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Champion of the mortgage professional
Challengers ahead A testing time for the specialist market ROBERT SINCLAIR
THE OUTLAW: COMIC RELIEF
HOF: FOOL’S GOLD
SPECIALIST LENDING SOLUTIONS RESIDENTIAL MORTGAGES
Residential Mortgages for complex cases Here at Precise Mortgages we’re proud to help brokers with complex lending needs as well as those who have been underserved by high street lenders. Whatever their circumstances we have a broad range of specialist lending solutions. RESIDENTIAL AV.
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Publishing Editor Robyn Hall Robyn@mortgageintroducer.com @RobynHall Managing Editor Ryan Fowler Ryan@mortgageintroducer.com @RyanFowlerMI News Editor Ryan Bembridge RyanB@mortgageintroducer.com Reporter Michael Lloyd Michael@mortgageintroducer.com Editorial Director Nia Williams Nia@mortgageintroducer.com @mortgagechat Commercial Director Matt Bond Matt@mortgageintroducer.com Advertising Manager Francesca Ramsey Francesca@mortgageintroducer.com Campaign Manager Joanna Cooney email@example.com Production Editor Felix Blakeston Felix@mortgageintroducer.com Head of Marketing Robyn Ashman RobynA@mortgageintroducer.com Photography Alex Moore Printed & distributed in England by The Magazine Printing Company, using only paper from FSC/PEFC suppliers www.magprint.co.uk
April 2019 Issue 129
MORTGAGE INTRODUCER WeWork c/o Mortgage Introducer, 41 Corsham St, London, N1 6DR Information carried in Mortgage Introducer is checked for accuracy but the views or opinions do not necessarily represent those of Mortgage Introducer Ltd.
FCA fooling around At long last the FCA published its Mortgages Market Study Final Report last month and while recognising that the mortgage market works broadly well it was somewhat concerning that the regulator seems to have the perceived view that the cheapest mortgage is somehow the best mortgage. As qualified mortgage intermediaries you all know that this is simply not the case. Indeed, in many cases the best deal to suit individual circumstances will not always be the cheapest. This aspect of the report, amongst others, was met with a chorus of disapproval from across the industry. Former FCA mortgage manager Lynda Blackwell has hit out at the study for failing to tackle the unhealthy dominance of some lenders and intermediaries. Blackwell, now a consultant at Thistle Dhu, accused her former employers of focusing on obvious targets and using technology and innovation as a ‘catch-all’ to every problem. “The dominance of some lenders and some intermediaries is unhealthy,” she said. “Anyone who has been in the market for any real length of time knows it.” While the report had good news for mortgage prisoners there was little else to commend, with some commentators even suggesting that the regulator was attempting to make a retreat from the principles of its very own Mortgage Market Review. As AMI chief executive Robert Sinclair pointed out, the regulator has at least accepted, for now, the industry view that intervening to help consumers more easily find the right mortgage might slow innovation. It will be for the industry to show that this is working, or the FCA might look to intervene in 2020 to encourage lenders to deliver more of its decisioning data to technology providers to assist in making decisions in principle more certain. You can read more of Sinclair’s analysis of the Mortgages Market Study on pages 4 and 5. Our cover story this month, starting on page 54, looks at the challenges facing the specialist lending market and indeed challenger banks, as margins compress further in a market with too much money chasing too little return. With so little room for lenders to shave any more off price, the move to differentiate on criteria is more than noticeable. The road towards the end of the first half of the year might well be a bumpy one. And that’s without even mentioning Brexit!
4 AMI Review 6 Market Review 8 Self-employed Review 10 Brexit Review 14 Housing Review 16 High Net Worth Review 17 Buy-to-let Review 24 Economy Review 25 Protection Review 32 Equity Release Review 36 General Insurance Review 41 Conveyancing Review 43 Technology Review 48 The Outlaw Go Tiger
50 The Bigger Issue
Thoughts on the Mortgage Market Study
Cammy Amaira and Richard Newton from Tipton and Coseley talk to Ryan Bembridge
Ryan Bembridge analyses the challengers of being a challenger bank in these testing times
63 Loan Introducer
The latest from the second charge market
66 Feature: Second source
Natalie Thomas looks at sourcing in the seconds market
69 Specialist Finance Introducer
Debt issues, business promotion and FIBA
71 The Last Word
Paul Adams from Pepper talks mortgage prisoners
74 The Hall of Fame
Spinning another football yarn
The specialist lender you can bank on The specialist lender you can bank on
Buy to Let Mortgages
Second Charge Loans
Looking back: a study in time The FCA final report of the Mortgages Market Study set out its plans to resolve the issues it identified. It has accepted, for now, the industry view that intervening to promote solutions to assist consumers more easily find the right mortgage might slow innovation. However, it will continue to monitor progress to ensure that solutions under development successfully come to market and work effectively to deliver the best and cheapest mortgages to all consumers. It will be for the industry to show that this is working or the FCA might look to intervene in 2020 to encourage lenders to deliver more of their decisioning data to technology providers to assist in making decisions in principle more certain. Better use of consumer data available from credit reference agencies and open banking should also be meshed into this to deliver better results. The new tool to assist consum-
Robert Sinclair chief executive, Association of Mortgage Intermediaries
ers to find a mortgage broker will be developed by way of an extension to the retirement adviser tool already hosted by the Money Advice Service. AMI will be working with MAS and others in the industry during the rest on 2019 to deliver the specifications for this new system to ensure it works fairly and efficiently for consumers and brokers across the industry. It will be developed within the existing budgets of the new Money and Pensions Service (formerly MAS), will be free to join and all leads resulting will not attract a charge.
The work on trapped borrowers is also welcome and we will also be meeting with the FCA, lender trade bodies and others to try to find a workable solution to this issue. Government is keen for this work to be accelerated and we will ensure that advice and broker options are kept at
the front of deliverable solutions. The revised rules on assessing affordability for existing borrowers will need careful consideration and we will be working on these on your behalf. Finally, once we get more clarity on any Brexit timetable we will seek a new consultation on “Advice”. It appears that some technology firms feel the current interaction rules make it difficult to develop quality solutions. The rules developed out of MMR and the Mortgage Credit Directive legislation give clarity on what is advice and what a consumer needs to know to undertake execution only. We may see a move closer to the post-FAMR world of investments regarding “making a personal recommendation” or “non-advised”. Whilst the headlines which emanated from the report of customers being forced to take advice caused me concern, the narrative recently set out by Sheldon Miles of the FCA is more consistent with our understanding of the market. Where a customer is asking for administrative help, simple explanations or information, this is not ad-
Local knowledge, nationwide We’re focused on supporting you and your clients’ needs. That’s why you have a dedicated Business Development Manager. PLUS, a new team of expert Business Development Advisers in each region, just a call or click away. See all the ways we support you at nationwide-intermediary.co.uk/support Together we’re building society, one home at a time.
For Intermediary use only Nationwide Building Society. Head Office: Nationwide House, Pipers Way, Swindon, Wiltshire, SN38 1NW. Details correct at time of going to print. F1256 (03 2019)
vice. However many firms are deeming all interactions to be ”advised” in order to simplify their processes or reduce their risks. Help from the FCA to better explain the boundaries of their rules will assist firms. This is our expectation from recent discussions.
However should the FCA decide to go further and loosen the boundaries and make execution-only simpler we would expect there to be greater need for clear and balanced warnings of the loss of FOS and FSCS protections for the consumer in going down that route and that new processes should be fully available to be used by intermediaries as well as directly by lenders. We expect most lenders to still want their products to be advised on to ensure that the customer is getting what is right for them. They cannot avoid the suitability issue because by undertaking affordability assessments, the intrusive questioning on which makes most consumers think they have had advice.
Keeping us all busy Following consultation, the FCA has decided to increase the ombudsman service’s award limit to £350,000 for complaints about acts or omissions by firms which take place on or after 1 April 2019. AMI has been discussing with the FCA the difficulties some firms might face in obtaining PII cover in respect of this increase in FOS compensation limits. If your PII cover has a limit (say £150,000) then you will need to obtain new cover or have sufficient capital buffer to cover any shortfall. The FCA has stated that they would expect insurers to deal fairly with these firms and urged any firms unable to secure suitable cover to contact their broker and notify the FCA as soon as possible. Firms should also be aware that on 1 June 2019 Personal Investment Firms (PIFs) have to have PII policies that does not limit cover where the policyholder or a third party is insolvent, or where a person other than the PIF (e.g. the Financial Services Compensation Scheme) makes a claim on the policy.
All of this has come with very short notice as this was a consultation started in October 2018, closing on 21 December which was opposed by the vast majority of respondents. The PR linked to the Policy Statement published on 8 March did not properly set out to firms the potential impacts of the limit changes on their PII cover. Three weeks to implement a policy statement is totally unreasonable where the FCA has not effectively communicated the impacts of changes. It has become clear that this was never a consultation and that it was always the intention to implement. Indeed this has been confirmed in writing. Not in my 30 years of dealing with regulation have I seen such arrogance and lack of empathy towards the firms that the FCA regulates. The statement sets out that it sees no link between the FOS limit and FSCS limits. However, I predict that it will not be long until this view is reversed, but we will be monitoring this closely to hold them to their word.
Soothing anxieties over homeownership Last month we looked at how factors such as house prices, affordability, LTVs and self-build are influencing the lending arena. For this month’s market review let’s focus on the present and future of homeownership.
The quarterly BSA Property Tracker recently found that more than a third (37%) of people cited a lack of job security as a barrier to homeownership, up from 29% in December, which the trade body blamed on Brexit uncertainty. The Tracker also reported that concerns over future falls in property prices had spiked to 29% – up from 16% in March 2018. There is obvious anxiety around the potential future of the UK economy and how Brexit might affect employment figures and house prices. Fewer properties are coming onto the market and homeowners are currently less inclined to move but lenders remain highly competitive in their attempts to attract new buyers and offering attractive rates for those looking to remortgage.
Craig Calder director of intermediaries, Barclays Mortgages
Expectations were relatively low surrounding any major announcements in the Spring Statement affecting the housing market. On a plus note it was good to see the launch of a new £3bn Affordable Homes Guarantee scheme aimed at delivering around 30,000 affordable homes. The government also announced that it will unlock £717m from the Housing Infrastructure Fund to deliver up to 37,000 new homes on sites in West London, Cheshire, Didcot, and Cambridge. Additionally, the Chancellor announced that new homes will be banned from having fossil fuel heating systems from 2025, “delivering lower carbon, and lower fuel bills too” to further emphasise that energy efficiency within new build property remains high on the government agenda. This could have proved to be the
perfect platform for further housing-related initiatives to be introduced. However, whilst there will always be clamours for further measures supporting affordable housing, stamp duty cuts etc, when all is said and done the timing of this was always going to result in a somewhat muted Spring Statement.
Within the Spring Statement the Chancellor celebrated the fact that the proportion of first-time buyers has risen above 50%. This is in no small part due to schemes like Help to Buy – and the government’s plan to restore the dream of homeownership to millions of younger people. Further good news for firsttime buyers emanated from IMLA’s recent Mortgage Market Tracker which found that the first-time buyer mortgage completion rate reached a three-year high in the fourth quarter of 2018. In Q4 89% of first-time buyer mortgage offers were reported to go all the way through to completion, up from 81% in Q3 and 69% three years ago. When commenting on this, Kate Davies, executive director of IMLA, highlighted the significance of intermediaries in this high success rate, especially when helping first-time buyers to navigate the complexities of an increasingly competitive and multifaceted mortgage market. For the record, I couldn’t agree more with these sentiments, and this data demonstrates just how important the advice process is in the modern mortgage market.
For those looking to take the next step onto the housing ladder, research from online estate agent Housesimple found that second steppers need to find an extra £75,388 to move from a flat to a house. This was said to be double the step up in price in 2008, which was £37,225, and the report predicted that second steppers may have to APRIL 2019
find £150,000 to upsize by 2028. On a regional basis, it was reported that second steppers in London need to find £343,134, St Albans (£218,538) and Cambridge (£181,964) to upgrade from a flat to a house. The smallest difference between the cost of a flat and a house was in Durham (£23,318). This shows the premium attached to family homes in certain areas, and just how big the price gap can be for some second steppers looking to make the leap whilst staying within locations such as London and the South East.
This leads onto our last piece of data from Post Office Money which outlined that, despite the number of homeowners making improvements falling by 10% since 2016, the amount spent per home increased by 16% to £14,015. Homeowners were said to have spent £295bn in the last five years renovating their home, with home improvements like garden landscaping and new kitchens having the biggest return on investment. Some three out of five (64%) homeowners were suggested to have made improvements to their homes. In order to fund these renovations, three quarters (74%) of homeowners used their savings to fund their renovation, one in five (18%) used a loan or credit card, while one in 15 (7%) used equity release or mortgages to fund their improvements. This data should make intermediaries eyes light up. Whilst we can’t quantify the actual figures regarding the volume of credit card spending or how many of these respondents were able to potentially remortgage, this data demonstrates just how many potential clients may still be unaware and/or not taking advantage of the highly competitive remortgage deals to fund home improvements – where appropriate. And this is a market which will continue to generate opportunities in Q2. www.mortgageintroducer.com
Understanding the self-employed market Earlier this year the government revealed plans to introduce policy nudges to support retirement saving among the self-employed. According to the government’s own figures, just 14% of the UK’s near five million self-employed workers were saving into a pension in 2016/17 – a dramatic fall from the 30% doing so in 2007/08. It’s an interesting move and one that makes a lot of sense in the context of recent years’ moves towards auto-enrolment into workplace pensions for those in PAYE employment. It is also encouraging to see the government adjust its approach to reflect the changing environment. The rapid growth of self-employment has been a pronounced feature of the UK labour market in recent years. According to the Office for National Statistics, the number of self-employed workers rose from 3.3 million people (12% of the labour force) in 2001 to 4.8 million (15.1% of the labour force) in 2017. Yet, on the ONS’ own admission, there is very little robust data and analysis of the income patterns among the self-employed. What data there is indicates that the increase in self-employment over this period has been driven by those who work on their own, with a partner but no employees. This group now accounts for four million workers in 2016 compared with 2.4 million in 2001. The survey also shows that selfemployment earnings are volatile – unsurprisingly. The survey looked at weekly earnings and also found that, on average, self-employed incomes were lower than employed incomes at around £240 a week compared to £400 a week. For mortgage brokers dealing with self-employed borrowers, these dynamics are par for the course. To pay yourself most tax-efficiently often results in taking a minimum salary income and maximising the amount you take out of the business
Alan Cleary managing director, Precise Mortgages
in dividends. More often than not self-employed earners will also leave significant capital in the business, deliberately so as to minimise gains and tax payable. But the flipside to this strategy is that it hurts affordability assessments considerably. On paper, which is where it matters, selfemployed borrowers cannot afford higher mortgage payments. And yet, as many lenders and most brokers know, this is often not the reality. It can be enormously frustrating for both borrowers in this situation and for their brokers. Common sense should always prevail in the mortgage assessment process, but we all know that sometimes applications get stuck in the system, particularly at larger and more mainstream lenders where this type of specialist business isn’t really what they’re focused on. We have a pricing war in the mainstream market at a time when the base rate has risen because the pool of potential borrowers that fit the more vanilla PAYE profile is not getting any larger. But this is why specialist lenders have chosen to focus on serving these types of borrowers. We have the capacity to under-
write cases on an individual basis if needed and we don’t have blanket terms that prohibit the self-employed from taking a mortgage from us. Interestingly in the mortgage market, private companies and providers have been quicker to step up and adjust to the shifting structural makeup of our workforce in the UK than some other sectors, witness ing the need for policymakers to get involved in how self-employed pensions could be delivered to encourage take up. One of the great advantages of self-employment is flexibility. It is the power to choose how you work, who you work for and when you work. The downside is that this often means lumpy income and unpredictable financial needs and constraints. It is a conundrum for lenders when assessing affordability for the self-employed. The nature of flexible working and therefore changeable income makes it harder to justify lending decisions, particularly where affordability looks stretched or income histories are not as long as they might be. We understand the difficulties faced by the self-employed. We’re already doing our bit to support lending to the self-employed by treating them as individuals and judge each case on its own merits, instead of a blanket one-size-fits-all approach which can often prevent them from getting a mortgage.
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WE USE REAL PEOPLE TO MAKE DECISIONS, NOT JUST CREDIT SCORES. PLUS WE OFFER Â£250 CASHBACK & FREE VALUATIONS. Making it easier for your customers to own homes. Discover a difference Call 0800 111 020 or visit kensingtonmortgages.co.uk Kensington and Kensington Mortgages are trading names of Kensington Mortgage Company Limited. Registered in England & Wales: Company No. 03049877. Registered address: Ascot House, Maidenhead Office Park, Maidenhead SL6 3QQ. Kensington Mortgage Company Limited is authorised and regulated by the Financial Conduct Authority (Firm Reference No. 310336). Some investment mortgage contracts are not regulated by the FCA. THIS INFORMATION IS FOR INTERMEDIARIES ONLY
How businesses can survive economic and political crisis The last month has seen ever greater uncertainty over Brexit with MPs and the government pushed to breaking point. At the time of writing there is no certainty as to whether the UK is headed for the Prime Minister’s Brexit, a softer version of Brexit, a second referendum, a general election or crashing out of the EU without a deal. None of the options on the table commands majority support among MPs and many observers now openly talk about the country facing a constitutional crisis, the like of which we haven’t seen in more than 100 years. The impact of such a constitutional crisis is growing clearer with each day. The UK economy is stalling, while house prices in England recorded their first fall since 2012 in the first three months of this year, according to Nationwide’s latest House Price Index. Forecasting how much worse things may become is almost impossible but if you’re still one of those businesses that hasn’t adequately prepared for the political, economic and fiscal crisis we look certain to face – and you will be far from alone – there are still ways to insulate your business from its worst effects when the crisis does finally unfold.
Cut costs now
If you now find yourself in an economic maelstrom with falling house prices, unemployment rising, businesses collapsing and potential capital controls being put in place by the government, survival is now all that really matters. It might sound obvious but a thorough review of your costs is now the best and quickest way for your business to survive. Reviewing your expenditure honestly, so that you can make a genuine assessment of that which your business can and can’t afford to do is vital. Can the business afford to maintain an office? Should you look to relocate to an office that is smaller in size? Will you have to take some initial pain in
Toby Ryland head of corporate tax, HW Fisher & Company
order to save costs further down the line? Is it worth partnering with an estate agent and moving your business into their office space, not only cutting costs but also feeding leads to each other? Other costs will have to be considered, do you have staff that, in the interests of the survival of your business, you have no choice but to make redundant? Are there IT costs you can scale back? Wherever you can cut costs, now is the time to do it. Leaving such things until the crisis has hit is risky but fairly common for most businesses. The most important thing to do once a crisis has hit is to ensure you are able to limit the damage as much as possible. As always, if your business is suffering financial distress, the earlier you seek help the wider the range of solutions you will be able to access.
“What is your back-up plan if mortgage lenders withdraw products at short notice? If you have a client close to completing on the purchase of their new home and the mortgage lender suddenly withdraws their mortgage deal how are you and they going to manage?” You can’t prepare for everything
One of the few things you can predict in an economic or political crisis is that sudden changes are certain to arise, so you won’t be able to prepare for everything. Should the UK crash out of Europe – and the chances of hard Brexit have been increasing almost daily – the government could impose capital controls while the Bank of England may be forced to raise interest rates to defend Sterling from predatory attacks on the markets. If interest rate hikes were APRIL 2019
sudden and rapid mortgage lenders might be forced to withdraw products would be in response. This is not something that we have seen in the UK since 1992 when Britain crashed out of the European Exchange Rate Mechanism and while the mortgage lending market is far more diverse today than 27 years ago the impact could, for some, be devastating. You would certainly find some clients, particularly those on higher loan-to-value mortgage deals that would find it increasingly difficult to service their mortgage. A hard Brexit might also force some European banks to withdraw from the market. Not all would be so adversely affected. Some European banks, like Banco Santander would retain the right to sell financial products in the UK through wholly owned subsidiaries, in this instance Santander UK. The impact on the lending market of a severe economic crisis caused by Brexit, or frankly anything else, cannot be ignored. So make a list of your most vulnerable clients and warn them in advance. Reviewing your client’s circumstances early will help insulate them from sudden changes too and may prove highly beneficial to your bottom line.
Communicate, communicate, communicate
In the middle of a crisis the best thing you can do so sustain your business is communicate: both for your own benefit and that of your clients. Your clients will want to know that you are prepared for any sudden changes. So you should be talking to your contacts among the mortgage lenders, estate agents, mortgage clubs and packagers and, of course, your clients. What is your back-up plan if mortgage lenders withdraw products at short notice? If you have a client close to completing on the purchase of their new home and the mortgage lender suddenly withdraws their mortgage deal how are you and they going to manage? If you’re in constant communication with your mortgage lender your clients and others in your network you should be able to prepare for any sudden changes. www.mortgageintroducer.com
“Platform does things differently” Sue Beeston, Broker We’re a little bit different from other lenders. We offer expert support with a human touch, and a simple process that’s transparent and fair. In fact, we do things differently every step of the way. We’ve been chatting with brokers to find out what that means to them. “We consider them almost like partners”
“They’re totally transparent”
“Their difference within the market is that they listen”
Peter Atherton, Broker
Jane King, Broker
Neil Stephens, Broker
We bring a human touch
We’re transparent and fair
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We know how precious your time is, so we won’t waste it. If we can’t accept your case, we’ll let you know upfront to avoid any delay. We also endeavour to give you 48 hours’† notice if there are any product rate changes.
Our service is built around you and your needs. In fact, we continuously evolve our processes based on your feedback – which we ask for in real time. It’s why we’ve changed the Declaration Form process, introduced a range of new retention products and launched our product transfer.
We know how much you value good customer service with a personal touch. So we’ve increased the number of people in our support teams, to make sure you always get the best service possible. Better still, we’ll answer your calls on average within 30 seconds.^ That’s why we’ve been voted the No. 1 ‘Best Mortgage Desk Team’ for the third time running.*
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Call 0345 070 1999** to find out more or talk to your BDM.
www.platform.co.uk Lines are open between 9am and 5pm Mon, Tue, Wed & Fri and between 10am and 5pm on Thur. The Co-operative Bank p.l.c. is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority (No.121885). The Co-operative Bank, Platform, smile and Britannia are trading names of The Co-operative Bank p.l.c., P.O. Box 101, 1 Balloon Street, Manchester M60 4EP. Registered in England and Wales No.990937. Credit facilities are provided by The Co-operative Bank p.l.c. and are subject to status and our lending policy. The Bank reserves the right to decline any application for an account or credit facility. The Co-operative Bank p.l.c. subscribes to the Standards of Lending Practice which are monitored by the Lending Standards Board. The Bank reserves the right to change or withdraw the donation arrangement at any time. Centrepoint is a registered charity in England and Wales, No. 292411 ^Calls taken between Jan and Aug 2018 on Lending Policy queries and password resets on 0345 070 1999 were answered on average within 30 seconds. †Product rate changes only. *Voted Best Mortgage Desk team by brokers who have recently placed a case with Platform, in the BVA BDRC survey in September and October 2018. **Calls to 03 numbers cost the same as calls to numbers starting with 01 and 02. Calls may be monitored or recorded for security and training purposes.
