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Industry in depth
What the papers say
23 June 2007
David Copland gives his regular round up of the hot topics and debates in the week’s trade press
This week’s round up of the papers starts with Abbey’s re-entry into the 100 per cent market covered by the majority of the publications. The key reasons quoted by Abbey for coming back into this area is that the average age of a first-time buyer now stands at 34 years old and the average UK house costs over £200,000.
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It’s interesting that Abbey’s move coincides with the announcement from the Financial Services Authority (FSA) that the next area for the regulator to focus on is affordability. The FSA is beefing up its surveillance of non-conforming, interest only and lifetime mortgages, with the intended result being responsible lending with appropriate criteria. With non-conforming representing 8 per cent of mortgage lending, the FSA will be making sure customers are not being pushed into this niche when they really qualify for better prime rates.
Market and HIPs
MS highlights how quickly the first six months of the year have flown by and how buoyant the mortgage market continues to be. The article highlights the management merry-go-round that has been created as more new lenders enter the market and how competitive the financial services industry has become.
The Home Information Packs (HIPs) fallout continues with news from the Association of Home Information Pack Providers (AHIPP) that the launch delay is costing in excess of £10 million a month, with many providers having staff and systems sitting idle. AHIPP is now calling for a full road map from the government for the remaining roll- out of the much maligned initiative.
Overseas and BTL
The overseas market is featured in MI with a table showing how house prices have increased on the continent and further a field. Compared to the UK where prices increased by 11 per cent in Q1 2007, Latvia leads the way with 61.2 per cent followed by Estonia at 24.5 per cent and Bulgaria at 22.6 per cent. The article highlights the opportunity for brokers to help their clients in purchasing property abroad, whether for holiday homes or buy-to-let (BTL). But it warns that people can be blinded by the potential financial gains or the promise of an idyllic lifestyle and this can sour a relationship when a deal goes wrong.
Looking at the UK BTL market, there are a number of conflicting stories. MI reports the market remains positive, with landlords either expecting their yields to stay the same or increase over the next year. Compare this to MM, which asks whether the stage is set for smaller investors, who are losing value in their investment as interest rates rise. The Royal Institution of Chartered Surveyors reports one in 20 landlords are now selling their investments, the highest level in two years, with gross yields falling and accelerating downwards at their fastest rate since July 2004. This indicates a split between portfolio investors, who can offset softening income on one property against strength in another, and those smaller investors with high loan-to-value (LTV) mortgages on a single property.
Reports from the National Association of Estate Agents has revealed the number of house sales dropping in recent months, lower buyers in the books but available stock on the books remaining stable. The average gap between the asking and selling price is just 2.7% reflecting the realistic view that vendors and purchasers have in the market of property prices and the amounts that they are prepared to pay.
MM highlights the rate shock that many borrowers are going to experience once they come off their dynamite two year fixed rate deals, some seeing their mortgage payments going up over 30% overnight. Credit Suisse suggest over £200bn in fixed rate mortgages were written in 2005 representing around 20% of the UK mortgage market. Some of the deals in 2005 were as low as 3.99% with a typical rate of 4.5%, many of these customers will be moving onto standard Variable Rates of 7.5%, a rise of 50% in terms of their mortgage payments. With the speculation over another rate rise in the next couple of months, many lenders are currently pulling their fixed rates as swap rates increase, its clear to see affordability will come in to the spotlight.
Finally, FA highlights the battle lines being drawn up by some of the main players in the high LTV market. BM has made improvements to its Mortgage Plus range and with A&L readying a big launch, many are looking to see what Northern Rock will do to maintain its competitiveness in a niche it seems to have dominated recently. Ultimately, it will be the broker and client who will win as competition brings competitive pricing and innovative criteria.