Having seen 2014 deliver £205bn of gross lending, what is going to happen in 2015 to drive volumes higher? Whilst the CML and other significant industry commentators are predicting another 10% growth to £225bn, the early indicators are that we have not seen any further increase in activity yet.
Of particular concern is that estate agents are reporting that new instructions are not pushing ahead as many of them had expected. The housing stock on their shelves has been there for some time, with a lack of quality houses coming on the market. So whilst we will continue to see increasing numbers of new housing starts, some of what we saw in late 2013 and 2014 was builders clearing out their back stock. Their pipeline is now only on newly started units. This will feed some volume growth, but we are dependent on consumer confidence driving more people to want to upsize and move house, or fear driving people to re-mortgage off their existing products.
What we do have is lenders offering interest rates that we have not seen in a lifetime. There can be no reason for brokers not telling their client banks all about the very competitive rates that are being offered at the moment. The other unusual feature Is that these rates are across the range over the full extent of periods. Never have longer term fixes been so attractive, although there are issues to be faced over early repayment charges and guarantees around porting. However the biggest change expected in 2015 is lenders coming to a more sensible interpretation of the rule changes applied in 2104 in implementing the Mortgage Market Review.
As predicted, many lenders risk functions had onerously interpreted the new rules and delivered criteria which are significantly beyond the requirements of the FCA new conduct rules. We are beginning to see lenders shift their positions as they have compared each others interpretations. Throughout the remainder of this year lenders will open the doors to a slightly wider group of customers. The critical factor will be to open up to more credit worthy customers, without adding to house price inflation.
There are a number of issues that could slow down growth in the UK market. The impending election campaign will create uncertainty and slow confidence. It is the job of good brokers to tell the story that the world will go on and that there are great opportunities in current markets. The total of the targets of established lenders plus the increasing number of new entrants and challenger banks means that £225bn should be easy. The broker challenge is to engage with clients to encourage them to trade.
Lenders have recognised that the impact of MMR has increased the activity required to locate customers that meet criteria and that the work to achieve an approval has also increased. L&G have produced specific data and we have seen an increasing number of lenders step up procuration fees to reflect the increased amount of work per case. What has been astonishing has been the story suggesting 70bp procuration fees. This is a competitive market and lenders and brokers will individually negotiate their own terms. Whilst lenders will have a view of the worth of the broker community, individually and collectively, this should always be agreed at a firm level to reflect value. This is not and never will be a means of buying business, as that is a slur on the integrity of both the broker community and our lender partners. The increases towards 40bp are welcome and the industry would do well to keep a seasoned perspective rather than clamouring for the unrealistic.
RTS Feb 15