However if we were to delve a little deeper into what we all actually mean by ‘innovation’ then I suspect we probably wouldn’t be thinking the same because ‘innovation’ means different things to different mortgage market stakeholders.
Indeed, are we even really talking about ‘innovation’ at all? I recently heard a very experienced head of one specialist lender suggest that there has effectively been no ‘real innovation’ in the mortgage market for the last 15 years, apart from a couple of notable exceptions. He believes that ‘innovation’ is used predominantly to describe lenders moving up the risk curve – so, for example, when an intermediary says they want a lender to innovate more, what they actually want is for that lender to lend at higher LTVs and relax their criteria enough so that their clients can secure a mortgage. I think we’d all agree that this can’t really be described as innovation, and on this I take the specialist lender’s point.
I’m not so sure that the last 15 years however have been a wasteland of innovation – what about current account/offset mortgages, shared ownership, lifetime mortgages perhaps, guarantor mortgages, equity loans, etc. All offer something quite unique and different to, or within, the mainstream residential market and are evidence that lenders can deliver products that cater for changing demographics and different borrower needs.
I recently attended the MFG Conference with a couple of colleagues, and one of them remarked afterwards that it was refreshing to hear so many of the lenders and delegates assembled talking about growth and innovation. This positivity appeared to be in stark contrast to other events we will all have attended in the past few years where the primary focus has been on the increasing cost and burden of regulation – although it must be said that there was also plenty of discussion on this at the MFG event.
What was clearly evident however was the fact that all attendees accepted their regulatory responsibilities were not going to go away, so they should be dealt with, but that it was also possible not to get hung up on them or that they shouldn’t stifle the market’s ability to look forward and develop new propositions. The introduction of the MMR last year clearly put a huge burden on lenders in particular, but now close to a year on, their understanding and ability to deal with the new rules and regulations is complete. Even with new regulation like the European Mortgage Credit Directive on the horizon in 2016 it is still possible to look forward, to plan for future growth and, dare I say it, to look for real ‘innovation’ in the marketplace, not just running up the risk curve in order to try and secure volume.
Interestingly, many delegates commented on the role of mortgage insurance in helping lenders develop innovative products and enter new sectors. There is clearly latent demand for property out in the UK however large numbers of borrowers may not be, what we might call, ‘conventional’. This doesn’t mean they are any less credit-worthy however they require lenders to adopt specific approaches to their needs and, perhaps yes, have the mitigation of mortgage insurance in place in order to allow them to dip their feet into these new mortgage waters.
All in all, and even with a very uncertain General Election just a month away, this feels like a positive time for the mortgage market and let’s certainly hope that we are able to sustain this positivity in the months and years ahead.
