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TAKING A FAIR SHARE Zephyr Homeloans on their plans for the buy-to-let market
Robert Sinclair Moving Hub Interview The Outlaw
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ou could be forgiven for taking a glass half empty view of the market at the moment. Following on from the debacle that has been Brexit the market was finally building up a head of steam. However now we have the coronavirus. Whatever your views on it – from a mere sniﬄe to the new black death – there is no denying its impact. The global economy is being predicted to grow at its slowest rate since 2009 to the outbreak, according to the Organisation for Economic Cooperation and Development (OECD). This was borne out during the last week of February which saw the worst performance of major stock markets since the 2008 financial crisis. Fear of the coronavirus outbreak means that some people are choosing to avoid activities that might expose them to the risk of infection. Property viewings will be declining for sure. At the beginning of March the Bank of England said it would continue to monitor developments and would be assessing the potential impact on the economy and financial systems.
A spokesperson said: “The Bank is working closely with HM Treasury and the FCA (Financial Conduct Authority) - as well as our international partners - to ensure all necessary steps are taken to protect financial and monetary stability.” But there are limits to what monetary policy can achieve in the face of a global pandemic. As businesses of all shapes and sizes shut their doors a cut to interest rates is unlikely achieve much more than a morale boost. If people don’t want to go shopping, eat at restaurants, travel internationally or stay in hotels, having access to cheaper credit isn’t really going to be a panacea to this crisis. The market was experiencing a postelection/post-Brexit day boom but it could struggle if this virus takes hold. Estate agents, Benham & Reeves, did a poll last week and found that, for 83% of buyers and sellers, coronavirus would have no impact on their decision-making – for now at least. Let’s hope this is a storm in a tea cup and not a return to diﬃcult operating environment. Only time will tell. M I
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Contents 7 AMI Review 8 IMLA Review 9 Market Review 12 Marketing Review 14 Adverse Review 15 Aﬀordability Review 16 London Review 18 Buy-to-let Review 26 Protection Review 36 GI Review 38 Technology Review 45 Product Review 50 Interview: The Moving Hub 53 Conveyancing Review 56 Education Review 58 The Outlaw Dominate me
62 The Bigger Issue The eﬀect of Stamp Duty on the mortgage market
INTERVIEW: ZEPHYR HOMELOANS
64 Cover: Wind of change Jessica Nangle speaks to the team behind buy-to-let lender Zephyr Homeloans 70 Loan Introducer Interview Matt Cottle of Y3S talks second charge 72 Loan Introducer The latest from the second charge market 77 Specialist Finance Introducer The latest updates from the specialist finance sector 82 The Hall of Fame One night in Scotland...
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A little top heavy Robert Sinclair chief executive officer, AMI
he long-awaited Policy Statement on Mortgage Advice and Selling Standards has now been published by the FCA. Whilst the policy changes came into effect from 31 January there are transitional provisions that run to 30 July 2020 which allows firms to defer application. As the FCA has grown its staff to almost 4,000 people it has also subtly changed shape. In addition to the chair and chief executive it has evolved a number of divisions within its structure. Strategy & Competition Supervision - Investment, Wholesale & Specialists Supervision - Retail & Authorisations Enforcement & Market Oversight Operations To operate and manage these the FCA has appointed 34 directors and 84 heads of departments to provide leadership and direction for the markets it regulates. What is important to remember is that the significant prudential risks are all supervised by the PRA, with the FCA focussed on consumer based competition and conduct. What may astonish most in our industry is that there are also 408 managers and 315 technical specialists. The total of 844 people in these senior roles is a significant overhead. This has happened swiftly over the seven years since creation. I can remember when there were only a very small number of technical specialists. This then leaves the remaining 3,100 people doing the real day job as senior associates and associates, as well as administrators. The FCA operates with an average salary and pension cost of £80k per www.mortgageintroducer.com
annum per person, with most directors earning more than £240k per annum, therefore this has to be seen as a regulator staffed by competent people. However, they also managed to accrue almost 26,000 sick days last year, over six days each on average. Supervising our industry must be very stressful. As AMI we continue to challenge the growing costs of the FCA
where they continue to add to their agenda without adequately prioritising their issues or dropping items off the table. We will continue to challenge activity such as mortgage execution only which will diminish consumer protection and ensure that those new firms authorised genuinely put the consumer first. M I
Building operational resilience
perational resilience has become an area of priority for the FCA and was included in their 2019/20 Business Plan. They issued a Consultation Paper on 5 December 2019 and within the mortgage intermediation sector it will apply to SM&CR enhanced firms. However, all firms ought to review the contents of the paper with their directors and senior management as there is useful information for all to consider. There have been many high-profile examples of poor operational resilience in financial services. A notable example would be the complications following TSB’s technology migration failure. As technology becomes more prevalent as a way for firms to deliver products and services and consumers’ and businesses’ reliance on such technology grows, it is important to ensure firms are robust and are able to “absorb and adapt to shocks, rather than contribute to them”. The emphasis is on how firms need to shift their thinking from disruptions that ‘might’ happen to disruptions that ‘will’ happen. Currently, many firms focus on the recovery of systems, but instead they should focus more on the continuity of supply and provision of services to limit the wider impact on consumers. Important business services are defined as “a service that a firm provides to an external end user or participant. Business services deliver a specific outcome or service and should be distinguished from lines of business, e.g. retail and commercial mortgages, which are a collection of services and activities”.
It will be down to an individual firm to determine what their important business services are, as these will not be prescribed by the FCA. Firms will also need to consider the chain that makes up these services. The second stage is to carry out ‘mapping’, where firms identify and document the resources that deliver and support their important business services, providing a clearer picture to identify any vulnerabilities and to remedy them. The mapping will need to be proportionate to a firm’s role and size and includes those outsourced and third-party services over which the firm may not have direct control. The next stage is for firms to set impact tolerances. The FCA proposes that firms should have a clear, timely and relevant communication process should operational disruption occur, so that meaningful information can be relayed to internal and external parties such as the regulator and consumers. The FCA will allow time for firms to implement any proposals but states that “firms must be able to remain within their impact tolerances as soon as reasonably practicable, but no later than 3 years, after the rules comes into effect”. The definition of “reasonably practicable” does depend on factors such as the scale of the firm and its importance to the wider financial sector yet all firms still need to demonstrate the actions they are taking during the transitional period within their self-assessment document. AMI will provide detailed guidance to member firms during 2020. MI
MARCH 2020 MORTGAGE INTRODUCER
Fixing our broken housing market Kate Davies executive director, Intermediary Mortgage Lenders Association
hilst Christopher Pincher’s appointment as the tenth housing minister in as many years has drawn some scepticism from market critics, there is room for optimism about what it could mean for the sector moving forwards. Successive governments have made promises about how they propose to fix our broken housing market but failed to deliver. Now is the time for Mr Pincher and the government to think ‘big’ and put a coherent, longer-term strategy on housing policy in place. CHOPPY WATERS
Homeownership rates have fallen dramatically among younger people in recent years and the financial implications for these individuals are significant. Research from IMLA has found that the average homebuyer could be £352,000 better off after 30 years than someone renting privately for the same period, even assuming no house price growth. Over three decades, that is quite extraordinary. What’s more, if that homeowner purchased their property on a 25-year 95% LTV repayment mortgage in their 30s, they would reach retirement age without the responsibility of monthly mortgage payments and with the security of housing wealth behind them. The average renter, on the other hand, will have spent over £130,000 more than the homeowner over 30 years and will not have the security of their own home to live in. They will still need to pay rent out of a reduced
MORTGAGE INTRODUCER MARCH 2020
(retirement) income – and may have to move if their landlord wants the property back or they can’t afford it anymore. IMLA’s research does not suggest that the decline in homeownership is purely a result of rising house prices relative to income. Rather, it would seem the most significant cause of lower first-time buyer numbers has been the tightening of lending criteria and enhanced affordability rules implemented after the global financial crisis. In particular, the current stress testing model, which subjects borrowers to tests set at rates much higher than they would realistically be expected to pay, is acting as a barrier to homeownership for a generation of potential buyers. Many of these individuals are currently paying rent at levels higher than what their monthly mortgage repayments would be. Something doesn’t stack up here: continued dialogue between government and industry is needed to find a solution that supports younger buyers onto the property ladder. ‘Life-time’ fixed rate mortgages are an interesting proposition, but this idea must be fleshed out in more detail. Such products have never really gained traction in the UK, where the business and funding models for the mortgage market have developed along different lines. For long-term deals to take off, they would have to be sold in considerable volume and it’s not clear how this could happen. We are open to discussion, however, and look forward to seeing how the proposal develops under Mr Pincher’s guidance. The Help to Buy equity loan scheme has helped tens of thousands of new buyers get a foot on the property ladder, but the phasing out of the scheme poses challenges. From next year, the government will limit
applications to first-time buyers, before removing the scheme completely in 2023. Something needs to fill the gap that will be left. The newly proposed “First Homes” scheme may provide a partial solution but it will rely heavily on co-operation between planners and developers and much of the detail has yet to be worked out. While it’s understood that the government wants to look to the private sector to come up with solutions, there’s no getting away from the need for effective investment in public sector housing and infrastructure projects. There’s no point building a new housing estate if there are no supporting facilities such as pubic transport, retail, schools and hospitals. BUILDING RIGHT
Resolving the housing crisis doesn’t just depend on helping first-time buyers. The government must also consider the challenges facing “second-steppers” and those in later-life. A recent IMLA report found that one of the main factors stopping older homeowners from moving is a lack of suitable housing. New properties well designed for older people are needed, situated within mixed developments (as opposed to specialist retirement developments which will not have universal appeal). The Conservatives have pledged to build a million more homes over the next five years. We’re asking them to be more ambitious. We’re also asking them to consult with planners and developers to ensure these homes adequately meet the demands of the market. Enabling older homeowners to “right-size” rather than necessarily “down-size” to more suitable properties would help free up some larger housing stock and help reduce the logjam further down the property chain. There is a huge opportunity for Christopher Pincher to implement a long-term, holistic strategy to fix our housing market and ensure the right homes are accessible to consumers. Intermediary confidence is high and the market outlook for 2020 is positive. M I www.mortgageintroducer.com
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A pre-Budget review Craig Calder director of mortgages, Barclays
t the time of writing, we sit on the cusp of a delayed Budget and something of a cabinet reshuffle. With this in mind, I thought it would be an apt time to focus on how the current housing and lending landscapes are shaping up in the lead-up to any tax changes and/or spending cuts/hikes.
2018, while homemover mortgage completions rose 3.2%. There were 16,820 new remortgages with additional borrowing in December 2019, 5.9% more than in December 2018. For these remortgages, the average additional amount borrowed in December was £50,702. There were 16,490 new remortgages with no additional borrowing in December, 0.5% fewer than in December 2018. These figures demonstrate the current optimism attached to the mortgage market and there is little to suggest that this steady forward momentum will not continue throughout 2020.
Housing market momentum continues to build ahead of the spring moving season, indicating that there is likely to be a series of new price records in the coming months. The latest Rightmove House Price Index for February outlined that the average price of property coming to market rose by 0.8% (+£2,589) in February, just £40 short of a new alltime high. Upwards price pressure is being driven by a post-election release of pent-up housing demand, and while there is a long-awaited and welcome recovery in the number of new sellers coming to market, this is being outstripped by a surge in demand from buyers. These figures bode well for a busy spring period as it appears that there is some renewed confidence in the air amongst buyers and this is being reflected in the number of mortgage applications being seen by lenders across the board. LENDING FIGURES
Data collected by UK Finance showed that mortgage completions saw annual increases across all sectors in December. The data showed that there were 29,490 new first-time buyer mortgages completed in December 2019, 0.3% more than in the same month in
MORTGAGE INTRODUCER MARCH 2020
EXPECTED LENDING GROWTH
In its latest ‘EY ITEM Club Outlook for financial services’, EY predicts some relatively subdued growth for the mortgage market despite the General Election result, clarity on the first stage of Brexit and a rise in mortgage approvals. It suggested that overall mortgage lending growth is forecast to rise 4.1% this year and 3.9% in 2021, which is close to the average of the last five years and well down on pre-financial crisis rates. The report says that despite historically low interest rates and accommodative loan-to-value ratios, affordability remains a key challenge for prospective homebuyers. In Q3 2019, the average house price was equal to 4.7 times the average borrower’s income – close to a record high. AFFORDABILITY AND LTV’S
Affordability is a word which continues to cause concern for borrowers, but it’s also evident that improvements are being made. While housing affordability has remained relatively unchanged, mortgage affordability has vastly improved in recent times, although that’s not to say it’s easy for all homebuyers and this is why mortgage market growth will remain steady rather than spectacular.
In terms of lending, the availability of mortgage deals for borrowers with a 5% deposit or equity is suggested to have risen over the past year. Research to be published in the Moneyfacts UK Mortgage Trends Treasury Report found that the average five-year fixed mortgage rate on a 95% LTV was 3.78% in February 2019, while the current average rate is 3.52%. Meanwhile, the 2-year average fixed rate on a 95% was 3.41% in February 2019, but currently sits at 3.22%. In addition to this, there are currently 405 deals in the 95% LTV chart, its highest level since May 2019 when there were 413 products available. This rise in product numbers is the highest in any month since May 2019 when there were 413 deals available, which coincided with the Bank of England’s Prudential Regulation Authority (PRA) warning over the rise in risky lending practices. All of which underlines the positive, and responsible, steps being taken by the lending community to offer more borrowers access to a range of highly competitive mortgage products, even at those higher LTV bands. CRITERIA
Data released by Knowledge Bank suggests that the most searched for criteria in the residential market, once again, was the maximum age lenders will allow at the end of the mortgage term. This suggests that borrowers in 2020 are continuing to look at extending their mortgages into retirement. Given the demographical needs of the UK population, it’s hardly surprising that later life lending continues to come under the spotlight. This is a market which is evolving from a complexity, risk and regulatory standpoint to command greater attention from policy makers, lenders, intermediaries and borrowers. And this makes it a product area that all responsible lenders will be monitoring closely over the course of the next 12 months and beyond. M I www.mortgageintroducer.com
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Customer experience matters Paul Hunt Paul Hunt Marketing
eing able to buy tickets online has been around for a while now, so surely there are enough clever people around to find an alternative and better way to buy high demand tickets. Take my experience as an example in trying to buy a Spurs season ticket, I was logged into my Spurs ticketing account and as it turned to 10.59am, I started pressing refresh. Suddenly a new page appeared and I could select various pricing options. I started methodically from the top, but each time it said sold out, I then started losing track of what I had previously tried and despair started to creep in… We will return to this story later. VITAL IMPORTANCE
Needless to say customer experience whether that’s digitally, face-to-face or over the phone is vitally important and can be where smaller financial institutions can differentiate themselves especially when competing on price, or when credit is not an option. Therefore, my focus this month is on two news items that are looking at how the customer experience can be improved both from a provider perspective and via a digital agency specialising in this area. More2life guarantee that the lender will compensate customers £500 if it takes longer than 14 working days to issue a loan offer from the date of application with the service promise will be offered through more2life’s end-to-end online processing portal. I applaud them on the simplicity of the compensation offer and on the face of it, it seems to be a great example of putting their money where their mouth is. However, as an old
marketer, I am slightly disappointed that despite this offer starting for new applications received from 13 February, there is no mention of the promise on the website (not even in the newsroom) and unlike many lenders, there are no KPIs listed in terms of service turnarounds for applications, DIPs etc., so the transparency of the guarantee needs some work in my view. Despite this, the initiative is laudable and a few minor tweaks on the website will surely make it one of the core elements of their proposition to customers and brokers. My second story this month comes from Dock9, a digital business solutions agency. I will declare that they are one of my clients, but what they have launched this month I feel warrants a mention, as they have launched a website and portal audit service specifically aimed at the mortgage sector. It helps mortgage lenders, brokers, servicers and software platforms undertake controlled lab tests and benchmark against standardised metrics developed for the mortgage sector. The outcome of the audit is a
‘usability report’ that documents the findings, recommendations and insights that can form the “engine” of digital transformation. With a significant proportion of any marketing budget being spent on digital whether that’s social, SEO, PPC or simple display advertising, the need to constantly review and independently audit the customers digital experience (whether that’s the end customer or the broker) seems obvious enough. Despite this, I know from my own experience in running marketing for lenders, brokers and other suppliers to the industry, I never gave any of my sites an MOT that Dock9 recommend. More2life edge it this month, as their proposition offers something now if they don’t meet the standard they have set themselves, but both stories underline how important it is to constantly improve and review the experience provided to customers. The conclusion of the story? Yes, I did manage to get a Spurs season ticket in the end via the online system, is that good news and a great customer experience? I’ll let you decide… M I
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Landlords and adverse credit Paul Adams sales director, Pepper Money
Buy-to-let is a market upon which a lot is written, and the consumer and trade press is frequently filled with commentary, analysis and speculation about the sector. But one area of buy-to-let that is less well understood is lending to landlords and potential landlords who have instances of adverse credit on their credit record. Conventional wisdom might assert that, if you are wealthy enough to own investment property, then you are unlikely to have a history of missed credit payments. As you know, however, the dynamics around adverse credit are not that simple and that missing credit payments is not directly linked to wealth or income, but more often the result of circumstances. At Pepper Money, we recently carried out our latest wave of research in association with YouGov amongst a representative sample of 4,094 UK adults. As part of this research we identified a number of existing landlords who have also had adverse credit registered on their credit record within the last three years. This was a relatively small percentage of the total sample, with between 40 and 70 respondents to each of the individual questions. In order to be considered statistically relevant, YouGov suggests that a minimum sample of 50 is required, and so we will not be issuing press releases for some of the following statistics. However, with this caveat in mind, it is worth looking at some of the trends they raised. For those landlords who missed one credit payment (credit card, loan, hire purchase etc) in the last three year, 13% said that the missed payment was linked to an investment property they
MORTGAGE INTRODUCER MARCH 2020
own rather than their home address. However, for landlords who had missed several consecutive payments on a credit card or loan agreement, which resulted in a default, 37% said that this was linked to an investment property they owned, with just 26% saying that it was linked to their home address. Similarly, 28% of landlords with a CCJ in the last three years said that this was linked to an investment property compared to 27% who said it was registered to their home address. While 29% of landlords with unsecured arrears said that they were linked to investment property they owned, compared to 23% who said they were linked to their home address. And when it came to landlords who have entered a Debt Management Plan (DMP) in the last three years, 34% said that this was linked to an investment property that they owned while only 14% said it was linked to their home address. UNINTENDED CONSEQUENCE
Not all of this data can be considered as statistically relevant according to YouGov’s criteria because some of the sample sizes are slightly too small, but we can certainly ascertain a trend that, for some landlords, adverse credit can actually be an unintended consequence of owning investment property. This seems to be particularly true in incidents of multiple missed payments that result in a default, CCJ or entering into a DMP, and it is possible to see how this might be the case. A landlord who has multiple linked properties through their investment could have tenants in one of more of those properties who do not make payments on their credit agreements. The tenants might move on to a new address, and the adverse credit event is registered against their last known address, which is linked to the landlord. This pattern of events does not apply to all landlords, of course, but it goes some way to explain why adverse credit is more common amongst landlords
The dynamics around adverse credit are not simple
than you might expect. As a broker, it is therefore a sensible step to ensure that you have access to options for your buy-to-let clients who also have adverse credit. By working with lenders that are able to take a pragmatic view on previous credit difficulties, you can deliver solutions to landlords whose profile is less than perfect. The good news is that there are a growing number of options for landlords in these circumstances, and these options include choice for those investors who purchase property with a limited company as well as those who invest in their own name. Another finding from the research was that, of those people who have a record of adverse credit in the last three years and intend to purchase a buyto-let property in the next 12 months, more than a quarter (27%) said that they intend to do so using a limited company. So, don’t be caught out by landlord clients with adverse credit who are looking for solutions to grow their portfolios. Do your research now to find out which lenders are best placed to help. You could even pick up the phone to arrange a meeting with a BDM or telephone BDM to find out more. I know that my team at Pepper Money, for example, will be more than happy to help you lift the lid on landlords with adverse credit. M I www.mortgageintroducer.com
High LTV lending should be exactly that Stuart Miller customer director, Newcastle Building Society
joint report from Hometrack and UK Finance published in December drew out various interesting insights into the changing shape of the UK mortgage market. One that stood out to me was that lending at 90% loan-to-value (LTV) and higher is now at a postcrisis high, however lending at 95% plus remains very scarce. There are a number of reasons for this, one being the stressed affordability on higher LTV lending limiting banks from doing too many of these loans. But it’s more nuanced than this. Many lenders quietly stress 95% LTV affordability much more tightly than lower down the LTV curve, making it doubly hard for borrowers to pass these tests. But arguably, these are the very borrowers who need the support of lenders. Getting on the housing ladder can change lives, and all too often the difference of a few thousand pounds can make or break the ability to buy. We recently did a case for a 39year old man who had been renting in north London. He was recently divorced and desperate to move out of the city to a three-bedroom home in Buckinghamshire. He was on £50,000 a year but had been shelling out £1,000 a month on rent, eating into his ability to save for a deposit. As a result he needed to borrow at 95% LTV. The options available to borrowers in this position are limited and according to the broker who handled this particular case, Clare Jarvis at www.mortgageintroducer.com
Mortgage Advice Bureau, income multiples can vary wildly as LTVs rise. Where underwriting is largely automated, the computer can all too often just say no. At Newcastle Building Society, we underwrite manually, allowing us to use common sense and judgement in our affordability assessments. As a result, we were able to offer her client £13,000 more than he could get from a high street lender, a difference that made his house purchase possible. Peter Hodgson, our underwriter for this case, said: “We assess all our borrowers’ affordability the same way which means we are often able to do more to help in this market. We are also very keen on contacting the broker as soon as possible to go through the case and get the answers to any questions we may have so we can give swifter, more informed decisions. “We conducted the initial assessment on 10 January and were able to get the offer out just four days later on 14 January. “It was clear to us that Clare’s client was in a good position - he had a 5% deposit and a good job. Our standard criteria meant that, even though he was only four months into his probationary period in his new job, we were able to take account of his previous experience in that industry.” We approved his application, ensuring affordability was met, helped by him opting for a 30-year term. Given his age, we were keen
to ensure that the borrower had a repayment plan in place to allow him to continue to make his mortgage payments after he retired. His state pension and current pension contributions showed this was the case. This is just one example of how using judgement to get a case over the line makes total sense. This particular client had been paying £1,000 a month in rent for the past five years. We gave him a twoyear fix at 3.1% leaving him with a mortgage payment of £912 a month. Affordability rules and stress-testing borrowers’ ability to repay their mortgage is critical to ensuring they do not suffer financial detriment down the line. It is also critical to support the risk management of a lender’s back book, and more broadly the financial stability of the UK’s economic system. However, when you pare it back down to the facts like this, it seems odd that so many lenders would not have helped this borrower. Not only had the borrower a track record of affording his rent at a higher amount than his monthly mortgage payments would be, he had also managed to save a deposit. Sometimes the rules, though well intended, are prohibitive in that lenders choose to interpret them harshly. Every lender must manage their book in a way they deem appropriate and for some, clearly that means limiting 95% lending. We on the other hand, as a building society, believe there’s a balance between commercial choices and social ones. As this case shows, sometimes it’s really worth considering the social implications of commercial decisions because it can change someone’s life for the better. M I
LTV rules, though well intended, can be prohibitive
MARCH 2020 MORTGAGE INTRODUCER
