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MORTGAGE INTRODUCER January 2019 Issue 126
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Keep Calm and Carry On With Brexit uncertainty sill muddying waters and property market sentiment seemingly smashed to smithereens we can only hope that as 29 March approaches those waters start to clear. The challenges that some specialist lenders had with funding lines towards the end of 2018 and the beginning of 2019 was perhaps to be expected. With product pricing as fierce as it is it’s apparent that for some lenders it’s just not been possible to balance the books, be that in first charge residential, second charge, buy-to-let or specialist lending. While the industrys’ number crunchers wait for confidence to return to the market other lenders could probably look to scale back lending until the Brexit dust begins to settle. But this is far away from a mini crisis that some doomsayers and keyboard warriors would have you believe. This really is the time to Keep Calm and Carry On. Hope Spings eternal and none so much as in the 2019 mortgage market. Savvy brokers keeping an eye on their client backbook will be expecting a rush of remortgage business in the runup to Easter while innovation continues to push boundaries. Last year saw the launch of at least two mortgage eligibility services, one from Experian and another from Compare the Market. It was another sign of the shift towards consumer empowerment, with users being able to perform soft searches and validate their mortgageability before starting a real application. And just this month Bluestone Mortgages announced it was piloting an Open Banking solution supported by Experian which could significantly reduce mortgage processing times for customers. No doubt others will follow suit. We wish them well. Meanwhile outside the London/South East bubble other areas of the market are heading upwards. Scotland, for instance, has seen a steady growth in house prices over the past 12 months and a host of new entrants from lenders to distributors. This has not gone unnoticed and on 7 March we will be rewarding this special sector through The Scottish Mortgage Awards. Find out more at www.scottishmortgageawards.com It’s also worth pointing out that 2019 is the Chinese New Year of the Pig, symbolising luck, overall good fortune, wealth, with a large sense of humour and understanding. We couldn’t ask for more and wish all of our readers a Happy New Year.
5 AMI Review 7 2018 Review 8 2019 Review 11 Innovation Review 12 Brexit Review 13 Help to Buy Review 14 MMC Review 15 Conveyancing Review 21 Buy-to-let Review 25 Protection Review 30 General Insurance Review 33 Specialist Lening Review 35 New Build Review 38 Equity Release Review 41 Technology Review 42 The Outlaw Play it cool
44 The Bigger Issue
What’s next for house prices
Change is afoot at HLPartnership and Mortgage Support Network
50 Feature: The State of the Nation We speak to brokers at the coalface
Our experts take another look at the second charge market
63 Loan Introducer
The latest from Steve Walker
68 Specialist Finance Introducer FIBA, bridging finance and stamp duty
72 The Last Word In Memoriam: Christine Toner
13/03/1984 - 26/12/18
74 The Hall of Fame 180!
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FCA waves its magic wand For many years AMI has been challenging lenders, the regulator and government to look more carefully at the issues facing what we saw as a significant population of mortgage prisoners. These were individuals who appeared to be able to meet their regular financial commitments but who were prevented from moving to cheaper mortgage deals by the application of more stringent affordability and other tests brought in following the Mortgage Market Review and the European Mortgage Credit Directive. Our members had been regularly telling us of some lenders refusing new cheaper deals even when no more money was being borrowed and their customer had an exemplary record. Martin Lewis picked this up as a cause and we persuaded the
Robert Sinclair chief executive, Association of Mortgage Intermediaries
FCA Mortgages Market Study team to look at the issue. In the interim findings of the study they found that there appeared to be some borrowers who existing lenders should be treating better. UK Finance, the BSA and IMLA were quick to react and a voluntary solution was established for around ten thousand such consumers with active lenders. They are to be commended for this. The rest until now have been left in the “too difficult” box. However, under pressure from the Treasury Select Committee, Andrew Bailey has now written to the Committee Chair to intimate that the FCA may now have found a magic solution to the problem. They intend to consult later in the year on a rule change to deliver “a more proportionate affordability as-
sessment”. A relative, not an absolute test, which will look not at full income and expenditure but whether the new mortgage costs are more affordable than the existing costs. What we have been told was impossible since the directive was enacted in 2016 and previously has magically disappeared. It is wonderful that after all our efforts that a change is now in sight but it is frustrating that yet again our regulator only appears to bow to political pressure, not the sensible challenges from those they regulate. Also, as each month costs these consumers more than they need to pay, some urgency might be appropriate now that the magician has found his touch. A dove in full flight rather than a dozy rabbit is needed.
Calming the tide of debt The recently published sector view from the Financial Conduct Authority sets out the evolving landscape of our mortgage market. With 13.5 million mortgage accounts outstanding and balances reaching almost £1.4 trillion, this is a significant part of the UK economy. Of particular note is the term of that debt. Only 42% of first-time buyers in 2007 had an initial term of over 25 years, but this extended to 65% in 2017. What should concern us all is that 40% of all borrowers who took out a mortgage in 2007 will be over 65 when their mortgage matures. This is cementing in longer working within the economy and greater amounts of interest being paid, with less capital repayment in the early years of any loan. This will make borrowers more susceptible to negative equity with any falls in property prices. These issues are further exacerbated where the borrowers have benefited from Help to Buy.
The other pressure in the system is the loan-to-income ratio. Around 28% of loans granted recently have an LTI ratio in excess of four times income. 10% are above the 4.5 times “control limit” imposed by the Bank of England at the behest of the Financial Policy Committee. The controls imposed to date appear to have done little to stem this range of lending. These are consumers who if they see pressure on their incomes or increases in the cost of borrowing may find it difficult to meet their repayments. The FCA Financial Lives survey also sets out that it will only take a £400 increase in the costs of mortgage or rental payments for all households to reach the point of struggling to make their payments in full. The pressure on this government to negotiate and deliver Brexit has meant that policies which might have helped the ‘just about managing’ have been lost. All the data indicates that the
industry has used copious amounts of ingenuity to keep people borrowing to buy houses, making considered decisions to change the traditional boundaries encouraged by long-term low interest rates and cheap money provided by government. However, we are now at the end of that cycle and due to enter a new age. It is likely that we will see a new swell in some consumers looking to access the equity in their property, before they reach the stage of using RIO or equity release. The MMR identified that this was one of the core issues for UK consumers and lenders leading into the last crisis, and firms would be well advised to consider such shifts in policy carefully. This is not an article to generate fear but to remind our sector to use our knowledge and skills and not to repeat the mistakes of the past and retain a robust and healthy market which works well for the the consumer.
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Review: Review: 2018
Understanding the driving forces of 2019 In the final lending market review of 2018, I looked at the all-important steps in the residential mortgage chain. These are all made up of many differing components and influencing factors so let’s look at some of the driving forces behind these sectors as we move into 2019.
Construction output data released by the Office of National Statistics for October showed a 0.2% fall from September figures. This was said to be driven by declines in infrastructure and public new housing, which fell by 3.7% and 8.1% respectively. The main factor offsetting these declines was a growth in private new housing of 2.4%. Despite the slight month-onmonth decline, construction output in the three months up to October 2018 was noted as being 1.2% higher than the previous three-month period. Although this growth was slower than in recent months, with a steady decline being seen from a 2018 high of 3.0% growth for the equivalent series in July 2018. On a more positive note an historic high level of £9,221m in the new work chained volume measure seasonally adjusted series was reached in October 2018 which represents the highest value seen since monthly records began in January 2010. With demand for new homes sitting at lofty heights its little wonder that the building of residential property cemented its position as the construction industry’s most active sector. Let’s hope that political turbulence does not impact activity too much over the next 12 months.
Housing market activity
Property sellers and buyers were suggested to have been sitting tight in November due to Brexit uncertainty, with sales expectations for the coming three months hitting the lowest level since the EU referendum result. The latest report from the Royal Institution of Chartered Surveyors said that the number of people lookwww.mortgageintroducer.com
Craig Calder director of intermediaries, Barclays Mortgages
ing for a new home fell in November, with the net balance of - 21% down from -15% in October. It added that the number of new properties being listed for sale fell for the fifth consecutive report, and the net balance of - 24% was the fastest pace of decline in supply noted in 28 months. The November report also showed that for the next three months the sales predictions fell from -6% to -23%. The number of new appraisals by property valuers was also down in comparison to a year earlier.These are unsurprising figures and I expect Q1 activity to remain relatively low.
The modern mortgage market is awash with attractive rates amidst a raft of competition for a variety of borrowers, especially first-time buyers. Data from the latest Moneyfacts UK Mortgage Trends Treasury Report, recently revealed that – in the month up until 10 December – the average mortgage rate at 95% LTV had fallen by 0.09% down from 3.63% to 3.54%, which also marked a substantial reduction from this time a year ago when the figure stood at 4.15%. Not only that, but the average has almost halved in the last decade, falling from 6.52% in December 2008 to today’s record low. At the same time, availability had notably improved, with there being 304 mortgages available to those with a 5% deposit, up from 217 a year ago and an even more significant jump from the figure of just 17 in 2008. This highlights just how far the market has come. With lending to low-deposit borrowers almost non-existent in the wake of the financial crisis, a variety of lenders are now far more willing to operate in this sector and are even more keen to help those with a slightly higher deposit of 10%, where availability has hit a record high of 656.
Staying within the predominantly first-time buyer product arena, somewhat unsurprisingly it has JANUARY 2019
been found that millennials aged 1824 are the least aware of shared ownership as a method of helping people unable to afford a home, despite being the group most likely to benefit from the scheme. YouGov research commissioned by Leeds Building Society found that some three-quarters of people in the UK have heard of shared ownership, however among 18-24-year-olds awareness is as low as 40%. Almost 40 years after the launch of shared ownership, awareness was found to increase with age, with 83% of 55s and over, 79% of 45-54s, 78% of 3544s and 70% of 25-34s aware of the scheme. Once made aware of the correct definition of shared ownership, 24% of 18-24s said they would be ‘very likely’ or ‘fairly likely’ to use the initiative in the future – the highest among the age groups surveyed. Raising awareness around this product range should be of primary importance to lenders operating within this space in the year ahead. The data highlights the role intermediaries can play in this to raise the level of understanding for clients.
At the other end of the scale latest statistics from the Bank of England’s Mortgage Lenders and Administrators Statistics showed that the value of outstanding mortgage balances with some arrears increased for the first time since 2016 Q2. Mortgage balances in arrears rose to £14.5bn in Q3 2018, up from £14.3bn in Q2 2018. This might not be the greatest note to end on but it’s also prudent to point out that these balances still account for only 1% of the total. This is an area which needs to be carefully monitored, especially if interest rates do rise again, although there is certainly enough optimism amongst other sectors of the market to suggest that the lending arena in 2019 will be a challenging but competitive one and opportunities will continue to present themselves for intermediaries. MORTGAGE INTRODUCER
Review: Review: 2019
It’s people that will make the market thrive in 2019 If you have read any of my previous articles you will know my views on where I think the market is likely to go over the next few years. For those of you who haven’t, I am a strong advocate of technology and how it will shape this market in the future. While I believe that new technology and its applications will help define the winners and losers, we shouldn’t be fooled by some companies proclaiming the dawn of a new area. Indeed, for some, no doubt we will see it’s more a case of the Emperor ’s New Clothes. The real driving force in our market are the people who work in it. This is a people business. This was driven home to me towards the end of last year at the Mortgage Introducer 2018 Awards. The people who design our mortgage trading platforms, which are vitally important to the future of our business, are the people who need to not only deliver for today’s market, but also need to be forward-thinking and creative. They need to listen to what the market is asking for, look around at what the smaller technology firms are doing and work with them and support them if they can. In my conversations on Wednesday it was great to listen to what some of these people are planning to do and how bouyant they are about the future. As I looked around the events reception, I was heartened to see a real mix of individuals. I am not saying we are perfect in our recruitment and promotion of people, but I do feel many industries could take a leaf out of our book. It is a reasonably common occurrence for me to get a call from a recruitment agency, to ask me if I could recommend someone for a particular role. Now there is nothing wrong with that and I am flattered that they come and ask my opinion. I think it
David Finlay consultant
would be fair to say that if they are seeking me out then the chances are they haven’t a bank of names themselves or they have already spoken to those that they know. What I fear is that by coming to me or people like me, we are simply adding names to the merry-goround of good people moving from firm to firm to firm. Let me be absolutely clear. Recruitment firms are a vital part of our industry and have a key role to play. But I wonder if they could do more. However, I was astonished recently when one such agency asked if I knew someone who might be interested in a national account role for a relatively new lender. I asked what the package was and
“My challenge to lenders old and new is this: try and grow your own talent. Spot those individuals who are showing signs that they want to develop and give them the opportunity and support to do so” was amazed to be told it was a six figure basic with all the usual fringe benefits. I enquired further, asking what an established and known BDM in London was likely to command if they were moving from an established role to a new role. I was told that in London the basic could even be as high as £80k. I asked why the lender in question was prepared to pay such a rate. I was told it was to have someone on their staff that could instantly open doors, give them a degree of gravitas and demonstrate a real desire for them to be taken seriously. These pay rates seem quite steep to me and surely cannot be sustainJANUARY 2019
able. Great for the person who gets the role but you really have to ask yourself, do we really need to pay so much to get this type of person? This is more than our newly appointed housing minister Kit Malthouse will get as his salary! I guess it’s a case of supply and demand. If the supply of this type of experienced person is short and the demand is increasing, then so be it. But surely as an industry we should be identifying young talent and bringing them on... not always driving up the cost of a good account manager. At the MI Awards not only did I see a few old faces that I knew well and a few younger faces that are now leading businesses, but I also saw lots of young faces that I did not know. These and others like them are the future of our business and it was great to meet some of them. I don’t want to make this sound like an advert but looking at those old faces on that evening made me think how much knowledge and skill was housed in those old heads and how we should not lose this. We need to make sure that it is passed on. If you’ve got a young team and want to develop them rather than jump on the merry go round and hire the next most expensive person, why not draft in an industry old boy or girl to pass on all their expertise? So my challenge to lenders old and new is this: try and grow your own talent. Spot those individuals who are showing signs that they want to develop and give them the opportunity and support to do so. My advice to recruitment firms is not just to pick out the known industry names but start to build a bank of names of those that perhaps are a tier below, but who have the desire and ambition to progress. Perhaps even run a few free sessions or webinars where such individuals can get to know you and you in turn can help them with personal development. This is a people industry with good people in it helping customers find the housing finance they need. Let’s keep it this way. www.mortgageintroducer.com
“Platform is my favourite lender” Sue Beeston, Broker We all know how valuable good working relationships are. When you’re working alongside someone that takes the time to understand what you want to achieve, it makes business a lot easier. That’s exactly what we aim to do at Platform.
We bring a human touch
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We know how much you value good customer service with a personal touch. That’s why we’ve increased the number of people in our support teams, to make sure you always get the best service possible. Whether you need a quick answer to a question or some help with your application, we’re here for you. Better still, we’ll answer your calls on average within 30 seconds.*
We know how precious your time is, so we won’t waste it. If we can’t accept your case, we’ll let you know upfront, to avoid any delays. We’ll also give you 48 hours’ notice if there are any rate changes to any of our products.**
We’re always listening to you
We go the extra mile
Our service is built around you and your needs. In fact, we continuously evolve our processes based on your feedback – which we ask for in real time. It’s why we’ve changed our Declaration Form process, and introduced new retention products like our Product Switch for brokers.
Our internal and external BDMs take the time to understand the pressures you face. That’s why we review DIP decisions, and look to find a way to say yes within our lending criteria, always keeping you informed. We’ve also put in place a dedicated team to review your applications. They’ll call you to go through your case and confirm the supporting information you need. It’s all about making sure your application goes through as smoothly as possible.
As part of The Co-operative Bank, we’re guided by the values and ethics laid down in our customer-led Ethical Policy. That means you can be certain how your mortgage is funded. It’s also what led us to go into partnership with Centrepoint, a charity that supports homeless young people. Every time you complete a mortgage with us, we make a donation to Centrepoint on your client’s behalf.
Just a few of the reasons brokers have voted us the No. 1 ‘Best Mortgage Desk Team’ for the third time running.^
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*Calls taken between Jan and Aug 2018 on Lending Policy queries and password resets on 0345 070 1999 were answered on average within 30 seconds. **Product rate changes only.^ Voted Best Mortgage Desk team by brokers who have recently placed a case with Platform, in the BVA BDRC survey in September and October 2018. †Calls to 03 numbers cost the same as calls to numbers starting with 01 and 02. Calls may be monitored or recorded for security and training purposes. The Co-operative Bank p.l.c. is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority (No. 121885). The Co-operative Bank, Platform, smile and Britannia are trading names of The Co-operative Bank p.l.c., P.O. Box 101, 1 Balloon Street, Manchester M60 4EP. Registered in England and Wales No.990937. Credit facilities are provided by The Co-operative Bank p.l.c. and are subject to status and our lending policy. The Bank reserves the right to decline any application for an account or credit facility. The Co-operative Bank p.l.c. subscribes to the Standards of Lending Practice which are monitored by the Lending Standards Board. Centrepoint is a registered charity in England & Wales, No. 292411.
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It never pays to shy away from innovation Six months after writing about the rise of online mortgage advice services for this magazine, new tech has further intensified the debate around the traditional role of mortgage brokers. At the start of 2019, it is worth looking again at the changing landscape to see where the commercial opportunities lie. Last year saw the launch of at least two mortgage eligibility services, one from Experian and another from Compare the Market. Another sign of the shift towards consumer empowerment, users can perform soft searches and validate their mortgageability before starting a real application. But anyone concerned about whether these tools will damage our industry should remember these tools only assist with the initial stages of the process. Afterwards, consumers are directed towards human advisers – L&C in the case of Experian and moneyQuest for Compare the Market – who provide comprehensive advice on suitable products. One reason why we, as a company, are relaxed about the growth of self-service and robo-advice is because most people won’t make a £250,000 decision, with decades of consequence, without speaking to a professional first.
That is not to say they want someone turning up at their house in a grey suit, sitting on their sofa for an entire evening and asking them to dig out endless documents. Consumers expect flexibility, as they do in other areas of their lives, whether it is speaking to an expert remotely or accessing information via a wellknown, popular brand. Our moneyQuest business’s longstanding partnership with Compare the Market is a good example of brokerage firms leveraging technology and changing consumer buying behaviour. Just as Purplebricks relies on local agents to deliver its human element, so too can intermediaries. www.mortgageintroducer.com
Rob Clifford SDL Group Commercial director and chief executive of SDL Mortgage Services
Ultimately, their role is to provide the expertise and emotional reassurance applicants expect despite the attraction of online platforms including Mortgage Gym, Trussle and Habito. But while operational robotics is bringing the mortgage market broadly into line with other financial services such as credit cards, the application process remains clunky. Lenders, of course, have diverse requirements and conditions depending on a client’s circumstances, for example, evidencing income sustainability in the case of self-employed workers or contractors. The size of most loans means it would be difficult to fully digitise the process – but I’d certainly like to see e-trading technology developing quickly to catch up with front-end customer validation. MBL and Twenty7Tec claim to be very close to a comprehensive solution.
