The Intermediary - July 2023

Page 1

OPINION ⬛ The latest across residential, buy-to-let, specialist finance and more

INTERVIEW ⬛ Nathan Blissett on making the move from football to finance

Q&A ⬛ Lendco and Finanze give us the lowdown on their businesses and the market

“Are you coming or going?”

the future of a market in flux Intermediary. The | Issue 6 | July 2023 | £6 DIGITAL EDITION
WE HELP YOUR CLIENTS TO SPREAD THEIR WINGS Let’s talk. 0344 225 3939 For intermediary use only. Cambridge & Counties Bank Limited. Registered office: Charnwood Court, 5B New Walk, Leicester LE1 6TE United Kingdom. Registered number 07972522. Registered in England and Wales. We are authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Financial Services Register No: 579415 Whether it’s commercial investment or owner occupier, our knowledgeable relationship managers are here to help your clients continue building a portfolio through straightforward and simple solutions. We’re always here for you. Our flexible finance solutions are perfect for property professionals looking to expand their portfolio

From the editor...

This issue, there is really one thing playing on everyone’s mind, from the residential market right through to specialist lending: the Consumer Duty deadline. This is our final issue to land ahead of what has come to be seen as a Rubicon-like moment for the property market.

To hear some talk about it, you might think the 31st of July deadline was set to see us pass magically into an entirely new era of mortgage lending – a brave new world in which the consumer is elevated to a status surpassing profits, while lenders, brokers and other market players join hands and work together in harmony for a be er world. An upli ing, if somewhat naïve picture.

In truth, much like Huxley’s utopia, there is something not quite right about all this. Perhaps it is the pessimist in me, but with news constantly flooding in of brokers either feeling unprepared or unsupported, or even taking a ‘not my problem’ approach to the whole thing, I don’t see us suddenly passing into a new era come the dawn of August 2023.

There is a general consensus that the Financial Conduct Authority (FCA) will go easy on people in the first instance. The way I see it, there are two possibilities here: either this is true, and the July deadline is therefore li le more than an encouragement to start shuffling off the

The Team

Jessica Bird Managing Editor

Jessica O’ Connor Reporter

Claudio Pisciotta BDM

Ryan Fowler Publisher

Felix Blakeston Associate Publisher

Maggie Green Accounts

Barbara Prada Designer

Bryan Hay Associate Editor Subscriptions

starting line, or people will get a nasty shock when the regulator takes a hard line to what, by many, has been seen as a so launch. Neither is a particularly encouraging image.

More positively, the important thing is that those who are taking it seriously – and there are many, despite the headlines – are doing a lot to make the launch a success, from the regulator itself, through to firms such as SimplyBiz, LiveMore and Paradigm taking the time to push out content aimed at making the process smoother. Perhaps their hard work will prove this pessimist wrong, and we will all be happily popping the Soma come Christmas.

However the next few months pan out, the fact is that increased regulation will undoubtedly have an interesting effect on the market. There are some negatives, such as lenders withdrawing from the regulated space in order to avoid being affected. However, in this issue our feature takes a look at the changing second charge sector, which is set for an influx of new business as brokers ensure they are offering all potential options to borrowers. It might well be worth keeping an eye on this market, as savvy lenders look to take advantage during the dawn of, perhaps not utopia, but certainly change. ● Jessica Bird


Alan Waddington | Alison Pallett | Andrew Gilbert

Andy Tilsley | Ashley Pearson | Bob Hunt

Claire Askham | Colin Sanders | Debbie Kennedy

Daniel Stacey | Donna Wells | Hiten Ganatra

Je Davidson | Je Knight | Jerry Mulle

Jessica Brome | Jessica Smith | Jo Breeden

Jonathan Newman | Jonathan Stinton | Kat Atkin

Leon Diamond | Lorenzo Satchell

Louisa Sedgwick | Louise Pengelly | Louis Mason |

Lucy Waters | Maeve Ward | Marie Grundy

Mark Blackwell | Mark Bogard | Martese Carton

Michael Conville | Natalie omas | Neal Jannels |

Nick Allen | Nick Lovell | Paul Brett

Paul Goodman | Ranjit Narwal | Richard Sharp

Robin Johnson | Simon Jackson | Sophie MitchellCharman | Steve Carruthers | Steve Cox

Steve Goodall | Steve Smith | Steve Taylor

Stuart Wilson | Susan Baldwin | Tanya Toumadj

Tim Hague | Tom Denman-Molloy | Tony Ward

@jess_jbird @IntermediaryUK
Copyright © 2023 The Intermediary Cover and feature cartoons by Giles Pilbrow Printed by Pensord Press CBP006075 SECOND CHARGE “Are you coming or going?” Considering the future of a market in flux Intermediary. The July 2023 | The Intermediary 3


Feature 46

Natalie Thomas explores the comings and goings of a second charge market in ux

Local Focus 82

This month The Intermediary takes a look at the housing market in Lincoln

On the Move 90

An eye on the revolving doors of the mortgage market: the latest industry job moves

AT-A-GLANCE Residential  6 Buy-to-let  36 Second Charge  52 Specialist Finance  56 Later Life  70 Technology  76 Protection  86



Nathan Blissett talks trust, transparency, and taking the leap to set up his own business

In Pro le 34


Jacqueline Dewey tells us how tech can enable better choices, and why price is only part of the equation

Q&A 42


Alex King discusses the evolution of the business, and keeping steady on troubled market waters

Q&A 60


Alastair Hoyne talks about the ight to quality in specialist property investment, and making the most of customer loyalty

Meet the BDM 72


The Intermediary | February 2023 3
Karen Banks tells us about the challenges and opportunities facing business development managers Local Focus

The importance of Open Banking for intermediaries

It’s a busy time for brokers. With the mortgage market in a very different place to a couple of years back, intermediaries are spending a fair chunk of their day reassuring clients as they go through the steps to get a mortgage. Is there enough time in the day for all these spinning plates?

One of the longstanding difficulties surrounding the work of intermediaries is the sheer scale of the admin needed to check the finances of clients, making sure every detail is accurate to give the best advice and provide the best possible deal for people looking for a new home.

Meanwhile on the consumer side, it’s well known that moving house is one of the most stressful experiences for someone.

With interest rates rising in quick succession and the cost-of-living crisis present in everyone’s minds, who could blame homebuyers for dreading the thought of preparing and triple checking the necessary details their broker needs to complete the deal?

These, of course, are essential steps to get a mortgage. But it takes time –prolonging the stress and anxiety for consumers and eating into valuable time for brokers which could be be er spent seeing more clients or having more time for existing customers.

The solution to both of these challenges comes from a source which would probably be unfamiliar to those outside the financial sector: Open Banking.

This is the process by which banks now share data, with customer consent, to fintech firms and help smooth out processes which used to be done by hand.

We can look at the benefits of Open Banking across three areas: simplification of processes, be er

customer outcomes, and the future application of technology.

One of the key reasons why the implementation of Open Banking is so important for brokers is simplification. At Nationwide, we’ve implemented Smartr365’s application programming interface (API) to share data our customers have agreed to give on their finances.

This helps both mortgage applicants and intermediaries by accessing customers’ bank statements digitally with their consent. Brokers can then access these statements as normal and select the appropriate time window from the past 12 months of transactions.

Our data shows that this process saves brokers around half an hour of printing, checking and scanning for each application – time that can now be freed up for brokers to focus on the advice they give to their clients on the best mortgage deal for them.

Better customer outcomes

The implementation of Open Banking is also important for helping deal with inaccuracies and fraud.

Using Open Banking to collapse the information gap between brokers and their clients helps cut down on the amount of duplication and errors that otherwise might get introduced.

Needing to re-key data, double check documents, ensure bank statements cover the correct date range and consult printed copies to make decisions can be both time consuming and energy sapping for brokers.

Open Banking technology helps offer greater levels of certainty and keeps the process clear and simple for everyone involved.

Open Banking is vital not just to freeing up brokers’ time, but also reducing the amount of friction for

homebuyers wanting to know what their options are.

Intermediaries can use Experian’s Affordability Passport to gain a single, comprehensive view of all the factors that might influence a potential customer’s affordability – such as income, expenditure, and financial behaviour.

The future

Open Banking was first introduced five years ago in the UK, but the technology is still only just beginning to achieve its potential.

Nationwide’s implementation of Open Banking tech has been rolled out to selected brokers, and in the near future we hope to make this proposition accessible to a wider audience, and in the longer-term launch to the entire industry.

It’s our hope that by cu ing away manual processes in favour of automated solutions, we can help free intermediaries to focus on giving deeper advice to a wider range of clients.

There is still room to grow across the industry, however, and partnerships for specific use cases – like the relationship between intermediaries and their customers – will represent a growth area for Open Banking in the future.

Ultimately, the free movement of information between financial providers, customers, and fintechs will help usher in a new age of smoother transactions and be er outcomes – not just for intermediaries and their customers, but across the industry, in a new digital revolution for banking. ●

Opinion RESIDENTIAL The Intermediary | July 2023 6
ANDY TILSLEY is intermediary digital relationships lead at Nationwide Building Society
Introducing our two-year fixed rate and tracker products featuring a reduced stress test and flexible fee structure for clients looking to remortgage with no capital raise. Buy-to-let. Better. Call 020 7096 2700 or visit Maximise affordability with our like-for-like remortgages

Evidencing standards with lender support

As the Financial Conduct Authority’s (FCA) Consumer Duty deadline fast approaches, brokers will be working hard to finalise their implementation plans and looking to experts for advice on how to ensure they meet new standards by 31st July 2023.

According to the FCA, the Consumer Duty will set “higher and clearer standards of consumer protection across financial services and require firms to act to deliver good outcomes for customers.”

Understandably, there is some nervousness surrounding the upcoming deadline, but the new regulations are really just reinforcing good practice which is already widespread in the intermediary mortgage market.

With the right support, this should be a relatively straightforward task for brokers. But for anyone who is unsure, there are some steps they can take to demonstrate they are meeting the new standards.

Collaborate with lenders

The Consumer Duty requires brokers and lenders to work together to make sure they are offering products and services that provide fair value, with a reasonable relationship between the price consumers pay and the benefit they receive.

Just as brokers work together with lenders and their business development management (BDM) teams day-to-day, they should also communicate with them when preparing for the upcoming Consumer Duty deadline.

Working with lenders to be er understand their products and intended target market will be

essential going forward. Ge ing to grips with the benefits, prices and fees of each product or service will allow brokers to give clients comprehensive and tailored advice to suit each customer’s individual circumstances.

Providing clients with a balanced picture of the market and helping them identify which products are right for them – something most brokers are already actively doing –will go a long way to demonstrating how they are complying with the duty.

In the current market, with products being withdrawn or changed at pace, brokers should maintain regular contact with lenders and their support teams.

Keeping track of product and rate changes is a more challenging task, so making the most of telephone BDMs, monitoring for lenders’ email and social media updates, and using live chat tools are great ways for brokers to access information and updates quickly and easily.

Draw on lender resources

Lenders also need to comply with the Consumer Duty and show how they are working in the best interests of the customer, so they have produced their own guides and templates on

how best to evidence meeting the new regulatory guidelines.

Lenders, including Coventry for intermediaries, have created Fair Value Templates specifically designed to help brokers check they are fulfilling their Consumer Duty obligations.

These documents can cut out much of the work required, so that preparing for the deadline will be significantly less time-consuming. Additionally, some lenders have produced guides to help brokers support different types of customers through the mortgage journey. For example, if brokers are looking for guidance on how to support customers with vulnerabilities, Coventry for intermediaries has a full guide with practical steps on how best to communicate and make sure information is clear and accessible ahead of any financial decisions.

Using guides like this can complement brokers’ existing strategies by showing their commitment to helping clients through the mortgage journey.

While many brokers may feel that they still have steps to take to meet the Consumer Duty requirements by the end of July, they may be pleasantly surprised to find out they could be meeting some of the requirements already.

The important thing for brokers will be to demonstrate good practices which provide clients with comprehensive, tailored guidance to pursue their financial objectives.

Brokers should capitalise on wide-ranging support from lenders, engaging with support teams where possible, to effectively evidence the great work they are doing. ●

Opinion RESIDENTIAL The Intermediary | July 2023 8
JONATHAN STINTON is head of intermediary relationships at Coventry for intermediaries Providing tailored advice will go a long way

Defaults and missed payments should not close the door

Recent years have been particularly challenging for many of us when it comes to our finances.

The pandemic had a big impact on the household incomes of millions of people who were placed on furlough, or even laid off.

Those who work for themselves may also have felt the effects, being unable to work their usual hours, and so seeing their incomes tumble.

Given the difficulties of the situation, we know many turned to credit as a way of keeping afloat.

Research by the charity Turn2Us found that one in three people had to utilise some form of debt, from credit cards and overdra s to loans, in the first six months of the pandemic.

In fact, more than one in 10 had to make use of multiple forms of debt during that period.

Back on an even keel

Now that we are a couple of years removed from this, there are plenty of households looking to get their finances back into smoother shape.

New figures from the likes of Legal & General show that there has been a spike in searches from brokers around the issue of debt consolidation, as they look to tap into their equity and reduce their repayments whilst clearing those debts.

It’s an entirely sensible a itude. Unfortunately, we know that some borrowers who want to borrow for such purposes are being held back because of historical payment issues.

It’s not exactly a huge shock if borrowers have had the odd missed payment or default in recent years, given the financial upheaval caused by the pandemic, and yet we know that there are lenders for which the mere

presence of a black mark is enough to kill a borrower’s chances from the outset.

As a result, would-be borrowers are being denied the finance needed to get their finances entirely back on track.

Missed payments

At Mansfield Building Society we have recognised the growing number of would-be borrowers who are perfectly good prospects, but who may have some history of defaults.

On both our Versatility and Versatility Plus ranges, any defaults over two years old on things like credit cards, loans and hire purchase can be ignored, whether they have been satisfied or not. The client simply needs to have no new defaults within the past 24 months.

Our Versatility range also provides understanding to those who have missed a payment on their existing mortgage. Where our underwriters can be satisfied that adverse credit is linked to a single life event, and there are no missed payments in the past three to six months, we can allow up to a status two within the past 24 months.

Understanding borrowers

If lenders adopt a rigid, automated approach to their lending, then it is inevitable that prospective borrowers with defaults and historical payment issues will be let down.

These borrowers are going to be underserved by such lenders, leading only to frustration and upset for them and their brokers.

That applies whether they are looking to consolidate outstanding debts as they justifiably manage their progress from the stresses of the pandemic through to our current inflationary environment, or even

if they are looking to borrow for some other purpose, such as home improvements or in order to purchase a new property.

Those aspirations can come to a grinding halt because of some lenders’ a itudes to the odd historical payment issue.

That’s why it is important for advisers to broaden their search and consider lenders which take a more details-based, understanding approach to applications.

A recent study by Mortgage Broker Tools noted that brokers are more commonly turning to affordability systems in order to help source deals for their more complex clients, and that is leading to them working with a wider range of lenders.

By recognising lenders like Mansfield Building Society, which will consider a case on its true merits, we can work together to support even clients with adverse credit on their mortgage journey.

Being a responsible lender does not mean ruling out adverse credit borrowers without taking the time to get a true understanding of their situation. ●

Opinion RESIDENTIAL The Intermediary | July 2023 10
at Mans eld Building
If lenders adopt a rigid, automated approach to their lending then it’s inevitable that prospective borrowers with defaults and historical payment issues will be let down”

Seeing Consumer Duty as a journey

In news that will, quite frankly, shock no one working in financial services, many firms are going to be preoccupied with all things Consumer Duty in the coming weeks and days.

Indeed, by the time you read this, we will be just days away from the implementation of the new rules on the 31st July.

No one is expecting the regulator to launch any sort of cut and thrust against firms it judges not to be complying in the early days of August, as time passes we can expect there to be a growing focus in this area.

Understandably, in these July days, advisory firms are continuing to focus on the requirements of the Consumer Duty, and quite handily, the Financial Conduct Authority (FCA) recently published 10 questions it expects all regulated firms to be asking themselves when it comes to their compliance.

Having talked to a lot of firms over the past year or so about Consumer Duty, these 10 questions do provide a further opportunity to ascertain whether what you have done is enough, and where you might be able to see some loose ends or – though hopefully not – some gaping holes in your services, product offering or process.

Again, the closer we get to 31st July, the more likelihood of firms become a li le more nervous about whether they are on the track the FCA wants them to be on.

Perhaps this is why, in a recent survey conducted by Hodge, 61% of advisers said they wanted more information about Consumer Duty from financial providers to help with the changes they needed to implement. However, nearly threequarters also said they were ‘fully prepared’ for the upcoming changes.

What appears to be clear here is that, even as we pass the deadline,

the Consumer Duty journey just gets going, rather than moving off into the sidings as a trip already completed.

Therefore, firms are right to want to keep learning about the requirements, to want to see further information that can support them on the ongoing journey, and to look to providers, but also distributors like ourselves, to keep helping them motor along.

A er all, there’s a very good point we can make about Consumer Duty, and it involves how the FCA goes about looking at firm’s compliance, what it deems to be non-compliance, how it communicates this, and the time and support it gives firms to get their houses in order.

In that sense, we’ll of course be looking for early precedents being set, and as per usual, the FCA will expect firms to take these on board and work them into their businesses if they feel they also have this gap.

Consumer Duty on lm

Looking at Consumer Duty as a journey has been instructive for us as a business seeking to provide support and resources to authorised advisory firms, and I think it’s valuable for firms to do the same.

We’ve certainly adopted this approach over the past 12 months in particular, using our ‘Consumer Duty on Film’ series to start at the very beginning, working through what we see as the main components of compliance, and then regularly reviewing the various missives and communications coming out of the FCA to adapt our own viewpoint, and to feed that into the support we provide.

The latest video moves that journey on again, especially given that manufacturers of regulated products, including most lenders and providers, were required to produce their Fair Value Assessments by 30th April.

This film looks at how firms can review their own charging structures

for the services the provide, and how they can conduct a Fair Value Assessment on their own services.

At the same time, they can utilise the manufacturers’ published assessments on products to assess whether they agree with the target market that has been outlined and whether it does truly provide fair value to their clients.

Then, it’s about marrying these both together so that when all the charges and services are combined, the firm’s overall proposition adds fair value to the client.

We would probably say there’s been a li le confusion about Fair Value Assessments, and whether they just apply to the product manufacturers. It’s important to understand that advisory firms are also considered ‘manufacturers’ of the services they provide to clients, and therefore they do need to have conducted their own Fair Value Assessment of those client services.

It’s another very important aspect of the Consumer Duty, and will go a long way toward firms being able to prove they are offering that fair value and delivering the positive consumer outcomes at the heart of the new rules.

Again, firms should always know they are not on their own, they have access to the resources and support they need through firms like Paradigm, and they can run their activity and Consumer Duty strategy past experienced professionals to secure feedback on the route they have taken and the changes they have made.

As mentioned, 31st July is a deadline, but it’s one that pushes open the Consumer Duty starting gates for all firms, rather than closing them for good. ●

Opinion RESIDENTIAL July 2023 | The Intermediary 11

Championing building society innovation

Tackling the challenges facing first-time buyers (FTBs) trying to get a foot on the property ladder is a topic I am extremely passionate about. I have wri en extensively over the past 12 to 18 months about why helping aspirational FTBs buy their own home is crucial to both the mortgage and housing markets, as well as the wider UK economy.

Homeownership gives people a greater stake in society. It provides a stepping stone to future wealth creation, and helps the economy to thrive.

More importantly, an active pool of FTBs keeps the housing market fluid and enables those in the second-time buyer market to move further up the chain.

When it comes to addressing the challenges facing FTBs, I have always believed that it is the responsibility of the mortgage industry to lead the charge by finding ways to break down these barriers, through the creation of new and innovative products that tap into the existing wealth held in the homes of older generations.

According to estate agent Savills, the total value of homes in the UK was £8.7trn at the end of 2022, of which, almost half (£3.34trn), was held by mortgage-free homeowners. Given the fact that the average house price in March 2023 in the UK was £285,000 – or £523,000 in London – according to official Government figures, the potential to utilise the existing wealth in the nation’s homes seems a no-brainer.

Building societies such as Mansfield and Loughborough are already leading the way in terms of product innovation, with a range of family assist mortgages that tap into the

equity held in the homes of parents and grandparents by enabling them to support their children or grandchildren to buy a home.

Borrowers can take out a mortgage for 100% of the property’s value, provided a family member acts as a guarantor, by either taking out a collateral security of 20% of the property value against their home, or depositing the equivalent in cash into a security deposit account. The cash or charge is then released a er seven years.

Other intergenerational lending products, such as joint borrower sole proprietor (JBSP) mortgages are also available, enabling buyers to join forces with family members to boost borrowing power and get onto the property ladder.

Product innovation

More recently, the launch of a 100% mortgage that uses previous rental conduct for affordability purposes from Skipton is another example of how building societies are innovating to encourage homeownership among FTBs.

The launch has sparked muchneeded debate in the mortgage market, and while I do have some concerns around a full return to 100% mortgages across the market, the use of rental conduct for affordability purposes is something I strongly believe in.

Saving for a deposit has long been cited as one of the biggest hurdles facing many FTBs, o en because a large proportion of their income is spent on rent. Any mortgage product that seeks to address this issue by taking previous rental conduct into account must therefore be welcomed.

A er all, if someone can afford to pay £1,000 or more each month

in rent for one or two years without falling into arrears, then surely they can afford to pay the equivalent in mortgage repayments on their own home?

According to Statista, private renters pay a considerably higher proportion of their income on rent compared with those who have their own mortgage – 21.7% of disposable income for those with mortgages, versus 33.1% of disposable income on rent.

For far too long, the mortgage market has been crying out for innovative products that go beyond the status quo and seek to truly address the challenges faced by those trying to buy their first home.

The UK’s building societies are rising to this challenge by developing products that use different ways to assess affordability while also drawing on the wealth held in many of the homes of older generations.

As an industry, we need to encourage more of this type of lending by proactively looking at ways to innovate. Instead of shying away, we need more mortgage providers to jump on board and embrace the potential to bring about change. Only then can we help the FTB market to truly flourish. ●

Opinion RESIDENTIAL The Intermediary | July 2023 12
HITEN GANATRA is managing director at Visionary Finance
The use of rental conduct for a ordability purposes is something I strongly believe in”

New-build sector sweeteners only go so far

As increased mortgage rates threaten the homeowning hopes of first-time buyers (FTBs), we are seeing new-build developers pull out all the stops in a bid to tempt them into signing on the do ed line.

Developers once offered an upgraded kitchen or bathroom to seal the deal, but more recent incentive disclosure forms offer a glimpse into some of the challenges buyers and builders currently face.

In some instances, prospective new-build buyers can now take their pick between having their deposit paid in full or living mortgage-free for the first 12 months; in some cases, help with moving costs and new flooring have been thrown in as well.

It is difficult – if not unheard of – for house builders to reduce the prices on a development once they have already sold a portion. Ideally, in a buoyant market they would like to see prices go up by the time those in the last stage of the development come to market. However, the reality in today’s se ing is that some new-builds are worth less than they are on the market for – they are just incentivising the difference.

Cautious approach

Housebuilding firm Bellway is the latest developer to sound the alarm over the impact rising rates and the cost-of-living crisis are having on its pipeline. Its June trading update revealed that between 1st February and 4th June, its overall reservation rate was down 24.9% on the equivalent period in 2022.

Its forward order book consists of 6,172 homes – down from last year’s 8,152. It is, however, on track to deliver around 11,000 homes this year, a fall of only 198 on last year, with the average

selling price expected to be around £300,000 – only slightly below last year’s £314,399.

The housebuilder said its overall headline pricing had remained robust across its regions, but it was continuing to use targeted incentives in some instances to secure reservations.

Perhaps the most telling figure is the number of plots it has acquired since 1st August 2022. At 4,342, this figure is in stark contrast to the 13,496 it bought during the same period the previous year. Bellway cited the strength of its land bank and its ongoing cautious approach towards land investment in the current uncertain market for the reduction.

It also revealed its decision to not proceed with the purchase of 886 plots across four previously approved sites.

Harder for developers

Unsurprisingly, Bellway said that while customers were adapting to higher mortgage costs, the recent expiry of Help to Buy in England led to lower year-on-year demand from FTBs. In addition, there remains a relative lack of affordable higher loanto-value (LTV) mortgage products.

We also continue to see stories about Michael Gove, the Secretary of State for Levelling Up, Housing and Communities, making life harder for developers and blocking schemes on design grounds.

He hit the headlines in April when he made the controversial decision to block a 165-home Berkeley Homes scheme in an area of outstanding natural beauty, a er he reportedly found the scheme to be “too generic” in nature.

If reports are to be believed, Gove also plans on wielding his power and potentially blocking other

developments on similar grounds. The recent media coverage about the potential destruction of some new-builds due to inadequate foundations may also not have helped developers’ cause.

Housebuilders are feeling the strain from all corners, and it surely will not be long before we see them retreat further, building fewer houses and holding onto the land until conditions improve.

While we have seen demand for second-hand stock hold steady in recent months, the new-build sector has always been a market in its own right, and without a steady influx of FTBs, we will most likely see it wind down further.

Look to the longer-term

None of this will be good for FTBs, who have just started to see some targeted help from lenders in the absence of Help to Buy – such as Skipton’s 100% LTV mortgage.

The phrase ‘housing crisis’ has become so embedded in our vocabulary that in some ways it has created less urgency in trying to solve it. While much of the media focus remains on the short-term issues surrounding the market, we must also look to the longer-term.

Much of what is happening in the new-build market today will not be felt for a number of years, as the houses not being built today will be missing from stock further down the line – this, I’m afraid, is only storing up additional problems for the future.

As always, the best time to act is normally yesterday. ●

Opinion RESIDENTIAL July 2023 | The Intermediary 13
SIMON JACKSON is managing director at SDL Surveying


Elections are usually fought and won in three key policy areas: healthcare, education and housing. The housing market o en steals the limelight, promising access to homeownership for more people, while the complex politics of education and healthcare can lead to controversy rather than a clear campaign slogan.

It’s perhaps no surprise that both the Conservative and Labour parties look set to ba le it out over housing.

Real and present issues

For the past 20 years, economists and housing market specialists have been warning that the country’s inability to build enough homes would lead to soaring house prices, intergenerational financial inequality, and ultimately a rise in homelessness.

These issues are present and real in every part of the country.

This year marks two decades since Kate Barker’s review of housing supply was published. In 2003, she argued that to keep pace with population growth and housing demand, around 300,000 new homes would have to be built every year. That target has been missed by a long way, and Dame Barker’s bleak predictions of a housing market creaking at the edges are

increasingly accurate. While neither party has made firm policy commitments, rumours are already beginning to swirl.

Will Prime Minister Rishi Sunak revive the Help to Buy equity loan scheme, as has been suggested? Will opposition leader Sir Keir Starmer force through legislation allowing for more homes to be built on the green belt?

Politics can be unpredictable and policy promises can be knocked off course as legislation is debated and amended. It was only six months ago that Sunak was compelled to drop compulsory housebuilding targets a er around 50 backbench MPs rebelled. Starmer’s recent pledge to deliver 150,000 new council and social homes each year if Labour should win the 2025 General Election is a nice headline, but can it be delivered?

Kick-start the process

No one is suggesting any of this is easy. Complex value chains and economic environments, not to mention concerns about sustainability, will weigh on any Government’s ability to kick-start the process – but a kick-start is what must happen.

It’s difficult to put a precise number on the amount of new housing needed in England. According to one estimate commissioned by the National Housing Federation (NHF) and Crisis from Heriot-Wa University, around 340,000 new homes are necessary in

Politics can be unpredictable, and policy promises can be knocked o course as legislation is debated and amended”

A key election battleground, but politicians alone won’t x it

England each year, of which 145,000 should be affordable.

All of this underlines just how vital our role in supporting homeowners is, because ultimately, politicians don’t build houses, developers do.

Those developers don’t build houses unless people are willing and able to buy them.

Housing is a long-term market, with new homes taking around three years from start to completion. Add six months for mortgage offer to purchase completion, and developers are planning ahead to 2027.

That planning must take account of the economic outlook over the next few years, with all the implications of persistently high inflation and rising interest rates factored in.

Ownership dreams

At Newcastle, our purpose is to help those who want to buy become homeowners, whether interest rates are rising, inflation is high, or otherwise. It’s why we have commi ed to finding ways to innovate so that we can continue supporting our customers’ homeownership dreams.

As lenders, we must remember that not all solutions will fit all borrowers. Loan-to-value (LTV) and loan-toincome (LTI) are not the only tools we have to open or close the lending tap.

We are not the only lender to innovate in this market and embrace schemes such as Deposit Unlock and First Homes, but we have also made a huge effort to offer other alternatives to borrowers in various situations.

Indeed, it was recognised at the recent Legal & General Mortgage Club Awards, where we were awarded Best Medium Lender.

We continue to lend up to 95% LTV on properties worth up to £500,000, and to accept gi ed deposits from family members where borrowers have found it hard to save a big enough

deposit for any number of reasons –usually high rents.

Where family don’t have access to ready cash, or would prefer to support children or other relatives by boosting their LTI affordability, we offer joint mortgage sole proprietor (JMSP) mortgages, allowing borrowers to use the income of a family member to increase their borrowing capacity. These initiatives – and many others in the market – are not going to solve the housing shortage by themselves, but by finding flexible ways to say ‘yes’ to buyers, we are doing our bit to keep the wheels turning. In turn, we can expect others in policymaking to do theirs.

We need more of the right kind of homes that will deliver for younger buyers, and we will be there to support them. A er all, the whole is greater than the sum of the parts when it comes to building homes. ●

MICHAEL CONVILLE is chief customer o cer at Newcastle Building Society

New-build remote valuations

It’s been a rocky year in Whitehall, with big swings in polling ahead of the next General Election.

