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Publishing Editor Robyn Hall Robyn@mortgageintroducer.com @RobynHall Managing Editor Ryan Fowler Ryan@mortgageintroducer.com @RyanFowlerMI Deputy Editor Jessica Nangle Jessica@mortgageintroducer.com 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
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July 2019 Issue 132
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.
Time to get it right By the time the next issue of Mortgage Introducer lands on your door mat the United Kingdom and Northern Ireland will have a new prime minister. Boris Johnson is widely tipped as the frontrunner to succeed Theresa May as leader of the Conservatives and the latest tenant in Number 10. He’s been in and out of the news of late for a number of reasons. From his arguments with his partner to his controversial use of the phrase “suicide vest” in describing May’s Brexit plans, he’s made some headlines. But he’s also been shying away from the limelight. He’s backed away from TV debates and interviews preferring to let others do the talking. What should be expected from Johnson’s Britain? He’s put a few things out there that gives some indication. One key area he has highlighted is tax. He used his column in The Daily Telegraph to demand a number of tax cuts coupled with increases to tax thresholds. This, he hopes, will stimulate the economy and increase government receipts. It’s a direct appeal to the Tory faithful. Cut income tax, cut capital gains tax and cut stamp duty. He knows his market when it comes to the people who actually have the ability to vote on his ascension to the top job. However, he has also called for tax thresholds to be lifted for those on “modest incomes”. Tax breaks may help but he still has a long way to go before he can regain the trust of UK business leaders. Don’t forget that this is the guy who was reported as saying “f**k business” in relation to their concerns over Brexit. Closer to home he’s pushing for a cut in stamp duty, which he described as “absurdly high”. He reckons that such a move would help get the faltering South East housing market moving once more. He’s also taken a swipe at the big three housing developers, which he accused of “blatantly land banking”. This isn’t the first-time this has been levelled at the big three and it’s clear that keeping prices high plays right into their hands. But whilst he’s taking with one hand he also plans to give with the other. He’s calling for the end to what he describes as “lefty” policies, such as quotas for affordable housing in any new developments. Whatever he does he needs to work out a plan sooner rather than later. That goes for the housing market and Brexit. The top job is his to lose and should he get it the pressure will be on to get things right.
5 AMI Review 6 Housing Market Review 10 High Net Worth Review 12 London Review 13 Advice Review 15 Buy-to-let Review 22 Mortgage Savers Review 23 Sharia Review 25 Protection Review 31 General Insurance Review 38 Conveyancing Review 41 Technology Review 44 The Bigger Issue
We ask our industry experts: When is the cheapest product not the most suitable?
Ryan Bembridge catches up with Ying Tan. The The man behind the magic at Dynamo
Paymentshield’s Rob Evans on the role of the firm and his rise to chief executive
Air Group’s Stuart Wilson and Gary Little discuss the firms rebrand
56 Loan Introducer
The latest from the second charge market with commentary from Fluent’s Tim Wheeldon and the spotlight is on the West One’s Marie Grundy
64 Specialist Finance Introducer Regulation, bridging and FIBA
69 The Last Word
Magnet Capital’s Sam Howard on the James Brokenshire
70 The Hall of Fame Feeling blue
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Intermediaries and the SM&CR With less than six months before the FCA’s Senior Manager & Certification Regime (SM&CR) is extended across financial services businesses you might think that this is new regulation, based on filling in lots of forms. Technically in law it is new regulation and there are forms to complete, but for most mortgage advice firms it will be formalising the real behaviour and culture which has evolved since statutory regulation came into force. Good firms have the customer at their heart and we are a market sector that innovates and adapts to not only the different and changing regulatory demands but most importantly to its customers’ needs. So perhaps not much to do for some. The new regime provides an opportunity for intermediary firms to review their culture and governance, confirming that those who make decisions take responsibility for those decisions. Time to reinforce their own culture and values for staff and helping them understand how their conduct impacts on ensuring that the business delivers good customer outcomes and demonstrates that they consistently encourage discussion and openness. Clarity on mission, vision, purpose and values is at the core. The FCA are clear on their expectations of regulated firms with the introduction of the SM&CR from 9 December 2019. To coin a cliché ‘it’s a journey not a destination’ and for those working through these changes and considering their implementation that must be the focus. SM&CR is a regime which creates clear accountability, responsibility and sets expectation for good conduct throughout the firms’ business activities whether a sole trader or firm with employees. Not just a bureaucratic or HR exercise, but one where the company agrees what it is there to do and how they do it. The FCA website provides resources that all firms must consider as part of their preparations for implementation and the documents rewww.mortgageintroducer.com
Robert Sinclair chief executive, Association of Mortgage Intermediaries
quired. The FCA guide for solo-regulated FCA firms explains how the new regime applies to the different firm categories, enhanced, core and limited scope, providing scenarios to help translate the regimes requirements into situations that firms can relate to in their businesses. The solo-regulated guide takes firms through the allocation of responsibility for its senior managers, explaining which senior management functions must be allocated by each firm and those senior management functions that are required because of other FCA handbook rules i.e. money laundering reporting officer, where applicable. The Certification Regime is a new set of rules set out in SYSC 27 of the FCA Handbook. Some staff in the new Certification Regime may previously have been approved by the FCA. Instead of the FCA approving all senior individuals it is now the firm’s responsibility to make sure that their staff are fit and proper. So fewer people will be approved by the FCA with the firm principal now taking that responsibility and accountability. The ertification Regime applies where a firm has ‘employees’ that are performing a certain certification function. If you are a sole trader with no-one else in your business then the FCA have confirmed that the certification regime won’t apply. For firms with employees
then it is critical that they take time to fully understand how to identify the employees that the certification regime will apply to. Firms have until 9 December 2020 to complete this for existing employees. If you are in the process of recruiting new employees there is no transition for them, so anyone appointed on or after 9 December must meet the new rule requirements and firms must have the processes to maintain this new certification regime. SM&CR introduces new Conduct rules for Senior Management and all employees of a regulated firm, these rules are part of the overall FCA focus on good culture and behaviour in firms top down and bottom up. There are two tiers of conduct rules, first tier - Individual Conduct Rules and second tier – Senior Manager Conduct Rules. These apply immediately to all Senior Managers and Certified staff and firms are required to ensure that all individuals are aware of the conduct rules that they are subject to. All employees will need to understand what behaviour is required to ensure that where something goes wrong they have acted in a reasonable way and not deliberately taken poor decisions to the detriment of customers or the market sector. There is a significant emphasis on ‘good culture’ in the new regime and the expectation that senior managers influencing the firm make sound, reasoned and effective decisions when operating the business. Firms must take time to consider all the new rules introduced within the SM&CR and ensure that their systems and controls, business culture and importantly its staff have the appropriate awareness to demonstrate compliance with the new regime from 9 December 2019. The Association of Mortgage Intermediaries is publishing a range of guides to help members of the trade body with what they should be considering and where to find resources to help. Firms need to start now to be ready in time. MORTGAGE INTRODUCER
Review: Housing Market
How technology is driving the market As the race for the next Prime Minister heats up so too does the UK lending landscape, especially when it comes to variables affecting property purchases. Support has always been required to help all types of borrowers to achieve their homeownership aspirations but let’s look at what’s currently happening in and around the mortgage market.
The Bank of Mum and Dad
Craig Calder director of intermediaries, Barclays Mortgages
It has been reported that the Bank of Mum and Dad will support nearly one in five transactions this year, making it the equivalent of the 11th largest mortgage lender in the UK. This is according to a report from Legal & General and the Centre for Economics and Business Research (CEBR) which outlined that parents, family and friends will support an estimated 259,400 transactions this year alone. The findings also suggested that the Bank of Mum and Dad is playing a more complex role in the housing market than previously thought. In 2019, it will help the younger generation buy property worth in excess of £70bn with 62% of aspiring homeowners under the age of 35 reliant on parental support to finance their first home move. However, the Bank of Mum and Dad is helping more than just young first-time buyers. The data also highlighted that more than a fifth (22%) of people aged 45-54 have received financial assistance to purchase their latest property. Around 7% of over-55s have also received help from family or friends to buy their most recent home. This support for older buyers is expected to double, with 14% of Britain’s over-55s expecting additional assistance for a future house purchase. In addition, the average financial gift/loan has increased by over a third (33.8%) in the past year. In 2018, the average loan was £18,000. However, by the end of 2019, the research predicts that older relatives will now part with
over £24,100 to help their younger relations. This is an issue which we, as a lender, are fully aware of and are constantly evaluating our intergenerational lending proposition accordingly. However, this remains just one part of the process. As highlighted in the research, action is needed to deliver thousands more new and affordable homes across a range of tenures. Of course, there are no simple solutions to the affordable housing issue so it’s imperative that lenders develop a range of solutions for all generations to achieve their housing and financial goals now and in the future.
Staying on the subject of affordable housing, Homes England recently published its latest annual housing statistics, which showed a significant increase in the number of affordable homes being built in England. Between 1 April 2018 and 31 March 2019, there were 45,692 new houses started on site under programmes managed by Homes England and 40,289 houses completed. These are the highest levels of starts for nine years and the highest levels of completions for four years. Of the starts on site, 30,563 (67%) were for affordable homes, a 10% increase on 2017-18, the highest numbers of affordable home starts for five years. Similarly, 28,710 (71%) of housing completions in 2018-19 were for affordable homes which represents an 11% increase on 2017-18 figures and the highest numbers for four years. This is certainly a welcome step in the right direction, but this pace can’t afford to let up anytime soon if the substantial affordable housing gap which has built up over the years has any chance of closing. The supply gap is an issue which continues to impact many potential first-time buyers, but further positive signs are emerging for this vital sector of the housing and mortgage markets. JULY 2019
First-time buyers, LTVs and headline rates
The latest figures from UK Finance showed that there were 27,370 new first-time buyer mortgages completed in April, a rise of 7.9% on the same month in 2018. The value of first-time buyer mortgages rose by 11% to £4.6 bn. In terms of availability and rates there is more good news for borrowers. The Bank of England’s Mortgage Lenders and Administrators Statistics showed that the proportion of mortgages with a loan-to-value above 90% increased to 4.5% in the first quarter of 2019, up from 3.3% a year before. This means that high LTV lending is at its highest ratio since the second quarter of 2017. Of course, higher LTV lending must maintain certain risk and responsibility levels which I’m sure the regulator will continue to closely monitor. However, the wider availability of higher LTV deals at highly competitive rates does allow more flexibility for FTBs and homemovers in terms of their deposits levels, ongoing financial situation and future plans which must be a good thing for those who can meet strict affordability criteria. With more borrowers looking for stronger levels of control over their outgoings and major financial commitments its also great to see heightened lending competition when it comes to medium to longer term rates. This was highlighted in recent data from Moneyfacts which showed that the average 5-year and 5-year fixed mortgage rate has narrowed by 0.06% from 0.42% to 0.36% since the beginning of the year, bringing it to the lowest difference recorded in seven years. The popularity of the 5-year fix appears to be increasing in line with the need to secure longer-term certainty on mortgage payments. And with market-leading rates attracting more borrowers to commit for longer it will be interesting to see if the popularity of medium to longerterm rates rises further and if this gap continues to narrow. www.mortgageintroducer.com
Review: Housing Market
Reform is inevitable but needs to be done carefully The Labour Party-commissioned report, ‘Land for the Many’ has certainly garnered headlines – if not on a national scale, then certainly within our marketplace. It is a shame that it was published at a time when most minds are focused on the Conservative Party leadership contest, and how that plays out, and you might well question the decision to place it at this point on the media ‘grid’ given everything that is happening at Westminster currently. That said, at the very least, it raises some interesting debating points, not least around how any future Labour government might tackle the UK’s housing market, specifically in terms of increasing housing supply, but also key issues around the cost of land, the subsequent cost of houses, the provision of information on who owns land in the UK, how it might be best utilised, and how the system might need to change in order to meet those goals.
Sebastian Murphy head of mortgage finance and
Rory Joseph director, JLM Mortgage Services
There is a lot within the paper to unpick but we suspect a large number of stakeholders will be most concerned by a number of areas, perhaps most notably, a suggestion that a future Labour government should ‘stabilise house prices’, which might also be deemed a commitment to ensure prices fall. The report doesn’t say this of course; instead it talks about allowing wages to catch up, while prices ‘stabilise’, allowing house price to income ratios to fall, however you can’t help feel that the means by which it wants to do this will be beyond the pale to many. It wants to discourage people from viewing houses as financial assets – good luck with that; encourage lenders not to lend on homes/properties – ditto; whilst encouraging ‘a more efficient use of existing housing stock’ – we are unsure how.
To suggest that we’re way beyond the point where homes are not considered a financial asset is an understatement – if anything, the home is going to play a much pivotal role in the finances of individuals in the future. Indeed, you might argue this is increasingly necessary as pension provision hasn’t kept pace with retirement living needs, the interestonly ‘timebomb’, social care needs, etc – the growth in equity release proves how important a property is to the later life needs of people. That is only going to increase. The paper also talks about the establishment of a Common Ground Trust – a non-profit organisation which would buy the land underlying a house on the buyer’s behalf. It argues this would cut the level of deposit required, and – much like shared ownership – the owner would pay rent to the trust to cover this purchase on their behalf. The argument is to move land into common ownership rather than to private landlords and banks; the former of which it seems to see as an inherent evil in the marketplace and responsible for many of the UK’s housing woes. Quelle surprise. Reading the report, one can’t help think that the theorising it contains is effectively devoid from reality. If you had a blank piece of paper, you might think about creating a system like this, but we do not have that luxury, and we are talking about over-turning many decades of cultural and societal thinking, plus a
fundamental shift in how people view their properties. That simply isn’t achievable. Don’t get us wrong, the report does contain a number of truths and a number of potential measures that few might argue against. For example, can we really argue against there being total transparency of information in terms of who owns land, how it is used, what land the State owns and how it utilises it – specifically what it sells and to whom, and also clarity around planning, etc.
Out of kilter
Having that upfront and transparent information means there’s a level playing-field in terms of who might be able to access the land, how it could be developed, and the best interests of local communities in doing this. Instead of how it presently works with developers having ‘option to purchase’ agreements with landowners, the details of which are never known which can mean future developments are simply out of kilter with the needs of local people and its ability to service and sustain such developments. But, we also need to think about the reality of the current situation. Some of the measures have hints of land-grabbing from existing owners and this seems like a few thousand bridges too far in terms of getting a sustainable and successful UK housing market. We’re all for radical reform but there also needs to be care taken, and an understanding of the rights of existing home- and landowners now, and the fact these are assets that they should be able to use as they wish. That certainly doesn’t come across from the paper and state intervention on this scale just isn’t going to cut it.
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Review: High Net Worth
London Calling – it’s still a prime property town “There’s nothing so absurd that if you repeat it often enough, people will believe it.” American philosopher William James may not have been referring to the prime London property market when he made this statement over 100 years ago but it is certainly applicable. Bad news tends to stick and we have seen plenty of that regarding the London property market in recent times, during the last twelve months in particular. In the midst of the negative headlines and gloomy forecasts, the Prime Central London (PCL) property market has been quietly getting on with things. There is a misconception that the higher end of the property market suffers the most when there is uncertainty in the air, but the data paints a very different picture. In fact, the higher up the property scale one goes, the more resilient the market appears to be.
Peter Izard business development manager, Investec Private Bank
Resilient at the top
Properties valued up to £1m have seen a fall of 6.3% over the past year, according to Knight Frank. Yet the higher up the scale you go, the lower the drop is. Those with a value between £1m to £2m saw an annual fall of 5%. The trend continues with a 4.9% drop for properties between £2m-£5m, a 3.8% drop for those between £5m-£10m and those over £10m only a 2.6% fall. Whilst unwelcome, such house price falls are still fairly modest compared to historical dips and the rate of house price deprecation has slowed considerably in recent months. PCL properties up to £1m saw a fall of just 0.2% in April, according to Knight Frank, with properties over £10m falling by just 0.1%. Tom Bill, head of London residential research at Knight Frank describes the current downturn as “comparatively shallow” compared to previous slowdowns. In its April
Residential Research Prime London Sales Index, he analyses PCL house prices from a ‘peak to trough’ perspective and points out that an average decline of 12.9% in PCL is lower than the 22.3% fall seen during the global financial crisis or the 20.7% decline during the UK recession of the late 1980s and early 1990s. He attributes the resilience of the PCL property market to HNW buyers and sellers being more “discretionary” in nature. “The greater impact of a weaker sterling in higher price brackets has also underpinned demand,” he says. London is still the city of choice for many of our High Net Worth (HNW) clients. The lifestyle, business and education opportunities it offers are amongst some of the best in the world. Not to mention the buoyant private banking sector in the UK which is able to assist HNW clients in buying their London properties, whether it be for residential or buy-to-let purposes Some of the current low mortgage rates on offer alongside the flexibility and myriad lending solutions private banks offer all currently add to the allure of the capital.
Of course, house prices are just one side of the property story. It might be argued that demand is a truer reflection of how one particular property segment is performing and is also inevitably linked with house prices. So, whilst a fall in property prices might be bad news for sellers it can be good news for buyers and this is something the data conveys. If we look at the figures for transaction levels; far from being gloomy they paint a promising picture of the PCL property market. In its April Index, Knight Frank’s figures show the number of offers made in PCL in the first three JULY 2019
months of this year was the highest in more than 10 years, while the number of new buyers was the highest figure for Q1 since 2014. This resulted in exchanges rising by 6% between January and April compared to 2018. “Price adjustments at the top-end of the market are having a discernible effect on trading activity,” comments Bill.
“While some clients will be unaware of the savings to be had by switching to a new rate; a new loan” “Combined with the discount available for non-sterling denominated buyers, the result is that the number of deals in London above £20m last year was the highest in four years,” he adds. Overall, London property exchanges from all price brackets saw a 9% annual decline, according to Knight Frank. Yet the number of exchanges above £2m rose by 1% in the year to April compared to the previous 12-month period. The bespoke approach offered by private banks can assist HNW clients when it comes to buying their London property and this may be another reason why this cluster of the market continues to prosper. Even HNW clients with the most complex of incomes, consisting of bonuses, earnings in a foreign income, stocks, shares, property or other investments can benefit from the tailored approach private banks offer. Often by taking more of the HNWI’s wealth into account it can lead to the client being offered more flexible innovative terms – even for those wanting to borrow at a high LTV or on an interest-only basis. The data suggests that instead of waning, many potential buyers are merely waiting in the wings and for those that are ready to listen, the PCL property market is still calling. www.mortgageintroducer.com
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London’s status as a world city will remain June was a funny month. We remain in a limbo over Brexit with Tory leadership still refusing to be categorical on how the UK’s withdrawal from the European Union will play out. Economic figures painted a rather confused picture – business confidence and investment is down but consumers’ confidence in their own personal financial situations is robust; retail figures were dire, GDP was negative for the second month in a row in May but on the flipside, unemployment was at its lowest since the 1970s. It rained. The sun shone. And then it rained again. As in the body politik, so in life, apparently. Everyone is confused about what the immediate and medium-term future holds. But in amidst the runes of this political and economic maelstrom, there are reasons for optimism. While no one would deny there has been an impact – what that actually looks like this far into the process is very different. Mixed signals abound but, even acknowledging that, the figures on London’s property market are perhaps surprising. Whenever one hears any commentator say ‘falling house prices’ or ‘lower transactions’ there’s a tendency to fall into the trap of thinking that the market is one directional or at worst case it is crashing. That really couldn’t be further from the truth. House prices are still very high, particularly in prime central London. Even a reasonable percentage drop in price growth is unlikely to put too deep a dent in capital values in the city. According to the London Central Portfolio residential index, average prices in Greater London (excluding new build) stood at £628,283 in May, a monthly rise of 1.7%. Annually, this was up by 2.5%. International demand for super prime and prime property in zones one and two has not dropped off at all – the weak pound, international political uncertainty, the trade war
Robin Johnson managing director, Kinleigh Folkard & Hayward Professional Services
between the US and China and more recently soaring tensions between America and Iran make London’s property market a safe haven for international money – particularly in the medium to long-term. There are pockets of activity in the capital as well; Kensington and Chelsea and Westminster have seen prices drop off over the past few months as the froth comes out of the market. However, further out of the centre and the market is in reasonably good health. The latest figures from Zoopla showed the average price in the South stands at £323,910, up 0.6% annually with price falls concentrated on higher value areas. Lower value areas meanwhile have seen price increases. There’s also evidence that after three years of repricing in London, the slowdown is losing steam. Zoopla’s figures reveal London house prices grew rapidly between 2010 and 2016 but since then growth slowed (note, didn’t disappear) as affordability worsened. At the same time, we also saw former Chancellor George Osborne’s 3% stamp duty surcharge hit capital acquisition costs on second homes and investment properties – something that definitely had an effect in the more mid-tier market including smaller family homes and typical rental properties.
Now, according to Zoopla’s analysis, the London housing market is coming to the end of what it described as a three to four-year repricing process where many areas have experienced small, single digit price falls - perhaps unsurprising given the speed of price growth between 2010 and 2016 and the consequent pressure that put on buyers’ ability to purchase. Late last year Zoopla’s data suggests London reached the peak in terms of proportion of local markets experiencing small annual house price falls. Since then the proportion of markets registering declines has fallen. London’s lettings market meanwhile has shown signs of life. Capital Economics’ analysis shows rental growth has accelerated, driven by rising tenant demand and the continued weakness in lettings supply. In recent years, rental affordability in the capital has improved on the back of rising wages. Looking ahead, they forecast rental growth in London will accelerate further, reaching 2% a year by 2020. This chimes with our own data, which indicates a strong demand for rental properties from tenants and much improved affordability on rents over the past few years. Brexit-related uncertainty continues to weigh on most of our minds, but its effect on the London property market is weakening, gradually. Political tit for tat aside, Mr Trump didn’t visit just anywhere in England on his state visit, he came to London. Its presence as an international metropolis sets it apart; that status isn’t likely to change anytime soon.
Recent FCA guidance is contradictory I have always argued that brokers can add a huge amount of value to the mortgage process. I know there will always be borrowers who want to go it alone, and for some, this might be the right choice but I am very wary of a general push towards ‘execution-only’. And following the financial crisis, the FCA’s predecessor, the FSA seemed to agree. In its 2010 MMR highlighted the importance of proper advice to try and prevent consumers from getting themselves tied to mortgage debt that they can’t handle. But then in its Mortgages Market Study (MMS) this year, the FCA said that some consumers are “being channelled unnecessarily into advice” and that it wanted to encourage innovation in online offerings and execution only models. Now, in its latest consumer report,
John Phillips national operations director, Just Mortgages and Spicerhaart
Buying a mortgage without advice: How we might help customers understand execution-only disclosures, the FCA is warning that, by going down the execution-only route, many consumers are putting themselves at risk. The FCA found that customers who went down either application route struggled to understand the disclosure documents meaning that they are “not always aware of the consequences of a decision to make an execution-only application, including what protections they would miss out on or what rights they would retain by choosing not to receive regulated advice.” The FCA found that the disclosure document often ‘gets lost’ among other documents, that many borrowers find it hard to understand and that it is often skimmed over. The FCA also found that customers
didn’t understand what protections they have. So why are the FCA so keen to push execution-only model when, firstly, the financial crisis proves how risky pushing mortgages without advice can be, and secondly, their own research reveals that going down the execution only route is putting customers at risk? And that is before you even consider the deals that consumers are potentially losing out on by not using a broker. The bottom line is that a good broker will not only help their client find the right mortgage for their circumstances but the right protection too. They will have access to better deals, have expert knowledge of the whole market, including any incentives and deals available. Plus, they can help speed up the prices and are always on hand to answer any questions you have.
