"It is being suggested that we may see a rise in the base rate in 2018, or possibly now in 2019, so it is likely that we will remain in a low interest rate environment for the medium term."
FR: Your current job title is Head of Lender Relationships – what does your day-to-day role involve and what are some of the key issues affecting lenders in the current climate?
My day to day role is to work with our 65+ lender relationships to help develop products, propositions and lending opportunities. We do this through Legal & General Mortgage Club’s distribution, in line with the lenders’ requirements and appetite.
The main challenges for lenders in the market are currently:
- The race to the bottom on pricing – particularly at low loan to values. This has come around because of increased competition and good availability of funding. This is affecting margins and profitability.
- Again, increased competition is meaning lenders are having to consider expanding their criteria to cater for underserved borrowers. This brings the challenge of a lender having to balance their volumes with the appetite of their risk within the market.
- The myriad of changes so far in the BTL sector and the work required to deliver a portfolio lending proposition is taking up valuable resource. This has the potential to slow development in other areas of the business
- Technology – making APIs available for broker systems to connect to and preparation for PSD2 and the benefits that may bring.
FR: What positives and what shortfalls have you seen in the Government’s recent Housing White Paper?
The Housing White Paper did demonstrate some good intentions, but it was short on immediate action. Stamp Duty reform, help for older borrowers downsizing, and building on some parts of the greenbelt were perhaps missed opportunities. Commitment to small and medium sized builders, as well as support for housing associations and local authorities to build more homes was positive. However, we now need to see action, not just words. We will be watching the outcome of the General election outcome on June 8th with great interest to see what impact, if any, it has on the progress of this White Paper.
FR: What are the biggest issues facing the mortgage market in the current economic environment, and what should advisers be aware of when dealing with both lenders and clients?
The debate around use of technology and robo advice continues to dominate our market. We need to accept and embrace the fact that technology is going to play a significant part in our industry, welcoming it with a positive mind set. Technology, if embraced correctly, will reduce time spent on administration, and enable advisers to see more customers. We also need to recognise the changing behaviour of our customers, and how they will want to use technology to transact with advisers and lenders going forward.
In addition, the customer is continually changing in terms of needs and requirements. An increasing number of customers have more complex incomes or require non-standard criteria as they no longer fit the High Street lender model. Advisers need to be aware of the opportunities that both building societies and specialist lenders offer to these customers. The difficulty for advisers is being able to keep up to speed with the criteria these lenders offer. This is where mortgage support desks, such as Legal and General Mortgage Support Services, play a vital role in helping advisers to place these more complex cases
FR: How will Brexit and a low Base Rate continue to affect financial services in the coming months? Do you think mortgage rates have hit rock bottom or will economic uncertainty push rates even lower?
Difficult to predict! Depending on how well the Brexit negotiations go will determine how consumer confidence is affected, which may have a knock-on effect on transaction levels, certainly in the house purchase and BTL sectors.
It is being suggested that we may see a rise in the base rate in 2018, or possibly now in 2019, so it is likely that we will remain in a low interest rate environment for the medium term.
Product pricing is also likely to remain relatively low, however it is not specifically linked to the bank base rate and so can be affected by shocks to the market or availability of funding.
Those lenders that opt to use the new government Term Funding Scheme, will be required to grow their net lending volumes or risk facing penalties. This could lead to more competitive retention/product transfer pricing, and highly competitive re-mortgage pricing, as lenders strive to meet these targets.
FR: If you could see one headline about financial services in 2017, what would it be?
The UK housing and mortgage markets remain strong, resilient, and open for business!