International investors eye capital Robin Johnson managing director, Kinleigh, Folkard and Hayward Professional Services
he latest figures from the Office for National Statistics revealed that UK average house prices rose 2.2% over the year to December 2019, up from 1.7% in November 2019. Within those numbers was the London snapshot, which showed that London house prices jumped 2.3% over the year to December 2019, up from 0.4% in November 2019 and the fall in average prices of 1.2% seen in the year to October 2019. If evidence were needed that confidence has come back to the property market, this would be it. Though, it should be said, December’s figures relate to the value of properties whose sales completed in that month. With the average sale taking between four and 12 weeks to complete, these numbers actually point to a much healthier market than many were claiming back in the early autumn. The so-called Boris Bounce in the market has been noticeable. There has been a widely reported significant rise in new buyer registrations and new properties coming to market for sale. The effect of Mr Johnson’s electoral win was almost instant, confirming that many homeowners were waiting to see whether the inability of Parliament to pass the Brexit bill would drag on for yet longer. Within days of the election activity in branches had palpably picked up, suggesting that this uptick in prices is likely to repeat in January and February’s figures. Analysis from the ONS suggested increased London house price growth may reflect a shift in the type of properties being sold, with more sales of very high value properties. This is particularly relevant in London where there is large variation in property prices and a considerable
MORTGAGE INTRODUCER MARCH 2020
number of very high value properties, sales of which would have the potential to affect average price growth. Its analysis showed that overall, around 27% of transactions in December 2019 were of properties over £900,000. This is considerably higher than in October and November 2019 when, respectively, around 21% and 20% of transactions were of properties over £900,000, offering some evidence that there may be some compositional effect in the increase in house price growth in December 2019. LIFE BLOOD
This is an interesting point, and one that some could argue shows that the health of London property rests on more than average price inflation. Transactions are the life blood of a property market and if it is the case that more very high value homes changed hands, then the implication is that fewer or the same number of lower value properties did. That has not been our experience at KFH however, and we sit in that part of the market which predominantly serves first-time buyers, professionals and families. I would argue that confidence is returning to the whole of the market and not just the super prime end. That said, more activity in the £5m+ market indicates that international confidence in the UK is also resilient and perhaps even rising. London property has long been a
safe haven for international money, with asset values rarely falling significantly and the city itself offering huge cultural cache. Dithering politicians such as we have had for the best part of four years have, understandably, shaken the UK’s international reputation as a country offering relative economic, social and political stability and freedom. With the restoration of a significant parliamentary majority and a decisive government, those foundations remain intact, and a rise in the amount of money invested into super prime London property reflects that. In mid February, home secretary Priti Patel announced a new pointsbased immigration system with the recently introduced Tier 1 talent visas a core part of that. According to the statement issued by government, the new single global system will treat EU and non-EU citizens equally. It will give top priority to those with the highest skills and the greatest talents, including scientists, engineers and academics. The global talent scheme will also be opened up to EU citizens which will allow highly-skilled scientists and researchers to come to the UK without a job offer. While the new system will not come fully into force until January 2021, it already serves to buoy the UK, and consequently London’s international reputation and the appeal of investing in property here. M I
Confidence is returning to the whole of the market
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There’s a first time for everything Jane Simpson managing director, TBMC
here has been a swathe of tax and regulatory changes impacting on the buy-to-let sector in recent years which may have affected the perception of residential rental property and its viability as an investment option. Consequently, the sector has seen a reduction in the number of amateur landlords and it is now primarily the domain of professional property investors. However, there are still people entering the market and looking to make their first buy-to-let purchases – a group referred to as ‘first time landlords’. Most lenders on the TBMC panel will accept applications from first time landlords providing they are currently an owner occupier, so there are plenty of product options in the marketplace. There is often a requirement that applicants have owned their residential home for a minimum length of time which may vary from six to 12 months, although some lenders do not state a minimum period providing the applicant’s name is on the title deeds. It is not quite as straightforward for first-time buyers – those with no existing UK property at all. TBMC currently has around fifteen lenders on panel who will consider applicants without a history of property ownership such as Barclays, Landbay, Precise and Vida Homeloans. Some lenders will apply an affordability calculation alongside their normal rental stress tests and criteria, which depending on income multiples may limit the amount applicants can borrow. There are also options for first-time buyers to be the second applicant on a buy-to-let mortgage and it is a familiar scenario when parents help their children onto the property ladder
in this way. Lenders who consider this include Interbay, Leeds Building Society and Paragon. In recent years, we have seen a significant increase in the number of limited company applications, especially since the phasing out of mortgage interest tax relief for buy-tolet properties. We have also seen first time landlords setting up an SPV for their initial property purchases, which is definitely an option worth considering as it may provide financial benefits depending on individual circumstances. It is always recommended to seek professional tax advice before deciding about this option. COMPANY REGISTRATION
It is simple and inexpensive to set up an SPV, but it is important to register the company with an appropriate SIC code relating to the letting and management of property. Most lenders will accept brand new SPVs with no accounts history, but they will require personal guarantees from the directors/shareholders. There are also lenders that accept companies that trade in non-property related businesses, although the product options for this scenario are fewer. A significant advantage of using a corporate entity when applying for a buy-to-let mortgage is that they are not affected by the recent tax relief changes or the 2017 PRA regulations relating to rent stress tests. Lenders normally apply a less stringent rental calculation
for limited companies, typically at around 125% at 5.5% which may increase maximum borrowing levels for new landlords. Those investing in buy-tolet property should give proper consideration to property type, tenant demand, location and rental income. These variables can have a significant effect on the overall profitability of an investment and prospective landlords will surely benefit from thorough research. For example, we get frequent enquiries about HMOs and multiunit properties which often give a better than average rental yield due to multiple rents being charged. Unfortunately for first time landlords most of the specialist lenders who finance HMOs and multi-unit properties require a minimum amount of previous experience as a landlord. For example, Vida Homeloans requires 12 months’ experience and Paragon Mortgages requires three years. However, there are a few options such as Masthaven, Kent Reliance and Together who will consider this scenario for first time landlords. To conclude, there are plenty of investment opportunities for first time landlords and a wide range of buy-tolet mortgage products to choose from. By considering the different factors that may affect the level of finance available and overall returns on a property, new landlords can make more informed choices during their first buyto-let investment experience. M I
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The keys to a strong market Jeff Knight director of marketing, Foundation Home Loans
he Boris Bounce or Brexit Bounce – whichever you prefer, if either - are cited as having a positive effect on many market sectors following the General Election result back in December. When combined with the traditional new year upsurge in activity this has served to create a positive start to the year for estate and letting agents up and down the country. The latest data and analysis from The Royal Institution of Chartered Surveyors (RICS) revealed that there has been growing activity across the UK housing market in January. RICS found that renewed optimism from buyers and sellers continued to pick-up as the number of homes being listed for sale increased during the month. In addition, January saw an increase in the number of people looking to buy as new buyer enquiries rose to a net balance of +23% from +19% in December. Agreed sales also rose for the second month in a row (a net balance of +21%). This increased activity and underling confidence being exhibited by a variety of homebuyers has to be a highly positive trend. After all, strong homeownership aspirations remain key to a healthy housing and mortgage market. Additional data from the Q4 2019 Landlord Panel research from BVA BDRC, highlighted how post-election confidence in the UK financial market has increased significantly (+15% yearon-year). The General Election outcome has driven a very strong uptick in confidence around UK economy, and for the first time in many waves, other confidence indicators also saw a slight quarter-on-quarter increase - capital
MORTGAGE INTRODUCER MARCH 2020
gains (2%), the UK’s private rented sector (2%) and own letting business (3%). Prospects for rental yields was the only indicator out of the five key themes (financial market, capital gains, UK private rented sector, own letting business and rental yields) not to see an improvement in confidence in Q4. In terms of the influence on the buyto-let sector, expectations around the likely impact of the general election results are split with 26% thinking it will be positive for landlords, whilst 28% think it will be negative. Those with larger portfolios tend to be most positive about the potential impact of the result, with the smallest landlords more unclear. Reasons for positive expectations include there now being greater certainty around Brexit, and a belief that Conservative policy tends to be more in favour of landlords. Whilst negative expectations are driven by the abolishment of S21, anti-landlord policies and increased legislation. Delving a little deeper into the BVA BDRC Landlord Panel research, other key findings emerged regarding profitability, business optimism, tenant demand and portfolios. PROFITABILITY
Profitability was suggested to have remained stable in Q4, with 85% of landlords making a profit from their letting’s activity. The proportion of landlords claiming to derive a full time living from their letting activity increased by 4% from Q3 to Q4, driven by a rise in those with 4-10 properties who reported making a full time, profitable living. The ‘scale’ of profitability increases in line with the number of properties managed; At the top end of the market, one in four landlords managing 20+ property portfolios report deriving a ‘substantial’ profit from their business. BUSINESS OPTIMISM
For the first time in over a year, landlords’ business optimism increased. Profitable, expansionist landlords were
reported to be the most optimistic, and interestingly those letting to migrant workers were much more confident than average, indicating that greater certainty about Brexit is being welcomed. The proportion of landlords believing that demand is reducing is now at its joint lowest level for three years (16%). RISING TENANT DEMAND
An increasing number of landlords reported that demand had increased, up 3% from Q3 figures to 25%. Perceived tenant demand was similar across many UK regions. However, those reporting increased demand fell below 30% in the South East, North East and the West Midlands. Central London remained polarised, with one in three landlords reporting a recent decrease in tenant demand but around four in 10 reporting a rise in demand. PORTFOLIOS
Some 14% of landlords intend to increase the size of their portfolio in the next year, whilst 22% plan to reduce it. The proportion of landlords aiming to reduce their portfolio in the next 12 months edged down for a 2nd successive quarter, from the all-time high of 26% recorded in Q2 2019. It remains the case that larger portfolio landlords are significantly more likely to be looking to divest property, with 45% intending to do so in the next year. Diversity is key when it comes to landlords looking to maximise their current and future portfolios. Choosing different property types represents one route, with an increasing number of landlords incorporating houses in multiple occupation (HMOs), off-plan new builds and short-term lets into their portfolios. Another route is via investment in a different location, especially in those places where yield is historically strong, and rising. And specialist lenders continue to lead the way in meeting these demands and driving this sector forward. M I www.mortgageintroducer.com
Expect an increase in buy-to-let activity Bob Young chief executive officer, Fleet Mortgages
n a housing market that is so regionalised, it’s very difficult to make generalist assumptions or predictions, or indeed to talk about a homogenised ‘UK market’. However, when it comes to the private rental sector and the buy-to-let market it is possible to see a number of growing trends across the country that are likely to set the scene for our sector for a number of years to come. And I might add, provide good news for existing landlords or those able to make their entry into the sector in the months ahead. GOVERNMENT IMPACT
There’s no doubting the impact that the government’s changes to stamp duty and the phased introduction of the cuts to interest tax relief have had on landlord numbers and the supply of property to the PRS. [There is an expectation of cuts to Stamp Duty for residential purchases, but it would be a surprise to see a rolling-back of the extra charge for additional properties. It would be an even bigger surprise to see changes to tax relief on mortgage interest, although clearly a government with a very large majority could do it.] Recent data published by Hamptons International shows the extent of the impact both these measures have had – it’s probably also worth pointing out that, were either one to have been introduced without the other, then the result would still have been incredibly damaging. The fact that we have had the ‘double whammy’ of both at the same time has, in my opinion, exacerbated the results. www.mortgageintroducer.com
So, what have the results been? Well, according to Hamptons, the number of landlords is now at a seven year low, down to 2.6 million in 2019, a drop of 222,570 from just two years ago. I think we’re all clear on where numbers have fallen with those who have seen their profitability drop because of the tax relief changes, exiting the sector in significant numbers. These have tended to be landlords with perhaps one or two properties and while some of the ‘slack’ has been taken up by professional landlords adding these to their portfolios, that has not been enough to keep these homes in the PRS. Indeed, Hamptons’ data suggests there are now 156,410 fewer properties within the PRS than at the same point two years ago. By anyone’s standards, that’s a significant number of homes to take out of the market and the resulting demand continues to outstrip supply and increase costs for renters. Even more so, if you add in the extra costs that landlords have needed to take on board during the past three years – I’m thinking of energy requirements on homes, the banning of letting agent fees, registration requirements in some areas, and there will be further costs with electrical inspections and the like. Plus, let’s not forget that the banning of Section 21 evictions will also see a number of landlords likely to leave. In other words, it’s something of a perfect storm. Plus, of course, we mustn’t forget that even while there is greater support for first-time buyers – the group that was supposed to take up the supply left by landlords – the actual facts for many would-be new purchasers have not changed. The biggest obstacles remain saving for a deposit and meeting the affordability mortgage measures – these have not, and will not, change simply because the government has felt it was right to try and get more private
landlords to sell up. In this case, two wrongs have definitely not made a right. So, where do we currently sit? Well, as mentioned, rents are on the rise, which again makes it difficult for would-be owner-occupiers to save for a deposit as they’re paying increased housing costs, but the government might have conveniently ignored this. It does however mean that existing landlords might now be achieving the yields necessary to keep them in the sector, and to secure a profit from them. That said, there will be other landlords who are currently making a loss because they’ve seen the value of their house either plateau or drop. We shouldn’t be surprised to see more landlords in such a situation leave. RENTAL BAROMETER
But there is good news for existing landlords who can stay the course and stay it for the long-term. Just recently we launched our own Buy-to-Let Index with a Rental Barometer to take the temperature of the rental yields being achieved across all the regions of England and Wales in which Fleet lends. In almost every region, rental yield has gone up – in some regions of the North of England we’re seeing significant increases. Coupled with a highly competitive mortgage market and landlords increasingly likely to use limited company vehicles to house and purchase their properties, there is a good chance of strong profits being made. The attractiveness of the PRS for such landlords will not wane; if anything, it will get stronger especially in areas like HMOs, multi-unit blocks where a stronger yield can be achieved. Landlord numbers are not likely to see any sort of exponential growth anytime soon, but existing landlords will add to their portfolios. Similarly, are we anticipating a big increase in PRS property supply? Probably not, but tenant demand is only likely to increase, which will translate into rising rents. And coupled with highlycompetitive mortgages, this does pave the way for increased activity – as advisers active in this sector, it’s good news, especially if you can count the more active professional landlords amongst your client base. M I MARCH 2020 MORTGAGE INTRODUCER
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Rental demands buoying market Ying Tan founder and chief executive, Dynamo
ast month I stated that I hoped the government will not target landlords further – in terms of additional regulatory reforms or tax changes – and with a Budget imminent my fingers are staying firmly crossed in this regard. So, let’s hope that the government realises and acknowledges the importance of the private rented sector for the people of the UK. And that any Budget announcement provides further stimulus for all aspects of the housing market rather than producing any potential stumbling blocks or barriers for homeowners, landlords and tenants. When assessing the private rented sector, it’s clear that tenant demand for residential property will continue to increase. GROWING DEMAND
Paragon’s Trends research found that 37% of landlords expect tenant demand to grow during 2020, compared to 7.3% predicting a fall. Over a quarter (27%) of landlords were said to have experienced an increase in tenant demand during the final quarter of 2019. These figures follow the government’s recent English Housing Survey which found that the number of households in the private rented sector has remained unchanged at 4.6 million, the equivalent of 19% of all housing tenures. However, the length of time households are staying in private rented property is increasing, from an average of 4.1 years to 4.4 years. The report also found that over the past decade, the proportion of 55–64-year olds in private rented accommodation www.mortgageintroducer.com
increased from 7% to 10%. With increasing numbers of tenants staying in properties for longer, landlords need to ensure that they are meeting these shifting tenant demands and ensuring that they have a choice of well-maintained, good quality accommodation across the UK. REGIONAL RENTAL YIELDS
Regional demographics will also play a major role in landlords’ portfolio strategies, yields and rental demand, as revealed in Fleet Mortgages’ first �uarterly BTL Index – which features a rental barometer analysing rental yields across all regions of England and Wales. Overall, the index showed rental growth of 6.1% across England & Wales, up 0.7% on the 5.4% growth achieved in the last quarter of 2018. The north of England posted the top regional rental yield figure for the quarter, up 2.6% year-on-year to 9.1%. Fleet’s figures for 2019 as a whole showed that rental yields for northern properties reached 7.6%. The North West was the only region which showed a slight drop in rental yield over the period, down to 7.4% from 7.5%. Yield figures for the South West remained unchanged. Greater London posted the lowest rental yield figure of 5.1%, however this still represented an increase of 0.3% when compared to Q4 2018 figures. This comes as ONS data recently revealed London had the second lowest rental price inflation in England, at 1%, which put it only ahead of the North East. It’s a positive for landlords to see rental growth throughout England & Wales in Q4 2019, with only two regions showing either a very small drop or no change at all. This data represents a growing trend for professional landlords to purchase further afield – in those very regions
showing greater rental yield increases – meaning certain regions will continue to outperform others. PROFESSIONAL LANDLORDS
Everyone operating in and around the private rented sector realises how much the BTL marketplace has changed in recent years and how important it is for professional landlords to carefully manage portfolios, especially in terms of maximising yields and minimising costs. With this in mind, it’s little wonder that whilst the overall number of landlords has fallen, those who have made the necessary portfolio adjustments are the ones who are making the most of current BTL conditions, adding to their portfolios and remaining profitable. Research from Hamptons International estimates that there were 222,570 fewer landlords in the private rental sector in 2019 than in 2017. The number of landlords is said to have peaked at 2.88 million in 2017, but tax and regulatory changes have caused some landlords to sell up and leave the sector. However, despite this decline, the average landlord now owns more properties. The average landlord in Great Britain owned 1.93 buy-to-let properties last year, the highest level since 2009 when the average landlord owned 2.02 properties. Last year, 30% of landlords owned more than one buy-to-let property, the highest proportion on record. This is up from 21% in 2016 when many of the tax and regulatory changes were announced and is double the proportion recorded a decade ago when 15% of landlords owned multiple buyto-lets. The average landlord based in the North East owned 2.05 properties last year, closely followed by landlords based in Yorkshire & Humber (2.03 properties per landlord) and London (2.01 properties per landlord). These figures reinforce the rise of professional landlords who continue to reap the benefits from strong rental demand, increasing tenant competition, highly competitive mortgage rates and robust rental yields. And long may this continue. M I MARCH 2020
Buy-to-let could be set for a boom Steve Griffiths sales director, The Mortgage Lender
t The Mortgage Lender, we’ve seen a surge in applicants who are buying their properties through limited companies and the figures explain why. A limited company buying a £400,000 property with anticipated rental income of £14,400 a year can offset all costs before Corporation Tax is applied to the profit at 19%. Assuming property maintenance costs of £1,000 a year in addition to mortgage costs, on a 70% loan at 3.33%, of £9324, the investor has a corporation tax bill of £775 and a dividend tax bill to extract the money, assuming they are a higher rate
MORTGAGE INTRODUCER MARCH 2020
taxpayer and able to claim the £2,000 dividend allowance, of £423 leaving them with £2879 net income. In contrast a higher rate taxpayer with £1,000 maintenance costs and £9,324 mortgage costs faces a tax bill of £3,495 and receives just £580 net income. An additional rate taxpayer would make a loss of £89 on the same property and face a tax bill of £4,165. SIMPLIFIED
It’s against this background that we’ve simplified our buy-to-let range, reduced the majority of rates and fees for portfolio landlords to provide more competitive pricing and greater choice for borrowers. And there is no additional loading for limited company applicants. The revised range maintains a variety of fee options for borrowers, including percentage fee, fixed fee and £0 fee options, with rates now starting from 2.83% for a 2-year fix and 3.19% for a 5-year fix. Houses of multiple
occupation (HMO) or multi-unit block (MUB) properties have rates starting from 3.34% for 5-year fix, or 3.08% for 2-year fix. And by maintaining the choice between percentage, fixed or zero fees, we help landlords access products that best suit their circumstances. We’ve also made it easier for portfolio landlords to refinance multiple properties over a longer period by allowing a six month refinancing window during which we will waive an additional application fee and offer reduced completion fees of 1.25% on products from our portfolio multi-loan range. By simplifying our product range and aligning our pricing for Individuals and limited company applicants we’re recognising that while it may be more cost effective for many landlords to buy through a limited company, it doesn’t make them more of a risk than an individual buyer – that’s just real life lending. M I
What does good look like? Chris Maggs senior commercial manager, Accord Buy To Let
peak to any lender and they’ll be able to share some ‘success’ measurements such as percentage of Decision in Principle (DIPs) which refer, offer turnaround times and conversion rates from application to completion, to name just three. These are all valid indicators, but what does ‘good’ look like in the broker’s eyes for 2020? In a recent interview I did with Ying Tan, Dynamo founder and chief executive, we talked about what brokers wanted from lenders to support them in the current market. The key request was that lenders demonstrate more innovation, but not in product design, but by embracing technology to increase speed, efficiency and automation. Tan challenged the need for original documentation, commenting: “For a tech-savvy industry, there is so much paperwork and with most payslips being downloadable, what is an original these days? We need to work with the lenders, without compromising the risk and make sure that they are comfortable with lending.” For us at Accord, whether residential lending or buy-to let, we understand how reams of documentation requirements not only provide challenges for the broker and customer to collate, but slow down the process and a lenders ability to produce mortgage offers quickly. We also understand that certifying original documents can be a challenge in a digital age where most documents are online. That’s why at Accord we removed that requirement in 2019.
It may sound like a cliché, but most successful businesses will tell you that the reason they perform well is because they put the customer at the heart of everything they do. The giving and receiving of feedback is crucial to understanding what it is that your end user, or customer, needs. Listening to external comments from brokers and industry partners has resulted in a suite of changes we made as a business last year. THE BEST CUSTOMER OUTCOMES
Making efficiencies to the application process by replacing signed declarations with a tick box, launching an 80% LTV range and increasing our maximum age and term are just a selection of some of the changes we made following feedback from the brokers who have placed cases with us (and as importantly, those who have not!). Our business development managers are always meeting brokers and sharing insight, letting us know why another lender was chosen and it’s only by advisers being so honest, that we can identify the areas we need to improve to enhance our offering. A key measure of success for us has to be the broker Net Promoter Score (NPS). 12-18 months ago Accord Buy
To Let had a broker NPS in the low 30s, compared to Accord Residential which was in the 80s. Having such a differential between two Accord brands was clearly unacceptable and we’ve spent the last year looking at simplifying processes for our underwriter colleagues, documentation requirements for cases, proposition improvements and broker interactions to drive down both DIP refer rates and improve offer turnaround times. Whilst these measurements alone demonstrate the progress we have made, the one measure I feel of real significance is the NPS. By improving the broker journey, our NPS score has dramatically increased month by month, reaching a record 87 in January 2020. A resoundingly positive response to how far we have come in such a short period of time. Whether a broker or lender, the use of NPS adds considerable value when assessing how well you are doing as a business. However, once you have achieved a score to be proud of, you cannot stop. Any business, regardless of size should be looking to continually improve and simplify processes for the benefit of colleagues and customers, working collaboratively with partners to provide the best solutions for their customers. We know as a business we need to evolve and take advantage of market opportunities as they arise and we’ll know whether what we’re doing is ‘good’ or not by listening and engaging with brokers. M I
The broker Net Promoter Score can improve the broker journey
MARCH 2020 MORTGAGE INTRODUCER
Seven Families films help real families who find themselves in financial meltdown because of an accident, illness or disability. The films demonstrate the value of not only the benefit paid out, but the rehabilitation services that are added on to most policies, to help people get back on their feet, and eventually, back to work.
