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Consistency amid great change
It may not seem like it as we go about our day-to-day lives, but we’re living in historic times.
Not only are we still reeling from a pandemic on a scale not s een in more than 100 years, but in the last couple of months alone, we’ve had a new p rime m inister, the loss of our longest reigning m onarch , and a “mini” budget that contained some of the biggest taxation changes in more than 70 years.
value of the property on which firsttime buyers can claim relief, from £500,000 to £625,000.
Much like the overall tax changes, however, its stamp duty adjustments were met with equal parts praise and derision.
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The last was received with reverence and contempt in near equal measure – praise given for a reversal of the national insurance hike at a time when so many are facing a costof-living crisis, but scorn poured on the fact that it is the richest who seem to benefit most from the changes.
For the housing market, the most notable adjustment came in the government’s decision to cut stamp duty land tax. The nil rate band will be doubled from £125,000 to £250,000, which could enable 200,000 more people every year to buy a home without paying any stamp duty at all. Meanwhile, the government has also extended its support to first-time buyers, who will no longer pay stamp duty up to £425,000. It has also increased the
“Once again, as turbulence has struck, the government has reacted quickly to support the market, just as they did with the COVID-19 stamp duty holiday,” Jatin Ondhia, chief executive at investment firm Shojin , stated on decision day.
Contrast that, however, with the words of Steve Seal, chief executive at Bluestone Mortgages, who highlighted that the “real issue” is demand outpacing supply.
“To combat this, the government must focus on a more staggered approach to stamp duty rather than a cliff edge deadline to reduce pressures across all elements of the housing market,” he said.
Wherever you stand, however, there’s no doubt about the role of the broker now – to be the face of reason and consistency amid tempestuous change. Be the voice your clients can rely on, and bring calm amid the storms.Paul Lucas
Pick ‘n’ six
We’ve extended the roll off period on our Product Transfers to six calendar months.
This could give your customers more options and a longer time to complete their transfer with us.
And with no additional underwriting along with quick and straightforward processing your customers could treat themselves to a new deal sooner.
To access our Product Transfer range, go to our products page at intermediary.natwest.com.
ONLY FOR USE BY MORTGAGE INTERMEDIARIES
Looking at the numbersCraig Calder director of mortgages, Barclays
The challenges facing borrowers continue to mount in the face of heightened energy prices, swap rates trending upwards, rising interest rates, and soaring levels of inflation, all of which are hampering consumer confidence and spending to an extent. However, the intermediary market remains busy and adviser workloads are still high as we move toward the back end of 2022.
This was evident in the latest Money and Credit statistics from the Bank of England, which outlined that mortgage approvals increased to 63,800 in July, up from 63,200 in June. Net mortgage borrowing decreased slightly to £5.1bn in July, from £5.3bn in June. However, this is above the pre-pandemic average of £4.3bn in the 12 months up to February 2020.
Gross lending increased to £26.1bn in July from £24.6bn in June, and gross repayments rose to £20.8bn, from £19.4bn. The effective interest rate paid on newly drawn mortgages also accelerated by 18 basis points to 2.33 per cent in July and is the highest since June 2016 (2.39 per cent).
This set of data emphases the resil ience of the mortgage market and how it defies some expectations. Having said that, with many personal finan cial situations being squeezed, as an industry we have to expect a degree of pushback from potential purchasers. On the flip side, greater levels of activ ity should be expected from home owners who are looking to act quickly and lock into the best deals prior to any further rate hikes.
As cost-of-living anxieties continue to rise, it was a huge positive to see mortgage arrears continue to fall in Q2
Harking back to the BoE figures, these also showed that approvals for remortgaging with a different lender increased to 48,400 in July from 43,300 in June. This does remain below the 12-month pre-pandemic average up to February 2020 of 49,500.
In addition, the latest LMS data showed that remortgage completions increased by 41 per cent in July as homeowners prepare for future rate rises, and suggested that 88 per cent of remortgagors now expect further interest rate increases within the next year. It was also interesting to see that 70 per cent of those who remortgaged in July took out a five-year fixed-rate product – by far the most popular product over the month.
As outlined in commentary around this data, as people grapple with economic uncertainty, the popularity of five-year fixes has hugely increased in comparison to last year. In July 2021, fewer than half of homeowners
remortgaged to a five-year fixed rate, a figure that has increased to 70 per cent this year.
Amidst this uncertainty, the advice process is playing a vital role in help ing a range of homebuyers to secure their monthly mortgage outgoings for longer periods, if appropriate for them. And with personal financial scenarios shifting all the time, the value of this advice will only grow.
As cost-of-living anxieties continue to rise, it was a huge positive to see mortgage arrears continue to fall in Q2. According to the latest figures from UK Finance, there were 74,540 homeowner mortgages in arrears at the end of June. This is defined at 2.5 per cent or more of the outstanding balance. The trade body said that this was a reduction of around 200 homeowner mortgages compared to the previous quarter, and 10 per cent fewer than the same period last year.
UK Finance also noted that, in absolute terms, there were 530 more possessions in Q2 2022 compared with the same period last year. However, it was pointed out that year-on-year comparisons for pos sessions will look unusually large due to greatly suppressed activity in Q2 2021 as the courts and the industry slowly resumed activity following the end of the possession moratori um. Possessions taking place now are, therefore, almost exclusively his toric cases that would, under normal circumstances, have taken place over the course of 2020 and 2021.
Arrears figures may be substantial ly lower than pre-pandemic num bers, but this is certainly an area that needs to be closely monitored, as some households will struggle to keep up with additional living costs, and communication remains key between lenders and borrowers to ensure these levels of arrears remain as low as possible.
This is a storm that will require lenders to investTim Hague MD, Sagis
It took the sub-prime crash, ensuing credit crunch, and the global financial crisis for regulators and central banks the world over to take a proper look at how lenders assessed borrowers’ ability to repay their mortgages. The Mortgage Market Review (MMR) that followed was seen by many as closing the barn door long after the horse had bolted.
Although not technically the result of the MMR, further regulations imposed by the Bank of England included more robust capital buffers and rigid stress-testing on affordabil ity. In August, that stress test – long argued against in the context of rock-bottom rates – was dropped.
After six base-rate rises in less than a year, and with more on the way, the need for borrowers to have the fi nancial capacity to withstand a three per cent rise in their mortgage rate now looks rather less draconian than it once did.
Caution is more ingrained in lending culture in today’s market, and just weeks after regaining the freedom to use judgement in the underwriting process, lenders are exercising it fully.
The strain that inflation and the cost of energy are putting on house holds and businesses across the country is painfully clear.
Within 48 hours of Ofgem con firming October’s price cap would almost double and the average household’s energy bills would come in at more than £3,500 a year, Jolyon Maugham, director of the Good Law
Project, announced plans to sue for failure to account for the devastation it will cause.
Lenders are acutely conscious of the responsibility this cost-of-living squeeze will lay at their doors. On one hand, borrowers already on their books are going to struggle to main tain mortgage repayments long-term if this cost pressure does not abate reasonably swiftly. Mortgage pay ment holidays, affordable payment plans, and managed arrears are very definitely coming. On the other, borrowers coming to the end of fixed-term deals will be demonstra bly better off if allowed to remort gage onto another fixed-term deal rather than defaulting to standard variable rates or switching to a deal that is higher than the deal they are rolling off.
This raises the question of responsible lending. How do we define responsible in a market such as this? Is it respon sible to allow borrowers to take on mortgages that they cannot afford to repay? Is it irresponsible to refuse to re mortgage borrowers who cannot afford to repay in the current economy?
DRAWING THE RIGHT LINE
The cost-of-living crisis is causing a whole raft of issues with affordability – lenders’ duty of care is to their customers, but also to shareholders, members, and staff. When sensibility is allowed to trump commercial reasoning, it may keep roofs over people’s heads – but what happens when it topples the lender?
In many ways, this will come down to the big retail banks, which have the capital resilience to absorb much of the cost-of-living shock its customers are about to feel. Under the regulator’s eye, I have no doubt they will do their bit.
This won’t solve problems for everyone, however, and it is a risk
that smaller lenders would do well to give some serious attention as soon as possible. An increasing number of lenders are quietly giving their affordability models a haircut. The regulator is also concerned, as the Office for National Statistics’ (ONS) date that most lenders use is back ward-facing and currently bears no relation to what expenses will look like in the coming months.
Increasing buffers is now a matter of some urgency, and many are achiev ing that by factoring in higher costs and lower disposable incomes when assessing affordability. It is a prudent thing to do, but it is anyone’s guess what level is the right one to apply.
Brokers report seeing cases de clined when a week or two earlier they would have been accepted.
Implications for borrowers aside, the speed with which affordability is changing poses a big problem for lenders. Already Moneyfacts has noted how much more frequently lenders are withdrawing products from the market, only to replace them with higher rates and lower loan-to-value deals. Big lenders with slick processes can cope with that speed, reacting fast enough to protect against a sudden flood of applications triggered by the with drawal of a competitor’s range.
Smaller outfits, and many of the smaller building societies, will find it increasingly challenging to manage. Typically, smaller lenders have more involvement in higher LTV lending, and can least afford to take a hit on the balance sheet. Yet, counterintuitively, battening down the hatches when the storm clouds are gathering may not be their wisest move. This is a storm that will last, and it requires lenders to invest in thinking, people, processes, and systems if they want to weather it. This storm will need lenders to invest, which will require guile and bravery.
We must all take a sensible and holistic view of borrowers’ circumstances
vices – us – who have a responsibility to help them get through it.Stuart Miller chief customer officer, Newcastle Building Society
By the time you read this, the summer holidays will seem a distant memory.
Forgive me, then, for harking back to an announcement that we made at the very end of July when we published our full-year results. Over the previous 12 months, we had lent £448m in mortgages, with £181m of that in the first half of the year.
It’s been an unpredictable year in so many respects, with the result that inflation forecasts just keep rising. While it was originally expected to peak at 10 per cent, the Bank of England (BoE) then said 13 per cent was more realistic. Analysts from Citi said in August that their models indicate inflation will be more than 18 per cent by Easter next year.
People are worried, understand ably. Strike action over pay and jobs has been rife amid rising concerns over where the money will come from to pay energy bills already expected to surpass £6,000 a year by April 2023. From dockworkers to train drivers, station staff to criminal barristers and teachers, too – the cost of living is biting across the economy and in all walks of life.
It’s at times like these that banks and building societies are needed most. Communities, households, families, the old and the vulnerable all face a very difficult winter, and it is ultimately going to be financial ser
Most homeowners, I am relieved to say, are in reasonably good shape financially. A year of lockdowns al lowed those who could keep working to save money, and it’s a cushion that will be extremely welcome if bills continue rising as quickly as they have. At the end of June, arrears on our book remained very low, and this is reflective of much of the industry. Even so, with the BoE tightening monetary policy and all indications currently suggesting this will contin ue, mortgage rates are on the rise.
We are conscious that, as we head into the autumn and winter, many homeowners will be due to remortgage, and the likelihood is their rate will be noticeably higher than deals taken in 2020, when the pandemic brought the base rate down to 0.1 per cent.
The Bank of England’s decision earlier this year to remove strict affordability assessments based on disposable income in favour of com mon-sense affordability reviews is now becoming embedded in the market.
This should be helpful for borrow ers whose discretionary spending has been relatively high and can there fore absorb a drop to pay for higher energy and food bills. Nevertheless, they will need good-quality advice to navigate what could be a tricky financial balancing act.
We specialise in taking a sensi ble and holistic view of borrowers’ financial circumstances – we always have. Now, when times are uncertain, lenders’ judgement is going to be even more important.
More than the changing costs of heating and groceries will influence customer behaviour in the future.
Choice comes into it – at least for those who have sufficient income to cover rising bills. Mortgage payments are the last thing to go when people face tough times – holidays, expen sive TV packages, and meals out are easier to give up than the roof over your head.
Even if there is a rise in the number of homeowners really struggling to keep up with significantly higher outgoings, we – and, I would hope, others – are about helping borrowers, not com pounding their problems. As a building society, we also believe lenders like us have a responsibility to step up when things are hard for our customers.
Newcastle Building Society was one of the first savings providers to respond to the BoE’s decision to increase the base rate, passing on the rise to the majority of variable-rate savings prod ucts. We continue to focus on support ing first-time buyers and low-deposit borrowers because they need our help.
I am incredibly proud that in the first half of this year, we have given £182,000 in community funding. That includes community grants from the Newcastle Building Society Commu nity Fund to the Community Founda tion, which focuses on charities tackling employability, social isolation, food poverty, homelessness, debt manage ment, and cancer care.
Our strength of purpose is more relevant than ever to our customers and communities. We think it shows – this is the sixth year in a row we have been awarded Best Regional Building Society at the What Mort gage Awards. Serving our customers is at the very core of what we stand for at Newcastle Building Society, so it’s rewarding to know they think we’re doing a good job.
Agility has never been more important – to everyone
clients don’t actually care.Steve Carruthers head of business
Moneyfacts data showed the average shelf-life of a mortgage product had sunk to a record low of just 17 days at the start of August. Another base-rate rise later, and providers again pulled products and came back with revised pickings.
The market has seen lenders with draw and reprice far more frequently than had been the case in a good while. Partly that’s down to the changing eco nomic situation; it’s also due to lenders needing to control application volumes as competitors pull products, suddenly rendering their deals best-buys.
Rates continue to climb. Since the start of August, Moneyfacts data shows the overall average two-year fixed rate has already increased by 0.14 per cent and has now reached 4.09 per cent. According to its first-ofmonth averages, this is the first time that this rate has breached four per cent since February 2013.
Even in our Mortgage Efficiency Survey interviews this year, getting products in and out of market has become a serious issue for many of the lenders to whom we spoke – many have not had to go through the gears of quick product repricing for many years, with serious consequences for operational and funding models.
Meanwhile, the price gap between variable and fixed deals is becoming increasingly marked. This is one of the flags that makes me wonder about how the majority of the mortgage market defines value. Sourcing systems throw up results based on rate. We all know that fees matter. We all know that most
Very often I think the need for agility is viewed from the lender’s point of view, but brokers and borrowers will demand it, too. Borrowers are even more price-sensitive than usual given the rising cost of living. Every extra pound in their pockets each month is really going to matter for an awful lot of people. But their financial circum stances are also going to be a lot more complex, unpredictable, and stressful.
This means there is a very good possibility that agility in pricing and mortgage propositions will be with us for some considerable time – not simply because of funding issues that support product pricing, but because consumers will make decisions today on borrowing that they will want to unwind sooner than we, and they, may think.
You can see why. If a borrower is considering a move in the next couple of years, who’s to say an ERC-free tracker isn’t actually a cheaper option for them than a fixed they could have to pay thousands of pounds to get out of early? Some will argue for, others against.
Some lenders are worried that mort gage recommendations, skewed by headline rates dominating the brokers’ sourcing systems, could cause them a real headache in future.
The danger with fixing on the lowest rate possible is that, where loan-to-val ues are high, affordability is stretched. Even where affordability has a very healthy cushion, inflation is going to put the squeeze on.
Of course, this is where good advice is crucial. It’s not just lenders who are thinking this carefully about future affordability. There is also the regulator to consider – what is responsible lend ing in an economy where even stable and well-managed family finances look unavoidably wobbly?
Borrowers – and it’s often first-time buyers who are desperate to get on the
ladder, whatever the cost – are all too often not going to worry about what happens next year. They’ve got the house. For many borrowers, house prices simply go up – don’t they?
I am not for one second saying they won’t – there are too many factors sup porting demand and constraining sup ply for the housing market to tank. But that doesn’t mean that some borrowers will feel obliged to take a lower rate regardless of the upfront cost. It cannot be in customers’ best longer-term inter ests to mortgage themselves to the hilt when all of us are facing a very uncer tain period for our finances.
The question of where mortgage products go next after the current bout of inflation will demand changes of us all. But in terms of implemen tation, speed and agility will matter to everyone because lending will be about delivering the right product at the right price at the right time. As we have seen, good outcomes are becom ing the regulator’s goal for borrowers. The need for good products that serve everyone well will demand operational excellence from systems and people.
The future will require more products and newer propositions – digital and otherwise – that can meet the need for agile borrowing that surfaces as a result of the current market.
