The Intermediary - December 2023 by theintermediary

OPINION ⬛ The latest from HSBC, Santander, Shawbrook and more

INTERVIEW ⬛ Reece Beddall on catering for disenfranchised borrowers

Q&A ⬛ Mark Gregory outlines how equity release has weathered the storm

Intermediary. The

www.theintermediary.co.uk | Issue 11 | December 2023 | £6

“As a broker you should be good at seemingly impossible puzzles.”

CAUSE FOR CELEBRATION Reflecting on triumphs in a turbulent year

D I G I TA L E D I T I O N

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From the editor...

oath as I am to turn this into a monthly ‘politics corner’ – I do have thoughts outside of my distaste for the current establishment, I promise – it would be remiss of me not to talk, at least briefly, about the Autumn Statement. Luckily for those readers bored of my tirades – albeit not so fortunate for the market – there is not all that much to say, as it seems serious and effective housing policy was once again le by the wayside. The big disappointment, of course, was the lack of Stamp Duty reform. Many in this market had high hopes, almost to the extent of complete certainty in various quarters, that this would be a lynchpin in the presentation. Of course, there were some measures to be applauded – the extension of the Mortgage Guarantee Scheme, an increase to the Local Housing Allowance, and changes to the cumbersome planning process – which aimed to address some of the stressors currently facing the housing market. What we need, though, is forward-looking, long-term policy aimed at not just weathering the storm, but growing housing stock and stimulating activity. With short-termism and pandering rife in the lead up to a General Election, my hopes are not high. ‘Enough of politics!’ I hear you cry. Indeed, as we head into the festive season, it’s time to push the Sunaks and Hunts from our minds, don festive jumpers and watch family, friends and colleagues alike make fools of themselves.

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The Team

This is a welcome respite from a hard year. While the rest and relaxation is well-deserved, it’s worth remembering that wellbeing – and safety – should also be a top priority. It might be time to look back over the tips shared by HSBC’s Tracie Burton in our last issue about keeping this season festive, or to the incredible work being done by the Mortgage Industry Mental Health Charter (MIMHC). This is also a time for reflection. In this issue, we look back over the trials and triumphs of a turbulent 12 months, and consider the lessons learned by a market that – if nothing else – has proven year a er difficult year that it knows how to pull itself out of a crisis and trudge resolutely onward. Hopefully, 2024 will see us change this pace to something less encumbered, buoyed up by the gi s of slowing inflation, technological innovation, increased transparency, and – of course – the hard work of brokers. All that remains is for me to thank our readers sincerely for your support. We’ve enjoyed every moment of our first (almost) year in print, even the difficult bits, and look forward to bringing you more insightful, practical and timely content as the years progress. I will see you all in the New Year, armed with cautious optimisim, unrealistic resolutions, and possibly a hangover. For now, Merry Christmas from the whole team at The Intermediary. ●

Jessica Bird @jess_jbird

@IntermediaryUK

Contributors

Jessica Bird ................................ Managing Editor Jessica O’Connor ...................................... Reporter editorial@theintermediary.co.uk

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OPINION ⬛ The latest from HSBC, Santander, Shawbrook and more

INTERVIEW ⬛ Reece Beddall on catering for disenfranchised borrowers

Q&A ⬛ Mark Gregory outlines how equity release has weathered the storm

Intermediary. The

www.theintermediary.co.uk | Issue 11 | December 2023 | £6

“As a broker you should be good at seemingly impossible puzzles.”

CAUSE FOR CELEBRATION Reflecting on triumphs in a turbulent year

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Cover cartoon by Giles Pilbrow

Printed by Pensord Press

CBP006075

December 2023 | The Intermediary

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INTERVIEWS & PROFILES

Contents

The Interview 18 BL UES TONE

Reece Beddall explains how his firm is supporting disenfranchised borrowers

REGULARS

Feature 28

Jessica Bird and a panel of brokers look back at the trials and triumphs of 2023

Broker business 34

A look at the practical realities of being a broker, from marketing to mental health

Local focus 64

This month, The Intermediary takes a festive break to look at the housing market at the North Pole

On the Move 66

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

SECTORS AT-A-GLANCE

Residential 6 Buy-to-let 22 Specialist Finance 42 Technology 50 Protection 56 Second Charge 60 Later Life 61

Local Focus 66

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In Profile 44 TUSCAN

Jaxon Stevens explains why now is the time for brokers to broaden their horizons

In Profile 52 M P OW E R E D

Stuart Cheetham discusses how his firm is transforming the mortgage market

Q&A 36 N E T WO R T H N T W R K

Wes Wilkes discusses the importance of culture and community

Q&A 62 EQUITY RELEASE SUPERMARKET

Mark Gregory looks back at how the past 12 months have impacted equity release

Meet the BDM 40 O C TA N E

John Smith on the challenges and opportunities facing business development managers

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RESIDENTIAL Opinion

Inflation: The central character CHRIS PEARSON is head of intermediary mortgages at HSBC

‘O

In all potential scenarios, inflation will be the central character in the 2024 script

ppenheimer’ was one of the biggest film releases of 2023, and it reminded me of one of my favourite quotes: “Prediction is very difficult, especially if it’s about the future.” This is a ributed to Neils Bohr, the Nobel laureate physicist, played sublimely by Kenneth Branagh in the film. When looking back on 2023, and then forward to 2024, I’d say this is the quote we should all strongly reference when trying to make any sense of what’s happening in the mortgage market. In all potential scenarios, though, inflation – and its effect on interest rates – will be the central character in the script. The question is, will it play the part of The Grinch, making mischief in ’24, or will it give us the Christmas gi of being tamed? A er a big drop in consumer price inflation (CPI) in November, it’s fair to say that quite a few market commentators have been ringing those Christmas bells to the tune of ‘ding dong the inflation ba le is won’.

Some believe it will continue to fall enough to perhaps hope for a cut in interest rates as soon as we reach spring.

Too soon for cuts However, it is worth taking account of the warnings of Bank of England governor Andrew Bailey and chief economist Huw Pill that it is too soon to think about rate cuts. Rising energy bills will be popping through our le erboxes just in time for some New Year cheer, and some commentators suggest that the Chancellor’s Autumn Statement had potentially inflationary measures in the mix, such as decreasing National Insurance (NI) thresholds, as well as increasing minimum wage levels. So, while inflation has come down nicely, it could easily go back up again, and this is certainly giving the Bank of England reason for a lot of caution when it comes to cu ing rates. The mortgage market in 2024 is predicted to remain subdued, perhaps even a touch lower than 2023 in gross lending terms, and inflation will play a central role in how that plays out.

Nevertheless, there’s plenty of upside potential in the mix, so let’s put our Barbie-tinted spectacles on for a while instead! We have some stability returning to the UK’s political and economic picture – relative to what happened a er the September 2022 mini-Budget. There was even some small room to manoeuvre in the Autumn Statement, albeit very li le coming the way of the housing sector. Stability is good, of course, and perhaps there is room for a bit more coming the way of the housing market from the Chancellor in the Spring. There are plenty of voices across the market that suggest there’s a bit le in the tank to come the way of the housing market in an election year, especially with all the knock-on positive sentiments associated when there are stimuli pushed into the sector, while always mindful that such interventions can create unnatural inflationary cycles in themselves, of course. Finally, back to inflation. If it hasn’t cheated death and the trajectory remains downwards, then bank base rates have peaked at 5.25%, and the only question remains the timing of the next cut. Mortgage rates certainly won’t get anywhere near the historic lows we saw a couple of years ago, but a se led rate environment with a li le downwards pressure to boot – perhaps with some warmer weather in the Spring – can do wonders for the prospect of consumer confidence making a welcome return at some point in 2024. ●

The Intermediary | December 2023

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RESIDENTIAL Opinion

Knowing what you can do, and what you can’t

ust two years ago, saving for a deposit was the biggest barrier to homeownership, but as rates have risen, the challenge for borrowers has become affordability. Earlier this year, ratings agency Fitch published its UK Housing and Mortgage Affordability 2023 report. It showed, quantitively, that mortgage affordability measured by the percentage of representative household income allocated to mortgage payments had improved between 2008 and 2020, as a result of falling interest rates and lengthening loan terms. In 2020-21, affordability deteriorated due to home price growth exceeding earnings growth, and in 2022, further deterioration was due to mortgage rate increases. The ﬁrm expects affordability to deteriorate again in 2023, and to reach a level not seen since 2008. Brokers are all too aware of this. Despite the Government and Financial Conduct Authority’s (FCA) expectations that all lenders apply leniency on borrowers reaching the end of ﬁxed terms, for those purchasing or moving home, no such understanding exists. At least, it does not exist in the mainstream market.