Kevin Carr chief executive, Protection Review, and MD, Carr Consulting & Communications
o you remember Seven Families? That’s the title of the revamped campaign from The Income Protection Task Force (IPTF), originally launched back in 2014 with the point of raising awareness of the importance of income protection. The campaign took seven real families who had lost their income because of an accident or illness, gave them income protection for a year, along with all the additional benefits available, and followed their progress. The new campaign hopes to recapture the momentum of the Seven Families project – and the boost to the profile of income protection that followed. The IPTF will be revisiting the families in a series of short films being released throughout 2020. The first two films are now available and summarise the story of Seven Families in a couple of minutes. The hope is that they can be used with advisers’ clients, at events and in marketing to show how protection can
“The first two films are now available and summarise the story of Seven Families in a couple of minutes” Alan Knowles, chair of the Protection Distributors Group (PDG) believes that the Seven Families project was one of the greatest promotions of protection insurance that the industry has seen. “As well as highlighting the importance of income protection it also highlighted just how incredibly valuable the additional support services are to claimants. Given the income protection market has seen growth year on year since its launch, and that the project is still discussed so heavily today, it makes perfect sense to see it revisited.” The new films can be found on the IPTF website. M I
Signposting support on the up
he protection industry has come together over the last month to support a voluntary signposting agreement, launched as part of BIBA’s 2020 manifesto, with the aim of widening access to life insurance, income protection and critical illness cover. Advisers, insurance providers and industry bodies alike have signed the agreement, that commits to referring people with pre-existing medical conditions to a suitable specialist, when they fall outside of standard underwriting criteria and may be refused cover. The agreement works by telling
MORTGAGE INTRODUCER MARCH 2020
customers that more suitable cover might be available through referral to a specialist firm, when informing them they have been refused the cover they applied for, enabling more people to get the cover they need rather than going away and believing they can’t be insured. Roy McLoughlin, associate director at Cavendish Ware hopes signposting will help reinforce a critical message. “Rather than giving up on a preconceived idea that it’s difficult for some people to get protection, there is a situation where the majority of people can actually achieve cover. It’s also a great example of how our industry can
NEWS IN BRIEF Almost half (49%) of companies with business protection have considered cancelling their cover, according to VitalityLife, highlighting the important role advisers play in keeping vital cover in place. L&G has updated its income protection policy, adding two and eight week deferred periods, and increasing the number of NHS occupation sick pay scheme periods it will match. British Friendly has been added to the Paradigm Protect panel, with all members now being able to access its long-term and short-term IP products. Income protection provider Cirencester Friendly paid 95.7% of claims in 2019. From April a new parental bereavement law will come into force, giving all employed parents who lose a child, or pregnancy after 24 weeks, a minimum of two weeks leave. Figures from Deloitte show that poor mental health costs UK employers £45bn a year, in absence, loss of productivity and presenteeism. Martin Werth is stepping down as CEO of protection technology provider UnderwriteMe, with Pacific Life Re’s James Tait taking over the role.
collaborate and work together to the common goal of the end client.” Prominent industry bodies are supporting the agreement, including the Association of Mortgage Intermediaries (AMI), alongside leading adviser firms such as Assured Futures, Cavendish Ware, Cura Financial, Drewberry, Essential Insurance, Highclere Financial, LifeSearch, LightBlue, Moneysworth and Sesame Bankhall. Insures and reinsurers currently include Aegon, Bank of Scotland, Holloway Friendly, Legal and General, Lloyds Banking Group, Royal London, Scor SE, Scottish Widows, VitalityLife and Zurich, with more expected to join in the coming weeks. M I www.mortgageintroducer.com
How trust advice is getting simpler Mike Allison head of protection, Paradigm Mortgage Services
t is undoubtable that mortgage advisers in our industry want to do the best for their clients. This isn’t necessarily down to the regulatory environment that has added to the workload in selecting the most appropriate products for them, it is simply that in order to build a sustainable business, service is vital. If a customer doesn’t think they are getting value, they may well look elsewhere. Research undertaken by Canada Life last year gave us a valuable insight into the thoughts of a large sample of clients of mortgage advisers who confirmed this stance. A large proportion (over 30%) said they would not return to their adviser at the end of the deal they had taken, and many cited a number of reasons why, including lack of contact and limited perceived value. The level of research now going in to selecting the right product for their customers has quite rightly helped the intermediary sector grow rapidly in the past few years, so it was probably not the quality of the products they had chosen, but possibly more likely to be the communication and the perceived ongoing value they were adding. In our world, customer engagement and increasing consumer trust have risen quickly up the agenda. In these articles, I have written previously about the communication challenges faced by advisers, especially given the move to 5-year fixed-rate mortgages as opposed to 2-year, creating a greater ‘gap’ to fill in communication strategy. Clearly protection and/or general insurance sales have a part to play in filling this gap, as does the wealth www.mortgageintroducer.com
of ancillary services provided as part of insurers’ products nowadays. However, while these services are to be applauded, one area that appears to have been neglected but is still potentially vital for the consumer is that of trusts. We know that if the worse were to happen and a claim is necessary for either a critical illness policy or in the event of death, in the majority of cases, the customer would have pretty simple instructions as to where the benefit should go. Usually, this would be the spouse, children or cohabitee in the case of a mortgage – sounds simple enough, but this may not be the case. LIFE COVER
Increasingly, good advice is to offer life policies not on a joint life first death basis but as two single lives. If the life cover is there to cover the mortgage and the borrowers are unmarried, what happens to the policy benefits if either were to die? Potentially not what the customer who bought the policy in the first instance wanted. If either were to die without a will then the monies would revert to the laws of probate, which apart from being quite technical are also time-consuming – and may not be completed in time to save foreclosure. This all sounds like a potential nightmare and there are instances where the unthinkable has happened. What are the options/solutions then? Clearly writing a policy under trust with a clear direction as to where the benefits should go is potentially one simple option – and can show how a broker can add real value to the client in their ongoing relationship, but insurers tell us this option is under-used. Indeed, we hear statistics from them stating typically less than 10% of cases are written under trust despite many offering guidance. There are reasons why a broker may not
to choose the trust option – lack of knowledge and/or clarity in their own minds, or simply fear of getting it wrong are possibly high on the list. Going back to basics, we assume that life cover is insurance that pays out when you die, and customers accept that. But the frustration of probate, over a six-month-plus period, can do little to aid adviser/customer relations. For mortgage advisers especially, the problem has been exacerbated because of the growing group of unmarried couples who face the double whammy of potentially losing out on the policy altogether because intestacy directs the money where they didn’t expect. Add to that the perceived complexity and the fact that trustees are generally not present at the point of mortgage/life application. So how can we ensure the policy benefits go to the intended person without the complexity and at the same time support customer relationships and client retention? One way is to use those insurance companies who have tried to simplify the process. As an example, AIG Life has bucked the trend by achieving an overall trusts rate of nearly 20%. This can be explained by the consistent adviser mentions it gets for user-friendliness and extra effort when it comes to trusts, especially its online process. Guardian has gone even further and introduced its payout planner. This is a simple and intuitive solution for both advisers and clients to ensure that any future pay-outs avoid the typical delays and problems associated with probate. It’s an innovation which has been particularly well-received by mortgage advisers who are unfamiliar with trusts. Should a client wish to place their plan into trust at later date, then this supersedes the beneficiary nomination. They say the proof of the pudding is in the eating and, up until the end of 2019, 62% of all eligible clients have chosen to nominate a beneficiary using payout planner. These are two simple examples of how insurers are helping overcome a traditional ‘sticky’ area and helping advisers in their quest to maintain customer contact, do the best for their clients and treat customers fairly. M I MARCH 2020 MORTGAGE INTRODUCER
The importance of quality Charlotte Harrison product manager, iPipeline
have just bought my first pram. Sorry, not pram - ‘Travel System’. It turned out that this purchase was not the straightforward process I had expected. There are hundreds of different options to review. You must consider the weight of the pram, easiness to fold, storability, age suitability, car seat adapters, car seat compatibility, coffee cup holders and of course price. I ended up down a Google rabbit hole. I had naively assumed a pram was a pram, I hadn’t appreciated prams could be complex death traps that needed comprehensive research. I spent hours on numerous consumer sites trying to collate enough information to make an informed decision, and when a ‘travel system’ can cost up to £2,000 you want to make sure you get it right. THE RIGHT PURCHASE
This is just one example of how being a consumer can be stressful. How can you make sure you are making the right purchase? For any large purchase you end up having to make decisions based on a number of assumptions, and when it’s important the stress levels can ramp up. No one wants to spend thousands of pounds on the wrong item. I would love to have looked at a simple table of the different travel systems and been able to understand exactly what specifications they all had and how well rated they were. Unfortunately, this was not available, so I had to cobble together my own research and take a punt in a Black Friday sale. Hopefully I have made the right choice. It’s not just prams that have become increasingly complex; this is an overall consumer trend. We have never had so many options to choose from: cars
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have more gadgets, we can select from hundreds of holiday destinations and online shopping allows thousands of choices. This increase in choice has not skipped the life insurance industry – products are more complex and there are more features and value-added services than ever before. COMPLICATIONS
This is great news for the end consumer as these services offer real value, but it doesn’t come without some additional complications. With so many different products available, each containing their own unique features and value-added services, how can we expect advisers to memorise what product supports what features? If you then layer in the quality of that feature it becomes a herculean
“Customers can utilise services that allow them to get second medical opinions, rehabilitation to help them get their lives back on track and nutritional services to keep them healthy. Policies aren’t just about the end pay-out anymore; they offer real value over the lifetime of the plan” task to decide which product is best suited to the end client. How can an adviser be expected to know and keep up to date with which product has the best counselling service or the most comprehensive children’s cover? It doesn’t seem a fair ask. You can take the simple approach of ignoring these additional features and instead just look down the list of protection products and pick the cheapest. But this doesn’t provide the best outcome for the consumer. Cheapest often isn’t the best, and the end consumer may miss out on some great
value-added services they could have benefitted from. Maybe having access to counselling services is important to a client, or perhaps they have children, so children’s cover would make a real difference to them. The good news is there are some great tools advisers can use to help them compare the different elements of a policy. However, these generally sit outside the adviser’s core process and creates yet another step to take. For this reason, iPipeline has partnered with Protection Guru to create a product features report, making it easier for advisers to understand the features a product supports as well as being able to compare these features on quality, not just price. Advisers should be given the tools that allow them to do the best job possible and ensure their client ends up not just with cover, but the cover that is suited to their individual needs. In the last few years we have seen an evolution in the consumer buying experience. More is offered because consumers both expect and demand more. TAILORED PRODUCT
Yes, it may sometimes add complexity and a bit of stress, but it also means we have the potential to buy a product that is tailored to our needs and is geared towards our lifestyle. We are now working in an industry which offers fantastic, lifechanging products backed by extraordinary advisers. Customers can utilise services that allow them to get second medical opinions, rehabilitation to help them get their lives back on track and nutritional services to keep them healthy. Policies aren’t just about the end pay-out anymore; they offer real value over the lifetime of the plan. By providing technology solutions to meet clients’ needs and embedding the value of advice above and beyond what can be found on aggregator sites, the industry can take a positive step forward in keeping quality at the heart of the protection conversation. M I www.mortgageintroducer.com
Keep it simple Andy Philo director of strategic partnerships, Vitality
here’s no doubt protection can be complicated, or at least seem complicated from a distance, and this can be a barrier to sales. Not only do advisers have to outline future worst case scenarios and discuss subjects many people don’t want to hear, but the products themselves can be hard for clients to get their heads round. This is before the conversation moves on to the range of additional features that come with some policies, like second medical opinion services, gym memberships or discounts at popular retailers. The list is growing all the time and while the increase in added value
benefits is a good thing because it gives customers more choice, better value, and turns a product that may never pay out into something more tangible that could be used every year, it can also become overwhelming and off putting. It’s we providers who are often at fault here, for want of a better word. In our genuine efforts to be the best, be different and stand out from the competition, sometimes we make life unnecessarily difficult for advisers. If an adviser doesn’t really understand the products, then how can they possibly provide their client with the best advice? That’s why it’s so important for insurers to provide training and tools to help advisers truly comprehend the ins and outs of each product and the ethos behind them. New technology plays a big part in supporting this process. Our online hub is available 24/7 and aims to assist advisers in improving their service delivery by allowing them to download key forms and literature and by giving
them access to tools like our protection calculators, which bring the products to life for clients. Providing this kind of information also lets advisers stay up to speed on changes in the insurance market, helping them complete their minimum of 15/35 hours’ compulsory CPD training each year. Additionally, it’s great to see technology providers launch new, innovative solutions aimed at making life easier for advisers. There are a range of platforms available that help brokers compare protection products so they can quickly identify the right solution based on client needs. Providers should spend more time listening to advisers and understanding what they need. The feedback we’ve received is that they want us to continue adding value, but at the same time make things as easy as possible for when they have those all-important protection conversations. If insurers can get that balance right, advisers will have the confidence and expertise to discuss the best products for their clients’ needs in a simple – and saleable – way. M I
Thinking inter-generational Jeff Woods campaigns and propositions director, Sesame Bankhall Group
’ve had protection cover with a wide range of companies over the years and one of these is Vitality, who I also used to work for. When I took out a policy with them some years ago I also purchased additional serious illness cover for my two boys, in order to cover as many risks and eventualities as possible that may have befallen them. Fast forward and when my eldest son was 18 he started to benefit directly from the rewards programme that came with the policy. It was great to see how motivated he became to do his steps every day, to ensure he could enjoy his Starbucks and free cinema ticket. However, the additional cover for
him expired on the policy anniversary after his 18th birthday and he no longer qualified, which he was a bit disappointed about (the cover could have continued if he was in full time education). What I found interesting was the fact that he asked about the cover he had, and just because he was now older did that mean he didn’t need it? Furthermore, he asked, should he have some cover of his own? To many people I’m sure this will sound like an unlikely subject for someone so young who’s living at home to raise, but the important point to consider is what has really changed from a risk or need point of view? It made me think whether life and protection providers are missing a trick? Is there an opportunity for providers to set up the children’s cover to extend to an older age, regardless of whether they are in education or not, and why don’t they offer them something in
the way of a conversion policy? I then found out that the clever people at LV= had already developed this idea and do exactly that, by extending to 23 years with an option for the now adult to convert to their own policy. I applaud them for their innovation. Most 23 year olds are in the early stages of employment and, although they may still be at home, they could well have car loans, gym memberships, mobile phone bills etc. and may be paying their parents rent. Others may have ventured out and be renting their first property. They’re likely to be financially vulnerable at this stage in their life, with minimal savings, so a small IP or CIC policy would probably be appropriate. In doing so the next generation get access to cover and the habit of providing for themselves, and we get access to that elusive generation rent crowd at an early age. Just a thought. M I
Are life providers missing a trick on extending children’s cover to an older age?
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Defying convention Paul Kelly chief product officer, UInsure
ouldn’t life be boring if everything was ordinary? If every case was vanilla or if every circumstance was simple. It’s important to understand and embrace this in the insurance industry, as customers who have what are described as “nonstandard” features on their property can really struggle to find a policy. These features can vary between properties in flood risk areas or occupiers with previous criminal convictions. Some of these features are either environmentally dependent or based on the property itself, such as subsidence, so it can be a frustrating process when a homeowner is keen to
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protect their building and contents but is unable to do so. We, as an industry, often speak about adapting to the changing needs of the consumer. We took that initial step with our ‘Zero Questions Asked’ proposition to offer speed and convenience, however it is not all about taking technological strides. It is also about ensuring your product offering is catering to everyone. In February, we added online non-standard home insurance to our product offering, taking us to the next level by being able to offer an enhanced in-house suite of home insurance products. We wanted to ensure that we included services for a variety of needs. Just as a specialist mortgage provider caters for those with previous CCJs or an imperfect credit record, we offer a product for those who may have an adverse claims history, or have had previously cancelled or declined insurance. This allows everyone,
whether they be living in a listed building or have a holiday home, to have peace of mind that they too can easily get insurance for their property. After all, it is integral to a homeowner, particularly if a property is being used against a mortgage. But this isn’t just a benefit for us; it is a benefit for advisers who can grow their businesses. Uinsure recently received a Defaqto and Moneyfacts 5 Star rating for the seventh consecutive year, which we are hugely proud of, but to attain such an accolade it is important that our product reflects this and constantly has the end consumer in mind. If diversifying your product offering is not a key focus for 2020, then perhaps it should be. No two cases are the same, which makes for an interesting and exciting industry. But making sure that everyone has the same prospect of attaining your products, whether that be in the mortgage or insurance space, is paramount. M I
Is your knowledge of the protection sector a little cloudy? Keep up to date with the latest protection news and developments at www.mortgageintroducer.com
Avoiding the queue Steve Ellis head of risk and protection, Premier Choice Group
ortgage related protection insurances tend to be those that cover an individual’s finances or provide them with finance to deal with death, accident or illness. Private Medical Insurance (PMI) tends to be down the list a bit, behind life, critical illness and income protection insurance. But insurance to get you back on your feet, back to work, back to the life you want to leave is just as important. So here the first in a series of statistics to help your clients in their considerations as to whether PMI is for them. According to recent NHS performance statistics: Of patients on the waiting list at the end of December 2019, 83.7% had been waiting less than 18 weeks, thus not meeting the 92% standard; The number of patients waiting to start treatment at the end of December 2019 was 4.4 million or 4.6 million taking account of trusts not submitting data; The number of patients on the waiting list who were waiting under 18 weeks increased between December 2018 and December 2019 from 3.6 million to 3.7 million, and the number of patients waiting over 18 weeks rose from 556,000 to 722,000; 1,467 patients were waiting more than 52 weeks. The NHS does an incredible job for an incredible number of people. Inevitably there have to be delays but PMI can be a way of avoiding delays and getting back to work and income, especially for the self-employed who lack access to sickness benefits. ‘Why bother with protecting my mortgage? I’ll manage.’ These are
common rejoinders from clients when we are trying to persuade them to part with some of their income to protect that income, to protect that mortgage. There are fewer more startling reminders for clients than the statistics that show why a number of people should have protected their mortgage because it became apparent that they could not ‘manage’. DON’T BE A STATISTIC
These statistics are those just out from the Ministry of Justice on mortgage and landlord possessions in England and Wales. From October to December 2019 mortgage possessions claims increased by 11% compared to the same quarter in 2018; mortgage orders and repossessions by county court bailiffs have risen by 24% and 9% respectively, compared to the same quarter the previous year. Claims for possession numbered 6,258 and repossessions were 1,149. We don’t know for sure but chances are not all of these were people wantonly not paying their mortgage and not bothered about not doing so. Chances are that many were people to whom something had happened that made them fall behind on their mortgage payments for accident or illness – for things they were unable to control and unable to manage financially under. We have a responsibility to try to ensure our clients are not part of those statistics. We can’t protect them against accident or illness but we can help them protect themselves financially if things do happen to them. It is perhaps not a huge surprise that some people are paying more in rent than others are paying for their mortgage. Low interest rates have benefited mortgage borrowers for many years now and likely to continue to do so. According to the Halifax Buying vs. Renting Review it is in London where renters pay more than homeowners. The average monthly rent for a threebedroom home in greater London is £1,689 compared with the £1, 378
average monthly buying cost. The lowest average rental cost is £437 and lowest average buying cost is £489 – both in Northern Ireland. Buyers across all UK regions save upwards of 10% when compared to renters in the same area, with the exception of Yorkshire and the Humber, where homeowners save just 3% on average or £235 per year. In London homeowners save on average £3,727 each year. Mortgage brokers are not obviously in the business of selling protection insurance to those who rent their home – we are as protection intermediaries. But as professionals we are all – or should be – in the business of selling protection to homeowners. Ironically to protect the family home it is renters who need more cover. Individual circumstances will dictate the pecking order or choice of insurances whether it be life insurance for couples and families, income protection and or critical illness for singletons. Ideally the latter two insurances should also be held by couples or families. Anyone can lose their job and therefore their income or become ill and not able to work for a while or return to the work they used to do and the income they used to have coming in. It is not the case that anyone need lose the roof over their head but the risk is very real without protection. What these statistics show us is that when clients argue that they can’t afford to pay for insurance – our argument must always be can they afford not to. And what we can also argue is that homeowners are better off than they were as renters and therefore do have the wherewithal to pay to protect their income, home and lifestyle. Those who have not rented for a while may not remember how it used to cost them more to rent – these statistics if you can keep them to hand may help you persuade them to consider where those savings are being spent now and how they might be better spent on protection. M I www.mortgageintroducer.com
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Help your clients understand GI advice Rob Evans CEO, Paymentshield
o people really need professional advice to buy home insurance? The millions of pounds of marketing spent bombarding consumers to convince them that it can be “simples”, persuade many that the answer is ‘no’. Getting past this perception is one of the main challenges when it comes to advising your clients on general insurance (GI). After all, while it is generally acknowledged that mortgages can be a complex product, your clients are inundated by meerkats, opera singers and Skeletor telling them that all they need to do is to visit a price comparison website to save time and money. The reality of these comparison sites may differ to the hype. Firstly, comparison sites ask a lot questions – in some cases more than 56 – and despite the deluge of data they are gathering, many don’t actually ask for information an insurer needs to price accurately. The consumer group Which? found that customers risk paying up to £414 more for their home insurance, simply because comparison sites are not asking all the right questions. Equally worrying, Which? also found customers can be undercharged, potentially leaving households with an invalid policy or insufficient cover. So, it takes an age and there is a strong chance your clients will either end up paying over the odds or risk not being able to claim… maybe not so “simples” after all. The FCA looked into the GI market and concluded that it isn’t working well
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for all consumers. They estimate that around six million policyholders are not getting a good deal on their home or car insurance. If those customers paid the average premium for their risk, they could save around £1.2bn a year. The FCA’s findings include: Policies are often sold at a discount and large increases are put in at renewal. Longstanding customers pay more on average, but even some people who switch pay higher prices. One in three consumers who paid high premiums showed at least one characteristic of vulnerability, such as having lower financial capability. For consumers who bought combined contents and building insurance, lower income consumers (below £30,000) pay higher margins than those with higher incomes. People who pay high premiums are less likely to understand insurance or the impact that renewing has on their premium. Firms engage in a range of practices to raise barriers to switching. Many consumers who switch or negotiate their premium can get a good deal. However, consumers generally are either not given sufficient information or don’t have enough knowledge to properly compare policies. Consequently, the regulator is considering remedies to tackle these issues, which could include banning or restricting practices like raising prices for consumers who renew year on year or requiring firms to automatically move consumers to cheaper equivalent deals. It will also consider how the industry can introduce the benefits of innovation in the longer-term, so that general insurance markets benefit positively from technological developments.
On many of these issues, advisers and their firms have already benefitted their customers even before a policy is sold. Intermediaries influence product design and pricing strategies so that providers like us deliver quality products at a fair price that are consistent with the service and customer ethos they themselves offer. For example, unlike many aggregator sales, the polices are rarely if ever sold at a loss to new customers and so providers don’t have to rely on significantly increasing prices at renewal to make their return. Also, many providers have no barriers to exit – at Paymentshield any customer can cancel at any time, with no penalty or cancellation charge, and our approach isn’t unique. Advisers also have access to resources that consumers don’t, like Defaqto comparisons, to make sure the choice of policy is suitable for the customer’s specific needs. I think the FCA’s findings strengthen the argument that GI is an area where consumers can really benefit from speaking to an adviser. You understand them, their financial situation and how it may change in the future, so you can help save your clients time and ensure they have the right policy for their requirements. Customers who use a good, proactive adviser should never be in the position of paying too much for cover they don’t need or, even worse, putting their home and treasured possessions at risk by having invalid or insufficient cover. Price comparison websites may provide people with a false sense of security that they are getting a good deal, but while they can filter information at a superficial level, they still require a significant amount of input from the customer. As we can see from the FCA study, without professional advice, too many people take out and stick with products that are too expensive or don’t suit their needs. The regulator is also looking at how the industry can introduce the benefits of innovation and we believe that technology is a key element of enabling quality advice and good customer outcomes. M I www.mortgageintroducer.com
Commercial costs on the rise Geoff Hall chairman, Berkeley Alexander
ccording to the Association of British Insurers (ABI), claims costs on commercial insurance have risen significantly over the past 12 months. Costs for theft in particular have seen the highest increase at 13%, closely followed by fire and escape of water. The market has seen the frequency of claims increase year-on-year, by 43% since 2015. Increased claims costs will inevitably drive up premiums for both commercial property owners and commercial business insurance. The reasons for the rise are varied and due to micro as well as macroeconomic pressures. The cost of labour is a big contributing factor – something which will only be exacerbated by Brexit. The cost of materials and replacement goods and machinery is increasing due to fluctuations in exchange rates and high demand in international markets.
