How the credit crunch has affected mortgage brokers

Most of us are only too aware of the profound negative impact that the global credit crunch has had on the financial markets, affecting everything from mortgage lenders and unsecured lenders to credit card providers and more.

Of course, consumers across the nation have been affected by the effects of the global credit crunch, which credit conditions becoming unbearably tight and access to finance becoming more and more restricted. Borrowing has also become increasingly expensive, leaving many consumers out in the cold when it comes to getting finance.

However, there are also related industries that have been affected by the credit crunch, and this includes mortgage brokers, who until recently have enjoyed a roaring trade. Lat year around 70% of all mortgages were generated through intermediaries such as mortgage brokers, reflecting the popularity of these industry professionals.

However, the global credit crunch has really taken its toll in the mortgage market, and this has inevitably had a knock on effect on mortgage brokers.

There are a number of ways in which mortgage brokers have been adversely affected by the effects of the global credit crunch. First of all the credit crunch has made it far more difficult for consumers to get their hands on affordable mortgage deals, with lenders making it more difficult to get finance and raising the interest rates on many products.

Arrangement fees and deposit requirements on mortgage loans have also gone up, and all in all this has resulted in severely reduced affordability and accessibility for consumers. In turn, this has affected the number of consumers that are looking to take out a mortgage loan, which in turn has affected the level of business going through the various mortgage brokers.

Another major factor that has affected mortgage brokers is that many lenders have decided to encourage consumers to go directly through them for their mortgage needs rather than through a broker.

Some lenders have decided to withdraw some mortgage products from brokers altogether whereas others have allowed the mortgage deals to be offered by brokers, but have also made the deals available directly.

Moreover, they have offered dual rates, where the consumer can get a lower rate of interest by going directly through the lender rather than going via the broker, which has also impacted on the level of business.

On the upside, brokers have recently reported that there has been an increase in the number of enquiries relating to remortgages and first time mortgages, as consumers in these groups are wary of trying to find a deal on their own in the current financial climate, and have instead turned to brokers to help them out.

However, the Financial Services Authority has stated that brokers must exercise clarity and advise consumers if they can get a better deal by going directly to a lender, which means that not all of these enquiries will be converted to sales.

With regards to this officials from the Financial Services Authority recently stated: “For example, if a customer goes to a whole of market intermediary, and the intermediary recognises that, in current market conditions, there may be more competitive products in the market other than those available to the intermediary, that may be of interest to the customer, we think that there must be acknowledgement of this.”

Brokers have even filed a complaint with regards to the fact that lenders have been restricting the mortgage deals that they can offer, but the Financial Services Authority has stated that this is not necessarily a bad thing for the consumers, stating: “It is a commercial decision for a lender whether they want to offer products directly to the public or via a broker. Anyone dealing with consumers should ensure that consumers are treated fairly.”

Typically the majority of mortgage related loans have been taken out through brokers, and therefore these intermediaries have been enjoying a lucrative spell during the housing boom of the last ten years, when credit was easy to obtain and many people were buying and selling homes.

However, the picture now looks very bleak for all concerned, with non-homeowners unable to afford to buy or being too wary to buy due to rapidly falling house prices, homeowners facing difficulties in selling, and a general slump in the housing and mortgage sectors.

It is not just brokers that have been adversely affected either – estate agents have seen business plummet over recent months and there are concerns that many could end up going bust due to lack of business.

Some officials from the industry have blamed this on lenders, with one official stating: “Lenders do not seem to be in the business of lending any more. They are the ones who lent irresponsibly and now the public and our industry are paying the price.”