Agile lenders Large lenders, traditionally focused on the mid-market, straightforward credit and asset proﬁle lending face additional pressure when dealing with a rising number of distressed borrowers. Smaller, more agile lenders with underwriters speciﬁcally tasked with more granular assessment of applications are increasingly coming into their own.

Many smaller mutuals pride themselves on doing just that. At the Cambridge, we do not restrict client access to our more considered affordability assessments by location – we are a national lender. That means seeing the bigger picture, something many of our own broker partners can attest to. Just recently, one of our partners found himself with a deal that presented a challenge based entirely on his clients’ affordability position. Both were employed, but earned considerable bonuses in addition to their base salaries, adding some complexity to income assessment. They were also in search of an interest-only mortgage, precisely because of the way their income was paid. Along with expected bonus income, the couple knew they had imminent inheritances coming, with which they planned to pay down the capital part of the mortgage. They wanted to borrow £650,000 on a home that had been valued at around £1.15m. Their current bank, a household name, could not see past their ﬁnancial circumstances – at least one bonus would not be available until completion, rather than at the time of underwriting. With a 27-year term and willingness to accept the bonus in advance of its arrival, Cambridge provided a 2-year discount to standard variable rate product with a 1% early repayment charge (ERC). The rate was near best in market, and both the clients and our broker were overjoyed.

Pragmatic underwriting The point of this short case study is simply to attest to the power of pragmatic underwriting. Understanding that the bonus schedule was a key part of the repayment strategy got the deal over

KATHY BOWES is intermediary manager at Cambridge Building Society

Brokers across the market know that affordability is increasingly dictating whether deals are available to borrowers or not” the line. Of course, good relationships help this understanding, too, but the starting point should be ‘what can we do to help?’, not ‘do we want to lend?’ It is many brokers’ suspicion that too many lenders almost wilfully confuse the idea of a repayment mechanism with the notion of having a repayment strategy, with the result that they consequently withdraw themselves from a lot of perfectly good lending opportunities. Brokers across the market know that affordability is increasingly dictating whether deals are available to borrowers or not, and unlike price or criteria, affordability can be a lot trickier to navigate for all those concerned. In an era of diﬃcult lending conditions, it is critically important that lenders take the time to think hard about what they can do to support borrowers and brokers. As with most things in life, it is often easier to know what you don’t want to do, than know what you do want to achieve. But that will not sustain or support the millions of people who are trying to move house or remortgage right now. ● December 2023 | The Intermediary

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RESIDENTIAL Opinion

Working together

e gave a presentation recently using an alarming statistic from 2019, that one in 10 applicants thought it was ‘reasonable’ to exaggerate their income on a mortgage application, even though this would be classed as mortgage application fraud. When the impact of the cost-of-living crisis is factored in, I wonder if that number has increased? While we should all be conscious of this statistic, there are simple actions mortgage advisers can take to help prevent fraud. We recently gathered representatives from a range of key accounts to our new oﬃces in Unity Place, Milton Keynes, to hear from our fraud investigation and cyber crime teams on the current trends they are seeing. While the content was eye-opening, what became clear was that a mortgage adviser simply deploying ‘know your customer’ (KYC) techniques and questioning clients can be the ﬁrst line of defence to avoid unwittingly presenting fraudulent cases to lenders.

What are the trends? False employment details have long been a factor in mortgage applications, and the recent rise in ‘staged income’, where applicants falsely represent higher or additional income, continues. In false employment cases, payslips will typically be fake, bank statements are likely to be altered, and the applicant will be unknown to the stated employer. Staged income is, unfortunately, a growing trend. Payslips are likely to have been issued by the stated employer, and the bank statements are usually genuine. This is because the ‘employer’ is likely to be complicit – either staging the income themselves or allowing a third-party to utilise the company for this purpose.

Staged income is, unfortunately, a growing trend. Payslips are likely to have been issued by the stated employer and the bank statements are usually genuine”

PAUL MCCARTHY is national key account manager at Santander UK

The Intermediary | December 2023

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RESIDENTIAL Opinion

to prevent fraud Staged income red flags Typically, the applicant is only employed for a short time prior to the mortgage application – often six months or less. Salary credits are paid by ‘faster payment’ as opposed to BACS, and sometimes payment dates are inconsistent. Salary credits may be transferred back out of the account shortly after receipt, or may build up in the account and not be utilised towards day-to-day spending. Beware, too, a very recent second job, whereby the income is needed to support the mortgage amount required.

Working together Santander has a range of measures in place to detect fraudulent applications, including experienced fraud investigation teams utilising industry tools such as SIRA and National Hunter, alongside internal intelligence and referrals from our underwriting teams. Mortgage advisers can also be an important defence against fraud. An adviser can help stop these cases at source with KYC techniques, and by asking themselves whether these bank statements and incomes reflect the lifestyle the customer is telling them about. Where a customer is known to an adviser, standard controls can be deployed. However, advisers should have enhanced controls in place for newly onboarded customers, and understand the source of any referral. Introducers do remain an area of focus. Firms should protect themselves with formal written agreements and regular reviews with their introducers, and should have methods to assess the

Mortgage advisers can also be an important defence against fraud. An adviser can help stop these cases at source with KYC techniques, and by asking themselves whether these bank statements and incomes reflect the lifestyle the customer is telling them about” ongoing quality of the leads they receive. Due diligence should be carried out on any new introducer, and enhanced KYC protocols used on non-face-to-face and online referrals. An adviser’s gut feeling is a key tool, too – if it feels wrong, it likely is! Trust your judgement in this area, alongside the simple checks you can make. Plausibility is key. Ask the applicant to explain their job role if you have concerns. Open questions are a great tool. Open-source checks on employers are also simple and effective. Does their online presence match the suggested job type, income, and payslips that you are presented with? While fraud may appear complex, advisers can support lenders by deploying their key questioning skills when presented with something that doesn’t feel plausible. So, while lenders may have sophisticated tools to support fraud detection, we also rely on our experience and our judgement of plausibility when assessing cases. ● December 2023 | The Intermediary

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RESIDENTIAL Opinion

The growing role for property in capital risk assessment

or any business that depends on housing transactions, this year has been hard work. The latest data from the Office for National Statistics (ONS) showed that the number of seasonally adjusted residential transactions in September was 17% below September 2022. Sustained pressure has led the ONS to estimate that the number of residential housing transactions this financial year are set to be at their lowest over the past decade – excepting 2020-21, when the first pandemic lockdown all but closed the market. Two years of relentless base rate rises look like they’ve done their work. While demand has slowed in the mortgage market as a result, it has meant a significant drop in consumer price inflation (CPI), which fell to 4.6% in October. It brought obvious relief to markets, now more confident that the Bank of England is likely to leave the base rate where it is for the moment. Mortgage rates dropped overnight, with Moneyfacts’ ‘best buy’ tables showing that Halifax, HSBC, Yorkshire Building Society, Virgin Money, and Bank of Ireland UK for Intermediaries all cut rates on 2-year fixes to under 5%. Six weeks earlier, there were no lenders offering a sub5% 2-year fixes.

A mixed market We know there are still more than a million borrowers set to move from rates of around 2% up to 5%, even if it’s less painful now than six months ago when rates were much higher. Arrears ﬁgures are already showing the effects of this. UK Finance recorded a 7% uptick in homeowner mortgages in arrears

of 2.5% or more of the outstanding balance in the third quarter of 2023 over the previous three months. Within the total, there were 34,110 homeowner mortgages in the lightest arrears band, representing between 2.5% and 5% of the outstanding balance, 10% greater than in the previous quarter. Buy-to-let (BTL) arrears have risen more steeply, with arrears of 2.5% or more of the outstanding balance in the third quarter of 2023 some 29% greater than in the previous quarter.