The electorate is pre y fed up. 10 years of austerity under George Osborne’s rule at the Treasury, then two years of pandemic misery. Now, serious cost-of-living shocks to household finances, inflation over 10% for six of the past 10 months, and 13 consecutive base rate rises.

The mood is low, and both parties know it. It is a timely moment for some aspirational housing market policy promises.

It’s a political approach that hasn’t just worked in the past, it’s responsible for at least two huge property market booms. The first came in the 1980s under Margaret Thatcher’s Right to Buy Scheme, and the consequent bust in the early 1990s when the Conservative Government was forced to raise interest rates fast to stop the pound collapsing. The second came in as the New Labour Government under Tony Blair and Gordon Brown won the 1997 election in a landslide. Their manifesto underlined support for the private rented sector (PRS) and just a year a er the first buy-to-let (BTL) mortgage product went on the market, house prices rocketed.

Lender expectation

The point is that new housing market support scheme rumours are circulating around both Labour leader Sir Kier Starmer and Conservative Prime Minister Rishi Sunak.

It’s highly likely that any new scheme will be targeted at building more houses and helping first-time buyers. Whether another is needed is debateable – we already have several, including First Homes, Deposit Unlock and some 100% loan-tovalue (LTV) products still available. Whatever route is taken, though, lenders will be expected to provide mortgage finance.

This raises the issue of affordability. It’s a complex environment at the moment, and one likely to become more so over the coming years. The double whammy of painfully high inflation and rising interest rates is only just beginning to hit the housing market as fixed rate deals expire. Lenders are already gearing up to manage a rise in arrears, and it’s unlikely we’ll see a repeat of the repossession and fire sale scenario in the 1990s that so damaged house prices and household finances.

Balancing risk

Nevertheless, there are downside risks to be managed on both the borrower and security. New-build has always been viewed as more of a valuation risk than existing stock, simply because homes are seen as having a price premium.

Exposures, as well as new-build premiums, have long been an issue for lenders gauging the value of a new-build property. Lower maximum LTVs can provide a cushion, but while house price inflation is still strong, it’s prudent to be prepared for that to shi , however unlikely.

With each new housing policy scheme comes new risk, simply due to the unknown and untested.

Those risks do not lie just with new lending on new housing. All lenders have an eye on their loan book when it comes to product offerings and price. Given how much change the economy has been through over the past three years, the real-time risk is likely to vary against the risk booked at the time mortgages were made. Yet real-time risk is key to understanding exposure.

Many a mistake is made in haste, and at a time when there is still a good deal of uncertainty circling the housing market, lenders want to keep costs low – along with risk. When it comes to quantifying security risk, that means a balance between an in-

person valuation and an automated valuation model (AVM).

e.surv’s Remote Valuations for New Build service delivers both. We tailor the service to every lender’s individual risk appetite to find a balance that keeps costs low, and higher risk security accurately valued.

On first instruction to a new development, our surveyor will visit the site and assess its suitability for remote valuation. Once approved by our specialist new-build team, an automated triage process will then be put in place for subsequent inspections. If approved, we digitally collect information, such as the UK Finance Disclosure Form as well as site and floor plans from developers.

A local surveyor will carry out the remote valuation on receipt of the requested documents. The output is then automatically forma ed into the lender’s mortgage valuation report.

We use a data-led methodology to make the process slicker, taking an average of four days less than a physical valuation. The efficiencies speak for themselves, and by valuing remotely where appropriate, the service also cuts carbon emissions from reduced site visits.

Life and the market’s outlook may be uncertain, but there are some risks you can control. ●

Opinion RESIDENTIAL The Intermediary | July 2023 16
STEVE GOODALL is managing director at e.surv
With each new housing policy scheme comes new risk, simply due to the unknown and untested ”

Interest rates are a blunt tool to crack the in ation nut

The UK’s housing market has been very much in the spotlight in recent weeks. For many people, the prospect of the end of their fixed rate deal is causing real fear. How households, lenders and the Government respond will be central to the UK’s economy in the coming years.

However, having been in this market through several ups and downs, I do also have context. My observation would be that statistics, data, and averages make news, but they do not tell a nuanced story. And that nuance ma ers a lot.

For the past five years or so, London’s house price growth has lagged behind the rest of the UK’s. But is this all bad? No. On the contrary, London leads the rest of the UK when it comes to investment – and particularly foreign investment into Britain.

That investment is not tailing off, because the fundamentals of the capital’s economy and property market are not dependent on the same domestic stresses and strains as elsewhere in the country.

Right, wrong, fair, or unfair aside, London is a global city – it has been for hundreds of years.

It may be oversimplified, but there is a bleak irony in the Bank of England’s predicament. Monetary policy tools that have worked for centuries – since 1694, in fact – have worked because the British economy was domestic. We made and consumed largely within our own borders.

Globalisation has changed that dynamic, and it’s why the central bank has found raising the base rate less effective at curbing inflation than it has been in the past. It is a very blunt sledgehammer to crack the inflation

nut. It is also the reason that London remains a steady ship. The city’s economy is global, and thus is far less exposed to domestic supply and demand dynamics.

There’s no denying that higher mortgage rates will affect London’s housing market, but I think the effects will be felt at an individual level. Those who are highly geared, those whose circumstances have altered in recent years, and those who are simply unlucky.

It is truly dreadful for those who will find their lives changed –sometimes swi ly and painfully.

Nevertheless, London as a market will weather this storm, as it has weathered storms for centuries.

Litmus test for the market

I was heartened to read the views of London’s agents in the latest report from the Royal Institution of Chartered Surveyors (RICS). The people on the ground, the people talking to buyers, sellers and investors, are a much more accurate litmus test for where the market really is. They are realistic, but not panicked. Agencies across the board are united in their view that things are by no means as bad as they could be.

Vendors need to be realistic, but not despondent. The demand is there – the mortgage finance is slightly trickier. However, supporting the market is an uptick in investor activity, as they look to acquire whole blocks, and international investors search for opportunities in London and the South East.

One agent observed that there is more negotiation on smaller properties, while those over £1m are obtaining their asking prices.

The latest Prime London Sales Market Report also shows that

demand is robust. Excluding 2020, the number of new prospective buyers was 35% above the five-year average in the first four months of this year.

Supply is also picking up, and the number of sales instructions was 16% higher over the same period, which helped push the number of exchanges up by 8%.

The report’s author Tom Bill said: “London has benefi ed as demand gravitates back towards the capital following the pandemic. Prime markets have also been buoyed the return of international travel, a relatively weak pound, and the fact average prices in prime central London are still 15% below their last peak in mid-2015.

“Lower-value markets are performing more strongly than most anticipated despite the fact mortgage rates are more than double the level of two years ago.

“The bo om line is that the market is experiencing a robust period of activity as confidence returns following a chaotic end to 2022. The number of offers made and viewings are also picking up.”

Pre y robust stuff, which illustrates that even within the many markets of London, there are more than a few reasons to be optimistic.

In the end, whether it is right or wrong, it is a fact that the medicine of higher interest rates is not working for everyone everywhere. London may continue to perform, but other parts of the country are being crucified.

Interest rate policy is a brutal tool to address an inflationary problem that is not felt the same way by everyone everywhere. Perhaps that needs a rethink. ●

Opinion RESIDENTIAL July 2023 | The Intermediary 17

The Inter view.

When Nathan Blissett bought his own house at the age of 25, his career as a professional footballer had not necessarily equipped him with an in-depth understanding of property finance. However, working with an experienced broker, Blissett unlocked an unexpected love of the industry that opened up some entirely new prospects for life after football.

“My wife and I didn’t really know anything about buying a property, but the mortgage broker was amazing,” Blissett says.

“He really took the time to really help us understand the process, and we felt really looked after and cared for, and the process was really smooth.

“I knew at some point I would be finishing football, and that this was something I could get real job satisfaction and enjoyment from –helping people.”

Fast-forward five or six years, and Covid-19 hit, leaving the UK facing a much more challenging environment, both in terms of the mortgage market and the wider economy.

Rather than deterring Blissett, this only made the need for compassionate, transparent mortgage advice more pressing.

“When Covid-19 hit it was the perfect storm, it was a time for myself to reset and just go for it,” he explains.

A crash course and six weeks submerged in the literature saw Blissett achieve his qualifications, after which it was simply a matter of reaching out to as many people as possible who might be able to help him learn and gain real-life experience.

The Intermediary | July 2023 18
Jessica Bird speaks with Nathan Blissett about making the move from football to nance, and why today’s market is all about trust and transparency
Nathan Blissett, principal mortgage adviser at Dwello Mortgages

He says: “Experience counts for so much more nowadays than just qualifications, so I was looking for someone who could give me roles in which I could learn everything from how to deal with clients, speaking on the phone, to how to process an application.”

Two and a half years later, with experience and understanding under his belt, the time was right for Blissett to form his own consultancy, Dwello , which launched in May 2023, focusing initially on business in Telford, but already with ambitious plans to expand.

Transferrable skills

While there are many in this market who would be confident – rightly or wrongly – showing off their skills on the pitch, it might be hard to see what direct transferrable skills there are between these two markets.

Blissett, however, says that much of what he learned in his previous career can be seen in how he handles business now.

“Teamwork and hard work are two points that are massive, and another one would be communication,” he explains.

“Obviously on the football pitch you have to communicate with teammates to get the best out of the team, and it’s also about communicating with individuals from all walks of life. I’ve also lived in various locations in the UK, and it’s enabled me to converse and get my point across to come to an ideal situation, and to help people.”

Speaking of teammates, it was important for Blissett to build Dwello with the right people. Having built relationships with several of his now shareholders over a long period, during which Blissett helped them secure their own mortgages, it became clear that this was the perfect opportunity to create a business that handled challenging cases, in an up-and-coming area of the UK.

The journey to yes

Even before forming Dwello, Blissett’s ethos was to create a relationship of trust and communication with clients, and this is something he has worked to weave into the new business.

“It’s also about the tenacity to get the deal,” he adds. “I’m here to knock down doors for my clients. A ‘no’, isn’t a no for me, it’s a chance to reconvene at another time.

“It’s really about trying to get the best out of a bad situation at times.

“Obviously, all clients are different. You have some that are straightforward, or others that are quite large scale, and others that are

complex. My job is to go to battle for every single one of them, to try and find the best deal. We want to treat all customers the same – as you should – but a lot of firms don’t do that in practice.”

While Blissett is determined to get the best for his clients, he adds that this is sometimes a case of managing expectations.

This kind of open communication means borrowers know their broker has fought for the best deal, even in those circumstances where it looks different to what they might have hoped for.

In practice, this means total transparency with clients, even if it means admitting that something is not doable.

Blissett says: “We want to be champions for our clients – sherpas along the journey to

the top of the mountain, the ‘yes’ moment. That integrity and transparency comes back to us in terms of long-term relationships and referrals.”

Although it takes on a diverse range of clients, Dwello has a particular sweet spot specialising in self-employed borrowers, where incomes can have complex structures.

The firm aims to help these clients maximise affordability, where some lenders might struggle to fit them in a traditional algorithm.

Market movement

This ability to deal with complex cases is only becoming more important as market turbulence persists, and as various forces come together to make incomes and affordability something of a minefield.

For Blissett, there are some headlinegrabbing developments that, if not implemented correctly and with the customer front of mind, could be just that.

“For instance, the 100% mortgage is a big trend, but that’s not really doing what people maybe thought it would,” he explains.

“It had all the headlines, but it hasn’t really come to fruition for the consumer, the end user.”

July 2023 | The Intermediary 19 →
I knew at some point I would be nishing football, and that this was something I could get real job satisfaction and enjoyment from – helping people”

Rather than making a big splash with eye-catching gimmicks, lenders should be addressing the realities for those struggling to secure a deal in an unpredictable market.

“What we’re seeing now is a steady incline in rates, along with a lot of products being taken off the market,” Blissett continues.

“The Bank of England has continued to increase its rates – I thought we would have hit the pinnacle at about 4%, but that’s just the optimist in me. Where do we see it going to? No one knows – no one’s got a crystal ball.”

For Dwello, which offers mortgage, remortgage and protection advice across the residential and buy-to-let (BTL) markets, straddling both sectors is important to understanding opportunities and staying ahead of market trends.

For example, where buy-to-let business might dip due to certain market trends affecting landlords – such as increased regulation and tightening yield margins – the firm can look ahead to how this might tip the scale in favour of owner-occupiers and firsttime buyers.

Indeed, it is not all bad news for home buyers, as Blissett points to a potential movement among portfolio landlords to get rid of properties, which should lead to a slight ease in stock constraints for first-time buyers, in turn helping to bring property prices down.

Blissett notes that there are other practical ways to help buyers in the current market, highlighting in particular the idea of salary sacrifice mortgage payments, helping individuals save on tax and National Insurance (NI) payments, as with their pensions.

Although the Government has been clear that it currently has no concrete plans to introduce this, Blissett says: “We just want to be on the cutting edge of whatever’s happening – to understand it and try to implement it when possible.”

Plans for the future

While Dwello focuses on the market in Telford for now, the plan is to build out a nationwide presence and scale the business accordingly.

Blissett says: “When we started, that was the main question: where do we want to see the business? We thought, if we’re going to build something, let’s build something we can grow into, rather than getting off the ground running.

“We’ve really put a lot into our research and development, marketing, and the brand itself. You can see with the kind of traction we’ve got already that it’s paying dividends.”

Looking ahead to Q4 2023, Dwello plans to expand its number of employees, and is working towards its first acquisition, with a view to scaling the business. Otherwise, Blissett says, it is all about introducers’ referrals and building relationships.

“We’re trying to work with as many likeminded businesses, estate agents, accountants and solicitors as possible,” he says.

Even with its ambitious growth and expansion plans, Dwello aims to keep the values of trust, transparency and communication at its core.

Blissett concludes: “We really want to be people’s go-to, where you can send a client knowing we’re going to treat them exactly how you would. We’re just here to do business really well with the right people.” ●

The Intermediary | July 2023 20
The Dwello team
Advertise with The Intermediary and reach 10,000 current and next-generation property nance business leaders. With commercial opportunities spanning print, digital and events, e Intermediary has a multitude of creative channels that can deliver your marketing message to the people that matter. Contact Claudio Pisciotta on CLAUDIO @ THEINTERMEDIARY.CO.UK to discuss how e Intermediary can help your business achieve its goals. Want to share your message
the industry?

From order-taker to educator: The broker’s role

Financial literacy is the cornerstone to building wealth. It gives people the confidence and ability to make smart decisions when faced with financial choices, by providing them with greater insight into how to budget, save money and avoid ge ing into debt.

Having these skills has never been more important than in the current economic climate, where fast-changing interest rates and rising living costs are forcing many people to reassess their household budgets as they learn to prioritise financial demands and make some sacrifices along the way.

Recently, I was invited into a local pre-school to talk to 17 three-year-olds about how to save money, and I started by giving the children a Loughborough Building Society piggy bank and four pence each. I also had some sweets for sale at a rate of two pence per sweet.

The children were given free rein on how to spend their money, and could either save the four pence with opportunity to gain another four pence, buy one sweet, save two pence and gain another two pence, or buy two sweets and spend the lot.

Unsurprisingly, 10 children spent all their money, but seven chose to hold back, leaving them with the option of purchasing some bigger sweets at four pence each. At this stage, six of the remaining children decided to spend all their money on the larger treats, leaving them with nothing. At the end of the game, only one child had money le and had managed to turn four pence into 16 pence by saving her money.

The experiment taught the children an extremely valuable lesson about basic money management skills, and

though it had to be simplistic given the age group, the underlying message about the importance of saving money was clear.

Conducting this experiment made me think about the importance of financial education in schools, and why basic money management skills such as savings, debt, tax and mortgages should be taught in the classroom.

It also made me acknowledge the current changing financial landscape, and its impact on the role of the broker, from order-taker to educator.

Harder than ever before

Over the past 15 years, historically low interest rates meant mortgage deals were plentiful, and finding a suitable product for the majority of clients was a relatively simple task. However, in the current climate this is no longer the case, and brokers are having to work harder than ever before to secure a good rate for their clients in a rapidly changing and frustratingly volatile mortgage market.

Brokers are also having to manage and reset the expectations of many of their clients about why operating in this new normal means their money may not go as far as it once did, and how this may impact their homeownership aspirations.

Conversations like this can be very difficult, particularly if a basic understanding of the fundamentals of finance is lacking. As the initial point of contact for borrowers looking for a mortgage, brokers have involuntarily become the educator, which means they’re under more pressure to help borrowers understand every single aspect of their finances and how it relates to their mortgage application.

As lenders, we have a duty to step up and support brokers in this new role

by seeking out ways to help customers understand the basic principles of financial literacy and mortgage borrowing.

Brokers come to us to discuss the best solution for their clients, so working with brokers to identify the challenges they’re facing and any gaps in consumer knowledge is imperative.

Like many other building societies, Loughborough plays an active role in the community, and was established with the aim of helping people in the heartlands to save money and buy a home.

While this ethos still rings true today, my recent visit to the local preschool reminded me of the importance of giving back to the community, and highlighted the ongoing responsibility of the industry to ensure that we educate consumers on all aspects of finance.

While instilling these values early can help lay the foundations for more financially savvy consumers in the future, for those borrowers currently facing an immediate increase in their monthly mortgage payments, the industry needs to find ways to educate consumers on changing mortgage dynamics and the impact of this on their finances going forward.

The intermediary market remains at the forefront of this. ●

Opinion RESIDENTIAL The Intermediary | July 2023 22
Brokers are having to work harder than ever before to secure a good rate for their clients”

Consumer Duty will help us support clients for life

So, what even is ‘a er sales service’ where mortgage advice is concerned? Is it just remembering to send the client a bunch of flowers when they pick up the keys to the new home you’ve arranged the mortgage for, or is it more than that?

With interest rates escalating by the week and Consumer Duty likely to be in force by the time you read this, long-term support for customers has never been more important.

US President Benjamin Franklin once said: “Nobody cares how much you know until they know how much you care.”

New opportunities

There is a lot of fine rhetoric about the need for mortgage brokers to work their back book and keep in touch with clients. But despite the platitudes, do brokers really think of a customer as being for life, or just for the duration of the mortgage process? Especially when business is going well and there is a stream of new opportunities walking through the door.

The reality is that many think of mortgage advice as starting and finishing with a mortgage or remortgage. But that needs to change – not just because of the introduction of Consumer Duty, but also because, in a tougher market, it makes good business sense. The rise in interest rates and a waning appetite by homeowners to take on further debt mean many brokers are finding it harder to match the income they generated last year.

The ticking timebomb of 1.5 million people coming to the end of their fixed rates this year means clients need us now more than ever, with many facing a trebling of interest

rates. How many of those borrowers, if not contacted by their broker, will just take the lender’s product transfer option? How many, while panicking about the rise in interest rates, will have cancelled their protection policy? The policy that may be their saviour around the corner.

Client services

It’s not always easy to give clients the ongoing care they need. It takes planning and a proactivity which is not always possible when you’re busy.

At Just Mortgages, with this in mind, we’ve made it much easier for brokers to look a er a client for life by se ing up an entire team to contact clients regularly on their behalf. Our client services team checks in, sees if anything has changed, and sets up further appointments with our brokers to provide a financial review and ongoing advice – o en helping to keep that valuable protection policy in place, or even claim on it if required.

Our customer care has always included reviews every couple of years and contact six months before the end of their tied-in period.

Consumer Duty, however, means this process needs to include many more regular touchpoints to see if a client’s circumstances have changed, help establish ongoing vulnerability, and update advice.

Life changes

For those about to come off a 5-year fixed rate, for example, life might have changed significantly. If a couple were first-time buyers five years ago, they will have been through Covid-19, one of them may have become ill – perhaps even long-term. They could have been made redundant, or forced to change their jobs. They may have had a child, with one person now working

fewer hours. In other words, this couple could well be in a dramatically different financial place to the one they were in five years ago, and they are likely to be very worried at the prospect of an interest rate hike.

Financial review

Consumer Duty is an opportunity for us to think more broadly about clients’ needs. While a broker may advise only on mortgages and protection, clients should now undergo a full financial review every year.

If that review highlights needs beyond mortgages or protection, then it is in the client’s best interest to refer them for more specialist advice, perhaps for wealth or pensions advice, or for equity release or later life lending.

This is about more than customer retention. It’s about what’s right for the customer. Regular reviews and touchpoints mean that we are here for the client when they need us, rather than when we – or they – think they need us.

Consumer Duty is an opportunity to make sure that we genuinely meet our clients’ needs. It’s also an opportunity for us to stress-test our own service.

By showing our clients that we care, and by keeping in contact with them – at least once a year – we will be a consistent part of their financial journeys, supporting them throughout the duration of their mortgage, from first-time buyer to potential equity release customer and beyond.

Only then will we truly have clients for life. ●

Opinion RESIDENTIAL July 2023 | The Intermediary 23

The case for a product lies in the consumer

Every so o en, the UK mortgage market is compared to European and American markets. Countries including France, Germany, Denmark, and the US tend towards fixed rates that match the mortgage term – 25-year and 30-year fixed rate loans, in other words.

In contrast, the UK market is dominated by 2-year and 5-year fixed rates, with all manner of explanations as to why that might be. Not all, it should be said, are terribly fair.

Regardless of why the UK mortgage market evolved this way, there is no doubt that short-term fixed rate products force borrowers to remortgage multiple times during the term of their loan.

Long-term fixed rates have the advantage of providing certainty for borrowers for the full duration of that loan. It also means borrowers are less exposed to short and medium-term economic volatility, reactive monetary policy, and payment shocks.

In the current market, certainty offers obvious comfort, particularly to those borrowers coming off very low fixed rates and facing a sharp rise in their monthly outgoings. It’s worth remembering that exposure to market rates works both ways.

Bank rates around the world fell in the wake of the US sub-prime mortgage crash, and borrowers paying a perfectly competitive fixed rate of around 7% in 2007 found they could remortgage at 3% when their deal ended, and then two years later they were being offered a fix below 1%.

One does wonder whether someone taking a 30-year fixed rate in 2007 when the base rate was 5.75% would have been delighted for the next 15 years. On the other hand, that same

homeowner would probably be feeling a li le less short-changed today.

Were someone to have taken a 30year fix in 2017, their rate could quite plausibly be lower than today’s base rate at 5%.

The prospect of another 24 years locked into what today’s remortgagers would probably give their eye teeth for might leave them feeling vindicated.

The grass is always greener. Every model has pros and cons, and there is room for both. Understanding borrowers is key to knowing what is appropriate for their outcome.

Time in the market

There is a time-honoured adage rolled out by the investment industry regularly and with alacrity: it’s not timing the market, it’s time in the market.

Let’s rewind to 1993, when the base rate was 5.88%. In 1998, the Bank of England raised it to 7.5%. In March 2020, Covid-19 hit and lockdown stopped the economy overnight.

In the most drastic monetary policy cut in history, the Bank of England slashed the base rate to 0.1%. Shortterm fixed rates, priced on markets’ short to medium-term interest rate expectations, rise and fall in line with that.

The borrower carries the risk in exchange for the reward that is very cheap mortgages when they’re available. However, risk plays both ways, and a er more than a decade of the base rate below 1%, an entire generation of borrowers became homeowners without any concept of that trade-off.

Add to that mix the Government bailouts that staved off global financial collapse in 2009, and the emergency support payments precipitated by the pandemic.

The result for millions of homeowners who first took a mortgage in the past 10 years is a misconstrued assumption that the Government and Bank of England will take the pain away when the going gets tough.

Returning to the point about risk, the base rate high in the past 30 years may have been 7.5% and the low just 0.1%, but the rolling average was 4.35%. Many of those stressed at 3% over standard variable rate (SVR) will probably be able to afford current prices, but some who took longer fixes may be in for a nasty shock.

Considering all the factors

Any broker worth their salt will remind you that rate is just one of many considerations when choosing a mortgage. Early repayment charges (ERCs), portability, the availability and access to further advances, earning potential over a full career and the consequent affordability constraints – these are just a few factors borrowers must consider.

The length of any fixed rate term should now be part of those considerations. That which anyone in the regulated advice business knows to be true: every circumstance is different. What is right for one borrower is wrong for another, and the other way around.

The Consumer Duty rules go live soon, and the question advisers must ask now is: how will short and long-term fixed rates affect consumer outcomes? The answer will, as ever, depend. The important thing is that the question is asked. ●

The Intermediary | July 2023 24 Opinion RESIDENTIAL

Sound investment or expensive mistake?

Rising rates

Every day we are asked the same question by first-time buyers: “Is now a good time to buy, or should I wait?”

Let’s face it, from an outsider’s perspective the mortgage market – and the property market as a whole – looks quite unappealing.

Mortgage rates are rising daily, property values are either remaining high or in a lot of cases starting to drop only as interest in purchasing faulters, and other household bills associated with homeownership have spiralled out of control.

Despite all this, though, is it a good time to purchase, or should new buyers hang fire?

Of course, this debate doesn’t apply to people who are not currently in a position financially to purchase, but if someone is considering purchasing a property now or in the near future, whether a first-time buyer or looking to sell and move, it is important to always look towards the future and consider the power of investment.

Big investment assets

When clients purchase a property, no ma er how high the mortgage rate or the value of the property, they are investing in their future. Yes, the property market is going through a tough period, but historically it has always bounced back. As one of the biggest investment assets most

of us will ever own, a property will appreciate over time, and the sooner someone can buy, the be er their future returns will look.

More than 60% of homeowners in the UK consider their property to be their most valuable asset, and I am surprised that the percentage isn’t even higher.

Freedom to move

One of the main rebu als to this argument that we see frequently comes from private rental tenants and people still living with family at home, who can perhaps afford to buy their first home, but are unsure if they should.

If you can live at home and save money then why not, right? It means avoiding paying out hundreds or thousands a month, which you could keep adding to a nest egg. What about renting a property that you can freely move from when you like, and avoid being tied into investing in a property with an expensive mortgage?

The main issue with these two arguments is that while waiting, clients aren’t gaining anything financially. They aren’t creating equity or investing in anything.

In fact, the longer someone waits, the more they are investing in their landlord’s property, without any returns. If they are living at home, the longer they wait, the more potential asset appreciation they are losing.

We are in a period where mortgage interest rates are higher than they have been for a number of years. Unfortunately, that is a reality that we are going to have to get used to. Mortgage rates will come down, but long gone are the days of rates at 1% or below.

For landlords in particular, these rate rises will hit hard and will narrow their profit margins. Are landlords going to cover these extra costs themselves? Absolutely not. It will be renters who will be worse off per month.

So, investing in your own property and paying your own mortgage will always be more beneficial if you can afford to purchase.

But what if property prices drop significantly? This is perhaps one of the biggest worries that every property owner has at some point or another.

The simple answer is that if the client is not planning on selling any time soon, then they don’t need to worry about it! As long as they aren’t hoping for a quick ‘buy and flip’ job, then it doesn’t ma er too much if a property goes down in value due to market conditions, because it will come up again. A property is a longterm investment and there will be ups and downs. But property value has always bounced back, and demand is always going to be high.

We as buyers, sellers, brokers and lenders have a real storm to weather right now, but things will get be er.

Property is a great asset to have, and even if the market struggles, the right property and mortgage market advisers will be able ensure clients’ money is invested in the most beneficial way possible. ●

Opinion RESIDENTIAL July 2023 | The Intermediary 25
Property value has always bounced back and demand will always be high

Could variable rates grow in popularity?

Isaw something interesting within some recent data tables, published by the Financial Conduct Authority (FCA). It showed that in the first quarter of 2023, the proportion of all new residential loans – gross lending – that were on a fixed rate had dropped. While 83% of all loans were on a fixed rate, that proportion was previously 94.5%, and it had remained in the 90% range since 2017.

This got me thinking. In this new interest rate environment, could and should we see more variable rate products from lenders, such as base rate trackers?

Not only could a rise in variable rate products give brokers and clients more choice, it would also ease some pain with repricing of mortgage products.

My conclusion is that a greater choice of variable rate products could help. Although fixed rates would still remain the go-to choice for most clients, variable rate products should get some more consideration in the product development room.

While fixed rates naturally give certainty over repayments, a variable rate product could give some clients more flexibility. Who knows, interest rates could come down in the future.

For example, this would be particularly true where the tracker product, for example, has no repayment charges, or maybe just for year one. Some might allow more flexibility with overpayments.

There are also some discounted variable rate products, which could help clients. Each client has different needs, but it was interesting to see that there was an increase in variable rate products in the first quarter of this year. It will be interesting to see if this trend continues.

Maybe we will seem some product innovation with a product that is variable now and then reverts to a fixed rate in, say, two years. Maybe.

No crystal ball

In the early 2000s, I thought interest rates would rise, and I had a tracker product. I panicked and paid a redemption fee to get a fixed

rate. Interest rates then went down! Although they did rise about 12 months after that, I should have stuck with the tracker product.

No one knows what interest rates will do in the future. Most of us who made predictions for this year got it wrong.

While fixed rates remain the popular choice, more variable rate options could provide greater choice for intermediaries and their clients. For some borrowers, there may be a preference to have more flexibility and fix in the future, so a variable rate may be the right outcome.

The challenge right now is that there is real uncertainty about interest rate peaks. This has been a moving goalpost for a while, and the markets seem to be suggesting a 6% peak.

This could change in either direction – some have suggested that this peak could be lower, others suggest higher – but it is all down to one thing: that inflation figure.

Therefore, a variable rate could be an option for those clients with a more optimistic outlook regarding interest

The Intermediary | July 2023 26 Opinion RESIDENTIAL

rates and the economy as a whole. For others, the conventional fixed rate prevails.

Better choice, not more choice

As mentioned, more variable rate products will also help lenders – and brokers – as these products will not need to be repriced every 48 hours. Naturally, we will still need a strong selection of fixed rate options, but from my experience, lenders will have a lot of products that generate very little business. These can be replaced by variable rates, and who knows, that could improve the whole process of launching repriced products in the future.

A different lens

In a changing market, different solutions need to be created by looking at the challenges through a different lens. Listening to brokers would be a great start, to hear their views on product innovation.

