"The introduction of further regulation and some uncertainly in markets like BTL point to an even stronger reliance on the advice process and the continued importance of the intermediary sector."
FR: How can under-served sections of the UK mortgage market be helped onto the housing ladder and what products would you like to see offered more widely across the market?
There is clearly a strong aspiration for under-40s to become homeowners. Research recently carried out by Yorkshire Building Society, of which Accord is part, talked to more than 2,000 18 to 40-year-olds, half of whom were homeowners and half of whom were yet to buy their first property. The research found that there is a huge desire amongst young adults to own their home, with most ranking homeownership as their number one priority in life, and one in five saying they have delayed marriage or children to achieve this aim. Homeownership was also clearly linked with a sense of identity, with 69% of 18 to 40-year-olds saying it was essential to them feeling as though they’d succeeded in life.
The research also found that the main barriers to homeownership were financial, with 45% telling us they didn’t think they earned enough money to afford their own place, and two-in-five of those surveyed who had yet to buy their first home said that one of the main barriers to getting on to the property ladder was raising a deposit.
The Government’s Help to Buy mortgage guarantee scheme comes to an end later this year and it remains to be seen whether lenders who have taken part in it maintain their presence in the 95% LTV market. We re-entered lending at this level without the need of Government scheme because we felt as a business it was important to help first-time buyers and those with smaller deposits or amounts of equity to get on or move up the ladder. Hopefully, the range of 95% LTV mortgages will remain as strong as it is now when that element of Help to Buy is phased out.
FR: What more can be done to address the issue between supply and demand? Do you think it will become increasingly difficult for first-time buyers to get onto the housing ladder?
It has been good to see the Government clearly prioritising this issue and attempting to address it with schemes including their starter homes and shared ownership programmes. However, the Barker Report, published in 2004, cited an overall deficit of more than one million homes, and there are doubts as to whether house-building companies will be able to keep up with the additional pressure on supply caused by the Government schemes. This is further evidenced by the Local Government Authority, which estimates we need 230,000 houses a year, yet private developers are only building an average of 150,000 annually.
In light of this, we need to start thinking about creative solutions which could answer the supply issues. There is a clear opportunity for the public sector to take a leading role in house-building in a sustainable way, bridging the gap between supply and demand. In Manchester, the city council has joined forces with the Greater Manchester Pension Fund to create Matrix Homes, which builds energy-efficient family homes in popular locations, on local authority land. The homes are for sale or rent, with the profits going back into the organisation to build more homes.
In this way, homes for sale and private rent are being delivered by the public sector to ensure there is genuine challenge for the private sector, giving private builders an incentive to keep the build-rates and not hold back supply and land.
We understand that a number of other councils will be starting to build houses, including some for sale, at greater in scale this year.
FR: How will upcoming regulation and a potential rate rise affect brokers and the wider lending market?
Any change or uncertainty in the market, whether it’s a new regulation or a rate rise, heightens the need for professional advice. During times of change, customers often need additional help and support, and this is where the importance of the broker market becomes clear. Being proactive with existing customers will build trust and protect a broker’s relationships from competitors.
Many customers have never experienced a base rate rise, so the broker’s role in terms of offering reassurance and suggesting different ways of saving money is vital. Brokers shouldn’t wait until rates go up to start these conversations, however – they should be raising these issues now.
FR: The intermediary mortgage lending market saw strong growth in 2015 – is this something you see continuing?
The last 12 months have seen the intermediary’s market share continue to grow, and it is forecast to peak at about 70% in 2016, and to remain at that level in 2017. This has mainly been driven by the shift to advised mortgage sales required by the FCA’s Mortgage Market Review.
To a lesser extent the intermediary market is also being boosted by new lenders and challenger banks selecting intermediary distribution as their main or only channel to market.
The introduction of further regulation and some uncertainly in markets like BTL point to an even stronger reliance on the advice process and the continued importance of the intermediary sector.
FR: What do you think will be the most significant changes in the industry over the next 12 months?
A number of influences will have a bearing on the mortgage market through remainder of 2016, including the EU Mortgage Credit Directive; the new 3% stamp duty surcharge on buy-to-let properties that came into effect in April; the PRA’s consultation paper on buy-to-let underwriting standards; and an increase in the number of challenger banks and new entrants.
All of these point to an increased reliance on the advice process and the continued rise of the intermediary market. To compete effectively in this market, lenders need to invest, and I believe we will see a gradual return towards innovation as lenders start to free up resource and IT capacity post-regulation.
New lenders will help in this regard, as they will look for new customers, coupled with an increased focus on secured loans and later life lending. The main change looming for the industry, arguably, is the pace of technology. Brokers will therefore need to invest and react accordingly in order to keep their business relevant. By offering a slick, service-driven, holistic proposition to customers, competitors will not be able to gain a foothold into an established firm’s client base. Today’s intermediaries need to be proactive, service all needs, and take steps to future proof their business right now.
FR: If you could see one headline about the housing market in 2016, what would it be?
Government fulfils home-building target pledge.
