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Direct Mortgages Market Assessment 2008
Key Note Publications Ltd, June 2008, Pages: 240
This report presents the state of the UK mortgage market in the first half of 2008.
It shows that the structure of the market had fundamentally changed within months of the liquidity crisis at Northern Rock, with the dramatic fall from fashion of securitised mortgages.
The mortgage market remains very competitive, as lenders compete to raise their rates and increase their deposit requirements. Consumer confidence is falling, although the real economy shows few signs of the recession that is expected in the US as a result of the fall in house prices.
The price of housing in the UK has ceased to rise, and in some areas is now (as at June 2008) falling, with the danger of negative equity leading to higher risk among lenders.
Consumer sentiment, as expressed by a sample of 1,001 adults in March 2008, is strongly opposed to unaffordably high mortgage rates, but is well-disposed towards mortgage brokers as well as towards comparator websites. The position of mortgage brokers in a confused and shrinking market is as strong as in a large and complex market. Their role, supported by the new regulatory rules on mortgage lending, is more important when most people seeking a mortgage are concerned about the affordability of the loan and their personal financial risk.
Principles of clarity, transparency and products that fit the borrower's circumstances are prime aspects of the new regulations.
The provision of clear terms of business and comparable offers should make it possible for consumers to reduce the costs of their preferred product to a minimum (albeit that, in the wake of the `credit crunch', the costs of many mortgage products have risen during 2007/2008, including large booking fees in some cases).
Mortgage providers generally offer the same products through indirect and direct channels, although some have become pure direct or indirect operators to reduce their costs and improve margins. The impact of technology will improve the efficiency of the market.
Telephone-mediated mortgages experienced an increase in popularity during the late 1990s, but this channel has not expanded as much in recent years. Internet-mediated sales have not yet fulfilled the expectations of early innovators, and currently are offered by only a small number of firms.
However, sales through branches have held up in recent years. This may be related to the extensive process of applying for and processing mortgages, and to the variety of products that may confuse the applicant.
We conclude that the future of mortgage provision lies with prudent lenders that offer flexible mortgage products to small market segments, using innovative products to minimise risk and to maximise affordability. In such a market, small providers (such as building societies) should perform well, and mortgage brokers, rather than large direct providers, will be the most popular channel of delivery.
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