There’s been an increase in higher severity incidents of theft of stock, contents and cash, as trends in violent and organised crime expand. Supply chains are becoming increasingly complex, meaning that incidents take longer to resolve, increasing the financial impact. Incidents of suppliers’ claims impacting their customers’ ability to trade are becoming more common. The UK has seen an increase in the frequency and severity of flooding events over the last 20 years; with two flood events seen across parts of the UK in February thanks to storms Ciara and Dennis. Whilst no one wants to suffer the impact of premium increases, the state of the commercial insurance market does create opportunities for the GI broker. Clients will need help to find suitable cover at an affordable premium and save them money on their renewal quote. Faced with increases, some clients are bound to be tempted to cut corners and risk underinsurance – a gamble not worth taking on any critical cover, but particularly on business-critical commercial policies. M I
Trade credit – the sleeping GI giant?
ore businesses in the UK suffer bad debts than experience fires, and yet trade credit insurance has a far smaller penetration rate. Premiums for trade credit tend to figure in the 10s or even 100s of thousands and represents a great market opportunity for GI brokers as well as a very valuable, but admittedly less well-known insurance for businesses. In simple terms, the trade credit cover provides clients with insurance against bad debts against their commercial clients ceasing to trade or defaulting on the payment due. Trade credit is generally cheaper than and provides wider coverage than factoring the debt. Some insurers will also help recover debts over 60 days old. If a business uses
factoring, they need to consider trade credit instead. Businesses would normally look to insure their whole turnover but can include or exclude specific aspects of their turnover and/or specific suppliers – so for instance a firm selling in the domestic UK market and also exporting abroad may choose to only insure their international customers. Many insurers have a presence in international markets, so they have the feet on the ground in that local market to help recover debts. Likewise, if a firm supplies 50% of their turnover to a brand such as Tesco, they can exclude that element as arguably there may be little point paying a premium to insure against Tesco going under.
FSCS levy hikes – be careful what you wish for The FSCS has stated that the indicative levy for brokers for the next financial year is £23m, up from £12m in 2019 and 2020. These increased costs could be a real challenge for many. There is much controversy over whether or not all brokers should be responsible for the levy as the increases have largely been due to PPI mis-selling by a minority of firms and mainly through other distribution channels. COMPLAINTS
Sadly, its likely to be those financially failing brokers who are more likely to have created the complaints that generate the FSCS payments. The FSCS is a must have to ensure consumer confidence is maintained in the insurance industry and customers are adequately compensated should a firm fail, but funding of the compensation scheme is complex. The levy should be fairly apportioned within the broker community, and some are calling for changes, so the fees are fairer and more proportionate to the types of business transacted. No funding system is perfect; if it changes there will always be winners and losers, so be careful what you wish for! I relate back to the simple basic founding principles of GI – “the premiums of the many pay for the losses of the few” where everyone paid the same amount into the pot. Over the years, ratings have become much more complex and are now based very much on the individual risk. If the FSCS funding levy changes to become more bespoke, it’s likely that costs will increase as it becomes more complex for the FSCS to set levies at an individual firm basis. M I MARCH 2020 MORTGAGE INTRODUCER
Do you need a mortgage chatbot? Mark Lusted managing director, Dock9
hatbots are now widely used in other sectors (particularly in the retail e-commerce space) but, the mortgage industry has so far been slow to adopt, despite much talk of “robo advice” in recent years. Despite this, there are many obvious applications for brokers, lenders and third party servicers which could help drive efficiency - crucial as the trend towards skinnier margins does not look like abating. The potential benefits to businesses are clear and dual purpose; automate the simple call centre queries to save operational costs while at the same time offer instant, 24/7, 365 day availability to your customers. Chatbots give customers a ‘live chat’ experience, without a human thinking of and then typing responses on the other side. They enable the use of conversational language instead of a traditional website form and the user will never know if they are talking to a machine or a human. They can be powered by AI, however typically are underpinned by rules and decision trees similar to a traditional application adapted for the chat interface. So how do you determine if you should build a chatbot? I’d start with asking some questions of your business: 1. Is this idea a genuine fit for the technology or would it be better suited left to human interaction? 2. How will you judge the success of your chatbot? 3. What are the top five queries that
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your customer services team have to answer every day? Are the answers to these questions common and generic, or specific to the customer? 4. If your chatbot needs to give specific information about a customer’s case (rather than generic answers from a fixed database), does the system that contains that information have an API? 5. Will your chatbot enable open conversations (where the user can type anything they like) or multiple choice answers? If the former, how will your chatbot handle out of context questions? 6. Is the tone of voice of your brand formal, or informal, and how should the chatbot reflect this? Then before rushing in to develop a proof of concept (POC), first spend some time identifying and validating the use case. BUSINESS OBJECTIVES
Building a chatbot is no different from building any other digital product so the business objectives, user goals, success metrics and business case need to be considered before development. Firstly, conduct an exercise to list out all of the points in the customer journey that have the potential to be replaced or supplemented with a chatbot. If you decide that a mortgage chatbot is worth investigating, the good news is that the barriers to entry have become very low as there are many frameworks
available at relatively little cost. There is no need to reinvent the wheel and implement your own natural language processing algorithms. You can simply plug in and train an existing commercial framework to kick-start your project. At Dock9 we have primarily used the Microsoft Bot Framework. It offers two different routes for bot development: firstly their “QnA Maker” enables you to quickly and easily create a bot based on a pre-configured list of questions and answers, while the full SDK enables you to create a fully bespoke bot (including integrating with thirdparty systems). The most successful fintech companies all have one thing in common: they regularly test their digital journeys with real customers (be they borrowers or brokers) and use the insights gained to optimise and drive conversions, avoiding the trap of making decisions on a hunch and I have written in the trade press before about the importance of testing and validating ideas as quickly as possible in the digital product design process. Given the new medium, testing concepts early with real users is especially important for chatbot projects and should ideally be undertaken within the first few weeks of kicking off a chatbot development project. Learn from the results and adapt your POC and retest if necessary. With potential upsides so high, and barriers to entry now so low, those companies looking to improve their operational efficiency as well as improving customer experience would be well advised to explore how their company could utilise chatbots in 2020. M I
The barriers to entry in creating a chatbot are low
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Identifying the truth Nicola Firth CEO, Knowledge Bank
nyone who has seen the film “A Few Good Men” will surely remember the courtroom scene where Tom Cruise demands “I want the truth!” to Jack Nicholson, who responds, “you can’t handle the truth.” Identifying the truth is not just a problem for US Navy lawyers – it’s a very pertinent issue for mortgage brokers as well. More specifically, identifying a single version of the truth can prove a real headache for broker firms. MODERN MORTGAGE PROCESS
It’s an unavoidable fact that when rekeying happens so do mistakes and the modern mortgage process offers plenty of opportunities for re-keying a client’s information. As a broker you might typically collect a client’s information during a fact-find, before entering it into your CRM system. You could then re-key the details into a sourcing system and, depending on the circumstances of the case you might also choose to carry out research on a criteria search system and an affordability platform. Once you have identified a range of suitable options for the client you could choose to then carry out a number of DIPs to present them with some available products and then proceed to key in full details on the lender’s own system to complete and submit the application. By following this process, you might potentially need to re-key the client’s information upwards of eight or nine times and every time you do this, there is potential for a mistake that could provide problems, or even derail the case altogether. And this is before you start to think about the amount of time
wasted by carrying out the same task across multiple platforms. This is, of course, an extreme example, and the reality is that most brokers will have more streamlined processes, such as entering the details from the fact-find directly into the CRM system, for example. There may also be some integrations throughout the journey. Perhaps where lenders are able to transfer sourcing system data into their own DIP forms, and the vast majority of lenders with pre-populated application forms with information that has already been entered into the DIP. But the reality is that, in most mortgage applications, there are likely to be at least two or three times where the information needs to be re-keyed. This is not only inefficient, but it also means that there is no longer a single source of the true data. So, if you want the truth, what are your options? Fortunately, technology platforms understand the importance of having a single source of truth, which is why you will probably see a lot of talk about Application Program Interfaces, or APIs. APIs are technology that enable organisations to interact and share information with each other – so
the same information can be used to populate different systems. And this gives you a single source of truth. Another example is that all lenders who maintain their criteria on our system can use this data for an internal version of Knowledge Bank that is used by their BDMs and telephone support teams, plus via APIs we can also populate the lenders’ website too (as we have recently for Masthaven Bank). “CONNECTIVE TISSUE”
In a white paper on APIs,management consultant, McKinsey & Company, said: “APIs are the connective tissue in today’s ecosystems. For companies that know how to implement them, they can cut costs, improve efficiency, and help the bottom line. APIs allow businesses to monetise data, forge profitable partnerships, and open new pathways for innovation and growth.” If your business wants the truth, look to partner with technology providers that not only excel in delivering their own platforms, but those that are also forward thinking and open to establishing links with other services. It is this ability to transfer data across platforms that will save your business time, money and provide you with a single source of truth. M I
Identifying the truth is a pertinent issue for mortgage brokers
Is your CRM as good as it should be? Tanjir Sugar chief executive, Mortgage Magic
wo years ago, as a mortgage broker frustrated with the current crop of CRM and mortgage management systems, I partnered with colleagues and IT professionals already working with the latest advances in Artificial Intelligence (AI) to create a new platform to help mortgage brokers run their businesses more efficiently. It had to be capable of delivering everything that a mortgage specialist needs to thrive in today’s market where customer focus, communication, fast compliant delivery of lending solutions and a robust approach to GDPR and client file security are no longer a luxury. We started from a position that a new age platform should incorporate: A complete login system– must be simple, secure and comprehensive so that clients, advisers, administrators and business owners can easily login via the usual email/password from their website or web based landing page or via a mobile phone using a one time password (OTP). Factfind - A simple to use attractive interface which can be completed by brokers or their clients. Document submission – Enabling clients to upload required documents via mobile app or client portal securely. Case tracking – Giving all parties access at any time with all case progress taking place in real time. Reporting system – The ability to interrogate the database is essential for adviser firms to analyse business performance. Easily producible reports showing the progress of each adviser, the quality of cases sent through by www.mortgageintroducer.com
introducers and business snapshot reports should be available at any time. Compliance – An inbuilt compliance function is an essential tool to assist in the running of every mortgage business. The ability to file check and provide a complete audit of activity when needed should be a basic feature of every system. Our platform, Mortgage Magic, uses block chain methodology. For a compliance audit, when data is stored once an event or action is reported it produces a record that cannot be altered or undone. GDPR - If a client demands under SAR that his files and information should be deleted from the database, a full compliance audit trail of the events is still available. As this is kept via block chain methodology, even if the main server is destroyed, business disaster recovery and therefore vital data is ensured. The Mortgage Magic platform utilises private block chain which can ensure business disaster recovery. CRM INTEGRATION
In my opinion, there are numerous other technological aspects which advisers should be able to integrate into their CRM and mortgage platform including electronic ID verification and video conferencing, along with mortgage sourcing and protection plug ins. Electronic ID verification: Clients can use their app to take a picture of their ID and then a selfie. The system will check the selfie with the picture in the ID and produce an authenticity report. The ID is also checked against all known databases to ensure authenticity. Secure Video Conferencing: Mortgage adviser can initiate secured video calls with the client via their app. In this way an adviser can be in London and deal with a client sitting in Glasgow in real time. The video file then forms part of the case
management system. With a platform like Mortgage Magic, advisers have everything they require to operate a 21st century mortgage advice service. There is no longer a need to have separate components such as sourcing systems or ID verification, which have to be accessed outside the MM platform. Existing platforms, largely due to the restrictions caused by older technology, demand that users have to work in ways that are not particularly intuitive. However, the UX or ‘user experience’ should always be based around what advisers actually want to experience when they move from enquiry to DIP, application and completion. In essence, it must be easy to use. Yet, due to the limitations above, many of the alternatives available today are not easy, requiring considerable time for training – some as much as a week for each user. In other words, ‘you do it my way or not at all’. The reason that tack still works is because no one, until now, has actually challenged the assumption that the current offerings in the market are actually the best examples of what genuine cutting edge technology can offer. As a mortgage broker, I have tested most of the platforms out there and, in common with many of my peers, have not found anything that does what I want it to do in the way that I want to work. Our platform has been designed from the ground up by mortgage brokers working with IT specialists who also work at the forefront of the practical application of AI. Based on intuitive machine learning methodology, the platform and the engine that drives it is trained to make automated decisions, based on the data fed into it. In layman’s terms, mortgage brokers have specified what is required for a mortgage based CRM and administration system and the cream of Silicon Valley, using their experience of AI and machine learning, have produced a system fit for today’s mortgage sector without the compromises that underpin those platforms still using yesterday’s technology. M I MARCH 2020
Preparing for the pandemic Alain Desmier founder, Contact State
t the time of writing there are under 100 confirmed cases of Covid-19 (the Coronavirus) in the UK. By the time this magazine has dropped onto your doorstep, it’s likely that number will be much higher and it’s clear that the effects of this pandemic are going to be felt in every sector, up and down the country. As the numbers increase, large mortgage brokerages, banks and financial institutions will at first be encouraged, and then ordered to send staff home to work, to isolate and prevent the risk of disease transmission. Although the virus itself is really quite concerning, it presents an opportunity for mortgage professionals to think about the ways they might become more productive and prepared for flexible working. There are very clear business reasons to invest the time now to prepare; the random nature of transmission and infection makes outbreak unpredictable but the long term benefits of a more flexible working environment could help your team be happier, more productive and more committed to your organisation. HOME FROM HOME
In many ways, the mortgage industry is already well set up to deal with remote working. Many mortgage professionals will read this article from their home office, will be well versed with working odd hours and fitting their professional lives around home life. Thousands of self-employment mortgage brokers buy leads, take referrals and complete dozens of mortgages each month without ever meeting the client they
are helping, face to face. However larger telephone-based brokerages, banks and financial institutions will have working from home thrust upon them for the first time as the need to isolate to prevent the risk of disease transmission increases. Working from home is not just about setting up camp in the kitchen by the kettle, there are challenges for both the employee and employer that revolve around trust and creating a working mindset. Many firsttime remote workers and remote employers struggle with recreating the perceived effectiveness of office floor communication. If an outbreak of illness does indeed mean that your team needs to work remotely, how can you use technology to stay in touch with staff and create a daily working rhythm that feels less distant? Invest in project management: A good cloud-based project management tool will allow you to keep track of multiple projects, people and deadlines. If an extended period of working from home is going to mean that your team are spread out across multiple locations, having one place to share files and keep people accountable for their work and goals is essential. Basecamp and Slack are good options to consider. Create structure and routine: Scheduled face to face contact is not only good for team morale, it’s good for individuals who are not used to working by themselves to be reminded they have a support network beyond their email. Use video conferencing to implement daily ‘stand up’ call and team meetings. I personally prefer Google hangouts for its sheer simplicity, but there are good options in Zoom, Blue Jeans and GoToMeeting.
Is it easy to log in from home? Perhaps this is the right time to review your ageing CRM system and speak to businesses like Engaged Resource or Lead Byte who specialise in cloud-based sales data and tracking for financial services businesses. Having a secure and effective CRM system will allow your team to pick up their work as though they were sitting next to you. Take the data compliance challenge seriously: If your sales team had to work from home tomorrow, could they? Do they have laptops that are password protected with the right level of encryption? Covid-19 is a public health risk but it’s also a massive GDPR risk without careful planning. Now is the time to be thinking about acquiring a stock of secure but reasonably priced laptops that are linked to your server and have a VPN installed as standard. If you haven’t confronted what it would be like to have your entire teamwork from home for the foreseeable future, now is the time to invest the time to prepare for exactly that situation. In the short term, you’ll be able to keep your operation running and reassure staff and clients that you’ve taken steps to protect them. In the long term, a more flexible policy of working could help you keep staff motivated and focussed. M I www.mortgageintroducer.com
Changing the climate landscape Xxxxxxxxxx Steve Goodall xxxxxxxxxxxxxxxx, xxxxxxxxxxxxxxxx CEO, ULS Technology
ast year was important for many reasons. However, one of these reasons will have lasting and serious implications for the housing sector - the government’s commitment to reaching net zero carbon emissions in the UK by 2050. That gives us just three decades to completely change the energy landscape of the UK, and within this larger target there are multiple other dates by which certain cities and industries must decarbonise. HOW DARE YOU?
Images of Greta Thunberg have dominated our media over the past year or so, with her no frills demands that the world must act now to avert a total climate crisis. Public will to move away from carbon heavy fuel sources is growing, and much-needed change seems both far more urgent and much closer than it was this time in 2019. The extent to which our lifestyles must change to meet this target will come as a shock for many. It’s not beyond the scope of probability that private vehicles could be banned from city centres, or that families would be pushed to give up car ownership altogether by taxing road use heavily. Flight-shaming is now a real thing with official statistics from Sweden’s airport operator, Swedavia, showing that the number of domestic flights in Sweden dropped 9% last year and while more than 40 million people flew through the country’s 10 airports in 2019, this is a 4% drop year-on-year. How the ambitious net zero targets are likely to affect how we travel and where our energy comes from – renewable sources, as opposed to nuclear power stations - is perhaps easier to envisage than the very real need there will be to drastically reduce
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our consumption of red meat and dairy produce. The housing market will also need to see substantial change. Official numbers from the government reveal carbon dioxide emissions in the energy supply sector decreased by 7.2% between 2017 and 2018, driven by a change in the fuel mix for electricity generation. There was also a 2.6% fall in transport carbon dioxide emissions, which are usually as a result of traffic volume changes or improvements in fuel efficiency. Housing, by comparison, delivered more carbon emissions over the same time, rising by 2.8% down to an increased reliance on natural gas for heating.
“Valuers will be thinking about how changing or failing to change affects asset value and lenders will need to consider these risks too. Keeping track of it all is going to be challenging” The Committee on Climate Change published its progress report to the government last year, and in it, stated: ‘Over ten years after the Climate Change Act was passed, there is still no serious plan for decarbonising UK heating systems or improving the efficiency of the housing stock, while no large scale trials have begun for either heat pumps or hydrogen. The low-carbon skills gap has yet to be addressed.’ The stark reality is that over the next 30 years, all new homes will be subject to increasingly severe regulatory standards on heating systems, smaller driveways to limit vehicle use and more sustainable energy sourcing. How the vast stock of existing residential properties will need to be upgraded is not at all clear, yet. Scrappage schemes for old boilers, financial incentives to switch, taxing
gas use much more aggressively are all possibilities. This has huge implications for the housing market – valuers will be thinking about how changing or failing to change affects asset value and lenders will need to consider these risks too. Keeping track of it all is going to be challenging. Technology will help. In fact, it’s already helping. Nearly everyone is now aware of challenger banks such as Monzo or Starling, both of which style themselves as having a ‘marketplace’ model. This means they act as a platform through which their customers can access products and services from providers they have partnerships with. DigitalMove, ULS’s digital platform, operates on the same logic: we connect brokers, lenders and customers to solicitors. All documentation is securely held in one place. IMAGINE A FUTURE...