Agile thinking can make a good idea betterSteve Goodall MD,
In markets as evolved as UK housing, coping with increasingly rapid change can require more ingenuity than might be expected in younger, lessregulated sectors. Challenges from the market, economy, or regulator come thick and fast. But rather than belabour a point about the inadequacies of legacy thinking and technology, I believe that, more than ever, it is important we remain agile to evolve and develop our propositions.
Brand-new apps and chat bots that manage to communicate with teenagers more effectively than their parents do are omnipresent. And there is a tendency in a mature market for its incumbents to feel a mixture of intimidation, confusion, bemusement, and then exasperation with technology brought in to make the process of buying a house “less complicated and less painful.”
I am categorically in support of innovation and investing in technology that supports better customer outcomes and experiences, and, frankly, makes our professional lives easier and less fraught with indemnity risk.
But I also get exasperated by the idea that old and traditional is bad and new is good. It is a binary distinction that makes a snappy soundbite, but it really doesn’t mean very much. More accurate would be to say, some old technology is no longer optimal or is redundant now and some new technology could do the old jobs a lot better.
Some old technology and processes are, however, unbeatable –especially where complex experience and judgement are required –because they have been finessed over hundreds – yes, hundreds – of years. The wheel remains round, so to speak. It can go faster, but it is still round. When the uninitiated come to market claiming to have found the holy grail that will solve everything, that’s when the rest of us sigh and wait for the moment they realise it’s not that easy. Nothing ever is.
Therefore, we need agility of thinking when it comes to new propositions. When one comes to market and is as successful as, for example, our cladding database, we need to understand that new digital propositions may not involve repeating that same proposition. They may use data, and they may use technology, but their application and audience may be entirely different.
It’s why we are working on a myriad of new possibilities all the time. We need to ensure, as does every new business, that when we invent, we are also alive to the possibility that we should not tie ourselves to the original idea and hammer, hammer, hammer away at delivering the perfect version of that idea until a) someone else does it, or b) the market no longer needs or wants it (if they ever really did).
There’s a salutary lesson in this. Fixed ideas are rarely good ones. Like it or not, the world is a place that works for everyone only if there is compromise and openmindedness. The product you begin to design may not be the one you eventually put to market – but that is agility.
Refusing to adapt is likely to result in Canute-type behaviour that ultimately leaves everyone in deep water. Even choosing to change from
one absolute to another absolute fails to recognise that the need for that change will continue to evolve and will necessitate further change.
My point is that if businesses –we, in other words – want to have a chance of thriving as well as surviving then we need to find a way to build a model that reacts to change as and when it happens and is required.
Consider our market and the changes we have had to deal with in under a decade: the Mortgage Market Review, the Mortgage Credit Directive, various Basel regimes, changing monetary policy, capital adequacy rules, affordability and risk weightings, changing stamp duty rules and the withdrawal of tax relief for some parties and not others, energy efficiency thresholds (still to come), leasehold liabilities being legislated upside-down, our ageing population – this list could go on.
I am sure that generations before us must have believed they lived through unprecedented change, and the risks currently facing the UK housing market may, in geopolitical terms, be trivial by comparison. Nevertheless, they are material to homeowners, landlords, and institutional property owners, as well as to the banks and building societies that underwrite that ownership.
These things change, and as we assess them, so might our propositions – even if we currently think we have the right answer. Pivoting in response to these changes is important if, ultimately, we are to produce real value for our market.
Gather your intelligence. Be prepared to change your mind if or when your information changes. And invest in processes, technology, and systems that deliver what you need to remain agile. That way we all benefit from agile thinking.
How education will help you in the cost-of-living crisis
business and development manager, The London Institute of Banking and Finance
As the old saying goes, knowledge is power. Acquiring knowledge and education will give you the power to make the right decisions and take the right actions.
And in my view, while you’re there to advise your customers about their mortgage needs and help them make the right decisions, you’re also there to educate them.
DEVELOPING YOUR KNOWLEDGE
So, as a mortgage adviser, how does be ing educated help you? Why should you continue to develop your knowledge, when you’re already a skilled and fully qualified adviser?
Well, for a start, things change. And, unless you’ve been a mortgage adviser for over 30 years, you’re unlikely to have seen an economic environment similar to today’s. Even if you have been in the sector that long, there are significant differences between now and the last bout of high inflation.
A key part of your education is actually understanding what’s going on in the economy. The context this provides is an essential component in the toolkit of any mortgage or financial adviser. No, it won’t necessarily tell you what’s going to happen next. But it should help you understand the implications of different scenarios. In turn, this will help you educate your customers about the possible benefits and risks of different options, and how these might be affected by future changes.
It’s also worth understanding what’s
happened in the past. As I’ve said, there are significant differences between today’s economic downturn and previous ones. However, there are still lessons to be learnt from 30 years ago. One example that can be applied to both mortgage advisers and your customers is the importance of minimising unnecessary expenditure.
From an adviser perspective, other important lessons from previous economic crises include:
diversifying your business model investing in your business at the same time as reducing expenses taking short-term measures for long-term gain embracing changes – seeing them as an opportunity, not a threat
PERSONAL DEVELOPMENT AND SOFT SKILLS
In the current climate, education may also increase your ability to empathise with others and to understand the world from another person’s perspec tive. If you know what’s worrying your clients and why, you’re in a far better position to investigate, and possibly alleviate, those concerns.
Education may also change your attitude to risk. By broadening your understanding of risk and becoming better at communicating and explaining risk to your customers, you will be educating them – again enabling them to make more informed choices.
Of course, education isn’t purely about developing your skills and knowledge. It’s just as important to learn how you work most effectively so that you can always present the best version of yourself to your employers and your customers.
Confidence and resilience are key to surviving any form of crisis, and you can increase both of those by understanding the following:
what’s happening around you –
how these changes affect you and others
what the potential risks are – and how to manage or mitigate these
how you work at your best
Education will help you retain control and plan the best way forward for you and your customers.
Choose your CPD carefully to develop the skills and knowledge you need. Why not undertake an advanced mortgage qualification, such as the CeMAP diploma? This will help you better understand the financial impact of global and personal changes on your mortgage customers.
HELPING CUSTOMERS BECOME FINANCIALLY CAPABLE
So far, I’ve focused primarily on the benefits of education, either directly to you as a mortgage adviser or to your customers as a result of your advice.
However, your customers and their financial health will also benefit hugely if they understand, and can adopt, a financially educated approach to managing money.
With financial education, your customers will:
be able to make better-informed decisions
be less likely to fall into debt
know when to seek help or advice and from whom
understand and actively manage risks
have better overall control of their finances
You have a responsibility to educate your customers about their mortgage and associated financial products. If you can also provide them with a thirst for further knowledge, you could have a greater impact by encouraging them to thrive in challenging economic times.
Agility has never been more important
support self-employed borrowers in achieving their mortgage and property-related aspirations.
HIGHER LOAN-TO-VALUE LENDING
NEW DIRECTORS NOT YET WITH A FULL SET OF BOOKS
People enter self-employment for many different reasons, at different times in their lives and with different motivations. This includes a variety of occupa tions, roles, and income-generating opportunities. Experiences also tend to vary from person to person, and this is often reflected from a borrowing standpoint, as financial situations tend to be quite fluid.
For many, this was especially ev ident over the course of a pandemic that hit a number of industries hard, with the repercussions still being felt by the self-employed community as income and profit reductions suf fered over the last two years are still proving highly persistent for some.
This was the finding of the fifth, and latest, LSE-CEP survey, entitled COVID-19 and the self-employed – A two-year update. The survey also found an ongoing impact on the number of self-employed people. While in the last two years the number of employees working in the UK has grown above pre-pandemic levels, self-employment has not recovered to pre-2020 levels.
However, it’s certainly not all doom and gloom. Many self-employed people have not only survived but have thrived over this period, although there still ap pears to be a little disconnect over how they view the mortgage market.
As such, it’s important to outline how lenders and intermediaries can work together to help, not hinder, the self-employed. With that in mind, let’s outline some ways in which a specialist lender can
This is pretty self-explanatory. Despite some lenders capping their LTV limits during the pandemic, deals up to 90 per cent LTV do remain.
THE INCLUSION OF GRANTS AND BOUNCE-BACK LOANS
Grants and bounce-back loans were all prevalent over the course of the pandemic, and many specialist lenders are using the flexibility attached to a manual underwriting approach to support those self-employed borrowers who were affected during this period.
Some businesses’ profits have been hit over the pandemic, which could, historically, have affected potential borrowing limits. More lenders are now taking a more pragmatic approach by accepting one year’s accounts and a verified accountant’s projection for the following year.
Businesses set up toward the latter end of the pandemic may still be in their earliest form, but highly profitable. A few lenders will consider using net profit plus salary or salary plus dividends in this scenario, together with a verified projection from an accountant.
MAXIMUM AGE OF 75 AT END OF TERM FOR NON-MANUAL ROLES
It isn’t uncommon for some business owners to be in more of an admin/ managerial role as their business be comes better established. If they are in non-manual labour roles (for example, have staff working for them), lenders may consider taking the mortgage term to age 75, with no proof of pension needing to be evidenced.
In the past, advisers may have come across customers who had been made partners in firms by which they were previously employed, and wondered where to place the case, as they didn’t yet have a full set of books with those customers as directors. Some special ist lenders can work on the previous year’s salary as income and write to a firm’s accountant to verify income in their new role.
GENEROUS CONSIDERATION OF INCOME FOR SELF-EMPLOYED CONTRACTORS
Over the past year or two there has been a significant increase in contractors since the changes to IR35. Many specialist lenders have also shifted criteria re quirements and may now even consider borrowers who have been contracted less than a year, if they have relevant industry experience.
ADDITIONAL PROVISION FOR CIS CONTRACTORS
When speaking to self-employed per sons who work in the building trade, ad visers need to make sure they establish whether these people are self-employed, or are CIS contractors. CIS contractors can be assessed in different ways. They may have more borrowing power by using the last three months’ gross pay rather than using the last year’s net-prof it figure.
USE OF ‘SALE OF PROPERTY’ AS THE REPAYMENT VEHICLE
Some customers prefer interest-only mortgages and would like to use sale of mortgaged property as their repayment vehicle. Again, this is something many specialist lenders can assist with.
This is not an exhaustive list, but does hopefully offer insight into some criteria-related solutions that can meet a range of self-employed needs.
London will always be more than one market
rarely means anything on the ground.Robin Johnson MD, Kinleigh Folkard & Hayward
Property markets anywhere are influenced by all manner of factors. We talk about housing supply, affordability, and demand more often than anything else, but in fact there are many other considerations when it comes to understanding the value of a home.
Proximity to (good) schools matters. Access to amenities – a GP surgery, a decent hospital, a chemist, supermarket mini or maxi, somewhere to fill up the car, and recreational facilities – these things all matter and can have a significant effect on what someone is prepared to pay for a home.
There are also geographical factors that can wipe out a home’s value at a stroke. Flood plains are a recipe for difficulty. Old extant mine shafts, fault lines, shale, nuclear waste. You get the picture.
London, as I have said before, remains a geography of many markets – all of which ebb and flow according to the distinct characteristics of the boroughs or areas you consider. It’s just one reason why anyone who thinks of London as one homogenous market will likely not understand why some parts are flourishing in comparison to others right now.
It’s the fundamental problem with broad measures. We see it with the many national monthly indices that take varied data (mortgaged and cash purchases) and endeavour to draw a national trend. It gets headlines, but
For my own patch, there continues to be the usual diet of mixed views about London as a single market as opposed to its reality. There’s been a lot of housing market hype brought on by the pandemic. Many headlines trumpeted the great escape from the city to country life. We’re all working from home, ran the front pages. Commuter towns are over, said the pundits. You don’t need station access – fibre broadband access is what you really want.
Now, of course, the pendulum has swung the other way, and we have something of the opposite in some parts. Hybrid working is affecting local markets previously thought to have been abandoned but now proving very resilient.
What is clear is that many factors over and above supply and affordability go into the homebuying decision. There are reasons why many parts of London and its commuter towns remain stubbornly resilient.
These reasons are not hard and fast rules, but they go a long way toward illustrating why people undertake the home moves that they do. People like and need access to green spaces, but not everyone can work from home. An awful lot of people can’t, in fact. What’s more, people are social animals. We enjoy and are extremely affected by issues in our community – even if we do not directly engage with it. We all have a stake in where we live being a good place to live.
On a work level, hybrid working has shown (judging from the recent announcements of many large organisations) that companies like to feel in control and know what their employees are up to. Living within reach of work has not gone out of fashion. This means that
trains and stations continue to be very useful. Expensive, yes, but very useful. Infrastructure, too, is important. Fibre broadband is key for hybrid working, and cities and their environs provide this – and everyone agrees that seeing someone on a screen is not the same as faceto-face.
The idea that metropolitan locations are no longer attractive places to live might grab a headline. It doesn’t really stack up, though. Looking back to 13 April last year, when England reopened from its third major lockdown, the sense of joy felt by those in London was palpable.
“Central London roared back to life with a £100m day-one spending spree in shops, restaurants, and pubs after more than a year of ghost-town desolation,” sang the Evening Standard
“West End bosses said the first day after the easing of lockdown restrictions had unleashed the strongest reopening since the start of the pandemic and had far exceeded expectations.”
The Coutts London Prime Property Index said that by the end of Q2 this year there were “signs that London’s prime property market is getting back on form.” Prices are now just 6.7 per cent below the glory days of their peak in 2014. They’re also up 7.8 per cent compared to last year, with double-digit rises in some areas.
The price difference between central London and outer London is increasing, with central properties now 58 per cent more expensive, up from being 49 per cent pricier at the start of the year – a sign that central London property is picking up, said Coutts.
London is more than one market – in much the same way the rest of the UK is not one market. Once you understand that, you can make good buying and lending decisions.
Is the slowdown in the Great Resignation leading to quiet quitting?Pete Gwilliam owner,
You may be aware of two recently coined phrases: the Great Resignation and quiet quitting. Both have been trending on social media plat forms, in particular.
The Great Resignation refers to the record number of people who left their jobs following the onset of the pandemic. After extended periods of working from home with no commute, many people decided their work-life balance was more important to them than they had realised, and they left their jobs in favour of others that would let them stay home.
Quiet quitting refers not to an employee leaving a job, but instead reprioritising and limiting tasks to those within the job description –setting clear boundaries to improve work-life balance.
A key finding of consultancy firm PwC’s Global Workforce Hopes and Fears Survey of more than 52,000 workers in 44 countries and terri tories, carried out in March 2022, suggested one in five workers glob ally was planning to quit in 2022. As economies and businesses around the world continue to recover from the pandemic, many organisations have been hiring again, thus offering work ers an abundance of choice. With so many options, PwC said in a press release that higher pay, more job fulfilment, and wanting to be authen tic at work were encouraging workers to change jobs. I suspect the resig nation stampede has been tempered by prevailing global economic issues;
however, without suitable manage ment, those underlying motives may well lead people to stay put, but on their terms.
Interestingly, the survey found that 65 per cent of workers want to discuss sensitive social and political issues at work, something that has historically been seen as potential ly divisive. The importance of this matter was reflected in 69 per cent of under-25s and 73 per cent of ethnic minorities confirming that it was particularly significant to them.
It isn’t surprising that more mon ey is the biggest motivator for a job change – yet finding fulfilment at work is “just as important,” according to PwC. Some 71 per cent of survey respondents said a pay increase would prompt them to change jobs, but 69 per cent said they would change em ployers for better job fulfilment, too.
So, with 66 per cent of those surveyed indicating workers want a workplace that allows them to truly be themselves, the role of employ ers clearly isn’t to tell workers what to think, but to give them a voice, choice, and a safe environment in which to share feelings, listen, and learn about how social and work is sues are affecting them and their col leagues. This may well be uncomfort able, but it is clearly important that work feel like a safe place to discuss major social issues, and firms need to ensure these discussions can benefit teams rather than dividing them.
With significant economic shocks emerging and therefore fewer va cancies available, quiet quitting has emerged, and people who have been confronted with their mortality as a result of the pandemic are thinking more deeply about what they real ly want from life – including their careers. People are asking themselves what their real values are and why
they should spend their days doing something that doesn’t align with those values.
It shouldn’t be forgotten that, as inflation spirals, employees will in real terms have less disposable in come, perhaps making them wonder why they should work so hard.