Nuanced approaches will require property expertise and the right data upon which to make accurate assessments” Within the total, the number of buy-to-let mortgages in the lightest arrears band was 33% greater than in the previous quarter. Mortgages in arrears accounted for 0.93% of all homeowner mortgages outstanding, and 0.44% of all buyto-let mortgages outstanding in the second quarter of 2023. The numbers are still low, but the rise in light arrears indicates the direction of travel. Next year will present new challenges for lenders as a consequence, with backbooks undergoing fairly signiﬁcant changes. An accurate assessment of capital reserves depends on accurate and recent valuations. With the market having evolved into a different beast over the past two years, for lenders this accuracy will be harder to achieve.

STEVE GOODALL is managing director at e.surv

The second quarter saw that 84% of remortgages were internal product transfers, according to UK Finance. The Government’s Mortgage Charter, conﬁrmed in the summer, will serve to sustain and potentially increase this part of the market. Indeed, it even stipulates that no new affordability assessment or mortgage valuation is needed for internal transfers.

Balancing good outcomes With the Financial Conduct Authority’s (FCA) new Consumer Duty rules set to become fully embedded across the market by the end of July next year, the picture becomes harder to predict. Lenders are increasingly having to ﬁnd a balance between good outcomes for consumers on the supervisory side of compliance, with the prudential requirements placed on them under Basel 3.1 capital adequacy rules. It’s a very ﬁne tightrope to walk, given the context I’ve just outlined. This is combined with a continued need to understand the impact of the climate on lenders’ backbooks of residential housing, and what to do about those Scope 3 Category 15 emissions. Nuanced approaches will require property expertise and the right data upon which to make accurate assessments of likely forward risk. All of this will call for a careful and considered change in the treatment of capital risk assessment, and it will mean looking at data and expertise to fully appreciate capital positions. ●

The Intermediary | December 2023

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RESIDENTIAL Opinion

No longer just the loan, it’s all about the borrower

ccording to the Financial Conduct Authority (FCA), 356,000 homeowners may not be able to make their monthly mortgage payments by the summer of 2024. The regulator has instructed banks to think about reducing mortgage payments for borrowers who are having trouble paying their mounting expenses. The FCA’s guidelines encourage lenders to assist borrowers who have fallen behind on their payments, or are concerned about doing so. These measures may include reducing payments temporarily or extending the mortgage’s term to reduce the monthly balance owed.

Level of care Assessing vulnerability is a moving feast. The FCA states: “A vulnerable customer is someone who, due to their personal circumstances, is especially susceptible to harm, particularly when a firm is not acting with appropriate levels of care.” However, knowing what creates these circumstances, and how staff can spot and manage them, is less easy. Some vulnerabilities are event-driven, others a manifestation of illness or sudden bereavement, for example. How firms identify this, assess the scale and potential for further issues, and conduct resolutions, is enough to keep anyone awake at night. The FCA adds: “We expect firms to provide their customers with a level of care that is appropriate given the characteristics of the customers themselves. The level of care that is appropriate for vulnerable consumers may be different from that for others, and firms should take particular care to ensure they are treated fairly.”

TONY WARD is non-executive chairman at Fortrum

consumer needs in communications, flexible customer service delivery, and product design. Finally, all of this obviously needs to be recorded and used in evidence. Operationally, this is a lot to undertake. This means that, in order to effectively address vulnerability, reforms to the strategic, policy, governance, and information environments that these colleagues work in must also take the lead.

Industry of expertise Vulnerable customers must be assessed carefully

A personalised touch in a highly automated world will present challenges for everyone.

Put into practice Once identified, the judgment of the treatment of vulnerable customers by firms is unequivocal. FCA guidance makes it clear that businesses must put their knowledge of the needs of their most vulnerable clients into practice in order to satisfy client demands. This is outlined in three primary phases of their customer interactions. Businesses should be aware of the demands of the most vulnerable customers in their target market and clientele. They should also make sure that the people working for them have the knowledge and abilities needed to meet the needs of the vulnerable clients they have identified. Businesses should put their comprehension of the requirements of their vulnerable clients into practice by figuring out how they adapt to

Hardest of all is probably the notion of foreseeable harm, which the regulator explains as follows: “Whether harm is considered foreseeable would depend on whether a prudent firm acting reasonably would be able to predict or expect the ultimately harmful result of their action or omission in connection with the product or service.” All of this is essentially making a new industry of expertise in customer and borrower management – one that will require know-how and experience that has been largely absent since the mid-2000’s. We need to look to other industries to understand the best practice available, and to be able to interpret that into conduct in our own world. We are doing exactly that, so that we can support lenders with a solution they can tap into as and when they need it. Ultimately, the lending operational model is having to address a new emphasis on the borrower, but also change how and what it measures to demonstrate its success. It is no longer just about the loan, but all about the borrower. ● December 2023 | The Intermediary

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RESIDENTIAL Opinion

House prices: Going down or in danger of crashing?

he simple answer to my titular question is: they are doing neither. The Office of National Statistics (ONS) figures in August showed an annual increase in property prices of 0.2%. So, where are the doom-laden predictions of 20% falls coming from? If we believe that bad news outsells good, then it is the media’s tendency to take a survey of a small sample of estate agents or other experts and conflate the findings into a house price catastrophe. In the same way, bad weather with high winds and strong rainfall in the UK gets the same type of alarmist coverage as if it was somehow similar in its effect to a USstyle hurricane. It just feeds the same desperate need to put out ‘headline grabbing’ news. In January, a Guardian headline read ‘Why UK house prices could plunge by 20%’ and followed up with ‘Property market has defied gravity for years but analysts say rising mortgage rates will mirror the 1980s price crash’. To be fair to the analysts being quoted, they were making predictions at the beginning of 2023 based on interest rates continuing to rise, which in turn would make mortgages more unaffordable leading to a house price fall. Coming back to the present, this demonstrates that predictions can be overexaggerated, where the extreme end of the range is emphasised and manipulated in the search for an eyecatching headline. At the time of writing, mortgage interest rates are coming down, and the headline rate of inflation is also now registered at under 5%; have we seen an end, however temporary, to more page-filler accounts of where house prices are going?

The good news is that we are seeing a spark of competition among lenders, especially in the ﬁxed rate sector, to offer cheaper rates. This is a good sign that lenders have more room for manoeuvre with swap rates easing. Overall, it is too easy to become depressed when we read negative headlines that might affect our industry, but in my long experience, we have always found a way to survive and prosper even in the direst days; for example, in the period following the Credit Crunch, when the lending market came to a screeching halt.

Consumer Duty and the ‘AR or DA’ debate At the recent HL Partnership member conference, among other topics, we discussed compliance and the effect of Consumer Duty on the industry. The primary takeaway was that, unlike ‘treating customers fairly’ (TCF), Consumer Duty is going to be an evolving phenomenon rather than just a one off, and is already making itself felt. Being complacent is a dangerous trap to fall into for any broker, because the regulator has only just started to roll out what are simply the ﬁrst in a series of warnings of shortcomings among those brokers and lenders that it feels are not taking Consumer Duty seriously enough. Personally, I can’t help feeling that the rationale for deciding to stay as a directly authorised (DA) brokerage or joining a network like HL Partnership is deﬁnitely favouring the appointed representative (AR) route. Staying compliant is only going to become more onerous and expensive as time goes on, consequently taking up more time for hard-pressed brokers who remain wedded to the direct route.

SHAUN ALMOND is managing director of HL Partnership

Consumer Duty is going to be an evolving phenomenon rather than just a one off” This is especially true of small firms which cannot afford full-time compliance support and have to divert valuable personal time to keeping abreast of the latest developments. Networks have the kind of resources that many independent firms can only dream of, and as a consequence the recruitment of suitable firms continues to grow. Here at HL Partnership, we are also beginning to get a deserved reputation as an incubator for ambitious new firms, which can take advantage of the wealth of compliance and business support, as well as training and access to product providers, while building their businesses.

