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What’s the point?
lockdown is once again upon us in England. Until 2 December the country has been advised to work from home where possible and to stay away from other households. Will this slow the spread of COVID? Certainly it will help, but it’s not a silver bullet, and the stress a lockdown will have on the economy will have a profound eﬀect on us all. There was a time to lockdown, circuit break, fire break (or whatever you want to call it) and that was at halfterm when children were not mixing in the playground and the impact would have been magnified. However, with furlough extended until March, you could be excused for thinking that the government is anticipating that we will be doing the lockdown hokey cokey until Spring. The problem with lockdowns is that they are only eﬀective if people follow the rules. Readers with children will have noticed the optional nature of social
distancing on school pickups and drop-oﬀs, for instance. One has to question the point of lockdown if it will be widely ignored. Something needs to be done to get this situation to a managable level sooner rather than later. News of a possible vaccine could not come at a better time. Hopefully, this will mark the begining of the end of this strange period in history. Luckily, as an industry the property market is still fairing well. And credit where credit is due, the government did the right thing keeping it open during the second lockdown. But the market has a symbiotic relationship with other parts of the economy. If businesses start to fold and unemployment continues to rise, the knock-on eﬀects will be felt. Here’s hoping that this vaccine isn’t a false dawn. The government says it may be ready for December. Come January, I hope we are looking at an improving situation, and not this constant inertia. M I
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Contents 7 9 11 13 15 16 17 26 30 34 35 40 41
AMI Review Market Review Home Working Review Economy Review Recruitment Review Networks Review Buy-to-let Review Protection Review General Insurance Review AML Review Equity Release Review Conveyancing Review Education Review
42 The Outlaw The latest from our resident outlaw
46 Round Table: What next for stamp duty? Our panel considers the impact of the stamp duty holiday on the market and asks what will happen when it comes to an end
52 Cover: Aiming high Natalie Thomas takes a closer look at what support is available to help higher LTV buyers during the ongoing COVID-19 crisis
58 Loan Introducer The latest from the second charge market 62 Specialist Finance Introducer Development, bridging and FIBA 66 Spotlight: David Burt David Burt of eConveyancer talks shop
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Getting to grips Robert Sinclair chief executive officer, AMI
he Financial Conduct Authority (FCA) has written to all mortgage intermediary firms setting out its supervisory agenda for the next 12 months. The six page letter sets out the key issues it is concerned about: firms should clearly demonstrate why customers have been advised to take a particular product, and the customer should understand the reasons for the recommendation; customers should be clear about all the fees they are paying and the implications when added to the loan, and firms should ensure these are not excessive, particularly in relation to the size of any new lending; firms must have adequate systems, controls and risk management frameworks to reduce the risk of fraud. The headlines have focused on the two core pieces of work on the second charge market and the world of lifetime mortgages. From previous work, firms should not be relying on disclosure of their limited scope of service or advice,
or relying on others in the chain. Although a customer might start on a second charge or equity release route, it remains the adviser’s responsibility to ensure that the product is suitable. In addition, there are a significant number of robust messages for firms. COVID-19 may increase the risk of unsuitable advice, particularly if consumers seek to address short-term pressures without understanding the longer-term implications. The FCA is concerned that advisers might seek to address their own income shortfalls by providing services where they lack experience. Diversification runs risks, and areas such as will planning and funeral plans have longterm implications. Where firms increase the number of advisers or appointed representatives (ARs) there must be a corresponding increase in resources, to maintain adequate systems and controls. There are also coded messages over the risks associated with a growth in the number of advisers operating as self-employed. Where the FCA sees significant growth in firms, it will contact them to assess if the changes made to oversight arrangements are appropriate. Firms are encouraged to ensure that appropriate due diligence is carried out on any adviser, AR or introducer it uses. This should include monitoring
the quality of business, taking steps to improve their understanding of the firm’s expectations, and being bold in addressing any issues. Firms can use trading names, which should be added to the Financial Services Register. However, they must not add a separate and independent unauthorised firm and allow it to carry out a regulated activity without being authorised or being an AR. Firms or individuals conducting business in their own right should not be registered as a trading name, but should instead apply to be directly authorised or become an AR. The expectation is that firms are accountable under their Senior Management Regime responsibilities. Firms must also remember they are responsible for reporting any wider suspicions of fraudulent activity. The FCA expects firms and advisers to spot inaccurate or implausible information, including payslips, tax returns or bank statements. They will continue to actively monitor the risk of fraud within the portfolio via their mortgage fraud strategy, and will take appropriate action where necessary. It also expects brokers to support lenders in rooting out fraud. This is the first time the FCA has set out its expectations with such clarity, and there will be no excuse for firms not to know. M I
Certification rears its head and shouts out
s part of the same letter to the mortgage intermediary portfolio, the FCA has reminded all directly authorised firms that they have until 31 March 2021 to ensure all staff in certified roles are fit and proper to perform those roles. There should be a senior manager who has individual responsibility for ensuring that the firm carries out proper assessments of certified staff – those who do not meet the fit and proper standards cannot be certified. Just because the individual had been approved by the FCA – or indeed the Finan-
cial Services Authority (FSA) – at some point in the past, does not mean they should be automatically certified. Where firms need to do a significant number of certification assessments, those assessment processes that do not result in some individuals being found not to meet these standards will be challenged. Certification connects to almost every stage of the people management process, including recruitment, performance management, training and development, exit and disciplinary processes, on an ongoing basis. Firms that do not integrate certification into
these processes are unlikely to be able to operate certification effectively. In all firms, senior managers and certified staff should already have been trained on the Conduct Rules. The firm also has until 31 March 2021 to train its other staff. This training must ensure that staff understand how the Conduct Rules apply individually. The FCA will challenge the adequacy of training programmes, which consist of simple e-learning packages or presentations. Where it finds failings in implementing the SM&CR, it will hold senior managers with relevant responsibilities to account.
NOVEMBER 2020 MORTGAGE INTRODUCER
Interesting times ahead Xxxxxxxxxx Craig Calder director of mortgages, xxxxxxxxxxxxxxxx, xxxxxxxxxxxxxxxx Barclays
n what might just feel like the longest year on record – yet also the quickest in parts – the nights are closing in and we will soon be seeing the back of 2020. I’m sure many people will be looking forward to saying good riddance. In terms of lending, the final quarter will prove to be an interesting one for many reasons. For a start, activity is likely to remain strong even over the Christmas period, as the stamp duty deadline will place additional pressure on the property purchase market. Whilst time remains a precious commodity, this period will allow us to reflect on how the mortgage market has navigated the most difficult set of circumstances it has ever faced – some early indications of which have already started to emerge. SUMMER SURGE
Recent data from Experian suggested that, with the summer surge, 1.2 million mortgage applications are expected to be completed in 2020, equating to £216bn of lending. This is down on the 1.5 million loans, and £250bn of lending, seen in 2019, but in more positive news, the data also showed that the total number of mortgage applications recorded in July 2020 was up 13% on the previous year. This trend continued into August and September, with the total number of applications said to be 25% higher than the same period in 2019. In any ‘normal’ year, this overall lending figure would be hugely disappointing. However, to reach these levels while facing a pandemic, national and local lockdowns, and the virtual closing of large chunks of the housing market is highly impressive. This also underlines just how resilient the www.mortgageintroducer.com
mortgage market is, and how important homeownership continues to be for many people across the UK. FIRST-TIME BUYERS
This is especially evident among firsttime buyers (FTBs) as – according to research by Yorkshire Building Society – three in five (61%) said that buying a home is more important to them now than at the start of the pandemic. More than a third (35%) of FTBs in fact expect to buy their home sooner due to the pandemic, and 44% said they had been able to save more towards their deposit as a result of the impact of COVID-19. However, with the average monthly saving for those wanting to buy their first home now standing at £336, Yorkshire Building Society has estimated that it will take a single person seven years and five months to save a 15% deposit for the average firsttime buyer home, valued at £198,512. BOMAD
In order to meet the demands for a higher deposit, 50% of first-time buyers are looking for financial help from their relatives, with this number increasing to 59% among those considering buying in the capital.
The growing reliance on parental and family help has become increasingly evident in recent years. Huge numbers are having to dip into savings pots and potential retirement funds, or are simply having to work for longer in order to supplement their children’s housing needs. Recent figures from Legal & General found that 56% of FTBs aged under 35 have received financial support from the ‘Bank of Mum and Dad’ (BOMAD) and nearly three-quarters (71%) of new homeowners in the same age group would not have been likely to buy without this help. The research follows earlier findings from Legal & General, which showed that BOMAD is increasingly stepping in to support loved ones as the impact of COVID-19 takes hold. It added that a third (33%) of all people looking to buy in the next five years plan on getting financial help from family or friends. BOMAD is said to be lending £19,000 on average to FTBs under the age of 35, with 21% saying they received more than £30,000. Under-35s are set to receive £1.36bn in BOMAD contributions in 2020, helping them to purchase £18.11bnworth of property. M I
Homeownership remains very important for many people across the UK
NOVEMBER 2020 MORTGAGE INTRODUCER
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Summer houses: Year round home working Craig Middleton head of mortgage sales and distribution, Harpenden Building Society
ith COVID-19 restrictions continuing to be part of everyday life, thousands of employees are working from home. During the first lockdown, many of us were operating from a corner of the living room, the kitchen table or the spare bedroom, but as restrictions continue home working has become increasingly sophisticated. With the second lockdown now here, more people will be looking to create a dedicated work space, and building a ‘summer house’ separate from the main residence is becoming a popular option. GROWTH IN HOME WORKING
Oﬃcial figures show exclusive remote working hit a high of 38% in midJune, though the statistics were only collected from the middle of May and could have been higher. As uncertain times continue, employees are now facing further months of home working. A poll from the Home Builders Federation found that 40% of people say that they would now prioritise home oﬃce space when searching for a new home. The figures come as no surprise as employees look to make their home working environment as user-friendly and comfortable as possible. Pandemic restrictions may continue for some time to come, but home working may also be the preferred option for those who have now sampled the benefits. I didn’t have to go far for a case study, as both myself and Jean Errington, one of our business development managers, have first-hand experience of this. www.mortgageintroducer.com
We’ve both gone down the route of creating a ‘summer house’ at the end of our gardens. Not only do these provide extended leisure space, they also provide that valuable home oﬃce that is so much appreciated during these COVID-19 times. It’s also a good option if it’s not possible to extend the main residence.
My own summer house is again designed to make best use of the garden space available. This new structure has brought many benefits during lockdown, and will continue to do so when this is all over. During the day I work here, and then in the evening the family uses it to relax. I anticipate the children (two 16-year-olds) taking it over more in the evenings in the future! The concrete base took a day to set, the summer house two days to construct and a further two to paint. In less than a week everything was installed, and we didn’t have to move to gain extra space or put up with the mess and inconvenience of a building site in the house.
SUMMER HOUSE OPTIONS
Summer houses start from a base price of approximately £2,000, and can easily rise to five figures plus. Like any development project, cost is dependent on the building specifications you decide to go for, and if cash isn’t available to fund it, a mortgage option provided by a specialist lender like Harpenden Building Society can help. As a society we fund the larger-scale, extensive summer house developments costing in excess of £75,000. Jean opted for a summer house measuring 8’x8’, guided by the plot size available to her. She explains: “I’ve mainly used the summer house as an oﬃce so far, but we are searching for some armchairs and further additions that would fit in so we can use it as our relaxation space too. “The construction took half a day by the fitting team. My husband is practical and had laid the base so all they had to do was assemble it, as it arrived in kit form. He has also connected the electricity and we have a Wi-Fi booster to give us signal at this end of the garden, which is approximately 80 feet from the back of the house. “The size and type of summer house I have installed does not require planning permission, but it’s important to check when considering your own option. The sky is the limit with these structures when it comes to fitting them out and how much people are willing to spend on them!“
Through my own experience I have some tips to pass on. First, ensure you finance the project in the most eﬃcient way. At Harpenden, we are happy to speak with brokers and their customers about the options that work best for those considering a major construction. Customers are increasingly coming to us with complex financial profiles, for instance multiple income streams. The algorithm of a high street lender may reject an application due to this type of complexity, but we look into the situation in a more personalised way, manually assessing every application. Second, I would recommend researching the market, as there are lots of cabin suppliers that cater for all budgets. Look carefully at the supplier’s promise to deliver within a given period. High demand at the moment might mean delays. Some suppliers oﬀer complete services in preparing the ground work, as well as erecting the structure, so if you don’t feel able, or time is an issue, then build in the extra cost of the services within your budget. THE OPPORTUNITY
Based on our own experiences, enquiries relating to financing summer house builds and garden oﬃces will continue to rise. We’ll be pleased to speak to brokers looking to provide financing options for customers exploring this new home working opportunity. M I
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The economic impact on property Peter Izard business development manager, Investec Private Bank
hen coronavirus restrictions were initially eased in June, headlines reported a ‘booming’ housing market as the economy saw the first rise in property sales and house prices since lockdown began. However, buyers should bear in mind that Brexit negotiations are pointing to a ‘no deal’ outcome, while the end of various support schemes is prompting predictions of growing unemployment, and we are yet to see the long-term impact of a tumultuous US election. Keeping an ear to the ground before making investment decisions will be essential in the coming months. So how can buyers and investors prepare? A MOMENT OF CALM?
At the onset of the pandemic, like most sectors, much of the initial shock saw participants in the property market draw their attention towards how profoundly the virus would impact people’s lives. On top of this, many concerns arose about how certain processes – like property transactions, viewings and valuations – would operate under this ‘new normal’. In the ensuing months, though, thanks to various government measures and policy changes like the job retention scheme, business loan schemes and the recent stamp duty holiday, the full economic impact was yet to be felt for many in the market. As Investec’s economists have noted, we’re only just beginning to see how the broader economic backdrop is impacting the housing market as these government restrictions have eased. As we exited lockdown and the stamp duty holiday took effect, there was a sweet spot in the housing market which saw activity recover, and www.mortgageintroducer.com
optimism over house prices increase. On top of the pent-up demand that had built up over lockdown, the third quarter saw the market in a very healthy position, with 2% more sales agreed so far this year than in the same period in 2019, according to research by Rightmove. SHIFTING GOVERNMENT INTERVENTIONS
As the pandemic evolved, September saw the Chancellor cancel the Autumn Budget in lieu of his proposed Winter Economy Plan. This plan saw a bolstering of job support schemes and increased flexibility for business loan repayments, aiming to support the country as the end of the furlough scheme fast approached in October.
“As developments have seen the Chancellor announce an extension of furlough for businesses during further lockdown, many have warned that these measures will not be enough to stop an impending wave of unemployment” It was also noted that the Chancellor avoided further direct intervention in the property market at the time, likely due to its ongoing strength and the success of the stamp duty holiday. However, as developments have seen the Chancellor announce an extension of the furlough scheme to help businesses during further lockdown, many have warned that these measures will not be enough to stop an impending wave of unemployment. This has potential ramifications for the property market – not least on the buy-to-let side – as unemployment rising means that tenants and borrowers will likely struggle with rent or mortgage applications.