It is those employees who feel dis connected from their employers who are quietly quitting, and employers must understand that the pandemic, the war in eastern Europe, soaring utility bills, and inflation all mean they need to listen to and empathise with employees’ experiences. If nothing else, engage with your employees more, listen, and discuss what can be done to make them feel supported; this, in turn, will make them feel appreciated. Help employ ees manage stress and look out for ways to combat the mental health issues some will inevitably feel.
From an office perspective, quiet quitting can cause conflicts between employees, as some will feel others aren’t carrying their weight. How ever, again, it is imperative to seek to understand the eternal pressures people may be experiencing before judging their decisions to be less committed than you are.
Gallup’s global workplace report for 2022 showed that only nine per cent of workers in the UK were engaged or enthusiastic about their work, ranking the UK thirty-third out of 38 Europe an countries. Whilst the intermediary mortgage space has been very active, it shouldn’t neglect the importance of adopting a listening and inclusive mindset, ensuring working models are sustainable, and supporting employees in feeling they are doing more than just existing. People are fulfilled by gaining new skills and experiences, having greater control over their jobs, and feeling genuinely appreciated.
Understanding who’s motivating your clientsAlice Watson head of marketing –insurance, Canada Life
Equity release mortgages stand out from other financial services products in that they have the potential to affect the finances of entire families. As such, obtaining one could be seen as a family decision rather than an individual choice. This obviously adds a layer of complexity or consideration to the advice process, and requires a deeper understanding of your clients. This is so particularly when it comes to under standing their personal long-term goals and the financial aspirations of their children, but it also encompasses any caring requirements they may have for themselves or loved ones.
Canada Life has been researching the psychology behind this long-term thinking, and in particular the impact of the family on decision-making – all with the aim of providing a blueprint for how these early conversations with clients can be better understood.
It’s understandable, for example, that clients may want to seek out another opinion on what’s best for them. We found that clients would rather share their long-term goals with their families than anyone else. Interestingly, only 23 per cent of peo ple said they would share their goal of securing a good retirement with a financial adviser.
Our psychological insights tell us this is most likely down to so-called safety behaviour, as there’s less perceived risk in sharing goals with family than with an adviser. People find it easier to connect with others when they see suggestions packaged
We found that clients would rather share their long-term goals with their families than anyone else. Interestingly, only 23% of people said they would share their goal of securing a good retirement with a financial adviser
to suit the way they view risk and their behavioural values.
Some clients might appreciate having the details of a policy highlighted to them carefully, while for others this could lead to a loss of interest, as they just want to know what new opportunities it will give them.
Encouraging clients to share their retirement goals and aspirations with you could provide engaging conversations for all involved. And tailoring these conversations to suit your clients could also benefit them,
by helping them form open and honest relationships with you early on, allowing you to support them not just through current circumstances but also through important life events as they unfold.
In fact, this could extend to the wider family, aiding in conversations around the legacy your clients intend to leave and further opportunities for intergenerational planning.
Our research into long-term thinking shows that 46 per cent of people consider financial security their most important legacy to loved ones. And in today’s uncertain climate, passing down wealth could be one of the ways they’re able to achieve this. But in a changing world, it’s becoming difficult to know the best way to approach this matter.
Understanding the behavioural drivers that sit behind family influences and changing mindsets could provide you with helpful ways to encourage your clients to share their long-term goals earlier, strengthening your relationship and leading to more valuable support.
Lifetime Mortgage Specialists
PRIVATE RENTED SECTOR
The PRS will again show its resilience
that the overall private rental inflation recorded by the government is a more modest three per cent.
While some speculate that the cost-ofliving crisis could see an upturn in tenant arrears, the health of the sector is underpinned by strong demand, something that is likely to remain amidst current economic conditions.
The colder, longer, darker nights that herald the onset of autumn match the mood of the nation as our economic worries grow. Businesses and consumers alike are facing chal lenging months ahead as the reality of energy costs and other inflationary pressures bite.
Like many sectors of the economy, landlords will face some pressures. Landlords are experiencing record levels of tenant demand, but it’s inevitable that tenant arrears will increase. Operating costs, such as maintenance, are also increasing.
However, I feel that the private rented sector (PRS) will again show its resilience. Yes, the headwinds are there, but the PRS has always demonstrated counter-cyclical and defensive qualities; in times of economic downturn, the sector has historically performed well.
We know that people largely priori tise paying housing costs, and that niceto-haves, such as TV subscriptions, takeaways, and holidays abroad, are the more likely casualties of tightening purse strings.
Much of the media coverage on the PRS has focused on hikes of 20 per cent and more in rents in certain markets, but it’s important to remember that these indices capture new tenancies and
Landlords, on the whole, try to work with their tenants to keep them in their homes. The record level of tenancies being renewed – “the big stay put,” as Propertymark called it –is testimony to this, and our research shows evidence of landlords working with tenants who may experience financial difficulties.
Even if we do see an increase in tenant arrears, lessons learned from the global financial crisis mean that mortgage underwriting is today more stringent, and landlords are not as highly geared as in the late noughties.
Analysis from Moneyfacts revealed that mortgage rates have risen more steeply in the residential market com pared to buy-to-let following the Bank of England’s successive increases to the base interest rate.
This is because landlords pres ent less risk to lenders owing to the ability of their properties to provide income. This is especially true of the professional end of the market, where larger portfolios mean that if one tenant falls behind with rent, other income is usually enough to cover the shortfall.
Our most recent research shows that landlord profitability has remained sta ble. Even though the research shows that landlord confidence has faltered, this is primarily in the outlook for the UK economy rather than the prospects for landlords’ own lettings businesses.
I think central to this outlook is strong demand for privately rented homes. Even though property pur chase prices have started to cool, this is following the sharpest increases in over a decade. When we also con sider that the pressure on household finances comes at a time when the cost of borrowing continues to rise, partic ularly in the residential space, we see
that the ability to get on the property ladder will be hindered for many.
Many indices, including our own, show tenant demand at significantly higher levels than in recent years at a time when the supply of rental homes is constrained. It is estimated that around 10 per cent of landlords have left the sector in recent years, with legislative reforms and changes to Energy Performance Certificate (EPC) requirements potentially exacerbating the situation.
Fewer landlords mean reduced choice for tenants, and lower levels of supply amidst high demand will only serve to increase rents further, so it is our responsibility to do what we can to protect our customers.
Alongside campaigning for regula tion that protects landlords as well as tenants, one way we can aid our cus tomers is by minimising the impact of so-called payment shock.
Increases in the cost of funding for lenders have resulted in rate rises which means that customers reverting on to SVRs will see higher monthly repayments compared to those of their previous fixed-rate mortgage.
We’ve been proactive in trying to minimise this, advising customers to speak to their brokers about switch ing to a new product, something we now allow up to six months ahead of their fixed-rate mortgage maturing. Brokers can take a similar approach, and, by contacting clients and discussing their options well in advance, can help to save them money while generating business.
Landlords are experiencing record levels of tenant demand, but it’s inevitable that tenant arrears will increase
Richard Rowntree MD, Paragon Bank
Government must take needs of PRS seriouslySteve Cox chief commercial officer, Fleet Mortgages
Much has been talked about over the last decade regarding how politics has shaped the PRS and how succes sive governments have sought to ‘pro fessionalise’ the landlord community.
more supply into the rental sector?
Momentous days in UK politics seem to come much more frequently than they used to.
Consider this. Between 1979 and 2010, we had four prime minis ters (Thatcher, Major, Blair, and Brown); in the past 12 years alone, we have also had four prime minis ters (Cameron, May, Johnson, and Truss), with the last being an nounced on this very day of writing.
The next general election can take place no later than 28 January 2025, with wide anticipation that it will actually take place in 2024. That’s two years away, at which point we might have another prime minister in the role – or, as some are specu lating, the previous prime minister might be back leading the Conser vative party, in which case we might have a former prime minister back in the job.
It’s a head-scratcher, to be sure, but let’s look at the immediate future and see what the housing in-tray looks like for Prime Minister Truss, and how it might work out for the private rented sector, advisers, landlords, lenders, and all other stakeholders.
I think many would agree that the biggest issue facing the UK housing market currently is a lack of supply, and it is just as relevant to the PRS as it is to owner occupation. In fact, there is a very sound argument to suggest that a lack of supply in the PRS needs to be addressed just as vigorously as, and perhaps even more so than, it does for those seek ing to purchase.
In terms of improving the quali ty of housing, getting rid of rogue landlords, and providing tenants with increased rights – few would disagree with focusing resources on this. How ever, the government has sought to do this by increasing the costs of being a landlord, cutting the profitability of property ownership, increasing taxes, and making it more difficult to purchase investment properties.
What this has effectively done is hit good landlords as well as bad. In fact, you might also argue that the rogues have just got on with being rogues. They operated outside the rules before they were introduced, and have operated outside them as those rules increased.
Instead, the ‘unforeseen con sequences’ have been that good landlords have decided that it is too expensive to be active in this sector and have exited. The supply of PRS properties has therefore fallen, but the need for this type of housing has not gone away; indeed, it has been heightened.
People who couldn’t afford to buy have not somehow magically gained the finances to be able to buy. Firsttime buyers have not bought every single ex-PRS property that came to market. Instead, tenant demand has continued to rise – and not just in the major cities and towns, but also in more rural settings.
As supply has fallen and demand has risen, rents have naturally increased, and we have now reached a point where – during a period of significant inflation – that cost is significant. Could this have been avoided? Might this next iteration of the government make some significant changes that help drive
Although it is certainly needed, moves to make it easier for landlords to buy more properties may be deemed politically unpopular. The stamp duty holiday showed how landlords might react if provided with this opportunity, but, again, the narrative of first-time buyer versus landlord is so embedded that any similar move in the future could come with too much criticism for a new PM to bear.
However, a solution is going to be needed. The PRS needs to be treat ed as the equal of home ownership. Millions of people depend upon it, millions want to rent, millions have no means of purchasing, millions need a healthy supply to choose from – other wise, you actually inflate the chances of more rogues preying on people who are desperate and vulnerable.
The announcement earlier in the year that housing associations would be able to sell off their properties to tenants is likely to put even more pres sure on the PRS to step up. Again, will this policy be jettisoned? It can’t really work unless there is a concerted effort to improve supply within the PRS.
The good news for the government here is that landlords are acquisitive, they have ambitions to grow portfo lios, and they continue to do so even when many factors work against them. Lenders, too, are willing and able to fund landlords’ ambitions.
However, the growth in portfolios isn’t matching the demand, and until we can find a closer equilibrium, rents are going to continue to rise – espe cially as mortgage and other costs rise – putting more tenants under pressure.
It is a big in-box for a new PM/ Levelling Up secretary/housing minister to take on, but the fact is the PRS needs as much attention as home ownership. Failure to act here will merely exacerbate the issue. The time for action is now.
PRIVATE RENTED SECTOR
We can help make another rule change a little less taxingJane Simpson MD, TMBC
few landlords will fail to reach this threshold, and it is likely to be something that a lot of landlord customers will need to be aware of, so any homework that brokers do will come in handy.
Ashift to digital tax submissions seems sensible and overdue in our modern age, but landlords appear unaware of the new requirements. Although the responsibility of educating landlords on regulation shouldn’t fall solely to brokers, raising awareness of such changes can help both parties.
The white paper “A fairer private rented sector” and a proposed overhaul of EPC requirements have been the most talked-about aspects of government policy of late –understandably so, with both set to usher in wholesale changes across the private rented sector (PRS). In the shadow of these regulatory updates, a mandated switch to a fully digital system for income tax self-assessment (ITSA) has flown somewhat under the radar.
Although the transition to what has been labelled ‘making tax digital’ (MTD) will not have the same impact as the broader reforms and move to a more sustainable PRS, the new tax system will definitely bring about considerable changes in the way landlords work.
The government says that MTD supports businesses through their digitalisation journey and provides a digital service that many have come to expect in their everyday lives.
The changes will apply to taxpayers with business and/or property income over £10,000 a year, including landlords. With rents at their current levels, very
The new system could really help brokers when collecting income details from landlords, too.
The shift to digital should make it much easier for landlords to prove their income, or even show an interim picture within a tax year, helping underwriters assess cases based on the most up to date information
Using MTD for ITSA will require landlords to keep digital records of their income and expenditure, with quarterly summaries and an endof-year report submitted to HMRC using MTD-compatible software.
This means no more waiting until January of the following year to get all the information together and, having viewed some of the digital platforms available to landlords, I’m sure this will make life easier for them in the long run.
Customers will have the ability to track individual properties, take photos of receipts, use open banking to track rents, and link into HMRC, making the submission semiautomated. Some of the platforms can be more than just tax management tools thanks to the option to track things like AST and mortgage renewal dates or view EPCs.
As a result, the impact of this on the mortgage world could be very positive.
Currently, SA302s and tax returns are generally needed to prove income, which means we are reliant on landlords submitting end-of-year returns, and the picture we get isn’t always accurate and up to date.
The shift to digital should make it much easier for landlords to prove their income, or even show an interim picture within a tax year, helping underwriters assess cases based on the most up to date information. This could be the beginning of a move toward lenders accepting information stored in digital tax apps, which would make pulling together all the necessary documentation much easier and really streamline the application process.
The transition was initially scheduled for April 2023, but the government has extended the deadline by a year in recognition of “the challenges faced by many businesses as the country emerges from the pandemic over the past year.” This means that tax returns covering the 2023–24 financial year will need to be submitted digitally – so landlords will need to be ready from April next year.
All the transformation seen across the sector currently means it would be almost impossible for brokers to be experts in all aspects of regulation, and it is unfair to expect financial advisors to bear responsibility for ensuring landlords are compliant. Despite this, it can be beneficial for brokers to have an awareness of what is on the horizon. Even simply notifying customers of any changes and signposting them to more information can minimise the risk of them being caught out. This is something for which I’m sure landlords will be grateful, and it can help strengthen relationships and position brokers as people with their fingers firmly on the pulse.
Choose Landbay and you’ll find experts at the end of the line, smart technology designed for you, and fast decisions you can count on.
“More flexibility” says the FCA –and I am 100% with them
delivering to it.Jerry Mulle MD, Ohpen
We’ve known it was coming for some time now, but on 27 July the Financial Conduct Authority (FCA) published its final policy plans confirming the implementation of a new consumer duty.
Announcing the paper, the regulator said this duty of care “will fundamentally improve how firms serve consumers.”
It said, “It will set higher and clearer standards of consumer protection across financial services and require firms to put their customers’ needs first. The duty is made up of an overarching principle and new rules firms will have to follow.
“It will mean that consumers should receive communications they can understand, products and services that meet their needs and offer fair value, and they get the customer support they need, when they need it.
“Clarity on our expectations and firms focusing on what their customers need should lead to more flexibility for firms to compete and innovate in the interests of consumers.“
This last line is interesting. I would agree wholeheartedly that focusing on what customers need (and want, within reason) should lead to more flexibility, innovation, and competition.
Should is the operative word when it comes to translating that theory into practice.
Understanding customers has to be central when it comes to product and service design. But understanding demand is quite different from
Now skip to the boardrooms of banks and building societies the UK over. My sense is that no-one needs to be persuaded that it would be a good thing to have more flexible systems that allow swifter product design changes and reactive criteria updates that support a better-served customer.
Practically speaking, the question being asked in most of those boardrooms is, “How do we do this?”
The FCA is itself aware of this. In February last year it published a review of the use and role of technology in financial services firms. Over 90 per cent of the firms it surveyed said they rely on legacy technology in some form to deliver their services.
“We found that firms with a lower proportion of legacy infrastructure and applications had a higher change success rate,” the review noted.
“This supports the view that technology change is more difficult to implement without disruption when dealing with legacy infrastructure. Firms with a lower proportion of legacy technology also had a lower proportion of changes being deployed as emergencies and had a higher chance of those emergency changes being successfully deployed.”
This is not news, perhaps, to many of you, but it is fundamental if operational excellence and delivery are to be achieved so the interests of borrowers can be properly served. The banks, mutuals, and other financial services companies that have experienced the absolute horror of IT going spectacularly wrong will be only too aware of how devastating technology failures can be for a business.
The FCA’s 2018–19 Cyber and Technology Resilience Review found “change-related incidents” are consistently one of the top causes of failure and operational disruption,
accounting for 17 per cent of reported cases.
The need for fast and flexible change, four years later, has accelerated.
