Paul’s Predictions for the Mortgage Market 2021

The mortgage and property market is buoyant – a direct government subsidy called SDLT has made that so, what happens after April next year few people know. My prediction is that the market for buying and selling will stall. Remortgages, mortgage prisoners remortgaging, BTLs, holiday lets, equity release boom. Rates are going to be low for quite some time yet, and this will fuel the market.

The broader economy is tanking, arguably the fiercest recession in known memory, but they say that in every recession - I know I've experienced four. Unemployment will reach alarming levels in the late autumn, chiefly amongst young people and those in the entertainment, hospitality, business services (think life coaches) and events sectors.

Bear in mind that this fall in GDP was deliberately caused by putting the economy on pause for two months and releasing it gradually. A “V” or “U” recovery is inevitable.

This may sound awful, but your marketplace is not young people. Young people won’t want to deal with a broker anyway; they'll do it themselves mostly with Google. Besides their needs are not complicated, just unaffordable - the need for a 10% plus deposit is their challenge, and a broker can't solve that issue - profitably anyway.

The economy is already bouncing back, but high unemployment will stifle this. Every unemployed person spends less and therefore contributes to the UK economy GDP growth stalling. Government spending will replace much of this - there's talk of billions being pumped into the economy to boost GDP and create jobs. The conservatives have finally embraced fiscal economics.

How long this cycle continues, no one knows. Where are the new jobs coming from? No one knows, but some industries are expanding - health, technology, education, online retail and food - look at Tescos announcing 16,000 new jobs related to shopping deliveries. Tescos did this right unlike their competitors, who didn't have the scalability.

Amazon just announced another 7,000 jobs in the UK on top of 3,000 already taken on this year. Plus they’re paying them the living wage as a minimum – no shortage of profits there.

In a recession, both businesses and consumers stop spending where they can. Money goes towards essentials, not desirables. Hence people stop spending on restaurant meals; companies stop spending on expensive consultants and lawyers, drop all forms of training and freeze hiring new people preferring for Jill to do the job of two people.

Look for a downturn during Q4 this year (2020), stultifying growth in Q1 and Q2, and maybe a pick up in Q3 2021. There's talk of pre-COVID GDP not being matched until 2023.

GDP is only one measure and a lag one too. Often three months out of date. Look for other signals. Jobs lost and created but don’t rely on the BBC; even they are sensationalising every aspect of news in the 24-hour news rating wars. Unemployment figures, inflation. The skip index, for sale boards—Internet usage data from service providers. Congestion on the M62 at 8 am.

Recessions affect people differently; not everyone is affected. I recall the early 80's recession...the country was split - London and the South East were hardly affected, but the north took the brunt. The recession of 2008, saw the FS industry hit hard, but IFAs carried on, as usual, mortgage advisers suffered the most.

The finance sector hasn't been hit so hard this time around. There's heaps of money to lend - the Bank of England has dished out billions to the banks, pushed interest rates to the floor and the government has underwritten countless types of lending to businesses to keep them afloat. Witness the Bounceback loans. SDLT freeze has refreshed the stagnant buy and sell market.

I think the finance sector is understaffed anyway, which may be a reason why. However, the support functions within Financial Services are about to be culled, wait and see. Furloughed staff in the sector are very concerned right now. Firms are using the opportunity to cut waste and costs. Employing people is the highest cost by far in FS, apart from technology which is becoming more crucial to our success than ever before so justifies the massive spends. Firms would rather have IT than more staff.

We are still woefully short of mortgage advisers in this industry compared with pre-2008 - banks and building societies don't have mortgage advisers anymore, they're all pivoting to direct models using AI, internet chat or video. They're also using intermediaries more and will continue to do so until they don’t need them anymore. There's little loyalty towards intermediaries - essentially they schmooze them when they are required. Right now, they need them; this won’t last.

Intermediaries, or brokers, handle the complex cases, the riskier lending that the leading banks won't touch. That's where the market is growing for you. So make sure you're qualified in this area, or knowledgeable at least, to start with. Then you can migrate to IFA etc.

The IFA sector is haemorrhaging at the moment. Investment advisers, as most fundamentally are, are seeing their cash cow drying up, few see this yet. Fund management fees, ongoing advice fund charges are dwindling with competition and AI. The younger generation would choose an app to control their investments; passive funds are dominating maybe with a sprinkle of AI managing them. When you don't need as human to manage a fund, the rationale to charge hefty fees to run them dies.

Many IFAs will struggle with this loss of income. Of course, the IFAs who have wealthy clients, receive monthly, annual fees directly from their clients for really complicated useful work around investing, pension planning IHT etc. This will continue, but for all intents and purposes, that are not that many rich people.

So the call for more advisers is fair, but they're forgetting that technology is replacing time. Technology will help you do more work.

A brickie friend of mine used to be able to lay 1,000 bricks a day, physically impossible to do more. Now he operates a robot machine called SAM that lays 3,000 per day -

Now I know you're not training to lay bricks, but you get my point. With tech, you can do the work that three advisers did ten years' ago. We've already seen many mortgage advisers able to conduct double the appointments now compared with pre-COVID days, using free and straightforward video communications. Why they didn't embrace this before heaven knows, but that's the way our sector mainly works. Caution rules, OK.

That's the future:

• Complex deals that require a bespoke approach
• Dealing with specialist lenders that don't have direct channels, so need you
• Compex areas such as equity release, holiday BTLs etc
• Indulging self-employed status until the risk appetite changes for employees.
• Communicating with people who need in-person communication, and can pay for it - important last point that.
• Ancillary services - wills, LPAs, life and health protection - although these are being digitised
• Investing money and time into tech to assist your role not to replace
• Modernising your approach to attaining new customers, see below:

It is frightening. Searching online for advice for the under 45’s is beginning to overtake the holy grail of referrals. Where will that lead? A fundamentally different attitude amongst advisers with client acquisition. But that's for another day, another article.

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