Demand for buy-to-let remains unabated Last month hundreds of landlords made the journey to London to the National Landlord Investment show, where speakers from former London mayor Ken Livingstone to the BBC’s Andrew Neil debated the future of the housing market while crowds of prospective and existing landlords talked shop with buy-to-let specialists from across the country. The sheer number of people attending this show was testament to how popular buy-to-let remains to investors – tax changes and regulation notwithstanding. Things might have got a bit tougher for landlords over the past few years – there’s been additional stamp duty to pay, a reduction in tax relief on mortgage interest for higher rate tax paying landlords, stricter mortgage affordability and a range of new rules on tenant checking, fee charging and energy performance for properties. But fundamentally, this hasn’t demolished the attractiveness of buy-to-let as an asset class for British investors. It’s still perfectly possible – indeed, soundly probable – for landlords to make a good income from one or a small portfolio of properties. The recent fiscal and regulatory changes may be conspiring to make the market more hospitable to large scale investors, backed by institutional money, but that is not to say that the more traditional smaller scale landlords cannot also survive and thrive. It all comes down to maths. And you can’t argue with the numbers.
Stuart Miller customer director, Newcastle Building Society
Mortgage availability is good
Moneyfacts released data in June showing that the number of buy-tolet mortgage products rose by 21% over the past year. There are currently 2,396 buy-to-let products on the market compared to just 1,929 at the same time last year. Lenders are finding pricing competition in the mainstream residential market increasingly tough, and margin has to come from somewhere. Those which also operate in the buy-to-let market see the longterm value that this business offers
their balance sheet, and they’re designing products accordingly. Not only has this lead to more mortgage availability, rates are also incredibly good value at the moment – great news for landlords looking to refinance in order to preserve their profit margins in the wake of lower tax relief.
Tenants are happy
Buy-to-let specialists often refer to the changing demographics and long-term trends in the UK: an ageing and expanding population; a more flexible workforce keen to be more geographically mobile but also to move job far more frequently than UK workers have done historically; the rise of single parent households; and yes, not enough housebuilding. All of these factors lend themselves to a strong private rented sector in the long term, something which is borne out by landlords’ continuing interest in investing in this market. A recent National Landlords Association survey found that most tenants have a good relationship with their landlords – 68% of tenants said they never had any cause to complain to their landlord and a further 12% said that when they had complained, the problem was solved to their satisfaction.
All too often commentators make sweeping generalisations about a market without pointing out that averages rarely tell an accurate story when it comes to the nitty gritty. Yields in London and other pockets of the UK where house prices are still very high (although dropping in recent months) may be very skinny – sub-2% in some cases. But there are also plenty of examples around the UK where yields are looking very healthy indeed. The June RICS survey showed tenant demand increased slightly for a fifth month in a row while landlord instructions declined, a persistent theme over much of the past three years. Given this imbalance, near term rental expectations are now more elevated than at any other point since May 2016, with rents seen rising across all regions and counties in the UK. This could also be partly to do with changes in the rental market with regard to fees, but that remains to be seen. Yields in the North West, North East and Yorkshire and the Humber remain the strongest, mostly due to the lower capital outlays required to invest. Cities such as Leeds, Nottingham, Manchester, Birmingham and Bristol are also performing particularly well. Data from Your Move out earlier this year showed yields in the North East top the table at 5.02%, followed by the North West at 4.8%. Wales nipped into third place with an average yield of 4.56%, before another northern region – Yorkshire and the Humber at 4.40%. Again, averages come into play here, with these figures showing a blended yield. Landlords invested in HMOs and multi-lets are typically netting far higher returns. Demand for buy-to-let is likely to remain unabated while it’s possible to find returns like these – particularly at a time when the stock markets are volatile on an ongoing basis, savings rates remain challenging even on longer term fixed rates and investors have taken fright on income yielding funds. www.mortgageintroducer.com
Buy-to-let is a long way from dead Make no bones about it, there are plenty of people who would like to kill off the buy-to-let market for good. The recent paper, commissioned by the Labour Party but not written by it, entitled ‘Land for the many’ was an attempt to be judge, jury and executioner when it came to the private rental sector, and went a long way in trying to blame both the PRS and the buy-to-let market for the problems that are endemic within the UK housing market. You do not even need to read between the lines of this paper to see that its authors want buy-to-let lending to be consigned to the mortgage dustbin, while at the same time, putting in place a series of measures which will undermine the ability of existing landlords to maintain their presence in the sector. Not least of course through rent controls, but also in terms of far greater regulation, and a series of incentives to make ‘banks’ move away from such lending. Indeed, delving a little further into it, the paper appears to be making the argument that mortgage lending of all kinds should be drastically reduced. This, it says, is because access to cheap credit inflates house prices to levels beyond the means of ordinary folk. It also wants a Labour government to stabilise – i.e. reduce – house prices in order for wage inflation to catch up. How long this might take is anyone’s guess? In the meantime, it begs the question where people might be expected to live if they can’t afford to buy a home, or can’t get access to severely restricted credit, or can’t find enough private rental properties because landlords have been forced out, or can’t find social housing because there isn’t any, etc, etc. Talk about cutting out all options for those who might actually want a roof over their heads. However, while there’s no doubting that a future Labour government would be likely to continue being interventionist in the PRS/buy-towww.mortgageintroducer.com
Bob Young chief executive, Fleet Mortgages
let sector, one wonders just how far it would go? Would it really want to kill it off completely? That’s doubtful for any number of reasons, not least the housing gap, but because – in my view – it can’t be killed off. Let’s get this straight, the sector is by no means indestructible, but to my mind, buy-to-let stakeholders – particularly landlords – are incredibly resilient and we also have a lending community that recognises its importance and that, done correctly, it can be a force for
“Most landlords are happy for their property investment to ‘wash its face’ and little else” good and it can house people who either can’t, or don’t wish, to buy. A point which is often forgotten by those who would seek to kill off buyto-let, forgetting about the PRS’s importance to social mobility, for example. And while the market has clearly suffered the slings and arrows of outrageous fortune, and criticism, and plenty of political and regulatory intervention in recent years, it has adapted and survived. Landlords will know they are a demographic that is under considerable pressure, and I’m afraid that’s unlikely to stop, but they are also realists and they can also see the benefits of being
involved in buy-to-let, even if the profits available are down, to an extent where they are non-existent to most. It will not be high on the agenda of many politicians, but most landlords are happy for their property investment to ‘wash its face’ and little else. Talk of huge increases in rental income are pretty fanciful for most landlords – they have to exist within market conditions after all, and even if you were able to up your rents would you be able to cover all those increases in costs? The point is that, even with all of these pressures and the greater difficulties landlords have in making their portfolios work, buy-to-let is still a growth activity. Just recently I saw research from Hamptons International which said that the proportion of properties bought by landlords, in the first five months of the year, had gone up 1% compared to the same period in 2018. While the percentage of homes sold by landlords had fallen to 14% from 16% last year. So, without going overboard here, landlords are solidifying their existing portfolios and, where the figures allow, adding to them. Not in massive numbers of transactions but certainly these statistics appear to show a movement off the bottom and an ongoing commitment to the sector, in that we are also not seeing a full-blown exodus of landlords from the market. Neither will we much to the chagrin of some. That is good news in so many ways, not least for advisers who have plenty of product options for landlord clients seeking to remortgage, but also in terms of a growing appetite to purchase, which can also be catered for, especially in a much more complicated and specialist market. This sector is a long way from dead and, in my view, given that it has survived the past few years, it’s in a good place for all those who wish to make the most of the opportunities it provides. MORTGAGE INTRODUCER
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The growth in rental and HMO Earlier this year, The Office for National Statistics produced two separate pieces of research analysing the state of UK housing. A review of the ‘Housing Affordability in England and Wales’ and ‘The UK Private Rented Sector’ provides solid evidence of recent trends and an indication of where we are heading next.
The latest research indicated that, on average, full-time workers can expect to pay just under eight times their annual workplace-based earnings to purchase a home in England and Wales. Last year affordability stayed at similar levels in 2018 but this follows five years of decline. Looking at the regions, 77 local authorities became less affordable over the last five years. Unsurprisingly most of these were in London, the South East and the East of England. There were no local authorities in which affordability improved. Copeland, in the North West of England, remained the most affordable local authority with average house prices being two-and-a-half times the average workplace-based annual earnings. Kensington and Chelsea remained the least affordable with average house prices being nearly 45 times workplace-based average annual earnings. I found it fascinating to see that new-build properties were estimated to be significantly less affordable than existing dwellings.
Private rented sector
We all know there has been an increase in the private rented sector but the analysis paints a detailed picture of where we are right now. The number of households in this sector in the UK has increased from 2.8 million in 2007 to 4.5 million in 2017, an increase of 1.7 million. Younger households are more likely to rent privately than older households. In 2017 those in the 25 to 34 years age group represented the largest group at 35%. Howevwww.mortgageintroducer.com
Anita Arch head of mortgage sales, Saffron Building Society
er, households in the private rented sector have been getting older over the last 10 years. The proportion of households with occupants aged 45 to 54 increased from 11% to 16%. 62% of households in the private rented sector in the UK had spent less than three years in the same accommodation and only a small proportion (4%) had been in the same residence for more than 20 years.
times higher4. There is less risk of ‘void periods’, which occur when the property is empty between rental periods. With multiple occupation this risk is spread across multiple tenants. This also applies to arrears; with multiple tenants, landlords are less exposed if one of them falls behind with the rent as there will be others still paying.
More people living alone
The drawbacks of HMOs
A report in The Guardian in April revealed that there has also been an increase in the number of people living alone. The number of those living on their own increased by 16% between 1997 and 2017, to 7.7 million and it is predicted that nearly 11 million people could be living alone in 20 years’ time. The new research found that the rise in single-person households was greater than the population increase of 13% and was concentrated in midlife and older age groups. This increase in single living reveals the trends we can expect over the coming years in the mortgage market.
HMOs can be more complicated to manage. There is more legislation and there are more planning requirements than with more straightforward buy-to-lets. Some landlords find it harder to raise finance, but we have tried to simplify the process through a combination of our expertise and new product range.
“We believe that HMOs are going to be a major growth area for the foreseeable future”
Houses of multiple occupation
Many landlords know that ‘homes of multiple occupation’ (HMOs) can make very good investments. HMOs have the potential to provide rental yields that cannot be achieved with standard buy-to-lets. Add this to the reduction in affordable houses and the increase in the rental market, and with more people now living alone it is easy to see why this area is bound to grow if these trends continue. Saffron Building Society have launched their own range of HMO mortgages and we expect other providers to follow. It will pay mortgage brokers to know the requirements in detail as this can be a complicated area. HMOs offer many benefits but there is also more to think about.
The benefits of HMOs
The largest benefit of HMOs is that rental yields can be as much as three JUNE 2019
Not every property can work as an HMO, so the number of suitable properties in an area might be limited compared to single lets. Capital growth can sometimes be lower, as when a property has been converted into an HMO the resale market consists almost exclusively of specialised landlords. Finally, the up-front costs of an HMO start-up can be higher than traditional buy-to-lets, as the property often needs refurbishment to comply with additional environmental health and fire regulations.
The future of HMOs
We believe that HMOs are going to be a major growth area for the foreseeable future, and brokers will be able to benefit if they focus on this segment and are working with flexible lenders who can help. MORTGAGE INTRODUCER
The outlook is changing for buy-to-let The summer months are now well and truly upon us and there are signs that the buy-to-let market has shaken off some of the winter clouds of discontent as we look to settle into a far sunnier outlook for the sector.
Following on from the raft of regulatory and tax changes, UK Finance’s Mortgage Trends Update for April suggested that the buy-tolet market has settled down after a sustained period of subdued activity. There were reported to be 5,100 new buy-to-let house purchase mortgages completed in April, the same as in April 2018, and there were 14,400 remortgages in the buy-to-let sector, which again reflected the same level of activity as April last year. This data flies in the face of ongoing negativity surrounding BTL from some commentators within the industry, and beyond it. There is no doubt that we are operating in a marketplace which is less attractive for a small proportion of the landlord community, but we are also seeing healthy competition from lenders across all areas of the BTL product spectrum. Indeed, products numbers are suggested to have reached their highest level since October 2007.
Ying Tan founder and chief executive, Dynamo
The number of buy-to-let products available on the market has risen to 2,396, the highest figure seen since the start of the financial crisis in October 2007 when the number of products stood at 3,305. Recent data from Moneyfacts showed that since June 2018, the total number of available buy-to-let products has increased by 21%, and in the past month alone it has risen by 143 products. Breaking this down, early June saw 2,396 products on the market, representing a 21% increase on the 1,929 available in June last year. Meanwhile, average buy-to-let mortgage rates have also risen over the past 12 months, with the aver-
age two-year fixed rate increasing by 0.17% from 2.88% in June 2018 to a current level of 3.05%. The average 5-year rate also rose by 0.11% to 3.54%. However, to maintain a little bit of perspective, rates do remain significantly lower than in October 2007 when the average 2-year buyto-let fixed rate stood at a whopping 6.36% while its 5-year counterpart stood at 6.39%. This data highlights heightened activity amongst lenders which is leading to increased choice across many product areas.A greater number of options are certainly emerging at the more specialist end of the BTL product range, and areas such as limited company offerings, HMOs and short-term lets are attracting the attention of a variety of landlords. It appears that the market will continue to head in this direction, and with so many products and product types now on offer, it’s more important than ever for landlords to seek the right kind of professional advice which will help them secure their portfolios and financial futures over the short, medium and longer term. Opportunities arising from an ever-evolving property market really have changed the landscape when it comes to homeownership and investment potential over the years. And it’s important for intermediaries, landlords, investors, developers
and all types of borrowers to keep track when and where possible.
Shifts in property type, demand and demographics
According to new research from the Resolution Foundation, in Britain, property wealth from second homes is suggested to have hit a total close to £1trn, a hike of more than 50% over the past two decades. The total property wealth from second homes for UK residents, buy-to-let investments and overseas property has risen in value from around £610bn in 2001 to £941bn. The number of British adults in families who have wealth from properties additional to their own home increased by over 50% this century to reach 5.5 million. A figure which represents around one in 10 of the UK population. The Resolution Foundation thinktank, which compiled the report based on the latest available figures from 2014-16, said the boom in the buy-to-let market and the rise of the amateur landlord was the flipside of falling levels of home ownership for the UK population. Of the estimated 23.2 million households in England, 14.8 million (64%) are owner-occupiers, down from a peak of 71% in 2003. Almost two million people were reported to own rental properties, up from about 1.2 million in 2008, while the total number of buy-to-let mortgages has risen by about 15 times since the turn of the millennium. This report makes for some interesting reading. We all realise the issues facing those looking to get onto the property ladder, but what intermediaries should also note from this data is just how many people with second properties – for whatever purpose – need good advice to maximise these assets from a personal, family and professional financial standpoint. Bricks and mortar will continue to play an influential role for all generations past and present, and intermediaries remain best placed to help every one of them on their mortgage journey. www.mortgageintroducer.com
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Buy-to-let: what’s in the news? News of the World, News of the World. This is one of the songs that sticks out after recently seeing From The Jam, a band comprising of one former member of The Jam (Bruce Foxton) who pumped out 90 minutes of solid blasts from the past. With this song still at the forefront of my mind, I thought I’d use it as an excuse to look at some recent headlines in the national media surrounding the wonderful world of buy-to-let.
Jeff Knight director of marketing, Foundation Home Loans
Whilst we shouldn’t ignore how great it is to see such a positive headline, my only concern is around the words – join the party. I’m sure this is a perfectly innocent headline but if we are to learn from the mistakes of the past, careful wording is needed so as not to send out the wrong messages – unintentionally or not. Let’s be realistic, being a landlord in the current tax and regulatory regime stops way short of party-time, it represents a lot of hard work. Buy-
“Dinner party landlords must really question their motivation for that second home property purchase” to-let has not suddenly swung back in the favour of all landlords. The current marketplace is not one which will suit the financial and personal needs of everyone, and the last thing we want to see is landlords entering the market just because they want to keep up with the Jones’. We are operating in a far more professional BTL world where dinner party landlords must really question their motivation for that second home property purchase. There is an increased emphasis on limited company lending and a growing portfolio landlord marketplace, and I believe that it will MORTGAGE INTRODUCER
The Telegraph - Buy-to-let: the tech that makes property investment easy
Articles around technology, gadgets, systems and solutions are everywhere. Some of the technology featured included apps to help find tenants – referred to as Tinder for renting. It also focused on technology to support documentation, rent collection, portfolio management and made for some fascinating reading. As a forward-thinking lender who has invested heavily in tech, we’re always interested in current trends and what the future might have in store. In a business sense, it’s important to keep informed of any technological developments which could add value to borrowers and intermediary partners. After all, the successful integration of technology can make a huge difference to many types of mortgage-related business, especially in terms of making admin processes more efficient and helping to speed up the application process. Meaning lenders, intermediaries and landlords need to be constantly assessing the types of tech which works for them, and correctly incorporating the right tools to help them better manage their individual needs.
The Times – Buy-to-let is back: why not join the party
only continue further in this direction. Now the last thing I want to do is deter new landlords from entering the sector – far from it – but it’s important that their eyes are wide open to current market conditions before entering ‘the party’, otherwise they could simply be left nursing a large hangover.
The Times - Buy-to-let professionals denied best mortgage deals
The article suggested that the more professional landlord who has set up as a limited company are being denied good deals. Again, such a headline is left open to a little too much interpretation for my liking before delving into the real facts of the mat-
ter. Although this can often be the case with many headlines. Not all BTL lenders can offer limited company deals because they haven’t got the expertise or appetite for an area of lending which is a little more complex. Even though this product area has seen vast growth over the past 12 to 18 months, it is still deemed to be at the more specialist end of the BTL sector. And such a headline belies how much this marketplace has evolved and how competitive/ appealing it has become for a range of landlords. We are a lender which doesn’t differentiate in our rates between individual and limited company offerings. However, for lenders not as well equipped in this field it’s understandable to have a different pricing strategy. Such stories can make it tricky for intermediaries when placing cases, as it may lead to some clients having a preconception that they will only have access to higher rates rather than a flat lending rate as offered by some specialist lenders. A factor which also highlights the importance of the advices process throughout the BTL sector.
Various - Age-related lending headlines
I have noted several articles in recent times around later life lending and the age of landlords. It does appear to be the case that landlords are getting older, but this is becoming less of a problem as maximum age restrictions at the end of product terms are rising, and in some cases lifted altogether. For example, here at Foundation Home Loans, our max age at the end of a term is 85 and we have no limit on limited company applicants. It’s important to get the message across that age is no limitation for landlords. This is down to the education process and the quality of advice on offer to individual and portfolio landlords, a process which extends way beyond any single headline. www.mortgageintroducer.com
Keeping with the times The famous saying: ‘there are three kinds of falsehoods: lies, damned lies and statistics’ is usually said as a way of explaining how numbers can be manipulated to bolster a weak argument or as a convenient way of dismissing what someone else is saying. But as we live in a world where we’re being increasingly bombarded by information and statistics from the internet, social media, emails, countless TV channels and rolling 24-hour news; who and what can you believe? Here at Precise Mortgages, we use a leading research company to provide us with the clear incontrovertible evidence we need to identify emerging trends in a constantly evolving market.
Points of interest
Our latest research has revealed some very interesting findings, especially for brokers who may have been approached by customers wanting to develop their property portfolio, looking to explore the opportunities offered by Houses in Multiple Occupation (HMOs) or thinking of running their buy to let business as a limited company. For example, did you know the typical landlord now has nearly 10 properties in their portfolio worth around £1.4m generating an annual gross rental income of £66,000? Landlords with 11 to 19 properties
Alan Cleary managing director, Precise Mortgages
are now achieving mean rental yields of 6% rising to 6.3% for those with 20 or more properties, meaning the more properties a landlord owns, the more likely they are to make a fulltime living from renting property. With the buy-to-let market maturing and becoming more professional, it’s interesting to know that 53% of landlords intend to buy their next buy to let property through a limited company structure, double the number who said they would buy as an individual. That figure rises to 69% amongst landlords who own 11 or more properties. This knowledge has played a key role in how we can make life easier for portfolio and limited company landlords. With the market becoming increasingly professionalised, the new underwriting rules means they have to provide more information. With portfolios growing larger, we’ve set up a dedicated team to do the heavy lifting by handling all of the extra paperwork that’s now required. We’ve also extended our top slicing option to make it available to limited company and portfolio landlords. Landlords are also looking for new ways to maximise their rental yields, with many of them exploring HMOs as a way of diversifying their property portfolios. As HMOs attract multiple tenancies, gross rental income tends to outstrip
single lets, even if one tenant leaves a void. That’s borne out by the figures which show that HMO landlords enjoy the highest average yield of 6.9% compared with the average overall rental yield of 5.8%.
Outside the box
Landlords are looking outside the traditional buy-to-let hotspots and investing in areas such as the North East, Wales and the South West. Again, access to this sort of information has been vital in helping us design a range of products aimed at landlords looking to invest in an HMO. Our recently enhanced refurbishment buyto-let proposition allows for the change of use to an HMO with up to six bedrooms using permitted development rights, provided there are no structural alterations or changes to the footprint of the property. This could be ideal for customers looking to convert a residential property to an HMO. In an age of information overload when it can sometimes be difficult to see the wood for the trees, the value of well-targeted research can’t be underestimated. By enabling us to cut through all the noise, it helps us to carry on developing the new products and criteria which meet the changing needs of our customers.
Review: Mortgage Savers Review
The self-employed are being let down by the industry There are 4.85 million self-employed people currently working in the UK. It’s estimated this number will rise to 5.5 million by 2022. With the rising power of technology, a preference for flexibility, and financial incentives, it’s no surprise that the self-employed community could soon outnumber the public-sector workforce. The mortgage industry hasn’t kept pace with the needs of this growing group. At Trussle, we recently published our third Mortgage Saver Review, an annual report that highlights existing issues in the industry, and proposes solutions to make mortgages fairer across the board. Using insight from lenders and mortgage applicants and borrowers, this year’s report focuses on the mortgage challenges faced by one of the largest communities in the UK: the self-employed.
