Scott Thorpe is a director of The Money Group (TMG)
When we made our predictions last time around it was in the middle of lock down, it was risky on our part because predictions have a habit of coming back to haunt you.
Whilst the usual suspects criticised us, when we look back on what we said four months ago there isn’t really a huge amount we got wrong.
As Rishi Sunak announces more job protection initiatives and support for the economy, we thought we would once again stick our necks on the blocks and guesstimate where the industry may be going in the months ahead.
Before we do that, let’s look at where the market is today.
A few months ago we were fully expecting a very subdued purchase market and downward pressure on house prices.
We suggested that in 2021, the government would need to release huge incentive programmes to reignite the economy.
We got that right but the time frame wrong, because the Chancellor implemented a very generous SDLT holiday in July which got the market moving very quickly; arguably too quickly as we moved from a health crisis to an admin crisis virtually overnight.
But lenders did their own homework and decided to slow things down themselves and we have seen rates and criteria being pulled with little or no notice.
They have restricted higher loan-to-values, pushed down LTI calculations and most have removed overtime, bonuses and commission as viable income for lending purposes.
It has all contributed to the market suffering more blocked arteries than someone on a diet of deep fried Mars bars.
Therefore the clean air for the market is all about stable income, healthy deposit and preferably no chains in order to get a transaction completed – therefore over to you Mr & Mrs first-time buyer.
Anyway, about those predictions…
Sellers and buyers in chains
We now think, after the blistering quarter we have all witnessed, that it is slowly turning into a buyers market.
The buyer be will now be more in control, the stampede from the first lockdown has gone, and the hard work of getting a mortgage is where the heavy lifting is now being done.
With new lockdown rules, we now expect a new market and many people may decide to sit on their hands and only move if they really have to.
Only fools rush in.
If you are a seller you should now be looking at the purchasers credentials and not the size of their chequebook.
If the buyer is credible, mortgage ready and flexible, it may be better to take a lower offer but secure the sale.
If the buyer ticks these boxers then it may be worth taking a reduced offer rather than holding out for an extra 5% that may never materialise.
A bird in the hand is worth two in the bush.
First-time buyers and investors
This is now where the market could really see some growth.
We are not huge fans of low deposit lending so ideally the first-time buyer can rustle up a 15% deposit.
But we would suggest they hold their nerve and wait for prices to move closer to them.
All the time they are not buying, they are increasing savings and the vendor is sitting on a potential time bomb; the fuse of which is shortening by the day.
There could be a time when we see a real crossover from vendor greed to vendor reality but not everyone will notice.
You cant always see the wood for the trees.
Well capitalised and experienced investors will be able to spot the opportunity that a distressed market can bring.
The hunt for yield will continue to move away from London and further North, East and West.
Fortune favours the brave.
We have spoken to many lenders over recent months and we suspect that, as you would expect from any major company, they are already looking and planning well into 2021.
They will wait to see the impact to the job market and be watching their own data very closely for any evidence of weakness or stress.
Bear in mind they are doing this whilst having to manually underwrite the majority of their lending without the infrastructure they once enjoyed.
Your underwriter may be assessing your case in their dressing gown, at the kitchen table, or whilst getting their kids ready for school.
There but for the grace of God.
But the lenders won’t rest.
They will be improving what they do all the time behind the scenes.
They will be rebuilding margins so, apart from a few flash sales, we are probably bumping along the floor in terms of cheap rates.
They will also be looking carefully at the quality of the business brokers have been sending them and in many respects querying why some are getting paid for doing so.
We expect a new, leaner and more efficient industry to develop out of this pandemic and that will include how lenders interact with brokers.
A chain is only as strong as its weakest link.
Solicitors are already overstretched and at breaking point, operating in a market that hasn’t really evolved over the years and at a time when the strain from working from home begins to bite.
You may see solicitors taking lenders or brokers off-panel to ease the burden and volume of work.
The savvy large mortgage broker firms should start to look to acquire their own in-house solution so that they then become masters of their own destiny.
A journey of thousand miles begins with a single step.
Residential mortgage brokers
If they haven’t done so already we expect to see an increase in the fees charged to the consumer.
This is not down to greed, more the commercial realisation that you can no longer absorb a complex job for a few hundred pounds in the hopes it will pay out after three months.
Some brokers are already pricing themselves out of work because they cant cope with the volume they have.
The sooner we as an industry embrace this concept, the sooner we can move to a more professional standing in the eyes of the regulator, lender and consumer.
With the comparison sites now offering mortgages at a quicker and slicker pace, you may see the advisor lose some of their client banks as the tech savvy consumer looks for the path of least resistance.
This is not the meteor many think it could be but the technologists will get it right eventually.
The future belongs to those who prepare for it today.
If the market does quieten down over the lockdown and winter months it will give brokers time to evaluate their business.
They may have to evolve and start to look at other revenue streams and we fully expect to see the second charge, bridging and later life sectors to become active and competitive.
Our advice? Don’t sit and wait for something to happen.
An idle brain is the devil’s workshop.
Second charge market
When the first charge mortgage market quietens, the seconds come alive.
We expect to see an increase in demand for the products as consumers realise the cash giveaway from the government is over.
With their first charge brethren taking a breather from chasing volume, we may see a rapid return of the specialist lenders to help fill a funding gap.
We will see a rise in debt consolidation and home improvements which are ideal opportunities for a second charge product.
The lenders are slowly beginning to come back and the funding lines have reopened but confidence is still fragile and it may take time to get the momentum we need.
Patience is a virtue.
As chains possibly start to wobble and looking like they could collapse, bridging will be another product that comes into its own.
The sector can deploy money quickly and that could be the saving grace for many purchasers and developers.
Cash will be king for the foreseeable future and the borrower may not be that bothered how much it actually costs to borrow.
Beggars cant be choosers.
In conclusion, we have no more idea than the next person!
But it is good to sometimes to adapt our thinking.
Writing these predictions not only helps distract us from the pressure of the day job but it also helps focus our minds on our business model and how that will fit in with any future changes.
But one thing we do know is that there will be no hiding from the challenges that lay ahead.
It is better to take action sooner rather than later.
In fact, as someone said recently, “a stitch in time saves nine”.