The Mortgage Event Weston-Super-Mare 5 October 2005 Tracy Morshead Managing Director Principality.
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The Mortgage Event Weston-Super-Mare 5 October 2005 Tracy Morshead Managing Director Principality
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Transcript of The Mortgage Event Weston-Super-Mare 5 October 2005 Tracy Morshead Managing Director Principality.
The MortgageEvent Weston-Super-Mare5 October 2005
Tracy MorsheadManaging DirectorPrincipality
THEMES
• Housing is more important than ever• Low house price inflation enhances skills
requirements• Declining margins• Regulation of “fairness”• Europe• Government schemes are relatively unimportant
HOUSEHOLDS’ FINANCIAL ASSETS 20042004 Increase since 1996
£bn % %
Insurance and pension policies 1,668 52 56
Deposits 825 26 74
Equities 359 11 13
Mutual funds 143 4 72
Securities 51 2 24
Cash 34 1 79
Other 100 3 57
Total financial assets 3,179 100 53
HOUSEHOLDS’ BORROWING 2004
2004 Increase since 1996
£bn % %
Short term loans 184 15 130
Long term loans secured on dwellings
875 73 114
Other 135 11 117
Total Liabilities 1,194 100 117
TOTAL HOUSEHOLD WEALTHHousehold Assets 2004
£bn %
Housing 3,221 46
Insurance and pension policies 1,668 24
Deposits 825 12
Other non-financial 608 9
Equities 359 5
Mutual funds 143 2
Other financial 100 1
Securities 51 1
Cash 34 -
Total 7,008 100
HOUSEHOLDS’ TOTAL ASSETS 1996 %
Housing - 34%
Insurance &Pensions - 30%Deposits - 13%
Equities & MutualFunds - 11%Other Financial -4%Other Non-financial- 8%
Total assets: £3.6 trillion
HOUSEHOLDS’ TOTAL ASSETS 2004 %
Housing - 46%
Insurance &Pensions - 24%Deposits - 12%
Equities & MutualFunds - 7%Other Financial -2%Other Non-financial- 9%
Total assets: £7.0 trillion
HOUSEHOLD WEALTH: THE OVERALL POSITION 1996-2004
0
1
2
3
4
5
6
7
8
Total AssetsTotal LiabilitiesNet Wealth
£ tr
illi
on
LOW HOUSE PRICE INFLATION
• No boom, no crash. Highly unusual.• Premium on skills –
– Underwriting– Valuation– Borrowers’ risk assessment
• Real debt repayment. Today’s generation of borrowers will be the first to repay their mortgage loans.
DECLINING MARGINS IN BUILDING SOCIETIES
Income, Expenditure and Surplus 2001-2004Per cent of mean assets
Net Interest Income
Other Income
Provisions and losses
Management expenses
Corporation Tax
Retained Surplus
2001 1.42 0.34 (0.00) (1.06) (0.21) 0.50
2002 1.26 0.40 (0.08) (1.04) (0.15) 0.39
2003 1.24 0.37 (0.09) (1.04) (0.14) 0.34
2004 1.13 0.43 (0.05) (1.02) (0.14) 0.36
NARROWING MARGINS: OPTIONS
• Travel along the risk curve to expand the margin– Sub prime– Self-cert– Buy-to-let, etc
• Expand other income– Diversify into new areas– Diversify within financial services
NARROWING MARGINS: OPTIONS Cont’d
• Concentrate on what you’re good at– Origination– Administration– Funding
• Cut, or spread, costs• Accept reduced profits
“FAIRNESS”
• Treating customers fairly– Product design– Promotion– Targeting– Staff remuneration– After sales service– Complaints
• Unfair Terms in Consumer Contracts Regulations• Unfair Commercial Practices Directive
“FAIRNESS” Cont’d
• FOS: “Fair and reasonable in all the circumstances”• Consumer Credit Bill: “Unfair relationship” test in
relation to second mortgages, unsecured lending• Which? proposed Code on “Fair and responsible
practices”• Banking Code: “We promise that we will act fairly and
reasonably in all our dealings with you.”
EUROPE
• EU expectation of growth in cross border lending – “integration” • Wide differences in –
– Types of mortgage– Consumer protection regimes– Early repayment fees, interest rate caps, interest rate
variations– Valuation practices– Access to credit databases– Land registry practice– Debt recovery
• Green paper out now• UK market already the most complete and largest – so little to
gain
GOVERNMENT INITIATIVES
• Equity sharing
• Key worker initiative
• Real Estate Investment Trusts
VISION OF THE FUTURE
• Mortgage margins do not recover.• Retail Savers keep paying for Mortgage Pricing.• Income regained by lenders through fees and charges.• Equity release growing but not as quickly as forecast.• Big uptake of property into Sipp’s.• HIP’s delayed launch. Housing transactions spike before launch. Depressed after.• HIP’s fail to make home buying process any easier than it would have become
anyway.• HIP’s do however change shape of value chain.• Borrowers continue to chase price. Internet shopping of mortgages becomes internet
purchase. Price becomes valuation.• Brokers put under pressure…………………….
…………………….but don’t worry you’ll still account for over half the market.
