1 The Lenders’ Perspective Society for Licensed Conveyancers Annual Conference Paul Broadhead Head of Mortgage Policy, Building Societies Association 12.

1

The Lenders’ Perspective

Society for Licensed Conveyancers Annual Conference

Paul BroadheadHead of Mortgage Policy, Building Societies Association

12 November 2014

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1. The mortgage lending market

2. Mortgage Market Review – The first six months

3. The impact of Government Intervention- Funding for Lending- Help to Buy- FPC intervention

3. Mortgage Credit Directive

4. The consumer outlook

Contents

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Mortgage market in numbers

Gross lending, £ million

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

2006 2007 2008 2009 2010 2011 2012 2013 2014(f)

Others

Other specialistlenders

Banks

Buildingsocieties/mutuals

f = BSA forecastSource Bank of England

4

Mortgage market in numbers

Net lending, £ million

-60,000

-40,000

-20,000

0

20,000

40,000

60,000

80,000

100,000

120,000

2006 2007 2008 2009 2010 2011 2012 2013 2014(f)

Others

Otherspecialistlenders

Banks

Buildingsocieties/mutuals

f = BSA forecastSource Bank of England

5

6

• The Mortgage Inquisition – could spell the end of cheap fixed rates- Daily mail

• The rise and fall of interest-only mortgages- Citywire

• Now a bikini wax can cost you your house- Daily Mail

• Mortgage prisoners are locked into home loans- BBC News

MMR – The warnings

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• Affordability changes- Some oddities early on but settling down

• Fully advised market- Appointment delays at large banks have provided opportunities for small lenders and intermediaries

• Post contractual variations- Some inconsistency of approach

• Transitional rules- Not widely used for “new” customers

MMR – The first six months reality

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The Impact of Government Intervention

- Funding for Lending- Help to Buy- FPC intervention

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FLS impact

Average Mortgage rates

3.56

3.37

3.00

3.50

4.00

4.50

5.00

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sept

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

2012 2013 2014

All providers Mutuals

Source: Moneyfacts

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FLS impact

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Help to Buy – Equity Loan

• Help to Buy (1): equity loan Government scheme – applies to new build properties up to £600,000

Launched April 2013-33,911 properties bought to 30 September 2014

-84% of purchasers are First Time Buyers

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Help to Buy – Mortgage Guarantee• Help to Buy (2): mortgage

guaranteeGovernment offers lenders the option to purchase a guarantee on the loans they supply (above 80% LTV). Aim is that lenders will offer higher LTV mortgages up to 95%.

No Building Societies signed up

18, 564 mortgage completed in first 9 months of the scheme79% first time buyersLargest take up is outside London & the South East

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Financial Policy Committee

• LTI Limits- Arbitrary limits should be avoided- May not bite now but could drive consumers to other credit in the future

• Affordability Stress Tests- Market expections

- Any prevailing FPC recommendation (currently +3% on BBR at origination)

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MCD timeline

HM Treasury

• Published consultation on 5 September 2014.

• Closing date was 31 October 2014.• The UK government needs to make

changes to legislation• Aiming to finalise required measures by

March 2015• To achieve this, final legislation must

be laid in Parliament in early 2015.

FCA

Published consultation on 25 September 2014.Closing 29 December 2014Sets out proposed approach to implementing MCD – largely through reliance on existing rules.Aiming to publish final rules in a policy statement by the end of Q1 2015.

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No mention other than Credit Agreements beyond March 2016 are captured.

Seems appropriate to us that the definition should refer to the current, conditional mortgage offer.

These offers are robust and not routinely withdrawn.

Mortgage Credit DirectiveTransitional Arrangements

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MCD requires offer to be binding

FCA aim to make the process as simple as possible

7 day period to reflect

Customer has the right to withdraw

Conveyancing process has an additional step

Binding Offer7 day reflection period

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The Consumer Outlook

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Barriers to property purchase

57%

46%45%

28%

12%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

Jun-

08S

ep-0

8D

ec-0

8M

ar-0

9Ju

n-09

Sep

-09

Dec

-09

Mar

-10

Jun-

10S

ep-1

0D

ec-1

0M

ar-1

1Ju

n-11

Sep

-11

Dec

-11

Mar

-12

Jun-

12S

ep-1

2D

ec-1

2M

ar-1

3Ju

n-13

Sep

-13

Dec

-13

Mar

-14

Jun-

14S

ep-1

4

Raising a deposit

Affordability ofmonthly mortgagerepayments

Access tosufficientmortgage finance

Lack of jobsecurity

Concern aboutfuture falls inproperty prices

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Affordability remains a challenge

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The Lenders’ Perspective

Society for Licensed Conveyancers Annual Conference

Paul BroadheadHead of Mortgage Policy, Building Societies Association

12 November 2014