We can therefore expect further steps to support the market to be considered in the Spring Statement. Looking more closely at unfolding political milestones, the results of both Brexit and the US election could have significant repercussions for both the national and global economy. One perspective is that the outcome of Brexit could see widespread economic shock impact both ends of the housing market. In the event of a no deal, for example, there could be significant ramifications in the upper echelons, where sentiment and confidence of access to the UK market will likely be affected, but also at the lower end, where unemployment is a significant driver. On the other hand, should certain trade deals and agreements be put into place, then a level of stability could quickly return to the UK market and see an uplift in international interest across the board. Turning our attention to the US election, already we’ve seen how Trump and Biden’s policies could have polarising implications on the economy. Even with Biden’s win now announced, an increased volatility of currency could be a significant consequence – as such, the strength of the pound against the US dollar should be a major consideration for investors looking at the UK property market. PREPARING FOR THE UNKNOWN
With the world very much still facing the challenges of the coronavirus, the next few months hold further economic uncertainty and political disruption, all with the potential to create shockwaves in the property market. When assessing investment opportunities in the coming months, it will be crucial for both buyers and investors alike to harbour a good understanding of the range of economic outcomes to prepare for. Financial advisors have an essential role to play in equipping clients with that all-important confidence to make the right decisions. M I
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Keywords are key Pete Gwilliam director, Virtus Search
he last decade has seen a significant change within the job market, from how we search and apply for jobs, to how we recruit staff. In the last recession, LinkedIn was in its infancy, and the job boards from the last decade now have strong competition from industry-specific platforms and search engines, such as Indeed and Google for Jobs. All of these serve the purpose of connecting you to recruiters and employers. The gap between headhunters and recruiters has narrowed, and the job and skilled candidate market has become finite. What has remained constant, however, are the pressures that are felt by those job seekers who are not currently in employment. The stresses of job-seeking are exacerbated by the fact there is more automation within recruitment processes (automated screening processes can be disheartening, to say the least) and it is therefore essential to know how algorithms are used to data mine the larger candidate databases. Resilience is a must when applying for jobs, since it can feel as though you are sending your CV into a cyberabyss. So, here are a few points about developing a CV which should improve your chances of progression: First, ask others how your CV looks; ask that they proofread it, and if it uses positive, performance-focused language. Get someone who knows you, and your role, to tell you whether your CV offers a clear insight into your experiences and the skills you can offer a business. Avoid large passages of text and ideally summarise key responsibilities, skills and achievements in keyword phrases that are associated with your www.mortgageintroducer.com 10:38
role and the industry you are interested in working within. CVs should only be two to three pages, where the first page of your CV is the ‘showcase’ – presenting the information that advocates you best. It should be ‘tweaked’ for each application, where the keywords within a job profile are mirrored as much as possible in the CV. Another trend has seen the rise of what is being referred to as the ‘hidden jobs market’. A high proportion of jobs are never advertised – they are filled by people who contact the employer directly, via a headhunter or through a personal recommendation. This is a particularly powerful way of standing out from other would-be candidates. Ultimately, if you can access a job before it’s advertised, there will be less competition. Undoubtedly, ‘networking’ is the simplest and most effective way to get into talks about potential openings, as well as to learn about specific companies and what they’re like as employers. Networking is a proactive approach, but is best when targeted to spend quality time with people you really need to connect with; for example, those who are close to an employer you want to work for. The best way to ensure you are visible is to have an up-to-date
LinkedIn profile – this makes it easier for employers or recruiters to find and contact you about new opportunities. Many hirers will now start by sourcing from LinkedIn, with targeted keywords and ‘smart search’, before – or even instead of – posting the vacancy online. The best sense-check regarding LinkedIn is this: are the words in your profile matching up with those in the vacancies being sought? Being progressed initially is all about ‘matching’ the words in your profile with the keywords being input by the person searching. The other key element to note about LinkedIn is that the recent activity levels of an individual – such as posting or commenting on posts – are tracked by an activity algorithm. Regular activity drives your visibility, and importantly drives your profile up the search strings used by recruitment firms or internal recruitment managers. It is not possible to be in the with a chance of progressing for every single opportunity, but a key step in a job search if there are few opportunities to apply for, is to develop, seek out and create your own opportunities, having first got clear on the keywords that summarise your qualities, and the achievements that indicate the value you offer. M I
Resilience is a must, as it can feel like sending your CV into a cyber-abyss
NOVEMBER 2020 MORTGAGE INTRODUCER
The wrong question? Shaun Almond managing director, HL Partnership
t what point do you tell customers that they have little or no chance of getting their purchase completed before the end of the stamp duty holiday? Is it actually the responsibility of the adviser to warn that completion might not take place on time? We all know that the lending process is creaking under the volume of new cases, and with house sales reportedly up 50% on the same time last year, it’s not going to get any easier. Of course, it is not just the lending mechanism under pressure. Reports suggesting that searches by local authorities are already taking up to 60 days in some areas are not encouraging. It is at times like this that advisers feel powerless to intervene in any meaningful way and, of course, customers will complain. Advisers have been building their businesses on a reputation for great service, so when delays and additional paperwork impact the house buying process, it’s easy to see how complaints can happen. I believe much of that is hugely undeserved and is usually sparked by processing issues at times of maximum new business pressure, which in turn can be amplified by valuation and conveyancing anomalies. Going back to the potential for a meltdown on 31 March, there are still roughly five months to go, and we would all agree that in normal circumstances there would be no problem, but as we all know by now, these are hardly ordinary times. The stamp duty holiday announced by the Chancellor added to the pent up demand created by the lockdown, and has led to a stronger bull market, particularly for sellers. Most lenders are still reintegrating their workflows to accommodate home
working, and many have struggled to keep up with the prodigious demand. With COVID restrictions meaning valuations are taking longer, added to conveyancers’ reports that there are delays completing the formal requirements to ensure the legal transfer of title, we could end up creating a perfect storm of consequences that might very well mean that unless the stamp duty deadline is extended, many transactions will not complete in time to take advantage. What happens on 31 March is anyone’s guess at the moment if completions don’t happen in time. Will those who miss the boat through no fault of their own and therefore do not qualify for the stamp duty reduction, suddenly have to find up to £15,000 from their savings, or will loans have to be renegotiated upwards to cover the additional tax? It doesn’t end there. Will the chain break all together as loan affordability becomes challenged, or do sellers have to reduce the price of their home to keep the deal alive? Certainly, it will be a nervous time for everyone involved in the mortgage process, but especially for those who will have exchanged before the end of March and have an obligation to purchase or lose a deposit. Estate agents and mortgage brokers have been the main beneficiaries of the property boom. Any self respecting
adviser is unlikely to tell customers not to pursue a purchase, just as estate agents won’t lock their doors to keep would-be buyers away, but a warning to customers about a possible negative outcome would at least provide more than a fig leaf in the event of customers failing to complete. Already the industry is beginning to lobby government to reconsider the hard and fast date of 31 March. Given the clear consequences of leaving matters as they are, perhaps there will be a compromise. However, as I write this, the new lockdown has just been announced and, with everything else COVIDrelated clamouring for attention, the chances are that housing market concerns may not be heard. Unlike the first lockdown, though, the housing market has not been stopped from operating, which is a bonus for all of us in the sector. It could be that the restrictions on contact and travel will begin to choke off current demand and reduce the impact of the stampede to complete by 31 March. I would leave you with one thought: imagine where we would be now if the Chancellor had not agreed a stamp duty holiday as part of his COVID-19 stimulus package? As an industry, we must accept that we do not have second sight, but still expect others to have that gift. M I
Will those who miss the stamp duty deadline suddenly have to find the additional funds?
Landlords need our support Stuart Miller customer director, Newcastle Building Society
he often heralded demise of the buy-to-let market seems again, in my humble view, to be a little premature. It is showing itself to be a resilient and essential part of our housing market, which plays a crucial part in the choice of tenure available to people. This is no better illustrated than by the data recently released from Legal & General’s mortgage criteria engine, SmartrCriteria, which found that the search combination for first-time buyer, first-time landlord and non-owner occupier increased by 18% since the start of September. ‘STAYCATION’ DEMAND
According to Legal & General, the findings showed that many first-time property investors were looking to purchase buy-to-let properties in response to an increase in demand from consumers for holidays in the UK, rather than abroad, amid COVID-19 international travel restrictions. The market is clearly evolving. Buy-to-let has long been one of the country’s most popular investments, before the introduction of greater taxation caused many landlords to rein in their appetite. But now buy-to-let has been thrown a lifeline. At a time when the stock markets are volatile and savings rates remain low, many with lump sums to invest are looking for alternative forms of investments, with buy-tolet becoming increasingly popular, especially with the raising of the stamp duty threshold until 31 March 2021, making buying a property more attractive to investors. In fact, lending within the buyto-let sector is up, as figures released by the Financial Conduct Authority (FCA) earlier this month revealed that www.mortgageintroducer.com
gross mortgage lending for buy-tolet purposes – which includes house purchase, remortgages and further advances – during April to June 2020 had risen to 14.4% of all lending, an increase of 1.2% from the same period the previous year. This increase was before the stamp duty threshold increase was introduced, so could be higher still during the second half of 2020. Of course, the buy-to-let market is not without its challenges. When the furlough scheme ends, for example, an increasing number of people will find themselves out of work. The latest ONS statistics estimate that between March and August 2020, the number of people on payrolls had fallen by 695,000.
“Buy-to-let figures among building societies show that of those landlords who took a three-month payment deferral, 85% have returned to full payment” Industries such as hospitality and retail have been hit hard by lockdown, and many people who work in these areas are typically younger and live in the private rented sector. It is possible that as furlough comes to an end, a disproportionate amount of people will find they are unable to pay some or all of their rent. This concern was echoed in the Building Societies Association (BSA) Property Tracker survey, conducted at the end of August this year, which revealed that for homeowners with a mortgage, 92% were confident they could meet their regular repayments over the coming six months, and just 6% were not confident. However, when the research addressed the confidence of tenants the picture was different, with 75% saying they were confident and 19% not confident they could meet their regular
payments. Obviously, if the rent is not paid, there could be a knock-on effect on landlords’ ability to make mortgage payments; lending criteria need to consider this possibility, as a large proportion of properties in the private rented sector are owned by landlords with buy-to-let mortgages. The BSA has said that buy-to-let figures among building societies show that, of those landlords who took a three-month payment deferral, 85% have returned to full payment. The option to extend the deferral was taken by 14% of landlords, and 0.5% have missed payments. It’s an evolving market, but it is against this backdrop that lenders must calibrate what support they can offer. Some landlords are keen to realise their capital investments while prices continue to hold and the stamp duty holiday encourages new buyers. As we have seen, though, where some are keen to leave, other new landlords are emerging to take on these properties. Our task is to support them and our intermediary partners. At Newcastle Building Society, we recently launched a competitive buyto-let range to do just that. Our 2-year and 5-year fixed rate products are both fee assisted, meaning customers do not pay a reservation or completion fee and – as they offer a free standard valuation on properties up to £500,000 – most borrowers will only have associated legal costs to pay. RESILIENT MARKET
The buy-to-let market is proving resilient, even in the current climate. The stamp duty holiday is playing a part in this improved supply and demand, and we should expect to see that continue through to Q1 2021. Our new range of products are all underpinned by our pragmatic manual underwriting approach and focus on support for our brokers and their clients’ needs. By supporting them to lend responsibly, we can take care of the landlords of today and tomorrow. M I
NOVEMBER 2020 MORTGAGE INTRODUCER
Specialist lenders are stepping up George Gee commercial director, Foundation Home Loans
he residential housing market continues to blaze a trail, even during uncertain times. This speaks volumes when it comes to assessing just how important homeownership is to vast swathes of the UK population, and how specialist lenders are evolving to service the shifting demands of these borrowers. The sustained rise in demand and activity seen over the summer months was highlighted in the latest Rightmove House Price Index, which showed that: The average time to sell of 50 days is quicker than ever before, leaving agents with more properties marked as sold than available for sale for the first time ever The number of sales agreed in a month reached its highest ever, up 70% on September last year Traffic to Rightmove was up almost 50% on September 2019, the biggest annual jump since 2006 The number of active buyers was 66% higher than a year ago, down marginally from the 67% July peak The pace of growth is easing, but sales agreed for October are so far still up 58% on same period last year. Whilst these figures may feel like a throwback to some of the more ‘ordinary’ conditions attached to a housing boom, it’s clear that a growing number of borrowing scenarios are still considered to be ‘extraordinary’ by many lenders. As a specialist lender, we’re working hard to provide solutions for employed and self-employed clients, including those with multiple income sources, returning after furlough, suffering from
a low credit score or unable to secure a mortgage with a mainstream lender due to some form of credit blip. Here are just a few examples of the borrowers we’ve been able to service during this turbulent period: MULTIPLE INCOME SOURCES
A married couple were both employed, but one had additional self-employed income and only one year of accounts. Their goal was to move to better accommodate their working from home requirements and secure some outside space. Their two-bed flat was valued at £225,000 with an outstanding mortgage of £130,000, and they were looking to purchase a house worth £280,000. The employed party earned £35,000, and the employed and self-employed party earned £20,000, £15,000 of which was PAYE and £5,000 self-employed income. We were able to consider the full income of both parties based upon one year’s accounts, and offer a suitable loan-to-value (LTV) product. FURLOUGH
This case took place in the early summer months and involved a married couple in their early 50s with a 30-year-old son who was still living at the property. The goal was to sell their existing property – which had been on hold during the pandemic – and move into their new home. The couple were also looking to extend their mortgage into their retirement. All three applicants were in employment, although the party with the main source of income had been placed on furlough. Fortunately, he was able to evidence resumption of the role and no mortgage payment deferral had been taken in the meantime or was planned to be taken. We were able to take into account retirement income and create a solution
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which met with a maximum age of 75 years at the end of the term. CREDIT BLIP
This was a complex case where the applicant was separated, had multiple income sources, minor credit blips (a satisfied County Court Judgment from 25 months ago and a satisfied default from 18 months ago), and was looking to maximise her lending capacity. The goal was to sell the marital home and release £50,000 of equity in order to purchase a smaller property – with a value of £200-£250,000 – for herself and her two children. Her annual income of £28,000 came from three employment sources, and the eldest child had an income of £18,000. We were able to consider the minor credit blips, take into account all income and employment streams, and offer a solution suitable for the client. LOW CREDIT SCORE
This single applicant was a newly employed first-time buyer earning £21,000 with existing experience in the sector. He was currently living with his parents, but looking to purchase a twobed house in the North East of England for £100,000. However, the complication arose when it was found that he had a low credit score and was being gifted a £25,000 deposit from his family. We were able to consider the newly employed income due to existing sector experience, along with a family gifted deposit and low credit score for this new buyer. These are all cases which are not really ‘extraordinary’ in their own right – in fact, they are likely to become even more common in the near future – but they are scenarios which are being rejected as a poor credit risk by the vast majority of mainstream lenders. This highlights why demand continues to grow for alternative forms of lending and flexible product types, backed by common-sense underwriting. Thankfully, specialist lenders are stepping up to the plate to accept a wider variety of income sources and historic credit issues – in a responsible manner – to help maximise such clients’ borrowing power. M I www.mortgageintroducer.com
The clock is ticking for stamp duty break Bob Young chief executive officer, Fleet Mortgages
here are many who might wish to deny it, but the housing market remains one of the key drivers of the UK economy. There’s no doubting that the government believes its stimulation is one of the main methods at its disposal in order to help the country out of its current COVID-induced recession. Hence the very quick decision to introduce the stamp duty holiday back in mid-July at a point when many were wondering if, post-lockdown, it was even needed at all given the level of pent-up demand already unleashed.
“It is not surprising that trade bodies and associations are calling loudly for an extension to the stamp duty holiday” That is perhaps an argument for another day, not least because that time period has passed and the government itself might well point to recent statistics which suggest the holiday has done exactly what it intended. Two consecutive months of rising property transaction numbers – with the most recent figures for September showing a 21.3% increase on August – perhaps tell you how the market has performed since the scheme was implemented. Of course, it’s not just housing market stakeholders that feel the benefit of greater numbers of transactions, but all those in associated businesses, be they DIY shops, home or electronic retailers, or indeed the varied number of both professional and trade www.mortgageintroducer.com
businesses that rely on there being an active market. In the grand scheme of things, the stamp duty saving might only be a few thousand pounds for purchasers, but the government will no doubt be relying on households spending those savings on their homes, and not simply bumping up their offers for properties by the amount they would have spent on the tax. For those of us involved in the buy-to-let and private rental sectors, this of course is new territory in terms of landlords and additional property owners being able to access the holiday. Again, our own lending figures and other research seems to show that it has been welcomed by landlords and, where possible, they are seeking to take advantage of it. Recent research by Simply Business suggests that one in 10 property investors are looking to add to their portfolios now, compared to only 3% pre-pandemic; plus, the numbers of those seeking to sell are just one in 20. The big question right now, of course, is whether any purchaser who has yet to begin their home-buying journey – owner-occupier or landlord – is leaving themselves with enough time to complete and secure the stamp duty saving by the end date of 31 March next year. There appears to have been a concerted, collective effort by a number of housing market stakeholders to draw the government’s attention to a number of ongoing factors which could leave many potential purchasers behind the eight-ball in terms of them meeting that deadline. Anyone involved in the mortgage market currently – particularly advisers with purchase clients – may be feeling somewhat angsty about their ability to get the client through to completion over the next four and half months. I have seen research recently from
TwentyCI which argued that the average time from sale agreed to exchange of contracts was now five months, putting anyone not at that initial stage right up against it in terms of completion. These are by no means normal times, and therefore it’s perhaps to be expected that surveyors, valuers and conveyancing firms are not only facing resource and organisational challenges they must overcome, but that at a time of greater demand, the process is taking longer. In these circumstances, it is perhaps not surprising that trade bodies and associations are calling loudly for an extension to the stamp duty holiday to allow them to get as many purchasers through the process as possible. Whether they will get that extension however remains to be seen. U-turns have never been so prevalent, however, and if the industry can provide compelling enough facts and statistics then the government might well be in listening mode. However, there are no guarantees with this, and anyone working on the basis that an extension will come is likely to seriously disappoint their client when or if that extension isn’t forthcoming. It would be far better to try and work as fast as possible and encourage those involved in the transaction to do likewise. It’s at these times that service levels become even more important – if, as advisers, you are going to be waiting weeks, maybe months, on a lender to provide a decision, book in a valuation or provide an offer, then you’re making life even more difficult for you and your client, who is likely to have insisted on any transaction completing before the 31 March next year as a stipulation of their ongoing involvement. Far better to identify lenders – like Fleet, for example – whose service level agreements are in the hours and days rather than weeks. The clock is ticking, and you want to work with a lender which recognises this and is primed to deliver quickly – otherwise, the chances of sending your client on that stamp duty holiday are likely to be nil. M I
NOVEMBER 2020 MORTGAGE INTRODUCER
Technology trumps Jane Simpson managing director, TBMC
month is a long time in the buy-to-let mortgage market, although COVID-19 has added a certain feeling of Groundhog Day to our lives, due to the various government restrictions currently being applied around the UK and the new reality of a second lockdown. However, the buy-to-let mortgage sector continues to evolve in reaction to market demands and the marketplace is as dynamic as ever, with daily changes to product pricing and lending criteria. Encouragingly, the stamp duty holiday has had a noticeable positive effect on the buy-to-let purchase market, as landlords seek to expand their portfolios while the cost-saving measure is still in place. At TBMC, the level of purchase enquiries and applications has increased significantly since April 2020. The boost to purchase activity is a good thing for both intermediary and lender businesses, but some providers are dealing with the surge better than others. It seems apparent that those with good IT systems and streamlined processes are able to handle the increased demand, but less wellequipped providers are struggling to maintain service standards. This clearly has a detrimental effect on the customer experience, causing frustration for everyone involved. In the current environment, landlord customers now expect a better online service from all parties to the mortgage application process, including being able to choose a product without the need for face-to-face meetings. Being able to upload supporting documents online is also a key advantage in terms of efficiency of service, so lenders without online
Businesses with good IT systems are able to cope with the increased demand
facilities may find themselves losing out to the competition. At TBMC, we have a dedicated buyto-let mortgage sourcing system, which includes an online application form. We have recently added an online declaration and the facility to upload documents directly, which will increase our processing efficiency. BM Solutions also announced recently that it would be launching a new online application system in 2021, with improved document uploading and case tracking features. If buy-to-let mortgage providers are to maintain good service levels, continual improvements to IT systems and processes are key to meeting the expectations of customers. The current environment is unusual, and pent-up demand for properties is putting higher than normal pressure on lenders; however, it is a good way to identify potential shortcomings and find solutions for giving a better service. SECTOR SENTIMENT
Brokers are starting to feel more confident about the buy-to-let market as recent boosts to business have given rise to some optimism. Paragon recently published its latest FACT index for Q3, which showed that nearly half of brokers (48%) are seeing ‘strong demand’ for buy-to-let mortgages, up 22% from June. Nearly half of participants (49%) expect to see more buy-to-let business
MORTGAGE INTRODUCER NOVEMBER 2020
in the next 12 months, up 8% from June. Also, 89% think that their business will be as strong or stronger than before the COVID-19 crisis, up 8% from June. It is good to see growing confidence among brokers, but elsewhere in the buy-to-let sector there is concern for the support being offered to tenants during this time. When the furlough scheme eventually draws to a close, for example, questions will arise over what further assistance tenants will receive if they are struggling to pay their rent, and whether landlords will end up bearing the financial burden. The National Residential Landlord Association (NRLA) has been campaigning for the government to provide interest free, governmentguaranteed hardship fund loans for tenants in England to help them pay off COVID-related arrears. This type of scheme is already in place in Scotland and Wales. The NRLA has also asked tat landlords be able to cover arrears with grants if tenants don’t take up a loan. The impact of COVID-19 on the buy-to-let sector has created difficulties for all parties involved, but there are indications that as the market recovers, confidence is growing and there is optimism for the future. However, there are still challenges to overcome before a real sense of normality returns. M I www.mortgageintroducer.com
Learning the new student market Richard Rowntree managing director of mortgages, Paragon
here are 143 universities in the UK according to The Times’ rankings, so when visiting many of our major towns and cities you’re unlikely to be too far from a student stronghold. The prestige of our educational institutions attracts thousands each year and reaches far and wide; the UK’s net migration figure for the year ending March 2020 was 313,000, with 257,000 people moving the UK for formal study. The Office of National Statistics’ (ONS) latest quarterly migration report found that the largest numbers came from China and India. When combined with domestic students, we have a total of 2.38 million people studying in higher education, according to Universities UK figures from 2018-19. STUDENT DEMAND
This demonstrates why the provision of rented accommodation for students has been an integral component of buyto-let lending since its inception in the mid-90s. Although wear and tear can be a challenge, yields on this property type tend to be higher, whilst landlords benefit from parental guarantees. In more recent years, large scale developers have identified the opportunities this market presents, but even with impressively designed blocks being built at impressive speeds, whole streets close to universities are still dominated by conventional houses shared by groups of students. It is clear to see, then, why landlords and lenders alike were concerned when COVID-19 looked set to jeopardise face-to-face learning in the 2020-21 www.mortgageintroducer.com
academic year, and perhaps longer term. A survey commissioned by London Economics showed that this was not without basis; it revealed that that more than a fifth of prospective students (22%) considered deferring going to university. APPLICATION INCREASE
This was back in May, however, and quite a lot has changed since then. In August, a revision of the grading system meant that A-level assessed grades by schools and colleges were accepted. This U-turn meant that many more students gained the qualifications they need to secure a place at university than previously thought, and left universities scrambling to process a wave of additional applications.