It’s not just consumer expectation or operational security, either. The economic environment is moving at breathtaking speed. Energy prices, interest rates, inflation, wages, and both fiscal and monetary policy are mind-bendingly unpredictable.
It makes for a market ripe for innovation and competition. It also presents serious challenges for lenders who haven’t yet decided how to implement systems that allow them to be dynamic and reactive.
The FCA’s review asked board members, “If you had an innovative idea that required IT change as a key component, how long would it take to approve the idea, build it, and deploy it to users on average?”
What do you think the answer was? Six to 12 months. Just think where we all were this time last year. And I’ll leave you with these words from the regulator.
“One of the main benefits of change management in the cloud is that it enables a high degree of automation. This can reduce the manual risks of change and increase the agility of incident response.
“While automation doesn’t guarantee that a change won’t have an adverse impact, it can reduce the risks involved. Automation drives repeatability and consistency through the change lifecycle, reducing the risk of human error and enabling the creation of identical environments for predictable and testable outcomes and automating aspects of recovering from change incidents.
“Public cloud offerings also allow for the automated scaling of IT environments, removing the need to provision additional resources to meet business demand.”
Data, AVMs, and valuers have more to offer together
and has the power to turn an AIP into a flat no.Mark Blackwell COO, CoreLogic
In the past few months we’ve seen an increasing number of lenders run automated valuation models before approving a decision in principle (DIP). There is triage on valuations in which properties trip certain switches, flagging them for a closer look, but it’s increasingly likely that 24-hour DIPs will come to be expected from lenders.
It’s an interesting move, particularly given how unpredictable the current market is. And yet, competition de mands that decisions be made quickly and with certainty.
But it’s easy to see why this move is attractive. Borrowers may be tricky to pin down in terms of credit risk – more so now than usual. Security, on the other hand – that’s considerably more predictable. Recession or recovery.
It’s arguably even more important than ever, in fact, because capital pro tection is going to be increasingly im portant for both borrowers and lenders if the economy does a nosedive.
When it comes to evaluating secu rity, somewhere in between sensible scrutiny and speed is an increased role for data.
For the most part, freehold data is more accurate, and conveyancing quirks are reasonably unimportant for a mortgage and transaction to com plete. Leaseholds are much harder to predict, however. As recently as August, the Competition and Markets Authority ruled that Taylor Wimpey must refund leaseholders the doubled ground rents they snuck into con tracts. That sort of intervention ma terially affects the value of a property
Risk on leasehold is a moveable feast. Added to far more frequent oc currences of disputes over common parts, rights of way, and leaseholder obligations, the data that lenders need to ensure both they and the borrower are protected must be granular. Accessing that sort of data, particularly as it relates to proper ty condition and the way it is used in practice, is not straightforward, although it is improving.
In a paper published by RICS last year, it was suggested that the valua tion and appraisal sector has “reached an inflection point as a result of the ap plication of artificial intelligence, ma chine learning, and other algorithms to structured and unstructured data sets of increasing size and complexity.”
An ever-evolving regulatory landscape and the market’s demand for speed and innovation are driving change faster than ever before, it asserts. I would tend to agree.
Accurate valuations and lending decisions that match lending expec tations are vital for banks and build ing societies to get right. Balance sheet stability depends on it. It is also vital for lenders whose funding is off balance sheet. Jeff Rupp, direc tor of public affairs at INREV, was quoted in the RICS AVM insight paper, noting, “Valuations are argu ably more important for investment in real estate than any other major asset class. For non-listed real estate vehicles, they play a crucial role in reporting to investors, monitoring portfolio strategy, and undertaking transactions, and as a basis for sec ondary market trading.
“As digital technology advances apace, investors’ expectations and demands of real estate valuations are growing. In part this reflects the increasing complexity of many real
estate transactions, which often now involve large portfolios of assets. But more importantly, investors want to benefit from the full potential that technology promises for valuations, potentially making them quicker, less prone to human error, and sensitive to a far wider range of evidence than is currently the case.
“We agree that big data, blockchain, and automated valuation models [AVMs] are all likely to have a role, but an openness among valuers to new ways of harnessing information is likely to be just as crucial as any single technology.”
RICS is of the view that AVMs can be useful to tease out nuances and aid with statistical analysis that valuers may not ordinarily be able to observe during their usual investigations. That is a positive, and adds robustness to the data we have.
On the other hand, the property is not usually inspected when an AVM is used. Instead, an average condition is often used, which RICS admits “could well be inaccurate.” It’s hard in the residential market. Stock is far, far more varied in the UK than in other countries. Condition and age of a property do not necessarily correlate. Value is determined by emotional needs as well as investment sense.
To hold sufficient weight to provide the basis for a DIP, AVM providers require large amounts of reliable, detailed, descriptive data about properties and market transac tion prices to model accurately.
The market is getting there, as is clearly evident in lenders’ increasing willingness to rely on AVM valua tions at the DIP stage. But let’s also remember – analytics and modelling can take us far, but we understand the power of the sum of the parts. Technology, data, and people are the answer.
Tech + expertise = what we need
our lives, be that from a personal, business, or sporting perspective.Neal Jannels MD, One Mortgage System (OMS)
I’m writing this article on a Monday morning after watching far more football over the course of the weekend than I probably should. Although these days, there seems to be more discussion of the game than actual play. And this was more evident than ever with a number of games that were dominated by three letters: VAR. Don’t worry – I won’t be analysing individual decisions. But some of these did cause such a groundswell of criticism that it feels like a pivotal moment for the future of VAR and technology within the sport.
Not that technology and football have not worked in perfect unison in recent years; they have. Goal-line technology has generated zero debate, as the decision is absolute and there are no grey areas around human interference (up until its little foo-pah this weekend, that is!).
This is where it gets a little trickier for VAR, as there is still a high element of human interference, interpretation, and decision-making. Suffice to say that there is nothing wrong with the technology used in VAR, and technology is not to blame for any poor decisions made on the back of reviewing it. The questions are all around how the technology is being used, when it should be used, and whether it should be used at all.
There is often a balance to strike between enjoying technology and avoiding being too reliant on or distracted by the wealth of technological enhancements available to us. Even worse, tech advances may make the original product worse, and no longer attractive or identifiable to users. What we do have to remember is that the primary role of technology is to enhance
The correct implementation of technology can be a tricky one for businesses operating in the mortgage market, although the past few years have really emphasised how it can help speed up and streamline the mortgage journey, plus help make the process more secure.
One prime example of this is electronic verification (EV), and this is an area that is seeing greater business engagement – although arguably still not enough.
A new survey from SmartSearch outlined that more than 80 per cent of regulated firms in the legal, property, finance, and banking sectors are considering a switch to electronic verification of their customers. The switch comes as firms feel the growing weight of compliance around antimoney laundering (AML) measures amidst a sharp increase in the number of companies being fined by the regulator for breaches of the rules.
The most recent figures from HMRC showed that 85 firms were fined and named last year for breaches of compliance regulations. And a freedom
of information request revealed a sixfold increase in the number of legal firms fined by the Solicitor’s Regulation Authority since 2017. However, almost a quarter (23 per cent) of all the firms persisted with the misconception that using hard-copy documents was more reliable than electronic checks for verification.
Breaking this down, property firms were least likely to turn to EV, with 40 per cent saying they wouldn’t consider it and more than one in ten (12.5 per cent) saying they didn’t trust the technology. This is despite the 2020 Money Laundering and Terrorist Finance Act recommending that regulated firms use EV in order to make their due diligence as effective as possible.
This data represents a good example of how firms don’t always understand the capabilities of technology to help support and safeguard their business and clients in certain areas. In a digital age, addressing tech concerns and integrating the type of technology that can enhance front- and back-office systems, improve efficiencies around the advice process, and protect data have moved rapidly up the agenda for a range of businesses, but more still needs to be done.
Investing in or subscribing to a system, platform, or solution is only the first step. Fully understanding its capabilities and having the right training from real experts to use its benefits are key elements in getting the most from it – as is ongoing support to ensure the right outcomes are sought to meet individual business needs.
In a similar respect to VAR, this emphasises the importance of the people behind the tech. We need real experts who know their product inside-out, understand its capabilities, can see all the right angles at the right time, and can make the correct decisions under pressure. If this combination isn’t firmly in place, the whole process can break down and, through no fault of its own, technology can appear to be a hindrance rather than the asset it was intended to be.
The cost-of-living crisis will affect client buying habitsGeoff Hall chairman, Berkeley Alexander
We’re all acutely aware of the rising cost of living. People everywhere are having to make tough decisions on where to cut back. Some may struggle to keep up with monthly payments and might need to make changes to their insurance arrange ments that could leave them without an adequate safety net.
Everyone in the insurance industry has a duty of care to support those struggling to meet the cost of insurance premiums. As a trusted advisor, your role must be to reach out and gain a deeper understanding of each client’s current situation and look at where they could make savings on insurance whilst still ensuring products meet their needs.
With mortgage rates rising fast and first-time buyers finding it harder than ever to get on the property ladder, we are seeing a rise in multi-generational living, and likewise increased demand for cross-generational mortgages –something the government is appar ently actively considering. But what about insurance? A standard household policy will cover the policyholder and direct family members living with them, but each individual will have different insurance needs dependent on lifestyle. Young adults may have expensive hobbies, whilst their parents or grandparents may have high-val ue contents such as jewellery, art, or antiques. The more people you have in a property, the greater the likelihood they’ll have more to insure.
Similarly, the more people, the higher the probability of a claim. For
a number of reasons, including the current cost-of-living crisis, insurers are expecting claims frequency to increase. It’s worth remembering that you need to keep your clients’ information up to date so that cover remains suitable. That doesn’t just mean sums insured but other relevant information. Many insurers include the number of people in a property as a rating factor, so if the homeowner does move parents in, or adult offspring return to the fold, be certain the insurer is made aware.
Talking about claims – Zurich has reported that the cost of living is also fuelling an increase in insurance fraud, with people exaggerating or entirely falsifying claims for items such as jew ellery and electrical goods. The insurer says fraudulent property claims are up by as much as 25 per cent.
As an agent, you have a role to play in helping your clients through the claims process – but in a fair and equi table manner, for everyone’s benefit.
HIGH-NET-WORTH CLIENTS ARE NOT IMMUNE TO THE CRISIS
Your high-net-worth (HNW) clients are also facing tough times. Whilst they might feel more insulated than those on lower incomes, they’re not immune to the cost-of-living crisis, and will start to feel the pinch as prices continue their ascent. Here are a few things to consider.
High inflation will mean that items such as Rolex watches increase in value. You cannot rely on index linking alone when times are this volatile, so there is an increased onus to ensure that clients have valuations carried out more often on all high-risk valuable items, whether they be watches, jewellery, or works of art.
Clients with spare cash or savings may be looking to put that into infla tion-busting assets – like classic cars, art, and jewellery. Remember that
Everyone in the insurance industry has a duty of care to support those struggling to meet the cost of insurance premiums ... your role must be to reach out and gain a deeper understanding of each client’s current situation
HNW insurance is based on sums insured (rather than bedroom-rated), so additional items will need to be added accordingly.
HAVE YOUR CLIENTS HIT PAUSE ON SHOPPING AND SWITCHING?
According to analysis of ABI data conducted by the Financial Times, the pricing reforms launched in January are reshaping the personal insurance market. Almost 420,000 fewer people expected to switch home insurance providers when they renew their cover this year. We are seeing this in our own stats. Over the past three months, across our whole standard household book, we have actually seen average premiums fall by 0.2 per cent, leading to fewer clients requesting alternative quotes.
The FCA’s personal lines pricing rules aimed to tackle ‘price walking’ practic es, which disadvantage loyal customers, and to deliver an insurance market built on a foundation of fair value.
You have an opportunity to pick up the slack, especially if you have a strong GI provider in your corner delivering access to a broad range of products. Provide the information and advice homeowners need and guide them toward products that deliver the cover that best meets their individual needs, at a price that makes sense based on their current financial situations.
Supporting customers in the cost-of-living crisisJon Bowen customer director, Paymentshield
Looking at current data on customer cancellations and retentions for 2022, one thing is clear: the cost-of-living crisis of 2022 is currently having much the same effect on customer behaviours as lockdowns, furlough, and job insecurity did last year and the year before. The rates of cancellations are roughly the same, and the reasons people are giving are, too.
But that does not mean the interme diary market should consider the cur rent situation to be predictable, more of the same, or under control. For one thing, at time of writing the full impact of spiralling energy costs has not yet hit – and we do know that winter will only be harder on UK households.
Certainly COVID has prepared insurers and brokers for the need to support customers in times of financial difficulty – but with such times not abating, is there still more the industry could be doing?
The market adapted well during the pandemic, with many innovative ini tiatives to ensure that a continuation of cover could still be provided and to re assure customers when their world was turned upside down. Many of these initiatives are still in place and are even evolving. Here we look at five of them, and call upon our colleagues, peers, and partners across the industry to come together and collaborate to continue to support and protect the customers on whom we mutually depend.
In 2020 Paymentshield introduced the initiative of giving customers access
to a three-month payment holiday if they were struggling to keep up with payments during lockdown. We have maintained these measures to date because we understand that people are still struggling, and we believe it’s the right thing to do to offer solutions when needed.
It is also important to offer as flex ible as possible range of payment op tions – such as annual, nine-monthly, monthly with no deposit – and with an APR that is regularly benchmarked to remain competitive.
In line with the FCA’s requirement to “provide your customers with an appropriate level of care and support,” customer care teams the length and breadth of the country will be receiv ing training to help them recognise which customers may require more help than others. To go above and beyond this, we must make sure in particular that we can not only identi fy vulnerable cases, but quickly adapt our approach to give them the support they need.
This is where today’s tech platforms help: where the need for support has been identified, regardless of the com munications channel, it can automat ically be flagged on the system so that for any future interactions agents are quickly alerted in order to provide the best possible outcomes for the custom er. At this point, those agents should have the training, the autonomy, and the initiative to offer customers a bet ter alternative than simply cancelling their insurance.
If customers make contact and are concerned about keeping up pay ments on their policies, and per haps even considering cancellation, advisors can offer them advice to help them to stay covered. For example, an
advisor might change elements of the existing policy, perhaps stripping out (even if only temporarily) ancillary or non-essential elements, or even recommend moving to a new policy to meet customers’ changing needs and circumstances.
FAIR FEES AND CHARGES
We do not charge a default fee if a customer misses a payment, nor do we chase debt or leave default records for non-payment, helping to avoid push ing the customer into further financial hardship or distress.
If customers make contact and are concerned about keeping up payments on their policies, and perhaps even considering cancellation, advisors can offer them advice to help them to stay covered
If customers miss a payment, we always give them 45 days from their payment due date to make that pay ment, and will only ever cancel the policy 10 days after a second payment is missed and after reaching out to try to offer them some support.
In difficult times, it pays to remember that you are not alone. The intermedi ary community is a collaborative and supportive one – and that message extends to the customer. If customers are struggling with their finances, we’re able to share contact details for support services such as the Citizens Advice Bureau, or even to escalate to other support groups and charities that can offer more specialist support than we can.
Time to think again about protection adviceMike Allison head of protection, Paradigm Mortgage Services
insurance was because they didn’t know what the policies were. So, if awareness of the products is high, what’s stopping people from buying?
At a time when most adults are experiencing health and financial challenges like never before postCOVID, due to increased demand for NHS services or financial pressures triggered by the cost-of-living crisis, clients may need more help than ever from protection advisers to help ease the potential burden.
For some time, the Deadline to Breadline report commissioned by Legal & General has highlighted the lack of cash most households have to pay their bills. In their last report –commissioned in April 2020 – we saw the average family was some 24 days away from the breadline – far less than the 90 days many believed they had.
The most recent report is due to be published some time in September 2022, and the snippets I have picked up indicate all that we would imagine – namely, that that figure hasn’t got any better
The Exeter also produced figures recently to gain a deeper knowledge of the challenges facing UK households, surveying 2,000 employed and 2,000 self-employed adults to understand their health and financial fears during a time of record NHS waiting times and increased living costs.
They also wanted to understand consumers’ views on insurance (income protection, health insurance, life insurance, and cash plans). Less than one in ten (eight per cent) said their reason for not buying protection and health
There are the traditional barriers that are flagged in pretty much all of this type of research –namely affordability, claims, and communication.
