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Housing takes centre stage
he recent Budget saw the property market get a boost as Chancellor Rishi Sunak made a number of announcements that will help see out what we all hope is the final phase of the pandemic. Sunak announced support for workers and employers, help for businesses and freezes on certain taxes. The property sector also received direct support, with an extension to the stamp duty holiday and the introduction of the new mortgage guarantee scheme. To smooth the transition back to normal, the nil rate threshold for stamp duty will be set at £250,000 until the end of September, before returning to the usual threshold of £125,000 on 1 October 2021. This should help ease some of the pressure on conveyancers and lenders which have been inundated under the surge of buyers. Additionally, local authorities will now have more time to deal with the
backlog in residential property searches - some local councils have seen the volume of such searches increase by as much as 1,400%. There is still a way to go in this crisis, but there is light at the end of the tunnel. The commitment of the government to the market is a good sign going forward. Once the pandemic is over, and indeed whilst it is winding down, the government needs to address the issues facing the market. One of the main issues is supply. Free up as much 95% lending as you like, but the lack of suitable housing stock needs addressing. As does - whilst there appears to be some progress - the plight of mortgage prisoners and the cladding scandal. Time will tell if this government can tackle these issues and fulfil its pledge to turn ‘Generation Rent’ into ‘Generation Buy’, but one job at a time. Hurry up and get us out of this pandemic PM, Rishi and co. That would do for a start. M I
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IT'S TIME TO COME TO KENSINGTON
Contents 7 9 15 16 18 19 20 22 23 29 32 34 36 40
AMI Review Market Review London Review Networks Review Recruitment Review Service Review Lending Review Education Review Buy-to-let Review Protection Review General Insurance Review Technology Review Equity Release Review Conveyancing Review
42 The Outlaw The latest from our resident outlaw 46 Head-to-head: Robert Sinclair and Richard Kateley Robert Sinclair goes head-to-head with L&G’s Richard Kateley on advisers and protection 50 Interview: Thriving in uncertain times Jessica Nangle talks to Keystone Property Finance about the positive start to the year 54 Cover: Round-table Our later life panel discusses the predicted levels of success for RIOs, whether carrying debt has become a way of life, and the lessons learnt from COVID-19
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Tech for tech’s sake Robert Sinclair chief executive officer, AMI
ress headlines often get me intrigued, motivated, disappointed, but sometimes genuinely challenged. ‘Big, dumb mortgage products’ was one – would this be revolution, evolution or innovation? Dr Louise Beaumont, chair of the open finance and payments working group at TechUK, was cited as saying: “Open banking has a rich and valuable future, building from humble beginnings in the banking sphere to open finance and through to the rich, sunlit uplands of open data. “This means an ever-richer suite of data to pull into ever-more valuable services – hyper-personalised, predictive and pre-emptive services. This spells the end of big, dumb mortgage products manufactured without consideration for the end consumer. “Mortgages will be bespoke for the individual, based on what data they
choose to share with the provider. And the products will flex, as the individual’s circumstances change, again based on the flow of data. It’s time to unleash your imagination and think about the data you need to create genuinely valuable services and to leave lumpen, inflexible products behind.” Open finance is where data is sourced from financial organisations like insurers. Open data brings in a wider range of sources, such as fitness apps or online retailers. It is hoped to provide a secure way for financial information to be shared across different providers with customers’ consent. However, most of us give this consent as part of the general terms and conditions, and our data is now being manipulated and used in many ways. The question is whether this is a genuine renaissance, or just the dreams of technology experts who have clever new ‘intelligent’ systems that need somewhere to operate. Is this a case of tech chasing markets, or genuine needs looking for a technology solution? I wish these tech firms would show me where the consumer demand for this is – or why the lender might want to move in this direction.
Value for money
he Financial Guidance and Claims Act 2018 transferred the regulation of Claims Management Companies (CMCs) to the Financial Conduct Authority (FCA) and gave it a duty to make rules about CMC fees for claims relating to financial products and services. The FCA’s research found that conditions in the market allow CMCs to charge fees well above the value they provide to individual consumers. CMC fees are usually calculated as a percentage of the redress paid on a claim, charged on a no-win-no-fee basis. The FCA wants to protect consumers who have suffered harm and are owed redress from paying too much money for claims management services.
Lucy Lewis senior policy adviser, AMI
The FCA is currently consulting on the introduction of a cap to fee charges, for non-payment protection insurance (PPI) claims, based upon the amount of redress a customer receives for a single claim. The ceiling is to be set at £10,000, or lower for smaller claims. The cap will apply to all claims that could be taken through the statutory redress system, which includes the Financial Ombudsman Service and the Financial Services Compensation Scheme, even if they are pursued some other way, such as through court.
In the world of insurance, risk directors worry about being caught in the vortex of adverse selection, where they get all the bad risks at an average premium. Similarly, as we think we can use correlated data for lending, we face the huge risks of both the false positive issue and the risk of both positive and adverse selection. As an industry, we are charged with having limited genuine societal benefit. However, by placing people in relatively wide risk buckets, more can benefit from the product and its averaged pricing than perhaps if each deal was individual. Half would get worse prices, or some no product at all. The regulator has spent decades warning the industry against forcing new products or solutions on consumers that barely fit, and not meeting identified needs – the challenge has been to show your market research during your product design phase. We have spent decades understanding risk and pricing through loan-to-value (LTV), loan-to-income (LTI), and credit scores, and applying improving sourcing to assess suitability of product terms. This new intelligent product is yet to awaken my inner revolutionary fervour. M I The new rules will come into force three months after they are made, for contracts that are entered into both prior to and after the rules come into force, for all fees charged after that date, but should be this autumn. CMCs will be required to ensure that customers understand the other methods through which they can make a claim. A standalone signed statement from customers, giving their reasons for choosing to claim through a CMC, will be required. These changes will help to ensure that customers who claim for redress through a CMC receive good value. We only hope that the Solicitors Regulation Authority, which regulates many of the firms responsible for the data subject access requests in the mortgage sector, will follow suit to ensure that the differences in the two regimes do not lead to consumer detriment.
MARCH 2021 MORTGAGE INTRODUCER
Keeping up the momentum buyers to get to grips with exactly how these changes affect them. Xxxxxxxxxx Craig Calder director of mortgages, xxxxxxxxxxxxxxxx, xxxxxxxxxxxxxxxx Barclays
magine writing an article in the second half of 2020 or Q1 2021 without including the words ‘COVID-19’ (other variants also apply) or ‘stamp duty holiday’. When compiling any type of market or lending review, it is nigh on impossible, and with good reason. Both of these contrasting but highly influential factors are having a huge impact on the housing and mortgage market, and whilst we all know which one we’d like to banish first, we are still operating in a world of uncertainty. I first wrote this amidst conjecture that a six-week stamp duty extension might be in the offing, with speculation renewed following the recent extension of the Help to Buy equity scheme deadline for homebuyers and builders. Since then, of course, an extension of the holiday as is has been confirmed until 30 June, with a lower threshold in place temporarily after that. HELP TO BUY
As applications for Help to Buy ended on 15 December 2020, the extension only applies to those who have already begun proceedings. Homes England has also outlined that this will be the final extension it grants. If a development is unable to complete by the new deadline of 31 May 2021, homebuilders will be forced to release buyers from their contract. Homebuilders will also be required to refund reservation fees if buyers do not go ahead with buying the home. If the buyer has exchanged contracts, the homebuilder must also return their deposit. Furthermore, applications can be made under the Help to Buy equity loan, which begins from 1 April 2021. This decision does help provide some additional breathing space, and advisers will play an important role in helping www.mortgageintroducer.com
ARREARS AND POSSESSIONS
The impact of the pandemic continues to affect many different areas of the economy, and the financial circumstances of many homeowners. This is not an easy topic, but it’s vital for the industry and lenders to keep abreast of how the past 12 months have affected borrowers and their ongoing ability to service their mortgage commitments. As outlined last month, it was positive to see that eight in 10 customers have now returned to making full mortgage repayments after taking a payment holiday. The subject of arrears has again come to the fore this month, via UK Finance’s Mortgage Arrears and Possessions update. This outlined that there was a total of 77,410 homeowner mortgages in arrears of 2.5% or more of the outstanding balance in the fourth quarter of 2020, an increase of 2,560 on the previous quarter. Within the total, there were 28,400 homeowner mortgages in early arrears – those between 2.5% and 5% of balance in arrears – an increase of only 2% on the previous quarter. There were also 26,660 homeowner mortgages with more significant arrears – representing 10% or more of the outstanding balance – an increase of 1,800 on the previous quarter. This figure is said to have slowly increased throughout 2020, but from a low base. As highlighted in the report, although the data shows a relatively small increase in the total number of all arrears from the historic low levels seen in 2019, the support available from lenders has meant that those who were not in financial difficulty at the beginning of the pandemic have largely remained out of arrears. Despite the modest uptick, the total number of customers in the early stages of arrears in Q4 2020 remains below the level seen at the end of 2019. As previously alluded to, this is an area
which the industry must carefully monitor. In line with increased government support, vulnerable borrowers need to be identified and armed with a support package, where possible, to help them through these challenging times. PRODUCTS AND LTI
This support package must include some form of tailored help and a variety of options to meet wide-ranging financial scenarios. Choice and options have always been at the forefront of a robust and healthy mortgage market. Here at Barclays, we recently raised our loan-to-income (LTI) multiples back up to 5.5 for high earning borrowers with immediate effect. This is applicable for borrowers with earnings over £75,000, or where there is a joint income of £100,000. Positive news also emerged in the higher loan-to-value (LTV) lending bands, as the number of products available at 90% LTV was reported to have risen by 29 in the first two weeks of February alone, following 88 additional products coming onto the market between the start of January and February. According to Moneyfacts, this takes the total number of 90% LTV products to a current figure of 277. While not yet close to the 776 available at the start of February 2020, this is considerably above the 44 offered in early September 2020. The number of lenders offering 90% LTV mortgages is also said to have risen by 15 since the beginning of January. CONTINUING MOMENTUM
These are promising trends, especially for many first-time buyers. Availability is steadily increasing and lenders are continuing to innovate and evaluating their risk exposure – within responsible lending boundaries – to ensure that the momentum generated over the past six to nine months continues. All of which bodes well for Q2 and beyond. M I MARCH 2021 MORTGAGE INTRODUCER
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Vulnerability and the mortgage market Martin Reynolds CEO, SimplyBiz Mortgages
he arrival of COVID-19 had a huge impact on the mortgage market, and some of the changes made through necessity over the past 12 months are almost definitely here to stay, for good or ill. One of those changes – and I think most of us would agree it is a positive one – is an increased focus on the treatment of vulnerable clients, and wellbeing generally. Of course, treating clients who are either inherently vulnerable or who are experiencing circumstances which have made them temporarily vulnerable, in a way which was sensitive and fair was already part of the process for the vast majority of advisers and brokers. However, over the past few years, work from the regulator has led many to think about vulnerability much more broadly – what vulnerability means, how to identify vulnerable clients, ways in which to approach sensitive conversations, finding appropriate solutions and recording the conversations and actions taken. Societal shifts and the Financial Conduct Authority’s (FCA) focus on this area has meant that principled ways of work now need to be formalised into documented processes, procedures and cultures, even before the arrival of coronavirus last year. Then, of course, a global pandemic meant that vulnerability was very quickly a lot more real to all of us than ever before. In fact, during February, findings from the FCA’s Financial Lives survey showed that more than a quarter of UK adults are now vulnerable – a whopping 27.7 million. www.mortgageintroducer.com
Mental and physical health concerns are at an all time high, with the recession, furlough, redundancies and entire industries going into shutdown for months at a time meaning many others have found that their financial resilience was not secure enough to protect them. CONSUMER SUPPORT
Understandably, the regulator directed its gaze keenly at the mortgage market during this time, with a definite emphasis on the ways in which lenders could offer support to customers, instead of taking punitive action. Whilst it’s difficult to say which areas of the market are most potentially vulnerable as a result of the effects of COVID-19 – the answer could realistically be ‘more or less anyone’ – it was generally considered that residential mortgage holders and tenants were most at risk. Of course, anything which affects tenants naturally holds repercussions for landlords who, whilst likely to have a higher level of financial resilience, will not have plans in place for circumstances which sweep through large numbers of their tenants on a long-term basis. A revision to eviction terms by the government last year meant that tenants now have to be given six months’ notice of an eviction; good news for vulnerable tenants, but potentially a significant strain on the finances of landlords. The government’s introduction of ‘mortgage holidays’ was welcomed by many consumers, with more than 2.6 million payment deferrals agreed by November 2020. However, even before the government became involved, many lenders were already working hard to improve communications and support for their clients, which often included looking at a range of options for those
struggling to make payments. I believe that our sector is consistently agile and quick to react to changing circumstances, and we’ve seen some real innovation over the past year in relation to supporting vulnerable clients, as well as some fantastic education and training resources emerging from lenders. Just to pinpoint a few examples, more2life did some great work to heighten awareness around how those who are suffering cognitive or physical decline might be more vulnerable when receiving advice virtually. Air Group ran a month of training events for advisers and brokers on longterm care, with a focus on identifying and working with vulnerable clients. Pepper Money has regularly shared research around the causes and impacts of adverse credit, and more recently, Aldermore’s extensive research into the renting market helps us to get broad picture of the tenancy market and the barriers they may currently be facing. The SimplyBiz Group launched its own Vulnerability Hub back in June, as well as a programme of events, guides and updates which has been warmly welcomed by our members, with thousands of visits to the online resource over the past six months. Additionally, the FCA’s Finalised Guidance, delivered on 23 February, will hopefully lead to yet more activity, now there is more certainty around the regulator’s position. I think it would be difficult to find anyone who hasn’t felt vulnerable in one way or another during the past year. Whilst I hope it has been a temporary state for most of us, I believe we all know someone who is facing a longer-term struggle. Whilst I wouldn’t suggest there have been any silver linings to the COVID-19 pandemic, I think that the spotlight on the treatment of vulnerable clients will be beneficial to the industry going forward. In addition, I believe that the universal nature of the experiences of the past year have made it much easier to talk about our mental health and general wellbeing, both professionally and personally, and that can only be a good thing. M I MARCH 2021 MORTGAGE INTRODUCER
Working from home – are you covered? Claire Fletcher PR, Safe & Secure
oes working from home affect the cover of your home insurance? With car insurance you are not generally covered for business use, so is it the same for your home? Most policies are not affected, but business visitors to the home are not usually covered, and a specialist additional liability policy would be required in case a business visitor has an accident in your home, for example getting tripped up by a pet and falling down the steps. With the continued substantial shift towards home working, it is more important than ever to take stock of
your possessions and make sure you have a quality four or five-star policy with the right level of cover in place. With a four or five-star Defaqto rated policy you usually get a standard amount of office equipment insured to the level of £5,000 – generally enough to cover a desk, chair, computer and printer. Anything above the standard needs to be noted and specified. Is your home office in a garden outbuilding? If so, it may not have the same cover as the home. CHILDREN AT HOME – ARE YOU COVERED FOR ACCIDENTAL DAMAGE?
With children spending most of their time in the house, and their endless energy, it is highly likely things might get a little boisterous, and accidents can happen. Make sure you are covered for additional accidental damage in case, say, you’re decorating and they
knock a tin of paint over your brand new home office carpet, or maybe throw a tennis ball at your new TV! At the moment perhaps your most valuable item would be your mobile phone, so make sure you have adequate protection should your children drop it in the bath! NEW BIKE – IS IT COVERED? WHERE SHOULD YOU KEEP IT?
The increase in cycling during lockdown has resulted in a surge in bike purchases. This is now seen as an essential purchase for many, for both exercise and transport. The amount people are spending on a bike has also increased dramatically, with the average purchase price rising from £300 to over £1,000. Separate bike insurance is available, but it may be possible to add it to your existing policy, depending on the insurer. It is vital this is specified on your policy to ensure enough protection is in place should you be burgled, or with personal belongings insurance away from the home. Most insurers, however, do not cover the new trend for electric bikes, as these are a high value item. You may also need to keep it in the house for it to be protected – again, it is worth checking with your insurer. HOME GYM EQUIPMENT – IS IT COVERED?
Expensive purchases made due to lockdown and home working may need additional protection
When the gyms closed their doors last year the demand for home gym equipment soared as people tried to keep fit from home. Check your policy to see if you have enough contents insurance to cover all the new additions and any accidental damage they may do to the home. Bikes, gym equipment and gardening equipment may not be covered, as any property in the garage or shed is usually classed as being in an outbuilding and has a limited value this is not part of your home and contents. Above all, instead of using an online comparison site, use a home insurance specialist. It’s good to talk directly to an adviser and ask all the relevant questions to make sure you have the right level of protection for your home and belongings. M I www.mortgageintroducer.com
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Another year of the staycation summer? Jean Errington business development manager, Harpenden Building Society
t seems like only yesterday that we were discussing last year’s burgeoning holiday lets market, and now we’re experiencing the same trends for 2021. Deterred by the thought of quarantine hotels, country restrictions and catching coronavirus itself, Brits are once again preparing for a summer of staycations. INCREASE IN THE UK HOLIDAY LETS MARKET
At Harpenden, we’ve once again noticed a surge in holiday let enquiries, driven by the high demand. According to Hoseasons, peak summer holiday bookings for 2021 have been up 67%, with a 50% increase experienced by cottages.com. Despite government cautions about prematurely planning a summer escape before lockdown restrictions are permanently lifted, holidaymakers are booking in droves, determined not to be left behind. This has naturally led to an increase in people viewing holiday lets as a lucrative source of income. A survey by Park Leisure in PropertyWire revealed that more than three quarters of Brits (77%) aspire to own a holiday home in the UK, showing that, in addition to the extra income possibilities, many prospective buyers are also keen to have access to a secondary dwelling for themselves. This is a particular priority for those locked down in larger cities, such as London, Manchester or Birmingham, for whom additional space is an increasing concern. Even postpandemic, it would appear that the desire for more indoor space and access
MORTGAGE INTRODUCER MARCH 2021
to the great outdoors will continue, as buyers reassess their core needs. REDUCED AVAILABILITY
Many people are noticing the high demand for holiday accommodation over the summer ahead. We spoke to Huw Williams, a father of two and keen traveller from London. To avoid the potential disappointment of booking an overseas vacation which could fall through, he began searching for a family holiday within the UK at the turn of the year, but even that proved challenging. He said: “We thought we’d be ahead of the game by searching in January – a full eight months before we intended to travel – but quickly found that a lot of places were already booked up. According to the booking platforms, some of our preferred destinations were already at 90% capacity. It’s particularly difficult when you’re searching for accommodation suitable for a family. We ideally need a decent sized house or apartment where we can self-cater, and we couldn’t believe how few options were left.” With holiday lets in desirable locations already snapped up, those marketing their rental accommodation over the next few months look to make significant gains. Dan Collins, an entrepreneur from Hertfordshire, said: “Having seen the success of my Airbnb barn conversion over the last year, I’ve been keen to develop my holiday let portfolio. I’ve just returned from putting the finishing touches to my latest acquisition, a fourbedroom property in the North Norfolk coastal town of Holt. “Once the purchasing process completed it’s taken just three weeks to refurbish the interior and get it ready. Photos have now been taken and I’m about to start promoting it online. We’re expecting 100% booking rates over the summer months, as staycation
business continues to boom. I’m already looking at my next holiday let property and how best to finance the purchase. I can only see that this type of property acquisition will grow in popularity, it’s a strong business option for owners.” A SPECIALIST APPROACH
We recommend that any would-be owners consider a specialist lender – one that is expert in dealing with the unique aspects of buying a holiday let. In our experience, these purchases are often made by customers with multiple forms of income. Mainstream lenders can’t always accommodate this, and applications assessed en masse by an algorithm can be rejected at the first step for those with a non-standard financial profile. Harpenden, and some other specialist lenders, manually underwrite every mortgage application, taking a considered view, assessing the risk in more detail and looking at the wider picture. With this in-depth scrutiny, a complex holiday let application can often proceed. Our experience in this sector, and the refined criteria developed as a result, provides additional safeguards benefitting all those involved in the purchasing process. We use rental income projections when considering applications, and take a holistic view of a client’s financial circumstances. As part of our criteria, we also ensure that customers have surplus income and funds available to afford the mortgage and running costs for up to three months should the property unexpectedly be without guests. Being able to cover these periods provides an additional safeguard for the loan’s sustainability, and benefits all parties. Specialist lenders will vary in their income requirements. At Harpenden, a minimum income of £30,000 is required, alongside the additional financial requirements mentioned in summary above. If your client has a strong application for a holiday let property and is looking to capitalise on the increasing opportunities in this sector, a specialist lender like ourselves will be delighted to discuss the options further. M I www.mortgageintroducer.com
A good time for capital investment Robin Johnson managing director, Kinleigh, Folkard and Hayward Professional Services
hile I am writing this before the Chancellor Rishi Sunak delivers his 2021 Budget on 3 March, you will be reading it after he has. It’s impossible to predict whether he will heed calls either to extend or to wind down the stamp duty holiday in a more orderly fashion, but in all likelihood, he will announce the latter approach. A cliff-edge risks chaos in the market, broken chains, and dashed dreams for many first-time buyers. BUYER HUNGER
The whole intention of this temporary reprieve on stamp duty was to boost the property market by incentivising buyers to move rather than wait. The question now being asked is whether the end of the scheme will see appetite wane again. So long as the market isn’t forced to deal with the fallout of a cliff-edge on the stamp duty holiday, my feeling is that appetite may see some dampening, but that the vast majority of those hoping to move house now will still want to. If we consider why the market was in such a bad place last summer, many of the reasons no longer apply or are far less problematic today. The first lockdown sent the nation into shock. People didn’t leave their homes, everything stopped, moving house was banned. By the second lockdown in November, the country had got the hang of it – remote working was in place and (mostly) functioning well for those who were able to do it. Restaurants, coffee shops and pubs had established delivery mechanisms, and customers, rather less enamoured with perfecting their sourdough or growing tomatoes in the middle of winter, were ordering again. www.mortgageintroducer.com
Surveyors had invested in improvements to their virtual and remote property inspections, desktop valuations and automated valuation models (AMVs) had been adapted, and people understood and could manage socially distanced on-site visits much more effectively. The reality is that the stamp duty holiday has done its job: boosting demand after the industry had got itself ready to service it. The flipside of any stamp duty holiday is that by spurring buyer appetite and boosting their affordability, prices inevitably rise. Office for National Statistics (ONS) figures show that in London, the average house price broke the £500,000 barrier for the first time ever. I’m conscious that the plight of the first-time buyer struggling to raise a sufficient deposit is acute in London and the South East, and in some city centres and other pockets around the country. But actually, the majority of would-be homeowners living outside of the M25 find it tough but not impossible to save enough to buy their first home. Values may change as we reassess what matters to us. This has been a consistent theme over the past 12 months, and I do not doubt this will persist throughout the next 12 months at least.
