Ray Boulger of broking firm John Charcol is for me the most knowledgeable man on mortgages. He's forgotten more stuff on the intricacies of the market than I'll ever know. Ray also happens to be pretty mild mannered and measured in his comments. So when last week he accused Lord Myners, the Financial Services Secretary, of having a "dangerously naive" view of the mortgage market, I took notice. The reason for the outburst was that Lord Myners had told the Treasury Select Committee in writing that the UK had "a very competitive mortgage market".
If Lord Myners believes that then I suggest that he check to see which planet he is currently on. The fact is that the mortgage market is distended. It is functioning like a heart with a couple of blocked arteries with the supply of money spasmodic and not always going to the right places. The market is a mess.
Because of tight lending criteria, an estimated 3.5 million families literally can't move to a different property or even remortgage. At the same time, lenders are instructing surveyors to undervalue properties when assessing them for mortgages, trapping more households. The Royal Institution of Chartered Surveyors reckons that of every 10 house sales that fall through, at least one is due to lenders pulling finance. Lenders have the whip hand and are able to name their price and regulate business volumes closely.
Another effect is that many brokers are being squeezed out of existence and that isn't good for consumer choice. One big high street lender operates a quota system which means that it has a pot of money available to a small, select panel of brokers; everyone else can go whistle. Pre-credit crunch, it used to be the other way around.
This is terrible for competition. We'll be left with a handful of big brokers which could be beholden to those lenders willing do business with them. We are about as far away from Lord Myners' "very competitive mortgage market" as we've been since the 1970s when building societies rationed mortgages and insisted on borrowers having large sums on deposit with them before they would deign to consider their applications.
That's not to say that there aren't optimistic signs for those who care about consumer choice. Last week, for instance, the Bank of China (BOC), the world's third-biggest bank, said that it would dip its toes into the UK mortgage market by offering loans of between £100,000 and £350,000.
As a new entrant, the BOC has no burden of bad mortgage debt. Its initial offering is reportedly modest: 25 per cent deposits and triple income multiples. This figures, as the Chinese tend to be both cautious and in it for the long term. But if the BOC decides to really grab some market share then it has the resources – don't forget it has helped recapitalise the American banks – to blow the UK lenders cosy little market construct apart. Here's hoping.
Sting in repossession tail
The second-mortgage industry gave itself a pat on the back last week. The Finance and Leasing Association said that its members had "only" repossessed 1.7 per cent more homes in the past quarter than in the same three-month period last year. Fiona Hoyle from the FLA said that this showed its members were "making every effort to help customers in financial difficulties".
In the past, debt charities have pointed the finger at second-mortgage lenders as being among those most ready to repossess and pressurise struggling homeowners. Some borrowers only had to miss a single payment before extra charges were levied and the wheels of repossession set in motion. Those same debt charities now say that the second-charge firms have eased up, but I suspect that instead of being the new caring outlook espoused by the FLA, it has to do with the current housing market.
If a second-mortgage firm goes for repossession it's likely it won't get anything at all. This is mainly because the lender with the initial mortgage on the property is paid first, leaving the lender with the second mortgage living off scraps. Interestingly, the same charities are telling me that the second-mortgage firms are going for repossession orders but requesting that they be postponed.
The decision to go for a suspended repossession could be to allow the borrower time to restore finances, say, through finding work. But another reason for suspension is that lenders are waiting for house prices to recover before carrying out the repossession.Reuse content