The industry has done a lot of work in trying to dispel these myths, certainly in the income protection space, and hopefully that has had some positive effect on IP sales this year, which appear to be ahead of last year from what I can gather.
What most of this research does is to identify risk, and in many cases we rely on advisers to get that message across in conversations with clients at point of sale, especially where mortgages are involved.
We know that the average age of an IP claimant with L&G last year was 40, and we also know from various research that the average age of a first-time buyer is around 35 years.
With the consumer duty rules comes the need to explain fully to consumers what products and services are available to them, and research such as that mentioned above should provide extra food for thought when those discussions are taking place. It should certainly inform why certain insurances were recommended.
With uptake of insurance among the self-employed low (46 per cent not having an income protection, health insurance, life cover, or cash plan product in place), we really need to rethink the material we use to emphasise to clients the need for protection.
The challenge will be more pressing for many mortgage advisers speaking to clients coming out of two- or five-year fixed-rate mortgages who began with a one or
two when they were implemented and are now starting with a three- or four-figure, which will have a huge impact on available cash. The easy thing to do would be to avoid the conversations on life and income protection and kick it down the road until times get better
Exeter Research tells us that 39 per cent of working adults over 18 years old in the UK save less than £100 in a typical month, with one in seven (14 per cent) saving nothing. Of those who do save, respondents in London are most likely to put away more than £100 a month, with only 20 per cent saving less.
But this varies by region. Almost half of those in Yorkshire (47 per cent) and the east of England (45 per cent) save less than £100 a month, showing the absolute need to help clients cope through protection when their need will be greatest.
Advice will be critical in raising awareness – and with inflation set to be at double-digit levels for some time to come, we should also be highlighting the need to review the amounts regularly and/or look at ticking the “indexation at RPI” box – something that hasn’t been done for some time, according to many insurers. Likewise, for those recommending GI it is important to review rebuild costs and costs of replacement items on a regular basis due to inflationary pressure.
Overall, this is a difficult time for many, with incomes under considerable pressure. The need for protection advice has never been greater, and if we as an industry can be clear in terms of our communication to clients about the benefits to be had from such policies, then I fully expect you’ll find a client base willing to listen and take the advice presented to them.
Can government solve the housing crisis?
the sector began to recover from the COVID-19 pandemic.Shaun Almond MD, HLPartnership
It is interesting to note that there have been twenty housing ministers since 1997 and eleven since 2010. Using this metric, that statistic perhaps shows where successive governments have placed housing issues on their list of priorities. Housing ministers have barely had time to be read into their brief when they are summoned to ‘greater’ things or walk off into ministerial oblivion.
Regular target promises for newbuild properties have been an nounced with a magician’s flourish, only to fail and be wheeled out again
TCF took us along the path to making sure that client advice and action aimed to be fair to clients. Consumer duty introduces a whole new level of responsibility that overlays the principles of fair dealing
as new initiatives when government needs some diversionary good news.
However, the real-life facts show that for all the fanfare, delivering on promises is more difficult to do. Housing programmes delivered by Homes England resulted in 38,436 new houses starting onsite and 37,164 houses completed between 1 April 2021 and 31 March 2022, as
Of course, government attention has been taken up by COVID over the past three years, followed by the increasing headaches in the wake of the Ukraine invasion, which in turn have led directly and indirectly to the cost-of-living crisis – and all of this has not been helped by the Tory leadership contest.
But, given a more settled back drop, what should be government do to close the gap between aspiration and reality?
How about a wish list including the following?
Appoint a minister for a long-term stint with some proven experience in housing and the backing of the Treasury and other ministries to deliver real results.
Stop treating planning reform as a political issue.
Take a long look at the undersupply of social housing. Housing charity Shelter calculates that 3.1 million more social dwellings need to be produced in the next twenty years.
Consider radical reform of the whole process of home purchase –and act on it.
Stop the persecution of the private rental sector. Private landlords are not the enemy.
PROTECTION AND CONSUMER DUTY
While we all wend our way through the fine print surrounding the im pending arrival of consumer duty, the basic elements should be making us all aware of the changes we are going to have to make to stay compliant. Anyone familiar with my monthly articles (thanks, mum!) will know
I am particularly passionate about protection as part of the mortgage conversation. Consumer duty expects that all advisers will be able to demon strate their commitment to best client outcomes. TCF took us along the path to making sure that client advice and action aimed to be fair to clients. Con sumer duty introduces a whole new level of responsibility that overlays the principles of fair dealing.
Ensuring best outcomes must, by definition, mean we have to extend the effort we put into the protection con versation. Introducing and discussing protection will now only be a starting point, and for those advisers who do not currently engage at all in the pro tection proposition, consumer duty is going to be a massive wake-up call.
Brokers, whether DA or AR, will need to look very hard at their processes to be able to demonstrate when asked (and they will be) that they have indeed advised and not just delivered a prepared script and then ticked “Not interested” in the box.
There is bound to be an increase in referral services for DAs who want to concentrate solely on their clients’ mortgages. For ARs, the kind of service offered by their network principals is going to be crucial. At HLPartnership, we have just appoint ed our second protection specialist to provide group and one-to-one training not only on the products and what they offer, but also on the psychology of introducing and demonstrating the advantages as well as overcoming objections. Our aim is to increase the volume of complementary protection policies for both new and existing customers substantially by working closely with our members to grasp the opportunity for closer client relation ships by widening the breadth of the advice they offer
Brokers must back those driving conveyancing changeKaren Rodrigues sales director, eConveyancer
better way of sharing documents and updates, which means not only that all stakeholders will be clear on the progress of a case, but also that unnecessary delays can be cut out quickly.
There aren’t many things more stressful for people than a housing transaction falling through. Buying a house is an emotional process – you may pin your hopes and dreams on that move, perhaps because it makes it easier to see family and friends, provides more space for your children, or simply because it’s in a nicer location.
Yet our inaugural Home Movers Report found that as many as one in three transactions collapsed last year. This isn’t just a deeply upsetting thing for people to go through, it’s costly too – the typical victim of a collapsed sale ended up wasting £2,000 on associated costs.
There are all sorts of reasons behind property transactions falling through, but we know that a lack of communication is a big one. Buyers and sellers are all too often left in the dark about what’s going on –sometimes until it’s too late and the deal has fallen through.
Indeed, the length of time involved in buying or selling a house is extraordinary. There is no good reason for a transaction to take months on end, other than the fact that our industry’s way of working has not really changed for decades.
It’s clear that we can speed things up, and improve communication to boot, by embracing a different way of operating, particularly by using technology more smartly. Technology can provide everyone involved in the deal with a
This change is coming to the conveyancing world – at eConveyancer we’ve devoted a lot of time and resources to developing the systems that will mean a smoother and more efficient process. For example, our purchase of Amity Law, an actual conveyancing firm, means that we can test products and approaches in a live environment, ironing out any issues before rolling it out to our full panel.
A good example of this is DigitalMove, a service we offer via eConveyancer, which makes the process more transparent, efficient, and speedier for everyone involved. It’s a key part of how we make it easier for conveyancing lawyers to onboard their customers, and has led to eligible cases completing much more rapidly than is traditionally the case. Similarly, our Rapid Remo proposition has slashed the time involved with remortgage deals to timescales that rival those of product transfers.
However, it’s clear that there is much farther still to go. While everyone at eConveyancer wants to keep introducing ways in which we can use technology to produce a better experience for clients, this transformation is going to take time.
WE NEED TO WORK TOGETHER
In fact, our commitment to effecting this change is one of the driving factors behind our Group’s rebrand to Smoove – we want to show the industry as a whole how determined we are to bring about a frictionless home-selling and -buying process.
CHANGE DOESN’T HAPPEN OVERNIGHT
Unfortunately, positive change isn’t something that happens immediately. It can take time to get the processes right, iron out the issues in the technology, and get everyone on board to make a tangible improvement in the way things work in the
I know that intermediaries aren’t satisfied with the way things work currently. Every intermediary I speak to has horror stories of how the legal side of a transaction turned into a nightmare, at times putting the deal in danger of collapse. Those stories have only become more prevalent of late –some legal firms are simply not set up to deal with the heightened activity levels we’ve seen over the last couple of years, and it’s led to disappointment and stress for clients whose deals have suffered delays and, in some cases, collapsed entirely as a result.
That’s why it’s so crucial for us to work together. Intermediaries can be clear advocates for change by working with legal businesses that aren’t happy with the status quo, and that want to push things forward.
United, we can help transform the house ownership process into one that’s far less stressful for our clients.
It’s clear that we can speed things up, and improve communication to boot, by embracing a different way of operating, particularly by using technology more smartly
One in two people fit ‘non-standard’ criteria
Specialist lending needs to step in like never before
A“ccording to new research,* as many as half a million borrowers could be locked out of the UK mortgage market without the support of a specialist lender,” says James Briggs, head of intermediary sales for personal finance at Together.
“Featuring over 7,000 consumers, our nationwide study estimates one in two people in the UK (53 per cent) already fall into one or more mortgage criteria classed as ‘non-standard,’ suggesting demand for a more flexible lending land scape over the coming years.
“Our research predicts the overall UK residential mortgage market, which currently excludes many potential buyers with specialist criteria, will expand by 56 per cent over the next eight years, and of this rise, an estimated 500,000 applicants will be reliant on specialist lenders – doubling their share of the market to four per cent.
“In fact, driven by changing employ ment and living patterns, the growth of the gig economy, the residential specialist lending market is set to reach £16bn by 2030.”
MORE BORROWERS ARE BEING REJECTED BY THE MAINSTREAM LENDING MARKET
“Every year an increasing number of potential homeowners must navigate a complex and time-consuming mortgage process, with many facing rejection at the end of it. In fact, 19 per cent of those we surveyed said they’d been rejected in the last five years.
“Having non-standard income (including multiple and complex incomes or being self-employed) was
cited as a key reason for being rejected for a mortgage (22 per cent of respon dents). Having thin or impaired credit or having a ‘non-standard profile’ (such as being over 55 or divorced) also worked against applicants (both 21 per cent), as did being in a non-standard buying situation like shared ownership (26 per cent) or wanting to buy a non-standard property (12 per cent).
“As a nation we’re currently dealing with the rapidly rising cost of living, the impact of Brexit, house prices that remain high – the list goes on. And historically, when we’ve faced difficul ties in the UK, mainstream lenders have tightened their criteria even further, preventing countless people from accessing the borrowing they need.
“It’s in these cases that brokers may find a specialist lender can deliver greater flexibility, which could help more potential home owners, like the 19 per cent who were rejected from the mortgage process, find the right solution.”
MORE BORROWERS WILL NEED YOUR ADVICE AND SUPPORT
“What’s really clear from the research is that borrowers are still being turned down by the mainstream lending market for the same reasons – reasons a specialist lender like Together could help with – which suggests they’re unaware of the wider finance options available. This represents a huge oppor tunity, and an important responsibility, for brokers.
“The impact of being rejected is taking a significant emotional toll on would-be borrowers; of those who had been turned down, 32 per cent said the result left them feeling worried for their
future, 26 per cent said it made them feel depressed, and 23 per cent said they felt like a failure. To save themselves further heartache, 28 per cent of respon dents said they would only apply for a mortgage again if they sought advice, and 36 per cent thought a broker would be a good source of advice.
“At Together, we’re working closely with our network of packagers to support brokers in connecting their clients to the funding they need. To support you, we have dedicated teams of specialist account managers and business development managers who can talk to you about your clients’ circumstances and provide exam ples of real cases we’ve been able to fund – all of which could help brokers identify those who need their support earlier, before they face rejection.
“If our community works together, we can make homeownership more inclusive and achievable.”
For professional intermediary use only. *Research among 7,000 UK adults commissioned by Together and conducted by Opinium in June 2022.
The secret toBy Jake Carter
The mortgage industry is enduring turbulence, the result of bruising economic conditions.
However, Mortgage Introducer’s Top Brokers have thrived in the face of this adversity and delivered exemplary service.
One winner, Rebecca Shuttle, principal owner of MIMA Mortgage and Protection Advice, feels there is a fundamental reason for her recognition.
“Winning is a representation of service. Anyone can sell a product, but I believe being truly successful is shown by the service you provide,” she explains. “I have always done well in helping clients achieve their goals, but it feels really nice to be credited for
TOP BROKERS BY AGE
the job I have accomplished by an external source. I have worked hard every day, so it feels great to get the recognition.”
Fellow winner Monica Bradley, managing director of MB Associates, believes her success is down to the work ethic of her colleagues. “Everyone in the business is highly motivated to ensure they provide the best possible service for each and every client,” she says. “We go the extra mile for every client and as a result, we often have clients tell us they’d been turned down for a mortgage elsewhere and yet we’ve been able to help them.”
It’s no surprise these service-based approaches have earned recognition, according to Robert
Sinclair, chief executive of the Association of Mortgage Intermediaries. He says, “A good broker is one who explains the process to the customer, who stays close to the customer, acts in the customer’s interests, sees themselves as a partner in the process and works hard to make sure that the customer gets the best deal.”
Part of delivering exemplary service requires brokers to handle 24-hour availability, outlines Lea Karasavvas, board member of the Society of Mortgage Professionals and managing director of Prolific Mortgage Finance.
In September, Mortgage Introducer sought to delve into the challenges mortgage brokers are facing during this period of economic uncertainty. Nominees were asked a series of questions relating to this topic, with their feedback developing insights into the mortgage market. Detailed submission forms from the nominees were validated by the in-house research team and used to prepare the shortlist. The Top Brokers were determined and ranked based on the total value of residential loans settled in the 2021 calendar year, as well as the number of loans and year-on-year growth.
of the Top Brokers have worked in the industry for over 10 years
“As an industry, we need to be aware of burnout and the best way to do this is to ensure that we are all managing the expectations of our clients as best we can to ensure we are not overpromising and underdelivering in a time where service is more important than ever,” he adds.
A sizeable part of outstanding service delivery is dealing with backlogs, likely to be no fault of the client. Research conducted by Mortgage Introducer shows mortgage industry recruitment consultants have seen large delays in conveyancing.
“This means that the gap from lenders making an offer to completion of a property is often five or six months, resulting in a slowing of pipelines,” says Sinclair.
This, coupled with rising interest rates, make it
the largest number of residential loans settled by a Top Broker in 2021
the highest value of residential loans settled by a Top Broker in 2021
“Anyone can sell a product, but I believe being truly successful is shown by the service you provide”
Rebecca Shuttle, MIMA Mortgage and Protection Advice
TOP BROKERS’ FINANCIAL FIGURES IN 2021
Total value of residential loans settled
(1 January–31 December 2021)
Total number of residential loans settled
(1 January–31 December 2021)
challenging for brokers to keep all parties aligned. For example, Nationwide revealed its recent rate increases with less than a month’s notice.
Neil Standring, mortgage and protection adviser for MB Associates, explains that lenders can announce changes with as little as a few hours in some cases.
“This is why we always ask our clients to have their paperwork ready so that we can respond quickly and secure a competitive rate for them,” he says.
Shuttle is sympathetic to what her fellow brokers must contend with. She points towards rapid rate increases, along with a lack of communication from lenders, and long processing and hold times.
“This is then combined with the market interest rates increasing quickly, so as brokers we are having to try and do everything in double time at the outset, and then lots of chasing to ensure that the lenders are dealing with the processing appropriately,” she adds.
Bradley explains that the MB Associates offers an exceptional level of service for clients to help combat the issues arising from service delays.
“While securing the right mortgage for each client
is clearly important, we ensure customers know that they’re in safe hands and reassure them throughout the process,” she says.
“We try to take the stress out of the process and ensure that clients are kept updated throughout every stage of their mortgage application.”
To achieve this, MB Associates ensures its mortgage advisers are supported by a highly efficient and dedicated administrative team.
“We offer advice on the benefits of making overpayments on mortgages and remortgaging to save money. We see it as our responsibility
“We go the extra mile for every client and as a result, we often have clients tell us they’d been turned down for a mortgage elsewhere and yet we’ve been able to help them” Monica Bradley, MB Associates
to educate clients on being financially savvy,” Bradley adds.
A PERIOD OF INCREASED CHANGE
With backlogs and challenging circumstances faced by brokers, Karasavvas points to the remortgage process as a priority that needs to be addressed earlier than ever before.