ONS data shows London house prices are on the rise
For some, the events of the last year have meant a change of career, while others are choosing to move out of cities permanently and forgo the daily commute for good, a change made all the more possible by the rise of remote working for many people. I have a sense that 2021 is going to be a more stable year than its predecessor. Providing there is an orderly wind down of stamp duty relief and transactions already in train and waiting to complete are allowed to on the same basis, it’s likely that the market will start to feel a bit more normal as the year progresses. EVOLVING CITY
The vaccination programme is already well underway, while plans to open schools are set to go ahead and a roadmap has been laid out for hospitality sector firms to start trading with less onerous restrictions in the not so distant future. What will this mean for the capital’s property market? I suspect that those considering a move out of city living, but who haven’t made the jump, will not be deterred by the reinstatement of stamp duty. London will simply evolve, but its cultural attractions, infrastructure and energy will remain significant factors creating a pull for domestic and international buyers, especially as the UK rebounds more quickly than at first thought likely. As one economic commentator put it, the UK may have shot itself in the foot through Brexit, but it has not shot itself in the head. Many of the core fundamentals of the UK and its capital’s economy are in fairly rude health. The country is positioning itself for a fast return to global trade. Even if average prices were to come down a couple of percentage points, that’s no bad thing. It simply reflects that changing dynamic in affordability. The health of the housing market depends on buyers being able to afford homes, and for all of us in the industry, transactions are what matters. M I MARCH 2021 MORTGAGE INTRODUCER
Managing expectations Shaun Almond managing director, HL Partnership
n today’s market, mortgage brokers work to provide the most costeﬀective lending solution tailored to the specific needs of their customer, based on a study of a representative whole-of-market panel. Of course, the cheapest rate on the market is a goal to which every broker aspires, but the client’s back story makes a huge diﬀerence when it comes to the final recommendation. After the last 12 months there are clear challenges for those customers with an inconsistent job history, credit issues past and present, high loan-tovalues (LTVs), self-employment, issues around the type of property – all of which can and do have the eﬀect of reducing the pool of possible mortgage sources and therefore the cheapest headline interest rates. SERVICE MATTERS
There are also other considerations. Service is a perennial factor in advisers’ lender recommendations to customers. I have always believed that – regardless of how price competitive – if a lender cannot deliver an oﬀer within its published timeframe, the broker should look elsewhere. However, other parts of the ‘service’ story are just as important to today’s brokers. Consistency of underwriting is a concern that is harder to define or to find a cause for. Sometimes measuring lenders on specific instances of service is diﬃcult to pin down, but being popular because of headline rates can, as we know, cause even the most finely tuned administration process to come under pressure.
Apart from lenders being unable to sustain service because of a strong proposition, let’s not forget that COVID-19 has been the cause of many underwriters having to work from home and be physically cut oﬀ from the ‘hive mind’, meaning that the consistency usually generated by being in close proximity with underwriting colleagues is therefore lacking, making collaboration more diﬃcult and decisions increasingly arbitrary. THE HUMAN TOUCH
A second reason might be found in the trend of moving away from the ‘computer says’ algorithms and towards more individual human underwriting, which by its very nature can create a more inconsistent environment, especially when dealing with a selfemployed applicant. While I would expect that underwriting consistency should be common to every mortgage, buy-to-let (BTL) mortgages could be more likely to provide a lack of consistency than mainstream transactions. Landlords buying or refinancing property might be seeing varied outcomes because of the planning and licensing rules for diﬀerent areas of the UK. It is easy for less well informed landlords, who can and do fall foul of those regulations, not to have done their homework and find their financing expectations to be more expensive than initially thought. The main point is that as advisers, while we strive to always provide the best service at the best price, there are many elements in the process that we cannot control. Things will not always go as expected, and this can conflict with the desire to consistently deliver a great customer experience. While we aim to be perfect, it is well to remember to under promise and over deliver. M I
Learning to love anniversaries
o you forward mark dates to review mortgages taken out with a fixed rate, or where a discount is ending? Look at the number of mortgages that have been written to take advantage of the stamp duty holiday, which was set to end on 1 April. Are you going to get to them before they look elsewhere to remortgage? Five years ago in 2016, there was a similar desperate push to get buy-to-let (BTL) mortgages over the line before stamp duty rules changed, interestingly on April Fool’s Day 2016. But this was no joke. The reason for the rush was that the surcharge was due to come into force for all second homes and buy-tolet purchases. Of the 45,000 BTL mortgages completed in March 2016, a large proportion of the loans completed for purchase and remortgage before the 1 April deadline were on 5-year fixed rate terms. If you haven’t already searched your client database for mortgages coming up for a return to standard variable rate (SVR) from that time, there is little time left to act. The focus on purchase deals completing before the end of March highlights the danger of missing out on such a concentrated batch of remortgage opportunities, and could mean that either another broker or lender will already be negotiating with your client. The fact is that every day is the anniversary of a loan or mortgage that has come to the end of either a fixed rate, discount or an early repayment charge. Your future prosperity relies increasingly on adopting a first rate customer relationship management system to keep track of where clients’ mortgages are. Anniversaries are a chance to celebrate. By renewing working relationships on time, it could be cause for celebration every day. M I www.mortgageintroducer.com
HIGH NET WORTH
The outlook for UK property Peter Izard business development manager, Investec Private Bank
gainst the social and economic backdrop of COVID-19, Brexit and tax changes, there are many factors when considering the forecast for UK property over the year ahead. At Investec, we have spent a great deal of time over the course of the pandemic speaking to brokers and other property experts in our network, as we attempt to navigate the challenges posed by COVID-19 and understand how best we can support our clients during such uncertainty. I recently had the pleasure of hosting a webinar with Investec’s chief economist Phil Shaw and Knight Frank’s head of UK residential research, Tom Bill. In it, Phil and Tom examined the current state of the market, the forecast for the economy, and the factors set to impact its trajectory over the coming months. Here, I will summarise some of the key themes which emerged. THE ECONOMIC MOOD
Overall, the UK economy shrank by about 10% in 2020, and the current lockdown means that the economy is likely to shrink once again. However, whilst many commentators expected the economy to contract over the fourth quarter of last year, at Investec we take a more optimistic view. There are two reasons for this. First, the economy is, in many respects, shut anyway – meaning that the impact of the third lockdown will be more limited than could perhaps be expected. Second, businesses have been able to adapt over the course of the last year – in particular the retail sector, with robust online offerings ensuring that people can still spend throughout lockdown. Looking ahead, many await further detail on the www.mortgageintroducer.com
government’s roadmap out of lockdown in order to ascertain the extent – and pace – of economic recovery. Phil tells me, though, that there are other factors that will also impact the recovery, including household savings levels, mortgage rates and interest rates – although he doesn’t expect to see a rise in interest rates until the end of 2023. SETTING THE SCENE
Looking at the housing market specifically, performance since the end of the first lockdown last year has been surprisingly good. There are several reasons for this. In Tom’s view, this was primarily due to pent-up demand against the backdrop of Brexit, which meant that the market was already in a relatively strong position as it entered the pandemic. That said, we are now nearing the end of the initial wave of demand, and facing a handful of complications: the end of the stamp duty holiday – although this has now been extended – the counteracting factors of the new coronavirus variants and the vaccine roll-out, and the impact of the third lockdown on the processes of buying and viewing properties. BEHAVIOURAL TRENDS
When it comes to international buyers and investors, travel restrictions remain a key consideration – particularly within prime markets. Indeed, despite the roll-out of the vaccine thus far proving successful in the UK, experts expect restrictions on travel to keep demand for prime London property in check for the foreseeable. Due to be introduced from April this year, the 2% surcharge will also be on the list of concerns for international buyers. Whether or not the surcharge will materially impact house prices, though, remains to be seen. Usually, the market would expect to see behavioural change and price adjustments in response to the introduction of a surcharge; however,
thanks to travel restrictions inhibiting overseas activity for the last year, it is possible that this change has in fact already taken place. Closer to home, meanwhile, I have written in the past about the uptick in demand for countryside living. Tom believes that the movement away from London was already underway prior to the pandemic, because of affordability constraints, although he is doubtful as to whether the shift will prove to be a long-term trend. While the escape to the countryside has been a well-documented reaction to the constraints of city life under lockdown, it is likely that buyers will ultimately be drawn back to London and all that it offers as a hub for business and culture. WHAT’S NEXT FOR THE POUND?
It is worth concluding by taking into account what might happen to the pound over the next year. While many expected to see a sustained rise following the reaching of a Brexit trade deal, ultimately the pound did not see as big a jump as previously expected, having already strengthened in anticipation of a deal. As for what happens next, there remains, of course, a great deal of uncertainty – although a successful continuation of the vaccine roll-out could see the pound at over 150 against the US dollar by the second half of next year, Phil tells me. A final economic consideration for property investors to bear in mind is fiscal policy. The government might go about recouping the costs of its coronavirus support programmes. It is too early to say what this might entail; it may include changes to Capital Gains Tax (CGT) or wider property taxes, although the Chancellor refrained from flexing these fiscal muscles in his Spring Budget. With this in mind, market experts should keep an eye on possible announcements around tax interventions which, if introduced, could have an impact on property. M I MARCH 2021 MORTGAGE INTRODUCER
Inclusivity and cultural fit Pete Gwilliam director, Virtus Search
he culture of a business is made up of the shared values, attitudes, behaviors and life experiences of its employees. Culture is especially influenced by a firm’s executives and leaders, because they are the decision-makers, the people who set the strategic direction, and it is they who use various rewards and recognition systems to reinforce what is valued and expected. Just like there are variations in individual personalities, business culture naturally varies from one company to another. This is why some people ‘fit’ into a particular working environment, but not in others. SHARED VALUES
Company culture is a powerful driver of business success. It is the key to employee engagement, performance and productivity. Employees who identify more with their company’s values experience greater job satisfaction, are more engaged, perform better and are more likely to stay with their organisation. However, cultures can be determined by legacies, and therefore fail to reflect changes in society and the communities that the business serves. Investing in people has to start by creating a working environment in which everyone can bring their most authentic selves to work, without fear that their differences will impact upon their ability to contribute and succeed. Cultural fit is often used in a loose way, by reference to some nebulous criteria about shared values, unsupported by evidence of what the culture is like in practice. The unintended consequence of these vague assertions, and of simply hiring people we feel will ‘fit’ at a
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subconscious level, is that we will pick those with whom we have something in common. However, the notion of a cultural fit should mean shared values in terms of work ethic, collaboration, problemsolving and common purpose, not just having shared similar previous experiences as someone. Screening and selecting for a values-based fit demands a deep understanding of the company’s culture. A cross-section of views from people within a business best describe its culture – how are these values personified in terms of specific, measurable behaviours and traits? Any business can have a politically correct mission statement, but what are the behaviours that directly reflect of this cultural commitment? At the heart of any progressive business is openness and integrity. For example, transparency of pay scales, inclusive succession planning, mentoring, and opportunities for genuine employee involvement in decision-making. All of this must inevitably make for a more attractive place to work, but these are not elements that are often included in the actual selection process. While psychometric testing might help provide a picture of the behaviours of an individual, to be more substantive the behaviours of a firm, managers,
the team around an individual and the business’ customers and suppliers must be evaluated before any conclusions can be drawn about the ‘fit’. CONFRONTING BIAS
At least it can be said that psychometric tests do not make assumptions based on where an individual has worked previously – either positive or negatively. Organisations should be sure to have policies in place which confront bias. A simple step is to anonymise CVs – they can be reviewed without the hiring manager seeing the name, age, schooling, or gender of the applicant. The new working model we have all adapted to has surely created discussions about whether job descriptions are still fit for purpose, and maybe affirmed or realigned the values that underpin a business. You find out more about yourself and the business you work for in challenging times than you do when all things are going smoothly! When the skills and behaviours that are required for new working practices are being determined, there is a perfect window to re-engineer sourcing and selection. As an industry, we can ensure that at all levels we are transparent, fair and inclusive, celebrating diversity and varied experiences. M I
Company culture is a powerful driver of business success
Sound advice for the self-employed Xxxxxxxxxx Stuart Miller xxxxxxxxxxxxxxxx, customer director, xxxxxxxxxxxxxxxx Newcastle Building Society
he COVID-19 pandemic of the past 12 months has brought many fundamental changes to the way we live, socialise and work. Government statistics published last year showed that in April 2020, 46.6% of people in employment did some work at home. Of those, 86% did so as a result of the coronavirus pandemic. Those not fortunate enough to be able to continue their employment remotely face a bleaker prospect. The Office for Budget Responsibility (OBR) forecast in January that UK unemployment is likely to reach 2.6 million in the middle of 2021, some 7.5% of the working-age population. The Bank of England is of the view that the unemployment rate will peak at 7.7% in the period from April to June this year, with a small chance it could rise as high as 10%. SHIFTING LIFESTYLES
Whilst most of us would rather COVID-19 was still just a dystopian fiction, the pandemic and consequent social lockdowns it has necessitated have created time at home for households across the nation. There have been many stories of people reevaluating their lifestyles, planning to leave the daily commute behind, move out of cities into the countryside, get a dog, and the list goes on. Facilitating this more flexible approach to earning a living is selfemployment. Analysis carried out by the Office for National Statistics (ONS) in April last year showed that by the fourth quarter of 2019, there were more than five million selfwww.mortgageintroducer.com
employed people in the UK, up from 3.2 million in 2000. Self-employment has contributed strongly to employment growth in the labour market, with self-employed people representing 15.3% of employment, up from 12% in 2000. Data from Companies House shows that 468,371 new businesses were registered in the UK in 2020. Who makes up this growing selfemployed group is also interesting. Some 10% of self-employed people are aged 65 or over, compared with just 3% of employees. Self-employed mothers are more likely to work parttime (61.4%) than their employee counterparts (51.8%), though there is very little difference between selfemployed (10.3%) and employee fathers (10.6%).
“The historical norms lenders relied upon to base lending decisions, particularly for the self-employed, have been challenged by the fallout of the past year” At the same time, businesses are facing financial challenges. Creditsafe analysis shows that the total number of UK company insolvencies for the year 2020 rose to 19,654, a 13% increase compared to the same period in 2019. Research published by the British Chamber of Commerce and TSB Bank found – in a survey of more than 500 businesses – that most companies which took on debt during the crisis feared it would damage their future prospects, with one in 10 believing they could go bust as a result of the burden. The point of all of these statistics is that the make-up of the British economy and employment has already shifted enormously, and very quickly.
It is inevitable that this is only the start of a much more entrenched change to the way households earn their incomes in future. For the mortgage market, this is a watershed moment. Historically, the vast majority of potential borrowers have been in full-time employment – and our underwriting, credit assessment, affordability regulations and IT systems reflect that. Similarly for the self-employed, there has been a consistency of earnings which can be demonstrated by accounts which lenders utilise to base their lending decisions on. COMPLEX OUTLOOK
The future we are facing has become a much more complex place. The historical norms lenders relied upon to base lending decisions, particularly for the self-employed, are challenged by the fallout of the past year. The impact of the furlough scheme, income support for the self-employed and emergency business loans will all demand a fundamental change in a lender’s approach to assessment around supporting those impacted. Whilst we know manual underwriters will understand much of what passes in front of them, and in our own experience our skilled and experienced underwriters continued to help self-employed applicants throughout the pandemic, the increased complexity of borrowers’ arrangements across all age ranges has meant that these loans take longer to underwrite. That will change in due course as we become more accustomed to the complexity and economic recovery takes place. However, without a more nuanced approach – and one which comes to terms with the fallout of the pandemic – many may find that the ability to secure a mortgage when buying a home or refinancing an existing loan has become harder. With the expected continued growth in self-employment as a consequence of the pandemic, manual underwriting along with access to good quality advice is essential to support more complex customer needs and an ever changing market. M I MARCH 2021 MORTGAGE INTRODUCER
Understanding your digital ecosystem Tim Hague director, Sagis
he word ‘ecosystem’ has been appropriated into our digital lexicon to encompass not only the solutions we build and employ for our own organisations, but also how they interact with others. From internal dependencies between origination and core banking infrastructure, to application programme interfaces (APIs) with distributors and credit bureaux, the digital ecosystem is about understanding how an organisation’s digital approach supports and interacts with everything around it necessary to thrive. Success is about understanding the complex without making it complicated. You must understand what you want to achieve and what that looks like to the customer. The complexity comes in understanding how to deliver your solution in context, so the connectedness of each of the components in the ecosystem continues to work – or become obsolete – as you streamline or reinvent your processes. Understanding the dependencies and contingencies of business practice, such as overnight batch processes verses real-time updates, the impact of change upon financial and regulatory reporting and the volume of data that needs to be stored will have a significant impact upon the decisions you can – and should – make. Improving customer experience, automating buying processes, streamlining affordability underwriting were all objectives held by lenders, brokers and estate agents long before 2020. The past year has galvanised the industry to act however, with firms
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alive to the fact that failure to adapt fast means inevitable decline. Large lenders already operating within an open banking context have more obvious choices in front of them – and the resources to invest. Often, though, they have layers of politics and bureaucracy, as well as the endless complex spaghetti of legacy systems which few people know how to maintain, and which organisations are therefore wary of changing. Mid-tier and smaller building societies may also have legacy technology, but their scale affords them more options to change more quickly. They, and non-bank lenders, can be more savvy about how they deploy their digital strategies. A building society that specialises in self-build will need a very different digital journey to facilitate ongoing underwriting at key points in a build and the staged release of funds, compared with a lender whose target customer is the self-employed. For the latter, complex underwriting is required and often necessitates the provision of vast amounts of paperwork by customers who are not qualified financial professionals and therefore find this element of the mortgage application bothersome.
Digital strategies will bring clarity from lenders
My point is that buying digital solutions off the shelf is only the start of the journey. The clever bit is configuring them to suit specific needs, supporting people and processes where automation is cost prohibitive or simply not possible, and joining the dots to make sure the back-office outputs all continue to work seamlessly, too. The wrong approach can take considerably longer and cost much more than thinking through the complexity and planning it properly at the start – this is particularly important when budgets are already tight. Solutions built for today have to be malleable to meet the demands of tomorrow, whatever they may be. The process of digitalisation requires a deep understanding of a lender’s existing customers, as well as the type of customer they want to attract. A wholesale review of how customers currently transition through the application process is needed before any digital solution should even be considered. Different customer transactions may require quite different journeys and sub-processes behind the scenes, so lenders could choose to prioritise some over others. It may be an entirely legitimate strategy to prioritise certain markets. Customers and brokers often recognise when their case is tricky, and can be quite forgiving of longer turnarounds, but they are less prone to be indulgent when they believe they are the best, simplest lending prospect. The mortgage market has long been a web of relationships between parties in an analogue ecosystem. Rather than thinking about the move to digital as being about the choice between technology solutions, the key to getting this right is to understand where you want to be in the wider and increasingly digital ecosystem. Lenders need to identify and build the right component processes with partners and experts who know how to join it all together safely and efficiently. Independent experts – who understand both the business imperative and also the commercial advantages IT and organisational change offers – can bring unencumbered clarity to that process. M I www.mortgageintroducer.com
Bad news still sells Tony Marshall managing director, Equifinance
hey say that bad news sells newspapers, or produces more clicks, depending on which end of the age spectrum you are. When I see headlines such as ‘second charge lending falls in 2020’, on one hand I can praise the journalist’s eye for couching a story, but on the other despair that it instantly suggests doom is upon us. SECONDS OUT
Only an alien would be surprised that the second charge market took a hit in 2020. It rivals that old chestnut about bears’ personal habits in forested areas. What possibly could have happened to have created such a downturn last year? Oh yes, perhaps it was that lethal worldwide pandemic, which has accounted for the deaths of more than 100,000 of our fellow countrymen and
shut down the country – that might be the cause? Of course, it is important that the progress in the sector – or lack thereof – should be reported on, but there is something sniffy about the way in which second charge lending is portrayed as not being quite suitable to be a member of the lending club. So, any opportunity to show it in a less than positive light seems to be the prevailing attitude. Fiona Hoyle, head of consumer and mortgage finance at the Finance and Leasing Association (FLA), has chosen – quite rightly – to look forward rather than dwell on the past, and made a strong case by pointing to the recovery of the sector through the easing of the rate of new business contraction since last year. Last month, I was arguing that the sector needs to be careful in the way it presents itself. Given the hostility in certain quarters, we don’t want to heap fuel on that particular fire by chasing new business down the credit curve in an attempt to build volume at the cost of compliance credibility.
Everyone can understand the desire to build volumes to make up for the opportunities lost last year, but compromising credit quality and being seen to be taking advantage of a public that is much more vulnerable than it was pe-COVID, is particularly shortsighted and counter-productive. M I
Bad news sells newspapers
Debt consolidation and borrowers’ responsibilities
y way of offering balance to the last statement, perhaps we should be asking whether we should control people’s access to funding for consolidation to ‘save them from themselves’. There is an argument that people in need of more finance to pay off expensive borrowing should be policed in some way. However, voluntary debt counselling is there for anyone who wants it, and what is wrong with a lending solution that reduces monthly outgoings on debt servicing through consolidation? Financial advisers are in a unique situation to judge which path a customer should take – but the final choice has to be left to them. If they feel that consolidation will reduce www.mortgageintroducer.com
their repayment burden to a point that gives them a real chance to put their finances back on an even keel, and the savings made demonstrably leave them in a better position, then as someone running a second charge lender I am totally in favour. FINAL RESPONSIBILITY
When a consolidation enquiry comes to us, affordability is a key determinant, along with looking at the credit history for clues as to how applicants have handled their past financial affairs. However, what we can’t see is how well customers will resist the desire to take on more credit once the new mortgage has been granted. We all agree on the need for customer protection in financial services, and
especially lending. What we as an industry must not allow is for us to be expected to take over all the responsibility for a customer’s decision. If in the future things go wrong, is it the fault of the industry? Of course, brokers and lenders must ensure that all the checks and balances are met, but ultimately the final responsibility for taking on what is – in this case – a new loan, is the customer’s to make. Brokers cannot be held responsible if, after recommending a consolidation loan, the customer decides to max out their credit cards again. In a free society, people have the right to avail themselves of any service they choose, but those rights come with responsibilities. M I MARCH 2021 MORTGAGE INTRODUCER
A more sophisticated level of service John Somerville
head of regulatory relationships, corporate and professional learning, The London Institute of Banking & Finance
iven how rapidly the mortgage market has expanded over the past six months – spurred on by the stamp duty holiday – it’s easy to imagine that activity is now slowing. But that’s a simplistic view. In fact, mortgage networks are announcing expansion plans and mortgage providers are preparing to lend more. The 90% loan-to-value (LTV) deals are back, and lending criteria is set so that it’s easier to borrow. Add to this the deployment of the vaccine – with a government target to vaccinate all over50s by May. Then there’s the seasonal summer bounce that always increases activity in the market. Lockdown won’t last forever, and things are beginning to look up. A couple of things haven’t changed, however – we’re still weathering a stormy economy, and life is as unpredictable as ever. For many mortgage advisers, this will be new territory. If you completed CeMAP within the last five to 10 years, chances are you’ve always worked in a mortgage environment where house prices were rising and lending has been no problem. Now we’re working within a new set of parameters. The Bank of England has told the banks to prepare for negative interest rates within the next six months, and the economy is still in the doldrums. In ever-changing economic circumstances, a good mortgage adviser is one who can answer clients’ questions about how the things they’re reading in the news will impact them.
