Written evidence submitted by Kensington
Mortgage Company
EXECUTIVE SUMMARY
— The
landscape of the UK mortgage market has changed dramatically over
the past three years. The majority of UK mortgage lenders, as
a response to the financial crisis and market downturn, have restricted
their lending to consumers, while other providers have pulled
out of the market altogether.
— In
addition, much of the consolidation within the market has resulted
in a lack of diversity of mortgage products and providers, which
has, in turn, restricted mortgage provision to a select number
of customers (eg those with an exceptional credit rating
or with a significant level of deposit).
— With
a lower number of first-time buyers in the market in England and
Wales than at any time in the last 35 years[24],
we believe it is more important than ever that mortgage lenders
do their utmost to help people fulfil their aspirations of homeownership
consistent, of course, with their ability to fund those loans
sustainably.
— We
believe that the best way to do this is to ensure a competitive,
diverse market, which is able to meet a range of customers needs
in different circumstances and which is not just reliant on a
small number of super-dominant lenders.
— We
believe it is important for the Government and regulators to support
a level playing-field between lenders of every kind—whether
large and small, monoline and full service, private sector and
part-nationalised—to maximise the level of competition in
the mortgage market and make sure that every lender is, like us,
playing their full part.
1. INTRODUCTION
1.1 Kensington Mortgage Company ("Kensington")
welcomes the opportunity to contribute to the Treasury Select
Committee's important and timely inquiry into competition and
choice in the banking sector.
1.2 Kensington is a leading intermediary only
mortgage lender with approximately 47,000 customers and a mortgage
book of £4.54 billion. It offers mortgage products—through
a controlled distribution of intermediaries—aimed at customers
who are overlooked by the high street and its products are tailored
to meet a range of different circumstances[25].
With the support of its parent, Investec, a leading specialist
bank and asset manager, Kensington became the first lender driven
out of the market by the credit crunch to return to lending.
1.3 As an intermediary lender, Kensington plays
a key role in ensuring greater diversity and competition for mortgage
customers and potential homeowners, as part of ensuring a sustainable
recovery in the UK mortgage market—particularly, at a time
when there have been mixed signals about the direction in which
the housing market is heading. In a sector which has been subject
to significant levels of state support through the nationalisation
and part-nationalisation of some of the big banks and mortgage
lenders, we believe that the promotion of greater competition
and diversity is of paramount importance for the benefit of consumers.
1.4 Kensington are committed to running a responsible,
sustainable business. We make sensible considered lending decisions
based on the information provided us from a variety of verifiable
sources. We check robustly a customer's ability to afford a mortgage
taking into consideration the specific characteristics of the
customer's financial situation and we further stress test this
to allow for the potential of further interest rates increases.
2. THE IMPACT
OF THE
FINANCIAL CRISIS
ON COMPETITION
AND CHOICE
2.1 The landscape of the UK mortgage market has
changed dramatically over the past three years. The majority of
UK mortgage lenders, as a response to the financial crisis and
market downturn, have restricted their lending to consumers, while
other providers have pulled out of the market altogether.
2.2 The market in mortgages saw a reduction of
products from 28,413 in June 2007 to just 2,177 in July 2009 according
to Money Supermarket. That figure had risen slightly to 2,990
by August 2010.
2.3 With a lower number of first-time buyers
in the market in England and Wales than at any time in the last
35 years[26],
we believe it is more important than ever that mortgage lenders
do their utmost to help people fulfil their aspirations of homeownership
consistent, of course, with their ability to fund those loans
sustainably. We believe that the best way to do this is to ensure
a competitive, diverse market, which is able to meet a range of
customers' needs in different circumstances and which is not just
reliant on a small number of super-dominant lenders.
3. THE IMPACT
OF WIDESPREAD
CONSOLIDATION AMONG
BANKS AND
MUTUALS
3.1 There has been significant consolidation
in the UK mortgage market over the past three years. In addition,
much of government support has focused almost exclusively on larger
deposit-takers, reinforcing the lack of overall competitiveness
in the mortgage market for first time buyers and those facing
negative equity.
