It’s an interesting time for the mortgage market – on the one hand we are still seeing highly competitive pricing not just across lower LTV bands but (pretty much) all, and yet there is clearly a shift happening in terms of lender numbers, activity and the future for the sector.
The recent news that Magellan has closed its doors to new business is not just sad and unfortunate but it seems to signal a very minor trend in terms of the ability for the mortgage market to support the hundreds of lenders we currently have.
At this point we have more lenders active in the UK than we did before the Credit Crunch and while this competition is fantastic, there was a greater chance of casualties because of it – especially given the margin compression and the fight for business.
AMI’s Robert Sinclair recently highlighted how this pricing is not just impacting advisers’ recommendations now but – coupled with issues like Brexit and the uncertainty around the economy – the impact it may have on advisers’ futures.
The fact being that when a five-year rate is not too far off a two-year offering, and borrowers want to cover themselves over the long-term, then we’re going to see more clients choosing these five-year fixes, which of course leaves a situation to be dealt with in two/three-years time when the remortgage business isn’t there. How the advisory sector copes and adapts to this is likely to be one of the big challenges to be faced over the next couple of years.
There is however plenty of good news to utilise in order to overcome any remortgage shortfall in the years to come. Not least the demand for advice which continues to be strong, the protections that advisers can bring, the access to the whole of market with its pricing which is unlikely to rise anytime soon, and in areas like product transfer, for instance, there is still plenty of market share to be taken.
The one point I would make is that no-one is an island in this marketplace. Lenders struggling to lend or compete, lenders being unable to keep lending, lenders weighing up their ability to work with intermediaries, etc, is not a positive and we should not feel in anyway empowered by this.
However, what it might bring about is more lenders ultimately moving into more niche areas. We’ve seen this a lot in the building society sector and with the challenger banks who are unable to compete with the Big Six on stone-cold vanilla cases, but can do significant amounts of business in more specialist areas, be that later life lending, shared ownership, buy-to-let for professional landlords, etc.
In a way, advisers and lenders are in a similar place – weighing up how their business has changed, how it will change further, and what that means in terms of running viable operations. As always, the sooner we can all come to terms with this and put a plan in place, the greater the likelihood of continued success.
Richard Adams is Managing Director of Stonebridge Group