“In recent years, large scale developers have identified the opportunities this market presents; but even with impressively designed blocks being built at impressive speeds, whole streets close to universities are still dominated by conventional houses shared by groups of students” This has translated into landlord demand for properties in established student areas. After some of the updated grades were more favourable than those previously awarded, this demand was more evident in locations close to highly-rated universities, compared to the institutions sitting lower down the league tables. Lockdown has had a huge impact on many of us, so although some will
be deterred, a significant number will actually be more motivated than ever to fly the nest and experience their own slice of student life. Despite new restrictions and reports of rising COVID-19 cases on campuses, students are still away studying. We are also yet to see the longerterm impact of the pandemic on unemployment. While the government’s job support scheme has been extended, this looks to be an unsustainable and temporary measure, so we may well encounter a rise in unemployment. History has shown us that this tends to correlate with increasing numbers of people entering higher education. CHANGING CONDITIONS
For me, the take-away is that the market is impacted, both positively and negatively, by a wide range of events, some of which we have learned to predict, while others are part of a wider environment and totally out of our control and scope. So, it is wise to be agile and adapt to changing conditions, but there is also a balance to be found. I know that one of the frustrations of the sector throughout the pandemic is around frequently changing product availability. This is something we have tried to avoid at Paragon, instead opting for a more consistent approach that has enabled us to continue lending throughout the pandemic. When uncertainty surrounded the future of higher education, we withdrew from that section of the market. While this does lead to a reduction in product availability, we would rather set out our stall so brokers know what to expect from us – lending only in situations where we’re confident that risk is manageable and that the service we provide is at the high standard we strive to deliver. Now the situation is a little clearer, we have re-entered the student lets market. This more measured – some would say cautious – approach may mean we don’t grab as many headlines, but lending prudently protects our customers, our company and the wider economy, and is something we are happy to shout about. M I
NOVEMBER 2020 MORTGAGE INTRODUCER
Changing needs and opportunities Ying Tan founder and chief executive, Dynamo
uy-to-let (BTL), like all areas of the property and mortgage market, is having to adapt to the current economic climate, the factors influencing our working lives, and people’s attitudes to how – and where – they want to live. The impact of COVID-19 will sadly be all too evident for quite some time, and while we can’t afford to second guess the ongoing repercussions, being able to successfully adapt will remain key for landlords, investors, lenders and intermediaries going forward. For landlords, three fundamentals will always be vital in the performance of their portfolios, large or small. So, let’s take a quick look at how yields, rental asking prices and tenant demand are currently performing. RENTAL YIELDS
Rental yields are reported to have strengthened across the UK in Q3. According to the latest buy-to-let rental barometer from Fleet Mortgages, yields on residential buy-to-let properties currently sit at 6.4% across England, up 0.4% from the 6% achieved in the third quarter of 2019. The North East of England recorded the top rental yield regional figure for the quarter, up 2% year-on-year to 8.8%, whilst only the North West and the East Midlands showed slight drops. Last quarter, only three regions posted positive yields; however, seven posted increases, including the North East, Yorkshire and Humberside and the West Midlands. Fleet outlined that the overall data showed a more positive picture than three months ago, with a greater number of transactions and rental valuations “showing the strength of the private rental sector during the summer and through into autumn.”
The barometer highlighted the impact COVID-19 may potentially have on rental property within and around city centres, with tenants potentially looking to move further away from those areas. It suggested that curbs on foreign tourism may bring a greater supply of short-term lets to market in certain regions, but an increase in ‘staycationing’ may ensure yields are not unduly impacted by the greater number of properties available. As with Q2 figures, this Q3 iteration of the barometer does not include Wales, as different lockdown rules apply. It’s positive to see the majority of regions in England posting increases, while those regions which have showed a very slight dip were already at relatively high levels to begin with. RENTAL ASKING PRICES
Rental asking prices are suggested to have been driven to a new high outside of London, following record demand from tenants and strong price growth in the South West and northern regions. According to the latest Rental Trends Tracker by Rightmove, asking rents have risen by 4% in the South West and at least 3% in the North East, North West and Yorkshire. In contrast, London rents have been weakening over the past three months, with prices now 3% lower than Q3 2019. Focusing on demand for certain property types, in September 2019 the most in-demand property type was a studio flat, followed by a twobed house. At the same time this year, two-bedroom houses were reported to be the most in-demand, followed by a two-bedroom bungalow. Studio flats have reduced in demand as renters look for spare rooms to set up spaces to work from home. In terms of available stock, the capital has seen the number of properties on the market rise by 80% since last September, which is in turn driving the lower rental prices, whilst regions outside of London have seen a rise of 2% over the same period.
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The rise in demand for properties which have more space – and that typically have higher rents – is helping push up average rents to new record highs. This trend is likely to continue as growing numbers of people – some out of choice, some out of necessity – work from home in the future. This is a trend which landlords and developers need to bear in mind, and it may result in changes to how new homes are constructed and existing BTL properties are reconfigured. TENANT DEMAND
Another major factor in the strong levels of rental yields and rental asking prices is rising tenant demand. According to research carried out on behalf of Paragon Bank, tenant demand was reported to have reached a fouryear high in the third quarter of 2020. In the three months to the end of September, 29% of landlords reported rising tenant demand, the highest level since the third quarter of 2016. Out of the 700 landlords surveyed, one in 10 reported significant growth. The survey showed that demand is currently growing the most in the North West and South West regions, where almost half of landlords (44%) saw a growth, followed by the East Midlands (40%). However, Central London recorded weaker tenant demand, with just 16% of landlords seeing growth in the last three months. Outer London was slightly stronger, with a quarter of landlords recording rising demand in this area. These regional shifts in yield, price and demand will be interesting to follow in the closing months of 2020, and on into 2021. Thankfully, there remain far more positive than negative signs that the BTL sector will hold up across most regions of the UK. This means that opportunities will continue to present themselves for those intermediaries who are able to service the changing needs of their landlord clients. M I www.mortgageintroducer.com
Getting the help they need Adrian Moloney group sales director, OneSavings Bank
etting a foot on the property ladder has never been easy. I don’t know about you, but I still remember those years of scrimping and saving before I was finally able to buy a one-bedroom flat I could call my own. Of course, in the years since, house prices have rocketed. According to Nationwide’s latest House Price Index, the average property in the UK now costs £226,129. The flat I bought for £82,000 back in 1998 would now sell for about £270,000. As recently as 2002, the average property price was £104,000, compared with an average gross household income of £20,596 – that’s
a ratio of 5.05. According to the latest data from the Office for National Statistics (ONS), that same ratio now stands at 7.70. The difficulties of raising a large enough deposit may be one of the reasons why the government’s Help to Buy Equity Loan Scheme has been such a success since its launch in 2013. More than 272,000 new-build homes – worth around £73bn – have been purchased over the past seven years using this scheme. However, the initiative was only ever intended to be a short-term fix to the problems faced by buyers struggling to fund a property purchase in the aftermath of the last financial crisis. I’m sure you are already well aware that the scheme will start to be phased out next year, and will finally draw to a close in 2023, but what you may not be aware of are the two important changes that are being introduced by the government next spring.
The first change affects who’s eligible. From 1 April 2021, a new Help to Buy England scheme is being launched which will only be available to first-time buyers purchasing a newbuild property. As with the current scheme, buyers will be able to borrow 20% of the value of a property, or 40% for those purchasing in Central London, with the help of a 5-year interest-free government loan. The second charge affects how much they’ll be able to borrow. From the same date, regional property price caps will be introduced, with each area of the country having a maximum property value, ranging from £186,100 in the North East, to £600,000 in London. You can find a full list of price caps by visiting www.helptobuy.gov.uk As I mentioned, it has always been difficult to get onto the first rung of the property ladder, and the pandemic has only exacerbated the situation. I believe it’s vital that first-time buyers continue to get all the support they need. Here at Precise Mortgages we’re committed to supporting both the old and the new Help to Buy schemes, so people can continue to realise their home-owning dreams. M I
It’s vital that first-time buyers continue to get all the support they need Photo: Alex Segre / Shutterstock.com
NOVEMBER 2020 MORTGAGE INTRODUCER
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Do we need to talk about diversity? Kevin Carr chief executive, protection review, and MD, Carr Consulting & Communications
iversity and inclusion were key topics at a recent online event for the protection sector. Mark Twigg, executive director at Cicero, was the last of seven speakers, each with seven minutes to speak at Protection Review’s second ‘ProtectX’ event last month. He started off by saying: “You may be forgiven for wondering why a middle-class white man has been given this platform to talk about the importance of diversity and inclusion in Britain’s insurance industry.” He added that some might argue white men have been on the stage for too long already, and that it’s time to let others have their say. “I would disagree,” he said. “For a start, appearances can be deceptive. How someone looks isn’t always a good guide to their diversity of experience, or their diversity of thought. Or how they solve problems.” Speaking from personal experience as someone who grew up in a poor,
working class area and as a gay person, Mark explained how he was faced with homophobia and often felt marginalised and excluded. He said the insurance industry he began working in 20 years ago was neither inclusive nor forwardlooking. “The management team then were mostly men, all of their faces were white; they all spoke with soft, southern English accents, were of a certain age and married with children. And senior management didn’t see this as a problem.” Opening the event, KPMG insurance director Rose St Louis told how she had to scroll through four pages of a Google search for life insurance until she found a person of colour, and was unable to find any from a same-sex couple, or anyone with a disability. Rose explained how ‘affinity bias’ still exists within the protection industry, and that “we migrate towards people who look like us, sound like us and think like us.” “What are we saying to these people?” she asked. “I think we really need to think about that, and we really need to work harder. “We need to make sure that all customers know that we understand
How someone looks isn’t always a guide to their diversity of experience, or their diversity of thought
MORTGAGE INTRODUCER NOVEMBER 2020
NEWS IN BRIEF Legal & General has launched two new income protection products. ‘Low Start’ and ‘Executive’ cover have been launched to help advisers reach a wider range of clients with additional benefits and choice. AIG Life has moved to simplify critical illness insurance by introducing four broad and comprehensive headings rather than a list of specific conditions. Digital solutions provider iPipeline has partnered with CIExpert to support advisers comparing critical illness plans through its range of technology. HSBC Life has announced that policyholders will receive additional physical and mental health benefits as standard on new policies. It is provided by Square Health, which has integrated with the OPAL IS Pandora digital protection platform used by HSBC. The Protection Review Conference and Awards takes place on the morning of Wednesday 9 December.
their needs, that we are there for them and that we can provide for them.” Rose argued that firms wanting to make great products and grow markets need to hold a mirror up to themselves, to see the diversity of their current and potential customer base reflected right back at them in the people that work with them. “Diversity and inclusion policies alone won’t help in the challenge of normalising diversity and inclusion,” she said. “It starts with us, it starts with human beings, it starts with kindness, it starts with thoughtfulness – people being ready to ally, people being ready to see past difference and looking through it to talent. “How can you play your part? Every single one of us has a privilege and a platform, so my ask is that you use your privilege and platform to not only serve yourself, but also serve others who neither look like you, think like you nor love like you.” M I www.mortgageintroducer.com
Protection importance realised Andy Philo director of strategic partnerships, Vitality
hile coronavirus itself impacts an individual’s health, its indirect impact has spanned much further, affecting everything from the economy to peoples’ day-to-day lives. The UK has spent over two-thirds of the year so far in some form of lockdown, leading many to reassess what’s important in their lives. Research from Vitality found that 59% of people now think that life is short and anything could happen to them or their families – 80% are likely to make a life change, and 34% said the pandemic has made them more aware of the need for life insurance.
This research shows that life insurance is having a very unique moment in the spotlight, with clients more open to talking about protecting themselves and their families. This change in attitude brings with it some unique opportunities for advisers, with more people likely to be actively thinking about their protection needs and the vital support it could offer them now and going forward. Despite this widespread change, the actual protection needs of clients continue to be very diverse. For example, income protection has become increasingly popular over the past six months as a way to protect a mortgage. Whatever a client’s circumstances, advisers have a range of solutions available to them. Additionally, with both the mortgage and the protection markets continuing to be busy, timing still remains an important factor when ensuring cover is
in place at the point a client completes on any mortgage. Consideration needs to be given to how long an application may take to process; for example, people with a complex medical history may need further reviews and medical checks. Starting the conversation early or using a pre-sales tool can help make sure the client is covered at the right time in the mortgage process, avoiding any rush to get last minute cover. The pandemic has changed how we all live our lives; it has shifted our priorities and what we want to protect. With more people alert to the reality that the odds are higher of being unable to work for a period of time or diagnosed with an illness, clients’ views on protection have changed. The mortgage industry is working harder than ever at the moment, and there are plenty of opportunities to discuss protection. M I
Life cover can give advisers a hand Mike Allison head of protection, Paradigm Mortgage Services
here is little doubt that the job of a mortgage adviser is getting harder as we approach the end of 2020. Many are having to tell younger clients to go back to the seemingly omnipresent ‘Bank of Mum and Dad’ (BOMAD) to try and secure extra funding for their purchases as lender loan-to-values (LTVs) continue to be uncertain. Not only is this dashing some hopes and dreams in itself, but in many instances as underwriting gets harsher as the realities of COVID and the furlough scheme hit deeper, many are having to put off that dream purchase. It is easy to feel empathy in these situations towards advisers being the bearer of bad news. The resilience shown by quality firms to try and support their borrowers has been there for all to see, and in many instances, advisers are grafting harder and harder, working on multiple applications to help their customers achieve their goals. It would be good to have an end in sight, but as mortgage product numbers are off some 40% from the nine-week average to mid-March, finding any mortgage for clients is getting tougher. Like the outcome of the pandemic, we are all somewhat in the dark as to the end game within our industry. The administrative challenge is heightened further by what appears to be a huge growing pipeline of cases waiting for completion prior to the stamp duty holiday ending in March. Some say completion numbers will be four or five times the normal March figures, which will be bound to have a knock-on effect in a number of areas.
The most obvious pressures will sit on the parts of the mortgage process well-known to us all – namely surveys, conveyancing (and related searches) and the physical transfer of cash payments of the offers in time to complete – the latter being specifically relevant to the stamp duty deadline. INCREASED ACTIVITY
The less obvious areas are the potential impacts on the ‘normal’ activity in the mortgage world. Remortgage and product transfer activity will not stop in Q1, and lenders will face the unenviable task of allocating resources to manage the business areas creating the most strain. Already there is talk of leave being cancelled in March for many in the chain due to expected activity. Having painted a rather challenging picture of what is to come in the next few months, you may want to head for the nearest hole to hide in – although not a ‘watering’ one given we’re now in the second national lockdown. All the additional work involved in the mortgage process mentioned above creates a real economic issue for brokers. To be frank, more effort is being put in for what may be less money coming through the door, with the same – if not more – costs to consider. After all, no matter how many applications go to lenders, advisers only get paid on the ones that complete. So, the good news is... The life and general insurance (GI) industries have been working away over the last six months to try to resolve some of their own issues brought about by the pandemic. Those close to them will know that the squeezes on underwriting limits are almost lifted, straight through processing (STP) rates are in many cases back to – and in some cases above – pre-COVID levels (partly due to increases in non-medical limits) and
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many insurers have moved, and are continuing to move, slightly outside the box in obtaining medical information where it is required. For those regularly writing life policies, that will be a great help as the mortgage bottleneck approaches. Life providers will not be thanked for adding to administrative burdens at such an important time. It is worth remembering, even for regular writers of life business, that some providers – such as Aegon and AIG – have short application processes as part of their armoury to speed things up even further. Furthermore, many firms hold full cover while underwriting is taking place. That could be a vital reason why certain insurers are chosen over others at a time where bottlenecks persist. Without being accused of teaching grandma how to suck the proverbial eggs, it may be time for some to consider introducing the discussion about life cover earlier in the sales process, as opposed to waiting until the mortgage application is completed. In many instances, due to general lack of cover already in place, especially for first-time buyers, that need is immediate and cases could easily and compliantly be put at risk before the mortgage completes, should the ‘protection gap’ be relevant in any individual household. This may be especially relevant if debt has increased during lockdown. In the GI space, I have seen many recent examples where our Paradigm Protect panel members have worked even more closely with advisers on the referral processes to great commercial success, at a time when any additional income to broker firms is welcome. Paradigm Protect has been working closely with all of its suppliers to devise and promote ‘of the moment’ solutions – many have heard about them on our Virtual Protection Workshop programme which we continue to hold. It is so easy to get caught up in dayto-day issues rather than step back and take the ‘helicopter view’ of a business. At a time when income is dropping for many advisers, it may be time to try and look at life and GI as, at worst, temporary solutions. M I www.mortgageintroducer.com
Could now be the right time to broaden your mortgage proposition? The COVID-19 pandemic has certainly caused dramatic ups and downs in the mortgage market. Diversifying your offering to include equity release could help achieve more sustainable growth for your business and support current clients.