The Holy Grail, as I’ve said before, is an industry-wide trading platform linked to the advice market. Such systems are being developed, though they offer sub-optimal value if they only truly integrate with five to 10 lenders. For a solution to be effective and revolutionary, it should be rolled out nationally and used by all lenders. Discussions around real broker and lender integration have been going on for years – but regrettably, we are not there yet. I’d estimate that an industry-standard system could deliver a 20% time-saving for brokers, enabling them to increase capacity, see more customers and ultimately write more business – or have an easier life! With strong profitability, they are also in a better position to accommodate the growing costs of inflation and regulation. A recent survey from Trussle found that almost one in four people still find the mortgage application process ‘stressful’ and blamed a ‘complex and disconnected mortgage system [that] hasn’t adapted to JANUARY 2019
today’s lifestyles.’ Surely online tools could go a long way to alleviating this? As an industry, we must welcome any innovation that promotes better information-sharing – as open banking promises – and reduces inefficient double data input and the risk of customer details being submitted incorrectly, leading to applications falling through. Applying for a mortgage undoubtedly causes some to feel anxious, though that’s not always true in our experience. A colleague from moneyQuest recently told me just how relaxed some customers are, challenging their advisers and client support managers, and even questioning whether the most basic documentation is needed. Our job is to educate the public about the enormity of their purchase – it is clearly not the same as spending a few hundred pounds on car insurance. Over the next 12 months, I’m confident that most borrowers will continue to seek professional advice. Currently, around three quarters of applicants use a broker and that figure is not likely to drop significantly anytime soon, even accounting for a possible upswing in those managing the process themselves by using digital solutions, without advice. Finally, we should remember that mortgage applications are just one part of the labour-intensive house purchasing journey – and we should be under no illusions about delays elsewhere. Even if open banking and a new generation of online mortgage tools eventually reduce approvals to as little as 24 hours, customers could still be left frustrated by the fact that excessive regulation, and processes such as conveyancing, means purchases sometimes move at a snaillike pace, causing inevitable delays. We should watch closely the excellent thought leadership work being done by Land Registry which examines and challenges that wider process that we and consumers are subjected to. MORTGAGE INTRODUCER
Events around Brexit have dampened the market December is normally reasonably uneventful – other than the endless rounds of Christmas parties and celebrations that is. Last year, however, was not true to form: rarely if ever have I seen such uncertainty, political instability and shifting goalposts as we saw in the days leading up to the Christmas break. Events in Westminster have proven to be both enthralling and unsettling in equal measure. You’d be forgiven for missing slightly less headline-grabbing news about the property market amid the political drama. But there were some interesting figures out last month that belied the general gloom that seemingly hangs over housing. The latest data from the Office for National Statistics and RICS show rents falling in London by 0.2% but the downward momentum in rents has petered out. The monthly data reveals London rents have been flat or rising gently since June. Economists at research house Capital Economics are now of the view that this recent dip in London rents will be short-lived. Indeed, their analysis argues that on the back of rising tenant demand and weak supply growth, rental growth in the
Robin Johnson managing director. Kinleigh Folkard and Hayward Professional Services
capital will gently accelerate from here to 2% by 2020. According to Capital Economics: “This suggests that rental growth in London will end the year at around zero – weak, but still a little better than we had expected.” This tallies with our own experience in the London lettings market – while transaction volumes on the sales side have been slightly softer over the past six months (though not, to be clear, nearly as soft as the media would have you believe) the lettings side of our business has been remarkably buoyant. There are a few reasons for this – ironically, not least, Brexit. Two years ago when the people voted to leave, there was a bit of a ruck in the lettings market in London thereafter. Several of the big international banks moved employees back to the continent and the corporate lettings market in central London particularly dipped in the second half of 2017, pulling rents down across the capital as well as out towards the suburbs. Capital Economics has crunched the numbers on how this has affected affordability. At their peak in April 2016, rents took up 46% of the average London full-time income,
up from the 39% or so seen between 2006 and 2010. Yet, as rental growth has slowed to a standstill and incomes have continued to rise, rental affordability in London has improved. By September 2018, London rents had dropped to 42% of the average income. This ratio is still expensive but it feels more sustainable. The ongoing political uncertainty is also helping to support demand for rental properties – London is still a very international city, home to global businesses with global workforces. Very high house prices aside, renting affords quality homes on a flexible basis for those who need to be here now but cannot (or do not want to) tie themselves to one location long-term. Particularly at a time when the fallout from Britain’s withdrawal from the EU remains wholly unpredictable. House prices in the capital are still high, however, with first-time buyers requiring almost £50,000 in cash on average to cover a 10% deposit and legal fees. That is a huge sum for most people and it takes time to save, time spent increasingly in rented accommodation. Even the crackdown on landlord taxes has had both positive and negative effects on the housing market. Research from Hamptons International meanwhile reveals one in four homes let in London were owned by an overseas based landlord in 2010, but this has now fallen by 15.5% to reach one in 10 of homes let in 2018. The combination of tax reform and Brexit’s effect on investment into the UK from overseas has restricted the supply of homes available to rent in the capital, helping to support rental growth. The RICS rent expectations balance, which is a fairly good leading indicator of rents, is consistent with London rental growth exceeding 1% growth over the next year. Last year may have been filled with dire warnings about Brexit; the reality of that remains to be seen. But as far as the property market goes, 2018 wasn’t all bad when the chips fell. Let’s hope 2019 weathers the political turbulence that could be in store as well. www.mortgageintroducer.com
Review: Help to Buy
Building a society that values its members Help to Buy has been a hit with homebuyers the country over, with the equity loan scheme facilitating a whopping 183,947 purchases since its introduction in 2013. The latest figures from the Ministry for Housing, Communities and Local Government revealed the government has lent a total £9.90bn, with the collective value of the properties sold under the scheme a huge £46.52bn. Overwhelmingly, the borrowers helped by the equity loan scheme have been first-time buyers, with 81% of all of these purchases being a borrowers first step onto the home ownership ladder. That is reflected in the value of properties bought with the mean purchase price of a property bought under the scheme between launch and June 2018 sitting at £252,888. The average equity loan has therefore been £53,793. Until pretty recently, the story in the media surrounding Help to Buy focused on tales of successful property moves that simply couldn’t have happened without the scheme. Towards the end of last year, the tone began to shift. Largely this has been driven by reality kicking in for borrowers who took what might have felt like ‘free’ money from the government and realised that they’d now be paying interest on that loan as well as their mortgage. Pundits warned back at the beginning that this dynamic would have an impact on borrowers’ affordability. If you bought a home for £200,000 with an equity loan of £40,000 (20%) the MHCLG figures show that including the £1 monthly management fee you’ll have to pay from the start, in year six you’ll have to repay £700 to the government. By year 10, that annual repayment will be £840. But equally, a lot of people shrugged off the implications saying that by the time interest kicked in, the value of the property would have gone up so much that they could just remortgage and pay back the loan to the government then. For some borrowers, that’s panned www.mortgageintroducer.com
Steve Carruthers head of mortgage distribution, Newcastle Building Society
out. For others, it really hasn’t. How a property’s value has performed in a market that has seen relatively flat price growth for several years is key. Lower price growth may minimise the equity you’re handing back to the government if you sell but it also makes it much harder to repay the equity in full by taking a conventional remortgage. If the value of the property has fallen – you could be really stuck. Lenders, perhaps strongly encouraged by the government to support the scheme at launch, have been far less quick to offer borrowers already in the scheme a decent range of remortgage options. There is a number of reasons. It’s really complicated for a start. Working out the best option for buyers is a minefield for advisers as there are so many variables affecting repayments and therefore affordability. For example, you can repay part or all of the loan early, but the government will only accept this if it’s a minimum of 10% of the property’s
current value. Lenders may not accept it either. There’s also the risk these loans may be treated as 75% loan-tovalue for capital purposes, but they are effectively 95% LTV loans. The borrower’s equity cushion is small. Lenders are now much more confident about lending at this LTV without the support of Help to Buy, so if they want this type of business, they just do straight mortgages. Affordability isn’t just in the hands of the lender where there’s a Help to Buy equity loan in play, and that adds another layer of risk into the mix. Savills recently did some research that suggested a 1% rise in the base rate could add around £900 a year to borrowers’ mortgage repayments. With Help to Buy interest into the mix and tied to retail price inflation, there’s just that bit less certainty and control over the ability of a borrower to cope financially. To the best of my knowledge, there hasn’t yet been a situation where a lender has had to take possession of a property where there is a Help to Buy loan in play. But how this would work in practice is something of an unknown. Lenders do not like unknowns. And then there’s the long-term nature of mortgages. Lenders agreeing to remortgage where Help to Buy remains in place are potentially agreeing to hold these loans on their balance sheets for 20 or 30 years. The government today is clear about how it treats Help to Buy. Governments of the future are not predictable. Now, all of that said, we do offer a remortgage option to borrowers looking to hold onto their Help to Buy equity loan. Why? Because helping people own their own home and supporting our members is core to what we do, and we understand the market requirements and the need for higher LTV lending. Real people, often with children, live in these homes and want to continue living in them. We’re a building society that remembers that. MORTGAGE INTRODUCER
Review: Modern Methods Of Construction
Creating scalability to build new homes That Britain hasn’t enough homes is not news. But how it addresses this shortage is. Recently there have been some interesting developments on that front. Developing more modern methods of construction has been something the industry is broadly supportive of for several years now, and government fully embraced the role it could play as part of a wider strategy when it published its housing white paper almost two years ago. It followed a government-commissioned review into construction
Kevin Webb managing director, Legal & General Surveying Services
now the largest modular housing factory in the world. Now, two years after the Farmer review and as part of its national infrastructure and construction investment plan, the government has opened a consultation on how to improve construction methods. It has committed billions to support investment in upgrading Britain’s infrastructure over the next 10 years. The interesting thing about this consultation is not that it shows a commitment to support newer construction methods, but that it is en-
done in the automotive sector where multiple car designs can use the same chassis and the same core parts. By having a standard platform for construction, designers and engineers can invest in manufacturing different elements, safe in the knowledge that a common design code will allow those parts to be used seamlessly. Farmer has publicly supported the idea, saying: “Creating a common platform in construction would mean standardising the “chassis” of a building – so parts of the structure, pipes, wires, panelling and internal
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headed up by Mark Farmer, founding director and chief executive of Cast Real Estate & Construction Consultancy. In it, Farmer argued that the property industry and developers in particular should embrace more modern methods of construction, applying many of the principles of manufacturing cars to the manufacturing of homes. The technology is there to deliver this. Legal & General is one of the leading companies investing in modern methods of construction with our new factory in Yorkshire,
couraging a standardised approach across the industry. This is about far more than factory homes: it’s about creating a true digital standard that would encourage thousands of companies to invest in research and development in the construction sector. The consultation paper is clear that the industry must focus on developing a “consistent approach to construction by using standardised and inter-operable components from a wide base of suppliers across a range of different buildings”. This would replicate the way manufacturing is JANUARY 2019
spaces can be mass-designed – while cladding, brickwork and elements designed by architects would still get wrapped over the top, on more of a project specific basis to satisfy planners. A move towards this approach to construction has the power to completely revolutionise the supply of new homes in this country, surmounting the challenges that exist today where the offsite manufacturing market has no commonality of design. The consultation is open until February. Watch this space. www.mortgageintroducer.com
Digitalisation continues unabated This year we are launching DigitalMove, our online platform that connects buyers and their solicitors, providing a single portal for all communication and document exchange and storage. The mortgage market has been a tricky customer when it comes to digitising – the conveyance of legal property ownership from one party to another is not something that has easily lent itself to automation. The very nature of the law
Steve Goodall chief executive, ULS Technology
tem of to-ing and fro-ing between parties is just too complicated or inefficient. It now takes on average four months for a housing transaction to complete from start to finish, a full four weeks more than the historical average of 12 weeks. But the Land Registry’s John Abbott has noted these issues could be remedied with open, online systems. At the moment, our contribution – DigitalMove - is in soft launch
keeps them updated on their case. It speeds up the home move, reduces the mistakes and keeps them safe from fraudsters. But it also provides a comprehensive and concrete paper trail for compliance – all within a predetermined set of constraints. Taking cost out of the value chain is also a big motivator and already, we expect the introduction of DigitalMove into a transaction to reduce a four to six week process to as little as one day. In a business where conveyancing fees are reducing with the emergence of larger specialist outfits and profit margins are under immense pressure – anything that reduces costs can make a material difference to the bottom line.
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is that a contract conveying property must be written. However, last year saw the Land Registry make history when it introduced the ability to sign your mortgage deed digitally. This has been a critical step in the journey towards improving the customer’s experience. In its bid to improve its online services the Land Registry did widereaching research and found there has been a real lack of transparency when buying and selling. Paperwork can get stuck in the post, property information is not available, the syswww.mortgageintroducer.com
before we roll it out to our solicitor firms. It addresses one element of friction in the housing purchase process – that lack of communication and transparency identified by the Land Registry as such a pain point for customers. Ultimately, we’ve designed the app with the customer experience in mind, but our clients actually include home movers, conveyancers, estate agents and lender in all of this, so security, compliance and risk mitigation is paramount. DigitalMove prompts the customer when it’s time to take action and JANUARY 2019
The Land Registry has been clear about its ambition to be a global leader in land registration. To that end, it has outlined its digital innovation plans for this year already with a strong focus on how technologies like blockchain and distributed ledgers could open up property transactions and allow those involved to stay up to date and those who need to act can be sent notifications with sufficient guidance. Last year saw a huge pace of change for the digitisation of our industry. This year will see more. MORTGAGE INTRODUCER
The law must keep up with technology driven change In the conveyancing sector, while it has been a long time coming, the digital world has begun to have an effect on what many people agree can be a long drawn out process. Of primary value to advisers over the past few years has been the growth in online portals, such as SortRefer, which provides advisers with access to panels of conveyancing firms with proven track records, but also provide a fully online expe-
Kevin Tunnicliffe chief executive, SortRefer
legislation and the UK courts accept that electronic signatures are valid and the Land Registry has showed commendable speed in putting the system together and delivering when they said they would. There will still be work to do to make it ready for a full roll out but that will have to wait for the current round of consultations being undertaken to see if the current legislation fits. The Commission is stating that al-
ation. Imagining what fraudsters could do with a digital system, without the proper checks and balances in place, could seriously derail the whole project. There is a lot of ‘blue sky’ thinking going on as to how the whole house buying scenario could be sped up and advances in technology have seen the advent of Open Banking, designed to make moving between banks and other financial institutions easier. Having one’s digital financial footprint ‘secure’ in the Cloud is beginning to facilitate the arrangement of new bank, credit and loan facilities and making it easier for online mortgage providers. The latest idea I have seen being
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though the current legislation allows for deeds to be executed by digital signatures, the consultation is seeking input on whether the current legislation needs to be reinforced and be more emphatic. Also as it stands, it is still considered that the physical presence of a witness is still needed. Personally, while I am keen to push ahead with the digital initiative, it needs to be remembered that the old system, while slow to our 21st century eyes, at least minimised the dangers of fraud and imperson-
rience in selecting and nominating a law firm and where full 24/7 case tracking has revolutionised communication between adviser, customer and law firm. Earlier this year, I was among the first to congratulate the Land Registry on completing the first digital mortgage deed with the Coventry Building Society. The only stumbling block seems to be the uncertainty over legal interpretation in relation to whether the actual law needs to better reflect the digital world in which we are now living. Both EU
trialled is a Home Owner Passport, which aims to cut down conveyancing times, by providing guaranteed completion timescales. It works by interrogating conveyancing due diligence data and search information from the Land Registry in advance and then works out how complex the transaction is likely to be. There is no doubt that progress in being made to cut the legal processing time, but by far the most practical stance you can still take for your customer is to insist they use a law firm which you know you can trust. www.mortgageintroducer.com
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It’s not where you start, it’s where you finish So here we are, the start of another year, and (despite some serious misgivings about what the next 12 months might deliver) you can’t help but have the sense of a year spread out before you, and hopefully the opportunity to deliver ongoing success for yourself, your firm, and (rather importantly) your clients. As mentioned, that new year/new start excitement might be somewhat tempered by events which are clearly out of all our hands, but that should not stop you from seeking out new opportunities, or at the very least, ensuing you make the most of those that present themselves. 2019 will be a very different year for me personally. After over a decade building up this business, I will be standing aside and taking my leave of it. That, in itself, will be a difficult thing to do but there is also a great sense of satisfaction in having worked towards an exit strategy and having been able to achieve it. I sense most advisers/ firms, etc, will also have their exit in mind, and if they haven’t – or if they feel that it’s too early to even start thinking about it, then my advice is to say, “It’s most definitely not.” Having an end point in mind – even if it seems way too far in the future to contemplate – can actually be a huge driving force for a business and it can set long-term targets and goals that you can continue to work towards. From our perspective, we started with some simple ambitions. That was to ensure more advisers and estate agents providing conveyancing advice to their clients – it was a two-prong ‘attack’ which allowed us to focus on these two sides of the same coin, and to provide a service that would be technology-focused but also incredibly simple to use. For advisers, I would suggest that having simple strategies like this is just as relevant and important. Ensuring that you make it as easy as possible for clients to find you, access your
Harpal Singh managing director, Broker Conveyancing
services, and use them. Technology might not necessarily be the driving force of that, but I’d also like to think that it would play a significant role. None of us can simply assume that consumers are going to want to access us in the traditional format – it’s not just going to be about clients phoning you up, or walking through your door unannounced. The likelihood is that they’re going to find you online, or on social media, or indeed via a recommendation, perhaps via a ratings site such as Trust Pilot, or they could see your advert in the local paper, on a
“Having an end point in mind can actually be a huge driving force for a business”
website, or via a myriad of marketing platforms. The point is that you have to be open to securing clients via all these methods, and that (in all likelihood) it will be increasingly via technology. That’s not to say that it will necessarily be via a ‘robo advice’ platform but it’s definitely not going to be, if you don’t have one or don’t have at least access to one. Covering off all these potential avenues is going to be vitally important, otherwise you are going to lose potential new clients and indeed existing ones. Also, and it’s a well-worn argument, the more services you can offer to clients, the more likely they will come to you, and stay with you. In 2019 this is going to be more important than ever, and if you truly want to build as much value in your business in order to get the best exit, then this is going to be crucial. Do not waste any opportunity to offer clients the services they need – don’t think you’re just a mortgage advice business because you’re not. In that sense, make sure this is the year when you start building towards your finish.
2019… it’s going to be eventful Those looking for an idea on how mortgage activity might pan out in 2019 were perhaps given a glimpse into the future with the latest residential mortgage lending figures released at the end of last year by UK Finance. The statistics reveal that in November 2018, gross mortgage lending was £23.1bn, down slightly on the same month a year previously which had hit £23.56bn. Perhaps not a significant fall but also potentially indicative of what we might expect December’s figures to be, and perhaps also a view on what 2019 could have in store. Having said that, UK Finance’s own recent predictions for gross mortgage lending in 2019 suggests they view the next 12 months as being more positive than 2018. It anticipates gross mortgage lending in 2019 surpassing that of 2018, although the significant caveat to this, is that it does not anticipate such increases continuing into 2020 and
beyond. Far from it. The belief is that both residential mortgage lending and product transfers will fall back after this year has ended.Understandably, of course, many are pointing to the situation around Brexit - and what this might mean for the UK economy – as a severe obstacle to be overcome, especially as (at the time of writing) we are none the wiser about how this might play out. Soft? Hard? May’s deal? No deal? Chaos? Business as usual? Who knows? It would appear that most are not anticipating a soft landing with ‘no deal’ – and if some of the more Armageddon-like predictions do come true, all mortgage market stakeholders could be in for a very difficult time. I certainly hope this is one prediction that does not come to fruition, but I think we must all prepare for the worst, and hope for the best. After all, when it’s the politicians in charge, what else can we do?
We need to install a sense of confidence With the spectre of an uncertain Brexit and a growing sense of wider political and/or economic upheaval continuing to create ructions throughout the UK’s financial markets, recent figures from the Halifax bank have revealed that house prices rose at their slowest rate for nearly six years in the three months leading to November (to 0.3%), with values falling by 1.4% in November alonethe largest decrease since April and the third such reversal in the past four months. Many experts have identified the destabilising possibility of a no-deal Brexit as a key factor for these worrying figures (with annual price growth having previously risen by a staggering 10% per year at the time of the 2016 EU referendum), while housing analysts have repeatedly pointed to the growing shortage of available properties as the primary reason for prices not having fallen even further. Indeed, this widespread shortage has been reflected by a marked decline in the number of mortgage approvals made by mainstream lenders over the past 12 months or so, with recent figures from UK Finance revealing that approvals fell to a seven month low in September (at 37,352 as opposed to 42,582 for August) and overall figures representing a colossal 10% decrease from those reported in the same month for the previous year. Yet, while current housing problems have given rise to some fundamental concerns within the industry, no one is suggesting that the number of people who are looking to buy properties has actively fallen over this period (indeed, far from it); merely that an accumulation of challenging macro-trends and factors have made the possibility of home ownership more difficult to attain. For example, house prices have risen by 173% over the last decade (according to the Institute of Fiscal Studies) and this has effectively priced many people (particularly those under the age of 30) out of the market, with successive increases in www.mortgageintroducer.com
David Gilman head of Blacks Connect
interest base rates also taking an exacting toll. Nevertheless, with UK property prices having decreased by an average of £5.12 per day over the first six months of 2018 (according to research conducted by Zoopla), some observers (including Lawrence Hall, a spokesperson for the company) have identified the over-riding decline in values as “creating a potential opportunity for first time buyers to get a foot on the (property) ladder in some regions across Britain”. Which is marvellous news for those who are struggling with affordability issues, of course, but is still largely reliant upon progress being made in other areas of the housing market. For example, there is a growing weight of opinion amongst business leaders, economists and political commentators that high standards of service speed and transparency within the property sector should be actively encouraged, not only for the sake of protecting consumers from the vagaries of market turbulence but for the continued success and growth of metropolitan areas as well; contributing (it is argued) to a more competitive and attractive environment for businesses, developers and investors and ensuring that citizens are able to access good jobs and better wages. Yet, according to figures published by the independent home buyer Quick Move Now, the number of property sales that fall through or which collapse before completion has risen sharply in this country over the past few years, with almost 300,000 (or around 38%) of all annual transactions falling prey to lengthy delays (particularly in relation to applications, hold-ups involving solicitors or conveyancers, non-standard forms and queries, the emergence of unreported facts, uncertainties surrounding ‘agreement in principle’ provisions and the widely acknowledged variance in local authority performances when sourcing vital information), ‘gazumping’ and other assorted issues. JANUARY 2019
This is why the Ministry of Housing, Communities and Local Government has sought to improve the buying and selling process within the UK by introducing a comprehensive range of proposals and reforms, including an increasing emphasis and reliance upon the role of technology (such as the digitisation of Land Registry and local authority records, use of digital signatures, improved ID verification and increased use of E-conveyancing), the introduction of ‘property passports’ (to make relevant information available to buyers), the use of ‘voluntary standard reservation agreements’ (to counter the widespread practice of gazumping among sellers) and tighter regulation of estate agents. A recent report by investment management company, JLL, has concluded that levels of transparency within the global property market have begun to improve over the past few years, with Great Britain singled out as one of the fairest and most transparent. Which may come as something of a shock to the 70% of property sellers and 69% of buyers who described their experience of the UK’s housing market as the most ‘stressful event’ of their lives (according to a national property survey conducted by Which? in 2016). However, sentiments such as these must be judged against a wider context and shouldn’t be seen to detract from the undeniable progress that has been made within the industry over the last 12 months and the attempts by the government to improve and rectify existing problems. Nevertheless, it is essential that the current pace of change is maintained throughout the coming year and beyond. Because, while nobody is suggesting that fixing the buying and selling process will single-handedly solve all of the problems within the UK’s housing market, it can certainly go a long way towards redressing existing imbalances and installing a sense of confidence amongst consumers. And that is something to be wholeheartedly encouraged. MORTGAGE INTRODUCER
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There’s still more to come from this buy-to-let cracker There’s a saying about old jokes that ‘the old ones are the best’, or alternatively you could say that ‘the old ones are the oldest’. I’ve been in this industry for enough years, and am long enough in the tooth, to know that some people’s views (particularly about the buy-to-let market) are as old as the hills, and regardless of their involvement in the sector they’re always going to hold them. For instance, just this week, a quick Google of ‘buy-to-let’ brought up four articles from The Motley Fool website with the following headlines: ‘Forget bitcoin and buy-to-let; this is where I’d invest in 2019’. ‘Forget buy-to-let! These property shares may be all you need for great returns’. ‘Buy-to-let is dead! Long live the FTSE 100!’ ‘Why I’m avoiding buy-to-let and buying this promising property share for my ISA today’. These headlines might appear to have come out of a Christmas cracker but there’s clearly an agenda here and, forgive my cynical tone, but it’s perhaps unsurprising that a website dedicated to investing in stocks and shares, is not particularly keen for its readers/users to be investing directly in property via buy-to-let. I suspect that any resurgence in buy-to-let would impact upon its own performances as a business and hence you essentially have four articles dedicated to putting investors off investing in bricks and mortar. These are however the four ‘top’ news stories about buy-to-let currently and therefore, particularly to any layman looking at this, they might well be led to believe that buyto-let is no longer a going concern and they should steer clear at all costs. Of course, nothing could be further from the truth. I baulk particularly at the ‘Buy-tolet is dead’ headline which is lazily trotted at by anyone with an antiwww.mortgageintroducer.com
Bob Young chief executive, Fleet Mortgages
buy-to-let agenda. In my opinion, buy-to-let has been declared dead so often that, by rights, it should have long gone to meet its maker and be pushing up the daisies. The fact that it has provided many people with livelihoods, quality investments, homes to live in, over my lifetime appears to be completely lost on these people. Clearly, and why would one deny this, it has been a sector which has had its fair share of ups and downs. But, what sector doesn’t? Especially one that is too often seen as both a political and regulatory football that can be punted around, and whose participants – landlords – are often seen as the lowest of the low, not worthy of any consideration and a cash cow that should be milked regularly until there is not a further drop to be squeezed out. And yet the sector continues not just to exist, but for many professional and portfolio landlords, for many lenders, for many advisers, it thrives. Interest in lending in this part of the market continues to grow – think of the new players that have dropped into the sector just over the last few years – and those who are deadly serious about achieving long-term goals with buy-to-let property also know that it is a quality investment, with strong underlying tenant demand, with opportunities for expansion across different areas/property types/tenants, and that if you are able to understand that time horizons should be in the tens of years, then over that period, these investments can provide for retirement and continue to deliver income and returns for as long as they are needed. Which, of course, is not to say that every single landlord who purchases a buy-to-let property gets it right. History is littered with those who thought it was a short-term opportunity, a ‘get rich quick’ scheme, or those who did not understand what
they were buying, the property’s desirability (or otherwise) for tenants, its potential, its state, its cost, or what might happen to the overall housing/mortgage market which would swiftly make it a poor investment. Here, of course, is where quality advisers (and lenders) can help and guide their clients to ensure that the potential for making such poor decisions is as low as possible. Over the past couple of years, demand for purchasing new properties has slipped – particularly amongst the so-called ‘amateur landlord’ fraternity – but there are still ‘newbies’
“Those who are deadly serious about achieving long-term goals with buy-to-let property also know that it is a quality investment with strong underlying tenant demand”
who want to purchase and understand that buy-to-let isn’t a ‘get rich quick’ scheme, plus of course there are those professionals who fully understand the sector, who know exactly what works, who know what vehicle they should be using, who recognise the rental yield required, and with their advisers’ help, can turn new and existing properties into a very successful portfolio. Regardless of the nay-sayers, that will not change. The demographics and dynamics of the UK housing market is unlikely to change significantly – we still do not build enough homes, the cost of purchasing is high, and people still need places to live, which means the private rental sector continues to have a huge role to play in this country. That means landlords will continue to want to purchase and to maintain their properties – advisers who target this group and are able to offer a quality service will reap the rewards. That’s an old message but it’s still as relevant today as it’s ever been. And that’s no (old) joke. MORTGAGE INTRODUCER
Prioritise quality to get ahead in 2019 With the number of people in the UK living in privately rented accommodation currently estimated at around 20% of the national population (according to the latest English Housing Survey), recent figures from the estate agent Haart have revealed that demand for rental properties across England and Wales has risen by 17.4% in the last 12 months alone (and by 24.6% in London) – a phenomenal increase.
Ying Tan chief executive and founder, Buy to Let Club
Rising house prices and the failure of wages to keep pace with these increases (which have grown by 173% over the past two decades, according to the Institute of Fiscal Studies, as opposed to 19% for wage growth amongst people aged 25–34) have effectively doubled the number of people who rent in this country over the past 20 years, with around 5.4 million homes currently rented in the UK (according to the accountancy firm PwC). Yet, as demand for rental accommodation continues to soar, a recent report by the search engine Home. co.uk has revealed that the actual number of available properties has fallen substantially over the past year or so, with almost 10,000 less homes on the UK market in July 2018 than 12 months previously (from 233,453 to 223,115) and 24% less across Greater London in August 2018 than August 2017 (from 52,388 to 39,746) – a considerable reduction. The report has highlighted the continuing impact of government legislation and the increase in taxation on the rental sector as responsible for this worrying collapse in properties, with up to 4,000 rental homes being sold off by landlords every calendar month (according to recent data from the Ministry of Housing, Communities and Local Government) and 46,000 sold in 2017 alone – the biggest drop for 20 years. However, with tighter regulation, higher levels of responsibility and diminishing profit margins beginning to place an increasing em-
phasis upon cost-cutting within the industry, the current decline in rental stock has been identified by many experts as a golden opportunity for remaining landlords, with competition amongst prospective tenants steadily intensifying as demand for decent accommodation begins to exceed availability. But, can landlords afford to be complacent about this? Well, no; they probably shouldn’t be. For example, while the number of rental properties being sold at this time is hardly in doubt, there is growing evidence to suggest that many of these are being bought by former tenants or by landlords who are looking to expand their portfolios, thereby reducing the demand for rental homes in the first instance and sustaining the size of the rental market in the second. Indeed, recent figures from the estate agency board operator, Agency Express, have revealed that the number of properties which were ‘let’ between September and October of this year rose by 8.1%, while the number of new lets across the UK rose by 24.2% – a far cry from the ‘diminishing returns’ of available housing reported elsewhere.