Looking at the past can also help, but must be done with a mindset that

can apply the past into today’s market. In the run up to the Credit Crunch – the last time we saw interest rates of this level, and the last time people spoke about swap rates on a daily basis – about one-third of new mortgages were variable rate products.

While we need fresh thinking, a quick look at the past can help throw some perspective. It can help by seeing what products were available then to get some ideas – ideas that could lead to new products that are appropriate for this new market, and of course for a different regulatory environment than pre-Credit Crunch.

Fixed rates will continue to be the choice for the vast majority of clients, because you know what you are getting. You have certainty. However, there maybe some clients who have a different view, different needs, and prefer variable rate options.

The market needs to keep a close ear to the ground and begin to give the right choice of products. Listening to brokers and their clients will help. That is the key to a successful mortgage market. ●

July 2023 | The Intermediary 27 Opinion RESIDENTIAL
JEFF KNIGHT is director at the Mortgage Marketing Forum

Green mortgages: Modern day snake oil?

hat’s a green mortgage, really? Your guess is as good as anyone’s. One of our members said: “It’s not a yellow, orange or red one!?”

It’s a long(ish) loan associated with buzzwords such as energy efficiency, be er insulation, a heat pump, new windows, solar panels, higher Energy Performance Certificate (EPC) ratings, and no doubt a few other things.

The key thing is, it’s a loan and it’s offered by banks or building societies keen to get on the green bandwagon, do a bit of virtue signalling, and lend you some more money.

To recognise and understand what a green mortgage is, borrowers will need to know why it would work for them rather than any other form of mortgage – what’s in it for them, apart from the hoped for benefits of whatever ‘green’ thing they want to buy and install.

Lousy incentives

Just to add to the confusion, there is a complete lack of joined up thinking by all those involved in the housing market, especially the Government. The so-called green initiatives are incomprehensible, while lenders can’t agree on which are the best incentives. These lousy incentives, which include the Boiler Upgrade Scheme and the soon to be implemented Great British Insulation

WScheme fail to account for the huge differences in the nation’s housing stock, from detached and semidetached Victorian and Edwardian houses to 1950s and 1960s bungalows and flats, and to more modern properties, all of very different values. There cannot be a one-size-fitsall policy.

It doesn’t take much working out to realise that trying to retrofit or upgrade EPC ratings for most of the existing housing stock to qualify for green and net zero grants is tough and may make no sense from a financial point of view. Who is going to check up that the improvements have been made, for example?

Different lenders offer different incentives. Some are offering preferential rates to homebuyers deemed to be purchasing an ‘eco’ home – which may have solar panels or a heat pump – while others are backing home improvements such as double glazing and improved insulation, o en via cashback offers.

It is doubtful that such incentives will have a great effect, as they are relatively small. Put against the increase so far in Bank of England base rates from 0.1% to 5% in the past 18 months, and subsequent turmoil in the mortgage market, the energy efficiency of their home is the least of borrowers’ worries. Try hanging on to it first.

In addition, we are now told that a tenth of smart meters – or about three million already installed – do not work. Nevertheless, the Government and energy providers seem determined to

stick to the deadline of 2025 to install them in at least 80% homes, new and old.

Will any of this persuade enough homeowners in older properties to change their habits, just because the Government is chasing an uncosted dream of net zero and banning the installation of gas boilers in new homes?

Good honest lending

How can lenders and intermediaries be assured that they are offering clients funding for products that really do make their homes as energy efficient as possible, cut carbon emissions and, more importantly, save them money?

Some of the technologies currently being pushed may well turn out to be like 3D TVs, bendy mobile phones, Sinclair C5s or Betamax videos – this has all the hallmarks of some new mis-selling scandal in the years ahead. We hear that King Charles ordered that thermostats in the occupied rooms at Buckingham Palace be turned down to 19-degrees Celsius to save energy. Now, that makes sense. So, what’s the answer? There is a good case for improving our existing housing stock, and energy efficiency measures properly applied can be an important step forward.

However, you don’t need a ‘green’ label to achieve that. Let’s just get back to good honest lending and leave the decision to go green to the borrower. If the Government can provide some carrots to help us, rather than just sticks to beat us, that would be great! ●

Opinion RESIDENTIAL The Intermediary | July 2023 28
Good honest lending: Always read the label

Net zero for housing is now a real work in progress

Improving the energy efficiency of our homes is going to be a huge job, but one that is fundamental to the UK reaching its net zero obligations. Office for National Statistics (ONS) data shows that England and Wales both have a median energy efficiency rating of Band D. Ge ing those homes up to C will be costly and complex to deliver, while still not reaching net zero.

The UK’s housing stock is widely varied in terms of type, age, exposure to environmental risk and construction materials. The need for a comprehensive strategic and nuanced approach is clear.

The latest ONS report shows that flats and maisone es are currently the most energy efficient property type in both England and Wales, with a median Band C. Social rented dwellings had the highest median energy efficiency score across all property tenures in both England and Wales.

Meaningful improvements

In both countries, four in five dwellings used mains gas as a primary source for central heating. Knowing this is important, but it’s not especially useful when it comes to meaningfully improving those scores.

As it stands, the industry’s only tool to measure a home’s energy efficiency is the Energy Performance Certificate (EPC). These are based on data about a building’s energy features – for example, building construction type, heating systems and insulation.

While EPC assessors consider more than 100 features within each home, there is a growing view that the data quality gathered could be assessed differently. Knowing whether a home is supplied by both gas and electricity,

or has a more efficient heating system, is one element of measuring its carbon footprint. However, when it comes to working out what exactly to do about inefficiencies, you need more information. You need details, specifically, on the property’s condition. For that, you need an entirely different approach.

While building surveys can produce this level of detail, storing that data accurately, consistently and in a state that makes it useable is only the beginning.

Digital technology

A recent report from the National Infrastructure Commission (NIC) revealed a serious concern among senior market stakeholders that the effort to improve stock was running into difficulties caused by a lack of understanding of the options available to improve energy efficiency.

Several respondents highlighted that housing was a sector where “digital technology can participate in achieving net zero targets and other environmental improvements.”

Among the calls for more granular data and information were suggestions that tech should be used to enable a be er understanding of energy usage as well as increasing efficiencies. Examples ranged from smart meters linked to demand management systems, to artificial intelligence (AI) powered climate research and carbon capture facilities.

This technology already exists in the commercial sector, with a minority of energy suppliers able to offer flexible tariffs based on spot pricing to allow households to carry out energy hungry tasks when electricity and gas are cheap. In practice, it is deployed to benefit the end user, but it’s possible to imagine that technology being used

to provide a more systemic system for energy supply. This is just part of the puzzle, however.

Redrawing the map

Knowing the destination is one thing, ge ing there is quite another. If you don’t want to end up stuck down culde-sacs, you need a map.

This might mean anything from a standard retrofit assessment to an enhanced assessment, which uses the latest virtual and drone technology. Using our system, we are creating an accurate, digital, virtual model of the UK’s housing market.

For the first time, lenders can know for certain what property condition risk they carry in their back books, allowing for more accurately targeted, commercially-driven incentives to improve energy efficiency within a diverse housing market.

A strategic approach is not only possible, it’s happening.

We recently joined the GFP Decarbonisation Delivery Framework, set up by five housing associations to provide retrofit and consultancy services to support the delivery of decarbonisation works to social housing stocks across the UK.

The aim is to ensure homes achieve at least Band C by 2030, something CoreLogic UK will be central to. We are providing a programme of retrofit assessments, design and coordination services across North England and North Wales, the Midlands and Mid Wales, as well as Scotland.

Net zero has been a difficult concept for the housing sector so far. Now, we’re on the next leg of the journey. ●

Opinion RESIDENTIAL July 2023 | The Intermediary 29

A nation of shopkeepers

‘Anation of shopkeepers’ –the now famous a empted insult by Napoleon Bonaparte towards Great Britain in the early 19th Century – has in fact become a badge of honour.

Instead of being taken in the spirit it was intended, we have adopted it as a positive reference to the historical significance of trade and the everpresent entrepreneurial spirit found up and down the UK. Throughout its history, Britain has been a hub of commercial activity, driven by innovation, exploration, hardworking a itudes and economic prowess.

Importantly, the ‘nation of shopkeepers’ phrase also reflects the importance of small businesses in job creation, fostering innovation, and boosting the economy.

One might think that with the rise of e-commerce, globalisation and large-scale retail chains, the time of the independent shopkeeper would be over. However, recent research from American Express has found otherwise. It shows that 40% of Brits dream of starting up their own small business – from bookshops and cafes to bakeries and record stores.

The research also found that 46 is the ideal age to make those start-up dreams a reality, driven by people’s desire for independence and a longing to follow their dreams.

Furthermore, the Federation of Small Businesses (FSB) found that, at the end of 2022, 10% of the estimated 5.5 million small to medium enterprises (SMEs) in the UK were in the wholesale and retail trade and repair sector. That equates to just over half a million businesses.

This means that not only are millions of Brits dreaming about se ing up their own shop, but hundreds of thousands of them are actually doing it.

Nevertheless, choosing to the take this leap and embrace becoming self-employed is undoubtedly a scary one. Even more so for individuals in their 40s, when they have most likely forged a career elsewhere and also find themselves with some significant financial commitments.

Borrowers are changing

What does this all mean for the mortgage industry? My view is that it offers an exciting example of how the lives and circumstances of the borrowers we support are changing –but also that we must be ready to adapt to serve them.

Let’s take an example given in the American Express research: a 46-yearold person, who has worked their entire life in full-time, permanent employment before qui ing their job and realising their dream of opening up their own coffee shop. They have successfully been building their business up, when the time comes to remortgage their home.

We know that self-employed workers can find it more difficult to secure a mortgage and can find the

whole process more stressful. When applying, this newly self-employed shopkeeper will need to provide thorough documentation proving their income and financial stability.

However, income for self-employed workers is typically evaluated differently from full-time permanent workers, with the need to look further into fluctuations in income streams and the stability of the business.

Helping the self-employed

While these evaluations are there for a reason and must be done thoroughly to ensure that applicants can comfortably make their monthly repayments, the industry should be looking to see what they can do to make the mortgage journey easier for the self-employed.

We have recently amended our lending criteria for self-employed borrowers, reducing the number of years of accounts required from three to two. It’s a small step in the right direction, but we know there’s more we can do.

Another critical element of this is lenders keeping their lines of communication to intermediaries open, so that we can work together to reduce the pain points these borrowers feel on their mortgage journeys.

Small businesses are the backbone of Britain. While half a million newly self-employed retailers is something to celebrate, it also presents a challenge to the mortgage industry that I hope we can rise to.

By working together and making the mortgage journey for the newly self-employed easier, lenders and intermediaries can do their part in supporting the entrepreneurial spirit we are so famed for. ●

Opinion RESIDENTIAL The Intermediary | July 2023 30
ALISON PALLETT is sales director at Nottingham Building Society 40% of Brits dream of starting up their own business

The UK housing crisis in full swing

The UK is in the midst of a major housing crisis. Earlier this month annual house prices fell for the first time in over a decade. Mortgage rates – both fixed and standard variable rates (SVRs) – are continuing to creep upwards, inflation remains stubbornly high, and cost-ofliving pressures are impacting us all.

Ever more aspiring homeowners are struggling to buy, with many feeling they will never be able to afford to.

Housing has never been less affordable, and today’s young people are less likely to be homeowners than any generation since the 1930s. Indeed, 49% of young people told us they doubted they’d ever be able to own a home of their own. Homeownership levels among 25 to 34-year-olds have fallen from 70% in the 1990s to just 40% now.

Getting a foothold

UK house prices have risen by more than 400% in inflation-adjusted terms since 1970, compared with 180% in France and just 40% in Germany. First-time buyers have a significantly higher average house price to earnings ratio than ever before, now at almost six-times across the country, and more than 13-times for London. No wonder people are struggling to get a foothold on the housing ladder.

The reasons behind house price growth and unaffordability issues are many, but the underlying cause of our housing crisis is the chronic shortage of new homes being built. Over the past 25 years, the population of the UK has risen by around 10 million, but we continue to build fewer homes than ever before. Just over one million new homes were built in the 2010s, compared with more than 3.5 million in the 1960s.

The UK lags behind the rest of Europe with its house building performance. Recent analysis by the

Centre for Cities found that if the UK had built at the same rate as the average European country since the 1950s, we would have upwards of four million more properties.

Is this speci c to the UK?

The availability and cost of land is one of the most significant long-term barriers to building more homes of the right size, decent quality, and affordable prices. UK planning policy is notoriously contentious, but we must find ways to address the crippling lack of supply.

We urgently need serious reforms of our planning system, including having a proper conversation about the green belt. The concept evolved from the garden city movement, founded by urban planner Ebenezer Howard at the start of the 20th Century, so that industrial workers would have access to fresh air and green fields.

Clarke argued for areas that do not have genuine environmental value to be redesignated as ‘amber belt’, available to be developed in exchange for substitution elsewhere.

As we approach the run-up to the next General Election, housing issues are, quite rightly, shooting up the political agenda.

Labour says it will “back the builders, not the blockers” and has announced several changes to shake up planning rules.

Meanwhile, the Conservative Government – somewhat bruised by its own controversial planning reforms – has suggested it might be looking for a Help to Buy style solution to drive housebuilding and to help first-time buyers.

Supply and demand

What’s very clear is that much more needs to be done to help young people onto the housing ladder.

Almost 60% of local authorities in England have now got designated green belt land, and over 12% of England’s land has the highest level of protection against development.

Research has shown, however, that a lot of the green belt has been wrongly classified and is just a buffer between urban sprawl and the countryside. According to property and planning database Searchland, just 1% of green belt land could facilitate almost three quarters of a million new properties.

At the beginning of June, in a House of Commons debate on delivering new homes, Conservative MP Simon

Homeownership is in crisis, and we need to resolve the supply and demand side issues. We need to build more homes, maximise the potential of existing properties, and improve and grow schemes such as Shared Ownership to unlock alternative routes to homeownership.

Buying a home of your own should not simply be the preserve of the wealthy, those with access to the ‘Bank of Mum and Dad’, or those waiting for an inheritance windfall. Homeownership should be available to everyone.

Here at the Leeds, we will continue to try to find ways we can help, and we will continue to put homeownership within reach of more people, just as we have for almost 150 years. ●

Opinion RESIDENTIAL July 2023 | The Intermediary 31
Just 1% of green belt land could facilitate almost three quarters of a million new properties”

Looking past the adverse credit headlines

The UK mortgage market is an essential aspect of the country’s economy, enabling individuals to fulfil their dreams of homeownership. However, in recent years the landscape of the mortgage market has seen significant shi s, particularly concerning adverse credit and applicants with arrears.

The lengthy Covid-19 pandemic, followed by the ongoing cost-of-living crisis and an extended period of interest rate increases, has led to more people experiencing credit blips.

These credit blips can have a detrimental impact on their ability to secure a mortgage.

The cost-of-living crisis in particular has become a pressing issue for many UK households, causing financial strain and an increased risk of credit problems. The rising costs of household essentials, utilities, and food, coupled with stagnant wage growth, has put a significant burden on individuals and families.

This has led to a higher likelihood of missed payments, late payments, or other financial difficulties, causing adverse credit.

Difficulty in managing everyday finances, resulting in missed payments, defaults and County Court Judgements (CCJs) is a red flag to many lenders, and can be a significant obstacle when applying for a mortgage, as lenders perceive it as an increased risk.

Traditional lenders typically rely heavily on credit scores to assess an applicant’s creditworthiness. A history of missed payments or defaults can lower credit scores, making it more challenging to obtain a mortgage.

As a result, many individuals find themselves caught in a Catch-22

situation: they need a mortgage to secure stable housing away from the increasingly expensive rental market, but their adverse credit makes it difficult to obtain one.

Taking a deeper look

While traditional lenders may be less inclined to offer mortgages to individuals with adverse credit, the market has become more diverse in recent years, with specialist lenders emerging to cater to this specific group, including ourselves here at Buckinghamshire Building Society, with our Bucks Solutions and Impaired Credit ranges.

By basing a lending decision on a full credit search instead of just a credit score, and taking a commonsense approach to a customer’s circumstances, it’s possible to move past the adverse credit headline and take a deeper look at what caused those problems.

By manually underwriting every case, I personally believe it gives a fairer outcome to the applicant, rather than lenders that rely on automated yes or no answers, based on computer programs and algorithms.

Prioritising the essentials

While credit blips can undoubtedly pose challenges, there are steps individuals can take to minimise the problems caused by falling into arrears and improve their chances of obtaining a mortgage.

Monthly budget plans are an invaluable tool to help keep track of spending and enable be er financial management by tracking and prioritising essential outgoings.

Regular monitoring of credit reports also allows individuals to identify any inaccuracies, outdated information and can even highlight

potential areas of improvement. The most important piece of advice I could give to anyone struggling financially, is to be proactive and communicate with the lender, company or service provider as soon as possible. I’ve seen it so many times throughout my career where minor credit blips turn into major credit issues because of an unwillingness to talk about the issue and find a solution.

No ma er how bad things may seem, talking about it always helps and can o en lead to more flexible arrangements before credit files are affected. Even if you don’t feel able to discuss it with the provider directly, there are so many independent debt advice charities these days that can offer free, confidential advice and stop the situation escalating.

Consider the criteria

It’s important to highlight that although it can be difficult to obtain a mortgage with a less than perfect credit history, there are still a range of options available. A number of lenders, including ourselves, will consider everything from one-off missed payments right up to applicants with an active Debt Management Plan.

With market conditions as they currently are, and with potentially more individuals suffering credit blips over the months to come, it’s important that brokers are well versed in lenders’ criteria and know which lenders will look at which cases. Applying to the wrong lender can exacerbate the situation. Even just a couple of unnecessary credit searches on a borderline credit file can cause harm. ●

Opinion RESIDENTIAL The Intermediary | July 2023 32
CLAIRE ASKHAM is head of mortgage sales at Buckinghamshire Building Society

In favour of the many over the few

opinion, a case for broadening funding bases. The risks of being beholden to one line when it may not be enough in a worst-case scenario are existential.

Traditional business models – and I am including those that came about in the last 20 or 30 years – are having to evolve at a pace we haven’t seen before, and understand the threats not only from operational risk and competitive threat, but also funding sources.

Forgive my adaptation of this old political slogan, but as with so many things in life, when it comes to managing risks, having options strengthens your hand.

Just before writing, I spent some time in Barcelona at the Asset Backed Securities conference. It was a worthwhile reminder of the importance of networking, but also of ge ing different views on a universal challenge: funding.

Pivotal role

Given that lending businesses play such a pivotal role in the UK economy, the growing challenges facing funding, funders and lenders must be understood by boardrooms, and then mitigated. A er all, mortgage lenders bridge the gap between those seeking financial assistance and those with the means to provide it, and funding lies at the heart of that relationship.

It’s important to them, but it is also important to the broader economy, because the capital they provide to borrowers drives activity and encourages investment.

The funding issue, and subsequent risks for boardrooms, is not

straightforward. Securitisation markets remain subdued for now, but the costs and issues facing other sources may see them back in play soon enough.

UK residential property is still regarded as a good risk. Even some current retail lenders which seek access to new markets but are saddled with legacy systems are considering becoming institutional investors themselves. They will access markets through smaller, more nimble lenders in lucrative markets like portfolio buyto-let (BTL).

Equally, institutional investors wary of commercial property appear willing to grow their share of the residential market.

Then we have inflation, its impact on other already inflated asset groups, and the increasingly expensive effect on raising and keeping retail deposits.

Finally, we are already seeing an increase in the repayment of current borrowings under the Term Funding Scheme.

Worst-case scenario

Rising interest rates are making that route of borrowing expensive. Those using this facility will be keen to pay it off quickly. All of this creates, in our

It’s a complex ecosystem with many potential blind spots, but few are as material as funding and capital.

Complex needs

Diversifying funding sources enhances a business’ resilience, as well as supporting the delivery of growth, and the ability to meet the increasingly complex needs of borrowers, by reducing the dependence on a single channel. We can reduce a lender’s exposure to the risk of disruptions or tightening credit conditions. Multiple sources of funding provide a safety net and allow lenders to have the confidence that only a continuous flow of capital can provide.

It’s clear that no ma er who you spoke to last month in Spain, having a narrow funding stream or funding options in the modern lending market is not ideal.

Any one of these routes is liable to shock, and developing effective fallback positions is at the heart of prudent risk management.

With interest rates climbing and seemingly set to continue doing so, the strain on capital is starting to tell.

Innovation may become popular again, as traditional sources come under pressure from domestic and international economic pressures. ●

Opinion RESIDENTIAL July 2023 | The Intermediary 33
TONY WARD is non-executive chairman at Fortrum UK residential property is still regarded as a good risk

In Profile.

Jacqueline Dewey, Smart Money People

Jessica Bird speaks with Jacqueline Dewey about how technology can enable better choices, and why price is only part of the equation

Prior to taking the helm as CEO of Smart Money People three years ago, Jacqueline Dewey’s career included setting up the first free credit reporting firm, and being one of the initial team members at the first digital bank in the UK. She has longstanding experience not just with financial services startups, but in environments where technology is key to helping customers make better choices, laying the perfect foundation for the data-driven work she spearheads in her current role.

“I enjoy helping people and breaking down the barriers for them to make decisions, for example with access to credit scores,” Dewey explains.

“Smart Money People is in a similar genre of helping facilitate better choices.”

The business, the UK’s dedicated financial services review site, has recently published the milestone 10th edition of its Mortgage Lender Benchmark, which focuses on helping lenders fully understand what brokers think and need, as well as how they compare with competitors and peers, all with a view to improving a market that is integral to the country’s financial wellbeing.

This, Dewey explains, is only becoming more important as chaos and confusion abound around rates and criteria, with brokers calling for elevated service levels and better communication, all against the backdrop of the impending Consumer Duty deadline at the end of July.

Deep into the data

As someone with her career history, Dewey understands the importance of quality technology and data in bringing light to what is a typically clouded field.

“An awful lot of financial services has historically been shrouded in mystery,” she says.

“As a country, we also do very poorly in educating our children and young people in finance. So, it’s important that we make that information available to people looking to make decisions. Buying a house is a long-term

commitment, and people need that information. Fintech has been revolutionary in opening up these markets to make them more accessible for the person on the street. Every individual needs finance at some point.”

For Dewey, Smart Money People represented an opportunity to bring this case for increased transparency straight to the lenders’ doors, in turn benefitting brokers and borrowers.

“I was approached to look at how we could grow the business, and what the future might be,” she says.

“It was a really interesting business model, with good, solid foundations, and a great opportunity to grow and expand.

“What attracted me, and what made Smart Money People different, is the breadth and depth of data that we collect. So, we don’t just collect the star rating, there’s a lot more data, at a product level not just a company level.

“That creates an opportunity to do something more meaningful, both for customers and companies, but also allows us to benchmark at both an industry level and product level.

“There’s a lot more value-add, helping people be empowered to make better financial choices, but also helping the businesses that provide those services understand what the customers think and feel, to drive their internal metrics.

“With Consumer Duty coming in, that’s even more important.”

Trending topics

Smart Money People’s Mortgage Lender Benchmark was introduced to provide a comprehensive look at the market from an angle which was not yet being explored in full, namely, the broker’s perspective. It’s published every half year, and tracks lender performance and broker satisfaction across 20 themes designed to analyse the whole infrastructure of a complex and everchanging market. These include product ranges, rates, criteria, underwriting, technology and online systems, sourcing, and customer relationship management (CRM) providers.

The Intermediary | July 2023 34

One of the key emerging trends, particularly during the recent turbulence, is communication.

Dewey says: “When things have been quite difficult in the market – with the pandemic, or after the mini-Budget, when things were changing so quickly – those lenders which kept up good communication with brokers were the ones that were rated strongly.

“The role of business development managers [BDMs] is as important as ever, even though there was a lot of talk at times about whether the role would continue to exist.

“Actually, they provide a really vital connection between brokers and lenders.

“This role is becoming more important as cases get increasingly complex, with borrowers facing cost pressures and steep affordability challenges.

“There was a time when there was a lot of focus on rate and product range, but actually these do very little to encourage a broker to recommend a lender – it’s more of a hygiene factor. Service, ease, and speed are the three things that really underpin broker satisfaction.”

Other major themes seen across the 10 editions of the benchmark so far include tech integration, which has emerged in particular post-pandemic. This includes connectivity between sourcing and lender systems.

However, even with the growing importance of tech, it’s still those lenders – particularly building societies – that can combine efficiency with manual underwriting and personalised service, as well as an ability to handle complex cases, that come out top in the ratings.

Whether a new entrant trying to understand where there is a gap in broker needs, or an established institution looking to improve its systems, Dewey encourages all lenders to use Smart Money People’s data to their advantage. “I would encourage them to use it in terms of prioritising areas of key concern, but also areas of success,” she explains.

“It’s not all about the negative. For example, we get a lot of call-outs for individual BDMs, so there’s an opportunity to recognise what the business is doing well, as well as areas for improvement.”

An eye on the horizon

The Mortgage Lender Benchmark recorded record levels of broker satisfaction in the first half of 2023. However, since then this market has seen upheaval in terms of shortnotice product withdrawals and

ongoing rate rises, the effects of which Dewey suggests may start to have an effect on the data in the second half of the year.

“I was quite surprised how strong satisfaction was in the current edition,” she says. “It felt like the effects of the pandemic had calmed down and we were heading back to where the trend was going pre-pandemic.

“It’ll be interesting to see whether that continues in the next edition, whether lenders are able to keep up the good, clear communication with brokers.

“Can lenders continue, in this turmoil, to keep up good communication around, say, product changes, rate withdrawals, and case changes, and also keep their speed to offer consistent? If they can, then I don’t think we’ll see the falls in satisfaction that you might expect.

“However, brokers were scathing during the pandemic about those lenders which didn’t come back quickly and didn’t effectively change their processes and procedures. It could go either way, and it’s very much down to how individual lenders handle the next four or five months.”

While the need to withdraw and change products is largely understood as necessary, brokers have voiced frustration when this occurs at short notice, sometimes outside of normal working hours, and is poorly communicated.

Often this comes back to the issue of integrated tech, where brokers find their cases being rejected because the linking systems have not kept up speed with the rate of product changes, making for difficult conversations with clients.

In terms of further challenges ahead, Dewey says that some attitudes to the impending Consumer Duty implementation are concerning, with many taking a ‘nothing to do with me’ approach that doesn’t account for the allencompassing nature of the regulatory changes.

Beyond this, Dewey points to the growing cost-of-living and inflationary challenges as key concerns. While Government support for those borrowers unable to keep up with payments is to be welcomed, she argues that it is just as important to implement systems that stop people from getting into trouble in the first place. In doing so, lenders could win substantial market share, and even lead a much-needed next step in product evolution.

For Smart Money People, the future includes settling into its rebranded look and feel, launched earlier this year, while maximising investment in its platform, and focusing on continually enriching and improving the quality of its data. ●

IN PROFILE July 2023 | The Intermediary 35

Rethinking the 1-year x

In the current economic climate of unprecedented levels of inflation and rising interest rates, brokers need to be more resourceful than ever when searching for the optimal solution for their clients.

Refinancing isn’t as straightforward as it used to be, and many lenders are frequently declining applicants because of their credit rating, or because they are simply less willing to lend due to the ongoing uncertainty in the UK economy.

In addition, increasing market pressures and higher living costs are presenting further challenges for both clients and brokers, and leading to an increase in the number of customers struggling to meet affordability requirements.

Against this backdrop, many brokers are being forced to step outside their comfort zone and proactively rethink the way in which they source mortgage solutions for their clients, especially when it comes to first charge mortgages.

This area of the mortgage market is changing at a rapid pace, and lowrate fixed term deals are no longer plentiful. Failing to provide a solution and hoping the client won’t look elsewhere is not an option, and risks the loss of both income and the client for the broker.

With this in mind, Central Trust recently launched a 1-year residential fixed rate product as an alternative –and viable – solution for borrowers looking for a wider range of lending options in anticipation of improved market conditions and lower rates in 2024.

The product is available on both first – unencumbered properties only – and second charge mortgages, as well as Central Trust’s Consumer Buy-to-let (CBTL), Family Let and Let 2 Buy ranges across England, Wales, Scotland and Northern Ireland. The minimum and maximum loan sizes

are £10,000 and £250,000 respectively, and a loan-to-value (LTV) of up to 80% is available. An early repayment charge (ERC) of 1% is applicable for the year, and adverse credit ratings outside of 12 months are ignored.

It’s fair to say that Central Trust is standing out from the crowd by offering a 1-year fixed rate product, as short-term mortgages are something that brokers – and indeed the wider mortgage market – are generally unfamiliar with.

However, serving the underserved requires innovation, and with the outlook for the economy seemingly much more stable moving forward –and rates unlikely to return to 2020 levels any time soon, if at all – the market is crying out for new products that offer viable solutions to borrowers adjusting to the ‘new normal’.

Launching a 1-year fixed rate product offers certainty and flexibility for those optimistic about the possibility of rates se ling down over the next 12 months. It also allows clients the opportunity to borrow with confidence, restructure their finances, or enhance their property with a view to remortgaging without being penalised.

Sourcing systems

Despite being an innovative product, one of the challenges we face with introducing a 1-year fixed rate solution is how sourcing systems display this type of product when it’s being sourced against the usual 2-year, 5-year or 10-year fixed or discounted rate options.

To combat this, we spoke with one of the leading sourcing systems, Twenty7tec, to look at the different ways in which brokers can address the needs of those clients our 1-year fixed rate is aiming to help.

Nathan Reilly, director of customer relationships at Twenty7tec, said: “The solution is actually very simple, as by sourcing products on true cost

within the initial term, this would display this product high on the sourcing list, but more importantly give you a true cost figure over the 1-year term.

“In order to assess whether the product would then be a viable solution, brokers can use the mortgage calculator function on Twenty7tec to work out how much it will cost their client to remain on [a standard variable rate (SVR)] for the same length of time.

