A Decade On From The Big Crash
Ten years ago, just as Gordon Brown was becoming Prime Minister, the first rumblings of the credit crunch were heard. At first nobody realised that a catastrophic unravelling of the financial system was about to occur, but by the time of the run on Northern Rock in September 2007, it was becoming apparent that this was to be a full-blown crisis.
Although we have come to think of it as a single event, it was of course a whole series of events which occurred over a period of about two years, with after-shocks occurring for an extended period beyond that.
Whilst the credit crunch ultimately affected almost every area of the economy (and the lives of most private individuals), it did of course start within the mortgage lending and the banking industries. It is perhaps here where the impact has been most keenly felt, with the disappearance of market players and changes to the products and services that the industry provides.
For a number of years (in fact, until quite recently) the supply of mortgages was severely affected, as lenders slowed or even ceased their lending. What lending they did undertake, they did with a far lower appetite for risk than before, and even the perfect mortgage customer often found that options were constrained. For the many with less than perfect profiles, or with more complicated needs and circumstances, options were few and far between, or even non-existent. Before 2007, just about everyone was mortgageable; since then, large numbers have been excluded from the market. The dwindling numbers of owner-occupiers is proof that the market is still excluding people who would once have owned their own homes.
The drought of mortgages was also in part caused by a tightening of control by the regulator. As the causes of the credit crunch were analysed, it was seen that a lack of control by the regulator in the first few years of the millennium had directly contributed to lenders taking risks that were, with hindsight, unwise. As this awareness grew, the regulator sought to ensure that lessons were learnt, risks reduced, and lending was undertaken in a safer manner.
In 2014, the regulator introduced the key framework for lending: The Mortgage Market Review. This brought in new rules surrounding the self-certification of income (now seen as dangerous and open to fraudulent use, and consequently banned); tighter assessment of the affordability of a loan to an applicant; tighter rules around interest only; specific requirements surrounding provision of advice for residential mortgage applications. The net impact of these changes was to add further constraints into an already constrained market but, if they worked, the positive outcome should be fewer distressed borrowers in the future, and a housing market less prone to peaks and troughs.
So, where are we today? Well, for anyone with a straightforward profile, we are in a good place. Competition is strong between lenders, product options are many, and a happy consequence of the credit crunch (for borrowers at least) is that interest rates remain at very low levels, making mortgages very affordable (although this is of course offset by the fact that increasing property prices mean that for many, loans are necessarily large).
For the many with more complicated circumstances, the mortgage market has generally improved from where it was 5 or so years ago, but it remains harder to get finance than before the credit crunch in a lot of instances. The self-employed frequently find access to finance difficult; first time buyers find that affordability calculations reduce the size of available loans below that needed, and consequently the required deposit sizes are impossible to fund without parental assistance. For those with adverse credit, options are gradually improving, but remain well below where they once were.
So what is better now than before the credit crunch? Well, innovation in the market is strong, and new products and schemes are being introduced all the time. Lenders are also using innovation to improve their systems and processes, which is gradually leading to a better application journey.
The specialist lending market is far more professional than was the case ten years ago. Many of the innovators before the credit crunch fell away, and the new ones which have emerged appear to have a better vision of what their role as market disrupters could be - and are forcing the more traditional lenders to up their game.
Pretty much all lenders now try to look after their customers and treat them fairly, although it remains the case that many still fall short of where they should be. The regulator has played a part here too, through a mixture of highlighting good practice, and shaming and fining those which fall below acceptable standards.
And what of the future? Well, there are challenges. Brexit will undoubtedly be a factor in the short to medium term and there isn't yet much talk about how this could impact on lending. The recent innovations surrounding lending to older borrowers still have further to go. The industry has still not adequately found a way to provide consistency to self-employed borrowers, nor to make their journey as pain-free as it is for the employed. The digital transformation is still in its very early stages and until we see instant mortgage offers, will not be fully complete. Overall though, the industry is better placed now than at any time since 2007, and there is good reason to believe that it will continue to develop in a positive way.
If you need expert advice on your mortgage options, then Maxwell Moore would be happy to discuss your requirements with you.