Moreover, with the government’s Tenant Fees Bill expected to come into force in early 2019, there is a widening focus on standards and an overall quality of service within the rental sector, with the safety and security of renters being increasingly prioritised. Originally announced as part of Phillip Hammond’s Autumn Budget in 2016, the bill will impose a complete ban on the administrative fees, credit check fees, tenancy renewal fees and other upfront payments that are routinely charged by letting agents (at an average cost of £200 plus to each renter) and will also introduce a cap on the amounts that can be charged for security deposits (to six weeks’ rent plus one week’s rent for holding deposits, although the former figure may be JANUARY 2019
revised to five weeks if a proposed government amendment is voted through). It will effectively reduce the number of fees that can be legally charged by agents to three principle amounts: namely, rent, deposits and a further default fee (which will only be charged if a tenant loses their keys or is later than 14 days with the rent). What’s more, the bill has been designed to promote a wider sense of affordability within the private rental sector as well as to increase levels of consumer protection and will be enforced at a local level with penalty fines of up to £5,000 for landlords or letting agents who are found to be in breach of the laws (as well as the threat of criminal prosecution for repeat offenders). But, in essence, what the bill really represents is a fundamental shift in the government’s attitude towards the rental market and its status as a long-term option for the millions of people who are currently unable to buy their own home; a shift which may force landlords, in turn, to adopt new standards of quality and service if they wish to remain competitive. Indeed, recent research by Santander Mortgages has discovered that owning a property is now cheaper than renting in any part of the country, with tenants who choose to buy their own house able to make potential annual savings of over £2,000. Value for money and the services which are offered by landlords may assume an increasingly important role within the market over the coming years, while the ability of landlords to maintain friendly or respectful relations with their clients could make the difference between landing tenants who look after properties to the best of their ability or who alert their landlord to potentially expensive problems at an early stage, and those who don’t or won’t. Landlords who wish to get ahead in 2019 will need to ward against complacency and prioritise quality. www.mortgageintroducer.com
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Taxes are a certainty in life As the deadline for filing last year’s accounts approaches, landlords will now have a clearer idea of how the changes to mortgage interest tax relief are going to affect their profitability. For the tax year 2017-18 landlords can claim 75% of their mortgage tax relief, reducing to 50% in 2018-19, 25% in 2019-20 and ending up at zero from April 2020. Thereafter, landlords will qualify for a 20% tax credit for their mortgage interest payments. This new system will clearly have a significant financial impact on buyto-let investors, particularly professional landlords, and may well push some into higher income tax brackets as they will have to declare income used for mortgage payments. The new system only applies to private landlords – people who own their properties as individuals rather than through a business. For this reason, TBMC is seeing a growing
Jane Simpson managing director, TBMC
interest in limited company buy-tolet mortgages, with around 25% of all applications being submitted for properties held in a corporate structure. This is true of both experienced portfolio landlords and newcomers to buy-to-let property investment. However, it’s not a completely straightforward decision to make as incorporating can make taxes more complex. Taxes need to be filed for a business and corporation tax is payable on the profits. Additionally, if a landlord decides to transfer an existing portfolio to a limited company, they would have to pay stamp duty on each property. Limited company mortgages may also be more expensive than those offered to individuals which could cost more than any tax saving made. Advice from a qualified tax adviser is always recommended for any landlord considering incorporating for the first time.
B is for broker, not Brexit If 2018 was characterised by one word, it was Brexit. 2019 looks set to be dominated by Britain’s exit (or not) from the European Union too. But I think we should reclaim the B-word and start focusing on what comes next. So on that basis, my Bword for this year is broker. We’ve always supported intermediaries – it’s our view that brokers are fundamental to the success of our business. In large part this boils down to distribution, but it’s not just about that. We strongly believe that advice is key to good lending. While the Mortgage Market Review made affordability intrinsic in the assessment of a mortgage application, it also provided for the role of advice in that application. And never has this been more important in our view. Brexit has created a huge amount of uncertainty for government,
regulators, businesses and individuals alike. And planning for that uncertainty is nigh on impossible – as everyone keeps saying. But life goes on regardless and it’s here that advisers are so valuable to businesses and individuals. Good financial advice has always accounted for uncertainty because, let’s face it, no-one can predict the future. It’s why lenders stress-test affordability and why anyone investing their money in property or any other asset is constantly reminded that values can go down as well as up. Whatever happens, there’s already been a huge uptick in the number of borrowers choosing to lock in their mortgage rate now. Data from Experian shows that 89% of mortgage shoppers looked at fixed-term deals in December, up from 85% in November and 83% in October. By stark contrast, interest in tracker JANUARY 2019
Alan Cleary managing director of Precise Mortgages
The new HMO regulations that came into effect in October 2018 include stipulations about minimum rooms sizes for this type of property. These rules may have implications for existing properties and mean that new purchases require some modification before they can be let out. This may also impact on the availability of mortgage finance for properties that don’t meet the required standards. It is certainly something for landlords to consider, particularly if they are purchasing a HMO at auction when completion is normally required within 28 days. There are solutions though, most notably short-term finance options that can provide the required funds to carry out any necessary refurbishment works or room modifications before remortgaging onto a standard buyto-let product. Needless to say, the buy-to-let sector is everchanging and it can be challenging for brokers and landlords to identify the best product options in the lending environment. mortgages accounted for just 6% of searches in the last three months of 2018. Fixed rates have always been a popular choice for first-time buyers, unused to uncertainty about their financial outgoings. Clearly, the ongoing political drama, together with repeated warnings of a rising base rate, has prompted advisers to recommend that those further up the ladder also create a bit of financial certainty for themselves at a time when so much else is up in the air. This is sensible advice, especially when mortgage rates are so low. Last year saw margins on residential lending squeezed at all loanto-values and it’s unlikely that such pressure will continue throughout the next 12 months. So while 2019 is likely to have some ups and downs, we are expecting it to be one full of opportunity for brokers. They have always thrived in uncertain times because good advice is good advice, no matter what happens politically. www.mortgageintroducer.com
Why protection is more than a moral obligation One of the objections I often hear from advisers when I am speaking to them about protection advice is that the customer just isn’t that interested. My response to this is that the customer often doesn’t know they should be interested – hence the role and importance of their financial adviser in making them aware of the risks. Perhaps the real issue here is that some advisers remain uncomfortable with raising the issues and risks with their customers. This is understandable as it’s usually not the reason why the customer has come to them in the first place. But when you probe deeper our own research has estab-
Jeff Woods campaigns and propositions director, Sesame Bankhall Group
lished advisers’ true depth of feeling on this topic, where 94% agreed that having a protection conversation with their customers was indeed a moral obligation. This has been backed-up by other industry studies. Well, apart from it being the right thing to do for customers, I believe it also protects the adviser too. I’ve spoken to a number of people in our industry recently who, like me, have noticed the increase in promotional activity from claims management companies (CMCs). With the deadline for PPI claims looming in 2019, some CMCs are now targeting other areas. Interestonly mortgages is certainly one of these areas, and protection is likely to be another.
That’s why – over and above the moral obligation we have talked about in the past – is the business rationale for having fully-rounded conversations with customers about the risks they are taking. Because advisers who don’t do this could be leaving themselves exposed to some form of comeback in the future. And don’t forget that these protection conversations are being made easier due to the improvements in product design and business support that’s available from product providers and distributors. Meanwhile, with continuing speculation in the market that the regulator might also take action to make risk-based conversations a requirement in the mortgage and protection arena, in the same way they have done with pension and investments, it means that the business rationale for making protection central to customer conversations is increasingly compelling.
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A Universal Call to Action There’s now even more need for mortgage advisers to discuss a financial protection ‘Plan B’ with clients following the introduction of new eligibility requirements for mortgage welfare support, says Johnny Timpson, Scottish Widows’ Financial Protection Technical & Industry Affairs Manager. The Department for Work & Pensions (DWP) confirmed in December that it has rolled out Universal Credit to all working age welfare claimants in the UK. This brings with it the new ‘no earned income’ eligibility requirement for mortgage welfare support: something that has implications for joint mortgaged and dual earning households in particular, says Timpson. “The only way these groups can benefit from mortgage welfare provision is if both cease to earn, mean-
Kevin Carr chief executive, Protection Review and managing director of Carr Consulting & Communications
ing that for most a financial protection ‘Plan B’ is needed.” Given Insurance Distribution Directive (IDD) knowledge requirements, Timpson suggests that advisers seek information regarding Universal Credit, its housing element and support for mortgage interest benefit reform in relation to eligibility rule changes at www.turn2us.org.uk
“The DWP confirmed in December that it has rolled out Universal Credit to all working age welfare claimants in the UK”
Top 5 Protection Tech We recently spoke with the great and the good of the protection industry to discover the five best tech features around today for advisers. According to industry stalwarts, tech experts and dozens of leading advisers, this is what we found:
advisers to help highlight to clients the risks associated with them not being adequately protected. Mortgage brokers state how useful such reports are to help increase the use of mortgage protection.
New underwriting technology
The advisers we spoke with highlighted the way in which market disrupter Guardian, which launched in 2018, has focused on building trust and being simpler to do business with – for advisers and customers alike. The insurer aims to grow the protection market through simpler, broader definitions and an easyto-understand claims process. This is all achieved via the use of smart technology.
Our respondents were almost unanimous in their support for UnderwriteMe, citing it as a present day gamechanger. Offering a platform that links to various insurers’ underwriting engines, it enables immediate underwriting. Consequently, it has effectively reinvented the way advisers conduct research.
Product comparison services
Services such as CIExpert and F&TRC’s Quality Analyser helped fill a gap in the market with respect to enabling quick, yet comprehensive, comparisons of Critical Illness products. The tools also provide compliant supports to support the product recommendation.
Personalised protection risk reports
Such reports are increasingly used by
Unseen tech powering market disrupters
Online sales and customer service aids
The way in which advisers interact with clients is changing thanks to a whole host of online tools and interfaces now available to help advisers give personalised, best advice. For example: online calculators to give an individual’s BMI, risk reality and funeral cost; plus, the use of video calls and screen sharing to replace telephonic advice.
News in brief • Direct Line Group has appointed AIG Life as the insurer behind its protection products. As of Summer 2019, AIG Life aims to provide life and critical illness products that can be bought over the phone or online via Direct Life and Churchill. • British Friendly has added terminal illness benefit to its mutual benefits offering. This includes the option to receive an early payment of death benefit or bereavement benefit lump sum if they or their spouse, partner or child is diagnosed with a terminal illness. • Royal London has enhanced its most common Critical Illness cover claim areas, adding full payments for both heart failure and peripheral vascular disease with by-pass surgery. • Advisory firm St James’ Place has acquired protection specialist firm Future Proof for an undisclosed fee. • People participating in Vitality Active Rewards using an Apple Watch increase their activity by 34%, according to a behaviour tech study by Rand Europe into health and wearables. • The overall cost of dying (funeral, send off and hiring professionals to administer the estate) has risen in the past year from £8,905 to £9,204, according to Sun Life’s 2018 Cost of Dying report. • People who live in rural areas are less likely to survive cancer than those who live in cities, according to a global review by the University of Aberdeen. The paper suggests rural patients may delay seeking help until their symptoms become more serious than those living in cities, due to the nature of work or family commitments.
It’s time to have some care for your clients It is the cliched sign of the times that as adults our finances are being stretched in at least two different directions – if we have children and parents that is. Unless our parents have saved and funded for themselves to live comfortably and perhaps pay for their own care needs then as their children you may be having to help out. And as property prices are beyond the reach of most adults, let alone young ones starting out on a working life, if as a parent you can help out you will be one of number the many who attempt to do that. It appears, according to one set of recent research, that one in 10 adults are spending more looking after elderly parents than on their children; 40% in fact expect to, or currently are financially supporting their parents with later life illness. Some 30% believe the total cost of supporting elderly parents will be between £1 and £5,000 when in fact it could be closer to £100,000. Then if that were not bad enough, 50% of 16-24 year olds expect to fund their parents’ later life costs. All this according to insurer VitalityLife. You may wonder how all this impacts on the mortgage sale. Well, if finances are going in care directions it might make a mortgage sale pretty
“We can’t rely on the State and if we do, what can be provided for will inevitably vary depending on where we live and what is available” impossible – or it might necessitate some re-mortgage to borrow extra or load the mortgage back up again for existing homeowners needing or wanting to help children or elderly parents. So, there may be some business to be had there.
Steve Ellis head of risk and protection, Premier Choice Group
And outside of the mortgage sale we are back in the realms of added advice, added value, ways in which you can wider the advice circle and offer protection to the whole of the financial package for clients – whether you take on the protection side of things yourself or introduce to your healthcare intermediary contact. There are specialists in advising on care and equity release advice. However, there are some initiatives within basic insurances which are worth exploring. VitalityLife, not surprisingly given the hook of its research, is offering Dementia and FrailCare cover as part of its Serious Illness Cover and will provide members with protection for a range of degenerative later life illnesses. Herschel Mayers, chief executive officer at VitalityLife, is right to say that the insurance industry hasn’t done nearly enough to recognise the increasing need for care costs. So
this sort of early planning opportunity to buffer against any unforeseen financial shocks later on is welcome. We need more initiatives like this from the insurance industry. The market needs ideas and solutions and competition to keep us focused on how we can all make as much preparation as we can for our needs in later life – or any time in life, because care needs can hit at any time, not just when we are elderly. We can’t rely on the State and if we do, what can be provided for will inevitably vary. If we want choices for ourselves, our parents and our children we have to plan now to give ourselves a chance of some quality of life. The more planning and solutions that are put in place now will ultimately provide your clients not only with a home that is safe to live in but also to be there as a financial resource if all else fails.
No work, no income Before we get to the stage when we might be expecting to be a bit more at risk of illnesses and accidents and care needs because of our increasing age – there are threats to our financial wellbeing and quality of life at any age. And it is just as likely that we won’t have prepared for those either. A million workers are off sick for more than a month every year and 52% would worry about their income if they became too ill to work, while 42% do not think £92 (the Statutory Sick Pay that employees are entitled to for up to 28 weeks) a week would be enough to live on if they were to go off sick for a long period of time. But the average UK worker stands to lose almost £450 in pay if they were off sick for a week without contractual sick pay, according to research from Royal London. Some 60% of people found their employer’s sick pay policies difficult to understand, with one in six workers not knowing what their employer’s
policy is. As Royal London explains employers can add to the statutory sick pay amount but not every employer does or needs to provide the same amount and you may not get it from day one of your illness. So, when you are going through the financial questions whilst sorting a mortgage for someone, ask the question as to what insurance they have in place in case they lose their income. How would they pay the mortgage? What money would they have from the State? What would they have from their employer? Does it add up to enough to pay for the mortgage and all the household bills? Or do they need to make some more provision with some income protection insurance? It may not be as prohibitively expensive as they might think it will be. And it is so worth asking the question, outlining the risk scenario and getting a few quotes for them to consider.
Get as much cover for your clients as you can Whilst at this time of year we probably take time to reflect on how things have gone in the previous year, inevitably we also look to 2019 and plans for growth – as in any sales environment the counter is now ‘back to zero’. There is understandably a certain amount of trepidation about what the post-Brexit era will bring for protection sales, but, in reality, uncertainty in financial services has been something brokers have lived with for many years – especially in the protection sector. For example, when Life Assurance Premium Relief (LAPR) was abolished in 1984 there were those who predicted it was the end for the life assurance industry. Then came commission disclosure – another potential doomsday – and yet here we are in 2019, with official 2017 statistics showing double-digit percentage growth in life assurance sales for the first time in many years and anecdotal evidence from a number of quarters indicating that 2018 was just as good if not better in growth terms. In reality, brokers are a resilient bunch and those who continue to uphold the virtues of honesty, integrity and customer care will continue to grow their own businesses almost regardless of external factors. After
Mike Allison head of protection, Paradigm Mortgage Services
all – looking after the financial needs of clients is what brokers exist to do. Any broker selling life assurance should therefore look forward with confidence to the opportunities moving forward this year. Insurance providers continue to evolve their product offerings and strategies, and there are potential new entrants looking to join the mainstream intermediary space again in 2019 thus supporting the general confidence in the market. It is not just products that are evolving. A major feature in supporting growth of protection sales in the recent past has been the willingness to be more empathetic when looking at underwriting. New entrants to the impaired market, notably The Exeter in 2018, have been part of the reason for real growth – offering protection to clients who found it almost impossible to secure insurance in previous years. That empathy stretches beyond physical illness and into the area of mental illness. The industry as a whole is to be applauded in the attitude it has taken, plus the underwriting approach and continued support it has provided to customers through periods of stress via the third-party services now used by most providers – literally thousands of hours of support is being given to clients on a daily basis through these counselling services and in many instances saving lives. In general, as distributors we are in a better position than ever to help match products to customer needs. Further evolution of technology is also building a range of innovative solutions which will no doubt continue to help deliver future growth. Additional features added in 2018 to products like iPipeline’s Solution Builder have helped become the glue that sticks providers and brokers together in order to support informed choices and deliver increased customer satisfaction. Further integra-
tions are planned for 2019 and these will continue to drive efficiencies and help brokers add even more value to client recommendations. Development of quality sales material from a number of providers has continued to improve and this is also set to continue in 2019. While the role of the regulator has changed considerably since inception, for protection sales at least, its main aim is to prevent both customer and market harm. As long as these rules aren’t compromised in any way, support in the form of sales material and/or ideas are welcomed if it brings about the right customer outcome.
“Development of quality sales material from a number of providers has continued to improve and this is also set to continue in 2019”
The development of our own CPD Academy within Paradigm has shown the hunger for many directly authorised (DA) firms to access such quality material and to integrate much of the material into their own sales processes. Our own experiences of record attendances at our specialist protection workshops in 2018 has shown how valuable these are to DA firms and the desire of brokers to up-skill themselves in the protection arena. I did mention uncertainty at the outset however the only thing that is certain for 2019 is that some of the population will become ill and be unable to work, some will become critically ill and some will no longer be with us by 2020. As distributors of protection the hope is that as many as possible have the financial support to cope in all eventualities. Advisers have the opportunity to deliver in this area, to grow their protection business and to ensure their clients have as much cover as possible. MORTGAGE INTRODUCER
Review: General Insurance
Three questions to boost your business this year One thing we know for sure about 2019 is that nobody knows what it holds. In a period of unprecedented political uncertainty, any prediction is mere speculation. So, if we don’t have the answers for what to expect in the next 12 months, we can at least focus our attention on ensuring that we are asking the right questions. This is one of the reasons why, at Paymentshield, we are launching our ‘Always Ask’ campaign, which will challenge advisers to ensure that you are asking the right questions to benefit both your clients and your business. So, what questions should you be asking to ensure that your business is well placed to emerge from 2019 than it is today? Here are three key issues that we think will have a bearing on your success this year.
exist in isolation to the rest of their finances, so make sure you do what you can to help protect those finances.
James Watson sales director, Paymentshield
How can I help to protect my clients during this uncertain period?
A period of political uncertainty can have economic consequences and your clients could find that their finances are more likely to become stretched. As a financial adviser, you have a duty of care to ensure that they are in the best possible position to weather the storm. Could they save money by switching their mortgage? Are they protected against loss of income through redundancy or ill health? And, does their general insurance meet their requirements? This may not seem like a big deal, but a large unexpected bill because something wasn’t covered by your client’s insurance policy could be enough to unbalance their finances. Research from YouGov in association with Paymentshield found that seven in 10 people admit to not thoroughly reading the terms and conditions on their home insurance, which means they run the risk of paying for cover that doesn’t appropriately match their needs. Your clients’ mortgages do not
How can I boost my business if the property market falters?
Buying a home is a big expense and a big consideration, so uncertainty is likely to deter some potential homebuyers and home movers, who do not have an imperative to purchase property. This puts ongoing emphasis on making sure that you make the most of your remortgage business. The benefit of remortgage business is that it is usually less time sensitive than arranging a mortgage for a purchase and this provides opportunity to review your client’s overall financial situation and protection requirements. If your remortgage clients haven’t reviewed their general insurance cover since purchasing the property, there is a good chance that you can cut the cost of their cover at the same time as making sure it is fit for purpose. The rewards of a general insurance sale may not match the income you receive from a mortgage proc fee, but it’s recurring revenue and the process is much quicker more straight forward than a mortgage application. So, a quick conversation with your client with your client could help them secure the right cover for their needs and provide you with a higher hourly income than you earn on other products.
What can I do to guard against the threat of robo-advice?
Technology is evolving to make your job easier, but what if robo-advice advances sufficiently this year to pose a threat to your business? If the service you offer to your clients is purely transactional, there is a very real danger that your clients may begin to choose a more automated approach, so think about what you can offer that technology can’t. Looking at other industries that have been significantly disrupted and disintermediated by technology it’s clear that businesses offering a personal service can thrive, when they offer an experience that technology can’t. Travel agents, for example, still exist to build bespoke trips for people who don’t want to spend hours trawling the internet, and your business can be more resilient if you provide your clients with an experience they can’t get online. This means establishing richer conversations with your clients so that you can develop a greater understanding about their priorities and plans. By properly engaging with your clients, you can help them to achieve better outcomes, providing them with solutions that surpass their expectations, and this is the best way of guarding against the threat of roboadvice. This new year don’t worry about having all of the answers. Focus your energy on asking the right questions to get the best outcome for your clients and your business. If you ask the right questions, the answers will come, and this will help you to find a successful path through a year of political uncertainty.
Review: General Insurance
Let’s make 2019 the year of protection At the beginning of December, Britain’s largest general insurer, Aviva, announced the launch of a new, subscription-style service (AvivaPlus), allowing new or exivsting customers to make monthly payments for their car and home insurance (at a fixed annual rate) and guaranteeing their right to cancel the policy at any point without fear of penalty. Prices will be subject to an annual process of review (as well as the inevitable possibility of increases), but existing customers will be charged exactly the same amount at renewal as new customers- a policy which has been designed (as Aviva readily concedes) to address on-going ‘consumer concerns with the industry and give customers more control’. As most readers will know, the industry has come under widespread criticism from a number of media outlets and consumer associations over the past few years for its treatment of long-term customers, with some insurers accused of subsidising the ‘headline’ deals used to attract new custom streams by passing on incremental increases in annual rates to existing policy holders- the so-called ‘loyalty penalty’. Recent research by the consumer association Which? has discovered that policy holders who stay with the same insurance company for longer than a year are often charged up to £75 or 38% more (on average) than first-time customers, while the Citizens Advice charity has filed a ‘super-complaint’ with the Competition and Markets Authority (CMA) against a number of service operators (including insurers, lenders and mobile phone companies) who employ these ‘tease and squeeze’ tactics in an attempt to stem what Gillian Guy, the organisations chief executive, has described as the “systematic scam” of loyal customers and the “excessive prices” which they are charged. In addition, the Financial Conduct Authority (FCA) has also www.mortgageintroducer.com
Jason Berry director of sales, Uinsure
announced that it will be launching its own investigation into the pricing models used by general insurance companies and the ways in which rates are calculated for longterm customers so as to ensure that the market delivers “competitive and fairer prices for all consumers” (as Andrew Bailey, the FCA’s chief executive has said) and to initiate a process of reform.
