MORTGAGE SPECIAL
There are mortgages to be had... if you’re lucky.
now its mortgage business has returned to profit. She says building societies have particularly good products in specialised niches such as guarantor schemes and shared equity mortgages. If the current thawing of the market
There is a plethora of different vehicles, interest only, offsets, caps, trackers, collars and buy to let...’
fixes are expensive, while two year deals look cheap, but probably aren’t worth the arrangement fee given the likelihood that base rates will remain low for some while.
THE RETURN OF THE BUILDING SOCIETY But one thing does seem to have been changing. The big guys aren’t having it all their own way any more. The building societies are back with a vengeance, and some of the specialists are looking good, too. For instance, Ray Boulger points out, the
Coventry Building Society had a 15 per cent share of net lending in 2010, having launched some extremely competitive mortgage products. It has built its share consistently since the crash, claimed 17.1 per cent of all mortgage advances in Q1 2011, and has now thrown its hat into the ring to buy the ‘good bank’ part of the nationalised Northern Rock. Yorkshire Building Society was less active in 2008-9. Chris Smith says, “We’ve always stuck to our guns of being a Building Society and not straying into other lines of business. We were very keen to keep high levels of liquidity and high levels of capital, we need to protect our members.” So in 2007, YBS slowed its lending down, to maintain liquidity levels, and when in 2009 the markets improved a little, it took on the struggling Barnsley and then the Chelsea, and took a while to
rebuild its capital before becoming an active lender again. However, Chris Smith says, “lending is
what we’re here to do”, so as soon as capital regained pre-merger levels, YBS dramatically increased its lending. “We nearly tripled the amount of lending in 2010,” he says proudly, “and our aspiration is to grow it another 50 per cent this year.” He’s keen to ensure YBS has the most competitive products, and is also bringing Chelsea’s product range into the limelight. “My job is to get the best buy mentions,” he says, and he’s happy he managed 164 in June, against 95 from their nearest rival. Ray Boulger says the building societies
are thriving “because they’re offering personalised underwriting, not a ‘computer says no’ policy. There are lots of clients who don’t tick all the boxes for the big boys, but are nevertheless very good quality.” It’s not just these two societies, he also mentions Rugby, Melton Mowbray, and Newcastle Building Society as strong contenders in the current market. Not all building societies are doing well, but Ray Boulger says “You can tell the ones who are struggling by the fact that they have no competitive mortgage deals.” Catherine Hearnden agrees that “some
of the building societies are coming to play quite aggressively”, Yorkshire, but also Skipton, which has announced it plans to increase its mortgage lending significantly
continues, we may see the smaller lenders clawing back market share from the biggest five or six. It’s also worth noting that the larger lenders aren’t without problems of their own; a piece of research from investment bank Morgan Stanley recently suggested nearly a third of Lloyds’ outstanding mortgages could be in negative equity by the end of 2012. That could leave the big guys without firepower just as the smaller lenders are beginning to feel confident again, so the market could be moving back towards more diversity and greater competition.
M New tricks
ORTGAGE VEHICLES
One of the great changes in the mortgage market after 2000 was an increased appetite for new types of mortgage. Endowment mortgages pretty much disappeared after their weaknesses were exposed by low investment returns in the 1990s, but they were replaced by a plethora of different vehicles, interest-only mortgages, offsets, buy-to-let mortgages, trackers, caps, collars, and fixes of various durations.
THE TRACKER MORTGAGE Tracker mortgages are currently popular. Chris Smith says, “They’re being used in the market to entice people off very low SVRs; with an SVR around 2.5 per cent, you can lure people with a 1.99 per cent tracker. But to be honest it’s very hard to sell a tracker when you know the interest rate is only going to go one way.” Instead, hybrid mortgages such as capped trackers and drop locks are being offered. For instance, a First Direct three-year
capped tracker starts at 2.65 per cent, with a ‘cap’ at 3.98 per cent. The higher rate undercuts the average three-year fixed deal. However, First Direct is only offering this mortgage up to 65 per cent LTV. Yorkshire offers a drop lock, “with a lower tracker rate for those who want the option, but with the ability to fix later on at the customer’s choice, and without paying an extra fee when they choose to fix.” The drop lock deal has recently been expanded from 75 per cent to 90 per cent LTV,
PROPERTYdrum AUGUST 2011 21
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