Be cheerful I have always been a ‘glass half full’ person, and I see big opportunities in developing product transfers for clients reaching the end of fixed rates. With around 2.5 million homeowners due to reach the end of fixed rate mortgage deals throughout 2023 and 2024, there has never been a better time to open conversations with your existing clients. On top of that, Consumer Duty has given all of us a welcome reminder not to ignore protection when we are arranging finance for clients – another way to start building up a regular income while protecting clients. ●

The Intermediary | December 2023

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RESIDENTIAL Opinion

The quiet revolution

t is almost seven years since Santander for Intermediaries committed to paying brokers a procuration fee on retention business. Although Halifax had been paying proc fees on product transfers for several years, and Virgin Money, Precise Mortgages, Atom Bank, Skipton Intermediaries and Bank of Ireland all began paying brokers a retention fee the year before, Santander’s move represented a seismic shift, driven in large part by lobbying by the Association of Mortgage Intermediaries (AMI), and culminated in the Financial Conduct Authority’s (FCA) recognition that the fact lenders did not disclose product transfer approvals was obscuring a significant proportion of lending. In 2018, the FCA published its Mortgage Market Study Interim Report, confirming just how large a contribution to household lending product transfers made – more than a third of origination, in fact. It’s almost unthinkable that, had lenders not been required to begin reporting internal product transfers by the FCA, our understanding of what is going on in today’s market would be wildly skewed. Gross lending figures would be, in fact, totally unrepresentative of market activity. Lenders’ adherence to the Government’s Mortgage Charter would have been much harder to supervise – perhaps impossible. Just how vital this regulatory change was is reflected in the increase of retention lending, which has grown in correlation with rising inflation and the consequent base rate rises. Our recent Mortgage Efficiency Survey revealed that borrowers’ disinclination to shop around has meant all sectors have seen retention improvement – except for new and specialised lenders without product transfer options. Product transfers are significant in offering stretched borrowers continued loans – even

more so since the Government and the regulator made it clear that reunderwriting affordability would not be required. Our research showed the rise in product transfer business has led to retention rates averaging 61% this year. High street lenders, where automated systems are likely to make the process slicker, had the highest retention rates at 75%. It’s reassuring to see that, perhaps in part due to that capitulation by lenders to pay broker fees, the role of intermediaries hasn’t fallen as a result. In fact, our survey shows that 90.9% of applications are now intermediated, more than 2% up on last year’s figure of 88.2% and similar to 2001’s 90.3%. Thank goodness, because otherwise the UK’s venerable and hugely valued intermediary sector could have been seriously damaged. In practice, fewer transactions and the fact that product transfer proc fees tend to be considerably lower than on new applications, has seen brokers put under significant financial strain, regardless. Now the prospect of fair value, part of the Consumer Duty rules, poses further questions. Lenders have made progress with their own fair value assessments, but much work remains.

Good governance From 31st July 2024, the duty will apply also to closed products and services – understanding how this impacts retention business and advice is ﬁrmly under the spotlight for lenders and brokers, too. A focus on dealing with distressed borrowers and rising arrears cases was evident among the responses we received to this year’s survey. Given that the latest UK Finance ﬁgures show a 10% rise in light arrears over Q3, good governance in this area is critical. Traditionally, it has been the role of new systems and new technology

STEVE CARRUTHERS is business development director at Iress

to further the efficiency of lending through reduced costs and quicker decision-making. This has remained, but all lenders we spoke to universally acknowledged the additional systems requirements to provide evidence of best practice and scrutiny of processes and behaviours at the front end. Consumer Duty has played a large part in supporting this view, but it is not the only driver. As lenders reduce costs and fewer people oversee every part of mortgage origination and servicing, systems must offer and deliver evidence for lenders and regulators alike that things are being done correctly, and that wider considerations have been acknowledged. Consistency of practice is key. However, lenders remain acutely aware of concerns in other parts of the value chain. When asked how wellprepared they believed the market was, there was a clear divergence of opinion. A key focus was broker fees. In this instance, it is the inconsistency that is the cause of concern. Some firms charge up-front fees, while others don’t, and the size of those fees can range significantly, while sometimes there is little evidence to articulate the value added for borrowers. One lender told us it had removed a brokerage only the previous week for the unreasonable fees it charged to the borrower. It will be interesting to see whether networks introduce standardised fee models for appointed representatives (ARs) and whether an industry standard cap on advice fees could be introduced to bring directly authorised (DA) firms into scope. The coming months will be interesting to see. ● December 2023 | The Intermediary

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RESIDENTIAL Opinion

All sectors and markets are not equal

ith many of us now looking ahead to 2024 and beyond, there are encouraging signals for some buyers – but you have to get behind the headlines of national averages to see them. I am not about to wax lyrical about the property market. We are not yet out of the woods by a long chalk, but optimism is growing in certain parts, and with some justiﬁcation. Not all regions and markets have experienced the cost-of-living crisis to the same degree. Of course, pressures like inflation are universal in their impact. From the builders and developers facing inexorable rises in costs to the homebuyers trying to purchase their dream homes, the impact of inflation on everyone’s costs has been visible in the number of transactions. In its August Monetary Policy Report, the Bank of England forecast that housing investment – which includes new construction, house improvements and spending associated with house purchases – would fall sharply by 6% in 2023, by another 6% in 2024, and by 3% in 2025, reflecting the impact of sustained high interest rates. However, while property prices have fallen slightly at the national average level, the continued lack of supply has bolstered the feeling that, in many locales, residential property is largely bulletproof. What’s driving that feeling has to do with how well regions and local markets have responded to the affordability crisis. The market for super prime London homes has remained remarkably resilient this year, highlighting the appetite of

wealthy cash buyers wanting to make the most of a strong dollar in the face of a wider slowdown in the property market owing to high mortgage costs. Post-pandemic rural markets, where ‘the race for space’ fuelled huge rises, have not fared quite so well, as oﬃce work and commuting have come back into fashion.

Regional stresses Part of the consideration as to how well a region has performed with regard to affordability is how employers and current homeowners have reacted to cost-of-living challenges. It is not the same across the country. In the summer, the National Institute for Economic and Social Research reported that the spending power of workers in some parts of the UK would still be below the level it was before the pandemic by the end of 2024. The regions set to see the biggest squeeze would be the East of England, parts of the South East and the West Midlands, where pay – when inflation is accounted for – is forecast to fall by between 0.5% and 5% in the period. In contrast, people’s ‘real wages’ in London were forecast to jump by 7%, in Wales by 4.6%, and in Northern Ireland by 4%.

Falling inflation It is with some sense of relief that most in the property market cagily welcome signs that – notwithstanding the continued geo-political and macroeconomic challenges – inflation is falling. Commentators expect the Bank of England to start cutting interest rates in the second half of 2024, with a likely base rate of 4.75% by the year end. Savills, in its most recent residential property report, forecasts that rates will fall to 1.75%

ROBIN JOHNSON is managing director at KFH professional services

The continued lack of supply has bolstered the feeling that, in many locales, residential property is largely bulletproof” in 2027. While the governor of the Bank of England has been quick to point out that rates may stay higher for longer, the news that companies like PWC, McAlpine and Pﬁzer – to name a few – are considering or enacting redundancy plans will mean that broader consideration will have to be given to the impact of higher borrowing costs, and rates may come down quicker to avoid a recession. Of course, weaker employment is not a good thing for lenders, and a balance must be struck, but if rates come down and prices ease a little more we may have an optimal point – and one that lenders have been repricing for arguably over the past month on the back of improving swap rates. The truth is that, while redundancies may occur in some sectors, others may well pick up the slack. There is plenty of evidence of an enduring tight labour market in other parts of the economy. It is incredibly diﬃcult to second guess the next economic shock or wobble we may encounter globally, but the fact that we have such divergence at a regional level in the expected outcomes of this sustained onslaught gives me optimism for the coming year. Here in the capital, things are getting better. ●

The Intermediary | December 2023

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RESIDENTIAL Opinion

Action needed to make ownership less elusive

The Government must take decisive action to prevent the creation of a ‘lost generation’ of first-time buyers

n a landscape where the dream of homeownership is slipping just out of reach for many aspiring first-time buyers, the hurdles are multiplying and putting pressure on buyers, lenders and brokers alike. According to the latest projections from the Office of Budget Responsibility (OBR), first-time buyer mortgage lending has plummeted nearly a quarter in the past year. Updates from the Autumn Statement last month suggest that this trend is set to continue. Earlier this year, Leeds Building Society sounded the alarm, predicting that a staggering 426,000 fewer first-time buyers would be able to step onto the property ladder in the next five years. Now, comparing the recent OBR data with its March 2023 forecasts, it appears that the road to homeownership is getting rockier. The next few years could hold challenges for those of us in the mortgage community, as we do our best to find solutions for customers. Real earnings growth is forecast to remain in negative territory in 2023,

turning only slightly positive in the following years. Meanwhile, the Bank of England base rate is expected to stay higher for an extended period, pushing average mortgage rates to peak at 5.0% in 2027. The rollercoaster continues, with a predicted temporary dip in house prices by 4.7% in 2024, but this respite is short-lived, as the market is projected to rebound, with the average house price surpassing £300,000 by the end of 2028. Housing transactions are expected to take a hit, by 6.9% in 2024, before gradually recovering. The implications are crystal clear: persistently high inflation levels will squeeze aspiring ﬁrst-time buyers through elevated mortgage rates, and hinder their ability to accumulate the necessary deposit. Hopes for relief through lower house prices have been dashed, with forecasts indicating a modest fall quickly turning into growth.

