Mortgage lenders reflect on pre-crunch market
The part of the survey which gained the greatest consensus was lenders’ views on the main features of the pre-2008 market they most appreciated; choice, pricing and access to mortgages.
The CML said in its report: “It’s tempting to demonise the pre-crisis mortgage market and many have done so. But it would be a mistake to ignore its positive features.”
Lenders said different interest rate options and the choice of repayment methods allowing customers the personal choice of a repayment strategy.
A greater level of choice for people who are responsible with good credit but who did not meet lenders’ standard criteria was also missed.
But extensive choice was only considered positive if used responsibly with inappropriate self-certification being cited as an activity which made a clampdown inevitable preventing the use
The competitive nature of the mortgage market was highlighted as a major benefit to customers but not rational or sustainable for lenders.
Sub-base rate trackers and loss-leading 2-year fixed rates were raised as examples of products offered below the cost of funds borne by the lender.
The report said: “For today’s customers, mortgage pricing is influenced not only by the current costs of funding, capital and distribution but also by the fact that some lenders are needing to restore balance sheet strength through new business to make up for weaknesses that arose through the pricing of previous business.”
And many lenders voiced concerns that given the choice of products available at that time it is implausible that a 2-year fix could be the best choice for such a large number of borrowers.
Access to Mortgages
The increased difficulty in accessing a mortgage is perceived by lenders to put borrowers at a greater disadvantage than the shrinking of choice or the rise in prices.
The report said: “Reduced access is manifested both in a greater price differential between borrowers who have substantial equity and those who have only a modest deposit.
“And also in greater difficulty in fulfilling lender requirements in terms of credit status, income verification, and other credit risk assessment factors.
Although the current conservative conditions are likely to result in less risk to all parties, lenders were divided into two camps.
One seeing the cautious approach as necessary in a market which no longer subscribes to the buyer beware school of thought and the other viewing risk adverse policies as a temporary response to funding and capital market conditions which may ease in the future.