“This can then help them to decide whether moving their client onto the 1-year fix would be a cost-effective solution and in the best interests of their client.”

A 1-year fixed product may not be for everyone, but for some clients it could be viable option to consider. By using the technology we have widely available in our sector, such options can be assessed more easily than ever before. ●

Opinion BUY-TO-LET The Intermediary | July 2023 36
MAEVE WARD is director of commercial operations at Central Trust
This area of the mortgage market is changing at a rapid pace, and low-rate xed term deals are no longer plentiful. Failing to provide a solution and hoping the client won’t look elsewhere is not an option”

Could cost-of-living crisis increase demand for HMOs?

There are very few people who have been unaffected by the cost-of-living crisis and the rising cost of borrowing. For those who are renting, income had already been squeezed by accommodation costs before the effects of inflation on energy and food bills made ma ers significantly worse.

Of course, you don’t have to own your own home to be adversely hit by higher mortgage rates, as tenants’ rents are dictated by landlords’ (rising) buy-to-let borrowing costs and so are on the rise.

As the Office of National Statistics (ONS) suggests that a person on a median income should expect to pay around 30% of their income on private rent (and more in London, of course), it’s not surprising that tenants are looking at ways of cu ing their costs, including considering moving to a more economically viable place to live.

For example, tenants – especially those aged 18 to 34 – are nowadays much more likely to take the Energy Performance Certificate (EPC) rating of a property into consideration when assessing a rental property, as this has a direct bearing of their energy bills.

The a ractions of an HMO

Demand for houses in multiple occupation (HMOs) remains strong as a result of renters looking for cheaper accommodation. For landlords, yields are generally be er with HMOs and as a consequence, HMO conversions are a popular strategy, especially as existing HMOs command top prices on the purchase market.

An HMO is a property shared by three or more tenants not from the same family. The higher income potential of HMOs is straightforward: landlords earn per room rather than

for the whole property, meaning a higher rental return. Indeed, the monthly earnings could be up to three times as much.

Another benefit for landlords with HMOs is that losses due to vacant periods will generally be smaller, as it’s rare for all HMO tenants to vacate simultaneously. It’s also important to remember that if a landlord decides to sell, an HMO is likely to be worth more than a conventional buy-to-let (BTL) property.

Is it worth it?

In many cases, landlords will find HMO conversion worth it financially in the long run. However, transforming a property into an HMO isn’t an easy or inexpensive task and so should not be seen as quick and cheap fix. With inflation at a 40-year high, the costs of materials, labour, and energy are continually increasing, potentially rapidly exhausting a property conversion budget.

According to the most recent ONS data, covering May 2023, the average cost of materials used in all types of work across the construction sector was 1.5% higher year-on-year. At the same time, some materials are in short supply; for example, there was a 29.7% decrease in brick deliveries compared to May 2022.

Landlords can however deduct 5% VAT off their construction costs when transitioning to an HMO, although it is advisable that they consult a tax adviser to understand how the investment may impact their tax situation.

Meanwhile, turning a property into an HMO doesn’t always guarantee higher yields and so landlords must conduct their own research to ascertain the demand for an HMO in the property’s vicinity.

All HMO landlords must secure a licence from the Local Council Housing Department, validating the property’s proper management and safety standards compliance. Licences require renewal every three years, and there’s no assurance that an HMO will automatically get a licence if it doesn’t meet the standards.

A major hurdle to an HMO conversion can be an Article 4 Direction, a discretionary measure by a local authority. This directive can rescind certain permi ed development rights, requiring landlords to obtain planning permission for usually permi ed development. Councils have o en introduced Article 4 under pressure from local and vocal residents who don’t want any more HMOs in their area. The above factors should not deter landlords, but rather emphasise the need for comprehensive research before pursuing an HMO conversion. For financing an HMO conversion, bridging loans can be the ideal solution, covering the purchase and conversion costs, before switching to a specialist buy-to-let term loan.

At London Credit, our expertise in providing bridging loans for such purposes is extensive, and our BDMs are always available to discuss possible cases. We can offer funding for the acquisition costs and / or the refurbishment costs.

If landlords do their market research and explore the possibility of obtaining an HMO License and, if needed, planning permission from the Council, while at the same time controlling the conversion costs as much as possible, they could see their rental yields increase significantly by converting a property into an HMO. ●

Opinion BUY-TO-LET July 2023 | The Intermediary 37
MARIOS THEOPHANOUS is credit manager at London Credit

Specialist finance can

Energy Performance Certificates (EPCs) are more or less second nature to property professionals who deal with building, letting, or selling a property. That said, energy efficiency remains a hot topic, as the industry moves towards a more sustainable future.

As part of the Government’s aim to reduce carbon emissions from buildings and improve the energy efficiency of homes, there is currently a proposal to change the minimum EPC rating for rental properties.

In 2015, new laws set out Minimum Energy Efficiency Standards (MEES), stating that private rented properties in England and Wales must have an EPC rating of Band E or above. These came into force on 1st April 2018 for new tenancies and on 1st April 2020 for existing tenancies.

More recently, though, the Government’s MEES for non-domestic private rented properties have tightened even further. Landlords will need to make new changes to their properties to meet an EPC rating of Band C or above by 2028, before any tenancies can be agreed. Note that this was originally set for December 2025, but extended due to what many suspect were unrealistic expectations.

The law states that the landlord or property owner must make these changes unless they can prove that they are exempt from the rules.

With costs predicted to be high in some cases, what finance options are available to landlords?

EPC ratings put simply

In order to have an EPC of Band C, a property must have between 69 and 80 points on the standard assessment procedure (SAP). This is a Government-stipulated measure used by local energy assessors to judge a property’s energy efficiency.

So, how is energy performance actually measured? An assessor will grant SAP points by measuring various elements, including carbon emissions, wall and roof insulation,

double glazing, boiler performance and central heating, lighting, and other factors like the presence of solar panels.

An EPC is the official way of recording the energy efficiency of buildings resulting from such installations. The more energy efficient a property, the higher its EPC rating, and often its value.

How much could a landlord expect to pay?

While many landlords have already made headway on the necessary upgrades, there’s still a sizeable portion who remain uncertain about the amount they will need to spend in order to improve the energy efficiency of their properties.

According to research by Shawbrook, affordability is the main obstacle for more than two-fifths (44%) of landlords when it comes to improving their properties by the proposed deadline. For landlords with only one property in their portfolio, this figure increases to 51%.

Under current Government regulation, landlords are not expected to spend more than £3,500 on upgrades to meet the current EPC requirements for a rating of Band E. The new changes, however, which could see all rental properties requiring an EPC rating of Band C, require landlords to make a significantly higher investment to future-proof their properties.

The Government’s National Housing Survey 2019-2020 estimated that it would cost £7,646 on average to upgrade to Band C. The Government has therefore proposed increasing the investment limit for landlords to £10,000, with potential fines of £30,000 for non-compliance.

There are, of course, other factors to consider that could result in higher renovation costs. In addition to building construction and condition, supply chain disruption – that is, higher prices for materials and labour, and longer wait times for delivery – are all likely to push renovation costs higher than landlords

anticipate. For those working towards meeting these standards –whether landlords with extensive property portfolios or those with major improvements required for a single property – it is vital that they understand how specialist finance could help.

What is their current EPC?

There are several reasons landlords might need to improve the EPC rating of their rental property. First and foremost, it is unlawful to let a property if it doesn’t meet the required compliance. As well as helping landlords comply with the

Opinion BUY-TO-LET
The Intermediary | July 2023 38
JEFF DAVIDSON is head of Fluent Partners

help hit EPC targets

law, though, a better EPC rating could attract eco-conscious tenants and potentially increase a property’s value. Moreover, landlords will be better prepared for the Government’s proposed changes.

To meet the requirements, the remedial works required will of course vary, as these are based on the existing features of the property. However, with a third (37%) of landlords stating they have little to no knowledge of the impending changes in response to Shawbrook’s research, gauging an idea of the work they will need to undertake is vital.

A good first step for landlords to take is checking the EPC register on the Government website, where they can learn more about their property’s current rating, the potential rating it could reach, and the recommended work needed to get there.

In most cases, it’s worth organising for an assessor to conduct an initial EPC certification to get an idea of what work needs to be done. Most assessors will provide tips and advice on the best and most cost-effective ways to improve property performance.

It’s vital that landlords understand the finance options available to improve the energy efficiency of their properties. There are good reasons to start planning now, as this could give landlords more time to seek financial advice and funding to carry out remedial works ahead of the proposed deadline.

Finding the right finance

With most landlords expected to need to make property improvements, a bridging loan could be a fast, flexible cash injection to fund changes in the short-term. The flexibility of a bridging loan is one of its main advantages for landlords, allowing them to leverage the funds in a variety of ways, and at different stages of the property cycle.

Whether they are looking to quickly secure a property purchase, secure funds for refurbishment work such as EPC improvements, or repay existing short-term finance, a bridging loan can be a great tool to mitigate the impact of the EPC changes.

A second charge mortgage, also known as a secured loan, is another potential borrowing solution which could enable landlords to make property improvements.

Actionable ways to improve

There are a number of ways in which homeowners and landlords may improve their EPC level. Landlords may be able to gain enough SAP points by installing:

◆ Energy efficient lighting

◆ Improved wall insulation and roof insulation

◆ A more efficient heating system

◆ Double or triple glazing, or in listed buildings where there may be restrictions, secondary glazing

◆ Less wasteful domestic appliances

◆ Solar panels or other features that utilise renewable energy

◆ Draught-proof doors and windows, and other methods to prevent heat egress

While a bridging loan may be more suitable for landlords with multiple properties or those looking to make improvements to sell their property, a second charge mortgage might be more viable for those investors with fewer properties, or semi-professional landlords.

This type of mortgage is often used to raise additional funds for major repairs, refurbishments, or improvements, and could allow landlords to secure funds without having to extend their existing mortgage or remortgage completely.

This option is particularly beneficial for those with variable incomes, such as the self-employed, or those who may have experienced a drop in credit rating.

With a dedicated team on hand to provide specialist advice for landlords and homeowners, Fluent Money can help secure the best borrowing solution to raise funds for remedial works and suit their individual needs. ●

Opinion BUY-TO-LET
July 2023 | The Intermediary 39

Market forces call for more product options

e clamber into the second half of 2023 and I suspect many advisers will be hoping for a six-month period which is slightly less chaotic than they had to deal with in quarter two this year.

For what it’s worth, us too. I don’t think you will find any other buy-tolet (BTL) lender – or any lender full stop – that wants to operate in a way which requires them to pull products so quickly, not give advisers longer notice when it comes to withdrawals, increase rates in such a way, and offer a limited product range for short periods of time.

Certainly, that’s the case for Fleet, and what makes it even more galling is the time, energy and resources we put into the first few months of the year, improving and updating the range, bringing back fixed rates of differing terms across all core products, broadening the offering, introducing further green products, etcetera.

However, at the same time we have to be cognisant of everything else that shapes the environment in which we operate, including market reactions to high inflation, swap rates, money market sentiment, competitor action, where all of this leaves us as a lender, and the responsibilities we have towards all our stakeholders.

Hence, while we did take the action outlined above, and while I hope we don’t have to do this again throughout the rest of the year, we must be willing and able to do it, and I hope advisers understand the circumstances and what it means for us when we do walk this road.

What we can strive for is to be as transparent as possible in what we plan to do, when we plan to do it, and

Wof course give brokers as much time as possible ahead of those changes, so you can get your proverbial ducks in a row and deliver the service you strive to for all your clients.

Again, we fully understand the situation advisers are being put in here, and while clearly much of this is out of your hands, that doesn’t stop you wanting to fulfil your responsibilities to your clients and ensure they are in the best position possible, particularly when you know the products being replaced are unlikely to be at be er rates.

In a wider sense, what we can continue to do is respond to adviser – and landlord client – wants and needs. Hopefully, if we have a bit more certainty in terms of the future direction of rates – which I’m hopeful of – we can continue to add greater levels of product choice and a broadened offering, providing further options for those landlord borrowers.

Greater product choices

Certainly, there remain a number of ongoing considerations that advisers will need greater product choice to address. What remains of greatest concern is affordability, and as we progress through the year I’m sure we’ll see further a empts by lenders to square the affordability circle with the lower rate and higher fee 5-year fixes that have become more popular.

We should also expect to see further activity in the green BTL space. This includes products aimed at those landlords with Energy Performance Certificate (EPC) Band A to Band C properties, but also innovative features, such as one Fleet launched which provides a £1,000 cashback amount for those landlords who improve their rating to C or above during their fixed-rate term.

We know that we have a situation in the country where the majority of UK private rental sector homes are still below the Band C level, and it’s important as a lender in this space that we provide those landlord borrowers with incentives to get any work completed, to have that EPC carried out again, and to benefit from the improvements they get.

By offering this cashback, we are hopefully providing landlords with an option which means they can potentially cover the total cost of that work and recertification. All we need to see is evidence of the new EPC certificate, and we will make the payment to the landlord borrower.

As yet, we don’t have the final details on what requirements will be made of landlords in terms of their future EPC minimum levels, but we anticipate it will be Band C or above by 2028, potentially earlier, so we can all expect this to be on our agendas for some time to come.

For advisers, this gives another opportunity to engage with, communicate and market their services. At the point of mortgage advice, it also gives the chance to present options which might not previously have been available.

The rest of the year is unknowable, but client communication will remain as important as ever, particularly for those landlord borrowers coming to the end of their deals.

As always, we hope you can make the most of these product options and features to deliver the business you require, and the advice borrowers continue to need. ●

Opinion BUY-TO-LET The Intermediary | July 2023 40
STEVE COX is chief commercial o cer at Fleet Mortgages

What does complex buy-to-let look like?

This approach also lessens risk from having a property unoccupied, as there are multiple rental streams.

Approaching complexity

If you were to be glib when answering the question posed by the headline, you might say all buy-to-lets (BTLs) are complex in this market! But I’m not going to be glib, partly because we have made a promise to back your landlords back into the market a er a challenging few months, and also because complex BTL is a classification we use a lot, especially to describe ourselves as a specialist in complex deals.

As the market looks to move forward into the new normal –where landlords are encouraged to stop holding off and start meeting their ambitions once again – I now constantly find myself talking about how we classify complex buy-tolet, and what role it will play in the coming months in meeting increased rental demand.

De ning complexity

There are lots of factors that can contribute to making a buy-to-let deal ‘complex’, but off-the-shelf definitions could include:

Complex company structures and solutions for houses in multiple occupation (HMOs) and multi-unit freehold blocks (MUFBs)

Holiday lets

Expats and foreign nationals

Semi-commercial properties

Tier 3 properties

Further advances

Realistically, it is a profile of property, location and borrower that may require us to spend more time on the deal.

The crucial thing, though, is that as we re-embrace the BTL market, we don’t lose sight on what these deals can offer to the housing market and to portfolio landlords – and that lenders need to be equipped to deliver them.

What complexity will continue to o er

Recently, we published a piece talking about the opportunity presented by HMOs and MUFBs in the future buyto-let market, and that’s where a lot of these opportunities will come from, for a couple of reasons.

First, demand for rental properties is high, which places an emphasis on the volume of high quality rooms to meet this demand. Across our bridging range we’re seeing heavy demand for refurbishment finance which supports the restructuring of properties into HMOs to meet this demand, and larger ones will play a particularly significant role.

Crucially, as well, HMOs are an important part in diversifying a portfolio and mitigating pressure on increasing prices.

Take mortgage bills and energy bills – when evenly distributed among multiple tenants, this lessens the burden on them and improves their affordability, while landlords can be comfortable in bills being paid.

What a strong BTL offer needs, then, is an internal structure that supports your ‘standard’ buy-to-lets, as well as complex ones, and which allows operation teams the flexibility to assign their resources where they are most necessary.

Our approach – as ever – is to underpin our entire approach with technology, and a growing team of experts to work each case.

The technology speeds up the dull stuff – searches, documentation, etcetera – and frees up underwriters and case managers to fully consider the details of each case.

A line we come back to a lot is: powered by technology, delivered by experts. In the case of bringing BTL back and meeting the rental demand, it is essential. ●

“When you put it like that, it makes complete sense”

Opinion BUY-TO-LET July 2023 | The Intermediary 41
Complex BTL has a role to play in moving the market into the new normal


Alex King, Lendco

Can you tell us a bit about yourself and Lendco?

Lendco is an intermediary-only specialist property lender, mainly known for buy-to-Let (BTL). We founded the business back in 2018, and over the past five years we’ve been building a BTL and bridging loan book. We’ve completed well over £1bn in originations thus far and had three successful securitisations, which have all been well received by investors.

We continue to build our reputation for bridging as it complements BTL very well, and although we’ve always lent in this space, historically we have been 80:20 in favour of BTL. This year we believe we can get this to 60:40.

Prior to my current role, I was part of the team that launched the financial services business into Savills PLC in 1997, which we ran until we undertook a management buyout in 2011.

I’ve been working in financial services since 1994 – so, coming up to 30 years in the market.

How has the market changed in that time?

The market is a constantly changing environment and always has been. For example, when I first started in the industry we were selling 5-year fixed rates at levels much higher than we are seeing today. The market moves in cycles – anyone who’s been around for a bit will know that what we are seeing today is just another leg in that cycle.

When the BTL sector first became mainstream in the mid-90s, we had a few good years and we saw exponential growth in BTL originations – then the Global Financial Crisis came along, along with the restrictions in the availability of credit in its immediate aftermath across all asset classes.

Following this, we saw a gradual but steady recovery in confidence and loan volumes. Over the past decade or so, we have seen the Bank of England hold borrowing costs at record low levels – some might say too low for too long –

which has contributed to some of the problems today. In this country – and in the world economy – we seem to roll from one massive, once-in-ageneration headwind to another. The financial crisis, Brexit, Covid-19, Ukraine – it’s amazing.

Why was it important to launch Lendco into the bridging and BTL space?

The BTL market was already well established, and it was growing. The private rental sector (PRS) had exploded – with the inability or reluctance of first-time buyers, or the unaffordability of UK house prices, the strategy of residential property investment was sound.

The professional landlord has also become well established in the UK, and there are many of them. The ‘dinner party’ or ‘accidental’ landlords seem to be in retreat, squeezed by taxation and the higher cost of borrowing. Add this to the aggro factor of

Alex King, executive director at Lendco, discusses the evolution of the business, and keeping steady on troubled market waters
The Intermediary | July 2023 42

managing investment property, and the number of these landlords is expected to continue to decline.

80% of what we do is for limited company borrowers with more than six assets within their portfolio. They might not be doing this full time, but they’re active in this space, and for them, the fundamentals underpinning the market –notwithstanding the cost of borrowing – are still sound. This will continue unless we build more houses in the UK, or there’s a massive correction in prices, which I don’t think many people are predicting. This will keep the PRS attractive to the professional investor.

There is still so much passion for BTL in this country, and there are a lot of professional people operating in this space, with some sizeable portfolios and appetite for physical assets.

Typically, we exist to be able to offer a cradleto-grave solution for our clients, whether this is straight BTL financing, or in instances where borrowers are looking to add value by adding to or reconfiguring the accommodation.

We are able to acquire on a bridge so they can refurbish, and we can then drop them onto a sensibly priced BTL product once they are done.

How has the business changed over the years?

Other lenders in our space operate on a far bigger scale – we’ve still only got 35 people, so we’re pretty lean and very efficient. This helps us to be agile and able to pivot in this market.

We have seen massive growth over the past five years, building out processes and strategy for a sustainable long-term future for a business which is incredibly well-run.

Our distribution strategy was to build out carefully, making sure we got to a really good spot from an origination and service level perspective. This strategy will continue over the next five years and beyond.

We have diversified – and will continue to diversify – the way we are funded to make our proposition wider and more attractive still to our landlord borrowers. This is evidenced by the fact that we’ve just secured a £200m facility with NatWest in order to expand our bridging proposition.

It’s an advantage for us to be the size we are, it’s so much easier to ensure consistency in decisioning and service when you are smaller.

The BTL market is going to be down on lending volumes this year – it remains to be seen by how much, but it is going to be a sizeable drop. There are lots of lenders that will have to ‘rightsize’ themselves in the face of what could be a

prolonged period where volumes are going to be subdued, and I wouldn’t rule out a period of market consolidation.

We’ve got lots of funds that we can deploy, and an appetite to lend, but we’ll concentrate on writing the right loans to the right borrowers.

What makes Lendco different?

We pride ourselves on having that ‘can-do’ mentality, and if we can find a way to make a deal work, provided it makes sense, we’ll do so.

Being relatively small in comparison to our peers is an advantage – we’re able to control our expertise and culture, we can be accessible and make sensible lending decisions.

It’s actually very difficult to operate with a uniting ethos across a huge business, but as we scale and grow, we will continue to capture that spirit. That, combined with certainty of execution is what brings our brokers back to us time and time again.

What are the plans for the future?

Our distribution has grown organically over five years from a zero base, and we now have close to 1,500 regular brokers that we deal with.

That means there is still a large chunk of the market that we don’t deal with – we are looking to target those people who are active within the specialist space.

We’re not the cheapest lender in the market, in fact we consistently price at a premium compared with our competitors, but people pay that premium for certainty of execution, ‘can-do’ mentality, and speed.

In the future, we’ll continue to grow and broaden our church – the way we’ve always done it. ●

July 2023 | The Intermediary 43
We’ve just been on a massive growth trajectory, building out processes for a sustainable longterm future and a business which is incredible well-run”

Landlords and rent rises in the private rented sector

Rental demand is strong across the UK, with more tenants chasing fewer available properties while rents, unsurprisingly, are rising.

According to the Office for National Statistics (ONS), rent in the private rented sector (PRS) is growing at its fastest pace since January 2016.

In the 12 months to May 2023, rents rose by 5%. This annual growth rate was across all regions and began to increase in the second half of 2021.

We recently conducted research among our buy-to-let (BTL) landlords to gauge their views and actions on rent rises. Over the past year, 76% of landlords have raised rents, but for those with 20 or more properties, that figure shoots up to 100%.

Although most landlords are pu ing up rents, our survey showed that smaller landlords were less inclined to do so – only half of those with one property had increased rent. From the comments made in the survey, it appears that smaller landlords are o en on friendly terms and don’t want to lose good tenants.

The main reason for the increase in rent is the need to cover higher mortgage costs, stated by 51% of respondents. Many landlords use le ing agents, and 24% of them said their agent had advised them to increase the rent.

We are now in a higher interest rate environment, which is something younger people have not seen before. More seasoned souls such as myself will remember the heady days of 15% interest rates, and really what we are seeing now is a return to a more normal situation.

From 2008 to 2021 we experienced unprecedented low interest rates, and

now that those days are gone it is a shock to the system for many.


There will be a lot of remortgage activity this year and next, and borrowers’ monthly payments will go up, which may well be reflected in rising rents for some tenants.

Our survey found that 61% of landlords intend to raise rents if their mortgage rate increases when it is time to remortgage. A further 21% were not sure if they would raise the rent, saying it depends on how much more their mortgage will be, while 18% stated that they would not increase the rent.

It’s not just the higher mortgage payments, there are other contributory factors to consider when deciding on rent levels.

The property may need maintenance and repairs, new furniture and white goods. There may be more tax to pay, and if landlords pay the energy bills, which they o en do in houses in multiple occupation (HMOs), those costs have shot up. Some landlords also apply an annual rent increase as standard practice.

How much of an increase?

Looking at the ONS annual rent rise of 5%, we asked landlords how much they intend to increase rent by. Just over a quarter (27%) said up to 5%, while 38% of landlords anticipated a rent increase of between 6% and 10%.

Landlords who currently refrain from raising rents are those whose rental income adequately covers their mortgage and other expenses.

Some choose to absorb the costs or delay rent increases to retain good tenants.

There is also the loss of rental income during void periods when

the property is empty, and the cost of finding new tenants to take into consideration.

New products

We are well aware that some landlords may struggle when remortgaging, which is why we have introduced some new products. If a landlord remortgages on a like-for-like basis with no additional borrowing requirements, our new range of 2-year fixed-rate remortgages have been designed to help with the affordability stress test, which is pay rate plus 1%, instead of 2%.

2-year rates are gaining more traction at the moment, because people hope that inflation and the base rate will drop back sometime within the next two years. So, we have launched 2-year tracker rate mortgages with no early repayment charges (ERCs).

The money markets are pricing in for base rate to go up, so the rate on these trackers will increase, but they will also fall as the base rate drops. This product gives borrowers the flexibility to switch to a be er product if mortgage rates improve.

It is a careful balancing act for landlords when looking to increase rent so they get a reasonable return on their investment, but also a fair outcome for their tenants. ●

Opinion BUY-TO-LET The Intermediary | July 2023 44
Although most landlords are putting up rents, our survey showed that smaller landlords were less inclined to do so”

The rise in limited company lending

capital gains are passed on to shares in the company instead of being payable at the time of incorporation. As this is one of a number of tax planning implications that can be determined by the applicant’s specific circumstances, it is important for advice to be provided by a professional tax adviser.

The rise in limited company lending highlights how incorporation is a growing area of interest for landlords. Intermediaries with an understanding of the process, as well as the potential implications for borrowers, will be well equipped to find the right products for their clients and signpost them to qualified tax advisers where appropriate.

Industry data shows a steady increase in the proportion of buy-tolet (BTL) business wri en to landlords operating as limited companies over the past five years.

The driver has been Government policy change, primarily the phasing out of mortgage interest tax relief from 2017, which means that landlords operating as individuals are no longer able to deduct mortgage expenses from rental income.

Instead, rent is assessed alongside any other sources of income and used to determine an individual’s tax bracket, potentially placing some in the higher or additional bands.

Only being liable for corporation tax on profits effectively hands those managing portfolios through limited companies the ability to offset mortgage interest, finance costs and mortgage arrangement fees against rental income.

Identifying another potential benefit of managing a le ings business through a special purpose vehicle (SPV) limited company structure may give a clue as to why the upward curve in limited company lending has steepened over the past year.

With lenders typically assessing interest coverage at 125% for incorporated applications, compared with the 145% that higher rate taxpayers are subject to, purchasing or remortgaging through a limited company may help to make the sums work for some – particularly relevant at a time when affordability is tightened across the market.

Smaller pool of products

Incorporated landlords will o en have access to larger loans too, but there is a flipside. With mortgages for limited companies not offered by many high street lenders, borrowers may choose from a smaller pool of products, which are o en priced to reflect the more complex nature of the business. So, it is important to understand the client’s circumstances and needs.

Another important consideration is the cost associated with switching property from personal name to a limited company structure, because doing so can incur Stamp Duty and Capital Gains Tax (CGT) charges. CGT can be reduced through S162 ‘Incorporation Relief’, whereby any

Such advice should involve a holistic review of the business, because there are several factors that determine what is best structure. One of these is its size of the business, in terms of the number and value of properties in the portfolio, and revenue generated.

Landlords holding properties through SPVs effectively manage their le ings businesses as SMEs, considering it their primary occupation. They are also more likely to make a full-time living from their property business compared with those who operate as individuals –43% versus 26%, according to our latest survey of landlords.

It is also important to consider any plans for the future, because any potential advantages of incorporating, such as succession planning, may only become applicable later down the line.

Understanding this, Paragon is one of a small number of lenders that allow borrowers to transition from individual to limited company ownership during a fixed-rate period.

As our own volume of limited company lending has increased to account for a significant proportion of our book, so has our expertise in what is still a specialist area.

Our underwriters are well-versed in SPV applications and are happy to discuss cases directly with brokers, facilitating solutions in some of the most complex cases. ●

Opinion BUY-TO-LET July 2023 | The Intermediary 45
LOUISA SEDGWICK is commercial director of mortgages at Paragon Bank Landlords holding properties through SPVs e ectively manage their lettings businesses as SMEs

Coming or going?


Like the first charge mortgage market, the past few months have been a turbulent time for the second charge sector, leading to confusion around lenders entering and exiting the market.

For example, only this month Shawbrook Bank announced a pause to secured loan lending, in order to review its second charge proposition, with no clear indication as to when – or whether – it would be returning to the market.

However, tales of lenders pulling products and rethinking their involvement in the second charge market are being counterbalanced by seemingly just as many rumours of new lenders imminently about to launch into the sector. Indeed, there is a sense of optimism as to what this fresh talent might bring to the table, in a sector that is only growing in importance as the economic outlook wavers.

Since coming under the Financial Conduct Authority’s (FCA) rule in 2014, the second charge mortgage sector has reinvented itself, and has arguably never been more relevant. Brokers are seeing strong demand from those tied into longterm fixed rate mortgages, as well as homeowners

looking to consolidate debt. Nevertheless, while in many ways the market is unrecognisable compared to its former self, it continues to be haunted by some of its past problems. Annual lending saw a dip in the first quarter, according to the latest data, and is still not edging significantly above £1.5bn – which some blame, in part, on a lingering reluctance by some brokers to recommend second charges.

The potential image of a market in turmoil could exacerbate this, but an injection of new funding options could, in contrast, instil fresh confidence. In the meantime, with the Consumer Duty deadline fast approaching, hopes are high that regulatory changes, combined with fresh investment into the market, will once again mark a new beginning for the sector – widening its appeal and paving the way for growth.

Untapped potential

Even with the recent wider economic turmoil, for any new provider looking to enter the second charge market, there are still potential growth areas to be considered.

The Intermediary | July 2023 46

Stewart Simpson, second charge mortgage specialist at Brightstar Financial, says: “Demand for second charge mortgages is growing; particularly among those customers who have longer term fixed rates and want to meet a capital raising requirement without refinancing their whole balance.

“At the same time, more brokers are recognising how second charge mortgages can form part of financial planning for their clients –in the form of debt consolidation, but also things like raising capital to invest in business.”

Home improvement loans have been another favoured use for seconds, with the Finance & Leasing Association’s (FLA) figures showing such loans made up 14% of May's lending.