The eye of the storm will pass, eventually At the time of writing Theresa May is enduring another day of indicative votes in Parliament, mulling the third failure of her Brexit deal and facing the resignations of several cabinet members whichever path she chooses next. By the time you read this column, the whole situation will be completely different again. Yet, remarkably, in spite of all this chopping and changing, the markets are reasonably resilient. A quick look at the value of the pound and the opinions of various international investment banks reveal that, for currency strategists at least, the pound is undervalued. The pound is volatile, but not unreasonably so. Following such a demonstrative vote against no deal in Parliament in March, the chances of the UK leaving by way of a cliff edge appear to be receding. A longer negotiation period is a mixed blessing for business: it minimises the possibility of an economic shock following a no deal withdrawal, providing reassurance; but, it also prolongs the agony of uncertainty. But again, by the time you read this, the whole situation will no doubt be completely different again. The housing market is undoubtedly quieter on the sales side but even that is not a blanket truth. Certain sectors are feeling the pain more acutely than others as a direct consequence of the uncertainty. However, the longer this uncertainty carries on, ironically, the more apathetic markets and individuals become about it. Life goes on regardless, as it always has. In Britain, we feel that Brexit is a major crisis – domestically, it is fair to say we haven’t seen the like of it in most people’s lifetimes. But in the broader scheme of global politics and economics, Brexit is a sideshow. Trade wars between the US and China, Russian determination to flex its muscle, a eurozone-wide economic
Robin Johnson managing director, Kinleigh Folkard & Hayward Professional Services
slowing, Germany narrowly avoiding recession at last count – these issues are just some of those that global investors are considering. Amidst these more global considerations, Brexit is a lesser consideration. When it boils down to where to keep capital in the world, there remain a number of safehavens in troubled economic times – particularly if your outlook is longer term. London’s prime property market is one of those. The latest results from Hamptons International’s international buyer and seller survey showed that 57% of homes bought in Prime Central London in the second half of 2018 were purchased by an international buyer, the highest level since H2 2012 when it was 58%. The proportion of international buyers rose from 55% in H2 2017 and 39% in H2 2016 following the EU referendum. Pre-EU referendum, international buyers purchased 40% of homes in Prime Central London.
There are a number of factors influencing this, including the pound’s massive drop in value after the referendum. Foreign buyers are getting a lot more property for their money, particularly now following a fall in valuations at the very top end of the market. Prices now look attractive. Employment in the UK has also been remarkably resilient in the face of such political instability, boding well for the economy in the short and medium term. People pay their mortgages when they still have jobs. The drop in business investment could be viewed as more of a yardstick on temperament as a result of uncertainty around Brexit. Indeed, the latest figures from the ONS show a slightly unusual diversion between the two economic measures: the annual growth rate of employment reached a two-year high of 1.5% in January while business investment fell by 3.7% in the year to Q4. Research house Capital Economics argues if there were a Brexit deal (either before or after a short delay), then the removal of uncertainty would make capital investment more appealing relative to labour. “Once uncertainty is removed, the relative cost would become more important too, and the recent rise in wage growth to a 10-year high means labour is more expensive now than for a while,” their economists write. “If we are right in thinking that about half of the business investment ‘lost’ in recent years would come back after a Brexit deal, then business investment may grow by about 6% in 2020.” What’s more if the market is moving at the top end, the overspill may not be that far away. There have been a number of predictions that securing a deal approved by Parliament, enabling an orderly and staged exit from the European Union would leave Britain’s economy benefitting from a Brexit bounce, albeit from the low base we find ourselves with now. It is always hard to have perspective when in the eye of the storm, but worth remembering that this too shall pass, eventually. www.mortgageintroducer.com
Brokers primed to help clients navigate post-Brexit market Even if brokers have defied the Brexit doom and gloom that surrounded their businesses, the coming months will test their resilience and adaptability. Given market uncertainty, it is no surprise that the latest RICS Market Survey reported another drop in new buyer enquiries, agreed sales and instructions for February. A short extension to Article 50 was on the table at the time of going to press, such that some buyers may sit on their hands in Q2 as they wait for greater clarity. Or they might put their plans on hold until next year, concerned that a no-deal Brexit will lead to a recession. The big question is how can brokers continue to drive their business forward in the face of unprecedented political events? Never has innovation and diversification been so important to drive success in a challenging market. You only need to look at Pepper Money’s recent announcement to see where valuable opportunities lie if traditional applicants are few and far between. The non-bank lender increased the value of adverse credit completions by nearly 95% in 2018, compared to the previous year – the bulk of which were from first-time buyers with blips and CCJs on their report. Virgin Money has indicated it too will consider customers with satisfied CCJs and defaults, providing more choice for consumers. Virgin is taking a proactive but sensible approach – naturally applications are still subject to Bank of England stress-test rules. Another example of a lucrative revenue stream is the high-earning contract and selfemployed sector, capable of materially bolstering business and income. Investment in pay-per-click and social media advertising can also drive down cost-per-acquisition, especially for brokers who have not yet undertaken any digital marketing activity. www.mortgageintroducer.com
Rob Clifford director of Stonebridge and chief executive, SDL Mortgage Services
On the subject of interest rates, the Bank of England’s latest reprieve is a timely reminder that borrowing remains extremely affordable, with mortgage repayments generally cheaper than renting. Raising a deposit is also less of a major blockage thanks to the number of 95% LTV mortgages emerging, and the cautious return of 100% LTV products. It is useful to remind potential applicants that a rise in interest rates is predicted later this year, or early next, although we need to refrain from scaremongering. As brokers know, fixed rate deals may feel prudent for some who are concerned about a post-Brexit increase, but any hike is likely to be moderate enough that it will not deter consumers from buying property. While Brexit has dominated the headlines for months, our experience suggests people move (or stay put) for personal, not political reasons, whether it be divorce, relocation or a growing family. Stonebridge completed 20% more mortgages in 2018, compared to the
previous year, and I have every confidence we’ll see another uplift this year. Even if there is a flattening off of purchase transactions, brokers will as usual recover the position with more remortgage and product transfer business, particularly as high volumes of 2-year fixed-rates roll off. Brokers should be primed to reassure anxious clients that most lenders are UK-based banks and building societies, who are rarely exposed to risk in the European markets. The same is true of global banks like Santander and HSBC, which have ring-fenced their UK operations to protect consumers from fallout in the financial markets and other parts of the business. During times of political and economic uncertainty, more customers naturally turn to a trusted broker to guide them in the process, even if they have been confident remortgaging themselves in the past. At Stonebridge, we have doubled our investment in technology development this year in order to make life more efficient and easier for our brokers, even in the absence of industry-wide back-end electronic trading. Whatever happens after Brexit, the housing market will weather the storm as it always does, with mortgage intermediaries at its forefront.
Pricing for risk remains important It’s Spring, traditionally a time of new beginnings and fresh starts. The B-word has done its level best to put paid to any optimism we in the housing market might usually be inclined to feel at this time of year, but I am determined not to be cowed. Contrary to much of the data out there showing the market is in trouble (RICS figures showed the number of homes up for sale dropped to a record low in January) it’s not such a miserable outlook as all that. There are pockets of the market which are supporting activity and one of those is new build. The latest stats from the Ministry of Housing, Communities and Local Government showed on a quarterly basis, new build dwelling starts in England were estimated at 44,740 in the third quarter of 2018, a 12% increase compared to the previous three months and a 12% increase on a year earlier. Completions were estimated at 41,270, no change from the previous quarter and 3% higher than a year ago. Annual new build dwelling starts, meanwhile, totalled 166,400 in the year to September 2018, up by 1% compared with the year to September 2017. During the same period, completions totalled 163,420, an increase of 6% compared with last year. March saw the Chancellor Philip Hammond confirm in the Spring Statement that £3bn will be made available to housing associations in extra borrowing to support the delivery of 30,000 new affordable homes in England. The Chancellor also announced that £717m from the £5.5bn Housing Infrastructure Fund will be used to help ‘unlock’ up to 37,000 homes at sites including Old Oak Common in London, the Oxford-Cambridge Arc and Cheshire. There is a real and growing commitment from the government to support the delivery of new homes. In March Elizabeth Truss, Chief Sec-
Stuart Miller customer director, Newcastle Building Society
retary to the Treasury, outlined the government’s plans for its spending review this year and housing was given a central role. She said: “In 1947 people were paying less than an eighth of their total expenditure on housing – now it’s over a quarter. And people who rent in London are spending half their income on rent. “If we don’t deal with these entrenched barriers, it will undermine people’s faith in our economic model. These barriers cost us all dearly. They block people’s path to success, stopping them getting the education, the job and the home that their efforts deserve.” In response, she confirmed that the government would spend £34bn on housing support over the next year. How this money is assigned will no doubt be revealed in a drip feed of publicity over the coming months,
“Lenders have been good at getting behind the Help to Buy equity loan scheme. There has been less appetite to provide borrowers who used the scheme with competitive remortgage options now that their equity loan interest charges have kicked in” but I would be surprised if much of it was not focused on supporting new building developments. This, together with the extension of the Help to Buy scheme to 2023, should provide a shot of much needed penicillin in the arm of a flagging housing market. But there remains another commitment that is fundamental to ensuring that this support is not wasted. Remortgage. Lenders have been good at getting behind the Help to Buy equity loan scheme, with many competitive mortgage deals made APRIL 2019
available to eligible first-time buyers. There has been less appetite to provide borrowers who used the scheme with competitive remortgage options now that their equity loan interest charges have kicked in. Staircasing these mortgages is proving very difficult, oddly enough not as a result of lenders lacking the will to offer these options to borrowers, but rather the administration of such a refinancing structure has proved too difficult for the powers that be who administrate the Help to Buy equity loan element of the deal. There is also the issue of remortgage on ordinary new builds. In March the House of Commons housing committee called for burdensome leasehold terms to be removed from existing leaseholds in a bid to help around 100,000 homeowners who bought new properties with leases that have seen ground rents spiral. The so-called leasehold scandal could yet prove a very costly problem for the industry to rectify but there is a more immediate situation that we must address. One of the central reasons for the political and public uproar on this subject has been the fact that homeowners in this position have found it hard to remortgage when lenders see how escalating property maintenance costs affect affordability. Credit risk is critical to responsible lending but lenders also have a duty of care to ensure that borrowers are not overpaying on their mortgages because of terms in their leases that could yet prove to mean they were mis-sold their leasehold. The new build premium is another cause for debate when it comes to remortgaging new builds. Figures from the ONS show that in England, average new build property prices hit £305,763 in September 2018 – the most recent data available. The average price on existing resold properties meanwhile was £245,062. Clearly this isn’t an exact comparison, but nonetheless, it serves to underline why lenders are wary. This may be justified, but it shouldn’t mean we pull away from the market altogether, but rather that risk is properly priced. www.mortgageintroducer.com
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Review: High Net Worth
Private equity professionals? It’s complicated... If private equity professionals were to describe their income status on social media it may well read ‘it’s complicated’. When it comes to the most complex of incomes, private equity professionals certainly top the bill. This often very wealthy and business minded set of high net worth individuals (HNWIs) have incomes comprising many layers, not just a bonus but co-investments, ‘carried’ interest and even vesting stock. While private equity professionals might be highly skilled at generating impressive returns for their clients, they are not always as successful when it comes to securing favorable terms for their own mortgage – as many retail lenders struggle with the intricacies of their income. This is where a private bank can help.
er rate of return, or to pay a future tax bill.
Peter Izard business development manager, Investec Private Bank
For some lenders, incorporating a client’s bonus payments into their affordability assessment is challenging enough. So, it is easy to see why, when faced with several additional strands to an income, it can become problematic, especially for a lender which operates a formulaic and fairly rigid approach to assessing affordability. Private equity professionals usually require flexibility in the form or revolving credit or a view on high LTVs in the short-term. Essentially, they wish to capitalise on their future potential earnings in the form of carried interest to live the life they desire today. Such HNWIs may have a vast personal wealth but their money may be tied-up in the ventures they are backing and they may instead prefer to borrow to fund the purchase of property, rather than liquidate their investments. They may even have a cash lump sum readily available to invest in property but choose not to tie it up this way and instead keep it free to invest elsewhere – aiming for a high-
To understand how private banks can help such clients it is important to first understand the make-up of their income. When we speak of ‘carried interest’, this refers to the client’s share of the profits that their funds have generated – equivalent to a performance fee. This fee varies from fund to fund but is usually around 20% of the fund’s profits and is allocated once the investments are realised. This can be between four and seven years after the initial investment was made, according to the British Private Equity & Venture Capital Association, which is when the firm will look to sell, or ‘exit’, their stake. When we refer to carried interest exceeding the client’s basic wage, this is not generally by a mere couple of extra thousands of pounds but can stagger into the millions. Research carried out in 2016 examined the renumeration of private equity professionals in London. It found an associate at a top private equity firm can expect to earn an annual basic salary of between £75,000 - £100,000, with a bonus of around £77,000 - £102,000. Yet their annual carried interest might overshadow both of these and be between £150,000 to £300,000, and the higher up the career ladder they climb, the greater the carried interest has the potential to be. Meanwhile, a principal at a top private equity firm can earn around £125-£200,000 as a basic salary with an additional £250-£720,000 in bonuses but a staggering £2.25m to £7m in carried interest, according to the findings. Even in a relatively small private firm, the research showed a principal can expect to earn up to £2.4m in carried interest, compared to a
base wage of between £110,000 and £150,000.
How private banks can help
Such an income structure can present problems for mortgage lenders, particularly those with an automated underwriting approach. Private banks like ourselves however have years of experience helping private equity professionals and are not deterred by the complexity of their salaries and bonus structure – as some other lenders might be. We were recently able to assist a private equity partner whose income was a mix of salary, bonus and carried interest, all paid in euros. Our client had sold their current residence and was looking to purchase their next. They were in line to receive a large amount of carried interest in the coming months, which they were looking to set aside and draw upon when needed, potentially for a future tax bill or co-investment opportunity. In this case, Investec was able to structure a mortgage in two parts. The first was an interest-only revolving mortgage, which is a flexible facility secured against a client’s primary residence. Unlike a traditional mortgage, it provides freedom to access funds, up to an approved limit, as and when required. Opting for a revolving mortgage allowed our client to draw up to the mortgage limit or pay down as often as they needed to. The second part was a 5-year, fixed-rate mortgage for the remaining amount. Our ability to take a holistic view of the client’s income meant we were able to meet their needs and incorporate their carried interest payments into their mortgage payment profile.
Small but lucrative market
The chances are most mortgage brokers will not come across a private equity professional on a daily basis. Yet if you’re based in London and the South East, or if you have clients that work in the City, such a case may present itself. The market may be small in terms of numbers of borrowers, but deal sizes are usually high and therefore each deal can be highly lucrative.
Appetite, choice and affordability in buy-to-let Although some landlords may be holding off making new purchases, perhaps until the outcome of Brexit is known, there is plenty of interest from existing landlords looking to remortgage with the current rates available in this period of economic uncertainty. Most buy-to-let lending applications are subject to the property meeting a rental calculation. This will determine the amount of lending offered, based on the mortgage interest payment being stressed at a specific rate, to ensure the rental income is more than this amount. Since the PRA regulations in 2017, rental calculations have changed significantly for buy-to-let applications and the way lenders have adopted
Jane Simpson managing director at TBMC
the PRA changes into their rental stress tests varies. For example, the applicant’s tax status or the borrower entity will affect the Interest Coverage Ratio (ICR) – typically 125% for basic rate tax payers and limited company applications; and 145% for higher rate or additional rate tax payers. Product type also affects the rental calculation. The 2-year rates which fall within the PRA regulations are subject to a recommended minimum stress rate of 5.5%. Whereas 5-year fixed rates are not subject to the same restrictions and therefore usually have a more achievable stress rate, often at the pay rate. Some lenders are applying a tiered approach to rental calculations with
higher loan-to-value products carrying a higher stress rate compared with lower leveraged loans. Also, the type of property may affect the rental calculation, with more complex applications having a high ICR applied to them. To add to the complexity of finding a suitable buy-to-let mortgage, some lenders have their own affordability calculators which also factor in other incomings and outgoings for each customer. Other lenders offer a top-slicing facility which factors in additional earned income for applicants who fall short of the rental income requirements. So, it’s a bit of a minefield out there in terms or determining how much a landlord is likely to be able to borrow, depending on a wide range of factors. However, this is also an opportunity for specialist buy-to-let brokers, whose expertise on lending criteria and familiarity with different affordability tests can really add value for their landlord clients.
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Landlords have challenges aplenty to face in 2019 As we enter the second quarter of the year there are still a number of challenges facing landlords which intermediaries should be being aware of. So, let’s take a brief look at three key factors relating to tax, fees and licensing.
Mortgage interest tax relief
Mortgage interest tax relief will continue to be phased out. Landlords are no longer able to deduct all of their finance costs from their property income to arrive at their property profits. They will instead receive a basic rate reduction from their income tax liability for their finance costs. For the 2019–20 tax year, landlords will only be able to deduct 25% of their mortgage interest. And from April 2020, they won’t be able to deduct any.
Lettings fee ban
Landlords and letting agents in England are set to be banned from charging tenants letting fees from 1 June 2019. A ban was first mooted in 2016 and subsequently confirmed in the House of Lords earlier in the year. This means that tenants won’t be charged admin fees on tenancies signed on or after 1 June 2019. Letting fees are already banned in Scotland. While they’re still legal in Wales and Northern Ireland, a ban was put before the Welsh government last June.
Back in October 2018 the rule came into effect that any rental property with five or more people living in two or more households and sharing a kitchen and a toilet will require an HMO licence. The new rules also saw purpose-built flats (where there are one or two flats in the block) brought into the scope of landlord licensing. The move, which affects an estimated 160,000 HMOs, means councils can take further action to crack down on the small minority of
Ying Tan founder and chief executive, Buy to Let Club
landlords renting out sub-standard and overcrowded homes. However, according to a recent article on the Which? website, to date, only a fraction of landlords have sought the proper licenses. In Bournemouth, for example, it has been suggested that just 572 HMO licenses have been issued in the past 12 months, but the council estimates a further 2,000 properties require one. Many landlords still might not be aware that their property falls under an HMO scheme. So, for any purchase or remortgage cases, intermediaries should ensure that clients are aware of the new rules and encourage them to check with the local authority in question if they are in any doubt.
Stamp duty surcharge ruling A story recently emerged of a couple who purchased an investment property successfully challenging payment of the 3% stamp duty surcharge after having to demolish the property due to it being inhabitable. The couple purchased a bungalow in Weston-super-Mare for £200,000 in January 2017. It was subsequently found to have issues with asbestos and central heating. The building was demolished with a new home being built in its place. The ruling made in January by a First Tier Tax Tribunal in Bristol sided with the couple against the HMRC, ruling that they shouldn’t be liable for the surcharge because the property was not fit to live in. Due to the ruling they only had to pay £1,500 in stamp duty rather than £7,500. The implementation of the 3% stamp duty surcharge has proved to be a major talking point over the past few years within the industry and amongst investors, landlords, even homeowners. This certainly proved to be a noteworthy ruling which has piqued the interest of many investors and the legal profession. However, whilst it appears unlikely that this will provide a loophole for vast swathes of investors, this could be a precedent to follow with interest.
Q2 should continue with steady momentum According to the latest figures from UK Finance, buy-to-let mortgage activity remained subdued in January with 5,500 new buy-to-let home purchase mortgages reported, down 1.8% on the corresponding month last year. The data implied that we are still seeing some contraction in the buyto-let sector, due in part to tax and regulatory changes. However, the
“Buy-to-let remains a busy, healthy sector” rate of decline is less than in January 2018, when we saw a 5.1% yearon-year decrease in the number of buy-to-let home purchases. Such business volumes are disappointing but hardly surprising. Although that’s not to suggest lenders are taking their foot off the gas when it comes to innovative new products, criteria enhancements or exclusive/ semi-exclusive product launches. Several lenders have enhanced product ranges for purchase and remortgage purposes across the buy-to-let sector, especially 5-year fixed rates. Lenders are also forming even closer working relationships with distributors, clubs and intermediary partners to offer more manageable access to tranches of business. The buy-to-let sector may not be churning out the business levels of old, but it remains a busy, healthy sector which continues evolving to meet the needs of a variety of landlords, investors and developers whilst relying on intermediary channels to deliver. Q2 should hopefully provide a little more clarity in terms of the UK’s political future and I expect the buyto-let sector to continue its steady forward-momentum over this important period. www.mortgageintroducer.com
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Recharged and back in the game Apparently, ‘all good things come to those who wait’, but when it comes to the mortgage lending business and the ‘wait’ is all about returning to market with your proposition, then I’m not so sure I would go along with this. For Fleet Mortgages, and all our stakeholders, the ‘wait’ over the last three and a half months has seemed (at times) interminable, especially when a number of your peer group during that time have announced they will not be seeking new business, and – perhaps understandably – we were being placed in the same group.
Bob Young chief executive, Fleet Mortgages
That perception of Fleet as a business which would not be returning to lending was incredibly frustrating because a) nothing could have been further from the truth, and b) nothing could be further from the truth. I think that’s a point worth reiterating. However, we also accept that initially we did say we would be back lending by the end of January and I’d like to explain the very good reasons behind why that didn’t happen. At the start of the year, our intention was of course to be back lending quickly and we would be using and utilising existing funding relationships and arrangements to do this. However, our announcement was picked up by a significant number of potential funders who contacted the business and we felt it was incredibly important to explore each one to see if we could secure terms which would allow us to significantly improve our offering to advisers and their buy-to-let clients. In a way – and I think this is a point which is continually overlooked by many in the market and the wider economy – this whole process has shown how highly the UK private rental sector and our buyto-let market is thought of, and the important role it plays in the housing market and the UK economy as a whole. I continue to see article after ar-
ticle bemoaning buy-to-let as an investment, suggesting that the sector is ‘dead’ time and time again, and yet here Fleet Mortgages is, dealing with a significant number of funding enquiries from institutions which have either never funded in this sector before or are looking to do more. Now a lot of this is down to our proposition and our track record over the past four years but there is also a lot to be said for the buy-to-let market in the UK, and the underlying drivers which mean it remains a very strong long-term investment, and of course we have an increasingly professional landlord community who work hard at their businesses, want to add to portfolios, and are able to utilise the tools at their disposal in order to do this. On top, we have lenders like ourselves who are specialists in their field, who focus on quality, and have the ability and experience to put together quality loan books whilst at the same time being profitable operations. This adds up to a lot when you are looking for markets to fund and, as mentioned, it was imperative that we ‘took our time’ in looking at every funder who contacted us in order to pursue the right relationship for Fleet and our stakeholders. Given that these were new rela-
tionships, it has taken longer than we might have anticipated to get to the point where we could relaunch back into the market with a product range and proposition which we believe is incredibly strong. But, earlier this month, that’s exactly what we were able to do, and while our initial tranche of funding is significant, it’s also important to point out that we also have other arrangements in a progressed state which will provide Fleet with further funding lines.
That said, it is good to be back, and this is down to the hard work of so many people at Fleet who gave up weekends and worked long hours to get us to the point of launch. Our project team deserve huge congratulations and the end point is that we have been able to launch back to market with a funding line that will see us complete over £1bn of lending, and – rather importantly – some seriously impressive products including a ‘Limited Edition’ range and enhanced criteria to go along with it. Plus of course, as mentioned, further funding to be brought on line in the future. 2019 clearly did not begin as we would have anticipated, and in a sense, there’s a feeling that our ‘new year’ really does only start now. However, somewhat ironically, this period in our history is redefining our future as a lender and has completely clarified the importance of the buy-to-let market, and the funding support that is available to be active in it, if you’re a specialist with highly experienced staff that writes quality business. Our focus is now on delivering these products to market and ensuring our service levels to our intermediary partners remain high. We, as always, are there to support advisers and we’re looking forward to re-engaging with the market again and to ensuring that buy-tolet clients have a quality, accessible proposition from Fleet Mortgages. It’s good to be back. www.mortgageintroducer.com
How do you solve a problem like… I am sure that you are often faced with problems and challenges to overcome. It might be very simple challenges, such as you’ve run out of coffee, through to your top employee has just resigned, no internet access, to dealing with regulatory changes. Sometimes we might ignore problems – and hope that they somehow go away. Whatever the problem, or challenge, a solution can always be found. And I often rely on quotes from Albert Einstein to help find the solution. For example, Einstein said: “It’s not that I’m so smart, it’s just that I stay with problems longer.” So in other words, stick with it and a solution can be found and these solutions will be found through a little bit of creative thinking. So, how can we use creatively solve such problems?
You may not realise it, but everyone has creative abilities. And when I talk about creative abilities, I am not talking about being artistic, for example, I am talking about developing ideas and solutions. We all have powers of creativity and your brain is already working in many creative ways, you just take it for granted. And most creative thinking is simple ideas, or solutions, that no-one else had thought of.