Dillpreet Bhagrath mortgage expert, Trussle
With mortgage approval rates lower for the self-employed than any other group, many face a complex and lengthy journey to home ownership. Risk modelling for the self-employed is often impacted by varied income, which could be a result of seasonal work, short-term contracts, or maternity leave. This can mean they’re viewed as more risky by lenders, increasing the chance of self-employed applicants being penalised or overlooked. As a result, the self-employed often find themselves jumping through extra hoops to get onto the property ladder, which includes: Having their affordability assessed on two or more years’ accounts and income, instead of current earnings Confusion when it comes to how they’re categorised by their employment status, which can vary depending on how much of the business they own. This makes the process convoluted and increases the chance of the applicant making
mistakes during the process Needing to provide additional documents to prove their income In addition to a typically more confusing and convoluted mortgage process, 37% of self-employed borrowers have admitted to making worrying lifestyle changes and professional sacrifices to get onto the property ladder. Sacrifices include delaying having children or abandoning their self-employed status altogether. Not only this, but more than half (55%) of self-employed borrowers who felt overlooked or penalised due to be being pregnant, believe they were treated different during their mortgage application process. As an industry, we can work more cohesively with the government and the regulator to better serve this growing group. We should consider improving credit risk models to account for earnings trajectory to give a more accurate indication of borrowers’ current and future income.
“We’re using our data to help design new products for underserved groups, like the self-employed. Our ambition is to make home ownership accessible for everyone and this is a big step in that direction” Financial assessments should be streamlined to ensure all income sources are accounted for, making the process fair for everyone. Since the Open Banking regulation came into force in January 2018, some lenders have enabled borrowers to make smarter decisions about their finances. Integrating Open Banking into the mortgage industry has the potential to empower those in unique financial circumstances with multiple income streams, like JULY 2019
the self-employed, access their balances across multiple accounts in one easy to use platform. This may help to speed up the process of providing proof of their various income streams. In addition, HMRC has proposed a new initiative from next year called Making Tax Digital. This initiative will overhaul tax administration, making the process more straightforward and efficient for taxpayers. This has the potential to improve the accessibility of tax documents for the self-employed, which in turn could help to make their mortgage applications smoother. Much like the financial freedom Open Banking will provide, lenders should be able to liaise directly with HMRC to request customer details, provided prior permission from the applicant has been granted.
Guidance and advice
We also believe that communication can be improved between accountants, brokers and lenders to ensure that the specific circumstances of self-employed mortgage applicants are assessed fairly. Accountants should ideally advise clients who have just become self-employed to speak to a mortgage broker about their current or future mortgage options, while brokers should ensure self-employed customers have received proper business structure advice from an accountant. We must prioritise the accessibility of guidance and advice for self-employed applicants during each stage of the mortgage process. At Trussle, we’re on a mission to fight for fairer mortgages. We’re using our data to help design new products for underserved groups, like the self-employed. Our ambition is to make home ownership accessible for everyone and this is a big step in that direction. Support comes from the HomeOwners Alliance as chief executive, Paula Higgins, adds: “The mortgage industry and government need to wake up to the world in 2019 and do more to support the selfemployed into homeownership. The industry should treat all applicants fairly and deliver a top notch service to the self-employed sector which will continue to grow.” www.mortgageintroducer.com
Understanding the appeal of Islamic home finance I’m regularly asked to explain the differences between Islamic home finance and conventional mortgages. The number of home finance providers is constantly growing, and consumers today have more options to choose from when it comes to getting onto the property ladder. Islamic finance is growing in awareness among mainstream audiences but there are still a number of misconceptions to dispel. Islamic mortgage alternatives – Home Purchase Plans (HPPs) – are based upon the Islamic principles of co-ownership: the customer and the bank purchase the property in partnership. Each monthly payment increases the customer’s ownership of the property, at the same time as paying rent for use of the portion that the bank still owns. When all payments have been made, the customer then has sole ownership of the property.
This differs from a conventional mortgage where the purchaser borrows money from a lender which is then repaid with interest. Islamic financial principles prevent you from borrowing or lending money in exchange for interest as Muslims believe that interest introduces unfairness in transactions which can ultimately lead to unfairness in society. Al Rayan Bank is the UK’s oldest and largest Islamic bank and is committed to making Islamic banking products as widely available as possible to customers across the country, as well as expats living abroad looking to buy property back in the UK. While our appeal is centred among the Muslim community, the ethical nature of Islamic home finance resonates with mainstream audiences too. In recent years, Al Rayan Bank has attracted ethicallyminded consumers who consider its products for reasons other than their www.mortgageintroducer.com
Maisam Fazal chief commercial officer, Al Rayan Bank
faith and support the idea of equitable distribution, fair trading and the well-being of the community. While progress is clearly being made when it comes to raising awareness of the non-traditional routes to owning a home such as Help to Buy and shared ownership, a clear majority don’t know where to start when it comes to getting onto the property ladder. According to recent research , 47 per cent of people believe they will never own a home. Knowing what’s available is as important as knowing how to get started. And with more ethically-conscious customers populating the market, debunking some of the myths around Islamic home finance is vital in meeting these people’s needs. Firstly, it is sometimes believed that only Muslims can invest their money in Islamic banks. However, Islamic banks appeal to those of all faiths and none - their appeal extends beyond their religious beliefs. Ethical banking is becoming increasingly important to customers today, particularly millennials, which has also enabled us to expand our customer pool. The ethical nature of Islamic banking – not only for home finance but for savings products too – is particularly attractive to potential and existing customers who are given certainty that their funds will only be invested in ethical, Sharia compliant investments. Islamic banks like Al Rayan Bank do not invest deposits into activities deemed un-ethical, such as gambling, speculation, tobacco and alcohol. Secondly, there is still the belief that Islamic home finance is expensive given there are few providers in the market, creating less competition. But HPPs from Al Rayan Bank are competitively priced when compared to the market overall, especially when features such as low administration fees and no early JULY 2019
settlement fees are considered. The bank offers the UK’s largest range of Home Purchase Plans (HPPs) and is currently the only provider to offer 90% and 95% finance to value (FTV) HPPs, specifically designed for customers who can afford payments on their home finance, but may not have a large deposit saved, such as many first-time buyers. In addition, Al Rayan Bank offers a range of buy-to-let purchase plans, including the recently launched limited company buy-to-let, which allows landlords to invest in buy to let in a potentially more tax efficient way.
Finally, we sometimes encounter the assumption that Islamic banks are not regulated in the same way as other UK banks. This is not accurate; Al Rayan Bank is a UK bank and is fully regulated by the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA). As with other UK regulated banks, all eligible deposits with Al Rayan Bank are protected by the Financial Services Compensation Scheme (FSCS). The FSCS provide savers with automatic protection of values up to £85,000, in the instance of your bank, building society or credit union going out of business. With more and more people wanting to know exactly how their money is being invested, whether they are depositing money into a Home Purchase Product (HPP) or a savings accounts, people are turning to the transparent and ethical nature that Islamic banking offers. But there’s still work to be done to drive engagement with Muslim and non-Muslim audiences alike – demand is clearly out there. Working with well-known intermediaries and showcasing government support towards new entrants to the market that provide alternative and ethical ways of banking will inevitably help to drive this engagement, providing people who were previously excluded from the property market - whether that’s down to their religious, ethical or their financial circumstances - the opportunity to own their own home. MORTGAGE INTRODUCER
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More than insurance? Life insurance and income protection (IP) products that allow clients to align their cover with their long-term health – in terms of cheaper premiums and the encouragement they need to live a healthier life – could be just what’s needed to help shift protection into a more sought-after space. Insurance has long been seen by clients and sometimes advisers as something that they just stick in a drawer, never to see the light of day again unless they need to claim. Or perhaps to cover briefly in the annual review. But in recognition of this, a number of protection products now include added-value benefits: anything from virtual GP services and Health MOTs to discounts off the weekly grocery shop. Healthy living programmes, such as those from Vitality, allow members to benefit from premium reductions in return for getting fitter, which represents a win-win for the insurer, the member and, arguably, for society. It’s a concept that seems to be doing well considering Vitality’s latest results which show that for 2018, the provider saved members
Kevin Carr chief executive, Protection Review and managing director of Carr Consulting & Communications
a total of £40m in premiums and handed out £81m worth of rewards and benefits. Vitality tracked 41m healthy activities, from gym visits and park runs to meditation time while paying out 99.8% of all life claims, 97.8% of all IP claims and 91.2% of serious illness cover claims. Peter Chadborn, financial planner at Plan Money, said: “Buying protection insurance has typically been seen as a reluctant purchase, partly because of the often-laborious application process (for sellers and buyers) but primarily due to the fact that the applicant is committing premiums towards something they hope to never need. “Mortgage brokers and advisers could benefit from polices which encourage more client engagement because it can help shift the policy ownership sentiment from reluctance to aspirational. “Vitality is leading the way in this regard, and as long as the technology works well for the customer, I have no doubt that polices which encourage and reward active and healthy lifestyles will result in reduced claims for insurers, and to a certain extent, a more loyal book of policy holders.”
I love you, you pay my rent The rental market is in the protection spotlight at the moment. No sooner had Swiss Re cited it as a huge opportunity for potential protection sales in the future - caveated with the need for better messaging around the products available - Legal & General announced the pilot of a Rental Protection Plan (RPP) as part of a pilot with Mortgage Advice Bureau. Swiss Re’s latest Term & Health Watch report, published in June, showed 23% growth in mortgage protection sales last year, attributing the growth to Brexit uncertainty and increased mortgage activity. At the same time, Swiss Re reported that the private rental sector has
doubled in size since 2002 and renters are spending, on average, 35% of their income on rent. Whilst the reinsurer acknowledges the potential of the market and the relevance of existing protection products, it added that the product messaging needs to be better tailored in order to resonate with renters. Meanwhile, Legal & General’s pilot sees the provider offering three bespoke rental products: rental IP; rental life insurance; and rental life insurance with critical illness (CI) cover. The main advantage of these products over existing protection is cited as a guaranteed insurability option, meaning that if the rent increases, the customer is covered.
News in brief • Shepherds Friendly Society paid 95.8% of IP claims in 2018, a year in which it also experienced a 7% growth in membership. • Mortgage Advice Bureau, which has a strong presence in Scotland, has agreed to acquire 80% of independent mortgage broker First Mortgage Direct Ltd. • Julian Harris Network is to roll out IRESS’ integrated mortgage and sourcing software XPLAN Mortgage for all its 132 mortgage advisers in a bid to improve adviser access to accurate mortgage and protection data. • Reports of an increase in life insurance cold-calling have led to members of the industry calling for a ban, similar to the ban on pension cold-calling that came into effect in January this year, according to a report in FT Adviser. • 18.3 million people in the UK are living in ‘illness denial’, failing to accept they could be at risk of serious medical conditions, according to a survey by AIG Life. • Consumer choice brand Which? has announced that it plans to close its mortgage and protection advice arms. • 60% of people in the UK don’t have life insurance, in spite of 43% of them having children, according to MoneySuperMarket. The main trigger point for purchasing life remains the purchase of a house (28%). • Protection provider Guardian has partnered with LifeQuote to make its range of protection products available on the LifeQuote portal. •Legal & General has partnered with Mortgage Advice Bureau to launch a rental protection plan (RPP) for tenants, becoming the first UK provider to offer this type of product.
Could you call a friend? According to a recent study by AIG Life, more than half of adults in the UK are in denial when it comes to the likelihood of them suffering a serious illness. Some 54% of the 3,000 adults AIG surveyed said they didn’t think they were likely to suffer with cancer, heart disease or a stroke; despite the odds of one of these conditions befalling the average adult being much higher. This optimism bias should come as no surprise to anyone who has tried to sell life insurance to customers. Despite its (usually) low premium, customers are often blasé about the need for the cover and will rarely engage on the topic unless prompted. Similarly, critical illness cover needs serious prompting for most customers to engage with it sensibly despite the much-publicised statistics about people’s propensity to develop relevant conditions.
Phil Jeynes head of sales and marketing, UnderwriteMe
For mortgage brokers, it’s often the timing of the discussion which is the problem. By definition, most customers reaching the end of a mortgage application are in an optimistic place in their life: they’re either buying or re-mortgaging a home, they’re gainfully employed and probably in good health. If you could catch them at a lower ebb, the chances of making a sale would likely be much higher. A good tip one broker shared with me is to open the conversation about protection cover early in the mortgage process. At least one large firm I’ve known for many years refer to their brokers as “mortgage and protection”, thereby bringing the discussion about insurance into the journey on day one. This shifts the emphasis away from a negative: “we’ve sorted your mortgage, now what if something goes wrong?”, to a positive: “I’m going to sort out your mortgage and
make sure whatever happens you can pay it”. It’s a subtle distinction but one which changes the tone of insurance sales, making it feel less, well, salesy and more intrinsically part of the home buying/re-mortgaging process. Another element of the AIG study which drew my attention, was the admission from 77% of respondents that a serious illness in the next six months would cause them financial difficulty, with 33% suggesting they would need to rely on friends and family for support in such circumstances. This highlights the inherent contradiction in customers’ minds and illustrates that, with the conversation started in the right way, most would be sensible enough to acknowledge that protection would be wise. I wonder how many, when pressed, could name the friends and family who would be willing and able to pay the bills!
Don’t overlook family income benefit I enjoy adviser campaigns and one of the reasons is due to the surprising new findings that emerge along the way. This happened again recently during the course of our Rewire Routines protection campaign, when a product provider told me that only 1% of their overall intermediary business written was done so on a family income benefit basis. They also gave me feedback about how much people with this cover value the benefit; my only frustration is there isn’t enough of them. It reinforces my belief in the need for advisers to focus more on protecting income both during life and in death. From an adviser perspective, I believe one of the most important things you can do is to replace a person’s income. It’s one of the most important conversations for an adviser to have, and it will help to ensure that the family continues to have an
income should the main breadwinner die. However, we have to ask ourselves how much easier we can really make family income benefit cover to take out, given the advances already made in rates and improved underwriting over recent years? Again and again it comes back to the mindset of advisers and customers. It’s about shifting the focus away from just clearing debt or giving people a lump sum. The focus instead needs to be on the benefit of providing an income for customers when they can’t work, and also for their family if they die. So what steps do we need to take to get advisers to recommend it more often? After all it’s a simple concept for people to understand. If, for example, you have £2,000 of essential outgoings each month then you need to ensure your family JULY 2019
Jeff Woods campaigns and propositions director, Sesame Bankhall Group
continues to receive £2,000 regular income if you die. However, beyond this, is there also an opportunity to develop a more simplified process for underwriting protection business – making it even quicker and easier? The risk to providers on family income benefit over a fixed term is relatively low in comparison to other forms of protection cover, such as critical illness and income protection, so can providers find a way of shortening the process further to make it easier for advisers to recommend and customers to buy? If you signed-up to Rewire Routines then thank you and – please – don’t stop there, because it’s about changing habits long-term and always having the conversation about protecting people’s income, so keep it going. By creating and maintaining healthy habits we will deliver great outcomes for our customers. www.mortgageintroducer.com
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Take advantage of the digital age Some statistics keep niggling at me. Right now, 40% of homeowners with a mortgage don’t have life cover, and much as 70% don’t have critical illness cover. Four in five (80%) have no income protection. As an industry, we often consider how to position protection with mortgage-shopping clients. But we talk about presenting the hard-hitting facts and the realities of protection – or more accurately not having it – without factoring in that moving house is a complex and costly, allconsuming beast. For many, adding insurance on top is just too much to take in. Overlay that pressure with the apathy, mistrust and lack-ofknowledge around the whys of protection – and it slips down a hefty to-do list. If someone doesn’t go ahead there and then, what happens?
Emma Walker chief marketing officer, LifeSearch
Having just been through getting a mortgage, no one has yet followed up to revisit my protection needs. That’s okay for me, but this has also been a recent experience for no fewer than four people in my circle of friends and family. They emerged from the mortgage process either not-protected, or with protection in place that’s completely insufficient. This is not good enough. My immediate circle doesn’t represent a scientific panel, but it’s a solid straw poll – and it’s worrying. It’s worth remembering that if you’re not flagging or positioning protection correctly, or followingup with your client, then someone else might. Savvy marketers have targeting and data models that track online behaviour to identify those people in the mortgage zone, or who are exploring protection products.
Following up with your client is a must so let’s think about how to do it better. First, let’s remind people why they took out that mortgage in the first place. And many selling the products need to reshape their language: to you it might be a customer and a mortgage. To them they’re a parent, a partner, a family – and this is a home. With that, use what we know to make the message relevant and impactful: a new home card, quotes based on what you already know about the family. And make use of email and social media. The digital world is there for us to use to our advantage - it’s easier than ever to connect, converse and create opportunities to present your product at its most relevant, most human light for people who genuinely need it – but don’t always know it.
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Responsible debt handling Debt and mental health are recurring issues. And you don’t get much higher a debt than the average mortgage or more chance of a mental health issue if the repaying of that debt becomes difficult. Interest-only mortgages have always raised eyebrows by those who consider them more of a liability than any other type of mortgage. You can fail to pay down any mortgage of course but it appears to be thought it more likely that an interest only mortgage won’t be paid off than a repayment one. Which is way certain sectors of the market welcome the fact that the number of interest-only mortgages fell by 13% in 2018 compared to the previous year, according to UK Finance, the trade association for the UK banking and financial services sector.
The association heralds an ‘industry-wide commitment by regulated mortgage lenders to contact all interest-only borrowers with loans scheduled to mature before the end of 2020, to ensure they are on track to repay their loans or work out an alternative solution’ as the reason why the total number of pure interest-only mortgages has now fallen by 54% in the past seven years, from 2.5 million in 2012 to 1.23 million in 2018. Interest-only mortgages have had a meaningful place in the market and have helped many such as the self-employed and those on fluctuating income to manage their finances and their debt. The danger of course is the not paying down – but any responsible borrower, lender and broker would have established a repayment programme of some sort in place – a commitment to make lump sum payments regularly, even if that meant once a year; and to have a savings programme in place to provide or support those lump sum payments. When we talk to mortgage borrowers we are all debt counsellors in one sense. The key issue around www.mortgageintroducer.com
Steve Ellis head of risk and protection, Premier Choice Group
any mortgage is the ability, commitment and organisation to pay off that mortgage. It might seem obvious to say it but if there is a risk of a client not considering paying the mortgage to be their number one financial commitment then we’ve not done our job properly and we need to revisit and remind them of that. Misfortune can befall anyone but there are tools that can be put in place to protect against that – insurance to provide in circumstances such as death of one of the mortgagees or an accident or illness that means they can’t work. None of us can ultimately insure against someone determinedly negligent in paying their debt but we can help those who want to.
Loss of job not home
There are too many news bulletins announcing jobs losses from our steel industry (or is it someone else’s steel industry these days?) to retail with big brand retailers closing down completely or closing significant numbers of outlets. Recent statistics from an alliance in the North East specify 72,000 fewer public sector workers than 10 years ago. IPPR North, a think tank, says that the North East has seen the biggest percentage cut to public sector workers of all of England’s regions. There has been an 18% fall in jobs in the sector in the North West, a 19% fall in Yorkshire and the Humber, a 20% fall in the West Midlands and a similar percentage in the South West, a 15% fall in the South East, a 13% fall in the East Midlands and 9% falls in the East of England and London. Whichever way you cut it these are huge losses – I am not sure we can argue the postcode lottery, nor can we assume public sector workers are more at risk than private sector ones, when we are advising mortgage clients around the country. But we can make the point that no one is immune to job loss – a job in the public sector is no longer a ‘job for life’ – if indeed it ever was. We JULY 2019
can make the point that we are all at risk of a job loss and where possible we must factor that in to every long or short-term debt decision we make. We must make clients ensure that their debt – their mortgage – is affordable when all things are equal and going to plan and when things are not going to plan.
A sensible approach to debt
There are many initiatives and sources of help and advice to tackle debt. The key is knowing what and where they are so that they can be activated, accessed or applied swiftly and before debt gets out of hand. A new such initiative is the Breathing Space scheme announced by the government, which will give protection to individuals with problem debt by freezing interest payments and halting enforcement action from creditors; help those in mental health crisis will see further protections while they receive treatment and help individuals and families struggling with problem debt with extra help and time to get their finances under control. The help will take the form of a 60-day Breathing Space period from 2021, during which time ‘individuals must engage with professional debt advisers, so they can find a longterm solution to their debts and get back on track with payments.’
Those receiving NHS treatment for mental health crisis will not need to seek debt advice during the 60-day period so that their treatment can run unimpeded by increased stress. And for those with problem debt there will be a Statutory Debt Repayment Plan to help them to repay their debts over a manageable timeframe. A really helpful feature to this will be that the plan will ‘adjust as people’s life circumstances change, which could mean decreasing monthly payments if their disposable income has changed.’ This is all really helpful – pity we have to wait until 2021 – but the principles of the approach should be applied now by all those in debt and dealing with debtors. MORTGAGE INTRODUCER
Don’t throw avocado stones at millennials Did you know the cost of 52,413 avocados is equivalent to the average recommended deposit for buying a house (£45,600 according to the Money Advice Service). That’s a lot of avocados. My conclusion? Cutting avocados out of your diet isn’t going to buy you a home. I haven’t randomly developed an interest in the cost of fruit (and yes, it is a fruit, I checked), it was triggered by a comment I read recently in a pension article, which said: “Spend less on avocados, mobile phones and lip fillers. Don’t buy a car on HP. Problem solved.” My initial reaction was anger, quickly followed by deflation. Yet again my generation has been reduced to a statement about frivolous spending. It is this viewpoint that has made me take a step back and think about the broader context. A lot of what I read focuses on the negatives of millennials and generational divides. I can understand why. There are some fundamental differences in outlook and approaches to life. I know people who still feel more comfortable going into branch to do their banking; they like the face-toface contact and this is what suits them. Me? I have no idea where my bank is on the high street. I even find it annoying if I have to deal with my bank via a phone call, my preference is always online. I know someone else who physically visits their building society every week to get cash out. All bills and expenditure are completed via cash. They don’t even have a bank card! For someone who loves contactless payments the prospect of this fills me with horror, but it’s what works for that person. All these choices are valid, should be respected and where possible catered for. Life is not one-size-fits-all. What works for one person does not necessarily work for everyone else. I could list hundreds of differences in the ways each generation likes
Charlotte Harrison product manager, iPipeline
to transact and be dealt with, but this makes it easy to lose sight of our shared values. Finding the difference is the straightforward part. When it comes to protection, I think it’s more constructive to find a common ground to help build mutual respect and a better approach. Despite this generational divide and difference in spending priority we have still seen an increase in the amount of protection being bought by millennials, with recent iPipeline data showing the number of under-30s buying protection growing from 14% in 2015 to 18% in Q1 of 2019. This increase doesn’t exactly fit with the image of avocado gobbling spendthrifts. Instead it indicates a group of people who are beginning to wake up to the need for protection and understand its importance. We know that many millennials are buying protection at the point of taking out a mortgage. Overall, we have seen mortgage related protection increase with it now making up over 30% of our business in April. So, what are mortgage advisers getting right and is there anything the wider protection market can learn from them? It could just be that taking out a mortgage is a massive financial burden and it’s a logical point to arrange protection, but I think it’s more than this. Perhaps it’s also due to the common ground I’ve already mentioned.