Questions remain as to whether the AvivaPlus service will ultimately offer better value for its customers than existing policy choices, but with disenchantment continuing to grow amongst consumers, as well as fears that elderly or other vulnerable people are most likely to be affected by premium increases, there is little doubt that services such as these should be regarded as indicative of the kind of direction that the industry will need to take over the coming months if it wishes to retain a sense of constancy amongst its own customers; loyalty being a two-way street and all that. For example, research published at the beginning of December by the customer benefits and loyalty firm, Collinson, has discovered that only one in five (or 19%) of the 2,000 insurance customers that they surveyed as part of the study believe that their insurance provider either values or rewards their custom, with 76% saying that they are treated as ‘numbers’ rather than as individuals- a jaw-dropping statistic. The report has also revealed that a significant number (or around 25%) of financial decision makers at financial institutions lack a clear understanding of what drives loyalty amongst consumers, with two thirds admitting that improving customer retention and loyalty levels will be one of their top priorities for the coming year. It has concluded that an overwhelming majority of inJANUARY 2019
surance customers in this country feel neglected by their providers and crave a more ‘personalised’ service model, while also warning that current practices could ultimately instigate a loyalty drain or ‘crisis’. Which is to say that if the industry wishes to ‘future-proof ’ itself against the vicissitudes of an increasingly “choice-rich and savvy” custom base (to quote Collinson’s director of loyalty, Steve Grout) then it must look to extend a wider sense of care and protection to its existing customers in 2019, especially given the current market climate or context. For example, the general insurance industry in this country currently generates somewhere in the region of £78 billion per year in premiums. Yet a recent report by the business consultancy firm CGI has concluded that an increasing number of insurers are having to focus on cost management issues and squeezing bottom-line margins in order to counter the impact of a range of macro trends and factors (including the rise of technology, historically low interest rates, stringent regulatory requirements and operating ratios and the rising threat of infiltration by cyber-criminals). This means that maintaining closer relationships with clients is essential if the industry wishes to balance this trend and to halt a wider sense of alienation; pushing up levels of loyalty and ‘engagement’ by playing to its strengths of fair, impartial advice and good old fashioned know how. Indeed, by taking time to prioritise its relationship with existing custom bases, brokers can protect the interests of themselves and the sector at large by offering a more personalised service to customers and reducing pay-outs (as well as the need to claim) by giving sensible, preemptive advice or up-selling suitable policies to cover all eventualities. Because, at a time of marked uncertainty and over-riding upheaval it is becoming more and more important for insurers to initiate a process which is mutually beneficial to both customers and providers and to offer a degree of care and certainty which is currently lacking. Let’s make 2019 the year of protection. MORTGAGE INTRODUCER
Review: General Insurance
Every cloud has a silver lining Home and contents insurance remains competitive, but the industry is seeing premiums across the market rise towards the end of 2018 as a rise in subsidence and escape of water claims over the past two years has a significant impact on insurance rates. It has been predicted that 2018 won’t just be a “normal” subsidence year, but one that could set a record. Some loss adjusters are reporting a 300-400% rise in claims volumes through August to October 2018. Escape of water claims too are one of the biggest factors effecting household premium movement. According to the Association of British Insurers (ABI), escape of water claims cost insurers £3.9m per day and Consumer Intelligence listed it as the ‘largest driver’ for premiums. Whilst rising premiums are never good news for customers, it does create an opportunity for the broker to add more value. Contact customers ahead of renewal and discuss the potential price increase; proactively seize the
opportunity to help them negotiate a better deal and offer risk management advice to limit the likelihood of claims – particularly for escape of water. Frozen pipes are the obvious cause for escape of water, and ensuring pipes are properly lagged is an obvious step. However, other steps can be taken should a cold snap hit, including ensuring the central heating is left on if leaving the property for any period, or getting the boiler serviced to ensure it doesn’t break down when needed the most. For subsidence, the greatest cause of claims will be tree roots as trees take a great deal of moisture from the land, so ensuring trees close to the property are regularly pruned can really make a positive impact. As well as this, use it as an opportunity to review your client’s overall risk and insurance needs; they are householders, but do they also own a business – can you help them with their commercial insurance needs?
Geoff Hall chairman, Berkeley Alexander
Not all add-ons are the same The property market is expected to catch a chill following the decision on Brexit and for brokers who have seen the cyclical nature of the market time and again it will be a familiar call to action to turn once again to their GI sales as a valuable source of income in bad times. But are ‘addons’ as familiar to brokers as standard GI products? Are they missing a trick by not selling them alongside their traditional portfolio? The good news is that many addon policies are seen as valuable by customers – they have a high claims ratio and a low repudiation rate which in plain English means that people claim against them a lot and they generally always pay out, which can have a positive impact on retention rates. Add-ons is a catch all term for any GI policy that sits alongside
a primary policy. It includes policies such as legal expenses and home emergency, but not all add-ons are the same. Policy wordings differ widely from insurer to insurer so check with your provider that the wording is as broad and as relevant to today’s market as possible. For example, does the legal expenses policy cover ID theft, social media defamation, probate or home conveyancing? Does the home emergency cover have restrictions on boiler servicing or cover external pipes right up to the property boundary? These are all areas of considerable risk and concern for most people today; but some insurers have been slow to respond to modern day risks. Being proactive and having access to a broad range of quality add-ons can give brokers an added USP that will help them to stand out from the crowd.
End youth homelessness On Friday 30 November more than 1,000 people from more than 70 businesses spent the night sleeping on the streets to raise money for Mortgage Sleep Out at over 35 events across the country. The event has so far raised over £110,000 for its charity partner, End Youth Homelessness, and continues to grow. The movement was started by Rob Jupp, CEO at Brightstar Financial, and quickly gained a collective momentum across the industry. I’m very proud of my own team’s contribution. Four of our staff at Berkeley Alexander slept rough that night and smashed our initial target, raising over £2,700 for the cause. I’d like to take this opportunity to congratulate Rob along with everyone else involved from across the mortgage industry for this sterling initiative. Donations to Mortgage Sleep Out can still be made at: www.justgiving.com/ campaign/mortgagesleepout
Review: Specialist Lending
He scores! They think it’s all over… it’s not! Automation and digitisation adds value in many ways to the mortgage markets, particularly in speeding up processes that already exist and allowing more interaction between lenders and intermediaries. Some ways of working and some sectors of the market are more suited to automated working and at times, decisioning, – high street lenders, Mr and Mrs Average of Acacia Avenue or vanilla-flavoured anything. But what if your client doesn’t quite fit with that rosy picture? What if they are outside of what might be considered the ‘norm’? Many potential borrowers don’t fit a tidy financial scenario for many different reasons, often not of their making. With the average household debt, including mortgages, standing at over £59,000 in September , and the latest figures from The Insolvency Service (October 2018) showing that whilst individual insolvencies decreased in Q3, 2018, total numbers still stood at over 276,000, there’s a good chance it’s affecting credit records for many people. In July, the ONS said that last year, Britons spent more than they earned for the first time since 1988. Given this trend, it’s reasonable to assume that more people are likely to have experienced an event or missed payments that would impact their credit score. Automation and algorithms by their very nature have set parameters and criteria. They can’t ask a question, use their instinct, challenge an assumption or be flexible, however sophisticated they are. Human beings can, and do. Sourcing systems are one example and I completely understand why brokers use them. The majority, however, are driven by rates – lowest first – and have a general, broad-brush approach to criteria. If a broker looks for lenders accepting CCJs, they are likely to just find a tick or a “yes”. No detail on timescales that are acceptable or the www.mortgageintroducer.com
Simon Read managing director, Magellan Homeloans
detailed criteria until after the DIP is submitted, often leading to a cascade process onto a higher-rate product. To my knowledge, only Knowledge Bank and Criteria Hub work solely on criteria – no rates, so more suitable to clients with any adverse. I’m not suggesting that automation doesn’t bring benefits to both lenders and at times, their customers. Automated processes can bring cost reduction, increase speed of answer or response in some areas and streamline processes. But when it’s not a vanilla situation, would you rather have a quick ‘no’ and then have to find an alternative product and lender, or a more considered “let’s see what lies behind this and how we may be able to help”? It’s these situations where manual underwriting will score over automated decisioning every time. Manual underwriting may feel traditional but good underwriters who understand and practise their art are hard to find. During our recent recruitment drive to increase our underwriting team, we had over 200 applications, interviewed 50 and finally appointed six who had the skills we were looking for – the ability to actually underwrite rather than just input data. The biggest problem we came across was that so many applicants had only ever underwritten using automated processes. The people we were looking for needed the ability to understand the details in credit histories and any supplementary information, assess what that means in an individual’s situation and evaluate the risk involved. Their level of experience and competence was what made them stand out. It’s a skill that’s in danger of becoming a dying art if we’re not careful but it can present a career opportunity for those in the industry who are looking to operate at a professional level. An underwriter who works
through the DP, looks at the credit history and patterns of financial behaviour – working to an almost forensic level – unpicking the detail, looking behind the numbers and understanding how the applicant’s financial behaviour plays out will often be able to pick things up that are not categorised in a programme. This tells them so much more than a ‘banding’ or a simple numbercrunching exercise. It helps them to make a decision about likelihood and probability. It enables them to assess risk with a better and improved understanding and take a
“Automation and algorithms have set parameters and criteria. They can’t ask a question, use their instinct, challenge an assumption or be flexible”
holistic view of the borrower and their circumstances. Which means, more often than not, they can identify a product that really fits your client and their situation. It also helps you to manage your clients’ expectations and find a product that’s realistic and affordable, whatever their position. It doesn’t put their application into a cascade process, leaving you to manage an unexpected outcome. Personal service with a bespoke tailored approach, I believe, results in a better outcome for the borrower, you and the lender. Automated algorithms are built to result in a limited or restricted number of outcomes. Is this in the best interest of the customer? Maybe and sometimes, but certainly not for everyone. In the words of Walter Lippmann, author and journalist, “You cannot endow even the best machine with initiative; the jolliest steamroller will not plant flowers.” I, for one, will be planting more flowers. MORTGAGE INTRODUCER
Review: Specialist Lending
Positioning your business to be different By the time you read this, there’s a good chance that you have already broken your personal New Year’s resolutions. Perhaps Dry January has been a wash-out or those early morning gym sessions have proven a step too far? But however you approach your personal New Year’s resolutions, there is good reason to take a more resolute approach to getting your business into shape. The one certainty we have for 2019 is that it will be characterised by continued political uncertainty and, while the market has developed a thick skin to the wrangling of Westminster, a turbulent environment is not the best foundation for growth. So, if you want to grow your business this year, you should be looking at what you can control and change, rather than putting your faith into riding a wave of market growth. Now is a good time to review how you approach your business and the advice you provide to your clients. Some small shifts in the way you think about things could lead to a brighter future for your business and more positive outcomes for your clients. With this in mind, here are three New Year’s resolutions for your business that could help you to succeed in a year of uncertainty.
Clare Jarvis head of intermediary distribution, Pepper Money
2017, according to the Registry Trust. However, in the first quarter of 2018, the number of registered CCJs hit a record high and over 305,000 judgements were registered against people - more than double the number during the same period in 2015. This record period for CCJs means that people who received a judgement during this time but haven’t since now have at least six months since the CCJ was recorded on their credit file. For many mainstream lenders this is still too recent an event to qualify for a mortgage with them. But for specialist lenders, a six-month track record can demonstrate that a borrower has moved on since their period of credit difficulty and there are likely to be many affordable options for the record number of people who received a CCJ earlier this year. Many of these people may automatically write off their chances of getting a mortgage, be it to buy a new home, invest in property, or remortgage, and so, by making it clear they have options available, you could provide new hope to your clients and new impetus to your business.
Take a specialist approach to affordability
The issue of affordability continues to be a significant issue for homebuyers and remortgagors, as house price inflation has exceeded wage growth and lenders have taken a more forensic view of expenditure following the Mortgage Market Review. During this period, the rapid growth of self-employment has been a pronounced feature of the UK la-
Earn more for your time
If you are able to work more efficiently, you can do more with the time you have available to you. Research carried out by Pepper last year found that, based on fees charged, the average hourly rate earned by brokers on a mainstream case is £44, whereas the hourly income on a specialist case is £58. So, while there might be a perception that specialist cases are more time consuming, that time could prove more profitable.
bour market in recent years, with the number of self-employed workers increasing from 3.3 million people (12.0% of the labour force) in 2001 to 4.8 million (15.1% of the labour force) in 2017. Part-time employment has also been on the increase. In 2010 there were 7.9 million part-time workers, compared to 8.5 million in January 2018, and ONS data indicates people working on a part-time time basis are more likely to earn additional sources of income that they might want to include as part of a mortgage application. The rise of the gig economy and freelance or contractor work has also contributed to a shift in the way that people earn their living. The cumulative effect of all of these changes is homebuyers now rely on a more diverse selection of income sources, which can make it more complex for a lender to accurately establish affordability. As a result, and with more scrutiny being placed on expenditure, it is more important than ever for brokers to work with lenders that can take an individual approach to assessing income, enabling borrowers to make use of all of their earnings to demonstrate affordability. So, this year, take a different approach to how you think about specialist lenders. Yes, they can help where your client has failed a credit score, but they could also help your clients to overcome the affordability challenge. In the right circumstances, where your client earns multiple sources of income, is self-employed or works as a contractor, a specialist lender could prove to be the best fit for their needs.
Proactively look to help your clients when they need it most
The number of CCJs registered against consumers in England and Wales fell by 13% in Q3 last year compared to the same period in
Review: New Build
Out with the old and in with the new-build The mainstream new-build market has been plagued by its fair share of tribulations over the years, from allegations of overvaluations to accusations of developers locking clients into unfair leasehold agreements. Just before Christmas, a BBC investigation found hundreds of newbuild properties had fallen short of industry standards by using weak mortar in their construction. The prime market has also not escaped the negative connotations that seem to sit alongside new-builds. While some might say new-builds have warranted some of the negativity that has surrounded them over the years, others would argue the sector does not deserve the stigma that is so often attached to it and which risks overshadowing its virtues. In the prime market particularly, we are seeing new-build come into its own as prime buyers start to favour newly built properties over more traditional ones.
Onwards and upwards
New builds are currently taking the prime market by storm, with our research showing around £6.4bn was generated from the sale of prime newbuilds in 2018, up from £5bn in 2017. Our findings are supported by a recent report by Jones Lang LaSalle (JLL) into prime central London which found that HNW clients are starting to show a preference for new and modern properties. “Even properties around 10 years old are deemed too aged by many of the new cohort of buyers,” its research claims. This it says has “skewed” demand, availability and pricing between modern and older properties. In fact, our own Prime Property Hotspots research shows that the average prime new build property sold for £2m in 2017, 14% more than the average for older prime properties. JLL’s report goes on to say: “Any modern property, especially latwww.mortgageintroducer.com
Peter Izard business development manager, Investec Private Bank
eral apartments, will receive plenty of interest these days, with prices proving robust despite broader market softness.” This trend is so prevalent it is putting a strain on the market for early-tomid 20th century buildings, it says. It adds: “Even 10-20 year old developments, especially when unmodernised internally, are often bypassed by purchasers. It seems increasingly the case that buyers do not want a building or modernisation project, or the expense and hassle which accompanies such projects, and would far rather buy a stress-free and modern property requiring little or no work.” The preference for new-builds is also crossing over into the rental market. “Some new developments have rented out very quickly, sometimes even achieving values above asking rents,” says JLL. The inclination for newer properties may perhaps be explained by the changing needs and demographic of prime buyers. Our research found three-quarters of HNWs believe a ‘desirable location’ is more important now than 10 years ago when deeming a property prime and features such as square footage, transport links and rental demand are all important attributes. Newbuild developments often tick many of these boxes, also encompassing shops, restaurants and other amenities, not to mention a speedy broadband connection.
It could be argued that the issue of whether newbuild is in demand and the possible oversupply of such properties in the capital are two separate issues. The issue of oversupply has been much publicised with reports claiming that more than half of the 1,900 ultra-luxury apartments built in London in 2017 failed to sell. The developer behind the luxurious Centre Point in London’s JANUARY 2019
West End has also reportedly withdrawn its scheme from the open market due to the offers made being “detached from reality”. The latest London Central Portfolio analysis shows prime central London new-build transactions have dropped 8.0% across the year to April 2018 and now stand at just 1,079. Such statistics in isolation however don’t show the bigger picture. Savills research highlights how far the sector has come in the last decade, with new-build accounting for nearly one in five £1m plus sales in London, compared to less than one in twenty in 2008. “The market for new homes in London is now unrecognisable compared to the post-credit crunch years of 2008-9, when there were just 3,000 sales with a price tag over £1m,” says Katy Warrick, director, Savills research. She cites the high calibre of schemes being offered and lower levels of quality second hand housing coming to market as the reasons for the uplift. Nevertheless, Savills says the number of new homes being built has exceeded sales over recent years, with nearly two homes started for every sale between 2014 and 2016. But the research says: “A number of factors will mitigate oversupply in this market segment - in particular, falling starts, phased completions and stable sales volumes.” The research points out that starts have fallen by 47% year on year, with just 4,500 units priced over £1,000 per square foot beginning construction in the 12 months to mid-2018, compared to 6,000 in 2017. It forecasts that completions will fall back in line with starts and sales from 2021 onwards, after peaking in 2020. The property market is undeniably in a state of flux but once the current Brexit uncertainty has calmed, newbuild is set to play a pivotal part in the future of the prime market, as it will in the future of the wider housing market. In any longer-term context, the availability and quality of new-build property will always be a defining factor in the market; creating an aspirational driving force that propels other cycles of transactions. MORTGAGE INTRODUCER
For Intermediary use only Nationwide Building Society. Head Office: Nationwide House, Pipers Way, Swindon, Wiltshire, SN38 1NW. Details correct at time of going to print. F1237 V1 (01 2019)
Home Whether itâ€™s a two-bed terrace, a one-bed in the city, a suburban semi or a countryside cottage, everyone feels the joy of having a place they call home. So, itâ€™s important everyone has a broker like you and a lender like us to help them get a foot on the housing ladder, or take the next step up it. Weâ€™re determined to keep improving so together we can help even more people find the right mortgage for them. See how at nationwide-intermediary.co.uk/thankyou or talk to your BDM. Building society, one home at a time.
Review: Equity Release
The dark days are done but it’s not all rainbows yet The perception of our market is constantly shaped and shifted by the press. Those of us within equity release can only do so much, as we cannot deny that newspapers and the wider media is almost always the first port of call for our customer base. However, as the lifetime mortgage has improved and evolved, press coverage has started to shift away from overly negative, sometimes slapdash reviews, to a more balanced and fair approach that is helping take our industry even further. According to recent research from Ernst and Young (who regularly publish superb research on our industry) as many as 65% of advisers they surveyed believe that press coverage of equity release is generally positive. So, nearly two-thirds of our advisers pick up a paper and read pleasant coverage about their own industry, which is surely an improvement from the past. The dark days of equity release horror stories are fading ever faster, and I am over the moon that today’s market has a more positive atmosphere surrounding it. And there’s numerous reasons we are experiencing a more positive industry. For example, the hard-won safeguards and customer protections that now permeate equity release and the products we offer are surely one of the major success stories of the entire mortgage market. How we have gone from an industry whose name was more than a little stained by mis-selling scandals and unsafe products, to a modern market where the vast majority of our advisers believe the media now takes a positive stance, is little short of amazing. This U-turn is something we should celebrate, but it is also something we should build on. Only if we continue to realise that protecting our customers is one of the main drivers of this positive atmosphere
Andrea Rozario chief corporate officer, Bower Retirement Services
will the negativity be banished for good. But what else has motivated the press to change their course? One obvious reason is our wider success and record-breaking annual lending. A market that has been as consistently record-breaking as ours is hard to ignore, and it is equally hard to take a negative path when so many more people are trusting equity release than ever before. In just a few short years, our market has gone from small niche doing barely £1bn lending a year, to the real noisy neighbour to the mainstream market with £5bn very achievable before 2020 is out. This kind of growth is forcing even the most committed equity release naysayers to revisit their beliefs and give us the respect we have earned. However, it’s not all rainbows and butterflies; there are still problems to overcome. Although the majority of advisers think press coverage is mostly positive, there’s still nearly a quarter who think the opposite is true. Perhaps this 24% are just a pessimistic bunch but I can see where they’re coming from. I would be ly-
“How we have gone from an industry whose name was more than a little stained by misselling scandals and unsafe products, to a modern market where the vast majority of our advisers believe the media now takes a positive stance, is little short of amazing” ing if I said that every piece of coverage I see is positive, and I think there are still major issues we need to address. For example, even when the press takes a positive approach, there can still be an under-current of displeasure at the fact people are taking control of their finances through a ‘non-traditional’ method. Time and again the ‘selling off the family silver’ narrative is pushed in the media and we need to stamp this out to present equity release in a truly positive light. What’s more, I do think the press is still clinging on to this ‘expensive last resort’ routine, but I sense this will soon fade as well. Overall, 2018 was not quite a turning point or a watershed year for the equity release industry, rather just another solid 12 months where we further strengthened our claim for mainstream acceptance. As this snowball continues throughout 2019, I can see press coverage become yet more balanced and positive. Ultimately, the dark days are done, and we have a safe and robust market that is ready to do business. All we need to do is to continue giving our best advice, launching ever better products and reminding everyone that equity release will be a massive player in the future of retirement finance. That way the positivity will be here to stay. www.mortgageintroducer.com
Review: Equity Release
Time to join the later life lending sector I am sure I am not the first person to suggest this but if I was a mortgage broker seeking the best prospects for new business in 2019, I would definitely be exploring the market for later life lending and make it one of my major resolutions to look at how to get involved. It has been clear for some time that the housing market has stalled and, Brexit not withstanding, as brokers we all have to look at alternative sources of new business as well as keeping our existing customers in our sights for protection and other complementary mortgage services. Why later life lending? Clearly the demand is there. Borrowing by the 65+ age group is set to top £86bn this year and, according to the Centre for Economics and Business Research, that figure could reach £142bn by 2027. When you also consider the number of older borrowers facing retirement with interest only mortgages set to redeem, the opportunity to become involved in such a fast growing sector, makes good business sense. Certainly, qualifying for the equity release module would add a new string to your bow of exams passed and give you the opportunity to make use of new skills to help customers. But not everyone has the time and money to dedicate to older life lending and an alternative is to partner with a specialist, like Fluent Lifetime, who can provide the necessary expertise and advice. Of course, equity release is only part of the story. The successful introduction of Retirement Interest Only (RIO) mortgages, with the blessing of the regulator, provides another avenue to explore and does not require more qualifications. RIOs are a welcome addition to any adviser’s armoury and along with resurgent interest in equity release, these two channels are beginning to provide solutions to the issues facing older customers on interest only mortgages when approaching retirement as well as those in retirement who need to supplement income www.mortgageintroducer.com
Aaron Conlon managing director, Fluent Lifetime
and want to unlock equity built up in their homes. However, it is worth considering the implications of advice given in good faith, but where customers are potentially vulnerable, particularly the older they become. The regulator, while agreeing to the introduction of RIOs by relaxing the rules on affordability, has recognised the dangers that come with older applicants who face the challenge of funding retirement or just want to find a solution to an interest only mortgage coming to an end, with no means of repaying the capital originally borrowed. It is part of the adviser’s canon that they should ‘know their customer’ and this is particularly relevant to advising on later life lending, where getting the buy in of the applicants is sometimes only the start of the story. The issue of vulnerable customers is at the heart of much of the compliance structure we have in place today. Making sure that advice is appropriate to the circumstances of every customer is the cornerstone upon which we all operate. However, with
equity release, the potential impact on customers by taking out a loan for as long as they stay in their home, with the only repayment needed linked to the value of the property at time of leaving (although there are now many options for repayment and drawdown), needs a more collegiate approach to ensure that the widest range of circumstances are taken into account. The first of these circumstances is the individuals themselves. Do they fully understand that by borrowing £x and not making any repayments, interest will accrue to the loan, which will cut into the equity they have in their property? Realising that in certain cases, the value of the outstanding debt will mean there is no equity left. That brings us to the family of the applicants, who might become concerned that their parents have not looked at other options, and also (a little self-interest here!) be concerned that their hope of an inheritance could disappear. Getting the applicants to ensure that family members (if any) have been consulted or are present at meetings, can be crucial. There are plenty of instances where retrospectively, family members have discovered what their parents have done and created issues about suitability that could have been avoided if they had been involved earlier. At the very least we encourage customers to have a family member or disinterested third party, like a solicitor, involved as early as possible. I believe that every mortgage broker and adviser should be targeting the later life lending sector in 2019. I would be looking very carefully at my client bank in January to talk to past customers about their plans and their requirements for funding in or into retirement. There is plenty of help and expertise at hand. Whether you decide to aim for an equity release qualification or not, with the help of businesses like ours, you can be fully involved in this exciting sector. MORTGAGE INTRODUCER
Review: Equity Release
Activity in this sector is only going to increase By the time you read this, we’ll be a few weeks into 2019 and perhaps we’ll have a little more understanding of just how the year is going to pan out. Not only in the mortgage and housing markets of course, but in the greater scheme of things, with perhaps some greater clarity forthcoming about our political situation, which (quite frankly) looks like a complete bugger’s muddle at present. You’re a wiser person than me if you can see the wood for the Brexit trees, sort the wheat from EU chaff, and any other type of metaphor you can think of, at present. Again, by the time this publication hits your doorstep, we should at least know whether Theresa May’s deal has made it through Parliament, or (if as seems likely) we are looking down the barrel of a ‘no deal’ exit. Whatever way you cut it, it doesn’t look pretty. Moving back to our market it’s been clear for some months then there is also a lack of clarity about what might happen over the next 12 months. Just recently, UK Finance suggested residential mortgage lending in 2019 would actually eclipse that seen in 2018, however with the major caveat that this might well drop off in 2020 by some considerable margin. Again, we await to see whether this is a forecast that comes true. For the later life lending market, 2018 was undoubtedly a strong year for all concerned; indeed, we might even suggest that this was the year it ‘came of age’ in more ways than one. The move from a niche market into something more mainstream began many months ago, however we might well suggest that it was 2018 when it finally broke through. To hear 2018 described as the ‘year of the RIO’ is one thing, but I think you also have to look at the increase in maximum ages to older borrowers for mainstream and interest-only mortgages, plus you have to look
Stuart Wilson managing partner, Later Life Academy
at the increase in product choice and options for individuals who might need an equity release option. Across the piece, it’s fair to say that later life lending has moved forward a number of paces, and it’s a positive that more providers/lenders are involved, and that we have a growing number of advisers either looking at accessing the sector or making their move. It would be nice to think however that the issues that still blight this sector might get resolved in 2019. There is clearly a collective rise in interest in later life lending but we still have a disparate product range, a disparate regulatory structure, and a disparate advice community which may not be able to offer advice on all the potential products available to clients. I appreciate that many in this part of the market might sound like a stuck record on this, but (to my mind) it’s absolutely vital that we support industry solutions in this area, because at the moment there appears to be little regulatory appetite to square the circles that have been drawn. This is why we recently launched a para-packaging service focused on ensuring advisers can secure the right advice and product for their clients, even if they are not authorised to advise in one particular area. This means those mainstream mortgage advisers who (technically) can only offer RIO or residential products for older borrowers, can ensure their client also get access to equity release options, it’s deemed that these are the most suitable for their client. At present, while there might be a cursory look at other product options, the fact is that if you are not authorised to advise on them, then the chances are your clients are not going to end up with them. That can’t be right and, indeed, it means that the adviser is merely opening
themselves up for a potential complaint, if the borrower in the future determines they were advised on a product which was not the most suitable one for them. Far better I would think to access a service which gives both the adviser and the client complete peace of mind about the product that has been deemed the most suitable, and ensures there is no potential for comeback later down the line. As mentioned however this is going to need to come from the adviser – in terms of their recognition that it’s the right way to deal with later life
“The move from a niche market into something more mainstream began many months ago. We might suggest that it was 2018 when it finally broke through” clients – rather than wait for the regulator to change its mind on how the various later life lending options should fit together. Overall, however, I think all later life stakeholders should view the year ahead with a significant degree of optimism. My assessment is that activity in this sector will only increase and, indeed, we are likely to see more mainstream/high-street operators seeking to secure market share here. Greater competition and product choice is clearly good news for the market, advisers and borrowers, but we all need to be fully aware that this is a different sector, with different client types and that a ‘mainstream’ approach is unlikely to work. In that sense, the advice should always be to work with experienced professionals and to ensure you are fully aware of the market, its unique needs, and what it will take to make a successful advice proposition. The fact is, it can be done, but it may need a different mindset and it will certainly need you to be working with those who know exactly what should be done and when. www.mortgageintroducer.com
Learning how not to be hacked off Following my recent experience of being hacked via my LinkedIn account I thought I would share some of the schoolboy errors and lessons learned that may help you avoid a similar experience. Firstly, in most cases without your password a hacker has little chance of success but as you know they use a myriad of methods to obtain these, most often through the use of bogus sites and malware. I think my email address and password was lifted from a film website I used, the site was recommended but the fact that it had a number of redirects should have alerted me, you have to register in order to access the library and this is where the hack started because like more than 80% of us I tended to use the same password for multiple sites. A friend of mine who works in financial services fraud told me that LinkedIn is a platform of choice for many hackers because it is aimed at business people and therefore communication between connections is viewed largely as secure and legitimate. Initially I was alerted by one of my connections of a possible hack as they had received, in her words, “an odd message from me via LinkedIn”. I logged on straight away and changed my password, here was my first schoolboy error, even though I had changed my password I did not click on the ‘log out of all devices’ button as I did not understand the importance of doing so, consequently, by the time I got to the office the calls and texts had continued so I tried to log in again, only this time I couldn’t. Because I failed to log out of all devices when I reset my password the hacker was simply able to go back in as they were likely still logged in and proceeded to erase my password and replace it with one of their own and remove my email address. I then had to go through the convoluted process of trying to regain access to my account by completing the link on LinkedIn that you use www.mortgageintroducer.com
Kevin Paterson managing director, Source Insurance
when you no longer have access to your account this involved having to prove who I was. I didn’t even think to check my email account as that seemed to be working ok, however, despite LinkedIn taking down my account whilst they issued me with reset instructions this was enough time for the hacker, using some form of program to send an Inmail to every one of my 1500 connections which contained a badly worded business proposal and an invitation to click on a link for more information. I am sure the vast majority will have been suspicious enough not to click on the link and even some that did would stand a good chance of being protected by their firewall, but I know one or two who subsequently had their details compromised. Additional ways I could have protected my LinkedIn account include, setting up the two-stage authentication protocol which would have stopped any hacker as they would have had to input a code sent to my mobile number. Clearly, use a unique password, and make sure that any reset of passwords is also followed with a complete log out of all devices, which I know is a paid in this age of multiple device usage but as I learnt to my cost it is essential. There was one final twist which was quite clever and took me a while to spot that further delayed things. I mentioned earlier that my email account seemed to be functioning okay so I was not worried about it. However, I was getting frustrated with the fact that LinkedIn had not emailed me reset instructions and I had no way of getting hold of them as they are virtually impossible to contact. So, on further investigation I noticed that I hadn’t received any emails for at least five hours which was unusual as I would normally expect to see spam in there, so I took a closer look. First of all I wondered if the hacker could have set up a mail forwarding change, but this needed full JANUARY 2019
access and I had previously enabled two-stage verification on my Hotmail account and without the mobile phone code most changes could not be made. But what the hacker did instead was to set up a rule on my inbox that redirected any mail that was received that contained an @, which is pretty much all emails, to my junk mailbox. Sure enough, when I looked in my junk box I found all my emails from earlier that day including reset instructions from LinkedIn, I also then went on to check my deleted and sent boxes to ensure that there were no other surprises waiting for me and one of the worrying things was the discovery of a number of email conversations that the hacker had been having with my connections purporting to be me. I then set about trying to let all my connections know what had happened and warning them not to open or respond to the hacked email. I made two postings and then felt that many may not see these so I tried to email my connections, which is how I know the hacker must have had a program to do this for them because it took me the best part of three hours and all I managed was around 350 as LinkedIn only allows you to send a maximum of 50 at a time and even then you have to add each one to the list individually.