At the moment, homeowners switching their energy supplier or renewing their buildings insurance must go to a price comparison site, a marketplace like Monzo or directly to suppliers themselves. But imagine a future where the services wrapped up with their home could be accessed and managed in the same place. The benefits of buying your home insurance through the same platform as you manage your mortgage is considerably easier than having to do this separately. For lenders, this type of setup would prove useful in terms of due diligence – buildings insurance is mandatory for many (if not all) lenders in the UK, but who checks if it’s in place after the mortgage is approved? The move to net zero emissions offers challenges but also immense opportunity. Lenders wishing to contribute to reducing emissions could, for example, reward customers who use sustainable energy suppliers or upgrade their heating systems. Tracking this is going to be key. And it’s what we plan to do. M I www.mortgageintroducer.com
Building a reputation in equity release Hattie Tales business development manager, Pure Retirment
he equity release market has been one of the success stories of the financial services sector in recent years. In 2019 total lending sat at £3.9bn, which represented year-on-year stability despite market conditions proving challenging for financial services providers in general as ongoing political and economic uncertainty has seen consumers become more reticent and cautious when it comes to making major financial decisions. The market saw total customers hit over 85,000 last year, who released over £1bn in Q4 of 2019 alone and helped elevate the market far beyond the £945m of lending it saw in 2009. This has undoubtedly been stimulated by ongoing innovation within the equity release marketplace, which has seen the average interest rate drop to below 5% for the first time (sitting at 4.91% in September) and a raft of new products enter the market; 2019 saw a 95% year-on-year increase in new plans available to consumers, with a new product surfacing on average once every 48 hours throughout the year. In addition to rising numbers of products, an increasing proportion of lenders have also reacted to the more diverse needs being brought about by an ever-widening customer base through offering more flexible options. As a result, last year saw significant year-on-year rises in the number of plans offering downsizing protection (up 103% from 2018), interest payments (up 710%) and one-off repayments (up 77%). Considering all of the above it’s little wonder that the later life lending www.mortgageintroducer.com
market is being seen as an increasingly attractive option to advisers, especially as the customer profile has diversified away from those who turned to equity release out of necessity and instead now encompasses those who are looking to it to either assist family members or for more aspirational means. Key Retirement’s 2019 Market Monitor shows that while 49% used equity release to consolidate debt (and 12% used it to help with regular bills) 64% used it to fund home and/or garden improvements, 32% used it to fund holidays, and 28% used it to gift to family or friends. As the market has grown, the wider sector has recognised the importance of supporting advisers wishing to enter this growing area of the financial services industry. For instance, several lenders offer exam training workshops to help advisers in the process of passing their relevant qualifications,
Equity release is increasingly popular
typically in the form of an intensive day at their offices followed by ongoing support afterwards. Lenders and trade publications also run regular roadshow events, drawing on insight from across the industry to provide cost-effective ways (roadshow events are frequently free) to build knowledge and network with leading providers - they also count towards continuous professional development plans, offering further residual benefits beyond the sessions themselves. Similarly, expos can often act as a one-stop shop for anyone seeking to better their knowledge and connections within the sector as they feature a physical presence from all of the major firms, affording advisers the chance to build connections with their sales teams. Support for advisers continues once they’ve entered the market, with a key pillar being the marketing support offered by many lenders. This can take the form of workshops and information sources (such as demographic reports) right through to practical assistance such as collateral creation. These resources can prove to be a costeffective way to reach customers, so it’s always worth exploring what support providers can offer. Self-generation can also be a worthwhile skill to develop, and workshops exist for advisers seeking to further themselves in this area. Finally, most business development managers will be more than happy to support new entrants to the market – many will have previously been financial advisers, and as a result are uniquely placed to be able to support those trying to grow their network and succeed in this increasingly competitive marketplace. The growth of the equity release market has seen it increase in popularity among financial advisers, but as with entering any new market, support is required to build a reputation and customer base. Fortunately, the wider later life lending sector has realised the benefits of creating a supportive and welcoming environment for new entrants, culminating in a wealth of resources on hand to help the market grow as one. M I MARCH 2020 MORTGAGE INTRODUCER
A question of quantity or quality David Lownds head of marketing & business development, Hanley Economic Building Society
ow often do you see the relatively simple question quality or quantity? This relates to goods we buy, through to how we are balancing our workloads, and this question is also relevant across many areas of the mortgage market. Let’s start with the advice process. Believe it or not Spring is almost here and despite some horrendous recent weather conditions, the daffodils are already fast approaching full bloom. Traditionally, alongside these green shoots we tend to see potential homebuyers emerging and this year is likely to be no different. With levels of property transactions expected to increase, intermediaries are also open to this quality or quality debate. The days are long gone when some mortgage advisers were simply order takers, such was the ease of
mortgage availability for an array of borrowers. Quite rightly, the modern mortgage market demands that advisers now offer a far more holistic approach to meet their client’s ever-shifting needs, therefore opening the doors to a potential raft of ancillary business. Intermediaries have really stepping up to this challenge by evolving and adapting to consumer demand, not to mention embracing technology to widen their offerings. THE BIG QUESTION
So, quality or quantity? The key to any successful intermediary offering obviously lies in finding a happy medium – based on client retention, targets and goals of the business. Quality and quantity should not be mutually exclusive; it’s important to study analytics, review feedback, and understand the needs of your clients to find the perfect balance. And this balancing act is very similar to a specific product area within the mortgage market. Retirement interest-only (RIO) is an area which is capturing the attention
Client retention, targets and business goals should balance to create a happy medium
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of the intermediary community and borrowers, although information and innovation is key in ensuring that this product type best fits the immediate and future needs of those borrowers in their twilight years. Although, as yet, this attention is not translating into business. Late last year it was reported that mortgage lenders had completed just 660 retirement interest-only mortgages since the new-style home loan for the over-55s was launched. Not that this relatively low figure is dissuading lenders from becoming increasingly active in this sector. According to recent data from Moneyfacts, the quantity of retirement interest-only products on the market has almost doubled between February 2019 and February 2020, Data collected by Moneyfacts shows that in February 2019 there were 38 RIO products, which rose to 74 in February 2020. The number of providers also rose over the same timeframe, increasing from 12 to 18. Furthermore, the data shows that the average rate has also fallen between February 2019 and February 2020, declining from 3.50% to 3.47%. These are all positive indicators and access to the right kind of advice is crucial in ensuring that the right kind of borrowers are aware of this option. So why has there been such little take up in RIO? In my view there are two key reasons. Firstly, many lenders have extended their maximum age on standard interest only products and secondly, it’s still early days and it will take time for this product area to mature. Strategically RIO will play an increasing prominent role in our future lending strategy but at this time we are comfortable with where it sits within our overall proposition. Looking forward, we believe pent up demand will result in stronger levels of business but lenders who are active in this field must up the quality and quantity of their educational resources to both consumers and intermediary partners to make this happen. M I www.mortgageintroducer.com
After the rain comes the sun Alice Watson head of marketing and communications, Canada Life
pring. The season of regeneration, revitalisation – and rain. The Equity Release Council’s 2019 figures revealed that the market’s decade of constant growth has finally slowed, but this shouldn’t be seen as a barrier to renewed expansion in 2020. In the decade between 2009 and 2019, there was an almost four-fold increase in the amount of housing equity unlocked by older homeowners in the UK. During this period, lifetime mortgages have well and truly entered mainstream financial planning. Canada Life’s customer data illustrates as much, showing that, in addition to funding home improvements and clearing residual mortgage debt, homeowners are using lifetime mortgages to improve their retirement lifestyles. This indicates a real level of confidence in home finance products, with customers clearly perceiving them as a flexible and secure source of wealth with which they can financially plan. However, the industry shouldn’t take this support for granted. Many older homeowners are facing the prospect of high care costs and helping younger family members who may need support with housing deposits or school fees. These are valid concerns, which also serve as a reminder that there is always room for improvement. Customer-centric product innovation has been one of the cornerstones of the growing equity release market. To return to market growth and best help customers, the industry must keep a close eye on the evolving needs of customers and support them
with products that can genuinely deliver improvements to their financial situation and retirement lifestyle. Elsewhere, RICS data from January 2020 shows that British house prices rose at their fastest pace in almost three years. A resurgence in house prices could be another factor that invigorates the market and industry at large. All things being equal, higher house prices equate to greater available equity for homeowners to tap into. Consequently, lifetime mortgage customers can benefit from releasing more money from their property, giving them greater freedom to bolster their finances, do up their home or improve their retirement lifestyle. This could be welcome news for Britain’s younger generation, many of whom have struggled to get on the housing ladder. The latest ONS data shows that working adults in their 30s and 40s are three times more likely to rent than own a property compared to two decades ago. But notably, our
“In the decade between 2009 and 2019, there was an almost four-fold increase in the amount of housing equity unlocked by older homeowners in the UK. During this period, lifetime mortgages have well and truly entered mainstream ﬁnancial planning” customer data shows that almost one in six customers use an initial advance to gift to family and friends. Higher house prices could precipitate a rise in the number of homeowners using lifetime mortgages to help first time buyers, benefitting younger workers and boosting the market. More than seven in 10 financial advisers share this optimism: they expect the equity release market to exceed the £5bn mark this year. Increased consumer understanding, more qualified advisers and falling product rates are also valid contributions to this positive outlook. If the industry continues to focus on delivering the flexibility and certainty that consumers want, we can expect to see growth return to the market. M I
The equity release market is expected to exceed the £5bn mark this year
Keeping standards up Claire Barker managing director, Equilaw
n December of last year, the Financial Conduct Authority (FCA) confirmed that it had begun an ‘exploratory’ (though as yet informal) review of the later life lending market, with the regulator aiming to achieve a better understanding of working practices within the sector as well as to identify and reduce ‘any potential harms’ that might befall customers. It also confirmed that it would ‘take action’ against any firm or practice that exhibited clear evidence of wrongdoing, with some critics (such as former FCA mortgage policy manager, Lynda Blackwell) raising concerns about the suitability of certain later life products, the sales techniques used by some advisers and the possibility of an advice gap resulting from a disparity in paid commissions; a potentially serious issue if confirmed. Yet, while the review is intended to cover lending practices across the entire later life sector, some media outlets have chosen to portray it as an investigation into the equity release industry specifically, with one particular tabloid publication asserting that fears of a PPI-type mis-selling scandal have prompted the FCA to single out and ‘probe’ the industrya deliberately mis-leading, highly emotive and all too typical cake-andeat-it journalistic ploy. The article makes great play of the dangers connected with compound interest levels and of the threat that rolling debts can pose to the value of properties and inheritances, while also suggesting that many customers are unaware of or misunderstand the implications of these risks. Yet, the equity release sector has never made any bones of the fact that lifetime mortgage products are
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reliant upon a very specific set of circumstances or that their suitability can be limited in many cases. This is why ER customers are barred from pursuing an application until they have consulted with an independent and impartial, fully qualified and insured legal adviser face-to-face; a far reaching process that is designed to discuss the risks and rewards of the advised product in depth and to establish that the client understands the long-term nature of their contract. Moreover, legal representatives are required to assess whether clients have been unduly pressurised or coerced by a third party (be it a family member or over eager adviser) and to thereby inhibit the risk of mis-selling or bad advice - a form of protection which is entirely absent from other later life product options. SAFEGUARD
However, the article fails to mention this safeguard at any point in its narrative (other than as a passing quote from the chief executive of the Equity Release Council at the very end of the piece), whilst implying that sales commissions paid by ER providers are motivating advisers to ‘sell inappropriate loans’ to custom bases; bases that one would assume to be woefully befuddled from the tone of the writing. And, while many within the industry would acknowledge that commissions paid on equity release recommendations can outweigh those for RIO mortgages, there isn’t a scrap of evidence to suggest that this has produced a sales bias of any kind or that aggressive sales techniques represent an industry norm. Moreover, even if one was to assume (for the sake of argument) that some kind of bias did exist, there can be little doubt that the mandatory legal process that underpins consumers applications and the tight regulatory standards that are maintained across the industry are robust enough to offer an effective counter-balance. Indeed, Equity
Release Council (ERC) membership standards (which were updated at the beginning of the year following a consultation process with the FCA and the Treasury) are committed to the support of regulated financial advice, face-to-face legal vetting and product safeguards. Moreover, if the FCA decides to focus part of its review on this particular issue and to analyse the use of commissions over fees (irrespective of the outcome), this all benefits the customer. It is important for an industry that has grown at the rate which ER has achieved to be scrutinised from time to time (if only to maintain levels of customer confidence) and for checks and balances that protect and promote the best interests of all parties to be implemented wherever isolated incidences of harm are found. Indeed, this is one of the reasons why the Equity Release Council (ERC) has so warmly welcomed the FCA review; with membership of the organisation almost doubling in the past two years (from 219 to 431), they have nothing to hide. Nevertheless, media suggestions of an advice gap that specifically favours the interests of one product at the expense of another are particularly galling, especially when one considers the low numbers of brokers who are actually qualified to advise on ER and the low levels of confidence that are reported when discussing product options. Do these not constitute examples of compromised advice or serve (as the director of Access Equity Release, Martin Wade has pointed out) to undermine the reputation of the ER sector? And, while some readers may regard the forensic examination of a newspaper article to be a step too far, it’s worth bearing in mind that media reports of this kind can have troubling ramifications for our sector if they go unchallenged; especially when they are so off target. Not that there’s much we can do to stop it, of course. M I www.mortgageintroducer.com
Getting the later life message right Stuart Wilson CEO, Air Group
hen you consider the scope and the potential within the later life lending market, you have to get to grips with some sizeable figures. For instance, recent research by Key suggested the total property wealth now owned by the over-65s in the UK currently stands at £1.133trn – and that is just the amount for individuals who have already paid off their mortgage. In the past year, that’s increased by £14.78bn – in itself a staggering number – but we must also view that in the context of annual house price inflation which, until the end of the year, was tending to bump along the bottom at somewhere around 1-2%. Admittedly, this has crept up in recent months and the mood music around the sector is currently set to a tune which shows further improvement, but even so, over the course of 12 months to see an increase in property wealth of close to £15bn for this age group is note-worthy. In other words, the value of pensioner-owned property continues to rise and therefore to see, for example, equity release lending just shy of £4bn in 2019 perhaps tells you the very small space this type of activity currently occupies in the grand scheme of things. Which, of course, is not to say that – coupled with other types of later life lending – the potential for this market is in anyway undiminished. My view is that the need for lending in later life will only increase and the position of advice within such a need is going to be absolutely vital. This is definitely not a market for the execution-only distributor, the price comparison site or www.mortgageintroducer.com
the ‘robo bot’, and advisers who grasp the nettle here will be rewarded. However, there are some consumerbased issues and understandings to be confronted and, until myths can be dispelled and until we can provide greater clarity and confidence to consumers about the options and solutions available to them, then we are likely to fail in terms of allowing the later life lending market to reach its true potential. OVERCOMING THE ISSUE
Here’s two further pieces of research which show the extent of the issue and mindset that needs to be overcome. Firstly, from Openwork which conducted a nationwide study of the over-55 consumer and found that 64% had never sought any advice on their retirement plans, while Ipswich Building Society delved into the collective consciousness of over-50’s borrowers and their perception of the availability of mortgages for them. The results stated: 57% felt they had fewer mortgage providers available to them than younger borrowers. 60% felt they had fewer mortgage products available to them and 44% said they felt they were offered less favourable rates. In an environment in which none of the above is true – indeed, quite the opposite – it is somewhat shocking to see their perception of the market compared to the reality. And I would also hazard a guess that there is a significant cross-over here between those borrowers who feel this way and those who are not taking any advice around what their options might actually be. Now, this is not these individuals’ fault, let’s be clear about that. If we, as an industry, are not good enough at sign-posting the availability of advice
and the product solutions that are open to these potential clients, then we cannot blame these people for not being aware of their options. We also have to recognise the customer demographic we are dealing with – on the whole, although this is slowly changing, these are not individuals who ‘want’ equity release or a later life loan, they’re inclined not to want to access the equity in their homes, they’d much prefer to downsize, and they tend to be fearful about making such decisions, to such an extent, that they end up making no decision at all. Which ultimately is the worst thing they could possibly do. So, we have some major obstacles to overcome. But we also have some major advantages and much of this boils down to the problems older customers have, the means they currently have to solve them, and the fact that these problems are not going away anytime soon. If you have a pension shortfall, what can you do? If you need to pay off the capital after your interest-only mortgage ends, what do you do? If your partner requires long-term care, what do you do? If your family need support to buy their first home, what do you do? If you need money to keep on living your lifestyle in retirement, what do you do? These are ongoing issues which are not going to be solved by any sort of government intervention, and therefore the use of the primary asset in order to deliver a satisfactory solution is going to become more prevalent. In order to give peace of mind and to outline all solutions, responsibilities and what that means for the future, advice is absolutely necessary. It’s more necessary now than it’s ever been, and it’s going to be more necessary in the future than it’s ever been before. We have the tools at our disposal to help a much larger number of older consumers at a crucial part of their lives. But we need to let them know what we can do and where we are to help them. It’s a message which should be at the heart of everything and, if we can get its delivery right, all stakeholders are likely to prosper. M I MARCH 2020 MORTGAGE INTRODUCER
Join the Hub Mortgage Introducer catches up with Peter Joseph, CEO at The Moving Hub, to find out why brokers are key to the firms’ plans For those who don’t know of The Moving Hub could you tell us more about the business?
What issues are currently affecting the conveyancing sector?
The Moving Hub was started to allow mortgage brokers, advisers and networks access to high quality affordable conveyancers for their clients, via are state of the art platform. We wanted to develop the off the desk scenario, where the brokers and advisers can run the quote and then leave us to handle the rest. With highly trained staff and full support network we have achieved the result of the advisers using us having confidence in how we speck to their clients and support both the client and themselves throughout the transaction.
Where do you start… for me it’s the acceptance of technology and its place within the process is key. If you use the right technology and the right companies adopting it the process for the clients will become easier which in turn makes it easier for the brokers and conveyancers. Its speeds transactions up and this can only e a good thing for all. Communication is key, it adds to the understanding of the process for the client, stops them worrying that nothing is happening and stops the inevitable panic setting in. Brokers could have a massive opportunity if any form of fee ban or restrictions come in for estate agents regarding referral fees. The Moving Hub comply with all recommendations and can assist advisers if this opportunity grows.
What makes The Moving Hub different from other conveyancing businesses? The Moving Hub was developed to offer first class service to advisers, brokers and networks and for them to have complete confidence in how we are dealing with there clients. We feel that our customer service is second to none, our level of knowledge to assist both users of our system and their client means we standout from other conveyancing businesses on the market. Added to this our beautifully simple system to use, allowing a quote to be run in under 30 seconds, or directly by the client using a free white labelled page on our advisers or brokers websites, or via links that can be contained within e-mails or mailouts to clients means the users can maximise the potential conveyancing returns. We then add the cherry to the users cake by offering upfront commission with no clawback (payments made after the standard 14 day cooling off period), meaning you earn from all instructed cases not just the ones that complete. Furthermore, clients have buyers protection insurance so in the upsetting event that the vendor withdraws they can claim costs up to £2250.00 back to allow them still to be in a position to move.
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What is the best advice you could give brokers on the conveyancing process? Understand its importance in the process and work with a company that can support you and your client during this process. I speak to so many brokers and advisers that do not help their clients choose a correct firm to represent them. This is mad in two fronts, one to assist the client and two you can generate additional revenue into your business, by giving good advice. How can they improve their interactions with the conveyancing sector? Its all about the right conveyancing partner that gives you the right updates and assists the broker and advisers when to speak to the client about additional products, such Life Insurance and general insurance needs. But equally, when there is a bump in the road with a transaction, its conveyancing it happens, that you and your clients feel support and guided to a solution. Not just left!
CONVEYANCING You offer fees up-front rather than on completion. What made you decide to make that change? Its was all about the adviser and brokers feeling a true value to conveyancing, rather than it just being some they may, might do, if they have time. If you add value by paying commissions upfront everyone can see a potential value to every quote they run which can make a real difference to monthly income. Having to wait for commission at the end of a transaction, if it completes does not put conveyancing at the forefront of and advisers or brokers mind. You work closely with Knowledge Bank. How important is technology to your offering? Moving forward in property and conveyancing industry technology is key for offering clients great service and to speed the process up. That not to say that the art of speaking to clients over the phone or meeting them will disappear but marrying the two together will lead to improvements in the industry. What plans do you have for 2020? We have already seen a marked increase in transactions in 2020 and we are sure the confidence will continue to grow. Lenders are lending, clients want to move. The Moving Hub is increasing its presence within the broker and adviser market each week and we hope to continue this throughout 2020. If a broker hasn’t used The Moving Hub why should they? More to the point is why wouldn’t you! Giving you and your clients access to great conveyancers, outstanding support for you and your clients. Add to that buyers protection insurance and upfront commission… surely worth a look to see what you could be earning, and working with the most revolutionary conveyancing partner on the market! What are your plans for 2020? I have worked with Rob (Jupp) since I was 23 and people who know us well will know that I am naturally much more cautious than he is. We have very different attributes, which is one of the reasons we work so well together. But, even as the cautious one, I cannot see 2020 being anything other than our best year to date again. I’m expecting big things – so much so, that Rob will possibly start worrying now I’ve stopped. We will continue to grow our distribution and we have entered The Sunday Times Best Companies list again. Can lightning strike twice? I expect us to out-perform our 2019 results and play an even more significant part in the specialist sector in 2020! M I www.mortgageintroducer.com
Peter Joseph MI
The most flexible income criteria of any specialist mortgage lender. (We checked*.) So we can help people like Brenda. She’s technically retired, but tops up her pension working a few hours each week at a local garden centre – although her contract says she works ‘zero hours’. All of which we can take into account.
www.togethermoney.com/residential For professional intermediary use only. *Comparison of published income criteria for residential mortgages from 9 specialist lenders, conducted by Together, November 2019.
Human and digital elements of security David Gilman partner in charge, Blacks Connect
s instances of cyber-crime continue to grow within the legal sector, the need for firms and practices to implement a comprehensive array of security measures and to protect customers while maintaining high standards of service has become selfexplanatory. Yet, despite an alarming upturn in the number of firms reporting data breaches over the past few years, research conducted by the consultancy firm Crowe has discovered that existing safeguards can often fall short of requisite standards, with some of the UK’s top 200 law firms found to be “wide open” to the risk of website addresses being spoofed and used to disseminate spam, phishing or other fraudulent emails, and others found to run services (such as email servers or web servers) which are recognised as being vulnerable to hackers- a serious issue to be sure. Yet, while there can be little doubt that legal firms are often more susceptible to the threat of criminal infiltration than other businesses (by virtue of the high volumes of sensitive information and large sums of client money that they hold), it is also important to remember that the number of conveyancing transactions that fall victim to cyber-fraud are fundamentally outweighed by those that are conducted without issue, especially given the sheer amount of property sales that are completed each year (somewhere in the order of 1.2 million) and the vast amounts of money that flow through solicitor’s practices accordingly. www.mortgageintroducer.com
Which is not to downplay the risk of fraud or to invite complacency by any stretch; clearly, this is a question of the utmost seriousness to the conveyancing industry. However, the fact remains that cases of this kind are extremely rare and this, in-and-of-itself, merely adds to the difficulties of knowing how to deal with cyber-threats. Moreover, while many observers regard the use of technological deterrents as a ‘catch-all’ solution, it would be foolhardy to assume that a reliance on digital safeguards alone will suffice in deterring criminals from accessing data or assuming false identities, especially given the highly sophisticated software that organised gangs invariably have at their disposal. LONGER LADDERS
We build a wall; they develop longer ladders. And, while that’s not to say that the use of anti-virus software can’t reduce the threats which businesses face from criminal malware and other fraudulent emails, or that auto-encryption technologies aren’t useful in terms of protecting email communications, it is important to recognise that technology represents but one of the components needed to tackle crime (albeit a vital one). Which means that firms should be looking to develop safeguards that can sit alongside technological applications; prioritising a culture of vigilance amongst staff members and a comprehensive knowledge of recognised criminal methods that can help to identify and deal with the early signs of cyber-attack. For example, security experts have recommended that legal firms monitor home websites and other relevant platforms (such as Facebook, LinkedIn and the SRA database etc) in order to prevent criminals from ‘planting’ bogus information online, while also reducing
the types of information which are shared via social media and prohibiting staff from working on unsecured mobile or email accounts- simple, sensible advice. Likewise, as the threat of moneylaundering scams continues to grow within the conveyancing sector, the government has been prompted to publish a list of ‘red flag’ warning signs designed to help staff spot and snuff out suspicious activities, while the SRA has also prepared a series of enhanced due diligence guidelines to help firms comply with the recent Fifth Anti-Money Laundering Directive (5MLD)- all of which emphasise a ‘human element’ within the security process. Nevertheless, while it is entirely justifiable to expect legal practices to establish and maintain high standards of diligence, the same principles must be extended to cover all elements within the property chain. This means that brokers will need to review and invigorate their security arrangements, especially if they deal at distance with clients (via email or phone calls) or their business model is based on purchased leads. Indeed, there have been a number of recent cases in which introducers have assisted criminals by obtaining fraudulent documentation or transferring the ownership of unencumbered properties, thereby supporting applications for mortgages or sales. Moreover, as later life lending scenarios continue to soar in the UK and the presence of migrant communities continue to grow in urban areas, particular care will need to be taken when dealing with cases involving elderly clients or homebuyers with a poor grasp of English; in short, those who are vulnerable to exploitation. And, while the rise in ‘two factor authentication’ processes (which apply biometrics alongside traditional documentation methods to verify ID’s) represent a step in the right direction, the need to embed both digital and human elements within the security procedure remains paramount- a dual form of protection. M I MARCH 2020
Diversification is crucial Mark Snape managing director, Broker Conveyancing
ver a decade on from the Credit Crunch, it’s clear to see that we are a long way down the road from that period in terms of the competitive elements of the mortgage lending market. In that immediate period, postCrunch, advisers were able to count on their fingers and toes the number of ‘active lenders’; now you would need to utilise a fair few of your colleagues to be able to do likewise. Competition is clearly a positive element of today’s market but, from recent announcements, it is obvious that competition can be unforgiving, especially when it comes to the lending sector. Then again, with more lenders ‘active’ now than in the period preCrunch, it always appeared likely that a pinch point was coming and something had to give. HUMAN COST
As I write, that pinch point has obviously come for Sainsbury’s Bank which has announced its decision not to take any further mortgage business and is actively looking at sale options for its mortgage book. The human cost of this, in terms of employees of Sainsbury’s Bank, is as yet unknown but I think we might all agree that it is never nice to see a lender leave the market and we hope all those impacted are able to find positions quickly elsewhere. What can we make of this decision though? Is it a coincidence that this is the second supermarket, after Tesco Bank, which has left the lending space this year? What might be the reasons for this and, like Tesco Bank, I’m sure there will be considerable interest in what happens to its existing mortgage borrowers.
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We do not truly know whether Tesco were put under pressure to sell its book to an active lender, Lloyds Banking Group (LBG), in order to ensure a large number of ‘mortgage prisoners’ were not created, but one would be surprised if Sainsbury’s weren’t ‘encouraged’ to go down a similar route. Indeed, at the recent FSE London show, a representative from LBG hinted that there would be future opportunities for it to buy smaller loan books – perhaps she had wind of Sainsbury’s Bank’s decision in advance of when it was made? SQUEEZED MARGINS
There does however seem to be no doubt that both Tesco and Sainsbury’s Bank’s decisions to leave mortgages has been a result of the competition and squeezed margins it was facing in the sectors they chose to be active in. We can talk a lot about the ability (or otherwise) of supermarkets to sell their financial products at the checkout, but the simple facts appear to be that the vanilla/mainstream/low LTV/low risk mortgage borrower, targeted by these lenders, is incredibly well-catered for, by huge banks/building societies, with cheaper sources of funds, and therefore cheaper rates. In that sense, you wonder how others who tend to focus on this part of the mortgage market, are going to compete going forward. They are no different to Tesco’s/Sainsbury’s, albeit without the other fingers in a large number of other pies that might well have hastened the supermarkets’ decision to leave mortgages. And, in my opinion, there’s the rub for these two lenders in particular. They are mega-brands with megareputations to protect; they would not wish to have poor performance in a much smaller part of their business tarnishing that of their key focal points and therefore it makes sense to make an exit now before there is any kind of brand contagion. It’s also for this reason that I suspect Sainsbury’s will follow the road
travelled by Tesco’s when it comes to selling their book – think of the negative PR they would receive were they to sell to a non-lender? Especially at a time when the entire industry is focused on trying to move ‘mortgage prisoners’ out of their predicament, not potentially adding more to their number. This episode – and we do await to see how this concludes – does seem to show that the mortgage market can be a brutal place for those who might appear slightly out of step with the needs of their potential customers and the competition that exists for their business. It’s no wonder that other lenders are looking to diversify and move into niche areas, away from the traditional mainstream market, especially when you consider the big names fighting for that business. An inability or a reluctance to do this can be troublesome at best, and catastrophic at worst. I read recently a piece by a broker suggesting that they hadn’t seen any case recently which was pure vanilla, instead all seemed to have a degree of ‘spice’ in them. Meaning that the traditional, vanilla borrower tends not to exist in the same form as in previous generations – most clients come with some degree of complexity with them and it is those lenders who react and accommodate these borrowers who are likely to survive and thrive. COMPETITION AND TECH
The case is similar for advisers – you cannot rest on your laurels in the traditional areas of the market because competition and technology is changing this space. Diversification is crucial, not purely across the mortgage market but into other areas such as protection, insurance, conveyancing, legals, etc. It is those businesses who see beyond their traditional activity who are likely to be putting in place the strongest of foundations to deal with whatever the market brings next. M I www.mortgageintroducer.com
HMOs can offer opportunity Kevin Webb managing director, Legal & General Surveying Services
his decade looks set to be one of consolidation in the private rented sector: professional landlords continue to rebalance their portfolios, selling out of lower yielding properties and areas and reinvesting, either in better yielding properties or into their existing portfolios to depress loan-to-values, thereby managing costs. The financial crisis, depressed house price growth and the demise of many lenders that had fuelled the buy-to-let lending boom in the early 2000s by 2009 led to a severe contraction in lending to private landlords. Fiscal changes brought in at the behest of George Osborne during his tenure as Chancellor of the Exchequer combined with a prudential clampdown on lending standards served to keep a lid on the market throughout the second half of the 2010s, pushing out a large number of remaining amateur and smaller-time landlords making just enough yield to get by. Managing costs has been evident for some years now and it’s been fairly well accepted that there are some tried and tested ways to maximise yield, both on existing properties and new investments. One trend has seen landlords extract money from London and the South East, redeploying capital into regional cities where capital values are lower and rents are proportionally higher. This has driven investment further out of the South East, to places such as Leeds, Nottingham, Birmingham, Liverpool, Manchester and Glasgow all seeing a rise in demand for quality www.mortgageintroducer.com
rental stock from both landlords and tenants. The other tactic has been to invest in properties that justify higher rents and therefore better yields. Houses in Multiple Occupation (HMOs) are the flavour of the 2020s in my view, along with a rise in the number of landlords turning small-time developers using bridging at the outset to improve stock and add capital value. The rise in popularity of HMOs though is, I think, one we as an industry need to be mindful of. Just this week I read a blog from one well-known industry broker detailing how one of their advisers had secured a seventh buy-to-let mortgage for a couple looking to expand their existing portfolio of six HMOs which had a blended LTV of 85%.
