With my cricket team unable to make a commanding position count Down Under and the resulting headlines across the national press, in some ways it’s refreshing to be able to concentrate on the trade press this week and not feel embarrassed at being English.
It’s clear the main story for the week in the industry has been the launch of Concordia, the strategic alliance of five of the UK’s largest independent advisers, as reported in MSL. Expected to generate a combined lending of £10 billion in 2007, the group is expecting this collaboration to generate cost savings in IT, compliance and outsourced areas such as surveying.
But much of the focus of this alliance has, as reported in MS, been on the command of higher procuration fees and the potential impact on mortgage clubs. It will be interesting to see if this move does spark a new distribution strategy for the industry, where traditionally networks and mortgage clubs have worked with lenders to design and deliver propositions that help brokers and their clients. We all wait to see whether it remains a partnership that can devote the time and resource to add the same value in the distribution chain. Bob Singh’s comments in MS mean that each of us must revisit what we do to make sure we are adding value to the end consumer resulting in a competitive industry at each stage of the distribution chain.
Financial Promotions
Back to the cricket theme, maybe if England had matched with runs the number of firms that the Financial Services Authority (FSA) had asked to withdraw or amend misleading advertisements in the non-conforming sector, then it might not have lost. 200 firms have been referred for enforcement and, as reported in MI, the FSA has issued a warning shot, stating that it needs the standards in this sector to rise and rise fast. Julian Wells, head of marketing at Mortgages plc, believes this is the biggest news for the mortgage market since ‘Mortgage Day’, stating the FSA’s action sends alarm bells ringing to those brokers advertising in the non-conforming market. This news, as reported in MS, has generated calls from the Association of Mortgage Intermediaries for the FSA to publish the results of its work with lenders on their Financial Promotions for the benefit of the whole of the industry.
Housing market
Two pieces in FA caught my eye – claims of a house price crash beginning in 2008 and research that shows 20,000 property millionaires have been created in Q3 of 2005.
The comments on a price crash come from David Miles, chief UK economist for Morgan Stanley, with claims that consumers were overstretching themselves by taking on mortgages from providers that are more than five times their annual salary. This is on the back of calls from the FSA that lenders had a moral obligation to stress-test their products in order to make sure they can cope with a 40 per cent fall in house prices. Morgan Stanley has estimated that a third to a half of house price growth reflects changes in house price inflation – a speculative element of demand which is likely to be volatile. The question Miles poses is when, and not if, expectations will fail to match prices. But as house price growth continues, the number of property millionaires continues to rise, now up to 78, 219 according to research from Portman. While City bonuses generate high growth in London and the South East, the West Midlands has seen increases of 36 per cent with 30 per cent growth in numbers in Anglia.
Interest only mortgages
MM highlights that almost one-in-five mortgages are currently being sold on an interest only basis with no repayment vehicle in place – a high enough number to warrant further investigation by the FSA. Guy Anker says fears are growing over the size of the problem confronting the industry, but it is good to see that the UK’s biggest lender is also conducting research of its own. BM director, Tim Hague, is quoted as saying that it’s too early from its point to say how serious the issue is but early feedback is giving the group some comfort. Mark Chilton of Purely Mortgages highlights two segments of consumers who might be influencing the trend; first-time buyers who simply want to get a step up on the property ladder and high net worth clients confident of a bonus or inheritance that will clear the loan early. It is clear that, whatever the customer’s motivations, they must know the risks when opting for the interest only route and it’s up to advisers to ensure this is identified early in the sales process.
Still on the first-time buyer theme, a snippet in MS announced the launch of flat-pack houses by Ikea. Is this the kick-start we all need in the first-time buyer market? I wait ready with my Allen key to find out.