“As an industry, we need to be aware of burnout, and the best way to do this is to ensure that we are all managing the expectations of our clients as best we can”
Lea Karasavvas, Prolific Mortgage Finance
“Brokers should be ensuring they are getting in touch with their clients as early as possible to ensure that clients can lock down on their rates at the earliest opportunity, if they so wish, as each week that passes sees increases in available rates,” he adds.
A similar note of caution is expressed by Sinclair, who notes there is a large set of maturing fixed-rate mortgages coming out at the end of 2022. Looking forward to 2023, he estimates the remortgage market, “which usually is around the £200 billion level, to [grow to] £270 billion”.
Shuttle outlines that brokers should be asking clients what they know about interest rates, as well as the current cost-of-living crisis, and then document it.
“As the market is in a period of intense change, it is important that we are recognising what a client wants and needs, as well as what impact this market is having on a client’s personal financial position,” she says.
Barry Webb, chief executive of Mortgage Saving Experts, believes brokers are typically striving to deliver even under pressure.
“I think most brokers work until the early hours to submit applications and book interest rates for their clients to ensure the rate has been secured. That is the most important thing and brokers are doing this,” he says.
TECH, TECH, TECH
According to Sinclair, as the industry endured the pandemic, the broker community adapted quickly to more flexible working arrangements. Webb says that brokers have been fortunate to be in an industry that was extremely busy even during the public health crisis.
In Shuttle’s view, most brokers have embraced the post-COVID world with video calling, which enables them to be more accessible to their clients who they may not otherwise meet face to face.
She believes that brokers should be taking advantage of the technological advancements gained during the pandemic to assist their transactions.
The improvement of technological processes is partly the reason for the rise in mortgage borrowing by a net £11.8bn in March 2021, as reported by the Bank of England. This figure is the strongest increase since records began in 1993.
Nevertheless, Shuttle cautions the industry to never lose the human touch. “Clients need real people with real advice, appropriate to circumstances and requirements. Sometimes, the only way to identify these specific requirements is through a
Robert Sinclair, Association of Mortgage Intermediaries
good conversation with a client and this cannot be done via a form being filled out.”
Standring explains that remote working and client meetings on Zoom are now accepted methods of getting the job done.
“We are still very happy to meet clients in person, but some clients now prefer Zoom calls for convenience,” he adds.
“A good broker is one who explains the process to the customer, who stays close to the customer, acts in the customer’s interests, see themselves as a partner in the process and works hard to make sure that the customer gets the best deal”
The Mortgage Store (TMS) Hemat Natha Mortgage Advice Point
Mandy Smith Mandy Smith Mortgages
Thomas Foy Thomas Foy Financial
James Watson MB Associates
Richard Sharpe Affinity Group
The Mortgage Dog Adam Evans Manchester Money
Michael Hayes Neal Hayes Mortgages
Zoe Cox Slater Hogg Mortgages
Shaun De Moura MB Associates
Julie Howells Rapport Financial Strategists
Shaun Sturgess Sturgess Mortgage Solutions
Andrew Nolder SPF Private Clients
Neil Standring MB Associates
Daniel Lamb Rapport Financial Strategists
Elliot Skinner Mortgage 1st Ian Thomson Cara Mortgage Services
Justin Lusher Harris Begley Lifetime Partners T/A Justin Lusher Mortgages
Darren Hunter Hunter Wealth Management
Fortune Financial Planning
Paul Blake Sound Mortgages
James English Lifetime Wealth T/A Ruth James Mortgages
Peter Richards The Mortgage Company London and Essex Jack Blair Ferro Financial
Adam Gregory Together Financial Solutions
Amadeus Wilson SPF Private Clients
Russell Jones SPF Private Clients
Alyson Horton ATW Mortgages
David Whitwell Lifetime T/A Derngate Wealth
Gregor McMeechan Malleny Mortgage Solutions
MORTGAGE EXPERTS REACT TO NEW HOUSING SECRETARY
“New kid on the block” Simon Clarke fourth MP to take on role in less than a year
Simon Clarke’s appointment as the country’s new housing secretary – the fourth in under a year – has been met with widespread scepticism from housing experts.
Clarke replaces Greg Clark, who served as secretary of state for levelling up, housing and communities for only two months.
Simon Clarke was previously the minister of state for regional growth and local government before resigning for personal reasons in September 2020. The following year, he returned to serve as chief secretary to the treasury – the last post he held until his new appointment last week.
Clarke said he would “give it my all” to deliver on levelling up for communities across the country, saying it was his mission to unlock the homes the country needed, while supporting the economic growth “that is so central to Liz Truss’s government.”
The new appointment was subsequently overshad owed by the death of Queen Elizabeth II, which also prompted the Bank of England to delay its decision on whether to raise interest rates until 22 September.
The mortgage industry was, however, quick to comment on Clarke’s new role, with most commen tators suggesting they were distinctly unimpressed by his appointment.
Andy Sommerville, director at property data and technology provider Search Acumen, noted that Clarke, at 37 years of age, “isn’t much older than today’s average first-time buyer.”
In a scathing reference to the number of times the government had appointed housing secretaries this year, Sommerville said, “It’s bizarre to think the job
of Housing Secretary has become such a fleeting, high-turnover role when most people spend a big chunk of their youth stretching for the funds to get on to the property ladder and then three decades or more paying their mortgage.
“At 37 years of age, Simon Clarke isn’t much older than today’s average first-time buyer, but he will in herit a raft of housing market reviews from previous administrations to point him directly toward the issues holding back the property market.”
Sommerville echoed the views of many housing experts who argue that more homes need to be built if the government is serious about addressing the issue of affordability.
“Given years of big-picture thinking and grand policy promises, it’s high time to move on from consultations to construction if we want to tackle the affordability crisis, as well as investing more in local, regional and national infrastructure to better connect communities,” he said, adding that greater digitisation of the property market would “deliver a lasting impact” by slashing property due diligence time and save conveyancers a combined eight million hours per year using technology available today.
Sommerville went on to say, “HM Land Registry’s new 2022+ strategy is barely a week old, but every week that goes by brings more needless delays and frustrations for homebuyers, property investors, and the legal profession, which is expected to deliver twenty-first-century results with twentieth-century technology and processes.”
Nick Leeming, chairman of Jackson-Stops, noted that Clarke was the thirteenth housing secretary in
12 years, adding that the property industry “will be hoping that it won’t be an unlucky move.”
“Already vocal on many issues facing the hous ing market in the short and long term, Mr Clarke has publicly supported regeneration projects in the north, a commitment to building new homes, and achieving net zero. How he moves a busy housing agenda forward in an increasingly challenging macro environment is where the market needs answers,” Leeming said, while referencing the latest data pub lished by Halifax, showing that house prices were continuing to edge higher, increasing by 0.4 per cent in August and 11.5 per cent annually.
Kate Davies, executive director of the Intermediary Mortgage Lenders Association (IMLA), also noted the fact that 20 MPs had filled Clarke’s role since the turn of the century.
She said, “We have seen so many promises from successive governments on how they will improve housing supply, and so much under-delivery, that Mr Clarke will have his work cut out for him in days to come. It’s positive to see his promotion from minister to secretary of state for the role, hopefully suggesting that housing will be a stronger focus for the new Truss government.”
Davies, whose association includes 18 of the 20 largest UK mortgage lenders, accounting for about 90 per cent of mortgage lending in the country, also called for a long-term strategy that would see the government building more homes.
She said, “We urgently need more housing stock to help younger generations in the UK become firsttime buyers and start building up equity for a stable
MINISTRY OF HOUSING
financial future, not to mention having a home they can truly call theirs.
“We also need much more public-sector hous ing – and greater recognition of the essential role of the private rented sector in filling many of the gaps currently left by the dearth of public-sector stock. To do this, we need a coherent long-term strategy that can last longer than the span of a single government.”
However, Nick Sanderson, CEO of Audley Group, urged the new housing secretary to look beyond “empty promises” to build more houses “when the solution is to build smart.”
He said, “The bonfire of the housing secretaries continues, with another new kid on the block in Simon Clarke. Let’s hope the fourth housing sec retary in a year can last a little longer than his pre decessors and actually effect some much-needed change. First on that list should be better alignment of housing and health, to look at holistic solutions that have far-reaching implications. Building more specialist housing would free up existing family homes, take pressure off the NHS and social care systems, and, importantly, give older people suit able and aspirational housing that adapts to their changing needs.
“I urge Mr Clarke to look beyond the empty promises to build more houses, and consider how to better use the homes that already exist. More housing has never been the problem. The gov ernment’s focus has to shift to specialist housing, and fast. It’s never going to be greener to build more, when the solution is to build smart.”
Weighing up your options during the cost-of-living crisis
Refinancing, consolidating debts, or extending your mortgage are among the considerations
In real-world terms, interest rates going up makes borrowing more expensive, so there can be a knock-on effect, depending on your situation.
First-time buyers might find it harder to get that first foot on the property ladder, for example, as the economic impact affects people’s finances. If they are paying interest on any credit card debts, personal loans, or store cards, then this will see payments go up and less wiggle room each month, which could affect how much they can borrow.
“It could be a good time to prepare and get mortgage-ready, or if they need a mortgage soon, certain lenders offer free valuations and no arrangement fees, which can cut down on upfront costs,” said Paul Coss, co-founder and chief customer officer of Haysto.
Coss explained that Haysto is seeing a lot of people on variable and tracker mortgages looking to switch to a fixed deal, which he believes could be a good idea as it will avoid further increases affecting homeowners’ mort gage payments.
“With energy prices on the rise, bringing down the monthly mortgage payment is a good way to free up some cash, as it is usually the biggest outgoing,” Coss added.
He also believes it is an opportunity for homeowners to assess their financial situation and weigh up options, such as refinancing, consolidating debts, or extending mortgage terms. Some lenders, he noted, are offering free legal services and cashback incentives for remortgage customers.
WHAT’S HAPPENING IN THE MARKET?
On the flip side, he said that this
increase in demand for remortgages, coupled with an incredibly buoyant housing market at present, have already led to a massive surge in applications, with lenders taking longer to turn them around because of the sheer volume of applicants.
To try to tackle this, he explained that high-street lenders like Santander have issued amendments in their policies to try to cater for these delays by offering automatic mortgage-offer extensions for one month beyond the deadline, without any proofs or requirements.
“With the Bank of England base rate rising to fight inflation and ultimately the growing cost-of-living crisis, it is actually having a knock-on effect on the cost of people’s largest outgoing, their mortgage,” Coss said.
This will and has, he explained, put many clients off purchasing a property, as they are worried about how high rates will go. He believes those pressing ahead will probably see an increase in mortgage costs in the short term, while suffering from the increases in the cost of living still in play until inflation gets under control.
RED FLAG TO LENDERS
Sara Palmer, head of distribution at The Mortgage Lender, noted that it has already been widely reported that the cost-of-living crisis is putting a significant strain on people’s finances – and where there is financial strain, there are usually missed or late payments.
“With energy bills a particular problem and expected to increase even further in the autumn, there is a real concern that people will be making some difficult choices,” she said. She has already seen increasing numbers turn to buy-now, pay-later schemes.
She said that people often do not realise, however, that this can be a red flag to lenders, with a reliance on short-term finance evidence of financial stress.
In these circumstances, Palmer explained, it is important people reach out to their lenders to discuss their options.
“We know that life does not always work out the way you expect, and there are lenders out there [who will] support in a responsible way,” she said.
In addition, Palmer believes there should be more education available for both brokers and customers on adverse credit and where to find support. She said that brokers should be aware of lenders who do offer products for those classed as adverse, and what their criteria are, to ensure they can guide their clients.
“If the client is not in a position to access a mortgage at the moment, guidance on how to rebuild their credit score and become ‘mortgageready’ is also vital,” she said.
How is the broker market dealing with the economic climate?
Inflation to reach 18.6% in January, analysts suggest
As the UK economy
continues to be put under pressure due to rising infla tion and the cost-of-living crisis, brokers are having to jump extra hurdles to help clients gain access to their desired mortgage products.
The UK economy is set to see inflation rates soar to 18.6 per cent in January, reaching their highest levels in almost half a century, according to investment bank Citi.
“Brokers are really busy at the moment – people are worried about not just increasing mortgage interest rates, but cost-of-living, too, so anything to save money is always a benefit,” said Lyn Webb, director of Mortgage Saving Experts.
Webb said that mortgage lenders and providers are also extremely busy, with some of them taking around 16 days to look at supporting mortgage documentation sent to them.
“Lenders are pulling interest rates regularly, with brokers sometimes only getting six hours’ notice that as of midnight that day, the rate will be gone, meaning working late into the night for us to secure that interest rate for our client,” she added.
As demand for particular lenders is often very high, Webb noted that, as a broker, you are often either in a queue waiting to access their website, or enduring website crashes.
Webb believes that most brokers are worn out, as they are working long days in a very stressful climate.
“Clients do not seem to understand this, and often get frustrated with us when we tell them it may take up to 16 days for lenders to look at addi tional supporting documents before they agree to the mortgage. I know our staff are really feeling the strain at the moment,” she said.
Webb went on to say that, currently, lenders do not want to be atop the mortgage-sourcing system, as they have enough work at the moment. As a result, Webb said that Mortgage Saving Experts has seen lenders pulling rates or increasing them to levels higher than the rest of the market to deliberately make themselves less appealing.
considered in the process.
“I think our clients are shocked by the rise in rates because they have been so low for such a long time. However, the housing market is still very buoyant, and if a property comes up for sale or rent, it is usually snapped up quickly,” Webb said.
She has seen that clients are trying to save money where they can, often checking their bank statements to see what standing orders or direct debits they can cut. However, she noted that one of the most common monthly payments to cut has been insurance – which can have a hugely negative impact.
“Everyone wants to fix their interest rate – my neighbour fixed his for 10 years last year, and is now sitting pretty for another nine years at two per cent, but we as brokers are not fortunetellers and cannot predict what will happen in the next few years, although clients always ask us,” she said.
Webb believes homeowners are conscious of continued rising rates, and noted that some older people remember 1988, when rates rose steadily from 9.8 per cent to 15.4 per cent by 1990.
“Mortgage Saving Experts’ clients are worried about interest rate rises, and many people are requesting to remortgage or are trying to switch from their current fixed rate to a new longer-term fixed rate,” Webb added.
Webb explained that fixed rates are now around 3.44 per cent for a two-year product and 3.49 per cent for a five-year mortgage. She also noted that to come out of a fixed rate early and lock into another rate will incur a fee, which needs to be
Webb concluded, “This is such a mistake for clients, as it could be unemployment cover, critical illness cover, or even life insurance; to reapply when the economy changes will find them looking at increased premiums. It would be better to review other items rather than one’s insurance.” M I
“I think our clients are shocked by the rise in rates because they have been so low for such a long time”
The man behind The Mortgage Mum
You may be familiar with Sarah Tucker, aka The Mortgage Mum, but we speak with the man behind the scenes
In the male-dominated world of mortgages, The Mortgage Mum brand is pushing past the barriers that had held women back and helping them work in a way that is totally flexible. It’s a brand that encourages its team to have a sensible work-life balance and to work in a way that suits all team members and their families.
A driving force behind that push is Jamie Lewis (pictured), an industry veteran who is passionate about pushing women forward and maintaining the family unit for each individual. When it comes to team meetings, he is often the only man in a room full of women, something that he sees as a real contrast with how the industry so often appears.
“That’s how women have been turning up in our industry for years, because it’s been so male-dominated, and I’d often go to meetings where you’d have a round table and there’d be 20 [people] with 19 guys and one woman in that [group],” he said.
Lewis is the managing director of the Affinity Group, as well as director and co-founder at The Mortgage Mum, and has been in the industry for 20 years. His strength as a boss and business owner, he believes, is being open to new ideas and different ways of working in order to make things work for his team.
“I run a fully flexible working policy ... I don’t need everybody in here all the time, I don’t care where they are.... If somebody walks in at 10, I’m cool with it,” he said. “Why shouldn’t they? That’s fine. As long as by the end of the month we’ve all got to where we need to be, then yeah, cool, go and see your kids play football, swim, you know, go and pick them up from school.”
Lewis’s viewpoint on helping people achieve the best balance for their families is refreshing and inspiring –indeed, his recollection of his meeting with Tucker, an ex-colleague who had got in touch regarding a work proposal, is heartwarming. Tucker had come to the meeting with her newborn son and was looking for a flexible role within the typically inflexible mortgage industry.
