Money Guide

Mortgages – Top 10 predictions for 2020

Monday, 11 May 2009 by Hazel Cottrell hazel.cottrell@consumerchoices.co.uk

What will the future hold for mortgages in a post-credit crunch world? Here are some pointers from top mortgage experts.

Mortgage lenders will have to respond to the changing needs of borrowers, and develop innovative new products during the next 10 years.

People are living longer, more complex lives and the assumptions of the past – such as each household will have two stable incomes - are being challenged.

Thanks to the credit crunch, the mortgage business is getting a long-overdue shake-up, but what will it look in the next 10 years?

Speakers at the recent Building Societies Association (www.bsa.org.uk) seminar on The Mortgage of the Future – 2020 Vision, held in April 2009, came up with 10 predictions for the future of mortgage borrowing…

• 1. Flexibility will increase
• 2. The Bank of Mum and Dad will come of age
• 3. Lenders will fight for “super prime” borrowers
• 4. Shared equity schemes will provide a leg-up
• 5. Savings schemes will help us build up deposits
• 6. We will all want Islamic mortgages
• 7. Competitive deals at high LTVs will return
• 8. We’ll all be having relationships with our lenders
• 9. Lenders will embrace the online world
• 10. Change will be driven by new lenders

1. Flexibility will increase

Mortgages will become much more flexible in the future. David Hollingworth, mortgage specialist at brokers London & Country mortgages (www.lcplc.co.uk), suggested that a greater selection of “lifestyle products” is on the way.

These products will cater to increasing job mobility and the rise in the number of self-employed people. They will also take into account the fact that many people will have more than one marriage and other lifestyle choices.

Features such as payment holidays, longer mortgage terms and other flexible repayment options are likely to be top of the list for future borrowers and successful new mortgages will have to meet these requirements.

2. The Bank of Mum and Dad will come of age

Many first-time buyers have had to depend on the generosity of their parents to boost their deposit and give them a leg-up onto the property ladder. This trend is set to develop further.

David Hollingworth believes that the family offset mortgage, in which parents’ savings can be offset against their child’s borrowing, is something that could definitely “find a wider audience” in the future.

Peter Williams, who was commissioned by the BSA to research the future of mortgages, reckons that we could even see innovation beyond the family offset.

“There is a “window of opportunity” for lenders to develop products that take into account parental assets,” he said.

“Current mortgage products offer no incentive on the parental side and banks need to try to make a clearer link between their savings base and their borrowing base,” he added.

This could result in lenders offering added incentives for parents to help their children.

3. Lenders will fight for “super prime” borrowers

Peter Williams expects lenders to up the ante in the fight for “super prime” borrowers – those with equity or a deposit greater than 25% and an immaculate credit history. They are likely to demand more information from prospective customers, which could mean longer application forms!

Gary Styles, of housing intelligence business Hometrack (www.hometrack.co.uk), believes that in order to accurately judge risk, getting to know their customers is “something lenders are going to have to do”.

As well as the rise of the coveted super prime borrower, mortgage lenders will be looking for the best property to risk their money on, so factors such as the type of property and its potential to grow in value will be assessed too.

4. Shared equity schemes will provide a leg-up

Shared equity schemes won’t just be provided by housing associations or government agencies. In future, the party that provides the “equity loan” could also be a parent or relative or even a private investor.

Shared equity schemes allow first-time buyers to take out more than one loan for a property. They take a mortgage and an “equity loan” which is repaid with interest when the property is sold.

5. Savings schemes will help us build up deposits

First-time buyers are struggling to build up the substantial deposits that lenders are demanding, partly as a result of low savings rates.

Peter Williams suggested that savings products specifically designed to help first-time buyers will appear. These will help first-timers simultaneously build up a deposit and a track record with the lender.

Williams also predicted that there could be more targeted help from the government – such as a greater tax-free savings allowance to help first-time buyers build up mortgage deposits.

6. We will all want Islamic mortgages

Peter Williams believes there are “opportunities to bring the concept of Islamic home finance into the mainstream markets.”

At the core of Islamic mortgage lending is the principle that lending is a charitable act and that debt should not be exploited for profit. You buy your house in conjunction with the lender, then proceed to make monthly “rental plus equity payments” until you have bought the bank’s share of your property.

The combination of ethical values and often competitive pricing could mean this type of mortgage will find a wider audience in the future.

>7. Competitive deals at high LTVs will return

David Hollingworth is confident that we will see a “slow easing in loan-to-value (LTV) requirements” and that competitive deals at high LTV levels will return.

However, he indicated that we may have to wait a while for a lender to take the plunge. “No-one really wants to be the first to that party, for fear that it may attract too high a volume of customers to cope with”, he said.

8. We’ll all be having relationships with our lenders

The branch is coming back as more people want the reassurance that there are real people looking after their money. However, people are also now more adept at searching for the cheapest deal on comparison sites.

Peter Williams believes that as we move beyond the credit crunch, “the pressure will move from a transaction-based world to a relationship-based world.”

When it’s so easy to switch mortgage providers, lenders will have to focus on wooing their existing customers and convincing them to remain with them, rather than exerting all their energy on attracting new customers.

9. Lenders will embrace the online world

David Hollingworth observed that getting an online decision on a mortgage has pretty much disappeared as a result of the credit crunch, as lenders try to be more prudent about whom they lend to.

However, he doesn’t believe lenders can continue with this withdrawal from the internet. He said that the “Facebook generation” will expect technology to be a part of mortgage provision, and lenders will have to respond to this.

10. Change will be driven by new lenders

The innovation and change that the mortgage market needs may not necessarily come from the big players. Gary Styles observed that that the market no longer has a clear leader willing to drive the market forward.

Tesco is likely to move into the mortgage market in the future, and Boots has considered a similar move. As other non-typical lenders appear on the market, they are likely to bring attractive new products with them, which could be exactly what’s needed to spark change and innovation in the mortgage market…

Bookmark with:

What's this?