‘When shall we three meet again?’: Macbeth and Mortgage Market Predictions.

When confronted by three witches, purporting to unveil the mysteries of the future, the unfortunate Banquo (SPOILER - who later meets his untimely end on the orders of the power mad protagonist Macbeth) utters this famous quote about the innate difficulty of forecasting.

‘If you can look into the seeds of time, and say which grain will grow and which will not, speak then unto me.’

What Shakespeare’s metaphor means (I’ll get to mortgages, I promise) is that, for average (Mac)Joe, predicting the future is as difficult at looking at a group of seeds and predicting which will flourish, and which will wither and die. 

Never has this been more apt. In the current climate the clamour for ‘Mystic Meg’ style predictions appears to have reached fever pitch. ‘When will the market fully recover?’ ‘What will happen to house prices?’ ‘When will 95% LTV return?‘

Rather than add my own opinions to the confusion, in this month’s blog, I’ve revisited some 2020 predictions I made at the end of a thrilling presentation I delivered to lucky delegates at the Credit Strategy conference in November last year. I’ll leave you to decide which of my predictions have withered and died and which have flourished and grown.

Market and Economy

1)     Lender Exit and Consolidation

2)     Continued Margin Compression

3)     Peak Intermediary

4)     Recession

Whilst we’ve not seen anyone press the eject button yet, sadly that moment can’t be too far away.  For lenders whose primary business activity lies outside of mortgage lending, the increased capital requirements demanded by a potential downturn might well be enough to encourage them to pick up their ball and head for home. 

On the margin front, the jury is still out. One the one hand, margins could yet widen as rates increase to cover a perceived increase in the levels of risk in the market (higher unemployment, potential HPI deflation) as well as a counter to falling profitability as a result of higher impairment costs. Backing up my original prediction however is TFSME, which, like FLS and TFS before it, will put downward pressure of mortgage rates as a result of super cheap Bank funding. 

Peak intermediary? Fat chance. Customers need brokers now more than ever.

Recession? Unfortunately, you heard it here first.

I’m claiming 2 out of 4 here.

Customers and Channels

1)     Rise of Online

2)     Hybridisation (blurring of online/offline, direct/introduced, Advice/Execution only

3)     Intermediated Execution Only

Rise of online? Tick.   Granted I didn’t imagine we’d all be doing everything online, but one of the clear silver linings of the Covid crisis has been its supercharger effect on the much-needed digitisation of the mortgage market.  From online ID&V to virtual viewings. It’s amazing what can be achieved with a little existential pressure. 

Hybridisation. Last year I’d predicted that changes in the upcoming revisions to the FCA’s Mortgage Advice and Selling Standards in PS20/1 would facilitate an increase in online and execution only sales by providing much needed clarification on the difference between ‘Advice’ and ‘advice’. I’m not convinced the market got what it needed, and I very much doubt we’ll see significant growth (if any) in XO sales in 2020. 

As for intermediated execution only – not yet.

A poor 1/3.

Products

1)     Risk Based Pricing

2)     Rise of Later Life

3)     Innovation in New Build Market

4)     Continued Growth in PTs

Risk Based Pricing. Much discussed, but still missing a vehicle a deliver personalised rates to individual customers. The logic is there but the market isn’t.

Rise of Later Life. I’m claiming this one. One side effect of millions of mortgage payment holidays deferrals will be longer mortgage terms, whilst many will be relying on nest egg savings to see them through reductions in income. We’ve seen growth in the later life market in each of the recent years and this year will be no exception.

Innovation in New Build. Let’s hope so.  New Build has been a real loser in the Covid crisis with much of the gains made in the provision of high LTV lending eroded by market retrenchment. One less innovative solution may well be a stay of execution for the existing Help to Buy scheme – if the Treasury has enough cash left to fund it. Either way, expect to see lender and developer collaboration on new solutions for a critical market segment. 

Growth in PTs? Is anyone remortgaging payment holiday customers?  Another tick here.

A Solid 3 out of 4.

Technology

1)     Fintech Consolidation

2)     Hard yards for Open Banking

3)     Increased Personalisation

4)     Improved Service Standards

Fintech consolidation. Mortgage Brain & Criteria Hub. Iress & Knowledge Bank. Mojo & Credit Ladder. Mojo & Monzo. Habito & Starling Bank. It’s not all consolidation, but we’re definitely seeing a weeding out of the crowded fintech market as the best become more integrated into the lender and distributor value chain. 

Open Banking. Hard yards indeed. We’ve piloted it at Skipton for over 6 months and it works. It’s easier and more accurate than bank statements and payslips.   Now we just need to convince more customers to use it.  This is the tricky bit. ‘Don’t share your password! Ever.’ However, now please do securely share access to your online banking so we can look at your secrets. It’s a tough sell and a big mindset change for customers.

Increased personalisation. Step forward Eligible. Step forward Podium. Step forward Koodoo. The clever people at these growing fintechs are leading the way in demonstrating how tech can provide customers with a more personalised experience which in turn leads to improved satisfaction and better customer outcomes. It’s not rocket science but read your last letter from your mortgage provider.  As a market we’ve not been very good at this historically. 

Improved Service Standards. A rare plug for Skipton in my usually impeccably impartial content. We’re now delivering one day offers (for fully packaged cases) and it’s my continued belief that rising customer expectations on when (now) and what (everything) will continue to force innovation and rising standards across the market.

Is that 4 from 4?

Conclusion

I make that 10/15. A solid effort but please don’t ask for any more predictions. Let’s save the forecasts for a friendly chat over a coffee or beer ‘when the hurly-burly’s done, / When the battle’s lost and won.’