MORTGAGE INTRODUCER MARCH 2021
They’ll be thinking about cashflow modelling for their clients, because income-expenditure is an important part of the mortgage application process. If a customer asks how negative interest rates work and what they might mean to them, will you be able to give them a solid explanation? We’re navigating our way through very uncertain times, and we need to up our game. As a mortgage adviser, you should be ready for anything. If you don’t feel confident answering difficult questions, your clients will spot it. If they don’t notice your hesitation before you answer, they will certainly be aware of it if the deal they are after is delayed or refused.
“Extra letters after your name will show clients that you’re well qualified, conscientious and committed” Individual circumstances have also become more complex. Many UK mortgage holders have taken payment holidays in 2020, and will be facing the consequences of that now. Others will find that their work and incomes have changed, and that they have to rejig their finances as a result – which may include remortgaging. It’s important to adapt to changing circumstances and become more agile in your skillset, so that you can serve your customers better. Clients and their personal circumstances have never been more individual – or required more tailored solutions and sophisticated advice. That’s why it is so important to continue to develop your skills and continue learning. The CeMAP Diploma will help you acquire the skills and knowledge you need to be in the top percentile
of mortgage advisers. It’s a self-study and distance learning course in two modules, the first being CeMAP, which you already have. That leaves the second module, Advanced Mortgage Advice (AMA), which will deepen your knowledge of the advice process, specialist products and good practice – and which it’s possible to complete in as little as three months. By studying for a new qualification, you can develop your skills in research and analysis, and increase your ability to learn independently. Learning through practical coursework, with the support of an online tutor, will help you analyse your customers’ financial positions and their needs – skills that will be particularly useful when you’re dealing with some of the complex and unusual mortgage scenarios that we can expect will become more common in the current market environment. One of the reasons this qualification works so well is because it was created by mortgage advisers for mortgage advisers – people who understand what it’s like to advise clients and run a business, who know what sort of learning other mortgage advisers need in order to go the extra mile and get better at what they do. Because it’s not just about what you know, it’s about how you implement that learning. As well as increasing your knowledge, you’ll learn how to adopt more efficient working behaviours. This will make you better equipped to go for a promotion or career change within the mortgage industry, or to take the right steps if you’re planning to set up your own business. Once you’ve completed the qualification, the extra letters after your name will show clients and others that you’re well qualified, conscientious and committed to doing the best for your clients. What better way to stand out from the crowd? More importantly, however, you’ll be able to provide a far better and more sophisticated level of service that will enable you to support your clients – not just in these extraordinary and unpredictable times, but for many years to come. M I www.mortgageintroducer.com
The PRS sustainability puzzle Richard Rowntree managing director of mortgages, Paragon
assed in 2008 by an overwhelming majority across all political parties, the Climate Change Act sets out a commitment to reducing all greenhouse gas emissions to net zero by 2050. Achieving such an ambitious target will require a significant culture shift, and likely touch many different aspects of our lives, including our homes. Responsible for 14% of total UK emissions, residential energy use is likely to be a key focus of the government’s strategy in meeting what is the first legally binding climate change target set by a country. Over the past three decades, the contribution of homes to total UK greenhouse emissions has halved. The fact that this has coincided with the introduction – and subsequent growth – of the buy-tolet (BTL) tenure could be dismissed as coincidence, but in actual fact the 2019-20 English Housing Survey highlighted the progress that the private rented sector (PRS) has made, with its stock achieving better energy efficiency ratings than that of the owner-occupied sector. Even so, more than half of properties in both tenures have an Energy Performance Rating (EPR) below C, which is the standard the government is aiming to reach as part of its Clean Growth Strategy. It seems that the government has planned to remedy the PRS part of this puzzle first, with proposals that would see EPRs of C or above being required for all new properties let for new tenancies by 1 April 2025. This requirement would extend to all let property by 2028. Due to recent Minimum Energy Efficiency Standard (MESS) regulations, improving the energy www.mortgageintroducer.com
efficiency of properties will be nothing new for many landlords. Since 1 April 2020, properties with an EPC rating below E can no longer be let, unless a valid exemption is in place. To minimise the financial burden on a sector that has already been subject to various tax squeezes in recent years, the government has stated that landlords will never be required to spend more than £3,500 on making energy efficiency improvements. An increase of this spending cap to £10,000 has been proposed, which is an indication of the challenge faced by the PRS in complying. In part, this is due to the make-up of PRS stock, which consists of a large proportion of buildings – just under half – that were built pre-war, and which therefore do not benefit from the energy efficient characteristics achievable through modern design and construction methods. So, with a sizeable investment needed to bring millions of aging, relatively energy inefficient homes up to date and in line with government regulations, it is clear that finance is a key piece to the puzzle. Recognising this, the government introduced the Green Homes Grant scheme in the summer of 2020. Our research found that just under half of landlords intended on taking advantage of the initiative, which offers
up to £5,000, covering two-thirds of the cost of measures such as insulation or upgrades to glazing or heating. In response, Paragon has launched a green further advance product range. This range is directly linked to the scheme, because in order to be eligible for one of the products, landlords must have been accepted for a Green Homes Grant by the government. This is one of the first products of this type to be offered by a specialist lender in the buy-to-let space. We ourselves have more to come, and I’m sure our peers – also recognising both the threats and the opportunities resulting from climate change – will be announcing their own products tailored to appeal to the sustainability conscious among their customers. Alongside the financial incentives to drive these types of retrofitting initiatives, lenders can also encourage landlords to see investments through a sustainability lens, with energy efficiency as a key consideration in the valuation and underwriting processes. The full extent of the government’s plans for the sustainable future of the PRS is not yet known, but with the UK’s housing model so reliant on private investment to provide homes for millions of people, policymakers would be wise to work in close collaboration with landlords and the finance sector towards the net zero goal. M I
MARCH 2021 MORTGAGE INTRODUCER
Landlords need pro support Ying Tan founder and chief executive, Dynamo
he buy-to-let (BTL) market has been awash with news, views and data this month. So much so that I’m really not sure where to start. Generally speaking, when asked if I want the good or bad news first, I tend to start with the bad news just to get it out of the way. Thankfully, when looking at the current BTL market, we don’t have to worry too much, as it’s pretty much good news all the way for landlords and intermediaries.
demand reached a five-year high in Q4 2020. Data collected by the lender showed that 32% of landlords reported increasing levels of tenant demand during the final three months of the year, the highest level since Q1 2016. This figure was up from 29% in Q3 2020 and 25% in Q4 2019. In addition, landlords said they felt more confident about rental yields, their capital gain, the UK private rented sector (PRS) and their own letting business than they did during the same period in 2019. Overall, 35% of landlords rated the prospects for their own lettings business as good or very good during Q4 2020, compared with 30% in the previous quarter and 31% during the same period in 2019. CASH PURCHASES
Rental demand is reported to be up 21% year-on-year. In addition, houses for rent are letting 30% faster than one year ago. This is according to the latest research by Zoopla, which also outlined that as lockdown restrictions are eased in city centres rental prices have fallen, with Edinburgh noting the greatest decline at -1.8%. Greater Manchester followed, down 0.9%, and average prices in Greater Birmingham dropped by 0.8%. However, across the UK as a whole – excluding London – rents are suggested to be up 2.3%, which is aligned to preCOVID-19 levels. Since the global crisis, London is said to have seen the biggest annual decline in rental prices, down 8.3%. This downturn is suggested to be easing, and the -0.4% price decline recorded in December is the most modest monthly fall since pre-pandemic. New supply in London is up 30% year-on-year, primarily driven by an increasing number of short-lets being transitioned into long-lets. Some positive trends were also highlighted in data from Paragon Bank, which outlined that tenant
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This increased confidence should also filter down to intermediaries looking to grow their BTL business, as the latest Hamptons Letting Index showed that the proportion of landlords making cash purchases fell to 52% in 2020, the lowest figure on record. The market share of buy-to-let properties bought with cash peaked at 62% in 2017; however, this percentage is reported to have fallen in consecutive years since. According to the index, as a consequence of the stamp duty holiday, the second half of 2020 saw the proportion of landlords using cash for purchases fall to 50%. Over the course of 2020, cash landlords were said to have spent a total of £11.7bn on new buy-to-let purchases, £1.5bn less than in 2019. In comparison, first-time buyers bought £65bn worth of property last year. Looking at this on a regional basis, the data showed that 65% of buy-to-let purchases in Wales were in cash. The North West followed at 64%, and the North East at 61%. Overall, the proportion of landlord cash purchases fell in 10 out of 11 regions in Great Britain between 2019 and 2020.
Hamptons noted that the more expensive regions of the country were most likely to rely on mortgage finance, with only 39% of London landlords purchasing in cash. This fall in the number of cash purchases emphasises the growing importance attached to BTL finance. With competition rising amongst specialist lenders who only operate in the intermediary channel, it’s evident that those landlords looking to secure funding will be more reliant on this channel than ever. THE RISE IN BTL ADVERSE CREDIT
Now the next bit isn’t exactly good news as such, but intermediaries can file it away in the opportunity cabinet. A survey conducted by Pepper Money found that mortgage advisers are predicting that adverse credit will rise amongst buy-to-let customers due to the impact of COVID-19. The survey found that 43% of advisers expect to see a rise in adverse cases over 2021. Advisers outlined that BTL customers are the most apprehensive about arrears, with 29% expressing concern. In addition, 25% of advisers said that landlords are most concerned about a potential increase in Capital Gains Tax (CGT). Other concerns included mortgage rate increases, falling property prices and property void periods. Landlords are certainly not immune from the financial implications of COVID-19, and many challenges remain. In spite of this, confidence in the BTL market remains high amidst sustained demand for purchase business, and the recent uptick in remortgage activity. As alluded to earlier, the value attached to a good, professional advice process has never been more prominent for a growing number of landlords. Data such as this really does underline the level of support landlords need from lenders, advisers and policymakers in 2021. M I www.mortgageintroducer.com
The rise of limited company landlords Adrian Moloney group sales director, Precise Mortgages
any of us have had more time on our hands due to the lockdown measures, and it seems that we’ve been taking advantage by trying all sorts of new things. Whether it’s keeping in touch with family and friends via Zoom, taking to the streets for a daily stroll or jog, bingeing the latest must-see boxset on Netflix, or learning a new language or musical instrument, we’ve all been trying to keep ourselves busy. Landlords certainly seem to have been making the most of the last few months by looking at new ways they run their buy-to-let businesses. According to estate agent Hamptons, a record number of landlords decided to incorporate and become a limited business in 2020. In its latest Lettings Index, Hamptons found that there were a total of 41,700 buy-to-let incorporations in 2020, an increase of 23% on 2019. The numbers have more than doubled since 2016, rising 128%. Apparently companies set up to run buy-to-let businesses were the second most common founded in 2020, just behind those set up to sell goods online or via mail order. By the end of the year, there were more than 228,000 buy-to-let companies up and running, an all-time high. I’m often asked why I think there’s been such an uplift in the number of landlords choosing to run their buy-tolet businesses as a limited company in recent years. The incentive to save up to £15,000 on a new purchase that the temporary stamp duty holiday has offered has
undoubtedly had an effect, but I think the real reasons go deeper than that. It is no coincidence that the number of landlords incorporating their businesses started to rocket in 2016, the year that the phased withdrawal of mortgage interest tax relief was introduced. Up until the 2016/2017 tax year, landlords could deduct mortgage interest and other allowable costs from their rental income before calculating their tax liability. Following the changes, however, landlords now only qualify for a 20% tax credit, meaning many of them are finding it harder to turn a profit. The new rules don’t apply to limited companies, however. Landlords who have incorporated their buy-to-let business can offset mortgage interest against profits which, if they’re under £50,000, are only subject to corporation tax of 19%, instead of income tax rates. Furthermore, interest coverage ratios (ICRs) on limited company applications are often lower than for most individual applications.
So, if running a buy-to-let business as a limited company can be so beneficial, why aren’t even more landlords choosing to incorporate? Well, running a rental business in this way may not be suitable for everyone. Landlords should always speak with a suitably qualified tax adviser and take legal advice before making any decisions, as the process can be quite complex. If you’re finding it difficult to place a case with the traditional high street names, specialist lenders such as Precise Mortgages are ideally placed to help. We understand how challenging these cases can be, and have a range of products and criteria specifically designed with limited company landlords in mind. We’ve made our process as straightforward as possible, and you’ll receive support every step of the way. The buy-to-let market has undergone significant changes in recent times, and the continuing growth in the number of limited company landlords shows that it will continue to evolve in the coming years. If you’re approached by a customer who has recently incorporated their buy-to-let business, or is thinking of doing so, it’s good to know there are lenders which can help you secure the mortgage they need. M I
Landlords who have incorporated their buy-to-let business can offset mortgage interest against profits
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The next generation of landlords Bob Young chief executive officer, Fleet Mortgages
ith the course the buyto-let (BTL) market has run in the past five to six years, and the series of measures and government interventions which landlords have had to deal with, it is perhaps not surprising that we have seen the emergence of the portfolio and professional landlord as the key player in the market. Landlords have needed plenty of ‘skin in the game’ to make properties work for them, and there has been a large number of barriers raised which make an entry into property investment much more difficult than it perhaps has been over the past 20 or so years. This is not a sector where you can secure a mortgage and property with a 10% deposit. It is a sector which comes with some notable upfront costs, particularly in terms of stamp duty costs, where mortgage interest tax relief has been cut, where running a property comes with far greater costs than it did previously. I could go on. With all that to contend with, it’s perhaps not surprising that we’ve seen the number of new landlords fall, and the market has concentrated more on those existing landlords who may have the means and experience to be able to grow their portfolios. However, recent research and adviser criteria search results might be signaling a change. For instance, according to Hamptons International, an increase in the number of landlords taking out a mortgage to fund a purchase, and the subsequent decrease in landlords using cash to do the same thing, signals a growing number of first-time investors entering the sector in recent months. It seems the stamp duty tax saving has been acting as a catalyst for those who might be wanting to start their
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BTL investment journey. This growth in new landlord borrowers also appears to be borne out by an increase in demand among advisers for products that are available to this demographic. Knowledge Bank’s review of its most searched for criteria terms recently suggested that ‘first-time landlord’ was in the top two for buy-to-let, seemingly signaling a growth in interest from those keen to get on the property investment ladder. This trend appears to chime with our own experience in the marketplace. In June last year, of those nonportfolio landlords – namely first-time landlords and those with less than four buy-to-let properties – who were financing with Fleet, only 32% of transactions were for the purpose of buying a new investment property. However – and this will have much to do with the stamp duty holiday – in Q3 last year that proportion had risen to 43%, and it rose up further to 53% in the following quarter. Historically, I would have looked at a rise in first-time landlord activity with a degree of scepticism, and a worry that some first-time buyers who couldn’t become owner-occupiers might be attempting to game the system in order to get on the housing ladder. Now, however, I feel somewhat different about it. Certainly, this is not a trend of those who can’t buy going down the buy-tolet route. Instead, we have effectively a new generation of landlords coming to market. These are financially savvy individuals, who have utilised the stamp duty holiday – which let’s be frank no one believed would be available to landlord borrowers – to turn a thought into a reality. What we’re also not seeing is any type of property club involvement here, which is doubly good news, as these entities were responsible for many first-time investors, landlords and dupes entering the sector pre-Credit Crunch, only to have their shirts taken when the properties they had been urged to buy ended up dramatically
dropping in value, and discovering that the predictions made around tenant demand were total fantasy. Instead, here we have financiallysavvy individuals who are looking at their investment options, the lack of returns available through traditional savings, the belief in diversification – particularly when it comes to retirement provision – and the shortage of property supply compared to tenant demand, and they are sensing the opportunity that property investment can deliver. This is particularly the case in new areas of the market, and the country, which are now being sought by tenants who perhaps no longer what to live in cities or in certain property types, having been compelled to do so through three lockdowns. Overall, this ‘new blood’ should be welcomed, because we undoubtedly do need the next generation of landlords to step forward, and a mechanism like the stamp duty holiday has given a growing number the opportunity to do this. For advisers, the benefits of this should be clear. As mentioned above, cash purchases for first-time landlords are as rare as hens’ teeth, and the vast majority will need a mortgage in order to purchase. For those borrowers that means advice, not just in terms of the product being chosen, but in terms of how they purchase it, what vehicle they might wish to use, and indeed more broadly in terms of where they might want to buy, where demand will be strong, what property can deliver the yield they need, and more. Plus, of course, portfolio and professional landlords all have to start with a first purchase. Some first-time landlords will turn into the next generation of portfolio players, and advisers who can secure these clients from the outset – and provide them with a quality service – could well be securing a client for life, and one who will have numerous advice needs in both the mortgage and other markets. M I www.mortgageintroducer.com
COVID-19, stamp duty and buy-to-let George Gee commercial director, Foundation Home Loans
t’s been around 12 months since the UK entered what turned out to be just the first national lockdown. This followed an announcement from the Prime Minister on 23 March 2020, which started with the words: “The coronavirus is the biggest threat this country has faced for decades – and this country is not alone. All over the world we are seeing the devastating impact of this invisible killer.” As a nation, we were then plunged into the unknown, with the following weeks and months changing the landscape for individuals and businesses across the country. However, generally speaking, I believe that the vast majority of lenders coped well during this tumultuous time, and intermediaries certainly upped their game to meet the varied challenges facing their clients – as well as their own operational pressures. All sectors of the mortgage market have been forced to modify their approaches, and it’s important to understand the effects of the pandemic, learn from them, adjust accordingly and move forward. In terms of the impact on the buyto-let (BTL) sector, this was outlined in the recent Q4 2020 Landlord Panel research from BVA BDRC. This highlighted that whilst the pandemic will inevitably affect many landlords in some shape or form, confidence appears to be growing. In the Q4 data, 39% of landlords reported that COVID-19 related issues have affected their rental portfolio, down from a figure of 46% in Q3. This overall decline in COVIDrelated issues is thought to be driven www.mortgageintroducer.com
by slight falls in those impacted by reduced rental income (-3 percentage points) and in those experiencing void periods (-4 percentage points). Larger landlords continue to have the greatest exposure to property issues relating to COVID-19; six in 10 landlords with 20-plus properties have seen an impact on rental income as a result of the pandemic, with around three in 10 experiencing an increase in void periods.
“Research revealed that 16% of landlords intend to purchase over the next 12 months, 48% in Q1, 41% in Q2, 28% in Q3, and 29% in Q4. Just 14% said that they would abort their transaction if completion before the stamp duty holiday deadline did not look achievable” Breaking this down, landlords with the largest portfolios continue to be hardest hit, with 57% of those with 20-plus properties reporting a fall in income due to the pandemic – although this is down from 66% in Q3. Leveraged landlords also remain more impacted than their unencumbered peers, with around half of those with BTL borrowing seeing income reduce, versus 36% of those who don’t borrow. We know how important a role the stamp duty exemption played in supporting the property market through the pandemic, as this served to incentivise thousands of homebuyers. This tax break also proved enticing for many landlords and investors, but unlike the majority of residential purchases, this was certainly not the main driving force.