Using the right language, the ability to connect and understand what is important to younger people are all key to moving the protection conversation forward. It’s great that some areas of the protection market are seeing success in their approach to millennials. We know that there are many advisers doing an extraordinary job of ensuring that their clients are fully covered and informed, but as always there is a long way to go and a lot more we as an industry could be doing. We are still living in an age where service is often ‘fire and forget’. How often does someone have a policy that lasts 10 or 20 years with no one contacting them to see if it is still fit for purpose? It’s not like we millennials don’t provide plenty of checkpoints for advisers to talk to us. We start out renting, get a mortgage, get married, have children, get divorced, get married again, an increasing number of us are self-employed, we move jobs every two to three years making us that little bit more vulnerable. Any of these moments are the right time to discuss protection. My financial adviser contacts me a couple of times a year to check if my circumstances have changed. I don’t always act on this contact, but that consistent reminder builds my trust and means the moment something changes I will be picking up the phone. And yes, despite only being 29 I do see the importance of having a financial adviser. Whilst I may avoid face-toface banking and try to do as much shopping online as possible, I still ensure I speak to an expert to get something as important as my own life insurance in place. If something is really important to us, we appreciate personalised advice and someone taking the time to explain complex needs. Difficult as it is (and it can be difficult), I accept that I am not an expert on everything and sometimes need to ask for help. So next time you are about to throw an avocado stone at a millennial, consider what approach would work best and maybe just take the time to explain protection in terms they’ll relate to instead. www.mortgageintroducer.com
Review: General Insurance
Time to join the cyber party? I came across some new research this week which serves to highlight how little brokers are getting to grips with the ‘cyber’ opportunity. According to the insurer Ecclesiastical, 78% of the 250 brokers surveyed earlier this year see cyber as a growth area for their business, but 38% had never sold a cyber policy. So, what’s the problem, why isn’t the cyber party going with a swing? The cyber threat is very real. Just from the reported incidences that we know about, around 48% of UK businesses identified one breach or attack per month (Cyber Security Breaches Survey 2018). Some 80% of businesses attacked cited phishing attacks, 28% had fallen victim to others impersonating an organisation in emails or online, and 27% were subject to viruses, spyware or malware. GDPR has been a catalyst to a degree with some businesses increasing their planning and defences against cyber attacks – 30% of businesses have made changes to their cyber security procedures as a result of GDPR. Despite this though, just a pitiful 11% of UK businesses have cyber insurance in place. This presents both an opportunity and a challenge for insurance intermediaries. Some household policies have an element of cyber cover included, but the cover varies wildly between insurers and benefits from a knowledgeable broker to navigate the wordings. Cyber can also provide a useful conversation starter about commercial – on both mortgages and insurance. As providers we must help brokers to have those all important conversations about cyber with their clients and provide them with the knowledge, training and support they need to approach it confidently.
Geoff Hall chairman, Berkeley Alexander
non. According to PWC, the UK’s sharing economy could be worth as much as £9bn within the next 10 years. Is the insurance industry responding to this growing market, and do home-sharing hosts really understand the implications and exclusions that could potentially invalidate their home insurance? According to a new report around one million short-term letting hosts are inadequately insured. The report, Insurance in the Sharing Economy 2019, looked at the attitudes of UK insurers to the sharing economy and identified glaring gaps in cover between home insurance and the Airbnb Guarantee scheme.
“I fear most hosts don’t even give a second thought to telling their insurer, which could automatically invalidate any insurance cover” The study found that more than a third of insurers said they would cancel a customer’s policy if they declared they wanted to use the property for short-term letting. When insurance is available it’s usually only for a term of no more than 30 days and has severe exclusions including accidental damage, theft and legal liability. But I fear most hosts don’t even give a second thought to telling their insurer, which could automatically invalidate any insurance cover. Airbnb does offer a “Host Guar-
Pitfalls of the sharing economy
Airbnb revenues reached $2.6bn in 2017 and every night more than two million people stay in homes listed on its site. Home sharing is a significant and growing phenomewww.mortgageintroducer.com
antee”, purporting to “insure” people using their platform up to £600,000 for loss or damage. But, and it is a big but, cover is limited. The “Host Guarantee” only covers actual cash value, including deductions for age or wear and tear, with restrictions for high value items, and exclusions for ‘mysterious disappearance’ or shortages from an inventory. What is more, they expect that in the event of loss/damage the host should seek remuneration directly from the guest in the first instance, and only revert to the guarantee if an agreement cannot be reached. All of this must be done within 14 days, with a crime reference number, proof of ownership and value documentation – a big ask!
Portfolio landlords – keep it simple
Some 64% of landlords with four or more properties intend to use limited company status for new purchases this year, according to Precise Mortgages, up from 41% in Q1 2018. Limited company status is growing in popularity, particularly for these ‘portfolio’ landlords, as the phased reduction in mortgage interest tax relief does not have an effect on limited company landlords. ‘Portfolio landlords’ generally have taken a bit of a battering from recent tax, legislative and underwriting changes, so it’s good to see that the model is alive and well, in part thanks to this tactic. Whether these portfolios are owned by limited companies, or by individuals, when it comes to insuring them, we still see many brokers arranging separate policies on each property. However, a portfolio landlord’s block policy offers single-policy protection for all properties within its scope, regardless of the type of tenants who inhabit them, and they can cover standard and more complex non-standard risks under one policy. It’s a winwin; they are invariably cheaper than separate policies and much easier to manage - one policy, one payment, one renewal, and one place to go to make a claim – a time saver that I am sure these very important clients will thank you for. MORTGAGE INTRODUCER
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Review: General Insurance
Training can increase insurance sales As a general insurance (GI) provider I believe it’s my responsibility to support the growing demands placed on intermediaries and their employees to continually learn and develop their knowledge, after all in a competitive market it’s the nimble and agile intermediary that will survive. Training and continuous professional development is important for four reasons: Firstly, in a rapidly changing environment, intermediaries must modernise their business models if they are to better match customer needs and demands. Secondly, whether brokers/advisors are bringing about contracts of insurance on an advised or non-advised basis it is still paramount that they understand the products in detail. Something that will become ever more important as the FCA sharpens its focus on product governance and the importance of understanding target audiences. Knowing a product in detail and thoroughly ensures that the customer is treated fairly and given sound accurate ad-
Paul Thompson founder and chief executive, Cavere Intermediary
vice. Thirdly, training is important for attracting and retaining talent. Training doesn’t just help create knowledgable brokers and advisors, with advanced technical skills, product and service knowledge, and regulatory acumen, it also helps attract talent and retain them for the long-term. Intermediaries that provide robust, comprehensive, and ongoing training are a beacon for improving standards and delivering the highest levels of customer service by nurturing their brokers/advisors and empowering them to achieve. Fourthly, it’s a regulatory requirement. Under the terms of the EU Insurance Distribution Directive (IDD) those involved in selling protection and general insurance (GI) products must complete a minimum of 15 hours CPD. The IDD CPD Requirements sets out specific areas of competence that advisers, need to be proficient in, including product knowledge, processes for claims, general business ethics and under-
How does your garden grow? I read with interest that almost half (48%) of homeowners do not consider the items in their garden when buying home insurance according to the AA Insurance Consumer Index. Indeed 75% of households believe that their shrubs, pots, garden tools, chairs, tables and garden toys would cost no more than £5,000 to replace. In fact our gardens are no longer just a green space with a bit of lawn and a patio, but instead home to thousands of pounds worth of contents, including high value items such as furniture, BBQs and fire pits, trampolines and hot tubs. With the incident of garden theft on the rise according to government statistics (figures from the ONS reveal that there were 595,000 thefts ‘outside a dwelling’ in 2018), its high time that not only are
customers more educated about the value of garden contents but also that insurance policies respond to this change in lifestyle. At Cavere this is not actually news to us. We recently upgraded our home insurance policy to include higher limits on garden cover after noticing an obvious and yet growing protection gap. Whilst theft from gardens, sheds etc. is typically covered as standard by most home insurance policies the amount of cover varies widely, as do single item limits. Whichever provider you use, and with summer fast approaching, it’s vital that you speak to your clients to ensure they understand the value of the contents within their garden, and that they have the correct comprehensive cover in place for their individual needs.
“Under the terms of the EU Insurance Distribution Directive those involved in selling protection and GI products must complete a minimum of 15 hours CPD” standing different laws governing protection and GI. Finally, investing in training pays… In the current economic climate it is natural for businesses to cut all discretionary costs, unfortunately this often includes training and development, but in reality research tells that those that invest in training are more likely to prosper. Typically within the mortgage broking market, insurance sales now account for 35% of revenue (according to FCA figures), what is more, the intermediary sector as a whole is seeing rising revenues from the sale of insurance products. With insurance sales now forming such a massive part of an intermediary’s bottom line, investing in doing it properly pays dividends. The more confident and knowledgeable brokers/advisors are about the products they are selling the more confident the customer will be to buy from them. Is your GI provider doing enough to help? Typically when you look at the website of any GI provider they talk about their quick quote and buy solutions, large panels of products and providers, price beating, and commission and referral benefits, few however talk about training and development. What a shame. Improving standards is a shared responsibility. I believe GI providers must facilitate profitable partnerships with intermediaries, and as such should provide free of charge training and development programmes, after all when our brokers and advisors succeed so too do we.
Review: Equity Release
Access to information is key Intergenerational wealth has become an increasingly hot topic in financial circles. The Financial Conduct Authority recently published a discussion paper on Intergenerational Fairness, while other industry reports are considering the evolving consumer profiles across generations. The equity release sector must continue to be alive to these conversations and ready to help the older generation use their wealth in the best way possible for themselves and their families. Significant amounts of research finds that Baby Boomers are the wealthiest age group in the UK. An analysis of Office for National Statistics data found that one in five over65s are millionaires. The older generation often benefit from generous defined benefit pension schemes, and also has a considerably higher rate of home ownership compared to younger age groups. But these financial fortunes are no guarantee of sound financial decisions and a happy retirement. Some Baby Boomers will be financially unprepared for their later years, with no clear idea on how to best use their wealth. At the same time, property ownership is in decline and university tuition fees (and the sizeable interest accrued) are causing difficulties for the younger generation. This has led to many families turning to their grandparents for financial support. One way the older generation can secure extra wealth is by unlocking the equity stored in their homes. Through equity release products, consumers can enjoy the security and flexibility that affords them the chance to spend more of their wealth as they wish. However, Canada Life research found that only 3% of over55s expect property wealth to be their main source of income in retirement. One of the reasons for this is the persistence of equity release myths. Canada Life’s Home Is Where The Wealth Is report found that the biggest barrier to equity release for over 55s was the fear that they will
Alice Watson head of marketing and communications, Canada Life Home Finance
lose control of their property. But of course this is unfounded. Equity release customers who meet the terms and conditions of their loan will remain in control, and certainly retain ownership of their property. A shortage of qualified equity release advisers is also likely another reason as to why the older generation doesn’t expect their property wealth to be one of their main sources of retirement income. Currently, there are around 33,000 registered UK advisers, few of whom are qualified to advise on equity release. With 700,000 people reaching retirement age each year, there is the very real
“One way the older generation can secure extra wealth is by unlocking the equity stored in their homes”
likelihood that some consumers might not be offered equity release because they can’t find an adviser who can help them access it. These two barriers are not insignificant – but nor are they insurmountable. First, equity release providers should look to make consumer information as clear and available as possible. The recently launched Home Finance Customer Hub is our effort to consolidate information in one place to make it as easy as possible for consumers to understand how products can adapt to meet future needs. Second, it’s really important that the sector, Canada Life included, does all it can to ensure advisers have access to the information and support they are asking for. We responded to significant demand to introduce a range of educational workshops this year, which were met with an unprecedented response. Access to up-to-date information and qualified advisers will empower the older generation – and likely improve the next generation’s perception of equity release too.
In association with
Donâ€™t miss this exclusive roundtable supplement in the AUGUST issue of Mortgage Introducer. In association with Key, the later life lending roundtable and supplement will provide a specialist look at how the later life market is evolving.
For the latest equity release news and developments, visit www.mortgageintroducer.com
Review: Equity Release
Finding the right fit When I started writing this regular article, the subject matter tended to focus almost exclusively on the equity release market. One thing I think we can all agree on, is that over the years this part of the later life market tended to dominate debate; indeed, it has (in my opinion) been very successful at being more than the sum of its parts and has certainly punched above its weight in terms of drawing attention to itself. Over the years, the equity release market has clearly grown, and all the demographics of this country, and the appetite to lend and advise in it, suggest that this will continue for many years to come. However, it should now be quite clear to all that this is not simply a discussion about equity release, this is perhaps not even just about later life lending, but it should be far more about later life advice and all that encompasses. There’s perhaps a very good reason for this, and one that I’ve often mentioned before. It’s the case that pretty much no client of yours is going to wake up one day and think, ‘I need equity release’, or ‘I need a RIO’. Instead, what they will wake up and think is all about their wants and needs – do they have enough money to fulfil their retirement standards of living? How can they pay off the capital on their interest-only mortgage? How can they renovate their home to fit changing living needs? How might they help their kids and/ or grandchildren get on the housing ladder? The list goes on. And it’s with those wants and needs that they are likely to come to an adviser seeking solutions. But, not only do they have these issues to deal with, but they will also have a range of other requirements, be that perhaps around a Power of Attorney, updating or (even) writing a will, long-term care, funeral planning, insurance, protection, pensions, annuities, etc. And I certainly believe that, from a client’s perspective, the best option for them would be to visit an adviser who – at the very least – is able
Stuart Wilson group chief executive, Answers in Retirement
to introduce them to specialists in those areas, or – ideally – is able to look after all those needs themselves and can therefore provide that fullyrounded, holistic later life advice. Because, there’s no doubting that this client demographic is in need of such a service because rather than the financial affairs and situation of people getting simpler as they get older, the opposite is actually true. What may once have seemed like a simple plan – work, pay into pension, pay off mortgage, retire, live off annuity – is now far from the norm for most people. And when you add in all the complexities around modern-living, when you add in an ageing population, when you add in the changing nature of state provision across so many areas, when you add changes to retirement age, when you add in the likelihood of working far beyond traditional retirement age, that level of complexity and advice requirement gets greater and greater. Which is why it’s absolutely imperative, in my view, that we have an adviser community who can help in a large number of areas, who have knowledge of those sectors and solutions, and who have an advice offering which can deliver across all those needs to a broadening clientele. Now, for those not involved in later life advice of any kind, this might seem like a daunting prospect, especially if you might review your client database and believe it does not currently fit with this sector anyway. However, one thing is certain, those clients are never going to get younger and, quite rightly, they are likely to have an expectation that if you can provide mortgage advice for them now, why wouldn’t you be able to look after their other needs as they move closer to later life, and eventually move into it. After all, it’s unlikely that any other adviser would have the depth of knowledge you have built up on them during that period. No other adviser would be aware of their circumstances, how they have
changed, and what end goals and ambitions they might have as they move through their lives. You will have shaped your advice around that – perhaps not just via their mortgage needs, but also protection and insurance – and in that sense, I would argue, you are perfectly placed to keep that going through the entirety of that client’s life. However – and here’s the rub – the product solutions are likely to change, and they are likely to lie in areas which perhaps you have no experience of. It could mean equity release or RIO, but it could also mean annuities, investments, pensions, legal services, and the like.
“This is a client demographic which is growing and so is their need for advice” And, while the expectation might not be that you become authorised and qualified in all of these areas, the expectation should be that you have knowledge and you have built relationships with other specialists which allow you to vicariously offer those services. Again, it might seem like a big ask – and it will require perhaps a change of mindset and some significant training and knowledge building – but, with propositions available like Air, it is certainly achievable. The point is not to wait for your clients to age with you; instead, look at what you are capable of, look at where you have gaps, and seek to fill them in the months and years ahead. We can certainly help in that regard, but you must be prepared to put in the work and be aware of where you fit and what service you can provide yourself, and where you might need outside help. The good news is that, having embarked on this journey, the rewards can be substantial – this is a client demographic which is growing and so is their need for advice. If you’ve not yet done so, pick up that challenge and begin to deliver what they need. www.mortgageintroducer.com
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The potential transformation of the home-moving process It’s been an interesting couple of months in the financial services world. Neil Woodford’s fall from grace and the fallout experienced by all those around him has been a salutary reminder that, among other things, it is vital to properly understand the value and potential of transformative businesses. For those that may have missed it, his equity income fund was suspended in early June after investors withdrew so much cash that it became impossible for him to continue the fund and pay them out. Several issues were identified but perhaps the most impactful was the decision to invest large swathes of the fund into unlisted ‘growth’ opportunity companies. Other providers using the fund also felt the wrath of investors as they failed to remove it after it was suspended. You might wonder why I’m mentioning something which, on the surface, has little to do with mortgage brokers and home moving. I do so for two reasons: to demonstrate why companies experience tremendous growth, and also to demonstrate the role that software platforms, specifically, play in delivering said growth. Aside from providing a sobering reminder that believing the hype around a person or company can end in tears, the whole episode has shone a spotlight on unlisted companies, particularly those purporting to offer investors massive growth potential. It’s timely. Research for the government’s digital economy council published in early June revealed that over the past two decades, UK-based entrepreneurs have built 72 companies now valued at more than $1bn. That includes 13 companies reaching this valuation in the last year, alone. These firms – commonly referred to as unicorns – include companies such as BGL Group (which owns Compare the Market), digital chal-
Steve Goodall managing director, ULS
lenger bank Oaknorth, FNZ (a company that provides financial firms with digital user experience and portfolio management services through to back-office trade execution and administration), challenger financial services providers Revolut, money exchange firm TransferWise, the increasingly recognisable coral bank card app-only bank Monzo, and restaurant food delivery firm Deliveroo. When listed out like this, it’s easy to understand the appeal of investing in unlisted companies in pursuit of growth – particularly when so many FTSE listed companies have struggled to perform in recent months. Woodford’s wish to back firms that are genuinely embracing the future is understandable. Whether these firms’ billion dollar valuations will stand isn’t so much my concern; but the model they largely subscribe to, is. BGL, Monzo, Deliveroo – these firms are all marketplaces. They may
have a central product on which to build consumer trust but ultimately, they act as gateways to the services provided by others. This cuts overheads, compliance and product costs and delivers real value through consumer trust. Take Monzo. It provides users with a current account but offers terrifically easy access to competitive savings deals from Investec and fellow unicorn Oaknorth, taking a cut somewhere along the way. It has also branched out beyond FS, allowing users to switch energy providers through their banking app after tieups with OVO Energy and Octopus Energy. More of these partnerships are on the way, according to the bank’s chief executive. In this example, Monzo is the platform, users trust the established brand and can be confident that they have done due diligence on its partners such that they are able to transact easily and securely. As a business, it makes money by delivering quality services for users; precisely what Hargreaves Lansdown’s customers trusted their platform to do too. Firms like Compare the Market, MoneySuperMarket – even our own DigitalMove platform – seek to do the same. It is about product and service provision but it is equally about how those platforms or marketplaces can deliver added value over and above the core proposition. In effect, it moves the proposition on very quickly from being about product provision to an improved customer marketplace, with consistent online security and due diligence from the host that ensures a consistent standard across all services accessed. We’re at a pivotal point in how consumers access financial services – as these examples show. The mortgage market and home buying process are not so far down the line in adopting these new models, yet. We must learn the lessons from recent events: trust, security and due diligence are paramount to building the trust that consumers demand. We have a chance to get this right and transform the home moving process for everyone. Let’s take that chance and not let it pass us by. www.mortgageintroducer.com
All change ahead for the housing market By the time you read this piece, we will perhaps know both the next leader of the Conservatives and also our next Prime Minister. The fact it will be one of Boris Johnson or Jeremy Hunt cannot now be disputed, although judging by the bookies’ odds, it will take a monumental shock if the keys to Number 10 are handed to Hunt. While stranger things have happened in it looks likely that Johnson has it all to lose, and that judging by how the ‘party faithful’ tend to look at these things, and given he is the only Brexiteer on the ballot, then if I was a betting man, I would be putting some money on Johnson. The winner of this contest is due to be announced in the week commencing 22 July, so I’m hedging my bets slightly in terms of when Mortgage Introducer is published, but let’s make the assumption that it’s Prime Minister Johnson by the end of this month. What does that mean for our sector and will it even get a look in, throughout the rest of the year, given the summer recess, the conference party season, and then the countdown to (another) Brexit day? We may all be spooked long before that. First up, it seems pretty obvious that it will be all change from a cabinet perspective. In the gaps between the Extinction Rebellion protestors making their point at the Chancellor’s recent Mansion House appearance, there was a speech to be listened to, and there’s no doubting that there is as much chance of Philip Hammond keeping his job as there is of every Premier League manager keeping theirs in the season ahead. He knows it and so, I suspect, do quite a few others. There has already been talk of a ‘Remainer purge’ from cabinet in order that Johnson might surround himself with loyal subjects, rather than attempt to draw ‘talent’ from across the entire party. Rory Stewart has already said he will not sit in a Johnson cabinet, and what of those that seem diametrically opposed to Johnson such as Amber Rudd, Dawww.mortgageintroducer.com
Mark Snape managing director, Broker Conveyancing
vid Gauke, and David Liddington? Plus what of those Johnson loyalists who have supported his campaign? Well, one of those is James Brokenshire who just so happens to be the minister for housing, communities and local government – a department which also contains Kit Malthouse as housing minister. Is it likely that either of those would stay in post in a new Johnson government? The likelihood is not so, once again, our sector is probably going to get a new secretary of state, and we will have the 19th new housing minister since 2000. That’s one a year if anyone can’t do the maths. Now, this is not a simple bash of the Conservative Party, because the Labour government between 2000 and 2010 were just as bad. Even now, while the MHCLG Secretary of State sits at cabinet, there is no such position for the Housing Minister and therefore, while successive governments might have talked a good game about ironing out the clear
to do is help those who were able (or going) to buy anyway, rather than bring others who were not in such a position to such a point. One can’t help feel that at some juncture, if the issue of Brexit can be sorted – and that appears to be a big if – this government is going to have to seriously look at housing in this country and make some big decisions around supply. The Labour
“Reviving the number of housing transactions should be a priority, as should implementing measures to make the buying process quicker”
imbalances in housing in this country, the true level of importance it is given does not seem to reflect that. Indeed, I sometimes wonder whether there would be more relevance here in having a minister for house prices, rather than a housing minister, because this appears to be the true focus for most governments, although we must say that in the last five years in particular there has been a much more concerted effort to get more first-timers onto the housing ladder than perhaps ever before. The problem, of course, is that this is a much more complicated issue than many in government appear to think and what the various schemes and incentives have tended JULY 2019
Party seems like it is itching to make hay on this issue as well, feeling that it has core support from many within ‘Generation Rent’ which might allow them to be incredibly radical with its measures should it be able to secure power from a General Election. The recent Labour Partycommissioned report, ‘Land for the Many’, signalled just how far it might be willing to go, and this might certainly put the cat amongst the housing pigeons if these proposals ever make it to the statute book. Overall then, I think we can expect more change from a personnel point of view, but very little change in terms of action and ongoing measures to tackle some of our most problematic areas. Reviving the number of housing transactions should be a priority, as should implementing measures to make the home-buying process quicker, more transparent and less infuriating, plus of course there is also the continued lack of supply. Whether any of these get the time they deserve while the whole political focus is on Brexit however, is another thing entirely. I wouldn’t count on it. MORTGAGE INTRODUCER
Control the process Research conducted by the financial comparison website, Moneyfacts, has concluded that remortgaging activity within the UK is set to accelerate significantly over the next few months as customers attempt to protect low existing mortgage rates from increases in standard variable rates, with business expected to reach peak levels in October. Mortgage borrowing rose sharply during October 2017 as average 2-year fixed rates fell from 2.31% in January to an all-time record low of 2.20%, and the Moneyfacts research has suggested that interest payments could more than double for those that took out loans at this time. Indeed, the report has calculated that property owners with a £250,000 mortgage could see their payments soar by as much as £4,300 a year as introductory term rates revert to the lenders standard variable rate (which currently sits at 4.69%)- a far cry from the halcyon days of 2009 to 2012, when mortgage customers actually saved money by moving to SVRs. Which is why there is such a strong incentive for consumers to shop around and to remortgage onto a comparable or (even) better deal (and especially given the low, competitive rates available on fixed, tracker or discount mortgages; some with an initial rate as low as 1.26%).
