The FSA published its review of the mortgage market on Friday. This did not make happy reading. Since the credit crunch crisis began (and yes I do not believe it is over) the difference between the rate that people borrow at and the Bank of England base rate has widened. Prior to the crunch, the average difference or “spread” between 2005-2007 was only 0.50%, it is now above 3.0%. The difference might be described as profit to the lender.

I’m still amazed to see that as of Q1 2012, income is only verified for around 70% of  “low risk” borrowers – meaning that they are remortgagers and movers. “Higher” risk borrowers such as first time buyers have their incomes verified in 87% of cases, which the FSA think is an improvement on the lower level of around 70% in 2008. I don’t see why income is not verified in every case, unless there are exceptional circumstances. Even assuming sensible lending based on verified income, this would suggest that there is a margin for error of around 30% which is hardly inspiring confidence in the market.

Financial Advisers (rather than Banks) used to arrange around 64% of mortgages, now this has reduced to around 46%-56% according to the FSA. This reveals a growing market share of mortgages sold directly to consumers by Banks and Building Societies.

In terms of what people can borrow, there seems to be a shift by lenders, some of whom are lending 4.5x to 5.5x income. However compared to pre-crunch, lenders are not offering as many high multiple lending. This is precisely why a specialist mortgage broker (not me) is required to source the best mortgage based upon your circumstances, particularly as the number of mortgage products is returning to pre-crunch levels, but still lower at 2,991 different mortgages available. This is despite the fact that there are still relatively few mortgages requiring a deposit of 5% or less, although more are becoming available. The bulk of borrowers  now have 25%-50% deposits. The proposition of interest-only mortgages has also reduced considerably, though this was a general trend over the last 10 years. The balance of power has altered, in part due to the collapse in the number of financial advisers offering mortgages, (which would include ourselves) almost halving since 2005. The result has been that the top 20 mortgage lenders have gained an increased market share, now at 94% of the entire mortgage market, I suspect you could name them all. On the whole, though mortgage sales have remained fairly static since 2009 at less than half the amount it was in 2005.

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