As an intermediary, you are the ultimate problem solver, so you are doing this already and can use this skill across the business for greater success.
Hard and soft thinking
To do this, the best way is to take a leaf out of Einstein’s book and utilise the power of hard thinking and soft thinking. Hard thinking occurs during the time you deliberately set-aside to fully explore a creative challenge. www.mortgageintroducer.com
Jeff Knight director of marketing, Foundation Home Loans
For Einstein, he would pour over his calculations, covering everything he knew and having deep discussions with his peers. All this involved hard creative effort. And he would spend time on this too. Einstein also appreciated the concept of soft thinking when you consciously set aside the problem and redirect your attention to something else, perhaps enjoyable and relaxing. For Einstein, this was playing the violin or sailing – two things that he loved to do and could disappear while he was doing them.
“Ask the simple question – ‘what do you think?’” Most people will find time to undertake some hard thinking. For example, you may look over website trends, sales data, customer research and actively try to find solutions. Or you will think hard about the next sales drive or advertising campaign. However, I believe more time should be allocated for soft thinking. It is during such times when your unconscious mind continues its thinking and then, without warning, a creative thought, an idea will spring into your conscious mind. You don’t have to suddenly take violin lessons for this to happen, as it may be simply undertaking a different task, travelling home from work, relaxing, playing sport or just being out of the office. Personally, I have generated significantly more creative ideas through soft thinking, but hard thinking is often required to critique these ideas. Some people argue hard thinking is followed by soft thinking, although I believe there is no lead or follower as they are on a perpetual loop working in synergy.
Much of our creativity is deep within our subconscious. Finding this creAPRIL 2019
ativity and accessing it at will, is often easier said than done especially when we are under pressure or have time restraints. Therefore, we need to find time to use soft thinking. It may seem counter-productive to take time out of the office when you are so busy, but you need to be disciplined in order to enhance your soft thinking. Why not give your creative thinking – both hard and soft – a boost. Create time to get out of the office. Go to seminars. Visit exhibitions. Go and see a client. Speak to a colleague and share the problem. Any of these can spark a thought that could make a huge difference to your business and maybe solve a problem you didn’t even realise that you had.
Remember this saying: a problem shared is a problem halved, so don’t think you need to solve everything yourself. Also, people will often say “let me sleep on it.” Well this is the same as soft thinking. Allow your brain to digest the problem and don’t try and solve it there and then. Let your brain do the calculations in the background.
Don’t lose the idea
Your idea or solution could come at any time, particularly when using soft thinking. It could be on your way home from work, watching TV or at the pub. These ideas will pop into your mind when you least expect it to. So write down that idea before it slips back into the subconscious. I often email myself my thoughts or record them on my notes on my phone. I used to phone myself and leave messages – which sounds mad – but find what works for you. And don’t keep ideas to yourself as ideas lead to other ideas. But beware; sharing ideas can also destroy your thought if people don’t get it. So it is much better to talk through the problem, share your solution and ask the simple question – ‘what do you think?’. It will make a big difference to simply sending your idea via email to a colleague. MORTGAGE INTRODUCER
Semi-retired snapper eyeing a semi-detached with his pension? Normal.
54% of all rejected mortgage applicants were turned down for not being â&#x20AC;&#x153;normalâ&#x20AC;?.* But we can often accept a variety of unusual circumstances when others canâ&#x20AC;&#x2122;t, such as no minimum income requirements, allowing a combination of up to 100% pension, dividends, or rental.
Find out how we do things differently.
Lending for the new normal. *All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 2003 adults. Fieldwork was undertaken between 31st May - 25th June 2018. The survey was carried out online. Subject to lending criteria and affordability assessment. For professional intermediary use only.
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Growing and thriving with competition Over the years, lenders have come in for their fair share of stick from the intermediary community – as the saying goes ‘there’s no smoke without fire’ and, let’s be honest here, much of that criticism has often been completely justified. However, there’s another phrase – ‘credit where it’s due’ – and we should be just as willing to throw the bouquets when they get things right, as we are with the brickbats when things take the opposite turn. Part of the reason for the current need for praise is the competition we are seeing right across the sector at the moment. For some lenders however, the intensity of that competition has been too much – in the past few months alone we’ve seen a number not able to keep up with the ‘margin compression’ and product ranges have been withdrawn or doors have been closed to new business. That’s clearly not a positive and we feel for those concerned however, as advisers know only too well, this market can be brutal and when you have such a huge number of lenders, ostensibly fighting for a small share of the market, then it always looked likely there would be casualties. Our belief and understanding is that certain lenders will return however others might not be in such a fortunate position. What this competition though does mean is we’ve seen lenders having to ‘up their game’ in order to secure the volume of business they need to. This has meant a number of trends for the market, not least a diversification away from the so-called ‘mainstream’, a greater degree of flexibility, and a willingness on the part of a number of lenders to look at cases on a far more individual basis than they would previously have done. What this period has also show is the lenders who are not just upping their game but are at the ‘top of their game’ because, certainly when it comes to specialist lending, there can be a rather large difference between those who purport to be spewww.mortgageintroducer.com
Rory Joseph director, JLM Mortgage Services and Sebastian Murphy head of mortgage finance, JLM Mortgage Services
cialist operators and those who have the skills and experience to prove it. The buy-to-let market is a prime example of this, especially when you look at the influx of ‘mainstream’ buy-to-let lenders into the more specialist areas, such as limited company buy-to-let. For example, we’ve been most impressed with the approach of a lender like Foundation which is differentiating itself with its understanding of landlords, how they might wish to use a limited company and the flexibility that should be afforded those active in this market. For instance, cases where an existing limited company owner wants to move a property owned by it into an SPV. Foundation accept that as long as the new company has exactly the same shareholding as the one that owns the property, this can be passed over, meaning no stamp duty is payable. It also accepts company to company deposits where an existing owner wants to use their cash reserves to purchase a property in another limited company they own. Again, the specialists understand and accept this is a completely natural part of the buy-to-let sector – especially in this new era of far greater limited company purchases – while, shall we say, some of the more ‘mainstream’ operators, new to this part of the market, simply won’t accept this.
Other areas which have highlighted the benefits of using a true specialist lender include those individuals who might well have inherited properties/portfolios but currently not have any other sources of income. A number of lenders don’t see this as a barrier should the individual concerned want to capital raise on these properties, while others might not be so accommodating. Again, there appears to be a real disparity in terms of how certain lenders understand risk and deal with it – we’re certainly working with a number of lenders who get this, get how the market has changed, have an appetite to lend, and want to work with businesses like ourselves to understand the type of clients we see and the products they want. Is this innovation? Probably not in the true sense of the word – indeed we’re aware that when the market talks about wanting to see ‘innovation’ they often just want bigger loans at higher LTVs. However, innovation could also be in the way that lenders approach client needs and seek to work and tailor solutions to them. This type of mentality exists in a number of specialists, which is great to see, and it will probably mean they will not just survive the competition but grow and thrive with it. And that’s a positive for all of us.
Reasons to be cheerful, part 2019 I speak to brokers on a regular basis and it helps me to understand the challenges which they and their clients face. Recently, I’ve noticed that some feel downbeat about the future and are wondering whether the current economic and political climate is grinding our industry to a halt. While I understand their caution and anxiety, I also think there are a number of indicators which suggest that there is no need to panic right now.
Anita Arch head of mortgage sales, Saffron Building Society
Reasons for optimism
There is a lot of interesting data available which reveals that things might not be as bad as the headlines make out. In March, the news outlined that the economy staged an unexpected fightback. Although most economists had forecast that growth was out for the count, January revealed that manufacturing and retail sales growth recovered from a weaker end to 2018. The Office for National Statistics reported that monthly GDP growth jumped to 0.5% in January, the biggest rise since December 2016, and was a reversal of the 0.4% drop in the final month of 2018. Economists have now started to predict a stronger growth in the first quarter. The Chief Economist at PwC had this to say about the latest figures: “There are no signs yet that uncertainty over Brexit has pushed the economy as a whole into recession. If an orderly Brexit can be achieved, then the economy should pick up speed again in the second half of this year.”
We all know what uncertainty does to business and consumer spending decisions. But is there a way through all this so that we can thrive and help to give consumers confidence in their decisions? Can brokers and mortgage providers help? Ikujiro Nonaka is a Japanese organisational theorist and in 2008 the Wall Street Journal listed him as one of the
The latest mortgage trends
So how is the mortgage industry faring as Westminster battles to reach some sort of agreement? UK Finance reported positive news at the end of 2018. In November, there were 36,200 new first-time buyer mortgages completed, 6% up on the previous year. With £6bn of new lending in the month, annual lending was up 9%. In January, figures from the Equity Release Council suggested that the
market would reach the £4bn mark in 2018, up from £3.06bn in 2017. This made it the fifth record-breaking year in a row. According to a poll of 100 advisers in the same article, 86% expect the value of the equity release market to increase further in 2019. It would be wrong to proclaim blindly that there is no reason to be cautious in the face of positive indicators. However, it’s also wrong to suggest that the latest political and economic uncertainty is currently grinding everything to the total standstill that many feared.
people most influential on business thinking. He famously had this to say about uncertainty: “In an economy where the only certainty is uncertainty, the one sure source of lasting competitive advantage is knowledge.” Advisers and mortgage providers have to be able to adapt and evolve in an environment where certainty is likely to be scarce for the foreseeable future. However, if all areas of the industry can continue to be a trusted partner to those looking to move home, build a new house or develop their portfolio of buy-to-let properties then the causes of pessimism can be reduced.
The change in people’s attitudes and behaviour over the last five years has been remarkable as the country adapts to austerity and Brexit. Who would have thought that people would feel comfortable taking out a mortgage which would run into their retirement? Could anyone have predicted that people would be taking out a mortgage with income from several different sources when some of those income streams were on fixed term contracts? I think there is still room to be positive if lenders can be flexible and anticipate new trends in the market. At Saffron, we launched our ‘Lending into Retirement’ product precisely because of the growing demand from people in their 50s. We have developed a process to make sure we can analyse, create and adapt products rapidly as we move through uncertain times. We believe that brokers can also continue to thrive as their experience and knowledge will become an invaluable commodity. People with complex income will value a broker’s ability more than ever if they are under pressure and short of time. And, to repeat the wise words of Ikujiro Nonaka, ‘the one sure source of lasting competitive advantage is knowledge.’ www.mortgageintroducer.com
Time for more protection good news stories Once again in recent months we’ve seen the negative stories about declined claims hit the national press. Whenever this happens there’s an outcry within the life insurance industry, asking where all the good news stories are and why the media focus on the small minority of times insurers appear to get things wrong. Fundamentally, this argument is flawed. If you buy a car and drive it happily and without it breaking down for many years, this isn’t an interesting news story. However, if a major car manufacturer has to recall thousands of vehicles because of a potentially dangerous fault with the brakes, it is. Protection policies are no different: customers spend money on our product and expect
head of sales and marketing, UnderwriteMe
it to work. That’s the essence of any transaction – you get what you paid for. So when a customer is in a time of need and doesn’t get what they expected, it’s news worthy. Of course, there are plenty of good rebuttals to those who claim all insurance is a rip off and insurers only look to decline claims: the Association of British Insurers tell us that, in 2017, 97.8% of all PI claims were paid. The odds of having a claim declined are slim. And when they are declined, more often than not the Ombudsman will support the decision of the insurer. In 2017/18, they report that they ruled in favour of the customer in just 14% of life insurance complaints. None of this perfectly reasonable
information is of any comfort to those people who had a claim declined and felt it wasn’t fair; particularly when pressure from a national newspaper encourages the insurer to reverse their decision and pay the claim as happens all too frequently. The onus remains on us, as an industry, to find ways to publish our many good news stories more effectively. Previous industry wide collaborations, such as the 7 Families campaign have had limited but irrefutable success. However, by far the simplest method of spreading our message is by talking to customers at every engagement point possible: when taking a mortgage, opening a savings account, reviewing a pension, or taking general insurance customers are open to the idea of financial security and planning. We must tell our good news stories often and with relevance whenever our customers cross the threshold into the world of financial services.
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Getting to grips with death and taxes Nothing is more certain in life. We’ve all heard the quote. But whilst a certainty, death at least is still a nogo discussion topic for most. This is leading to a serious lack of contingency planning, according to LifeSearch. And while Brits are unlikely to embrace change any time soon, this issue that could be alleviated by simply getting a regular financial MOT, says Peter Chadborn, director of adviser firm Plan Money. LifeSearch’s ‘Let’s get talking’ campaign aims to encourage people to start talking about the difficult things in life with their loved ones so they may better protect them. As part of the campaign, the life insurance broker carried out consumer research that found just over a third (34%) of people say their contingency is their savings. After that, the top response was “nothing” (31%). By age, the situation looks worse with half (50%) of over 55s saying they have no savings in place. One in four (24%) don’t like talking about death. At the same time,
Kevin Carr chief executive, Protection Review and managing director of Carr Consulting & Communications
over a quarter (27%) have been affected by the loss of a loved one whose contingency status was unknown. Of these, around half (48%) have been left with a bill of between £1,000 and £5,000 to cover unforeseen short-term expenses such as funeral bills and outstanding commitments. Tom Baigrie, chief executive of LifeSearch, said: “We know from our front-line work at LifeSearch what the impact – financial, emotional and psychological – of non-communication can mean.” Chadborn added: “It is essential to periodically review financial plans, not only to sense-check they are on track but also to asses any gaps in provision. “A good place to start is the “what if?” questions because this will highlight where contingency is insufficient. The more that family can be involved in discussions, the greater sense of shared responsibility, plus valuable financial education for younger generations.”
Retirement age controversy for IP Policy reviews shouldn’t just be reserved for changes in customer circumstances. They’re simply good practice. Especially when you consider the government changes to retirement age and the potential shortfall facing income protection policyholders. The state pension age (SPA) is currently 65 for men. It’s gradually increasing for women from 60 to 65. By October 2020, it will reach 66 for both men and women. The Government is planning further increases, which will raise the SPA from 66 to 67 between 2026 and 2028. The trouble is the majority of individual and group income protection policies are set up to last until 60 or 65: or rather whatever the SPA was when they took
out the policy. This issue was highlighted in a recent article in the Daily Mail, which reported that “thousands of policies will end before the holders can collect their pensions”. This issue will be hardest felt by women: many potentially facing an income gap – before they can receive their pension – of five or six years. Insurers don’t generally contact customers to update them on changes to government legislation. An ABI spokesperson, quoted in the article, states: “It is important to get expert financial help and to regularly review how changes in your personal circumstances, and any state support, may impact on you and your dependants”.
News in brief • Finance & Technology Research Centre (FTRC) has launched protectionguru.co.uk, a website focusing on product analysis and comparisons, policy condition changes and policy upgrades across life, mortgage protection, critical illness, income protection, business protection and relevant life. • PRIMIS Mortgage Network has added Holloway Friendly to its panel, as well as launching a new marketing portal to help its network brokers grow their mortgage, protection and general insurance business. • Guardian has joined Openwork’s panel of protection advisers, giving its network advisers access to the new insurer’s life and critical illness products. • Canada Life has enhanced its critical illness cover, adding over 30 further conditions and widening some existing definitions. Advance payments are also now available ahead of surgery for a number of procedures. • Aviva has enhanced its online quote and apply process, promising a much quicker facility for advisers to generate quotes and options for clients. • The Exeter has launched a HealthWise app in partnership with Square Health, giving income protection and health insurance members access to core benefits, GP on demand, and a second medical opinion service. • Advisers believe sales of individual income protection could grow by an average of 18% over the next two years, according to research by MetLife UK. • IRESS has seen income protection sales via The Exchange, rise by a record-breaking 50% in Q1 of 2019, compared to the same quarter last year.
A force for good To be fair they’re getWho are the Protection ting better at who they Distributors Group (PDG) grant agencies to and and what’s it all about? The take action by cancelPDG was founded in 2017 ling agencies when apby Tom Baigrie and Lifepropriate. Alongside the Search and has grown to FCA we must look to now include 12 protection providers, networks and intermediary firms, all of Jeff Woods whom have a genuine in- campaigns and DA clubs like our own to drive poor practice out terest in trying to improve propositions of our industry. industry standards for the director, SBG The PDG also has a and a member of benefit of consumers. role in improving cusOne of the topics the the PDG tomer outcomes and will PDG is clear on is wantcontinue to work with ing rid of firms driven by providers to improve short-term commercial interests, without the customer in their service to customers, who mind. I believe there are still too ultimately pay their premiums many firms who don’t make the on a ‘promise’, through initiatives grade. I continue to see the scourge such as the funeral pledge and of firms and lead suppliers who claims charter. One thing I will personally be appear to have little interest in the consumer or creating a sustainable trying to get onto the PDG’s busy agenda is how we help our indusbusiness. try get off the indemnity treadmill. “The PDG will continue Indemnity has its place to help finance a new business to trade or to work with providers invest in its growth, but it should to improve their be a journey and not the destination. service to customers, Indemnity commission certainly has a role and many busiwho ultimately pay nesses would have found it virtheir premiums on tually impossible to get off the ground without it. a ‘promise’, through However, maybe it should be a initiatives such as the given that over time we go on a journey to move from indemnity funeral pledge and to non-indemnity. claims charter” That’s why I’m asking our life providers if they can develop The PDG is working closely with agencies that permit a percentproduct providers, the regulator age of every case to be paid on and other industry bodies to try non-indemnity and a percentage and improve the reputation and on indemnity, which can very professionalism of our industry. gradually be moved towards a toAfter all, we know you can build tal non-indemnity position over a sustainable professional protec- several years to suit the cash flow tion business if you really want to, of a business. Imagine the value of a business and indeed LifeSearch just demonstrated that by celebrating 21 years that in eight to 10 years’ time has an annuity income rather than an in business. But it’s not just the firms that car- indemnity debt? I’m not sure how ry this responsibility, life providers else we stop running… answers on a post card. should too. www.mortgageintroducer.com
Nick Warren understands that you are looking to work with an approachable, adaptable and dependable partner who will look for reasons to say 'Yes' to your proposals. That’s why in uncertain times our book stays open. • Responsive decisions at attractive rates • Flexible funding tailored to individual needs • Loans from the everyday to the extraordinary Nick is one of UTB's Business Development Managers just one of our growing team of Bridging specialists working closely with broker partners across the UK to help them deliver flexible short term loans. T: 020 3862 1002 E: email@example.com
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Avoiding the box ticking mentality The diﬃculties of selling protection insurances to anyone are well documented – almost as much as selling them a mortgage. The latter diﬃcultly is more to do with the slim chances of most young people having the wherewithal to buy a property and therefore need a mortgage to do so. When it comes to insurance however the chances are the arguments about affordability may well come forth – but less convincingly.
Steve Ellis head of risk and protection, Premier Choice Group
The concern raised by our peers in the industry, IFAs is that young people are not dealing with their protection needs soon enough – with or without mortgage needs or wherewithal. In particular, it is the insurance that most suits young people – income protection that is undersold according to 74% of IFAs surveyed by Royal London. It always helps to put the cost of things into perspective – or relative. And the comparison Royal London (RL) makes is going to the gym. Young people do that kind of thing
quite happily – they are young, fit, nothing’s going to stop them so why do they need to pay for an insurance in case they can’t go to work? According to 51% of advisers, affordability is the key obstacle for selling income protection despite the fact that, on average, income protection is cheaper than a monthly gym membership. RL estimates monthly gym membership fees in the UK to be £40.53 while a 30-year-old, nonsmoking male working as an administrative oﬃcer could get £18,000 income protection for full term with a 13-week deferred period for less than £20 a month. The thing is they – admin oﬃcers and their peers – don’t know that and don’t know what income protection is (according to 52% of advisers). What also concerns our IFA friends – 43% of them anyway – is that they are struggling to attract clients under the age of 35. We can all relate to that. But another problem for us all is the diﬃculties that our clients, or potential clients have
in accessing mainstream financial products – and mortgages because of their circumstances. These ‘diﬃcult’ circumstances can be nothing more than how they are employed. The industry is divided. Some 29% of advisers believe the gig economy ‘presents an opportunity to the income protection market and some as a chance to engage with a market that is typically underinsured. Others (28%) see the rise of freelance work as a threat for the industry mostly because the irregularity of work and income could make it harder for clients to commit to spending on protection plans.
Not surprisingly 63% of advisers feel that protection products need to be tailored to fit the needs of the changing lifestyles of consumers. We agree. Arguably many mortgage offerings are the same. Let’s get product providers out of the box ticking mentality – or restriction – and get them exercising some flexibility. See what I did there?
Invisible but debilitating There’s been a lot of talk about people not talking about things. That advert with people looking testy and uncomfortable because they don’t discuss the ‘M’ word. Money apparently, not mortgages in case you’d got excited. A classic is illnesses – or conditions – which brokers may feel uncomfortable discussing with clients. Standard Life has launched a campaign to champion people living with invisible illnesses – in particular that of Endometriosis. It is not targeting brokers particularly but frankly all of us who deal with people and don’t know what they are going through in terms of their health. Arguably that goes for the individual with the condition as well. Understandably it may not be something they want to share but as much as anything that might be because of having to go through long explanations of what the condition is and how it impacts on their life, their work, their ability to work. Endometriosis is a good one – a condition whereby the lining of the uterus grows outside the uterus onto areas such as the ovaries and fallopian tubes. Painful doesn’t touch the description of it. Standard Life working with Endometriosis UK – and the
insurer plans to work with other experts concerning other ‘invisible’ conditions – seeks to encourage more open discussion and understanding of the condition. With this and with other conditions, there are often problems and delays with diagnosis, addressing the needs of the individual in the workplace. If a condition is debilitating – as this one can be – it needs logging and respecting when any financial product that deals with illness, work, or income is being sold. Now I know what you are thinking: I’m advising on mortgages – where am I in this? Well, the more we are informed about these conditions the more we can understand where a client is coming from, the more we can guide them to resources they may not have been aware of attached to insurance products they already hold with enlightened insurers, the more we can join the challenge in fighting their corner with insurers and mortgage providers in making sure they’re getting the support they need. Healthcare intermediaries generally are a little more up to speed at least in knowing what these conditions mean, so always contact your contact in the protection advise world for a steer if you need advice.
APRIL 2019 MORTGAGE INTRODUCER
The protection product devil could be in the detail One of the reasons to be confident about the protection market in general is the number of providers who are looking at entering the mainstream market or who at least are investing in infrastructure to allow for greater demand to be fulfilled. In relation to those entering the market they are, I believe, faced with the dilemma of developing a pricebased offering to compete with those who have developed enough scale to be competitively priced for some time, or a product-based offering with features that make an impact on broker opinion. The feature proposition can be more profitable but perhaps will be a longer burn to profitability as it can take time to get the message across to brokers what the ‘value-add’ features actually add to the proposition. Of course we also are acutely aware that although some would strive to offer a Rolls Royce-type product, not all customers are in a position to pay for it. The role of the adviser therefore becomes even more complicated. As product definitions and options become more complex the learning curve needed to understand what is out in the market becomes greater. Naturally therefore it might be easier to be ‘caught out’ at the recommendation stage, or potentially at the claim stage which can be even worse. At a recent specialist protection event ran by Paradigm Protect, I listened to one of the newer providers to market talking a number of firms through the features of their product, and more importantly pointing out the benefits that were included in the premium – features such as Waiver of Premium, Guaranteed Insurability and Buy back options, all included in the standard Premium, all of which may be extremely valuable benefits especially if there is a partial claim on a policy during its lifetime. www.mortgageintroducer.com
Mike Allison head of protection, Paradigm Mortgage Services
The list of features was of great interest to me as I had recently had a conversation with a broker regarding a claim where buy back would have been perfect but the client could not afford the option at the outset. Affordability in protection is as key if not more so than in any other product within the market – if the client takes out a policy they cannot really afford then the likelihood of cancellation is higher, leaving no benefit whatsoever, which is clearly something neither the adviser or client will want. Statistical data supports the fact that policies with higher premiums have a greater risk of cancellation. So, how do advisers get the recommendation right in this increasingly complicated product arena? While there are tools to help compare product features such as Quality Analyser for brokers to use, and literally hundreds of Paradigm brokers have access to this valuable tool, there is no simple solution. It is sometimes a case where advisers need to go through the detail of products with BDMs or at Specialist Protection workshops, where proper amounts of time are allocated to explore both features and implications in depth. Clearly, it is the role of a quality adviser to point out the risks that may occur in anyone’s daily life and then make recommendations as to how best to manage finances should
any such eventualities occur to their client. Only the client can decide though if it is affordable. In some instances, the clients may have not thought about risks or implications and may not even know products are available to mitigate those risks. Multi Benefit products such as those Paradigm Protect launched this month with Met Life are a prime example where payments can be made if, for example, children suffer broken bones, to help cope with the financial pressure of a parent being off work (incidentally the highest Claim on Child Cover is with them).