Find out how we can support your business with… Larger residential mortgage deposits demanded by lenders in the current market More lending solutions and opportunities for your existing residential mortgage clients Creating an additional income stream - our average referral payment in 2019 was £1,536 for every case completed
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‘Tis the season to talk about GI James Watson sales director, Paymentshield
alloween has been and gone and the clocks have turned back, bringing in the shorter days and with it, the colder weather. Given everything that has happened this year, people will be looking for a return to some kind of normality this Christmas. Now whatever Christmas 2020 may look like, advisers have an important role to play in helping their clients ensure that they don’t succumb to huge unexpected yet avoidable bills caused by adverse weather. This means ensuring that homes are fully prepared for the winter and having the proper protection in place should something go wrong. The global pandemic has increased the financial pressure for millions across the UK, and the furlough scheme coming to an end and new lockdown regulations are expected to intensify these anxieties. In times of such economic uncertainty, customers will want to insulate themselves against large one-off costs, and this means having the correct home insurance in place for their needs. Optional extras such as home emergency cover should also be considered, to help provide extra peace of mind and much-needed certainty. To help provide customers with practical advice on handling adverse weather conditions, we have produced a series of guides designed to help homeowners prepare their property, explain what to do during periods of bad weather, and outline the steps of what they might need to do afterwards. The guides have been designed to help advisers add value and further
support their customers. The first two – ‘A Guide to Keeping Afloat in a Flood’ and ‘A Guide to Beating the Storm’ – are already available in our online marketing toolkit. A recent YouGov poll commissioned by Paymentshield found that 36% of people admitted to not reading the policy details of their home insurance. This lack of understanding could seriously impede the chances of a successful claim.
“Ensuring customers have fully prepared their homes for winter and have the right protection in place can provide some much-needed certainty and reassurance” Advisers have a vital role to play in helping customers understand exactly what their home insurance policy covers them for, as well as their own responsibilities in terms of the upkeep of the home. Last year, there were 10,233 claims from Paymentshield customers across the winter months of January, February, November and December, with the highest number of claims coming from: escape of water (23%); storm damage (11%); burst pipes (7%); flood (1%); and lighting (0.05%). It is important to remind clients that whilst lighting, storm and flooding damage will generally be covered by their insurer, damage that has arisen as a result of wear and tear is unlikely to be covered. There are practical steps that homeowners can take now to prepare their home against adverse weather. Advisers need to stress to their clients the importance of general home maintenance activities, and make it
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clear that wear and tear isn’t covered by home insurance. When it comes to the upkeep of the home, the roof should be one of the first places to start; replacing damaged and missing tiles can help prevent any water damage and damp problems further down the line. Drains and gutters need to be regularly cleaned out and are another key area to focus on. With 11% of last year’s Paymentshield customer claims made for storm damage, at an average cost of £1,003, it is a good idea for homeowners to regularly check over the roof and gutters following a storm and get them fixed properly. Windows and doors also need to be paid close attention to for any signs of rot developing, as well as any evidence of flooring and ceilings becoming uneven. Being vigilant for signs of damp or tide marks on the walls and ceilings is vital, and early professional intervention can prevent the problem from escalating. As the weather gets colder, we become increasingly reliant on our heating, so making sure we check the condition of our boiler, have it regularly serviced and carrying out tasks such as lagging pipes and bleeding radiators are all necessary. Keeping a close eye on the water pressure can also help detect leaks at an earlier stage. With the average cost of repairing a burst pipe standing at £5,569, and escape of water coming out at £6,008, it puts into perspective just how vital these maintenance tasks are. Customers not carrying out regular maintenance on their property could be in danger of invalidating their home insurance and leaving themselves liable to huge costs further down the line. At a time of such global uncertainty, and with the British weather being far from reliable, ensuring customers have fully prepared their homes for winter – and that they have the right protection in place – can provide some muchneeded certainty and reassurance. Advisers can play a central role in helping their clients prepare for this festive period by stressing the importance of prevention and protection. M I www.mortgageintroducer.com
IN ASSOCIATION WITH
AND WITH SPECIAL THANKS TO
Keep it local Geoff Hall chairman, Berkeley Alexander
OVID-19 has made us all more grounded in our local communities, as we are spending far more time working and living from home. From a business perspective, it is reminiscent of a bygone age when local business was a mainstay for many a high street broker. HOME TURF
The days of ‘your local high street insurance broker’ have largely long passed, but just because you may not have a high-profile physical office presence on your local high street any more, doesn’t mean there is not still valuable business to be won on the ‘home turf’. For example, we are supporting our local grassroots through the local
football club Ringmer AFC with sponsorship for this very reason. We understand the importance of our local roots, as well as the new business opportunities that it has always offered. LOCAL INITIATIVES
It’s a rewarding strategy in many ways, particularly now during the pandemic, and I strongly recommend that advisers and brokers out in the market – no matter your size and geographical reach – pay attention to the possibilities to grow your business on your doorstep, helping local businesses and residents. It’s worth investigating local business networking groups, too – albeit virtual at the moment. Why not put a tailored package together to support your local high street, encouraging local businesses from the butcher to the newsagents to the undertakers, to collaborate and support each other through local marketing initiatives that benefit them all. These are all businesses which will have general insurance needs.
COVID Multigenerational Living
nother noticeable impact of COVID-19 has been an increasing trend for multigenerational living. The elderly and those living alone are suffering terribly with loneliness, and families have come to rely on each other more than ever to cover commonplace bouts of regular enforced time off work or children sent home from school in isolation. One answer has been the joining of households into ‘bubbles’. According to a survey by Aviva in September 2020, multi-generational living is a reality in a third of UK homes, and could be set to increase. For those families or groups with access to outbuildings to convert, this might not necessarily mean all living under the same physical roof. One in 20 UK households already have additional accommodation space, according to the Aviva survey, with converted garages, cellars and outbuildings providing extra accommodation.
Mortgages are often held in multiple names and all the properties included in the deed will form part of the mortgage and should also be included in any home buildings and contents insurance policy. The key thing to remember is the sums insured: more people and different generations living in one household will mean higher sums insured, and likely a much broader range of contents that might not all be standard vanilla. For example, contents policies might include grandmother’s lifetime collection of valuable antiques or vintage clothes, through to the daughter-in-law’s diamond engagement ring, the son’s state of the art bike or the grandchildrens’ numerous PlayStations and X-Boxes. Brokers will need to extend their protection conversations to make sure everyone is involved and included in the quote process.
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Price walking ban – down with aggregators!
ollowing the Financial Conduct Authority’s (FCA) report into the practice of dual dricing, which was published in September, insurers will now need to ensure that they are pricing policies fairly and increasing the transparency and methods by which customers can cancel auto-renewals. This is in a bid to stop the historical practice of ‘price walking’, where new customers pay cheaper premiums than renewing policyholders. Firms will have until 25 January 2021 to offer feedback on the proposals. The biggest impact will be the levelling of price between new business and renewals. This will stop the situation where a provider attracts new business customers with reduced premiums by way of discounts, but the premium then increases at the end of the first year and the provider hopes most clients stick with the policy. This is likely to have a huge impact on the industry. One of the more positive consequences of the measures could be the effect it is likely to have on price comparison websites (PCWs), as there will be less benefit for consumers to ‘shop around’. If existing customers know they are being offered the same price as new customers every year, it’s likely that fewer people will switch. This is likely to be bad news for PCWs, but great news for intermediaries and their customers. It is possible that insurers will look to increase excesses and reduce cover levels in some areas to try to mitigate lost margins – only time will tell. Nevertheless, the result will certainly make a broker’s advice all the more vital in ensuring the client has a policy which suits their needs. Ultimately, this change puts more focus on policy quality, not just price, which has to be a positive move for both the industry and its customers. M I www.mortgageintroducer.com
Airbnb-friendly insurance for clients Kevin Paterson director of sales and marketing, Ceta Insurance
he inability and inconvenience of travelling any real distance has significantly curtailed holiday plans for most of us this year, leading to a rise in UK breaks. Short-term private lets have proven increasingly popular, as they lend themselves to the isolating nature of the rules imposed to try and restrict the spread of the virus. Using technology to bring property letting within reach of every homeowner, Airbnb – alongside many technology businesses – has shown itself to be remarkably resilient during the pandemic, able to respond quickly to changes and comply with much of the restrictions easily because of its business model. A perfect solution for the times we are living in perhaps, catering to people looking to take short-term UK breaks, and homeowners who find themselves with an empty property but who do not want to put the property up for longterm rental. However, many property owners are finding out that it can be problematic to maintain insurance for their property when they use platforms like Airbnb. Professional landlords understand the need for insurance cover for their property, and make sure they source appropriate products specifically for holiday lettings. But what about the private homeowner who wants to let a room, or their entire property, for a short period? You would be forgiven for thinking that simply by notifying their existing home insurance provider the policyholder should be covered, or at www.mortgageintroducer.com
against short-term paying guests, known as ‘host cover’. This type of cover is designed to sit alongside the homeowner’s property insurance, able to step in and cover those areas that the main insurer won’t cover; however, these providers are very much in the minority.
the very least cover maintained with a temporary endorsement, excluding damage caused by paying guests. Unfortunately, this is not the case. In most cases, not only will the insurer not be prepared to offer continued cover, but they may also insist that the policy is voided. POLICIES VOIDED
In fact, simply by making the enquiry the chances are that the insurer may put a note on the policyholder’s file, irrespective of whether they then decide to continue with the short-term let. The insurer may even write to the policyholder to state that should they subsequently let all or part of their property to paying guests, then the policy will be voided. There are specialist providers like GUARDHOG which provide temporary short-term top-up cover for those looking to cover their property
This then leaves the policyholder with a dilemma, because they have slipped into the non-standard category without knowing it, and with limited options. This is another example of insurers not being able to keep up with the pace of technological change. With more than 257,000 Airbnb listings in the last 12 months in the UK alone – and that number is growing – this is an area that is likely to impact on your clients. Having an understanding of what is and isn’t likely to be covered in this area is important. Your clients will need access to Airbnb-friendly insurance, which allows by endorsement for paying guests to stay at their property, they can then top this up with short-term cover for the period of time they wish, only paying for what they M I need.
Airbnb and other tech firms have shown themselves to be remarkably resilient during the pandemic
NOVEMBER 2020 MORTGAGE INTRODUCER
New failure to comply legislation Martin Cheek managing director, SmartSearch
he introduction of a new offence of failing to comply with anti-money laundering (AML) regulations, may have taken a step forward recently as the Treasury Committee launched its inquiry into economic crime. The inquiry, which opened on October, will look at how effective the current AML legislation has been in keeping the door closed against the threat of money laundering and financial crime in the UK. It will also look at the fallout from the FinCEN (US Financial Crimes Enforcement Network) leaks which exposed $2trn of suspected money laundering activity flushing through the global banking system. One of the key outputs from the inquiry may be that the Treasury Committee uses this opportunity to put pressure on the Government to bring in new legislation, making it a criminal offence to fail to comply with AML regulations. In fact the Sixth EU Anti Money Laundering Directive (6MLD), which will be published in December, requires EU states to introduce a corporate criminal offence of failing to prevent money laundering. Of course as the UK leaves the EU on December 31 it will not form part of British law, but it is likely to add to the momentum building towards a tougher stance on AML regulation. This could mean businesses that fail to keep up with AML regulations, would face much tougher sanction and potentially criminal court proceedings in the worst cases. This would bring the UK in line with the USA where fines are much more severe. As we know, money laundering through the UK property market during the coronavirus crisis has been
on the rise. The FCA stated in its annual report that it currently has 65 active AML investigations on the go, an increase on last year. And following the FinCEN leaks the European Commission is looking at setting up its own central authority to combat the activity. So while the police and National Crime Agency in the UK are busy chasing down the shadowy figures responsible for pushing dirty money through the system, there is now more focus on harsher punishments for those who opened the door and let them in. While the majority of businesses work hard to ensure compliance with all AML regulations, there are still some which see it as a tick box exercise and employ the minimum levels of protection, or none at all. The introduction of a failure to comply offence may be a welcome move to incentivise corporates and institutions that don’t take it seriously enough, but the Government should
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also help businesses to make it easier for them to comply. Embracing the latest ID verification technology is an absolute must for all businesses affected by AML regulation, as it can now take less than five seconds to check if your customer is who they say they are. It can also be done remotely which makes it more efficient and Covid safe. In addition, if the Government was to adopt the recommendation on electronic verification in the Fifth EU Anti Money Laundering Directive, that would enable a lot of business to comply more easily. It stipulates that wherever possible, electronic verification should be used when undertaking customer Due Diligence (DD) and Know Your Customer (KYC) procedures. It is time for the UK to make this mandatory and help UK businesses keep the door closed against the scourge of money laundering and financial crime. M I
Is this the end of the empty nest? Alice Watson head of marketing and communications, Canada Life
s coronavirus continues to affect livelihoods across the country, young people – as the generation most likely to work in badly impacted industries and less likely to own their own home – have been hit particularly hard. Many families have therefore had to welcome back grown-up children to ‘wait out’ lockdown while furloughed, or to work from home while saving money. Canada Life conducted some research into this growing ‘boomerang’
trend, and found that 3.5 million children had returned to the family home. While the majority of families will most likely be happy with this change, for some it could be incredibly challenging financially. Our analysis showed that this change could add around £425 a month in living costs, while the savings available to children are much larger, averaging around £714 a month. As a result, 78% of children are able to pay their way, contributing to household costs such as rent, food and bills. However, 25% of parents are still worried about the financial implications of their children being at home. In order to welcome back their children, many parents have also embarked on substantial alterations to
their homes. For example, 31% had converted a room into a spare bedroom, while 26% bought new furniture. Almost a fifth (18%) had even given up their own bedroom, while 12% had sacrificed their home office. While the events of the last few months will have brought many families back together again, others will be just as keen to return to normality. Unfortunately for them, the impact of coronavirus is likely to be felt for much longer than anticipated. While younger generations may have had an opportunity to save during lockdown, the parents welcoming them back have been hit with financial pressures which could have a knock-on effect on their retirement income. They may seek to speak with an adviser about the financial implications, but may not consider using their property wealth. Professional advisers are able to highlight how a lifetime mortgage could be used to meet the evolving needs of today’s retirees, and help customers find the best product for their individual circumstances. M I
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High standards protect all Stuart Wilson CEO, Air Group
ack in mid-June, with little fanfare, the Financial Conduct Authority (FCA) released a review entitled, ‘The equity release sales and advice process: Key findings’. While I suspect this was in no way a definitive regulatory view of the sector, it did highlight some of the key concerns, and in a way was giving the sector time to get its house in order before it returned to review again. Five months on, and in what has without doubt been one of the strangest years the financial services sector has ever experienced, it is a good time to relook at the FCA review, and to see whether the equity release sector, and in particular advisory firms, have taken those messages on board and reacted to them, or they have merely continued to walk their own path, with all the issues that could raise in the future. POTENTIAL ISSUES
Understandably, some of the FCA’s major concerns when it came to advice to consumers surround the appropriate nature of a product recommendation when weighed against personal circumstances, the understanding that consumers had about the product they were taking out, advisory pushback against consumers’ reasons for looking at equity release, and – our old favourite – whether advisers were able to evidence that the advice they provided was suitable. Overall, equity release advice was deemed to be ‘working well for many consumers’, but the issues highlighted above were also couched in terms of COVID-19, in particular the perception that equity release is being taken up by younger borrowers and whether – in times of financial difficulty – homeowners might ‘jump’ to using
their equity when other solutions might be more viable and suitable. Here we have a concern that equity release might be both pursued, and recommended, in order to fulfil a short-term need, without consumers necessarily being aware of the longterm consequences, that other options were not being outlined sufficiently, and that it might result in a need to pay early repayment charges (ERCs) when circumstances changed. The FCA suggested that the consumer clearly had a responsibility to know at each stage what they were getting into, and what this potentially could mean, but the major focus was on whether advisers were doing enough in this area. Advisers, in a number of cases, were not personalising their advice enough for the client, there was not enough challenging of consumers, and that all-important evidence to support the advice recommendation was deemed to be lacking in some cases. Again, for those who have been active in the equity release market for many years, these are not new criticisms; indeed, they have been around for many years, but in itself that is clearly worrying. ADVISER RESPONSIBILITY
If we have advisers making these same errors time and time again, or new advisers coming into the market and working in this way, despite the sector working to educate advisers on what is required, then there is clearly something wrong with systems and processes. Indeed, one might want to check whether the firms and advisers concerned are fully aware of their own responsibilities and the service and process they should be fulfilling when it comes to offering equity release. In our sector we talk a lot about the need for excellent ‘soft skills’ when dealing with this age group of customers, but the FCA criticisms and concerns are much more focused on the ‘hard skills’.
