20 Years As A Mortgage Broker
This week I celebrate 20 years since I started out as a Mortgage Broker and here I reflect on the last 2 decades and perhaps what could lie in ahead for the future.
The market in 1997
The average property price in 1997 was 2 to 3 times the average UK salary, so if you were earning say £20k pa then you’d look to be buying a house around £50k. Fast forward to now though and you are looking at 5 times average salary! This is some increase and clearly not sustainable in the future. Despite the crash of 2007/8, average house values have far outstripped salary increases. Yet despite this our obsession with home ownership continues unabated, now propped up by the Government’s Help to Buy measures. Demand for new homes remains high, supply can’t keep up and as such prices continue to rise.
The recent changes in taxation and regulation for Buy to Let Landlords may help in slowing the market down and making more homes available for First Time Buyers looking to get onto the property ladder.
Interest rates in 1997
“No More Boom and Bust!” declared the new Chancellor Gordon Brown as he raised the base rate from 6% to 6.25%. Yes, you read that right, 6.25% when now we sit at 0.25%. So, when I started out, an interest rate on a mortgage would have been around 7-8%. Chancellor Brown took the market by surprise by giving the Bank of England independence from political control and from that day to this, politicians could no longer use interest rates as an electioneering tool – this was a very good move. Inflation has remained largely under control in the past two decades without as much meddling from the Government of the day.
The Credit Crunch
By far the biggest financial crisis of the past 20 years was the “credit crunch” of 2007. New mortgage lenders were popping up in the years preceding, offering mortgages to customers with impaired credit histories and no proof of income. This market did exist in the UK but it was in the USA where the market was bigger that the first ripples of a disaster started filtering through.
Banks started to lose confidence in lending to each other and many High Street Banks were in the end bailed out by the UK taxpayer, including Lloyds TSB and Royal Bank of Scotland. There was a run on Northern Rock Bank as customers queued for hours to withdraw their savings and it was taken fully into public ownership in 2008 to stave off insolvency.
The Mortgage Market Review
Regulation needed to change to try and learn from the mistakes of years gone by and a new Regulator, the FCA, was formed in 2013. The FCA conducted a full review of the mortgage market and the Mortgage Market Review was published in 2014 to try and protect homeowners to exposing themselves to financial hardship.
Many customers had experience projected shortfalls from Endowment policies they took out to pay their mortgages off in the 80’s and 90’s and MMR tightened the guidelines around interest only deals. The major change was affordability needs to be established in all cases with details and evidence collected about a borrower’s incomings and outgoings. This has been a very positive piece of regulatory intervention.
The Mortgage Market Review of 2014 also banned “non- advised” mortgage sales and in terms of my day to day role, more than 70% of consumers now seek the advice of a broker when it used to be 50:50 between using a broker and going direct to your bank. When I started out in the 90’s, customers might say “I’m using my own bank, they know all about me and I trust them”, you certainly don’t hear that much anymore and UK consumers have lost a lot of faith in banks further to a series of different mis-selling scandals.
The future will involve technology for sure. Switching mortgage providers when it comes to remortgaging is still a clunky process and the advent of “Open Banking” where consumers can choose to share their data with financial services providers will allow them to be “matched” to appropriate products.
In terms of what I do, whilst technology should make the processing of applications quicker in years to come, there is still a massive demand for face to face advice. Buying a house is likely to be the biggest financial commitment you make and people seem to like having me around to guide them through the process.
Here’s to the next 20!
Malcolm Davidson Mortgage Broker in Lincoln