“Multiple tenancy agreements offer better void cover and mitigate income risk for lenders” Landlord shows and online platforms are chock-a-block with HMO stands. Clearly, there is as much motivation for lenders and brokers to get behind landlords looking to maintain or improve their profitability by investing in HMOs as there is for landlords themselves. In a market where the pressure to write vanilla business has blasted all but the very biggest providers out of competitive pricing, the question on everyone’s lips is – where next? HMOs managed well and responsibly can offer a great opportunity for landlords and lenders. Multiple tenancy agreements offer better void cover and mitigate income risk for lenders. However, they also present their own set of challenges, and I don’t believe
that all lenders considering playing in this market have fully thought through the potential property risks posed by HMOs over straight buy-to-lets. Firstly, an HMO filled with young professionals in zone three in London or the centre of Liverpool is a completely different prospect from an HMO in Dover. How much tenant risk assessment is being carried out by lenders keen to chase margin? Tenant risk is a real issue. Tenants are not ‘of a type’. Young professionals or people working away from family homes are a different prospect to more itinerant or impoverished tenants. Turnover of tenants is always higher in HMOs, leading to higher maintenance costs, more property damage and greater risk to capital value. There is a complex web of licensing requirements, which landlords barely understand and local authorities cannot police, fire safety regulations and regulatory requirements that have to be checked, but by whom and where the consequences for failing these are rather vague. Policy risk is also an issue. As the market expands so too does the level of scrutiny and the expectations that a market should not disadvantage or exploit vulnerable groups. Landlords who want to convert family homes in Birmingham into small HMOs will need to submit planning applications to do so under new plans revealed by the city council last month. The local authority plans to introduce a city-wide Article 4 directive, removing ‘permitted development rights’ for small HMOs, so that planning permission must be obtained before development can take place. The council says high concentrations of HMOs ‘can have a negative impact on the character of neighbourhoods, residential amenity and create unbalanced communities’. The directive will come in to force on 8 June 2020. My prediction for the buy-to-let market in the coming years is a move towards HMOs, which do offer some great potential. But lenders must be sure of what they’re lending on when it comes to complex. It’s called complex for a reason. M I MARCH 2020 MORTGAGE INTRODUCER
Keeping up with change Michael Nicholls relationship manager, LIBF
he FCA’s recent changes to mortgage advice standards, published at the end of January, come as part of a package of measures that aim to solve issues identified in its’ Mortgages Market Study. To recap, findings from the consultation carried out last year suggested that the FCA’s own regulations from 2014 may be preventing the development of innovation, and that some consumers are overpaying for mortgage advice. But perhaps more important to mortgage advisers is a move to encourage more execution-only sales. This is an about-turn on the FCA 2014 guidance, which aimed to protect consumers from taking on unaffordable debt and from signing up to a mortgage that wasn’t the best deal for them. Speaking of consumers getting a bad deal, that leads me to ‘mortgage prisoners’. All credit to the FCA for addressing this issue. As Christopher Woolard, the FCA’s executive director of strategy and competition, said, “unaffordable borrowing is a cause of significant harm” and mortgage prisoners are often stuck on more expensive mortgages. Mortgage prisoners are often people who borrowed before the financial crash when there was less scrutiny of income and affordability. These types of borrower were often freelancers, the self-employed and a whole host of others who had trouble proving their income, either because it changes from year to year or they work on temporary contracts with varying hours and earnings. Many of these people, 71% to be precise, are not in payment shortfall and haven’t been in the last 12 months. So it makes sense that the FCA
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are moving to encourage lenders to be more open-minded when these customers look to remortgage to extend their borrowing or move to a better rate. And when it comes to rates, the findings from the FCA’s Mortgage Market Study makes interesting reading. With 17% of mortgage prisoners paying more than 5% in interest – and a hefty 32% paying between 3.5% and 5% interest – nearly half the consumers trapped in outdated mortgages are paying above the market average. No wonder they’re calling them prisoners! But if you thought they’re badly off, it gets worse. The FCA discovered that about 250,000 people are in closed mortgage books or have mortgages owned by firms that aren’t regulated. This too comes as a result of the 2008 financial crisis, when hard-up mortgage lenders sold their lending books to other organisations to service. The trouble was that many of the new service providers who bought these lending books weren’t mortgage lenders by trade or by culture. This meant that they were never in a position to offer more competitive deals, or even offer regulated mortgage advice to clients in desperate need of help. It’s great news that many mortgage prisoners – as long as they meet the specified criteria – will now be in a position to switch providers and get a better deal. The changes being introduced as a
Brokers must evolve their skills to keep up
result of the Mortgage Market Study show just how much the mortgage environment is always evolving. If it’s not driven by changes in rules and regulations, it’s consumer demand, or the aging population. Qualifications and training need to take account of the changing nature of the mortgage adviser’s job, and at The London Institute of Banking & Finance, we certainly make sure that CeMAP and the CeMAP Diploma are constantly updated so that they do. But – perhaps controversially – I would argue that’s just not enough. Looking at my own experience as an example, I studied CeMAP just shy of 20 years’ ago now and the mortgage market has changed substantially since then. Take equity release as an example. Yes, it existed back then, but it wasn’t the booming market it is now, and it certainly wasn’t an area where individuals and firms specialised. Now it warrants its own specialist qualification. There’s no doubt about it, as the industry evolves, those of us who work in it have to evolve our skills to keep up. Continued professional development (CPD) is a fantastic way of keeping up to date with best practice and making sure that you’re one step ahead when the rules or the market changes. You’re probably doing a lot of it already – going to seminars and workshops; studying for a relevant qualification; listening to podcasts; attending webinars and e-learning. And of course, if you complete 15 hours of CPD a year, you can get credited for it. Most importantly though, it will make you better at your job. Because no matter how the rules and regulations change, one thing about mortgage advice will always stay the same: advising is a people-focussed profession. Robo-advice and mortgage comparison websites will never add the value that human advisers bring to their customers, because they’ll never have the same people skills, human contact or capacity to care that a real person can offer. M I www.mortgageintroducer.com
Shed a SEAR for mortgages Martin Langlands chief risk officer, Harpenden Building Society
ne of the long-term priorities of the FCA is to ‘ensure fair pricing in financial services.’ In 2018, the FCA released a discussion paper titled DP18/6 in July 2018 as they were concerned that competition was not working well enough in the cash savings market. This led to the release of a Consultation Paper titled CP20/1 in January which sets out proposals to make the market simpler and improve competition. While this might not currently be on everyone’s radar, there are significant implications which could affect not only savers but homebuyers, brokers and lenders. THE FCA’S CONCERNS
The FCA are consulting on proposals to improve competition in the savings market and to make it simpler and easier for consumers to understand how things work. At the heart of this consultation is the distinction between promotional rates, for acquiring new customers, and standard rates for customers on older products who have moved from a promotional rate. The FCA’s Cash Savings Market Study concluded that competition works well for customers when they take out a new product in the easy access cash savings market. However, there are concerns that outcomes are not as favourable for long standing customers. THE PROPOSED SOLUTION
The FCA’s objectives are to provide protection for long standing customers on the lowest interest rates by providing firms with incentives to increase their rates while also maintaining competition for new customers. The consultation is on two proposals: www.mortgageintroducer.com
1) That providers introduce a ‘Single Easy Access Rate’ (SEAR) 2) That providers publish the data on their SEAR for easy comparison The proposal is to allow introductory rates for up to 12 months. After this, customers benefit from competition by paying a single interest rate immediately after the promotional period on all easy access accounts and easy access cash ISAs. This rate will be published and comparable.
“The FCA’s objectives are to provide protection for long standing customers on the lowest interest rates by providing firms with incentives to increase their rates while also maintaining competition” The FCA has estimated, as part of the cost/benefit analysis, that there would be a one-off cost of £94m to the industry with an ongoing cost of £35m. The FCA also estimates that consumers would benefit by approximately £261m a year. This would result in lower interest rates for the most competitive part of the market, but rates for the least competitive part would increase. In essence, lower promotional rates and higher longstanding rates. STRATEGIC CONSIDERATIONS
This has the potential for being a profound change for the banking industry. Banks and building societies need to bring in deposits to fund their mortgage lending and an increase in the costs of deposits can affect a lender’s liquidity. The FCA’s analysis briefly mentions that the SEAR could make liquidity management more difficult for banks which normally hold large savings balances. In addition, the SEAR could make easy access deposits more volatile, and the FCA could not reasonably estimate a cost for these two
impacts. For building societies, The FCA believes that the introduction of the SEAR would reduce a mutual’s ability to manage its liquidity. Clearly, the consultation is designed to explore these issues in more detail and every organisation will have an opportunity to shape and scope the future. No-one would argue against the desire to help consumers make informed choices but significant changes like this add uncertainty and more risk to long-term pricing decisions. WHERE COULD THIS LEAD?
I think that three areas will need to be explored in greater detail. The first is that by introducing legislation around a SEAR could affect a provider’s ability to innovate and offer product choice in savings. By only allowing two SEARs (one for easy access accounts and easy access cash ISAs) a provider would be unable to offer differential pricing by channel (online versus branch for example), tiered accounts and the length of a customer’s relationship. This has the potential to limit product development. The second area is that changes could add costs to mortgage providers and increase the risk of liquidity problems. The result might be an increase in mortgage interest rates. At a time when homebuyers are already struggling with affordability, this is a potential problem. The final area, which will be interesting to observe, is whether the FCA will view promotional and long-term rates in mortgages in the same way. Is there a requirement to reduce differential pricing? Could we be about to see the FCA examining the promotion of mortgages in the same way? Could fixed term rates be regulated along with the standard variable rate? It’s important to stress that no decisions have yet been made and consultation is continuing. However, this is an area which all of us should be keeping a close eye on when the decisions are made and announced later this year. M I MARCH 2020 MORTGAGE INTRODUCER
THE MONTH THAT WAS
THE Every month The Outlaw draws some tongue-in-cheek parallels between society at large and a mortgage market in flux
Dominic Cummings â€“ Get stuck in Dom
Miguel Sard: Adios
ome good news. Fans of this monthly diatribe and feral ranting might be pleased to know that the publishers are giving me more copy space (...yes, a little bit like a gimpmasked Alan Partridge ironically dancing on a table to secure a second series?). Some bad news. Detractors and non-fans will now have to find twice the time to send me their amusing hate mail and woke-centric opprobrium. The joys of my mail bag... Ok. Where to start? How about with the new Bank of England Governor, Andrew Bailey. A man now seemingly the subject of post-appointment scrutiny over his stewardship of the FCA and its recurring complacency in dealing with selected IFA negligenceâ€™s and the likes of Neil Wo o d fo rd a n d Hargreaves Lansdowne. And you could add to that list another financial services titan, which has attracted Weinstein-like distaste, St James Priti Patel: Prit-stick-Gate
Place. I have always thought that this business was far too self-privileged and out of touch with its clients for its own good. In a layman’s vernacular, up its own a***. The Sunday Times’ expose of unhealthy remuneration practices and perks appear to validate that, at their clients ‘ expense. Pertaining to value-for-money matters, thankfully you readers will no longer be paying through your noses for the appalling litany of client compensation claims that produce over 90% of the FSCS’s in-tray and a multi million pound levy. AMI’s Bob Sinclair did a fine job last year reducing your liability to the sensible proportions that it should always have been. Indeed, figures released by FOS, also this week, confirmed that mortgages are actually only the sixth most complained about financial product. Further, three in every four complaints are found in favour of the mortgage adviser. Talking of justice and redress, you might be forgiven for missing a delicious but curiously under-reported story in last month’s trade press. Our good friends in the estate agency world remain somehow non-regulated (still surely the most bizarre and unhealthy commercial status quo that exists in this country?!) For all the professional and upstanding agents out there, there remain far too may unscrupulous ones. Take those at the four Berkshire firms – Romans, Prospect, Richard Worth, and Michael Hardy. Virulent price rigging on an industrial scale over a sustained seven-year period. The £600,000 fine was as inadequate as their combined arrogance was remarkable. Bullying of sub-ordinates was also
Nationwide: Eye catching
allegedly alive and well in these firms. Which moves us nicely onto ‘Prit-stick-Gate’, and the charges levied against Home Secretary Priti Patel. Now I’m afraid that I have to confess an unhealthy interest here. I’m not sure what phase of my primary school education produced such a ‘sub-dom’ like fascination with Priti, but I think I’d be quite content being bullied by her. That confession aside, Sir Philip Rudman and a few other cohorts don’t share this delectation. Whether the claims are well founded or not, the work of commandant Cummings is clearly at play here. Older readers will of course remember the 1980’s TV gem, Yes Minister. With the Whitehall civil service I’m afraid, such wonderful fiction most certainly imitates fact. For I have it on good account from long-time friends and clients that our civil service is
George Clooney: Woke £30m trousering
THE MONTH THAT WAS
Jose Mourinho: Toast by Christmas
outrageously bloated with indolent, complacent and unimaginative mandarins. Wasters, who are not accountable to anybody, expect their gold-plated pensions. Get stuck in Dom…a root and branch reform of this grey wasteland is decades overdue. Back to our world, where despite the manicdepressives at the BBC who read our news every night, life remains promising, not least virtue of the recent inter-generational study of buying versus renting. Did you know for instance that in terms of affordability, whereas renters have to soak up 33% of their income on rent, buyers only have to allocate 18% towards this. Notwithstanding the influence on these figures because of the ‘Bank of Mum & Dad’ deposits that exaggerate the stats, it augurs well for the FTB market in the coming years. As for lenders, Nationwide caught my eye this month. And to be truthful, it’s about bloody time that a lender had the cojones to reduce its stress test on like-for-like remortgages. Santander’s 5.5 times income multiple in similar circumstances is also laudable. What isn’t so praiseworthy remains the behaviour of the industry’s two foremost and noisiest dig-warriors, Habito and
Robert Sinclair: A fine job
Trussle. Isn’t it revealing that both of these obscenely funded firms replaced their chief executives recently? We continue to hear this tiresome mantra that the mortgage process for over-stressed borrowers is ‘’hellish’’ and dysfunctional. Whilst at the same time we suffer crass and infantile Karma Sutra themed adverts and read that Habito’s investor funding has now risen to an incredible ‘fifty million squid’ - with the latest investor being a Russian billionaire. In totally unconnected news, the once banned Russian tennis player Maria Sharapova has retired, Russian athletes remain banned from the Olympics, and over 1,400 young people were arrested in Moscow at a pro-democracy rally. I’ll leave the bloodbath in Syria for another time… Much more pleasant statistics came from HMRC; Did you know that the 102,810 residential transactions in January surpassed every month of 2019. Amid the Covid-19 noise (and I’m afraid that too much of the reporting has been an exercise in hysteria) this kind of news needs to be heard. The British are a stoic and resilient nation, and I’m personally backing the country and the economy to weather the worst of the virus’ ravages. I.e. we need to pay less attention to the patronising sensationalists at the BBC. On the subject of which, did you also know, that the BBC has more folk from ethnic minorities appearing on its shows than any other broadcaster, but the actual lowest behind the scenes. A case of ‘do as I say, but not as I do’. So, to a new and concluding finale to this monthly column, let’s just title it, “Unexpected morons in the bagging area’’. This month we had a pretty sumptuous basket of goods, and we breached our eight times or less protocol. Step forward…the ever dour and now completely found-out Jose Mourinho (toast by Christmas); Wales’ two sulky and qualified rugby referees, Alun Wynn Jones and Dan Biggar, England’s juvenile captain Owen Farrell; multi millionaire woke, George Clooney who lines his pockets with £30m as Nespresso has its kids lugging coffee around in Guatemala for a fiver a day; those lenders who are still providing shocking service standards in the name of free legals; lenders… next month I’ll be asking why the hell the mercurial Jack Grealish isn’t a guaranteed starter for England (ahead of lazy dross like Deli Ali and Jesse Lingard), why…? And what the recent ‘’merger’’ of our two sector totems CWA and LSL will outcome as? M I
Part of the Mortgage Introducer family. @MortgageChat | Mortgageintroducer.com
The latest protection news and analysis in print and online
THE BIGGER ISSUE
What does the future hold for Stamp Duty? Craig McKinlay
new business director, Kensington Mortgages
executive director, IMLA
LAST-TIME BUYERS Stamp Duty exemptions for last-time buyers would be a great catalyst, particularly for those considering downsizing. Many people would like to feel they should have the opportunity to downsize, but often won’t follow through due to the high tax costs. According to Hamptons International, the number of cash buyers in the first half of 2019 was 28%, the lowest levels since 2007. Tax incentives are therefore essential for homes that are best-suited to those final-stage buyers. Extending this break to last-time buyers would free up larger properties for growing families, enabling the next generation of homebuyers to step onto or even up the property ladder. If a full exemption is out of the question, then the government could consider alternatives. Increasing the Stamp Duty threshold from £125,000 to £300,000 – or reducing the highest marginal rate of tax at the top end of the market are other possibilities. It’s not just the residential market where we need reform though. Stamp Duty is also affecting the buy-to-let space too. Changes to the wear and tear allowance, the introduction of an additional 3% Stamp Duty surcharge on second homes, and cuts to mortgage interest tax relief mean the market is still adjusting. Most professional landlords use BTL for pension planning and they shouldn’t be penalised for responsible and sensible long-term investments. Buy-to-let is a vital segment of the rental market, so a review and possible removal of the Stamp Duty surcharge could prevent hampering investment further. M I
STIMULATE SALES Removing this financial barrier to Britain’s older homeowners would help to stimulate housing sales and release more homes onto the market for buyers. Stamp Duty relief for people aged over-55 would help more last-time buyers who want to move, in many cases rightsizing out from under-occupied four- or five-bedroom houses into more appropriate accommodation for their needs. The effects would go beyond helping those at the top of the housing ladder, freeing up the housing supply of larger homes for growing families and by extension, the smaller one- or two-bedroom properties for younger buyers looking to take their first or next steps. This government has said it is focused on ‘levelling up’ and ‘unleashing the potential’ of Britain, and this should include tackling the challenges facing the housing market too. There is an excellent opportunity in the Budget to change Stamp Duty and address one of the biggest barriers to getting Britain’s housing market on the move.” M I
he lower end of the property ladder is looking healthy. However, we need to do more to get the market moving at the upper end. Homemover activity has remained particularly sluggish since pre-crisis levels. As Stamp Duty comes under greater scrutiny for hindering the market cycle, reform is likely needed.
MORTGAGE INTRODUCER MARCH 2020
rom housebuilding to Help to Buy, first-time buyers have been the focus for housing policy in recent years. But while these changes have helped those at the beginning of their journey, helping older homeowners is also critical to getting Britain’s housing market on the move. Just as it was for first-time buyers, Stamp Duty remains a barrier for so-called ‘last-time buyers’ too. These individuals already face the challenge of paying for a longer retirement, and a generation of cashpoor but asset-rich homeowners see downsizing as a way to unlock the funds they need for later life or even to help their family as part of the Bank of Mum and Dad. However, the costs of moving, particularly Stamp Duty, are enough to dissuade many of these homeowners from pressing ahead with their plans. Research from Legal & General found that nearly a third (32%) of over-55s would be open to downsizing if they were given Stamp Duty relief.
?? ??? ? Our experts look at what effect the Stamp Duty tax has on the market and whether a change in policy is needed
senior mortgage technical manager, John Charcol
director, Crystal Clear Financial Services
LAST-TIME BUYERS A targeted cut in rates would stimulate activity in the housing market and make it easier to put chains together. The average homeowner now stays in the same home for more than twice as long as 20 years ago and a major reason for this is the huge increase in the cost of moving as a result of SDLT increases. Removing more properties from the tax completely and reducing the amount of tax for most others would reduce the tax take on each property but the increased number of transactions would compensate. Couple this with the extra VAT generated from more estate agent and solicitor fees and possibly more employment taxes as a result of extra people being needed to facilitate the increased number of transactions. Finally, most people buy things for the home when they move house with most being VAT-able. In Q4 2019 SDLT revenue was £3.3bn and HMRC estimated the value of FTB relief (i.e. nil tax band up to £300,000) was £154m, i.e. only 4.7% of the tax raised. This suggests that if the nil band threshold was raised to £300,000 for everyone the amount of additional tax foregone would also be relatively small and more than compensated for by the increased revenue from extra sales. A cut from 5% to 3 or 4% for the price band from £301,000 to £500,000 would provide even more stimulus to the market. M I
SELLER DUTY The first-time buyers have the Stamp Duty incentive at present, but something similar for existing homeowners would have a positive impact. The other interesting area which I think makes a lot of sense is to shift the Stamp Duty to the seller. If you are only paying for the Stamp Duty on the value of your property at sale and you are upsizing, then you benefit, therefore creating the momentum to move! For those property values where the market is stifled at present because of the cost of Stamp Duty on moving, this barrier is removed to some extent, the change in policy can almost be immediate and we begin to see stakeholders involved in any house purchase become busier, which could be a welcome boost for the economy. M I
here have been suggestions that to help FTBs Stamp Duty Land Tax should be payable when a property is sold rather than at the time of purchase. However, The government, at least for England and NI, has addressed this by exempting FTBs from SDLT on the first £300,000 of the purchase price. The 3% surcharge on second properties accounts for about 20% of SDLT revenue and so this won’t be removed but The Chancellor should resist suggestions to increase it, despite it being 4% in Scotland. This is written prior to the Budget but some SDLT changes would benefit most buyers and also the government’s coffers.
he housing market has seen a little bit more momentum in the early stages of this year, but the ‘bottle neck’ in the process is still Stamp Duty. It was interesting to see that in the recent Conservative leadership contest that the subject of Stamp Duty was raised and how they would consider approaching it. The most notable in my view is that when households are looking to upsize, the cost of selling plus the Stamp Duty is as expensive if not more than them extending, or putting in a loft conversion. For the market to work effectively, the whole range of property values need to be moving for it to work well and continue seeing the lower end of the market values have enough properties for people to buy. The bandings on the Stamp Duty, although realigned a few years ago still requires work to create the momentum to shift the market. We have the enormous gap between £250,001 and £925,000 at 5%, but if we need to get the property values in the upper end of that bracket moving, then a mid-tier could make a significant difference to the cost of a move for households and therefore create an impetus and momentum to sell and move.
