and the Mortgage Market Review (MMR) would have addressed bias if it felt it existed. He suggested intermediaries often point consumers towards longer-term deals than if they go direct to lenders, but emphasised early repayment charges are often a barrier to long-term fixes as people worry about committing when their situation may change.
Jonathan Byrne echoed this point, saying that while it may be in their best interests to take a long-term product, consumers have a degree of nervousness about the future. His belief is that customers can enjoy value and quality by dealing with lenders direct, and described the bank’s primary job as making sure customers understand the options available to them.
While describing Barclays as “channel agnostic”, David Finlay backed the importance of the intermediary channel to the UK mortgage market and predicted further growth. He felt the demise of two-year “churn and burn” practices had already occurred, leaving the industry more professional as a result.
The consensus among the audience was that brokers are not unduly influenced by proc fees. Prompted by Peter Williams, IMLA executive director, the panel considered whether more innovation around fees and early repayment charges may help encourage consumers to lock in for longer and get the full benefit of historically low interest rates.
Transparent pricing needed to counter best buy abuse
On the subject of dual pricing, distribution and hidden deals, Robert Sinclair shared a personal view that lenders’ cheapest route to market is via intermediaries and consumers should therefore share in this saving by enjoying lower rates for products sold by brokers.
Referring to the potential for non-advertised ‘deals’ to be offered as a way to secure business that might otherwise be lost, he argued this was “fundamentally wrong”.
Ceri Stanaway set out the argument for more transparent, upfront information on pricing for consumers and more tools to compare costs over the full length of mortgage deals. She claimed that in Which? research, only 10% of people could correctly rank five mortgages in order of cost over the term.
Her view was challenged by Jeff Prestridge, who pointed out some “wonderful tools” to help consumers. He did however rally against the “manipulation of best buy tables by lenders and savings institutions” in order to get greater exposure for their products.
Overall, his view was that mortgage borrowers are “intelligent human beings who don’t need their hands holding at every stage”. As long as transparent information is available and consumer choice exists, it is fair game for lenders to compete on pricing policies.
Jonathan Byrne felt the industry is “over-preoccupied” with best buy tables, which are less important to consumers as many do their own research to check out the competition. His view was that existing customers should not be disadvantaged in favour of attracting new business.
David Finlay reminded the debate that Barclays was among the earliest advocates of single pricing across direct and intermediary channels. He agreed that existing customers should be rewarded and that pricing differentiation should be based on loyalty to the brand rather than the distribution channel.
The future scope of gross mortgage lending
The market has changed sufficiently since 2008, Jonathan Byrne argued, to mean that no-one can be sure of the full potential for gross mortgage lending to return to previous levels: “the rules of the world have changed and the MMR will reshape the market for the next decade.” In his view, the important question is how much mortgage finance is needed to support the economy and that further growth is needed in housing supply as well as mortgage finance.
David Finlay predicted an eventual return to £250bn+ of annual gross lending but “not for many, many years to come”. While
confidence and incentives have kick-started a “genuine recovery period”, he suggested the subprime market will not return for 5-10 years.
The view from Robert Sinclair was that £190bn gross lending in 2014 could be prevented by MMR and other events – meaning that £180bn with a 60% market share for intermediaries was a safer bet. He pointed out that self-certification was a big factor in the old market and has now gone, meaning that the new ‘normal’ may not exceed £250bn.
Jeff Prestridge backed the return of 100% mortgages so long as affordability is maintained, but welcomed the death of self-certification: “an invitation to rampant abuse”. He also praised the building societies market for its intimate understanding of local markets.
Responsible borrowing and lending are the priorities for Ceri Stanaway, who suggested “products are not ‘bad’ in themselves – it is more important how they are sold.” She felt consumers want a healthy, functioning market designed to ensure they can afford their debts.
Buy-to-let regulation on the cards
With the debate drawing to a close, David Finlay suggested that lenders will price buy-to-let mortgages according to risk and to meet their appetite for business volumes, and emphasised the importance of a free market allowing competition.
Jonathan Byrne’s view was that the economy benefits from BTL options to grow people’s wealth, with rates reflecting the risk to lenders. He felt the decision about whether BTL should be regulated was one for regulators themselves to decide, but he suggested customers treat BTL as commercial rather than personal borrowing and are typically well informed.
Robert Sinclair warned that the Treasury and Financial Conduct Authority (FCA) still have an interesting challenge to deal with the European Union (EU) Mortgage Directive if it progresses through the European parliament, which may prompt the issue on BTL regulation. He suggested speculative investors represent bigger risks to lenders and that different affordability calculations are needed.
For Ceri Stanaway, the non-regulation of BTL would come as a surprise to many consumers who see it both as a mortgage and an investment. Recognising its appeal in a poor savings environment, she argued people must be fully advised of the risks involved and that this may eventually need regulating.
Jeff Prestridge meanwhile felt many of his readers see BTL as a real alternative to saving for retirement via pensions.
He predicted that “regulation will come”, not least because of the number of amateur landlords. He finished by raising the concern that appetite for BTL investments is making it harder for owner-occupiers to move within the property ladder.
