It’s over a year now since the sub-prime mortgage crisis started to take effect on the international economy. As uncertainty began to spread with regard to returns on loans and mortgages, lenders were forced to tighten their lending criteria – which led to the current situation in which mortgages are in (relatively) short supply and house prices are falling rapidly.

It’s impossible to predict exactly when the mortgage market is likely to recover, but most economists agree on what will trigger a recovery.

What is happening now?

At present, the mortgage market is slow compared with previous years, although it is by no means stagnant. £5.5bn of mortgages were offered in November 2008 – suggesting that lenders are cautious, rather than ruling out mortgage lending altogether.

The main difference between now and the peak of the mortgage market in 2007 is lenders’ ability to offer mortgages. Not only are mortgage lenders more cautious than they used to be, but the funds required to provide mortgages have become more expensive.

The main indicator of this is LIBOR (London Inter-Bank Offered Rate). The LIBOR rate is a measure of the average rate at which banks lend to each other. In recent months, LIBOR has remained relatively high in relation to the Bank of England’s base rate, meaning that despite the Bank of England’s efforts to encourage higher levels of lending in the form of base rate cuts, the cost of lending has been slow to fall.

What could trigger a mortgage market recovery?

The Government have introduced measures to encourage higher levels of lending, most notably pumping billions of pounds into banks in order to improve their ability to lend. This in itself has not yet caused a measurable increase in lending, but it’s quite possible that it will aid banks as confidence increases amongst lenders.

The main factor affecting availability of mortgages is lending between banks. If lending becomes cheaper for the financial institutions themselves, lenders will be in a better position to offer mortgages and loans more freely.

However, it is unlikely that mortgage lending will return to anywhere near the levels seen at the peak of the market. Even when lending returns to normal levels, lenders are still likely to be careful with the credit history of borrowers, as well as deposits put down on new mortgages.

An important part of the confidence that you should have in a mortgage advisor comes from his expertise.

New lenders come onto the mortgage market in Canada each year, at least six new ones in 2006 alone. Other lenders add and change products constantly. There are hundreds of home loan products on offer in Quebec. Following and understanding all of these changes takes study and the devotion of a lot of time and effor.

Signs of expertise in a mortgage broker

• He discusses all of the possible strategies for a borrower, rather than focus on a mortgage product.
• Has a full understanding of the many things that influence interest rates, and can clearly explain all of the nuances of the interest rate market to his clients.
• Completely understands the whole range of mortgage products that are in the market and can compare them easily. He is able to state, for example that: “XYZ lender had the best variable rates right now, but the credit margin is better with ZYX bank for the following reasons…”
• Has the ability to access rates from all lenders on the spot and present the appropriate one to a borrower.
•Makes it a clear priority to understand the client’s unique situation and focus on his objectives
•Lets the client know about every possible strategies that may help him pay off his mortgage as fast as possible.
• He holds the designation of an Accredited Mortgage Professional (AMP) from the Canadian Association of Accredited Mortgage Professionals
• He works for a company that has a large volume of home loans (many millions of dollars of mortgage loans per year).
• He clearly and easily can discuss the newest mortgage concepts.

Something new that has developed in the mortgage market is that many mortgage advisors are specializing in a given area of the mortgage market.

Here are some of the kinds of specialties we are now seeing:

• Working with borrowers with good credit
• Working with the self employed, who have a more difficult time verifying income
• Working with clients with less than perfect credit, or even former bankruptcies
• Working with construction loans
• Working with rental properties

This concept allows a mortgage consultant to be an expert in a certain area. This is becoming more important as the mortgage field becomes more competitive as well as more complex. I think more and more mortgage consultants will start to specialize in this way. Better to be a master of one trade than a jack of all trades and master of none!

If you are successful in getting a mortgage advisor with true expertise, you will probably save thousands of dollars on you home mortgage.

Gregory is an Accredited Mortgage Professional (AMP) in Canada. To have more information on Mortgage Broker – Courtier hypothecaire please visit: Hypotheque | Mortgage