Michael White Blog

Friday 16th July 2010
Although a natural optimist, recent days have seen even my reserves of good-humour and bonhomie tested to their limits.
 
Without wanting to get too low, too quickly it is obvious that we, as the mortgage industry and the general economy as a whole, are firmly stuck between a rock and a hard place… with perhaps another rock on top and a couple of hard places at either end!

In terms of the wider economic situation, it did seem that everyone, from the Government to the man in the street, was starting to believe that taxing ourselves back to prosperity with the cushion of virtually zero interest rates, was the entirely correct approach.

But I have now been reading many articles from prominent industry leaders and economists which beg to differ. Many years ago the great Winston Churchill argued that increasing taxes as a means to increasing national wealth was as likely to succeed as standing in a bucket and lifting yourself off the floor.  

I agree with the many economic experts who believe that the economy is shaped quite simply by individuals, with a large dollop of positive sentiment also being key. 

Unfortunately this seems to be a rare commodity at present, particularly in the UK and certainly throughout the rest of Europe. 

Even the IMF is now downgrading economic forecasts; it just seems we are completely lacking any optimistic output which could become the positive driver we all require. And if we can only look forward to more cuts in an attempt to make things better, then matters are likely to get worse before they improve.

In this context, the CML has recently announced that its forecast on gross lending for 2010 is looking somewhat optimistic. Moreover, the BBA announced that net mortgage lending by British banks fell to £36.3bn last year, compared with £59.4bn the year before and almost £80bn in 2006. Overall net mortgage lending last year hit just £7.8bn, as lending by building societies contracted by £7.6bn and specialist lenders withdrew £22.4bn. This is not exactly inspiring reading material, one has to admit.

Most people in the industry, particularly mortgage brokers, have had the hatches battened down for some time, but it still seems there is no obvious timescale as to when it will be safe to re-emerge.

Matters are certainly not likely to be helped by the further regulatory burdens being brought into effect in the name of responsible lending.

I could go over the varied ‘barn pot’ ideas put forward by the FSA in this week’s MMR consultation paper, but I fear this would send us all over the edge. Perhaps straight into the ‘abyss’ that IMLA predicted might occur if these proposals are introduced.

Anyway, my suggestion for broker firms therefore is to put such thoughts on the back burner – for true madness lies in their direction – and instead revisit the following list of must-dos to see if there is any room for further tightening in order to survive.

Speed of action to survive the present turmoil is critical; however, one suspects many intermediaries of long standing will only take survival action. Essentially this will come under the following categories:

Drastically reducing costs.
Relying on their current client base; and then when the situation improves:
Picking up where things left off and continuing to carry out business the way it has always been done.
 
I would argue that this type of ‘survival action’ should be augmented with a mix of ‘progressive action’ where a number of further very important issues are addressed, namely:
How can service be improved?
What new avenues of marketing can be usefully employed?
Should enhanced technology be investigated?
Do strategic partnerships possibly exist where identified synergies can generate business now and importantly in the future?
 
The sad fact is that 2010 will represent a continuing period of drastic downturn in mortgage volumes and very many businesses will not survive as a consequence.

To end on a positive note, I should however point out that in these difficult times improbable opportunities can be created which will reap considerable rewards in the hopefully better years to come. 

It is a shame that so many forces that are supposed to have the best interests of our industry at heart are currently conspiring to make a particularly tricky situation impossible.

Were this not the case one would have far more inclination to quote Ian Dury. Reasons to be cheerful? None to see.
  
Michael White is Chief Executive of online mortgage advisers Email Mortgages ( www.emailmortgages.com )