With legislation around Energy Performance Certificates (EPCs) widely expected at some point in the next few years, this could be another opportunity for growth in the sector, and a beckoning call for new entrants.

Fiona Hoyle, director of consumer and mortgage finance and inclusion at the FLA, says: “One potential area of growth could be the retrofitting of homes with green heating or solar power solutions, as customers increasingly

strive to make their home as energy efficient as possible. It’s still relatively early days, but retrofitting will be a big market.”

Considering the problems posed around affordability for borrowers in the first charge market, it is more important than ever to understand the full range of options, one of which is second charge lending.

Caroline Mirakian, sales and marketing director of mortgages at United Trust Bank (UTB), says: “Brokers need several options in their toolkits to help borrowers, particularly where loan amounts may be restricted on a first charge through their lender, or a change in circumstances makes getting a further advance or remortgage harder.”

While Mirakian believes households may remain cautious about discretionary spending –

The Intermediary | July 2023 47
“We're badly in need of an extension"

such as for home improvements – in the near term, she adds: “On the flip side, I expect more consumers may benefit from second charge solutions if they need to pay a tax bill or reduce monthly outgoings through debt consolidation.”

The dawn of new lenders

Despite wavering figures in the first quarter of the year, the consensus is that the second charge market represents an area of growing demand, making it a lure for lenders looking to diversify. However, economic tribulations may still hinder their efforts to make inroads into this space.

Matthew Arena, managing director at Brilliant Solutions, says: “The cost of non-bank funding is now less competitive than it has been for a while.

“Coupled with the risky headwinds across the sector, this means that it is going to need a knowledgeable and efficient operation to enter this sector. Some lenders are pulling back as the risks mount; others are revising their strategy. Differentiating is also difficult to do without funding.”

Nonetheless, he adds: “Despite the difficulties, there are lenders looking to enter the sector. Whenever a market sees such rapid change, as ours has in the past year, there are always opportunities, so I remain very confident.”

There is certainly a buzz in the market around the possibility of new entrants shaking up the second charge status quo. Daniel Yeo, managing director of Specialist

The Intermediary | July 2023
"Well I guess we are The Borrowers"

Finance Centre, says: “The industry is rife with rumours of two lenders set to enter the fray. I believe that one of these is a dead cert following its recent appointment announcements.

“In terms of products, the market would certainly benefit from having more interest-only options, and further drawdown facilities would be welcome, as they mean funds can be accessed quickly and interest is only paid on the funds drawn down, as opposed to the value of the total facility.”

Entrant challenges

Mike Walters, sales director at Admiral Money, warns that there are some hurdles that might be faced by any lender looking to make its way into this sector.

“The challenge for anyone operating in the second charge market is that the size of the market is small – with year-on-year volumes in April down 23%,” he explains.

“But with minimal innovation by existing lenders, we shouldn’t really expect to see much growth. Obviously, this limits the lenders willing to operate in it, and those that do operate within seek to work with a limited number of expert and experienced second charge distributors.

"All of this stifles innovation and can result in the attitude that it’s always been done this way, so why change.”

Matt Tristram, co-founder and director at Loans Warehouse, feels the growth and reputation of the market has fallen on too few lenders for too long.

In fact, perhaps there is a Catch-22 at play here, where the size of the market discourages new entrants, but without a fresh influx of competition, it cannot grow to match its evident potential.

“We need competition that leads to better products and a focus on service, something that has slipped over the past few years due to too much pressure being on too few shoulders,” Tristram explains.

He adds that this injection of innovation may only be around the corner: “It's widely known within second charge circles that two new lenders will emerge towards the end of 2023 from Cardiff. In addition, Scroll Finance is due to launch into second charges later this year. All three are expected to be competing in the prime end of the market.”

John Webb, head of lending at Scroll Finance, confirmed its plans to enter the market towards the end of 2023, saying: “The products will be aimed at individual landlords and special purpose vehicles (SPVs), with Scroll taking a second charge on the buy-to-let (BTL) property.”

Finance & Leasing Association

◆ The value of second charge new business lending dropped 11% year-on-year in May 2023, to £120m.

◆ New business volumes dropped by 9% over the same period.

◆ In the three months to May 2023, the value of second charge new business dropped 15% yearon-year, to £342m.

◆ In the year to May 2023, the value of new business was 12% higher, at £1.5bn, compared with the same period to May 2022.

◆ The number of new agreements was 2,641 in May 2023, a decrease of 9% on the previous year.

◆ Over the three months to May 2023, there was a decrease of 14% in the number of new agreements reached.

◆ With a total of 32,501 agreements reached, the year to May 2023 saw a rise of 12% compared with the same period to May 2022.

◆ In May 2023, 58% of new second charge agreements were for the consolidation of existing loans, 14% for home improvements, and 23% for a combination of debt consolidation and home improvements.

Loans Warehouse

◆ Second charge lending dropped to £106m in April 2023 (-17.7%), following a strong performance in March.

◆ Total lending for the year to April stood just shy of £450m.


◆ Completion times continued to improve in April, at just 12 days.

The Second Charge Market In Brief

Why brokers should embrace seconds

The introduction of the Mortgage Credit Directive in 2016 effectively dictated that all mortgage brokers should assess a second charge mortgage as an alternative to a remortgage in a capital-raising situation. That said, I know that there are still many out there who are not considering second charges at all.

Not enough brokers are comfortable advising on seconds. I think the primary reason why some brokers are hesitant is their belief that they lack sufficient knowledge about the products and lenders. Consequently, there is a pressing need for more education about this subject in the intermediary sector.

I keep saying this: brokers are rarely approached with a request for arranging a second charge. Instead, they are more often asked how they might be able to capital raise. It is at this point that brokers should consider the possibility of a second charge alongside a remortgage, depending on the client's current and future needs.

The broker’s primary goal should be to provide the best outcome for their client. This may require managing their client’s expectations, particularly regarding interest rates. Borrowers need to understand that current remortgage rates differ significantly from those of previous years, and that surrendering a favourable first charge rate could prove costly.

That is why brokers should focus on the value connected to the outcome. They can identify a solution to the borrower's situation by using criteria sourcing systems, and then sourcing those lenders on the mainstream platforms to determine the available rates.

We are witnessing more demand for second charges due to the cost-of-living crisis, rising levels of unsecured debt and everincreasing costs of borrowing. Remortgaging for capital-raising purposes can be prohibitively expensive right now, and so brokers are increasingly seeing seconds as a viable alternative.

The increasing challenge of affordability is complicating the process for brokers in securing remortgage approvals. The issue of credit impairment is also escalating, even in cases where the individual is more a victim of circumstance, experiencing a credit 'hiccup' rather than a serious and persistent debt issue.

The specialist lending market is optimally positioned to cater for such borrowers, as these lenders employ a more practical, common-sense approach, willing to look at the entire picture rather than relying solely on credit scores.

When securing a remortgage becomes difficult, brokers must take a more comprehensive view of alternative solutions to best serve their clients.

A tech revamp

Describing itself as a next-generation, cloudnative fintech, Scroll’s entrance into the market could be an exciting development for the second charge sector, with brokers seemingly underwhelmed by some lenders’ current systems. This is a market calling out, for want of a better word, for some disruption.

“Lenders have delivered very little in terms of innovation,” says Tristram.

“Some lenders’ systems haven't changed or evolved considerably since launch – something which is common in second charge lending. There’s lots of talk, a definite desire and willingness, but the investment in tech hasn’t really come to fruition.”

Arena also feels technology has been a source of false hope in the sector, adding: “There are some great things going on and we are proud to be a part of that, but often brokers are using tech solutions that are not delivering what they promise in these specialist areas.

“It's improving quickly, but the value of an expert cannot be overstated. Technology will evolve and be a huge asset for the sector in the years ahead.”

UTB is one lender that has invested heavily in technology, but nevertheless, Mirakian says there is still work to do as an industry.

“We need to keep investing in technology and work together to standardise the customer journey, and utilise technology to make the process slicker and swifter,” she explains.

“For example, application programming interfaces [APIs] that reduce keying for brokers have progressed considerably over the past few years, but there is more to do.”

Raising the bar

Any new entrants will be launching into the market after the much anticipated introduction of new Consumer Duty rules. It is worth understanding how these are likely to shape the market they are looking to enter.

“Consumer Duty will mean second charge providers will have to demonstrate that their products and services meet the needs of customers in this particular market,” says Hoyle.

“They will also have to show that products and services provide fair value, that all communication meets the standard for consumer understanding, and that effective customer support is available throughout the life of the product.”

Arena hopes the changes to regulation will put an end to the level of fees charged by some distributors – something which is often cited as a deterrent for some mortgage brokers.

This is arguably the next step in continuing the rehabilitation of this market’s reputation among both industry players and the consumers they serve.

“We need to stop the negativity around fees, and I sincerely hope that Consumer Duty stops the malpractice that goes on in the market and allows us all to focus on growing it,” Arena says.

“There is a real lack of transparency for brokers around fees, which does not help. If brokers cannot access fees and commissions transparently on a provider's website, then that should make them ask a few questions.

“All too often, this is still an excuse to throw mud at the sector, which ultimately still does a lot of good for borrowers. Let's hope Consumer Duty finally allows us to lay that to rest.”

Distributors are hopeful that another byproduct of Consumer Duty will be an increased willingness from mortgage brokers to consider seconds when advising their clients on the right solution for their needs, where previously this has been often neglected.

“Consumer Duty puts more emphasis on brokers presenting clients with the best solution from all of those available, and as an FCAregulated product, this includes second charges,” says Simpson.

“So, I would like to think that brokers will take this and their obligation to their clients on board. This means making all consumers with a capital raising requirement aware of all the options available to them, including remortgage, further advance and second charge.

“Where a product lies outside of a broker’s scope and they cannot offer advice themselves,

they should commit to making it known to their clients that the product is available, that they are unable to offer it, and that it may offer a more suitable solution for their circumstances.”

Changing mindsets

While the current economic pressures may pose a short-term challenge for any new entrants to the second charge market, in the long-term view there is a clear need for technological and product innovation, as well as proof of healthy – and potentially expanding –demand from borrowers.

With all the progress the market has made over the years, however, changing the perception of a second charge mortgage and the sector continues to be one of the biggest challenges, and new entrants will need to be prepared to tackle this.

Walters says that improving the market will take a combined effort, saying: “Everyone in the sector – lenders, brokers, plus their respective networks and clubs – has a crucial role to play in helping educate others on these products, as not all feel they currently have the requisite knowledge to advise on second charges.”

He feels that the second charge market is often dismissed or looked down upon.

“It’s time this perception changes and that industry norms are challenged,” he concludes.

“Those who operate in it must adapt and change and work with all parties to make it an option that is considered and offered to a wider range of borrowers – it’s the only way this market will grow and we will move away from the current status quo.” ●

ADVERTISEMENT Want to share your message with the industry? Advertise with The Intermediary and reach over 9,000 current and next generation property finance business leaders. Contact Claudio Pisciotta on CLAUDIO @ THEINTERMEDIARY.CO.UK to discuss how The Intermediary can help your business achieve its goals.

A versatile tool for

Second charge mortgages have gained popularity in recent years due to their versatility, range of uses and speed of access to funds. New business volumes reached £1.56bn in 2022, up 31% on the £1.11bn generated through 2021, according to data from the Finance & Leasing Association (FLA). While the rocky macro-economic environment has dampened demand so far this year, the underlying drivers remain strong.

That is because second charge mortgages are a hugely versatile product, offering an additional source of funds by leveraging the equity in their property without disturbing the existing mortgage.

Home improvements and debt consolidation

Two of the most popular reasons to take out a second charge mortgage are to finance home improvements or to clear existing debts.

Many customers choose to renovate or extend their properties without having to give up their fixed rate mortgage – which may be at an extremely a ractive rate.

Debt consolidation is another key motivator. It allows those who have accumulated multiple debts, such as credit cards or personal loans, to consolidate these into a single, more manageable monthly payment.

By spreading the repayments over a longer term, borrowers can reduce their monthly outgoings and simplify their payments. However, this may mean repaying more in total.

Spreading out repayments can help customers increase their disposable income to improve their standard of living and add extra tolerance for their household budget. Given the current cost-of-living crisis, it is increasingly important to protect against any sudden expenses.

A wider range of purposes

There are so many other reasons for second charge mortgages that we come

across on a daily basis, some of which are perhaps less well-known.

Throughout a customer’s lifetime there will be a need for differing credit options at different life stages. These may vary from financing individual events like weddings, to providing ongoing support for their children with education and living costs.

Second charge mortgages can also provide entrepreneurs and small business owners with a valuable source of capital for business purposes, whether that is starting a new venture, expanding an existing one or investing in equipment.

This type of financing can be particularly useful for individuals who may not qualify for traditional business loans, or prefer not to use personal savings. Even homeowners looking to purchase a second property like a holiday home or investment property may take advantage of second charges to leverage the equity in their primary residence.

The ability of second charge mortgages to offer homeowners quicker access to capital is a significant advantage, giving borrowers the freedom to utilise equity to pursue their aspirations while o en providing a cheaper option than remortgaging.

A great opportunity

This is precisely why it is so important that intermediaries remember these products and always consider second charge mortgages as a viable – and o en valuable – option. First and foremost, by incorporating second charge mortgages into their product offering, intermediaries can provide a more comprehensive range of financing options.

This not only enhances the intermediary’s value proposition, but also allows them to cater for a broader range of customers with diverse financial needs, delivering good customer outcomes more o en – a critical consideration ahead of the full implementation of the Consumer Duty update. Second charge mortgages can offer greater flexibility

Opinion SECOND CHARGE The Intermediary | July 2023 52
Intermediaries who consider second charge mortgages will be better positioned to meet evolving homeowner demands and maintain a competitive edge in the market”

every intermediary

in loan structures compared to other forms of borrowing. Intermediaries can help customers choose fixed or variable rates, interest-only or capital repayment, and loan terms that suit their budget and long-term goals, increasing the likelihood of positive outcomes.

Drive business growth

Offering a wide range of products can help intermediaries build trust with customers by providing a comprehensive range of truly tailored

financing options. It can drive longterm relationships, repeat business and referrals.

Intermediaries who consider second charge mortgages will be be er positioned to meet evolving homeowner demands and maintain a competitive edge in the market, contributing to the growth and profitability of their business.

This is because second charge mortgages are such a versatile weapon that every intermediary should add them to their armoury. ●

Opinion SECOND CHARGE July 2023 | The Intermediary 53
RICHARD SHARP is managing director at Freedom Finance Mortgages

Taking the opportunity to help borrowers

Market volatility and unprecedented events have become a feature of life in our industry over recent years. Lenders and intermediaries alike are currently navigating through yet another challenging period.

Market participants are having to react to the prospect of peak interest rates reaching 6.5%, which is a significant departure from previous predictions less than six months ago, where terminal rates were expected to be in the region of 4.5%.

Market resilience

Consequently, we are back in the thick of frequent repricing and product withdrawals, which is undoubtedly causing challenges for anyone involved in our industry, and more importantly, borrowers looking to secure deals before they disappear.

However, if there’s one thing we can take from these trading conditions, it’s that we have been here before and we are a resilient bunch.

Yes, there are some headwinds, with the likelihood of house prices falling and a predicted 1.8 million borrowers coming to the end of their fixed rate during 2023 and facing significant hikes to their mortgage payments.

As a result, many lenders will be thinking responsibly about adjusting their credit risk appetite to reflect the changing economic climate.

However, there are still opportunities to help borrowers who may be looking to find a new mortgage deal, making that all important property purchase, or borrowing more money for a whole host of reasons.

We all know that the value of advice cannot be underestimated, and

forward-thinking intermediaries will be looking at more solutions to help clients than ever before.

The Chancellor’s recent Mortgage Charter set out some measures to support borrowers who may face payment difficulties. For most borrowers, though, there will be options to consider without interventionist measures, which will help them manage increases to their mortgage payments.

Demand for seconds

As a prominent specialist lender, we are seeing exceptionally strong demand for second charge products in particular – it is a market we believe will continue to provide strong and stable funding arrangements for homeowners looking to raise capital.

While there are millions of borrowers coming to the end of their fixed rate loan over the coming years, there are millions of others who are locked into cheap long-term deals.

For these borrowers, it will be critical to make sure their existing mortgage arrangements are not disturbed should they wish to raise additional funds. This is where a second charge loan can come into its own, as it allows for further borrowing while leaving the borrower’s low underlying rate undisturbed.

Raising additional capital

It is also widely accepted that demand for product transfers will continue to thrive. As any broker will know, these are pound-for-pound transactions and so raising additional capital is not possible.

However, there will always be borrowers who need to increase their borrowing, whether it’s to consolidate their debts, make home

improvements or to invest in their own business.

Equally there will be a wide range of products for homeowners looking to refinance outside of a product transfer, and if there is a readjustment in house prices there will always be purchasers who will benefit from these changing conditions.

Flexible borrowing

Second charges are sometimes overlooked by brokers, dismissed as catering solely for those who have been rejected by the high street.

However, that’s not the case. In the current environment, borrowers are becoming increasingly a racted to second charge products because of their flexibility and the fact they can retain their first charge loan.

Therefore, seconds will become an increasingly useful tool in the broker’s toolkit over the coming year or two. ●

Opinion SECOND CHARGE The Intermediary | July 2023 54
MARIE GRUNDY is managing director of residential mortgages and second charge at West One Loans
There are headwinds, with the likelihood of house prices falling and 1.8 million borrowers coming to the end of their xed rate during 2023 and facing signi cant hikes to their mortgage payments”

Growing appeal of seconds in longterm x market

Levelling Up Secretary

Michael Gove recently voiced his support for 25-year fixed-rate mortgages, emphasising their potential to address the uncertainties associated with frequent remortgaging.

Gove cited Canada’s common use of long-term fixed rates as an example, suggesting that the UK should explore similar products to provide borrowers with more certainty.

While opinion on the viability of a 25-year product in the UK is still divided, Gove’s comments have ignited discussions on the potential of longerterm fixes. The recent sharp rise in the Bank of England base rate (BBR) may have led many borrowers, especially those experiencing rate increases, to consider preparing for similar scenarios in the future.

Widened appeal

As the turbulent market stabilises and BBR eventually decreases, borrowers may increasingly look to longer-term fixes to mitigate the risk of sudden base rate movements, and this is something we expect to widen the appeal of second charge mortgages further.

Currently, 5-year fixed-rate mortgages are the preferred choice for many borrowers, with 50% of all mortgage products being taken on this basis in May, according to the latest LMS Remortgage Snapshot.

Despite the increased base rate and high cost of 5-year fixed rates, the fact that half of all fixed rates were taken out on this basis is testament to the popularity of such deals and the desire of homeowners to lock in and have some guarantee over their future payments.

The decreasing prices of 5-year

fixed rates over the past decade has contributed to their rising popularity, with the trend towards 5-year fixes having had far-reaching consequences for advisers and borrowers. It has also boosted the popularity of the second charge mortgage market, as those tied into competitive long-term deals look to raise additional funds.

While a 25-year fix may require a significant mindset shi from borrowers, a 10-year fix may be more a ainable and appealing, and could become a growth area for lenders.

We have already seen some innovation from mortgage lenders in terms of longer-term fixed rates, with a handful of 40-year fixed rates having been launched in recent years.

Alternative revenue

If there is a shi towards longerterm fixes, it may present challenges for mortgage advisers, however. Offering second charges could serve as an alternative revenue stream, particularly for borrowers already commi ed to fixed-rate deals who unexpectedly require additional funds due to changing life circumstances.

Borrowers on competitive fixed-rate deals may be hesitant to disturb them, as they risk incurring early repayment charges (ERCs) or higher costs. In the near-term we may see borrowers migrate towards 2-year fixed products in the hope that by the time they remortgage again, rates will have come down.

Even so, we expect demand for second charges to remain strong, if not increase over the near and medium-term. This will be driven by a push towards long-term fixed rate mortgages alongside increased demand from borrowers who may wish to consolidate debt.

The latest Money & Credit data

from the Bank of England offers an interesting insight into borrowers’ finances. Although consumer borrowing actually decreased from £1.5bn in April to £1.1bn in May, the annual growth rate for all consumer credit still stood at 7.5% in May.

The drop off in consumer borrowing might be explained by the amount households withdrew from banks and building societies during the month. At £4.6bn this was the highest level of household withdrawals on record and with savings rates high at the moment, this could be a telling sign that borrowers are turning to emergency funds.

Avoiding rate rise

Given the interest rate on interestcharging overdra s stood at 21.78% in May, with the interest rate on credit cards rising to a record high of 20.44%, borrowers will be doing all they can to avoid rising rates.

With a push towards longer-term fixes potentially on the horizon and the ongoing escalating level of borrower debt, we feel second charge mortgages will continue to play a vital role helping advisers and their clients in a changing market. ●

Opinion SECOND CHARGE July 2023 | The Intermediary 55
Borrowers on competitive xed-rate deals may be hesitant to disturb them”


It’s human nature to make comparisons with the past. That perhaps explains why there are an increasing number of news articles warning of a 2008-style wave of repossessions. The mounting concern is understandable: homeowners are being hit by a toxic combination of rising interest rates and decades-high inflation.

However, comparing the current market with the 2008 property crash – or any other, for that ma er – is neither helpful nor accurate.

For a start, we haven’t seen anything in the numbers to suggest that borrowers are about to hand their keys back to lenders in their droves.

UK Finance data shows that, during the peak of the Global Financial Crisis in 2009, around 48,900 homes were repossessed. Last year there were just 3,920, although the trade body expects this to rise to 7,300 this year, which makes sense given the squeeze on household incomes since interest rates started the rapid climb following the mini-Budget.

That’s a large year-on-year jump, but to put it into context, the average number of homes taken into possession each year over the past decade stands at just under 9,900.

Tighter regulation

You may be reading this and thinking ‘ah yes, but the worst pain is to come’. And yes, in all likelihood we will see more people slip into arrears, and unfortunately lose their homes.

It’s also true that many borrowers will need to moderate their spending to keep on top of their mortgage repayments.

However, there are a number of regulatory and economic reasons why the number of repossessions will likely be far lower during the current market downturn.

First, we must remember that today’s market is very different –and much more tightly regulated – compared with the one in 2008. Back then, borrowers could obtain

100% mortgages without having to prove their income. By comparison, it is much more difficult to obtain a mortgage these days.

In fact, until August last year, borrowers were stress-tested to ensure they could withstand a sharp rise in interest rates.

The stress testing regime meant lenders had to check if borrowers could afford a mortgage rate equal to the lender’s standard variable rate (SVR) plus three percentage points.

Data from Moneyfactscompare. reveals the average SVR in July last year – just before the stress testing requirement was scrapped – was 5.06%. That means until last summer lenders had to ensure borrowers could

withstand a mortgage rate of at least 8%. Given the average 5-year fixed rate is currently around 6%, there is plenty of wiggle room.

Clearly, there will be a portion of borrowers on ultra-low fixed rates who face a significant jump in their repayments, pu ing their finances under intense pressure.

However, the affordability checks employed by lenders are far more robust than the income multipliers that they used prior to the financial crisis.

Disposable income

It is o en said that borrowers these days are mortgaged up to their eyeballs, meaning that higher

The Intermediary | July 2023 6


interest rates will hurt them disproportionately compared with previous generations.

However, since 2014 lenders have been forced to cap the number of loans with a loan-to-income (LTI) of 4.5 at no more than 15% of new lending, to ensure people do not become overindebted.

In reality, we find that most borrowers do not borrow the absolute maximum available to them, so that they have some spare disposable income to save or to tap into in case of emergencies.

Financial resilience

The strength of the regulatory system is one reason why I believe

repossessions won’t soar like they did in previous crises.

Another is that, by and large, households are more financially resilient than they were in the runup to 2008.

Unemployment is exceptionally low by historical standards, and there are currently far more vacancies than workers. That makes it not only easier for borrowers to find work, but also to force their employers’ hands for pay rises.

UK households have also accumulated nearly £1.1trn in easyaccess and notice deposit accounts, much of which has been built up since the first lockdown, according to UK Finance. This is important as it means many borrowers have reserves to see them through the current cost-ofliving crisis.

Let’s also not forget that, while around 1.8 million borrowers will see their fixed rate mortgage expire in the next 12 months, millions more are si ing on cheap medium or long-term fixed rates.

There is also a lot of political will and determination to ensure that repossessions do not spiral in the same way they did in 2008 or the 1991 housing crash.

Just last month, the Government announced its Mortgage Charter – a ra of measures to help struggling borrowers, including a 12-month grace period on repossessions.

Don’t panic

I am not trying to downplay the seriousness of the situation we find ourselves in – far from it.

However, the point I am trying to make is that the market is in a very different shape than it was in previous crises.

There will, of course, be borrowers who will lose their homes in the current downturn – and each and every one of those will be an individual tragedy.

But to suggest we are returning to 2008 or even 1991 risks causing undue panic at a time when borrowers simply don’t need it. ●

July 2023 | The Intermediary 7
LUCY WATERS is managing director of Aria Finance

Can the bridging industry support more new lenders?

Being a firm believer in competition, I think there is always room for new lenders when the demand is as strong as it is now. The bridging market is currently an a ractive place to be.

Bridging completions, applications and loan books continued to grow in Q1 2023, according to the latest data from the Association of Short Term Lenders (ASTL). The figures show that bridging completions passed £1.4bn in the first quarter of 2023, an increase of 11.8% on Q4 2022. Applications

as the world economy or the effects of Covid-19. However, while there is still relative uncertainty surrounding the future, it does not seem to have dampened enthusiasm for the sector.

Experience for success

To be a success as a start-up in this market requires more than just good products and keen rates. Expertise in the sector, particularly one as competitive as ours, is a vital ingredient o en overlooked.

Experience in underwriting, credit and compliance issues are a given. However, the other key personnel that any new lender will need are those people with strong interpersonal skills who can demonstrate that they have a recent track record of building new business. They will have extensive knowledge of the market and its most important players, because gaining distribution is as vital as being able to transact business efficiently.

In an industry such as ours, being able to leverage new and existing relationships is vital to building a strong base for new business.

continued to rise, reaching £9.8bn during the quarter. This represents an increase of 13.1% compared with the quarter ended December 2022.

With statistics like these, it is unsurprising that there’s so much interest from external funders looking for vehicles through which to originate.

The demand for short-term funding is showing no signs of easing off, and that is the ultimate test of appetite for potential new lenders. Funders looking to have a presence here will be studying all possible scenarios, positive and negative, on which to base their judgements. They will be fully aware of all the aspects over which they have li le or no control, such

Robust funding

However, there are other factors that will affect continuing growth. First is the enthusiasm of external funders to support the sector. Currently, the appetite is robust. Funders have their pick of existing and potential distributors and are going to look at the experience and expertise of their teams as a sign of how successful they are likely to be. Nevertheless, as we found when Covid-19 struck, external funders can influence criteria or even temporarily withdraw.

There are a number of lenders which rely on private funding, and their advantage has been in their ability to continue lending

undisturbed, while their larger corporate funded peers struggled to maintain a service during the spread of Covid-19.

Kuflink is a rarity among lenders, in that it offers private investors the opportunity to invest in short-term lending through its peer-to-peer (P2P) platform. Larger P2P platforms have pulled out of retail funding from private investors, claiming that the regulatory rules make it uneconomical for them to continue. Kuflink, however, continues to provide investors with a solid return as well as investing our own funds alongside.

Eyes on the criteria

However, new lenders face a huge task in developing sufficient traction to survive and thrive.

In a low rate environment, and with so many lenders to choose from, there has been a tendency to chase rates down to a ract generalist mortgage brokers who are used to an ‘only the lowest rates will do’ scenario in the first charge residential market.

Once the rate game has played out, the market’s a ention will switch to criteria, and we all know where that leads. Even if external funders are willing to shave their margins in order to be competitive, they will definitely baulk at any a empts to water down criteria, where they will be the ultimate losers.

Outside funders will continue to keep a close eye on their lender partners, as they won’t want to be the ones still standing when the music stops. However, lenders like Kuflink will always maintain a strong alternative source of funding through its P2P platform. ●

Opinion SPECIALIST FINANCE The Intermediary | July 2023 58
RANJIT NARWAL is head of origination at Ku ink
Funders looking to have a presence here will be studying all possible scenarios, positive and negative”

Creating some calm in the chaos

hile the base rate is not linked directly to fixed term deal pricing, it might as well be in our current economic climate.

At the time of writing, 2-year gilts were at 5.247%. To give some context, they were at 1.997% this time last year.As gilt yields continue to rise, so will swap rates. Again, at the time of writing 2-year SONIA swap rates are 5.711%. At the same time in May they were 5.082%, and in June last year, 2.736%.

So, it is easy to understand why lenders are pulling fixed term products with li le or no notice and repricing upwards. They simply don’t have a choice!

However, lenders could manage the process with more sensitivity. It is the broker who is trying to navigate through and find the best possible outcome for clients.Serving product withdrawals with no notice period has created unnecessary pressures.

Being a mortgage broker is a highly stressful job at the best of times. Current market conditions are only adding to this pressure, as many clients are experiencing a significant ‘rate shock’. While I have some sympathy with the commercial pressure lenders are facing from the volatile money markets, and the service risks they face if le exposed, some minimum market standards must be created so that brokers have time to get their applications submi ed before deadlines strike.

Crystal Specialist Finance is a founding member of the Mortgage Industry Mental Health Charter (MIMHC), which aims to create a framework in our industry to be er support wellbeing, and we are currently working with lender signatories to establish such standards.

The current approach is creating chaos for mortgage brokers and

Wdistributors who are trying to place mortgages for their clients.

Pipelines are increasingly destroyed overnight as lending criteria and pricing changes affect affordability, income cover ratios (ICRs) and stress tests, and o en the whole financing process has to restart.

The end isn’t yet in sight

While inflation will start to fall in the coming months, it will not be at the Bank of England’s forecast, and so base rate will continue to rise.