3.2 Much of the consolidation within the market
has resulted in a lack of diversity of mortgage products and providers,
which has, in turn, restricted mortgage provision to a select
number of customers (eg those with an exceptional credit
rating or with a significant level of deposit). Many credit-worthy
consumers—including those, for example, who are self employed—are
still being denied the opportunity to buy their own homes and
are unable to enjoy the clear benefits associated with home ownership.
A diverse and responsible mortgage market that supports the recovering
in the housing market would, in turn, give a much needed fillip
to the broader national recovery.
4. THE KEY
BARRIERS TO
ENTRY INHIBITING
INCREASED COMPETITION—INCLUDING
REGULATION
4.1 It is crucial for the Government, regulators
and the industry to ensure the necessary conditions for a return
to a diverse and vibrant market in which there are more kinds
of lenders—both small and large—with different funding
models.
4.2 Following the financial crisis, there have
been a number of new or proposed regulatory requirements affecting
the mortgage market including the FSA's Mortgage Market Review
and the Bank of England's proposed market measures on monetary
policy[27].
While the intention to further stabilise the system is entirely
welcome, there needs to be greater recognition and understanding
of the cumulative effects of all these regulatory changes on market
competition and scope for product innovation. There is a danger
that these new and proposed regulations will tend to favour large
incumbent organisations, protect them from competition (in some
cases with taxpayers' money), with additional prudential regulation
typically representing a greater proportionate cost to small firms.
5. WHETHER COMPETITION
IS INHIBITED
BY DIFFICULTIES
FACED BY
CUSTOMERS IN
ACCESSING INFORMATION
ABOUT PRODUCTS
5.1 Kensington believes that there is currently
a lack of transparency in the market, with many of the products
promoted by the mainstream providers being restricted to only
a very small number of borrowers. Credit scoring systems are used
to cherry pick customers for the best rates. The criteria behind
these scores are undisclosed and many customers can be denied
access to products promoted as best buys without knowing why.
5.2 In addition, Kensington believes that it
is important to promote greater understanding in financial services,
with more emphasis put on the value of product transparency and
professional independent financial advice. We support the work
of Independent Financial Advisers (IFAs) and Mortgage Intermediaries
as the fairest financial services institutions inspiring trust
and consumer confidence as well as continuing the roll out of
free impartial generic financial advice.
6. EXPLORE THE
GOVERNMENT AND
COMPETITION AUTHORITIES'
STRATEGY TO
INCREASE COMPETITION
IN BANKING,
INCLUDING THE
LIKELIHOOD THAT
NEW ENTRANTS
WILL SUCCESSFULLY
ENTER THE
MARKET
6.1 We believe it is important for the Government
and regulators to support a level playing-field between lenders
of every kind—whether large and small, monoline and full
service, private sector and part-nationalised—to maximise
the level of competition in the mortgage market and make sure
that every lender is, like us, playing their full part.
6.2 Kensington is determined to play its role
to support the continuance of a sustainable, responsible recovery
in the UK mortgage market though helping homeowners and potential
homeowners.
7. CONCLUSION
7.1 Kensington has been delighted to offer these
thoughts to the Committee which it trusts the Committee will find
helpful. We would be delighted to discuss these important issues
with you in further detail.
September 2010
24 Statistics supplied by Home Builders Federation,
5 August, 2010 Back
25
These include self-employed workers, people whose income includes
salary plus bonus or commission, people with more than one income
source (eg from two part-time jobs), customers who have missed
one or two of unsecured payments in the past but are now back
on their feet financially and people without personal information
on record to fit a standard credit score. Back
26
Statistics supplied by Home Builders Federation, 5 August, 2010 Back
27
Monetary Policy After the Fall-Paper by Charles Bean, 28 August
2010 Back
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