MARCH 2020 MORTGAGE INTRODUCER
Wind of change
Paul Fryers and Andrew Jones speak all things Zephyr Homeloans and explain to Jessica Nangle why the time was right to enter the buy-to-let space
he buy-to-let (BTL) market has had a diﬃcult time lately. Landlords have faced waves of new regulation which has made managing property portfolios more challenging. Despite these changes, the sector has proved itself to be resilient and what remains is a BTL space that is more professional and confident. Some say this has created opportunity in the sector, even attracting new entrants. Welcome Zephyr Homeloans. Part of global enterprise Computershare, a business which employs 12,000 people around the world, Zephyr was created to fill a gap in the specialist BTL space, and thus far has made its mark on a market that is more competitive than ever before.
Andrew Jones and Paul Fryers
HISTORY Computershare has been operating in the UK since 1995 but began administering loans here and in Ireland in 2014 when it acquired HML, a name many are familiar with. Jones was chief executive of the business, and around that time his team had observed large opportunities coming to the market in the outsourcing space that required a change in approach. “We began looking for a different owner of the business,” Jones said. “We found Computershare who → MARCH 2020
COVER already had a presence in the US market where they had a mortgage servicing business since 2011.” Computershare was a logical match. Following a “very quick” process, HML became part of Computershare the same year. Following the acquisition, there were two main focuses for the business. “One was bringing all the businesses together and consolidating into Computershare, and the second was to start to grow the services we offer clients,” says Jones. HML had been involved in a great deal of lending up until 2007 as part of Skipton Building Society, with Jones explaining how at its peak they were servicing loans worth over £1bn a month. Post-2007 lending slowed down, but HML were keen to increase the volume of assets that they serviced. “We saw two routes back into being able to service more loans,” Jones explains. “One was for people who wanted to come into the mortgage market and originate. There was a lot of activity in this space and we won a number of those clients. But equally we saw an opportunity to set up a lender in our own right on behalf of our clients, taking advantage of the regulatory permissions that we had to work with these people who wanted to lend.” This was the foundation of Zephyr, as it appeared to be a logical way to get into the lending space to grow the business organically but equally meet demand that was in the marketplace, which Jones believes “wasn’t being satisfied by anyone else in the market during that time”. EVOLUTION Computershare currently looks after nearly half a million mortgage customers, but it was the 100,000 BTL customers that it became “Lender of Record” to when
1978 Computershare founded in 1978 in Melbourne, Australia
Computershare becomes publicly traded company and lists on Australian Stock Exchange
UK Asset Resolution concluded a mortgage book sale in 2018 which inspired the idea of creating a lender in that space. It appeared that once the initial idea came into view, the rest fell into place for the team at Zephyr. Thanks to the business already having relationships with various institutional businesses that wanted to get funding into the BTL market, the creation of the lender began steadily, initially by creating a new product range, then a lending product followed by launching to market. “It is building on the scale that we’ve got and the demand that is out there to fund BTL mortgages that has driven us to do this,” says Fryers. But the demand was clear to do so, according to Jones. “We knew there was a pent-up demand in the market for people who wanted to lend into the BTL sector but didn’t necessarily have the right regulatory permissions or didn’t want to get the permissions that are needed,” he says. “We effectively provided them with a vehicle to get them into the market in a fairly eﬃcient way. That was the key driver behind it.” The decision to enter the specialist BTL market means that Zephyr are lending not only to individuals but also to limited company SPV structures, where landlords are beginning to expand their portfolios whilst amateur landlords are pulling back from the market. “This has created opportunity for professionals to grow,” says Fryers. “I think generally speaking, the market would accept that the limited company specialist space is growing.” The BTL space has been seen to be resilient following regulation changes and many comment on the fact that markets have adapted and continued to develop regardless. “A more professional landlord space is good,” says Fryers. “People who are doing this for a business is a good thing, especially bearing in mind the more
1995 Computershare enters UK market
Computershare acquires Royal Bank of Scotland’s transfer agency business
1998 Computershare enters Irish market
Computershare UK Timeline 66
COVER complex nature of the market today.” Despite this, Fryers doesn’t believe that landlords with smaller portfolios will completely disappear. “I don’t think these landlords will completely fade out of the market,” he adds. “There is a place for landlords with smaller portfolios but I think the trend of more professional landlords adding to their portfolios or restructuring, looking at different geographies to where there is more yield, will continue to grow.”
COMPUTERSHARE LIMITED IN NUMBERS Employees
12,000+ people around the world
16,000 clients+ and their 75 million customers
CHALLENGES Entering such a competitive space with its fair share of challenges is no easy task, however the duo claim that all diﬃculties they initially faced were all expected - such as refining processes, clarifying criteria and being more commercial in some aspects of their proposition. “We knew it was going to be competitive so actually getting traction in a competitive market is always going to be a challenge for a new lender,” Fryers says. “I think in the first year we learnt a lot.” Zephyr had a soft launch to market before rolling out to the wider networks to guarantee that their product was completely ready. “We only get one chance of doing that,” Jones says. “At the time, we knew we needed to be absolutely confident that everything we were doing was working the way it should, so we launched quietly initially.” It started to take shape between summer 2019 through to the end of the year, where the pair comment on a nice “ramp up” period where there was an expansion of distribution and turning complex cases around in a “reasonable order” which both viewed as an achievement. Following their launch to market, Zephyr has seen a growth in distribution relationships which Fryers and Jones see as a real positive from 2019. “We were
Computershare enters tenancy deposits market in the UK
2010 Computershare acquires Employee Equity Services business of HBOs (UK), making Computershare the market leader for plan administration services
Computershare acquires Home Loans Management Limited (HML)
really pleased to work with a small number of key BTL experts to kick the business off,” says Fryers. “That was a highlight. To be able to then expand the distribution footprint, partnering with firms such as L&G for example, has been really great.” The products were also constantly being refined according to the pair, with Fryers noting the decision to scrap upfront application fees in September 2019 as a particular example of this. “We have been making sure our rates are competitive, with our changes thus far being popular,” says Fryers. “I think equally when the broker goes through the journey and recommends the products, rate is a factor but not a defining one when going to a lender. It helps, but it is the overall package of service, quality of product, route to submit and underwriting also.” Following feedback from initial partners, Zephyr also adopted case management to their approach in their underwriting team in mid-2019. “That is now bedded in and there are good relationships with underwriters, consultants, brokers, packagers and distributors now,” says Fryers. “We have taken all of that on-board and evolved.” CHOICES When Zephyr launched into the market, they did so with carefully selected packagers. “In this space, there →
2016 Computershare appointed by UK Asset Resolutions Limited (UKAR) to undertake its mortgage servicing activities
Computershare launches £20,000 charity fund – Computershare Loan Services Charity Donations Fund
2018 Computershare launches Zephyr Homeloans, a dedicated buy-to-let lender that provides a range of mortgage products for professional portfolio landlords and other specialist property investors
“We can now tap into a wider range of resourcing markets than we could previously. From that point of view it helps us both in terms of experience and knowledge within the organisation and also where we can go in terms of recruitment” are certain expert distributors who we were keen to work with from the get go,” says Fryers. Since launch, the lender has worked with networks such as Sesame, L&G, MAB and Stonebridge. “It really is inevitable,” Fryers continues. “You need to work together and engage to seek to drive scale through your business.” Education is important to the pair, with the specialist BTL space seeping into various different spaces of finance. “When you get into the specialist buy-to-let space, you quite quickly get into areas such as tax,” says Fryers. “In that regard, brokers having a relationship or having access to taxation expertise is pretty important.” Despite this advice not coming from a lender, Fryers explains that it is important that specialists from a variety of different financial areas get involved in specialist BTL to help brokers. The decision to go direct-to-broker was clear for those behind Zephyr following their partnerships with mortgage clubs and networks. “I think it is important to have strong relationships with the key distributors in the market,” Fryers explains. “Equally you can see how some of the networks and clubs are creating more tools these days.” SCALE The pair believe that being part of Computershare has helped Zephyr in many ways, particularly with relationship building. “I think having a similar business in the US helps because, despite the markets and regulation being very different, we are very often dealing with the same institutional clients,” says Jones. “A lot of the big global investment funds effectively are clients of ours in the UK and the US. Very often the people that we are talking to who raise funds in the UK work for people in the US who our colleagues in the US are speaking to. So that has definitely helped in terms of developing the relationship with our clients.” Having scale is something a new business can often only dream of, however Zephyr had an advantage being part of Computershare. “We are managing £50bn in the UK, and in the US around $75bn,” Jones continues. “That is a substantial scale compared to any other servicing business, equally having that global footprint from a servicing point of view helps as well.” Within their UK business is The Deposit Protection
MORTGAGE INTRODUCER MARCH 2020
Scheme which is run on the government’s behalf. This is the largest custodial scheme of its kind and looks after around 1.7 million tenant deposits. “Off the back of that, there is a rich source of information and data, which gives us quite a deep footprint in the PRS, never mind the mortgage market,” says Fryers. “Having that within Computershare Loan Services, which came into our group in mid-2019, creates some interesting synergies.” The company has around 2,000 employees in their UK base, with many of those involved in BTL lending www.mortgageintroducer.com
COVER “We can now tap into a wider range of resourcing markets than we could previously,” says Jones. “From that point of view it helps us both in terms of experience and knowledge within the organisation and also where we can go in terms of recruitment.”
pre-crisis still at the company. The size of the company has been vital to Zephyr according to Fryers. “Having that bigger bank of people who are already in the underwriting space to train them up on another part of the market has helped us to get to where we need to be.” Following the purchase of the UK Asset Resolution servicing business in 2016, Jones says that their geographical footprint has been widened, with the 1,800 people that came within the transaction having a wealth of experience in both lending and servicing. www.mortgageintroducer.com
VISION The future looks bright for Zephyr, who have had a great start into the marketplace. But growth continues to be on the mind of Fryers. “I think we need to clearly grow our core business,” he says. “At the end of 2019, we took on six telesales business development managers to enhance that new team and help to add more value to relationships we have got with brokers.” Zephyr are also looking to scale the field-based business development team, to join the four-strong team currently. However seeking opportunities from what they already have is also on the mind of the duo. “We have got a big mortgage book that we look after,” Fryers says. “So we would like to think about how we start to drive additional product to our existing customers as well, and I think there are interesting ways in which this can develop.” Zephyr forms part of the Topaz business, which are made up of several customer bases that are effectively closed books. “One thing that we are very aware of is how we can promote Zephyr’s product to that customer base,” Jones says. “I know that there is a lot in the press about mortgage prisoners, but we have been looking at whether there is any way we can help by using the part of the business that is able to lend by saying to customers coming to the end of their term that we have got a new product that we can offer.” This is what the duo call ‘recapturing’ and might apply to as many as 250,000 customers. Ultimately there are three main focuses for 2020 at Zephyr: focussing on what they have, recapturing, and broadening their product range. “We are very much working through those things in a logical sequence,” says Jones. “Zephyr is part of a very big organisation with a lot of support behind it, so we don’t need to do everything at 100mph. We would rather do things in a careful and steady fashion, always focussing on driving growth.” This year is set to be an exciting one for Zephyr, with it being poised for further growth, and it will be interesting to see how the BTL market now pushes on following the 2019 election and creates more solutions for more customers to build and grow their portfolios.” Despite this, it appears they are ready for whatever 2020 may bring, and have the support of a global conglomerate behind them to ease the burden of being a new entrant in a competitive space. Fryers concludes: “Making sure we have got the foundation right has been what 2019 was about, and for the next few years it is about how we want to scale that. It is part of a journey.” M I MARCH 2020 MORTGAGE INTRODUCER
Moving the market forward Loan Introducer catches up with Y3S chief executive Matt Cottle to discuss what still needs to be done to propel the second charge market further forward What would you say to a mortgage broker who is not advising on second charges?
I’d ask if they could swear hand-on heart that they have provided their client with the most cost-effective solution. We see a lot of clients who have been advised to remortgage to raise £25,000 when their redemption penalty was £10,000. It’s madness… and laziness; a second charge loan would be a far better option. Many, but not all, mainstream mortgage brokers are not able or willing to get their heads around the issues that are presented and therefore either avoid them or they pass them over to a specialist broker. Was there ever a time you thought about not offering second charges? We’ve always offered second charges, even through the darkest days of the credit crunch when only Nemo Finance and Blemain Finance were lending. If you plan to grow and remain relevant however, it’s no longer viable to be purely a second charge loans broker. The industry is more fluid than ever. As time has gone on and our organisation has evolved, we have branched out into specialist first charges, bridging loans, development finance, commercial mortgages, equity release and unsecured business loans. Second charges account for around 40% of everything we do these days. What are some of the issues holding the second charge market back? Spending on technology is the main thing. Our industry is still at the equivalent of riding around
MORTGAGE INTRODUCER MARCH 2020
Making it personal Is there something about yourself that people would be surprised to hear? I speak French and I like riding BMXs. I used to be a massive petrol head but for the past four years I have been fascinated by electric cars and I’d never buy another petrol/diesel car for as long as I live. When you were young, what job did you aspire to do? I wanted to be a pilot in the RAF. I have dipped in and out of learning to fly aeroplanes and helicopters. I can barely drive a car in a straight line however so when it comes down to the safety of everyone, I know I’m better off in the back sipping a cold beer. What is the best bit of advice you have ever been given? I’ve always tried to heed the advice of elders: Live within your means where possible, cash is king, persistence is better than intelligence. Listen first, speak later, trust your gut instinct, are among my chief beliefs. What is your most prized possession (aside from family)? My great-grandfather’s pocket watch and French phrasebook that he had while in the trenches during the First World War. Fortunately, he came back alive. The book contains chilling phrases such as, ‘have German troops been quartered here lately?’, ‘did they have heavy artillery?’, ‘did they capture or kill anyone?’. I can’t imagine how scary and disorienting it must have been. on horse and cart, compared with, say, the insurance industry. It’s crazy that lenders have not come together and built a universal Application Programming Interface (API) tool that all brokers can use to easily funnel applications to them, rather than the slow and laborious process of building individual API’s with each broker. 95% of brokers will never build them, and all that extra business will be lost or will go slow until tech fixes it. I spoke to a multi-billion-pound lender the other day who has employed a junior developer to build their API integration as that’s all their budget will stretch to. Were you sad to hear about the closure of Prestige Finance? Yes, I was. I don’t think it was done in the right way and I feel sorry for the some of the staff there who have worked hand in hand with our own team for a generation. I take some comfort in that they are in the right part of the world to find similar employment. I hope we don’t lose the talent of those people from our industry. We need to keep that pool of talent within the specialist industry. M I www.mortgageintroducer.com
MARCH 2020 MORTGAGE INTRODUCER
Execution only for s Following on from the recent FCA guidance Natalie Thomas asks if there could ever be an execution only model that works for seconds
he Financial Conduct Authority recently published its final rules and guidance on mortgage advice and selling standards, which amongst other things included a range of measures to make execution-only sales easier in the mortgage market. But could such a model ever work in the second charge mortgage market? Loan Introducer asks: “Could execution-only sales ever play a part in the second charge mortgage market?”
Mark Gordon director of money, comparethemarket.com
Customers who take out a second charge mortgage usually have more complex circumstances and requirements than a traditional borrower, so it is very unlikely that execution-only will play a useful role in this market. While second charge mortgages can be a beneficial way to secure finance and offer consumers a broader choice, the customer’s need for advice extends well beyond just taking out the mortgage. Mortgage advisers will look at the individual’s broader and longer-term needs when taking out this type of loan. This is why anyone wishing to take out a second charge through comparethemarket.com will need to first speak to one of our broker partners. As interest rates are often higher on a second charge mortgage, borrowers need to consider carefully whether they can afford the repayments. However, as customer circumstances change, those who did initially take out a second charge may be able to consolidate the loan in the future with their first charge provider at a cheaper rate.
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Paul Huxter head of sales, Enterprise Finance No, I don’t believe execution-only has a place in the second charge market. The second charge is a product that sits alongside a further advance or remortgage when a client is looking to raise additional capital. In that sense, it requires an advised process to determine which product is most suitable for the client’s needs. In addition, a second charge is a product many clients will not have had exposure to previously so will need explanation and advice as to the appropriateness of the product.
Paul McGerrigan chief executive officer, Loan.co.uk In the future, absolutely, but as part of a wider execution-only process available when borrowing money. In the shorter term as a step toward execution-only in second mortgages we will see borrowers doing more of the application process for themselves with the help of increasingly clever technology. A potential borrower wants to compare costs, weigh up pro’s and con’s, understand the risks in the decision they are making and then go through a smooth hassle free process to achieve their goal. Essentially make an informed borrowing decision. Execution-only borrowing driven heavily by intelligent client journeys, carefully displayed information and cutting edge tech will undoubtedly change the face of all borrowing at some point. Having said that, whether the execution
only route is available or not, in the short term many people will still want a human expert to guide them through this journey. Customer behaviour doesn’t change overnight. Ultimately it should be down to borrower to make the decision - under the watchful eye of the regulator. If a borrower feels they can service themselves we should help them. If they feel they need a guide then there are many excellent mortgage advisers, IFA’s and secured loan companies around to walk them through it.
Joe Aston national sales manager, Vantage Finance With any product as widespread as second charge mortgages there will always be moves to make it more easily accessible, something like this is inevitable. The danger is customers abusing the more generous affordability checks and putting themselves into a financial risky situation. From a lending viewpoint, I would be interested to see the servicing figures for these second charge loans as I would predict some repayment issues. Its always best to seek professional advice with specialist lending.
Tim Wheeldon chief operating officer, Fluent Money In terms of a second charge mortgage broker offering execution-only on their website, unless the lenders they are dealing with allow them to do it, they can’t. As far as I’m aware, no lender currently allows it because it’s too challenging. www.mortgageintroducer.com
second charge? If you look at the first charge market, execution-only exists mainly through pound for pound product transfers - that market does not exist structurally in the second charge market. A chunk of the second charge market is for debt consolidation and the regulator does not allow execution-only to be used for those looking to raise funds for debt consolidation. That’s not to say the whole market is about debt consolidation but the second charge market is generally about capital raising for a specific purpose.
Bradley Moore managing director, Brightstar Financial
We are big advocates of the power and importance of professional financial advice and believe that execution-only sales should be limited in the first charge market, let alone the second charge market, which is inherently more complex. There are so many considerations for a customer when it comes to their options for raising extra finance secured on a property and we work with a lot of brokers who acknowledge that this is a specialist area. So, it is difficult to see how customers could be confident that they would end up with the best solution for their circumstances if they were to access second charge lending on a second-charge basis.
Anna Bennett marketing director, Positive Lending The role of brokers and packagers is to ensure the very best loan outcome for borrowers. We offer a multi-lender, whole of market second charge proposition and our team of experts are fully up to date on the ever-changing products and individual www.mortgageintroducer.com
lender criteria. We also advise against second charges where they are not in the best interest of the borrower. Similarly, we may suggest an alternative funding type as and when the borrower will benefit from it. With execution-only sales, the borrower is required to undertake their own research and come to the decision as to which is the best loan for them. Given the complexity of second charges, especially when debt consolidation is involved, and that a number of lenders do not have direct to consumer access, we believe that brokers and packagers add a very real value. The client would also lose access to some lenders that offer dynamic pricing and do not publish rates. This could impact the client’s choice.
Steve Walker managing director, Promise Solutions
Execution-only sales makes a nonsense of, and undermines, the value of advisers. It’s got to make you wonder why the industry when through the massive upheaval brought about by Mortgage Credit Directive.
Alistair Ewing owner, The Lending Channel
I don’t think execution-only would work for second charge lending. This is still a very niche area of property lending and should not be treated like unsecured personal loans, which probably could work where no actual advice is given. The second charge sales advice process requires clients to do some or all of the following: prove income and affordability, provide evidence of mortgage history, verify their property is suitable security
and has sufficient value, gain consent from first charge provider. The client also needs to be made aware of the risk position they are entering by offering their property as security. I don’t believe all of this can be done on an execution only basis as there are too many steps in the process where the client might ask ‘what do you think?’
Jo Breeden managing director, Crystal Specialist Finance
To access a second charge loan there are far more areas to consider, than say, a straightforward pound-for-pound remortgage. One has to consider why the money is required – for example is it debt consolidation, or a further advance for building works – but then what are the circumstances that mean a second charge loan is the right financial answer – has a person’s credit score declined, or has there been a change in circumstances that means remortgaging is not an option? The variables between requirement and circumstance are naturally very wideranging, so the quality of advice is of prime concern which is why a broker’s professional input is essential. This is still a second debt against your own home. If a second charge loan is deemed to be the best option, it has to be realised that the market and its products are less well known and understood by customers so securing the right product again requires the correct level of expertise.
