Finding reasons to be cheerful about prime mortgage lending
It’s not been a good start for the credit markets in 2008, but its affect on the mortgage market has perhaps been more obvious.
However, now one of the last markets commentators expected to be affected by the credit crunch - the prime mortgage lending sector - is beginning to show signs it may be bowing under the pressure.
Nowhere is this more evident than in sales forecasts.
In light of uncertainty over city bonuses, one of Europe’s largest property consultants, King Strurge, estimate 2008 prime central London prices will rise by only six per cent - more than a 26 per cent reduction on last years growth.
If this weren’t bad enough, the Bank of England Credit Conditions Survey has suggested prime mortgage lending will “cool markedly” following a “weaker than expected” fourth quarter of 2007.
The bright side
That said, prime mortgage lenders retain faith in the strength of prime lending sector. Evidence of increased demand, and years of steady growth leave many experts optimistic about the stability of the sector.
A spokesperson for prime mortgage lender Investec, dealing primarily with clients earning over £150,000, indicated the bank remained confident that, despite “a tightening of the market in the last few months… historically, there has been significant growth in that end of the market”.
He said: “Certainly we’ve been experiencing increased levels of demand over the last couple of years and it’s still fairly stable.”
Of course, there is substantial evidence to support this. Research by Halifax found that the number of £1 million property sales had increased nearly three times over the last five years.
Despite this however, we see the same trends emerging as have done in subprime markets - that is the anomaly of London house prices.
Indeed, 70 per cent of these sales were concentrated in five per cent of the country’s post codes with 58 per cent occurring in London.
In addition, how much can we truly rely on the strength of previous market performance? Don’t these optimistic statements echo the same tenets espoused in the subprime market prior to the credit crunch last year?
A cut above the rest
However in this case, there are elements that belong to the prime mortgage products that set them apart from its struggling subprime partners.
One such element, according to Investec, is the advanced “tweaking” that lenders can apply to the prime products to make them more appealing.
For example, the Investec spokesperson noted that multi-currency mortgages have become popular.
“Ultimately, it’s a means of reducing debt by switching into different currencies, and to go into it you have to have an appetite for risk.”
“That fits in very much with a lot of high net-worth clients who are used to investing their cash and are quite happy to invest their debt in a similar way,” he added.
Indeed, another tailored mortgage market popular with prime borrowers, Self-Certification, has also maintained its resilience throughout the credit crunch.
According to mortgage broker Alexander Hall: “All those clients who would have got a self-cert mortgage before have been able to get them even with the credit crunch.”
Consequently, it would seem that, despite the underlying increase in uncertainty the credit crunch has placed on all lending markets, there is an adaptability belonging to both lenders and borrowers in the prime sector that could provide enough added support to see it safely through this period of unrest.
Mortgages for Professionals is a specialist mortgage broker offering a whole-of-market choice of all UK lenders. We provide a service dedicated to individuals with professional qualifications and high projected earnings – from doctors and dentists, to accountants and engineers.