A matter of urgency We recognise the urgency of the situation, and continue to advocate for

MARTESE CARTON is director of mortgage distribution at Leeds Building Society

action in three critical areas to foster a housing market that empowers ﬁrsttime buyers. First, a signiﬁcant acceleration in building more homes of all types is essential, coupled with policy changes like the restoration of mandatory housing targets and the introduction of targets for affordable housing. Second, it is imperative to create more affordable routes to homeownership – reforms to protect renters saving for a deposit, support for a well-regulated Build to Rent sector, and increased pathways like Shared Ownership. Last, supporting individuals to save for their deposit through reforms to the Lifetime ISA scheme and measures to enhance credit scores, including rent payments, is crucial.

Critical action The stark reality is that ownership remains elusive for a growing number of individuals, with 426,000 projected to miss out on their dream home in the next ﬁve years, despite the efforts of those in the mortgage community. While steps are being taken by the Government to support aspiring homeowners, including the extension of the Mortgage Guarantee Scheme, much more is needed. The Government must take decisive action to prevent the creation of a ‘lost generation’ of ﬁrst-time buyers. Building more homes, increasing affordable routes to homeownership, and aiding potential homeowners in saving for their deposit are the keys to unlocking the door to a brighter future in the housing market. ● December 2023 | The Intermediary

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RESIDENTIAL Opinion

Looking back at the end of an incredible year

t’s almost two years since the Bank of England began to raise the base rate, taking it from 0.1% in December 2021 to 5.25%, where it sits today. Along with persistently high inflation and energy prices, the past 24 months have, for many people, felt focused on retreat, tightening belts, and a return to caution and prudence. There is little doubt that more expensive mortgage rates, and the pressure on disposable income across the board, has taken a toll on people. The Bank of England’s Money and Credit ﬁgures show that net borrowing of mortgage debt by individuals fell from £1.1bn in August to -£0.9bn in September, the lowest since April 2023. Net mortgage approvals for house purchases also fell to 43,300 in September, the lowest level since January 2023. Whereas net approvals for remortgaging fell to 20,600 in September, the lowest level since January 1999. In spite of the affordability challenges that are clearly facing the market, at Newcastle Building Society, we’re bucking the trend in more ways than one.

Driven by purpose The foundation of a building society is its members; the people who save with us, and the people who buy their homes through us. In challenging times, our response is to ﬁnd better ways to serve our members and our communities through better value, quality, and choice. Our savings customers tell us time and again how much they value the reassurance and convenience of a local branch, our trustworthy face-to-face service, and that the growing list of bank branch closures leaves them

feeling worried at a time when they need additional support. It’s good to be able to reassure our customers that we’re fully committed to our branches and to finding new ways to grow access to local financial services. Our ambition is to grow our branch network, and we’re in the process of creating a new flagship location in Newcastle city centre, demonstrating our ongoing commitment to our high streets. Why does this matter? We know that for many people, there is a real risk of becoming financially excluded through branch closures – unable or unwilling to manage their money online, prevented from accessing cash, and becoming reliant on others to help. We are guided by our purpose to connect our communities with a better financial future, to continue to find new and innovative ways to deliver what our customers want. However, while face-to-face interactions with savings customers are core for Newcastle, another fundamental strength on the mortgage side is the partnerships we have with intermediaries. Relationships matter to us, and we recognise that our responsibility to support our intermediary and borrower communities extends nationally. Access to mortgage finance is just as important as access to cash. This is why we’ve invested significantly in finding ways to open that access to more people who want to become homeowners, to remain in their homes, and to downsize to more appropriate homes later in life. In July, we reintroduced our Joint Mortgage Sole Proprietor (JMSP) proposition, assisting both first-time buyers and home movers. The maximum age at the end of term for the oldest buyer is 80 – in

MICHAEL CONVILLE is chief customer officer at Newcastle Building Society

recognition of the fact that it is not only ﬁrst-time purchasers who need support, but also adult children experiencing personal changes. Our overriding aim is to support customers, whatever their choices are. In the past year, we’ve reduced our rates, cut our long-term buyto-let (BTL) stress rates, and opened our borrower criteria for contract workers, the self-employed, and later life borrowers. We continue to support homeownership schemes, including Shared Ownership, the Government’s First Homes Scheme and Deposit Unlock. In September, we introduced remortgage and staircasing products to our Shared Ownership range. Also, this year, we successfully completed our merger with Manchester Building Society, adding 11,000 members and £200m in assets to the Newcastle Building Society Group. We now have 345,000 members, making us the eighthlargest building society in the UK, employing 1,700 colleagues across our group. Our 2023 H1 results showed that we are continuing to support more homeowners than ever, while increasing our share of the market. We’re proud of what we’ve achieved this year; but none of this would have been possible without the help and support of our valued intermediary partners, so let me take this opportunity to thank all those who have supported us. The awards we’ve won are testament to the fact that it’s not just us who think we’ve done a good job. There’s more to come. So, watch this space. ●

The Intermediary | December 2023

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RESIDENTIAL Opinion

Balance sheets are key to the drive for greener housing

mages of waves several metres high crashing over sea walls, cars abandoned submerged in standing flood water, and the devastation caused by winds over 75 miles an hour have been plastered over the papers, online news and social media for weeks. November’s Storm Debi was the fourth named storm of this winter so far, and it’s likely there’s more to come. In fact, Britain is getting wetter. The Met Oﬃce recorded the wettest day on record in October 2020. The highest monthly rainfall was in December 2015.

Changing weather It’s not just the wet that’s extreme. While this summer delivered less sunshine than last year, Met Oﬃce ﬁgures nevertheless showed that temperatures across England, Scotland, Wales and Northern Ireland in June 2023 were the highest in a series since 1884. The highest temperature ever recorded in the UK was 40.3°C in Coningsby, Lincolnshire in July last year. According to the UK’s national meteorological service, climate change means that the chance of observing a June that beats the previous joint 1940 and 1976 record of 41.9°C has at least doubled since the 1940s. Whether or not you believe that rising temperatures and rainfall are the fault of humanity or not, the science shows that our weather is changing rapidly. Amid the cost-ofliving crisis, political instability in the Cabinet, a looming General Election and severe disruption to energy supplies, the urgency of sticking to the country’s net zero plans has receded. Indeed, in what was interpreted as a bid to win traditional Conservative voters back, Prime Minister Rishi

Sunak recently rolled back net zero deadlines signiﬁcantly. However, even if there has been a temporary hiatus in the political will to drive towards reducing carbon emissions, the environmental reality remains. While the deadlines to meet net zero milestones may move out, tackling the resilience of our housing stock must remain a priority for today. A document collated by the Oﬃce for National Statistics (ONS) recently cited a Public First survey for the Making Climate Adaptation Matter report, commissioned by the National Trust. It found that almost half (45%) of UK adults thought the country was “not at all prepared” for more hot summers.

Feeling the heat Just under a third felt they themselves were not prepared, while just above a third felt the same about their home and garden. It is estimated that, in the current climate, around 55% of the UK’s housing stock would fail the ‘bedroom overheating’ test, according to an Arup report commissioned by the Climate Change Committee. That means 15.7 million homes across a range of representative home types in Britain see nighttime temperatures in bedrooms reach over 26°C. In the 2020 to 2021 English Housing Survey, 1.9 million households in England reported that at least one part of their home got uncomfortably hot, and 51% of these experienced overheating in bedrooms. The ONS’ latest figures for the energy efficiency of housing in England and Wales show that for all Energy Performance Certificate (EPC) records up to March 2022, homes in England and Wales had an average

MARK BLACKWELL is chief operating officer at CoreLogic

energy eﬃciency rating equivalent to Band D. Wales’ score is joint lowest, along with Yorkshire and the Humber, when compared across Wales and regions of England. Even in London and the South East, which had the highest average energy eﬃciency scores, we are talking Band D. The evidence that the risk presented in UK housing stock is changing is compelling. It means the momentum for going green will grow, driven by lenders as they reap the capital savings that result from a better understanding of their balance sheet exposures, origination strategies, and how well these properties perform.