1 Do not use the same password for different sites. I now make full use of a password manager to help me to do this. 2. Enable two-stage authentication wherever possible. 3. Any password change should be followed with a log out of ALL devices. 4. Check the junk, sent and deleted folders if you feel that there is any suspicious activity going on. 5. If you are going to access a new or unknown site use a unique password and ideally email account. 6. Don’t expect LinkedIn to help too much! MORTGAGE INTRODUCER
Review: The The Month Month That That Was Was Review:
Each month month The The Outlaw Outlaw Each draws some some tongue-intongue-indraws cheek parallels parallels between between cheek society at at large large and and aa society mortgage market market in in flux flux mortgage
The Good, The Good, the Bad, the Bad, the Boring the Boring & the Vulgar
& the Vulgar
Right. Thank ***k that’s outta the way for another year (I speak of course of the Christmas TV snorefest and the subsequent dry January. I don’t know which Well... was an inauspicious start to theas New was thethat more insipid of the two, especially I fellYear wasn’thard it? from the wagon in the early hours of 1 pretty Reading that some specialist were battling Feb! A disgraceful overdose onlenders Bombay Sapphire. funding line challenges… no doubt there will be Live ‘n learn. the usual cabal of in our industry now The evenings arebed-wetters drawing out, Spring is almost speculating a mini crisis occurring. perhaps in the air, it’son only six weeks ‘til the USAnd Masters and like failing practitioners such as Jamie Oliver,again, Jaguar we’re all back on the transaction treadmill Land Rover, and numerousfrom high evidenced by confident pronouncements street entities, they’ll of lenders and the first intermediary acquisition conveniently blame it the year. Which of course featured two long time all on the referendum industry stalwarts in LSL and PTFS. votes of overto17 On the face of it, five million quid appears be millionwatchful people two a good deal for LSL although of course years under ago. the punters rarely get to see what is actually Folk just need bonnet in deals of this kind. keep calm. For sure, some regulatory liabilitiestoand Now is not the potential provisions might feature but, time to be doomnotwithstanding, my hunch is that the team mongering. Just at LSL will have recovered their initial outlay let it play out. in under three years and quite possibly Phoenix: two. A clever bloke that Jon RoundTurning and to the Hard to identify more vanilla players, whilst it was amusing to read that three it certainly celebrated baggies fans in the industryhas the feel of another year even if now “controlled over 25% of itsdecent distribution” this forecast isI accept!) only anecdotally via (admittedly tongue-in-cheek, that lenders’ 2019 targets which (and story mayaggregated have less resonance once / if I’ve the seen Lord’s BTW, when didisyou ever see a leads lendertheir not hit a target Shepherd that Alan Pardew flock into andChampionship. thereby not pay sumptuous bonuses to its staff?! the
MORTGAGEINTRODUCER INTRODUCER MORTGAGE
JANUARY 2019 FEBRUARY 2018
Jon Round: clever bloke
Countrywide: Doing a Pep
The Outlaw actually met Pardew once. He spent most of the conversation looking over my shoulder into a mirror at himself... former players used to call him Chocolate, as Alan apparently loved ‘Pards’ so FCA: that he’d even lick and eat himself. much Forensic But wellapproach done LSL. Back of the net. Cyril style, RIP. Remaining in the waters of estate agency superThese itboys can move thethe dials whenever and tankers, might now take management at however theyaneed to – beto reasonably assured on that Countrywide few aeons turn around their own point! Especially if some of thebut niche lenders genuinely vessel. It’s not exactly listing it’s lost some do need toofcontract and the mainstream alpha males bouyancy late. The departure of its CEO could take back somebeen previously lost wallet share. surely not have a surprise to those within back, and 2018LSL ended with doing some pretty theLooking organisation are with certainly to promising news items. Countrywide right now what Guardiola is doing the FCA issued two butbut ironically to First, Moaninho. Hindsight is a different, facile thing I take inter-connected notices. It (and signalled no merit in having remarked at the PRA) time that the a more forensicwas approach to vigilate product transfers appointment a curiously ill-considered one. and second charge loans.sectors such as Healthcare Executives from other (andsometimes bloody finally!) it decided to actinon its canThen indeed make a difference financial very own Fresh recommendations from three years ago in services. ideas etc. But more often than not deciding to be more realistic and supportive these “retailing and customer-centric” playsaround don’t mortgage work (Andyprisoner Hornby,reliefs. anyone?). And allied to that, it equally wants to water-on-aensure that Estate agency is about a relentless thousands of existing borrowers aren’t being ripped stone approach. It’s unforgiving, uber-competitive off on uncompetitively priced go-to rates.Not Thea place and pretty much a hormonal sales-fest. Competition and Markets Authority found that people for anyone without tenacity and some cutting edges. stuckaswith their existing provider werescenarios, being ripped off And is so often the case in these to the tune of £4bn!!! the individuals who originally annointed the ‘David As much as appointment this is akin to have fixing long a roofleft long the Moyes’ styled theafter scene householder had actually several leakages, of their misjudgement anddiagnosed without any financial loss it isthemselves nonetheless very welcome. to incurred. We also witnessed ever so amusing In any event, I wish the theFCA’s Countrywide team a swift announcement that itare willsome be training its staff identify resurgence as there talented folk to in that Phoenixing (!). Curran and Laker to name but stable (Creffield, I hadand to both wince and whenbehemoth I read thattoo three) allowing LSL or laugh any other one... slack they may ashealthy well justfor plant few greenhorn new much is not the asector. staffers in to thethe offices of a selection of London’s repeat Turning lenders, Santander’s results didn’t offenders, popbut the they kettlenonetheless on and totally sparkle impressed. They justmay waithave a year or so andsome watch conceded miniscule market share the action real time! but 2017 was the year when their January 9 They’ll soon see domino’d to become announcement on PT’s office landlords, the gift that kept on giving, and then some. pipeline-owing It’s quaint isn’t it... how down through the brokers, unwanted years we can recall some epic periods minority where two shareholders scuffling lenders went head-toand even the head. brokerages’ own bankers Before buy-to-let became mainstream hung outwent to dryneedlessly and regulatory (and then feralbefore under their the PRA!) it was the Birmingham veryversus TMW slugfest. There was the Midshires mutual hara-kiri outcome of the RBS versus HBOS Jamie Oliver: Failing tear-up and we also saw several years of Charcol practitioner mixing it with London & Country as a duopoly before
eyes... and then they could even be given some concluding homework. Perhaps a 2000 word essay on (The Most Convenient Way to Expedite a Pre Pack Arrangement.) I despair. Which segways nicely into the wider subject of desperation. Which can be the only description for three of the soccer world’s supposedly headline acts. In December we suffered the Beckhams’ pitiful and continued obsession with securing Knighthood honours. I ask you... kissing Prince Harry’s backside at every opportunity? Then we had ‘arry “I ain’t never d’n anyfink dodgy” Redknapp finding his intellectual level on Celebrity Jungle. But crassness personified truly occurred as our ever dysfunctional Football Association saw fit to award Wayne Rooney a freebie Cap... literally days after his latest fly and drink to excess shame. It’s Room 101 for these three repellent chavs. Back to the mortgage world. And so to that which is pure ennui. Photo: Rwendland For right on cue we began the New Year with yet more tiresome bluster from the keyboard warriors in digi-broker land. Hey... did you know that one is now seemingly looking to launch its own range of products in 2019? Apparently “the next generation” of home loans. According to them: “The current mortgage process does not deliver enough speed and certainty for customers”. What a total croc. A very good mate of mine actually runs a national brokerage that did 4000 transactions last year. Like most other non-digital firms, its borrower complaints percentage was less than 0.5% of total cases and of these the vast majority were vexatious or frivolous. Those that were’t were due to unimpeachable lender or valuation frustrations… they were absolutely NOT due to a lack of speed of clarity! So here’s my first 2019 prediction – at least two of these over-engineered and ridiculously over-funded digi-firms will either evaporate this year or have to be consolidated. (Perhaps these business owners can get ahead of this and go and read the recently published articles on why less illusory enterprises such as independent bookshops are still flourishing!) The pushback against living an over-digital life has already actually started. You read it here first. Shift Alt Delete. Go do one. And so to some more unreliable predictions for the year. And some Jaguar Landrover: hopes and aspirations. Job losses Firstly an
aspiration. For our consumers at large, can we at last have a conclusive and transparent broker database by the summer? Credit to AMI figurehead Bob Sinclair who is foraging through the Canary Wharf and now Stratford treacle on this. And whilst simultaneously also trying to cajole the regulator into backsliding away from a Mortgage Market Study which was far too obsessed with matters
Theresa May: Maybot’s porous deal
such as a) the headline pricing of products and b) technology. As opposed to the FCA instead tackling the still blurred customer journey distinctions that exist, wherein certain brokers pass off advice, as purely information! Second. Brexit will likely be the dented can that’s kicked even further down the road. The whole thing has been a diabolical betrayal of what we democratically voted for. Fatigue has set in. Such that as an arch Brexiteer, if somebody offered me the useless MayBot’s porous deal the evening before the actual 2016 referendum, then yes… I’d have bitten their hands off. So let’s just bloody get out now. Even on fudged terms. Especially as once most of the EU economies begin to fall into recession, it’ll become clearer to our cowardly Europhiles that the EU Emperor really doesn’t have any actual clothes on. And finally, to football… bloody football. It’s of course an utterly unachievable wish. But footie needs to take a long hard look at itself. Abhorrent salaries, cheating, divin, shirt pulling, spyin, simulation, time wasting, spitting, swearing and abusing officialdom. Thank God the year’s finest sporting spectacle is almost upon us… Rugby’s Greatest Championship – The Six Nations. Where once again the prevaricating and unnecessarily bellicose Eddie Jones will expose himself as the primary reason why England won’t be topping the Irish or the Kiwi’s in Japan this autumn. Happy New Year all! I’ll be seeing you. MORTGAGE INTRODUCER
The Bigger Issue
House price growth was stronger outside London in 2018
How will house price growth While the rate of house price growth in the UK slowed in 2018, it is important to look beyond the national figures and identify how individual regions are performing. Take, for instance, the rate of house price growth in Liverpool. In the 12 months leading to October, Jerald Solis house prices in the city grew by business an impressive 6%. A similar trend development was noted in both Newcastle and and Cardiff, where house prices in the acquisitions cities grew by 4.2% and 4.6% director, respectively – these are examples Experience of regions that are benefitting from Invest significant investment in upgrading their infrastructure. “Luton is likely Evidence suggests that to experience these trends are set to continue in 2019. Indeed, for significant regional cities like Liverpool growth” investors can look beyond residential properties and also consider semi-commercial, commercial and student accommodation investments. Such demand will continue to attract property investors to these areas. Looking to London, meanwhile, there are factors driving some property investors away from the capital. Firstly, the stagnating rate of house price growth in 2018 has naturally deterred some real estate buyers. Secondly, with the city’s house prices still well above any other city in the country, investors are increasingly considering Home Counties and commuter cities as places to secure affordable and lucrative opportunities. Luton, for example, has been crowned London’s number one commuter location and this is complemented by the rising number of people relocating from the capital. Given the £1.5bn regeneration currently taking place in Luton to upgrade the town centre, including the construction of new-builds, this commuter town is likely to experience significant real estate growth in the coming year. In 2019, there will undoubtedly be great opportunities available to investors who look beyond the traditional property hotspots to find the cities and regions that really have the strongest growth prospects for the years ahead.
This is one of the toughest times to answer this question because these are unprecedented times, but my predictions are based on the Brexit deal being signed by the end of January.In areas such as London, East of England and the South, demand was high from Kate Faulkner 2012 up to the last 12-18 months managing when it ‘dropped’ off. This is partly director, due to hitting ‘affordability buffers’ Designs on due to mortgage changes, the Property loss of buy-to-let investors and an often-forgotten reason, the huge pent up demand from the credit crunch. With the current uncertainty in the economy and prices already stagnating or falling back 5-10% in these areas, its likely prices will be at best stagnant, transactions low and at worst around 5% falls. The Midlands have seen a growth spurt over the last few years, but it’s likely this will come to an end in 2019, mainly driven by uncertainty and the ‘hope’ that prices will fall if they don’t buy now. However, unlike areas such as the South/London, property investment such as buy-to-let can still stack up, so it’s likely this will ‘prop up’ the market in these regions and I’d still expect some price rises. “The ‘Northern The ‘Northern PowerPowerhouse’ house’ is likely to help continue to drive prices, with is likely to many investors believing this help continue is the ‘place to be’, and with a relatively strong economy to drive prices” driving local and investor demand I think it could be a good performer – but growth is not consistent. In the North East, prices are still 5% lower than 2007. This would typically suggest property prices should do well as they haven’t really ‘recovered’ so should ‘take off’. However, I don’t think that will happen, mainly because demand is always suppressed because the population growth is minimal. What is likely to happen in the first quarter is, for those with cash, there will be some good bargains available and over the year the real ‘winners’ will be postcodes rather than regions with good economic and wage growth, healthy equity levels and demand.
h perform in 2019? Much as I would like to provide a more upbeat message at the start of this year, the feedback we are hearing from RICS members around the country alongside our own analysis suggests that the housing market at a national level will be fairly flat in 2019. This is Simon likely to be the case whether one Rubinsohn is looking at the market from either chief a price or turnover standpoint. economist, However, the uninspiring headline RICS numbers will continue to mask significant regional divergences. It is hardly a new story “The Northern but there is little reason to expect much of an Ireland market is improvement in the mood demonstrating music in the London and wider South East a greater markets. Brexit related uncertainty may be part of resilience than the story but, arguably of most other parts” greater importance, is the legacy of the sharp price gains racked up in previous years which has stretched affordability ratios to the limit. The most visible contrast to this story is provided by Northern Ireland where the housing cycle has been slow to gather momentum this time around. One might be tempted to see Brexit as a big issue in this area as well but our insight suggests that the Northern Ireland market is currently demonstrating a greater resilience than most other parts of the country. This appears to be the case both in terms of buyer appetite and activity as well as price and sales expectations. Other parts of the UK where the housing market looks reasonably well supported include the Midlands, Yorkshire and Humberside and Scotland. Fears of a negative ripple out of the South East remain an ongoing concern but fundamentally, this is unlikely to be the dominant story over the next 12 months unless there is a material slowing in the economy and a deterioration in the employment picture. In the absence of such a development, value combined with supportive macro fundamentals will be the key to performance.
Going into 2019, the East Midlands and Wales are likely to continue being ‘winners’ in terms of activity and, more significantly, house price growth. Last year we saw the start of this trend when figures from Lloyds Bank Private Banking revealed John Phillips new million pound home hotspots operations starting to emerge. In the first half director, Just of 2018, sales of homes worth a Mortgages million pounds or more rose by and Spicer100% in Wales and 67% in the haart East Midlands, but fell by 8% in London, while the capital’s overall share of millionpound homes fell from 60% to 57%. There could be many reasons for this change, but likely explanations would be that million pound homes outside the capital are more likely to be bought to be lived in, while those in London are often investments, and Brexit uncertainty and the changes to stamp duty on second homes are putting people off. I think this trend will grow stronger in 2019, with even more investment in other regions, particularly the East Midlands, which will also benefit from the development of HS2 which will create excellent transport links between the capital and Nottingham. H2 could also result in increased property investment in the North East and North West thanks to direct links from London to Liverpool, “The North Manchester and Leeds. will also see The North will also see increased activity thanks increased to a range of new housing activity thanks initiatives, including Legal and General’s new factory to a range of in Leeds, which aims to new initiatives” build 3,500 homes a year, with the Yorkshire company planning to produce fullyfitted three-bedroom homes in less than a fortnight for as little as £65,000. Overall, I think house prices in the UK will recover in 2019 and after Brexit – when some of the uncertainty has gone and people can get a better idea of the political and economic situation – the whole country will benefit from a bit of a boost. JANUARY 2019
Two become one Michael Lloyd investigates the changes HLPartnership and Mortgage Support Network plan on implementing Back in 2006 Chris Tanner had a dream for an independent network and so bought mortgage and general insurance intermediary network HomeLoan Partnership from the Mortgage 200 Group of Companies. Two years later he became chief executive for HomeLoan Partnership, now HLPartnership, while after Mortgage Support Network was purchased by parent company Josewin in 2017 he became involved with that network too. “Every year we have grown the business including adviser numbers, ARs, mortgage placements and profit,” Tanner says. “We’ve only been able to do that by providing an environment brokers want to come to and because of that a number of firms will be joining us next year too.”
Together the networks have 572 advisers but are always looking for more to join. The ultimate aim however is for both HLPartnership and Mortgage Support Network to eventually combine, evolving into one. Shaun Almond, managing director of both networks, describes how the differences have started to disappear. They used to have a separate compliance director, sales process and used different platforms but this has since changed. Almond became managing director of both networks in October last year, Gavin Earnshaw was hired as compliance director for
both and now they both now use the same technology systems, Twenty7Tec and 360.net, and have integrating the best bits of the sales process from each network into one common process. “From 2019 we will have seven compliance people, the five at HLP and two at MSN and they’ll be more regionalised, giving better support to members,” Almond adds. Neil Hoare also joined as commercial director for both networks in 2015, while Mark Graves joined the holding company, Josewin, in November 2018 and was brought on board as chief operating officer for both networks.
“Some people at other networks complain they don’t get any support but we’ve always tried to ensure we can support and listen to them. We’ve tried to develop a family type approach”
Graves promises both networks will be offering the same training events and workshops, so the culture of the business will be integrated. Tanner says this culture is defined by always putting the adviser at the forefront of the business. “Some people at other networks complain they don’t get any support but we’ve always
tried to ensure we can support and listen to them,” he says. “We’ve tried to develop a family type approach. “Both networks have similar cultures with a very open approach to members so in both HLP and MSN you can phone and speak to the directors at both businesses. We’ve found the culture to be similar at both networks, so it’s just moved together naturally.” Graves says the difference between a corporate entity and independently run networks like HLP and MSN is their approachability. “That’s the fundamental difference and you therefore get the fleetness of foot when the market changes,” he says. “Whatever Brexit throws up this business will always have the advisers and their customers at the forefront of whatever decision-making we make.”