“My thinking behind it, and when I offered Sarah that job, was, I was offering that opportunity to her,” he explained. “You know, I’m looking at little baby Joshua in front of me, thinking, ‘Your life is going to be better if I can give your mum a job because she will be around as you grow up, young man – you don’t even know it, but I can
do that.’ And so [that was] my thinking behind it.” At a time when flexible working was not commonplace, this was a real leap of faith for Lewis – and, indeed, was the start of what would become The Mortgage Mum.
When The Voice happened, Lewis and Tucker realised that this was a ‘strike while the iron is hot’ moment, and the bare bones of The Mortgage Mum were set in place. After Tucker left the competition and was devastated not to have got to the semi-finals, Lewis saw that he needed to show his friend and business partner the bigger picture.
“It was a case of picking her back up, but [also] actually showing her that this was meant to be ... like, it was meant to play out like this; she was always going to be a better mortgage spokesperson for females in work,” he said. “For a whole gender shift ... it needed someone who was going to be the shining light.”
It was the original plan that Lewis would be running The Mortgage Mum business from behind the scenes, with Tucker being the face of the brand and looking after the front end, the training, and the brokers. Today, Lewis and Tucker’s partnership continues to thrive as the brand moves from success to success.
“As long as by the end of the month we’ve all got to where we need to be, then yeah, cool, go and see your kids play football, swim, you know, go and pick them up from school”
What’s key to making homes energy efficient?
Incentivising green mortgages is among solutions, says expert
uphill struggle, especially now.
“There’s obviously lots of rocks in the road and major challenges around affordability at the moment,” he said.
“People have various other challenges in terms of household expenditure, and the obvious barriers are big, but what we’re also lacking is an experienced pathway and awareness to getting to 2030.”
least as competitive as standard ones to incentivize people – were ways forward, he said.
With raging inflation, rising mortgage interest rates, and rocketing fuel and food prices, you’d be forgiven for thinking that the last thing on the minds of most homeowners is spending their hard-earned cash to reduce their carbon footprint.
A recent study by property experts Cornerstone Tax found that 45 per cent of homeowners have been put off making their homes more energy effi cient due to the cost involved.
And there are other hurdles. The same study also revealed that 22 per cent of homeowners looking to make their homes more energy efficient found it impossible because of plan ning restrictions.
The government has also met with criticism amid claims it’s too hard for consumers to set up the Smart Export Guarantee (SEG) scheme, which pays households for the solar energy they ‘export’ (that is, electricity that’s not used but pumped back into the grid).
Ben Thompson (pictured), deputy chief executive officer at the Mortgage Advice Bureau (MAB), agreed that environmentally conscious households were facing an
The date is significant. Eight years from now, the UK is committed to reducing economy-wide greenhouse gas emissions by at least 68 per cent (in 2025, all buy-to-let property starting a new tenancy will also require an EPC rating of at least C). By 2050, the aim is for the whole of the UK to be net zero.
Given that households are one of the biggest emitters of greenhouse gases, accounting for 26 per cent of total emissions in the UK on a residency basis, there is a sense of urgency that something should be done now to lower the carbon footprint in homes, at the very least.
MAB recently shared five steps to achieving exactly that, including draught-proofing a home, taking out a green mortgage (which rewards consumers for buying or owning an energy-efficient home), and saving energy by installing smart meters and heat pumps.
With the purchasing power of household incomes set to plunge by 10 per cent, Thompson was asked if consumers could afford to make all these improvements.
“No, quite simply. And I think a lot of people couldn’t do it even before, in the last six or nine months,” he said candidly.
If it sounds like a hopeless situa tion, Thompson stressed that this wasn’t the case. Changing consumer behaviour, and offering bespoke solutions – including mortgage rates at
“Consumers will be incentivized if it’s cheaper. Those are the things that are within the gift of lenders,” he said. “Is anybody better placed to have that discussion with consumers and mortgage intermediaries? I think the answer is no.
“As an industry, we’re better off working together around how we approach pricing and availability of mortgages, and we need to try to really speed that up,” he said. “We’ve got a brilliant intermediary industry. It’s not beyond the art of the possible to start to find ways to prioritise so-called green mortgages, and, in particular, the pricing and the attractiveness of those products in helping people to move from a low EPC rating to one that says C-plus.”
Regarding the five steps, Thompson said the the message intermediaries should be putting across is that “there’s something that can be done very quickly” and that households can take “baby steps” to reach an A, B, or C rating. Getting the message across that homeowners can also see huge savings in the long run is equally crucial, he said.
“The difference between a G-rated property and an A is about £40,000, and that’s the sort of thinking we need to start instilling – you’re actually improving the value of your home,” he noted.
“There’s a massive opportunity for us as a sector to promote that conversation with customers, and even if they don’t do anything for four years, it doesn’t matter. You’re sowing a seed for the next conversation for when you might want to do something with them. Now’s the time to start thinking and talking that way, because we’ve got a chance to do this.”
Co-founder calls on government to help struggling households
Push for solar urged amid mounting threat of fuel poverty for millions
The head of two green-ener gy-focused firms has called on the government to do more to help UK households strug gling with rocketing fuel prices.
Llewellyn Kinch (pictured), co-founder of UK ener gy-switching service Switchd, and MakeMyHouseGreen, which uses smart data to calculate savings made by green technologies, said more needed to be done to support struggling households.
He was also critical of the govern ment’s Smart Export Guarantee (SEG) scheme, launched in January 2020, which pays households for solar energy they ‘export’ – that is. electricity gener ated but not used, which is pumped back into the national energy grid.
Speaking to Mortgage Introducer, he said, “The smart export guarantee is not good for two reasons. It’s a real pain for customers and their energy suppliers to set up. And then it just doesn’t pay very much. Wholesale rates for electricity are at 30p per kilowatt hour, but you get paid 5p, which just doesn’t make sense; it doesn’t feel like it’s incentivizing you to get bigger or to help provide that green energy.”
Kinch made the comments shortly after Switchd issued a statement urging households to adopt solar power to save on soaring energy bills, which could hit £4,266 a year from January 2023.
Kinch said households could slash bills by adopting solar power, adding that by reducing dependence on the national grid, they could benefit not only the environment but also other households by helping to bring prices down.
He said the attraction of solar energy was on the rise even before Russia’s invasion of Ukraine caused fuel prices to soar, which is now threatening to plunge many households into fuel poverty this winter.
“There was a real upward trend regardless,” he said. “People were inter ested in going green, so there was a real drive toward making your home green anyway. The increase in energy prices has driven more of that. It’s probably caused just as much pain as it has benefit because there’s loads of demand, which means that our suppliers are struggling to deliver the best service they can.”
Switchd has estimated that a small solar system of eight panels could cost £5,500, with savings of £749 a year.
And although the UK enjoys roughly half the number of hours of sunlight per year of Mediterranean countries, Kinch insisted that it still makes sense to install solar panels in homes.
“You are still getting a decent output, even when there’s cloud cover. There’s still a lot of light coming through. It’s not as good as it would be in the south, but you still get more than enough output to make a good return on your investment, particularly if you’re using that energy for yourself rather than exporting it, because then you’re saving 13 kilowatt hours,” he said.
However, aside from the cost of installing solar panels, UK households face a multitude of other challenges when it comes to being energy efficient.
A study conducted by EDF of 21 million homes across England and Wales found that over half (58 per cent) only meet insulation standards of 1976 or earlier – potentially costing households up to £930 a year to make them net-ze ro-compliant.
Kinch conceded that insulating a home should be a priority, as it has a much bigger environmental impact and involves a smaller investment than solar.
To add to the challenges faced by homeowners, according to a report in the Guardian newspaper last year, nine in 10 households rely on gas boilers,
adding that UK households have higher gas consumption than almost all other European countries, at roughly twice the EU average.
That report appeared last September, before the Ukrainian conflict sent fuel prices soaring even higher. Kinch cited this as an added reason to incentivize households to get solar. “The more they generate themselves, the less they have to depend on gas,” he said.
The tide could be turning. New data from the MCS (Microgeneration Certification Scheme) – the national standards body for renewables – shows that 61,320 UK properties had solar panels installed in 2021 – a 71 per cent increase on the previous year (35,841).
And according to Switchd, home solar panels are expected to pump out far more this year than the 3GW of electricity they produced in 2021 – and that was a record in itself.
Second-charges can help pay for green home upgrades
But there is potentially a better optionMarie Grundy SMP board member & MD, second charge mortgages, West One Loans
Iwant you to imagine for a second you’re a buy-to-let landlord with three small properties that you let out to young professionals.
Various tax changes in recent years mean those properties are not as profitable for you as they once were.
But that’s okay, because you only bought them to boost your pension in retirement, which is fast approaching, and you’ve made a decent profit due to house price appreciation.
Recently, though, you found out landlords will be forced to ensure their homes have an EPC of at least a C by as early as 2025 as part of the government’s net-zero plans.
The problem is, all three of yours are currently a D. Even worse, the government estimates that the cost of the upgrades will average £7,646 a property, meaning you’re facing a bill of nearly £23,000.
With retirement around the corner, you don’t have that sort of money lying around – so where do you turn next?
What I’ve just outlined above is a fictional scenario, but there will be thousands of landlords in this very position.
And they face a tough choice: sellup – probably below market price to cover the cost of the upgrades – use their savings, or tap into the equity they have in their portfolio.
For many landlords, I’d imagine the first port of call will be to remortgage.
– a second-charge mortgage. And I’ll explain why.
RETAIN THE RATE
One of the main reasons borrowers opt for a second-charge mortgage is that they are already on a competitive first-charge rate that they don’t want to disturb.
Given we have just exited a period of record-low interest rates, there will be a lot of landlords in this position.
However, buy-to-let mortgage rates have increased significantly over the past year, so landlords will almost certainly pay more than they had been if they remortgage.
By releasing cash through a secondcharge instead, landlords can protect their first-charge mortgage rate while avoiding the early repayment charges that many first-charge fixed rates carry.
And what’s more, many secondcharge providers will lend up to £250,000 these days, which should be
more than enough to cover the required upgrades for most landlords.
QUALIFY FOR A DISCOUNTED GREEN FIRST-CHARGE MORTGAGE
A number of lenders have launched green buy-to-let first-charge mortgages to help improve the energy efficiency of the UK’s housing stock.
Many of these loans offer discounted rates to borrowers with properties that have an EPC rating of between A and C; landlords with less-efficient properties thus do not qualify.
While there are a few providers that offer green loans to borrowers who pledge to make their homes more efficient, these are only suitable for those who have the cash to make those improvements.
By releasing equity via a secondcharge, landlords can obtain the money they need to make home improvements and, as a bonus, should qualify for a discounted green first-charge deal farther down the line.
At a time when many of us are feeling the pinch due to the rapidly rising cost of living, I’m sure any discount – no matter how small – would be welcomed.
Use green seconds to upgrade the rest of the portfolio
While there are many lenders offering green firstcharge mortgages, there are currently just a handful offering green second-charge loans.
The ones that do exist tend to mirror those of their first-charge counterparts by offering a discounted rate to borrowers with properties that have an EPC of A to C.
If you have landlord clients who have a few properties with an EPC of A to C, they can borrow against those, using a green second-charge – and benefitting from the discounted rates they offer – to upgrade the properties that don’t meet that criterion. That discount will effectively make the upgrades cheaper.
Often, lenders also pledge to donate to green causes for every loan that completes. At West One, for example, we have pledged to offset one tonne of carbon for every 10 second-charge completions and to donate to sustainable overseas development projects.
FLEXIBLE AND COMPETITIVE
There are many misconceptions about second charges, one of the main ones being that they are expensive.
While second charges do carry slightly higher rates than first-charge loans, they are still highly competitive, with buy-to-let seconds around the six- to seven-per cent mark in plentiful supply.
Another major advantage of taking out a secondcharge is that the underwriting process is typically far less arduous than for a mainstream mortgage.
Some lenders don’t credit-score borrowers; instead, affordability is determined by taking into account rent received and the original first-charge.
It means, therefore, that application-to-offer times are usually measured in days rather than weeks.
Seconds can also be incredibly flexible, with terms available from three to 25 years in most cases, while interest-only options are also available.
THE UNTAPPED RESOURCE
The misconceptions surrounding second-charges mean many landlords are not aware of the benefits they offer.
However, for borrowers who need to access cash quickly at a competitive rate and who prize flexibility, they can be a great choice.
If your clients are worried about how they will pay to upgrade their homes to meet the government’s incoming legislation, then second-charge mortgages are worthy of consideration at the very least.
Consolidation needs to be treated with careTony Marshall CEO, Equifinance
The second-charge sector is in demand! Brokers are finding the opportunity to go beyond remortgages and see our offering as something to recommend rather than ignore. Capital raising for debt consol idation and other domestic purposes has now been joined by borrowing for business needs, and although that is fairly restricted at present, it is bound to gain traction because of the implicit requirement for speedy resolution.
New-business figures are being pushed into new territory and demand is growing, so it could be argued that everything is rosy in the garden.
However, we are entering a period in which underwriting standards are going to be well and truly tested. Costof-living increases, fuelled in part by a steadily increasing inflation rate, are going to see lenders looking to balance a robust credit policy with the temp tation to write strong volumes of new business from potential clients whose ability to repay new finance arrange ments is likely to be compromised as wages fail to keep pace with increasing household costs.
Consolidation is going to be a fruitful source of new business, but only as long as affordability is not compro mised. Reducing monthly outgoings via consolidation is a tried-and-tested method of helping customers to keep better control over their finances. However, with the added cost-ofliving pressures, there is now a stronger possibility that no matter how much consolidation is possible, the family budget might still not be able to cope. Advisers need to remain as neutral as
possible and exercise caution when advising clients to enter any further borrowing in cases in which the budget is already under pressure. The acid test is whether, in this uncertain time, consolidation will actually help or hinder customers in the longer term. As a nation, we have not been in this situation for a long time – infla tion and interest rates are rising, but now there is the added menace of energy costs that we cannot control. While fuel costs at the pumps have receded a little, the fact remains that, from the government down, without direct government intervention there is no one who can currently make any difference to the prices being demanded for electricity and gas.
It therefore stands to reason that advisers should look very carefully at the argument for consolidation and consider whether – even if it might make an immediate difference to the family budget – it actually makes sense in the longer term if economic condi tions don’t improve and all that has been achieved is simply to push the
problem farther down the road.
It might seem odd to hear this from someone whose bread-and-butter busi ness is providing the means to consoli date debt efficiently via second-charge mortgages, but, with one eye on the implementation of consumer duty next year, I say this: If I were an adviser, I would be minded to look at longerterm consequences to ensure that today’s consolidation loan can stand the test of time when and if the recom mendation given at the time is called into question in future. The outcome we don’t want is for future scrutiny to find fault with the initial advice.
I remain a total advocate of debt consolidation, but consumer duty will place the emphasis on producing good outcomes, not just treating customers fairly. This can only place extra pres sure on advisers to look farther ahead when assessing the value of the advice they give.
Writing about the extra care advisers will need to take when advising given the imminent arrival of consumer duty made me look back at how far we have come as an industry and the battle that has been waged to bring secured loans/second-charge mort gages in from the cold.
Although the industry had the fig leaf of previously being regulated under the Consumer Credit Act, the mere mention of “dual pricing” and “Rule of 78” is still likely to make a generation of older practitioners reach for the Prozac. However, in less than fifteen years, the sector has been transformed thanks to successive regulatory moves and the desire of a new generation of lenders, like Equifinance, to prove that a secondcharge mortgage can more than hold its own in a modern consum er-friendly lending market.
Don’t fear technology in fight against fraudMatt Meecham chief digital officer, Evolution Money
As borrowers become increasingly stretched financially in the face of the cost-of-living crisis, it is vital that as an industry we be on guard against fraudulent activity.
Earlier in the year, insurance giant Zurich UK reported a 25 per cent annual increase in fraudulent insurance property claims.1 It cited the rising cost of living as the main driver behind this sharp rise.
As some become more desperate, there is a risk we could see fraudulent attempts in the first- and secondcharge sector also rise. Always looking for an edge, fraudsters will use every tool at their disposal – and we must do the same.
To help guard against fraud, open banking and digital identification provide not only a speedier and more efficient application process, but also a more secure one, and can help mitigate some of the risks.