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These are errors which should be easy to get rid of; in fact, you might argue that if the firm is following the rules as set out, these are issues which should never exist. What we will find within the equity release advice sector is that the vast majority of firms will be following these rules to the letter, and will have the most robust practices in place you could find anywhere. IMPROVING SERVICE
But clearly not all do, and I hope that over the past four to five months, firms which might be in this latter category have been doing all they can to improve the standards of advice, the recommendations they provide, the information they give to customers, and the outcomes they generate. Certainly from Air Group’s perspective, we have a range of training materials and supports in this area, plus we work with member firms to help them continue to meet not just these minimum of standards but to work at a level that much higher again. This is about safeguarding consumers, but it’s also about safeguarding advisers and firms, because the chances of this being the last word from the FCA on equity release advice is zero. Further work on the suitability of equity release advice is ongoing; those firms which have been identified as having poor practices in this area are being worked with, and both they and the entire sector must work towards having the very highest standards in terms of information taken from consumers, suitability of advice, and the evidence offered for each individual recommendation and case. The good news is that the sector can provide excellent training and support to show improvements in these and many other areas. Make sure you are working to the highest standards, to protect yourself as a firm and an adviser and ensure that the consumers you work with, and the regulator, have no cause for concern. M I www.mortgageintroducer.com
Don’t believe everything you read Andrea Rozario chief corporate officer, Bower Retirement Services
cammers and con artists.” “Barely qualified to O Level standard.” “Mugging old ladies and old men.” These are just some of the disappointing comments following on from yet another biased article on equity release. Who invented internet comments anyway? They have a lot to answer for. Comment threads seem to be the ultimate realm of trolls, naysayers and negative nellies, all given the cloak of anonymity and the platform to spew whatever babble they like. This gem followed a recent article in The Sunday Times about our industry that I had hoped would be a little more balanced than the rest. But, of course, it wasn’t. It was a little more veiled, but the sad reality remains that there is a ton of work left to do to show the lifetime mortgage layman the truth of modern equity release. Firstly, the piece fell directly into the trap of flat out ignoring house price inflation. The article correctly states that, “a £50,000 loan with an interest rate of 5% could become a debt of £104,046 over 15 years,” but fails to mention anything about what most likely happened to the value of the hypothetical house, because it doesn’t fit the narrative. In truth, over the same 15-year period it’s more than likely that the house would steadily increase in value. We all know this. In fact, even since July this year over-50s homeowners have, on average, seen a surge in their property value of a whopping £7,000. The average property owner over 50 has seen their assets double in value since the year 2000 – but this fact is rarely ever mentioned. In truth, it’s been going on too long for it to be an error. The long-
term ‘cost’ of equity release is always scrutinised, but the long-term benefit of likely house price inflation is almost always omitted. And that’s not all. In the very next paragraph, another classic is dropped in, as interest rates between our peripheral market and the mainstream mortgage arena are directly compared. Apples and oranges anyone? The article says: “Average interest rates on equity release are 4.21%, making it an expensive loan, particularly compared to the recordlow 2% average rate on residential mortgages.” MAINSTREAM COMPARISON
Correct. It is true that 4.2% is more than double 2%. But then again, one product requires immediate and frequent repayments, whereas the other does not. So, does such a comparison even have a point? I would say it does not. Plus, the piece makes precious little mention of the various product features, flexibility and safeguards available today. Next, the article turns to some expert advice. Finally, I think to myself, we are going to hear from someone in the lifetime mortgage trenches. But no. Instead of asking any one of the hundreds of experienced, qualified expert advisers practising equity release, we hear from a pensions analyst. A pensions analyst who claims he is concerned that “people are tempted into having what they want
today, [while] ignoring some of the long-term consequences.” Well, regardless of not knowing what knowledge our pensions analyst has of the safeguards, the products on offer, and the huge changes in our industry over the last few years, he seems to be suggesting that taking a lifetime mortgage is some slapdash affair used to fund Ferraris and fiestas. It is not. The process is long, well thought out, often involving many members of the family, and most people not only use the money wisely, but for many it is actually a godsend. Ultimately, I’m tired of mainstream journalism designed with comments, clicks and shares in mind. I hope to see a time when we will return to facts and balance, but we do, after all, live in the ‘post-truth’ world. So, for those of us who have chosen to defend products like equity release, the road ahead, it appears, is still long. I am still up for the journey. I know that the products and advice we offer are vital to thousands of people, so I remain positive. In fact, deep within the comment thread jungle of this article, one post stood out. “What is needed,” this internet white knight proclaimed, “is more transparency, better PR, responsible lenders and heaps of options and protection.” The truth is that, in the main, this is already the case. What is really needed is for people to understand the reality of modern day equity release – and we can make that happen. M I
The media is still vilifying the equity release industry with biased articles
NOVEMBER 2020 MORTGAGE INTRODUCER
Taking a common sense approach Claire Barker Xxxxxxxxxx managing director, xxxxxxxxxxxxxxxx, xxxxxxxxxxxxxxxx Equilaw
t is an unfortunate, yet inevitable consequence of the means by which financial markets are measured that the human impact of recession can often be downplayed or reduced to an abstract fiscal concept – something that is defined without necessarily being addressed. Yet, as COVID-19 continues to place intolerable pressure on jobs and incomes across the UK, there is a growing recognition of the debilitating effect that the pandemic has had on mental wellbeing, with research conducted by the Institute for Fiscal Studies (IFS) suggesting that overall mental health has worsened by 8.1% in the UK since the beginning of March. Young people, front-line workers and people from poor or under-privileged backgrounds are identified as being amongst the most likely to be affected by feelings of anxiety or depression. However, there is considerable evidence to suggest that older people are also disproportionately affected, with research by the Mental Health Foundation suggesting that as many as one in four over-65s suffer from depression every year, and YouGov finding that nearly half (7.7 million) of people aged 55 or over have experienced symptoms of depression or anxiety – a colossal figure. Almost 30% have cited financial worries as responsible for triggering mental health problems, with 25% saying that it is harder for older people to discuss feelings of this kind than it is for younger age groups – a reflection of the stigma that previous generations have attached to depression. In other words, this is widely experienced, but often understated or ignored – a selfperpetuating malady. This is an issue which the equity release (ER) sector will need to engage
with more meaningfully over the coming months, as depression can adversely affect both working memory and psychomotor functioning, thereby prejudicing the sufferer’s ability to make considered decisions or to deal with complex financial money matters, while damage to response inhibitions can increase a propensity to over-spend without thought of the consequences. FINANCES AND MENTAL HEALTH
If we work on the basis that financial concern represents one of the key causes of depression amongst the over-55s, then it would follow that ER advisers could be dealing with anywhere between one in four and one in two customers who are subject to mental health issues every day – possibly more if we consider national health trends since the beginning of the year, and the fact that people experiencing financial difficulties are (in theory) more likely to apply for financial products, such as ER, than those who are not. Indeed, previous research by the Financial Ombudsman Service found that up to 50% of people experiencing debt also suffer from mental health problems. This is a scenario which is likely to intensify further as the impact of COVID lays waste to pension or investment values, and the rise in redundancies exacerbates the need to provide for family members. But how can we respond as an industry? First, we can help by addressing the many complex issues that advisers encounter when uncovering evidence of vulnerability or depression among clients, as well as the urgent need for educational resources that can be used to guide assessments and promote standards of advice which are both consistent and better informed. Research by more2life found that almost 90% of advisers admit to experiencing difficulties when identifying vulnerable customers, with 75% saying that better training and practical support is needed to help recognise and deal with people whose
MORTGAGE INTRODUCER NOVEMBER 2020
issues fluctuate or assume different forms – entirely understandable. However, unless we are prepared to train advisers to meet professional standards of psychiatric healthcare, we will also need to recognise that there is only so much that they can achieve in terms of diagnosing mental health issues which are underlying or generally less visible. The only way to truly compensate for this lack is by doubling down on our commitment to personal responsibility and professional vigilance at all stages of the advisory and legal process. This means taking time to build a clearer picture of our clients’ mental states by delving deeply into their personal circumstances, and pursuing lines of enquiry that could conceivably flag up areas of concern, such as a loss of appetite or recurring sleep problems. Indeed, the Equity Release Council (ERC) has recently extended its adviser checklist to place a greater focus on vulnerability issues, and to emphasise the need for personalised, supported advice which is consistent with circumstantial requirements. It has been designed to promote a holistic approach to the advisory process which eschews a form-filling or box-ticking route, and which considers every aspect of an application (financial and otherwise) without falling prey to complacency or over-zealousness. As ever, balance is key. It would be a shame if advisers chose to prevent a client from pursuing an ER loan simply because they exhibit evidence of depression or vulnerability. In fact, as Stuart Wilson, corporate managing director of more2life, has noted, advisers risk making vulnerable people feel even more isolated if they choose to emphasise regulatory concerns at the expense of common sense. This is an area which we need to prioritise, combining both sensitivity and a rational overview. The only way that we can achieve this is by taking the necessary time and consideration to ensure that clients are accommodated and protected. M I www.mortgageintroducer.com
Time for an extension Xxxxxxxxxx Mark Snape managing director, xxxxxxxxxxxxxxxx, xxxxxxxxxxxxxxxx Broker Conveyancing
t currently feels like we are reaching ‘crunch’ time for the housing market, particularly in light of the ongoing levels of transactions and the ability – or otherwise – for industry stakeholders to get them through to completion by the end of the stamp duty holiday, at present still set for 31 March next year. We probably don’t need to be told just how busy the market is, but if you were in any doubt, then take a look at the recent statistics released by Zoopla. They suggested that approximately 418,000 properties (worth £112bn) are currently going through the sales pipeline, which is a 50% increase on this time last year. That’s an additional 140,000 transactions on 2019 – a point in time, lest we forget, when there was no pandemic, conveyancing firms’ offices were filled with staff rather than them being at home, and every single one of us was working in a ‘normal’ fashion. Not only has everything changed in 12 months, but the market is moving at a pace which hasn’t been seen for some time, and all stakeholders are having to cope with the extra work this brings with organisational and resource structures likely to be very different from the norm. In effect, the vast majority of the conveyancing profession is working from home, with no likelihood of that changing anytime soon. To say that this presents some extreme challenges is an understatement, and that’s without record levels of business to process, without worried advisers and clients wondering if they’ll be able to complete before stamp duty returns to ‘normal’, and without us anticipating no let-up in those numbers, certainly over the course of the next couple of months. www.mortgageintroducer.com
It’s perhaps no wonder that the industry as a whole is trying to take stock of this current situation, and that a large number of bodies are now urging the government to look again at the stamp duty holiday deadline. We could see thousands of transactions not completed based on the current timelines being achieved, and that is clearly going to disappoint all those who wanted to take advantage of the savings.
“Cases will continue to take longer to process and that will inevitably bring us closer and closer to the deadline” As I write this, it’s close to the end of October, and our anticipation is that November, even with the newlyannounced national lockdown, is likely to be close to a record month for instructions. The Zoopla figures mentioned above are just for sales, let alone the remortgage activity that also needs to be completed over the course of the months ahead. This is not about making excuses for the conveyancing profession, but there has to be an understanding of what is happening and the capacity that currently exists in order to be able to move forward. At present, I know that many firms are trying to bring on board more capacity to cope; however, even for those that can manage this, the likelihood is that cases will continue to take longer to process, and that will inevitably bring us closer and closer to the deadline. Earlier this month, The Society of Licensed Conveyancers (SLC), the Conveyancing Association (CA) and Bold Legal Group wrote a joint letter effectively setting out what the sector is currently dealing with, what it is attempting to do, and the demand that it is trying to fulfil. Of course, we all want large amounts of business and, in normal times, many
of the larger specialist conveyancing firms are absolutely set up to deal with these levels. But, to reiterate, this is not a normal period, and with so many members of staff working remotely, the ability to hit those ‘normal’ targets may be severely hindered. So, I can fully understand why the main players within the conveyancing sector have joined forces and are urging the government to look at the stamp duty holiday deadline with a view to potentially extending it, or perhaps allowing those already working through the system a certain amount of leeway with the deadline to ensure they do not miss out. It may well be that the government has to set a cut-off point, whereby a set number of weeks before the end of March 2021, cases with conveyancers will still be eligible for the holiday if they complete after that date. When that cut-off point might be will no doubt be the subject of much discussion. Alternatively, of course, a decision to extend the holiday by three, six or 12 months could be made. If there was an extension, I have no doubt that the housing market would continue to operate as it currently is – indeed, the government might think the boost that is currently being provided to the entire economy by these transactions is well worth moving the deadline forward in time. Activity levels could be maintained, and the entire industry would be given the extra, much-needed time to ensure that no purchaser misses out on those stamp duty savings. Of course, it is a tricky decision, not least because there will be those who believe the government is artificially inflating house prices over a longer period, or that the potential drop-off when the holiday does eventually come to an end could be significant. However, given the current situation my view is that this is a risk worth taking, and worth taking soon. The longer we leave it, the more likely we are to disappoint even more purchasers over the next few months. M I
NOVEMBER 2020 MORTGAGE INTRODUCER
Broker advice goes beyond the mortgage Karen Rodrigues sales director, ULS Technology
his year started on an optimistic note. Boris had led the Tories to victory, and the Brexit rollercoaster appeared to be reaching the end of the tracks. The housing market was picking up, and things were looking bright for all. In just a matter of weeks, we witnessed the first confirmed case of COVID-19 in the UK grow into a difficult to control and far-reaching health crisis. By March, the country was in lockdown, and eight months on we’ve come full circle and are now living with a second lockdown. The government has taken largescale, deliberate action by way of financial stimulus packages to ease the strain placed on homemovers. Lenders have implemented processes to deal with mortgage payment holidays, Bounce Back Loans have been offered to thousands of businesses, and furlough payments are still helping keep people in jobs. In a move indicative of the magnitude of the problem, the Bank of England decided to slash the base rate to 0.1% and begin pumping money into the economy, mainly via the banks, in a bid to shore up confidence. It is worth taking a moment to reflect on the fact that this is the lowest base rate in the Bank of England’s history. The stimulus schemes remain in place now, albeit in a slightly redesigned format, but the end of consequence-free car finance, personal loan and credit card payment holidays is going to pile financial pressure onto millions of households, with the average Brit having savings of just over £6,750 to call on.
According to DWP data, 12.8m households have either no savings or less than £1,500 – for these families, the end of the mortgage payment holidays presents a grave financial challenge. ADVISER SUPPORT
Where clients may be facing the reality of redundancy with just a few months’ worth of income breathing space, an enormous amount of support from mortgage advisers will be key over the next six months. From negotiating increased terms, to switching from repayment to part and part-or-interest only, to extending payment breaks, to downsizing in some cases – there are many routes borrowers might take to ease the strain in the short-term. However, they all have significant consequences down the line. Delivering sound advice is going to be absolutely critical – and as advisers know only too well, the strain of difficult realities and decisions on both clients’ and advisers’ own mental health can be immense. It is also far more likely that the solutions found will take longer to implement, and in many cases simply won’t be available. The reality is that the much called upon 2-year fixed rate remortgage simply won’t solve all these problems. While borrowers with no choices will, by default, move to their existing lender’s standard variable rate (SVR) and either make payments or fall further into arrears, for advisers there is the very real consideration of balancing the duty to help clients and the need for income. Providing hours of work for no fee is just not viable – particularly for those who have relied solely on procuration fees. Key to addressing this balance as fairly and responsibly as possible is speed. Knowing that a deal is not viable as early as possible, with as little administration as possible, is fundamental for both adviser and
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borrower. This minimises the financial loss on the broker’s part and puts the customer in the best position possible. With so many people still working remotely and strict rules in place on social distancing, key parts of the remortgaging process are taking longer than normal, lengthening the time to completion and impacting customer satisfaction. It is now that networks and authorised advisers are turning to technology to improve efficiency. We are by no means the only business focused on delivering a clear yes or no as fast as possible, but we are tried and tested. Our secure conveyancing platform, DigitalMove, has been in operation for almost two years, and it’s now six months since we introduced our Rapid Remortgage service, after piloting it with Openwork in May. Brokers are benefitting from faster transactions, but are also able to complete more of them, and I’ll eat my hat if you can find a broker who doesn’t like the sound of improved cashflow! Our Rapid Remortgage strips out all of the things that typically cause delays in processing a conveyancing instruction. The system triages the case and – where risk is standard – clients are sent a starter pack through the DigitalMove platform immediately. Once this is returned, the case is made ready for completion by the end of the following working day. More complex cases are filtered out so they can be dealt with in more detail, but the straightforward nature of most remortgage business has meant a huge improvement in turnaround times. When I say huge, that’s no exaggeration. The instructions we received on general roll-out across the market saw a big improvement. Several cases were completion-ready in less than three hours. By mid-June, the average completion was taking as little as 10 working days. Efficiency has never been more important, both for advisers and borrowers. Peace of mind comes in many guises, and when it comes to the mortgage process we all have a part to play. We’re glad to be able to be able to offer some certainty, in however small a way, at a time when uncertainty continues to dominate. M I www.mortgageintroducer.com
Learning crucial in uncertain times John Somerville head of financial services, The London Institute of Banking & Finance
s the leading provider of mortgage qualifications, we keep a close eye on the mortgage market at The London Institute of Banking & Finance, and – as I’m sure you’ll agree – this year has been like no other. At the beginning of the lockdown, it was clear that to keep the mortgage market moving successfully, three main drivers needed to come into play. First, banks’ willingness to lend had to continue. Second, 90% loanto-value (LTV) mortgages needed to become more freely available, especially to first-time buyers. Finally, we understood that in order to lend, the banks had to have – more than ever – complete confidence and belief in the valuations they were giving. At the time, of course, it was difficult to predict what government stimulus, if any, would be put in place to support the mortgage market. There’s no doubt that the stamp duty holiday and the Help to Buy scheme have helped the market, along with the pent-up demand from homebuyers who had to put their plans on hold during the lockdown. Add to that the fact that banks are well capitalised and able to lend, and it’s been easy to stay optimistic about the property market, at least for now. However, the challenge will come when the stamp duty holiday comes to an end. Demand for 90% LTVs is outstripping supply, so there’s a danger that buyers with low deposits are being excluded from getting on to the property ladder. There’s also a worry that, by the time they scrape the deposit together, the stamp duty holiday may be over. Then there’s the issue of reliable valuations. Any lender needs to be confident in a property valuation before www.mortgageintroducer.com
going ahead with a mortgage, but the problem with accurate valuations doesn’t stem from the difficulties that valuers face. Valuers have done a great job of embracing digital technology in order to view properties, and have found innovative ways round the COVID-19 restrictions so as to provide valuations. Instead, the grey area around property valuations stems from the current readjustment in the market. The pandemic and the rise in homeworking has prompted many people to reassess the reasons why they live where they live. Many have questioned why they live in a city, and some have come to the conclusion that if they don’t need to, they don’t actually want to.