The Chancellor of the Exchequer has said several times that if recession is the tool that curbs inflation, then so be it. Unfortunately, that is where I believe we are headed. It feels like an inevitable reset, as current policy isn’t working, and won’t until that tipping point is reached.

Where does that leave mortgage advisers? They first need to have a good understanding of what has caused this situation so that they can explain it in plain English to their clients. Especially for clients coming off 1%-ish fixed term deals who will be struggling to understand.

Here are five tips I believe that brokers can use to minimise the impact and make their lives just a li le bit easier:

Work with an expert. Brokers should always work alongside a specialist distributor, as an extension to their own business structure. A good third-party relationship should enable brokers to focus on growing their sales and allow them to best support their clients’ holistic needs. Go digital. While some lenders aren’t winning any prizes for their application portals at the moment, the same isn’t true for the distributors. At Crystal, the quickest way for brokers to submit their cases is through our digital HUB system.

Move quickly. Don’t delay in gathering the required paperwork. Supplying checklist information in

one go has arguably never been so needed. This enables distributors to skilfully package your case, so it is presented in the best possible light and importantly satisfies the very tightest criteria – first time every time.

Take advantage of express underwriting services. ‘Fast track’ services enable brokers to talk through their case with an underwriter on the same day, and if the broker has the documents ready, it can be packaged and submi ed to the lender on the same day.

Explore the alternatives. While 97% of residential mortgages are fixed terms, there are other product options. Bridging is growing in popularity every day, with costs very close to fixed term alternatives – especially for buyto-let. Plus, bridging finance offers a host of flexible features – such as the availability for adverse clients and repayments without penalty.

The mortgage market is experiencing challenging times, but the need for property finance never stops. There are more than 2.4 million homeowners on fixed term deals that are due to expire between now and the end of 2024, according to UK Finance.

The rental market is booming, and property investors are looking to expand. Professional investors are looking to semi-commercial spaces to improve their yields.

There will always be a strong demand for property finance. The real and short-term challenge is how can brokers, distributors and lenders work be er together, utilising digital technology to see this storm through.

Our sector has demonstrated amazing resilience during previous adverse cycles and no ma er what is thrown at us we should remain optimistic about the future. ●

Opinion SPECIALIST FINANCE July 2023 | The Intermediary 59


The Intermediary speaks with Alastair Hoyne, CEO of Finanze, about the flight to quality in specialist property investment, and making the most of customer loyalty

Can you tell us a little about your career so far, and how you came to found Finanze?

I created and sold my first business while at university, followed by an online real estate business. Then I ended up getting a job in a bank in London, after which I was asked to go to Hong Kong, then Singapore. I’ve had a diverse career primarily in hedge funds and asset management.

Eventually, I moved back to England, and after some experience in a property finance brokerage, it led me to setting up my own firm in July 2021. I made £30,000 in the first month, and as of this month we’ve now issued over £2bn worth of property in the past two years, and made a revenue of £250,000 in the first year. This year, we’re on track to make a revenue of around £3m. What we do seems to have resonated with a lot of clients, who had previously been hard sold, where I’ve taken the approach of providing a white-glove service, where I will uncover every rock to find the solution.

We are now commanding fees that are unusual for the industry, because of the level of service we offer to clients.

We also run things like asset finance, trade finance, cashflow, protection and insurance, as well as education and events. We also have a technology side of the business, developing software for the industry and other brokers –an onboarding, aggregation and transactional platform that doesn’t seem to exist as a combined entity elsewhere.

What are the next steps for an already diverse business?

We might be launching finance originations in a couple of months’ time, but for the most part

my goal right now is just deepening the revenue for the businesses that I already control. We’ve expanded very quickly, which most can’t do – so my focus is on harnessing the businesses we have and deepening the revenue within them.

With interest rates going up and a lot of the less sophisticated clients leaving the industry, it’s very much the case now of building that brand name and understanding that there’s going to be a smaller pie overall.

To do that, we focus on long-term relationships. If I can get a client their funding as cheap as possible, it frees them up to do more projects. So, I would rather shave off some of the income I’m going to make on this transaction, taking some fees out of the equation, to allow a client to offset that against another project, which I can earn on as well.

The long-term, lifetime relationship value is going to be much higher – that builds loyalty. Another way we do that is connecting clients with one another, opening up my network and helping them grow their business.

I’m creating a prime brokerage, which is quite normal in the investment banking world. I’m trying to build a holistic firm that is a prime brokerage for property investors. A lot of our clients are enjoying that one-stop shop.

You recently launched an online academy, can you tell us the reasoning behind this?

The firm is horizontally spread out within the finance space, and we represent the whole spectrum, from the beginner that is getting into property but hasn’t, say, saved the budget yet all the way, to development PLCs that ask me to find hundreds of millions for them.

I decided to use the knowledge of my group and my suppliers to create an online academy for property entrepreneurs which would teach people

The Intermediary | July 2023 60

everything they needed to know for £95 a month. Within that, I decided to buy an events business for networking events around the country, to use that as an even earlier angle, to get to the people thinking about getting into property, but who haven’t yet made the leap.

I’m an investment banker, ex-portfolio manager and expert equity specialist. My view has always been that you either strengthen the wallet or grow the wallet.

In the industry you have at the moment, what you’re seeing with interest rates is a ight to quality. Previously, everybody and their dog was buying properties, because all they needed to do was make a 4% yield, and they were happy, because they were making money and that extra £100 or £200 made sense.

Now, because rates are so high – and they will probably keep growing another couple of percent potentially, and stay there for a while – it’s cutting out anybody that doesn’t know what they’re doing, or isn’t serious about it.

Our educational platform was about saying ‘look, if you are going to be serious about this, then be serious. Learn what you need to learn by listening to us’.

We teach the nance, legals, accounting, tax, sourcing – the idea was just to bring all this knowledge together.

At the end of the day, everybody just wants to see more transactions get done, so the sooner we can get people educated, the sooner we can actually make a real pro t on the transaction. Our approach is not to confuse people so they buy

more sessions, but to give them everything they need to know.

We don’t care about selling courses, ultimately, we care about brokering a property transaction.

We’re also going to allow our peers – other brokers – to be better o for it as well, with courses on how to be a better broker, and information from lenders, saving members from spending every day on the phone holding up their progress to nd out what’s changed in the interim. Lenders can just put it once on our platform and we’ll send it out to all the brokers, and save maybe 120 phone calls.

Are there any particular trends or challenges you’re looking out for over the next year or so?

e market is going to shrink, and brokers are going to be limited to a smaller pool of more sophisticated investors. ere are going to be people exiting the game that would have previously been involved, so it’s about how you make sure that you’re capturing that smaller audience.

ere are something like 30,000 brokers in the country, and they’re all ghting over a smaller client base.

We di erentiate ourselves, but the one thing you’re never going to be able to overcome is that pure loyalty that many people have to the broker that has looked a er them. So, our question becomes, as we grow, not whether we should acquire other rms, but whether we expand out to hire those brokers and to capture that loyal client base that they consult. ●

We focus on long-term relationships. If I can get a client their funding as cheap as possible, it frees them up to do more projects. So, I would rather shave o some of the income I’m going to make on this transaction, taking some fees out of the equation, to allow a client to o set that against another project, which I can earn on as well”

The Mortgage Charter and the short-term market

The recent announcement that the UK’s largest mortgage lenders, Chancellor Jeremy Hunt, and the Financial Conduct Authority (FCA) have agreed a set of standards that they will adopt when helping regulated residential mortgage borrowers worried about higher rates was widely covered, both in the trade press and consumer media. But what does it mean for the short-term sector?

According to the Government statement, the lenders – which cover 75% of the traditional residential mortgage market – have agreed to a Mortgage Charter providing extra support for residential mortgage customers:

Customers won’t have their homes repossessed within 12 months of their first missed payment.

Customers approaching the end of a fixed rate will have the chance to lock in a deal up to six months ahead. They will also be able to apply for a be er deal right up until their new term starts, if available. Customers will be permi ed to switch to an interest-only mortgage for six months, or extend their term to reduce their monthly payments and switch back to their original term within the first six months. Both options can be taken without a new affordability check or affecting their credit score.

The parties will offer tailored support for anyone struggling, and deploy trained staff to help customers. This could mean extending their term or switching to interest-only, but also other options, like a temporary payment deferral or part interest, part repayment.

The Mortgage Charter is effectively a voluntary agreement between the FCA and a defined group of mortgage lenders to apply additional forbearance, given the increased mortgage costs that some homeowners are now facing as a result of a sharp hike in mortgage rates, against the backdrop of the current cost-ofliving crisis, when reaching the end of fixed rate periods of certain mortgage products.

The difference in rates for these customers is stark.

Di erent elements

The key element of the Mortgage Charter is the commitment to permit customers with these difficulties to switch to an interest-only mortgage for six months or extend their mortgage term.

However, the short-term market is quite different in character.

In the short-term market, the vast majority of loans are already interest-only. Interest and servicing is commonly retained or dealt with at exit. Servicing against the backdrop of a cost-of-living crisis is, therefore, not the same issue.

The vast majority of short-term loans are also wri en on a fixed rate basis for the entirety of the term, so borrowers are not in a position where they might be caught out by base rate increases. Short-term borrowers simply do not face the same uncertainties on rate.

Typically, interest rates in the shortterm market have shown no increase in the same period which has seen base and standard variable rates (SVRs) sharply rise.

Finally, delinquent loans in this sector are most commonly the result of failure to exit, rather than inability to service.

Impact and application

Unlike the moratorium and Breathing Space, this is an opt-in charter, and ought not directly impact the shortterm market, nor should it.

That said, forbearance for just cause, and treating customers fairly, must remain at the heart of lenders’ collection policies.

At the same time, deferring repayment of a short-term loan can o en result in a poor customer outcome.

So, in essence, the Mortgage Charter has been designed to fix an immediate problem in a particular area of lending for a specific class of residential mortgage borrower experiencing difficulties at this time, most commonly as the result of a specific type of mortgage product.

Bridging loans are not that product, and the market dynamics are markedly different.

However, what this Mortgage Charter does is create an atmosphere of perceived general debt forgiveness – which it is not – and an expectation for forbearance for all.

I suspect its impact and application will in some cases be overstated and misunderstood, adding a further challenge to collection cases that reach the courts.

This charter is yet another example of why it’s so important for short-term lenders to be able to clearly distinguish themselves and what they provide from the mainstream.

The current mood music may give some borrowers the impression they may have just reason to delay repayment or criticise the approach of their loan providers, but it really should not. ●

Opinion SPECIALIST FINANCE The Intermediary | July 2023 62
JONATHAN NEWMAN is senior partner at Brightstone Law

Creating the right partnerships

All lenders talk about the importance of service, and yet the level of service offered by providers in the sector can vary wildly. One can perhaps understand why brokers may take it all with a pinch of salt. What they want to hear is not just the ‘why’ but also the ‘how’.

One of my mantras is ‘less is more’. This is the result of my experience from years spent in the bridging sector and is particularly appropriate to key partner relationships. We strive to provide the best possible service to those brokers who know how we do business and understand our products and processes. In part, that’s best achieved by not having a key partner panel which is unnecessarily bloated – there’s no business case for having a large panel, it’s just size for size’s sake.

At HTB, we have been concentrating on having a panel of those key brokers who have proven that they can get deals over the line, to the standard that we require. In turn, we can give them consistently high service levels, resulting in a smooth customer journey for their clients and the best customer outcomes.

We’ve designed a service proposition with the broker in mind. A key part of achieving this is by being available on the telephone, not just behind

an email address. The team at HTB understands the need for simplicity and effective communication – the right people can be accessed at all times, including all the senior staff.

In addition, the process is designed so that each and every case is put in front of the decision-makers within hours of the enquiry coming to us.

A friendly cuppa

We have the experience within our team to get complex deals done, and brokers will know this first hand, as they can actually speak to underwriting and credit, as well as being able to meet with us.

We bring the end customer onto the call whenever necessary, and invite them into the office for a cup of tea and a chat to discuss the case.

Ultimately, we’ll do whatever is necessary to help make sense of the deal.

The importance of partnership

Speed is, of course, a very important indicator of service quality. If it takes a lender a week to respond to an enquiry, then it’s clear that their service isn’t where a broker and their client would want it to be.

It’s therefore vital that a lender’s processes are such that a case isn’t unnecessarily held up at any point.

Of course, there some elements which aren’t totally controlled by the lender. Take legals, for instance. An outside law firm will be involved, and it’s therefore key that to partner with a reputable and experienced firm which has a proven track record in the property market and understands short-term lending.

Sub-standard legal outfits can appear to process a case quickly, but that doesn’t mean quality. At HTB, we want to be assured that the complexity of a case is completely understood. Our legal partners collectively provide expertise in all areas of real estate, including residential, commercial, development and mixed-use. Being able to act on both a dual and sole representation basis is also a real asset and a time-saver.

Equally important is our relationship with VAS Panel, which provides broker partners with access to its database of qualified valuers. Through their expertise and technology, VAS Panel can obtain residential valuations quickly for brokers and their customers.

With these factors combined, we can confidently aim at moving from application to completion in 21 days, and we regularly do it in around half this time.

Service excellence shouldn’t be a pipe dream. It can be achieved with careful design, commi ed staff and the right partnerships.

At HTB, we work hard every day to maintain our service standards and I believe all of our key partners will agree. ●

Opinion SPECIALIST FINANCE July 2023 | The Intermediary 63
LORENZO SATCHELL is head of sales, bridging nance at Hampshire Trust Bank Combining skillsets and e orts makes for streamlined parterships and speedy results

Do values have a place in the specialist sector?

Since the now infamous mini-Budget of September 2022, we seem to be in a period of prolonged market uncertainty.

The Bank of England continues to increase interest rates and inflation stubbornly refuses to fall at the expected pace, and the fact is that with this increased uncertainty, clients are more likely than ever to default to the status quo and avoid both riskier deals and entering into new lending relationships, where the unknown is a factor.

In my opinion, it is more important than ever to have a set of core values within this unregulated, specialist industry, to continue to a ract new clients and stand out in more challenging circumstances.

Dedicated values

The clients – whether brokers, intermediaries or borrowers – must be confident that they are dealing with responsible lenders that are reliable and flexible when it ma ers. We need open communication at all times from both sides, and the business ethos should be to put borrower needs first.

At Mint, we have not only a dedicated business development manager (BDM) for the customer, but also a named underwriter and a specific portfolio manager, so that clients have the contact details and names of individuals, and not a call centre or generic number.

This is so that we can build a relationship, rather than engage in a one-off financial transaction.

At any point during the whole process – from initial conversation to the paying back of the bridging loan – there is help and assistance in place. This approach not only makes the loan as easy as possible to get released, it also means that when challenges arise, they are navigated successfully, even if extensions or unforeseen circumstances come into play. It is much easier to deal with difficult situations when there is a relationship based on trust and understanding.

Using a portfolio management team is something lenders should embrace, to set borrowers up for success and monitor their projects.

Repeat borrowers who complete numerous deals are worth more to a business than those who do a one-off transaction and fall into problems or defaults. There is no guarantee at the end of a defaulted loan that the lender is going to easily get its investment back, whether through interest payments, charges or repossession, all of which will take time to acquire through lengthy legal processes.

Lenders also run the risk of damaging their reputation among potential clients in the sector, and indeed, some lenders have given the sector a bad name in the past.

Short-term stigma

The reason values are more important than ever, and important to not only

individual lenders but the sector as a whole, is because there remains a stigma a ached to short-term lending, despite much having been done to improve this view in recent years.

Bad faith lending impacts every one of us in the industry, and all firms should take time to consider what type of lender they want to be, and the values they stand for.

Being human

Here at Mint Property Finance, we have staff with decades of experience within the industry, whose values are to assist clients with their property finance journeys, not just to complete a property finance transaction.

We have many unique selling points within our products and criteria themselves, but it is our underlying core values of doing the right thing that really make us stand out in a very crowded market.

The qualities of being human and having empathy is just as important as understanding the industry and being able to fund efficiently.

None of us have a crystal ball to see how the future will pan out for the economy or the market, but there is li le doubt we will see increased pricing across bridging, term loans and mortgages for a while to come.

Property investment in the UK is still a fantastic way of making money, but in this uncertain environment, people need to be sure of their partners and trust in their experience and flexibility.

Ultimately, if you choose the right property in the right area, with the right project and the right funder, you will still very much succeed. ●

Opinion SPECIALIST FINANCE The Intermediary | July 2023 64
STEVE SMITH is head of sales at Mint Property Finance
Bad faith lending impacts all of us in the industry, and all rms should take time to consider what type of lender they want to be, and the values they stand for”

Spotlight on specialist lending

There’s no escaping that we are operating in a transitional period for potential borrowers, homeowners, landlords and property professionals across the UK.

The current state of the lending landscape and compounding impact of select economic factors means that advisers and their clients are seeking out more versatile and tax efficient sources of funding, and this is placing an increased spotlight on a variety of areas across the specialist lending markets.

So, what is currently happening across these key areas?

Complex BTL

Starting with the buy-to-let (BTL) sector, we are experiencing greater levels of activity at the more complex end of this market, especially around limited company lending, with this trend expected to continue.

This was reflected in research from Paragon Bank, which found that 49% of intermediaries expect to place a higher volume of buy-to-let mortgages wri en to portfolio landlords operating through limited companies in the next 12 months, with a further 38% anticipating more non-portfolio limited company business.

Only 14% of brokers expect more personal name portfolio business in the period, with just 6% expecting growth in personal name nonportfolio BTL lending.

Mortgages wri en to portfolio landlords operating through limited companies currently account for just under a quarter (24%) of cases placed, but this is widely expected to continue rising due to the favourable tax treatment of incorporated businesses.

As well as being more tax efficient, the level of lender stress-testing on limited company business can work in the favour of such borrowers, and with the addition of versatile lending policy

and criteria, this is where specialist lenders really come into their own.

However, it remains tough for advisers to keep track of all the recent product and underwriting shi s which have taken place across the sector, and this is where specialist support from a trusted packaging partner can really pay dividends.

Bridging nance

As the BTL sector continues to move in an increasingly professional direction, the reliance on bridging finance is rising, especially in light of impending and future changes to Minimum Energy Efficiency Standards (MEES). This synergy helped to bolster activity levels and demand for short-term finance in Q1 2023.

Looking at the most recent figures from the Association of Short Term Lenders (ASTL), bridging completions passed £1.4bn in Q1 2023, which represented an increase of 11.8% on Q4 2022.

Applications continued to rise, reaching £9.8bn In Q1 2023. This represents an increase of 13.1% compared to the quarter ended December 2022. The value of loan books is also reported to have increased, rising by 4.0% to another new high of just over £6.8bn.

This data helps demonstrate the continued positive impact of bridging finance on the current mortgage market, and it’s likely to play a key role in an array of propertyrelated transactions and refinancing options for advisers and their clients going forward.

Commercial lending

Turning our a ention to the commercial sector, a survey by Atom Bank revealed that while the majority of brokers (58%) said they were easily able to access finance on behalf of their clients, 42% were currently finding it difficult to get the finance their clients needed.

This can o en be down to institutionally funded specialist lenders finding wholesale funding lines problematic, or the ‘risk off ’ approach seen from some high street lenders.

Half of brokers felt the introduction of new technology could help improve small to medium enterprises’ (SMEs) access to credit.

The most popular pieces of technology brokers think would be beneficial are instant agreements in principle (72%), automated eligibility decisioning (65%) and Open Banking (44%).

Almost half (48%) of brokers surveyed feel SME appetite for external finance is increasing, with 59% believing the main reason for this is a rise in business confidence. 53% stated the main reason SMEs are taking out loans is for growth and business expansion, painting a positive picture for UK business.

It’s highly encouraging to see reports of business confidence returning and more SMEs looking to expand. From a funding perspective, this can o en seem like a minefield for such businesses, but this is where the intermediary market really shines. There remain a number of available options for borrowers if they head down the right advice path. ●

Opinion SPECIALIST FINANCE July 2023 | The Intermediary 65
DONNA WELLS is managing director at Envelop
It’s highly encouraging to see reports of business con dence returning and more SMEs looking to expand”

Seeking a regulatory consensus

Recent developments surrounding the impending implementation of the Financial Conduct Authority’s (FCA) Consumer Duty have sparked real concern within the commercial lending industry. Here at the National Association of Commercial Finance Brokers (NACFB), we are troubled to see some lenders either withdrawing their regulated product offerings or simply not providing necessary information ahead of the upcoming deadline of 31st July.

Here, I intend to shed light on the potential ramifications of these actions, and underscore the NACFB’s commitment to ensuring both responsible lending practices and unfettered access to finance for small to medium enterprises (SMEs).

Unforeseen challenges

Less than a month away from the Consumer Duty implementation deadline, the NACFB highlighted the withdrawal of some lenders

from regulated transactions as a significant challenge resulting from the anticipated regulation.

The moves pose potential obstacles for both the industry and SMEs. It appears that, rather than adapting their practices to align with the duty’s expectations, some lenders have chosen to retreat entirely, citing that exempt business falls outside of regulatory scope.

We can be confident that this was not the aim of the regulator.

A statistically significant number of commercial lenders have adopted such an approach, and these moves warrant examination to determine whether the Consumer Duty has been interpreted consistently across the full spectrum of commercial lending.

Throughout the implementation period, the NACFB has observed diverging interpretations of the FCA’s framework, which were highlighted in ministerial correspondence from the association as far back as February.

Echoing the NACFB’s concerns, David Postings, CEO of UK Finance, expressed apprehension over the

potential impact the Consumer Duty could have on business lending. Postings stated that he had real concerns, and feared product withdrawals as a pre-emptive measure to avoid future complications.

Such a challenge can also only be considered unforeseen if no one has anticipated it. In this instance – as the NACFB raised this as a potential unintended consequence earlier this year – it appears to have been entirely foreseen.

While the withdrawal of lenders from regulated products is indeed concerning, an arguably more significant issue arises from the rules that prohibit brokers – acting in their capacity as distributors of a lender’s products – from promoting products where they cannot fulfil their obligations under the new Consumer Duty.

In many cases, brokers have been unable to obtain essential information from lenders to meet those obligations, leaving them limited options to confidently offer clients. The lack of a consistent approach

Opinion SPECIALIST FINANCE The Intermediary | July 2023 66
PAUL GOODMAN is chair of the NACFB

poses a considerable challenge for brokers, as they are unable to fulfil their obligations under the duty and provide clients with the necessary information.

Enhanced transparency

The NACFB firmly supports the notion that the Consumer Duty should serve as a means to enhance transparency and promote fair outcomes for consumers, while maintaining the crucial flow of funds to SMEs.

In response to the challenges posed by lender withdrawals, we commit to engaging with regulators and lenders alike to address these concerns proactively. Our objective is to ensure that the Consumer Duty’s implementation supports responsible lending practices and secures access to finance for all businesses – for the two need not be mutually exclusive.

A fine balance

While the NACFB expresses its concern over lenders withdrawing regulated products in response to the impending Consumer Duty, we must also acknowledge the possibility that some lenders may have used the duty as a pretext to discontinue underperforming products.

It is essential to consider the multifaceted nature of this issue, and recognise that while legitimate concerns exist, there may well be instances where lenders exploit the timing of the duty as a convenient justification for their own commercial decisions.

The NACFB recognises the importance of striking the right balance between transparency and access to finance.

While the Consumer Duty seeks to provide clarity and protection for consumers, it must not impede the essential funding required for SMEs to grow and thrive.

Responsible lending practices and the availability of diverse financing options are pivotal in supporting entrepreneurial ventures and bolstering economic growth.

The NACFB underscores the need for careful consideration to prevent further unintended consequences and ensure that responsible lending and financial inclusivity remain at the forefront of regulatory initiatives.

By addressing these concerns openly and collectively, the industry can strive towards a regulatory framework that both facilitates responsible lending and empowers SMEs to thrive. ●

July 2023 | The Intermediary 67
The NACFB recognises the importance of striking the right balance between transparency and access to finance. While the Consumer Duty seeks to provide clarity and protection for consumers, it must not impede the essential funding required for SMEs to grow and thrive”

Reliability is key for brokers let down by lenders

There are all sorts of different factors that go into the advice process for brokers, far beyond simply picking out the cheapest deal. They also need to account for elements like how the lenders operate, how well placed they are to get the funds together quickly, and which firms are going to look most favourably on the circumstances of the individual client.

For example, there’s no point pushing a client towards a lender with a cheap rate, but where the criteria is impossible to fit within.

One factor that is o en overlooked, but which has become ever more important in recent months, is reliability. Brokers have always valued lenders they can trust, who can live up to their word, but that a ribute has become even more highly sought a er of late.

Left in limbo

Across all areas of the finance market, brokers have been enormously frustrated over the past few months by lenders which have essentially led them up the garden path.

In the regular mortgage market, it might be lenders which have pulled products with li le to no warning, leaving the broker desperately scrambling around for a replacement.

The specialist sector has not been immune to this, either. We have spoken to a number of advisers who thought a deal was in place for a client on a bridging loan, only to discover down the line the funding wasn’t actually there for the case, leaving the broker and borrower in limbo.

In the best case scenario this is simply inconvenient for the client, but all too o en the results are more significant. Certainly, when it comes

to specialist lending, time is o en of the essence, so having to go through the process of identifying a different lender and product may mean they miss a refinancing deadline and so are out of pocket, or even lose out on a new purchase altogether.

Then there are the professional fees, which may have already been devoted towards placing that case with the initial lender, which have effectively been wasted. Nobody likes throwing money away, particularly property investors.

There can be longer lasting damage, beyond the financial, when these disappointments occur. Brokers are trusted by investors precisely because of their understanding of the market, making them perfectly placed to pinpoint the right lender for a specific situation. When a lender drops out and the client is le in the lurch, it inevitably dents that trust and potentially the entire relationship.

It may be that when the time comes for help with arranging finance in the future they opt for a different broker.

Lenders you can trust

It doesn’t have to be like this, however. Some lenders have gone out of their way to build a wide range of funding sources, ensuring when they say they can help with a case, they can deliver. It’s something that we have spent a lot of time and effort on at Tuscan, and we know that it has meant becoming the go-to lender for a growing number of brokers.

Obviously, it’s not enough simply to have the funding in place – lenders also need to be able to offer deals at competitive rates and provide a quality experience for borrowers. Again, that’s an area we have invested in, with our Fast Track process utilising automated valuation models (AVMs)

and desktop valuations to ensure cases proceed much more quickly so even the tightest deadlines can be hit.

However, lenders which can combine quality products and processes with funding reliability will always stand out from the crowd. Brokers know their client will get a good deal, a smooth customer journey, and with no question of the deal falling through because of funding certainty.

Not only does this mean the client gets the individual case over the line in time, but it also further strengthens the relationship with the broker. If they know the adviser can pull it out of the bag for them, even when a case is a li le challenging, then they are more likely to return to that broker year a er year for all their financial needs. Ultimately, that’s the standard that all lenders should be striving for. ●

Opinion SPECIALIST FINANCE The Intermediary | July 2023 68
COLIN SANDERS is chief executive o cer at Tuscan Capital
We have spoken to a number of advisers who thought a deal was in place for a client on a bridging loan, only to discover down the line the funding wasn’t actually there for the case, leaving the broker and borrower in limbo”

Don’t let your development lender frustrate your client’s project

At Magnet Capital we are a genuine solutions provider and experts in development finance.

Why choose Magnet Capital?

• No hidden costs. We are completely transparent about our pricing.

• Quick, decisive approach. No ‘double underwriting’ or slow credit committee process. Brokers and clients have direct access to genuine decision makers.

• Flexible funding. Our funds are provided by our equity partner in the business and therefore we aren’t limited by numerous investors or have the risk of funding lines being pulled.

• Lower fees. All our fees are based on net loan amounts and not gross.

• Better products. We don’t offer retained interest so the client doesn’t pay interest on a large interest slice from day one. Interest is rolled up or serviced if the client prefers.

• Loans from £200k to £2m.

• Low surveying fees - no QS monitoring for loans with build costs below £500k.

• ‘Commended’ Best Service from a Development Finance Provider 2022 at Business Moneyfacts Awards.

• Additional introducer fee can be added to the loan.

 020 8075 3255   The development finance experts

The Golden Age of later life borrowing

To borrow a political phrase from the past, UK borrowers have never had it so good.

In fact, I believe that the Financial Conduct Authority’s (FCA) new Consumer Duty regulations will usher in a Golden Age of mortgage borrowing for the UK’s financial consumers, particularly those over the age of 50.

Thanks to the new rules, if you’re aged 50 to 90-plus and you want to borrow money, then your life experience has never been more important, your rights have never been more protected, and the borrowing process has never been more transparent. Not just at the account creation stage, but for the life of your agreement.

However, this new era is also a huge opportunity for lenders that are genuine about pu ing the interests of their customers first. Later life borrowers have never been more open to conversations with advisers who properly understand and empathise with their situations.

I know this personally, because LiveMore speaks to a lot of the UK’s 50 to 90-plus year-olds. We know their financial priorities, what worries them economically, and that they feel that they have been shockingly neglected by mainstream lenders.

Financial priorities

We listen to thousands of 50 to 90-year-olds every year to compile what we call the LiveMore Barometer, a comprehensive survey which takes the temperature of their financial needs and fears.

Importantly, our last survey found that more than half of the respondents put financial stability and maintaining their standard of living as the number one priority in their lives – above even their own health, and spending more time with their families.

More than a third said their biggest property-related concern was being able to stay in their own home.

The barometer also revealed that one in six were concerned about being able to help their children or grandchildren onto the property ladder, 7% were looking to buy a new home, 6% were looking to access equity release, and 5% wanted to remortgage their homes.

However, given those financial priorities and ambitions, we also know how extremely let down by financial institutions these consumers feel.

The forgotten generation

Nearly half of respondents said they did not get enough financial support from mortgage providers or banks during the height of the cost-ofliving crisis.

When it came to how financial products were presented to them, a quarter were similarly scathing of the “patronising” and “self-serving” information they received from advisers, complaining that they felt like the “forgo en generation” when it came to financial ma ers.

