News Review: Market issues The challenges of distribution over the coming years
by Duncan Crocker managing director, Legal & General Network
after the roller coaster of the last three years in the uK mortgage market it seems almost a cliche to say that we are facing very uncertain times ahead - but it is no less true for that. the intermedi- ary sector, or what remains of it following the business failures and market con- traction we have seen since 2007, still cannot see a clear, untroubled future. change - and often quite unpredict- able and radical change - has become the norm. i see three major sources
of change over the next few years that firms should be considering and planning for: the economic head- winds, changes in consumer behaviour and the impact of regulation.
Economic headwinds although the latest Bank of england inflation report (10th november) says that the uK economy will avoid a “double dip” recession, it still points to difficult and troubled time ahead, with recovery patchy. against this backdrop in our mortgage market, lending supply re- mains constrained, with the welcome entry of some small new lenders and re-entry of some longer established lenders being offset by the constraint on lending by the largest lenders. repayment of the government support schemes will keep gross lending - the key health fig-
ure for the intermediary in- dustry - depressed, certainly through 2011 and probably well into 2011. So, low lending levels and
with consumers under other financial stress due to in- creasing unemployment in both public and private sec- tors. consumer confidence will remain low. Headwinds indeed. intermediary firms who
have made it this far should make it through the next cou- ple of years too - with plan- ning and with care - and in particular with continued di- versification into fuller finan- cial planning and insurance sales. Whilst the demand for home finance may be de- pressed, the need for family and lifestyle protection has not declined and these are markets which firms should be active in now.
Consumer behaviour there is a huge sociological experiment currently go- ing on in the uK, on which there has been seemingly little debate. this is the im- pact of student debt on the future borrowing behaviour of first-time buyers. the heat on this issue is due to be cranked up as a result of the proposed increases in tuition fees, which could leave the average student over £30,000 in debt at the beginning of their working lives. and with around 50% of school leavers now going into further edu- cation, this is a real issue. For so long the life blood
of the mortgage and housing markets, tomorrow’s first- time buyers might be for- given for wanting to leave it a while after paying off their
“I see three major sources of change over the next few years that firms should be planning for: the economic headwinds, consumer
behaviour and the impact of regulation”
student debt before taking on their first mortgage. this is undoubtedly a factor in what we have already seen with the average age of first- time buyers moving into the mid to late 30s. How much further might it go? With thirty years to pay off
a student debt it is entirely possible that we’ll see par- ents sending their children to university before they have completed the payment of their own student loans. the industry needs to start think- ing about this issue now, and consider how these debts can be rolled up into new mortgage products for this first-time buyer segment.
Regulatory change - challenges and opportunities and then there is regulatory change. there has been a lot over the years. and taking our partner firms through
major regulatory changes is something we excel at. now, six years after “m day” we face another significant re- vision of the way we do our business. although there is no firm timetable for the changes under discussion from the mortgage market review, some real change and consequent disruption is inevitable over the next couple of years. Firms need the resource
to be able to consider and plan for these changes when they become clear. of course the mmr changes are some- thing the mortgage interme- diary sector will just have to assimilate - no option. But there are other changes com- ing from the regulator which could be a great opportunity, and that is the implementa- tion of the retail distribu- tion review. coming into force on the
31st december 2012, rdr may bring with it the oppor- tunity to broaden the busi- ness of many intermediary firms - from just mortgages and protection, into advice on savings and investments. We see several innovative propositions being brought to market by providers and by networks to equip firms with the ability to advise on and sell a much wider range of financial services products. good mortgage firms with
good sales and compliance infrastructure could be ide- ally positioned to take up this challenge and make more robust their business mod- els. So all is not gloom and doom. So, to go back to another
old cliche, when the going gets tough…
mortgage introducer DECEMBER 2010 17
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