“There’s never been a more urgent need to stay on top of the changes in the market. As a mortgage adviser, the chances are you find yourself doing that anyway, so it’s worth logging those hours as continuing professional development (CPD)” This is demonstrated in statistics released by the property website Rightmove in October, which noted a marked increase in buyer searches in towns and villages with populations of below 11,000. Call it a readjustment, correction or even a seesaw in the market. Either way, the property hotspots of the past will not be the hotspots in the ‘new normal’. The impact on valuations means it’s more difficult to say what a house will be worth in say Birmingham, Manchester, Sheffield or London. What’s happening in the rental market might well feed into this. Tenants in large cities may calculate that they can get on the property
ladder by moving somewhere quieter. Commuting behaviour is changing too, so the pressure is no longer placed on living near train stations and bus routes. In university towns, where whole areas have been given over to student accommodation, demand has suffered over the lockdown, with landlords having to lower rents to satisfy an increasingly tenant-friendly market. More recently, the headlines have been full of stories of students unable to attend university and being locked down as a second wave of the pandemic looms. The second nationwide lockdown will likely deliver another thump to many landlords, especially where they rely on the student market. So we’re witnessing a shift in the way people are buying properties and the way they want to live. Lifestyles are undoubtedly changing. What will the long-term effect of all that be on the housing market? Overall, I have confidence in the housing market continuing to thrive and the mortgage industry being agile in its response to ever-changing parameters and circumstances. However, this series of rapid changes in what people can and can’t do – and where they choose to live – brings with it a huge number of what-ifs and unanswerable questions. That’s why there’s never been a more urgent need to stay on top of the constant changes in the market. As a mortgage adviser, the chances are you find yourself doing that anyway, so it’s worth logging those hours as continuing professional development (CPD), where the activities you’re undertaking are eligible. You’ll find they soon stack up and you’ll be eligible for CeMAP Professional status. The lockdown was a period of self-reflection, when we came to understand the value of family, worklife balance and the environment. The future may be uncertain, but one thing we do know is that we must always continue to learn. M I
NOVEMBER 2020 MORTGAGE INTRODUCER
THE MONTH THAT WAS
THE Every month, The Outlaw draws some tongue-in-cheek parallels between society at large and a mortgage market in flux
t was Albert Camus who once dubbed November as being the “coming of the second Spring,” and how right the goalkeeping Frenchman was. Like countless Sunday league cats up and down the country, he would surely be more reliable than that show-boating imbecile Jordan Pickford, and I can’t be the only one who now reflects that the fixture-fortunate Gareth Southgate probably hit his own high-water mark in Russia three years ago. Pickford and In-Ger-Lun cannot defend for toffee. Anyway, back to Camus and November. What a clusterf**k month it is turning out to be. Video assisted refereeing continues to ruin the national sport, we are halfway through a UK lockdown, we had a predictably dysfunctional American election (see below re Trump), a long-overdue and fudged Brexit deal was almost churned out, and here in the UK we are still seeing certain lenders operating with 100% of their staff at home, whilst mortgage brokers remain exasperated with service standards across the sector. Thankfully, there are enough quality outliers within the lender fraternity to compensate for the lazy and opportunistic sofa-sitters; October was, in fact, another month when the likes of the Coventry and Accord really excelled. I just don’t get it. Lenders have had since 24 March to sort this out. It can surely not be beyond the wit
MORTGAGE INTRODUCER NOVEMBER 2020
Gareth Southgate: Clearly over-promoted © Belish / Shutterstock.com
of them to put in place some secure office spacing, and just run a two or three-day attendance rota, as OneSavings Bank and so many brokerages and other white-collar businesses have managed to? All the while, the Bank of England shoves an extra £150bn into the lending pools and the spreads on lenders’ products widen even further. Hopefully, one day soon in 2021, somebody like Robert ‘the pest’ Peston or Beth ‘the windbag’ Rigby will expose the cunning extent to which lenders have made sure not to waste a good crisis. Sadly, the BBC and the likes of the everannoying Naga Munchetty and Steph McGovern won’t rise to this challenge. Since the professional and unbiased Sian Williams left our national broadcaster, the vacuum has simply been filled with diversity-fuelled woke-ism. Anyway, I’m blue in the face with this one, so that’s my last word in anger on it. Talking of anger – or at best, consternation – why is the Financial Conduct Authority (FCA) still sat at home, when pretty much all other sections of the financial services industry are physically at work on some level? And why, amidst the poor service standards which have been clear around routine matters such as authorising or switching AR firms and individuals, has there still been no reduction in the fees paid? Are the FCA’s figureheads the kind of rudderless and anonymous mandarins that were once best characterised by the 1980s hit TV series Yes Minister? That was a bloody rhetorical question, wasn’t it? Can the reader tell that I’m already well and truly
Yes Minister: FCA decision-making exec?
Donald Trump: History may be kind
fatigued with Lockdown II? Thankfully, there’s still been a lot of good news. The 91,000 mortgage approvals in September broke records, and the month’s £5bn of net lending outstripped the £4bn per month average which we saw in the six months to February of this year. Congratulations also to the winners at the 2020 Mortgageforce Virtual Awards…where Santander, Coventry and HSBC narrowly beat a fast-finishing Accord to the podium, and to Halifax’s Nick Jury, voted most impressive national account manager. I hear that there were no raspberry awards given out, which might have been a relief for the likes of Natwest and Nationwide, which I’m told are continuing to frustrate brokers. It was also interesting to see that Metro Bank has pivoted away from the mainstream end of the spectrum and towards the more complex waters. To finish with, I’ll leave the reader with three hunches and four questions for next time. First, the hunches: both Boris and Rishi Sunak knew far more about the vaccine’s trial successes three weeks ago than they dared let on to us. They kept that information buttoned down so as to allow → NOVEMBER 2020
THE MONTH THAT WAS
a second lockdown to be imposed. Equally, Sunak’s generous reinstatement of the furlough scheme really is the last of the goodies; it secures their precious ‘blue wall’ of seats, whilst preventing them from ruining Christmas for all, or indeed adding to the economic challenge that Brexit itself will pose in the New Year. Ole Gunnar Solksjær will step aside ‘by mutual consent’ by 1 January and Pochettino will be in charge at Surreychester United. Next onto some burning questions: first, might history actually judge Trump’s policies favourably? For sure, the guy is a narcissist and a vulgar buffoon, but I for one think that his domestic economy plays will benefit Americans for five more years, and he was strong enough to stand up to each of China and the World Health Organisation, as well as European countries who were skimping on their NATO subscriptions. To lose but still get 70,000,000 votes says a great deal about what Biden may, or may not, be. Second, is LSL now looking at the potential purchase of Countrywide by Connells with gnashed teeth? You know, sometimes it’s better to just pay a fair price at the outset and get on with it, rather than playing chip-chip-away. Third, why is Sean Connery being so eulogised over? This is a man who once condoned beating his wife and offered to do anything for Scotland and his sycophant-in-chief, Alex Salmond…except of course live there. Finally, will there be any end to the constant stream of good news releases at the network Stonebridge?
MORTGAGE INTRODUCER NOVEMBER 2020
FCA offices: Anyone there?
What a fantastic organisation it’s become…I can’t wait to read next month that it’s been voted Tidiest Work Environment of the Year, or better still that the head office goldfish has outlived the previous one’s longevity and thereby smashed all internal records. Finally, I will bring us neatly back to French philosophy, and to Jean Paul Sartre and his famous words: “Only the guy who isn’t rowing has time to rock the boat.” (You’ll work that one out…and if not, Eric Cantona can lend you some sardine and trawler wisdom!) Article over. No word count needed! I’ll be seeing you. M I Sian Williams: Professional and impartial © Featureflash Photo Agency / Shutterstock.com
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SO IT CONTINUES Jessica Nangle covers the key points raised at Mortgage Introducer’s recent round-table, where the panel spoke about the stamp duty holiday and how to be collaborative in these diﬃcult times
he saga continues, as the UK is placed into another lockdown. However, the property market is expected to operate as usual, with many businesses following COVID-19 procedures and prepared for disruption. The government has extended the mortgage payment holiday that was due to end in early November, and many are calling for the stamp duty
holiday to be extended, with clarification from the government expected in the coming weeks. However, as with the first lockdown, many homebuyers’ plans to purchase property will be halted, and delays to the mortgage process is expected. Mortgage Introducer spoke to key industry figures from John Charcol, the Intermediary Mortgage Lenders Association (IMLA), LDN Finance, MCI Club, Barclays
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and Alexander Hall to discuss a potential stamp duty holiday extension, and what more the market can do to create a collaborative and productive approach in the coming months. THE STAMP DUTY HOLIDAY “What I would like to know, is what the Chancellor actually wanted to do by creating a stamp duty holiday,” asks Kate Davies, executive director of IMLA. “If it was to encourage more first-time buyers, it won’t have affected that many who were buying properties under £500,000. There would have been second-time buyers who would have benefitted, or very wealthy first-time buyers looking at properties above £500,000.” Davies points to evidence that suggests a lot of those benefitting being buy-to-let (BTL) landlords, and wonders whether this was the Chancellor’s intention. The answer to Davies’ questions may not be determined until some time after the holiday ends, when it will be possible to see which buyers benefitted the most during this time. The holiday was welcomed by the industry, but the pandemic brought numerous challenges to the fore,
“If we had more certainty with this stamp duty holiday it would probably take away some of the heat” CRAIG CALDER
most notably service levels and delays in the mortgage process. In new guidance from the government following the extension of mortgage payment deferrals by six months, borrowers have been advised not to contact lenders in an attempt to manage the influx. The stamp duty holiday stimulated demand, but as Craig Calder, director of mortgage products at Barclays says, the full effects remain to be seen. “You can only imagine what March will look like from a solicitor, valuer and lender point of view when you are trying to push those completions through,” he adds. →
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MARKET Adam Kasamun, associate director at LDNfinance, follows the same belief, arguing that although the stamp duty holiday has benefitted the market, it has not helped everyone, particularly lenders. “We’ve all seen the reduction of 90% LTV products,” he says. “We’ve seen rates go up for 85% LTV products and now almost all lenders are no longer doing fivetimes income.” Greg Cunnington, director of lender relationships and new homes at Alexander Hall, agrees, adding that despite a pick-up of pace for the homemover market, there may not have been the product availability to help those wanting to get onto the ladder for the first time. There are concerns amongst the industry that there will be a pent-up demand that needs to be serviced at
“We are going to be pushing for some sensible phasing of those deadlines [or] a number of people are going to be cut off through no fault of their own” KATE DAVIES
that time, which may cause problems and, Calder says, will create a bottleneck in March due to the deadlines for both Help to Buy and the stamp duty holiday, so expectations will need to be managed. WHAT HAPPENS NEXT? Some within the industry are predicting what could happen to the market as the stamp duty holiday deadline approaches, by comparing similar stamp duty deadlines from the past. However, these are unprecedented times, and anything could happen. “It depends on the landscape next March,” Cunnington says. “If things look as they do right now, we will see a rush in completions and a much-softened market from Q2 onwards. “But you have to wonder, will lenders’ capacity for service and risk be in a different place?” Cunnington points to the possibility of more high LTV options, particularly considering that it was recently suggested that the government will look to implement high LTV guaranteed mortgages.
Craig Calder asks what the ‘new norm’ might be, following six months of abnormality, and looks at whether we may see a more stable picture next April. “If we had more certainty with this stamp duty holiday, it would probably take away some of the heat that is there now,” he adds. “There will definitely be a drop off, but it will probably be what the market should look like at that time of year.” Davies highlights that March does not just bring with it the stamp duty holiday deadline, but also the end of Help to Buy. “We are going to be pushing for some sensible phasing of those deadlines,” she says. “If it continues to be 31 March, a number of people are going to be cut off unkindly, through no fault of their own. “They either won’t get the stamp duty relief that they expected, and undoubtedly factored into the price they offered for the property, or [will not benefit from] Help to Buy if a COVID-related or other accident meant that they couldn’t complete by that deadline.” Davies calls for pragmatism and compassion with regards to the deadlines, and recommends an alternative to Help to Buy, and more high LTV products coming back into the market. Calder cites Zoopla’s House Price Index, published in October, which found that it has reached 100 working days to complete, from the ‘for sale’ sign being erected to a property changing hands. However, the picture is not negative for everyone, says Ray Boulger, senior mortgage technical manager at John Charcol. He explains: “What we need to remember is that the figures we are looking at are averages. “There will be some people who can buy a property, put in an offer next month, have a short chain and not have too much problem completing. There will be others where the situation is different.” Boulger adds that brokers need to converse with their clients about how long the completion chain is, and the associated risks. HOUSE PRICES Industry opinion on whether the stamp duty holiday deadline will have an impact on house prices is mixed, but Boulger’s prediction is that prices will rise by 7% at the end of the year. “I think there will be a fall in prices after April, because once you remove a product from the market that is bound to have an impact in terms of the level of activity, but also when it comes to pricing,” he adds.
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MORTGAGE INTRODUCER NOVEMBER 2020
MARKET Recent data by Nationwide shows a non-seasonally adjusted rise of around 5% in the year to date which, like Boulger, many commentators are expecting to continue growing until the end of the year, followed by a drop in March. A sustained low interest rate environment would also keep long-term rates low for even longer, Boulger argues, which will have a positive impact on affordability. This point comes as some lenders are considering bringing long-term fixed rates to the market, which may not require stress-testing. With both Help to Buy and the stamp duty holiday set to end in March 2021, the industry is thinking of ways to fill the gap to prevent a bottleneck. “We’d be looking to tweak criteria to get people to move,” says Melanie Spencer, head of MCI Club. “Perhaps for self-employed cases, you could use one year’s worth of accounts instead of two, for example. It is certain criteria pieces that are going to help move the market.” Calder agrees, pointing out that the two years’ worth of accounts used for self-employed borrowers may now be problematic. “How many people have been taking advantage of the self-employed furlough scheme?” he asks. “It makes those accounts almost redundant.” In the midst of the pandemic, loan-to-income ratios have increasingly become a point of concern, with algorithms showing a growing disparity between income and house prices as unemployment figures rise and many continue working on a reduced income. “If you look at earnings to house price indexes in London and the South East in particular, you are up to double digits” says Cunnington. “House prices are up 7% this year, but earnings certainly haven’t done that – they have been flat if people are lucky. It’s only getting harder.”
“Times are difficult at the moment, so setting and managing expectations from the outset will be key over the next few months” ADAM KASAMUN
“House prices are up 7% this year but earnings certainly haven’t done that – they have been flat if people are lucky. It’s only getting harder” GREG CUNNINGTON
There are calls to investigate current regulation, which is viewed as unsuitable in these unprecedented times, despite its good intentions, particularly as the low interest rate environment looks set to stay. The goal is to help more people onto the housing ladder, so many agree that something implemented to help lenders stay targeted and sophisticated with their affordability calculations would be welcomed. “The onus is on the lenders to be imaginative to help market recovery,” says Adam Kasamun at LDN Finance. A COLLECTIVE EFFORT As another national lockdown looms until December, businesses are looking at new ways to create an inclusive and collaborative working environment whilst remote working continues. “Coping with increased demand whilst people are working from home has been a big challenge according to a recent IMLA member survey,” says Davies. “It is about making life easier. This can be done by working with intermediaries, and there are a lot of lenders showing appreciation in responses to our survey. “There also needs to be liaison with business development managers [BDMs] where possible, but vice versa there is a lot that can be done by lenders that can help intermediaries, also.” From a broker’s perspective, Spencer says that there needs to be an increased dialogue between the broker and the lender. “Are we missing a trick on what lenders are offering? Do we understand what lenders need?” she asks. “I think now more than ever, the BDM role is so important in order to connect with those brokers. BDM support is going to be key.” Calder agrees, saying that BDMs have worked tirelessly over the past six months and the stress that comes with it is not felt alone. →
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“There will be some who can buy a property, put in an oﬀer and have a short chain. There will be others where the situation is diﬀerent” RAY BOULGER
“Everyone is stressed,” he says. “I think as lenders we can always do better, but one thing we are looking at is how much chasing is going on with a case, even when it is within service standards.” In a time when pressure is felt across the board, Calder emphasises the need to have patience throughout the end-to-end chain, and to set customer expectations from the outset. “Being more communicative is key,” says Kasamun. “Times are diﬃcult at the moment, so setting and managing expectations from the outset will be key over the next few months.” COMMUNITY SPIRIT As remote working is set to continue until 2021 for some businesses within the sector, and there are many questionmarks over when oﬃce-working will resume once again, the industry is coming together to find new ways to ensure staff and colleagues feel part of a team and remain productive. “There is a lot of thought going into how businesses can implement a Friday afternoon phone call, or how they can do a team meeting differently,” says Calder. “For us, we are very cognisant of mental health with our colleagues, and we are making allowances for brokers who are getting increasingly frustrated. That collaboration and expectation setting is so important.” Boulger, meanwhile, sets out a difference between lenders and brokers when it comes to their usual working environments. “From a lender perspective, practically all of the staff apart from BDMs will have been permanently working from the oﬃce,” he says. “Whereas in the broker environment, particularly where there are a lot of self-employed people, there will be a number of brokers who have been working either wholly or partly from home.
“That does mean that brokers may have a bit more experience in terms of managing staff who are working from home, which will be helpful.” If remote working is likely to remain the norm on a long-term basis, Boulger says companies need to ensure that the facilities their staff have at home are suitable. “For example, a business might spend money on giving their staff a decent chair to use whilst they are working,” he says. “It is little things like that, that make a big difference.” Spencer confirms that she and her colleagues will be working from home until April 2021. “MCI Club has been working to ensure we all have suitable working spaces,” she says. “But one thing that is being asked across the business is ‘have you got your camera switched on?’ So many people are trying to hide behind cameras, and maybe it is because they feel lonely, but I think having a camera on is so important so we can keep the face-to-face contact... even if it is via Zoom!” With the second lockdown, it appears the saga will continue for the forseeable. The housing market remains open, but deadlines in March 2021 remain unchanged, which could create problems in Q1. Despite this, businesses are trying alternative methods and staying optimistic, with collaboration, communication and community all more important than ever before. Many will look back at this crisis with lessons learnt and experience gained, amd with a growing sense of positivity; the mortgage market collectively hopes that this will provide strength and opportunity for the coming months, and on until the pandemic is over. Even though these times will continue, it is yet to damage the strength and positivity the mortgage market is showing. Long may it continue as the uncertain times persist. M I
“I think now more than ever, the BDM role is so important in order to connect with brokers. BDM support is going to be key” MELANIE SPENCER
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S WITHIN REACH
Natalie Thomas looks at what is out there to help higher LTV buyers during the ongoing COVID-19 crisis â†’
rime Minister Boris Johnson recently hit the headlines for something other than COVID-19 or Brexit – the promise of 95% loan-to-value (LTV) mortgages. While the concept of a 5% deposit is nothing new, the Prime Minister’s assurance of turning ‘Generation Rent’ into ‘Generation Buy’ at the recent Conservative Party Conference comes at a time when high LTV mortgages are verging on extinction. Just 12 deals at 95% LTV were available in October, and 51 at 90% LTV, according to Moneyfacts. This is in stark contrast to March this year, when there were 391 deals at 95% LTV and 779 at 90%. For brokers and their clients, acquiring a high LTV deal has become akin to securing a front row concert ticket, with many mortgage lenders starting to offer sales of high LTV deals for a limited time only. So, is there an answer to what is quickly becoming a crisis for first-time buyers? WHY THE CAUTION? Although frustrating, it is perhaps not surprising mortgage lenders are shunning the high LTV market at present. Alan Cleary, group managing director of mortgages at OneSavings Bank, says: “All of the indicators that lenders use to think about credit risk currently have red lights showing: unemployment, gross domestic product [GDP], the potential of rising arrears and the general economic environment. It is not conducive to taking on extra risk.” He unfortunately thinks the current lack of high LTV lending is here to stay. “Lenders will be looking to retrench and take less risk – right now, banks across the globe are stacking up provisions for bad debts that they think could come down the line,” Cleary warns. “All lenders are looking at where house prices are heading, with predictions they could fall by 15%. “Whether a bank or a building society, lenders are commercial enterprises and can’t afford to take losses more than they have to.” When it comes to high LTV lending, the challenges are two-fold. Cleary explains: “The Prudential Regulation Authority [PRA] – the Bank of England – looks at lenders’ prudential and credit risk, as well as capital management, while the Financial Conduct Authority [FCA] assesses lenders’ conduct risk. “Even if the government says ‘95% LTV lending, go for it’, lenders still might say ‘hold on, house prices are forecast to come down, where is that going to leave borrowers?’.” Paul Broadhead, head of mortgages and housing at the Building Societies Association (BSA), says lending responsibly is a key focus for building societies, but that in uncertain markets, the risk of negative equity is heightened.