I believe Consumer Duty will help to rebalance this unequal treatment, and even herald a phase of more empathic and open lending.

This will present an exciting opportunity for everyone – including the mortgage industry – with the most successful lenders going even further in their goal to serve customers with the most suitable products.

Identifying vulnerability

Part of the challenge when it comes to 50 to 90-plus consumers, is that many of those who are vulnerable will not consider themselves to be so. Of course, the majority of customers over the age of 50 are in good health, but wellbeing becomes an increasing concern as they grow older. That is why it will be vital for lenders

to design mortgage products and services which can work for later life borrowers over a long-term period. The lenders that capitalise on these opportunities will be those with the best position on Consumer Duty, and which are able to spot and deal with vulnerability, combined with a wide range of products and services. The information they provide about products will have to be easy to understand. They will have to understand the scale of the vulnerability of the people in their target market, have staff who are properly trained to manage the needs of vulnerable clients, have processes in place to consistently monitor those customers, understand how their products will impact vulnerable customers – at every stage in the life of the product – and have robust processes in place to spot and respond to ongoing vulnerability.

That, of course, is great news for consumers, many of whom we know are already crying out for a be er conversation and a more meaningful relationship with financial the institutions they deal with.

However, it also throws up a bigger question for our sector: who is ready to change the narrative and lead the way on this exciting new journey with our customers? ●

Opinion LATER LIFE LENDING The Intermediary | July 2023 70
This new era is also a huge opportunity for lenders that are genuine about putting the interests of their customers rst”

Innovation to meet the needs of an evolving world

e live in a time of great change – from artificial intelligence (AI) to automation, from digitisation to mobile technology – new approaches are being embraced across all sectors and industries. It’s more important than ever that established industries embrace change, ensuring they adapt to the pace laid down by peers.

Shifting attitudes

Across the later life lending space, we see a huge opportunity for innovation, particularly as property wealth becomes increasingly relevant to people’s personal finances and retirement planning.

There are currently more than 15.5 million people aged 60 or over in the UK, making up 23% of the population. Within this demographic, cultural a itudes towards homeownership and the equity in property are changing.

Adequate retirement income is becoming an increasingly important consideration for retirees and those approaching retirement. Rising living costs and longer life expectancy are causing many to reconsider how they will fund their desired lifestyle over a longer period. Recent data shows that homeowners in England and Wales could unlock five years of retirement income from their homes on average, thanks to a 22% increase in property values since 2017.

In addition, the impact of Covid-19 and months of lockdowns across the UK has changed the way that many of us feel about our homes and communities. Fewer people are considering downsizing, as space, familiarity and community have become more important than before.

WLenders must take advantage of these changing a itudes to ensure that innovative, tailored products are on offer, and the market continues to flourish and adapt to a changing world.

Diverse customer needs

Each customer’s journey through retirement is unique, and it is of the utmost importance that current products and future innovations provide flexible solutions to address these varying needs.

Our customers come to us for a range of reasons, be it gi ing to family, helping a child or grandchild onto the property ladder, paying off an existing mortgage, making home improvements or funding the day-today costs of retirement.

One key way in which later life lenders are supporting customers with new and evolving needs is through the provision of equity release loans for energy efficient upgrades. With the increased cost of energy, the payback from this investment into property has increased significantly.

Our Equity Economy report last year found that 13% of equity release customers accessed property wealth to finance energy efficiency improvements, with 47% installing be er insulated windows and doors.

The UK has some of the oldest buildings in Europe, and the Government has highlighted the importance of ensuring home energy efficiencies are addressed, while also lowering our dependence on imported fossil fuels and natural gas.

In this spirit, we are seeing innovation throughout the market, as providers give incentives to homeowners through the likes of green mortgages, while also encouraging sustainable retrofi ing.

Last year, Legal & General enhanced its Energy Saver Cashback offer, extending to include our retirement interest-only (RIO) customers and adding to our list of qualifying works to ensure the product meets the needs of a wider range of customers.

For all the innovation, there are still customers whose needs are not being met. Data from UK Finance and the Financial Conduct Authority (FCA) shows there is £88bn worth of interest-only mortgages in UK at less than 50% loan-to-value (LTV), maturing at a rate of 50,000 every year. For customers coming off these mortgages, other product innovations, – such as Legal & General’s Optional Payment Lifetime Mortgage, which allows them to pay some, or all, of the interest each month – can be helpful, particularly given upwards pressure on interest rates.

Staying agile

Prioritisation is key, and lenders must target customer needs not being addressed by current later life products. Are new products competitive, affordable, marketable and easy-to-understand? Most importantly, do they meet regulatory requirements to safeguard customers?

At Legal & General we have embraced an agile mindset and culture, listening to and onboarding feedback from customers, advisers and peers. It’s not about changing the world – it’s about making small process improvements to ensure the customer journey is enhanced and the best possible products are on offer. This way, we can continue to grow the later life lending market through an innovative approach that puts the customer’s needs first. ●

Opinion LATER LIFE LENDING July 2023 | The Intermediary 71

Meet The BDM

How and why did you become a business development manager (BDM)?

I joined Pure Retirement in May of 2020 as a telephone BDM, which I thoroughly enjoyed, so subsequently jumped at the chance to take the regional BDM position when it became available. I had a great working relationship with my advisers, so was excited to meet them in person. I’m grateful for the opportunities to interact face-to-face with my network, and for the varied area I get to represent, stretching from Doncaster to St Albans.

What led you to join Pure Retirement?

Having worked in the nancial services industry for nearly 15 years, I’d heard Pure Retirement’s name mentioned as a leading presence in the equity release space, known for both its products and its commitment to service standards.

When the opportunity came up to take on a role within the sales team, I was intrigued – especially as the o ce was close to me!

Joining has given me the con dence to grow in my role, as well as providing me with the freedom to use my initiative to deliver the best outcomes.

The Intermediary | July 2023 72
The Intermediary speaks with Karen Banks, BDM for the central and eastern region at Pure Retirement

What makes Pure Retirement stand out from the crowd?

For me, it’s the commitment to product development, marketleading service, and technological innovation – it shapes everything that we do, from investing in our sta development, through to delivering market rsts like our MyPure online account management platform for customers.

Based on anecdotal conversations with my advisers, they really value the level of support they get from our intermediary sales team in placing their cases, and the peace of mind o ered by the knowledge that our customers will be catered for throughout their time with us, thanks to our dedicated customer account servicing team.

What are the main challenges facing BDMs right now?

I don’t think it’s any great secret that the market has had its fair share of recent challenges in the a ermath of last year’s mini-Budget.

However, I think there will always be an appetite for equity release, and it has become more important than ever to help advisers in ensuring that their clients nd the right solution for their needs, and that there’s adequate support in place as they try to help those clients achieve their nancial goals.

While we’ve always been focused on providing outstanding service, the current market conditions have really brought its importance to centre stage.

What are the opportunities?

e market currently has a great opportunity to demonstrate its ability to continue delivering best outcomes for customers and o er

a viable nancial option, even amid recent challenges.

With residential mortgage interest rates climbing – to a point, at the time of writing, where they’re higher than many lifetime mortgages – they may no longer be a suitable solution for many, owing to the mandatory repayments.

Equity release is undoubtedly another option for those in later life, o ering the possibility to make optional repayments should customers wish.

How do you work with brokers to ensure the best outcomes for borrowers?

I am keen to fully understand the client’s situation and make sure no question is le unanswered. I make a point of asking for more detail up front, not only to instil faith with the adviser and the client, but to ensure that we can nd the right option.

I think it’s important as a BDM to really know your product set, and where there might be the option to refer a case to underwriters or funders.

Additionally, I always follow up on a promise, and make sure I reply to my advisers when stated.

What products does Pure Retirement o er, and does it have a typical borrower base?

As a specialist lender, we’re able to focus exclusively on delivering award-winning lifetime mortgage solutions, and we now boast exible pricing models on three of our ranges, with a personalised interest rate being o ered based on customer circumstances. We also provide a 21-day rate guarantee a er the key facts illustration (KFI), so applicants can review their options, safe in the knowledge that they’re insulated from any rate increases.

While we provide exclusively for over-55s, that customer pro le has

undoubtedly diversi ed – we’ve seen a vefold increases in owners of £1m-plus properties since 2018. As a result, we reintroduced our Heritage range this year, as a specialist product available solely to over-80s applicants, and o ering loan-tovalues (LTVs) of up to 50%.

What advice would you give potential borrowers in the current climate?

Don’t underestimate the importance of good quality advice in the current climate when it comes to assessing your options.

e equity release market has evolved massively, even in the time I’ve been involved in it, meaning it can arguably be a viable option for more people than ever – whether they’re looking to renovate their house, secure their debts, fund their lifestyle, or help out loved ones through gi ing or a living inheritance. ●

July 2023 | The Intermediary 73 MEET THE BDM
Pure Retirement Established 2013 Products Classic, Heritage, Sovereign and Emerald lifetime mortgage ranges Over-55 UK resident homeowners Drawdown or lump sum No maximum property value Up to 50% LTV Downsizing protection Mortgage porting Contact 07543 505 476

Vulnerability is rmly on the regulatory radar

By the time this magazine drops, we will be just days away from the start of the Consumer Duty rules. For those of us who have been suggesting that firms didn’t have a huge amount of time to get their houses in order, the fact we are here already is instructive.

It’s also fair to say that while 31st July marks the start of this journey, we have a long way to run in terms of ongoing adherence, and of course understanding how the Financial Conduct Authority (FCA) might interpret and act, particularly against those who it deems not to be adhering to the new rules.

Those early precedents will be keenly focused on, although I am not expecting the FCA to be unduly harsh, hopefully starting instead with feedback and suggestions provided in the first instance on how to improve, rather than fines and censure. A er all, we will all be learning along the way.

However, firms will probably not be able to say they weren’t provided with enough guidance about what they should be doing. For instance, as I write this, the FCA has provided 10 questions for all regulated firms to consider in terms of delivering on the expectations of Consumer Duty.

Many might be deemed common sense – for example, products and services meeting the needs of different customers and not causing harm, utilising data and management information (MI) to ensure positive outcomes – however, what is also noticeable is how intertwined potential customer vulnerability is with the Consumer Duty.

Of those 10 questions, three of them specifically mention vulnerability:

Do your products or services have features that could risk harm for groups of customers with characteristics of vulnerability? How do you adapt your communications to meet the needs of customers with characteristics of vulnerability, and how do you know these adaptions are effective? What assessment have you made about whether your customer support is meeting the needs of customers with characteristics of vulnerability? What data, MI and customer feedback is being used to support this assessment?

For those active in the equity release and later life space, the issue of vulnerability has always been an ingredient in terms of dealing with an older customer base. Of course, this is not to say that every single older customer is vulnerable. Far from it.

However, at Air’s recent National Later Life Adviser Conference, the two overwhelming themes of the day – and as mentioned, they are meshed together – were Consumer Duty and vulnerability. What we have certainly seen in recent years, particularly since the announcement of the Consumer Duty, is far more of a regulatory focus on customer vulnerability.

In fact, I would go as far as to say that this is the most proactive I have seen the regulator in any area for a long time, and I believe this has a lot to do with the increased potential for severe customer detriment if vulnerability is either not picked up by the adviser, or it is not addressed in the right way.

Of course, this is not only a sensitive area to address, but it’s also one that might be very difficult to ascertain. Customer vulnerability might present itself very clearly – physical

ailments or illness, for example – but vulnerability might actually be deep below the surface, and of course it might be transient in nature.

In other words, a customer may feel varying levels of vulnerability depending on their circumstances at the time. I would go as far as to say that transient vulnerability is perhaps the worst it has ever been for a long time, particularly in relation to the cost-ofliving crisis and the greater propensity for financial difficulties.

For older customers – who may not be able to improve fixed incomes, which is probably why you are seeing them – the impact of financial difficulties, the worry about paying bills, or even issues as extreme as having to deal with bailiffs or losing a home, will play heavily on their minds.

This is not forge ing the potential for family members to be going through something similar, and perhaps the duress they may be pu ing on parents or grandparents to help them out.

No one is suggesting this is an easy task for advisers, but the good news is that there are resources, support and training available to help. We now have a specific vulnerability module within our accredited training programmes, and I would certainly urge all later life advisers to go through this and make sure they are aware of everything that could be relevant.

Certainly, as pointed out above, this figures very prominently on the FCA radar. The regulator is going to want to see the tangible actions and methods by which advisers are addressing this.

It’s a key, perhaps even the key, element of Consumer Duty – do not ignore it. ●

Opinion LATER LIFE LENDING The Intermediary | July 2023 74
STUART WILSON is chairman of Air Club

Exploring nancial options: Beyond Hobson’s choice

The term ‘Hobson’s choice’ was named a er Thomas Hobson, who implemented a rotation system granting customers the choice of the nearest horse or none at all. This term has come to symbolise the absence of choice.

Unfortunately, this one-size-fits-all approach has found its way into the realm of raising finance for later life clients. In the pursuit of providing the best financial guidance, it is crucial to break free from this constraint.

This article sheds light on the importance of thoroughly understanding all available options, particularly moving beyond the reliance on equity release, and the significance of tailored solutions that meet clients’ long-term needs.

Changing landscape

While equity release has witnessed a decline in popularity due to the challenging interest landscape, it remains essential for financial advisers to ensure that older clients have a comprehensive understanding of their options.

Relying solely on equity release as a default solution must be reconsidered. Transitioning from a major equity release broker to a holistic practice has revealed to me that equity release is not always the optimal choice for later life clients.

For clients in the 55 to 65 age bracket, it is imperative to explore the possibilities presented by retirement interest-only mortgages. This becomes even more relevant when clients have reasonable levels of income.

As advisers, we should avoid limiting their lending capacity in later years by immediately suggesting a lifetime mortgage, which could

potentially jeopardise their financial needs during retirement. In some cases, standard mortgage options are available, allowing lending up to 75 years of age without the requirement of pension proofs.

It is crucial to consider the possibility of obtaining a lower interest rate in the mainstream market and advising clients accordingly, utilising a lifetime mortgage as a potential refinancing option in the future.

Client-centric advice

My clients have expressed a desire for comprehensive advice that encompasses all available options, rather than being restricted to a single solution, such as a lifetime mortgage.

With Consumer Duty implementation, this underscores the need to consider foreseeable harm. It is paramount that we focus on the longterm needs of our clients. While their immediate financial requirements may be pressing, we must ensure that the solution does not erode their valuable equity, which may be crucial in the years to come. Clear discussions over care costs, for example, must be raised and documented.

Many clients adopt the ‘it won’t happen to me’ approach. We need to provide clarity over the processes and how this will be managed, not only financially but by their family, as it can impact them emotionally. It can be a very testing time to manage the care and finances of a loved one.

Knowing your client

Taking the time to truly know your client is vital. Initial appointments o en extend beyond two hours to thoroughly understand and challenge client objectives. A comprehensive fact-finding session and open

discussion allow for exploration of estate planning elements. It is imperative to address the risks associated with outdated or nonexistent wills, as well as to emphasise the importance of lasting powers of a orney.

Personal experiences shared on social media platforms reinforce the stress and challenges faced by family members when these vital documents are not in place with the onset of dementia.

Pensions and investments may already be in place, and it is crucial to fully evaluate their value and potential. Considering these assets as alternatives to incurring debt through a lifetime mortgage is essential.

Collaborating with wealth advisers can further explore realistic options for clients. Although tax liability may arise, it must be weighed against the impact of compounding interest rates, which can significantly affect a client’s overall financial position.

Broader perspectives

While lifetime mortgages undoubtedly offer excellent financial opportunities for later life clients, financial advisers must embrace a broader perspective.

Adopting a proactive approach that explores all viable solutions tailored to clients’ specific objectives is essential. We must reject the notion of Hobson’s choice in later life finance.

While the equity release sector must maintain ongoing education to dispel misconceptions about the product, as advisers we can contribute by truly knowing our clients and offering solutions that are not only suitable for the present, but also account for their future wellbeing. ●

Opinion LATER LIFE LENDING July 2023 | The Intermediary 75

Everything all at once – the era of continuous change W

hen we look back at 2023, it’s likely to be the year that really sets the agenda for the mortgage market this decade. The past 18 months have shown just how quickly the status quo can change –and how that can happen on all fronts at once, with huge consequences for operational processes and systems as a result.

In terms of products, while there is always some volatility in swap rates, looking back over 10 years paints a stark picture of just how volatile pricing has been since the start of last year. Since July 2022, the 10-year swap rate has swung wildly, not helped of course by October’s ill-fated miniBudget. It’s been a bumpy ride.

The end of May saw lenders pull 800 mortgage products a er swaps climbed rapidly on the back of higher than expected inflation figures. Days later, Chancellor Jeremy Hunt said he would support another rate rise from the Bank of England.

The ability to reprice – and fast – is now a board-level issue. There’s now reasonable certainty that the rate will continue upwards for the foreseeable future before it stabilises.

Markets are jumpy about the effect of large mortgage payment increases for around 1.5 million households this year, and pricing swings are likely to become a persistent feature of the ongoing business environment.

Ge ing products off and back on the shelf quickly already has a meaningful impact on profitability – that is only going to intensify.

The right tech

At the end of July, the Financial Conduct Authority’s (FCA) Consumer

Duty rules come into effect for new business and products, with legacy products having to comply 12 months later. At a time when customers are under such financial pressure, the regulator will have a keen eye on how lenders choose to handle possible and actual arrears.

We recently commissioned research into lenders’ most pressing concerns, and found that technology was almost always at the heart of each. If lenders are going to manage borrowers sensitively, and demonstrate that they are doing so in their reporting to the FCA, the right tech is vital.

The ability to be nimble on product and pricing reactively is already clear, but proactive action to support existing borrowers is the next big consideration for lenders.

Our research shows that borrower retention is good for business. With customers facing large monthly payment increases over the next few years, product transfers are likely to make up a much larger portion of gross lending than in the past.

While some of the larger lenders have systems in place to contact customers three months ahead of their deal ending, too many have not yet achieved this.

A proactive approach

Typically, the retention process is either manual or it requires another system which integrates with the core banking platform, making the whole process clunky and slow.

This also illustrates the complexity of creating technology processes that cater for all stakeholders’ needs.

Consumers require transparency and ease of use; brokers need speed, accuracy, and far be er managed sourcing efficiency. Meanwhile, lenders need to ensure compliance

and profitability. Furthermore, the fact that borrowers typically hold their mortgage balance for between 25 and 30 years, and o en switch lender multiple times, makes improving the user experience much more challenging.

But really, to ensure good outcomes for customers due to remortgage at a time when affordability is changing constantly, this proactive approach is key. In fact, it’s soon to be a regulatory requirement.

A slick user experience for both brokers and direct customers is always going to set you apart from competitors. Over the past few years, that friction-free interaction between customer and service provider has been about a racting customers. Now it is about profit – the ultimate driver of any company decision.

The big challenge facing lenders today is how to manage multiple systems that are not interoperable. Our research found that within a typical building society, product design relies on up to 10 people and stop-start stages. From product team to commi ee approval, IT design and testing, illustration checks by both sales and compliance, and manual marketing of the new product, it can be a hugely inefficient process.

This also creates a big lag in product suitability, because design is not necessarily compatible with the realtime information that triggers product launch and withdrawal scenarios.

Where challenges exist, there are opportunities to improve and even to excel.

It’s not straightforward, but neither is pu ing it off. ●

Opinion TECHNOLOGY The Intermediary | July 2023 76
JERRY MULLE is UK managing director at Ohpen

Taking credit: Help clients secure the right mortgage

Affordability has long been a significant consideration when it comes to researching the lender best suited to meet the needs of your clients. In recent months, with rising rates and increasing living costs, it has emerged as the number one factor. As households struggle with escalating monthly expenditure, missed payments are becoming a more frequent occurrence and credit is a more prominent factor in your choice of lender.

Consumer group Which? said that in April, two million households had missed or defaulted on mortgage, rent or another key bill, with 700,000 defaulting on mortgage or rental payments. The latest Bank of England Base Rate rises are only going to make this situation more difficult. There are currently nearly 640,000 properties on tracker mortgages, and more than 770,000 on standard variable rates (SVRs), which means one in four mortgage customers have seen their payments rise every six weeks since December 2021.

With average 2-year fixed mortgage rates now above 6%, according to Moneyfacts, the Financial Conduct Authority (FCA) has said that more than 750,000 UK households are at risk of defaulting on their mortgage payments over the next two years, while another 47,000 are trapped as mortgage prisoners.

This gloomy outlook is reflected by the Bank of England Credit Conditions Survey for Q1 2023, which says that lenders reporting default rates on secured loans to households increased in Q1, and was expected to increase further in Q2. Default rates for total unsecured lending also increased,

with defaults on both credit cards and other unsecured loans rising.

Feedback from brokers is that, while many high street lenders will allow a missed payment or two, during times of economic uncertainty the scoring model tightens, and applicants with blips on their record are no longer likely to be accepted.

There remain, however, a number of specialist lenders and regional building societies that will consider applicants with adverse credit, and options remain, even for those with recent missed payments.

Risk assessment

The challenge for brokers is that these lenders all take their own individual approach to how they consider missed payments, secured and unsecured arrears, defaults, County Court Judgments (CCJs), debt management plans (DMPs) and individual voluntary arrangements (IVAs), with a client’s own personal credit position likely to be assessed as a different risk profile depending on the lender that is chosen.

Some lenders, for example, will completely ignore missed payments on mobile communications, while some don’t include missed payments on unsecured credit, as long as these are not in the most recent six months or have moved to default.

Rates on a specialist lender’s products for more severe adverse credit may be up to 3% more expensive than rates on products with blips that it considers to be less serious. So, matching your client with the lender with the most appropriate credit tiers for their circumstances could make a significant difference in their rate and the amount they are able to borrow.

This is why, at Mortgage Broker Tools (MBT), we will soon be

integrating credit status into our affordability-first research platform.

MBT will be the first technology provider to combine affordability, criteria, sourcing and credit status into one research platform, enabling brokers to easily carry out more accurate research for their clients from the outset. The platform will include questions that capture whether clients have missed credit payments, arrears or defaults which may impact the selection of mortgage lenders that are available to them.

In using our platform, brokers can be sure they are considering a wide range of lenders across all lending tiers, providing confidence that they are recommending the right product for their circumstances.

The results displayed by MBT will also list the product category and credit tier that is best suited from each lender, enabling brokers to check against the lender’s own criteria to ensure they are securing the best product they possibly can.

All the data points to a growing number of mortgage customers developing a complex credit profile during the cost-of-living crisis, and the longer this economic environment continues, the more customers it will impact, having an even greater effect on their credit records. These records will impact their ability to apply for credit long into the future, and this is going to be a significant consideration for brokers in the coming years.

Fortunately, with a research platform like MBT, brokers can search lenders’ criteria and affordability quickly and accurately. ●

Opinion TECHNOLOGY July 2023 | The Intermediary 77
TANYA TOUMADJ is CEO of Mortgage Broker Tools

Hey Siri, play (and sort my mortgage...)

As I’m currently seeking new opportunities within the UK mortgage market, it’s given me the opportunity to spend more time with my kids and to enjoy the funny li le things they say. Recently, my six-year-old son said to me when driving back from tennis: “Will I get to drive a car with an engine?”

Actually, he has a point. By 2033, all brand new cars on sale will be electric, and internal combustion engines will be banned from sale. When I think back to when I was his age, I would never have dreamed that we would have electric cars like we do now, as all I knew at the time was the oldfashioned milk-float.

It got me thinking about how much the UK mortgage market could change, as the world continues to witness rapid advancements in technology and the increasing influence of big tech companies.

The landscape of mortgage lending is on the brink of significant transformation.

Tech giants and innovation

With recent a empts by the likes of tech giants Apple and Amazon to dip into financial services, what are the potential implications for lenders, particularly given the changing dynamics of consumer preferences, and is there potential for mergers and acquisitions (M&A) between traditional lenders and big tech players?

The entry of big tech businesses into the financial sector has been marked by notable moves, signaling their ambition to disrupt traditional banking products. For instance, Apple’s collaboration with Goldman Sachs to launch a high-yield savings account in the US demonstrates its foray into financial services. Similarly, Amazon’s upcoming launch of an insurance comparison site in the UK highlights its interest in expanding its presence in this sector.

Apple’s immense potential in the lending space stems from its access to a wealth of consumer data gathered from Apple Pay transactions, website interactions, PayPal accounts, and Amazon shopping habits. This vast

pool of information enables it to anticipate and develop innovative lending products that consumers may not even realise they need yet, rendering the concept of Open Banking obsolete.

In an era where innovation and simplicity are highly valued, consumers may gravitate towards brands like Apple, which have established a reputation for groundbreaking advancements.

Much like Apple’s success with near field communication (NFC), facial recognition, and Apple Pay, these tech giants’ association with innovation and market trends may make them more appealing choices for mortgage borrowers, particularly among younger generations.

This poses a challenge for traditional lenders relying solely on their longstanding experience.

Changing de nitions

In the evolving landscape, the parameters defining what ma ers most in banking and lending are undergoing a profound shi . Established lenders are being challenged to adapt and embrace innovation and market trends to remain relevant.

The reputation for traditional heritage and experience – which once held primary importance – is now being overshadowed by the potential a ractiveness of technology-driven solutions, combined with reliability and accessibility.

Big tech companies feel more approachable, unlike the traditional image of the big banks. That is the magic of a brand like Apple or Amazon – accessible, simple to understand, delivering solutions, and never complacent.

However, with the potential rise of big tech’s influence in the lending domain, the traditional M&A landscape is likely to witness significant changes. Previously, larger lenders would acquire smaller lenders to establish specialised lending arms, just like Britannia Building Society did in my day with Platform Homeloans.

However, the entry of big tech players may prompt a reimagining of M&A, with potential collaborations and partnerships emerging between established lenders and tech giants. This opens possibilities for a fusion of

industry knowledge and experience with the vast, data-driven insights possessed by businesses like Apple.

Therefore, I believe the future of mortgage lending is on the cusp of a paradigm shi , driven by the advent of big tech and evolving consumer preferences. Lenders must proactively prepare for this transformation by embracing innovation, exploring collaborations, and leveraging their existing expertise to adapt to the changing landscape.

The interplay between traditional lenders and big tech companies promises exciting possibilities, heralding a new era of mortgage lending that blends established wisdom with data-driven insights and cu ing-edge technology. ●

Opinion TECHNOLOGY July 2023 | The Intermediary 79
NICK ALLEN is a marketing consultant
The entry of big tech players may prompt a reimagining of M&A, with potential collaborations and partnerships emerging between established lenders and tech giants”

Value of dialogue in the age of tech

This year will be our 12th Mortgage Efficiency Survey, and once again interviews are already taking place. Every year, we carry out detailed qualitative research, speaking to senior specialists at lenders of all shapes and sizes across the market.

These reports have lasting value, both for our own business, and because they provide a flavour of how the market is evolving.

Each business faces its own challenges, particularly when it comes to how efficient its processes are. Again, this year we’re already seeing lenders demonstrating a strong focus on ge ing that efficiency slicker.

Qualitative over quantitative

Those familiar with the report will know we changed the format about four years ago, from a quantitative to a qualitative approach, which has resulted in much greater in-depth understanding. It’s an approach that has delivered detailed and comprehensive insights, contextual understanding, and offered us the flexibility to capture what is on people’s minds.

This last point is particularly important, because drawing out themes and views and understanding the journey of the past 12 months is the way in which we can really get to the heart of what is occurring, and importantly, of lenders’ reactions.

While qualitative research may not provide statistically generalisable results in quite the same way as quantitative research, its value lies in its ability to uncover those rich contextual insights, contributing to a more comprehensive understanding of the researched phenomena. It is a format that lends itself to the era of Teams and Zoom!

Dialogue is important to any company, and we are no exception. It

is the method by which we all learn. Effective communication and mutual understanding between businesses with shared goals allows everyone to get be er and to learn. This is particularly valuable when it comes to problem-solving and building relationships and trust.

Tech priorities

In previous years, we’ve found a wide variation between lenders and how they use technology, particularly between the big high street lenders and the smaller regional building societies. It’s one reason we create the peer groups through our survey, which enable lenders to not only see the market in its entirety, but to also understand the issues facing their own particular market segments.

There are, understandably, some strong themes emerging this year when it comes to lenders’ technology priorities, as a result of the volatile lending environment, which once again underline how important research like this is.

However, in conjunction with the themes that are emerging are the varying opinions on what oncoming market changes mean for everyone involved in the value chain.

Some themes from previous surveys have abated, while new ones have emerged, raising new opportunities and challenges. Priorities consequently have shi ed.

Looking back

You’ll forgive me for not tipping these insights now, but what I can say is that so much of what we are discussing with our interviewees is a far cry from the market of 12 months ago. Even within that timeframe, so much has changed.

If we think back one year, the surprise impact of racing inflation fundamentally changed the operating environment and the requirements of lenders, but none would have

expected the trajectory we have experienced since.

If we think back further to the era of the pandemic, the issues faced by lenders were a lifetime away from the market reality at the moment.

From origination and distribution strategy, to operations and funding, nothing stands still.

This highlights the need for organisations to be agile in both thought and deed.

In the current market, this agility enables them to navigate uncertainty and respond to market dynamics in an ever-changing business landscape.

We are two-thirds of the way through our interviews, and it is fair to say there are always new views and challenges revealed by each and every lender we speak to.

While the challenges are o en held in common by lenders, our work highlights just how individual lenders can be in their responses.

This year’s interviews will undoubtedly give us a report that reflects the true state of the market. If you want to be included with our 37 current participants, do get in touch! ●

Opinion TECHNOLOGY The Intermediary | July 2023 80
Each business faces its own challenges, particularly when it comes to how e cient its processes are”

Using data to stay on the right side of the line

systems and platforms which drive these actions. But how can firms choose the right option for them?

