Posted on: 10 August 2012
Price War or Market Re-alignment? - Martin Reynolds
Well who would have thought that we would be talking about a mortgage price war in 2012? Especially during the summer, when we were being told that the market would be closed.
It is great to see the number of products increasing and especially as the competition is in the sub 60% LTV arena. Whilst not all products are available to the intermediary market, I feel it still does help in a couple of ways:
- It stimulates competition, as we have seen post HSBC’s launches
- It can still help a chain of house purchases. Does it really matter if one of the four properties in a chain is funded by a direct only deal? If it was not there, then potentially the other three mortgages would not have happened.
So what is creating this price war? Most people feel it’s the start of the effects of the Funding For Lending Scheme. Well they started early as the scheme only officially launched on the 1st August and most the products were already launched. More likely is that the traditional big 5 intermediary lenders are trying to protect their bank account database against HSBC. Ultimately who knows but also it’s not really our issue. The key is that the products are here and we should make the most of them.
Higher LTV products would be good, but what is more interesting is the type of product that is the focus of the turf war. The 5 Year Fixed.
For the last 15 years it has predominantly been a two year market. I worked within a lender’s product department during the mid to late 1990’s and historically the best sellers were 5 year fixed rates followed by 5 year capped rates (I wonder if they will come back). However, in the run up to the 1997 election, the market moved more towards 2 years. The rationale we were given was that there was uncertainty about how a Labour party would perform if they won the election as predicted and people wanted the flexibility to change, a year in. We have never really moved from this type of market since, even though lenders have tried on a number of occasions. In reality, margin constraints have meant that 2 and 3 year deals have always been easier to price competitively.
The question is, are we about to see a market shift or re-alignment and if it is, what will the effects be on the intermediary market? Well the biggest change will be that the intermediary will not have the normal two year guaranteed remortgage opportunity. So firstly, how is the income gap going to be filled and of equal importance, , how do we create reasons to talk to our client bank?
It looks like we may well be back to that old chestnut of cross sales. It may also be time to be honest when we look at our client bank and also at how high or low our penetration rates on cross sales have been.
If you feel that help and training is needed then talk to your Network or preferred Mortgage Club. If they do not offer support then that begs the question, why are you using them? There are many methods that can be used to increase cross sales but the main one is time, effort and also belief in your own ability.
Roll on the rest of the summer. It could be an interesting one!