Changing weather Flood risk, soil shrinkage, extreme heat; these environmental factors all take a toll on British homes – and not all in the same way. Mortgage lenders are acutely aware of the ﬁnancial implications for asset security and capital value as a result of this. So, for that matter, are investors. As more housing stock deteriorates due to its exposure to the changing climate, concerns are rising. Environmental risk is an increasingly critical component in the valuation of securitised mortgage assets. Without a robust, granular understanding of the physical assets therein, funding will become scarcer. Interoperable data sources and systems are critical to delivering that understanding, and we’re already demonstrating the value it adds. It matters because ultimately, capital positions will depend on it. ● December 2023 | The Intermediary

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The Interview. Bluestone Mortgages

Jessica Bird speaks with Reece Beddall, sales and marketing director at Bluestone Mortgages, about how the lender goes about supporting the disenfranchised

hen Reece Beddall moved to the UK from Australia, it was not long before he joined Bluestone Mortgages, taking up with the firm in what he says were the exciting early stages of its foray into this market. “I knew the business, as Bluestone was one of the biggest specialist lenders in Australia,” he says. “It moved over to the UK in 2015, and I joined in 2016. Getting in early doors, I was able to ride the wave with the business. I knew there was growth potential.” Having worked in more mainstream areas during his career, Beddall notes a frustration with the necessity of turning away customers at “the lightest blip.” This made Bluestone a primary choice, as he understood that the firm was “passionate about helping disenfranchised customers,” and those with complex credit who need flexible support.

Beddall worked his way up through the ranks in quick succession, from broker support to business development, finally taking the role of sales and marketing director several years ago. Holding a variety of roles from an early point in Bluestone’s tenure in the UK has helped Beddall understand all aspects of the business, and although the market in Australia is different, there are plenty of parallels, particularly when it comes to being highly intermediary-led. The Intermediary sat down with Beddall to look back over 2023, and discover how the business – and the market – has weathered the storm.

Strategic acquisition

In June 2023, Shawbrook Group completed its acquisition of Bluestone Mortgages, marking one of the major events of the year for the lender. Reflecting on what might have been a moment of complete change, or even upheaval, Beddall explains that, having been a major funding partner since 2017, Shawbrook was not an unknown entity. “It wasn’t the situation where a big bank comes in that doesn’t understand the business model, rips up and changes the business,” he says. “Shawbrook and Bluestone already had a great partnership, they supported us through Covid-19 – we were proud to be one of the only specialist lenders still lending during that period, and that was thanks to our funding relationship with Shawbrook.” He adds: “The acquisition just felt like the next step.” Beddall cites, as one reason for the acquisition’s smooth success, the strong brand built up over the years by Bluestone. Building on this, the sale allowed the firm to push on with its own developments and maintain its market share, even fuelling “tremendous growth” in new business. Access to retail funds and a cheaper cost of funding has allowed Bluestone to be more competitive with its pricing strategy, for example. In the first few months, the firm saw a

The Intermediary | December 2023

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I N T E RV I E W

90% increase in new business, and despite the usual dip in August seen by most lenders, in the past six months Beddall reports that it has done more business than in the previous nine. This has, of course, also meant recruiting to grow the team. Beddall says: “It’s still early, but the big thing I’ve noticed is that Shawbrook is a big, successful organisation with a wealth of knowledge, it’s helping us with certain practices, governance, marketing and sales techniques, market insights. It’s only been positive.” “Knowledge has been key, outside of the obvious funding and stability benefits,” he adds. This support with best practice, Beddall says, provided “the clarity and direction” to exit the buy-to-let (BTL) market, focusing on growth within the residential market. While stability and secure funding are, of course, integral to survival in a turbulent market, there are benefits to being a smaller, more agile lender, quickly able to adapt to changing conditions. Nevertheless, Beddall reaffirms that the longstanding relationship held with Shawbrook made all the difference here, meaning Bluetsone could benefit from the bank’s strength, without losing its agility. “We had a good relationship, and they were very comfortable with what we do as a business,” he says. “They believed in the proposition. That’s probably why it’s been so positive.”

The year that was

Looking back at 2023, like many, Beddall starts his analysis by remembering the “mini-Budget fiasco” of late 2022, the shockwaves of which have continued to echo throughout the market. “Our funding model was partly through capital markets, and after that, capital markets were super volatile,” Beddall explains. “It’s the most in my career that I’ve ever seen lenders reprice and pull products. That had a negative effect on brokers and the end consumers, but lenders were relying on their funding options and certain rates weren’t viable. It was a frustrating time for all.” This came at the same time as Bluestone was progressing through a complex sale, laying out and implementing an effective Consumer Duty plan, and working on the launch of a new origination platform. “There were lots of positives, but all four of these things came at the same time, while business volumes were very volatile,” Beddall adds.

2023 has been a largely challenging and turbulent market, particularly for non-retail funded lenders. This is where the value of the relationship with Shawbrook has really shone, providing access to funds and support. When it came to implementing an approach to Consumer Duty, Beddall says the acquisition by Shawbrook was “perfectly timed,” allowing the firm to rely on some of the larger business’ governance systems. Overall, Beddall says that Consumer Duty can be seen as a force for positive change in the market. It has reinforced the need, from a sales perspective, for all players to understand fully how they are helping secure the best outcome for the customer, while also reiterating the importance for all businesses to focus on communications and clarity. “From a governance perspective, it has encouraged us to make sure we are even more focused on measuring outcomes,” he explains. “It has been a positive thing for us and the industry, and it’s the consumer that benefits from that.” For the business itself, it has been a busy year. Bluestone’s origination platform launched in early February, with the aim of using technology as an enabler for the business. The firm also launched Open Banking, updated its systems to automatically pull through customer data, enhanced electronic ID processes, and sped up its internal operations. In addition to this, Bluestone recently launched product transfers, in what Beddall defines as a pivotal move in the current market, helping those customers who might otherwise be stuck on reversion rates, and providing a cheaper option for those who want to remain with Bluestone. As a lender focused on credit repair, at a time when inflationary pressures and the cost-of-living crisis are making it increasingly difficult for borrowers to make the leap back to the high street, the introduction of product transfers in the specialist complex credit market is an important move. This, Beddall says, reaffirms the integral role played by the specialist market in the wider economy.

Data is key

In light of not only a fast-moving, turbulent market, but particularly with the onset of the new Consumer Duty requirements, Beddall says that “data is key.” However, for smaller lenders, getting the best quality data can be difficult. This, again, is where partnering with a larger firm has helped. → December 2023 | The Intermediary

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I N T E RV I E W

“It has allowed us to benefit from their experience and expertise,” Beddall explains. This is part of a wider shift in the market towards better data and tech capabilities. However, Beddall says: “Our business model is that we would never 100% rely on tech to get a credit decision for a customer, but we’re definitely using it as an enabler to work quicker, smarter and more securely.” Despite this caveat, Bluestone has always made efforts to be at the forefront of tech developments. In fact, it did a pilot of Open Banking in 2018-19, but despite initial success, ultimately discovered that the market was not ready for this innovation. The past few years, however, have delivered a substantial shift, allowing Bluestone to revisit the Open Banking question with significantly increased confidence. “Fast-forward through Covid-19, and people had to get used to automation and not seeing customers face-to-face,” Beddall says. “People became a lot more receptive and needed a secure way of sharing data. It was always coming, but Covid-19 sped up that journey. “We pride ourselves on taking a holistic approach to every case, manually looking at cases and doing that deal when most others won’t. So, there’s a balance – we believe in the technology, and a future in which there’s a faster and more secure way of handling data, but we have to keep our core as a complex credit lender.” Rather than forcing cases into an algorithm and potentially leaving some borrowers out in the cold, Bluestone uses facilities like Open Banking to handle the bottlenecks – such as dealing with bank statements – that can slow a case down. Beddall notes that this is particularly important in Bluestone’s niche, because many borrowers will already have tried their luck with the high street, and by the time they make it to the specialist market time is of the essence. It is all the more important, then, to handle data quickly and securely, to deliver an effective service model. “Moving forward tech-wise, that’s where our focus is,” he explains. “Speeding up the process, making it easier for the broker and consumer, without forgetting our roots or becoming a ‘computer says yes’ lender.”