Kevin Tunnicliffe CEO, SortRefer
Indeed, it’s fair to say that free legal services have come under a good deal of scrutiny from both brokers and industry experts over the past few years, with many criticising the way in which lenders choose legal firms to represent their clients and others pointing to the potential for conflicts of interest which this raises. Furthermore, with exclusions on certain types of work such as property transfers or leasehold purchases, leading to additional charges. This is why so many brokers have called upon mortgage lenders to abandon this conveyor belt approach to legal work and prioritise an increase in incentivised or casback packages. Happily, however, this is precisely what has started to happen, with research from Moneyfacts revealing that the number of mortgage deals offering cashback or refunds on legal fees and valuations has almost doubled over the past two years, rising from 920 in May 2017 to 1,518 in May of this year. Regretfully, the
Indeed, there is growing evidence to suggest that this trend is already in full flow. For example, figures published by the trade body, UK Finance, have revealed that remortgaging approvals for February and March represented an incredible 10% and 11.1% increase on data for the equivalent months of 2018 (respectively), with figures between March and April also rising (by 5%). Moreover, according to the LMS Monthly Remortgage Snapshot, 97% of customers who remortgaged a property in April chose to do so by using a fixed rate product, with 5-year deals accounting for 48% of purchases and 2-2-year options accounting for
34%- a reflection, according to the research, of widespread consumer concerns surrounding possible interest rates increases. Intriguingly however, the LMS research has also identified a substantial upturn in the number of customers choosing remortgage products based on broker recommendations, with conversion rates jumping from 39% in November 2018 to 65% in April. Which means, of course, that as the demand for remortgaging products continues to grow, brokers will find themselves with a golden opportunity to seize greater control of the overall process and to boost income streams by opting for cashback mortgage products (as opposed to dreaded free legal options), while also protecting the best interests of their clients - a key consideration for those who wish to maintain, or to encourage, stable bases of repeat custom.
“As chronic under investment leads to service models based on understaffed firms performing high volumes of work for rock bottom fees, so too have rising incidences of error, misplaced documentation, delays in processing paperwork and missed deadlines” number of mortgages offering free legal services has also risen, with 3,336 such packages available as of May. Nevertheless, as the market for cashback products continues to expand in terms of quality and availability, so too are more and more brokers turning to online conveyancing platforms, such as SortRefer, in order to source fixed price remortgage deals from a quality panel of suppliers which are specifically tailored for pairing with casback products.
These services allow intermediaries to maintain more control over all legal aspects of a transaction and to keep up to date with its progress via real time updates on the SortRefer portal and app. It also allows them to establish direct contact with the case handler and to ensure that all work is completed in an accurate and time efficient manner. Moreover, fixed prices ensure that both lenders AND clients are protected (as opposed to free legal mortgages, which merely protect the lender), thereby guaranteeing that customers are fully covered for a full range of transaction services. In short, deals such as these combine award winning and accountable service levels with demonstrable reductions in turnarounds, costs and workloads. www.mortgageintroducer.com
Proving the quality of past advice I read with horror; sadness; disappointment... pick your own adjective (but know that it accompanies a large sigh from me) a claim recently in the press that mortgage advisers historically ripped off their clients in return for big commissions. Was this in relation to advice given last year or perhaps two or three years ago when a fixed rate expired? Nope. It was for advice pre credit crunch which, let’s not forget that, unless you’re reading this sipping champagne on your yacht, you probably didn’t see coming any more than anyone else at the time. The accusation came from a legal firm who, incidentally, describes themselves as ‘disruptive’. That is like the person in the office who describes themselves as ‘hilarious’. Note: If you have to say it about yourself it’s probably not true. Anyway, they state that, before the financial crash in 2008, large numbers of unsuitable or badly-designed interest-only mortgages were sold following advice from mortgage brokers who failed to act in the interests of their client, that many were missold that mortgage in the first place and are now due thousands in compensation. Isn’t hindsight a wonderful thing! This retrospective 20-20 vision is often unfair and more often simply wrong. We all know as mortgage professionals that advice is based on the circumstances at the time and involves finding the most appropriate product, again, that is available at the time. The trouble with criticisms regarding advice is that they tend to focus on price but as we know there are always factors that sit outside of the headline rate. There always have been and always will be. If it were the case that ALL clients qualified for ALL mortgages we could simply pick the one with the lowest rate and then pack up and retrain to earn our living elsewhere. I hear that there are rich pickings if you fall in love on an island or pretty much do anything on YouTube that involves hurting yourself. www.mortgageintroducer.com
Nicola Firth CEO, Knowledge Bank
Clients are complicated. Mortgages are complicated. Marrying the two together is complicated. There are over 90,000 individual criteria on our system and, on average, brokers are dealing with five separate criteria considerations per client. Whittling down lenders who will accept your client is a job in itself. This is before you start looking at which of these lenders then offer the ‘best’ product to suit your client’s needs. And let’s not forget that brokers could only choose from the mortgages actually on offer at the time. Moreover, the client’s circumstances will inevitably change and that’s where the challenge lies. Imagine taking your child’s school trousers back to the shop as they no longer fit. The (bewildered) response is sure to be “well, they fitted at the time you bought them”. That is why evidence is so, so important to a broker. You’re not protecting yourself for next year; you’re protecting yourself for the next decade. We know that there are statutory documents that you have to provide within a regulatory framework but these are often focused on the result of the advice, not the steps you took to get to that advice. Lending criteria changes on a daily basis but historically this has
not been captured or recorded anywhere. It can probably be shown that when you placed a client on a 4.99% rate there was a 3.99% rate also available. That’s fine, but the fact that their circumstances meant they simply did not qualify for the product seems to get lost in the ether. If you can use a system that allows you to capture and produce the evidence of your actions from the initial criteria search, why wouldn’t you? If not for now, then for you in 10 years’ time.
“Isn’t hindsight a wonderful thing! This retrospective 20-20 vision is often unfair and more often simply wrong. We all know as mortgage professionals that advice is based on the circumstances at the time and involves finding the most appropriate product, again, that is available at the time”
Time to move from digitisation and digitalisation The recent Mortgages Market Study published by the Financial Conduct Authority in March this year raised a number of key considerations for the market, including several relating specifically to technology. Among these were the difficulty that customers have when it comes to choosing a broker, particularly when they have little to no understanding of that broker’s breadth of expertise or lender relationships, and also a broker’s ability to choose the most appropriate and cheapest mortgage and/or lender. Both of these challenges boil down to inadequate technology. Whole of market sourcing systems cannot currently source a mortgage based on personalised affordability and the specific property being used as security in a deal. It’s not possible to know what the best deal a customer will actually get is without them going through the underwriting process with a lender first.
Kevin Webb managing director, Legal & General Surveying Services
For this reason alone, addressing the question of finding a customer the most appropriate mortgage is not just a case of improving sourcing systems and their integration with real-time affordability data, as has been argued by some. Let’s consider the actual problem that the FCA is hoping to encourage the industry to work together to solve: the customer not getting the most appropriate and cheapest mortgage. This is how the FCA has articulated the challenge, but I’d argue it’s rarely this straightforward. If you ask a broker why they chose the lender they chose, even if it wasn’t the cheapest option, they will almost certainly tell you it was a combination of the affordability criteria and their experience telling them that the borrower will get an approval rather than a rejection, which is even more unhelpfully often delayed. This gets to the nub of the problem: that it is not price but predictability that matters to the customer. Anyone who has ever bought a home knows that saving £15 a month for two years is far less of a priority than getting an approval over the line and not losing the property due to mortgage offer delays, broken chains or being pipped to the post by a cash buyer. Certainty
Critics will argue the technology is there, in some individual lenders for sure, but in a market where intermediation is the key driver of price competition, its presence in lender siloes is problematic. The FCA has said: “Our strong preference is to deliver the remaining remedies through voluntary agreement with industry. On giving consumers a clearer idea of the products for which they qualify, over the coming months we would like to see tangible outputs from the effort firms have put into giving and/or getting access to qualification information.” This is a very big ask, but one that merits the asking. The issue in delivering it is that there are so many moving parts. Gaining a mortgage approval comes down not just to a borrower’s ability to afford the mortgage repayments or their income sources and format, it is also
intrinsically linked to the security in the deal and the individual lender’s exposure to that property type, area, location, development etc. There is an enormous amount of commercially sensitive information that goes into making a lending decision and, contrary to how the consumer experiences the outcome of that decision, it’s fundamentally about whether that deal fits into a lender’s risk appetite based on affordability being met, loan-to-value exposure and security.
is critical. That is not to say cost isn’t a massive factor, it is, but the costs that the consumer is more likely considering are the survey and legal fees that are going down the drain if a purchase falls through. On remortgage, monthly payments get a bigger airing in terms of borrower priority – but even still, speed is important, particularly when they’ve left it until the last minute and face a hefty bump up onto SVR if they miss the deadline. With this in mind then, perhaps sourcing isn’t the ‘problem’ we should be most focused on fixing. Certainty is. As already suggested, certainty is a function of a lender’s appetite for the risk represented by that borrower and their security. Therefore, what we really need to see is investment in technology that allows a real-time risk assessment of both borrower and property - ahead of where it is in today’s market. API-driven access to customers’ income positions is just one half of the coin; lenders ultimately need reassurance on the property risk before they will agree to release funds. Currently, a mortgage application is submitted and preliminary underwriting begins; when an offer is accepted then the mortgage valuation is triggered. Usually an AVM is carried out initially, and where post valuation queries are triggered, either a desktop, drive-by or full physical valuation is instructed. This could easily be reprocessed so that the broker’s CRM system triggers the AVM at the same point as an app is submitted to the lender. This would provide a much faster, at least semi-underwritten process bringing the borrower to mortgage offer sooner. It comes down to the difference between digitisation and digitalisation. The first is, straightforwardly, putting paper interactions online. The second, more importantly, is changing the process so that it makes sense digitally. At the moment, the market is stuck in the digitisation part of the process. We need to think outside of the box if we’re really going to make things better for our customers. www.mortgageintroducer.com
How often do you use cold hard cash? First credit cards and debit cards moved more of us to use plastic for day-to-day expenses, not just major purchases. Now the widespread adoption of contactless payments allowing us to simply tap a card against a machine to pay for a cup of coffee has made it even easier to forget about keeping a fiver in our pockets. There were 1.6 billion debit and credit card transactions in the UK in March, up 10% on the same period last year and equating to a total value of £60.6bn. Nearly a third of credit card transactions and over 45% of debit card transactions were made using contactless cards. In total, there were 688 million contactless card transactions, up almost a quarter on March 2018. While the financial powerhouses might have lit the touchpaper, the mobile and tech giants have combined to take things one step further. Now we don’t even need a piece of plastic as long as we have our smartphone loaded with either the Google Pay, Apple Pay or Samsung Pay app, we can simply wave them in the general direction of the merchant’s card reader and we’re done. Where the tech giants go, others will follow. Facebook, has unveiled plans to launch a new digital currency next year. The social media giant claims that people would be able to make payments with the currency – called Libra – via its own apps, as well as on the messaging service WhatsApp. The message from Facebook is that this project to create a new global currency is all about giving billions of people more freedom with money. However this noble motive has been received with a healthy degree of scepticism and perhaps more important, concerns over how the currency will actually work, what consumer protection will be offered and how data will be secured. All valid points as Facebook has had more than its share of criticism of late for failing to protect its users’ data in the past. www.mortgageintroducer.com
Kevin Paterson managing director, Source
There are also concerns about how any new currency would reach compliance with the regulatory regimes in which it chooses to operate – and if Facebook is to be believed about wanting to empower the 1.7 billion people globally who do not have a bank account, that’s a lot of regimes. And how would it withstand the vagaries of the currency markets? Remember the fanfare around the launch of Bitcoin a decade ago? There are thousands of different cryptoassets out there now – cryptocurrencies as they’re more commonly termed. They gained in popularity as an investment. The trouble is that they are extremely volatile. A Bank of England graph shows the Bitcoin rollercoaster from 2014 to 2018, comparing its change in price versus that of the pound and oil. The most significant movement in the pound over this
period was a fall in value of 7% after the EU referendum. Oil prices didn’t change by more than 10% in one day over the period. The Bitcoin chart however shows regular and significant changes – rising 65% in one day and falling by 25% in another. There is no central bank or government to manage the system or step in if something goes wrong. With no central bank or government protecting them, no-one is responsible for helping people get their money back if their funds are stolen or if a cryptocurrency goes bust. However, Facebook has put significant resource into this initiative. It has built an alliance with big players in payments such as Paypal, Mastercard and Visa as well as digital giants like eBay. It already has the green light to launch in the US. It says that its payments system would use the dame verification and antifraud processes that banks and credit cards use, and would refund any money that was stolen. And it hopes to prevent wild swings in value by pegging it to a basket of established currencies including the pound, the euro and the US dollar. I suspect that our major financial institutions including insurers will be keeping a watch on how Libra develops as it could represent a significant threat. If it does allow people to send money from their phones as simply as they send a WhatsApp message, it could be very attractive. And while there is a major trust issue to overcome after Cambridge Analytica and other data scandals, let’s not forget that after the financial crisis there is a general level of distrust amongst consumers toward financial institution, especially among the millenials who are surely a natural target for Libra? If Libra does take off, watch this space as I would imagine that UK banks, building societies and insurance companies would be joining the queue to get involved. MORTGAGE INTRODUCER
The Bigger Issue
The FCA’s focus on price has received a hostile response
When is the cheapest product This FCA focus on the cheapest mortgage product as somehow being the be-all and end-all for borrowers is deeply worrying. Indeed, it is especially worrying because when statutory regulation was brought in, the industry fought hard – and won I might add – the Patrick argument that cheapest wasn’t best, Bamford and that advisers shouldn’t have to business defer to a recommendation which development focused purely on price. director, That was, initially, what the FSA AmTrust wanted the rules to look like but a Mortgage & vociferous opinion to the contrary Credit was given and the regulator u-turned. Now, however, “The industry some 15 years on, it appears that the industry has to win this has to win this argument argument all all over again. The recent Mortgages Market Study over again” Final Report, despite its Interim predecessor being criticised for being overly-fixated on price, kept the same line – that a significant number of mortgage borrowers could have got a cheaper product, with the implication being that advisers were somehow contriving to ensure their clients pay more. It is perhaps no wonder that many in the industry are deeply offended by such a view and it was right and proper that both Martin Reynolds and Robert Sinclair took the opportunity to call the FCA out.It does not need me to tell you why advisers do not always recommend the ‘cheapest’ product – how about lender service issues, how about that product not actually being available for that client, how about that product having been pulled already due to small funding lines already completed, how about that product not being available in the region, how about large fees, how about early repayment charges? The list goes on. I would suggest that every single adviser and stakeholder in the mortgage market holds the view that cheapest isn’t necessarily the best for individual clients. It is therefore a shame that the one institution that does is our regulator, and that it appears to be attempting to reshape the market because of this misguided belief. Time to start listening to the industry methinks.
This is a question that is currently a hot topic of debate and also a conundrum to solve. There is no simple answer as all clients are different. It is like saying all snowflakes are the same because they are white. Technically the chances of seeing two identical snowflakes Martin is one in one million trillion. Whilst Reynolds I’m not advocating the same ratio chief for identical mortgage clients there executive, are a plethora of reasons why the SimplyBiz cheapest product is not the most Mortgages suitable. Firstly what does cheapest mean? Is it the APR, is it the true cost analysis over the term of the initial product rate or over the term of the loan? Secondly the number of soft facts that could influence the product choice are too long to list. They could include the client wanting a product with no ERC’s, the ability to overpay, the ability to take further borrowing during the term or that the use of a free valuation or cashback is best for them. All will have an effect on the rate. Other areas to consider are lenders current service standards. Does the adviser have access to that lender and the size of the lender’s tranche? “The number If you looked past this then of soft facts there are more structural that could issues that would make this hard to quantify. All advisers influence the will use a sourcing system. product choice These systems offer the ability to create set filters are too long to depending on the client. So list” what may appear cheapest in one search may not be cheapest in another using different filters. Once again we are back to the snowflake analogy, how many variations of different quotes can be issued versus the number of available filter options? There is no standardised list of filters that have to be used. Whilst this is not the case then any quantitate sampling will only be accurate when based against the same filter configuration. Whilst price is one determinant in choosing a mortgage product it is far from the only one and that is where advice becomes paramount.
not the most suitable? Before one can answer that question ‘cheapest’ must be defined. However, the FCA does not do this anywhere in CP 19.17. Maybe it just found it too difficult!However, in MCOB 10.2.1 the FCA defines APR as “a cost measure which facilitates Ray Boulger comparisons between similar senior technical mortgages offered on a similar manager, basis,” which, in the absence of John Charcol any other method of assessing ‘cheapest’ suggests it believes the APR is a suitable basis for identifying ‘cheapest.’ If the APR, as a ‘cost measure’, is not suitable for defining “It is much more ‘cheapest’ the FCA should important to define it or explain what purpose the APR serves. select the right Although total costs over product type” the initial deal period is a good starting point for identifying ‘cheapest’ some clients will place sufficient value on certain features to prefer an alternative mortgage which offers better value for them after taking account of such factors. For example, speed of service; an offset facility; a no ERC product; or a lender with a transparent product transfer policy, which includes offering new business rates on transfers. A good independent broker takes account of these preferences before making a recommendation, but AI has not yet advanced enough for robo advice or sourcing systems to take account of soft facts. AMI has highlighted that the FCA’s claim 30% of borrowers could have got a cheaper product is based on a false premise, but even if it was true that doesn’t mean 30% of borrowers had the wrong mortgage as they may have wanted one or more features not available with the cheapest mortgage. Despite not passing the FCA’s ‘cheapest’ test they may have had the mortgage which offered best value to them. Furthermore, it is much more important to select the right product type than get too excited about a mortgage with an interest rate one or two basis points higher than an alternative. For example, monthly payments on a 3-year £200,000 repayment mortgage at 1.80% are £1 higher than a mortgage at 1.79%.
Rate is always a consideration for a client, but there are so many circumstances when other factors are a bigger priority and to assume that the cheapest product is always the most suitable is to misunderstand the role of professional advice. Richard The shortage of housing stock, Merrett, which puts upwards pressure managing on prices and makes affordabildirector, Largemortgage ity possibly the most important loans.com consideration for many borrowers. Often people want to maximise the borrowing to give them a chance of buying the home they want. So, for example, consider a couple who are self-employed company directors who pay themselves a modest salary and dividends but retain significant funds within their company. The cheapest rate available to them may be offered by a lender that only considers their salary and dividend payments, which would mean they could only borrow enough for a small upgrade on their existing home. On the other hand, another slightly more expensive lender may be able to offer a larger loan by also considering the profit they retain in the business, and this could help them to leapfrog to a bigger property “The most in their desired location. The suitable rate may be slightly more, but in the long run they product is not could actually save money necessarily if it means they can secure a long-term home without the one with having to move again in to the lowest trade up. Similarly, consider a client rates” who receives significant bonus income and wants the ability to make overpayments on their mortgage. A mortgage with a cheaper rate may not offer as much flexibility as a more expensive mortgage that does, and ultimately making those overpayments could reduce the overall cost of borrowing for the client. There are countless circumstances when the most suitable product is not necessarily the one with the lowest rates. It’s a multi-dimensional decision, of which rate is just one factor. JULY 2019
behind the magic From his days as a student to signing a big-ticket deal with Countrywide, Ryan Bembridge gets to know Ying Tan, chief executive of Camberley-based brokerage Dynamo Ying Tan first caught the property bug whilst at Kingston University, where he studied accounting and finance between 1993 and 1996. He would come to live in nearby Surbiton in a flat above a clothing shop. He remembers using government student grants to pay for his accommodation, which motivated him to become a landlord. “I wrote a check to my landlord and that would pay until Christmas, then I would do the same until Easter, then until the Summer,” he says. “And I’m thinking ‘this is interesting’ – the place was an absolute dive. “If my landlord could do it with the quality of the accommodation he offered, which was poor; with good quality accommodation that you should offer then why not? “He got me into property.”
Tan bought his first investment property as a 21-year-old in January 1997. He funded it with his first bonus in investment banking as an emerging markets analyst at Union Bank of Switzerland and with the help of money borrowed from his sister.Tan was very careful before
buying his first property, as he went to see over 100 before making a purchase. While he’d read books about property investment, having never done it he wanted to meet estate agents and get to know the market. Living in his hometown of Farnborough, from where he would commute to London, he bought another property in the town. He revamped the semidetached house for business students attending the nearby Farnborough College of Technology. He converted three bedrooms and two reception rooms into four bedrooms and a communal room before charging £400 a room, earning £1,600 a month – if he’d rented it to a family he reckoned he could have only got £1,100. “It was really the start of this whole adventure,” he says. “I bought my first property for £74,000 and it was probably worth £80,000 and I thought that was a really good deal. “And it was the start of the upward trend in property prices.” Once property prices went up he was able to refinance and
repay the debts he used to buy the property. He then revamped it with a new kitchen, carpets and bathrooms, increasing its value in the process.