This was emphasised in exclusive research from Foundation Home Loans in conjunction with BVA BDRC, which pointed out that landlords intend to continue purchasing rental property even after the stamp duty holiday has reached its conclusion. It revealed that 16% of landlords intend to purchase over the next 12 months, 48% plan to do so in Q1, 41% in Q2, 28% in Q3, and 29% in Q4. In addition, just 14% said that they would abort their transaction if completion before the stamp duty holiday deadline did not look achievable. Of those landlords intending to purchase in Q1, 65% said they were very or quite confident they would complete by 31 March. When questioned on whether they believed the government would extend the stamp duty deadline, which it now has, 28% said yes, while 31% disagreed. In addition, only 4% of those surveyed said they were purchasing because of the stamp duty holiday. A quarter of landlords said they were holding off purchasing as they believed property prices were currently inflated. Our experience as a lender has long suggested that landlords think long and hard before adding to their portfolios and – as outlined in the research – they are unlikely to just confine any purchase activity to the first quarter of this year in order to simply benefit from the stamp duty holiday. Looking beyond Q1, there will clearly be ongoing opportunities for advisers who remain active in the BTL space. Many special rates are coming to an end in the coming months, especially for those landlords who bought prior to the last stamp duty surcharge increase for additional homeowners back in Q1 2016, meaning that significant levels of activity are likely for both purchase and remortgage purposes in the coming weeks and months. During this time, the value of advice will become even more prominent, in what remains a complex market. Proactive intermediaries who maintain strong relationships with their landlord clients and specialist lenders will be best positioned to take advantage of some favourable conditions. M I MARCH 2021 MORTGAGE INTRODUCER
Buy-to-let: The many opportunities of 2021 Xxxxxxxxxx Jane Simpson managing director, xxxxxxxxxxxxxxxx, xxxxxxxxxxxxxxxx TBMC
he buy-to-let (BTL) sector is known to be resilient, and there are always opportunities for intermediaries to write the BTL mortgage business that arises in the prevailing market conditions. For example, in 2020 there was an uplift in purchase business, with landlords seeking to benefit from the stamp duty holiday, saving thousands on initial cash outlay. The stamp duty holiday has now been extended until 30 June, with a temporary period of lower threshold to follow, which will be welcome news for clients who are currently part way through the mortgage process, enabling them to complete without incurring additional costs. The extension is also likely to buoy up the housing market for another few months. However, it has been pointed out by numerous industry pundits that extending the deadline just delays the inevitable cliff-edge for those that don’t complete in time, prolonging the current difficulties being experienced within the purchase market. It is worth considering the potential efficiencies to be gained by lenders using desktop valuations to speed up the process, particularly for lower loan-to-value (LTV) and lower risk applications. This approach was taken by many lenders during the lockdown period when visual inspections were halted, so there is an argument for it to continue in certain circumstances if it could improve service levels.
remortgage sector. It is coming up to five years since the 2016 Prudential Regulation Authority (PRA) regulations were introduced, which caused a dramatic rise in the number of landlords choosing 5-year fixed rate products. This lengthened the remortgage cycle for many landlords, and reduced the frequency of business for their brokers, who for many years had relied on a two-year cycle for a majority of buy-to-let clients. The good news is that for many of those clients on 5-year fixed rates, these products will start maturing in 2021, which means it could be an ideal time to review existing client banks and start discussing refinance options. It could also be the perfect opportunity for landlords to consider the benefits of capital raising on their buy-to-let properties, especially as there has been a considerable rise in house prices in the past year. The Office for National Statistics (ONS) House Price Index for December 2020 showed that there had been an annual increase of 8.5%, the largest since October 2014. The average was recorded as £251,500. Professional landlords might consider releasing equity from their properties to
provide the deposit for further buyto-let purchases, but many lenders will also accept capital raising for any legal purpose, including home improvements. LIFESTYLE CHANGE
The coronavirus pandemic has caused changes to the everyday lives of most people, with many more of us now working from home. This has led people to re-evaluate their housing needs, or consider how best to configure their existing home to accommodate new working arrangements and lifestyle needs. Research shows that more people are currently working from home, and that these individuals often plan to make home improvements. Projects such as a loft conversion, self-contained annex or garden office can not only add value to a property, but also increase the amount of space available for those who anticipate more flexible home working arrangements to continue into the future beyond the coronavirus pandemic. Some landlord clients may then wish to raise capital on their buyto-let property, in order to make improvements to their own home. There is reason to be optimistic that the coronavirus is getting under control in the UK, and we can expect some level of normality to return soon. As for those who are working in the buy-to-let mortgage sector, there is reason to anticipate a healthy level of business in 2021. M I
In 2021 a new opportunity presents itself for buy-to-let brokers in the
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Buy-to-let remains resilient and should see a healthy level of business in 2021
Start the protection conversation Alisa Wallington senior product manager, iPipeline
nternet shopping – if you had not fully embraced it before the pandemic, you and millions of others almost certainly will have done by now. Personally, I welcome shopping in any form. It doesn’t even have to be anything most ‘normal’ people might consider exciting, like a new outfit or new car, I just like buying things. ONLINE ADVANTAGE
Sure, it was great back in the day when you could walk into whichever shop you pleased, unmasked and unsanitised, without being eyeballed by the shop assistant trying to work out whether or not you were sneaking in with the person in front or behind you. Today, our options are largely the supermarket or the internet. Now, whilst I enjoy the rare treat of being physically present amongst some of the pretty things, the choice is often limited – even at Waitrose – and therefore online is usually where I go. There are huge advantages to online shopping, with choice and availability probably being the most obvious. Literally everything is made available to you whenever you want it, and you can sift through, adding and removing the things you like or dislike with the help of a handy filter. Even when you don’t know what you want – which is me, most of the time – suggestions will be made for you, and reviews will be presented to you telling you what others have bought and what their experience was. This is all very helpful, but what if you need more than just suggestions and reviews? What if you need fact rather than opinion and an experience based on you, not just people like you? Taking on a mortgage is a big decision which not only requires careful www.mortgageintroducer.com
consideration of current circumstances, but also a longer-term view. In my opinion, this is a decision which necessitates the type of advice only a professional can provide. An online forum just won’t cut it. Inevitably, there will always be those who go it alone. After all, everything is available online right? Even mortgages. Your friend’s husband’s dad’s dog has done it so why can’t you? Easy peasy. Providing you have the following that is: time, patience, and a bit more time. So let’s assume you’re one of those “I’ll just have a go myself” types. You’ve set aside some time to do the research and you go ahead and type ‘mortgages’ into the search engine... and you get about 633,000,000 results – all in 0.55 seconds. Where to start? Tracker or fixed rate? Two years, five or 10? Interestonly or repayment? Remortgage or product transfer? This has suddenly become much more complicated than deciding between a skinny or a straight leg jean. EXPERT UNDERSTANDING
The vast majority of the mortgage and protection industry is intermediated, and there is good reason for this, as our industry is complex and involves a process that other people do not deal with regularly.
Most consumers do not understand the terminology we use to describe products and services, let alone knowing what might actually be right for them. Mortgage brokers are there to guide clients through the options and ensure that they are making the right choices based on their individual needs and circumstances. Brokers have the tools, access and experience to do this. After the mortgage application, it is time to consider the protection options. The choices are endless and acutely dependent on individual circumstances and needs. How do you know which ones are right for you and your family, or what you can afford versus what you need? It’s likely you don’t. Part of the broker’s responsibility is to provide holistic advice, which should include protection. Yes it’s complicated, and yes it adds more time to the initial mortgage conversation, but it’s the right thing to do. So it’s important that some brokers start with a protection conversation before the mortgage. Arranging the biggest debt of a person’s life without articulating the consequences of not protecting it could be seen as irresponsible. Leaving such complex and life changing decisions to the client is also potentially dangerous. Some things are best left to the experts, and having nothing in place could have devastating consequences should the worst happen. RETENTION AND NURTURING
Part of the broker’s role is to provide holistic advice
Research shows that the more products you have with an individual, the less likely they are to go elsewhere. Your clients will be more likely to buy from you and stay with you in the long run, improving retention and nurturing that all important clientbroker relationship. With a growing number of signposting opportunities now available to refer the business, there really is very little excuse not to start the protection conversation. Do it or refer it, but don’t leave it to the customer! M I MARCH 2021 MORTGAGE INTRODUCER
Choosing the right protection portal Kevin Carr chief executive, Protection Review; MD, Carr Consulting & Communications; co-chair, Income Protection Task Force
recent report from Legal & General, including interviews with both letting agent and adviser firms, has found that both groups see huge opportunities for income protection. Landlords and advisers alike believe renters should at least be made aware of income protection products, although landlords are less likely to bring the topic up because it is perceived to be technical, while many advisers would be comfortable raising protection, but don’t typically have an easy way of reaching renters directly. The research found that landlords believe they could get interest from around 50% or more of renters and would be interested if advisers could then take over the process. Likewise, many lettings agents would be happy to be an introducer for protection rather than a seller, with one agent suggesting the conversion rate would be around 20% to 30%. Typically, the report found that around 20% to 30% of tenants purchase a sell-on product from lettings agents, who are potentially happy to be introducers if appropriate training is in place alongside an incentivised referral scheme. The letting agent sales journey typically has lots of steps, and can include other agents getting involved. Tenants insurance is often introduced, but rarely financial protection, such as life, critical illness (CI) or income protection (IP). Likewise, there is little awareness of the benefits and no obvious link to the protection market, unless there is an independent financial adviser (IFA) in place.
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Roy McLoughlin, adviser at Cavendish Ware, said: “The need to pay rent is not going to stop if you are too ill to work. “The products are here, the market is here, the next step is for advisers to form partnerships with landlords and letting agents.” It is estimated that 12% of mortgagees have IP, compared to 2% of renters, but there is an argument that renters have a greater need, as they are unlikely to be offered payment holidays or to be able to add payments to their outstanding debt by their landlord. M I
NEWS IN BRIEF According to research from Zurich, 29% of advisers said demand for their services had increased since the pandemic began. Holloway Friendly has launched a new income protection plan, ‘one2protect’, for customers in lower-risk occupations. Research from The Data Company found that only 12% of insurers believed it was harder to resolve customer problems while home working, compared to 44% of advisers. Royal London paid out £13.1m in claims related to the pandemic during 2020. PMI and protection insurer The Exeter has appointed Isobel Langton as its new chief executive. Lloyds Banking Group has appointed Rose St Louis as protection director.
LifeSearch Awards shortlists announced
he LifeSearch Protection Awards 2021 take place on 10 March. The event is open to anyone to register to watch online, and the shortlist has been announced. Standouts include the newly added ‘Doing good’ Award (Exeter, AIG, Zurich, Canada Life) and Outstanding insurer of the year (Royal London, Scottish Widows, L&G). LifeSearch CEO, Tom Baigrie said: “Now in their 18th year, the LifeSearch Awards are unique as they are voted for by our people, including advisers and tele-interviewers. “This year we are asking those shortlisted to nominate a charity. The winner’s good cause will receive £300 from LifeSearch there and then.” Best service for unprotected families Shortlist: Scottish Widows, Royal London, AIG Best income protection provider Shortlist: LV=, L&G, Exeter Business protection heroes Shortlist: L&G, Royal London, Vitality Best service for protected families Shortlist: Zurich, Aviva, AIG Claims heroes Shortlist: British Friendly, LV=, HSBC, Royal London Individual protection hero Shortlist: Ian Pratt - L&G, Lynne Flynn - Royal London, Daniel Turner - Vitality Best critical illness provider Shortlist: L&G, Scottish Widows, Guardian Innovation heroes of the year Shortlist: L&G, Aviva, LV= Best use of data to drive exceptional customer outcomes Shortlist: Winner to be revealed on the night Protection leader of the year Shortlist: Steve Casey, Adam Higgs, Adam Saville, Richard Kateley, Ian McKenna, Alain Desmier
Boosting business value Mike Allison head of protection, Paradigm Mortgage Services
hether you are dealing in mortgages, protection or wealth there is little doubt that clients want their adviser to provide stability, be around when required, and in the main offer a comfort blanket approach in the complicated world of financial advice. At a time when the number of prospective house buyers is up again quite significantly from December to January (40%) and still up a wide margin from the previous January (27%), the future for the mortgage adviser continues to be bright. Things are still by no means easy, given the administrative challenges brought about by the surge in application activity as a result of the stamp duty holiday, and the operational barriers faced as a result of the pandemic more generally. So, in theory every mortgage adviser should be busy looking after existing clients as well as acquiring new ones. When the world returns to normality and everyone looks back at how they coped with the influx of customers, it will perhaps be a good time to think about how it to keep those customers moving forward, and how important they are as an ‘asset’ to be valued. ‘Customer value’ has several definitions, and organisations large and small can increase this value by acquiring more customers, earning more business from existing ones, retaining them for longer and making their experience simpler. Visionary, customer-focused leaders such as Jeff Bezos of Amazon have long understood the importance of concentrating on customer value as an asset, rather than pursuing shortterm profits or quarterly earnings, and they’ve become enduring customer loyalty leaders in the process. www.mortgageintroducer.com
All of us will have experienced the doorbells ringing in the background during Zoom calls as another package arrives from Amazon. Within our own businesses, can we learn from these masters of their art and use it to add value to our own? Much has been done during the past 15 months or so to research the behaviour of financial services customers. Reports have come in from Canada Life and Guardian, for example, and more recently the Association of Mortgage Intermediaries (AMI) did a survey of client attitudes to mortgage and protection-based financial services which gives us valuable insight into what they want.
“Very few, if any, advisers out there manufacture their own products, we are all involved in distributing the products of others. How efficiently we do that should determine the value of our own businesses” It goes without saying that trustworthiness, independence and just doing a good job will figure high on the list, but often it is the contact strategies that are most influential in whether a customer will return – keeping in touch and doing a good job shouldn’t be beyond any of us, and nor should offering a decent product range. Imagine if you were trying to sell your mortgage business tomorrow? To help an investor develop their valuation, would you choose to disclose what it costs to acquire and serve customers in various segments, and provide a breakdown of customer counts and revenue by segment? Likewise, would you get them to look at the volume of purchases and retention rates among the top 20% of customers relative to the remaining 80%? Basically, who returned and who didn’t? Sometimes as small businesses
it is difficult to wade through the dayto-day issues and try to put your head above the parapet to understand how your actions are adding to the value of the business you own or run. Organising quickly around customer needs is what often differentiates small to medium enterprises (SMEs) from larger corporations. Pretty much every mortgage adviser will have had to do that in the last 15 months – be ‘fleet of foot’ rather than waiting for organisational silos to operate at their own pace, and within their own service standards, as opposed to focusing on customer outcomes at the levels required within a true service industry. When teams are organised around the customer, the functional expertise can act as a powerful accelerant to innovation and competitiveness. That is what makes customers return. Our own businesses are not massively different from Amazon – we are in the service business. In its quest to be all things to all people, Amazon has built an unbelievable catalogue of more than 12 million products, books, media, wine, and services. It actually manufactures none of those things – its value is very much derived from how many times customers repeat purchases, and the variety of products sold. Very few, if any, advisers out there manufacture their own products, we are all involved in distributing the products of others. How efficiently we do that, especially to existing clients time and again, should determine the true value of our customers, and ultimately the value of our own businesses. Diversifying product ranges is vital, hence the continual need to look at more than core products, which is where protection and general insurance comes in, as well as funerel plans and other related services. We cannot all have market valuations of $1.67tn, but we can learn something from organisations that do. M I MARCH 2021 MORTGAGE INTRODUCER
Introducer business up 31% year-on-year Geoff Hall chairman, Berkeley Alexander
e’ve seen record numbers of intermediaries introducing general insurance (GI) business in December 2020 and January 2021. Figures are up 31% compared to the same period last year. Introducing this business means that intermediaries retain the client relationship but refer the case to the GI provider, rather than the broker quoting policies directly. It’s an interesting trend and one that highlights two important themes. First, brokers are incredibly busy with unusually high volume core mortgage business, and they simply don’t have the time to manage the GI application process. More importantly, and reassuringly, they are clearly still seeing the importance of having GI in place, choosing to introduce the business rather than letting customers down and
fuelling a protection gap. For insurance providers, it means having agile and multi-skilled staff, able to service both introduced and adviser-led sales without any impact on service levels. Flexibility and resilience have become increasingly important across all areas of life during the pandemic, and insurance is not immune to that. In a hard market in particular, good broking teams really show their worth and their true colours.
“These are challenging times for everyone, but the cream rises to the top” Brokers have to work that much harder to fight for clients’ interests and to make sure they can secure the right cover affordably. Many younger broking teams won’t yet have experienced a hard market and the skills and tenacity required. These are challenging times for everyone, but the cream rises to the top and that’s never been more evident than in the GI space. M I
The ant and grasshopper
esop’s fable of the ant and the grasshopper has an apt core message about the value of hard work and planning ahead for leaner times. The mortgage market might be buoyant, but once the stamp duty window is closed, even after the recent extension, we should expect leaner times ahead. Over the years and through numerous hard markets and recessions, I have witnessed how GI sales can increase customer loyalty. Cross-selling GI might seem like hard work for a relatively small commission, but it provides ongoing income in leaner times and strengthens the client relationship. The GI provider might have access to numerous insurance products, as we do at Berkeley Alexander. Does that client have other niche interests? Do they own a business and have commercial insurance needs, or other personal interests that need protecting? The skill is to know your customer, anticipate their needs, communicate appropriately and show your worth as a trusted adviser. I urge you to take a leaf out of the fable – be an ant, not a grasshopper. M I
Managing staff during a pandemic
erspectives, expectations and priorities have all changed – for both employers and employees – during the pandemic. Our lives might feel more restricted and our worlds smaller, but employees’ life and workplace needs and expectations have, if anything, become richer and more complex. Pre-lockdown, employees’ life priorities tended to centre around friends and family, work-life balance, finances, health and fitness, and holidays and travel. Now, many of these aspects have changed in their order of priority, taken on new meaning or become more complex. For example, now the emphasis is on wellbeing,
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not just health and fitness. With friends and family, the emphasis is on education and elderly or vulnerable care. Other priorities include security, and not just financial, but sustainable local communities. This shift in perspective has had a fundamental and long-lasting impact on how we manage staff. Virtual leadership too has introduced a whole new skill-set for managers to get to grips with. Performance still matters, of course, and targets will need to be met, but we’re all missing those ‘water cooler moments’, and it’s up to managers to put new remote
working best practice procedures in place to ensure staff are well looked after. T h e s e re v o l v e a ro u n d e f fe c t i v e communication, as well as trust, empathy, empowerment, and ensuring wellbeing. Whether or not vaccines enable us to return to a work-life that resembles the world pre-COVID, this certainly won’t be the case for everyone. We’re a whole year on now since the first lockdown, and no one can say with any certainty what the future holds. Coming back to where I started, resilience, flexibility and adaptability are the order of the day. M I
Independent reviews can help seal the deal Rob Evans CEO, Paymentshield
he start of the year is traditionally when people take a step back to evaluate their spending and look to tighten their belts. As we find ourselves in another lockdown, the urge to reflect is even greater. A YouGov poll of 2,139 UK adults commissioned by Paymentshield at the beginning of the third lockdown found that 43% of consumers are actively looking to reduce their spending more than they were before the UK COVID-19 restrictions were first put in place last year. Economic precarity resulting from the pandemic has inevitably made the public much more conscious about their own spending decisions, and this extends to financial products. The customer needs of today are different to those of 12 months ago; advisers must display similar flexibility and ensure that their services remain relevant and of value to their clients. A key observation around those differing needs is that a growing number of customers are choosing to shop around for policies like home insurance, and have become much more deliberate in choosing products. Paymentshield’s recent YouGov survey found that 37% of consumers would prefer to use price comparison websites for purchasing home insurance, 33% want to shop around before going direct to their chosen provider, and only 4% would most prefer to consult a professional broker or financial adviser. With this in mind, advisers need to find more ways to demonstrate true value in the products they offer. www.mortgageintroducer.com
This is where independent financial research firms such as Defaqto can help. By using a Defaqto Star Rating, advisers are able to steer conversations away from just price and towards value, to help their clients differentiate between financial products, and to better articulate the features, benefits and cover associated with each.
“By using independent comparison tools such as Defaqto Compare, advisers can demonstrate the quality, comprehensiveness, and overall value of a particular product” Independence and objectivity also distinguish an organisation such as Defaqto from price comparison websites. The 14,000 financial products rated by Defaqto’s team of analysts are done so independently, and the service is not paid for by the providers. This is in stark contrast to aggregators, which use an affiliate marketing business model where each product provider pays a fee in exchange for consumers driven to their website in order to complete a product purchase. The challenge remains for advisers to communicate this message to clients, but using a brand that is instantly recognisable like Defaqto goes some way to articulate the objective and rigorous assessment associated with independent financial product ratings. A recent survey of 2,505 UK consumers who had purchased a financial product in the last six months found that three out of four knew the Defaqto brand, and 80% saw it as providing expert ratings. One of the greatest skills of a financial adviser is the ability to present complex
financial information in an accessible and understandable format to the end customer. This, and their ability to offer bespoke and personalised advice, is often what attracts customers to advisers in the first place. Put tailored advice together with Defaqto’s independent expert ratings and watch trust and credibility grow rapidly between advisers and customers. It’s a winning combo that can help advisers to compete against aggregators and develop a long-lasting client relationship. Using the Defaqto rating system has also been proven to influence the purchasing decision, with 90% of consumers stating that its star ratings make them more likely to purchase or renew, and 27% actively incorporating them into their product evaluation and decision-making. The majority (71%) of consumers who bought a financial product would be reassured by a five-star rating, and I’m proud to say that Paymentshield’s home insurance policy has been given just this by Defaqto in 2021, for the ninth year on the bounce. At a time when consumers are looking to actively make changes and tighten belts, there remains a danger that they could look towards financial products such as insurance in costcutting exercises which could leave them financially exposed. Last year, the term ‘best insurance’ finally overtook ‘cheap insurance’ in the annual google search rankings for the first time ever. This demonstrates a huge shift in the customer mindset, as people are now looking for value over price across a range of products and services including insurance. By using independent comparison tools such as Defaqto Compare, advisers can demonstrate the quality, comprehensiveness, and overall value of a particular product. Defaqto Ratings can help the adviser to determine what constitutes ‘best’ for the client, depending on their needs. This will help the client to make a more informed decision about the product, and the adviser to deliver genuine advice that looks at every aspect of a product, not just plucking for the cheapest. M I MARCH 2021 MORTGAGE INTRODUCER
Meeting the demands Steve Carruthers principal mortgage consultant, Iress
echnology needs to meet the demands of today and offer a path for tomorrow. The lending landscape is changing, and so too are the technologies that underpin it. In my last article I spoke about ‘appropriate intelligence’, an approach that focuses on the role of solutions that support the professionals in an industry, as well as the processes they require. This approach hinges on the ability to harness data from a variety of sources, both internal and external. One of the impacts of COVID is that more mortgage consumers have become ‘non-vanilla’. Many people have experienced furlough or requested payment deferrals, and the self-employed have been particularly affected. Processing applications from these types of consumers requires an increase in manpower and a commensurate increase in data and data processing ability. In the postCOVID world it’s essential that tech both supplements and complements human intelligence and subtlety. The exponential growth of data and the opportunities it affords are fundamentally transforming the way industries and businesses are operating. Financial services is one of the most data-intensive sectors, and the industry has a unique opportunity to use this data to make processes more efficient and intuitive. This isn’t the first time that the potential for the use of data to be transformative has been suggested, and the slow pace of adoption of this mindset shows that the process has not been an easy one. The evolution of lending, and banking more generally, means that what might once have appeared a simple task is simple no more.
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The inability to connect data across value chains, legacy systems, and organisational or departmental silos is becoming a major business challenge. One lender recently told me that 25 years ago it took 10 days on average to get a mortgage offer. Today, it still takes on average 10 days. Automating is not enough if we do not enhance processes at the same time. To do that we need a connected ecosystem that allows for the effortless access and use of data. Complex digital ecosystems are emerging throughout the lending landscape, delivering new forms of value for participants and customers.