Focus on the customer

Smooth processes are only going to become more important as the specialist and complex credit market grows. The challenges of the past year are testament to this, pushing ever more 20

borrowers out of the remit of the high street, whether due to furlough and credit blips, the rise in unique income arrangements, or common life events, such as divorce. “We’ve seen a growth in the specialist market, and it doesn’t feel like many cases these days fit the ‘vanilla’ profile,” Beddall explains. “We’ve particularly seen a rise in people you wouldn’t classify as ‘adverse credit’ – a lot of our business comes from clients with either no adverse, or only small components of it.” He also notes that it is important to remember that this is not a lending structure that provides funds to ‘anyone’, but that by taking an individual approach and focusing properly on the end customer, Bluestone is able to understand life events and extenuating circumstances, where mainstream lenders might simply see a black and white picture. This fits with the firm’s flexible and agile approach, which focuses on adapting to fluctuations in the market, and therefore in borrower profiles. “Whether it’s product transfers or Consumer Duty, it’s all about one thing, which is focusing on the end consumer,” Beddall says. “Even for us as a solely broker and intermediary-led lender, it’s still important to always remember that it’s about the end customer at the end of the day.”

Looking to the future

As 2023 draws to a close, Beddall – like many others – is looking ahead with optimism. 2024 is likely to be a year of continued growth, both in terms of business and team numbers, supported by Bluestone’s strengthened relationship with Shawbrook. Technology is also a big focus for the business in the year ahead, and Beddall points to the need for much more education around Open Banking and the value of well-deployed automation in this market. The market and wider economy are still showing signs of turbulence and difficulty, with the base rate unlikely to go down any time soon, and affordability remaining a key concern. While the outlook might sound somewhat bleak, Bluestone is looking forward to leveraging its flexible approach to support many of those left out in the cold. “We have always prided ourselves on being a big lender for first-time buyers, and helping out with affordability,” Beddall explains. “It’s a tough market, and our future plans include something big for first-time buyers and affordability models in Q1.” ●

The Intermediary | December 2023

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B U Y - TO - L E T Opinion

Between a rock and a hard place

he spate of higher interest rates seen over the past few years has meant that many buyto-let (BTL) landlords coming off lower fixed rate products find it extremely difficult to secure an a ractive and affordable new mortgage deal. Therefore, it will come as welcome news that UK inflation fell sharply to 4.6% in the year to October, its biggest drop in over two years. The market has responded swi ly and positively to the news, with the introduction of a number of sub-5% products announced by a handful of lenders. However, rates are still higher than pre-pandemic levels, and with the days of low rate 1-year and 2-year fixed products a thing of the past, it is unlikely that we will return to those historically low levels again any time soon.

Tricky borrowing This means that many landlords may still find themselves stuck between a rock and a hard place when it comes to their borrowing needs, with some still unable to remortgage onto a be er deal, and therefore forced to take out a higher rate product transfer, while others may be declined

a mortgage because they no longer meet the affordability criteria of their mortgage lender.

Complex market Similar challenges are being seen in the consumer BTL market, with those borrowers moving or living overseas experiencing difficulty when trying to secure a mortgage to rent out their UK property. While this may have been considered a relatively straightforward task in the past, securing a mainstream BTL mortgage as an expat is no longer an easy feat. One of the reasons for this is the impact of the UK’s departure from the European Union on the BTL sector. This has resulted in a significant number of larger players exiting the market following the introduction of new regulatory requirements for banks offering financial services across Europe. In addition, the higher interest rate environment is having an impact on the borrowing capacity of both landlords and consumers. For landlords and investors, this predicament is stifling the ambition to grow their portfolios and reinvest in the property market, while for expats and other consumer BTL clients,

Enlisting the help of a specialist broker can make a significant difference to landlord borrowing potential

NICOLA FERGUSON is commercial and bridging specialist at Clever Lending

the increased cost of borrowing is significantly draining their finances. As a result, Clever Lending has seen a significant increase in demand from mortgage brokers seeking assistance for complex BTL mortgage applications in order to cater to the needs of their clients.

Speak to specialists As specialists in the market, master brokers such as Clever Lending have access to a whole range of lenders and providers that may not be accessible in the mainstream market. This makes us ideally positioned to address the complex borrowing needs of clients. For example, we recently helped a broker who was struggling to secure adequate finance for a landlord client due to affordability constraints in the mainstream market. The broker referred the client to Clever, who managed to get the landlord £86,000 in capital, raised out of their property portfolio. The client had originally been offered a maximum of £40,000 by a mainstream BTL lender. This significant upli in capital was sufficient for the client to reinvest into their portfolio, by either buying another property or refurbishing an existing one; an option that was not available in the mainstream mortgage market. As this example shows, enlisting the help of a specialist broker can make a significant difference to the borrowing potential of both landlords and expats looking to secure a BTL mortgage. It also enables the referring broker to focus on addressing the needs of other clients, while ensuring those requiring specialist advice are ge ing the best and most suitable outcome for their individual circumstances. ●

The Intermediary | December 2023

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B U Y - TO - L E T Opinion

Rent rises continue on an upward curve

ince January 2021, rents have been steadily rising month-on-month, with the latest Office for National Statistics (ONS) private rental prices showing an annual rise in 6.1% in the year to October 2023. From 2018 to 2021, rent rises had been fairly steady, hovering at around an annual growth rate of just over 1%. Since then, the increase in rental costs has coincided with the rising Bank of England base rate. The pa ern for London was a li le different, with rents going down during the Covid-19 pandemic as people le rental properties in the cities for more rural areas. London rent rises went into negative territory, with a low of -0.4% in August 2021, but have reached a high of 6.8% in October 2023. A er the Covid-19 lockdowns, people started moving back into London, as offices and businesses opened up and demand for rental property soon outpaced supply. The latest annual percentage change is the highest since January 2006, when the London data started to be collected. To put this into monetary terms, estate agency Hamptons’ latest le ings index is for September, and shows that rents are rising at a double-digit pace in most regions. Across Great Britain, the average rent for new lets was £1,325, an annual rise of 11.7% or £139. If you exclude London, the average rent is £1,055, a 9.3% rise, equivalent to £89. Greater London has seen the biggest surge at 15.7% or £322 taking the average rental cost to £2,376.

Landlord survey Our latest buy-to-let (BTL) landlord survey backs up these stats, with three-quarters (76%) saying they had increased rent over the past year. The main reason, cited by 51% of landlords, was to cover higher mortgage costs, while 20% said their

ROB STANTON is sales and distribution director at Landbay

an issue, and only 8% of respondents didn’t think they would need to increase their tenants’ rent.

Regional outlook

76% of landlords increased rent over the past year

le ing agent had advised them to raise the rent. A further 8% of landlords increased the rent because they had spent money on maintenance, repairs, or upgrading the property to bring it up to an Energy Performance Certificate (EPC) rating of Band C. Only 3% said it was to cover increased taxation. Many landlords automatically raise rent each year, but 24% of respondents have not charged any extra over the past year. There are a number of reasons for this, such as wanting to keep good tenants, concern that an increase would be unaffordable during a cost-of-living crisis, or having no need, as the rental income covered their costs. In addition, some landlords have not raised the rent for a while, but are now in a position where they have no choice, such as the increase in their own mortgage payments. Our survey found that, if their interest rate was to go up when they come to remortgage, 71% of landlords would have to increase the rent, but 21% were unsure – it would depend on how much higher their monthly payments are. Mortgage rates are starting to come down now, but rate shock could still be

The regional data from our survey shows a possible North-South divide on increasing rent if remortgage costs rise, but it is not straightforward. The majority of landlords in all areas would raise rent, but it goes up to 89% of landlords in the South – excluding London – with 7% unsure. In the North it is lower, at 62%, but 35% of landlords were unsure what they would do. The Midlands is in the middle, with 78% of landlords opting for a rent increase, but 22% were not sure. The most expensive area of the country, London, is at the lower end, as 65% of landlords said they would raise rent, with 10% unsure. Two-thirds of landlords in our survey would increase rent by up to 10%, divided into 38% raising rents by 6% to 10%, and 27% opting for 5% or less. A further one in five landlords were unsure, while one in 10 would li rent by more than 10%, and 5% said they won’t make any increases. The overall picture from the ONS, Hamptons and our own survey all show a continual rise in rents. With demand for rental property outstripping supply, this is likely to continue. But one small glimmer of hope for both borrowers and renters is that mortgage rates are reducing. Inflation is heading towards the 2% target, so hopefully there will be no more Bank of England base rate rises and we can se le down to a new normal for mortgage rates. ● December 2023 | The Intermediary

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B U Y - TO - L E T Opinion

Willing lenders are vital for holiday let investors

here may have been expectations from some quarters that the staycation boom was only going to be short-term. The fact that the pandemic made it impossible to have a holiday overseas inevitably led to a boost in domestic breaks, but could that demand be sustained once borders opened up? It would certainly appear so, with recent research from Mintel revealing that around three-quarters of those who took a holiday over the summer opted to stay within Britain rather than head abroad. That’s a significant number of holidaymakers choosing to spend their time here, and therefore in need of decent holiday accommodation. It’s not just Brits who are going to be looking into renting holiday homes, but international visitors, too. According to VisitBritain, this year is likely to see around 37.5 million inbound visits, not far off the levels seen before the pandemic.