“As product definitions and options become more complex the learning curve needed to understand becomes greater” Such products are readily available with little or no initial underwriting and can form valuable cover to parents on a tight budget with a young family. Moving on, it would hardly be a feature column without the word ‘Brexit’ appearing at the moment, but there are some communities where the fear of unemployment for whatever reasons still does exist for many reasons. Again, advisers can be a valuable source of information on the various products available to cover financial losses as a result of unemployment and although the sector was undoubtedly tainted by the PPI mis-selling scandal, the fact remains that these can be valuable and can cover substantial amounts of income in some cases – these should not be forgotten in recommendations to certain workforce sectors in certain locations. There is little doubt that the world of protection is becoming more complex but it also gives opportunities to quality advisers to plug the risk gaps that clients may not have been made aware of.
Review: Equity Release
Needs of over 55s means equity release is here to stay The equity release market has grown substantially over the last few years. In 2018, equity release lending broke through the £4bn barrier – marking a 29% increase on the year before – while the number of equity release products available has more than doubled in the past two years. One of the driving forces behind this huge increase – both in terms of the popularity of equity release and the number of equity release products available – is the increasingly complex needs of homeowners aged 55 and over. Traditionally, equity release has been used by homeowners who find themselves property rich and cash poor in their later years as a way of boosting their retirement income. But now, the reasons why over 55s are turning to equity release are a lot more complex. For example, the fact that people are now living longer than ever – and are healthier in later life than ever before – is having a huge impact on the finances of older generations. Because, not only are older homeowners realising that their cash needs to last a lot longer but it also needs to stretch a lot further too, to fund holidays, clubs, hobbies – once in a lifetime adventures – as well as investment into their properties so they can enjoy their homes for longer. Social changes, such as the rising cost of care in later life and parents providing more support to younger generations, are also both major factors. The latest research from Legal and General suggests that the Bank of Mum and Dad are behind a quarter of all first-time buyer homes and with the average first-time buyer deposit now 94% of the average salary, it is no surprise younger generations are forced to ask family for support. And the market is certainly responding. One in six of those who release equity from their homes
John Phillips operations director, Just Mortgages and Spicerhaart
through equity release then gift the cash to younger generations and the number of homes in England bought with a gift or loan from family or friends broke the £1 million barrier last year. And the mainstream lending market is now launching products that are designed to allow parents and grandparents to help younger people buy their first home. For example, Lloyds recently launched its 100% lend a hand mortgage, which allows FTBs to borrow 100% of the value of the property they are buying as long as the equivalent of 10% of the loan is put into a savings account opened by a relative. The current equity release generation is often re-
“There are around 1.6 million people approaching retirement who have interest-only mortgages that are about to mature”
ferred to as the sandwich generation, because, as well as well as worrying about how they can help fund their children and grandchildren’s first step on the housing ladder, they are also faced with the ever-rising costs of care, both for older parents and themselves. And if savings are insufficient to pay for care, many have no other choice but to unlock the capital tied up in their homes. And let’s not forget that this is also the ‘interest only mortgage’ generation. There are around 1.6 million people approaching retirement who have interest-only mortgages that are about to mature, and many of those borrowers do not have any way of paying that back. Repossession is, and always should be, the last resort, so many are turning to equity release as a solution. And in fact, many of the latest equity release products to enter the market have been specifically designed to offer a solution to older people in this very situation. Just a decade ago, equity release was fairly niche – now it is one of the fastest growing products in the lending market. And as lifestyles change, and the financial needs and wants of over 55s shift, equity release will continue to add real value. There is a huge opportunity for brokers who can offer equity release, as it can offer the solution to a wide range of different financial issues.
Review: Equity Release
Equity release and retirement income This April marks the fourth anniversary of one of the biggest changes to UK pensions policy seen in our lifetimes: the introduction of pension freedoms. While predictions that people would splurge all their pension savings as soon as they reached 55 haven’t been played out, there is evidence that the reforms have significantly changed how and when savers use their pension. And their behaviour indicates that property wealth looks to become an increasingly important source of income. Since April 2015, more than a million over 55s have collectively withdrawn over £23bn from their pensions. But tax receipts from these withdrawals have been much higher than expected, suggesting that savers may be treating their pension pots like a bank account they can draw on regularly – and therefore paying
Alice Watson head of marketing and communications, Canada Life Home Finance
more tax than they need to. This taxation means that many people may reach retirement with their pension savings significantly depleted. On its own, this isn’t necessarily cause for concern. Many will be making these spending decisions now mindful of the implications down the line and planning to budget accordingly. But the other key factor is that we know lots of people underestimate their likely life expectancy. Canada Life research among over 50s shows that, on average, men underestimate how long they will live by almost five years and women by six. So people who have used the pension freedoms to withdraw large sums from their savings risk running out of money. For many, property wealth can help fill the gap. Homeowners aged over 65 hold over £1.6 trillion in
housing equity. While it won’t be suitable for everyone, tapping into this could help many maintain their retirement lifestyle. And it’s clear that people are becoming increasingly comfortable with drawing on property wealth in this way. Indeed, the four years of pension freedoms have coincided with the equity release market growing from £1.38bn in 2014 to a record £3.94bn last year. This does not mean the home finance sector can to complacent. As pension freedoms continue to bed in over the coming years, the challenge for equity release providers and advisers will be to work continually to improve public understanding. The pension freedoms have helped millions kick off their retirement with the lifestyle they want; equity release could help them make sure they end it with the one they want too.
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Review: Equity Release
Downsizing will not be an option for the majority Take a moment and think of what your retirement might look like. Perhaps in a perfect world, it involves you, and your nearest and dearest, living in a little cottage by the sea? After all, this tends to be how most people who are retired live their later years, isn’t it? Not quite. A lucky few might well end up in the retirement of their dreams but as any later life adviser will know, this tends to be the exception to the rule, rather than the rule itself. It’s for this reason that when I hear the word ‘downsizing’ raised by policymakers or supposed informed commentators as some sort of mass solution for older homeowners, I get something of a knot in the stomach. It’s as if the reality of the UK’s housing market, and the potential issues many older homeowners currently face, are completely lost upon them. Take, for instance, someone who might want to downsize, who might want to move closer to family, who might want to make that dream move to the coast – what are they currently up against?
A suitable property
Well, for a start, there’s finding a property that fits both their need and their budget. Maybe they want to move to a bungalow as they have trouble getting up their stairs? How many bungalows are available within their catchment area? Perhaps they’d like to move into a retirement village? Again, are there any close to where they want to be? Do they have bungalows available? As a nation, are our housebuilders building those types of properties in anything like the number that are needed? It’s very doubtful. Then, what are the price of those properties and, rather importantly, what is the cost of moving? The likelihood is that any older person in a larger property might think they have enough equity/money in their home to move to a property which www.mortgageintroducer.com
Stuart Wilson chief executive, AIR Group
is going to be smaller than what they have now. Well, they should probably think again because if they want to move to a popular area, if they want to move into a new-build, if they want to find a property that suits them, then they’re likely to have to pay a high price for it. It’s not beyond the realms of possibility that the smaller house they want is more costly than the larger one they currently have. And that’s just the purchase price, because on top of this you have all the costs of both selling your home and buying a new one, and these are not inconsiderable. Especially if you add into the equation that a considerable number of older homeowners fit the ‘asset rich/cash poor’ bracket like a proverbial glove. Where does this demographic find the money to move? They might have benefited from some considerable increases in house price inflation over the past few decades, but that has played out across the board and across most of the country. And yet, downsizing is purported to be a ‘natural’ option for many older homeowners if we’re led to believe some. Just last month, prior to the Spring Statement, we had a number of commentators once again calling for change to the stamp duty thresholds, many of whom were calling for a cut to stamp duty levels for older homeowners who might wish to downsize but are currently put off by the high levels of tax they would need to shell out to do so. Now, I’m not denying that for a very small proportion of older homeowners this might be the catalyst they need to move – providing of course that they can find the right property in the right area of the right type, as mentioned above. But, for those who might consider that this will free up thousands of thousands of bigger properties for the family market, I would politely suggest that this is mass delusion.
Moving is hard at any age, but consider the stress and pressure it might bring to someone who has lived in a property for most of their life and is upping sticks while needing to move, for example, the collected belongings of 20/30/40 years into a property which is perhaps half the size? Even with all the market issues that need to be faced – prices/quality, etc – there is a lot of emotional baggage to be packed away which is, let’s be frank, more likely to keep an older homeowner in a property rather than see them moving out, so it can be secured by another family.
Overall therefore, if we are looking at downsizing as being some sort of all-encompassing problem solver for the UK housing market, which will free up thousands of larger family homes, while at the same time, moving older homeowners into smaller, retirement-friendly properties, then we truly are deluding ourselves. As is usual with any call for stamp duty change, what it tends to do is help those who were in a position to take advantage in the first place. Just like the first-time buyer stamp duty changes don’t actually help younger buyers get the deposit they need to get on the ladder. They have saved those who were already going to move a bit of money. We really need our policy-makers to have a much broader appreciation of the lot of the older homeowner and how many of them want to stay in their own homes but perhaps need to modify them to reflect the changing lifestyle we all go through as we get older. I’m afraid that, for the vast majority, downsizing is not an option and therefore we need to look at equity release or RIO or mortgages with higher maximum ages in order to help these people fund their retirements and give them the standard of living (and property) they want and need. In an ideal world, we might all be tootling off to the coast when we retire but for the vast majority this is a pipe dream and it would help if policy-makers were more focused on the reality of retirement rather than this.
APRIL 2019 MORTGAGE INTRODUCER
Review: General Insurance
Getting to grips with the latest technoloGI The rate at which technology is changing is truly staggering, the last 20 years has been an era of ‘blink and you’ll miss it’. Things that once seemed revolutionary are now gathering dust in attics. Who can forget how mind-blowing, futuristic and outlandish the original iPhone once seemed. Fast forward to 2019 and, following vast improvements to network infrastructures, the phone is little more than an antiquated brick. Where transferring money once involved taking out your cheque book and waiting days for it to clear, it can now be done instantly at the tap of a finger. Shopping for groceries can be done from the comfort of your home, and streaming services such as Netflix and Amazon Prime mean that we can enjoy the latest blockbusters on demand at any time of day. As fantastic as these technological advancements are, you can’t help but wonder what they mean for our work lives and the industries that we work in. Take General Insurance (GI) for instance. In the past, GI has failed to keep up with the rate of technological change. This meant that systems quickly became outdated, clunky and an all-round pain to use. Where technology was getting quicker, GI was in danger of being left in the dark. However, it would appear that ‘these times are a changing’ now… What’s particularly exciting when it comes to GI (yes, you read that correctly – even GI can be exciting sometimes!) is that systems are becoming quicker and quicker. Previously, there was a collective groan at the mention of GI – there’s now a growing curiosity from advisers who are starting to consider the benefits of selling GI. Question sets used to be something of an interrogation, asking every question under the sun before returning a premium. We’re at a point now where fewer and fewer questions are being asked, with GI Providers using various data sources
David Smith chief innovation officer, Uinsure
to feed information into their systems so that advisers no longer need to answer questions around property types, the number of bedrooms and the year of construction. All of this makes for a much, much better user experience and it saves time for both advisers and their clients. And even more excitingly, we’re coming to a point where it won’t be long before premiums can be returned without any questions being asked. Who’d have predicted that 20 years ago? Interestingly, the price comparison websites still use outdated and lengthy question sets that require customers to know the obscurest details about their locks. When you consider the speed of modern GI systems this represents a huge opportunity for advisers who can save their clients a great deal of time and effort by offering home insurance to them. The usability, and slickness, of
modern GI systems is a world apart from what it was in the past too. Many of you will remember the pain of waiting for a price presentation screen to load or the dread of having to go back and edit a quote. Quotation systems are now seamless, with some returning binding premiums in a matter of seconds. How refreshing it is that you can now obtain quotes for home insurance whilst you’re in the room, or on the phone, to your clients without keeping them waiting for minutes on end for the premium to be returned. As someone who’s worked in the technology sector for several years, it’s incredible to see how much it’s changed and to know that there’s still so much more to come. I can promise you that there’s never been a better time to consider adding GI to your product offering – it’s quicker, and easier, to sell than ever before and can add serious value to your business.
Review: General Insurance
Service, quality, value: Three pillars of the enlightened Earlier this year I wrote about the enlightened broker and I want to expand on what this means. Enlightened brokers don’t sell on price. Being enlightened isn’t about selling at all – it’s not about being incentivised by commission or offering products so cheap they sell themselves. There are three pillars that stand the enlightened out from the crowd.
Service means improving experiences at every touch, providing peace of mind and fostering proactive engagement throughout the lifecycle of the policy rather than just at renewal. Technology is making a massive impact in this regard. Those differentiating themselves have embraced the opportunity afforded by technology to connect with clients more frequently and in more intelligent, informed ways. Work with a provider that harnesses the latest advances in technology to assist you in being nimble – acting faster on product improvements that could benefit your customers – and one that provides real time notifications of customer activity (cancellations, failed direct debits, etc.) to ensure you can respond quickly to issues.
The drawback of assuming clients want the cheapest cover is that you sacrifice quality and service. It’s far better to source quality cover at a price they can afford than simply win their business by sourcing the cheapest option. It’s not sustainable, and could ultimately damage your long-term relationship with the client. At a time when consumer trust in the insurance industry is low, it’s far better to choose quality and service over price. Customers are happy to pay a little more for peace of mind, knowing an adviser has taken the time to get the right cover for their needs. Quality and service over price is also a sound retention stratwww.mortgageintroducer.com
egy, and let’s face it in the switching economy customer retention is also at an all-time low.
Value Paul Thompson founder and chief executive, Cavere Intermediary
The right price is not the same as the cheapest price. Sending clients to aggregators offering introductory deals is a false economy. They’ll likely have to pay additional hidden charges, may suffer should they have to claim, and will need to constantly shop around to sustain the price. I would also point to a perhaps taboo subject when it comes to price, and that is panel. Panels are key selling points for many GI providers, but in reality a panel drives price and churn in just the same way as an aggregator. Allowing insurers to effectively control pricing is dangerous – it’s not good for you, and it’s not good for your clients. When it comes to price the best option is to run a book based on risk pricing. To do this right you need to work with a provider that has strong preferred relationships with insurers, one that has the economies of scale to push boundaries, and get creative to get the right solution at the right price first time, every time – that’s value.
A shining example on making a success of GI Your Mortgage Decisions is a shining example of what an enlightened broker looks like. Like many others they had tried lots of different ways to sell GI in the past but most had failed, the main reason being that they’d tried to apply the same processes they adopt for selling mortgages.
Your Mortgage Decisions did something unusual, they worked with their GI provider to train up a specialist adviser and introduced them to all clients as a free service. The adviser conducts a review of each client’s current cover to ensure it’s appropriate for their needs. If they can save them money for the same cover, or indeed achieve better cover for the same price, then great. But if the client already has the right cover at a better price then they’ve provided added value peace of mind, and a service proposition that differentiates their brand – service, quality, value.
Great service equals selling more and retaining more Come on regulators the time to deal with aggregators is now. Compare the Market was recently the subject of an enquiry which found them to be denying better prices to consumers by preventing insurers from offering deals on rival platforms. Another example that aggregators are working against insurers. Margins are getting thinner, insurers are being forced to offset the introductory offers by charging existing customers more and only those with the deepest pockets are winning. I urge regulators to intervene and put a stop to this race for the bottom – either put an end to
introductory offers, cap like-for-like premium increments at renewal, or make new business and renewal pricing the same. Insurers don’t want these practices and neither do consumers. Consumers are encouraged to switch every year but it’s time consuming and tedious and it’s not necessarily saving them money. A ban on this activity would be good news for brokers. When insurers have their hands untied there’ll be less fluctuation in premiums, less focus on price, and a greater ability to deliver solutions based on service, quality and value. Value is ultimately the only price that counts.
Review: General Insurance
Accidental cover? Do it for your clients This time of year features more bank holiday weekends than any other period and that means it’s peak time for DIY. Whether or not you plan on spending your long weekends sprucing up your home, the spring DIY boom presents an excellent opportunity to talk to your clients about their home insurance cover. All too often, home improvements seem like a constructive way to spend a weekend but can end up creating bad feeling and even financial damage. Research published in The Independent amongst 2,000 adults found that one in six ended up in a row with their other half when decorating or renovating their home and 47% of people found their home makeover “stressful”. As well as arguments, DIY can also result in accidental damage, which can sometimes be costly to rectify, and there is often confusion amongst homeowners as to whether their buildings and contents insurance includes cover for accidental damage. Recent research carried out by Paymentshield in association with YouGov found that 60% of people expect accidental damage to be covered by a standard buildings and contents insurance. However, when it comes to buildings insurance, 16% of people are not covered for accidental damage and 14% don’t know. For contents insurance, 15% of people are not covered for accidental damage and 13% of people don’t know.
sales director, Paymentshield
It’s always easier to start a conversation about topics that are close to someone’s mind and, at this time of year, as millions of Brits start to think about bank holiday weekends full of home improvements, this can be an excellent way to start a conversation about their general insurance cover. Do your clients know whether they are insured for accidental damage and what their policy includes? This approach can be particularly useful for those of your clients who are remortgaging or switching loans with a product transfer – especially if they are releasing equity to fund work around the house. Your clients may enjoy carrying out home improvements, but when it comes to their home insurance, don’t let them do it themselves.
Standard cover or accidental damage?
So, what accidental damage is typically covered as standard, and what requires extra cover? With Paymentshield, for example, clients with buildings insurance already benefit from accidental damage cover to fixed glass, sanitary fittings and underground drains and pipes. While clients with our con-
tents cover are covered for accidental damage to fixed glass, ceramic hobs, televisions, video and audio installations, computer equipment and games consoles. Extended accidental cover then provides additional benefits. With buildings insurance, clients can claim for damage to their home’s fixtures and fittings or any part of the structure, ceilings and decorations – so it’s potentially very useful to cover DIY mishaps. With additional accidental cover on contents insurance your client could claim for damage to contents like sofas, tables and other household furniture. Accidental damage cover is designed to cover unforeseen events, but it doesn’t cover every eventuality. For example, Paymentshield will cover accidental loss or damage as long as the home has not been left unoccupied for more than 60 days in a row. It also doesn’t cover damage caused by wear and tear, depreciation, anything that happens gradually and mechanical or electrical breakdown.
Case study Ash-Lee Michael James was a financial adviser who took his own home insurance with Paymentshield because he knew that he had a five-star Defaqto rated policy should anything go wrong. He soon needed to make a claim when his two-year old son leant a little too heavily against the TV and put a crack right across the screen. “I’d only just got the smudge marks off the telly”, he joked. “And it’s not as though my son knocked it over or anything – it wasn’t so dramatic – he just put his weight against it and that was enough. I was kicking myself at first, because I hadn’t taken out optional accidental damage cover on my policy. It certainly didn’t occur to me to contact the insurance.” It was only when he mentioned it in passing to Paymentshield that Ash-Lee changed his mind. “I was on the phone about one of my clients”, he recalled. “The adviser suggested I double check because they cover some accidental damage as standard. So, I took their advice and called the helpline thinking I had nothing to lose.” It turned out to be a wise decision. Even though he hadn’t taken out the optional accidental damage cover, there was a certain amount of cover included as standard on his policy. Ash-Lee’s broken TV may not have been the most significant claim in today’s market, but it has made him look at home insurance in a completely different light. “People think insurance is something that you rarely use,” he reflected. “But my claim has made me realise that it doesn’t have to be like that. It’s not just about major catastrophes; it’s for everyday issues too – like my broken telly.”
Review: General Insurance
Insuring unoccupied property With rising numbers of commercial properties appearing vacant on our high streets for a number of well publicised reasons, it’s likely that some of your commercial clients will be facing the dilemma of how to adequately insure an unoccupied property. The problem affects residential property too of course; last year the government revealed the number of empty homes in the UK was at its highest level for 20 years. Fire and water damage claims often prove more costly if there’s no one present to spot the problems at an early stage. The threat of break ins, squatters and malicious damage also greatly increases in empty properties; whilst the Legal Aid, Sentencing and Punishment of Offenders Act 2012 made residential squatting an offence, it omitted commercial premises. The lack of routine maintenance to drains, gutters and roofs can take its toll on the integrity of a building, and can lead to further, more serious damage. Unoccupied properties with rights of way can
Geoff Hall chairman, Berkley Alexander
also throw up public liability issues. It is no wonder then that unoccupied property is traditionally viewed as non-standard, because of the higher risk profile. Because of this, premiums tend to be higher and the breadth of cover varies wildly from insurer to insurer with many only offering cover on restricted perils. Cover can cost more for commercial than residential and be harder to source because empty commercial premises are more likely to go unoccupied for a very long time. It’s a complex cover which lends itself well to a broker sale where there’s a need for advice and added value. With Brexit uncertainty, economic uncertainty and the inability for clients to arrange their own cover through online aggregators, there’s a strong chance that the rising trend that we’ve seen for demand of unoccupied property insurance is set to continue for the foreseeable future. All of this adds up to unoccupied property cover being a good bet for brokers in 2019.
Diamonds are Forever According to research from Protect Your Bubble, loved-up Brits are spending an average £1,483 on engagement rings, up by 89% over the previous year. The old-fashioned tradition of spending three month’s salary seems to have gone out of the window, otherwise we’d be spending over £6,000 on average for a ring. However, at £1,483 that’s still a lot of ring to lose or have stolen. One in eight women admitted to having lost or had their ring stolen. Under the “Unspecified Personal Possessions” option of most standard household policies items under £1,500 don’t have to be specified, but the average still means a large proportion of the engaged or married population will have rings well in excess of this figure. As well as making sure that these items are specified and adequately insured, consider the fact that it is also these households with the big sparklers who are more likely to become the High Net Worth households of the future.
Time to get back in the swing of first-time buyers The number of first-time buyers has outpaced the number of remortgages for the first time since 1995 according to figures from ONS. In now well publicised figures, purchases made with Help to Buy came to about 48,000 in 2018, of which 39,000 were first-time buyers. The English Housing Survey found that the proportion of owner occupation in the 35-44 age group had risen to 57% in 2017-18 from 52% the previous year, after a decade of decline. There has also been a modest shift towards mortgaged owners, who accounted for 30% of households in 2017-18, up from 28% in 2016-17. This is of course great news for the first-time buyer market and means mortgage brokers are increasingly dealing with first-time buyers. From an insurance perspective it will mean taking stock of the profile of this customer segment, their GI
needs and wants, as these are likely to differ hugely from those wanting to remortgage. For first-time buyers, price will probably be a governing factor in their
buying habits. Don’t resign yourselves to sending these clients down the aggregator route. They will be well advised to understand the inherent risks of insurance aggregators and the significant benefits of an advised sale to secure quality insurance cover that meets their needs. Simply offering them five star rated products by default though isn’t necessarily the best solution for them and on price alone certainly won’t win them over to the cause. Take time to consider the options – just because a product is two star or three star rated doesn’t mean it isn’t suitable, it just means it offers different levels of cover and may well meet the customer’s needs. Two star or three star cover from the right insurers will be perfectly adequate for some first-time buyer needs and is likely to be at the right price point.