MORTGAGE INTRODUCER NOVEMBER 2020
Careful consideration is needed when lending at high LTVs Patrick Bamford business development director, AmTrust Mortgage & Credit
here’s no doubting that one of, if not the biggest challenge for would-be homeowners is saving enough for a deposit. Clearly if there are more 90% or 95% loan-to-value (LTV) mortgages and the borrower can meet the affordability criteria, then they will have a better chance of purchasing a property earlier. However, this is a complicated market – made even more so by COVID-19 and the uncertainty about how the economy and the housing market might play out in the near future. There are many aspects to lending at high LTV levels that lenders have to take into careful consideration. There are regulatory and prudential considerations, which came about as a result of the Mortgage Market Review (MMR) around the stress-testing of affordability, the soft cap on lending over 4.5 times income, and the requirements to hold more capital on mortgages over 85% LTV. These will dampen down any lender’s appetite to offer higher LTV loans, and when you add in the current situation with the impact of COVID-19 on the economy, and especially jobs, and the uncertainty around what might happen to house prices in the future, you can understand why lenders are being ultra-cautious. Indeed, you might suggest that lenders’ current stance is the very epitome of responsible lending. The government would effectively be asking lenders to take on more risk by offering high LTV mortgages, and by doing that they could leave both the borrower and the government’s money exposed. That said, there are ways to mitigate the risk involved – through taking private mortgage insurance – and be able to up the level of high LTV lending and keep rates competitive as well. We have to understand that the housing market needs new blood in order to keep on functioning. When Boris Johnson made his announcement, I initially thought he would be seeking to replicate the Help to Buy Mortgage Guarantee scheme, but that seems unlikely now, given the talk of 30-year, long-term fixed-rate mortgages with a government guarantee. The Help to Buy Mortgage Guarantee scheme certainly helped generate more activity in the high LTV space, and it also ensured greater levels of competition amongst lenders, not just those who were involved in the scheme. The view I’ve been getting from lenders, however, is that they wouldn’t want to be involved in a repeat of the guarantee scheme anyway, given that it was pretty inflexible and expensive. There is also something to be said about whether this new scheme is the best use of taxpayers’ money. I think we as an industry are conscious that there might be many more deserving cases at the moment, even within the housing market. What about those who can’t move because their cladding has not passed the requisite tests, or those stuck in leasehold houses with onerous terms that can’t sell or even refinance? I acknowledge the difficulty first-time buyers can have in getting on the ladder, but this type of scheme can also look like it’s driving demand when the real problem is increasing the supply of affordable homes. There is a strong argument to suggest the money might be better spent on doing just that. MI
FIRST-TIME BUYERS “Nobody yet knows where the market will settle once the stamp duty holiday comes to an end in March next year,” he says. “From a regulatory perspective it is also necessary to hold more capital against high LTV loans as they are deemed to be at a higher risk.” The mortgage market may currently be seeing increased levels of applications, but it is very much a tale of two halves. Zoopla’s September House Price Index shows first-time buyers have been the largest buyer demographic over the past 10 years, but this is now shifting to existing homeowners – due largely to a lack of high LTV products. So, is the government able to reignite the first-time buyer market? DOES BORIS HAVE THE ANSWER? Little is yet known about the who, what and where of Johnson’s new scheme. His pledge to create two million more owneroccupiers sounds appealing, but so far he hasn’t clarified the specifics. It is, however, widely believed that it may involve some form of 10-year fixed mortgage, alongside a government-backed guarantee and a possible easing of the current stress tests. None of the UK mortgage trade bodies appear to have been approached thus far about the scheme, which suggests it will not be a quick fix. “We are yet to see any detail behind the Prime Minister’s comments on 95% LTV long-term fixedrate loans,” says Broadhead, adding that consumer demand for this type of mortgage has been relatively low in the past. Kate Davies, executive director of the Intermediary Mortgage Lenders Association (IMLA), says: “We have consistently made the point to the Bank of England, Treasury and FCA that a combination of stricter lending rules and the additional 3% stress test on borrower affordability mandated by the Financial Policy Committee have acted as formidable barriers to first-time buyers. Until now, there has been no indication of any plans to ease these restrictions. “These latest announcements regarding new longterm, high LTV products are therefore somewhat surprising. While the current administration remains intent on withdrawing the Help to Buy scheme in 2023, any replacement which relies on support from government will need to be introduced with the full knowledge and input of mortgage lenders. “As yet, we are not aware of any detailed discussions having taken place with lenders or other stakeholders in the mortgage market, and we look forward to serious discussions as to how Downing Street’s promises can be translated into real action.” The potential new scheme has echoes of the government’s Help to Buy Mortgage Guarantee, which ended in 2016. It involved the government providing a guarantee to mortgage lenders for up to 15% of the mortgage loan, meaning borrowers with www.mortgageintroducer.com
just a 5% deposit could access 95% LTV deals, with less risk to lenders. Cleary says that he has in the past been a big supporter of government schemes which help firsttime buyers and other homemovers, but warns that they are not always a magic wand, warning that the devil is in the details. He adds that the government will need to make the scheme appealing to lenders if it wants them to sign up. He says: “At Precise Mortgages, we have always backed government schemes and tried to bring out products that support them. “Lenders still have to worry about risk and the capital we deploy to those mortgages.”
“So, can the government reignite the first-time buyer market? Little is yet known about the who, what and where of Johnson’s new scheme” Speaking about a hypothetical 100% LTV mortgage, Cleary says: “If the borrower were to take the first 5% loss through the scheme and the government take the next 20%, bringing the lender down to 75% LTV, that will get lenders interested.” In terms of the amount of capital lenders need to put down, Cleary says it can become onerous for anything at 80% LTV or above. “If the government were to say it would only take losses to 90% LTV, we wouldn’t be rushing to enter into that, because 90% LTV lending still has very significant capital requirements, and if the market is predicting a 15% downturn in house prices – that could potentially leave a borrower in negative equity very quickly,” he warns. ANOTHER WAY? When it comes to the government helping first-time buyers, many in the industry question why it needs to go back to the drawing board, given that it already has the template for a number of successful schemes. “The Help to Buy Mortgage Guarantee scheme encouraged a number of banks back into the higher LTV market after the financial crisis, and a number would like to see that scheme reintroduced,” says Broadhead. Cleary also questions why the government plans on scrapping the Help to Buy Equity Loan scheme in 2023. “We are about to throw away the Help to Buy Equity Loan scheme, which has been hugely successful over the last several years and done what is was designed to do: stimulate house building and get those onto the housing ladder who otherwise would have found it difficult,” he says. → NOVEMBER 2020 MORTGAGE INTRODUCER
FIRST-TIME BUYERS “I’m not sure why it needs replacing – it was always much more successful than the Mortgage Guarantee and there is the potential to build on the existing scheme,” he adds. Alongside the Help to Buy Equity Loan, there are also the government’s Shared Ownership and Right to Buy schemes, as well as the reality of lenders taking it on themselves to find innovative solutions. Broadhead says: “There are creative schemes in the sector that help first-time buyers through guarantors or parental deposits and these have proven popular.” The Tipton & Coseley Building Society, for example, offers a 100% LTV family assisted mortgage. This allows first-time buyers to loan up to 100% LTV if parents either accept a 20% charge on their own property, or put 20% of the amount the applicant is looking to borrow into a savings account. Research from Legal & General Mortgage Club shows the ‘Bank of Mum and Dad’ (BOMAD) supports
just over one in two (56%) home purchases for those under 35. Parental input, alongside the Help to Buy schemes, has certainly kept the first-time buyer market flowing over the last decade, but many still argue that the only real step forward is to get to the crux of the problem: namely, a lack of house building. Kevin Roberts, director of Legal & General Mortgage Club, says: “Initiatives like Help to Buy offer a solution for many first-time buyers by alleviating deposit requirements. However, with changes to the scheme coming in March 2021, we also need government to support other ways for people to join the housing ladder. The root of the problem is often finding suitable and affordable properties to buy. “Delivering thousands of new homes each year, not just for first-time buyers but for growing families and those wanting to downsize in later life, is key to creating a fairer housing market in the future.” Broadhead is of a similar opinion, saying: “Increasing
“Extra housing alone will still need to be accompanied by high LTV mortgages however, if more renters are to achieve their dream of homeownership” MORTGAGE INTRODUCER NOVEMBER 2020
The market needs flexible solutions for first-time buyers Jon Cooper head of mortgage distribution, Aldermore
here is much that first-time buyers need to unpack right now, as they see the housing market rapidly adjust to the pandemic, making a confusing process even tougher. Our recent First Time Buyer Index, a survey of 1,000 prospective new buyers, found that 87% are finding the process difficult, while two-fifths say it is harder than before lockdown. What is eye-opening is that half are now delaying plans by an average of 11 months. The initial costs of getting on the ladder can be a real barrier; our index shows that a quarter believe raising a deposit is the biggest obstacle, so the government is right to look at this area. But many say property prices, finding a property, mortgage affordability and economic uncertainty are also key issues they are struggling to overcome. Developments such as the introduction of stamp duty relief and the government exploring potential high LTV options are encouraging to see. However, this generation of first-time buyers is more diverse than before, facing larger challenges, and working through a home buying journey that is more complicated than ever. There will be no one-size-fits-all solution to their challenges. The wider economic recovery through job retention after the furlough scheme ends, and continued help for businesses, will be the real determining factors for how the housing market performs this year and next. First-time buyers will – first and foremost – need job security if they are to feel confident in realising their homeowner plans. Given that many are saying they see delays in their timelines, a starter for 10 for the government may be to review the hard deadline for stamp duty relief. Those stuck in a chain or facing pandemic-related delays, through no fault of their own, may well miss the 31 March deadline. The Help to Buy schemes aided a good proportion of first-time buyers, but never dominated the market. An extension of the current schemes or introduction of a new mortgage guarantee-style high LTV option would be welcome, but may not provide a solution for all. Many lenders recently withdrew high LTV products, in part because of the need to reallocate staff to assisting existing customers with payment break enquiries, which has caused capacity issues when it comes to handling new mortgage loans. With the payment break period coming to an end, it is likely we will see high LTV offerings coming back into the market in late-2020 and early 2021. This will likely help ease the lack of options, even without government intervention. At this time of uncertainty, what first-time buyers will need most is guidance. This is where brokers can be an important factor in the sector’s recovery. Our survey shows that 91% of prospective first-time buyers found broker advice useful – an overwhelmingly positive response. However, only 14% have seen a broker at this point, which means a huge majority are missing out on advice that would ease the process for them. Lenders need to recommend brokers to new buyers, no matter how early they are in the process. Brokers’ whole-of-market knowledge and duty of care to ensure borrowers have sufficient life protection will be vital in ensuring new buyers understand the complicated processes involved, and get options suited to their individual circumstances.
demand without also increasing supply will raise house prices, so it is important that government continues to focus on the right supply of properties in the areas that need it. “A balanced and active housing market is in the interests of home buyers and lenders alike.” Polly Neate, chief executive of Shelter, would like to see the government focus on increasing the supply of social housing. “Average house prices are now eight times the average salary in England, meaning most people cannot afford to take on a 95% LTV loan,” she says. “Many of those who’ve seen their incomes decimated during this pandemic are young people and families in desperate need of a stable home – buying is just not an option for them. “You have to question whether the Prime Minister is in touch with reality. He is talking about giant mortgages at a time when more than 320,000 private renters have fallen behind on their rent as a result of COVID-19. Offering up huge loans and even more debt is the wrong answer to the much bigger problem of rising housing insecurity in this country. “The Prime Minister needs to stop selling pipedreams and start facing reality. The only way we will make a dent in the housing emergency is by increasing the number of secure and genuinely affordable homes, and that means building decent social housing.” To this end, the government has pledged to build up to 180,000 new homes between 2021 and 2026 through its Affordable Housing Programme. There is also the First Homes Scheme, which will enable local first-time buyers and key workers to purchase a home at a 30% discount. The scheme is expected to start next year but the details are still being finalised. NO EASY ANSWER Extra housing alone will still need to be accompanied by high LTV mortgages, however, if more renters are to achieve their dream of homeownership – neither of which, it seems, will happen overnight. Lenders alone cannot take on the additional risk of high LTV loans in the current market, and there is also an argument to say they should not do so, given the uncertainty around the economy. Without immediate and sufficient action from government, the housing market risks stalling. “We need first-time buyers so that the second-time and existing homeowners can sell their house or their flat and move to the next place,” says Cleary. “If one part of the chain disappears, it creates a roadblock to the entire housing market.” It is clear that any potential new high LTV scheme or housing project needs to happen sooner, rather than later, so we must hope that the calls of the industry and trade bodies are not falling on deaf ears. M I NOVEMBER 2020 MORTGAGE INTRODUCER
Optimum output Loan Introducer catches up with Simon Mules, commercial director at Optimum Credit, to discuss the challenges of growing market share under the shadow of COVID-19 Your parent company Pepper Money recently
completed two securitisations totalling £629m. How will this benefit your business? As a non-bank lender, successful transactions in the wholesale markets provide a solid foundation on which we can grow our lending volumes, so it’s very positive for our brokers and their customers. It’s particularly pleasing given the unprecedented environment we have lived through in the last six months, and it’s reassuring that there continues to be such strong investor demand for high-quality assets. How are you finding demand after the relaunch of your products? We made a number of big changes to our range at the end of September. We announced reductions across our entire pricing model and reintroduced options for variable rate, discounted rate and interest-only products. We also relaunched our near prime range for customers whose credit profiles fall just outside of our prime rates, and increased our maximum loan size to £1m. In addition, we returned a lot of criteria to the preCOVID position. We are now able to accept up to 50% of variable income including bonus, overtime and commission, and we have lifted restrictions on previous defaults, County Court Judgments (CCJs) and payday loans. These changes were a statement of our intent to grow our lending volumes, and I’m happy to say that we have already seen significant demand. What type of demand are you seeing? The mix of uses for second charge borrowing has remained fairly consistent. Home improvements are proving popular and debt consolidation can be useful when people want to reduce their monthly
MORTGAGE INTRODUCER NOVEMBER 2020
outgoings. The biggest shift in demand has probably been from those customers who might ordinarily have opted for a capital raise remortgage, but have struggled to secure the loan-to-value (LTV) they need in the first charge market. You are known for your specialist approach. Has it become trickier to assess clients’ affordability? Our model is based on individual customer underwriting and pricing, which means we are well equipped to deal with a situation like this, where many people’s circumstances have become more complex. There are more factors to consider, of course, as a result of COVID-19, but we have not had to deviate from our normal approach to build in the extra layers that are required in order to make a robust decision in the current environment. Has the second charge sector suffered in the same way as the first charge market, in terms of product withdrawals and service issues? No. The real surge in demand in the first charge market has been driven by purchase activity, which has been super-charged by the stamp suty holiday. So, while we still face some challenges in the second charge market when it comes to valuations and facilitating social distancing, the impact has been much less severe. For those customers who want to capital raise, second charge lending presents a very good option, particularly in the current environment. Brokers and lenders in the second charge domain have always adapted to changes in the market – whatever the cause – and I remain optimistic about the long-term prospects for the market. Things will remain uncertain for the foreseeable future and every lender will need to tread carefully, but I’m confident we will get over the immediate hurdles and emerge stronger for it. www.mortgageintroducer.com
Have first charge brokers forgotten about seconds amid such high demand? It’s difficult to talk on behalf of intermediaries, but research carried out by Brightstar Financial recently found that 74% of brokers don’t talk to their clients about second charges at any stage during their mortgage product lifecycle. So there’s a huge number of brokers who have a great opportunity to boost their business levels and benefit their customers by getting more involved in the market. I think we need to see more brokers engaging with the second charge market. There’s a good chance that purchase activity will drop off as we move into next year, but we’d expect to see continued demand for capital raising. Opportunities to do this in the first charge market may remain limited if lenders continue to restrict their appetite at higher LTVs, so second charge lending could be a really important tool for brokers.
NOVEMBER 2020 MORTGAGE INTRODUCER
The second charge revival Tony Marshall Xxxxxxxxxx managing director, xxxxxxxxxxxxxxxx, xxxxxxxxxxxxxxxx Equifinance
o say that this has been a testing period for the second charge sector, as well as the whole lending market, would be an understatement. The initial lockdown resulted in valuers being unable to attend property valuations, the virtual shut down of the Scottish land registry, customers being allowed to defer payments on all secured lending for three to six months, the uncertainty regarding going back to work for employees on the furlough scheme, and the additional concerns regarding those industries that appear to be vulnerable. BACK WITH CERTAINTY
All these issues created an uncertain environment, which resulted in a curtailment of lending for many. For us, it meant the complete removal of our products from the market, given that we were unable to make credit decisions with any degree of certainty. Having met that challenge – and with the payment deferral scheme drawing to a close, valuers able to go about their work again, and an overlay to our underwriting criteria to mitigate the perceived risks in the new environment – we are back. The main difference between the first and second charge sectors is that the former has recovered – a feat which the second charge sector has not yet matched. With property purchase a dominant force since the end of the first lockdown, helped by the stamp duty holiday, second charge loans have taken a back seat in the everyday considerations of mortgage brokers. However, it is time to reset and remind the intermediary sector just why a second charge mortgage provides such a strong option for capital raising customers.