Fiona Hoyle head of consumer and mortgage finance, FLA
The vast majority of customers need and benefit from the advice given in the second charge market. M I MARCH 2020 MORTGAGE INTRODUCER
As easy as one, t Natalie Thomas considers if there is ever a suitable time for a third charge loan or whether the risk is too great
he thought of placing a second charge on a property still makes some lenders – and indeed borrowers – nervous, so what about a third charge? Could placing a bridging loan on top of an existing mortgage and second charge ever be a good move, or is such a strategy too risky? The multifaceted needs of property investors and borrowers in general are increasingly calling for lenders to think outside of the box when it comes to offering clients innovative solutions but in relation to charges on a property – is three a crowd? A BRIDGE TOO FAR? The bridging market and the second charge market are currently both on a high. According to the Association of Short Term Lenders, bridging loan books grew to a record £4.62bn at the end of Q2 2019, representing growth of 11.7% compared to Q1 2019 and an increase of 14.4% on the same quarter the previous year. Bridging loan applications also hit a record total in the 12 months preceding the end of Q2 2019, with £22.13bn of applications representing a 9.7% increase on the same period in 2018. Meanwhile, new second charge business volumes reached over 28,000 in 2019, which was the highest annual total since 2008, according to the Finance & Leasing Association. But what opportunities are there for the two forms of finance to be adjoined? Vic Jannels, chief executive officer of the ASTL says on the face of it there should be few instances where applying a third charge would be appropriate. However there are relatively rare occasions where bridging can be appropriate if there is already a second charge loan on a property, he believes. “Flexible, short term finance may be required to help a client complete works to the property to realise its true value, which will result in them being in a stronger financial position in the long term. Especially if they are preparing the property for sale. Or, possibly where there is a short term need where income might be coming from another sale or realisation of an investment or similar certain repayment option,” he says. Nevertheless, someone requiring a third charge he
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says could potentially be a client who is in financial difficulty and naturally, this is something advisers should be on the lookout for. “It is clear that the layering of multiple types of lending secured on a property may sometimes be a sign of distress and, for advisers who are considering this option for their clients, it is important that they work with a responsible, professional lender that takes a transparent and honest approach,” he stresses. “In a market that remains largely unregulated, brokers should look to partner with lenders that can demonstrate a commitment to quality. Dare I say it, this is one of the reasons we apply a strict Code of Conduct for all members of the ASTL, allowing brokers and their clients to feel comfortable that, if they are working with an ASTL member, they are working with a lender that carries our kitemark of market leading standards.” THE WILLINGNESS OF LENDERS In fact one of the biggest hurdles a borrower or broker looking for such finance might encounter is finding a lender willing to accept a third charge. Jonathan Sealey, chief executive officer at Hope Capital says while there are perhaps a handful of scenarios which may warrant a bridging loan in these circumstances, he can’t think of a bridging lender who would accept being a third charge. “The only circumstance where a lender might consider lending is if there are very small first and second charges with mainstream lenders and for some reason the borrower couldn’t remortgage with either of the existing lenders,” he says. “We would usually want to lend as first charge holder, so I can foresee a circumstance where if there was enough equity in the property, we could potentially look to provide a bridging loan to clear the other two charges as a means to providing further advance prior to a sale of the asset or a full remortgage. However, we would need to be satisfied that doing this was in the best interests of the client, as typically any first charge mortgage with a mainstream bank would in most circumstances be at a much lower interest rate than a bridging loan could offer. There would need to www.mortgageintroducer.com
, two, three? be a commercial reason behind this scenario,” he says. Gavin Diamond, commercial director – bridging at United Trust Bank says while taking a third charge falls outside of its lending criteria, it does occasionally receive enquiries to repay an existing second charge on a property using a bridging loan in order to quickly raise additional capital secured against that property. “The fundamentals for bridging lending always remain the same,” he says. “A bridging loan should only ever be sought for a sensible short-term funding requirement ahead of a plausible exit being available to repay the loan within the term requested,” he adds. A VIABLE SOLUTION Restraints on existing second charges means it could make sense for borrowers to consider a third charge, argues Paul Huxter, head of sales at Enterprise Finance. In the same way that a borrower in the first charge market might look to take out a second charge in order to avoid disturbing their first charge mortgage, a second charge borrower may look to a third charge to avoid incurring the costs of exiting their second charge. “A third charge can be a suitable option for a client,” he says. “Currently, second charge providers do not grant further advances to clients. In that respect, the client is forced to redeem the second charge if they wish to access additional borrowing that is also unavailable from the first charge lender. This could incur costs such as redemption penalties and charges to renew the second charge. A third charge could be taken out by the client meaning they do not need to disturb the existing second charge or first charge mortgage,” he says. The costs of setting up the third charge and the price of the product would have to be a factor in considering whether this would be a good option, he adds. Joe Aston, national sales manager at Vantage Finance, warns: “I’m always cautious of offering/ helping people to source excessive debt.” But agrees that for the right borrower, a third charge could be plausible. “With the property investment space becoming increasingly more professional, I’m confident that there are situations where this type of finance can www.mortgageintroducer.com
be used sensibly and responsibly,” he says. However he cautiously adds: “I worry about the appetite of the less educated borrower using this further finance.” James Bloom, divisional director at Alternative Bridging Corporation, says there are situations where a borrower may require additional funds and although it doesn’t offer a ‘third charge’ it does offer an overdraft facility. “We offer first and second charge bridging loans, and The Alternative Overdraft product, which provides a flexible loan facility that can be drawn upon as a first or a second charge,” he says. “We do this because we understand that investors need funding flexibility,” he says. “It is worth noting, however, that flexible lending does not equate to taking unnecessary risk and, as with all of our loans, we will take a responsible and pragmatic approach to assessing the rationale and viability behind a proposed exit route. Often, on cases where there is an existing charge on the property, the funds to exit a loan might be made available from the sale of another property or a pay-out from an investment. It is particularly important in situations like this to understand the client’s individual circumstances, to make a rounded and responsible lending decision based on the overall picture of their finances, and this is one of the reasons that we remain committed to maintaining human conversations about a case and building long-lasting relationships with brokers and their clients,” he stipulates. LEADING THE CHARGE? Whilst not necessarily the norm, there is certainly scope for lenders and brokers to look to offer a third charge. As with all transactions there would have to be good reason to do so and the customer advised appropriately. A third charge on the surface might ring alarm bells but with many borrowers already having store cards, credit card and personal loan debt, a third charge might in effect be less risky than a borrower proceeding by means of using all the aforementioned hidden debt. A third charge is unlikely to ever become an off the shelf solution and is more likely to be used by property investors and property professionals but there is scope for it to be investigated further. M I MARCH 2020 MORTGAGE INTRODUCER
We simplify your complex cases For those special clients that may have you twisting and turning, our flexible approach can make it easier for you to find them the right solution. To learn more, visit simplify.octopus-realestate.com or call 0800 294 6850
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SPECIALIST FINANCE INTRODUCER INTERVIEW
Don’t forget the expats Phil Jay director, Complete FS
ith all the focus in recent months on Brexit and a General Election, if not the painfully slow process which marks the choosing of the next Labour leader, it is as good a time as any to refocus on our business goals for the year. One of the areas that I think gets overlooked by advisers is that of expats who want to buy or refinance property in the UK and it is an area which, with the right guidance and support, can provide a very useful extra business stream. ALTERNATIVE STRATEGIES
Advisers don’t have to be immediate experts on the expat community, certainly not to begin with. However, they are in the best position to provide alternative funding strategies and advice, more so than a single lender to whom a customer might make contact. Let’s look at the market itself. The number of Britons living overseas continues to rise - there are 5.5 million people worldwide, with a further 400,000 choosing to emigrate each year. Until lately the uncertainties surrounding Brexit continued to impact upon the UK Market but the UK’s rental sector has begun to experience an upturn in the demand for expat buy to let mortgages with foreign based investors looking to exploit the weakness of the pound to offset Stamp Duty surcharges. Applications for expat products rose by over 30% between 2018 and 2019 according to The Mortgage Lender as investors continued to prioritise the purchase of UK rental properties and the proportion of lets owned by overseas landlords rose to 11% for the first 10 months of 2019. www.mortgageintroducer.com
Moreover, expats continued to shift their focus from properties based in the South East or London area to encompass other ‘up and coming’ parts of the country, such as Manchester, Liverpool and Birmingham, where yields continue to grow. Lenders are also seeking to capitalise on this upswing by expanding their range of expat product options and reducing rates on mortgages to near historic lows - a dramatic change from the limited choices and expensive interest rates on offer a few years ago. While the current growth in products and discounted rates have been supported by an escalation in customer demand, as well as an increasingly flexible approach to underwriting policies, the overriding commercial impetus has been driven by an intensification of competition between lenders within the mortgage sector, with banks, building societies and specialist providers jostling to secure new streams of custom and to benefit from more settled conditions within the buy-to-let (BTL) sector. For example, building societies have accounted for a high number of market entrants over the past few years, with the likes of Tipton and Coseley, Dudley and Saffron all launching expat products over the past two years. BURGEONING MARKET
The Bath Building Society has launched a 4.44% variable discount mortgage for expat BTL customers, with a maximum LTV of 80% on loans between £100,000 and £500,000their first foray into the market and a telling reflection of the opportunities that (nominally) mainstream lenders are beginning to identify within the burgeoning expat market. Yet, inevitably, it is the specialist market that has continued to dominate the sector, with prominent leaders such as Kent Reliance, Foundation Homeloans and The Mortgage Lender making enhancements to their expat range last year and many others following suit as rates continue to
plummet and criteria loosen. In short, the expat market is experiencing a period of boom. However, as the number of product choices continues to expand and to diversify, the ability of brokers to identify applicable deals or to source suitable lenders has become increasingly convoluted. EXPERIENCED PACKAGERS
Of course, advisers can do their own homework and call individual lender helpdesks. It certainly helps to get a feeling for what those lenders do. There are also extra helpmates in the shape of companies like Knowledge Bank and Criteria Hub to interrogate, which can offer a more forensic layer of analysis over and above what you can get from a standard sourcing system. But is it the best use of your time? Growing numbers of advisers are already turning to the new breed of experienced packagers for their specialist lending needs. They can identify the products which are most relevant to their client’s needs, facilitate a better understanding of the criteria for those lenders specific to your case and you can also delegate the responsibility for procedural checks and the process of applications to them. However, let’s not forget the role they can play in broadening your knowledge of the expat sector. This is a model that allows brokers to drive up referral and conversion rates without having to compromise core business work. Moreover, with some lenders choosing to only distribute their expat products via packagers, the ability for brokers to access rates and deals which are unavailable elsewhere is another powerful incentive for engaging with these services. Making use of a free facility like this means that as lending within this sector begins to accelerate, advisers have real support and consequently the confidence to open up a valuable extra business and income stream. M I MARCH 2020
SPECIALIST FINANCE INTRODUCER
Advice provides better outcomes Shaun Almond managing director, HL Partnership
t our recent annual conference, speakers, including AMI chairman, Robert Sinclair, raised questions of how execution only cases would be assessed and how, when lending choices did not provide the outcome expected, who would be to blame and from whom would compensation be sought. At this point, continued debate on the new regime is not going to change anything now that the FCA’s volte face has been decided. However, our view is a simple one. The number of customers who need advice is not going to dwindle overnight.
In fact, given time the regulator might reverse its decision, if resulting evidence highlights the misgivings already aired. Advice, particularly on the question of protection, is where we feel our members, along with the rest of the adviser community, can make a difference. Figures suggest that as few as six out of 100 people enquiring about insuring themselves against death and disability on price comparison websites will go on to take out a policy, compared to over 30% of customers who speak to an adviser - a very significant difference. With the regulator expressing its desire to see customers improve their financial outcomes, we are in a great place to continue demonstrating that advisers are best placed to ensure that customers can appreciate the advantages of financial planning. As a dedicated mortgage and
protection network, HLP believes that while the performance of advisers in the provision of protection far outstrips voluntary take up via comparison websites, 3 out of 10 mortgages being fully insured is still too low. We are making 2020 the year in which we, as a network, give protection advice the priority and support it deserves, not only for new mortgage transactions but also for remortgages when reviews are due. There is an old adage that might not be politically correct today but is still relevant - protection needs to be sold, it is rarely bought. Modern sensibilities might not approve of the word ‘selling’ but by presenting the case for protection clearly and logically, not only will we increase the uptick in protection cases completed, but we will demonstrate conclusively why one to one advice is so effective. M I
Finance in uncertain times Narinder Khattoare CEO, Kuflink
hort-term funding comes from multiple sources today, but our sector dates back to a time when private funding was the primary provider through solicitor firms. The modern bridging industry has those early pioneers to thank as an important catalyst for the sector and private funds still remain an important component in today’s market. Funding from banks and other institutions powers much of today’s market but the growing influence of peer-to-peer (P2P) platforms has opened a new source allowing firms like Kuflink and others to expand their
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lending and offer an alternative to institutional funding. As the world is coming to terms with the new threat posed by coronavirus, there will be closed-door discussions about funding lines coming under pressure, which will inevitably raise concerns and undermine confidence. We have seen it before, especially after the Brexit vote in 2016. Funders tend to get cautious, and lines of funding become subject to change at short notice or even pulled without warning. Not all providers are in the same position, especially those operating within the specialist mortgage market and those with external funding from institutions who will always be vulnerable when economic bumps in the road occur. The rise of P2P over the past few years has provided a new source of funding and while there have been a
few regrettable casualtie P2P funding, backed by property assets, is proving to be a valuable addition to the funding sources available to the bridging market. Launching our P2P platform in 2016 gave us an extra resource that has allowed us to expand our lending, as well as provide realistic and welcome returns to our investors. My advice to advisers is to cast your nets more widely when sourcing suitable bridging options. Many lenders are at the mercy of institutional funding sources that do panic at the first sniff of trouble and can turn down or turn off the funding tap with little or no notice. Look for lenders with multiple funding sources and have full control over their underwriting. We are living in uncertain times, so choose your lenders carefully. M I www.mortgageintroducer.com
SPECIALIST FINANCE INTRODUCER INTERVIEW
Why RDF is good for businesses Brian Rubins executive chairman, Alternative Bridging Corporation
esidential Development Finance (RDF) is becoming a mainstream product for the wider short-term lending community and for those brokers who already have the knowhow, or can take the time to learn the required skills, the rewards can be significant. While a number of intermediaries do offer advice on RDF as part of their wider activities, there are only a small number of specialist RDF brokers so the space is not crowded. RDF provides the opportunity to engage in larger loans and to benefit from regular repeat business. A developer’s requirements might range
from site purchase loans, possibly before detailed planning consent is granted, through land and construction finance for current projects and exit finance to lessen interest costs during the sales period. Sometimes one lender is suitable for every phase of the scheme, but there are times when different sources of finance will be necessary at each stage of the process. The business opportunity for brokers come from the reluctance of high street banks to create new relationships and tends to sit in the middle-market, say from five to 50 units or from loans of £500,000 to £10m. Residential developers rarely undertake one project at a time and where advisers provide a true value added service, the probability is that they will arrange a number of loans each year. Headline interest rates are a key issue, but far from the sole criteria in choosing a lender as both pricing
and deliverability are significant considerations. Pricing is made up of a number of elements; arrangement fees at say 1% of the facility, interest usually at between 6% and 10% per annum and exit fees at 1% - 2% of the loan or of the gross development value (GDV). When analysing varying offers, each element and their totality needs comparison. Deliverability is key to choosing a lender. Identifying a lender that is established and comfortable in RDF is a priority. Will the lender help build the case and does it have a specialist team for RDF? These are indicators of how efficiently, simply and swiftly your client’s requirements will be satisfied. There are many skills needed to successfully place an RDF case, some of which may need to be learned by brokers. But the benefits justify the effort and getting involved in RDF can be very good for broker businesses. M I
Keep your exit options open Barry Searle managing director of mortgages, Castle Trust
buoyant property market does not guarantee a smooth exit for developers who plan to sell an asset as soon as it has been completed. As such it is important to have a wellplanned exit. Your clients have two main options here. The first option, for developers who want to manage their cash flow and buy themselves more time at the completion of a scheme, is to take a development exit loan. Many developers are in a position where they are asset rich and cash poor, particularly when they near the end of completing a development and a development exit loan is a shortwww.mortgageintroducer.com
term loan that enables a developer to refinance their completed scheme. This can provide a saving on interest payment and give developers more time to achieve the best sales price on their developed properties. It is also very common for investors to release equity from a scheme. A development exit loan can provide developers with the flexibility to take money out of scheme before they have sold the properties and can often be completed in a short period of time. On the other hand, your client may decide that they want to hold onto the completed asset for an extended period of time, to let out the property and earn rental income to give the asset time to appreciate in value. In which case, the appropriate exit would be a term buy-to-let loan to refinance the development funding. A lot can happen during the course of a development, of course and so,
while your clients will have a stated exit plan when they apply for development finance, there is a good chance that this plan may change along the way. So, it can be useful at the outset of applying for development finance for your clients, to make it as easy as possible for them to follow a range of alternative exit routes upon the completion of a scheme. For example, at Castle Trust, not only do we offer development finance, but we also have a popular proposition for development exit loans and longer term buy-to-let mortgages. This means that brokers who talk to us about development finance cases, can also cover off potential exit options in just one conversation and, should either of those options be required in the future, the process can be quick and easy. However, whatever route you chose for your clients, it is important that you keep their exit options open. M I MARCH 2020 MORTGAGE INTRODUCER
SPECIALIST FINANCE INTRODUCER
Work together to get the message across Adam Tyler executive chairman, FIBA
ast month I was expressing the idea that 2020 will be a good year for the sector and particularly for advisers. Having recently attended the Bank of England economic briefing, it was good to hear that stance confirmed and hear that an upturn in specialist property finance enquiries seen by our members and lender partners was being seen by the Bank. Their report did highlight a difficult end to 2019, but that a lot of sectors, including ours, had already seen that uptick in January’s figures. We are now nearing the end of February and there has been nothing to make me change my mind in the interim, but news of the coronavirus and its spreading around the world does serve to illustrate how we can be surprised by events over which we have little or no control. Recent stock market losses demonstrate that greater volatility could be just around the corner. However, if you are optimistic like myself, our market has shown itself to be resilient to many different challenges over the years. As the world’s scientists collaborate to come up with an effective treatment, in the same way it is vital that, rather than continue to work in isolation, we in the specialist finance industry need to commit to working together in order to further best practice, provide better education and deliver positive lending solutions for all parties in the specialist finance sector. At FIBA, we have set ourselves a goal to facilitate mutual cooperation between all parties in the business
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including lenders, providers of support services, such as valuers and legal firms, and of course, intermediaries. The present and future importance of this cooperation cannot be underestimated. We know that for many SME owners their first instinct is to approach their banks and yet in many cases they are turned down. More troubling is the evidence that many prospective borrowers don’t actually look elsewhere and whilst these numbers once were in excess of 50% of those declined, recent indicators I have obtained show that we are making some progress in this area.
“FIBA’s goal is to facilitate mutual cooperation between all parties in the business including lenders, providers of support services, such as valuers and legal firms, and of course, intermediaries” To my mind there is not enough exposure about the role that brokers can play in helping SME owners find the funding they require, which means that this must be the focus of our campaign to raise awareness of professional advisers and make them more visible to SME owners. However, we need to walk before we can run. Yes, the industry has been enjoying a period of growth but this could be multiplied again and again if we can become better coordinated with each part of the sector working more closely. We must aim to increase the visibility of advisers and brokers who have access to the choice of lending options which a single lender cannot not match.So, what are the main drivers that need to be put in place? Education must come at the top of the list. Yes, advisers are doing a great
job on their own but we need to be able to point to a professional standard of competence that currently has no formal standing. For SMEs, there is nothing to tell them how professional the brokers are that they might come across at the moment. I am not casting aspersions on the many practitioners who have built up vast experience and have a strong existing client base, but a recognised qualification provides potential customers with confidence. As a trade body, FIBA is also doing everything it can to build a consensus among lenders and the adviser community on other matters such as ways of resolving disputes and complaints. As we move forward, helping the industry to professionalise by tackling these kinds of issues will help to increase confidence in the sector by business customers. That could then act as a precursor to a campaign educating business owners and the public about the value of using a qualified adviser in order to access the full range of lending options. It is clear that many have little knowledge of the multiple types of funding which are now available. As already mentioned, many, having been to their bank for their financing needs, tend not to look elsewhere, even if they are turned down. Inevitably, technology can play a big part in the process, both in the way that information can be disseminated and also in helping brokers to become more efficient in their dealings with lenders as well as helping to improve client communication. Advances in Artificial Intelligence (AI) will begin to filter through to the specialist finance sector as lenders and advisers recognise its increasing value to speed up and shorten the whole mortgage process. What is very clear, however, is that human interaction is still and will always be paramount. Advisers with the experience and background, but backed up by the best that technology can offer, will not only be the key to expanding business, but will headline a sector which can educate and inform potential customers to the benefit of every stakeholder. M I www.mortgageintroducer.com
THE LAST WORD
Bat soup, frogs and Andrew Bailey Tim Wheeldon COO, Fluent for Advisers
n early February, a four year old boy in Colorado died from the flu. His mother was a follower of a Facebook group called “Stop Mandatory Vaccination” which espouses the belief that all vaccines are bad for children and that they should be allowed to die in pain from preventable diseases which western medicine has all but eradicated. These lunatics are on a mission to return 21st Century medical orthodoxy to the dark ages – the boy’s mother tried “natural” cures of lavender and peppermint oils, rather than the drug prescribed by his GP which would have saved his life. FRIGGING FROGS
Another prominent Anti-vaxxer, Alex Jones, of the YouTube channel “Infowars”, posted a video in 2014 accusing the American government of chemically poisoning the water supply, and “making the frigging frogs gay”. Incidentally in 2015, the orange presidential candidate endorsed Jones, saying “Your reputation is amazing”. In an age in which we have access to unprecedented levels of data and our society is based firmly on the foundations of facts and science, I wonder why there appear to be so many idiots who believe, for example, that the moon is a spaceship, the earth is flat, and the Queen is a lizard. An American Christian fundamentalist group even believes that heavy metal music makes pigs deaf. Twas ever thus. Conspiracy theories have dogged disasters and outbreaks of illness probably forever. While the Great Plague ravaged Europe in the 1300s, people became convinced that their Jewish neighbours were furtively poisoning good Christian wells for … reasons. www.mortgageintroducer.com
And today, conspiracy theories about the Wuhan coronavirus range from believing the disease is a lab-made bioweapon to the result of eating bat soup. Should we dismiss conspiracy theorists as harmless idiots? In the case of the anti-vaxxers, their spread of disinformation is causing massive issues in public health. We are looking at outbreaks of onceconquered diseases which are spreading because the uptake of vaccines is dropping around the world. In Japan, conspiracy theories about the HPV vaccine (which prevents about 5% of all cancers worldwide) dropped the vaccine uptake rate from 70% to less than 1% within a year. These sort of conspiracy theorists are dangerous and should ideally be rounded up and dropped on a desert island with no vaccines and no links to the outside world, thus preventing them from causing any more harm to anyone but themselves. But what of the more harmless theories? Apparently, some conspiracy theorists believe that Finland is a myth and that Jay-Z is a time-travelling vampire. This is clearly bonkers, but believing that the CIA, the Mafia or the KGB had a hand in the assassination of JFK is a popular standpoint for some, given that over 1,000 books have been written on the subject.
So why do people believe in these crackpot ideas? Well, some evidence exists that links lower intelligence and lower educational achievement to an increased likelihood in believing in conspiracy theories; those who have lower critical thinking skills or who are narcissistic are also more driven towards conspiracy explanations, but that’s not the whole story. Take the anti-vaxxers for example: the outbreaks of measles due to reductions in vaccination uptake tend to happen in more affluent communities – only middle-class Guardian readers could be arrogant enough to think they know more than doctors just because they went to their chakra practitioner last week. FLAT EARTH SOCIETY
Apparently, we’re all really bad at spotting fake news, especially when it’s propagated across social media. And that’s why the flat earth conspiracy keeps rolling on centuries after it should have died. In order for you to believe that the earth is flat, you have to also believe that the moon landings were faked, and that Australia doesn’t exist. So where do koalas come from, eh? When Neil Armstrong died, conspiracy theorists said that he was killed as he was about to reveal the truth – odd, that – they killed the 82-year-old man who had just undergone cardiac bypass surgery. I wonder if the same will happen to Prince Andrew? Having said all of this, I do have a conspiracy theory which I subscribe to and that’s the one which says that Andrew Bailey is controlled by the fintech illuminati – why else would he release a policy statement opening up execution only, when in December, his own organisation called execution-Oonly inherently riskier than advice? If any of the conspiracy theories we’ve discussed in this column have affected you, we’ve set up a helpline. We’ll not give you the number, though, because we know how to contact you… M I MARCH 2020 MORTGAGE INTRODUCER
THE MONTH THAT WAS
HALL OF FAME
Jazz the sexy cat
R E D C A R P E T T R E AT E M E N T. . .
vid readers may have noticed the new arrival at MI deputy news editor Jake Jazz Carter. Whilst making waves on the news desk Jazz has been hard at work impressing his new pals with his exploits. But whilst there are some things that you perhaps shouldn’t share, the Jazz man has no filter. He proudly told the team about his penchent for dressing up as a frisky feline. He explained to The HoF: “It was my first Halloween at university and everyone had been discussing what costumes to wear – a zombie, a pirate, a tennis ball... I just couldn’t decide on a theme for myself. “The day before Halloween I was in Meadowhall shopping centre in Sheﬃeld, wandering about with a few friends when we came across an Ann Summers, and I found myself wandering in. “Once in the shop I began talking to one of the shop assistants about my plight, to which she replied she’d give me a discount on a motheaten Sexy Cat costume she had found in the stockroom if I modelled it in the shop. Of course I obliged.” Of course he did... what else Jazz did was to stupidly provide the photographic evidence to The HoF. Enjoy!
Mortgage Sleep Out returns
’s time to get those sleeping bags back out as the Mortgage S l e e p O u t re t u r n s following a successful stint in 2018. In its first year, the sleep out raised over £110,000 for End Youth Homelessness as over 40 diﬀerent companies took part. More details are set to be released about the event on the 20 March, so watch this space as goals are set even higher than before. Nick Connolly, managing director at End Youth Homelessness, spoke of his excitement of the charity event returning: “The 2018 event raised a phenomenal amount of money that was put to good use to help homeless young people across the country. Just imagine what we can achieve this year.” You can register your interest to take part in the Mortgage Sleep Out 2020 by visiting www.mortgagesleepout.com. Make sure to also spread the word on Twitter using #mortgagesleepout! And to those who are about to lay outside – The HoF salutes you!
The SMAs are back in town!
ver heard the saying you can’t buy class? Well MI almost (almost being the key word) pulled it oﬀ with the latest installment of the Scottish Mortgage Awards. The SMAs came back with a bang on Thursday 5 March, bringing the Scottish mortgage industry together to celebrate another successful year. The HoF was dazzled by the beautiful Prestonfield House venue in Edinburgh with popular comedian Fred MacAulay did a great job entertaining Scotland’s finest. Also, The HoF was pleased to see Ian
Andrew from Nationwide Building Society earn a well-deserved Lifetime Achievement award. Well done! However, as the event at Prestonfield House came to a close the party moved to nightclub LuLu’s which saw some
decidedly iﬀy dancing from the MI team – commercial director Matt Bond especially. The HoF is keeping those pics in the MI safe for future blackmail. Until then here’s a sneak preview of the classy part of the night (below). Keep your eyes peeled for the awards supplement next month.
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0800 378669 Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority (Register no 156580).
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