“Everybody wants a slick, smooth journey to offer and then completion, and lenders want high quality packaged applications with all data right first time” Lenders need solutions, but they also need agile partnership arrangements so they can respond quickly to changes and re-engineer these partnerships as the market or business strategy dictates. New ecosystems must stay agile and not be restricted by the policies and procedures of the legacy builds. Having the right partners with the right solutions is imperative – the way forward requires both certainty and flexibility. Certainty matters because it is incumbent upon businesspeople to know what processes they actually need and how to use the new information to which they have access. Open banking offers many sources of new information, but the data can raise as many questions as it answers when it comes to underwriting. Knowing what you need is key to making this work. Flexibility matters because no solution is lifelong, and so agnostic technologies that work well together
are key. Whether it is in the area of fraud, risk intelligence or customer analytics, things evolve and our use of data – as well as the emphasis we put on certain elements of it – will change over time. At an entry level, nobody wants to have to re-key data again and again. Everybody wants a slick, smooth journey to offer and then completion, and lenders want high quality packaged applications with all data right first time. Middleware software that facilitates two-way delivery of decisions in principle (DIPs) and applications already exists. These solutions can send data straight into a lender’s broker portal or back-office originations system, allowing lenders and distributors to connect and transact in real time. Software should be platform agnostic to facilitate a connected market and avoid a cartel. While there may yet be ‘winners’ and ‘losers’, it is inevitable that the demands will change and new solutions will appear. Process re-engineering and the technology to support it are a work in progress. Technology is not the cost of doing business, it is the way of doing business. Right now, our changing economy will ask some intensely challenging questions of our underwriters. What does it mean to be self-employed today? How can we unpick the nuances to make the right lending decisions? What was relatively straightforward, the pandemic has made much more complex. With fixed measures upon affordability at an individual level and capital at an organisational level, making the right decisions swiftly may be the difference between being in a market or being a bystander. We can’t conjure up experience and expertise, but we can support its development in more intelligent ways. It’s the role of the whole industry to lead with software that not only inspires solutions, but also meets the requirements of lending in a new age. M I www.mortgageintroducer.com
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Mainstream appeal for later life Claire Barker managing partner, Equilaw
igures published by the Equity Release Council (ERC) reveal that the number of borrowers making drawdowns from existing equity release (ER) plans fell by 21% last year, as the pandemic encouraged a more cautious approach to financial transactions. In addition, the number of customers seeking further advances also dropped by 11%, while the number of new plans agreed fell by a total of 10%, as delays and disruptions at the height of the first lockdown contributed to significant backlogs in cases – an inevitable byproduct of the supply chain challenges and remote working procedures adopted by lenders and service providers at this time. However, data for the last quarter showed a return to something approaching pre-COVID levels. Industry experts have ascribed this to a combination of pent-up demand, low interest rates and a surge in customers choosing lump sum lifetime mortgages in order to repay maturing interest-only mortgages, or to take advantage of clement housing market conditions. With brokers and lenders also identifying a number of other contributory issues and factors – such as the growth in cash-strapped adults returning to the parental home – many in the industry have greeted the ERC figures with cautious optimism. Yet in all honesty, why should it be otherwise? After all, the £3.89bn of property wealth unlocked during 2020 was only £30m less than the figure for the previous year, and around £50m less than 2018. Both of these represented record-breaking – or at the very least, breakout – annual totals, while also reflecting trading conditions that were infinitely less disruptive than current circumstances, to put it mildly.
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In many ways, the data may be seen as a compelling reminder of just how stable demand for equity release has become over the past few years, and a testament to the resilience of the sector. While some critics may choose to view these figures as symptomatic of a slump or partial decline, the fact remains that COVID-19 has actually strengthened our market position by exacerbating the self-same issues that have driven consumers to access property wealth in the past few decades – issues which seem unlikely to be resolved for many years to come. LATER LIFE INCOME GAP
Take pensions, for instance. Long before the onset of the pandemic, it was widely acknowledged that many in the UK were struggling to generate enough savings to fund their retirements, creating significant gaps in later life income and driving sharp increases in personal debt. However, as unemployment continues to grow as a result of COVID-19 and tax revenues fall accordingly, so too will state-funded pensions experience an inevitable decline in overall spending, while contributions to retirement savings schemes – which have already been impacted by a decade of historically low interest rates – will also fall, making it even harder for people to achieve savings targets or survive in retirement. As uncertainty and high market volatility continue to destabilise pension values, and efforts to stimulate economic recovery push rates on private pensions and investments to ultra low levels, so too are we likely to experience an ever more dramatic upsurge in savers raiding pension pots to make ends meet. Recent figures show that up to 15% of the value of defined contribution pension plans were lost in the UK during the first three months of 2020. While many of these losses were ultimately reversed – or at least tempered – by subsequent market activity, the reality of our current
economic circumstances means that a future slump remains highly feasible. With interest rates set to remain at their current position for months, if not years, experts have warned that earnings from fixed income pension investments could be drastically reduced, while dividend payments on investment amounts could be subject to a period of indefinite suspension. This raises the probability of an upsurge in cash-strapped retirees turning to ER in order to plug income gaps or take advantage of buoyant house prices, representing a terrific opportunity for sustained growth within our industry. In order to remain responsive to the needs of clients at a time of social and economic upheaval, the sector will need to prioritise bold new approaches to product choices and service models, working hard to promote the kind of innovative forward thinking that can broaden our commercial appeal while also reflecting the stark realities of a post-COVID Britain. LV= has recently introduced a limited offer cashback deal of 1% on its drawdown and lump sum products. This is designed to help customers reduce the size of their loan or to furnish fees and costs by offering a novel, entirely flexible and – above all – attractive approach to borrowing. The latest Moneyfacts Star Ratings review has revealed a whopping 38% increase in the number of ER products being awarded a maximum five stars. Increases in additional drawdown, interest servicing and cashback features are cited as pivotal to this growth. It is incumbent for our industry to keep abreast with the needs and demands of clients, whether by mitigating the growing reliance of young people on parental support by expanding the number of mortgages that offer inheritance guarantees, for example, or introducing product incentives which appeal to a renewed sense of value and sound economy. Only by doing this we can we hope to push our services into the realms of the mainstream. M I www.mortgageintroducer.com
Lifetime mortgages here for the long haul Andrea Rozario chief corporate officer, Bower
ardly any industry has ridden out coronavirus unscathed. The upheaval in our society has been the most severe and far-reaching in over a century, and we’re not out of the woods just yet. For later life lending, and more specifically equity release, 2020 wasn’t ideal either, and it did go some way to derail the market’s steady climb toward mainstream recognition. We may be on a little detour, but in my opinion there’s not much that will stop this train rolling on in the future. According to data from the Equity Release Council (ERC), a shade over 40,000 new plans were agreed in 2020, which is a fall of about 10% when compared with the 44,870 that went ahead in 2019. This is, however, to be expected. After all, from March onwards the UK was put into lockdown and almost everything imaginable was changed overnight. So, it’s no shock that from April to June last year equity release activity hit a four-year low.
But how will we bounce back? Strongly, I’m certain. If you just look at the final quarter of 2020, the dip in the spring was quickly rectified, as 11,566 new plans were agreed, approximately matching 2019 numbers. FINISH LINE
People have been cautious this year as we all see how the COVID-19 pandemic pans out. Their caution is completely predictable; in fact, during the peak of the pandemic I would say it was totally advisable. Now, however, I honestly believe that the finish line for COVID-19 is somewhere in sight and the pent up demand for our products will put equity release firmly back on track. Even last year, in a time of complete uncertainty and borderline chaos, did the market crash? Not really. In fact, 2020 as a whole saw £3.89bn of property wealth released by new and returning customers, compared with £3.92bn in 2019 and £3.94bn in 2018. So, things are actually very steady. The resilience of equity release is quite something. A few years back the market pushed and pulled to drag itself across a solitary £1bn in annual lending. Today, even with a global pandemic at play, quarterly lending still competes with the full annual output of
pre-recession era equity release – 2007 annual lending was just £1.21bn – and this strong and stable market will only continue to grow. This strength is vitally important for the record numbers of customers who are looking to access their property wealth for myriad reasons, but what is essential is to never stop moving and improving. In 2020, a new equity release product was launched every 28 hours, and customers now have more choice than ever before. To get ourselves out of this slight stall in market growth, we need to go further still with product innovation and creation. Customers must always have the best option available to them, and must always have variety and flexibility within their choices. This means that when they do the right thing and review every single product or solution carefully – with the help of the expert advice we can and do provide, of course – all parties can be safe in the knowledge they had all the tools available to them to make their decision, regardless of the outcome. Ultimately, equity release is always going to be a consideration that only fits a minority of UK homeowners’ situations, but the more choice and variety we provide, the higher the likelihood of finding a product that does work for people. Moving forward, remaining committed to safeguards and customer protection is another thing we must never lose sight of. The lifetime mortgage market looks to have ridden out one of the toughest periods in modern history, but that doesn’t mean that anything has changed when it comes to protecting our customers. When will this all end? I truly don’t know, but I for one am confident that I will still be banging this equity release drum long after we all get our vaccines. The solidity and resilience of this market has proven that the lifetime mortgage is here for the long haul. So, with a few more product launches and a continual commitment to keeping every customer as safe as possible, I think we can all give equity release a quick shot in the arm and see 2021 hit new heights. M I MARCH 2021 MORTGAGE INTRODUCER
Stepping up together Alice Watson Xxxxxxxxxx head of marketing and communications, xxxxxxxxxxxxxxxx, Canada Life xxxxxxxxxxxxxxxx
ver a year of upheaval, the equity release industry has been resilient and flexible enough to thrive. This is evidenced by the Equity Release Council’s (ERC) Q3 and Q4 2020 statistics, which show the industry is bouncing back to pre-pandemic levels. This resilience has inspired great optimism amongst advisers, with 20% believing the market could reach more than £6bn in value, according to research by Canada Life. Property wealth is becoming an increasingly vital element of the modern retirement journey. It is more important than ever that the industry
continues to deliver high standard advice and the best client outcomes. With demand expected to grow, advisers expect some changes. More than half (57%) expect the average age of customers to get younger, while 45% believe the size of loans will get larger. Meanwhile, 70% expect funds to be given to children or grandchildren in 2021 – an increase from 60% predicted during 2020 – and 65% think funds will be used to pay off debts, down from 71% in 2020. Canada Life uncovered that 3.5 million grown up kids had moved back in to the family home, adding on average £425 a month to the bills. While this is a positive opportunity to bring families back together for some, it is an added financial strain for others. In these situations, financial advisers can highlight how property wealth could be used, and guide customers on how to find the best product.
For the industry to keep positively evolving there needs to be a common goal and standard for advisers to work towards and mark themselves against. Following a detailed industry consultation and rigorous pilot, the ERC – supported by Canada Life – has prepared six educational modules to form a competency framework. This encompasses all areas of the consumer journey and ensures a harmonisation of advisers’ understanding of the sector, including the market, clients, soft skills, products and processes. The framework aims to provide an objective way for advisers to see how their understanding measures up and identify quickly where any weak spots may exist. This is perfect for both new entrants and industry veterans. To stay on top of this changing market, it’s imperative that advisers have a complete and holistic understanding of the market. M I
The rule of seven Stuart Wilson CEO, Air Group
very week during Lockdown 3.0 – which I hope by the time you read this might be coming to an end – we’ve been holding ‘Breakfast with Stu’ Zoom meetings. This is a chance for all later life lending stakeholders to come together and catch up on the burning issues of the day, and for advisers in particular to ask questions of myself, the Air team, trade bodies and providers. I wholeheartedly believe that the only stupid question is the one that doesn’t get asked, especially when we work in a sector where every day tends to be a learning day, and where you can’t possibly know everything that is going on, or every single successful way to run an advisory business. LEAD GENERATION
Of course, different methods, processes and systems work for different advisers or firms, but if you’re not aware of them, how might you know what could work for you? At a recent breakfast meeting, we had a question about lead generation from one of the adviser attendees. It was around what method of lead generation might be best, whether they should pay for leads from the large number of businesses that offer them, and whether the money spent on them is worth it. It’s a difficult one to answer, because again different businesses will have different experiences with leads. For every business that has bought leads and felt they didn’t get any value from them, there will be those that swear by this method and have secured clients they would normally never have got if they hadn’t gone down this route. Clearly it’s an important point to consider, but I can only give my view on how I’ve seen it played out. www.mortgageintroducer.com
For instance, the first point I raised to the adviser who asked the question was just how deep their pockets were, because buying leads tends not to be cheap, and I know of firms which have needed to spend large amounts on leads in order to get any business return. Second, and this of course goes for any third-party service you might be looking at, it is important to be careful who you are buying from. REVENUE SHARE
There is barely a month that goes by when we at Air don’t get a company contacting and offering to provide our adviser members with leads. The point I always go back to these companies with is this: if they want to work with us, then there will need to be a revenue share agreement, because – if indeed their leads are the quality they say they are – this will not only work for our adviser members but it would also make the lead generation company more money. However – and this probably tells you all you need to know about how they view the quality of their own leads – at this point the company in question tends to disappear, and we never hear from them again. So, the point stands: be incredibly careful about buying leads upfront. From my experience, many of the leads on offer are no better than someone thumbing through a phone book and picking names out at random. That is not going to help your business, and it will only put a considerable dent in your finances. Instead, before you look at buying leads, look at how you can generate them yourself. This might be via referrals from existing clients or, very importantly, by growing the range of introducer relationships you have with specific professionals in your local area. In that sense, it is worth starting on your own doorstep. Draw a circle around your own business of about 20 miles and seek to target those within it who might be working with clients who have a need to access the equity
in their own home. These might be Independent Financial Advisers (IFAs), mortgage advisers who don’t advise on equity release, estate agents, accountants, solicitors and wealth managers. BUSINESS PROPOSITION
Once you’ve identified those potential introducers, introduce yourself and your business proposition to them. Much of this will be about education, solutions and how you may be able to help their clients. You can do that through newsletters, as well as invitations to meetings and webinars where you can outline what you have to offer, the quality of the service and how you might work together, and the benefits of such an arrangement. At this point, if you don’t get a huge response, don’t give up. Much of the success of getting a good array of introducers on board is about repetition and persistence. Follow the marketing ‘rule of seven’, which outlines that you tend to have to remind someone seven times before the message gets through. With introducers it’s all about identifying them, catching their attention, talking to them, and repeating that process. INTRODUCER COMMUNICATION
At Air we have a selection of templates that advisers can use for their introducer communications, covering letters and emails. These range from ‘we can provide short webinars to outline the equity release sector’, to where you fit, and what can you do. Finally, don’t just focus on remuneration. The best introducer agreements I’ve seen are not based on money, but service. Instead, make sure that you have been able to outline your proposition, why they should trust you to service their clients, and what you will do to give them peace of mind that their client will be looked after. Commission and remuneration should be the icing, not the cake. M I MARCH 2021 MORTGAGE INTRODUCER
The lessons to take from lockdown Karen Rodrigues sales director, eConveyancer
nniversaries are normally a happy time, a cause for celebration. Yet the fact that we are now a year on from the first lockdown spurs a different range of emotions, not least bewilderment that it has only been 12 months. There have been times when the past year has felt like a lifetime. Yet there is also hope, and not just because the vaccines leave us tantalisingly close to something resembling normal life. The housing market has enjoyed a surprisingly successful year, and not just because of the stamp duty holiday. As an industry, we have adapted to new ways of working to ensure that home purchases and remortgages can still take place, and learned all sorts of lessons along the way. THE GREATER USE OF TECHNOLOGY
One of the biggest lessons in my view is that technology has to play a more central role in the way we all operate. Face-to-face interactions will always be vitally important for everyone throughout the industry, but we have seen how we can still get deals over the line remotely over the past year. By introducing technology in more areas, we can actually get those deals completed more quickly, and in a more satisfying fashion for our clients. That was at the heart of our thinking when we launched DigitalMove, our client-facing digital conveyancing solution, back in 2019. It’s the perfect example of how technology can improve transparency, keep clients fully informed on what’s
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happening with their case, and prevent those backlogs and delays which make the whole process take longer than it needs to. Innovations like this can only be the beginning, though – there is far more that we can use technology for across the whole homebuying process.
“The past year has shown that, for all of the strengths of the housing market, relying on a resilient purchase market isn’t going to cut it” Technology will never replace human interaction. A mortgage is the biggest loan most of us will ever take out, so it makes sense that borrowers may want the assurance that comes from talking through their situation with an actual person. Nevertheless, offering borrowers a choice, and using technology to automate some of those manual, timeconsuming processes, is clearly where we are headed as an industry. THE STRENGTH OF THE HOUSING MARKET
The sheer resilience of the housing market, and the strength of demand, has also been striking. Being told to stay at home hasn’t dampened the hopes of those looking to move up or down the housing ladder, with property portal Rightmove reporting that it enjoyed its busiest ever January 2021. Mortgage intermediaries have seen this swelling interest too, from first-time buyers to those looking to make their last move. Part of this is down to the stamp duty holiday, of course, but equally this period of being forced to stay at home has made a lot of people question whether their current property really meets their needs, and what they may
be able to get for the same money elsewhere. After all, if you can work from home, do you really need to pay a premium to live close to your office? Intermediaries will have seen increasing numbers of clients focus their homebuying searches on properties that provide rooms where they can work, gardens, and access to green areas. Even as city centres start to open up again, and more people resume commuting at least part of the week, the desire for these sorts of properties is unlikely to dissipate too much. INTERMEDIARIES HAVE NEVER BEEN MORE IMPORTANT
Mortgage intermediaries have always played a vital role in the property market, guiding borrowers towards the best lenders and products for their individual circumstances. This service is only going to become more crucial in the months and years ahead, given that so many borrowers are going to have some element of complication within their credit records as a result of the pandemic, raging from missed payments to periods on furlough. How many borrowers will truly be ‘vanilla’ in the future? The expertise of intermediaries can make all the difference here, demonstrated through their understanding of how various lenders view these factors, and which ones will consider clients who have been through a particularly tough time. This is an opportunity for intermediaries to secure a longterm relationship with those clients, demonstrating that they can help with all of their financial needs in the future, beyond just helping to identify the right fixed-rate mortgage in a couple of years. The past year has shown that, for all of the strengths of the housing market, relying on a resilient purchase market isn’t going to cut it. Focusing greater efforts on maintaining those client relationships will ensure they come back for remortgage and protection help too, and provide your business with a surer foundation for the future, no matter what economic shocks may be down the road. M I www.mortgageintroducer.com
The need for layers of certainty Mark Snape managing director, Broker Conveyancing
irst, an admission. This piece was written at the end of February and you’ll be reading it in mid-March. As we’re all very aware, a lot can happen in a few weeks, especially within a property market which is currently hanging on every word and rumour that emerges from the government. As I first sat down to write this, the government has once again allowed journalists to put words in its mouth with regards to a potential stamp duty holiday extension. According to The Daily Telegraph, Chancellor Rishi Sunak has been considering a six-week extension in order to help thousands of transactions to complete and still get the saving. The holiday has since, in fact, been extended to 30 June, with a lower threshhold of £250,000 then in place until the end of September. By the time you read this piece, then, the housing market could be in a very different place. I think we all know how important the stamp duty holiday is to the current – and future – market. Whatever you might think of last year’s stamp duty holiday timing – and there are plenty within the market who feel it was either not necessary or should have been delayed by a few months – it has been a defining factor for everything that has happened since July 2020. The big question, of course, has been around how the government plans to extricate itself from a situation of its own making, which has undoubtedly increased the number of housing transactions, but – given the pandemic and lockdown – now means that thousands upon thousands of purchasers and sellers are waiting to see whether their transaction will go through or not. www.mortgageintroducer.com
A grace period will help, but I still sense that stakeholders such as conveyancers would prefer a decision based on those already within the process. For those unable to complete, even with the extension, perhaps through no fault of their own, how does it look that the industry has not been able to get them through to completion? I suspect other lawyers might be busy on their behalf. CLIFF-EDGE
The end of the stamp duty will mark a ‘return to normality’, and one suspects that it is only after this period that we’ll truly understand what the impact is on the housing market, and not only whether that much-discussed cliff-edge materialises, but whether we actively go over it. For what it’s worth, ahead of the recent extension announcement, I suspected Q2 to be subdued in terms of purchase transactions, but that the market will begin to regain momentum during Q3 and Q4, and that supported by a significant number of remortgage transactions, a good chunk of mortgage lending will be achieved and the number of housing sales will remain at 2019/20 levels. TAKING STOCK
That post-stamp duty period might feel like a time for the market to take stock, but it really shouldn’t. If the last year has shown us anything – particularly in terms of how we move transactions to completion – there is much that can be done to speed up the process and provide far greater certainty to all those involved. Don’t get me wrong, I’m acutely aware of how things work, and you might say that one of the positives of our system is that – should information come to light that changes our understanding of a property, or if our circumstances fundamentally change during the process – having the prerogative to pull out is ‘right and proper’.
It’s simply not fair for those involved to have to go through a transaction which turns out to be different to what they were originally led to believe. However, as we all know, such flexibility is open to abuse, whereby people can pull out on a whim, and where it is not just their own transaction that collapses, but that of everyone else within the chain. Plus, of course, there is a very strong argument to suggest we have this process back to front – that it’s simply wrong that people only find out about game-changing property information after they’ve had an offer accepted, sourced their mortgage, paid for a survey, and are emotionally invested in the property. So, there needs to be a fundamental change here to ensure that the information which may alter the game is available at the very start. To have all the details about the property – good and bad – would ensure that potential purchasers can come at a transaction from an educated position, not one where they’re never quite sure what they are buying. This fundamental change might also be to ensure that once an offer is accepted there is a legal commitment made to it. The list goes on. It’s why I’m very much in favour of more upfront information being available. I’m in favour of easily accessible logbooks for each individual property, as well as reservation-type agreements which tie buyers into a property sale and would result in financial loss if they broke them. We need to find another few layers of certainty in the process, because not only will it breed far more confidence in the purchase and sale process, stopping transactions from needlessly falling through, but it will also speed up those transactions. This is a double-win, and in the time following the stamp duty holiday we as an industry need to be pursuing these avenues and insisting that the government introduces the legislation needed to make it happen. M I MARCH 2021 MORTGAGE INTRODUCER
THE MONTH THAT WAS
AND THE Jurgen Klopp: Implosion
o there we have it, never trust a politician named after a fish, be it a sturgeon or a ‘salmond’! What a mess we have in Scotland, but more on that below. It’s a coin toss at the moment as to which is the greater sh*t-show, Megxit or KrankieGate. Thankfully, far more relevant and important matters pertain to the recent Budget and the announcment of further government stimulae. We predictably heard from Labour’s experts who sit – in groups of no more than six of course – in the shadow of their illusory and abundant money tree. Yet by any impartial and objective analysis, we should be thankful that we have a Chancellor who genuinely does see the wood for the trees, and can separate bark from the barking mad. The proposed back-ended tax rises are wholly justified and needed. The Daily Mirror’s nonsense about ‘party now and pay later’ was just its customary lazy and disingenuous journalism.
