How Big Data and Generation Rent will change the mortgage market forever
Peter Hill, chief executive of Leeds Building Society, said financial services companies must have a plan to deal with these transformational forces.
“They arise from technology, social change, competition and regulation,” he told the Mortgage Business Expo in Leeds.
“In technology, it is the impact of Big Data. Within social trends, it is the shift to Generation Rent.
“With competition, it is the emergence of new funding models and in regulation it is the establishment of vastly more complex and rigorous capital requirements that will shift the paradigm.”
Mr Hill said the ability to analyse “vast, deep and as yet uncharted... oceans of data” will enable companies to optimise their products and services with high degrees of personalisation and accurately predict individual behaviours.
He added: “The winners will know what you are thinking before you do.”
Mr Hill said Britain has seen a big demographic paradigm shift away from owner occupation.
Private renters have grown from 9 per cent in 1992 to 19 per cent in 2014; buying with a mortgage has reduced from 43 per cent to 31 per cent; owning outright has increased from 25 per cent to 33 per cent; nearly half - 48 per cent - of younger households are in rented accommodation, more than double the level in 2003, he added.
“What that means is the UK residential mortgage market will look very different and potentially quite a bit smaller in the future,” said Mr Hill.
“Wealth will be even more concentrated in the housing and older group and therefore what we need to do is generate some solutions around the issue of inter-generational wealth transfer.”
Questioned about this, Mr Hill said: “Something needs to happen about the old ladies who live in big houses and how do you actually create something that people want to move to?
“People don’t want to move out of their nice, four-bed detached house into a little tiny city centre flat.
“What you want is something that looks a bit like what they have, but is more containable with a smaller garden and maybe not so many extra bedrooms, but a bit more storage space for their stuff and maybe some training on how to use eBay so they can sell it.
“That’s where the bold, imaginative policies and where we need the industry - the builders - to start to come up with some solutions.”
He does not expect the Bank of England to raise the base rate any time soon and predicted that savings rates would remain low as lenders can get funding from sources other than retail deposits; this means mortgage prices will stay low. “I see this as a long-term trend which is bad for savers but good for borrowers but likely in the long term to result in less churn in the mortgage market,” he added.
On the subject of capital, Mr Hill said international regulators want to see lenders hold more money against mortgage lending.
The increased capital requirements will make mortgage lending less profitable so institutions will look to deploy their capital elsewhere, such as in business lending, in the search for better returns, he added.
Talking loud, saying nothing
Political parties are failing to address the big challenges facing the UK housing market in their election manifestos, according to Peter Hill.
He said: “Where we need some some real policy action is around the housing market, the housing crisis, and nobody is saying anything that will really move the dial there. The other thing that I’ve not heard anyone say... is how you address the underlying issues around how you get building moving.
“It’s alright saying ‘we are going to build 300,000 houses...’ but actually we need bricklayers, groundworkers and plasterers and they are just not there.”