www.mortgagestrategy.co.uk COMMENT
Lenders must
travel back to
the future
MICHAEL WHITE
CHIEF EXECUTIVE
EMAIL MORTGAGES
Product innovation must become a feature of the
mortgage market again if we are to meet clients’ needs
Watching the latest
series of Ashes to
Ashes on the BBC I
can’t help but reflect
that the mortgage market has also
gone back in time in many ways.
Perhaps not to 1982 for a bout of
knockabout cop action with Gene
Hunt but even further to a
Dickensian parallel universe in
which potential borrowers must go
cap in hand to lenders – “Please sir,
may I have a mortgage?”
Don’t get me wrong, it is
understandable that many lenders
are spooked by recent events and
have no intention of dancing up the
risk curve to the point of oblivion
again.
But it’s also plain to see that
some are now trying to operate on a
risk-free basis.
Forgive me for pointing out the
blindingly obvious but lending
money involves risk, and in trying
‘‘
Lenders are clearly
missing a trick and in
many cases missing out
on quality customers
not to expose themselves lenders
are stifling the market along with
any chance of a quick economic
recovery.
It will also be obvious to most
advisers that product innovation, if
not dead, is what might be called
comatose.
As usual, first-time buyers are
bearing the brunt of lenders’ lack
of ambition and while there has
been some increase in the number
of 90% LTV deals, these come with
the double whammy of high rates
and high fees.
Once upon a time lenders were
prepared to allow a degree of
flexibility around their lending
criteria.
For instance, some lenders once
offered professional mortgages or
variations on that theme, providing
larger loans or better terms to
borrowers who were starting
careers in, say, accountancy or law.
Lenders acknowledged that
these individuals were more likely
to see their incomes increase over a
shorter timescale than most, plus
they had stable jobs and so were
unlikely to represent much of a
risk.
Apart from Scottish Widows
Bank, the practice of offering
professional mortgages has now
ceased.
So are lenders properly
considering the risks involved in
lending to these individuals? It is
true that fingers have been burnt
when it comes to sub-prime
customers but surely nobody could
put professional borrowers in the
same risk band.
Lenders are clearly missing a
trick here and in many cases
missing out on quality customers.
At the Council of Mortgage
Lenders’ recent annual lunch the
trade body’s
director-general
Michael Coogan
warned there would
be problems if the
regulator was to ban
mortgages that only
require a small deposits.
At the moment there is no need
for such action as, to quote Coogan,
lenders themselves have instigated
a “backlash against risk”.
Until recently it seemed that no
lender was willing to go back in
time just a few years and pursue a
policy of product innovation, but
two related announcements from
Halifax suggest we may not yet be
in the mortgage equivalent of the
Dark Ages.
Lo and behold, first-time buyers
could be the beneficiaries of the
lender’s offer to pay Stamp Duty on
properties between £175,000 and
£250,000 and half of their first
Council Tax bill up to a maximum
of £1,000.
This may not seem much but it’s
a start and other lenders should
follow Halifax’s lead. Now is the
time for mortgage products to go
back to the future.
The recent Budget was
disappointing on many
levels, with little to boost
the housing and mortgage
markets.
The problem is that the
government doesn’t have much
money to spend. It is so badly in
debt that the UK will
‘‘
have to borrow a
record £175bn this
year and our
children will be
paying this back for
years to come.
But there was a
further shock – a punitive 50% tax
rate for the 1% of the population
earning more than £150,000 a year.
The government had previously
proposed an increase in the top rate
of tax to 45% but this will now be
raised to 50%, and a year earlier
than planned too – in 2010.
And there were more surprises
for high earners with regard to tax
relief on pensions.
Those earning more than
£150,000 a year will find that by
April 2011 the 40% tax relief they
enjoy on pension contributions will
be whittled away as their income
rises, until it is just 20%.
The details are still subject to
consultation but the 40% tax relief
will disappear once income reaches
£180,000.
What does this mean for the
UK? Apart from the fact that the
supposed £2.2bn yield is being
questioned by those who know
about these things – after all, the
wealthy have access to the best tax
experts – it is bad PR for UK plc.
Having to hand over half of
what you earn to the taxman is
Help top-earning
clients manage
their affairs
MARK HARRIS
MANAGING DIRECTOR
SAVILLS PRIVATE FINANCE
Brokers should try to understand how top earners will
be affected by the tax hikes introduced in the Budget
discouraging to enterprise and
likely to lead to an exodus of high
earners from these shores.
Lenders are already reporting
an increase in the number of
borrowers asking about offshore
funding, while accountants are
reporting that wealthy clients are
Accountants are reporting
that wealthy clients are
looking for ways to
sidestep the new rules
looking for ways to sidestep the
new rules.
As far as brokers are concerned,
the important thing is that we
understand the ins and outs of the
proposals so we can advise clients
appropriately.
Of course, we are not tax
experts and neither should we
attempt to be. But it is vital for us to
be aware of the changes so that we
can discuss with clients how they
might affect them and, where
appropriate, refer them to other
professionals to ensure they get the
best advice.
It’s all about customer care –
something that is particularly
important in the present market.
But there is a silver lining to
this dark tax cloud. While the
cream of the country’s talent
ponders jetting off to foreign shores
we need not worry too much about
the movers and shakers of the
mortgage industry.
In the present economic climate
few professionals in the sector are
likely to be experiencing the joys of
earning £150,000 a year.
MORTGAGE STRATEGY May 11, 2009 23
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