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Every month, The Outlaw draws some tongue-in-cheek parallels between society at large and a mortgage market in flux The extension of the stamp duty holiday was welcomed, even if it means that brokers – and your poor paraplanners – will now struggle to find a two-week period to take any kind of uninterrupted vacation before the autumn. But the hay must be made. For sure, there is a cliff-edge prospect once again on 30 June, but my hunch is that at this point we will see a taper applied over the following months through to September. In other positive news, there is widespread acceptance that both Natwest and Santander are ‘back’, so to speak. Brad Fordham and Miguel Sard may well protest that they never
actually went away, but the Outlaw connects with a wide variety of brokers and aggregators before penning these articles, and hardly any of my sources testified that the service levels at either had been great of late. In any event, both are back to a level approaching their multi-award winning best, so commendations go to the two former work colleagues. Along with the seemingly everconsistent HSBC and the Halifax, are these lenders now ‘The Big Four’? Hopefully, none of them do a Livpull Football Club and completely implode in the weeks and months ahead. Jurgen Klopp appears to be no longer the ever-wise guru and darling of the media. It’s simple really, regardless of their injuries. If you thrash your elite athletes year after year, and you have no Plan B or C when the ‘gegenpress’ approach breaks down, then you get what you deserve. They should sell the sulky – and over-rated, one-footed – Salah and reboot the whole thing with some of the cash. Thursday night and the Europa League ain’t so bad, take it from me! Staying with the lenders, Barclays’ recent performance does need a soundbite. It’s a long way off its high standards of 2019. I spoke to more than 20 brokers last week, and very few had complimentary remarks. This segues nicely into other matters of bad press. First up, the utterly woeful World Health Organisation (WHO), which returned from its totally inept ‘China-wash’ inspection of the Wuhan laboratories. Is there anything that China now doesn’t have a financial interest in? Along with the equally cantankerous and democracy-crushing Russians, both nations are now busy pimping out their vaccines to third world nations in Africa and South America. No doubt some gargantuan mining and mineral concessions will follow shortly. China really needs a stimulus, doesn’t it? In Q4 its GDP shot up 6.5%. Operation Worldwide Dependency is firmly underway. Despicable. Frustratingly, our national broadcaster still does very little to illuminate the now two decade long Sino-Russian ‘interventions’ that occur on this planet. The poor old BBC, still soldiering on with a bloody nose from its Brexit beating and the last election results. To his credit, Andrew Marr has been far more balanced of late, but strangely enough I haven’t noticed the patently biased Katya Adler asking Emmanuel Macron why his country has vaccinated barely three million people so far. www.mortgageintroducer.com
Back to our world, in which a recent survey reported that brokers had increasingly taken the path of least resistance in executing far more product transfer (PT) cases of late, as opposed to ‘risking‘ a remortgage with a new lender. I doubt very much whether our soporific Financial Conduct Authority (FCA) will even notice or ‘get’ this. Clearly, brokers – and their clients, for that matter – will have wanted to undergo the smoothest mortgage journey possible during COVID-19. However, given that not all lenders have priced their PT products competitively – though most have to be fair, especially Halifax and Nationwide – this could be an interesting piece of work for any forensic market bloodhound to pursue. Over to the guys at MortgageBrain! What may resultingly be of note in the coming months will be whether this skewed position rebalances. The procuration fee differential between a PT and a remortgage can be significant, and as service standards improve from lenders post-pandemic it’ll surely make for interesting reading. Talking of the FCA, I was taken last month by the announcement that it receives more → Neil Woodford: Sell the guts out
MARCH 2020 MORTGAGE INTRODUCER
THE MONTH THAT WAS
Nicola Sturgeon: Something fishy
than 80,000 ‘malicious’ emails a month. These can’t all be from brokers who are now having to pay disgracefully large fees just to exist, can they? Maybe some were even from its own staff at HQ, where in the recent past some disaffected folk took to deliberately soiling the lavatories, such was the morale. Clearly, some would have related to the various scandals around structured bond investments, which begs the question: just how is Neil Woodford being allowed back in to the adviser community? And further, after seeing many pensioners lose over £1bn-worth of their savings, why is he still enjoying the use of the letters CBE after his name? The good old UK, a country where the likes of Phillip Green have demonstrated that it’s virtually impossible to be fairly treated! Who knows, maybe Wall Street’s Robin Hood alliance of amateur investors will inspire folk over here to sell the guts out of Woodford’s reborn fund? Fairness indeed, a subject we can finish on with a final commentary on the shenanigans north of the border at Holyrood.
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Many of you will be familiar with the ‘GERS’, but I’m not referring to the football club which fell into liquidation following financial irregularities, to be replaced by a new club which painfully yet impressively gave Shellick FC their backside on toast this year. Nope. GERS here stands for the Scottish government’s accounting body, Government Expenditure & Revenue Scotland. The figures are possibly no less questionable than what went on at Ibrox, for they reveal that in 2020, spending per head of the population in Scotland was a whopping 12.4% above the UK average. In short, Scotland’s spending lead over England and Wales has grown to a record level, and it’s primarily paid for by taxpayers in London and the South East. Why is this so important? Well it’s pretty obvious Nicola…you and your Scottish National Party cronies want your independence, and clearly at any price. So perhaps once your party has stopped imploding and embarrassing itself, it can submit a paper to Rishi Sunak outlining a) what currency it will use and b) how it will continue to support the many thousands of public service workers in Scotland after ‘Scotexit’. Put the date in your diary folks: 18 June, Wembley stadium, England v Scotland. Let’s just play for The Union, and to make it a fair match we’ll agree to keep our calamitous keeper Jordan Pickford between the posts and our ever-diving skipper Harry Kane can run around carrying a caber. As Rishi rightly says, it’s all about levelling up now. I’ll be seeing you. M I Barclays: A long way off 2019 standards
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HEAD T O Robert Sinclair, chief executive of the Association of Mortgage Intermediaries (AMI), and Richard Kateley, head of intermediary development at L&G, discuss
THE BIGGEST OPPORTUNITIES FOR MORTGAGE ADVISERS IN 2021
Optimism is on the agenda in 2021, with many exploring the opportunities for mortgage advisers following a difficult 2020. Lessons were learned whilst working through a pandemic, but with a successful vaccination programme and a four-step journey out of national lockdown recently unveiled by the government, hope is on the horizon. “2021 is already looking like a great year for both the purchase and remortgage market,” says Sinclair. “There are a couple of really good lumps of maturities of fixed-term mortgages this year, which means there is a great opportunity for brokers to talk to their customers and get them a new mortgage deal which is probably cheaper than the one they are on already.” This, Sinclair explains, frees up an amount of money so that advisers can talk to these customers about what they use the extra funds on, by way of enhancing their protection. These extra funds will prove to be important this year to fill the premium protection gap, according to Sinclair, as in a post-COVID world people will be obtaining the cover they want or should have had going into the pandemic. Kateley agrees that the remortgage and product transfer markets will be big this year, but his concerns www.mortgageintroducer.com
T O HEAD opportunities for mortgage advisers in 2021, how the changes to stamp duty have helped or hindered the market, and whether advisers sell enough protection
in the past have been that advisers have missed opportunities in this market, and should take heed moving forward. The rental market is another area that Kateley believes is one to watch this year. “I always find it amazing that if I am a client and I go into an estate agent to buy a house, the likelihood is that I will be passed onto an adviser,” he says. “If I am looking to rent, the likelihood is I am not going to get advice from anyone on the protection side of things.” It is an opportunity that is yet to be embraced by advisers, according to Kateley. One of the main messages from the Chancellor’s Budget this month was the goal to convert ‘Generation Rent’ into ‘Generation Buy’, but Sinclair argues that the industry will begin to see a new wave of renters re-entering the market in a post-COVID world, as many circumstances changed during the pandemic. This, he concurs, will be a great opportunity for advisers to have the protection conversation with this wave of new or existing renters. According to Kateley, many advisers say that clients are unable to afford life insurance. “If you are looking at a life insurance policy, our average premium is £30,” he says. “If you cannot afford that then you probably cannot afford to take out the mortgage. If interest rates move by even a quarter of a percent, you are not going to be able to afford that house.” → www.mortgageintroducer.com
Richard Kateley FEBRUARY 2021
IN CONVERSATION With more clients completing a product transfer and saving money in the process, Kateley believes that advisers need to look at every commercial opportunity they can get out of a client, and protection sales are a great way to fill that gap. ARE MORTGAGE ADVISERS WRONG IF THEY DO NOT WANT TO SELL PROTECTION? “I think they are wrong if they don’t want to mention it, but not wrong if they don’t want to do it,” Kateley starts. “If a financial adviser or mortgage broker is helping a client arrange the biggest debt they have ever had, if they don’t at least advise that the client needs to consider protection, then I don’t think they are doing their job correctly.” Kateley recommends a more integrated approach, even if an adviser is not keen to sell the customer protection themselves: “Going back to that commercial aspect, why not arrange or have an agreement with the introducer to get something back from the introduction whilst also knowing that the client will be spoken to?” As AMI began to promote the protection agenda last year, the association carried out consumer research which revealed that 97% of mortgage brokers thought they had had a good discussion about protection with the customer, but only a third of customers remembered that conversation. “What is a fundamental here is that the broker has a memorable conversation about protection with the customer every time,” Sinclair says. “A positive discussion – which is not seen as an apology but as a constructive element of advice – has to be front and centre.” There are many ways to integrate protection advice into a business if that step is wanting to be taken, according to Sinclair, through affiliate businesses which share commission or recruiting a protection specialist internally to deal with customers directly. “The challenge is ensuring you set it up in the first place with passion and enthusiasm to make sure it is a conversation that the customer does remember,” he explains. “So if something goes wrong later on they can recall that they said no to the offer, rather than saying that they were never offered protection in the first place – that is the worst place any of us could be in this debate.” Kateley agrees, and emphasises that an enthusiastic adviser is “infectious.” THOUGHTS ON STAMP DUTY Since Chancellor Rishi Sunak’s Spring Budget, the buzzword surrounding the extension of the stamp duty holiday until June has been ‘cliff-edge’. “We’ve kicked the can down the road for three months,” Sinclair says.
MORTGAGE INTRODUCER MARCH 2021
“My biggest worry is that we will end up with a load of new transactions on top of the pile that we have already got, so those who have been within the pile for a long time will still not get the reduction that they think they will get.” Sinclair suggests that conversations with everyone in the pipeline are needed, so that each party understands what needs to be done by a certain date. This also gives the opportunity to discuss protection, which may have been sidelined whilst working towards the deadline. With certainty on dates and timeframes, Sinclair suggests these conversations can be revisited. Activity through sourcing systems rose 10% in the aftermath of the Budget, meaning the front end of the market is busy, presenting the chance to have conversations on what Sinclair calls “the whole piece,” whilst managing the pipeline. “I hate to keep agreeing with Robert, but he is absolutely right!” says Kateley. “For advisers, there is an opportunity to go back to every client who is in the chain currently to provide updates and discuss protection possibilities. I have no doubt that the stamp duty holiday has helped the market; it has made a lot of people think about moving and allowed movers to know that they will make a saving whilst doing so.” DO MORTGAGE ADVISERS SELL ENOUGH PROTECTION? The market has observed a protection gap in the past 30 years, and there has been effort from the industry to change this and the way advisers look at protection. However, Sinclair believes that the efforts so far have not been working as well as might be hoped. “We have to change the argument,” he continues. “Providers are great at throwing training at people around how they should sell policies – they have been brilliant at it – but that has not changed the paradigm at all. We have got to find another way of turning people on, both by way of the adviser and the consumer, to persuade them that this is not just something they need, but something that they actually want.” L&G has taken an active part in training advisers in the protection space, and Kateley says that often the feedback from advisers is that they do not have the time to sell protection. “We suggested to these advisers to write fewer mortgages, but write them better,” Kateley says. “Through this advice we came up with ‘The Power of One’ which is about embedding something in the process. The idea is about saying to an adviser that they have one customer, so design the process so that you are going to maximise what you are going to get out of that client through the sales process. That should then be the sales process for each client.” Kateley believes that embedding protection advice into the process is key, as often during busy times elements that are not embedded are not included. www.mortgageintroducer.com
Watch the full video of the head-to-head by scanning this QR code or visiting mortgageintroducer.com
The quality over quantity approach is vital, according to both Sinclair and Kateley, with the importance of protection being the catalyst for such conversations. “We always say that you don’t take out life insurance to change your life, you take out life insurance in case your life changes,” Kateley says. Encouraging the protection conversation is important, as the statistics can be startling. According to L&G’s latest ‘Deadline to Breadline’ research, people are four times more likely to insure their cat than their income, and six times more likely to insure the contents of their home. “If you ask any client what they think their biggest asset is, they are likely to say their house, car or pension,” Kateley says. “But actually it is your ability to earn an income. According to the [Office for National Statistics (ONS)], the average salary in the UK is around £35,000 per annum; take an 18-year-old working until they are 65, that asset is worth around £1.5m, but we don’t insure it.” A SUMMARY OF RECOMMENDATIONS AMI entered into the protection arena last year, and recently the Association of British Insurers (ABI) has opened up a dialogue, along with regular meetings. “I’m really gratified that the ABI want to partner with us and that dialogue has now started,” Sinclair says. “We are beginning to work better together, talking about what it is that the intermediary community wants from the insurance community and what they want from us. I am happy with the fact that we have a whole host of providers who are trying to do the right thing.” www.mortgageintroducer.com
Sinclair is looking for ways in which to use data and improve claims statistics to help sway consumer opinion towards the importance of protection and the value it can add. “Insurers do not have a great reputation with the public,” says Sinclair. “But in our part of the industry – in life, critical illness and income protection – we have got a really good story to tell. We need to find a way that shows the customer that these products are a part of the industry that works and can make a difference, as opposed to the rogues and vagabonds that will try to rip you off and not do the right thing.” Kateley focuses on the importance of education and improving data. In 2019, according to ABI figures, the industry paid out £5.7bn to the UK economy, with 98.5% of all claims being paid. “You don’t hear about those statistics,” says Kateley. “You hear about the one or two cases that were not paid out. What we want to do with our claims statistics this year is to pay less attention to the high-level figures and concentrate on the few we haven’t paid out and why. We want to work with advisers, networks and trade bodies to try and make sure that we educate.” The lasting word from the head-to-head with Sinclair and Kateley is the integration of protection into the mortgage process. “In terms of claims data and trust, I believe it is going in the right direction,” says Kateley. “It is a perceived issue from clients, not a real issue. If you look at the statistics, the industry pays out a lot of money, but we need to change those perceptions, to ensure clients know that we are trustworthy and want to do the right thing by all of our customers.” M I MARCH 2021
KEYSTONE PROPERTY FINANCE
THRIVING IN UNCERTAIN T With a £400m securitisation and a new managing director appointment already under their belt Jessica Nangle talks to Keystone Property Finance about their positive start to 2021
021 got off to a great start for Keystone Property Finance, with a £400m securitisation in January and the appointment of a new managing director, Elise Coole. The intermediary-only, specialist buy-to-let (BTL) lender was originally established in 2005 by industry stalwart David Whittaker and relaunched in 2012 following the financial crisis, becoming a lender in its own right in 2018. Keystone prides itself on understanding and assisting brokers with complex BTL enquiries, and belonging to most networks and mortgage clubs so as to allow brokers access to all of its products, the suite of which has continued to expand in these uncertain times. With ambitious plans for the coming year, all whilst navigating the business through a pandemic and the country’s recovery, Jessica Nangle caught up with Coole to discuss the importance of technology during the pandemic, how Keystone has supported its staff through remote working, and how the business fared during some of the most challenging times the industry has ever faced. A MONTH OF FIRSTS The first month of the year came with a series of milestones, with the Hops Hill No.1 securitisation being both the first for Keystone and the first of 2021. The £400m securitisation was originated under a forward flow agreement between Keystone and UK Mortgages Limited, and the capital released from the deal will be used to boost further lending and bring new, innovative and competitively priced products to the broker market in 2021. Another unique facet of this deal was that it included an element of pre-funding. “For us, it was really exciting to be able to come to market with a transaction that included pre-funding,” Coole says. “Although you would have seen pre-funding before the pandemic, it hasn’t been seen since. So it was really nice that we brought that to market and actually received really high levels of investor appetite. It was a great way to start the year, and the successful securitisation helped Keystone in that it allows us to increase the lending that we can do in 2021.”
MORTGAGE INTRODUCER MARCH 2021
Keystone has plans to complete another securitisation in early 2022, and has already started building a strong pipeline of business. “It is testament to the great work that the team has done,” says Coole. “Everyone has worked so hard over the past two and a half years to get to this point. Last year was challenging on a number of levels; it was so nice to start the year with good news that helps to lift the mood of everyone.” The need for certainty has only got stronger in 2021. Prime Minister Boris Johnson recently revealed his fourstep plan to gradually ease the nationwide lockdown, if the data permits, by 21 June, following an extensive vaccination programme, all of which aims to provide some much-needed clarity. However, Keystone is prepared for all eventualities. “I think everyone is looking for certainty, aren’t they?” Coole says. “It provides a sense of focus. At Keystone, we are focusing on providing brokers with products that best suit their clients’ needs in an evolving market.” Coole explains that Keystone will be launching some “new and exciting” products this year, into a market segment that only a few lenders are currently serving, with the hope that these new products will be of huge benefit to both landlords and tenants. “We are hoping to announce more details about this at the end of this quarter,” Coole explains. “But as well as that, we have been refining our product transfer offering, as some of our existing customers are having their products approach the end of the fixed-rate period. We want to make sure we have a really good product transfer offering for them.” CLARITY IN THE UNKNOWN Service levels within the industry were heavily impacted last year as the market came to an abrupt halt, and this remains a key focus area for Keystone. “In 2021, we want to continue focusing on enhancing service levels,” Coole says. “This is so we can support the loyal brokers that we’ve had since we came to market, but also through the pandemic as well.” Keystone has committed to integrating technology to support this commitment, launching an online chat function along with virtual events and video calls. www.mortgageintroducer.com
KEYSTONE PROPERTY FINANCE
“Even though we probably didn’t have as much of a challenge in regard to service levels whilst working remotely as other lenders, I think for us it was about making sure we were communicating with our brokers,” says Coole. “Communication is key. For example, when the valuers couldn’t go out and conduct physical valuations, it was about making sure we communicated that to the brokers, so that they knew where they and their customers stood – giving clarity in a situation that is unknown.” Keystone publishes its service levels on its website to ensure brokers can understand what the turnaround times are when they submit a case. “Our online broker portal, MyKeystone, is accessible 24 hours a day to give clarity and aid communication,” says Coole. “We know that some of our brokers’ clients would have been affected by the pandemic, and we want to be able to continually provide solutions and support for all of those customers.” A SYSTEM TO SUPPORT TRANSITION The pandemic resulted in daily commutes and office working being replaced with working from home and Zoom calls for most, and the success www.mortgageintroducer.com
of adapting to such circumstances was mixed. Keystone, however, has always used a cloud-based system, meaning that the transition to working remotely – although challenging – was made easier. “It was more about the impact on people,” says Coole. “Everything changed. People had a lot going on outside of work, so to be able to make it easier for them to do their job remotely in order to take some of the pressure off was a real benefit.” The personal impact of the pandemic was also unprecedented, so Keystone implemented anonymous employee surveys to gather feedback and allow staff to have their say in these difficult times. Coole explains that these internal surveys are vital, as they allow the business to help and improve. This is something that she is keen to continue for the foreseeable. During this transition, the focus on people – and not just technology – was important for Keystone. This involved increasing the number of meetings so as to have as much interaction as possible and provide support if needed. Other initiatives included a company quiz once a fortnight on a Friday afternoon, health and wellbeing support for all staff, mental health first aiders within the business and implementing personal catch-up days. LOOKING AHEAD Coole was promoted to managing director in January, having held her previous role as chief operating officer at Keystone since January 2020. She has been with the business since its inception, and with 15 years’ experience in the world of credit and lending, and being a self-confessed “maths person,” she has many plans for the business over the next 12 months, and is looking forward to the challenge. “When I joined there were 14 people, and now we are approaching 80,” Coole says. “When I joined, my focus was working within the business, and as my role has developed it has become more strategic and focused on future-planning. “In the past two years we have done an amazing job as a company, but this year I want to break the record that we did in completions last year. It may be a challenge, but we have the support of our funder and the right mindset and attitude at the company in order to achieve that.” The changing role of the business development manager (BDM) has been discussed widely since the pandemic began, as those who once travelled miles to meet people at different businesses suddenly had to adapt to Zoom calls instead of face-to-face interactions. Keystone has also been trying to find ways to help BDMs transition to new ways of working during coronavirus, according to Coole. “Some really thrive on the face-to-face contact, and others will embrace virtual meetings somewhat more,” she says. “We need to make sure that we support them, and when it gets back to resuming those meetings, → MARCH 2021 MORTGAGE INTRODUCER
KEYSTONE PROPERTY FINANCE it is about looking at what is the best for them and the business. We are working on those plans all of the time, but we don’t know when that next step will be.” The Budget is fast approaching at the time of this interview, and one of the biggest talking points is whether Chancellor Rishi Sunak will decide to extend the stamp duty holiday. Since then, an extension to 30 June has been revealed, with a temporary lower threshold to follow until the end of September. “As a lender, we want to try and facilitate as many as those cases that can complete [prior to the deadline] as possible,” says Coole. “Whatever the scenario, there does need to be a clear cut off. “To extend the stamp duty holiday for an extended period might be contributing to an asset bubble, which would cause more harm in the longer-term.” Brexit is a topic that once dominated the headlines but has since been pushed aside due to the pandemic. However, Keystone is thinking ahead to ensure that it is ready to deal with a changing landscape. “We’ve looked at what we need to do as a lender to make sure we have the right offering in place to support any changes that we will need to make to align with the rules from the government post-Brexit,” says Coole. As for getting ahead of the game and being prepared for anything that lies ahead, Keystone is already using digital passport software IDU by LexisNexis, and similar types of technology such as e-signatures and Docusign. WATCH THIS SPACE Keystone is certainly set for an exciting year ahead, with further plans to expand its technological processes and an emphasis on communication in all areas of the business. Despite having to adjust to operating in a pandemic, Keystone has progressed at pace and looks likely to do more of the same with Coole as managing director. The expansion plans are ambitious, but with healthy growth and its first securitisation already within two and half years of operation, it will be a case of watching this space as the lender continues to thrive. M I
About Hollie, chief morale oﬃcer, at Keystone Property Finance Terrier/Shih Tzu cross Hollie is a longstanding member of the Keystone team, and has the one of the most important roles in the entire oﬃce: keeping spirits high. As chief morale oﬃcer, 15-year-old Hollie’s day is filled with visiting desks and ensuring that everyone has had their fair share of cuddles. When she’s not doing that, you’ll find Hollie taking naps, staring out of the windows at the birds, or munching away at treats. She’s even been known to answer the odd call from brokers. Hollie is also something of a social media influencer and has both a Twitter (@HollieOffice) and an Instagram account (@oﬃcedogsofkeystone), which she uses to update her 750 fans. But don’t worry, if you’re not on social media you can always get in touch with Hollie via email (woof@ keystonepropertyfinance.com) or simply by woofing as loud as you can. Her response times are excellent, especially if you have treats to hand.