With HLP and MSN being the largest privately owned mortgage and protection networks, Graves highlights the importance of being a specialist in both mortgages and protection, rather than trying to bite off more than they can chew. “I think it’s hard enough getting mortgage brokers to take on the skillset they need with soft facts and protection without it stretching across pensions and investments,” he says. “I think the focus and biggest
challenge next year in the industry is getting the protection part up at the same level of skillset as the mortgage part.” In previous roles at Pink Home Loans and Sesame Bankhall Graves pushed for protection to be in the limelight and for more brokers to advise and sell it. “There is still a huge opportunity for mortgage brokers across the industry to look after their clients better regarding protection sales,” he says. “I think we’ll definitely look at supporting and creating the right habits for the advisers to look after their customers better across the whole piece.” During 2018 they recruited two business development managers that specialise in just talking about protection to advisers and businesses. Tanner says that, although Graves has numerous strengths, one that came to mind when hiring him was his reputation as ‘Mr. Protection’. “The industry undersells protection and the more you can do to drive brokers to sell protection to ensure people are fully protected is a good thing so that’s just one of the benefits of hiring Mark,” Tanner says. As well as being specialists in protection, the networks launched into later life lending including equity release and retirement interest-only mortgages last year. That market has grown to a record £4bn last year and Earnshaw predicts it to grow to £400bn within the next 10 years. They’ve allowed access to RIO products to all members in their networks and have created a framework where they can safely sell those products. “It’s a fantastic market, it’s grown 25% each year,” he says. “We have an established membership and firms joining us, seeing what we’ve done in that market and we’re confident we can provide them with the framework to grow their businesses going forward. So that’s another area of the market we’ve also
(From L to R) Shuan Almond, managing director; Mark Graves, chief operating officer; Neil Hoare, commercial director; Chris Tanner, chief executive; Gavin Earnshaw, compliance director
become known for.”
Technology is important to the team and they plan to launch a new website soon. Four years ago they rolled out an online platform developed with 360.net. It’s a mobile-friendly system where consumers input their details and upload documents that are required for brokers to check whether the case is worth proceeding with. “We want to use technology to help advisers become more successful, supporting the adviser to do their job better,” Graves says. “If you use technology correctly and we help advisers understand the benefits it gives, you’ll change the habits of advisers going forward.” Client data is now held on one system and Tanner says that, with the advancements of APIs, very shortly the networks will be able to fire that straight into lenders’ back offices. “This means we’re cutting down the amount of keying in data our brokers have to do so we’re increasing the amount of time they can spend with consumers,” he says. Tanner highlights that technology is helpful in speeding up processes but can never replace advice. “The most important thing consumers still want is advice,” he says. “In the end they actually want confirmation from an adviser that they have the right mortgage. “It’s very important that brokers adapt through technology because even though consumers want to interact in a different way they still want to deal with an adviser. “They just want to submit details and communicate more electronically so we’ll just ensure that our members within the network have the best technology.” Brokers can log on to one system to gain access to all the portals they need access to. As well as logging in to input information, clients with buy-to-let portfolios
can login to see the value of their properties, the number of policies taken out, the number of properties with outstanding loans and policies taken. “We can mine that data on behalf of our brokers and then can tell these brokers they have these requirements,” Tanner adds. “So we can deliver marketing straight to them and can increase the productivity of our brokers.” Larger firms in the network can use this data and appoint people to carry out specific tasks, for example, specialists in selling protection. “Now some of our larger firms have a team of mortgage brokers and a team for protection sales and the system can transfer the data at an appropriate time for another adviser that specialises in protection to deal with that client,” Tanner says. “So firms that take up that path and employ specialists for protection have seen sales for protection rise dramatically.” The system also generates leads for advisers when clients are coming up to the end of their current product, creating that opportunity for the broker. The adviser can programme the alert for a certain amount of days before the client’s product term ends, such as 30, 60, 90 or 120 days. “They’re constantly getting these customer interactions and we can drive that on behalf of our advisers on the network,” Earnshaw says. “We can keep that momentum going for them and create compliant messages for them as well.” “It’s much better than spending time going through cabinets or databases,” Hoare adds. “All the data is captured under ‘client’ as opposed to ‘transaction’ because we want to record cases to clients how someone is going with their property portfolio.” With compliance in mind, Earnshaw emphasises the importance of customers having control over their data. They also have a secure customer portal, creating a safe environment for their
documentation, bank statements and payslips. Hoare promises that in 2019 the networks will ensure every adviser is educated on how the system can create a very quick quote for general insurance for every mortgage. “There shouldn’t be any reason why an adviser won’t be able to offer a very speedy quote alongside the mortgage the way we’re adapting the current system to enable them to do it,” he says. Tanner is working with 360. net to make the link seamless for general insurance and he says the system can already autogenerate quotes, so brokers don’t have to input quote requirements. The team just hasn’t turned this feature on yet. “It’s all about saving rekeying because brokers key in to so many different systems, life quotes, the fact find, protection and into lenders’ systems to get APIs,” he says. Tanner says the last part in the chain is APIs but they’re still developing them. “We have reduced the keying in dramatically,” he says. “Everyone is saying we’ll have API connectivity this year and there are some lenders who can do it already but they tend to be smaller lenders with back office systems but what will change the game is when we start to see the likes of Santander and Halifax offer APIs because that’s the bulk of the market.”
Currently HLP and MSN cover the AR market, but Tanner recognises there’s a wider market out there and they want to offer services to mortgage and protection intermediaries across the board. “We look at strengths in the market, one of which is the DA sector and soon we will be announcing a separate entity to support the whole mortgage intermediary market, not just the AR sector,” he reveals. While he doesn’t go into details, Graves says the aim is for the services to launch in the first quarter,
adding that benefits to DAs will be mirrored in the AR space. “We want to challenge the status quo,” Graves says. “We will look to make it different from what’s currently out there and add different benefits to advisers to what they’re currently getting. You need an independent champion in the DA space and we’re going to be that with all the best bits this network offers.” As compliance director Earnshaw points out, the introduction of the Senior Managers and Certification Regime in December 2019 could see a lot of DA firms reflect on their propositions. “There’s going to be a lot of DA firms that will submit to the new regime to the FCA which will be different for them and may scare a few of them,” he predicts. “We are used to providing a safe environment for our members in the networks so why can’t we provide a safe environment to those firms who wish to stay independent and directly authorised but get the benefits of a network environment?” Graves says that advisers need to evolve to keep transacting and HLP and MSN are keeping the adviser and their customers at the forefront of everything they do, including this launch. He says they’ll launch it when ready but are just asking the views of their provider partners first to make it a joint approach to the market to ensure they make a difference. “We’re looking to shake things up a bit and make sure advisers have choice,” Graves says. “It’s incredibly important in the industry that independent networks can take on the corporates on giving adviser choice and that’s what the business has done from an outsider coming in. This is part of the reason why I joined. “Chris started this business and moved it all the way through from an independent base in an unbelievably competitive market. The market needs independent networks and in my opinion this
“We’re looking to shake things up a bit and make sure advisers have choice. It’s incredibly important in the industry that independent networks can take on the corporates”
one is as good as it gets.” HLP and MSN are certainly looking to morph into one via the holding company, and shake up the industry with an additional service in the DA space, all the while thinking of the adviser. “They are at the forefront of everything we do,” Tanner says. “Every strategy we put in place, every different IT enhancement
we make, every change on a compliance point of view, everything is geared about supporting that adviser and giving a good customer outcome.” And it seems that a good outcome is definitely on the cards. For brokers wondering what the future holds, maybe it’s time to jump onto the HLPartnership train? Time will surely tell.
State of the Nation
State of the Nation A year of two halves… a World Cup bounce and a heat wave to remember… more Brexit uncertainty and falling house prices in the Capital. Looking back and ahead, Mortgage Introducer talks to brokers at the coal face about the state of the nation 2018 was very much a year of two halves. The first was quite normal with good levels of business and a fairly stable purchase market. The second was a lot tougher. The purchase market dropped significantly, making things very difficult for many brokers. Those who had neglected their customer base while the purchase market was strong started to realise the impact of not looking after clients and were forced to drop their rates and offer other gimmicks to keep things ticking over. For our brokers, however, the story was very different. We’ve always believed in offering the best customer service possible, which means keeping in regular contact with clients to ensure their mortgage and protection products continue to meet their needs. This has greatly lessened the impact of a slow purchase market because we are still doing the same levels of business, it has just shifted to meet customer need. For example, many of our
John Phillips group operations director, Spicerhaart and Just Mortgages
brokers saw remortgaging and protection make up a far larger proportion of their overall business in 2018 than in previous years, while others found that, even though the purchase market was down, those who did buy needed help and advice more than ever. So we made sure we offered a truly all-round service, supporting our clients every step of the way. And when clients see first-hand how much value a good broker can bring they are more than happy to shout about it to their friends and family, which is why referrals were also at record levels last year. A lot of those referrals came off the back of fantastic reviews on social media; a channel we started actively engaging with a lot more in 2018. The response to our increased focus on using Facebook, LinkedIn, Twitter and Instagram was so positive that it will form an even bigger part of our business this year. Looking ahead, I think 2019 will be last year in reverse. I think
it will start off much the same as last year ended; a slow purchase market and stronger remortgage sector, supported by the fact that the latest UK Finance figures revealed remortgaging is at its highest levels in a decade. But as we start to get a better picture of what is happening with Brexit, I think we will start to see all that pent-up demand start to filter through. People tend to move home every three to four years, and all those who have held off will start looking to move again once Brexit is all over, and I think we will see the purchase market start to pick up once again. The positive impact of this tougher purchase market has been that brokers have had to work harder to find business, so their customers have been benefitting from a better service. I just hope that when things start to improve, brokers don’t forget about the value of looking after their current clients in favour of turning over as much new business as they can.
State of the Nation
Name: Barbara O’Brien Division: Just Mortgages, self-employed division Location: Barton-le-Clay
Name: David Sharpstone Division: Just Mortgages, self-employed division Location: Braintree
I’ve been a self-employed adviser for 10 years and, quite unexpectedly, last year was my best to date. I was busy all year working in and on my business. I planned early on for the UK to leave the EU and negate as much of the aftermath as possible and ensure a good 2019. I spent time focussing on social media, taking courses and learning as much as I could to capitalise on my clients’, and prospective clients’, growing reliance on social media. Recommendations come from all areas now and personal referrals on social media have to be taken very seriously, especially as all my business is selfgenerated, I don’t use any introducers. I also looked at my business in the longer-term and believe that to survive, especially against robo-advice and easy access online advice, I need to have a specialism. There are those for whom a face-to-face advice service is vital. I have helped sub-contractors, particularly foreign nationals, in the past and now have a specialist arm for the construction industry. This means I not only help people that often believe they can’t get a mortgage, but have created a niche for my business. I think it’s going to be tough over the next couple of years, but I am doing all I can to futureproof my business and provide continual high-class advice.
I came back into mortgages last summer after a nine-year career break. I wanted to go self-employed for the flexibility it brings, but that obviously meant building up a client base from nothing, so my year was spent focussing on that and it is really starting to pay dividends. I have built up great relationships with my clients, keeping in regular contact with them to check their mortgage and protection needs are still being met. That personal touch is how you keep clients and get those all-important referrals. The bulk of my business was remortgages. Lots of people who want a bigger house are reluctant to move due to the uncertainty surrounding Brexit, so are remortgaging and extending instead. I did a lot of Help to Buy. Builders are struggling in the current market, but the incentives out there for first-time buyers are excellent. So, while I am doing some second and third stepper mortgages, most of my purchase business is coming from Help to Buy. In terms of Brexit, I think it is fear of the unknown that has scared people off rather than Brexit itself. The next three months will be slower, but I don’t think house prices will fall significantly. We will continue to see the traditional peaks and troughs, while rates will probably remain fairly stable to get consumer confidence back.
“Lots of people who want a bigger house are reluctant to move due to the uncertainty surrounding Brexit, so are remortgaging and extending instead"
Name: Gemma Bedford Division: Haybrook Location: Barnsley A move from a small rural location to a bigger town has certainly presented its challenges. However, one thing I that hasn’t changed is that the people here
“It’s getting more difficult here for some people to move, many are waiting to see what Brexit will mean, but for those wanting to move there are affordability barriers. Most of the mortgages we do are 5% and 10% deposits, and we have had issues with credit scores. We are having to move more people away from high street lenders to find those with favourable criteria to get them a mortgage" do like to chat and prefer face-toface meetings than anything over the telephone or on the internet. There’s plenty of footfall in the agency and it was surprisingly busy until recently. To ensure we continued to grow we needed to build our brand to bring business in without relying on negotiators. We turned to Facebook and Instagram, which was really successful. We now have people asking for appointments, which is very positive. It’s getting more difficult here for some people to move, many are waiting to see what Brexit will mean, but for those wanting to move there are still affordability barriers. Most of the mortgages we do are 5 and 10% deposits, and we have had issues with credit scores. We are having to move more people away from high street lenders to find those with favourable criteria to get them a mortgage. People are generally older when buying their first home, which usually means they want bigger properties. This is also a problem because there are more people wanting to buy than there are properties, which means on many occasions people are settling rather than holding out for their dream home.
State of the Nation
Name: Elliott Valentine Division: Haart Location: Croydon With all the uncertainty surrounding Brexit, there is a real lack of consumer confidence and as a result, the estate agencies in South London have really struggled, which has understandably had a knock-on effect on the mortgage market in the area. To be honest, I don’t see that changing, even after March. I am obviously hoping things will improve, but unless we manage to get a really good deal or have another referendum, I fear it is only going to get worse. But it is not all doom and gloom – where I am in Croydon there is a lot of building and development going on, so that makes my particular area a bit more buoyant. And, although the purchase market is tough, there are other opportunities. For example, I have been working hard on the remortgage side of my business, and have recently completed all my equity release qualifications. Equity release is an area of huge growth and potential, so I see it as a really good opportunity for 2019 and beyond.
“With all the uncertainty surrounding Brexit, there is a real lack of consumer confidence and as a result, the estate agencies in South London have really struggled, which has had a knock-on effect on the mortgage market in the area. To be honest, I don’t see that changing, even after March” 52
Name: Carol Smith Division: Just Mortgages, selfemployed division Location: Runcorn Since working as a self-employed adviser in September 2017 I now have much more time to spend with clients, which is very rewarding. I had to get myself out and about and in front of lots of people to get started. I joined local networking groups, which worked really well. Ever since my business has grown through referrals, some of which have come through social media, especially Facebook recommendations. My diary was full most of the year. As you might expect, most of my business in 2018 came from remortgages and product transfers. There was, and still is, a lot of fear around Brexit and buyers were few and far between. So, it’s not surprising that more people are looking at remortgaging rather than moving, especially when interest rates are so low. It’s rare now to see anyone looking to fix for the traditional two years. Most are going for 5-year deals to give them longer-term security. Although I don’t expect much growth next year, at least until after we know what’s happening with Brexit, I do think there will be opportunities later in the year.
Name: Jack Highwood Division: Felicity J Lord Location: Tower Bridge Being based in the heart of London, I definitely experienced all the highs and lows of the property market in the past 12 months. However, on a personal basis I had my best year in five years. Given that London has taken the brunt of Brexit uncertainty and house prices have taken a tumble, that may
be surprising to some. However, I deal with a lot of overseas investors and that was no different in 2018. One of the best things I did last year was help an investor, who was looking at an Islamic mortgage, get a mainstream mortgage. This saved him around £250,000 in interest over the 13-year term. It was a challenge at the time, but very satisfying to get such a good result. Many of my clients’ fixed rates came to an end last year and business was split 45/55 between purchases and remortgages. There were fewer applications coming in and I received fewer referrals from other agents, so remortgages were the mainstay that ensured a successful year. Looking forward rents are likely to increase, especially in London, when letting fees are banned. Tenants affected by this may look at purchasing a home rather than entering a new rental agreement. No matter what happens with Brexit people will always need to move as circumstances change, or remortgage as deals end.
Name: Chelsea Hardie Division: Just Mortgages, selfemployed division Location: Swindon I had an interesting, and taxing, year professionally and personally. However moving from employed to self-employed was the best decision. Work life balance is perfect and, in a hard year personally, it meant I was able to take time out when I needed to without affecting my business. I had fantastic support from my management team and my peers, and when stress could have been a major factor, I was able to call upon my support network to make sure clients were always looked after. I never felt stressed. Even though outside influences could have affected my business, I still managed to have a really good year, particularly as it was my first. I worked hard to get myself known with some advertising and had great reviews online and
State of the Nation
in the local press. More recently this means I have grown through word of mouth and I am proud that people are confident in my abilities and happy to recommend me to others. If I had a pound for every person that asks me about the impact of Brexit I wouldn’t actually need to work! The answer is I really don’t know. One thing I can say is that I really don’t have concerns, people always need to remortgage and move home and will find wa way no matter what the circumstances.
Name: Steven Thomas Division: Just Mortgages, selfemployed division Location: Warrington 2018 was my first year as a selfemployed broker and I enjoyed the flexibility and freedom of being out of the corporate world, where everything was about numbers and spreadsheets, and back to what I love – focussing on my clients. I probably work just as many hours, but am able to fit them around the clients, which makes them happier and gives me huge job satisfaction. I did more transactional residential business last year. With Brexit uncertainty, lots of people are looking to ride out the changes, so have been opting for 3-5-year fixes. Offers are coming quick, but lenders are cautious, particularly about ground rents attached to apartments and additional service charges with new builds, so legal processes can hold things up. I don’t think Brexit will have much of an impact; it will be business as usual. Lots of first-time buyers are coming through, increasingly with gifted deposits from parents and grandparents and I’ve also seen an increase in buy-to-let. There was a knee-jerk reaction in the buy-to-let space following the changes, but now the dust has settled people are realising property is still a good investment. Even if local investors can’t see it, Londoners are shooting up the M6 because they can see the yields North West property
“Lots of first-time buyers are coming through, and I’ve also seen an increase in buy-to-let. There was a knee-jerk reaction in the buy-to-let space following the changes, but now the dust has settled people are realising property is still a good investment” can bring them, both monthly and long term.
Name: Emma Angel Division: Just Mortgages, self-employed division Location: Dover In May last year, my business partner Zoe Allsop and I took the plunge and went self-employed, launching Angel and Allsop Financial Services. Business is absolutely booming, and it has all come organically. Because we genuinely care about our clients, we have fun, we relate to them, and they become friends. So, not only do they keep coming back to us, and they recommend us to their friends and family. As a result, we are one of the best performing business in the division. We’re on target for £500,000 of business next year and will be looking to take on more staff as we continue to grow. Plus, we’ve been nominated for the Kent Women in Business Awards so we had a pretty phenomenal year. There is a lot of media hype around Brexit, but I think that’s all it is. Hype. Buyers still want to buy, lenders still want to lend, house prices are still rising, so we are just going to keep doing what we’re doing.
Name: Ken Brooke Division: Just Mortgages, selfemployed division Location: Bromley You might think that after 30 years in the business nothing could surprise me and that I have probably seen it all. And of course, I have seen and experienced an awful lot, but this is an ever-changing business and every year something new comes along and I am constantly learning and striving for excellence. Last year was good and I achieved an increase year-on-year. I get most of my business from recommendations and, because I have been doing this for such a long time, I am now dealing with ‘second generation’ purchasers. I spend a lot of time, not just getting to know my younger clients, but also sharing experiences, learning what life means to them and making the process less intimidating. Protection is a priority and last year one of my high points was taking the opportunity to engage with clients and discuss how vital protection is. I spoke to all the companies on our panel and learned about all their products, to ensure I always recommend the right products. No doubt 2019 will dish up more opportunities to learn and adapt and that’s something not even the Brexit outcome can change. As far as business is concerned, I am optimistic. I will however be disappointed if I don’t do at least the same amount of business as I did in 2018.
Name: Yvette Dias Division: Haart Location: Swindon
I have been working in finance for seven years but have always wanted to be a mortgage broker. Nine months ago, I took the plunge and it was the best decision I could MORTGAGE INTRODUCER
State of the Nation
have made. While I have nothing to compare to, I feel I had a really strong year. Being brand-new to the business, there have been a few challenges, mainly on the knowledge side as there is so much to take on board – different lenders, criteria and types of mortgage – but I am enjoying the learning process I do all my meetings face-to-face and I really love that part of the job; I am able to build up a real rapport with the clients which helps me understand their needs better. I have got a lot of leads from Haart, which is great, but most of my business is referrals. I am from Goa originally and there is a thriving Goan community in Swindon, so lots of my clients have recommended me to their friends and family, which is so rewarding. Going into 2019, I don’t think Brexit will have as big an impact as people fear. People still need to go to work, people still need to buy and sell houses, and at the moment, there is a fear of the unknown, but once a decision has been made, it will go back to normal .
Name: James Peters Division: Just Mortgages, head office Location: Colchester, Essex
2018 was definitely more challenging. The long hot summer – with the World Cup in the middle – and Brexit uncertainty played their part in pushing property down on people’s list of priorities. As a result, remortgages made up a greater part of overall business, with many remortgaging to take advantage of low rates, while others – who may have moved in less uncertain circumstances – opt to remortgage to fund home improvements. I work with clients all over the country, so am not as affected by regional factors and actually started to see a bit of an upturn in the last third of the year. I predominately talk to clients over the phone, so I’ve worked hard to open new channels of communications to offer a personal service, including screen mirroring and video calls. I have also set up a Facebook page to
"I work with clients all over the country, so am not as affected by regional factors and actually started to see a bit of an upturn in the last third of the year. I predominately talk to clients over the phone, so I’ve worked hard to open new channels of communications to offer a personal service” enable clients to interact with me, and each other. Feedback has been very positive; I see social media as integral to the growth of the business. Brexit will continue to breed uncertainty, but it won’t put everyone off. The cost of buying a house tends to get more expensive, not less, and rates are still really good, so for those with a longterm view, it could bring opportunity.
Name: Lianna Tilley Division: Just Mortgages, selfemployed division Location: Swindon Last year I wondered how I could top a brilliant 2017, especially with all the uncertainty regarding Brexit. The answer was to make a drastic change. I decided to transfer a Haart agency to become self-employed. By June I was set up and haven’t looked back. Having built a base at the agency I was able to continue with existing clients. Although I no longer get leads through the agency, my clients are very loyal and they refer me. I’ve set up an office at home where my clients come. I think they find it more comfortable than the agency, but that might have something to do with a four month old puppy. I work
when clients want to see me, rather than being tied to agency hours. My clients prefer to see me in the evening and rarely on a Saturday or Sunday, so I also have my weekends back. The only challenge I faced was being busier than I’d anticipated. However, I’ve had great support and my husband, who’s background is in banking, has been a great help and will be joining me soon. Business last year was split 50/50 between purchases and remortgages and I have a feeling, although it may be a bit flat for the first quarter, it will be a similar picture this year.
Name: Jack Rabson Division: Haart Location: Sheerness I’ve just finished my first year in an agency in Kent, having been in Central London for seven years. It was quite a change, but it was also very rewarding as the mix of business and clientele is completely different. The bulk of business was from firsttime-buyers, unusual for me. Property is much more affordable and there’s a good mix of properties available. Because property prices are more realistic it’s easier for younger people to save for a deposit and most of the mortgages have been 95% LTV. Some have needed the Bank of Mum and Dad to help with the 5% deposit, but when the average price for a three-bedroom house is £180,000, it’s nowhere near as onerous as in the city. I took over a decent back book from the previous adviser, who gave me a base to start from, but the amount of remortgage and product transfers was very low compared to purchase activity. Getting people to overcome their fears regarding Brexit was particularly challenging. However, my advice is ‘make decisions based on your own life plans’. When clients think that way, they can see that putting things on hold, because of what might happen, could impact them personally for longer than the length of time it will take to exit the EU.
State of the Nation
Name: Lauren Baylis Division: Haart Location: Derby At the beginning of 2018 my predictions were much more subdued than in 2017, and for the first few months that proved to be the case. Being based in a town centre estate agency has its benefits, but it also means there are times when I have no control over things that affect my business. This was the case for the first half of 2018 until a new member of staff joined and things started to turn around. The mainstay was still purchase, helped greatly by the new negotiator who came in with no experience and completely flew. To be honest without her I would not have had such a good year. I also had a legacy back book from the previous adviser at the branch, which gave me many opportunities to get in touch and basically start from scratch with clients that hadn’t been looked after for some time. Client servicing, protection and remortgages completely changed my business last year and will continue to do so this year. I’m definitely a glass half full person and I expect 2019 to be even better than last year. Brexit is likely to slow things down early on, but I do believe that despite this the second half of the year will pick up as people return to normality.
Name: Yasmin Cromwell Division: Haart Location: Harlow Although most of last year was good for business, I saw a change in the last quarter. Towards the end of the year the homemovers dropped off and I saw an increase in remortgage business.
There is an air of caution from people who may have been thinking about moving house and, until Brexit is finalised, I don’t think this will change. We had a steady flow of first-time buyers looking to get away from more expensive rental, in fact demand outweighs supply constantly. Following the 3% stamp duty surcharge for additional purchases, I had expected a reduction in first-time landlords and professional landlords looking to increase their portfolios, but that wasn’t the case. The base rate rise created more remortgage opportunities. A whole generation of people, who’ve never experienced rate rises, suddenly realised the difference further increases would make. Clients now want long-term stability, even if it’s not the cheapest option now. They are fixing for longer rather than prioritising shortterm flexibility. 2019 is probably going to be a year of two halves, before and after Brexit. But there are still opportunities. First-time buyers struggling to raise a full deposit are already signing up for shared ownership on a large local development where Haart is sole agent. This will be a big opportunity for us this year.