While investors are typically looking further afield geographically these days, he thinks ideally they should be within one hour’s travel of their properties. “You can use letting agents but nobody will truly look after your property like you will,” he says. “That’s why I’ve never been a huge advocate of buying in Liverpool from afar.” However, he understands why there’s a trend for landlords from London and the Home Counties to look further afield to chase better yields. “I’m still an advocate that you’ve got to be close to your properties,” he adds. “But today you can be a bit more adventurous given improved connections between cities. “The key thing is to get somebody that knows that area to research it. For example, if you buy a property in Liverpool don’t
just buy one because it’s got a better rental yield than London.” Instead he adds, you should follow his example by viewing 20, 30 or 40 properties in the Liverpool area to get to know the market. You should also make sure you have an agent with a good reputation for managing them.
While working as an investment banker at Goldman Sachs, UBS and Deutsch Bank in fixed income property, Ying Tan amassed something of a property empire, as every time he’d get a bonus he’d used it to buy more. At its peak Tan had close to 100 properties, as he left investment banking in 2001 to focus on managing his portfolio full-time. He did this for four years, before selling some of them to fund his next venture – The Buy to Let Business.
Tan says he’d rather not disclose how many properties he owns currently, but it’s significantly less than 100.
The Buy to Let Business
Ying Tan founded The Buy to Let Business in 2006 after his experiences as a landlord, with the remit of catering for landlords he felt weren’t receiving the right specialist type of advice. “I’d go to the broker, tell them what to do, when to do it and how to do it,” he says. “I thought ‘if this is the best I can get from a mortgage broker I am going to set this up myself’. After getting CeMAP qualified he started in Guildford in Surrey in a small office without windows. “We had two really good years,” he says. “Between 2006 and 2008 we grew from just myself to about 30.” But then the global financial crisis hit, and the staff count shrank back to four as a result,
while Tan started broking himself again.
From Guildford to Camberley
After the business was forced to downsize, Tan and co moved from Guildford to Camberley, Surrey – where it is still based today – in order to rebuild. “If you remember the buy-tolet market in 2007/2008 was about £40bn – it went to £8bn overnight,” he says. “Actually it was a really tough time, but I can honestly say it was the making of our business. “We had to let some people go, we had to cut our costs, we had to focus on our core specialism of buy-to-let.” While many of his competitors fell by the wayside, Tan’s firm was young enough to adapt. As specialist lenders started to spring up like Foundation Home Loans, Landbay, Kent Reliance, Precise Mortgages and Fleet Mortgages, The Buy to Let
“Ying Tan founded The Buy to Let Business in 2006 after his experiences as a landlord, with the remit of catering for landlords he felt weren’t receiving the right specialist type of advice”
Business worked with them as a distribution partner. “We were there at the beginning of their inception,” Tan adds. “That’s the beauty of our industry. Yes, it’s small and incestuous, but people are thankful and have good memories. We looked after our lender partners.”
not good for me if I’m trying to run my own mortgage brokerage and help everyone. “So it was at that point the penny dropped and I thought I could monetise this and I could set up a buy-to-let helpdesk, so people can literally pick up the phone for help” The club’s tagline is ‘every lender’s BDM’, because brokers would previously contact multiple lenders’ BDMs before deciding where to place business. The club built an in-house
The firm was one of the first to host specialist buy-to-let events for brokers. “In those days there were fewer buy-to-let events to compete with and you would have well over 100 people turning up and they were very focussed,” Tan says. “People would leave them feeling energised and inspired. The main thing was to give them that knowledge and power to write incremental business.” He notes that a number of brokers who attend these events write vastly more residential business than buy-to-let, meaning it can be challenging to stay attuned to product changes. The Buy to Let Business, now Dynamo, is hosting eight specialist mortgage events – widened from buy-to-let – this year.
“Somehow the mortgage industry needs to evolve. We need to give better outcomes to our customers”
Buy to Let Club
In March 2016 property group Countrywide made a “significant investment” into The Buy to Let Business, purchasing a stake in the firm and allowing it to accelerate its growth – though Tan says discussions had been ongoing for about 12 months before them. Did Countrywide approach Ying Tan or did he approach Countrywide? He says it was a bit of both. “Being in the industry, I knew people within the Countrywide team,” he says. “I was chatting, saying ‘we are at a certain size and every time the end of the month comes I look at the payroll and think that looks a bit scary’. “It was time to push on from 50-60 staff to really make severe
Ying Tan set up Buy to Let Club in 2011. He says this felt like David competing against Goliath compared to the existing clubs in the market like Legal & General and PMS. He explains how he came to set up the club. “As a mortgage broker I was going to mortgage events and people would say ‘Ying, there’s a particular client here who’s got this scenario and can you go through the scenario in depth?’ and I’ll tell them – I’m a good guy,” Tan says. “I remember this one instance in 2011 where I must have received nine phone calls from friends in the industry and it took me the best part of a day. “And I thought blimey, this is
sourcing system to keep track of buy-to-let product changes before establishing itself as a payment route, as brokers would place business through the club and it would take a small margin. The Buy to Let Business also set up a packager side of the business, which charged higher margins but was more labour intensive, seeing as cases are taken from cradle to the grave.
penetration into the market. I felt we had to grow faster and quicker and to do that I needed a partner.” Tan was approached by some private equity firms offering more attractive terms, but he felt there was a natural synergy to be had with Countrywide. “The big difference was we could learn from them,” Tan adds. “They’ve got national lettings agents for leads, great expertise, they understand the mortgage and property market. “The natural synergies were fantastic and to this day we work closely with Countrywide.” Much of the support from Countrywide has been in the form of funding as well as infrastructure, with assistance related to HR, accounts and legals. Since the Countrywide deal Tan has grown the staff count to 180 and upped turnover by around 130% in three years. Tan now sits on the board of the Countrywide financial services team, while Peter Curran, managing director of financial services at Countrywide, is on the board of Tan’s firm.
In March this year The Buy to Let Business rebranded to Dynamo. “In the last two or three years there’s no doubt the name The Buy to Let Business did hold us back,” Tan says. “It pigeon-holed us as a buy-to-let brokerage.” Indeed, the more it’s grown the broader its advice offering has become. The brokerage buys and originates residential leads directly, with a particular expertise for mortgages for the self-employed and contractors. Meanwhile it has done more residential business since the Countrywide deal was completed, as Dynamo is now handed telephone-based customers. As a result, Tan estimates that between 30-35% of its business is now residential. The firm also set up a general insurance desk in 2012,
protection desk in 2013, bridging in 2015 and commercial in 2016, while it has been involved in second charge after hiring broker Rachael Peach from John Charcol in 2017.
The old and new Dynamo
There may be some short-term confusion regarding the Dynamo name. In April 2018 Countrywide and private equity firm Blenheim Chalcot launched a digital broker called Dynamo, however it seems things didn’t go to plan, as it was absorbed back into Countrywide in October 2018. After that Tan saw an opportunity to use the name. “I spoke to Peter Curran because he sits on the board, and the name Dynamo was available,” Tan says. “I said ‘we are looking for a new name’. “It was sat dormant and I said ‘what are you doing with that name? It’s something that we’d be interested in.’” After negotiating with Countrywide, Ying Tan’s firm took the name as well as the valuable web address www.dynamo.co.uk Tan’s company is not affiliated in any way with the fintech firm previously known as Dynamo.
The changing role of brokers
Tan foresees the role of mortgage brokers shifting in the next 10 years, which is one reason why he wanted a name that had connotations with technology. “Somehow the mortgage industry needs to evolve,” he says. “We need to give better outcomes to our customers, we need to be faster, and more efficient at what we do.” He says the market needs to do more to eradicate paperwork and slicken up processes. “The next generation of mortgage brokers have got to embrace the technology,” Tan adds. “It’s not going to go all the way over to robo advice where advisers aren’t needed. “What it is going to be is making these guys more productive.” Tan uses the Iron Man analogy,
saying brokers will still be human beings but they will use tech to become stronger, faster and more efficient. With this in mind, in the year ahead Ying Tan’s focus is on using technology to up productivity, rather than hiring a vast number of staff. He wants employees to spend more time advising and less time pushing paper and pens. Dynamo is currently working on a client portal, which will allow clients to see status updates and real-time information on cases. Meanwhile it is working on widening its API integrations with lenders.
Battle with lenders
Tan reckons lenders are likely to try and grab more direct business in future by investing in their own systems. “There will be a chunk of the market that will become execution-only in the next couple of years,” he warns. “It’s not just mortgage brokers that are trying to be tech savvy. “Lenders are working hard to ensure they can gather some market share without having to pay the big procuration fees to us – there’s no doubt about it.” He thinks this is likely to happen to vanilla and residential first, with it eventually affecting buy-to-let and specialist lending.
Professionalism with a family feel Tan is proud of the culture being created at Dynamo, which he defines as ‘professionalism with a family feel’. He says 95% of the people coming into the business have never worked in mortgages before, so he’s able to train people up from scratch, as two of his top brokers are a former bartender and hairdresser. “No matter what name we are, what we do, what management team we have in place, I’m passionate that we retain that culture, because that’s the bedrock of this business,” he says. “Because we’ve grown
so quickly we couldn’t just recruit people with a mortgage background – we had to find people with the right mindset and attitude.”
Tan notes that the market has had its challenges in the past few years, owing to tax changes hitting buy-to-let as well as Brexit uncertainty. However, he’s hopeful that the market could rebound once there’s certainty regarding what relationship the UK will have with the European Union. “There are tell-tale signs the market is going to pick up once this Brexit nonsense is out of the way,” he says. “You can use the B word as an excuse – anything that goes wrong, you can apply Brexit to it. “I think that’s what people have done, but you can’t keep doing that and I think there might be a slight rebound in prices, certainly towards the end of the year into 2020.” Equally however he’s mindful that there could be another recession on the horizon, as he warns against being complacent with costs and expenditure. “I’m in my early 40s, but I remember that a recession happens every 10-12 years and the last one was about 9-10 years ago,” he adds. “So we should handle everything with caution. “One key piece of advice I give my colleagues is to run the business like times are tough.”
Ready for the future
Tan clearly wants to future-proof the business with technological developments, with the name change reflecting this vision. He seems settled in Camberley, while he wants to keep the same culture as the business continues to up its turnover. It’s fair to say he’s come a long way from renting a dilapidated falt in Surbiton – and he wants Dynamo to be a recognised force in mortgage broking in the years ahead.
No more complacency Paymentshield’s Rob Evans leaves no stone unturned on the role of the firm and his rise to chief executive Rob Evans joined Paymentshield as chief financial officer in January 2015, being promoted to managing director in February 2017 and then chief executive in March 2019. Since joining he’s clearly focused on improving practices at the insurance platform. “What I found coming in was a complacent organisation that has been the market leader for a long time in terms of the volume of insurance sales, and I sort of felt like maybe it’s lost its edge a little bit,” he admits. Before he joined, his colleagues had started to steer the business away from mortgage payment protection insurance into becoming a general insurance specialist. But he says there was plenty of work to do when he arrived. “Previously we won deals promising to deliver things and – I wasn’t there at the time – didn’t focus enough on following through on what was promised. “There was quite a lot of change needed in the organisation, which Steve Wood [Paymentshield chief executive between 2015 and 2017] gave that transition period the right focus, stability and structure
that it needed to bring a better version of itself out of the other end. “I think that’s where we’ve got to now.”
Evans studied Political and Cultural Geography at the University of Sheffield from 1994 to 1997, which he jokes was an ‘I don’t know what I want to do with my life’ degree. After graduating he initially toyed with taking after his uncle by becoming an architect. But a recession caused a number of architects to go out of business and, after doing some work experience, he decided he wasn’t cut out for it. Evans then explored training to join the police force but was rejected for failing an eye test. He eventually joined Allied Dunbar (Now Zurich) in pensions business, after attending careers fairs. “You entered on a grad scheme and you were immediately disliked, because you didn’t know your arse from your elbow and got paid more than the people who actually did,” he
says light-heartedly. “But it was a great training ground, so I decided to stick it out through the merger with Zurich [in 1998].” He stayed for six and a half years, with the firm supporting him through accountancy qualifications.
Mortgages and insurance
From there Evans joined Scarborough Building Society in 2004, where he gained experience of mortgage lending, mortgage-backed securities, as well as handling commercial partnerships, like deals with Aviva, Britannia Building Society and Kensington Mortgages. He then went back into insurance as finance director of health insurer Westfield Health in 2008, a not-for profit company in Sheffield. “It is a different ideology, but it doesn’t need to be,” he says. “You can run businesses from an ethical point of view and still be successful – I don’t think those two things are mutually exclusive.” He stayed at Westfield Health for over six years, following a similar pattern to the rest of his career. This is in his nature, he says, as he liked to get the bones of a company. On joining Paymentshield he planned to break that trend, but
he seems to have got sucked in once more. Evans grew up in the town of Fornby, around five miles from Paymentshield’s office in Southport, Merseyside – and part of the motivation for taking the job was spending time in familiar surroundings with his first child.
When he joined Paymentsheld in 2015 its parent Towergate was dealing with cashflow and liquidity issues. However, Evans says it wasn’t disrupted by the change of ownership above when it came to the flow of business. There were however challenges regarding financial infrastructure, as initially Evans came into a business where it wasn’t clear where money was coming from, which products made money, which ones didn’t and where money was being spent. This left plenty to sort out.
Negative online reviews
One challenge for Paymentshield has been dealing with negative online feedback. At the time of writing, on Trustpilot the insurer has an average rating of 2.6/10 and a rating of 2/5 on Google Reviews – both appear prominently when searching ‘Paymentshield’ on Google. Evans takes this feedback seriously, given that ensuring customers have a good experience is both the right thing to do and integral to attracting more customers. He hints that in the past dealing with claims was wrongly viewed as entirely the remit of the providers on its panel, but that certainly is not the case now. He says Paymentshield has taken measures to improve things. It started using customer review site Feefo last year to better interact with people, while on that website it has a score of 4.3/5, which clearly makes better reading. In addition, a couple of months
ago the company established a ‘customer care team’ to improve its previously disjointed feedback system. Evans speaks to the whole team at Paymentshield once a quarter to find out how things are going. “If we are not getting it right our customer service teams tell me in no uncertain terms,” he says. “It’s one of the advantages of being in that Merseyside area – bolshie Scousers will take you exactly what they think!” This feedback has helped Paymentshield communicate with customers and in some cases iron out bugs, like with its renewal documentation system.
In the past two years Paymentshield has made inroads into the UK lettings market. “The lettings market is fascinating,” Evans says. “There are so many fintech, proptech and insurtech companies popping up there because it’s an attractive market. “Online is a big growth area, where people are digitising and disrupting the traditional letting agent.” Paymentshield has linked up with proptech firms like Tenant Shop, Goodlord and Urban Jungle to provide both tenants contents cover and landlords buildings cover, while it is in discussions with more potential partners. Evans says tenants insurance is becoming more commercial attractive, as people are staying in the private rented sector longer and therefore requiring longer policies and for more possessions to be covered. Paymentshield also offers a Landlords Insurance product, which guarantees rental payments for landlord. This could become more critical in future, Evans says, owing to the government plans to scrap Section 21 evictions, which could make it harder to move tenants on. JULY 2019
Speed’s the name
Expectations are high regarding how seamless and slick the processes need to suit these proptech firms. “One conversation we were having with a potential partner in the lettings space was if an API takes two seconds to return a price on a general insurance quote that’s far too long – it’s prehistoric,” Evans says. “It’s perfectly acceptable in the mortgage market at the moment but it is unacceptable in some of these cutting-edge proptech firms in the rental market.” Evans thinks Paymentshield’s experience with fintech firms means it will be well equipped to work with mortgage networks in future with regards to API integration and product development.
In the next six months Evans says a lot of the focus will be on improving its Adviser Hub, which he describes as a ‘one stop Paymentshield GI shop’. The online hub allows advisers to see everything regarding general insurance in one place. For example, they can get details on policies and see reasons for cancellation, meaning they can more easily manage their customer base.
No more complacency
It’s clear Evans thought Paymentshield left plenty of room for improvement when he joined, but this has made him more engaged with the business. It seems he’s been able to put his stamp on things, by putting technological integrations with fresh partners at the forefront of its thinking. Evans’ focus is clearly on leaving no stone unturned when it comes to both dealing with legacy issues and ensuring the firm only becomes more relevant over the course of the next decade, by properly working with its partners to widen the availability of general insurance. MORTGAGE INTRODUCER
Breath of fresh Air Ryan Bembridge meets Air Group’s Stuart Wilson and Gary Little to discuss the rebrand and what’s next on the agenda Air Group, short for Answers in Retirement Group, rebranded in June to align all its businesses under one unified ‘Air’ banner. After the change, the Equity Release Club, a distributor for equity release and later life advisers, became known as Air Mortgage Club. The Later Life Academy, a commercial and training organisation for later life advisers, became known as Air Later Life Academy. And the group’s reward scheme for advisers, which allows them to earn points when they complete business through the group, changed its name from Unity Rewards to Air Rewards. The group also has a sourcing system for equity release and retirement lending products called Air Sourcing, established in 2016, as well as a para-packaging proposition for advisers seeking lending solutions for older clients called Air Prestige, which launched in June this year after a pilot phase. “Why the rebrand? I guess for simplicity purposes,” says chief executive Stuart Wilson. “We’ve over the last 10 years built up three main brands, the Equity Release Club, the Later Life Academy and then in 2016 Air Sourcing came into the staple.
“As the market grew and more and more brokers came in, we had a logistical issue with regards to brokers ringing up in essence one of three telephone numbers, but still speaking to the same group of people sat within 10 to 12 feet of each other. “Air originally stood for Answers in Retirement and I guess all of the brands ultimately fulfil that strapline.” Following the rebrand the separate businesses have moved to a central website and with one telephone number. Wilson says the aim is to
professionalise the group in order to reflect the direction the equity release industry is moving in. “It’s almost like a gangly teenager that has had five years of growth spurts and is finding its place in financial services,” he adds. “I guess as the sector’s moved into adulthood we as a business felt that it was time we did the same thing.”
Gary Little is a relatively new face at Answers in Retirement, having joined the business in January.
Around the same time the group brought in Mike Taylor as operations director, with the pair joining the existing senior management team of Wilson, operations director Jenny Price and head of distribution Ray McCarthy. Little joined from law firm Blacks Connect, where he was sales director, while before that he was commercial director at TMA Mortgage Club. “The thinking behind that, in terms of where we want to go, was bringing in different skillsets not necessarily from the later life sector, but within the financial services industry so we can use our experiences to help bind and grow the business in the next phase,” says Little. “My role is to make sure that our proposition is commercially attractive to our members. It’s about making sure our products, our distribution and our lender relationships are at the level they need to be.” Since he joined there’s been a lot of self-reflection on which aspects of the group work well and which don’t. In response Air Group has agreed new terms with members and widened its proposition to include funeral plans, wills and LPAs. This means that the club will help advisers recommend products in those areas, while they will also form part of the Air Later Life Academy’s training events. The group has also expanded its lender panel. In the past few weeks it has added building societies in Buckinghamshire, Nottinghamshire, as well as a home reversion plan provider in Retirement Bridge. Wilson says Little has taken a key role in establishing a partnership with Right Mortgage Club, providing access to later life lending for members of the club. “That was a prime example of where he took ownership of a project and basically went out and built a bespoke proposition
for them,” Wilson says. “That’s reflective of where we are at an organisation – we are not going to forget our little individual independent members.”
Wilson seems proud of Air Sourcing, a sourcing system that filters various equity release and later life residential products.
“Air Group has agreed new terms with members and widened its proposition to include funeral plans, wills and LPAs. This means that the club will help advisers recommend products in those areas, while they will also form part of the Air Later Life Academy’s training events” “The market has moved so quickly that we’ve gone from having 30 or 40 products in the market to 150 product variations,” he says. “You can’t contain all that in your memory unless you have a brain like an IBM computer, and keep up to date with those product changes.” At the time of interviewing two thirds of lenders changed their rates that week, which would make it incredibly difficult for an equity release adviser not using software. The system has API functionality, however Wilson says he’s waiting on the providers to develop the capabilities to link up with the system. “We have built a row of special plug sockets, but now lenders need to build the plugs,” he adds. “We are leading the pack on innovation.” In future he says he welcomes more competition from other sourcing system providers. “A lot of people think it’s great being in a market with no competition, but actually it’s hard to keep absolutely on the cutting edge of JULY 2019
what you do if nobody is chasing you,” he reflects.
Offset equity release
In future, Wilson would like to see equity release providers develop an offset product, where consumers could put money into a savings account that offsets the cost of loan. “That is not a mile away,” he says. “We are halfway there with drawdown. “If I had said this two years ago people would have looked at me and said ‘that will never happen’ but we are probably 80% to getting to that point. “That’s the type of innovation I’d like to see.” He reckons the growing size of the equity release market makes the development of more innovative products like offset equity release more likely, as providers are now more likely to get enough business to make it worthwhile to develop new solutions. Little adds that Air Group regularly has discussions with providers about products they would like to see, for example he says he’s been advising a soon-to-launch provider about releasing a higher loan-to-value equity release product for slightly younger customers than your typical equity release client.
Joining up equity release and residential
Stuart Wilson says joining up the equity release industry with later life products is his passion. Residential providers, like Leeds Building Society, launched into Retirement Interest-Only (RIO) mortgages last year, after the Financial Conduct Authority changed its rules on the product in March 2018 to classify the RIO as a residential mortgage. However the product has been slow to get off the ground, while lenders still appear to be divided on how the product should be treated. The likes of Mansfield Building Society demand that advisers who arrange a RIO MORTGAGE INTRODUCER
mortgage are qualified to also advise on equity release, but this isn’t a policy that lenders adopt across the board. Advisers rarely seem to offer both Retirement Interest-Only and equity release mortgages, so it seems likely there’s currently a lack of joined-up thinking in the later life space. “We cannot have the situation being interpreted as right if advisers will only give consumers one side of the fence or another – that has to be wrong,” Wilson says. “If you’ve got an equity release adviser who doesn’t take into account RIOs or equivalent mortgage products that client could end up with the wrong product. “If we have a Level 3 mortgage broker who isn’t equity release qualified you could run into the same problem. “The regulator is aware they’ve created a bit of an uneven playing field.” The solution to these issues could come with a change of regulation, though Wilson worries the likes of the FCA could throw the baby out with the bathwater and over-regulate the sector. However, Wilson says trade bodies the Equity Release Council and Association of Mortgage Intermediaries are concerned about the situation and looking for solutions. “A lot of residential brokers are scared, a lot of networks are scared and won’t allow them to advise on RIOs,” Wilson adds. “A lot of equity release brokers historically only understand that range of products. There’s a huge amount of understanding now needing to cascade down to the customer. if you are advising a consumer you need to see both these sides.”
