8% Drop In New Home Loans

The Council for Mortgage Lenders reports that the number of new loans in August fell by 8% compared to July.  Deposits have also risen to the highest levels for six years. Read more at The Guardian

Loan to Values Getting Lower

The average deposit for buying a house in September reached 43% up from 30% in December 2006, according to the Telegraph.  They also report that you appear to need a higher deposit for cheaper properties.

But I thought higher deposits were because then the loans are less risky.  Surely its more risky to lend a mortgage to an individual.

Read the full story: Home buyers need 40pc higher deposit

UK Mortgage Industry

A description of how the UK mortgage industry is structured

So how does a mortgage get to you as the consumer? To make a comparison to other products, who are the manufacturers, distributors and retailers? What are the controls on these organisations?

Manufacturers
These are the mortgage lenders and range from the national high street banks and building societies that you will have heard of; to local building societies specialising in particular parts of the UK; to smaller lenders that specialise in particular parts of the market.

Retailers
Mortgages are sold either direct by lenders to the public or they use mortgage brokers to make the sales for them. There are three basic ways that lenders structure how they get their mortgages to the market.

1. A small number of lenders will not deal with mortgage brokers and only deal direct with the public. These tend to either be very large lenders or local lenders dealing only is a small part of the country.

2. Another small group do not sell direct to the public but work exclusively through mortgage brokers.

3. The majority of lending though is done by lenders that have a dual channel policy. They have direct sales, either through branches or via call centres and they have a network of mortgage brokers.

Wholesalers
What may surprise you is that there are also ‘wholesalers’ of mortgages. These are known in the industry as either ‘mortgage packagers’ or ‘mortgage clubs’.

These two differ in the amount of involvement they have in the actual processing of the mortgage application. Mortgage Clubs try to have as little involvement in the application as possible whereas the packagers will actually take on much of the processing of the case from the broker especially for more difficult cases, or sub-prime cases.

Because packagers and clubs have a portfolio of member brokers, they are able to go to lenders and negotiate exclusive or semi-exclusive deals with them. These deals will have lower interest rates or fees or may be available to a wider section of the public than the lenders standard products.

For organising these special deals the packager or broker will take a small percentage of the ‘procuration fee’ that the lender will give to the broker. If they are ‘packaging’ the application though, they will take much larger percentage of the fee.

Financial Service Authority (FSA)
The Financial Services Authority regulates the mortgage market and has a set of ‘principle bases’ rules that organisations must adhere to when they operate in the mortgage market. So Mortgage Lenders and Mortgage Brokers both have to be registered with the FSA and have to adhere to their rules.

But it is worth noting that the Financial Services Authority considers that mortgage packagers and mortgage clubs do not need to be regulated because they are just ‘enabling’ the transaction. The mortgage lender is taking responsibility for the ‘product’ and the mortgage broker is taking responsibility for the ‘advice’.

To get a good overview of the mortgage market, take a look at this mortgage calculator where you can check mortgage rates