Yes, believe it or not, sometimes these two mutually dependent groups will not see eye to eye about the current state of the mortgage market, regulation, its future, and (at various points in recent history) every other related topic you might care to mention.
To be honest, I sometimes think the fact that both sides have often had diametrically opposed views has not always been helpful to anyone. Given the level of interaction required and the need for strong relationships, I’m of the opinion that an industry which can work together has a much better chance of getting what it wants. However, I’m not naive enough to think that self-interest never raises its head, even if agreement would be a much more beneficial approach.
So, given the history between the two sides, it was somewhat refreshing to see the recent research from IMLA which offers up much more harmonised thought patterns, certainly in terms of the impact of regulation, the optimism for what might be coming over the horizon and the need to ensure that customer needs are not overlooked in an overly prescriptive regulatory approach.
Firstly, the good news is that there is an increased optimism about mortgage market conditions. Over half of intermediaries – 51% - and lenders – 53% - believe conditions are improving, up around 10% from the last time the research was conducted in July 2014. The numbers of those who are rather more pessimistic has also trailed off slightly. Last year 45% of intermediaries and 33% of lenders felt there was a worsening of conditions, however this has now dropped to 23% and 21% respectively.
For intermediaries in particular, I suspect there is now a full-blown realisation that the post-MMR market falls firmly in their favour and that lenders are now much more inclined to seek their volumes from the intermediary channel, even those such as HSBC who had been previously inclined to operate direct to consumer only.
But while there is clearly a more optimistic viewpoint across both groups, it’s also obvious that both intermediaries and lenders are worried about the fall-out from MMR, particularly a fear that it has generated more of a ‘safety first’ attitude and it is creating a market which is ‘too conservative’. This argument has been pretty much prevalent since April last year as lenders themselves got to grips with the new rules in relation to affordability.
The expectation was that any ‘gold plating’ of the rules would slowly be pulled back as lenders became more comfortable with the rules, and their requirements and responsibilities. However one suspects that, if this is happening, it is a slow process. Lenders after all do not want to be in the firing line should their affordability and underwriting systems and processes be judged not to be as stringent as the FCA requires.
And yet there is clearly an underlying tension here and one that both groups believe may be stopping credit-worthy borrowers from getting mortgage finance, and holding back lenders in their ability to produce products and criteria that can be accessed by niche borrower groups. When asked if they’d been unable to source a mortgage for at least one client in the last six months, 84% of intermediaries answered in the affirmative. The areas where such difficulties were being felt were for clients with adverse credit, interest-only borrowers, those looking to borrow into retirement, and those who were either self-employed or had an irregular income.
While this will not be a bolt from the blue for either intermediaries or lenders, it does appear to solidify the need perhaps for more joined-up thinking in certain product areas. IMLA cites the increasing difficulties found by borrowers who have dependents and this certainly seems a bridge too far if these consumers are being unfairly disadvantaged in the new environment. IMLA also talks about the ‘pendulum swinging too far’ and cites the fact that home ownership is slipping back to a much lower level.
We therefore need to look at ways in which lenders can mitigate their risk, while at the same time ensuring certain borrower groups are not overly disadvantaged by significant ongoing and future regulation. Let’s not forget that we have the European Mortgage Credit Directive to be introduced from next year and again the fear is that we move too far towards conservatism. Of course, making use of private mortgage insurance – certainly in the high LTV/first-time buyer/second-stepper space – will help enormously to cover off those potential risks, whilst at the same time allowing lenders to offer products for which there is considerable demand.
It doesn’t have to be a fait accompli that the market competitiveness or product choice baby gets thrown out with the regulatory bathwater but we should certainly be concerned that this could happen. I’m sure both intermediaries and lenders would agree that the mortgage market has been incredibly innovative and forward-thinking in its past and there’s no reason why it can’t be again. The important point is to marry up the two sides of the argument to provide a solution that everyone can get behind.