As new purchases continue to grow, and overburdened first charge lenders and conveyancers try to cope with the flood, there are likely to be many disappointed buyers who don’t complete in time for the end of March stamp duty deadline. These buyers are likely to look instead at refurbishing their existing properties, and those whose hopes of a remortgage seem unlikely to happen for a while because of the delays will start to look for alternative funding. Advisers should be aware that a second charge solution is within their grasp. COMPLETE UNDERSTANDING
The key determinant in any situation involving client advice is not to prejudge the solution until there is a complete understanding of the client’s circumstances. While both remortgage and second charge options do provide the funding required, the question that should be asked is whether the choice is actually the best one for the client. Each method has its merits and it is vital – as second and first charge have become effectively the same thing, as far as regulation is concerned – that advisers can discern where one method is more appropriate than the other. It is also vital, now more than ever, that customers have all the facts regarding potential methods of funding procurement. The acid test is not about what the adviser is comfortable recommending, but that the final
advice – whether for a remortgage or second charge – is led by the evidence collected at the factfind stage. For those of you who might be new to second charge lending, please consider the following typical examples of when a second charge may be a more viable option to a remortgage. When your client: is already on a competitive mortgage rate is tied into their mortgage with heavy redemption penalties has an interest-only mortgage and further borrowing is restricted by the first charge lender has a credit status that has changed since their mortgage application needs early settlement flexibility needs to raise capital for a nontraditional purpose is unable to obtain a remortgage or further advance requires speed of funding due to automated valuations has experienced a recent change in their employment Of course these are just pointers, but understanding when a second charge loan is the more appropriate choice is a crucial skill. Second charge mortgages provide a vital alternative for capital raising customers, and as a lender which has developed its business through the intermediary channel, we are keen to remind brokers of its many virtues. L I
Second charge mortgages provide a vital alternative for customers
MORTGAGE INTRODUCER NOVEMBER 2020
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Navigating the storm with asset finance A CHALLENGING FORECAST
Jon Maycock commercial director, Propel Finance
ith little clarity on the future trading environment for UK businesses due to the ill-fated conjunction of COVID-19 and negotiations over Brexit, one thing that is crystal clear is the need for organisations to keep moving forward in order to avoid getting caught up in the storm. As we near the end of an extraordinary year, significant challenges remain for business as redundancies are expected to continue rising, and the very real threat of a ‘no deal’ and further lockdowns lingers on. Perhaps the wisest move during times like these is avoiding the temptation to stand still and freeze any new investment out of a sense of alarm. Some of the world’s greatest business leaders, including former Intel CEO Paul Otellini, expound an understanding that investing more during recessionary times is the right response for organisations. The thinking here is that recessions come and go, and companies must be in the best position when both confidence and people’s ability to buy new products rebound. So instead of hunkering down, organisations should be looking to equip for the future with newer, more efficient and productive assets in preparation for a time coming soon when demand is bound to rise again. By utilising alternative finance methods such as asset finance, businesses can benefit from greater flexibility, allowing them to spread the cost of equipment purchases over time, rather than having to use precious cash or short-term liquidity.
There is no escaping the impact that the pandemic is continuing to have on the UK economy, which is even higher up on the list of business owners’ current concerns than the uncertainty around Brexit. Almost half (48%) of British small to medium enterprises (SMEs) say a second wave of COVID-19 and the impact of regional and national lockdowns is the number one concern for their company over the next year, compared with just 24% for whom Brexit is the greatest fear, according to a recent survey by Nucleus Commercial Finance. While revealing that 28% of SMEs are worried about how their business will survive reduced consumer spending due to a lack of financial confidence, the survey also found that a quarter are anxious about their ability to recover from the impact of the pandemic. Despite this, however, there is some cause for optimism. Although substantial worries remain around COVID-19 and the UK trade negotiations, according to the latest Make UK research there has been an increase in the share of manufacturers now operating at their pre-COVID levels – rising from 17.8% to 24.3%. With businesses regaining some level of stability, they will need to start considering what steps to take next, to ensure they are in the strongest possible position to move forward. Some original thinking may be necessary to ensure a bright future lies ahead. GROWTH IN A CHALLENGING CLIMATE
Staying competitive in this new business and economic environment may require a change of practices; the most popular business growth strategy of 2020 is the ‘pandemic pivot’. A great example of this was achieved by Sainsbury’s,
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which pivoted to cloud technology to quickly scale up its overloaded delivery service. This successful change in business model is set to pay dividends well beyond the pandemic. When questioning existing business models, organisations should frame this as a positive opportunity to make changes, such as harnessing the power of asset finance to upgrade technology and accelerate digitisation to meet the changing requirements of customers and new markets. Asset finance enables organisations to gain immediate access to the most efficient equipment, plant and machinery and vehicles available to help them realise their opportunities for growth. By spreading the cost over a period of time in return for regular payments, organisations gain the advantages of using assets that match their business needs precisely, without tying up valuable capital or compromising on quality or results. A wide range of businesses are able to access asset finance, including limited companies, PLCs, sole traders and partnerships. With asset refinance, a finance company purchases the organisation’s existing equipment, plant and machinery or vehicles for an agreed value and then finances these assets back to them for a fixed monthly payment. This enables organisations to continue to use the assets, while generating additional cash. FLEXIBLE FINANCE, BRIGHTER FUTURE
Throughout the perfect storm that UK SMEs find themselves navigating, they have managed to show considerable resilience. There is no reason why they can’t continue to do so as we move towards a new year, when hopefully the storm will start to pass. Whatever the future may be, asset finance has a vital part to play in helping Britain’s businesses and supporting them in achieving their goals. By capitalising on the advantages of a relationship-based funding approach, asset financiers can support small companies to boost efficiency, improve performance and secure the ongoing viability of their enterprise. M I www.mortgageintroducer.com
SPECIALIST FINANCE INTRODUCER INTERVIEW
How can we do it better? Brian Rubins executive chairman, Alternative Bridging
very survey has confirmed that introducers’ number one requirement is certainty and speed of delivery – in one word: service. Competitive interest rates and loan-to-values (LTVs) follow immediately behind, but are of little value if a deal is lost due to delay. But service is a two-way street, particularly if the traffic is to move smoothly and swiftly. Introducers and lenders must establish a partnership, supporting each other and being transparent, so delays or last minute changes to terms will not happen. Nothing speeds the process faster than introducers providing the lender
with accurate, detailed information. Tempting though it is to forward the client’s email asking “can you do this?”, and while it may be sufficient for ascertaining if the loan is of interest so that the enquiry can be fleshed out with a telephone call, for processing to be efficient, the lender needs detail. Old fashioned it may be – and certainly time consuming – but ensuring that the application form is fully completed will save weeks and keep the application on the right track. It looks like a lot of work, and is all that detail necessary? Yes to both points, but it is worthwhile. If the client does not have all the information at their fingertips, help them to find it. How can the valuer be instructed if all the lender has is the address of the property? If it is leasehold, the unexpired term and the ground rent will materially affect the value, or if it is for development finance the conditions
in the planning permission need to be known. Without detail, valuation and legal fee quotes cannot be accurate. If brokers can anticipate what is needed, great. If not, the lender will set out what is needed. Do not question the role of the lender’s compliance officer (CO); they play an essential part for the good of the industry. As the CO carries huge personal responsibility for regulated loans, you do need to answer the questions accurately. It is the way to get the job done, even if you think the questions unnecessary. Finally, be open and frank, and do not respond with what you believe the lender wishes to hear – like you, experienced lenders are intelligent people and can see through the fog. Bridging loans are, by their very nature, usually wanted urgently. Working hand-in-hand with the lender, introducers help make it happen. M I
Bridge-to-let: Developer control Barry Searle managing director of mortgages, Castle Trust Bank
n October, the Rightmove House Price Index reported a new national record for asking prices on properties coming to market. Prices reached an average of £323,500, nearly £17,000 higher than last year – an annual rise of 5.5%, the biggest rate of increase for more than four years. Rightmove has forecast annual growth to peak at around 7% in December. So, what happens next year? The property market is firing on all cylinders at the moment, but there is a general consensus that things will calm down in 2021, with an anticipated increase in unemployment, and the withdrawal of the stamp duty www.mortgageintroducer.com
holiday, removal of Help to Buy and an additional 2% stamp duty surcharge for overseas buyers all coming to a head at the end of March. Developers that are working on schemes now, but are not yet in a position to market the properties, will be kicking themselves for missing this period of booming activity. Those properties that come to market in Q2 next year may hit a trough in demand after the predicted rush of activity in the first quarter. Now is the time to start talking to your developer clients about plans for their schemes next year, and whether they intend to sell the assets immediately or hold onto them with a view to letting them out. By letting out the properties rather than selling as soon as they are ready, developers have greater control over when they choose to sell in order to achieve the best price.
For clients who choose to take this route, one of the funding options available to them is a bridge-to-let loan. The bridging element can be used as a development exit loan to refinance a scheme that is completed or nearing completion, often at a lower rate than the development finance facility. It can also free up capital that a developer can use to start their next project. Then, when the properties are ready for tenants, Bridge-to-let can switch over to longer-term funding. There’s no need to go through the full application again, no doubling up of work and no extra costs or delays. Planning ahead is tricky at the best of times, moreso now as nobody knows how 2021 will pan out. However, a product like bridge-to-let will give developers more control over their investment, providing them with the ability to choose when they sell, rather than being a hostage to timing. M I
NOVEMBER 2020 MORTGAGE INTRODUCER
SPECIALIST FINANCE INTRODUCER
New lenders bode well for the future Adam Tyler executive chairman, FIBA
ust as we are entering another phase of restrictions, this is traditionally a time of year when we would have full diaries for every type of event across the industry, all designed to help us network, and ultimately working towards the greater good of our customers. It is, of course, very different this autumn where we are all online, but it has to be said that our resilience is still winning the day. There are many deals being submitted, underwritten, approved and paid out. So, we are all still here, active and open for business, and this month’s article is testament to our expectations for a brighter future. Following on from the financial crisis of 2008, we saw the emergence of many new lenders to the UK small to medium enterprise (SME) market. This was, without doubt, a real positive outcome after a very difficult time. Whilst we can draw comparisons with 2020 and discuss the cyclic nature of the financial world, we do find ourselves this time in completely uncharted territory. So, who would have thought back in March and over the weeks that followed, that by October we would be seeing a very active housing market, hearing about short-term lenders announcing record months, or witnessing the huge demand for development finance? We should also add into that conversation the discussions that I have been having with new and evolving challenger banks which are successfully negotiating hurdles with the Prudential Regulation Authority (PRA). The prevalence and emergence of these institutions can only bode well
for the future; I am very involved with a number at this early stage in their development, and can provide a valuable insight into what has gone before. This, of course, brings us back very nicely to the cyclical nature of financial services, and generally what we see today has been around already – unlike this pandemic, the like of which has not been seen since 1918! In more recent times, those challenger banks that emerged from the financial crisis have grown into very established institutions, with loan books that run into the billions across all sectors of financial services, both commercial and consumer. So, what about the latest crop of potential challenger banks, ready to serve the different sectors of the lending community? Whether it is a high-tech bank purely serving the SME sector, one that focuses purely on development, one with a more traditional building society approach, or just focusing on buy-to-let property, this can only be good for the end user, the customer and those of us who serve as intermediaries. On a recent call with a new bank, it was proudly stated that 90% of originations would be from the broker community, another cited two-thirds, and so on. Interestingly, some of these new banks will be regional in nature, predominately in areas that would have
seemed underserved in the past where we may have seen a southern bias, but not now, and not in this round of PRA applications. It would be very easy to wonder what would happen with the plethora of new banks competing in a reduced post-pandemic market, and there are many possible scenarios. It is a question that I have found myself asking on a number of occasions during my involvement with these institutions. There is also the question of funding to consider. Where is the investment coming from? There is a need for money to put the infrastructure in place and to meet regulatory requirements, before even thinking about opening the doors to customers. A lot of time, money and energy needs to be expended before anyone can reach that starting point, but it looks as though these hurdles are being overcome, despite the prevailing global climate. My involvement at this early stage – to promote their future participation with our broker channel and the marketing opportunities with FIBA – creates a great opportunity for partnership, especially when combined with my experience and the drive and enthusiasm of these new teams to get to market. This is why it is a privilege for me to witness and be part of this growth. I was witness to the rise of new lenders after the Credit Crunch, and now for a second time I can see these fledgling businesses inevitably becoming substantial and well known challenger banks, serving the UK SME community. M I
New banks can only be good for the customer
MORTGAGE INTRODUCER NOVEMBER 2020
COVID-19 and alternative lending Yann Murciano CEO, Blend Network
he COVID-19 pandemic and the ensuing public health disaster has unleashed economic and social consequences that will last for decades to come. However, a silver lining has emerged: as a result of COVID-19, we are seeing much closer relationships form between borrowers and lenders in the peer-to-peer (P2P) property lending industry. COVID-19 has created enormous tensions for even large, established companies, literally overnight. But we are told that there is a silver lining to be found in every crisis, and the current pandemic is no exception. The pandemic has forced businesses to maintain and build relationships with customers when their world has been upended. Across society, COVID-19 means that we have started to witness more collaborative working methods and show genuine care for others. WORKING TOGETHER
This has also been the case in the alternative finance industry, where we are seeing much closer relationships between borrowers and lenders – working together shoulder-to-shoulder. Having emerged only a decade ago, P2P property lending was already widely popular among developers and investors before the pandemic struck, with a loyal borower base wooed by the higher degree of flexibility and one-onone customer relationships compared to traditional lenders. Being young, dynamic organisations filled with entrepreneur-minded doers and go-getters, alternative lenders – especially P2P property lending platforms – showcased the potential www.mortgageintroducer.com
and scope of digital disruption in the property lending industry. COVID-19 has created an unprecedented time, which has seen many lenders pull out of the market, but has also provided an opportunity for those P2P property lending platforms which stayed open to increase their lending. At Blend Network, we saw our biggest months of lending volumes throughout the summer. Not only was this an opportunity to help borrowers who were left in the cold by lenders pulling out, it was also an opportunity to build relationships with new borrowers who appreciated the P2P platforms that stayed open and stuck by them in volatile times. Consequently, the COVID-19 pandemic has meant an increase in trust in P2P platforms from borrowers who have been able to witness a more human side of those organisations. Often nimble in size and lacking heavy legacy processes, alternative lenders have been able to offer ongoing support and a solution-driven customer service to their borrowers during challenging and unprecedented times. During a crisis, more than ever before, being responsive and able to execute decisions in a timely manner
are key elements of the lenderborrower relationship. While traditional lenders are often slowed down by complex practices and multiple management layers, alternative lenders have demonstrated their ability to offer faster decision-making due to shorter and more effective reporting lines. At Blend Network, the COVID-19 pandemic has seen the lending team working closer than ever with borrowers to support them through the pandemic and help them manage it as and when required. The key has been to work with borrowers as partners, coming from the mindset that we are in this together, even guiding them through the labyrinth of those government loans and grants available to them, and providing support on the application processes as required. INCREASED FLEXIBILITY
The efficiencies offered by P2P property lending platforms compared to traditional lenders – increased flexibility, enhanced one-on-one customer relationships, the ability of borrowers to speak directly with underwriters and decision-makers, the lack of heavy legacies and unnecessary management layers – have very much come forth during the pandemic. As we move forward to the new post-COVID world, borrowers are increasingly likely to stick with the lenders that ‘speak their language’ and who stuck by them when times were tough. M I
Work with borrowers as partners, with the mindset that we are in this together
NOVEMBER 2020 MORTGAGE INTRODUCER
THE LAST WORD
Getting the help they need Dave Burt, sales manager, eConveyancer, on innovation and progress What is your role? I help mortgage intermediaries access the best home moving products and services for their business propositions. On a day-to-day basis, I manage our desk-based account management team, delivering training and improving visibility of important aspects of the conveyancing and mortgage industries, so that they can confidently recommend appropriate products to their accounts. I also work with our intermediaries to ensure their voices are heard when developing future releases of the eConveyancer platform. I am a communicator at heart, so managing our account managers and speaking with our intermediary partners is an absolute pleasure. How has your role changed as a result of COVID-19? We are fortunate in that COVID-19 has caused little operational disruption. Our team was prepared for remote working, and from the outset we were all acutely aware of our duty to support our clients through challenging times. We are also fortunate to have such a fantastic, tried and tested digital platform in DigitalMove, which has helped keep conveyancing cases progressing despite the lockdown. We’ve also had access to great tools like Microsoft Teams, which has helped us deliver virtual presentations on our products. This approach has been so successful that we’ve now adopted virtual presentations and demonstrations into our client onboarding process, helping our clients get up to speed quickly and conveniently. What is your favourite part of your job? For me, people are my favourite part of the job, as cliché as it sounds; I love seeing my team grow from new starters to experienced, knowledgeable professionals invested in the customer journey. Nothing gives me greater satisfaction than seeing team members fulfil their potential and reach their short-term and long-term goals. I’m also a proponent of giving my team the autonomy to propose different ways of thinking – on many occasions, this has led to improved working practices and better solutions for our clients. What do you like and dislike about working from home? I certainly have a better work-life balance, and without a lengthy commute I have more time for exercising and to prepare healthy meals. I haven’t felt this good in years! And the housework doesn’t eat into my weekends as much any more!
MORTGAGE INTRODUCER NOVEMBER 2020
In a professional sense, working from home makes you more aware of the need to communicate. I dedicate more time now to talk to my team, not just in a working capacity, but on a personal level as well, which has helped me understand their distinctly different personalities. I like how we have completely removed the stigma of home working now, especially when I see how productive my team are, with less distraction, and delivering great results. I do, however, miss the social aspect of the office. There are many benefits to working face-to-face, with team cohesion being better, and less chance of isolation. I prefer carrying out training and one-toones face-to-face, where I can read body language. Without it, you can sometimes misread emotions. Last but not least, working from home means you can lose that ‘buzz’ that you get from a big sales win in the team. Being able to celebrate this in the moment is so important for people’s confidence and sense of worth. What’s the most interesting opportunity in your market? At eConveyancer we are always open to exploring new and different ways in which we can support our intermediaries and their customers, regardless of their transaction type or complexity. One of the most interesting opportunities we are exploring is through packagers, allowing intermediaries and customers greater choice and access to supportive technology and reputable legal firms. We are also excited by the potential for innovation in the remortgage space, with our own Rapid Remortgage product, available through DigitalMove, helping remortgages reach completion within as few as four working days. This is only the beginning, but we are now giving customers the ability to be in a position of legal completion certainty much earlier on in the process than they have ever had before. What has been your greatest success to date? My promotion to sales manager. I started at eConveyancer five years ago in customer support, with no previous experience working in an office environment. After learning the ropes and getting some valuable experience, I moved on to join our B2C sales team and later moved to the B2B team as a business development manager. After three years, I was given the opportunity to become sales manager and take on responsibility for the account management team. I am forever grateful to those who believed in me and gave me the opportunities to get to where I am today, and I am privileged to be managing such a great group of professionals. M I www.mortgageintroducer.com
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