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Delivering the financial certainty that clients want “Please allow me to introduce myself…” No it’s not Mick Jagger – and I’m not about to embark on my own version of Sympathy for the Devil – but instead the new proprietor of this regular monthly column for Mortgage Introducer, one which has been in the very capable hands of Harpal Singh, for the past decade or so. As you are hopefully aware, Harpal is now a ‘former owner’ of Broker Conveyancing following the end of his earn-out period last month and I am now very lucky to be stepping into his shoes formally, albeit with Harpal still in a non-executive role with the business for the foreseeable future.
It’s been something of a whirlwind last few months – getting to know this fantastic business, learning off both Harpal and John Philips, and preparing myself not just for the day when I would become the new MD, but when I would be required to write pieces like this about the conveyancing market. Luckily enough, the mortgage and housing markets have been in my blood for years – mostly in a lender capacity – and while I’ve had to upgrade my understanding specifically on conveyancing, I’m acutely aware of the needs of the broker community, how Broker Conveyancing has serviced them, and how we might continue to do more of the same in the future whilst adding to our support and product offering as the opportunities arise. In that sense, I think I can safely say, I’m starting from the firmest of foundations because the proposition, the products, the service, the staff, the conveyancers we use, are all incredibly strong. That’s clearly testament to the excellence of the previous management team and, safe to say, we will not be seeking to rewww.mortgageintroducer.com
Mark Snape managing director, Broker Conveyancing
invent the wheel in the months and years to come. Instead we might be looking to add a few spokes to it and perhaps up the number of staff who are on hand to service that wheel – perhaps this wheel metaphor has already gone on too long. Anyway, it’s rather exciting to be back writing in the pages of this magazine, albeit in a very different capacity, having appeared a number of times over the years with various other lenders. So, where to begin? How does the market appear in what has been a very eventful first quarter of the year, in more ways than one? Clearly, this has not been your average year. By the time you read this, we might hope to have some sort of ‘Brexit’ clarity? Indeed, if we do not, then who knows how the situation might look. But, what’s happened is that those who can ‘sit on their hands’ – in terms of buying/selling – are continuing to do so. And who can blame them? Given what potentially could be coming over the horizon, I doubt few would be able to categorically (and quite literally) put their mortgage on the outcome.
That said, in other areas of the market we’re seeing strong activity. The number of first-time buyer cases that we are receiving is at an all-time record, and this is because brokers are now more adept and confident to sell the Broker Conveyancing proposition at the same time they sell the best mortgage product. Of course, remortgaging and product transfers continue to lead the way, and there are obviously business opportunities to take off the back of this, not least conveyancing. I’ve read with interest Harpal’s take on ‘free legals’ over the years and it’s hard to disagree with his stance, especially when there is cashback available and especially when advisers are able to offer their clients strong legal representation of their APRIL 2019
own. The ‘free legal’ debacle of a couple of years ago has not – so far – repeated itself but I’m sure every single adviser in the UK would have a tale to tell about a free legal which went wrong and ended up costing a client dear. Why put them, or yourself, through that? We’ve certainly noticed an uptake in advisers taking control of the conveyancing recommendation, and thus taking control of the case to a very large extent. Who, but the adviser, is there to answer all the questions, to chivvy along those who might be dawdling, to drive the case through to ensure it meets the timescales required by the client, etc. That pivotal role played by the adviser cannot be underestimated, and it’s why I believe there has been such an increase in the amount of mortgage business written by the community in recent times.
That control does need to extend to the conveyancing recommendation though, and I know there are still those advisers who may not be inclined to do this. But, again this appears to be changing. We’ve certainly noticed more and more advisers not willing to entrust their clients to a free legal ‘pot’ which could ultimately cause them far more damage than good. In that sense, the years of pushing this message appear to have worked, albeit with the acknowledgement and understanding that ‘free legals’ are never going to go away, simply because lenders appear committed to them. As we move into the rest of 2019 my hope therefore is that advisers continue to grasp the opportunities that exist for them. It’s not the most certain of times but advisers can deliver the financial certainty that clients want, and in the case of conveyancing, they can hand-hold them through a process which many find (at best) difficult to understand and (at worst) baffling. Being the source of the recommendation, being at the heart of the process, and delivering quality advice are never going out of fashion so why not ensure it’s you that does all three? MORTGAGE INTRODUCER
Protecting lives and property is just the start When we think about protection for customers how many of us think beyond Life and GI cover? Yet the number of property transactions that fail and the financial effect it can have, mean we need to reconsider how we can protect customers when cases stall. Research conducted by Quick Move Now, has established that nearly half of all UK property transactions fell through before reaching completion in the last quarter of 2018 - a 20% increase on comparable figures for the previous three months (28.9%). Overall figures for the year revealed a 1% increase in fall-throughs (to 30.6%), with research conducted by the Homeowners Alliance in 2018 estimating that over 300,000 transactions are abandoned each year – a bewildering statistic. The Quick Move research has identified a number of underlying factors, with, 19% to a seller accepting a higher offer once the sale had been agreed and 16% to issues relating to a survey. In addition, a further 13% of fallthroughs were attributed to the failure of a buyer to obtain mortgage funds, 10% to the sluggish progress of a sale, 9% to the collapsing of a chain and 3% to a buyer reducing their offer once an agreement had been reached. However, as the uncertainties surrounding Brexit continue to exact a punishing toll on consumer confidence and the number of property transactions continues to decline, the need for brokers to be proactive and help to minimise the effects of this market malaise has become imperative. Proposals to introduce standard reservation agreements as a means of combating fall-throughs are still at a formative stage at the present time, with significant question marks continuing to surround the level of financial commitment that
chief executive, SortRefer
will be expected from buyers, as well as the extent of any penalty fee that would be incurred by withdrawal from transactions on either side. Moreover, while the housing minister, Heather Wheeler, has announced that the government will look to trial the use of these agreements by the end of the year, it remains unclear at present whether they will be used on a voluntary or mandatory basis. Which is why the growing availability of insurance products and policies designed to protect property customers from the financial risks of transaction breakdowns has been so warmly welcomed by many within the housing industry. Indeed, research conducted by YouGov in 2018 has established that the impact of fall-throughs can cost
“By reimbursing holders for the loss, Home Buyer Protection policies have become an invaluable and cost efficient means for brokers to provide greater peace of mind to their clients” individual participants up to £2,700 on average (or £400m in total per year), with more than one in ten (or 12% of customers) incurring costs of £5,000 or more. Expenses relating to legal or conveyancing services, as well as the costs associated with local searches, property surveys and mortgage lender fees have been widely identified as the primary cause for these losses, with reductions in purchase offers and the growing occurrence of ‘gazumping’ also being highlighted. APRIL 2019
However, by reimbursing holders for the loss, home buyer protection policies have become an invaluable and cost efficient means for brokers to provide greater peace of mind to their clients, while also promoting a wider sense of consumer confidence. Fees, terms and the length of policies will necessarily vary from provider to provider, while restrictions will also apply in some cases. Yet as the competition for properties continues to intensify and stock levels diminish, policies such as these have become an integral part of the property process and should be recommended by brokers as a matter of course. Likewise, the need to recommend the right conveyancer to clients must also be prioritised by brokers if they wish to stall the possibility of losing a property as a result of professional shortcomings or slow service. Research conducted in 2018 by the online conveyancing company, When You Move, has discovered that an alarming 36% of property customers felt the service they had received from their surveyor had been the most dissatisfying part of the transaction process, with 21% saying that they would never use the same conveyancer again. In addition, When You Move also revealed that consumers are experiencing average delays of seven to eight weeks as a result of absentee conveyancers, with one in four said to be away from their office at crucial periods of a transaction. While negative consumer sentiments very often fail to reflect the laborious and time consuming reality of the conveyancing process, there is still a pressing need for brokers to identify and establish working relationships with conveyancers who have a proven track record. I would also recommend that advisers ensure that customers at least know that they can insure against some of the costs of a failed transaction. As the property market continues to navigate this period of turbulence, the need for a wider service offering has also risen proportionately.
Explaining regtech and why it matters so much You have probably heard the term regtech, but may not be sure what it means, why it matters and how it fits with fintech. The term regtech, which stands for Regulatory Technology, was first used in the UK about four years ago. It describes technology which helps banks, financial institutions and other regulated sectors meet the regulatory demands of reporting, monitoring, and managing compliance risks. The idea behind Regtech is that it offers solutions that not only save time and money, but that is far more reliable than manual processes. Regtech in the UK is a booming industry. Almost a third of the 100 businesses in the Regtech 100 are from the UK, and some of the most advanced technology in the regulatory market has been developed in the UK. The growth of regtech in the industry is down to a number of factors but one which cannot be ignored is the support it has received in the UK from the Financial Conduct Authority. The FCA’s SandBox initiative – first launched back in 2015 – gives regtech developers the opportunity to test products and services and delivery of them in a controlled environment, and this has had a hugely positive impact on the rate at which the regtech industry in this country – both in terms of size and innovation – has been able to grow. And in fact, it was so well received that the FCA has now partnered with 29 financial regulators from across the world to launch a global regulatory sandbox. The Global Financial Innovation Network (GFIN) will look to provide a more efficient way for innovative firms to interact with regulators, helping them navigate between countries as they look to scale new ideas. Earlier this year the FCA invited applications last month to any firm www.mortgageintroducer.com
Martin Cheek managing director, SmartSearch
that wants to test innovative financial products, services or business models in a live market environment. And as more and more companies look to move to completely digital models, they regtech will become even more important, as they will need to partner with businesses that can offer digital solutions, including for their regulatory obligations. Plus, as the burden of regulation and compliance increases, it is becoming harder and harder for firms to keep up via manual methods. Electronic platforms and other Regtech solutions can help ease that burden, making it easier for regulated companies to keep up without having to employ more staff to build the technology or processes they need every time the regulatory landscape changes. Currently, KYC and anti-money laundering (AML) solutions make up the bulk of Regtech firms in the UK. AML rules are constantly being updated, and in fact, the most recent change to the fifth Money Laundering Directive actually called for regulated businesses to start using electronic solutions wherever possible in an attempt to move away from manual identity checks. This
is because, with the increasingly sophisticated fake documents now being produced, manual checks can no longer be relied upon. And, its changes like this – which will come into force this year – that will also have a huge impact on the Regtech industry. Businesses are realising that by adopting regtech solutions, they can not only reduce their costs in terms of the number of people needed to do KYC checks and enhanced due diligence, etc, but also in terms of the efficiency of their staff, as instead of wasting time checking false positives, they are able to concentrate on investigated real cases. Companies also find they can increase their revenue by adopting regtech because it allows faster completion of KYC and AML requirements which results in increased competitiveness, customer satisfaction and retention. Regtech is one if the fastest growing industries in the world with funding at record levels. In the first six months of 2018, $2.5bn (USD) was raised – equivalent to 87% of the total’s capital raised by Regtech companies in 2015, 2016 and 2017 combined. So, it is clearly an industry to watch, and with the UK right in the thick of it – investment in UK regtech companies more than doubled between 2014 and 2017 – and predictions are that it could become one of the UK’s most important industries.
The future’s not so very sci-fi any more So much has changed in how we use technology over the past 20 years. In 1999, the idea that we would be able to use a handheld computer by talking to it in the palm of our hands, that satellites would be used to give everyone with a smartphone directions to the corner shop, that we could open computer programmes using touch screens with our finger tips – was science fiction. Today, it’s become so integrated into our lives we simply take it for granted.
managing director, Legal & General Surveying Services
Indeed, there is now plenty of research to support the notion we suffer feelings of loneliness and anxiety if we become separated from it for any length of time. Smart phones feel like an extension of our arms (well, some people’s arms) while the notion of a handwritten shopping list stuck to the fridge with a magnet is anathema for those with an Alexa in the kitchen. The benefits that technology has brought to our lives are clear. But with it has come a host of issues that are still playing out – pressing ones being the quality, accuracy, timing and ownership of data. Scandals involving Cambridge Analytica, Facebook, foreign and domestic influencing of western democratic elections through the careful mining of our personal data have highlighted just how powerful data can be. They have also highlighted how dangerous the abuse of our data can be. Regulation from Europe – the European Payment and Services Directive – and the advent of Open Banking in the UK opened up company access to our personal data just over a year ago. General data protection regulation, everyone’s favourite GDPR, followed in April last year and was designed to give individuals back the ownership of their data. Clearly, governments around the globe have cottoned onto both the advantages and disadvantages that data can offer.
The mortgage and housing markets have been slower than some to adopt newer technology, particularly insofar as improving the customer journey when buying a house is concerned. A recent RICS survey into the future of surveying found that just 36% of surveyors believe their organisation is currently making the most of the technology available today. Meanwhile 79% of enterprise executives agree that companies that do not embrace big data will lose their competitive position and could face extinction, according to a study by consultancy firm Accenture. This feedback from people on the ground reflects how hard it has been and sometimes still is to harness data effectively to do something that improves how the housing market works in a meaningful way. It is a constant work in progress. One need only look at the current lack of eas-
“The benefits that technology has brought to our lives are clear. But with it has come a host of issues that are still playing out – pressing ones being the quality, accuracy, timing and ownership of data” ily available leasehold data to understand something that was once not an issue is now becoming a crucial piece of the property underwriting puzzle. We are moving in the right direction however, helped along particularly by the strides being made by the Land Registry to digitalise their records and processes. Many new apps and software programmes have also launched in the past couple of years and are beginning to collect data in a more useAPRIL 2019
able, consumer friendly, format. From software designed to help valuers manage their schedules and work flows, to task management systems that create and track individuals’ accountability for completing projects – this all creates data that can be harnessed to improve processes for valuers and consequently lenders and customers as well. Photographic records of a property’s condition can be used to augment desktop valuations while management information into how efficiently some valuers work compared to others can also be invaluable when trying to improve productivity.
The key thing to remember about our growing use of data though, is that is shouldn’t be considered a threat to the value of surveyors. Data can provide insight that helps inform our judgements, but those judgements still need to be made by experienced professionals who understand how to interpret them. The major advantage of getting to grips with our data is consistency. So many of the hold-ups in the property valuation, conveyancing and wider transaction process can be put down to human error. Writing an extra zero on a valuation, leaving a required data field blank accidentally, everyday mishaps like these will trigger a post valuation query and slow the entire transaction down. It’s a frustration that lenders and valuers alike know only too well. Consumers meanwhile are left utterly in the dark, not understanding how a simple mortgage valuation can take weeks to resolve. Data and technology can help us to streamline these processes, removing room for inconsistencies such as these. Not only will that remove frustration for lenders and valuers, it also has the power to bring some transparency to the home buying process for consumers. It is a future that is not so very sci-fi anymore. And it will help everyone trying to move home. www.mortgageintroducer.com
Fighting the abuse of digitalisation with its strength “Fraud is the 21st century volume crime.” So said Conor Burns MP, chair of the all-party parliamentary group on financial crime and scamming, last year when CIFAS published its annual report into fraud trends in the UK. The research found the number of identity frauds rose again in 2017, with almost 175,000 cases recorded. Although this was only a 1% increase compared with 2016, it represented a 125% increase compared to 10 years ago. The difference in 2017, according to CIFAS, was that the rise was not down to increases in fraudulent applications for plastic cards and bank accounts, which are the products most frequently targeted by identity fraudsters, but due to targeting of other sectors such as telecoms, online retail and insurance. It’s a real conundrum: digitalisation is double edged. In many ways it is far safer and more secure to transact online. It provides clear lines of communication, a documented and secure paper trail for compliance, and allows firms to securely verify customers’ identities using multiple sources of third party data. But it also removes the interpersonal exchange from a transaction. It’s much harder to commit fraud face to face with someone than it is to hide behind a computer. With more and more people sharing data, transacting, setting up businesses, dating and chatting online the number of cases of fraud committed online is only going to continue to rise. The attraction of growing house prices has done nothing to deter fraudsters from the home-moving market. It’s one reason why secure communication platforms like our own DigitalMove are urgently required. It is a growing problem in property transactions too. HM Land Registry figures show that since 2009 it has prevented 279 fraudulent regwww.mortgageintroducer.com
Steve Goodall chief executive, ULS Technology
istrations with a combined property value of £133.4m. Less favourably, homebuyers lost £25m in the year to April 2017 as a direct result of fraudsters intercepting their money transfer to their solicitor.Stephen Ward, director of strategy at the Council for Licensed Conveyancers, defines transfer scams as where the borrower transfers the deposit of the house they are buying to their solicitor or conveyancer – but the money is intercepted and stolen by a fraudster. According to statistics from the National Fraud Intelligence Bureau, the number of authorised transfer scams targeting the home buying process in March 2016 was more than triple those in March 2015, a number which has continued to rise. The most common way of achieving this has been via email, where scammers hack a solicitor’s systems, allowing them to hijack email and request that clients transfer money to a new set of bank details to an account controlled by them. Once the transfer is made, the account is emptied and closed immediately, shutting down the paper trail to recover the funds. This is a particularly dangerous type of fraud as it falls
“Much is being done, both to raise awareness among consumers of the risks and also by the industry to crack down on the weaker links in the property transaction process that allow scammers to intercede” into the authorised push payment bracket. UK Finance data on show there were 43,875 cases of authorised push payment fraud and total losses of £236m in 2017. According to the Solicitors Regulatory Authority, on average, victims of conveyancing fraud lose £101,000. Things have got so bad, that conAPRIL 2019
sumer group Which raised a super complaint with the Financial Conduct Authority last year, resulting in new rules being announced in December and implemented from the end of January to allow customers to raise complaints with the receiving bank as well as their own bank. Much is being done, both to raise awareness among consumers of the risks and also by the industry to crack down on the weaker links in the property transaction process that allow scammers to intercede. Somewhat ironically, given the rise in fraud due to the shifting of money transfer online, is the fact the digitalisation is part of the answer to this problem. Email is notoriously not secure. A cursory glance at the scam alerts page on the Solicitors Regulatory Authority website is testament to the dominance of email hijacking for solicitors. LinkedIn accounts are also increasingly being falsified and used to gain access to consumers’ trust, persuading them to change bank transfer details at the last minute. Scammers are even capable of setting up ghost sites that mimic a firm’s real site but include fraudulent information or phone numbers for example, resulting in reassurance that any request for a change in account information can be “verified” by the scammers themselves. A closed system is far easier to insulate from criminals. Portals such as DigitalMove not only speed up the home buying process by improving communication and transparency, they are also a powerful tool to protect both the customer and solicitor from falling victim to authorised push payment frauds by restricting communication to within the app. Fraudsters are sophisticated and determined. Digitalisation works in their favour, as many unsuspecting individuals have learned to their cost. Conveyancers must trust their instincts when it comes to protecting clients from attempts such as these, but they must also fight the abuse of digitalisation with the strength it can also offer. The tools are out there. It’s time to use them. MORTGAGE INTRODUCER
EMIRATES OLD TRAFFORD, M16 0PX TO REGISTER VISIT: WWW.FSEMANCHESTER.COM
FINANCIAL SERVICES EXPO
MANCHESTER 15TH MAY 2019
Six simple cyber security steps Despite all the great work by the likes of the National Cyber Security Centre (NCSC) and the National Crime Agency (NCA), there has been no deceleration in the tempo and volume of cyber incidents as criminals devise new ways to harm UK businesses and citizens. Many of these attacks aren’t launched by cyber masterminds. It’s easy for any reasonably tech-savvy individual to buy the tools they would need to launch an attack on businesses of all shapes and sizes. Nearly half of UK businesses have fallen victim to a cyber attack or security breaches in the last year according to government reports. The most common breaches or attacks involved fraudulent emails, attempts by scammers to impersonate the business online, viruses and malware. Given the amount of sensitive data that mortgage intermediaries handle, this is a real business risk that cannot be ignored regardless of how big or small your firm may be. You not only owe it to your customers to take cyber security seriously, but following the implementation of GDPR last year, the financial repercussions of a breach could be costly. There are some simple cyber security steps that you can put in place to mitigate the risk. 1. Use a firewall to secure your internet connection to create a ‘buffer zone’ between your IT network and other external networks. Incoming traffic can then be analysed to find out whether or not it should be allowed onto your network. 2. Choose the most secure settings for your devices and software. Most manufacturers set the default configurations to ‘everything on’ to make them as open and multi-functional as possible. Unfortunately this also makes it easy for cyber criminals to access your data. Check the settings of new software and devices to raise your level of security. 3. Use passwords to protect your devices from desktop and laptop computers to tablets and smartwww.mortgageintroducer.com
Kevin Paterson managing director, Source Insurance
phones – and use them to protect all email and social media accounts. And don’t use passwords such as your birthday or your mum’s name. Use a combination of upper and lower case, numbers and symbols – and change them regularly. 4. Control who has access to your data and services to minimise the potential damage that could be done if an account is misused or stolen. Staff should have just enough access for them to perform their role and extra permissions should only be given to those who need them. 5. Protect your business from viruses and other malware using appropriate defence tools – many of which are usually included within operating systems like Windows and Mac. You should also create a list of applications allowed on a device – any application not on this list will be blocked from running, which can protect you from malware that might be undetectable to anti-virus software. Where possible use versions of the applications that support sandboxing, which can keep your files and other applications beyond the reach of malware. 6. Keep your devices and software up to date by applying the patches that manufacturers and developers regularly release to fix any security vulnerabilities that they’ve discovered as well as adding new features. The NCSC Cyber Essentials website https://www.cyberessentials. ncsc.gov.uk/ and the government’s
CyberAware website https://www. cyberaware.gov.uk/ both have tons of advice and tips to help you protect your organisation against cyber attack. Unfortunately cyber criminals are also targeting your customers directly. Scammers stole £1.2bn from UK bank customers in 2018 while data breaches involving some major brand names including Dixons Carphone, British Airways and Ticketmaster were reported to have resulted in the attempted compromise of around 6.3 million payment card details. When a cyber criminal knows enough about a customer, they can undertake any number of activities to fleece them. We have seen a couple of examples of ID theft when the crook had sufficient data to be able to set up an online policy, then cancel shortly after having retrieved the policy documents to use for, say, ID or address purposes to take out a personal loan that they clearly have no intention of repaying. This was alerted only when the customer called to complain about receiving a cancellation letter for a policy that they had never taken out in the first place. Many of the same security measures that you can apply to a business should be applied to your own personal security such as anti-virus tools, updates and – the easiest of all – secure passwords. Yet research last year revealed that 79% of Brits keep emails in their inboxes providing a wealth of personal information that could be exploited by hackers for ID theft, fraud or impersonation. It is perhaps worth considering a simple communication piece to your clients, assuring them of the security measures that your business is taking to protect the data that you hold about them and at the same time, encouraging them to take some simple steps to protect themselves. Cyber criminals will hack into anyone’s devices any chance they get, let’s not make it easy for them. MORTGAGE INTRODUCER
Review: The The Month Month That That Was Was Review:
Each month month The The Outlaw Outlaw Each draws some some tongue-intongue-indraws cheek parallels parallels between between cheek society at at large large and and aa society mortgage market market in in flux flux mortgage
The Good, The Good, the Bad, the Bad, the Boring the Boring & the Vulgar
& the Vulgar
Right. Thank ***k that’s outta the way for another year (I speak of course of the Christmas TV snorefest and the subsequent dry January. I don’t know which Aprilthe is amore joyous month. much to gush was insipid of Always the two,soespecially as I fell about... thefrom US Masters GolfinTournament, brighter pretty hard the wagon the early hours of 1 evenings, Boris Johnson hopefully unseating the Feb! A disgraceful overdose on Bombay Sapphire. useless Maybot and lenders offering seasonal Live ‘n learn. incentives for Easter homebuyers. The evenings are drawing out, Spring is almost Andair, despite thesix sheer incompetence and duplicity in the it’s only weeks ‘til the US Masters and of our all Chancellor, the transaction economy remains in good we’re back on the treadmill again,nick with employment at the highest level since from 1974 evidenced by confident pronouncements and a record 645,000 new business start-upsof in lenders and the first intermediary acquisition the year. past year. the Which of course featured two long time Furtherstalwarts good news in our specific industry in LSL and PTFS.sector came On the face of it, five million quid appears to be a good deal for LSL although of course watchful punters rarely get to see what is actually under the bonnet in deals of this kind. For sure, some regulatory liabilities and potential provisions might feature but, notwithstanding, my hunch is that the team at LSL will have recovered their initial outlay in under three years and quite possibly two. A clever bloke that Jon Round and whilst it was amusing to read that three celebrated baggies fans in the industry now “controlled over 25% of its distribution” (admittedly tongue-in-cheek, I accept!) that story may have less resonance once / if the Lord’s Shepherd that attempt is Alan Pardew leads their flock into BBC: Nannyist the Championship.
