When looking at the overall mortgage picture, there is no getting away from the fact that it is not a very pretty sight.
Recent data from the Bank of England (BoE) showed that total net lending to individuals has fallen significantly from £4 billion in July to £1.4 billion in August. The BoE Lending to Individuals statistics for August show that the figure is also down from the previous six-month average of £6 billion. The data revealed that the number of loans approved for house purchase has also fallen from 33,000 in July to 32,000 in August.
On top of this the latest results from the Assetz House Price Watch reported that the average house price has fallen by £12,697 since August last year. The firm revealed the average rate of annual growth in August 2008 was -5.7 per cent, down from -3.9 per cent in July 2008. Assetz said the average price of a home in August was £201,655, down £3,230 from £204,885 in July 2008.
Short-term
Unfortunately mortgage lending figures and the UK housing market are showing no sign of short-term improvement. Falling property prices, economic pressures on households, tighter lending criteria and anticipation of the government's announcement on Stamp Duty all suppressed or delayed demand in August. And these factors will no doubt continue having a sustained impact on the industry in the months ahead.
I'm not trying to depress anyone here but unfortunately these are the facts we all have to deal with. Fortunately there are still some opportunities in the market and some light at the end of the tunnel as the US senate has finally approved a revamped version of the $700 billion rescue plan for the troubled US financial system.
Senators voted 74 to 25 in favour of the emergency legislation, which is designed to buy up bad debts and stabilise financial markets. In order to pass the 'bail out' the US Congress had to deploy its best weapon just weeks before the elections, by attaching tax cuts to an otherwise bitter pill. Besides adding the tax sweeteners the federal government also stated that it would increase its bank account insurance to $250,000 per account, up from $100,000 to help ease consumer confidence regarding their savings.
This could also benefit liquidity across the pond. Although the implications on the UK market remain to be seen, hopefully it will go some way to allowing the virtually frozen credit markets to thaw somewhat. In fact, as I write this, the Bank of England, the US Federal Reserve and the European Central Bank have all announced base rate cuts and a £500 billion rescue package for the financial system, which has to be good news for the global economy.
Good news
Whilst we wait for this ripple effect to make a difference, current market conditions illustrate how vital it is for mortgage intermediaries to make the most of their existing client base and truly maximise all their client requirements. Looking to the high net worth (HNW) and large loan sectors it is evident that high loan-to-value lending and cheap rates have not been the only casualties of the turmoil suffered over the past year. Lenders have had to increase their focus on managing lending volumes, liquidity and risk management which has resulted in the lowering of maximum loan sizes and the spreading of risks across multiple smaller loans.
Historically those HNW clients backed by a large deposit would therefore attract some of the most competitive rates available but due to market conditions these rates are not as attractive as such rates are also rising in line with other market sectors. But this shift in the large loan market may not necessarily be bad news for advisers.
Research from Bank of Scotland revealed more than a third of advisers have seen an increase in the number of loans in excess of £500,000 over the last three years. The lender added that around 10 per cent of advisers who worked with high net worth clients said loans greater than £500,000 accounted for more than 25 per cent of their business.
High net worth
At this point it is important to illustrate what mortgage intermediaries class as 'high net worth'. Further research from Bank of Scotland has shown that 61 per cent of brokers believe clients have to earn over £100,000 per annum to be deemed 'high net worth'.
Working within the current financial climate demands that mortgage intermediaries need to take a step back in order to assess the options open to all clients including those with 'higher net worth'. With this in mind it's important to clarify just what intermediaries can advise upon, in terms of investments beyond the norm of high value prime residential property and buy-to-let investment properties.
Some firms may give advice on all three product types – investments, mortgages and insurance – while others may only give advice on one or two of these. Mortgage advisers and insurance brokers can advise on mortgages and/or insurance but can't give advice on investments such as pensions.
There is an increasingly competitive market for brokers looking at further investment opportunities for HNW clients whilst earning a potential commission windfall for themselves. Indeed at Berkeley James we have recently launched a non-regulated investment product aimed at mortgage intermediaries and IFAs with high net worth clients. Of course this is just one of the many schemes out there but it is important that this avenue is fully investigated and may indeed be one that intermediaries have not looked into, as yet.
Overseas
There are also a number of other areas to evaluate for advisers that may not be making the most of their HNW clients. For instance, since the UK house price decline, a number of investors may be turning their attention to the overseas property market.
Investec Private Bank, which focuses on loans in excess of £1 million, has recently reported a much stronger interest from UK investors looking to purchase in the south of France and Italy. The firm said that as the UK housing market has slowed down, many high net worth individuals were increasingly looking to purchase overseas properties, seeing them as representing a better investment opportunity.
Mike Boles, director of international mortgages at broker Savills Private Finance, also agreed that there was still a lot of activity in the overseas market. He said: "That market has held up well, notably the south of France and Monaco. Prices in the £1 million-plus sector seem relatively unaffected. In the UK, prices are predicted to decline and many people with the funds are now looking abroad because they are worried about further declines over here. However, the high end in the UK is still holding up well too."
Property searches
Clients at this level, whether looking to invest overseas or in the UK, often use specialist property search agencies rather than resorting to the more traditional but not so discrete estate agencies. These agencies generally provide the added advantage of an inside track into the premium UK and overseas property market and on properties not widely available on the general market.
Intermediaries may look at building affiliations with such agencies which could result in a valuable added extra to their proposition to enable them to stand out from the competition. As well as benefiting from the addition of sizable referral fees for any successful transactions.
There has never been a more important time for intermediaries to make the most their existing client bank. This means that by constantly reviewing service levels and looking to add extra services to the end-to-end process will encourage retention and the potential of clients growing with the firm.
In conclusion, those already with HNW clients on their books should take the time to look at all the alternatives and not be afraid to look to non-regulated investment schemes. But, as with anything, it is imperative to do the necessary research before advising on such a product. For advisers without this particular bank of clients, look to building affiliations in this potentially lucrative sector and keep up to date with movement and opportunities as you never know when an existing or new client may be in need of just such advice.