Yet with a large number of firms still relying on a manual approach, the use of such fintech needs to be rolled-out across the industry if we are to ward off potential fraudsters effectively.
Recent research from anti-mon ey-laundering software provider SmartSearch found almost two-thirds of regulated firms believe hard-copy documents provide reassurance a customer is genuine.
Furthermore, some 40 per cent of firms in the South East believe manual verification is the only way to guarantee a person’s ID. Either through habit or misunderstanding, the industry still has an attachment to manual verification.
Over the last decade or two, coun terfeit documents have been the mortgage fraudster’s weapon of choice. While great inroads have been made into helping lenders and advisers detect and recognise fraudulent copies, relying on the manual checking of such documents leaves all stakeholders vulnerable to scammers.
The less opportunity there is for fraudsters to duplicate or replicate documents during the application process, the better.
Manual checks of paper-based bank statements, payslips, and identity docu ments all potentially leave the door open to forgeries. Through open banking, however, lenders and advisers can access a borrower’s statements electronically –directly from the source.
A borrower’s identity, address, and financial information can be crosschecked against multiple sources, including other credit or loan companies.
As the mortgage industry moves forward, we are also likely to see the use of technology for digital ID accelerate further, with fingerprint and digital face recognition becoming more commonplace.
Another key advantage of Open banking is the insight it gives into a borrower’s expenditure, allowing for a deeper and more concise income and affordability assessment.
Open banking can provide a clear picture of a borrower’s incomings and expenditure, leaving no room for misin formation or the omission of any detail, either purposely or unintentionally, on the applicant’s part.
It is worth remembering that a borrower’s failure to disclose any outstanding debts or other financial information is also a serious issue.
Being able to view a borrower’s financial history electronically and over an extended period makes it easier for
lenders and advisers to spot any red flags. It also helps highlight any signs of over-indebtedness or financial distress.
As well as a more accurate verifica tion of a client’s identity and expen diture, one of the key advantages of a fintech-led approach is the removal of human error when it comes to remem bering to check a borrower’s identity.
Astonishingly, recent research from Credas Technologies found that 23 per cent of homebuyers it surveyed had not been asked to verify their identity when purchasing a property.2 This may be explained by firms being overstretched and lacking sufficient resources, rather than any purposeful malicious intent.
The first- and second-charge mort gage markets have both recently experi enced periods of increased demand, with the market proving exceptionally busy, which in turn will naturally increase the risk for human error. Even with the best intentions, mistakes can happen. Nevertheless, there is a legal duty to check a borrower’s identity, and not doing so could have significant ramifi cations for an adviser if it later transpires the borrower was acting deceitfully.
Second-charge providers such as us are already seeing the benefits of open banking and a digitalised approach when it comes to delivering a swift and secure application process.
In a busy market, as the cost-of-living crisis takes hold, it’s vital we use technology to help us remain vigilant against any attempts at fraud and/or misguided applications.
living crisis fuels
“Specialist non-bank lenders are leading the way in property development innovation”
Cooperation among all parties is needed during testing times
Over the past few years, the market has seen the rise of specialist non-bank lend ers, many of whom are leveraging the power of technology to bring agility and efficien cy into the lending process.
“I have sat at both altars and completely appreciate the scope of the services provided by banks and non-bank lenders, and see how they each serve, some better than others, the niche market,” said David Alcock (pictured), managing director at Blend.
Alcock explained that specialist non-bank lenders like Blend who are focused purely on residential development finance were born with the objective of providing greater support to the housebuilding sector, with more gearing and higher loan-to-values (LTVs) than traditional or challenger banks could ever offer.
“So, it is a very specialist product, or rather relationship, designed with housebuilders who need their money to go farther in mind –specifically, those smaller SMEs,” he said.
Generally, however, Alcock said that rather than seeing them as competing, he strongly believes in cooperation among all the participants in the lending ecosystem, particularly between banks and non-bank lenders.
Alcock said that the non-bank lending market in the UK is hugely fragmented, and customers often complain about the lack of regulation and accountability in the market.
As such, he believes the market needs experienced property people, delivering transparent processes that put the developer first.
“The business has been living up to that mission for five years, serving as a trusted lender to experienced property developers looking for higher gearing than traditional or challenger
lenders may be able to offer,” Alcock said.
The property market is shifting, prices are slowing down, and demand continues to soften. Alcock said that with the hindsight of a career spanning over 20 years across all segments of the property market, his one piece of advice to housebuilders is to pick their lender wisely because they can make or break a deal.
When it comes to development finance specifically, he said a buyer is not shopping for a rate – they are shopping for a lender who provides them with the support, experience, and flexibility they need to bring a project to life.
“That means a lot in property development
because, during my entire property career, I have rarely seen a project go 100 per cent according to plan, in terms of either timeline or circumstances,” he said.
Alcock elaborated that most property projects he has seen have faced unforeseen circumstances in one way or another to varying degrees, and he said that when this happens, housebuilders really need to be working with a lender who can find a solution instead of one who hits the panic button, causing unnecessary stress and anxiety.
He said that the current fast-changing market environment and hiking rates makes this even more important.
Therefore, housebuilders, he said, need a lender who understands the property development process, who appreciates that things can be delayed, and who is flexible enough to adapt to their circumstances.
Alcock explained that securing funding can be a complex and arduous process for many developers, so seeing them succeed and being
part of that process – hopefully again and again – is the end goal.
He believes that a strong technological edge can put a specialist non-bank lender above the competition.
“For decades, innovation was considered a dirty word in housebuilding, a sector that was referred to by economists as ‘the backwards industry’ due to its reluctance to embrace technological innovation,” Alcock said.
However, Alcock noted that things have been changing of late, and it is specialist non-bank lenders – nimble, agile, and more flexible – who have been leading this change, powered by technological innovation.
“I am excited to see how specialist nonbank lenders are leading the way in supporting both long-standing SME house builders and a new generation of younger, digitally savvy, and socially engaged property developers eager to leverage innovation to help improve how we build, live, invest and sustain,” he said. MI
Are people increasingly drawing on property wealth?
Refinancing, consolidating debts, or extending a mortgage are among the considerations
Property wealth is usually an indi vidual’s greatest source of savings, although it is not always looked upon as an option to boost cash reserves. However, with the cost-of-living crisis heating up, many homeowners are be ginning to consider alternative approach es to giving their finances a lift.
While property price increases have recently faltered slightly, average house prices in the UK still rose by 7.8 per cent over the year to June 2022, according to the latest HM Land Registry (HMLR) house price index.
Simon Gray (pictured), managing director of HUB Financial Solutions, believes that many homeowners in the UK will be delighted to see that their investment in a home has returned them a really substantial storage tank of wealth that they can draw on in challenging economic times.
“They may have made significant financial sacrifices to get on the property ladder and pay off the mortgage, but that decision and perseverance are now paying them back,” he added.
Gray went on to say that the cost-ofliving crisis is having an impact on the way many people in the country are approaching their finances. He noted that people are re-evaluating how their income will cope with the large spike in energy bills, the increasing price of food, and other daily living costs.
As such, Gray explained that equity release is an increasingly important component of the retirement income market, and he said he has seen some changes in the reasons why customers are exploring this option.
According to Gray, every month, HUB Financial Solutions’ professional
and regulated advisers meet with hundreds of people who are considering equity release.
“The cost-of-living crisis crops up increasingly as one of the reasons customers are considering equity release, but it has yet to become the single [most important] reason people enquire,” he said. Gray stated that, alongside more typical goals like home improvements or gifts, HUB Financial Solutions has seen people keen to shore up their finances, or those of their family, in readiness for future challenges.
“Some customers use a portion of the proceeds of a lifetime mortgage to consolidate debt or clear unsecured debt commitments to help reduce monthly payments, which in turn gives them a little financial headroom ahead of the anticipated surge in energy bills,” Gray added.
In addition to the primary lending need, he explained that some customers with restricted income, who would find it difficult to cover a sharp and sudden increase in their living costs, are trying to get ahead of this problem by setting up a modest contingency fund.
Other customers, Gray said, may
be in a more secure financial situation themselves but have family members –particularly those who may be running a business or are self-employed – who are more stretched financially.
“For these people, the option to use equity release as a means of giving money to their family members when they really need it is a serious consider ation,” he said.
While equity release may provide a good solution for many customers, Gray outlined that it is very important to remember the government support that is available, too.
As part of the fact-find process, Gray said HUB Financial Solutions’ regulated advisers check all customers’ benefits position to make sure they are not missing out on any state support to which they may be entitled. He noted that this often identifies income that people had no idea they should be receiving.
“In 2021, half of pensioner home owners entitled to benefits were not claiming anything and losing out on £1,197 on average each year. Another two in 10 were claiming less than the full amount they could, with an average loss of income of £1,220 per year,” Gray added.
He explained that the government has announced additional support targeted at the lowest-income house holds, with almost all of the eight million most vulnerable households receiving a one-off £650 cost-of-living payment.
Gray concluded by saying, “It is important that anyone considering equity release also look at what state support they might be eligible to receive.” MI
Personal indemnity todayStuart Wilson CEO, Air Group
There are certain non-negotiables when it comes to running an ad vice firm, and perhaps top of that list is access to professional indemnity (PI) insurance.
The pool of available PI cover has been shrinking for some time, and that continues to cause serious issues, particularly for advisers active in the later-life lending space and particularly for smaller firms that may conduct only a small (but growing) number of cases each year.
That said, it is a predicament for many businesses, and as many reach their yearly renewals, that smaller pool of available cover is going to be drawn into sharp light.
I’ll give you a quick example of what firms are currently dealing with. One business owner we know very well came to us recently in something of a mild panic. Theirs is a very profitable advice practice active in the later-life space – last year their turnover in creased by 77 per cent, and while I appreciate that “Turnover is vanity, profit is sanity,” they also turned a very healthy profit based on increased activity and income generation.
They had recently received the terms of their PI renewal from their existing insurer, and the numbers were mind-blowing. A 600 per cent increase in their renewal premium accompanied by a tenfold increase in the excess they would be required to pay, plus the addi tion of a range of exclusions.
This was concerning, to say the least – but it is far from being an outlier. It is a renewal offer that is being seen by many firms as they seek to secure ongoing cover.
There are many reasons for this, of course, not least the fact that many
insurers have left the sector entirely. In that sense, the days of ‘bargain bucket’ PI cover offers are now consigned to history. There is a smaller number of insurers willing to be active in this space, and increasingly the cover they will offer is far stricter and more restrained than before – hence the huge increases in some renewal premiums on offer to firms like the one mentioned above.
This, of course, is problematic for any number of reasons. The firm mentioned is a specialist in the later-life sector and conducts a significant amount of busi ness each year, but much of the growth in our market is currently being driven by firms conducting a small number of cases each year.
When I say small, I mean those who carried out perhaps two cases a few years back but are now up to a dozen. Next year – if permitted – they will do more. And this is not just a handful of firms, but many that are sensing the growing demand and moving to meet it.
However, securing PI cover is un doubtedly going to be more of an issue for these firms that it has been in the recent past. Look at it from the insur er’s side: covering that one firm that currently conducts a dozen cases would probably bring in a few hundred pounds of premium; however, should that firm get a complaint that goes against it, it could require up to £50k to cover the settlement. The numbers simply do not work on that basis.
The maths of this predicament have, as mentioned, resulted in a number of insurers pulling out of the market over the last year, which is why we have the renewals cited. And when those renewal figures do hit the mats of those business es, they could lead them to decide that – for the number of cases they currently conduct – it’s simply not worth the premium outlay they must shell out.
That’s something we don’t want to see, because with these smaller firms driving a lot of the growth in our sector, and with demand growing for a whole variety of reasons, we need consumers to
have more access to professional advice, not less.
In a way, we are something of a victim of our own success here – the PI rates are going up because the risk of liabil ity is going up – because the market is growing. However, PI cover is a non-ne gotiable, and we need to find solutions for this issue. We also do not want to see firms opting for PI cover that is not worth the paper it is written on.
A word of warning here around renewals and shopping around. Be acutely aware of cover available from insurers that seems too good to be true. Remember that if you have a PI policy with an insurer that goes bust, there is no cover for customers under the Finan cial Services Compensation Scheme. Also, some insurers have no Standard & Poor’s rating at all, and that should be a red flag. Ask the question, and if there is no rating, then walk away.
There is also positive news here, how ever. The later-life industry, including Air, has been working closely with insurers such as UK Global that under stand the needs of later-life advice firms and are willing to work with them. For the firm mentioned above, we were able to secure it cover at a premium half that of their renewal offer via UK Global, and that did not include the excess or the exclusions.
Yes, the firm had to pay more than last year, but there is no such thing as cheap cover anymore, and what we are trying to do here is secure quality insurance from reputable insurers, which allows firms to continue providing advice and growing their businesses.
It is not an easy road to walk, and it does require 52-week-a-year engage ment with the insurer to secure PI and to help them understand what you do and where their risks are. However, I know from those still active in this market that PI insurers do want to work with you – but you will need to increase your level of engagement with them in order to make that journey less painful for all parties.
Snapshot of the BTL landscapeCat Armstrong mortgage club director, Dynamo for Intermediaries
Changes continue apace across the buy-to-let market, as lenders look to control their risk exposure and protect the demands being placed on their ability to service the needs of new and existing borrowers. This is a factor fully evident in the actions of some lenders that have taken the tough decision to temporarily close their doors to new business, and from many more that have pulled products and tweaked criteria over the summer months.
THE VOLUME OF BTL CRITERIA CHANGES
Focusing on criteria, recent data from Knowledge Bank suggested that the BTL sector accounted for 40 per cent of all criteria changes in its system in July. In second place was the residential sector with 30 per cent of July’s 1,500 criteria updates, followed by bridging with 23 per cent.
The most searched-for BTL criteria was, once again, lending to limited companies. This should come as no surprise, given the wave of activity experienced in this particular lending space over the course of the past few years. This also reflects the growing trend of professional portfolio landlords dominating the current BTL marketplace and the dwindling number of ‘amateur’ landlords withdrawing from the sector on the back of tax and legislative changes.
THE RISE OF THE PROFESSIONAL LANDLORD AND THE PORTFOLIO INVESTMENT
The rise of the professional portfolio landlord is an interesting one. Some landlords may start their journey more accidentally, but come to appreciate
the potential of the BTL sector. Others may enter this arena with a more structured and scalable plan. And then there are some who acquire whole portfolios in one fell swoop.
This type of portfolio investment was the focal point of research from Octane Capital that highlighted that experienced property investors are spending an average of £1.2m to quickly bolster their property investments by buying full portfolios rather than single properties.
These portfolios have usually been gradually pieced together by another investor before being sold as a job lot. For selling investors, it provides an easy and fast way of off-loading a number of properties, while buying investors are able to scale up their portfolios rapidly.
The latest figures showed that these ready-made property packages provided an average of 6.4 bedrooms – an average cost of £196,000 per bedroom – offering an average yield of 2.9 per cent.
As with property investment of any kind, there will be a number of pros and cons attached to such a purchase, and investors need to conduct sufficient due diligence on every property within these portfolios to ensure the scales of profitability tip in the right direction.
The advice process also plays a critical role when it comes to securing the right type of finance to fund such a purchase. Such funding will often be best sourced through the flexibility and manual underwriting processes offered via a specialist lender. And with such products often only available through intermediary channels, this further underlines the value of using a good, professional whole-of-market adviser.
Staying on the topic of intermediary advice, with a range of economic factors affecting UK borrowers and creating an increasingly complex
set of financial situations, the need for good professional advice is only likely to accelerate further. This need/demand is generating strong levels of confidence throughout the intermediary community. This was highlighted in a recent Q2 report from IMLA that suggested that 52 per cent of intermediaries are “very confident” in the outlook for their firm. While this is down from 62 per cent in Q1, the data shows that 98 per cent of intermediaries are still confident overall, with only one per cent describing themselves as “not very confident.”
Confidence in the outlook for the mortgage industry, while also down slightly on Q1, remains high. IMLA’s research revealed that 89 per cent of intermediaries feel confident overall, compared to 94 per cent in Q1. There was a similar pattern for confidence in the outlook for the intermediary sector, with overall confidence levels at 93 per cent in Q2, down from 96 per cent in Q1.
Let’s hope these levels remain high in Q3 and Q4, as a range of borrowers need all the support and expertise they can get to help them navigate some tough economic challenges ahead. MI