Wilson concedes that advisers who are experts of one rather than another are more likely to keep that business rather than send it away, because they effectively don’t want to relinquish control.
“The group’s main focus seems to be on upskilling advisers, while it runs a quarterly forum with providers to help address problems. Gary Little says Air Group will ramp up its training and education with more workshops and training programmes, as well as live webinars”
It seems referrals from the residential space to equity release, and vice versa, are becoming more common, but that’s raising various challenges.
He thinks improved technology is a way to improve this situation, by keeping the adviser in the loop when referring business elsewhere. “The point of the Retail Distribution Review was to make advisers in essence a conduit to all product solutions,” Wilson says. “If you don’t advise on it you need to refer it. There are some weaknesses and a lot of reasons why that doesn’t work, because of control.” But he adds: “If we basically expand technology so as soon as I am talking to that customer I am typing in the notes and you’ve got access to those notes via API, you are as good as advising the customer yourself. “You know what’s going on. “There’s a lot of work with tech platform online case tracking functionality.”
The Martin Lewis effect
Wilson names Martin Lewis from MoneySavingExpert as someone he thinks advisers should take inspiration from, given that he has an all-round knowledge of different product areas without being an expert in one such area. In the case of later life clients
Wilsons says having a strong knowledge of pensions is important, given that customers are effectively being underwritten based on their current or future pension income. “Conmen thrive off ignorance, and bad salespeople thrive off ignorance,” says Wilson. “So what we don’t want is ignorant customers, and even worse ignorant advisers. “We need to try and help support and develop knowledge, then you get a better outcome for the client.” Wilson would like to see the equity release exam being expanded to a more well-rounded advanced exam, with information on care for example. This wellrounded outcome is what the Later Life Academy, now Air Later Life Academy, has tried to achieve, by upskilling advisers to have more of an overview of knowledge about the later life sector.
In the next six months Wilson says he’s going to do more work in understanding advisers, as Air will identify whether advisers only use two or three providers. “It’s not our job to police them, because they are regulated advisers,” Wilson says. “But we can help them with awareness of products with providers they are not selling.” The group’s main focus seems to be on upskilling advisers, while it runs a quarterly forum with providers to help address problems. Gary Little says Air Group will ramp up its training and education with more workshops and training programmes, as well as live webinars. On the technology side Air Group will work with providers to help them get over the line with regards to using Air Sourcing with API functionality, while it will expand its telephone-based team. It seems the group is on the road to professionalisation – and the rebrand is just the beginning of that process.
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What has the regulator ever done for us? Tim Wheeldon, COO, Fluent for Advisers talks regulation We all have our pet hates and grumbles at what we perceive to be the hindrances to our personal and professional lives and most of us, if we are honest, have railed at one point or another at â€˜regulationâ€™ in general and the frequency of the changes to our working environment. Yet, apart from the extra costs and time it now takes to comply with regulatory demands, on behalf of the second charge sector, I would like to offer some perspective and reasons why we should be particularly grateful to now be a fully integrated part of the regulated lending market. I am in no doubt that the regular monthly increases in new second charge mortgage business which we have seen in past 12 months flow, in part, from the Mortgage Credit Directive (MCD) of 2016 and the knock on effects of becoming formally regulated. With the FCA taking over the direct regulation of the sector, it began the process of legitimising the status of secured loans, ensuring that a second charge mortgage should be treated as an acceptable alternative option to a remortgage or further advance. The full impact has taken time to be felt, but the ripple effect, allied to the educational efforts made by lenders and distributors, like Fluent Money, can now be clearly seen in the figures we are now experiencing of a steady but inexorable rise in new business completions. Regulation has been a considerable catalyst in helping change the perception of the
sector in the minds of advisers. Broker awareness has grown and acceptance along with it. The old chestnut about second charge only being considered as a last resort, if ever, is becoming less and less of an issue. In the roadshows and seminars in which we have been involved, there has been a sea change from hostile to fully engaged and much of the thanks must go to the FCAâ€™s bringing the sector into harmony with the rest of the market. We are seeing a rise in referrals from first-time users who before would not have considered anything but a remortgage. Regulation has had a positive knock on effect in a number of areas.
Let us not forget that traditionally secured loans have been considered to be expensive. By its very nature, a second charge mortgage is always going to attract a greater premium than first charge equivalent because of the extra risk in sitting behind a first charge, which will always have first call on the asset in the event of default. However, with base rates as low as they are and increasing competition between lenders, second charge lending rates have come down dramatically. Rates in excess of 10%, only a few years ago, have come down to more reasonable single digit figures, with some headline rates as low as 3%. Encouraged by the new regulated nature of the sector with its insistence on tighter underwriting and affordability criteria, lenders JULY 2019
have found access to funding easier and with securitisation channels reopening, they are able to pass on some of the benefits in the shape of lower rates. Another consequence of the confidence in dealing with a regulated industry. The effects of political and economic uncertainty provided by the Brexit stand off and the wider international effect of sanctions on the world economy has seen UK homeowners more reluctant to move house and instead settle for making improvements to their existing properties. Being able to access funds via a second charge mortgage, not tied to a longer term first charge, has been a big factor in the number of cases we have seen over the past 12 months. Debt consolidation has been a mainstay of the second charge sector as an easy and convenient way of cutting the cost of unsecured borrowing by creating a single loan at a rate of interest that makes monthly repayment affordable. Today, its role has been amplified by the growth of unsecured credit in the UK and the need by borrowers to find a logical and sensible means of reducing their outgoings.
The confidence that has allowed lenders to tap into new funding can also be seen in the way that products have moved to meet the needs of customers, such as those described above. Thanks to regulatory oversight, particularly on affordability, second charge mortgage lending is particularly robust.
Boom times for West One Natalie Thomas catches up with Marie Grundy, sales director, West One Loans, to discuss breaking records at the lender Why do you think second charge volumes are up?
female representation in the seconds industry?
I think it has been a perfect storm of a number of factors; Increased awareness from intermediaries and borrowers that the products offer benefits for a wide range of borrowers ranging from high net worth clients, all the way through to those borrowers with more complex circumstances. The stagnant property market has led to increased demand for home improvement loans particularly where second mortgages can offer flexibility both in terms of speed and loan size - for example we can consider loans up to £1m. There are structural product changes to the residential and buy-to-let mortgage market where we are seeing an increasing number of borrowers opting for longer term fixed rates which means that second mortgages can be a valuable option for those looking to raise capital during their fixed rate period.
It is always positive to raise the profile of women within the industry and I’m proud to work for a business where we have a number of highly talented women in senior positions across the ENRA group including board level. Our field-based seconds sales team also happens to be an all-female team so at West One we may actually be bucking the trend.
Do you find mortgage brokers have embraced seconds? What’s holding them back? Brokers have embraced them to an extent – I think there is always more that can be done. The mortgage industry has seen a huge number of product transfers over the last 18 months, and I expect these numbers to increase over the next year. If those clients want to borrow additional funds later down the line, it’s likely that a second charge mortgage would be a good option for them. Would you like to see more
If you had no limitations what would be your ideal second charge product? It would either have to be a product to help the retirement market as an alternative to equity release or a product to help homeowners with a limited deposit so they could access a blended first and second charge product which would be cheaper than taking out a higher LTV mortgage. What is the best thing about the seconds industry? And the worst? It’s satisfying to see the positive impact that a second mortgage can have on a borrower. We’ve seen so many positive client outcomes whether that is enabling them to make significant monthly savings in their outgoings or provide them with the financial resources to make major renovations to their property enabling them to create their dream home. The worst is the misconceptions that second mortgages are only suitable for borrowers who do not have JULY 2019
alternative options available to them. We are seeing increased demand from high street borrowers who may have a genuine need not to disturb their first charge arrangements or simply need increased flexibility around speed or loan size which other products cannot match.
MAKING IT PERSONAL Is there something about yourself that people would be surprised to hear? I might have been to one or two WWE wrestling events including Summerslam in New York and we recently met The Undertaker. Of course, this is all for the benefit of my son and I take no pleasure in it whatsoever…. When you were young, what job did you aspire to as an adult? I wanted to be a political journalist after studying politics at A-Level but realised quite quickly I wasn’t made for the cutthroat political scene so opted for the serenity of the mortgage market instead. What is your most prized possession? It’s a note addressed to me from Thom Yorke from Radiohead who I was lucky enough to see at Glastonbury in 1997 but missed them by a few days whilst holidaying in New York a year later. It said, “Sorry I missed you in ’98, I missed most of it too.”
Weird and wonderful Natalie Thomas looks back on some of the more interesting cases in the seconds space
Second charge mortgages might be best known for helping those borrowers looking to carry out home improvements or consolidate debt but its uses do not stop there. From plastic surgery to flying lessons, a second charge isn’t always a necessity for a borrower and can also be used to fund a once in a lifetime experience or indulge in a little luxury. Clients who turn to second charges have often been turned down by a mainstream first-charge lender, which implies their circumstances are typically a little outside the norm. So, when it comes to unusual cases and uses for second charges – those working within the industry have seen plenty. Loan Introducer asks: ‘What are some of your most unusual second charge cases?’
Matt Cottle, chief executive officer, Specialist Mortgage Group Recently, we helped an ex-pat client who wanted to borrow £25,000 to buy some delivery vans for her growing florist business based in the Canary Islands. She had been unsuccessful borrowing the money locally due to her ex-pat status. She owned a property in Essex, which was rented out but the introducing mortgage broker was unable to secure funds against the house because the client was based in the Canaries - a catch 22 situation. We found a lender who would offer a second charge loan on her buy-to-let, provided she took independent legal advice (ILA) from an English-speaking solicitor. The only English speaking lawyer on the island was only willing to do it if the legal charge was translated into Spanish. This was not possible.
So we booked the client onto a Ryanair flight to Bristol, at no additional cost to herself and sent one of our drivers to meet her at the airport where we then took her to a pre-arranged an independent legal advice meeting with a lawyer in Bristol. Following the meeting and a spot of lunch, our driver returned her to the airport to catch the afternoon flight back to the Canaries. The client’s loan completed two weeks later. She was able to purchase the new vehicles enabling her to expand her service and client base across the island.
Lucy Barrett, managing director, Vantage Finance One of our favourite cases was for a client who borrowed £50,000 to fund his flying lessons and commercial pilots licence. The loan size was £68,000 on an LTV of 55%.
Scott Thorpe, director, London Money Loans We don’t normally have exotic applications but have had the odd famous client. The cases that we find the most unusual however are those we do for our peers. Over the last 12 months we have done 10 second charges for people within the industry. We constantly see adviser finances that aren’t the best due to the nature of the industry being that of feast or famine. It shows where the difficulties may have previously come from or reduction in income resulting in higher LTI calculations. We don’t judge any person within the industry but we do hope the ones we have helped now start recommending this product to their own clients having seen the importance of what a good advised second charge can do.
Mike Walters, head of sales - mortgages and bridging, United Trust Bank We’ve had a few unusual ones. One couple borrowed £70,000 to build a swimming pool in their back garden and a few clients have used a second charge to fund private school fees. We also helped a customer take advantage of an attractive share option scheme through a £48,000 loan and provided a £58,000 loan to a client to pay off their Help to Buy equity loan. One customer also bought a property outright for their elderly parent using a £310,000 second charge loan from UTB.
Anna Bennett, marketing director, Positive Lending We had a client who contacted his broker when his daughter and son-in-law became engaged and were busy planning their wedding. The young couple had limited savings and were short of funds for their special day, so the bride’s father decided to raise capital in order to pay for the day and their honeymoon. The father’s broker contacted Positive Lending and we were able to secure a £40,000 second charge mortgage against the father’s property. This wonderful gift not only set the couple on the road to married life but also allowed a contribution towards their first step on the property ladder. In a final hoorah, the father, who was in no rush for the money, diligently took his time to consider all options and, like the proverbial tortoise and hare, benefited from a lower rate being released by a lender just days before funding. Our team switched to the lower rate, saving him money on his loan. A happy ending for all.
Another example is when we were contacted with an urgent request from a gentleman who needed to raise £36,000 quickly to save his home. The client was a guarantor on his brother’s loan but the brother had stopped making his monthly repayments and the relationship had broken down. The client was distressed, having experienced a difficult week with the lender to whom he owed money. He had received threats to repossess his home, which he had put up as guarantee. Our CeMAP qualified advisers quickly set about understanding the situation and considering the best and most cost effective options. They were able to secure a second charge mortgage for the full £36,000, which the client used to repay his brother’s debt and remove the risk against his home.
Jo Breeden, managing director, Crystal Specialist Finance: We had two clients who were looking for £30,000 for debt consolidation purposes and £100,000 to put towards a buy-to-let purchase. Both clients were selfemployed with a combination of salary and dividends and had debts totalling £1,006 per month. We were able to lower their repayments to £736.60 a month, through a 68% LTV at 4.09% second charge. The client saved money on their monthly and were also able to buy an additional incomeproducing asset.
Alistair Ewing, managing director, the Lending Channel We had a client who was a builder and looking to raise funds to purchase a plot of land to build a house on to sell. This is considered business purposes; however, the client was looking to raise the funds on his residential property as a second charge He wished to pay the loan off with the sale of the property once the building work was finished. The client’s property was in Orkney which restricted the lenders we could use, but we had a lender that could provide an unregulated homeowner business loan for £45,000 at 57% LTV on a 6.99% interest rate.
Darren Perry, head of second charge mortgages, Brightstar Financial Clients generally seek out specialist lending because it doesn’t fit the mainstream, so we’ve had some strange ones. We’ve secured funds against some weird and wonderful Grand Design type buildings – such as a converted water tower. We’ve had clients fund cosmetic surgery through a second charge and also arranged second charges for a few professional sportspeople. You might think such clients would earn a lot of money and therefore not need a second charge. Yet often the way in which they get paid can present problems for some lenders. One of the strangest loans I’ve ever done was for a gentleman that had been divorced for several years but decided he wanted to secure funds against his property in order to give his wife some money to go and buy a new home. It was strange due to the fact that there are people out there who get divorced and are still nice to one another.
Loan Introducer Cover
Seconds and debt Natalie Thomas questions the Money Advice Service’s recommendation that seconds should not be used for debt consolidation Britons owe a staggering £72.9bn on credit cards and a colossal £217.3bn when other loans - not including mortgages - are also factored in, according to the Bank of England. So, it is perhaps unsurprising that some borrowers are turning to a second charge mortgage to help consolidate their debt, in the hope of decreasing their monthly payments. Figures from the Money Advice Service show some 17.2% of all UK adults are in ‘over-indebtedness’. Yet on its website, it advises consumers against using a second charge to consolidate debt, due to the risk of repossession and increased interest over the long-term. So, for second charge advisers and their clients, the question is: to consolidate debt or not consolidate debt – but what’s the answer?
Benefits of a second charge
Paul McGonigle, chief executive at Positive Lending, estimates that 70% of its second charge completions have at least one element of debt consolidation and he is not surprised by the upward trend in demand. “UK unsecured credit is around 30 times the size of the second charge market,” he says. “It offers attractive hook rates, in the form of credit cards, with the potential for an expensive flip rate should borrowers not repay the loan before the promotional period expires. “And with credit card companies circling clients like a flock of seagulls, coupled with today’s prevalent ‘spend now, pay later’ mentality, it does unfortunately catch up with many borrowers, prompting the need to consolidate debt,” he says. So, how can a second charge help? “Debt consolidations via a second charge or a first charge remortgage can
help to avoid financial meltdown and put family finances back under control,” says Jeff Davidson, head of intermediaries at Fluent for Advisers. “One benefit of debt consolidation with a second is that the term can be shortened to balance the payoff time, leaving the first charge intact, avoiding the pitfall of repaying short-term debt over 25 years with a standard remortgage. “Also, with interest rates as competitive as they are, if people have unsecured debt on credit and store cards with 20% plus interest rates, it makes complete sense to bring it all under one roof and create a manageable monthly repayment,” he says. Steve Walker, managing director of Promise Solutions, feels more second charge lenders have an appetite for consolidation. “It’s often used as a stepping stone to improve a borrower’s circumstances and may be followed up with a remortgage a year or two later,” he says. “The ability to take a second charge over a shorter term also means that the total interest paid will be less and the debt is paid off sooner than with a remortgage.” One of the main and obvious differences between secured and unsecured debt is that the borrower’s property is at risk, which makes it essential borrowers who are used to obtaining unsecured debt understand the difference, says Lucy Barrett, managing director of Vantage Finance. “If a client fully understands what it means to have a secured loan against their property, and the mortgage helps to reduce monthly outgoings, reduce overall debt or repay the unsecured debt sooner, then a second charge mortgage is absolutely an important source of finance for debt consolidation,” she says.
consolidation The reason for the loan
What can be just as important as the cost of the second charge is the reasoning behind it. “Before recommending debt consolidation, it is important to understand how a client’s debts came about,” says Harry Landy, managing director of Enterprise Finance. “Was it the result of a life event, such as a period of unemployment, illness or possibly a home improvement project that went over budget?” he says. Or, does the client appear to be in a continuing debt cycle with no real explanation as to what the money was used for? The latter of the two scenarios should ring alarm bells, he says. “In these situations our advisors would be wary of continuing to increase a client’s level of debt if it was felt that it wouldn’t benefit the client overall,” says Landy. Darren Perry, head of second charge mortgages at Brightstar Financial, agrees that just because a client requests debt consolidation, it should not always be granted. “With the advent of things such as payday loans, it has never been easier for consumers to get unsecured debt,” he says. “There is no accountability to the provider, or consideration given to affordability, which is why we receive a lot of enquiries about debt consolidation. Our job as advisers is to advise and debt consolidation isn’t always the best solution for every client,” he warns. Perry says its fact find with the client can often reveal whether or not a client is an appropriate candidate for debt consolidation. “Some clients might have taken on a lot of credit card debt in order to fund home improvements for example, which will have effectively increased the value of their homes. “Others however will tell you they are up against it and need to get their monthly payments down, yet have no clear plan as to how their financial situation is going to improve over the long-term.
“Whilst we can’t give debt management advice, what we can say do is suggest that if they are struggling, they look at their options and talk to their creditors, as they may be creating a bigger problem by securing a loan against their property,” he says.
Doing the calculations
A second charge may lower the client’s monthly payments but this does not necessarily mean it is the best thing for them and makes long-term financial sense. Jo Breeden, managing director of Crystal Specialist Finance, says advisers need to calculate the Annual Percentage Rate of Charge (APRC). “Advisers need to make sure they have considered the exit penalties and the APRC; it can’t just be about how many pounds are saved on a monthly basis,” he says. “You might think there is no interest on an existing unsecured loan but what are the exit penalties? We are duty bound to make sure we have those calculations on file and it’s not just down to face value savings. If a debt is going to cost a client £46,000 over the course of the loan and you are consolidating that to a new loan with lower monthly payments, it might look better but with compounded interest and exit penalties, it might end up costing the client £50,000,” he says. Even though the above scenario could be considered bad advice, there may be situations where lower monthly payments need to be a priority for the client says Breeden. “It really needs to be judged on a case by case basis,” he adds. He also warns that if not advised correctly, it could potentially be an area which ambulance chasers could home in on. “So it’s important advisers keep records and make sure they are compliant,” he says.
Mike Walters, head of sales – mortgages and bridging at United Trust Bank, agrees that a second charge can help some
clients looking to consolidate debt but it won’t be the best option for everybody. “A competent adviser/broker will take into account and explain to the customer the pros and cons of securing credit against their home, potentially extending the repayment term and the effect this will have on the total amount repayable, before advising the client on their best course of action,” he says. “One example of what we would deem an inappropriate use of debt consolidation would be if the customer simply wished to refinance a low rate credit card or other debt over a longer term to minimise their monthly repayments when they could afford to repay the balance within a reasonable term and save themselves additional interest,” he says. McGonigle agrees and says in some instances it might actually make sense to keep some elements of the client’s unsecured credit in place. “The expertise to establish the customer’s needs, short-term and longterm, plus a good understanding of the client’s budget is key here,” he says. “We will quite happily tell a client not to proceed if we establish they are using this debt consolidation for say six months or the client can prove quite clearly that they can repay the debt within their budgets,” he says. When it comes to remortgaging, first-charge mortgage lenders tend to favour secured debt as opposed to lots of unsecured debt. But McGonigle says: “My only concern is the mortgage broker that uses second charges to establish a way to make the client a mainstream mortgage client six months later. In this scenario, the second charge becomes a quasi-bridging loan.” With no sign of the UK’s oversized credit and loan bill being paid off anytime soon, the market for second charge debt consolidation looks set to grow further. Whilst a client who has already gathered a substantial amount of unsecured debt might not seem like an obvious candidate to take on yet more debt, when done correctly debt consolidation via a second charge can prove to be the right answer for some clients. JULY 2019
From humble beginnings Jessica Nangle meets Clayton Shipton, founder and managing director of CLS Money, to discuss the last 12 months and how it all began CLS Money has seen an extraordinary amount of growth in the last three years. Since its conception in 2011, founder and managing director Clayton Shipton has seen his UK mortgage broker go from strength to strength. From formerly keeping clients up on a whiteboard to recently building a bespoke end-to-end CRM, CLS Money has moved into a new chapter and has ambitious plans for the future despite the uncertain market.
Planting the seed
CLS Money began in 2011 after Shipton was made redundant during the financial crisis, like many others. “As I was searching for jobs, I did my CeMAPs just to keep my brain ticking,” he explains. “I had jobs in the meantime but all I kept thinking was that I could do a better job, so I set up my own company from there.” Shipton describes going ‘anywhere’ for business, but there is one customer that sticks in his mind from the early days. “I drove two hours to Chessington for a client who only wanted a £50,000 remortgage and we got on really well,” Shipton explains. “The next minute I did his daughter’s mortgage, his friends’ mortgages – I even did a remortgage when he and his wife got divorced. That
one small mortgage planted the seed and grew.” The lengths Shipton went to in order to provide great customer service stayed with him even as the company developed, and now he relies on reviews to see if his team are continuing this ethic. “The only reason that seed grew is because I took the time to go and see the client and answer every question he had,” Shipton explains. “Over 70% of our customers write a review, and that is because we continue to go above and beyond.”
The busiest year ever
“We had a really good year last year – it was probably the busiest ever for CLS because now we have our foundation pillars in place,” Shipton says. This has been a year of growth for CLS Money, but Shipton is also keen to perfect their current proposition. “We have grown not because we are pushing it,” Shipton explains. “But because we are getting more enquires and becoming more well-known. We have had to hire more staff and invest in better systems and technology to make our processes quicker and smoother.” Last year the company made 10 new hires to add to its JULY 2019
20-strong team, and the founder hopes this number will continue to grow as new trainees come on board. The mortgage broker also opened its own shop in Rayleigh, which had its grand opening in June 2018. “The premises was formerly a betting shop,” Shipton explains. “We had to rip the whole of the shop out and design the entire premises from scratch which took some time.” With plush velvet sofas and detailed finishes, the store is designed to make customers feel at home whilst discussing their mortgage. In addition, the company built its own bespoke CRM system which went live in February 2018 to ensure their internal systems were keeping pace with the rest of the business. “We are at a point now as a company where our blueprint is 80-90% ready to then go one step further,” Shipton adds. “We are nearly at the end of the tunnel.”