This all boils down to understanding the capabilities of the data on offer, and to the levels of support provided to integrate the right tools – to generate more time and opportunities to a ract new business, or maximise existing client databases, whatever the primary goal may be.

Walking the line

Data always has the ability to generate both negative and positive assumptions among consumers, but especially so in such a fragile economic climate. We’ve all seen a plethora of data-driven headlines around mortgage rates and house prices in recent weeks, which have helped to both inform and, to a certain extent, confuse people across the UK.

This confusion has inevitably led to a greater reliance on the advice process, but this has also proven to be somewhat of a double-edged sword, with advisers having to interpret a host of data generated from vastly differing methodology, sample sizes and timeframes, which are not always clear.

This means that the job of the adviser has got that bit tougher when it comes to cu ing through any hyperbole and preconceived ideas to

ensure clients receive the best advice matched to their individual needs, and not just pitched at the ‘average’ consumer or property type, which much of this data is driven from.

Looking at this from a business perspective, firms of all sizes have access to a wealth of data to form a be er understanding of their business, their existing clients, a potential new audience, how to develop personalised marketing strategies, the delivery of improved service levels, and how to be more efficient from the front to the back end of their processes and procedures.

In short, by evaluating data related to their operations, businesses can detect chokepoints, make more informed decisions, and optimise performance in a number of key areas.

Making the right choice

The options for intermediary firms continue to grow when it comes to the number and scale of tech solutions,

How this data is delivered and supported should be viewed as a partnership, rather than simply paying for a product. Technology can o en be depersonalised, but in such a multifaceted and fast-paced industry as the mortgage market, it’s vital to get to know the people behind the tech, and understand how you can evolve together rather than being constrained by the more prescriptive approach which some systems bring to the table.

Technology and data-led systems can o en be seen as expensive, intimidating, complex and faceless, only accessible for large firms with deep pockets.

However, in the modern age this is far from the truth.

The right kind of tech solutions are available right now to support intermediary firms of all shapes and sizes to increase efficiency levels, streamline processes and match the ever-shi ing needs of their clients.

Data is both a cost and an opportunity, and working with the right tech partner will ensure that intermediary firms stay on the right side of this line. ●

Opinion TECHNOLOGY July 2023 | The Intermediary 81
NEAL JANNELS is managing director at One Mortgage System (OMS) Cost of doing business: Data is both an expense and an opportunity

Each month, The Intermediary takes a close-up look at the housing market in a speci c region and speaks to the brokers supporting the area to nd out what makes their territory unique

Focus on... Lincoln

Like most regions over the past few months, Lincoln’s property market is feeling the effects of last September’s mini-Budget, which propelled the mortgage sector into chaos.

While the local market remains ripe with opportunity, Lincoln buyers and investors continue to be hampered by rising mortgage rates, along with the increased cost-of-living and concerns about affordability.

With swap rates on the rise, and housing stock continually scarce, it is fair to say that it has become harder than ever for the average buyer to secure a mortgage.

In the shadow of this market tumult, The Intermediary sat down with Lincoln property professionals to investigate whether or not the market is as treacherous as it may appear, or if opportunity still knocks.

Current values

According to the latest data, the average sold price in Lincoln and its surrounding postcodes is £251,000, while the median price stands at around £217,000.

This marks an average annual price increase of £10,900 (5%), a somewhat modest figure, reflecting the ongoing market turmoil that has plagued

Main opportunities lie in remortgaging

e rate rises will clearly take time to come into effect, as existing deals come to an end.

The housing market in Lincoln has seen property prices dropping. However, there is still a healthy demand from prospective buyers who want to move or buy their first home and can afford to do so.

Remortgage and product transfer are the main opportunity now, following the recent increases to interest rates.

Nearly all borrowers will face an increase in monthly payments, but most are currently being cushioned, as they are still tied to their current deals.

In the local area there are still a number of new-build developments going ahead. I am continually receiving enquiries from first-time buyers and movers who can afford to and want to move. Of all the mortgage cases I have dealt with in the past three months, 60% have been from movers or first-time buyers.

I have seen much lower levels of buy-to-let purchase applications recently, although demand from tenants for rental property remains high.

From speaking with a local letting agent, I am aware that a number of landlords have decided to exit the market and are actively looking to sell their properties. e demand from tenants is high, but their costs have increased making it non-cost-effective.

Lincoln The Intermediary | July 2023 82 LOCAL FOCUS
JESSICA O’CONNOR is a reporter at e Intermediary STEVE TAYLOR is a mortgage specialist at Andy Wilson Financial Services

the property sector over the past 12 months. The most affordable postcode area in which to purchase property in Lincoln is ‘LN5 7’, which commands an average price of £141,000.

In comparison, the most expensive place to buy is in ‘LN5 0’, where the average property fetches £368,000.

The average detached property in the Lincoln area costs approximately £343,000, while semi-detached homes can sell for over £212,000. Meanwhile, terraced homes in Lincoln report an average price of £172,000, while the average flat in the area typically sets buyers back an approximate £133,000.


Given the current state of the mortgage market, it is unsurprising that the question of affordability remains a key concern for brokers and borrowers alike in Lincoln. With the average 2-year fixed rate now well over 6%, the highest level in over 15 years, Lincoln advisers have reported a noticeable decrease in buyer appetite. In fact, figures show that there were 4,200 property sales in Lincoln last year, an annual drop of 35.4%, or approximately 2,500 transactions.

Jessica Smith, mortgage adviser at Just Mortgages Lincoln, says that these concerns surrounding affordability have greatly impacted the type of buyer going to market.

She notes that the majority of people buying properties are doing so out of necessity, rather than want, and are moving due to important life and family related changes.

Kat Atkin, director and adviser at Lincoln Mortgages & Protection also notes a marked increase in buyer caution, saying: “Properties tend to be staying on the market a little longer than they had been, prior to the financial instability.”


there were 968 properties sold in Lincoln within the £150,000 to £200,000 price range, followed by approximately 813 sold in the £200,000 to £250,000 price range.

However, even in light of these promising figures from buyers, it is the remortgage market that has reported the most growth over the past few months. According to Steve Taylor, mortgage specialist at Andy Wilson Financial Services, most of his firm’s ongoing business has been in the remortgage and product transfer markets.


Nevertheless, despite this buyer caution and slight market slowdown, business still continues apace. In the period from June 2022 to May 2023,

Highlighting the current importance of financial advice, he says: “Nearly all borrowers will face an increase in monthly payments, but most are currently being cushioned, as they are still tied to their current deals. The rate rises will clearly take time to come into effect, as existing deals come to an end.” →



83 July 2023 | The Intermediary
Price range Market share Sales volumes ● Under £50k 0.2% 9 ● £50k-£100k 4.1% 171 ● £100k-£150k 16.6% 690 ● £150k-£200k 23.3% 968 ● £200k-£250k 19.5% 813 ● £250k-£300k 12.2% 506 ● £300k-£400k 13.3% 552 ● £ 400k-£500k 5.8% 241 ● £500k-£750k 3.9% 164 ● £750k-£1 m 0.8% 35 ● O ver £1 m 0.3% 12 Lincoln Residents
Average age
Residents per household Data source: statistical-data-sets/price-paiddata-downloads


Price Lincoln England & Wales

 A VERAGE £ 251k £ 362k

 M EDIAN £ 217k £ 278k





 DETACHED £ 343 k


 TERRACED £ 172 k

 FLAT £ 133 k

Atkin also emphasises the value of professional advice amidst the ongoing market volatility, stating that good broker customer service remains key to easing increasing levels of client anxiety.

Rental market

The buy-to-let (BTL) market has undoubtedly been one of the hardest hit areas of the mortgage sector as of late.

However, although there is increasing media coverage that

suggests all landlords are at the helm of a sinking ship, Lincoln seems to be weathering the buyto-let storm.

The private rented sector takes up 18.4% of Lincoln’s total housing stock, a respectable figure when compared with the national average of 19.2%.

Daniel Stacey, mortgage adviser at Key Mortgages Lincoln, says that despite the upcoming Energy Performance Certificate (EPC) challenges which are deterring some investors, Lincoln provides plenty of opportunity for prospective landlords looking to invest. Even with soaring interest rates and costly mortgage payments, Stacey says: “Landlords may be able to take advantage of the expected drop in house prices since property is still seen as a reliable long-term investment.”

Smith agrees, adding that as a university city, the appetite for Lincoln’s buy-to-let market shows no sign of slowing down.


Not only is Lincoln’s rental market on the rise, but its ability to cater for firsttime buyers makes the area ripe with investment opportunities for young families stepping onto the ladder.

Perhaps reflecting their tastes, the demand for newly built property in the area is high, with the average price of a new-build home coming in at around £280,000, compared with that of an established property, which sits at £250,000.

According to Taylor, a large portion of business over the past few months has come from eager first-time buyers. In fact, he estimates that more than 60% of his enquiries over the past three months have come from a combination of first-timers and movers.

Stacey also notes an increase in first-time buyer appetite, observing a steep rise in the popularity of Shared Ownership schemes, which allow first-timers to jump on the ladder with relative ease, in a much more affordable fashion.


It’s clear that while the market at large may be somewhat uninspiring at the moment, local property opportunities in Lincoln abound.

Despite borrower reticence and valid concerns around affordability, there are viable options for investment in the area.

With a healthy rental market and plenty of support for first-time buyers, Lincoln continues to demonstrate its ability to withstand the current volatility, remaining buoyant and vibrant market in the face of soaring rates. ●

Boon for first-time buyers as landlords exit

Lately, the residential market has been up and down. We’ve noticed a slight change in why people are moving, with more relocations and family-related changes, and a rise in people who have to move, rather than those who want to.

Since Lincoln is a university city, the buy-to-let market remains relatively stable. While some are seeking to downsize their portfolios, particularly due to upcoming regulations, there are still prospective landlords investing and entering the market.

ere continues to be a demand for rental properties in Lincoln, making it an attractive option. We’re seeing a lot of landlords interested in selling older terrace houses, and this is actually good news for first-timers.

In the higher price range, above £300,000, the market is still active, although it’s a bit slower. e main challenge is dealing with the influence of mainstream media. When people hear that interest rates have increased, they o en assume their payments will double.

Our priority is to maintain regular communication and help clients understand the market changes, especially first-time buyers.

Previously, we would see a significant number of 95% mortgages being taken out. More recently, first-time buyers are more cautious. ey prioritise meeting their monthly financial commitments rather than solely focusing on the overall property price.

On the other hand, customers who are looking to upsize or downsize o en have more cash available, enabling them to secure a smaller mortgage and consider larger properties.

The Intermediary | July 2023 84 Lincoln LOCAL FOCUS
JESSICA SMITH is a mortgage adviser at Just Mortgages

A buyers’ market

Lincoln has turned to a buyers’ market; properties tend to be staying on the market a little longer than they had been, prior to the financial instability, but there are still new properties coming to the market and people are moving.

ere has been a slight reduction in property values, and there is a chance that higher rates and reduced lender affordability due to higher stress rates may continue to have an impact on property values. People are realising the stark reality of their new outgoings, so protection enquiries are increasing. Ensuring a client is fully protected has never been more important. Sadly, more people are likely to sell for financial reasons, but this means opportunities to purchase good value stock for those able to invest.

95% loan-to-value (LTV) interest rates are relatively competitive in the current market, so this could be a

good time for first-time buyers to purchase, and the Skipton 100% deal may come into its own, as rent prices are being driven up too, meaning that the amount available to borrow will come more in line with purchase prices.

ere is still a lot of development around Lincoln, particularly in the surrounding villages. Lincoln itself has been well managed by the local Government, with a lot of support from the university and the Lincolnshire Cooperative, we have some excellent schools and many RAF bases surrounding us, and therefore we anticipate that Lincoln will continue to be ‘up-and-coming’.

e buy-to-let market is suffering the compounding effects of changes to tax, stress tests, and eviction rules, and with the future Energy Performance Certification (EPC) rules looming, it is unsurprisingly muted. Experienced landlords have been tidying up their portfolios and selling older property stock. ere is definitely more client anxiety, but when managed well, with great customer service and expectations surrounding payments and timescales and processes clearly managed, there is a lot of business opportunity to be had.

Homebuying appetite still there

The housing market in Lincoln appears to be quite active. Despite rising interest rates, we are still busy with first-time buyers and home movers looking to make their next house purchase, helped a little by the fact that this time of year tends to be busier due to people wanting to move during the summertime and holidays.

e difference is that prospective buyers are being more cautious with their budget due to higher mortgage rates, and are not looking to borrow to the top of their mortgage affordability range. In turn, properties listed for sale in Lincoln appear to be having their prices reduced, as well as sitting on the market a bit longer.

With higher mortgage rates and some properties taking a little longer than usual to sell, buyers are being given the tools to negotiate and agree a price lower than advertised. Buyers have become more confident in sticking to their budget, and sellers are concerned about interest rates rising further in the future, property prices will only decrease further, though buyers might also be cautious about waiting around, for the same reason of high rates.

e biggest challenge being faced is that down valuations are becoming more common, as surveyors are being more cautious, which in turn leaves it to the buyer or seller to make up the difference and renegotiate the lower valued price, or alternatively buyers backing out and searching for another property.

e appetite is still there for people moving home, as we’re yet to see a drop in people speaking to us for mortgage advice. Buyers appear to be more serious; they’ve seen the news, but this isn’t stopping them from making them move, it’s just making them be more sensible with their price range and budget.

A trend I’ve noticed since last year is that Shared Ownership properties are becoming more popular with first-time buyers, as it’s getting them on to the housing ladder without much deposit. Higher mortgage rates aren’t impacting the monthly repayments as much, due to the Shared Ownership mortgage being much smaller than the standard mortgage.

Meanwhile, prospective buyers in rented accommodation would still rather pay a slightly higher mortgage if it means no longer committing ‘dead money’ to rental payments.

ere is a lot of negative press regarding buy-to-let. As landlords face growing challenges, it is thought that some are selling and the market has slowed down, but there are still great opportunities for those who can take advantage of a drop in house prices, as property is still a reliable long-term investment.

85 July 2023 | The Intermediary Lincoln LOCAL FOCUS

The increase in demand for short-term bene t income protection

According to the latest figures from Swiss Re, shortterm benefit income protection is now a more popular choice than the long-term option, accounting for 57% of all sales in the first part of 2023. This represents a significant shi in the market, and the trend appears to be here to stay.

On the face of it, the reasons for this change might be quite obvious; news about the cost-of-living crisis and the impact it is having on household budgets is everywhere. Money is very tight for many, and finding ways to cut bills is essential.

Ma hew Chapman, commercial director at Plus Financial Group, says: “Consumers are logically looking for more cost-effective ways to protect themselves. For many, a short-term income protection [IP] product is the most suitable compromise between cost and risk in that, at least in the short-term, they can protect their income sources but in a way that is not going to break the bank.”

This makes total sense, but is this the only factor driving the trend towards short-term benefits? Is there more going on than just a squeeze on personal finances?

No longer linear

How and where people work has changed significantly since the pandemic. Many people also took the

opportunity to take a step back and rethink their career paths.

According to research from LV=, nine million people have changed their job since March 2020, and of those, 3.9 million have completely changed career.

With people expecting to be in the workforce for over 40 years, there is a growing acceptance that this time will not be spent solely in the same profession. There is time to pursue two, three or even more careers.

If people are going to change what they do more regularly, it makes sense to consider policies with shorter benefit periods to retain flexibility and be more easily reviewed if sick pay arrangements change with any new job.

Employment is changing

Around 15% of the UK workforce is self-employed. This has grown rapidly during the 21st Century, with approximately 1.5 million more people describing themselves as self-employed now than in 2001, according to the Office for National Statistics (ONS). With no employer to fall back on, having some kind of protection is even more important to this group.

The nature of being self-employed means there are peaks and troughs in income, as work rarely comes in at a steady pace. It is also difficult to predict the future and think too far ahead. A short-term benefit option

The Intermediary | July 2023 86 Opinion PROTECTION

is an appealing choice to many, as it reduces the cost while providing essential cover to bridge the gap if the policyholder is unable to work due to illness or injury.

Also growing is the number of people working in the gig economy. It is now estimated that 7.25 million are part of this group, working full or part-time in this area, according to StandOutCV’s Gig Economy Statistics UK report. Many of these are the youngest members of the workforce. The report also found that a third of people aged 18 to 34 returning to work a er the pandemic did so as part of the gig economy. The nature of this work is sporadic and uncertain. A short-term benefit option at least gives them a realistic choice to protect their income.

Di erent requirements

According to figures released by Lifesearch last year, the average age of income protection policyholders has fallen over the past decade, from 38 to 36 years of age. The average age of claimants is now 41 years old, much younger than many imagine.

Younger people are far less likely to contract serious illnesses, such as cancer or heart disease, which mean they might be unable to work for years and years. While of course the unlucky few do get seriously ill, the risk of serious disease does increase with age, particularly postretirement. For example, Cancer Research UK reports that half of all cancers occur in people over the age of 70, and The British Heart Foundation finds that just over 70% of people who die each day from heart or circulatory disease are over the age of 75.

As the average age of policyholders decreases, it makes sense to reduce the benefit period to match the need of the person taking out the cover, and their health risks, while retaining all the added value benefits that come with a longer-term option.

The reason for claim

Looking at our own claims statistics for 2022, the most common reasons were accidents (26%), musculoskeletal conditions (26%) and infections (16%). While debilitating and serious in the short-term, these are things that people are likely to recover from

sufficiently to re-enter the workforce within a relatively limited period, which fits in with the demand for a short-term benefit option.

As jobs are transformed by technology, huge numbers of people will need to retrain and begin new careers. And as the pace of change quickens, people are likely to switch jobs even more frequently. This may alter what kind of protection they need depending on the type of work they are doing, so opting for a shortterm option is likely to become even more popular.

Chapman says: “Short-term income protection plans provide advisers with tools that can be used to ‘meet the client in the middle’ helping them to protect more families at a time of great uncertainty.

“I suspect that we will see an increasing and continued focus on short-term plans given the accessibility and cost-effectiveness of these plans for the average consumer.”

Advisers need to be aware of not just the current economic turmoil, but also the other trends around employment, and offer their clients appropriate choices. ●

July 2023 | The Intermediary 87 Opinion PROTECTION
ALAN WADDINGTON is distribution director at Cirencester Friendly
As the average age of policyholders decreases, it makes sense to reduce the bene t period to match the need of the person taking out the cover, and their health risks, while retaining all the added value bene ts that come with a longerterm option”

Remaining competitive in a changing landscape

The UK life insurance market is witnessing several key trends, shaping the industry and impacting both insurers and consumers. These trends reflect the evolving needs and expectations of consumers, advancements in technology, and regulatory changes.

One trend is a continued focus on personalisation and customisation. With the rise of data analytics and artificial intelligence (AI), insurers can leverage customer data to offer personalised coverage, tailored underwriting terms, and targeted pricing.

Strategic investments in product innovation, application programming interface (API) capabilities and insurtech relationships will be important, and insurers and distributors alike will take the opportunity to reach new customers.

Product development will move to more targeted cover offered to defined customer segments, such as renters, parents, and those with chronic conditions. This should lead to more customers being able to access protection, rather than creating excluded groups.

However, consumers will need to be confident that they are accessing the best cover for them, offering both value in coverage and value in cost. Consumer platforms and protection brokers can help with creating consumer confidence.

Another trend is a move to educate and inform customers at the earliest possible stage in the protection journey. Smart use of data and customer behaviour insights will help clients identify their needs in a way that doesn’t push them into product purchase decisions at an early stage.

Developing intent and confidence will ultimately lead to greater customer satisfaction and engagement.

Data-driven decisions

In the same way, data-driven decisions will become an important tool for advisers. Distributors investing in advanced digital and analytical capabilities will increase productivity and customer engagement. Predictive sales tools will help advisers serve customers more effectively and provide solutions for their specific needs.

Personalisation and data-driven decisions leverage insights to be er educate customers, which will all reinforce the advancement of the embedded insurance model.

We will see more collaboration with insurers and distributors, and importantly, partnerships with branded ecosystems that have access to large volumes of customers, brand advocacy and unique data.

Embedded insurance allows life insurers, distributors, and ecosystem players to leverage each other’s strengths with expanding business opportunities and rapid product innovations. Real-time access to customer data and tools that boost customer experience can increase policy retention, deepen customer relationships, and increase customer lifetime value.

Keeping well

The emphasis on wellness and prevention will continue, and grow in importance as consumers look for be er and smarter access to health services, rehabilitation services and mental health support.

Integrating health and wellness initiatives into life insurance policies will align with the growing focus on

overall wellbeing and preventative care. This involves offering incentives tied to healthy lifestyle choices, where customers can receive discounted premiums or additional benefits for participating in activities that promote physical fitness.

Similarly, mental health awareness has grown significantly. Many insurers now provide wider coverage for mental health conditions and offer additional support services. This reflects a shi toward improving the application process to enable customers to make be er disclosures concerning their mental health.

Consumer Duty

The regulatory landscape in the UK continues to evolve, with Consumer Duty bringing forward the biggest impact on the life insurance sector since the implementation of the Insurance Distribution Directive (IDD). This must be seen as a growth opportunity for our sector.

Holistic financial planning can’t ignore the need to address protection and the benefits of building financial resilience. Protection advisers will develop be er referral processes for mortgage and wealth advisers to help them comply with the requirement to serve the long-term needs of their customers and evidence be er customer outcomes.

The market is witnessing trends driven by digital transformation, personalisation, health and wellness integration, mental health awareness, and regulatory changes. Those that adapt and prioritise customer-centric solutions are likely to thrive. ●

Opinion PROTECTION The Intermediary | July 2023 88
DEBBIE KENNEDY is chief executive at LifeSearch

Using the regulatory framework to build trust

In today’s rapidly evolving financial landscape, with more choice and information at the fingertips of consumers than ever before, maintaining trust between service providers and customers has never been more important.

This is especially true when it comes to offering insurance alongside a mortgage or remortgage. While discussing insurance with your clients can help with building loyalty in the long-term, and build a valuable income stream for business, the insurance sector is by no means immune to the financial services industry’s current challenges around customer scepticism.

When you consider that today many customers are focused solely on price, it’s clear building trust is even more of a challenge right now.

Indeed, recent studies from market research firm Mintel and the Association of Mortgage Intermediaries (AMI) place between 35% and 50% of consumers in the ‘not trusting’ category when asked about insurance and advice. It’s clear we have a perception issue to address.

While these figures undoubtedly do a disservice to the valuable work of so many in our industry, it’s clear that the trust deficit needs to be addressed, especially if advisers are to fully capitalise on the benefits of offering insurance to their clients.

There are, in fact, many golden opportunities for advisers to demonstrate how they add value, and to build trust with consumers. The forthcoming Consumer Duty, for example, should be seen as a brilliant starting point and a driver for excellence, rather than an end goal in itself. With consumer understanding as one of the core

outcomes of the Consumer Duty, it’s crucial to remember that to a lot of consumers, insurance can be abstract and complicated – factors that exacerbate mistrust, since human beings generally don’t trust what they don’t understand.

What’s more, in the wake of the cost-of-living crisis, customers bargain-hunting for the best deals are more prevalent than ever, keen to ensure they’re receiving the best possible bang for their buck. Many are sceptical of why they might need to pay more for one policy over another. This is where advisers face their biggest challenge.

Maximum assistance

That’s why Paymentshield offers a range of support to enable advisers to be er educate their clients on the importance of value, as well as thorough sales support to help provide maximum assistance to both advisers and their clients throughout the insurance journey.

Businesses should never lose sight of the fact that sharing information and knowledge is really important to building trust, and that’s why we’ve worked hard to provide advisers with a General Insurance Academy aimed at optimising this education journey, along with a comprehensive marketing toolkit.

Since May this year we’ve had more than 700 new users join the academy, suggesting that advisers are hungry for educational tools.

We’ve also created a knowledge hub with customer-facing articles, with a view to demystifying insurance.

Owing to the presence of these tools, it’s easier than ever before for advisers to comfortably and confidently address the priorities of their clients and make the complex

comprehensible – a key factor in facilitating strong, transparent relationships.

Outside of education and knowledge sharing, advisers also benefit from tools such as Defaqto compare, enabling them to compare insurance policies in a fair and balanced way.

This empowers clients by providing them with a thorough understanding of the features and differences between the policies on offer – and is a great visible demonstration that there’s no smoke and mirrors when it comes to advice.

By providing advisers with access to tools that forge an increased level of transparency between them and their customers, we’ve made consumer understanding a focal point of our operations.

Ultimately, we believe that advisers can benefit hugely from identifying opportunities to provide visible demonstrations that they are being transparent and working to educate their clients. These are both key components of promoting good customer understanding – and in turn, good customer outcomes – and of building trust.

Steps taken as part of the new legislative framework will undoubtedly help to remove some of the barriers to trust – let’s use this as an opportunity to push for excellence, not just compliance. ●

Opinion PROTECTION July 2023 | The Intermediary 89
LOUISE PENGELLY is proposition director at Paymentshield
Sharing information and knowledge is really important to building trust”

On the move...

Air appoints head of academy learning

Dan Holden is heading up academy learning at Air Academy, responsible for building on the proposition to in time move from just supporting Air members to eventually covering the needs of the wider market on a white-label basis.

He will also work with Air Ambassadors and organisations like the LIBF to provide a broader, more inclusive proposition, which is designed to take individuals from passing their initial exams to becoming

an expert in the later life lending field.

Holden said: “Having worked with advisers as well as businesses, I know how important it is to support continual learning and help people provide the type of professional empathetic advice that they would want if they were a customer.

“I am therefore delighted to become head of Air Academy and am looking forward to helping to build, grow and develop the offering of this important part of the market.”

MS Lending Group expands team to support growth ambitions

Somo Bridging has expanded its team with relationship director James Brocklebank and two underwriters, Salman Ali and Harvey Wood, bringing its sales team to 14, covering every region of the UK.

Brocklebank said: “Somo is a common-sense lender, and with this reputation in the industry, this helps open doors when it comes to new business. The firm’s ability to offer competitive interest rates, structure deals to suit the borrower and tenaciously find solutions that other lenders can’t, should give me an advantage in what is an increasingly competitive and crowded market.”

Ali and Wood will be responsible for risk assessment, risk mitigation and assessing loan applications.

Ali said: “During my six years in finance, I’d heard great things about Somo and was aware they had a fantastic reputation for their diverse product range...Somo will always try to find ways to make a loan work. I’m enjoying being part of a team that has the grit and determination to strive for the best outcome, whatever obstacles are in the way.”

Woods added: “I joined Somo because I’d heard great things about the lender...I’m very much looking forward to developing my skills and expertise while contributing to the company's continued success.” ●

Just Mortgageshas appointed Stephen Swyny as area director for the Midlands, to focus on recruiting new brokers and developing the existing team.

His responsibilities include helping self-employed brokers create business plans, identifying growth opportunities, and offering recruitment support. Additionally, he will connect brokers with inhouse training, marketing, and compliance resources.

MS Lending Group has made seven new hires across various departments, signalling an ambitious growth strategy for 2023.

The firm onboarded additional members in its processing and underwriting teams, as well as within the finance department.

Michael Stra on, CEO and founder of MS Lending Group, said: “As we become busier we are conscious our service simply cannot waiver. Therefore we have invested in all areas of the business to continue to deliver an easy process for all of our clients."

The lender's goal is to lend over £200m by 2024, viewing the current climate as an opportunity for further expansion, where some bridging lenders have retracted.

Stra on said: “The appetite from our clients is there, and we don’t want to let any of them down. Our new hires are fantastic.” ●

Swyny said: “I’m thrilled to join Just Mortgages. It’s an exciting time for the self-employed division, and I look forward to using my expertise to help both new and existing brokers.”

Ben Allkins, head of mortgages and protection, added: “Stephen has a proven track record of scaling businesses through finding talent and providing them with the necessary tools to succeed. This certainly mirrors our own ambitions at Just Mortgages."

Somo prepares for further growth with three appointments Stephen Swyny joins Just Mortgages
The Intermediary | July 2023
Top to bottom: James Brocklebank Salman Ali and Harvey Wood
21 Years evolving financial business. expo MORTGAGE BUSINESS 2023 LONDON 12 OCTOBER 2023 DISCUSS YOUR CASES FACE-TO-FACE WITH 50+ DIFFERENT LENDERS ALL UNDER ONE ROOF Register in advance at: Incorporating The Speciality Property Finance Club, hosted by FIBA TOFREE ATTEND Discover the latest products and services on offer Collect hours towards your CPD in the free to attend seminars New! FREE social media sessions from Google Digital Garage FIBA Specialist Property Finance Summit And have lunch on us!

Buy-to-Let and Bridging Loans from Lendco

In a market that increasingly makes no sense, let us show you something different.

5 year fixed rates with tiered fees


short term finance giving your clients the opportunity to acquire, refurb and sell or retain assets

Bridge Exits allowing borrowers to exit to a term product which we underwrite simultaneously

No upper limit on units in a MUFB

£3m maximum loan per asset

£10m aggregate borrowing

Individuals / Ltd Co / SPV / Trusts

Sensibly Lendco Limited is a company registered in England & Wales with company registration number 11177105.

Individuals / Ltd Co / SPV / Trusts

Offshore / Ex-Pats / Foreign Nationals

Loans to £2.5m @ 75% LTV

Commercial and Semi-Commercial

Land with planning to 55% LTV

No country or currency restrictions for Ex-PatsLight and heavy refurbishment loans

Graham Palmer 07541 689262 James Phillips 07519 328425 Ben Pike 07519 328426

Speak to us about why we “can do”, where others can’t. 0333

414 1495
sales team today Register with us
to increase your clients’ leverage, allowing them to borrow more BTL Bridging Bridge Exits
HMOs up to 8 bedrooms
Buy-to-Let Bridging

Turn static files into dynamic content formats.

Create a flipbook
Issuu converts static files into: digital portfolios, online yearbooks, online catalogs, digital photo albums and more. Sign up and create your flipbook.