At the start of this pandemic, upon Boris Johnson’s now famous request for businesses to wherever possible, work from home a decision was made at Affinity’s HQ for that to happen. This was a fairly simple process as over the last few years we were putting steps in place for this to happen by bringing our client data onto a cloud system allowing people to work under the Affinity banner from wherever they may be….. ‘Brilliant’ I thought to myself, ‘we are doing our bit’.
I did it for a number of reasons central to this was the health and wellbeing of our little work family, I knew they wouldn’t be together for a while but knew I wanted to see their faces again as soon as I could.
At that time, I also got in touch with our designer and asked him a quick solution that we could pop something up in our windows of the office confirming all was ‘Business as usual’…... WOW…. how wrong I was!
We are an independent mortgage, protection and specialist finance advisory firm based in Essex and London and sadly I have been in a similar situation once before at the time of the financial crisis but this one has a slightly different feel to it. Last time (when I was slightly less grey haired) it was as slower process with the market restricting over a period of probably a couple of years with lenders leaving the market and funding houses unable to securitise their books. As a mortgage broker, we searched for products for clients that were not there and for a good few years I had more “no sorry that can’t be done” conversations than the alternative positive outcomes.
Covid-19 took a little over two weeks to have a firm impact on the mortgage market with Lloyds banking group (largest UK lender) pulling back their lending to 60% Loan to value…... Cue the rest and thus lending was grinding to a halt with the panic stricken credit and risk teams turning off the taps for millions of people across our country in ‘protection mode’.
At this time, I called for a calmness and bravery to be shown, not silly, just calm and pragmatic yet as bold as possible.
Lenders are businesses, they need to turn a profit by selling their wares, and what they are offer is the sale of debt and subsequent returns for their shareholders – if they are not able to do this…. Well it would not be good!
As it turns out lenders have been returning, Lloyds have now taken the brakes off a little and come back up to the 85% mark which is a far better place but still a million miles away for many of our first time buyer clients whom work tirelessly to fund their deposits…. But what with furnishing their homes, costs and everything else entailed in buying their first homes the lack of funding at those higher loan to values is going to be tough to take in the short term.
So, to look at the why…. Well ultimately it comes down to risk and remaining responsible – on the one hand if they sell their mortgages at high loan to values in this current ‘unknown’ world then there would be a chance that with a dropping market a 95% mortgage could well turn into a 120% mortgage within a matter of weeks or months and thus placing their borrowers into a negative equity situation and on the other hand they have a PR machine to look after.
In general you would think the banks are being over cautious but with news that profits are down by 95% for the bank you would think they must be itching to get going and having spoken to some friends this week whom work in the markets they seem to be having rather a good time of things, a friend actually used the words “we make the most money in disaster”. This should be viewed as good news though because it means they will have some liquidity and ultimately some money to lend later in the year.
As the government now talk about a staged approach to returning to work, and the banks across our country are trying to work out how to get more than 2 people at a time up a lift (I will let you work out how long it will take to get 1000 staff into a building with social distancing measures in tow) so their minds will turn to how to stage bringing back lending and that bravery I called for will start to appear – they may be able to write off 2020 but they won’t want to write off 2021 as well.
So, what does this mean for us at the coal face…. I would suspect we will see some aggressive return to action from August/September with banks essentially writing off anything up to August knowing they can take a firm grip of what has happened to the market as we as humans come out of our enforced hibernation, and at that point we will start to see a return of those higher loan to values. I would doubt they will make too many reductions to the cost of money as they will want to drive margin and profit. We may not see the return of some of those secondary lenders who were pushing the mainstream quite as quickly as they rely on securitisation (basically speaking, packaging up their loans and selling them to a willing party) and this may be harder to sell in an ‘uneven’ environment.
So, all in all, I got it wrong…... it most certainly has not been ‘Business as usual’ but some reasons to look forwards with hope!