The times they are a-changing. For the past several years, the mortgage industry has been living the good life, with the Council of Mortgage Lenders continuously reporting booming business volumes and numerous lenders entering the market as investors try to get a piece of the lucrative UK mortgage pie. Rate battles rage on and companies have poached top staff left, right and centre to gain the upper hand over their competition.
But all this looks set to change as the US non-conforming crisis impacts on the UK housing market. While many have said the effects would be minimal considering the specialist markets here operate so differently, it has become apparent that this is not the case.
The first victim of the credit crunch has emerged as Victoria Mortgages, which went into administration last week blaming ‘disruption in the capital markets’ for its funding channels drying up. Other lenders are repricing as fast as they can, and risk and consolidation, particularly of secured lending arms, seems to be key.
The human impact
Yet, some are worried that what people are failing to consider is the human impact of all the shifts in the financial markets. Eddie Smith, managing director of the Professional Mortgage Packagers Alliance, raises his concern that what lies ahead for many mortgage industry staff is uncertain. He states that, with so many lenders entering the market over the last year or so, margins have been stretched thin and as volumes decline businesses will inevitably look to cut their outgoings. He says: “If they are doing less volume then they will have too many staff. If they’re not making sufficient profit, then how long can they keep their staff? There will be victims of the financial markets and the human cost will rear its head.”
Andy Frankish, managing director of Mortgage Talk, concurs with Smith’s concern and adds it is not just a mortgage concern, but one all businesses must consider. He says: “If you’re not getting the business, you have to reduce costs and one of the biggest outgoing any firm has is their salary overhead. It’s going to be the first one that companies look at and there will be some casualties in this area. It might be tempered by the fact that we have a skill shortage in the industry. The high quality people don’t have much to worry about, but they should still consider their options.”
Reassessing the market
Frankish believes the current market will be the one the industry will have to live with for the next 12 months, making it imperative for people to reassess their position now and whether they can continue with the business they are receiving at present.
He says: “If business volumes slow down, which they have to, it’s not just lenders, but brokers that will be affected. If, in three months, the volumes are not going to be there, then companies have to look at it now. You have to be sure what you’re spending money on, as you can’t just take a punt on anything. This relates to everyone in the industry.”
Julie Gaskin, corporate relations manager for GMAC-RFC, feels that the Victoria Mortgages situation is a tragedy and the human cost can be seen in the borrowers trapped in the middle, having already exchanged contracts but left without funding. She doesn’t believe this is the last the industry will see of such a scenario, but feels everyone can ride it out by remaining prudent.
BDM role
Yet, while Smith points out that many business development managers (BDMs) have been poached for massive salaries, creating potentially long-term issues for lenders, Gaskin feels the BDM’s role is essential in the current climate. She explains: “The BDMs role is vital at the moment, as they carry lenders’ messages on and are visible. They are our best ambassadors and can keep brokers informed. I don’t think a lot of the problems have hit home with brokers and packagers and BDMs can inform people and give them the facts.”
Gaskin adds that the current effects of the global markets will bring noticeable changes and the times of non-conforming rates almost matching prime rates are at an end. She says: “Everyone’s going to have to get their head round it. This is the market we’re in and these are the rates we will have to get used to. The differential will be more visible and brokers will have to change their mindset to what rates are.”
How far the credit crunch reaches and for how long it runs is anyone’s guess right now. But there is little doubt the whole industry is feeling and will continue to feel the strain. The resulting cost to staff could be dear and people must be prepared for it.
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