MORTGAGEINTRODUCER INTRODUCER MORTGAGE
APRIL 2019 FEBRUARY 2018
Jon Round: clever bloke
Countrywide: Doing a Pep
The Outlaw actually met Pardew once. He spent most of the conversation looking over my shoulder into a mirror at himself... former players used to call him Chocolate, as Alan apparently loved ‘Pards’ so much that he’d even lick and eat himself. But well done LSL. Back of the net. Cyril style, RIP. Remaining in the waters of estate agency supertankers, it might now take the management at Countrywide a few aeons to turn around their own vessel. It’s not exactly listing but it’s lost some bouyancy of late. The departure of its CEO could surely not have been a surprise to those within the organisation and LSL are certainly doing to Countrywide right now what Guardiola is doing to Moaninho. Hindsight is a facile thing but I take no merit in having remarked at the time that the appointment was a curiously ill-considered one. Executives from other sectors such as Healthcare can indeed sometimes make a difference in financial services. Fresh ideas etc. But more often than not these “retailing and customer-centric” plays don’t work (Andy Hornby, anyone?). Boris Johnson: Estate agency is about a relentless water-on-aHopeful stone approach. It’s unforgiving, uber-competitive and pretty much a hormonal sales-fest. Not a place from Virgin without Money who haveand nowsome joinedcutting the band for anyone tenacity edges. of mainstream lenders willingintothese consider CCJ’d And as is so often the case scenarios, applicants. CYBG become a real player. the individuals whocould originally annointed the ‘David And additionally, our regulator Moyes’ styled appointment havefinally long opined left the that scene some websites were operating on loss of theircomparison misjudgement and without any financial lines which blurred the distinction between giving to themselves incurred. information andIproviding advice. team Not before In any event, wish the actual Countrywide a swift bloody time,as FCA! resurgence there are some talented folk in that Ironically, certain bad news items to thisname month stable (Creffield, Curran and Laker butwere in fact good three) and news! allowing LSL or any other behemoth too Firstslack up, the revelation much is not healthythat for the the online sector.estate agency Emoov was staring intoresults a cashflow Turning to floundering the lenders,and Santander’s didn’t trajectory with but a “short totally sparkle they runway”. nonetheless impressed. They And a similar vein we saw miniscule directors at the share may inhave conceded some market incessantly over-hyped Bricks having to 9 but 2017 was the Purple year when their January explainannouncement why losses haveongone a somewhat different PT’sindomino’d to become directionthe to its price.on giving, and then some. giftshare that kept You see, don’t like or it... admire It’sI quaint isn’t howthese downbusinesses through the much. Too many remind me ofsome the vainglorious years we can recall epic periods madness where of the dot.com bubble a while back. two scuffling lenders went head-toTheir self-promotion has become tiresome and head. nauseous (not unlike our ownbecame sector’s mainstream digital warriors Before buy-to-let and their(and ownthen brand of vacuous customer surveys and went needlessly and regulatory news snippets... onitthat feral underbut themore PRA!) wasshortly). the Birmingham Equally contemptible last month wasThere the BBC’s Midshires versus TMW slugfest. was the highly nannyist attempt at Comic mutual hara-kiri outcome of theRelief. RBS versus HBOS If our and viewer-funded national broadcaster does tear-up we also saw several years of Charcol anything better than spinning garbage propaganda mixing it with London & Country as a duopoly before www.mortgageintroducer.com
about Brexit, then it’s patronising us all with diversityladen guilt messaging about which charities, creeds, colours and causes which we should support. I ask you… the tokenist nuptials in its Four Weddings ‘sequel’ featuring Hugh Grant’s lesbian daughter? This was then followed by its outrageous allegory between modern day Syrian refugees and victims of the Nazi holocaust. The good old BBC. We can not only always rely on its condescension and ability to lecture us but also its ability to bore us silly on all matters of diversity. Witness this month’s ever incisive footie commentary from messrs Shearer and Keown – who rarely tell us anything which we didn’t see with our own eyes!? Accompanied of late of course by the now customary female pundit (who in Alex Scott, rarely says anything I actually disagree with but who also never tells us anything eye-opening or which the equally predictable Shearer or Keown didn’t just tell us!! zzzzzzz). You see… it’s not about a creed, colour or gender Photo: Rwendland bias... it’s simply about a chronic dearth of blimmin expert talent. Anyhow. Let’s finish up with my hopes for the Easter break. Unfortunately Tiger Woods won the Masters. But his Damascan re-emergence of late as a charming and gracious fella should fool nobody. (Go and YouTube his countless rules transgressions and grotesque saliva expulsions!). Second. Let’s hope that the FCA truly consults with us intermediaries on the mortgage prisoner plight and acts fast. The recent loan book sale by UKAR to (an unregulated) Citibank of thousands of
Tiger Woods: Damascan re-emergence
such prisoners was timely and will hopefully focus the regulator’s policy makers. And lastly, do you think there’s any chance that we’ll get to read a piece of PR from either Trussle or Habito which isn’t self-serving tat, itself designed to advance the brands’ click counts and website optimisations? The latest gem came from Trussle, whose (clearly extensive!!!) research suggested that a whopping 18% of buyers felt “forced” to move... because of Brexit! What nonsense. Any chance that we could be told what the sample size was and its demographics? And how was the question asked? Thankfully, there are far more august and better researched firms such as L&G who help to confound this rubbish. Its mortgage desk (based no doubt on thousands of transactions, a sensible sample size and regional forensics) was happy to report that for more than two thirds of homemovers, Brexit played NO PART at all in their thinking. In a near comical parallel we’re back to Tiger Woods’ usual postround press conference aren’t we? “I Alan Shearer: played great Ever incisive commentary and hit some solid shots” (after shooting a 74!). It seems that the good old BBC (and additionally the nation’s digital mortgage executives) live in the same rose-tinted world… one where we the punter can freely interpret news and events pretty clearly for ourselves. But where we are repeatedly invited to accept that others know better. April fools, we most definitely ain’t. I’ll be seein’ ya.
The Bigger Issue
Will the ‘intermediary choice tool’ recommended by the FCA in the
The FCA backed an ‘intermediary When the FCA published its interim report in 2018 we expressed in-principle support for a comparison tool. We said that it should be an independent tool with regulatory oversight, to ensure it was fair and avoided the risk of competitive distortions in the market. We also Paul highlighted unintended conseBroadhead quences that risked disadvantaging head of some brokers if the metrics used, mortgages such as complaint numbers, were and housing, not thought through. Building It’s clear that the FCA still beSocieties lieves there is an element of orderAssociation taking at some firms; it wants to ensure that a range of “The FCA has lenders are considered for each prospective borrower landed in a to ensure that they get the good place most suitable (cheapest?) mortgage. Broadly, the FCA with its final has landed in a good place proposals” with its final proposals, I’m sure due in no small part to the input of brokers, lenders and their respective trade bodies in the working groups. A welcome development in the FCA’s approach. It makes eminent sense that the tool will be hosted by the Single Financial Guidance Body (SFGB) and funded from the existing levy. The SFGB reports that it already has a high number of consumers seeking mortgage information and guidance through its contact centre and website, importantly it is also independent of the industry. I don’t see a substantial risk of it disadvantaging those brokers that are already doing a great job in advising borrowers and helping them to navigate the process. I think it is helpful that it will include the range of lenders that a broker works with too. That said, it remains important to recognise that those brokers that work in a specialist part of the market will have fewer lenders to choose from. It needs to be clear that this is a necessary feature of the market and they should not be disadvantaged. We, alongside other trade bodies will continue to work with the FCA to ensure that the final proposals deliver for consumers without distorting the market.
No, I can’t see the broker search tool proposed by the FCA raising standards amongst intermediaries – I believe those standards are already very high and have been increasing since the Mortgage Market Review. But I do expect the introduction of the tool to increase Richard awareness of mortgage advice Merrett amongst consumers and help to managing demonstrate the importance of director, talking to a broker, and this can large only be a good thing. I also think mortgage it’s a good thing that the regulator loans.com is encouraging brokers to use a broader panel of lenders to best meet the requirements of their clients and has proposed making this information available within the search tool. The industry is full of excellent firms giving great advice, but there remain some brokers who are too blinkered in their view of the solutions available for their clients and restrict themselves to a limited number of lenders. We have always been committed to making use of all of the options available to us for our clients as the best way to deliver good customer outcomes and we believe it’s really “Any tool important to maintain close relationships with a large that raises number of lenders. We have awareness access to a panel of over 200 lenders and last year has to be alone, we placed cases with beneficial” more than 100 lenders. In fact, there were only two lenders on our panel that received more than 8% of our business. I do think that it’s important the search tool proposed by the FCA is not too focused on the rates achieved by customers. The final findings of the Mortgages Market Study continued the theme of the interim report in putting rate as the primary measure of good customer outcomes, but choice and flexibility are often more important factors when selecting the right product for a client. Overall, however, I believe any tool that raises awareness of professional advice and makes that advice more accessible for borrowers has to be beneficial for brokers and the market as a whole.
Mortgages Market Study drive up mortgage broker standards?
choice tool’ for consumers I am all in favour of transparency for clients. No customer should ever feel they have to use the broker they are recommended and giving a customer the tool to make a more informed choice is a positive step. But, whilst in theory the broker Kelly McCabe tool should work, I am concerned managing about the chosen metrics that are director, TMP being proposed. The tool is being The Mortgage introduced to give customers a People really clear view of who they are being recommended to, and to give them easy access to a pool of alternatives, but there needs to be a much broader overview of the firm’s activities to give the “I am sceptical customer enough informaabout the tion on which to make a decision. impact it will I would have welcomed have” complaints as an added measure/ I appreciate that differentiating between service and advice complaints is difficult, but a customer should be given the full picture of who they are choosing. Just because a lender spread looks even, their methods of communication are broad and their advisers are all well qualified, doesn’t mean they are the right firm to use. If the whole industry focussed on getting every aspect of the transaction right, then that itself would make choosing an intermediary a much easier task. Where the tool does seem to redeem itself is with the addition of the broker being able to submit customer feedback or links to review sites – will these have to be verified? Does this tool favour larger firms over smaller, or single person businesses? If firms giving ‘lazy’ advice is an issue, I don’t think that this will be enough to discourage that kind of behaviour. In summary, it could be good, but until there is more detail around what information is going to be publicised, I am sceptical about the impact it will have. But, at the very least, having a comprehensive directory of firms and their contact details would be a win, no matter how small.
The client always comes first for us, so anything that helps consumer choice is a positive move. Comparing objective facts is clear cut; fees, areas of expertise, number of lenders that can be accessed and the concentration of Andrew Turner business placed, are useful to the consumer. The greater challenge is chief how to be objective when handling executive, the subjective areas of the work Commercial involved. Trust What do consumers want from a broker? The best choice of products – if your broker has access to a wide range of lenders, representative of the UK market, then they are able to find the best possible deal aligned with their needs and circumstances. But, having the ability to search an array of lenders is very different to having the capability or even will, to do so. The difference between an average broker and an excellent one, is finding the deal, from amongst hundreds, that is unquestionably the right option for the client. The necessary expertise, market and product knowledge is needed – following on from my previous point, having the ability to access given lenders, does not illustrate a depth of knowledge of them. With over 70 lenders in the buy-to-let space, it is essential to maintain a robust working knowledge of criteria and products to ensure you “The intent of the are securing the right deal for the client. A reputable tool is good” broker – demonstrating the standards implemented within a business is difficult to outline within a comparison tool. Every company’s operations are designed individually; no two are the same. Measuring reputation is therefore very difficult. Excellent customer service – what does this look like to each individual? Clients can view levels of service very differently, based on personal preference. The fundamentals should be a natural part of doing business (punctuality, efficiency, courtesy, clarity etc) but how do you demonstrate those things tangibly? In summary, the intent of the tool is good. The challenge will be to measure subjective factors objectively, for the good of the consumer. We look forward to seeing how this develops. APRIL 2019
Cammy and Newton’s law Last year Tipton & Coseley Building Society hired Cammy Amaira and then enjoyed strong growth. Ryan Bembridge met with Amaira and chief executive Richard Newton Tipton made good progress in 2018, increasing gross mortgage lending by 45% from the year before to £84m. From its headquarters in Tipton, West Midlands, the society has made headlines with products including a 100% loan-to-value mortgage for those with family help, mortgages for the selfemployed and Retirement InterestOnly (RIO) mortgages. As it stands 80% of Tipton’s business is through intermediaries with the remaining 20% going direct, though the broker share will rise to 85% if all goes to plan this year.
The Cammy effect
Tipton hired Cammy Amaira as director of sales and marketing in May 2018 from Family Building Society, where he was head of intermediary sales for just shy of four and a half years. Earlier in his career he was at Intelligent Finance and Mortgage Express. “We were in the market for somebody with a background, knowledge and skills to work in the intermediary market,” says Tipton & Coseley chief executive Richard Newton. “We saw a number of people but as well as his umpteen years in the market he’s tried and tested in the sector. At Family he achieved some strong results and has real credibility. “When we met him face-to-face he was very personable and fit within our team, while he’s got a multitude of contacts within the intermediary market.”
Richard Newton and Cammy Amaira
Her name is RIO
Later life lending, including lending into and in retirement as well as RIOs was a big growth area last year. Tipton was the first society to offer RIOs after entering the market in June, while Amaira has been active in talking to brokers about the society’s attitude towards later life business since coming on board. And as of writing the society is in talks with two equity release brokers so customers can be referred elsewhere if a lifetime mortgage is more suitable than any of its own products.
Tipton is one of few UK lenders to offer a 100% loan-to-value product, marketed as a ‘Family APRIL 2019
Assist mortgage’ – which acts as an alternative to family members gifting deposits. After the range was refreshed in October 2018 the mortgage requires a collateral charge of 20% on a family member’s property. Alternatively, the parent or family member can deposit 20% of the loan value in cash into a Tipton deposit savings account, where they gain a savings rate of 0.2%. The mortgage has a rate of 3.49%. “My wife and I gave our son a cash lump sum to help him with a deposit for a house,” says Amaira. “I will never see that money again! But if I had this product it’s 20% until he remortgages, then that money comes back.” While product take-up has
been modest so far, Newton says only time will tell whether this model takes off once more brokers know about it.
Bed and breakfast
Tipton started accepting applications for second homes and holiday lets where borrowers want to use Airbnb in June last year. “There was always a lot of demand,” says Amaira. “Airbnb doesn’t have the stigma compared to 10 years ago. It’s a growing, reputable market. It made sense.” Customers can only let it out on a short-term basis. The mortgage isn’t underwritten on the rental income, though as Amaira explains, earning extra income is win-win for all involved. “It makes sense for us to allow them to do it because it increases their income and it means the property is occupied more often, so it’s better for the security of the property as well,” he adds. “The reaction has been fantastic. The PR we’ve had from it is good but more important is the reaction from brokers and the enquiries. There’s been a sharp increase in the amount of business we’ve been doing in the second home market.” Newton says he thinks other lenders will inevitably jump on the bandwagon and permit mortgage holders to use Airbnb in future – though for now this is a profitable niche.
Part of the furniture
While Amaira is a relatively new face at Tipton & Coseley, the same can’t be said for Newton. Some 28 years ago he joined the society as a fresh faced 21-year-old, initially as an administrative assistant. His only previous role was at Lloyds Bank, which he joined after leaving school at 16. “While at Lloyds I happened to see an advert for a small building society. The role looked interesting. I came and was successful,” he remembers. “The first day the chief execu-
tive said ‘I’m putting you back on the branch counter network for six months to get an understanding of our customers and what we do’. “That was a bit of a shock for me after doing counter for 12 months at Lloyds and moving on,” he recalls. After working in the customerfacing role Newton moved into back office administration and then mortgage advice – back in the day when there was no internet and mortgage repayment tables were used to calculate the interest rate and costs per year. He tried his hand at marketing in 1998 then when Tipton’s accountant departed Newton took over after being guided through an accountancy qualification. He then moved up to become financial director in 2011 before progressing to chief executive in 2013 after previous CEO Chris Martin retired. “What’s kept me here?” he reflects. “We are an organisation that’s small enough to make a difference. “I felt I could have views the chief executive would take an interest in and not be dismissed, while I’ve had career progression. Suddenly 28 years later here I am.” Newton isn’t the only long serving member of Tipton & Coseley. Richard Groom, head of mortgage sales, is coming up to 25 years at the society. Meanwhile David Cox, head of mortgages, has been there for over 30 years. “Our new employees now look at us and think how long?!” Newton jokes.
When it comes to attracting new business, Newton and Amaira are exploring how they can revisit their existing ranges and add new flexibilities. Last year the minimum age for a buy-to-let was changed from 25 to 21, while the maximum loan value was increased from £350,000 to £500,000. Even if an application doesn’t fit all its criteria Tipton’s manual apAPRIL 2019
proach means in many situations it can make exceptions where appropriate.
This year Tipton plans to complete £100m of gross lending, a slower increase compared to last year – while brokers are at the forefront of making this happen. The society is on the verge of launching a mortgage broker portal, which will allow brokers to complete a decision in principle, submit a KFI or ESIS and then case track. This should build on last year’s launch of an end-to-end paperless mortgage system. The society is already working closely with broker firms who hand it a lot of business by offering them direct access to its underwriters. And Amaira says he will recommend for the board to introduce broker product transfers to bring it in line with the rest of the market.
Expanding Tipton’s reach
While the new purchase market has been dampened down by the uncertainty of Brexit, Newton expects its BDMs to get the society’s name out there more. Tipton has recently changed how its BDM desk operates, upscaling people on its helpdesk to telephone BDMs. Meanwhile the plan is to hire a new BDM in 2019, likely for the South East side of London to go alongside BDMs around London as well as the Midlands. While Tipton currently lends in England and Wales there’s a question of whether it could expand into Scotland, especially given that Amaira grew up in Aberdeen. The pair say it’s on the back burner but may eventually make sense, because there’d be less competition for the areas the society specialises in. It’s clear that with Tipton & Coseley Building Society even in a dampened down market Amaira and Newton are looking to expand its reach, hand-in-hand with brokers. MORTGAGE INTRODUCER
The challenge of being a challenger This year has been a challenging one for some of the mortgage market’s specialist residential lenders. Ryan Bembridge investigates why it’s been a struggle for some It’s been a testing year for specialist lenders, in a market increasingly dominated by a small pool of lenders and dampened down by Brexit uncertainty. We’d barely got over our New Years hangovers when residential lender Secure Trust Bank announced it was exploring whether to stop lending on 7 January. It later confirmed the decision. Then one day later buy-to-let lender Fleet Mortgages withdrew its entire product range owing to a temporary funding issue, though it would later return on 9 April. Parallels were made to 2007 when one lender after another stopped lending and, while that seems wide of the mark, there was more bad news to come. Impaired credit lender Magellan Homeloans was the next casualty of a market widely labelled as ‘challenging’ in March, followed by Bank of Ireland brand AA Mortgages later in the month. Another significant development in March was a merger between Precise Mortgages parent Charter Court Financial Services and OneSavings Bank, which operates via mortgage brands including Kent Reliance. This followed the £1.7bn takeover of Virgin Money by Clydesdale and Yorkshire Bank in October last 2018, as challengers
appear to be consolidating their strength in these hard times.
Magellan was one lender brokers have missed, given that it had competitive rates before pulling out of the market. Ultimately that was part of its problem – its margins were becoming thinner and thinner in a bid to secure business. Matt Gilmour, chief executive, reflects on what went wrong. “Mortgage rates are going down and the cost of funding is going up,” he says. “We’ve observed instances where credit standards are dropping, we think risk isn’t being appropriately priced which in the long run probably is not good. “Do you accept you are going to take lower market share, or do you try and increase it? The only way to do that is lower the price and market standards.” Gilmour says the increased availability of data from tech providers is stoking up competition between lenders – who can look at all the criteria intermediaries are searching for. Magellan’s market exit affected some brokers who had cases in the pipeline with the lender, who then had to start again from scratch. However Gilmour says this was not a kneejerk decision
– discussions were taking place weeks before it happened. This must feel like déjà vu for Gilmour. Before Magellan he was chief executive of sub-prime lender Infinity Mortgages, which withdrew from the market owing to the global financial crisis. “I’ve been overwhelmed by the good wishes,” he adds. “I was there in 2007 when we stopped abruptly and it was completely the opposite. It’s almost like an obituary. People say what they think when you’re dead.”
Battle with the high street
One reason lenders like Magellan have struggled is competition from the high street has become fiercer. Most brokers name high street lender Virgin Money – which could become a major force after the Clydesdale and Yorkshire Bank takeover – as a lender showing more appetite for traditionally specialist business. The lender reviewed its policy on CCJs and defaults in March, announcing that it will consider satisfied CCJs up to £500 and satisfied defaults up to £2,000. However even the ‘big six lenders’ are becoming more flexible regarding CCJs, with the justification being that it’s relatively easy to get a one-off CCJ from a mobile phone company.
“We see a lot of people who have the latest mobile phone and have forgotten to pay the last bill and have a £50 CCJ – that’s not habitual it’s clearly somebody being forgetful,” says Craig Calder, director of mortgage products at Barclays. Mike Jones, Halifax managing director, intermediaries and specialist brands, goes further. “Mortgage lenders are more sympathetic to the treatment of ‘light adverse’ issues,” he says. “Customers may have inadvertently had their credit rating impacted due to mobile phone contracts, and this is being factored into the lending decision. Applications with CCJs are also considered on a case-by-case basis.” While ‘light adverse’ is the key phrase here, this shift in appetite from the high street is something everyone’s noticing. “One or two lenders are doing CCJs that never did – when that’s the case specialists are going to struggle,” Bournemouth-based broker Rob Ashley-Roche of Rest Assured Mortgages says. Aaron Strutt, product and communications manager at London broker Trinity Financial Group, agrees. “Some of the bigger lenders are helping out people with missed credit card payments,” he says. “That’s been gradually eating into the specialist sector and taking the business away from them. A lot of lenders have set up specialist teams to get cases agreed that doesn’t fit criteria.” And Dilpreet Bhagrath, mortgage expert and spokeswoman for online mortgage broker Trussle, add that high street lenders understand that adverse credit can happen to anyone. “They are stepping more into the territory of adverse credit,” she says.
The high street are also doing more for the self-employed and contractors, an area specialist lenders like Kensington traditionally relied upon.
Barclays is currently targeting more contractor business after changing criteria on a pilot basis. Meanwhile Halifax has been known for its flexible attitude towards the self-employed since it started treating all self-employed IT contractors as if they were salaried workers in 2001. “In recent years, there has been a shift in the mortgage market and a greater willingness to lend to self-employed customers versus those on regular monthly incomes,” says Halifax’s Mike Jones. “In the past, mortgage lenders could demonstrate that customers with regular monthly incomes were ‘safer’ to lend to than those who were selfemployed or on irregular monthly incomes. “However with the rise of the gig economy 13% of the UK workforce is made up selfemployed or contract workers – much has now changed. Lenders have adjusted their approach to different employment types.”
