News Review: Specialist Prime


Stormy mortgage market not all bad


by Alan Cleary, managing director, Precise Mortgages


don’t be disheartened by my less than positive start. By the end of this feature i will have become a lot more positive but i think it is important to state the problems we face and then search for solutions rather than ignore the white elephant in the corner of the room.


Gross lending gross lending is at a post- war low if you build in the effect of house price inflation and i believe 2011 will be lower than 2010, which was a dangerously low £137bn. So far we have avoided a full scale house price crash but the lower the gross lending number goes the closer we get to a very undesirable house price correction. the drop in house prices from 2007 to 2011 could be considered a correction but the reality is that we haven’t seen a correction, more of a regionally driven soft landing. Just as rampant gross lending from 2000 to 2007 arguably drove house prices into a bubble, further contraction in gross lending will at some point cause a correction. the lack of supply of residential property has held house prices at this level for the last two years but at some point the economic balance will snap. When i say correction i am talking 30-50% from


the peak in 2007 and before you say “impossible” look around at our european cousins in ireland, Spain and Portugal. regulation is rampant


at present with not only a wholesale shift in our own regulator’s position but an avalanche of european union driven regulation hitting at the same time. it is difficult for lenders at the moment to work out which way is up and the result is stifling. Lenders are so risk averse right now that it is almost oxymoronic to call us lenders. the same can be said


for house builders as they have just been hit by an eu directive that makes it exceptionally difficult for them to continue with shared equity loans. i could write 10,000 words on this topic without looking up from my laptop but i am sure that you would be bored to tears so i will keep it short. regulatory capital changes, possible product regulation, the mortgage market review, the retail distribution review, cP11/10 etc, etc, etc. the market needs clarity on regulatory matters otherwise the whole system is going to seize up.


Good news this is where i am going to start getting a bit more positive. Funding has been a disaster since august 2007 but the fog is definitely lifting. the Bank of england has recently stated that the large banks are in good shape to repay the Special Liquidity Scheme because they have been successful in


26 mortgage introducer MAY 2011


“Funding has been a disaster since August 2007 but the fog is definitely lifting. I believe that both Paragon and Kensington will be successful in the near future with new issuance of securitisations”


disposing assets and raising new funding. Precise mortgages has


also been successful in raising funds to lend and over the coming weeks you will see us expanding our lending considerably. i believe that both Paragon and Kensington will be successful in the near future with new issuance of securitisations which will further help the market. Funding is no longer


the issue that is stopping lenders from lending. Some lenders, ourselves included, are showing signs of getting their appetites back and you may have seen quotes from intermediary mortgage Lenders


association members that they have


the capacity and most importantly the desire to increase mortgage lending. intermediaries should be encouraged by this sign as it could be the start of increased product choice and availability.


Problem solved i would encourage brokers to start to re-engage with borrowers in their client bank. it has probably been a long time since contact has been made with many borrowers. there is a genuine opportunity to help them spring clean their finances and the product availability hasn’t been this good for at least three years. imagine the pent up demand that exists in your client bank and this alone should be a motivating factor for most brokers. i have spent a lot of time recently out and about talking to brokers and some of the feedback i have received is that it is too much hassle trying to place near prime cases and that the reward is not commensurate with the effort. i understand where this feedback is coming from and no doubt it has been pretty difficult for the last few years to place a near prime case. But Precise mortgages have products available for near prime borrowers and we have the funds to lend more money. it only takes a few minutes on our system to establish whether we will do the loan or not so why not give it a try, you might find that the effort is well worth the reward.


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