Name: Daniel Clow Division: Employed, First Time Buyer and Investment Centre Location: Colchester 2018 was my first full year settled in one branch and I really enjoyed it. I did a good level of business and now I have got the branch running how I like it, things have
picked up. Most of my business was first-timebuyer mortgages, with a few Help to Buy schemes and a lot of gifted deposits, which I think will become even more commonplace in 2019. People find the process of selling for the first time very daunting, but are often overlooked in favour of first-time buyers, so I made sure I am offering an all-round service. As a result, an
increasing number of house listings and viewings in the branch now come through me. I am helping people from the start of the process, and by going that extra mile I am getting a lot of referrals. Going into 2019, I think it’s uncertainty rather than Brexit itself that could make things tougher. People don’t want to make the ‘wrong’ move, but I ask them – do you want a house or a home? Because if it is a home, a bit of house price fluctuation shouldn’t affect your decision. History shows house prices double every 20 years, so there is no reason this won’t happen again, no matter what happens with Brexit.
Name: Thomas Holder Division: Haart Location: Bar Hill, Cambridge 2018 was tougher than previous years, mainly because house prices in Cambridge were overinflated and now seem to be levelling out. This put people off from making decisions, although it did create other opportunities. For example, I did more remortgaging, both as a result of a tougher purchase market and people looking to fix following interest rate rises. Plus, the rise in ‘fee-free’ competitors coming into the market actually boosted my business. People can see the value of talking to a real person and getting good advice, rather than just being given the cheapest rates. This in turn leads to longer-lasting client relationships building, as well as referrals. Therefore, I have actually done more business this year than in 2016 or 2017. There has been a media frenzy about Brexit but I take a more pragmatic view. I don’t think house prices will drop off a cliff and any economic impact will be much longerterm, if at all. Moreover, with lenders starting to revisit affordability criteria which stimulates the market, coupled with further interest rate rises expected, encouraging remortgaging, I think 2019 will be quite a positive year.
A second opinion Our panel discusses whether second charge and secured loans are outdated terms, the issue of dual pricing and whether we could see more lenders get involved. Words by Michael Lloyd Robyn Hall: How sustainable is the second charge market after Vida pulled out following a six month trial? Robert Owen: It’s hardly a trial. It wasn’t very long. Buster Tolfree: It’s almost a bit misleading because there’s others like Precise who have made it work and stayed in the market. They trialed the product, it was six months and they decided not to go live which is understandable because it’s a pretty competitive market. The mainstream sector of the market has a handful of lenders all fighting for similar levels of business and if you have a certain effort you’re putting in and foothold you’re trying to get it’s not surprising it’s not that appealing. It’s a billion pounds a year. It’s not that big a market. James Briggs: I don’t think the fact they dropped out is any indication of the sustainability of the market. I think they tried to enter a crowded space with some different types of products particularly around the specialist buy-to-let and HMO, which quite underserved parts of the market so when a lender enters the market with those unique products they get flooded with business for them. It was probably disproportionate with what they wanted to do. BT: The mortgage market as a whole was £145bn in 2012 while the second charge market was about £240m. Today the first charge market is £260bn and the second
charge market is £1.1bn, so it’s grown more in percentage terms than the first charge market, albeit from a lower base. The market is still there, it’s not the same pre-crunch, it’s different. Maybe this is a £1bn market. Potentially it may never grow beyond that size because of the specialist size of the product. It’s sustainable otherwise it wouldn’t still be there. RO: It was sustainable through the recession unlike non-conforming lenders who pulled out. The likes of Precise and Shawbrook carried on lending so I’d say it’s very sustainable. Robert Sinclair: I’d agree. The first charge market is relatively benign and straightforward, second charge is finding its feet and can branch out more. The second charge market isn’t in a challenger space, it’s in a gap absorption space. When that first charge market is moving more and more into higher risk products it’s going to come under pressure in terms of its growth curve. At the point where we go into higher interest rates in the economic cycle I think this product will come back a bit more again. It might go from £1bn to £2bn but I can’t see it going back to pre-credit crunch levels of £6bn or more. RO: It’s a niche product. Martin Stewart: The product is very sustainable from an advice point of view. It’s an essential
product. It’s grown by 500% and can grow by 500% more. It could become a £5bn market. I think the market will have a downturn this year or the year after, which I think is inevitable. First charge lenders are tightening up their criteria. Lending they won’t do will go to the second charge market. BT: Depending on what happens with Brexit and the wider economy, if interest rates continue to rise all those that have taken out more unsecured credit than they probably should’ve done in the last 10 years will want to reduce their monthly outgoings and contact mortgage brokers to see their options to consolidate some of that debt. If interest rates go that could stimulate the market. MS: I think that’s happening already. There’s a real squeeze on incomes in the UK right now. RS: Rate’s important too. The fact we have lenders multi-funded makes it a more sustainable market as well. RH: Can you see more lenders coming into the market? Would it have to grow significantly for that to happen? BT: There is a cacophony of prime lenders in that space and the market isn’t big enough to sustain huge growth for new lenders. You’ve got Kent Reliance, us, Precise; those sorts of banks.
(From L to R): Robert Owen, UTB; Buster Tolfree, UTB; Emma Hall; GW Legal; Robert Sinclair, AMI; James Briggs, Precise; Martin Stewart, London Money
RS: You might see some building societies come into this space. JB: If they have something to add. I think West One has done quite well. They’ve come to the market in a less crowded space. RO: And the more the merrier. I’d say there are six or seven lenders in the mainstream market making up 80% of the market and the 20% is another dozen, and it’s that market that tends to get commented on. RS: Master brokers would say there’s 14 or 15 lenders in the market in total. RO: I’d say that’s probably right. RH: What kind of market is this 20%? RO: Customers have to pass the affordability test which is key. It’s more sub-prime. I don’t know too much about it and I’m curious to know if someone fails my affordability test then how they manage to pass someone else’s. MS: Brokers like choice and moan there’s not much choice but end up going with their preferred lender anyway so there’s some hypocrisy. I’d like to see new lenders come in. I
don’t know why Vida didn’t work but we couldn’t deal with them directly. JB: I think if a new lender has a limited amount of money committing to a product line like Vida, by only having limited distribution it helps them do that in a controlled way and properly test the product. MS: After the launch I didn’t see anything about it in the press. It wasn’t a very good launch. BT: We talked about this five or six representing the 80% but these guys all have a direct proposition, I think. RH: All mortgage brokers are required under MCOB 4.4A to provide customers with information about the availability of alternative finance options. Should second charge brokers have to consider first charges, especially if the lead is generated by the internet, and what’s stopping mortgage brokers recommending seconds at the moment? RS: I think the rules the regulator sets out allows some interesting ways for firms to hide and that’s the JANUARY 2019
challenge. But that comes from a history of them not wanting to interfere in the structure of the market but as they become a competition and price regulator that will change. The rules allow mortgage firms to say they can only talk about certain things like residential, equity release or retirement interest-only. But if you’re Intrinsic or Openwork you have every permission to talk about everything but then they only talk about certain things. I think the challenge as an industry is we haven’t addressed this at all. The regulator still has rules where you can exclude certain aspects because that suits you as a business but doesn’t suit the consumer. But that’s the history of how we’ve built the regulator. RO: I’m not sure it’s that inconvenient. By all means have regulation for a secured loan but that doesn’t mean just because there’s one set of regulations, that’s the way the customer thinks. At the end of the day a customer wants to buy a home and considers a first charge mortgage for that. When they’re told to pay a valuation fee for their first mortgage, they think that’s a great idea but don’t want to pay one for a second charge because MORTGAGE INTRODUCER
they think they know what it’s worth as they already live there.
looking at both products which is great. The ones that aren’t are heavily caveated with ‘have you looked at the option of a further advance, have you looked at a remortgage?’ so whilst they aren’t offering these options in-house they are still discussing those options with clients.
BT: No consumer goes out wanting a second charge. They say they want a new kitchen or extension or to consolidate debt. It’s right it’s regulated under MCOB because its secured on the house. The reason for the loan is different and that’s why on online aggregator sites it’s difficult to get a personal loan as opposed to a secured loan.
MS: The problem is the client doesn’t know what they don’t know. They’re very naïve and dip into the market every few years. They’re not interested or engaged with the market. Their job is completely different. They’re trusting us as an industry to do the right thing and I think in a lot of respects we’re letting them down. I don’t think all first charge brokers go to master brokers. I think there are some lazy brokers. Whilst some master brokers have a panel of lenders, it’s not comprehensive and I think there’s a degree of shoehorning a client into a convenient place and not necessarily for their convenience, maybe for the broker’s or master broker’s convenience. I think if you looked at client files on first charge or master broker files it’d be riddled with unsuitable advice because of this restriction or opt out whereby you can say you’re doing one thing, not the other and vice versa. I think that’s quite dangerous and is a
RO: I call it the jam jar mentality. You’d see customers want to put money in different savings accounts. It’s this concept of spread. If you have a first mortgage where the interest rate is competitive and a second mortgage and put all your effort into paying that quicker, you could find yourself with a 25-year total mortgage at a slightly higher rate and could end up better off that way. RS: The regulator seems to be worried about forcing firms to widen their scope and forcing lenders to open it up to everybody. While rules stay as they are firms will choose to play within the structure they want to play in. Whether it’s a lender restricting their distribution or a broker restricting what they’ll advise on because they’re specialists to a degree, I think the challenge is whether the consumer ends up in the right place and how do you make sure they understand that properly?
JB: So what stops your mortgage broker peers from engaging with seconds? MS: That goes back to education. We’re not a £5bn market even now after MCD and seminars. Brokers still struggle to engage with it. JB: People have got to want to be educated though. RS: It’s reputational as much as anything. Seconds still has a label that it’s expensive and the fees are too much but that doesn’t mean it’s necessarily true. MS: It’s also the structure of it. First charge brokers will have access to 95% of first charge lenders direct and there will be some packagers you can go to for the niche stuff. On second charge 90% of the lenders are only available through packagers. It’s the reverse and they’re not used to dealing like that. Emma Hall: Couldn’t the regulator make it compulsory that all brokers have to give second charge advice? BT: That’s the change that’s required. RS: It’ll drive the market. MS: It would drive second charges massively.
JB: Most second charge master brokers will see if they have business leads from mortgage brokers, who probably already investigated a further advanced remortgage option for the client and then went to the second charge, maybe because that option wasn’t available or because it was for a true comparison. I think some of the big master brokers who deal with the aggregators are building mortgage departments or acquiring mortgage business to service that comparison and
fundamental flaw that needs addressing and that’s a regulator issue, a brokering issue and that needs to be addressed.
JB: Probably about 90% of the market offer direct access. MS: It’s not advertised very well and the brokers like low hanging fruit and don’t want to be stretched intellectually. There’s a degree of knowledge you have to learn for seconds. Brokers like to work within a very narrow band of knowledge and they have to broaden that. BT: We basically do the master JANUARY 2019
broker’s packaging job in-house. But I think part of the issue comes down to, until sourcing systems make it able to compare like for like it’s not necessarily that easy to say this customer is better off with a remortgage or a further advance or seconds.
the quality of business they submit but not in the depth the regulator should be doing. Lenders and brokers pay the regulator £40m a year to regulate us and we should get some return on investment, which I don’t think we get. MS: I think we do demand a return on that money. You can’t force a master broker to implement a business model that suits the lender. That’s a regulatory job.
RS: The big firms, Connells, Countrywide, Mortgage Advice Bureau, L&C, all exclude seconds from school so all the next generation of people coming through getting trained are not taught seconds at all during their training. JB: That is very disappointing. MS: They should be leading that drive for holistic broaden advice but that will also unfortunately channel all those brokers back into the master broker channel and whilst there’s a need for master brokers and packagers to a degree, I don’t think they should necessarily be such a dominant force as they are in the second charge world. BT: Then the change needs to come from the regulator. MS: I don’t think the regulator really understands our business which is a shame. They’re very busy people but I think they need to take a longer harder look at what goes on. JB: But they’re now taking more of an active interest in the second charge market now. There’s a round of visits with certain master brokers to understand fees, the process and where the master broker fits in to the packager model. MS: There’s a huge contradiction in regulation. We have all the regulatory things we’ve talked about designed to give positive client outcomes but because we have this current structure in the regulation, we’re probably not always getting these positive outcomes.
RH: As lenders would you force packagers or master brokers to ensure all the alternatives in the advice process are considered – would you make that a requirement? JB: I don’t think so. We’re lenders, not regulators. To understand that you’d need to understand the whole conversation with the client and all the demands and needs. Lenders look at transcripts of conversations to determine whether it was the most suitable product. BT: I think you can only do that if you were the one giving the advice. RO: One of the hallmarks of the second charge mortgage market has been its exclusivity in the intermediary market. The beauty of a broker is they can deal with that market. If you put the lead to a broker they are able to use the whole marketplace. I would say two thirds of the market is introduced. That’s a healthy market for customers to be advised across a spectrum. RS: We need to remember the customer should be at the front end. MMR segregated things to make lenders deal with affordability and advisers deal with suitability. Some lenders do some quality metrics to look at how well the broker is generally doing in terms of
RS: Vast amounts of people will want to talk about seconds but I think a lot of brokers will start down a journey with a master broker from a packaging basis but very quickly reverse back out and leave the whole of the piece to the master broker, so the master broker picks up the advice and the adviser steps away. BT: For me the reason for that is the proportion of debt consolidation in the market. A customer might want a loan and say they have no credit but after a search the broker finds they have a lot of debt. That’s probably why the advice moves up the chain, otherwise it’s a ‘he said, she said’ and then back to the customer scenario. MS: And there’s an element that people just want to get it off their desk and put it on someone else’s and unfortunately that’s still very prevalent across the industry. The most important thing a broker can do is maintain positive relations with a client. JB: That sounds like a really poor, disjointed journey where the broker starts giving advice, something goes wrong and the master broker takes over, taking over giving the advice. That’s not a good experience for the client. MS: And that doesn’t contribute to the overall reputation of the industry. RS: I think the FCA are trying to understand that mechanical
process and where the money is.
doesn’t suit their model. There is growing choice out there.
RH: What do you think about brokers that go off-panel, becoming AR? Does that affect their PI insurance?
RH: What do you think about dual pricing where lenders have a direct arm and charge more if the client comes direct with higher rates? Is this TCF?
RO: It depends on the network’s rules.
MS: I’m not aware of the lenders. It doesn’t fit with TCF on first charges. There should be a level playing field from the outset across the board. To the regulator there’s just the secured lender market and that needs to be as flat and even and fair as possible for everybody.
JB: I think the networks appoint a master broker for a reason because they’ve done the due diligence on them which is very thorough. They wouldn’t be allowed to go off-panel because the AR needs to use the appointed master broker. If the mortgage broker wants to go off-panel there’s probably a reason for that.
makes no difference because ultimately the principal of the firm will be responsible for everything that AR has done. Therefore from the liability of the principal of that network, the regulator and Ombudsman doesn’t care and will nail that principal of the network for everything that network has done.
EH: I think they do go off-panel though. The network can’t make them. MS: I think they can. Occasionally they get consent. We get a large number of ARs that come to us who don’t want to go to the preferred packager because in their opinion they’ve been steered down that route.
RO: And I assume that AR is simply using a different master broker to give that advice. It’d be more confusing to me if that AR had selected the lender and given the advice. That’s what I call off-panel.
RO: This isn’t going off-panel. This is not using the appointed master broker. BT: Most networks have an accepted panel of direct seconds. I think there’s a difference between choosing to go direct to the lender off-panel but still ending up with a lender that’s recognised, to off-panel lending.
RS: There are some firms who only have 14, 16 lenders on panel but have used double that number of off-panel brokers in the last 12 months. MS: If I was head of an AR I would be a lot more concerned about my PI insurer than my regulator because the regulator doesn’t care.
RO: We shouldn’t call that off-panel. It’s a mid-panel concept. It still needs to be addressed but it’s not necessarily as bad.
BT: There is precedent for some master brokers offering independent PI outside of the networks.
RS: There’s a range of issues with this. The AR of the network has a contractional obligation to the principal of the network which they may breach if they haven’t asked for permission. There’s also a PI issue in terms of does that mean the indemnity insurance might not cover them for it which is a separate issue? Regulatory wise it
JB: The master broker would have to give the advice in that scenario. But a lot of the networks that we deal with review their master broker panel every year and the vast majority have two or three or even more options of master brokers that their ARs can approach if one JANUARY 2019
BT: I’m not sure who, if anyone is doing this. There’s obviously precedent for exclusives, different rates with different terms across distribution. I’m not aware of anyone who does exactly like-forlike but just charges more direct than through another distribution. JB: I’m not aware of any lenders that have different pricing structures. MS: There are some that do. JB: I think what’s understandable is maybe having different commercial terms like paying a reduced commission on direct business. There’s so much resource from a lender’s point of view that you need to pump in to do direct business. I think there’s lenders out there trying to shoehorn mortgage brokers into being master brokers, which doesn’t work because mortgage brokers don’t have experience of booking valuations, getting first charge consent and mortgage references. RO: Advice and packaging are two different skillsets. JB: Those lenders haven’t made the investment into a direct model like Precise and UTB have. You need dedicated resource for it. BT: We’ve grown that area of the business slowly because its more cumbersome. It’s a different skillset.
JB: Direct is a significant part of our second charge business. I think it’s about a third of what we do. It’s our plans to grow that. But there will always be a place for master brokers and they’ll always add value to the process for those mortgage brokers who can’t or don’t want to provide advice, even if just for the administration.
brokers now who only do second charges. Lots have diversified into bridging and buy-to-let.
MS: Do you see a difference in the quality of the business from packaging and from coming direct?
MS: I think if we want to improve we should rebrand the industry. There’s a £25bn first charge market and £1bn second charge market which the regulator sees no difference between. We need to dignify the market to get more engagement with the broker and I don’t think we’re doing that at the moment.
JB: We did to begin with. It was significantly better quality and cleaner with higher scoring cases on average and larger advances but that was the spike from the start and is very similar to the master broker business we get now. BT: For us it’s not a big volume to really judge it. When I think quality I think ‘are the loans affordable, do they pay and are they maintained?’ and the answer’s ‘yes absolutely’. The origination profile is not fundamentally different. I think you might get the odd larger loan because B2B business will be a higher average loan size typically than coming from an aggregator. RH: What do we think of the terms master broker and secured loan? Some have called the terms outdated and want them dropped. RO: But master broker has been the name since the industry started around 1972. It’s called that for a reason because they’re doing the packaging and advice at the same time. JB: For me it has got legacy overtones. We’ve talked about how the industry has moved on significantly over the past 10 years and I think the term master broker refers to a time where there was very limited distribution and there was only a small number of packagers and lenders. There aren’t many second charge master
RO: To me it’s the advice-giving packager. BT: The name doesn’t matter because they’re doing the same thing.
RS: It’s about clarity of who’s giving the advice. Someone may start on a process chatting to someone on a pure packaging basis and it morphs into an advice discussion when they’re not authorised to do it. These labels have always been here. Because of the mechanics where they’re different and the packaging is different I perhaps understand why there should be a different label. Packaging is different in first and second charges. RO: In the first world packaging didn’t exist until Solent was turned
into a packager by Kensington in 1993. The first packager happened to be a master broker on seconds and decided as Kensington didn’t have any admin people, to use them as a packager and the whole packaging world in first charge mortgages was created. MS: It needs rebranding. BT: Unless it’s a defined term the regulator introduces, you’re not going to change what all the mortgage advisers and people in financial services understands the terms as being. MS: If 90% of the business is going through master brokers and mortgage brokers turn off because of the term master broker and its legacy issues, that’s why the market isn’t growing as fast as it could be. BT: If UTB started calling them packagers or specialist distributors it won’t make a difference. MS: It was structured 10 or 15 years ago and hasn’t evolved. How much is still going through that channel? From a first charge broker perspective it needs to be split up and spread out evenly across the whole industry. You’re channeling the broker into a master broker and so channeling the client down that route as well and that’s wrong. In my opinion it completely compromises the ethos of suitable advice for the client in my opinion. BT: That’s not us as lenders saying you can only deal with master brokers. We deal direct. You’re saying the end mortgage adviser with the consumer isn’t giving the best advice because they’re discounting second charges. They don’t have to send it to a master broker, they can go direct. So I’d ask why isn’t the mortgage adviser considering the product? MS: The industry is whispering ‘you can go direct’, people can’t hear it. Culturally it has to change.
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Fighting talk Steve Walker, managing director, Promise Specialist Lending, says it’s imperative to put customers first At present the mortgage market stands at something of a generational divide and it’s one that could have considerable implications for the second charge market. Effective planning and forward thinking can help to ensure a successful future. But what happens when that forward thinking and preparation impacts negatively on the here and now? There’s certainly a danger that in worrying too much about the future and what’s to come we fail to think about what’s happening in the present. I fear we may be running the risk of this when it comes to the current industry focus on affordability stress testing. Let me start by saying it is of course essential that lenders are considering whether a person will be able to afford a loan or mortgage in the future. They need to know that if a person’s circumstances were to change they wouldn’t suddenly be facing financial ruin. We’ve seen enough in the world of finance and politics to know the unpredictable can and does happen and we need to consider that when we are making lending decisions. However, are we at risk of turning down perfectly suitable borrowers or not acting in their best interest because of fears of something that might not happen. Imagine, for example, you want to take out car insurance. You have a clean license and are a very good driver but the insurer turns you down because you might have a crash in the future. We must find a balance between protecting the client in the future whilst not negatively impacting the client’s needs today.
In trying to protect the consumer from himself we may now have castrated the general borrowing public. I saw an application turned down today because the borrower’s gym membership made the loan unaffordable after stress testing – that’s assuming interest rates increased by 3% and she had no pay rises or other reductions in outgoings. Even after my Christmas overeating I don’t see gym membership of £125 per month as a committed or essential expense. It’s nonsense and made doubly so as the lender doesn’t consider the £350 non-court maintenance the borrower receives. If rates went up that borrower could cancel the membership. There are similar examples where borrowers have become overcommitted and need to consolidate their credit. They can afford everything at the moment and consolidating will reduce their outgoings by £500 now and even more in the future when their zero per cent cards move to the default rates. These people are often being turned down because lenders are over cautious about certain non-essential outgoings and the concern they might not be able to afford a loan at some point in the future based of a lot of unquantified “ifs”. Borrowers shout “I am paying everything now and this loan will reduce my outgoings by £500 – what do you mean I can’t afford it?” Sometimes it’s difficult to argue against. I could be harsh and suggest such borrowers should have JANUARY 2019
thought about this before taking out multiple lines of unsecured credit and perhaps that’s an issue the regulator needs to look at more closely. However, the reality for those borrowers is that if they can’t consolidate they can’t afford their basic essentials unless they allow their credit file to be wrecked or worse fall in to arrears on their mortgage. And where does that leave them in terms of good outcomes for future borrowing – “great news that you have had a £20K pay rise but the rates you will pay have now trebled because of your credit profile is ruined” For advisers this is a massive frustration – let’s remember that the adviser has done the fact find and better understands both sides of the coin whilst lenders are looking through a far narrower window and probably spending half of that time looking over their shoulder at the regulator. The recent regulatory thrust has done an excellent job in making sure advisers think more about the future issues around affordability and it is now embedded in the process. But do we now need to move away from black box underwriting and instead return to a place of more common sense and balance so that the consumer’s needs and circumstances can have equal billing with ticking the various compliance boxes. As an industry are we really putting the customer first or have their needs become secondary to everyone else in the process covering their backs? Certainly food for thought. MORTGAGE INTRODUCER
Loan Introducer Cover
Strong and stable As the market gets back to business for another year, Loan Introducer asks some of the biggest names in second charge what they’re hoping for in 2019
The next 12 months promise to be among the most interesting and, perhaps, chaotic, in the UK’s history. We are less than 100 days away from the deadline for Brexit, we still don’t know if we’ll leave or how we’ll leave, who’ll be in charge when we do and what it’ll mean for any of us. But while we can’t predict or plan for anything in politics right now, looking ahead at our own industry is a little easier! We asked some of the key players in seconds to tell us what they’re hoping for this year.
