tony's blog

Thursday, September 13, 2012

Reasons to be cheerful

Mortgage deposit levels for first-time buyers have fallen below 20% for the first time in three years according to the Council of Mortgage Lenders. Well that’s a reason to cheer even if it has only dropped to 19%. It’s certainly a step in the right direction.

Also encouragingly the number of high LTV products on the market has jumped during August, so says Moneyfacts. Some 36 new mortgage deals with LTVs of 85% or above were launched during the month, some way away from the disappointing numbers in July which fell away to 26. And during August five new products were launched with LTVs of 95%.

So maybe the Funding for Lending and NewBuy scheme is starting to kick in. I truly hope so. However I was disappointed that if the research from Rightmove is to be believed that the public perception of the NewBuy scheme is still very limited. The survey suggested that homeowners and first-time buyers have little knowledge of this initiative – some 34% first-time buyers and 51% of other home movers.

Rather disappointing. Think what could be achieved in lending terms if we could raise awareness amongst all interested parties. I guess it’s largely up to the Government to do this but lenders and builders alike should all play a part.

After all it’s great to have some positive news to report to our beleaguered first-time buyers at last!

Thursday, September 6, 2012

The return of competition

I read, without any surprise, that Tesco Bank has made the first set of rate reductions to its recently launched mortgage range, including their fixed and tracker mortgages.

I suppose by doing that, they are really throwing their hat into the ring.

If they want to be a serious player in the market, I guess they don’t have any other option. With the Funding for Lending scheme working now, some extra £80bn of funding is available for banks to lend direct to consumers so it’s hardly surprising that competition has returned to the market. Also, without doubt, helping competitive pricing is the record low bank base rate agreed by the Bank of England’s Monetary Committee. And this is unlikely to change for the foreseeable future – possibly until well into 2014.

So good luck to Tesco Bank.  I hope it builds their market share because I really think it is healthy to have newcomers out there challenging the existing lender model.

However I do hope they have adjusted their rates within the parameters of a properly worked product pricing model. All too often I have seen lenders set their product pricing as a knee jerk reaction to what’s happening elsewhere within the market. As a generalisation, I think more thought needs to go into setting the headline rate – and not only that but the criteria sitting behind the rate plus the service standards supporting it. (It’s all well and good to have a market leading rate but do you have the back up team waiting to process the application?). And will it contribute to shareholder value?

When Home Funding Limited started originating for German Bank Westlb back in 2007 we had an innovative product pricing model which we actively looked to share with our broker partners. This enabled us to have a win/win scenario with our distributors as they were proactively involved in pricing the product. We were able to originate genuinely bespoke products which challenged the market but also enabled us, acting on behalf of the lender, to offer products which were profitable.

I believe that with the right model sitting behind you, there really is the opportunity for lenders to come up with products that build market share and that make money.