The big six
An area of concern for the chasing pack is the oligopoly of the ‘top six’ mortgage lenders: Lloyds Banking Group, Nationwide Building Society, Santander, Royal Bank of Scotland, Barclays and HSBC. As of 2017 they had a 71% share of outstanding mortgage balances, UK Finance data shows, leaving the rest to chase a fraction of the overall market. “They do have quite a stranglehold on the market,” says Lynda Blackwell, the Financial Conduct Authority’s former mortgage manager, who works with lenders and brokers as a consultant at Thistle Dhu. “The new thing is how competitive the market is – we’ve got a super prime market with rates we’ve never seen in the past. That’s having a knock-on effect with the specialists who do not have the same funding power the deposit takers have. The margins are squeezed. It’s tough going I would imagine.” Moneyfacts figures show that APRIL 2019
as of March 2019 the average 2-year fixed rate was just 3.30% to 95% LTV and 2.65% to 90% LTV, down considerably from 5.43% and 4.80% in February 2013. With rock bottom rates, it’s no wonder specialist lenders have found it tough competing. The only way challengers are finding a means of breaking into this oligopoly is through consolidation, as the Virgin Money/ Yorkshire Bank deal makes the combined brands the sixth largest UK bank. The group is currently moving the Clydesdale and Yorkshire Bank retail branches under the Virgin Money umbrella, a process that should be completed by 2021.
Brokers who place complex residential business seem to be using a combination of the high street and specialist lenders. While Kensington and Precise are often spoken about as specialist lenders with significant brand power, different brokers have their favourites. Clayton Shipton, managing director of specialist brokerage CLS Money, says the top lender it currently uses is Nationwide, followed by Bluestone Mortgages, Vida Homeloans and Masthaven Bank. Meanwhile Dilpreet Bhagrath at Trussle says Leeds Building Society, Metro Bank and Accord Mortgages are excellent when it comes to light adverse. Shipton says there’s a lot more automation from high street banks, which can help quicken up the process. Indeed, while the terms ‘bespoke’, ‘tailored’ and ‘manual’ are typically used by credit impaired lenders as a selling point, some brokers prefer the approach from the high street. Broker Rob Ashley-Roche went as far as saying “personally I think specialist lenders aren’t specialist”, as he views the likes of Kensington and Precise as too fussy in terms of their attitude towards assessing criteria. MORTGAGE INTRODUCER
“There’s one payment from a mate and they want a written statement on what that’s all about,” he blasts. “They are just over the top – you go backwards and forwards for seven days.”
Soft and hard footprint
Bhagrath says the growth of soft footprint searches, where brokers can submit indicative applications without affecting a customer’s credit score, has led to brokers trying their luck with prime lenders even if they aren’t 100% sure if the case will go through. Trussle’s brokers are more likely to try and submit applications which are on the borderline with the likes of Halifax, Accord and Metro – as opposed to the likes of NatWest and Nationwide, who do hard searches. Bhagrath still gets frustrated with a lack of transparency in what lenders will or won’t accept, but at least being turned down isn’t detrimental to the customer. She says Trussle will always try to place cases with the cheapest possible lender based on rate and fees over the full term before going for more specialist lenders – highlighting how price-driven the market has become.
You can’t discuss the divide between some lenders and others without looking at how they are funded. (See Tony Ward’s box explaining different funding types). The consensus is lenders that are retail funded, with savings deposits, are better placed to ride out difficult times in the market because they can control the cost and availability of their own funds by adjusting savings rates and balances. Non-bank lenders wholly reliant on the wholesale markets are more vulnerable to a dip in the market, the likes of which we are experiencing now. “If you are reliant on the wholesale markets right now you are going to be having a tough time,” says Alan Cleary, managing director of Precise Mortgages. “They
react to uncertainty – they take fright at uncertainty more than retail deposits. “When times are tough the banks tend to be the ones that keep lending because they use retail deposits.” Matt Gilmour from Magellan, which isn’t a bank, agrees. “The banking model is more robust, long-term and sustainable model,” he says. “I wouldn’t say bank funding is cheaper, but it is a lot less volatile.” Broker Clayton Shipton thinks lenders looking to borrow funds from America are going to struggle at the moment because the pound has been weaker against the dollar since the Brexit vote. “The capital markets are made up of investors and they’ve got alternative places to go,” he says. It’s not just the type of funding, it’s also important to have multiple funding lines in case one lets you down. Indeed, with buy-to-let lender Fleet Mortgages – which paused lending in January before returning three months later – its chief executive Bob Young says: “We relied on one funding line and won’t make that mistake again. Ours is a timing issue. We had our best year last year. It wasn’t that the business was in trouble.” Fleet returned with a long-term funding deal on 9 April, which should see the lender complete over £1bn in new lending.
End of funding schemes
The expiry of the government’s Funding for Lending Scheme (FLS) and Term Funding Scheme (TFS) are likely to increase the cost of funding, which will either be passed onto consumers in the form of higher rates or lenders will see their margins cut. The FLS was introduced in 2012, with the TFS following in August 2016. They were both designed to encourage lenders to lend by supplying them with cheap funds. The TFS allowed lenders to draw down funds tied to the base rate after the Brexit vote, with
the aim of ensuring the base rate cut to 0.25% in April 2016 was passed onto consumers. As of 27 March 2019 £121.4bn worth of loans were made through the TFS, with lenders large and small using the cheap money. While neither scheme is open for drawdown anymore, lenders will be able to benefit from the Term Funding Scheme funding until 2022. After that the cost of funds are likely to rise. “The potential pressure in the marketplace will be around the refunding of the FLS and subsequently TFS,” says Colin Field, chief executive of Saffron Building Society. “Most lenders will have been thinking about this for some time and will have refinancing plans in place, whether it be by retail funding or collateralised funding. “It is likely that the scheduled withdrawal of the cheap Bank of England funding schemes could drive funding rates upwards.”
Food for thought
Given that it has such an impact on lenders’ resilience, some brokers are now taking into consideration how lenders are funded when placing business. For example, Liz Syms, chief executive of Connect Mortgages, points out that, as a broker, she’s now asking lenders about the diversity of their funding lines. “If one is stopped are they done for or do they have others to defer to?” she asks. “When Magellan pulled out of the market you’ve got people weeks and months into the application who can’t receive the offer and have to go from scratch. It means the adviser has to go back to the drawing board. “There’s a risk of the client saying ‘why did you recommend them to me if they are a bit fragile?’ “Advisers should be asking about that security of funding line to make sure they don’t get caught by cases that can’t proceed.” Payam Azadi, director at broker
Niche Advice in London, agrees that funding is in the back of your mind. “We all look at lenders in terms of where they come from and how long they’ve been in the market,” he says. “I wouldn’t say as a broker I won’t go for the best rate because they are a securitisation lender, though you will have funding in the back of your mind.”
Regulation will stop horror shows
Despite the apparent motive for lenders to no longer price for risk, it seems unlikely many will put themselves into deep trouble from this race to the bottom owing to regulatory barriers. “The regulator will stop it,” says Alan Cleary. “It’s not going to be a race to the bottom like in 20057 which is why these guys are finding it almost impossible to get traction.” The Financial Conduct Authority has been a far more active regulator than its predecessor, the Financial Services Authority. Meanwhile international capital requirements from the likes of Basel III mean banks require more capital reserves than in the past. While this broadly seems a good thing, it explains why lenders are so challenged when competition is fierce. “The FCA has an iron fist on sub-prime,” says Bob Young. “That’s put a stranglehold on what the likes of Magellan wanted to do – so they are now fighting in a very small area.” This is a market that has its limits thanks to regulation. Therefore, if there are too many lenders going for a limited amount of business that will surely push some out.
It’s generally agreed that in the past few years refinancing has become pivotal to the market, where new purchases have been dampened down. This is not only due to the destabilising impact of Brexit, but also the changing nature of the
A guide to mortgage lender funding There are many different funding models in use by mortgage lenders but here’s a guide on the main ones: Retail deposits If you like, the mainstay of bank and building society lending. This has risen in importance in recent times and can provide a reliable and resilient source of funding. It is less impacted by external factors such as bond market closures and investors taking fright at Brexit. But it’s not without its challenges: Tony Ward it tends to be shorter duration – typically demand deposits to chief executive, one-year maturity which doesn’t match the 25-year maturity of Home Funding mortgages. Even with shorter-term ‘real life’ mortgage duration of around five years, most deposits will have a shorter duration. And they can be expensive. Right now, as Bank of England subsidised funding schemes fall away and bond markets throw in a few spanners, competition to raise retail deposits will likely push up prices versus base rate. Securitisation/covered bonds This is where mortgages are packaged up and Euro bonds are issued with the mortgages and their security and cash flows being used to secure repayment of the bonds and meet interest payments.This form of funding has been around in Europe for around for more than 30 years and although it can be an excellent source of funding, for example it matches the maturity of the mortgages, it is dependent on investors being ready to invest. As we saw in early January, when investors withdraw their support this funding model either disappears overnight or gets very expensive. ‘Originate to distribute’ Where a lender originates mortgages for another entity. This can be a bank, building society, long-term investor such as a pension fund or pending securitisation. This is less under control of the originator and lender and can lead to sudden closure of funding. Warehouse funding A type of funding provided by banks to temporarily fund mortgages until they are refinanced, usually through a securitisation. P2P Where individuals lend money to other individuals. In this regard, P2P ‘lenders’ are really just arrangers of the loans and managers of the risks on behalf of their funders. Although ‘new’ and ‘Fintech’ the principles aren’t a million miles away from the building society model. This should give comfort that the model can work! Market place lenders These are similar to P2P but where the funder is an institution rather than an individual. The market place is set to grow in that it will see lenders originating loans to the specification of long-term funders. As such, this represents a form of disintermediation in that it takes out the requirement for a securitisation and is set to grow in the UK. Bridging lenders Tend to be relatively short term and funds match this using a mixture of bank debt and private investor funds.
workforce. “The rise in technology means that many employees no longer have to move to be close to their place of work and are likely to move house much less than previously,” says Mike Jones of Halifax. “This is another change to the UK workforce which is resulting in changes in the mortgage market.” Remortgage has been especially strong in the past couple of years. In January 2018 the
number of residential remortgages reached a nine-year high, UK Finance figures show. Meanwhile product transfers account for an estimated £150bn of business per year. Lenders have ramped up their retention strategies, while they have started paying brokers product transfer proc fees which has encouraged intermediaries to engage in product transfers. Worryingly for lenders dealing
with more adverse business, it seems common for customers with a blip on the credit rating to be placed with a specialist lender before remortgaging with a high street lender a couple of years later when their creditworthiness has improved. This means that a market with more remortgage business than new purchase could hit those lenders harder.
Precise and OSB merger
The merger of Precise Mortgages parent Charter Court Financial Services and OneSavings Bank unites two of the UK’s biggest challenger banks in the mortgage market. Precise has been one of the sectors success stories since being established in 2008. The lender has the advantage of being both capital markets and retail funded, while there’s diversification as the lender is in seconds, first and development finance. Adverse credit represents 15% of its lending, with 85% being prime based on the regulator’s definition. OneSavings Bank has similarly benefitted from targeting niches with brands like Kent Reliance (residential and buy-to-let), InterBay Commercial, Heritable Development Finance and Prestige Finance (second charge). They both have people that appeal to intermediaries. OneSavings Bank has sales director Adrian Moloney on board, who has a background at Britannic Money and Nationwide, while Precise Mortgages’ Alan Cleary was well-known before the global financial crisis from his time at BM Solutions, Halifax and sub-prime lender Edeus. Ray Boulger, senior technical manager of John Charcol, thinks the merger is primarily about reducing costs. “With increased regulatory costs and IT costs there is clearly an advantage in having more scale if you are a lender,” he says. “Some of the regulatory requirements are not quite as onerous
if you are a bit bigger. From the consumer and brokers’ point of view it’s always a shame to see two lenders merging because there’s less competition. While they say greater scale allows them to be more competitive personally I would rather have two good lenders to choose from.” Boulger’s only worry from a consumer perspective is if the merged group integrates computer systems, as he hopes they’ve learnt lessons from other lenders on that front. In a challenging market the deal raises the question of whether there could be other mergers between lenders looking to challenge the big players in the market. Alan Cleary of Precise says: “It’s difficult to say, but I wouldn’t be surprised.” Paul Broadhead, head of mortgages and housing at the Building Societies Association, similarly reflects: “To say there wouldn’t be any more would be a brave prediction to make.”
After a number of lenders departed from the market this year a question on many people’s lips is whether others will follow them out of the door. “Many seem to think it’s on the cards. I wouldn’t be surprised if other lenders announced they won’t be playing anymore,” says Alan Cleary. “But that’s fine, we will do it providing we like the risk.” Broadhead says it’s hard to know whether this will happen, though he doesn’t seem worried about building societies. “In terms of track record in 2008-9 when the banks pulled out we continued to lend, and at a higher LTV spectrum,” he says. “That demonstrates the diversity of business model in the market that allows lending to continue through difficult market conditions.” But he adds: “If a society decided to take a step back from the market and decided to stake
a wait and see approach that’s a valid approach. They are about long-term growth. That can be a valid strategy.” Societies have to be at least 50% funded from retail deposits – though in practice many are 70% retail funded. Payam Azadi of Niche Advice fears the loss of more lenders. “We definitely do not want lenders going out of this market,” he says. “It’s healthy competition at the moment. From a broker’s perspective it’s great that we have a lot of choice. “Secure Trust were relatively new in the mortgage sector and that wasn’t a big miss. With AA Mortgages we didn’t deal with them. But with Magellan it’s a shame because their offering evolved dramatically during the last year and they became very competitive.” Azadi urges lenders not to press the panic button in a hurry. “There are lots of things that could be done,” he adds. “You could price yourself out of the market without pulling out of the market. If you feel the funding lines are fragile or there are issues you could reprice your products until you are in a sustainable position.” Ray Boulger is also worried about lenders departing, though he thinks new entrants could replace them. “There are about 20 lenders with banking applications in the pipeline with the FCA,” he says. “The expectation is there are going to be some banks entering into the market. “Even though we have lost a few there are still an appetite from some new lenders to come into the market, perhaps focusing on specialist areas. However It’s going to be hard for any new lender to compete in the high LTV resi market.”
While it’s tough for lenders that are trying to compete in the residential space, there are some areas of the market where they may be able to
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fill a gap and price effectively for risk. Ray Boulger thinks there’s more potential for lending in the later life market, though so far it seems like the much talked about Retirement Interest-Only (RIO) product has barely got off the ground. Indeed, in March the Daily Mail reported that just 112 RIO policies were sold last year. Liz Syms of Connect Mortgages says not enough lenders offer residential mortgages with a commercial element. For example, if the owner wants to run a business from part of the property or grounds or let it out. Nicola Firth, owner and chief executive of criteria search system Knowledge Bank, says self-employed with one year’s accounts is often in the top 10 most searched for criteria, yet with a couple of exceptions this is still the domain of specialist lenders. It’s similar with applicants with debt management plans, CCJs, IVAs and defaults, especially if more recent. Specialists as well as smaller building societies are also better at dealing with customers who missed payments owing to a life event like a divorce. Paul Broadhead reckons the building society sector is already in a relatively strong position owing to the diversification of the UK’s 43 societies which means they generally aren’t reliant on mainstream residential business. Many effectively cater for older borrowers, custom build and shared ownership. “Areas such as self-build, RIO and some more niche buy-tolet areas still command a slight premium in yield,” says Colin Field from The Saffron. But he adds: “It remains necessary for a building society to compete for vanilla owner-occupied lending and buy-to-let to ensure that the mortgage book as a whole remains balanced.”
The MMS misses the mark
After the Mortgages Market Study Final Report was released in March
Lynda Blackwell – who spent 16 years at the FCA – launched stinging criticism of the study, which she feels has ignored some of the issues raised in this piece, that pricing is overly squeezed and many of the UK’s specialist lenders are under pressure from the high street to work on leaner margins. “The dominance of some lenders and some intermediaries is unhealthy – anyone who has been in the market for any real length of time knows it,” she says. She thinks the gap between the ‘super prime lenders’ – as she calls them – with their cheap funding and the rest is causing others to struggle, while if lenders are pushed out that ultimately results in less consumer choice. While it’s hard to come up with an all-encompassing solution to these issues, she thinks the least the regulator should do is identify that there are problems. “Something needs to happen on the funding side,” she says. “Which isn’t something for the FCA but the market as a whole to think about. “Products are too cheap. That’s what’s pushing the lenders out of the market. Pricing needs to reflect the actual risks that these specialists take. Maybe there needs to be a look at a pricing of the products in the market. “Lenders are having to pull the plug because it doesn’t make sense. I would be concerned about that if I was a regulator. There’s something wrong with the market if people are stopping. “Maybe there’s too many lenders – there’s been a lot of banks authorised in the past couple of years. “I think there are too many lenders chasing far too little business and with Brexit confidence has plummeted – it’s not a very nice picture. “It needs serious thinking by the government, the regulator and all the players in the industry. “They should be sitting down and having a conversation. I think the Mortgages Market Study was
a missed opportunity to bring up this stuff and get it sorted – to deal with a market that’s not in a happy place at the moment.”
Specialists in failure
It seems the chasm between the major lenders and the rest is causing problems for specialists and fundamentally consumers, who may end up with fewer products to choose from if this trend continues. Unless something changes regarding the uncertainty around Brexit and extremely competitive pricing it seems likely more brands could vanish one way or another. While it’s unlikely we’ll see anything like the catastrophe of 2007 with lenders going bust, those who are reliant on the capital markets seem most likely to be in trouble because their margins are more affected by dips in the market. Their funders may decide they aren’t making enough money and decide to put their cash elsewhere. That’s not to say banks are necessarily exempt from problems, as demonstrated by Secure Trust Bank’s exit from the market, which seemed a case of the bank refocusing on potentially more profitable areas than mortgages. More lenders may decide to consolidate too. It’s a rational solution if there’s too many lenders going for too small a pool of business, while it gives specialists a chance to break the monopoly of the ‘super prime lenders’. For some lenders the challenge is to find a niche in an increasingly rate-driven marketplace as well as retain customers, given that there are fewer purchases than in the past. It’s a tough environment for some, and brokers and lenders alike can only hope they are given a helping hand by the housing market becoming more buoyant in the next few years. Otherwise there’s certainly a danger of losing some of the lenders that are open for business today.
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Mortgage Business Expo 2019 Where business happens
1 May 2019 The Royal Armouries
For one day only Mortgage Business Expo Leeds provides the perfect environment to engage with your industry Access key suppliers delivering essential revenue opportunities Find solutions for your hard to place cases Learn whatâ&#x20AC;&#x2122;s happening in your ever-changing and fast paced finance industry Find out from the experts how to steer your business through the post Brexit maze Network with like minded people from your industry and itâ&#x20AC;&#x2122;s free to attend
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Looking for alternatives Liz Syms, chief executive of Connect for Intermediaries on how exploring the lesser known details can help clients When a first charge lender will not consent to a second charge loan, is there another solution? I recently highlighted the large number of specialist buy-to-let lenders in the market place who do not offer further advances, nor will they give their consent to a second charge lender to be registered behind them. This could pose an issue for a property investor if they wish to raise extra capital on a property in the portfolio, particularly if they are locked into a five year fixed rate. As many as 50% of property investors are picking a 5-year fixed rate, due to the more generous rental calculations since the introduction of affordability changes by the PRA. If during the five years the investor creates capital growth through refurbishments or a general market uplift, they may wish to borrow against the increased equity say for a deposit on another buy-to-let purchase. They are faced with either paying an early repayment charge and re-mortgaging or waiting till the end of their fixed-rate period, potentially missing out on opportunities. The question is, is there an alternative? There is in fact option in the market place that the new second charge lender could consider using instead to assist the borrower. This lesser-known option is called an ‘equitable charge’. The normal method by which a second charge lender can protect their loan in the event of default, is to formally register the charge with land registry, however this requires the first charge lender’s consent.
This consent is not always available. An equitable charge however, does not require the first charge lender’s consent. An equitable charge refers to a security interest in the property which the borrower grants at the time of taking out the loan. Whilst the loan is not registered on the deeds at Land Registry, hence consent from the first charge lender not being required, the second charge lender does still have the right to pursue the borrower via court for recovery of the loan in the event of a loan default. An equitable charge does not give the second charge lender identical enforcement rights to a registered legal mortgage charge, there are differences that do make this a riskier option for the lenders.
“An equitable charge refers to a security interest which the borrower grants at the time of taking out the loan” However, in 2016 the High Court found in favour of an equitable charge lender and granted the power of sale. This helped to set a precedent which means providing the relevant security document has been properly drafted and executed as a deed, the most likely enforcement options will be available to the holder of an equitable charge. It is likely that it is this findAPRIL 2019
ing that has opened the doors for some lenders to consider equitable charges when they are lending on a second charge basis and are unable to gain consent from the first charge lender. Not only does this assist buyto-let landlords locked into fixed rates, but it also assists buy-to-let investors still holding mortgages with lenders like Mortgage Express for the low tracker rates still being enjoyed. By picking a second charge lender who will consider an equitable charge, they will now be able to capital raise on the equity they have gained from the property’s growth in value. Due to the additional risk involved, not all lenders will consider this, however there are some. Together, WestOne, First Stop and Step One are all lenders who will consider equitable charges, although they may charge an additional rate to cover the extra risk. Castle Trust also confirmed they will try to obtain the consent from the first charge lender first, and if this is refused, then they can also consider the equitable charge. Having these options available is a great additional tool for brokers. Nearly all active buy-to-let brokers will have arranged a buyto-let mortgage on a 5-year fixed rate with a specialist lender recently and many will have a back book of buy-to-let clients still on mortgage deals with lenders like Mortgage Express. By taking the time to explore lesser known detailed criteria like this, brokers are better able to help more clients. MORTGAGE INTRODUCER
Keeping up to speed Natalie Thomas on why the second charge industry is no longer seen as being a ‘lending of last resort’ Innovation is often the Regulation by the Financial Conduct Authority has helped steer the market into the mainstream mortgage lane, yet the sector is still not making the inroads some had hoped for. While regulation may have placed seconds firmly in the minds of first-charge mortgage brokers, it seems it has not yet placed it in the hearts of all, with views amongst mortgage brokers polarised and still an apparent reluctance by some to offer seconds. So, what is holding mortgage brokers back? Does the sector still have an image problem: is it fees, a lack of knowledge about seconds, or simply a lack of demand for such products? We asked those at the heart of the mortgage broker community for their views on seconds to see if more work still needs to be done. This issue Loan Introducer asks: ““Are your advisers trained to offer second charge mortgages? Is there anything that stops you from offering more second charges?"
David Hollingworth, associate director, communications, London & Country Mortgages We don’t currently offer second charge loans, primarily because we do not see a great deal of demand from our customer base. In the majority of cases a standard mortgage or further advance will be available to our customer profile and meet their needs. Second charge lending can of course offer a solution for some borrowers, despite what can be higher fees and rates. For example, those that may have seen a worsening in their credit profile since taking their original mortgage may not qualify for a further advance but would benefit from keeping the original mortgage intact.
We think it’s a specialist market but will keep the market and customer demand under review. We certainly wouldn’t rule out revisiting how we can use second charge lending where we can see there is a solution required to benefit and meet customers’ needs.
Matthew FlemingDuffy, mortgage and finance broker, Cherry Mortgage and Finance We refer second charge loans out to a third party. The reason for this, in short, is that we very rarely identify an appropriate need for a second charge and there is a danger with providing advice in a sector in which you are not very active – particularly when there are so many borrowing options. FCA regulation of second charge loans has not particularly affected our advice model, however it is good to see that the sector has finally come under closer scrutiny and to see general industry standards being driven up.
Greg Cunnington, director of lender relationships and new homes at Alexander Hall We offer second charges via a specialist second charge packager who we refer clients onto. With more clients looking to release equity from their property for things such as home improvements, the second charge market has become more important. Our advisers are trained in discussing second charges with clients and ensuring if suitable these are referred over in all circumstances. We also keep a compliance log of all referrals made to ensure a sense check is done that if a more advantageous first charge was possible then this is explored in full.
Potentially it would be good to look at advising on second charges ourselves in the future, particularly if private Help to Buy schemes become more popular in the years to come and a second charge is in place. However, the reality is that the seconds market is not yet up to speed with the first charge mortgage market in terms of the number of lenders and breadth of choice etc. The technology behind the sourcing and criteria systems for seconds is also not as visible or advanced as it is for firsts. We can see the firms in this space are doing some good work here and it seems to be coming on at a good pace, which could make a positive difference in getting more firms to advise on seconds directly.
