Does positive news show a glass half-full?

Thursday 3rd September 2009

By Michael White, managing director of Email Mortgages

Without wishing to go overboard, the past 10 days has certainly brought with it a raft of research and reports which appear to show the housing and mortgage markets in a much more positive light.  Certainly we witnessed more positive data in August than we have experienced in the last two years.

Consider the following:

1.    The Nationwide reported that the price of a typical house rose for the fourth consecutive month in August, increasing by 1.6%

2.    The latest figures from Land Registry showed a July increase of 1.7% in all regions in their average property values.

3.    Mortgage enquiries from first-time buyers have once again increased to 43% of all consumer requests in July, according to Unbiased.co.uk.

4.    Co-operative Bank Mortgages discovered that a third of people are not prepared to drop their asking price at all to sell at the moment, and only one in ten would offer full asking price on the property they are looking to buy.

5.    The National Association of Estate Agents believes the latest statistics appear to confirm that the housing market has finally bottomed out.

6.    Retailers are no longer feeling pessimistic about the outlook for their business situation in the coming months, according to the CBI

Of course it hasn’t all been chocolates and roses, and the above has been somewhat moderated by the following:

1.    The BSA expects the mortgage market to remain subdued over the remainder of 2009. This is primarily because of the difficulties all lenders face in raising funds for mortgage lending.

2.    Although a rise in Bank of England Base Rate is now some way off, some leading economists predict the eventual exit from the present ‘loose monetary policy’ could make the ultimate recovery more precarious then the past few months of house increases would seem to suggest.

So on balance I would say it is a time to be positive;  we can talk of the glass being ‘half full’ rather than ‘half empty’, but we should not lose sight of the need for better times to bring more lending competition to the market which will hopefully combat current lenders margins.  This is still a major problem for all those involved in the mortgage market.

The lack of correlation between Base Rate and the rates offered on mortgage products will continue to look decidedly unhealthy for the remainder or this year.  Of course, from a consumer perspective, this would appear to be less of an issue as the ‘problem’ is masked by the somewhat notional effect of lenders anchoring rates around figures considered to be competitive in a ‘normal’ base rate environment.

The consequence is lenders margins reaching their highest level since records began and yet there exists the juxtaposition whereby thousands of borrowers are benefiting hugely from negligible tracker and very keen SVR rates.  In short, positive sentiment in the majority is key and even in these testing times any discernable outcry has certainly not been from the consumer (aside from those wishing for higher LTV loans) but from mortgage intermediaries who look beyond the immediate impact and therefore view possible effect and outcome.

In this regard, the issues regarding dual pricing remain a real concern.  And this is not just because lenders continue to focus on the short-term to manage lending volumes and ignore the disproportionate effect it has in the current market in respect of potentially hindering consumer’s access to whole of market advice in the future. 

Much worse is the fact that the FSA will not acknowledge any potential problem actually exists. Indeed, they are very clear on this stating: “If certain lenders decide to offer their direct customers cheaper deals, we do not see that customers' best interests would be served by preventing this.”

But as usual ‘experts’ in the application of theory, who tend to have little practical market experience, appear to ignore all but the largest organisations and only set about resolving the problem after it has occurrred.  This will sound very familiar to anyone involved in financial services over a large period of time and can certainly be seen by the regulators relative (in)action during our most recent financial crisis.

Of course I am bound to say that consumers could face an ‘advice vacuum’ if lenders continue to persist with a policy which puts the more competitively-priced products out of the reach of advisers. However, it just so happens to be the truth and one wonders what the extent of the damage will actually be to the advice industry if this blinkered approach continues to hold sway. 

Let’s hope the competition arrives to bolster the market sooner rather than later as we enter 2010 thus enabling us to fill that glass a little more.

Michael White is Chief Executive of online mortgage advisers, www.emailmortgages.com