Despite gloomy predictions of a market slowdown, Mark Jones believes there may be a positive future for firms that have the foresight to meet new challenges head on.
The past couple of months have been blue indeed for many mortgage advisers. With mounting speculation of a slowdown, it is undeniable that 2008 will be a challenging year for both the mortgage market and wider protection industry. However, importantly, there is still plenty of business to be had and many reasons to remain positive.
Last year started so positively, and yet look at how it ended - could the reverse happen in 2008, with gloomy predictions at the start of the year eventually leading to stabilisation and improvement further down the line?
Looking back in time
In the first part of 2007, annual house price growth edged higher to reach more than 10%. However, by the end of the year, the market was much more downcast as the impact of five interest rate hikes between August 2006 and July 2007 started to tell.
Compounding these issues further was the start of the 'credit crunch' in August, where the collapse of the US sub-prime housing market had a severe knock-on effect in the UK. The funding UK mortgage lenders relied on became increasingly difficult to obtain, and their own capacity to lend was restricted as a result.
Northern Rock became the highest profile UK victim of the credit crunch, and the media coverage that followed further damaged consumer confidence.
In addition, at an already vulnerable time for the property market, the staggered launch of home information packs (HIPs) culminated in the extension of these rules to cover one and two bedroom properties from 14 December 2007.
It is not surprising, therefore, that 2007 ended with mortgage approvals at a three-year low in November, a drop of 37% on the previous year, and annual house price growth slowing across the whole of the UK in the final quarter of the year, according to Nationwide. Gross mortgage lending in December also reached its lowest monthly figure for over two years, falling 25% from November's figure.
The events of 2007 have led to gloomy predictions from many industry sources for the market in 2008. Predictions on UK house prices have varied from a 10% drop according to Morgan Stanley, to a 5% fall based on Capital Economics' findings. Many experts and commentators agree that prices are likely to fall this year or, at best, stay the same.
These predictions are doing little to help consumer confidence, which is already at an all-time low following the events of 2007. The insurance industry has already witnessed the consequences of a lack of general confidence in both the UK and global economy in January, with global share prices plummeting dramatically amid fears of a global recession.
It is impossible to predict exactly the coming trends in the mortgage market, but one thing that is certain is that it is going to be a challenging year ahead. However, firms that are able to adapt will not only survive but will thrive.
First-time buyers will continue to present opportunities in 2008. December's interest rate cut, the recent reports of falls in house prices and the influx into the market of one and two bedroom properties prior to the rollout of HIPs in December have attracted many first-time buyers who are in a position to take advantage of the current climate.
Educating new entrants
According to the National Association of Estate Agents, the market share of first-time buyers increased between November and December from 10.1% to 13% as a result. In addition to their mortgage, there is also an opportunity for advisers to educate new entrants on the importance of accompanying protection products.
The remortgage market should also offer substantial business opportunities for advisers in 2008, as the fixed-rate mortgages for an estimated 40,000 sub-prime borrowers alone are due to end. These clients will need guidance from an adviser, who can provide more than they ever have done before.
With lending criteria tightening, many clients will experience difficulties in obtaining a remortgage and may suffer 'payment shock' when their existing rate ends and reverts to a standard variable rate. As such, clients will increasingly start to look for face-to-face advice rather than going direct to their lender - thereby providing advisers with the opportunity to demonstrate their worth to their customers. By revisiting existing clients, advisers will also have the chance to review their current financial portfolio - for example, a client who initially bought mortgage payment protection insurance can then be shown the benefits of income protection cover.
Reassuring customers
For customers who have no protection in place because they are either wary of the insurance industry or concerned over claims not being paid out, the recent Association of British Insurers' recommendations on the payment of proportionate claims where negligent non-disclosure has taken place should prove reassuring.
In a volatile market, advisers should be looking to increase their product range in order to derive income from a wider range of sources. With a protection gap estimated to be at £2.3trn, there are huge opportunities and potential to generate additional income from this market, while simultaneously providing clients with a more comprehensive financial planning service.
This more holistic approach to financial planning will, in turn, help firms meet the Financial Service Authority's Treating Customers Fairly (TCF) initiative, as advisers will be able to demonstrate that they are meeting their customers' financial needs instead of just focusing on their mortgage requirements. In addition, if firms firmly embed the principles of TCF into their business, they will see a rise in customer loyalty and referrals.
The year to come will undoubtedly offer testing times for the whole industry, but there is still plenty of business to be had. Firms that adapt to these changing market conditions and raise their offering could find 2008 to be extremely rewarding. n
Mark Jones is protection products and actuarial manager at Friends Provident