“Have you ever been somewhere and thought, I really liked that person?” Shipton asks. The founder of CLS Money takes a slightly different approach to hiring new talent, and claims it is not all about what is on paper. “I have a bit of a trait where I
go out and end up asking if the server would like a job and giving them my business card just because they came across really well,” he explains. “You can’t teach personality; you can’t teach someone to smile or have that natural charisma. You can however teach them how to use a system and understand mortgages.” CLS Money currently only has two members of staff who have been hired from within the industry, the others are ‘fresh’ as Shipton refers to them, or those who have been hired purely on their personality. Some of the current CLS team joined as apprentices, with one of the longest serving employees being just 20 years’ old. “The way that employee got the job was because he came in with his mum who had a query,” Shipton explains. “As she left briefly, the now employee sat there in his
school uniform telling me all about the query and articulating himself really well. I offered him a chance to work for me on Saturday and within three months asked him to work for us fulltime.” Education remains at the forefront of Shipton’s mind; keen to recruit talent in-house as much as possible to begin a promising career path. The company have recently started using Simply
“We had a really good year last year – it was probably the busiest ever for CLS because now we have our foundation pillars in place” Academy, a training provider in Bishops Stortford, who provide an 18-month course to get a CEMAP 1. “You join as a trainee, go on to the course, and in two or three years’ time you have someone who is a broker but who already knows the internal processes.” There has been much discussion about how difficult it can be to recruit the right talent, particularly for companies who are based outside of central London. However this is something Shipton disagrees with after having five members of staff join the company from London and taken pay cuts to do so, showing how the capital is not always first choice. Personality trumps experience at CLS, which potentially explains their impressive online review score (they currently maintain an average of 4.9 out of 5 from over 1,000 reviews) and how their team works together. “As a team we bond really well and have similar personalities. I always used to think our team retention figures were down to luck however I actually think it is because of the way we are hiring people – we JULY 2019
are hiring a person for the job, not because of their qualifications.”
Key challenges ahead
Despite the success of the previous year and a lot of milestones being reached, Shipton explains that there are still challenges ahead thanks to an uncertain marketplace. “We had a dip in the last six weeks of 2018 because of Brexit and Christmas – every year we have had a good December but this year we had to accept the circumstances,” Shipton explains. Brexit has created a ripple of uncertainty despite now being old news, and Shipton continues with an interesting point that can be made using the B-word. “Brexit is a buzzword,” he says. “I always ask: let’s pretend Brexit has happened and we get no deal, do you still need to buy a house? What if we left but got a deal? You still need to buy a house!” Interest rates are currently at a record low making it in some cases cheaper to buy than rent, but the uncertainty remains. Despite this, Shipton claims this is just another day in the office. “I joined the mortgage market in 2011 so I always hear people reminiscing about the good old days when the phones used to ring,” he says. “I don’t know this as I only know the worse days. I actually think things are getting better.” Two lenders withdrawing their products from the marketplace hit the headlines recently but Shipton remains unfazed as he claims this is simply a case of no space in an overcrowded market. “Competition is ripe out there which is good and healthy, but I think everyone is trying to be the next best thing in the mortgage market and are trying to revolutionise the space… it is getting overcrowded now.” Challenges in this industry can be a wide range of factors, and despite a difficult lending environment, Shipton has something else on his mind that proves to be more of a challenge MORTGAGE INTRODUCER
than the political landscape. “On a day-to-day basis, the main challenge is the amount of knowledge of criteria you need to know as we use a wide range of lenders,” he says. “The problem with these challenges is that it is never one thing but a mixture of two or three. “We spend a lot of time researching to get the perfect match for the customer, and personally this is why I think automated online mortgage brokers with a lack of human touch will struggle.”
Age of convenience
This is a strong industry, and keeping up with competitors technologically is a daily objective for many within the space. However moving forward, Shipton plans to use technology slightly differently. “There is too much focus on automating the consumer side and actually you need to automate the business side to make your life easier and allow more time communicating with the client,” he says. “We launched Talk Mortgages last year and this means a customer can call, email or even FaceTime with us.” Taking inspiration from online apps such as Push Doctor and Babylon, Talk Mortgages prides itself on being the UK’s first ‘truly hybrid broker’ and allows customers to talk to their mortgage broker at a time that suits them. “Technology needs to make life easier for the customer – after all we are in the age of convenience.” Using technology is important to overcome challenges, however Shipton believes that the human touch and technological revolution can go hand in hand.
“We spend a lot of time researching to get the perfect match for the customer, and personally this is why I think automated online mortgage brokers with a lack of human touch will struggle”
Keeping core values
Looking into the second half of 2019 and 2020, Shipton is keen to continue the growth of his team. “We have got the structure in place now,” he says. “We just want to keep tweaking and polishing off our processes, but
also would like to grow more and take on a few more trainees.” CLS Money is also set for a rebrand – including a relaunch of their popular website to align with their growth plans – making something good even better. “We also have a charity event coming up in September in aid of a local charity which is something we would like to continue to do each year. The event is in aid of the Lady McAdden Breast Screening Trust in Southend which hosts free breast cancer screenings for women from the age of 40 but is entirely reliant on donations. “We have been closely affected by the disease at CLS Money, so we really wanted to do something to help.”
One message is clear however for the founder – sticking to their roots. “We need to make sure we don’t lose ourselves,” he says. “The problem with bigger firms out there is that they lose sight of what they are.” Shipton is also keen to take on the right amount of business to maintain the high standards and good reviews. “I would rather do less business and make sure it is 100% right all of the time,” he concludes. “We just want to keep doing what we are doing.” From humble beginnings, CLS Money has gone from strength to strength and shows no signs of slowing. With an upcoming website relaunch and plans for team growth, it is very much a case of watch this space. Shipton is clear that he does not want to forget the foundations of which the company was formed, as it says in their motto: Straight Talking Advice. “The reason for the company’s growth is because I started with a good outlook towards customers,” he smiles. “That is the secret to success.” www.mortgageintroducer.com
SFI: Specialist Lending
Winning the distribution race In a perfect world, DIPS would be approved instantly, mortgage applications with supporting evidence produce an immediate offer and fast completions would follow smoothly. The reality of course is very different. Lenders without backlogs are as rare as hens’ teeth and there seems to have been little change in the past few years. The consequence has been a grudging acceptance that this is the normal state of affairs and to use a much overused phrase – ‘it is what it is’. I don’t believe that it has to be this way. It is clear that lenders do receive many poorly prepared applications from advisers. They can also point to a lack of supporting documentation as a reason why a case is held up. Yes, some brokers are not particularly good at processing and there is no doubt that improvements in this area could cut down backlogs, but let’s look at the other side of the coin.
Clayton Shipton managing director, CLS Money
While lenders have been hampered in their efforts to cut backlogs because of the extra time required putting in place affordability test processes, in my opinion, they should be looking to streamline the process between application and offer by reassessing the supporting evidence they request from advisers. Lender turnaround times could be speeded up, if there was more thought given to moving towards streamlining packaging requirements. We have certain lenders coming back with 20-25 points that need ‘clarification’, even when they have a passed DIP, proof of income and bank statements. At the other end of the spectrum, another lender on the same case will only ask for one payslip. Which one do you think we are going to want to do business with when in many cases, speed is a criti-
cal factor? Some forward-thinking lenders are already looking to exploit the opportunities offered by Open Banking and one is trialling a process asking for no supporting documentation because everything they need can be verified via Open Banking, with the customer’s permission. There are brokers whose initial case preparation is very poor, and that can tend to clog lenders’ admin systems. However, more needs to be done to find the balance between following sensible credit policy and simplifying the multiple ways lenders expect supporting information to back up mortgage applications. In the end, lenders who can satisfy their credit requirements, while simplifying the requirements for supporting documentation, are going to be the winners and benefit from the long term support of intermediaries across the UK.
Time to embrace specialist lending As the demand for financial products in this country continues to evolve and to reflect ongoing changes in social and economic conditions, so too are specialist lending markets beginning to experience a sustained period of growth and influence. Substantial rises in ‘niche’ or so called ‘unconventional’ customer bases, such as later life borrowers, multiple income or self-employed workers, as well as a growing shift towards multi-occupancy and multi-unit lets amongst buy-to-let landlords looking to maximise yields and values, has meant that the use of specialist products is rapidly beginning to represent a new type of ‘norm’ within the wider market landscape. Moreover, with sluggish economic growth continuing to drive levels of competition between prime market lenders to a breath-taking degree, the untapped plight of these marginalised customers is providing a
new focal point for the mortgage industry and mortgage brokers particularly, by offering a means for lucrative reinvention and providing a conduit for unchartered or expanding market possibilities. Indeed, both of these trends have found reflection in the growing availability of retirement interestonly products over the past few months, with the number of RIO mortgages having risen from five in July 2018 to 38 in February 2019, according to Moneyfacts - a 600% increase. In addition, with the Nationwide Building Society having recently launched its own range of later life mortgage products, it can only be a question of time before other high street outlets decide to overhaul their criteria for older borrowers and enter the market albeit initially to service their own back book of customers. JULY 2019
Shaun Almond group managing director, HL Partnership
However, with rates continuing to be squeezed to near historic lows, it is also becoming apparent that lenders in this space will need to find new ways with which to maximise cost efficiencies and maintain their levels of profitability. One of the ways in which they will undoubtedly look to achieve this is by placing a greater emphasis on product distribution and by competing on a direct basis for product transfers - it being cheaper to retain rather than to acquire custom. This means that brokers who have taken the time to familiarise themselves with the workings of the specialist sector and establish closer connections with the lenders competing in this market will be best placed to use their expertise to stay ahead of the game. Advisers who turn away more difficult cases, will suffer It’s time to embrace the future. www.mortgageintroducer.com
Doing things differently Summer is long days, balmy evenings, Queens, Wimbledon, Henley and Ascot. Strawberries and cream on the lawn, champagne under the stars, or sitting on the beach watching the world go by. Let us think about life after Summer and after Brexit, because business must continue. It will never be the same, it cannot be – a new relationship with Europe, a new Prime Minister and hopefully a government pulling in one direction. All of this will be new so let us think differently. As the days shorten and the Brexit reality hits us, good or bad, what next for lenders? Volume lenders – credit cards, leasing, HP and home loans will continue to rely on technology, algorithms to calculate risk and boxes to automatically tick to confirm a square peg in a square hole. But short-term lenders will need to do things differently and
Brian Rubins executive chairman, Alternative Bridging Corporation
differently may be pulling the plug on some technology and reverting to some old-fashioned commonsense. Of course, technology will still paly its role; where would we all be without the three “E’s” - Experian, Excel, and of course, email? However, why not let it become our tool rather than us its slaves? There is a place in our world for one to one discussion, listening, gathering information and making individual decisions. So many opportunities are lost because the computer says “no” and this is unnecessary. Listen and learn because there are clues everywhere of how to make good deals work even when the boxes cannot be ticked. So often proof of income does not jump out off the page but after a second look and careful consideration, satisfaction can be found. What if the EPC’s or some other issue is not good
enough but can be remedied but not in time for completion; then rely on conditions subsequent and get the loan drawn. Term loans can be completed even if some of the rental income or profits from the business are somewhat in the distance; why not allow a little of the interest to accrue until it can be paid in full? If the LTV is just not quite what was expected, currently a common problem, before cutting the loan back or declining the proposal, see if the borrower can offer a second charge on another property. When development finance is in danger of stalling due to a missing search or a title problem, try ensuring the risk and allow the project to continue. Of course, this is not a mandate to march on blindly: where there are problems, they must be remedied but so often those difficulties are not as great as they appear at first sight and can be solved across a table if there is good will on both sides. It is just necessary to think and act differently.
Are lenders recruiting experienced talent? In my last article for Mortgage Introducer I focused on the relationship’s lenders are increasingly seeking with their stakeholder partners. With the ever-increasing demand for more education programmes to be delivered by lenders, as more brokers consider diversifying into the short-term and specialist sector, what Apex Bridging and other lenders seeking sustained growth are now doing is prioritising their search for the talent that is required to deliver their partnership propositions to like-minded brokers and distributors. This is presenting many lenders with a challenge that comes with market demands outstripping available experienced talent to fill established roles and the new roles that the market is presenting lenders with. Such roles include, new product development positions, new marketing roles and administrative www.mortgageintroducer.com
and service support resource, as growing funding lines expand lenders product propositions and with that their distribution needs. As lenders, we need to attract talented individuals that will fit in with the culture that has driven our growth to date and at Apex Bridging we expect to have determined they will fit in with our culture statement, even before their starting date. Like many of our competitors we use enticing words like flexible, trusting, honest, caring, stakeholder focused, outstanding service, team, but to each lender all these have a different ‘definition’ determined by the talent and experience of their team and how each lenders’ ‘definition’ is communicated to all staff and through them, to all their 00brokers, distributors and other stakeholder relationships. The market is in good shape but if it is to continue to grow, there is
Sonia Shortland director, Apex Bridging
a constant need to improve our staff training programmes, refine our recruitment processes and we need to ensure that all job descriptions reflect accurately, what each position is responsible for. In a growth environment, good job descriptions should lead to a gap analysis that in turn will lead to highlighting what roles the business needs to fill if it is to compete on a level playing field with other established lenders and those like us, gearing up for growth. The lender who recruits wisely will then tip that level field in its favour ensuring that the talent and experience of their people is the reason they have established the competitive advantage they will need to sustain their growth. I honestly believe that all lenders’ long-term growth is in the hands of their talented staff not in being able to offer low rates for a limited period.
JULY 2019 MORTGAGE INTRODUCER
SFI: FIBA Bridging
Working together to make us all better advisers For those that are involved in commercial finance, getting over the starting line was the all-important first step to apply the resources and time to set yourself up as a knowledgeable practitioner. The other proven option is to refer existing clients to a specialist broker but even then, you might not know where to start in finding the right commercial firm as a partner. There has never been a better time to look at this sector, which has seen plenty of growth over recent years and where SME owners are turning away from accepting a traditional solution and coming to value advisers who can provide the right service from a whole of market. To that end, I wanted to suggest that you consider the advantages of joining a trade body like FIBA, which can help you, develop your business in this exciting area through direct or referred business. As we step into the second half of the year, this is perhaps a good moment to look again at what FIBA stands for, how we make a difference in the specialist finance industry and how we can help you gain the confidence and knowledge to establish
Adam Tyler executive chairman, FIBA
a foothold in the specialist finance sector. Our primary aim continues to be as a vital focus point for those involved in the specialist property finance market, bringing together advisers, lenders, law firms and valuers and all who have a stake in the success of the commercial sector of the lending market. We all have the welfare of the end customer as our main goal and by providing the conditions to bring all the major stakeholders together at FIBA, we can work together to improve the experience for our customers, by constantly looking at ways to provide a more streamlined and quicker transaction. In 2007, there were over 100 lenders focusing on the commercial sector. By the end of 2009 that had fallen to less than 50. In 2019, it is estimated that there are over 400 lenders competing for finance business. Although competition is fierce, which is good for the consumer, the bewildering array of lending options can be daunting for business owners, even those who have recognised that there are many more options beyond their high street bank.
Summing up the value that FIBA brings to its members can be summarised as follows: Exclusive lending deals SimplyBiz connections and benefits including top notch compliance support Support for the new senior Manager & Certification Regime Competitive block PI scheme Referrals and networking opportunities with the IFA community FCA representation Strong connections at Westminster including the recent report on SME lending for the Treasury Select Committee Commercial insurance referrals scheme Regional events with industry forums keeping members at the forefront of industry topics and news For newcomers to the specialist finance sector, we can help you find your feet in a number of ways. Apart from giving you access to some of the best lenders in the sector, some of which you would be unable to access on your own, as a member, you can engage with FIBA to help you with commercial or specialist property finance enquiries, either assisting you to transact the business yourselves or working with a local FIBA member to provide a lending solution. Our membership fee of £20 per month when put against the number of services and facilities available to members as shown above, represents terrific value. However, in the end, the essence of FIBA is about bringing people and firms together which has the effect of enhancing the value of the service offered to customers looking for specialist property finance. The value of professional advisers with access to a wide variety of funding solutions is being recognised by more and more SMEs. FIBA provides its members with those solutions backed up with strong support in compliance, training as well as being an active voice working on behalf of the industry highlighting the vital role of helping SMEs to find funding. www.mortgageintroducer.com
The Last Word
It’s a Yes Minister Sam Howard, managing director of Magnet Capital on the performance of James Brokenshire Maybe it is because like me, he used to be a lawyer, but I am rather impressed by James Brokenshire, the Secretary of State for Housing, Communities and Local Government. In a relatively short period of time, just over a year, and in a febrile political environment paralysed by Brexit, he is trying to get to grips with the significant issues facing the housing market. There have been a number of positive steps, including: lifting the council borrowing cap which enables councils to be able to borrow billions of pounds more for housebuilding, changes to the National Planning Policy Framework and the £1bn Housing Delivery Fund to finance small and medium-sized developers to deliver new homes across the country. He has also pledged to speed up the planning process, which is a quagmire for SME developers who can get tied up for months or even years attempting to get planning. I am not holding my breath but he wants councils to be able to approve planning applications more quickly under radical new measures to remove bureaucracy from the system. He said that a new accelerated planning green paper, to be published later this year, will dramatically improve the planning process. Let’s wait and see and the reality is that it comes down to ensuring planning authorities have the resources they need to act quickly. However, it is his focus on calling to account the large housebuilders that has really grabbed my attention, especially on cracking down on poor quality housebuilding and the leasehold scandal. Last week, he announced that all new-build homes are to be sold as freehold and to reduce ground rents on future leases to zero, in a move to tackle unfair leasehold practices, which has been a shameful exploitation of consumers, with the consequence that
their homes will be incredibly difficult to sell in the future. In terms of housebuilding, the large housebuilders are able to build large numbers of units at a cost that smaller housebuilders simply can’t build at, given their economies of scale and the significant preliminary costs involved before construction even starts. However, it is often eye opening to see the lack of quality in these cookie cutter style housing developments, which often leave new build buyers with a nightmare of faults to fix as opposed to their dream house. The supposed remedy of a 10-year warranty, in reality does very little to rectify snagging and can leave buyers badly exposed. Mr Brokenshire has been a vocal proponent of building better homes and is considering forcing housebuilders to sign up to a code of conduct if they want to benefit from the Help to Buy scheme, and is pushing ahead with plans for a New Homes Ombudsman to give buyers of new-build properties greater protection. In my time in the specialist finance
industry running development finance companies, we have funded SME developers and builders to construct hundreds of houses. I am struck by the care and attention that SME developers take in their building. It is often the exact opposite of the big housebuilders, where our clients see the houses they build as a labour of love rather than just churning out another unit. This tends to lead to the right houses being built in the right areas and happy purchasers. Don’t just take my word for it - an award winning surveyor who has overseen many developments by both SME developers and big housebuilders said that pretty much every time the quality of houses being built by the client’s of Magnet Capital is superior to the big housebuilders. There has to be an emphasis in the country on not just numbers of properties being built but the right type and quality of houses in the right place. So, you might not have heard much about James Brokenshire but I think he is doing a good job so far. JULY 2019 MORTGAGE INTRODUCER
The Hall of Fame
Relaxing in the sun at the SFI Awards Specialist Finance Introducer’s SFI Awards returned this June, celebrating the best and brightest from the specialist finance sector. The event was held once again at Madison Rooftop Bar, a beautiful venue boosted by the one-off blistering heatwave. The HoF was worried about what the weather would be like after a gloomy week or so, but in the end we were lucky. The event saw attendees relaxing in the sun with a beer in one hand and ice cream in the other, whilst the award ceremony was hosted by comedian Geoff Norcott. Awards gigs are difficult, but Geoff pleased the crowd. We salute the 28 winners, finalists and sponsors of the awards. See you again next year!
Blue acrobats, what’s not to like?
Mortgage Introducer was invited by Barclays Mortgages to watch Cirque du Soleil: Toruk – The First Flight, a spectacular circus show which was a prequel to James Cameron’s Avatar. The HoF sent its dynamic duo of culture-vultures, reporter Michael Lloyd and news editor Ryan Bembridge, for the evening out. There was plenty of acrobats, dancing and music and all-round fun. The piece was visually stunning, particularly a dramatic section where performers contorted on a rotating skeleton. What was missing however, was a coherent plot. A voiceover talked about some of quest – but what it was or why it was happening was something of a mystery. “I had no idea what was going on, but I loved it,” Michael exclaimed to The HoF. “Everywhere I look I see blue men and I love it. It’s my favourite colour.” “It looks nice, I don’t know what else to say,” Ryan added. “I wonder if the troupe has any openings for a showman of my calibre?” The HoF would like to thank Barclays for its generous invitation.
Red Carpet Treatment…
Rocktoberfest hits London Where there’s a party in the mortgage industry you can most probably find The HoF. The A Leg To Stand On (ALTSO) charity hosted its Rocktoberfest-London on Wednesday 19 June where live bands made up of financial industry professionals performed to raise money for the charity. Funds raised support the charity’s aim to provide free, high quality, prosthetic limbs and mobility aids to children with limb disabilities in the developing world. Alongside our capital, the event is also hosted in New York and Chicago. Laurence Parry, tax partner and financial services specialist at Kreston Reeves, told The HoF: “We are proud to support ALTSO in providing accounting and tax support to their UK charity; enabling them to continue their groundbreaking work across the developing world, bringing free orthopaedic care to children with limb disabilities whose families cannot afford treatment.” Rocktoberfest, The HoF salutes you!
Win a Pimms Summer Pack, courtesy of the kind people over at Brightstar Financial! Simply email your witty caption to Ryan@mortgageintroducer.com with the subject line CAPTION. Every month the best will be published
BRE AST CANCER SUPPORT GROUP
T HE S UN S HINE GROUP B A L L !
We are a small group run by volunteers who help and support women going through breast cancer, treatment and beyond.
Saturday 21st September 7.30pm till late Liverpool Marriott Hotel
Steered by women we provide invaluable support during the emotional, mental and physical recovery of those affected by breast cancer.
We are holding another big fundraising evening with a welcome drink, 3 course meal, DJ & raffle prizes. Smart dress.
B OOK A C ORP OR AT E TA BL E Only three corporate tables remaining for parties of 10. Tables cost Â£1,000 Contact Ann Coffey for details: email@example.com 07815 619 971
HAVE A BALL!
Refreshing. Remortgages. When remortgaging to Barclays, your Help to Buy Equity clients can select a suitable product from our standard range. Thereâ€™s much more to learn about our remortgage proposition. Contact your Barclays support team or visit barclays.co.uk/intermediaries Letâ€™s go forward
For Intermediary Use Only
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