John Phillips, group operations director at Just Mortgages and Spicerhaart Second charge loans are a very expensive way for customers to borrow money, and from a ‘treating customers fairly’ perspective, I think brokers need to be really careful. There are very few circumstances where there is a real need for this type of product, as in the vast majority of cases, you should be able to do a remortgage. I am not saying we wouldn’t do it, but we would only do it if there was no other option. We therefore do not train our advisers specifically to offer second charge mortgages, because we don’t see the need. We don’t like them, and would never actively push them to customers.
Aaron Strutt, product and communications manager, Trinity Financial We refer our second charge loan cases to a specialist packager. If borrowers are really
stuck and they can’t remortgage but they’ve got a lot of equity in their property, sometimes a second charge is the only option for them. There are a lot of borrowers who have tried to get mortgages through the high street, even with good incomes and using one of the lenders with generous income multiples but they still don’t qualify. In such a scenario, a second charge can be the best option. This is particularly the case for borrowers who might have a lot of debt, such as loans and credit cards, especially if they equate to more than their annual income. That’s obviously a worst-case scenario but we have seen that before. The second charge world is a whole different market from the mainstream mortgage market and we feel it makes more sense to refer business to a specialist packager, where you know the client is going to get the best advice and the lowest rate and fees. The sheer volume of competition in the second charge market has helped drive down rates. If we find the specialist packager we refer onto has a good reputation, good reviews and slick processes and our clients come back happy, we are happy to refer more.
Richard Merrett, managing director at Largemortgageloans.com One of the principle factors that prevents second charge loans being offered to more clients is the abundance of choice and low rates in the first charge market. The first charge mortgage market is such a competitive environment at the moment and there’s a wealth of options for capital raising remortgages and further advances that offer flexible criteria and attractive rates. Second charge loans are an extremely good solution but set against this environment where there is so much choice in the first charge market, a client really needs to have the right set of circumstances and requirements for it to be the most appropriate approach.
Jonathan Clark, mortgage partner, Chadney Bulgin Advising on second-charge mortgages is something that we’ve struggled with in the past, as most of our advisers don’t come across them regularly enough to stay familiar with products and criteria. We therefore took the decision last year to tie in with three specialist providers, to whom our advisers could pass clients across to, on the understanding that the advice would be given by (and liability sit with) them. This has resulted in more business being transacted and with some advisers, more complex cases being referred across.
Rob Clifford, group commercial director and chief executive of SDL Mortgage Services Given our particular range of lead sources we don’t see a particularly high demand for second charge loans. disturb their first-charge. Then you have an entirely different market for those who are taking out a second-charge for debt consolidation reasons and might be under financial pressure. Such clients are at the opposite ends of the scale but the market covers them well, so we already have quite a wide selection of products on offer.
Loan Introducer Cover
Second source There can be no doubting that technology makes the world go round but does it also make the second charge market go round? Natalie Thomas investigates A sourcing system which could compare both a second charge and a remortgage side by side was once thought of as the holy grail for the seconds market. Now that such technology exists, is it being utilised enough by mortgage brokers and how else can Fintech help the sector advance? An increased use of Fintech would certainly be at the top of most second charge brokers’ wish lists but is there a danger that such technology could side-line the role of the specialist second charge broker – should the market be careful of what it wishes for?
Leading the way
When it comes to the use of Fintech in the seconds market, there are two main strands. Firstly, what goes on behind the scenes in terms of second charge lenders linking their back-office systems to specialist second charge brokers and secondly; the sourcing technology side, which for many mortgage brokers is their initial contact with the sector. Buster Tolfree, commercial director of mortgages at United Trust Bank, says in terms of the former, the seconds sector has really been leading the way. “In many ways second charge lenders have been ahead of the curve in terms of technology, compared to the first charge market,” he says. “The use of Application Programming Interface (APIs) to transfer data, decisions and to provide confirmation of eligible interest rates, has been widely used for the last 10 years or so between brokers and specialist lenders. This type of technology is only now starting to appear in the first charge market,” he says.
Tolfree says specialist lenders in particular have an opportunity to lead in the fintech arena. “Whilst we may not have the depth of pockets of the mainstream players, we also do not have the legacy back-books or volume processes. Development can therefore be quicker, and the cost of implementation tends to be lower,” he says. Tony Marshall, managing director of Equifinance, believes the seconds industry is not too far from a paperless transaction. “Improved lender point of sale technology is developing rapidly enabling expedient underwriting and therefore quicker transactions,” he observes. “There are also several interesting developments such as open banking and identification software which will in turn reduce the need for paper copies, ID documents along with further defence against fraudulent activity,” he says.
Sourcing the right deal
While point of sale technology might be developing rapidly, one of the sector’s biggest challenges has always been visually displaying a second charge’s benefits over a remortgage to brokers – something sourcing software is now increasingly doing. “Technology has been supporting the second charge market for a while now and sourcing systems have evolved to cater for this and help ‘expose’ the value of a second charge loan, alongside a first change product,” says Phil Bailey, sales director at Twenty7Tec. “Our own sourcing system, MortgageSource, has compared first and second charge products from the same
screen, using the same data for almost four years. This opens the door for more intermediaries to consider a second charge mortgage as part of their advice proposition,” he says. While sourcing systems are certainly facilitating more options for intermediaries, they do have their limits. “It is inherently difficult to interpret a lending policy for a niche lender such as Equifinance and then incorporate this into a sourcing system and return an accurate result,” says Marshall, “We
“Improved lender point of sale technology is developing rapidly enabling expedient underwriting and therefore quicker transactions” often see applicants that have been cascaded through other lenders because they were offered the ‘best’ product as measured by rate, monthly contribution, total repayable and/or Early Repayment Charges (ERCs). However, and for whatever reason the applicant’s wider circumstances did not fit with the ‘best’ product criteria. In essence the best product may not simply be the cheapest if it is unavailable to the client,” he says. As Marshall highlights, the way in which the sourcing systems filter and recommend the products can vary from one to the next and may not account for more complex or subtle needs of the client.
Mark Lofhouse, chief executive officer of Mortgage Brain, believes systems should look at the cost of a second versus a remortgage based on the lifespan of the borrower’s current mortgage product. “When building technology, it’s important to think of the customer,” he says. “If for example, someone is looking to obtain a second charge in order to build an extension and they are currently half-way through a five-year fixed rate, it’s important to consider the overall cost of remortgaging when there are ERCs etc, versus keeping the existing mortgage and adopting a second charge. “It’s appropriate to look at the cost to the end of the 5-year fix and not the end of the mortgage term when the client could have potentially moved onto the SVR or remortgaged, as this could distort the comparison,” he claims. Tolfree believes while sourcing systems have a role to play, encouraging brokers to consider seconds is about much more than the use of such systems. “Sourcing systems are beginning to engage with second charge lenders and present the options in a way they haven’t before,” he says, “but there is still some way to go before second charges take their rightful place alongside remortgages and further advances – as I believe they should. “This requires more than simply putting them on a sourcing system. It requires a more wide-spread adoption of the product in the advice framework,” he says.
The role sourcing systems can play in encouraging mortgage brokers to recommend a second is evident but is there a risk that in giving mortgage brokers the tools they need to recommend a second charge themselves, it jeopardises the role of the middle man: the specialist packager? Matt Cottle, chief executive officer of Specialist Mortgage Group, does not think so. Around 18 months ago it opened up its internal specialist sourcing system to the whole of the broker market – free of charge. Its Lenderlink system compares specialist products from across the mortgage market, giving mortgage brokers the option to either submit the application direct to lender or refer it on
“The use of Application Programming Interface (APIs) to transfer data, decisions and to provide confirmation of eligible interest rates, has been widely used for the last 10 years or so between brokers and specialist lenders. This type of technology is only now starting to appear in the first charge market” to SMG. Since its January launch it has registered around 1,500 intermediaries, with around 10% of users referring the case onto SMG, says Cottle. This might sound low but Cottle says the figure is double what it anticipated. “We were working on the assumption that it would be 4% or 5%,” he says, “that’s the standard response from a website service. “It costs us the same amount of money to do a thousand quotes on the system as it does a million,” says Cottle. “If we give away the access to one million quotes – then we’re going to get a lot more coming through as a referral,” he says. For specialist mortgages in particular, Cottle feels there will always be a place for the specialist packager due to the complexity of such cases. “There is a lot more work involved in a specialist case,” he says. “The client might have a complex income, with money generated from three or four companies, or from shares, dividends or property and the like.” He adds that the commission a broker can earn by referring on a specialist case is the equivalent to what they might earn on a standard mortgage, which can add to the appeal of referring the case, rather than taking it on themselves. The specialist nature of the seconds market in some ways is what will ensure the survival of those packagers within the sector. But Cottle says: “The pond is only so big and the bigger your technology reach, the bigger your net is and the more clients you capture within that net. “The sector is definitely technology driven and anyone who thinks otherwise is kidding themselves,” he says. “In Equifinance’s case it is unlikely that any sourcing system will ever be able, with absolute certainty, fully understand the nuances associated with specialist
lending criteria and/or react to changes in that criteria,” says Marshall. “This type of understanding comes from knowledge of a broad spectrum of lenders underwriting criteria usually derived from experience, for which the master broking community has a plentiful supply,” he says. Sam Kirtikar, chief executive officer of Clever Lending agrees. “Whether you call them master brokers, specialist distributors or something else, the fact remains; there is a great deal of added value from human interaction and the experienced broker,” he says. “The variables involved in an individual’s circumstances require specific and often, specialist advice. Whilst a straightforward prime application may be threatened by technology, it won’t replace the expertise and skills a qualified specialist can offer,” he adds. He envisages technology and brokers existing as one. “Technology will only support the efficiencies and speed in which they work, rather than replace,” he says. While Bailey says: “If you are a second charge broker, adding real value to your customers and the industry, technology can only make you better. However, if you fear technology, have a reluctance to embrace it and the needs of your customers you may find others will pick up the baton.” The seconds sector is certainly keeping pace with the first charge market when it comes to the use of Fintech; this should further enhance its appeal to mortgage brokers. Sourcing systems may have their limitations but the presence of second charges on these can only be a positive for the sector and add to the sector’s profile within the first charge market. The limitations of such systems however highlight the importance of the specialist packager community and therefore ensure their role cannot be replaced.
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Financial planning solutions The level of personal and household debt in the UK makes for sobering reading. According to The Money Statistics Report February 2019 by The Money Charity, the average total debt per UK household was £59,261 in December 2018. The average consumer debt per household was £7,863 in the same month – and the increase in the average total debt per adult was £935.34. Contrast the 0.92% average interest rate on a cash ISA with an average credit card rate in December 2018 of 18.66%, and you will find it would take the typical first-time buyer 24 years to save for a deposit based on the current UK savings rates and income. With so many households taking on additional debt, it’s true that savings and pensions have become less of a priority. According to the Department of Work and Pensions, 13 million households (48% of the total) have either no savings or less
Harry Landy managing director, Enterprise Finance
than £1,500 in savings, while 19 million households, which is 70% of the total, have less than £10,000 in savings. The Pensions Regulator’s Compliance Report states that 10 million employees had been autoenrolled onto a workplace pension by the end of January 2019, making a total of 21.9 million members of pensions schemes. But this still left 9.3 million employees unenrolled. Increasingly, households are using their income to service debt. Low wage growth and historically low interest rates has seen families using debt to cover their living costs, relying mostly on overdraft and credit card lending. The same Money Statistics Report shows that the average rate for an overdraft is 19.69% - which is an eye-watering 18.94% above the Bank of England (BoE) Base Rate of 0.75%. Credit card debt comes in slightly lower at an average rate of 18.66%.
The BoE’s Financial Policy Committee has argued that this consumer debt bubble is unsustainable. So, what options might be available to borrowers who want to address their short-term debt profile? Taking out a further advance to consolidate their debt could be an option. It’s not the quickest solution as it can take up to six weeks to process from the initial appointment if dealing with a bank directly and not going through an intermediary. A borrower could also explore a remortgage. However, Early Repayment Charges might kick in or a low interest rate could be lost on the existing mortgage. Another funding solution that could be explored is a second charge mortgage. A second charge mortgage is a secured loan that allows a borrower to use the equity in their property as security. One of the main advantages of second charges is that ERCs are avoided on clearance of the existing mortgage allowing the borrower to retain their existing rate, where it is in their benefit to do so.
Uncertainty breeds uncertainty It goes against the grain to say that a level of certainty exists in today’s markets, but as I’ve said many times both investors and developers especially are a shrewd bunch, and they are definitely coming to the fore to take advantage of current property opportunities. How can I say this with such certainty? Basically it comes down to the figures we are witnessing. To put the following into perspective, in 2018 we enjoyed our ninth record year of consecutive growth. In the first quarter of this year that trend is continuing. Enquiries are up circa 15.5%, applications 32.8% up and completions by 28.8%. But here’s the rub, conversion from enquiry to completion for Q1 is 11.6% up on the same period in 2018. There are numerous factors that will be at play in these results, www.mortgageintroducer.com
but overall feedback clearly indicates there is a marked step change from the speculative enquiry to brokers who know exactly what their clients want. As the market is regularly reporting both the property purchase market is flat and the smaller end of the market, the so-called ‘amateur landlords’, are disappearing. But the experienced investors and developers can see the opportunities, and as ever a desire to add capital value and/or ensure higher yields lies at the heart of these decisions. In the bridging market particularly we are seeing a lot of interesting action. This includes, but is definitely not limited to, a lot of light refurbishment. We are seeing a sharp increase in applications to change the number of units within a building, changing the use to which those units
Jo Breeden managing director, Crystal Specialist Finance
are put, ensuring rental properties don’t fail their Energy Performance Certificate ratings and planning gain opportunities across semi-commercial, buy-to-let and houses in multiple occupation. While uncertainty continues, I see no reason why this trend will not continue, one would imagine that the longer the country remains in limbo the more opportunities will present themselves to the experienced property professional. It is easy to forget that while we might believe that the way we have always done business is the best that can be offered, the truth is that we need to be mindful of the kind of service customers expect today and not just what we are prepared to offer. I can only hope that other broker firms will look to re-evaluate their offerings, or I will be concerned for their future.
APRIL 2019 MORTGAGE INTRODUCER
SFI: FIBA Bridging
Improving professional partnerships Facilitating an introduction of a customer to a lender is at the top of every broker’s job description, but it is far more than that. I have spent many years looking after brokers, helping them to run their businesses successfully by providing them with the opportunity to use a support service if they need it. Being a broker, particularly where you are the only person in the business, can be a lonely occupation so having the facility to hear and share experiences with your peers is important. Of equal importance is the interaction with the lender community in whatever area of the financial market you serve. I am not ignoring the customer here, that will be a focus in a later article, but reviewing the start of the process and ensuring that the expected standards and relationships at the outset are in harmony. The increasing complexity of the commercial lending market allied to the growing number of lending
Adam Tyler executive chairman, FIBA
choices available on which today’s advisers can offer potential funding solutions, not only create tremendous opportunities, but also pose significant challenges in the maintenance and continuous improvement in professional standards. Therefore, it is important that the choice is continually appraised and updated and that is where the third part of the wheel becomes important, the supporting trade association, the bridge between the broker and lender. I have seen and met hundreds of new lenders over the years, names that have come and gone and others that are now an established part of the UK lending market, in both the commercial and consumer spaces. We also have those lenders now holding banking licences with loans books that run into billions. In the vast majority of cases, they have been built on the back of broker introductions. Nothing has changed. It is still the case that human interaction in a business loan
The Yin and Yang of underwriting One of the best ways we can all improve our business prospects is by becoming part of a bigger whole. Of course, I am going to recommend joining a trade body, but not just because of the benefits it can bring, but the shared experiences that help your own business. As a commercial finance broker myself, I can see the advantages of belonging to an external organisation that not only represents me, but also provides a long list of benefits I could not hope to duplicate as an individual broker. Where, as a small business are you going to get the same access to lenders as the big players? The same goes for compliance support, PI insurance and access to professional partners
like solicitors and valuers, who actually understand your market. At FIBA, we are committed to building our benefits programme and expanding our partner programme with the lenders you need. For example, how many of you can get direct access to Interbay Commercial? At FIBA, we provide a list of benefits which individually more than justify the small monthly fee for your membership as well as giving you access to a lender directory dedicated to specialist property finance. So, expect a number of important announcements over the next few months as the FIBA proposition continues to grow and offer even better value.
transaction is the vital component. I have spent a number of years looking at how technology can help and of course, it is an aid in many ways and it has made the role of a broker simpler. However, having been involved at many different levels with the advances in technology and how it has improved the process, I have seen the outstanding benefits that a broker brings to a deal. To me, it is simply the difference between a customer being funded or not.
“Human interaction in a business loan transaction is the vital component” The changes we have seen in regulation and compliance are of course here to stay inevitably, the demands will increase in our sector and we are all now suitably placed to absorb and adapt to these needs. In line with this, the support network required by the broker community has also to adapt to keep pace with this change. In line with advances in technology and in an age where customer service is intertwined with best practice, it is important that we all have update knowledge of our part of the Industry, in which we, as brokers work. To that end, at FIBA we are embarking on a series of regional industry forums in 2019 to bring together brokers, our lenders and our professional partners to ensure that the 2019 way of working also encompasses the old and original values. This is not only for the benefit of those of us who have been in the Industry for a long time, but those who are just starting out. Leaving aside the distractions caused by Brexit, we all need to keep our eyes firmly on building our businesses and look to maximise every advantage we can in the pursuit of that goal. www.mortgageintroducer.com
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The Last Word
Spreading the word Paul Adams, sales director at Pepper Money, says that there are a multitude of options for mortgage prisoners There are currently 150,000 homeowners trapped on high interest mortgages who are unable to switch to a cheaper deal, according to the FCA. The regulator says that around 30,000 of these people are with authorised mortgage lenders, while about 120,000 have mortgages held by non-regulated firms, which include some previous Northern Rock and Bradford & Bingley customers. This is the number of official mortgage prisoners as identified by the regulator, but there are potentially many hundreds of thousands more borrowers who are mortgage prisoners by their own perception that they will be unable to secure another homeloan with a new lender. For example, it is estimated nearly half a million people have a selfcert mortgage and may be unaware of the alternative options for selfemployed or contractor borrowers now that the product is no longer available. So, there is huge potential for advisers to grow their client base and provide freedom to borrowers who consider themselves to be mortgage prisoners, by raising awareness of the multitude of mortgage options in their local area. National Conversation Week, which took place from 18 to 24 March, provided a great opportunity for advisers to do just this. The themed week is and was intended to promote all forms of dialogue, but it did have a particular focus on conversations about finances, encouraging people to be more open to discussing ways to improve their financial health. National Conversation Week provided a great excuse for advisers to stimulate new business, speak to potential clients who had never thought about talking to a mortgage broker and perhaps even helped to free a few mortgage prisoners. So, what hooks can you use to engage new clients? Here are some tips you can use to spread the word that opportunity is out there.
and lenders can individually assess an applicant’s circumstances to ensure they account for all of their earnings.
CCJs and Defaults
Lots of borrowers still believe that a recent or unsatisfied CCJ or Default on their record will prevent them from being able to get a new mortgage, but lenders are increasingly able to offer competitive deals to such customers in the last year, even if they are unsatisfied.
Low credit score
Lenders have become much more advanced in dealing with self-employed income and whereas it used to be the case of a lender averaging salary and dividends taken over the last three years, decisions can now be based on the last 12 months’ accounts and lenders are open to additional allowable income considerations, such as expenses add-backs, directors’ car allowance, directors’ pension contributions, use of home as office and private health insurance.
Similarly, as lender have improved their offering for the self-employed, they are much more flexible about the type of contract, time left on contracts and time between contracts. Income is typically calculated on current daily rate x 5 to give a weekly rate and then multiplied by 46 to provide an annual income that allows time for holidays and time off.
Multiple income sources
Self-cert was handy for lots of borrowers as they could lump all of their earnings in together as a nice round number, but there are other ways for lenders to consider different sources of income
You are very likely to encounter potential clients who have tried a high street lender, failed a credit score and now written off their chances of accessing the market, so there’s opportunity to make it clear that not all lenders use credit scores to make decisions and there are many choices from lenders that underwrite people as individuals, taking into account all of their circumstances.
Debt Management Plan
Being in an active Debt Management Plan (DMP) also doesn’t have to prevent your potential clients from getting a mortgage. As look as the plan has been in place for a period of time and is well maintained, there are options for customers who are still in a DMP.
It’s also worth noting that buy to let landlords can have credit problems too and there are lenders that recognise this and provide suitable mortgages for property investors in this position. So, don’t let your potential clients imprison themselves because of their fears of being turned down for a mortgage. Take the opportunity to spread the word and talk about the many and varied opportunities there are in the mortgage market for people with different circumstances to access competitive funding and find a new homeloan.
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The Hall of Fame
Fool’s Gold 1
Red Carpet Treatment…
The notorious Michael Bolton is poised for a dramatic return to the UK mortgage market, working from his Brazil bolthole, or so those cheeky chaps over at MortgageIntroducer.com reported on 1 April this month. Apparently the rogue lending chief had prepped up operations from his Brazil coffee plantation to launch a new lender called Careless Finance to tackle the self-employed and sub-prime markets. And if the name of the lender wasn’t enough to give it away, surely Bolton’s aptly named colleague Oli Farlop should have given the game away? Not quite so. The HoF won’t embarrass those amongst the mortgage magnificent that fell for the fool [ahem.. Tom Pritchard. Just saying - ed]. “I really had to do a double take,” one unnamed chief executive confessed. “I had to read it three times over before it clicked.” In these times of glorified fake news it really seems anything will wash.
Fool’s Gold 2
More 1 April shenanigans and this time from our friends at GI Provider Source which claimed to have launched into telepathic insurance, “so its brokers can make a sale to customers even before they know they want or even need a GI policy”. Apparently, Source had been working on the process in the background with Uri Geller and Mystic Meg and had employed a team of fortune tellers to predict what kind of policy and limits a person wants before they even know about it. With Uri Geller promising to give a bent spoon to the first 100 clients The HoF was half tempted but would have settled for a Nandos with Mystic Kev – AKA Kevin Paterson. Great effort all round.
Deal or no deal The leg-end that is Terry Pritchard spins his way on to the red carpet this month – and in more ways than one. Ex-jockey’s agent Pritchard has made a fortune through various mortgage ventures as a specialist mortgage Gnu but his latest venture as boss of Charter HCP has reaffirmed his more newly found status, according to Mail Online, as “a hugely experienced football deal-maker”. Avid readers will remember el-Tel’s doomed bid to take over Portsmouth FC but also recall his recent success advising the board of Wimbledon FC and to a lesser extent, Blackpool. With Notts County up for sale it seems Pritchard has been on the sniff again with prospective new owners already having carried out due diligence. Leigh Curtis, a writer who covers Notts County for the Nottingham Post, announced on Twitter: “Terry Pritchard, an experienced football dealmaker, is advising the second group (outside of Europe) bidding for Notts.” The announcement got swift reaction. Dean Fido @fido1 replied: “Great writer too.” While Michael Wall @grumptweet responded: “I enjoyed his ‘Discworld’ novels.” Elsewhere, Notts County current chairman Alan Hardy revealed earlier this month he had accepted an offer from a group who had representatives sat in the stands for the team’s 2-2 draw against Northampton. “Deal-maker Pritchard” was pictured in the directors’ box for the same game having played a key role in advising the prospective purchasers which are based outside of Europe. Rumours are mounting that they are from South Africa and will go through more paperwork as part of the due diligence process at Meadow Lane. [Watch this space! – ed] Meanwhile, helping to shed the pounds from all the football pies, Pritchard and the team at Charter HCP have been spinning for Cancer Research. As The HoF’s exclusive snap show, here’s the man himself in action taking part in a fixed bike cycle. The team racked up a combined 200 miles for the charidee “to remember those we have lost” and had so far raised more than £1,565 at the time of writing. Pritchard and the team at Charter HCP, The HoF salutes you.
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