The Credit Crunch: Three years on
The past three years have been turbulent across the globe, but things have been tougher for the UK mortgage industry than most.
Brokers have been hit hard with conservative estimates from the Association of Mortgage Intermediaries suggesting that 20,000 of you have fallen by the wayside since the 9th August 2007 when the funding markets closed their doors and lenders started shutting up shop.
Those working at lenders also suffered fallout as funding dried up, new lending ceased and staff were sitting twiddling their thumbs.
Kensington chopped 65, Paragon lost 62, Platform shed 65, edeus was forced to let 30 people go, Mortgages PLC swung the axe through 20% of its work force and Wave said goodbye to 26 staff. All in a few months.
Heads also rolled at the top with Merrill Lynch, which owned both Mortgages PLC, Wave and provided financial backing for edeus, seeing its chairman and chief executive Stan O’Neal thrown over.
Bear Stearns went bust, Lehman started to wobble in early 2008, axing staff but continuing to lend under Preferred and Southern Pacific Mortgage Limited brands until it was left to topple by Wall Street’s finest in October that year.
Packagers didn’t look likely to survive the crisis with Praxis, which later went into administration, c2 Group and MD Nationwide all culling staff in a wild attempt to survive.
Kensington was bailed out by South African bank Investec just in time to scrape through the crunch intact but it was still forced to pull out of sub-prime lending in November 2007, and ceased lending altogether shortly thereafter.
Rooftop, Mortgages PLC, Future Mortgages, Home Funding, Victoria, edeus – all kings of the boom years lost their ways in 2008 with many winding up operations or sitting in a finance-free limbo.
By the close of 2008 the non-bank lender had all but disappeared from the market. edeus went pop in October 2008, morphing its business into due diligence firm Exact after being forced into administration. Checkmate has rebranded into Portillion, but is still waiting for its FSA lending permissions to come through.
Gross mortgage lending fell from £362.758 billion in 2007 to a paltry £143.633 billion in 2009. The Council of Mortgage Lenders estimates gross lending for 2010 to be in the region of £160 billion, but it has already announced that the market is tracking below that level, and its estimates may need to be revised down.
“Until things get better in the funding markets,” has been a ubiquitous phrase, heard muttered in the death throes of many a lender and those in the industry today say the funding gap remains the spanner in the works preventing the mortgage machine getting back into gear.
Tony Ward, chief executive of dormant lender Home Funding, says the lack of finance in the wholesale markets that has characterised the crunch and resulting recession is still dogging the market.
He said: “The markets have hardly restarted and I can’t see a rapid reversal of this situation until we crack the securitisation problem. It’s the only thing that’s going to solve the lack of movement in the market, and we’re not there yet.”
Alan Cleary managing director of Precise mortgages, agrees that the big issue is still funding. “There is no appreciable difference in the level of funding now from when we first went over the edge of the cliff,” he said.
“I think the reality is not a lot has changed over the past three years. House prices have stabilised and aren’t in freefall anymore and we’re probably through the bottom but we’re just sitting still now. You’d normally expect to see static growth after a recession and it could be that we’re within twelve months of some pick up.”
Both Santander and Lloyds have issued some securitised deals in the past three years, but Cleary says it hasn’t put much noticeable confidence back in the market.
Ray Boulger, senior technical director at John Charcol, also agrees that kick-starting the securitisation markets is vital to get more finance into the market.
“Lenders need securitisation to reopen if there’s to be any improvement in how much lending they can do, and the terms they’ll do that lending on,” he said. “I think initially securitisations will be prime and buy-to-let and only then will we see any complex prime trades, but I wouldn’t rule that out in a few years time.”
Boulger also said that the lack of lenders lending actively in the market was a major issue for brokers trying to make ends meet, but just as problematic has been the lack of transactions in the property market.
“While I think we’ve been through the worst, I just don’t see things getting back on track soon,” he went on to say. “We need to see an increase in activity in the property market if things are to improve for brokers and that doesn’t look like it will happen this year.
“Although housing market activity is not falling away it’s not rising either and sales transactions are still well below the volumes we saw before the crunch.”
Boulger adds that the split between the broker and direct distribution channels did look as though it was improving after falling to a 50:50 split across the market last year. He said brokers were now back up to doing around 60% of mortgage business, reflecting consumers’ need for advice.
And he says: “Despite lenders desperately trying to get customers in through their branches by dual pricing the difficulty of getting a mortgage means people value brokers.
“That’s something I don’t see disappearing any time soon. With so many brokers leaving the market since 2007, I think it’s fair to say the average quality of brokers is better now. That will clearly help to improve the reputation of the financial advice sector.”