My predictions and insights into the mortgage sector for 2020 so you can plan, prepare and be ahead of the curve. In no particular order.
- Generation “Rent” will be entering the first time buyer market boosting demand for lower-end properties. Smaller deposits will encourage them in, Government incentives may also assist but the major impact will be credit scores improving with rent payments. Rents payments are largely ignored for credit scoring but these are beginning to filter through to improve results and mortgage availability.
- DIPs of DIPs will speed up the mortgage process. At present, someone wishing to assess their borrowing need to apply for a Decision in Principle (DIP) for each lender. Brokers can obtain several DIPS for the same customer from varying providers. This causes extra work and is unnecessary. In the future brokers will be able to use one engine to obtain a DIP which will filter through to various lenders DIP systems and be used for them all. A throwback to the days of multipliers of income.
- Open Banking and APIs on steroids. These two tech inventions are yet to really take off in the market. Open Banking allows lenders’ computer systems to talk directly to the customer’s bank account thus leaching all the information they need about the borrower’s affordability…in seconds. APIs allow other systems to join together seamlessly and may breach the marketplace. Imagine a mortgage application. APIs linking this to the surveyor’s systems, the lawyer’s computers, the Land Registry, The Local Authority, the lender, the estate agent, the accountant, the bank. Mortgage offers and completions done in seconds. Watch out those that worry about mortgage frauds, this could be a nightmare scenario but essentially what the marketplace needs.
- BoJo Bounce. Like him or not, we are due a bounce in the economy and a surge in confidence and optimism, that might boost the economy during 2020 before a downturn kicks in. GDP growth since the financial crash of 2008/9 has been woeful and this varying growth may well appear as a bounce. Brexit results will give confidence to UK firms who are sitting on £140 Billion of cash ready to be invested. Governments have finally realised that monetarist policies are no longer working, and the King of the Hill is fiscal planning, not seen since the 1950s and 60’s. Expect massive government spending to boost the economy. This may be enough to hide any financial downturn, I hope so.
- Specialist lenders are everywhere, ubiquitous in a crowded market. Expect more mergers and pull-outs this year. There are also too many digital startups, expect disruption in their numbers and make room for those with deep pockets i.e. the banks. RBS announced their new bank “Bo”, to compete with the digital startups. Their profits from other areas of their business will ensure their existence. Think Instagram of Facebook.
- USA style fixes will appear. Long term fix rate loans of 10 years or more. The government will persuade the FCA to abolish stress testing for these loans – which makes total sense – as they'll be paying a much lower rate of around 3% for the lifetime. No need to stress at 6%. The upshot will be larger loans to first time buyers, and with just a 5% minimum deposit will allow Generation Rent to snap up higher price properties and boost the market.
- Baby Boomers ageing and piling into equity release. According to the Equity Release Council, £2.8 Billion was released in 2019. The past ills are being forgotten and customers are favouring this method of releasing cash and since there are 12 million over 65s in this country (Office of National Statistics 2019), there’s no end of potential customers. Cash for children's housing deposits will boost the market in both directions, cash to renovate or improve run-down properties will enhance the housing stock and equity release business will boom. Expect more hybrid and innovative products such as the RIO/Roll-up mortgage, allowing an interest-only loan to be easily converted to a roll-up version. These are already available but expect the High Street to launch.
- Qualifications will be enhanced in 2020. The FCA is getting calls from the industry to beef up the current Level 3 qualifications for mortgage advisers which are woefully inadequate for the specialist mortgage broker market. Advanced qualifications are available, whether we’ll see the regulator opting for mandatory exams at a higher level will depend on whether they want to cull the numbers in the market or improve professionalism. Their choice. In the meantime, expect the existing quals to be enhanced, and about time too.
- Rates will remain low and for the foreseeable future. CPI will be kept at bay. Interest rate movements will not affect demand as 95% of mortgage are fixed and customers choose to re-fix at the end of the term rather than wither on the Standard variable. Expect mortgages to be eminently affordable for many years’ to come.
A good year for all.