Tim Wheeldon, chief operating officer, Fluent for Advisers It would be facetious to ask for world peace as a New Year wish, when closer to home, the Brexit scenario has, on one hand, polarised the country, while at the same time united anyone with half a brain into a state of helpless incredulity at the antics of the political class on both sides of the Channel. My wish for 2019, not only for the second charge sector, but for the lending industry in general would be stability. If there was ever a time when the country needed stability, this is that time. 2018 has been a great year, with more choice of funding than I can ever remember. But don’t think for one minute that cannot just as easily recede or disappear. The uncertainty that Brexit is creating is a recipe that will not sit right with funders or securitisation specialists, if allowed to continue. So, for the sake of the industry, I am hoping for a more stable environment in 2019. We need closure or, at the very least, an agreement of what form Brexit will take. Whatever the outcome, we will then be able to plan accordingly.
Alistair Ewing, managing director, The Lending Channel With second charge annual lending volume continuing to teeter around the £1bn mark, what more can we as an industry be doing to get back to somewhere near the £7bn precrash volume levels? First of all, I think that while volumes have remained relatively static, we have to remember that MCD and March 2016 saw a huge change in how the second charge industry wrote its business. The arrival of FCA regulation saw a number of key changes being introduced to the sector – not least new affordability models. There will doubtless be an unknown quantity of business that would have completed pre-crunch that would no longer fit criteria. There is still a huge amount of education required with stakeholders in the wider mortgage market. Second charge is still considered a niche or subprime product by many mortgage brokers despite concerted efforts to change this mindset. I would like to see much less debate on the fee charging structure and much more press coverage devoted to the actual value and benefits clients might get
from taking out a second charge. One of the best ways to keep the broker community informed is to run continuous case studies demonstrating the types of clients that take these loans out and how they benefited. Tony Marshall, managing director, Equifinance I believe we’ll see an emergence or remodelling of criteria and new products to suit the self-employed. I truly believe that the self-employed are facing, or being forced into, financial exclusion as lenders struggle to attempt to apply criteria and rules that are geared toward the employed. There is a stark difference between an employed individual receiving a fixed salary on PAYE and an entrepreneur who owns a limited company whose revenue and therefore income make up will not be static. Likewise, the same applies to the difference between a sole trader decorator and that of a partner in a firm of solicitors or a dentist in a practice, let alone a contractor working under an umbrella firm. It’s essential that the industry delivers
products that are suited to purpose for the various profiles of customer we are looking to serve. Our customers are using second charges for a variety of purposes where a remortgage isn’t viable or suitable and move forward with a better financial future as a result. Therefore, we need to keep increasing the positive profile of the sector which in turn will lead to continued expansion of the market. Lenders will work with distribution partners to develop a more efficient distribution mechanism, allowing for greater awareness of the benefits of seconds in the broker market as well as better service and access to products for customers. During 2019 Brexit will be out of the way (we hope), in one shape or form, but whatever the impact on the property market I’m confident the second charge sector will be able to adapt to the prevailing market conditions. Simon Mules, commercial director, Optimum Credit If my first Christmas wish came true, I’d like to see a steady increase in the volumes that the market has started to see. The month of October saw the market reach breach the £100m
a month number for the first time in 2018, so there is reason for Optimism. Of course, it needs more than just optimism to make this happen. Direct awareness to the consumer remains an area of opportunity, so we may just start to see lenders choose to advertise via T.V., surely something that brokers and lenders would like. This market has lenders offering great interest rates with a very transparent product, there is every reason to ensure the consumer is aware! Similarly, to grow the market further, the mortgage intermediary remains incredibly important. The intermediary is very well placed to ensure that the advice they give also considers whether a second mortgage is appropriate. For this to happen, either the lender needs to help, educate and encourage those brokers to come direct or those second mortgage experts who already have many intermediary relationships need to expand their operations further. For my second Christmas wish, I hope the market will benefit from further FCA regulatory visits. It’s clear that brokers will be visited and as such we would like to see a positive outcome to these visits. For those of us that have received an FCA visit you will realise that there is always scope to learn and improve, culturally this is important for any market and business which operates transparently.
As I have said previously, it was not so long ago that the first mortgage market was creating headlines about ‘steak dinners’. It’s also likely that further lenders will receive a visit, so it remains important that the market can also see that they are attempting to do the right thing. Above all, for the second charge market to function correctly, we must all be aiming to ensure the customer is receiving the correct outcome, this is something, in my experience, that brokers and lenders are aligned to. My third Christmas wish is to see new innovation, there are far too many lenders who see rates cuts as innovation. Innovation , can be as simple as improving the service you offer to brokers or making the most of emerging technologies. Brokers need to work at a pace, the second charge market has a much better service reputation than the first charge market, so lenders failing to deliver on service need to improve. My fourth and final wish is dedicated to the team at Optimum Credit. We have a fantastic team of people at Optimum who have helped us scale new heights, including the sale to Pepper Money in 2018. This sale will deliver powerful benefits to our second charge staff as well as our objectives. The acquisition has been very positive and long may this continue.
Paul Stringer, director, Norton Finance 2018 has been a positive year for the second charge market in that it has grown steadily, indicating that more brokers and consumers are continuing to see the benefits of a second charge. Hopefully, we will be able to build on this in 2019 to continue to develop and improve what the second charge market has to offer. Leading on from this, I feel we need to see continued â€œI would personally positive coverage of the market. This could increase trust in like to see improved the industry and reflect the rates and products true benefits of second charge loans as a realistic option for at higher LTV ratios customers who are borrowing money. to further encourage To see progress in the second use of secondsâ€? charge market I believe the mortgage sourcing systems need to build on the great work they have already carried out on integrating second charge with first charge products. When a second charge option is displayed alongside the first charge options, where it would be beneficial for a customer to consider a second charge as an alternative to a first, then brokers could truly see how a secured loan would be a great alternative for their customers. I also believe there is still room for extending second charge product ranges, I would personally like to see improved rates and products at higher LTV ratios to further encourage use of seconds for customers with little equity in their houses.
SFI: FIBA Bridging
Raising the profile of new lenders is crucial Happy New Year! That might sound rather an ironic greeting as I write this in the run up to Christmas. However, I am aware that by the time you read this article, the country may be facing one of a number of scenarios. The first, and most unlikely, is that the current Brexit deal will have gone through Westminster. The second being its complete rejection, which, if the EU is unwilling to compromise, would mean a no deal exit, and in the third scenario we could be looking forward to a general election with a different party leading the country or another referendum. It would be too easy to settle into a melancholy mood with these possibilities dampening the New Year spirit. Frankly, I am not one of those who sees a glass half empty and while we will face challenges in 2019, I think we need to maintain a bit more perspective when it comes to planning and managing our businesses. The wider finance market has had a very good 2018 and it has been clear from all the roadshows and seminars I attended on behalf of FIBA during the year, that the sector is in rude health with demand from businesses for financial assistance and advice remaining strong and the number of different sources for finance at an all-time high. I presented the report and survey into SME finance at Westminster in November to an assembled audience that represented government, regulators, SME trade bodies and lenders to business. It was clear to me that there is now the joint will to ensure that SME access to finance in the future will have a more effective profile in the coming months and years. One of the major findings of the report was that, although there has been a huge increase in the lending facilities available to SME firms, just under half who applied to their banks were declined and half of those who were declined then chose to look no further,
Adam Tyler executive chairman, FIBA
believing that there were no more avenues to explore. Asked why they had given up looking, SME owners cited accessibility, lack of understanding and confidence in lenders they had not heard of as contributory factors. Also just under a third believed fees and/or interest rates charged by non-high street lenders would be too high. On the other side of the coin, Lenders also believed that trust among SMEs was a factor in small businesses not pursuing other options with lenders that they had not heard of, or whom they felt might not have longevity. It is going to be incumbent upon us as an industry to increase the visibility of available finance and to establish the kind of trust that SMEs have traditionally felt in the past with their own banks. This will be as important as the number of funders and the products they offer. Funding might indeed become less abundant in 2019, depending on what deal, if any, is concluded with the EU. However, the opportunity to provide SME’s with greater confidence when seeking new funding is still likely to be the major con-
sideration this year. Brands can take a long time to establish. Our main clearing banks have had at least a century or more to become household names, so what do we do to help the newer funders who want to service SMEs? Subsidising financial institutions and their marketing is not what Government is there to provide. However, it could create a new kitemark standard via the British Business Bank, or the equivalent of an ISO, to give specialist lenders who meet certain criteria, the extra credibility they need in the eyes of those SMEs who feel they have no other option than the high street, or not to borrow at all. Support from parliamentarians of all sides are keen to come together and work to see what practical measures can be taken to give SME owners confidence in the capabilities and longevity of the array of funders and lending options now available. However, we cannot simply rely on parliamentary intervention to help improve visibility. As a champion of the intermediary channel, FIBA is keen to encourage finance advisers to work with lenders to build trust when they talk to their SME customers. A joint approach between advisers and lenders would go a long way to bridging the credibility gap. Greater focus on understanding and communicating to SME clients why a particular lender is being recommended, as much as cost and T’s and C’s, could help to overcome the understandable reluctance of SME’s to engage with ‘new’ lenders, which currently do not have the profiles which currently inspire confidence. Lenders need to do more to illustrate their financial strengths including attitude to risk, as well as provide advisers with the information to help them when talking to customers. A concerted effort between brokers, lenders, trade bodies and government in 2019 to give SMEs the confidence to borrow to expand their business opportunities, will be a major goal this year. www.mortgageintroducer.com
INTRODUCER presents the
THURSDAY 7 MARCH 2019 GHILLIE DHU EDINBURGH NOMINATE YOUR BUSINESS AND FIND OUT MORE AT WWW.SCOTTISHMORTGAGEAWARDS.COM CONTACT THE TEAM FOR MORE INFORMATION ON 0203 883 9010
Opportunity knocks once more We all voted for a life-changing event which none of us understood and we gambled the promises would come true and the future would be better than the stability we enjoyed. Well, not quite all of us as 48% voted to rely on the status quo. Nonetheless, Brexit will come, with a good or bad deal, or with no deal. We had our moment of democracy, cast our vote and now we stand by and watch. Brexit dominates the airwaves, it is the front page and represents at least a quarter of all the news reported, but at the end of the day, what can we do except keep our heads down and get on with our lives? In our bridging finance world, will we be richer or poorer because of Brexit, who knows? However, let us take stock and look at the facts because experience shows that in the lending business, as one door closes, another opens. Since the EU Referendum vote on 23 June 2016, what are the changes which affect our business? First, the residential market is
Brian Rubins executive chairman, Alternative Bridging Corporation
static but that may be because of the uncertainty of Brexit or because stamp duty changes a year earlier slowed the market, exacerbated a shortage of stock and within not too long, caused activity to reduce to a trickle. Now it takes forever for sales to complete and every main-stream letter looks under every rock for hidden problems. But, it is an opportunity! Those who need to move, need to buy and bridging allows them to do so quickly before obtaining a long-term loan. In the main, the auctions are not quite as successful as last year, but well-priced stock is selling and even with extended completion periods of six-weeks, unless buyers are cashrich, bridging is the answer before exiting into the mainstream. As the auctioneer will have ensured there is a detailed legal pack available, meeting a 28 or 42-day deadline should be a no-brainer for any experienced commercial bridging finance lender. Yes, it’s an opportunity! House sales may be slower than
they were, and processing Help to Buy is like watching paint dry. That will not stop small to medium-sized developers starting new projects, but a shortage of bank debt will. Several of the bridging lenders have morphed into residential development finance, some more surefooted and reliable than others, but those who have are both available and more aggressive than the High Street. Lending 65% of gross development value, equivalent to 80% of total cost or perhaps a little more and it includes finance for site purchase, construction, fees and interest. A little dearer but does it matter if the alternative is not on offer. It’s an opportunity! Brokers looking for alternative sources of finance for residential, regulated and commercial loans and development finance will find it all under one roof from a handful of bridging lenders. Meet them and convert the enquiries into loans. It’s an opportunity!
Cream always rises to the top A group of six business development managers were asked to rank in sequence, the five bridging finance issues most important to their brokers. Not unsurprisingly, no two BDM’s shared the same experiences or opinions although four of the six agreed on the most important issue. So, what was the majority vote? By a material margin, the efficiency of the due diligence process and the speed of execution. Well, this is bridging and by inference, brokers and borrowers alike expect the process to happen quickly and simply and it can. There are bottlenecks in the system but they can be avoided by lenders who are well organised. First, valuation. For loans on owner-occupied homes or ASTs, in most cases there is no excuse for delay in obtaining a valuation and effective lenders have close relationships with their panel valuers, most of the process, including quoting fees being conducted on-line. But for period properties, larger and more valuable homes or commercial properties, this is not always possible and often days will pass before the fee quotation is provided. Next, well-tested solicitors, in-house or external, pro-active and not just responsive, liaising closely with underwriters and case managers are essential. For
smaller loans, reliance on title insurance removes much of the drudgery and delay. Only one BDM reported LTVs to be the most significant issue but two more included it at choice two, collectively making this the second most important factor. Four of the six BDMs voted relationships with their brokers into third place. This was somewhat surprising as management expected this would be number one, driven by all the other factors. However, it was not read as complacency in manging broker relationships but a concern that other issues, such as delay needed to be avoided and, as a result, the relationships would be good. In their comments, the BDMs made it clear that doing what was promised without deviation was of paramount importance. Amazingly only one BDM cited pricing and it came last at number five. None reported it to be unimportant and if it was meaningfully out of line, opportunities would be lost but if it was at, or around, the best, the final choice of lender would be influenced by the due diligence process and resultant speed of execution and the lender’s reputation to deliver demonstrating that in a crowded market place, cream rises to the top.
SFI: Stamp duty
It’s time to start thinking outside the box With higher rates of stamp duty, stricter lending criteria and the removal of tax relief on mortgage costs continuing to raise levels of expenditure on rental portfolios to untenable limits, the capacity for landlords to maintain viable levels of profitability has been severely tested over the past two or three years. Consequently, the ratio of property investors looking to quit the market has risen significantly within this period (with one in five landlords considering selling up, according to a recent survey by the National Landlords Association), while the number of landlords operating as limited companies has also rocketed (with 79% of buy to let purchase completions in the first half of 2018 conducted by ‘professional’ landlords, according to Kent Reliance). However, with limited companies incurring both stamp duty costs and capital gains tax liabilities, and recent proposals from the Office for Tax Simplification for dividends to be taxed at the same rate of income (potentially raising the amounts that limited companies would pay on dividends to at least 20%- a 125% increase) there is a growing constituency of landlords who have chosen to forego these options and pursue a less fraught (and infinitely more lucrative), investment route- commercial properties. Indeed, according to the property consultancy company Allsop, the number of residential landlords choosing to invest in commercial properties has effectively trebled in the past three to four years, with rental yields on office space and mixed-use lets consistently outstripping those on residential properties, lower thresholds on stamp duty charges (and the absence of the government’s 3% surcharge) contributing to better margins and (typically) longer leases providing a greater sense of reliability and security in terms of income streams. www.mortgageintroducer.com
Dave Pinnington director of intermediary relations, Finance 4 Business
Moreover, whereas transactions on residential properties can often involve lengthy (and hugely expensive) periods of refurbishment before they are finally let, commercial propositions are invariably bought with a tenant and lease already in place (thereby ensuring an immediate flow of income), while landlord obligations are also lower for these types of investment, with (standard) ‘full repairing and insuring’ (FRI) leases placing responsibility for the provision of all such requirements upon the tenant; essentially leaving landlords to sit back and wait for revenues to roll in. Furthermore, once we factor in the added (and reassuring) stringency of credit checks on prospective commercial tenants and the ability of these tenants to reassign leases at times of underperformance or severe economic strife (thereby ensuring financial continuity and minimising the risk of void periods), we can see how attractive these investments are for landlords, offering higher than average yields on business models which are ultimately self-sustaining. Which begs the obvious question: why aren’t brokers doing more to offer these type of investment options to their clients, especially given that capital raising for residential and personal purposes is experiencing something of a lull at the present time? Lenders have reported a significant upswing in the number of brokers looking at commercial business opportunities over the past few months (attracted, no doubt, by the high ratios of repeat business which these ventures can afford, as well as minimal workloads and the added bonus of sourcing viable new streams of revenue), with many brokerage firms using databases of existing clients to identify candidates who would be suitable, or could benefit, from expanding their operations to a commercial footing. Indeed, the ability to access
custom-bases such as these places brokers in a unique (and entirely advantageous) position to engage with a wide range of commercial business openings, driving up levels of awareness amongst prospective clients (with whom they may already have a lengthy or successful business relationship) to a variety of possible approaches, while reviewing the possibility of remortgaging and second charge lending options on residential (and other) BTL properties to reach their recommendations- a win-win scenario. However, in order to take advantage of these opportunities, brokers will need to adopt a new type of approach to the needs of their clients and to make sure that they are asking the right questions. For example, many landlords favour retail units or small offices for commercial investments, yet according to the latest commercial property market survey by RICS (the Royal Institution of Chartered Surveyors), retail lets have experienced a decline of 8% in demand over the second quarter of this year (with rents expected to fall or remain static over the next twelve months), while demand for offices has remained ‘steady’ (with rental growth projections expecting to achieve a 5% increase on net balances). Both remain decent options for investors, of course (with many landlords continuing to report increases in rents on prime retail spaces, irrespective of the current dip in uptake), but with rental growth on industrial lets projected to increase by 35% over the next twelve months (according to RICS), and mixed use properties generating average gross yields of 7.8% over the second quarter (according to the Mortgage for Business ‘Buy to Let Mortgage Index’), brokers should be encouraging clients to ‘think bigger’ in terms of the many available options on the market, or to shift their perceptions as to what constitutes a sound investment and look beyond the ‘tried and tested’. Because the rewards are self-evidently there. But, brokers will need to seize the mantle and think ‘outside of the box’ if they are to open up these possibilities to their clients.
The Last Word
Rocking the industry Christine Toner 13/03/1984 – 28/12/18 Our The Last Word column this month is dedicated to mortgage journalist Christine Toner (pictured). Christine passed away on 28 December last year aged 34 and leaves two young children and husband Adam. Christine was a mortgage journalist through and through, having started her first job back at Mortgage Strategy in 2005 after graduating from the University of Central Lancashire. From there as a cub reporter she went on to reach new heights and it wasn’t long before she became features editor of the magazine and a rock-solid stalwart making sure that the issue went to press each week. After leaving Mortgage Strategy Christine went on to work for the likes of Moneywise, Move Publishing, MusicNews.com and was also a regular contributor to Mortgage Introducer. Marco Gandolfi, publisher and owner of Music-news.com, said: “Christine was a remarkable person – a real talent and had an ear for new music. She will be greatly missed.” Other tributes flowed in last month too. As well as being an outstanding and award winning journalist Christine had also built a small PR empire, writing articles for the likes of Blacks Connect, Uinsure, The Buy to Let Club and Promise Solutions to name but a few. Steve Walker, managing director of Promise Solutions, said: “Christine was great to work with. She had huge breadth of experience, contacts and extreme likeability which made the whole job of dealing with PR easy. “The devastating news of Christine passing was a huge shock and my thoughts are very much with her family and friends.” Ying Tan, managing director of The Buy to Let Club, summed up the feelings of many.
“Christine was an amazing talented lady. She was my go to writer for many of my industry articles and I am in complete shock. There are many people in our industry who owe their PR success to Christine Toner. My thoughts and prayers are with you and your family.” Alison Beech, now commercial director at FlatFair, said: “Christine was a valued journalist who will be missed. I was with my ex-husband Julien Holmes tonight who’d also had the pleasure of supplying copy for Christine to make readable and he was so sad to hear of her very premature passing.” Elsewhere other PR luminaries paid respects too. Debbie Staveley, owner of B-Clear Communications, said ”I’m devastated to hear the news of Christine, she was such a lovely person and will be very missed.” Former colleagues and other journalists paid respects too. Leah Milner, former editor of Money Marketing and who worked with Christine on Mortgage Strategy, said: “We have been friends since
working together at Mortgage Strategy back in 2007. I admired Christine. She was so talented but never ego driven or attention seeking. She always underplayed her talents and achievements as she did her health problems. She was such an impressive woman and I’m heartbroken that she’s gone.” Former journalist and colleague Matt West added: “Christine was ace! She was just lovely to be around, always smiling, always positive, even when she was having a hard time.” Robyn Hall, publishing editor of Mortgage Introducer, said: “Christine was an inspiration to us all. For the last 13 years she was one of the most exceptional and talented journalists I’ve ever worked with – and also knew how to keep me in check when it came to press day! “Christine was the best of the best and had such a zest for life. She did more for mortgage journalism than anyone will ever realise. I’ve not only lost a colleague but also a great friend and fellow Scouser. Her spirit will live on.” Christine’s funeral took place on 18 January at St Anthony’s Church on Scotland Road, Liverpool and was followed by a service at Anfield Crematorium. Christine’s sister, Clair Diggle, is hoping to raise some money to support charities that had been close to Christine’s heart. “Christine did a lot of work for charity, so we want to support two that were particularly close to her heart,” she said. “We are asking people who wish to make donations to do so through this page, and we will share the proceeds between Zoe’s Place and Claire’s House Children’s Hospice.” You can find the link to the donation page here: https://bit.ly/2RH2ZjW or go to https://www.justgiving.com/ crowdfunding/inmemoryofchristinetoner
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The Hall of Fame
What you would have won To Alexandra Palace, home of the 2019 William Hill World Darts Championship where MI publishing editor Robyn Hall and Investec Private Banking’s Peter Izard, were all too keen to soak up the atmosphere. As The HoF’s exclusive snaps show here they both are getting in on the action and somehow stumbled across a gaggle of nuns, seemingly on the run from Stuttgart. Not content with just watching the darts here’s another snap of Izard getting some top throwing tips from the darts legend that is Colin Lloyd. Lloyd, from Colchester, was nicknamed Jaws when he was on the circuit proper. Now retired, the former number one ranked player – winner of the 2004 World Grand Prix and 2005 World Matchplay – is happy dishing out advice and prone to the occasional corporate event. You read it here first.
Here’s a cheeky snap of MI publishing editor Robyn Hall pictured at Wolverhampton’s Molineux stadium with Impact’s Dale Jannels and dad Vic ahead of the football team’s 0-2 defeat to Liverpool, courtesy of those kind folk at Tipton & Cosley. Planting Liverpool at the top of the table for Christmas, it was on the shoulders of Virgil van Dijk that this victory was built. Liverpool’s great Dutch centre-back scored the second and marshalled the game on a night when the rain never stopped in front of the biggest home crowd Molineux had seen since 1981. More of the same please.
Red Carpet Treatment…
£113,000 and counting! More Red Carpet shenanigans from The Mortgage Sleep Out gang and Mortgage Introducer is immensely proud to report that the total raised for this event was over £113,000. That’s a staggering amount of money for charity partner End Youth Homelessness. What’s more, by 17 December Take me Home, the charity single written and recorded to raise money for End Youth Homelessness and performed by The Mortgage Industry Collective, had reached the top 10 on the Amazon download chart. Just a few days after its release, the song made a quick impression on the charts, at one point topping the list of Amazon Music’s Movers and Shakers. It is still available to download on Amazon, Google Play and now also on iTunes. One hundred percent of the proceeds from the song will go to help young homeless people get back on their feet. Kit Thompson from Brightstar, who played guitar on the song, told The HoF: “When Paul (Brett) asked me to play guitar on the track for charity, I jumped at the chance. We had a blast in the studio recording it and we’re really pleased with the end result. “It demonstrates just how utterly awesome the mortgage industry is and, when we come together as a group, we can really make a difference to people’s lives. Please share and download the song. Your 79p can make a difference and change lives!” Sponsors who helped to make it all possible included Precise Mortgages, Mortgage Advice Bureau Atom Bank, Foundation Home Loans, Landbay, Nationwide, One Savings Bank, Teachers Building Society, TSB, Skipton Building Society, Vida Homeloans, West Bromwich Building Society and Sainsbury’s Bank. The HoF salutes you all on a job well done.
Not so dry January...
Musical extravaganza Hugh Jackman: The Man, The Music. The Show. takes on a tour of the UK later this year. This was not lost on MI publishing editor Robyn Hall over Christmas when Jackman, well his cardboard cut out, made an appearance at home. Here he is pictured with Hope Capital’s Jonathan Sealey who popped around to visit the legend.
Here’s Andrew Montlake, PR Gnu and founding director of Coreco, taking time out reflecting on the success of Take Me Home (see above) which he helped organise with fellow industry leg-end Paul Brett of Landbay fame whilst taking in the result of the government’s Brexit defeat. Any excuse...
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THURSDAY 7 MARCH 2019 GHILLIE DHU EDINBURGH NOMINATE YOUR BUSINESS AND FIND OUT MORE AT WWW.SCOTTISHMORTGAGEAWARDS.COM CONTACT THE TEAM FOR MORE INFORMATION ON 0203 883 9010