As we arrive in the New Year, there are many reasons for brokers to be cheerful. 2015 will be a year of stability without great regulatory change, before we introduce the European Directive in 2016. Whilst there will be much to debate it should not impact on the ability to do business. All commentators are agreeing that housing and mortgages will be closer to the top of the election agenda than at any time in the last five decades. Political manifestos will all have to address how future governments will build more houses, change the planning constraints and free up land at affordable prices. This means that there will be a great future in terms of opportunity for good brokers. We should be planning for a gradually expanding future.
With both price inflation and wage inflation still within the acceptable boundaries set, with oil prices feeding through to a shift in economic power and the heat having come out of London property prices, the need to increase borrowing rates has receded. The changes to stamp duty are a welcome revolution and well placed to kill off what can only be seen as the particularly risky money grabbing mansion tax.
The last five years has seen the sector take strides forward in the amount of information it gathers from customers and significant steps in ensuring that when an application is submitted to a lender it has the information required which allows the underwriting to be accurate. The professional intermediary’s job is now much more complex than before the great recession, requiring more knowledge, greater attention to detail and precision in execution.
Because of this, lenders are increasing procuration fees. This is because they are increasingly able to see the benefits of good intermediated business. It is not an attempt to buy business. This is more than a reward for better quality. It is recognition that there is value in profitable brokers who can invest in their future and that of the industry. It is awareness that the cost and risk associated with the advice given is significant and that even 0.4% of the value of a loan is little compensation for the time to execute the transaction, never mind the legacy risk associated with the advice on what is a product that last for more than 25 years. The regulatory burden is not going to reduce.
What is most obvious are the great deals currently being offered by lenders. These are at rates and fees which most thought we would never see. Given the possibility that we could be in this low interest rate environment for some time, consumers have never needed advice as much as they need it now. What has happened is that the new regime being imposed on banks by their prudential regulators means that for many the real sweet-spot for future growth in capital terms is UK residential mortgages. There are some significant growth targets in business plans for 2015 and beyond. This means that good brokers will need to engage with consumers who fit the criteria and get them across the line to complete on the loan.
We have to be careful around Buy-to-Let however. The industry must keep LTV’s at sensible levels and not allow “pay-rates” to drift downwards. Acting responsibly is necessary to avoid regulators needing to intervene. Indeed the need to maintain an active private rented sector is core to the interest of our industry and we must not take actions that would encourage removal of the tax allowances which make this an effective market and is currently fulfilling a real social need.