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A CHANGING LANDSCAPE At Mortgage Introducer’s later life round-table, the panel discussed the evolution of the market, whether carrying debt has become a way of life, and the lessons to be learned from COVID-19
he impact of COVID-19 has been felt across all areas of the market, but with the vaccine progressively being given to the public, alongside loosening lockdown restrictions, a slow return to normality is within sight. The mortgage market as a whole has seen a considerable amount of activity throughout the pandemic, particularly following the introduction of the stamp duty holiday. But what of the later life niche – how has this part of the market fared, and what can be expected in the future? At Mortgabe Introducer’s later life round-table, a panel of experts from Key, Legal & General Home Finance, more2life, Mortgage Advice Bureau (MAB) and Hodge spoke about the how the market is faring following the impact of coronavirus, the stigma of carrying debt into retirement, and the evolution of the sector. KNOWING THE BASICS A later life product is designed for individuals who require a mortgage to run until the age of 85. Will Hale, chief executive at Key, argues that this reflects is an important area of the wider market: “Later life lending is not niche, it is a part of the mainstream
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LATER LIFE market. If you look at new lending on an annual basis, which equates to an estimated £250bn a year, around £50bn of that is done by over-55s. “Of enforced lending, which equates roughly to £1,600bn annually, around £400bn of that is from those aged over 55, so this is clearly a massive market.” He adds: “The ‘later life lending market’ is a term that means different things to different people,” he says. “From an industry perspective, the key age is 55.” Hale explains that once an individual reaches this age, the availability of product types becomes wider: “Customers can at that point access equity release and retirement interest-only [RIO] products, as well as mainstream products that are available into retirement.” However, Wesley Regis, national account manager at Hodge, believes that the definition of the later life market revolving around those aged 55 and above is beginning to change. At Hodge, for example, individuals are able to access later life products once they reach the age of 50, and Regis believes this trend will continue. He continues: “We are also actually starting to see term products within the later life space that actually end before retirement.” In light of this changing landscape, Steve Humphries, proposition director at MAB, recommends that advice
“A holistic approach to later life lending is admirable. It is important that for any customer coming into the advice process we take a holistic view of the individual” WILL HALE firms engage with customers regularly, as advice they gave a year ago may no longer be relevant. He says: “The products within the market are evolving almost on a weekly basis, so advice firms must keep up and utilise specialist advice.” Marie Catch, head of mortgage broker sales at Legal & General Home Finance, also emphasises the changing needs and profiles of the customers. “I think the definition of the later life market is broad,” she says. “From a provider’s point of view, we are looking into how customers are adapting and evolving over their unique retirement journeys.” Catch agrees with Regis that the definition of the market will continue to evolve over time, and increasingly include those from outside the ‘55 and above’ age category. EVOLVING AND ADAPTING As a result of the coronavirus pandemic, the later life market – as with all others – has been forced to evolve and adapt over the last year. However, Paul Glynn, director of sales at more2life, believes that this process started further back. Indeed, the market has come a long way since the early 2000s, when the fundamentals involved lump sum versus drawdown and roll-up of interest versus reversion. Humphries points to the launch of RIOs several years ago as an example of the evolution of later life products over the longer-term. He says: “RIOs filled the void between a standard first-charge residential product and a lifetime mortgage. However, RIOs have not been as successful as the Financial Conduct Authority [FCA] believed, and there is still a gap in the market for customers coming off interest-only mortgages.” When considering the evolution of later life lending over the years, Regis says that the greatest change →
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LATER LIFE the market has seen has been improved pricing and flexibility of the products. “Product rates now start from 2%, a customer can choose to pay the interest if they want to and early repayment charges [ERCs] are fixed,” he says. “Pricing and flexibility, particularly on the equity release side, have improved massively over the past five years. However, the challenge that remains is the loan-to-values [LTVs]. There is a gap in the market, which while it has become narrower, it is still there.” Catch agreesthat rates have fallen over the past couple of years: “When I first got into the market, rates for products were commonly at the 7% margin; however, now they far lower, falling to a few percentiles.” THE FUTURE OF THE MARKET Looking to the ongoing evolution of later life products, Regis believes that part-and-part and capital interest solutions are on the horizon. Meanwhile, Humphries argues that in future the industry must question how intermediaries themselves will evolve to keep in line with the innovation emerging from the product side of the market. There is also the matter of changing consumer attitudes, which naturally must shape both the products being created, and the approach taken by market players. For example, the stigma of carrying debt into retirement has begun to lessen in recent years, and increasingly so as a result of the pandemic. With so many people feeling the effects financially in all walks of life, the effect has arguably been to normalise the idea of having debt at later stages. Humphries says: “Having debt is a fact of life these days. Living in the UK is expensive, and there has been a pension shortfall over the last 20 to 40 years. “Nowadays, people on average just do not have the amount of money in their pension that they need in order to sustain an enjoyable lifestyle.” Hale notes that the change in attitudes towards having debt in retirement is part of a wider, longer-term shift in customers’ circumstances and social trends. As a result, the path a borrower takes from mortgage to pension is becoming more diverse. He says: “It is no longer the case that a couple takes out a 25-year mortgage and once that concludes they retire and receive a sustainable [defined benefit (DB)] pension. The length of the mortgage term – as well as the pension – are no longer commonplace, so
“Communication and flexibility are two lessons most businesses will have learnt as a direct result of the pandemic, and we at more2life certainly have” PAUL GLYNN
therefore carrying debt into retirement is becoming more ordinary.” As there is no longer a typical borrower journey, Hale believes that the advice market needs to improve in order to help customers choose the best outcome for their individual circumstances. Regis says: “In the past, individuals approaching their 70s would not have £10,000 on their credit card; however, they do now. The average 65 to 70-year-old now has car finance to pay, credit cards, an overdraft, so the view on debt has drastically shifted over time.” Despite the growing acceptance of carrying these kinds of financial complications into retirement, which the pandemic has arguably heightened, Glynn argues that for many, COVID-19 has revealed the fragility of their finances, and caused people to become more frugal and risk averse. Nevertheless, as time goes on, Humphries stresses, the fact that debt is becoming more commonplace could have the opposite effect, causing people to become complacent and ultimately get themselves into financial trouble. He herefore emphasises the importance of seeking professional advice. “The fear of incurring another debt at a later age is very generational,” said Catch. “In the past, debt was less common and therefore older generations are more fearful of it. However, because debt is more familiar now, those people that are just entering retirement show the prospect of acquiring another debt with less concern.” Catch also notes that individuals are now living to an older age, so the amount they have saved in their pension is no longer enough to sustain the remaining period of their lives. Therefore, whether they are risk averse when it comes to debt or not, they may have little choice in the matter if they are to continue providing for themselves. On average, she says, people in the UK will now outlive their savings by 10 years.
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LATER LIFE THE FAMILY BANK The average property price in the UK increased by 8.5% in the year to December 2020, reaching a record high of £252,000, according to the latest House Price Index by the Office for National Statistics (ONS). First-time buyers – who on average need the most help with purchasing a property of any borrower group – are facing an average house price of £209,163, data from Yes Homebuyers shows. A 15% deposit on a property with this value would come to £31,374. Humphries notes that intergenerational lending is another matter that is growing in popularity, and shaking off some of the stigma it might have carried before. As a result of these combined trends, older individuals are incurring more debt in order to assist younger relatives onto the housing ladder, which is adding further to the importance of the later life market. A HOLISTIC APPROACH In order to embrace and cater to the diverse nature of borrowers’ needs and financial histories, it is important that the market lean towards a more holistic approach, in which an adviser is able to recommend and outline a range of products, rather than adhering to strict siloes in which customers get mortgage products from one broker and equity release products from another specialist. A holistic approach might sound ideal in the face of a complex and changing market and evolving customer needs, but it is not always easy to recreate. Hale says: “A holistic approach to later life lending is an admirable object; however, it is very hard to deliver from an advice perspective.” A more achievable element of this holistic approach might be in the consideration of the customer, though. Hale explains that it is essential that the industry looks
“The definition of the later life market is broad. We are looking into how customers are adapting and evolving over their unique retirement journeys” MARIE CATCH
at each customer individually when considering what advice to recommend: “It is important that for any customer coming into any advice process that we take a holistic view of that individual.” Catch adds that the industry must signpost what it does, and advisers should recommend that customers go elsewhere if they are in need of specialist expertise in a particular area that they are unable to offer. “There needs to be a qualification standard amongst the industry so that people can correctly recommend where customers need to go in order to receive the right advice,” Catch says. She goes on to explain that advisers should all receive a foundation of knowledge within the retirement part of the industry, so that they know when to bring in a specialist to assist the customer. However, this concept is still a work in progress, Catch says: “We as an industry have not yet figured out the best way for advisers to receive this general foundation of knowledge. While there is the qualification route, many advisers do not wish to be qualified in each area of the industry, as they may not intend to directly advise on it.” MAB is broken down into specialisms, each of which focuses on different areas of the market. Humphries believes that whilst this is an effective approach, care must be taken to maintain good customer service, and to prevent a customer being passed from one adviser to the next. To this end, a mortgage adviser must position themselves as the centre of influence for their customers, so that they can refer to a specialist if required whilst remaining that person’s port of call throughout the transaction. Hale concurs believes that mortgage advisers across the UK could benefit from being up-skilled, so that they are able to correctly refer customers to the right specialists when needed. In a similar vein, Humphries recommends that mortgage and protection advisers consider a customer’s entire journey over their lifetime, and the different advice that they will require as they age, while Catch believes that firms must consider how they intend to support customers throughout this journey before they enter the marketplace. “The cost of customer acquisition is increasing, so from the mortgage adviser perspective, they must retain consumers by correctly advising them throughout their journey,” Humphries adds. →
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“The products within the market are evolving almost on a weekly basis, so advice firms must keep up and utilise specialist advice” STEVE HUMPHRIES
LESSONS FROM 2020 When considering what lessons the later life market could take from the pandemic, delegates point to the rising importance of flexibility and technology. As a result of the pandemic and widespread working from home, the importance of strong connections has become even more clear. Glynn outlines that businesses have coped better with each progressive lockdown as they have adapted their ways of working. “Communication and flexibility are two lessons which most businesses will have learnt as a direct result of the pandemic, and we at more2life certainly have realised the importance,” he says. For example, more2life has extended its phone lines until later into the evening, with the intention of providing greater flexibility to its customers. Glynn adds that this kind of change can be seen across UK, particularly when it comes to businesses updating their systems and processes. He says: “I have seen many small businesses – which were considering updating their technology at some point – move this forward as a direct result.” For Legal & General Home Finance, 2020 demonstrated that home working could be successful. Catch says: “A key part of the success was outlined through the communication with brokers and advisers. Having the open communication with advisers helped them as well, as it allowed them to be up to date on their customers cases.” The past year has also disproven some assumptions around technology; for example, that older customers prefer face-to-face interactions. “From a customer advice perspective, while we always had a remote option for consumers, we believed those in the later life bracket wanted face-to-face interaction with advisers,” says Humphries.
“However, from what we have seen by having a good system in place, customers are happy to move forward with their transactions remotely. “10 or 15 years ago I think we would have had a lot more trouble, as those customers exploring the later life market would not have been as confident with technology as the consumers accessing this part of the market are today.” Industry collaboration has also been essential during the pandemic, according to Hale: “While the industry competes against one another for customers, what we have seen is competitors working with each other to help customers and improve the level of service.” He explains that the difficulties around key processes such as remote valuations, the face-to-face solicitor process and electronic signatures, have spurred on this collaboration. Hale emphasises that understanding both the customer and your staff members is also fundamental. He says: “It is important to understand people are in very different spaces with regard to their home life and their work life, as well as the financial complications caused by the virus. As an employer and a company supporting customers, it is important to adapt your processes to help people during this difficult time.” The impact coronavirus has had on the later life market is a double-edged sword, as there have been some positives to come from the changing landscape. As a result of the lockdown restrictions, lenders have been forced to improve their technology, which has improved flexibility and service for customers. However, as with all sectors, the market has faced numerous challenges, both for businesses and the individuals working within them. Looking ahead, the panellists believe that the industry will become more flexible, and continue to work towards building a better experience for customers. M I
“Pricing and flexibility, particularly on the equity release side, have improved massively over the past five years. The challenge that remains is the LTVs” WESLEY REGIS
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Taking the lead Loan Introducer speaks to Barney Drake, chief executive oﬃcer of Specialist Mortgage Group, about taking on the top job at the firm
arney Drake has recently taken the helm at Specialist Mortgage Group (SMG), following the departure of his long-term business partner Matt Cottle. Loan Introducer speaks to Drake about how he plans to make his mark on the company. You have recently become chief executive oﬃcer of SMG, how does this role diﬀer from that of chief operating oﬃcer? Being CEO is definitely a more front-of-house position, whereas previously I’ve been in the background, focused on the day-to-day operations of the business. That is still a part of the job, but clearly not my only role – now I perform both roles, with the assistance of an invaluable team. It’s also now much more about taking charge of the strategic direction of the group, taking ownership of dealing with the current challenges while also planning for future growth. At the moment, I’m absolutely focused on procuring the best IT systems, so I’m reviewing current systems to further increase eﬃciencies, oversight and monitoring. Your long-term business partner Matt Cottle recently retired – will you miss him?
involvement is needed through the advice and packaging process, which I am somewhat dubious about, as specialist packaging is a totally different chestnut to the high street. Specialist packaging involves more third parties, complex scenarios and – when combined with a timesensitive customer – I don’t believe automation can replace the necessary human interaction required to bring all the moving parts together. What changes do you expect to see in the market during the next few years? Apart from growth, I expect to see increased innovation around technology provision to assist with advice, especially around debt consolidation. For example, our current consolidation assessment system works whereby we manually enter the pertinent details of each line of live credit, so it then calculates the cost or saving of consolidating unsecured debt into a regulated mortgage contract. The industry would greatly benefit from a system that automatically imports live credit lines from the credit search into a system that completes the cost assessment exercise instantaneously. M I
Making it personal
Undoubtedly. He was the first person I met on my first day in my first full-time job 24 years ago, and we’ve been a constant in each other’s lives ever since. He has always been there, and having that person to be able to bounce ideas off is absolutely vital in any business. However, I’m very lucky, in that we’ve built a formidable team around us over our 20-year partnership, so I now have a more diversified support group to lean on and bounce off. We still speak most days, but not about work.
Is there something about yourself that people would be surprised to hear?
Demand for specialist products looks set to grow – do you think lenders are doing all they can for this part of the market?
Anything where the band or artist has written and performed their music themselves. I’m transfixed by new artists who appear on the likes of Jools Holland, but also have my old favourites: Zero7, Air, U2, Coldplay, Morcheeba, and more.
Lender appetite is extremely high at the moment, with a caveat that they are also cautious, for obvious reasons. Our lender panel is a pleasure to work with – proactive, hardworking, customer-focused, energetic and flexible. There are always ways both lenders and packagers can be more eﬃcient, and of course IT plays a significant role in that. Some lenders talk about ‘end-to-end’ packaging, where little to no human
In the last 15 months or so, I stopped drinking alcohol and started meditating almost daily. That’s a totally different ‘me’ to how most people know me. I also love baking sourdough. What music are you listening to at the moment?
What is the best bit of advice you have ever been given? Act as if you have already achieved what it is you want in life. It’s then only a matter of time before it happens. MI
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Supporting those i Loan Introducer asks if seconds can help COVID-hit borrowers who have been turned down by the high street
he second charge mortgage market is known for inventive thinking when it comes to helping solve borrowers’ lending needs. Nevertheless, there are still some brokers who are guilty of overlooking the sector when it comes to finding a solution for their client. Misconceptions may be partly to blame, but there is also a gap of knowledge around what a second charge can offer.
Loan Introducer asks: “Are there options in the second charge market for COVID-hit borrowers who have been turned down by the high street?”
Michelle Westley head of marketing, Brightstar Financial The second charge mortgage market provides a range of funding options that complement those available in the first charge market, and which can prove a more suitable route for some clients. In recent months, mainstream lenders have changed their affordability calculators quite a bit, and in the right circumstances, the second charge market can offer more borrowing power. Another trend we have seen in recent months is the scarcity of products in the first charge market available up to higher loan-to-values (LTVs). This is an area where second charge lending can help, with some lenders offering opportunities to capital raise that might otherwise be limited by the LTV limits of a first charge lender. Where borrowers have investigated options to move home but been unsuccessful in the first charge market, a second charge could provide a cost-effective way of financing home improvements as an alternative. In fact, if a borrower is able to
increase the value of their property with home improvements, they could remortgage at a lower LTV, and potentially a lower rate, in the future. Of course, for those borrowers who have taken on more debt during COVID-19, debt consolidation through a second charge could prove a good choice for some – a useful tool in helping clients to lower their monthly payments and organise their finances as we emerge from the pandemic.
mainstream markets are unable to assist. With debt consolidation being the main driver for the second charge market, and mainstream lenders’ changing appetites around consumer debt, affordability models are shifting, which is creating some headwinds in the direction of the second charge market.
Mike Walters sales director of property intermediaries, United Trust Bank
Matt Tristram, co-founder co-founder, and director, Loans Loans Warehouse Warehouse: I cannot comment on what first charge lenders can and can’t offer, so the best way to answer this is to focus on how a second charge can help. The start of the pandemic saw second charge volumes drop nearly 80%, but since then the market has adapted fantastically. Lenders will not penalise borrowers for mortgage payment holidays once they have resumed payments. As long as the borrower can evidence they are off furlough and working, without imminent threat of furlough or redundancy, most lenders will lend. Second charge lenders will also consider some adverse credit and defaults, such as missed mortgage or credit card payments, or County Court Judgments (CCJs), as long as the client can demonstrate long-term affordability.
Gavin Seaholme head of sales – property ﬁnance division, Shawbrook Bank The second charge market can offer a viable and affordable solution for borrowers looking to utilise equity in their home, where the
There are a number of ways consumers may have been adversely affected by the COVID-19 pandemic, and a second charge lender may be able to provide some options when the high street lenders won’t or can’t, providing the period of impact has ended. If an applicant – or applicants – can evidence that they have returned to work following a period of furlough, say, there’s no reason we shouldn’t lend to them using our usual criteria and affordability measures. If we feel the loan is affordable in one applicant’s name, and they are working whilst the second applicant is on furlough, we should also be able to lend. Unfortunately, if both applicants are either still furloughed or work in industries deemed as ‘uncertain’ at the moment, then we – as a responsible lender – will not be able to help them.
Lisa Muscroft head of loans, Norton Finance
There are definitely options in the second charge market for those who are turned down by the high street. Most of our secured lenders will consider a second charge if the customer is out of their mortgage holiday. www.mortgageintroducer.com
e in need So, if they took one at the start of the pandemic, or recently if they have started to pay the mortgage again, then there are options out there. Some may need to confirm they have made a certain amount of payments, some just need them to no longer be in the payment holiday. There is a similar situation with furlough. Some will consider it if employers guarantee a job afterwards, some will consider someone who has just been unfurloughed, and some will require customers to have been back in work for a certain time. So yes, the second charge market is providing solutions to real-life problems that are not provided on the high street.
Jason Berry group sales and marketing director, Crystal Specialist Finance Over recent years, the second charge market has often provided more placement flexibility for clients with impaired credit, when compared to high street alternatives. No credit scoring and the use of flexible income assessment has ensured excellent client outcomes were regularly available with a second charge solution. In today’s market there still remains some flexibility, which is reassuring for COVID-hit borrowers, particularly at higher LTVs, but lenders are very much focused on plausibility. As well as knowing the loan required and the reason for it, lenders must understand what exactly has caused any impairment, what impact this created, and how employment, affordability and circumstance is going to be different moving forwards. Therefore, as with all funding solutions, creditworthiness and also property security are the most pivotal factors in lending responsibly within the second charge market-place. But there is hope. Consideration can be given to those genuine clients who have suffered from circumstance, yet who have a compelling story which proves that the future will be very different to the past. www.mortgageintroducer.com
Marie Grundy sales director, West One Loans The pandemic has created added challenges for some borrowers looking to raise additional funds. As with all specialist lending products, the distinct advantage is that there is a more bespoke underwriting approach in place that often allows for a more in-depth assessment of an individual’s circumstances, rather than basing decisions purely on credit score. An example of the added challenge might be where lenders have varied credit scores to relieve pressure on service levels, meaning some borrowers who had previously been accepted were being declined through no fault of their own. Self-employed borrowers are also finding it tougher, with some high street lenders introducing further restrictions – particularly around LTVs – and more stringent affordability tests. It is essential that longterm affordability can be established for any mortgage, whether first or second, but again as a specialist lender there is the opportunity to develop a more in-depth understanding of the borrower’s circumstances when arriving at lending decisions. We have also seen strong demand for home improvement loans, particularly for high net worth borrowers looking to fund substantial refurbishment projects. For borrowers who need greater flexibility with respect to loan size, a second charge can be a great option.
Alistair Ewing owner, The Lending Channel Second charge lending always takes a more flexible approach to underwriting than the high street first charge lenders, and this is no different with the
sector’s approach to clients who have had an impact on their income due to the pandemic. Human underwriting is still the status quo for second charges, which means each case can be looked at individually. While some sectors – like leisure and hospitality – still remain a challenge, lenders are taking the time to understand the risk and make positive lending decisions where they make sense.
