Sept 15 – Rates and Debates

The mortgage market is going from strength to strength at the moment with remortgage volumes picking up well. This is off the back of both extremely attractive rates being offered by lenders and a general fear being expressed in the popular press that we are getting close to a rise in bank base rate. Whilst Mark Carney has been making some interesting noises, the Monetary Policy Committee again voted 8 to 1 in favour of holding rates, so we appear a long way still from a strong majority in favour of an increase. Indeed with world oil and commodity prices still in the doldrums and the Chinese economy taking a breather the external pressures appear to be reducing. In addition to this markets have already factored in the US rate rise and this has not damaged sterling much, therefore it is unlikely that a rate rise there will feed quickly into UK inflation. It is the inflation number that rate rises are needed to counter and there is still limited evidence of it pushing back above 1% in the near future, never mind breaching the 2% target figure. On balance I still think there is more likelihood of the next Governors letter to the Chancellor being an explanation of inflation undershooting target than exceeding it. Mr Carney’s comments could be seen as an effort to bring sense and stability to markets than a genuine expression of intent.

What remains the big issue is the lack of housing completions within the UK, and particularly in the areas of England where house price inflation is still pushing ahead much faster than wage growth. The need to build more houses is becoming an escalating issue as immigration continues and household formation is significantly greater than anything current building programmes can match. This also does not address the deficit of more than a decade. The UK fixation with residential property as an investment class at an individual unit level has to be slain and we need to get back to houses being places to build homes in. However in order to meet the needs of our city dwellers, lenders are going to have to accept onto their books non-standard construction types including modular build and high rise. However builders will need to enhance high rise with better fire protection and more lifts in order to gain approval.

In addition the need to institute a major public housebuilding programme is essential. Local Authorities may not be the only solution and if there is genuine political intent to resolve this issue, then the extension of Right to Buy to Housing Association tenants must be matched with government assistance in both funding and planning consents for Associations to replace every property sold with two more. It is only with such a covenant that this policy makes real sense for our future.

Finally, brokers continue to enjoy an increasing share of the market with over 70% of all mortgages written coming from this sector. This is great news as consumers vote with their feet in a growing market. 70-% of a £215bn market in 2015 means that the £135bn is a great increase from the £70bn in 2012. Thus means that firms are much busier and with higher procuration fees are seeing much better income. It is essential that our senior leaders apply some of this money to investing in our future. Connective technology that consumers can use to access firms and the mortgage market is the future.

These must go all the way from the consumer completing their own application form to assisting them select the most relevant mortgage product. This can then be validated at under-writing and the process allowed to flow through to completion. Whether these are execution only or fully advised processes is not the issue – it is the fact that app based functionality and on-line capacity will allow consumers direct to access data and screens that are only available to a broker today that will transform the market. Brokers need to ensure they are at the front of these developments.