Barney Drake chief operating officer, Specialist Mortgage Group
Across the board, we have seen a heightened level of cautiousness from high street lenders ever since COVID-19 hit and the first lockdown was announced. In addition, while the mainstream first charge mortgage market is inching back into some product areas, such as 90% LTVs, it is still relatively risk-averse, and is only cherrypicking those borrowers who it believes are risk-free. Within the second charge market, I think we have a much more pragmatic and common sense approach, particularly to those borrowers who may have taken a shortterm hit last year due to the pandemic and lockdown, but are now out of that situation and back to normality. When it comes to seconds and borrowers, to a large extent it will depend on the industry in which the borrower works, but we will also need employer references to demonstrate that the client is out of furlough and the situation they might have faced last year is now over. There is a greater degree of flexibility in the seconds market, whereas high street lenders are more likely to adopt a ‘computer says no’ approach, which ultimately means that a lot of creditworthy borrowers are turned away. This isn’t the approach in the seconds market – our lenders are extremely pragmatic by comparison. M I MARCH 2021 MORTGAGE INTRODUCER
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Bridging the d Natalie Thomas considers if the seconds market can help parents support children with gifted deposits
he ‘Bank of Mum and Dad’ has become a permanent feature in the first-time buyer market in recent years. According to Legal & General, one in every two first-time buyers aged below 35 receives financial support from BOMAD, with parents lending £19,000 on average. While the main source of a gifted deposit is cash savings, 5% of parents would be willing to remortgage their home in order to lend a hand, while another 5% take out a loan, according to L&G’s 2020 Bank of Mum and Dad report. So, as parents continue to look for new ways to help their children onto the housing ladder, could we see an increase in the use of second charges to help alleviate some of the pressure for first-time buyers? A BUZZ IN THE MARKET “There’s no doubt the biggest challenge for firsttimers tends to be securing a suﬃcient deposit,” says Barney Drake, chief executive oﬃcer at the Specialist Mortgage Group. “With barely a handful of 95% [loan-to-value (LTV)] mortgages available, if you’re raising at least 10% for an average house price of around £250,000 to £260,000, then a fund of £25,000-plus is needed. “An added current complexity is the understandable heightened cautiousness that high street banks have over affordability. Undoubtedly, most parents will try to help if they can, but it’s more often than not a question of how.” While remortgaging to release equity might be an option, this could adversely affect the terms of the existing first charge. Drake adds: “The question of how they should access their equity on favourable terms then becomes particularly relevant. This then verifies the validity of a second-charge offering.” While the number of 90% LTV mortgages might be steadily increasing, there were just 277 such products available as of February 12, which is just over one third of the 776 on the market the same time last year, according to Moneyfacts.
First-time buyer mortgages at 95% and 100% LTV are in even shorter supply, and are usually reliant on some form of guarantor. So, how might the second charge market help? West One Loans recently launched a second charge product aimed specifically at parents looking to help their child onto the housing market. Marie Grundy, managing director of second charge mortgages at West One Loans, says the product has generated a significant amount of interest among intermediaries who previously might never have considered that a second charge could be used for this purpose. She says: “Our product innovation around the increasing necessity for family members to support children or grandchildren has really struck a chord with brokers working with first- time buyers to help them take their first steps into property ownership. “There may be parents or grandparents who are keen to provide financial support for younger family members without disturbing their savings and investments. “Alternatively, they may be looking at ways to increase the financial support available by releasing equity in their property or providing access to inheritance funds at an earlier stage.” Drake says a second charge is well suited to being used as a deposit. “The vast majority of second charge lenders impose just 30 days interest to redeem the account, so the first advantage is the flexibility,” he explains. “Many lenders also allow additional payments during the fixed-rate period, meaning if the son or daughter wishes to pay their parents back as and when, such payments can be instantly credited to their account to reduce either the monthly payment, or the term of the second charge mortgage. Over the last six months, Drake has seen a significant uptake in enquiries from parents looking to utilise seconds for their children. In practice, a second charge intended as a gifted deposit does not differ in any way from a traditional one. By marketing a second charge product with www.mortgageintroducer.com
e divide this use in particular focus, however, Grundy hopes it will help tackle some of the outdated perceptions around what a second is and how it can be used. In fact, Grundy would like to see more lenders promote seconds in this way. “It really highlights the synergy between the first and second mortgage markets, and the diverse range of loan purposes available,” she says. “The use of a second mortgage to support property purchases in general is becoming increasingly popular, particularly as we approach the stamp duty [holiday] deadline, which is benefitting both homemovers and property investors who can tap into equity from both residential and buy-to-let properties.” Mike Walters, sales director of property intermediaries at United Trust Bank (UTB), explains that the bank is happy to consider applications across its product range from parents wishing to help their children get a foot on the property ladder. “In fact, as well as being a valid reason for seeking a second charge loan, quite a few of the applications we receive for our unencumbered mortgage product are for this very purpose,” he says. “We see it as a means of enabling the Bank of Mum and Dad, and we’re very happy to assist with that if the application meets our usual criteria.” A parent taking out a second charge against their property to help a child might seem like an overgenerous act, but many are willing to sacrifice some of their own financial security in order to help their children achieve homeownership. Even among those who have seen their incomes decrease because of the COVID-19 crisis, three quarters (74%) of those surveyed in L&G’s report said they are no less willing to support their children or grandchildren, with 15% being willing to give more than before the crisis, against just 4% who would give less. FIRST CHARGE ACCEPTANCE When it comes to what is, and is not, acceptable as a gifted deposit, the power very much lies in the hands of the first charge mortgage lender. Grundy does not see why first charge lenders would have a problem with accepting a second charge gifted deposit, now or in the future. “We wouldn’t anticipate that this would be treated differently to any other type of gifted deposit purchase, but we would always recommend advisers carry out www.mortgageintroducer.com
the usual research in respect of product eligibility,” she advises. Simon Mules, commercial director at Optimum Credit, adds that, as part of the process, it is important that parents seek independent legal advice, to ensure they understand that they will not directly benefit from the proceeds of the loan, and to confirm that they are entering into the agreement fully aware of the situation and without coercion. He explains: “This process helps to protect everybody involved, whilst enabling parents to access the equity in their home to help their children onto the property ladder.” Gifted deposits have been widely accepted by first charge mortgage lenders as a means for parents to help their children onto the property ladder. The market did see some restrictions imposed last July, however, when Nationwide put a cap on gifted deposits on its 90% LTV range, and allowed only 25% of the borrower’s 10% deposit to be gifted. It reversed this decision in December 2020. A spokesperson for Nationwide says the initial restriction was a temporary measure, given that it was one of the first major lenders to return to offering 90% LTVs, and that at the time there was still some uncertainty in the market. David Hollingworth, associate director of communications at London & Country, does not believe that restrictions to gifted deposits is something that will become widespread in the market, and does not feel that a first charge lender would have a problem accepting a second charge as a gifted deposit. “When it comes to accepting a first-time buyer gifted deposit, lenders’ primary concern is that the parents are aware that what they are contributing is a gift,” he says. UNITING FIRSTS AND SECONDS The popularity and growth of the Bank of Mum and Dad does not look set to dwindle, given the pressures on the younger generation and the obstacles in place to get onto the housing ladder. As the second charge market continues to look for opportunities for growth, recognition and alliance with the first-charge market, the use of a second charge as a gifted deposit holds a lot of potential. “With house prices continuing to climb, it looks likely that the Bank of Mum and Dad will remain an important way for people to take a step onto the property ladder,” says Mules. “A second charge mortgage can provide a good way for parents to access the equity in their property to help their children, so we would expect to see more demand for this use of a second charge in the future.” As well as offering another option for the Bank of Mum and Dad, this also presents a great opportunity to build a much-needed bridge between the first and second charge markets. M I MARCH 2021
SPECIALIST FINANCE INTRODUCER
Fund finance and the UK property market Ben Barbanel head of debt finance, OakNorth Bank
und finance is set to play a crucial role in mitigating the effects of COVID-19, enabling property investors to weather these unprecedented times and to potentially capitalise on the opportunities they bring. Fund finance solutions can bring considerable value to real estate funds. In this article, I will explore the important role the product plays, using some examples of the fund finance deals we’ve done at OakNorth Bank. Fund financings can range from vanilla subscription lines – or ‘capital call’ facilities – and net asset value (NAV) facilities, to hybrids of these two or liquidity facilities. The ultimate objective of such facilities is to provide operational flexibility, liquidity or leverage to the fund’s management team. Real estate funds have traditionally found it challenging to access finance, as the underlying asset class is perceived to be illiquid to a funder. Leveraging the underlying assets requires in-depth knowledge and understanding of not only the fund, but also its underlying real asset portfolio. Over the last year, however, driven by COVID-19, more funds are evaluating their funding structures, and in particular looking to raise liquidity, support their underlying investments and increase the financial flexibility within the fund. This has led to an increase in demand for the different types of products mentioned earlier. Properly structured fund finance solutions can allow funds to ensure the timely redemption of their investors’
MORTGAGE INTRODUCER MARCH 2021
commitments without a rushed selloff of underlying assets, perhaps at a marked discount. With sufficient critical mass, such a sell-off would undoubtedly have an adverse effect on the UK property market as a whole. Furthermore, a fund with a strong work-in-progress (WIP) can execute deals in a timely manner by making drawdowns from the facility while raising further capital. A fund may need access to finance to further diversify the investment portfolio given shifting macro trends. A NAV facility can be used for such an opportunistic purpose, especially as the investment period of the fund comes to a close. Such strategies would help ensure stock in the UK property market is relevant and holds value, whilst also having a positive effect on job creation. These are a couple of examples of why fund financing has become more relevant in the UK since the onset of COVID-19. The pandemic has further exacerbated the customary challenges for smaller real estate funds – ranging from say £50m to £200m – to raise fund financing products, due to size and the constraints mentioned above.
At OakNorth, we have supported a number of funds in their growth, which in turn helps to bolster the UK property market. We completed a £25m fund finance deal with ICG Longbow (LBOW), the London Stock Exchange-listed fund specialising in first mortgage property investment loans secured against UK commercial real estate. In September 2019, we completed a £20m transaction with RAW Mortgage Fund, a specialist fund providing buyto-let property loans against residential real estate in the UK. In February this year, we increased the facility to £40m. Such transactions evidence our commitment to providing robust fund financing solutions to real estate funds, and we look forward to growing this product. While it has been an incredibly challenging year for the sector, the silver lining is that it is enabling fund finance to be recognised as a helpful contributor to liquidity management and a vital funding source for the property sector. The test for the sector’s new breed will be in making it through the next 12 to 24 months, when many of the government stimulus measures – such as the stamp duty holiday and mortgage holidays – come to an end. The lenders that make it out the other side of this crisis will be immensely well-positioned for the next cycle, and will have built up loan books alongside their loyal borrowers and advisers. M I
Driven by COVID-19, more funds are evaluating their funding structures
SPECIALIST FINANCE INTRODUCER INTERVIEW
Your business in specialist finance Adam Tyler executive chairman, FIBA
he definition of a trade association is an association of tradesmen, businessmen, or manufacturers in a particular trade or industry for the protection and advancement of common interests. A fuller explanation could include that a trade association – also known as an industry trade group, business association, sector association or industry body – is an organisation founded and funded by businesses that operate in a specific industry. An industry trade association participates in public relations activities such as advertising, education, publishing, lobbying, and political donations, but its focus is collaboration between companies. Associations may offer other services, such as producing conferences, holding networking or charitable events, or offering classes or educational materials. Both are good summations of how FIBA helps its members, whether brokers or advisers, operating in the specialist finance industry. An overall approach to any of the above within these very neatly defined areas would, on its own, substantiate a trade association subscription. But, as with all trade associations, whether engineering, funeral directors – that was one call this week – or laser users – that was a presentation last month – there are additional benefits that extend to helping to grow a member’s business and increase their regular income, so a small monthly fee really is excellent value. But what are these benefits? And what can we really expect to see in terms of support for an existing or new firm that wants to become involved in specialist property finance and remain relevant in 2021? It is important to note that we have a growing package of
measures, which is being finalised and made ready to roll out over the next few months. These major announcements, beginning in March, will be followed by regular introductions to new services that will add income to all client interactions.
Change of use will increase demand
Additional insurance packages may not suit everyone’s practice, but – for example – the addition of Barclays to the lender partner panel is a real benefit to being a FIBA member. The inclusion of a high street bank is a huge step forward and the focused campaign from the bank to our members so very quickly after our Annual Conference means that our plans for 2021 are already on schedule. Those that provide these services to members will recognise that this helps their business as well. In this instance, one of the most effective ways for lenders to grow their business and boost revenue streams is to affiliate with a trade body like FIBA. This acts as a focus point for lenders, providing access to advisory firms which the lender knows are potential business providers from the outset. Importantly, membership of FIBA also ensures that brokers can get access to lenders which might not provide access to individual firms. FIBA offers lenders and other providers the potential for increasing
distribution via access to a concentrated source that might otherwise be beyond their reach without extensive individual marketing, negating the need to ‘cold call’ for prospective introducers. This, in turn, means that the savings in terms of general marketing can be channelled instead into building greater volumes, and to target resources more efficiently. The continued appreciated value of the intermediated sector is a common goal both for FIBA and SimplyBiz, as it provides a stronger opportunity to generate business. Broker-sourced business converts better because of experience and market know-how. When a lender can access a dedicated trade body membership, not only can it reach a knowledgeable group, but also one that is looking for the relevant kind of lending solutions. Therefore, by providing our brokers with greater benefits, we are ensuring that we stay as a collective. With that focus on collaboration between member companies, we are a stronger organisation for the lender community and ultimately for the wider and better interests of all our customers. In short, the roll-out of benefits that has already started will gain momentum quickly throughout 2021 and enhance the positive message that we are accentuating for our industry. All the indicators are that the immediate future for the specialist property finance industry is looking positive, not only for the coming year but also in the medium-term. The drivers around the repurposing of town and city centre buildings will provide additional requirements for our sector, as we see an increased demand in the change of use of traditional buildings. Therefore, support for those working in the sector and networking opportunities with the lender community will grow, and the strengthening of these ties will be ably assisted by the work of your trade association. M I MARCH 2021 MORTGAGE INTRODUCER
SPECIALIST FINANCE INTRODUCER
The human factor Roxana MohammadianMolina chief strategy officer, Blend Network
reater flexibility, more speed in making decisions and deploying funds, a specialist focus in niche markets, and more appetite to lend on non-off-the-shelve deals in non-prime locations. These are all valid reasons for the increasing appeal of alternative real estate lenders. However, it is the human factor that makes alternative lenders most attractive compared to traditional lending institutions. The rise of alternative financing in real estate development is not new, the trend has in fact been in motion for some years. The ever-tightening criteria of traditional lending institutions in the real estate market has effectively created a ‘capital vacuum’, due to their restrictive lending, resulting in some property markets and certain project types being underserved. Consequently, many investors have started to actively seek alternative sources of funding, such as peer-to-peer (P2P) property lending and crowdfunding for real estate development. Expanded regulation and increasing rates and fees have taken the banking sector’s conservative underwriting of real estate financing to an unprecedented level, but the popularity of alternative finance as a source of funding for property development projects saw a rapid acceleration in 2020 amid the COVID-19 pandemic. The larger risk appetite of alternative lenders, along with more flexibility and speed in funding projects, all make the traditional blanket approach look weak by comparison. While I agree that all those factors are key elements of the appeal for alternative lenders, I believe there is one even more important reason for the
MORTGAGE INTRODUCER MARCH 2021
desirability and demand for alternative finance: the human factor. HUMAN FACTORS
Alternative lenders are often nimble and agile institutions, start-up companies created by entrepreneurial individuals and staffed by highly competent and efficient workforces which are able to speak the borrower’s language. For example, at Blend Network, a P2P property lending platform that provides development finance, we don’t have the traditional business development manager (BDM) role that exists at many traditional lenders. Instead, our lending team is formed of lending associates and lending managers, who originate and underwrite loans and are decisionmakers themselves. This leaner operating model, where the role of originator and underwriter is combined, has several advantages. Chief among them is the improved customer service provided to borrowers. Under this model, borrowers are able to speak to the decision-maker from start to finish and be part of the deal assessment process. Furthermore, many in Blend Network’s lending team are
current and former property developers and investors, and thus are able to put themselves in the borrower’s shoes, understand their funding needs and effectively speak their language. The model described above is very different from the model still in place at most traditional lenders, where BDMs tend to be relatively junior employees tasked with originating business. This model tends to create frustration due to a frequent lack of matching when the borrower’s loan request is rejected after some time and precious time has been wasted. Instead, a hybrid model where lending associates and managers are able to speak directly with the borrower from start to finish allows for far more flexibility, avoiding frustrations along the way by enabling a direct communication channel between the lender and the borrower. At a time when big banks are tending to freeze, become inwardly focused, withdraw from the lending market and press pause, the appeal of alternative lenders and P2P platforms has increased. The borrower’s ability to speak with the lender on the other end of the phone – and speak to a human rather than a machine – must not be underestimated. M I
Borrowers should be able to speak to the decision-maker from start to finish
SPECIALIST FINANCE INTRODUCER
Exploring development finance Brian Rubins executive chairman, Alternative Bridging
s the bridging world morphed into development finance, it was inevitable that there would be lessons to be learned, and that greater sophistication would follow. The first lesson, and one that was learned very quickly, was that development finance and bridging loans have no similarity, except both are secured on property. Whereas bridging loans are mainly non-status and rely almost entirely on the asset, with development finance the promoter’s experience is paramount. Planning, construction and sales risk all need to be measured and managed. Also, experience can be measured in many ways. Is a well-trained bricklaying sub-contractor an experienced developer? Clearly not, but many construction operatives see residential development as much more profitable, and less physically arduous, than laying bricks or installing utilities, and everyone has to start somewhere. Giving a would-be developer a first break is not a bad thing, but it must be approached with the appropriate level of caution, and the lender must know the questions to ask. VALUE AND RISK
Whereas bridging relies almost totally on the valuation, development also looks at the human side, the cost of construction, planning and the procurement method. Will the construction be delivered by an established contractor under a Joint Contracts Tribunal (JCT) contract, or is the developer also acting as the builder and employing subcontractors? Lenders can accept either, but clearly the latter has a greater element of risk, with cost overruns and delays www.mortgageintroducer.com
Giving a would-be developer a first break must be approached with the appropriate level of caution
falling on the developer’s shoulders, and without recourse to a third-party. Small projects are notorious for exceeding budget. Occasionally this can be funded by the developer, but more often than not, if the project is not to fail, the lender has no choice but to increase the facility. The standard 5% or 10% construction cost contingency may not be sufficient, and so experienced lenders know to allow for a ‘silent contingency’ which they can utilise if the developer’s calculations are proven to be overly optimistic. REWARD
Risk and reward must be in parallel. Whereas the high street lenders, which charge the lowest interest rates, consider 50% of gross development value (GDV) a suitable maximum, often this is inadequate. Specialist lenders will provide 60% or perhaps
65% of GDV, equivalent to 75% or 80% of total development cost. Sometimes even 65% of GDV is not sufficient, and greater gearing can be provided for larger projects, say where the loan is in excess of £10m, either by stretched senior debt or adding a mezzanine piece. This allows developers to undertake more projects within their capital resources. Alternative Bridging is now offering a similar facility for smaller schemes with GDV between £750,000 and £4m, where it is providing 75% of GDV, equivalent to 90% of development cost. It is an efficient way of financing and avoids mezzanine and equity finance – with two lenders and the duplication of valuers, solicitors and monitoring surveyors – and offers one point of contact. While it is not rocket science, I would not advise any lender that is new to development finance to travel this route. M I MARCH 2021 MORTGAGE INTRODUCER
THE LAST WORD
A Groom with a view Richard Groom, head of mortgage sales at the The Tipton, talks about challenges faced and ambitions for the future How has COVID-19 impacted the
What are the Tipton’s ambitions for 2021?
The pandemic presented many challenges that we have never experienced before. This included the need to move from a predominately office-based workforce to one that could adapt and have several staff members work effectively from home. It was not without its issues at times, but the turnaround in such a small space of time was quite an achievement. It allowed us to continue lending through much of 2020, enabling us to carry over a record pipeline of mortgage offers into 2021. What are the challenges lockdown presents to smaller builder societies in particular? With smaller teams, and the welfare of staff as a priority, obviously ensuring everyone had a safe working environment was the main initial challenge. Managing mortgage applications was a particular challenge for smaller societies, as most of us maintained a presence in the high loan-to-value (LTV) markets. We experienced record levels of enquiries throughout the year, a direct consequence of many larger high street lenders scaling back their appetite for new business – particularly in the high LTV market – because of the operational challenges they were also facing during lockdown.
We are keen to build on the strong pipeline of applications that we built up in 2020, and our appetite to lend has not diminished during the current lockdown. Like all businesses, we have adjusted to operating during the pandemic, and feel in a much stronger position to manage the strong demand that still exists for mortgages in 2021. We are demonstrating this by continuing to support mortgage intermediaries across all of our product and criteria streams. When you were young, what job did you aspire to have as an adult? I recall an interest in becoming a sports teacher, and later the police, but my interest in these professions soon subsided. I never really had any strong aspirations, and like so many must concede I pretty much fell into a career in mortgages, but with 25 years behind me I’ve got no complaints. I think our industry is frequently overlooked by the next generation, despite having so much to offer in terms of building a career, and one that plays a massive part in realising the dream for so many to own their own home. Is there something about yourself that people would be surprised to learn?
What lines of business have performed well for the Tipton during lockdown?
I have tried desperately to think of something cool and interesting… but what you see is very much what you get!
With many lenders withdrawing their high LTV products throughout 2020, our Family Assist range has provided – and continues to be – a real alternative. Family Assist mortgages allow borrowers to lend between 90% to 100% LTV. We must have 20% of the property value or purchase price – whichever is lower – as security. We can do this by having up to a maximum of 10% borrower deposit, plus a collateral charge against a family member’s property, which alongside the deposit will total 20% of the value of the loan. Alternatively, a family member can pay the difference between 20% and the borrower’s deposit into our Family Assist saving account and accrue interest.
What music do you listen to?
MORTGAGE INTRODUCER MARCH 2021
My eldest became a teenager during lockdown, so I’m being reeducated, specifically when we run together as I share an earpod and we listen to his Spotify account. It appears rap is the current favourite genre for the youth of today. What is the best bit of advice you have been given? You get out of life, what you put in to it. This is not so much something I was told, but more what I learnt from my parents. M I www.mortgageintroducer.com
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