Opportunity knocks Clearly, this level of interest in holiday accommodation presents a real opportunity for wily investors. Many holidaymakers will be less interested in a hotel experience, and instead want to secure some sort of property for their holiday, opening the door for holiday let investors. Snap up the right property – a co age in a popular rural village or an apartment overlooking the sea, for example – and you’re likely to have demand from visitors all year round. Li le wonder, then, that over the past couple of years we have seen such strong interest in holiday lets from greater numbers of property investors. There are clear financial benefits,

given the much higher yields that holiday lets tend to deliver compared with traditional buy-to-lets (BTLs). There is also the simple ma er of diversification. It’s a crucial tactic for any sort of investor, to spread money across different sorts of assets, and that applies as much to property as it does to those who focus their efforts on the stock markets. For investors, adding a holiday let or two to their portfolio can be an effective way to diversify, in the knowledge that even if the regular rental market hits a difficult patch, that may be offset by the more consistent performance of a well thought out holiday let.

Personal approach However, our conversations with brokers have made clear that the approach some lenders take towards holiday lets can be frustrating. For example, there have been cases where investors have been held back from accessing the funding they need because of overly harsh rules around the type of property that is acceptable. There are all sorts of reasons why a property could fall foul of these rules, such as whether it was built through non-standard construction or if it is an ex-council property. The location can also prove a challenge, with many lenders unwilling to operate in Northern Ireland, for example. Equally, there are times when the borrower doesn’t quite fit, because of their employment situation or their plan to let the property out on shortterm arrangements through the likes of Airbnb. We believe in doing things differently at Mercantile Trust, however, employing a personal touch that ensures we can truly get to

MAEVE WARD is director of commercial operations at Mercantile Trust

grips with what the client is looking to achieve. This means that those supposed ‘red flags’ which might cause other lenders to lose interest do not, in fact, have to be dealbreakers. That also means being active across the UK, including Northern Ireland. At its heart, the right lending approach means understanding what investors really need from their funding partner, and designing products and services that allow us to best meet that need.

Supporting investors Far from a flash in the pan, the holiday let sector looks likely to play a significant role in the plans of property investors in future. What’s more, given the seasonal nature of the holiday let market, it’s likely that the new year will bring with it a spike in interest from investors hoping to add such a property to their portfolio – and carry out the necessary refurbishment work – ahead of the summer boom period. As a result, it’s crucial for brokers to understand not only the unique elements that go into these cases, but also which lenders are best placed to support them. That means moving beyond those that enforce strict parameters and an unbending process, and instead working more closely with lenders which are more flexible and adaptable, based on the individual needs of the investor. ●

The Intermediary | December 2023

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B U Y - TO - L E T Opinion

New beginnings for buy-to-let landlords

ANDREW FERGUSON is managing director (BTL) at West One

s the curtains close on 2023, I’m sure many of you will be reflecting on the year gone by. What a year it’s been! Full of twists

and turns. Thinking back to January, no one could really say with any certainty what lay in store for the buy-to-let (BTL) market, and clearly, they were right to be cautious. The general mood in the UK at the time was fairly downbeat. The ill-fated mini-Budget in October 2022 sent financial markets into a tailspin, and confidence in the economy was on the floor. So much so that the International Monetary Fund (IMF) warned that the UK would be the only major economy in the world to shrink in 2023. The pessimistic outlook was mainly due to the rising cost of living. Inflation had just hit a 40-year high, and the Bank of England had hiked rates for the 10th consecutive time. Meanwhile, mortgage rates – which had spiked a er the mini-Budget – were also still shooting up, being driven higher by the increase in the Bank Base Rate. Data from Moneyfacts revealed in July 2023 that BTL mortgage rates had soared to a 12-year high. The average 2-year fixed rate BTL mortgage had risen to 6.96%, and the average 5-year product had hit 6.82%. The era of ultra-low rates, which had lasted the best part of 15 years, was officially over. While rates were on their way up, lending was on the way down. The share of mortgage lending for BTL purposes in Q1 2023 fell to 9.8% – the lowest since Q4 2011, and down 3.8 percentage points on the same period the year before, according to the Financial Conduct Authority (FCA) and Bank of England. Worse still, according to the FCA, it has fallen further since then,

The sector has shown once again how resilient it is

dropping to 8.1% in the second quarter of this year, the lowest share since the end of 2010. The challenge for landlords has been passing interest coverage ratio (ICR) requirements as interest rates have gone up, which has made it more difficult to access loans. However, if you read beyond the headlines, you could see that things were not all bad. In the early part of the year, the availability of BTL mortgages recovered from the Autumn low, remaining fairly steady since. We’ve seen lenders adapting to difficult market conditions and finding innovative product solutions, while also offering greater flexibility. On top of this, the strength of the rental market has provided confidence that yields can be maintained, even with mortgage costs on the rise. In February, Zoopla reported that average UK rents increased at their fastest level (11.5%) for a decade in 2022. This double-digit growth continued throughout this year, and has now surpassed 10% for 18 consecutive months.

Turning it around Although it has been a topsy turvy year, with rates going up and down, there are signs that we are turning

a corner. Challenges remain for landlords, but the outlook for both the economy generally and the mortgage market is improving. Inflation has fallen as the year’s gone by, and at the time of writing, is as low as 4.6%. As prices rises have so ened, the Bank of England has ended its run of successive rate rises, and with swap rates stabilising somewhat, lenders have slowly been reducing their mortgage rates once again. The average 2-year and 5-year BTL fixed rates fell by 0.24% and 0.17% respectively in October, according to Moneyfacts.

New opportunities There is greater product choice for landlords, too, with more than 2,500 BTL mortgages now available, compared with fewer than 1,000 this time 12 months ago. Product transfers are also far more readily available now. With many fixed rates coming up for renewal, these are providing viable solutions for landlords who aren’t in a position to remortgage. Specialist lenders, in particular, have stepped up to meet the needs of landlords during this unique period for the sector. As a new year dawns, there is a now sense of renewed optimism. Landlords are out there looking for solutions and new opportunities, such as high yielding properties, rather than si ing back and taking stock. It will obviously take time to rebuild market confidence, but the BTL sector has shown once again how resilient it is. Here’s to a brighter 2024! ● December 2023 | The Intermediary

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B U Y - TO - L E T Opinion

Commercial investment: The opportunity

ith the impact of a higher interest rate environment being felt across the country, some buy-to-let (BTL) landlords are finding that their portfolios are underperforming compared with previous years. There are reports of drops in profit and, in extreme cases, that some properties have become – or risk becoming – loss-making. Given this more challenging landscape, and as we start to see 5-year fixed rates begin to roll off, it can be difficult to find a viable remortgage option, due to outside portfolios not meeting lender stress-testing requirements. This has become a key driver in professional property investors looking at opportunities elsewhere, and specifically at the benefits of diversification into the semi-commercial and commercial space. There are several benefits associated with this asset class, with the naturally higher yield performance offse ing the debt coverage challenge being an obvious one. There is also the potential, under recently changed permi ed development rules (PDR), of converting vacated commercial elements into residential units, such as a semi-commercial retail premises with flats above. When the lease expires on the shop or the client vacates, under PDR the commercial element can be converted to residential units, building additional value in the asset, and creating a multi-unit freehold block (MUFB). It must be noted that the commercial market is a more complex space, and while there are certainly opportunities for professional

investors to offset risk within their portfolios, it should be approached with caution. Some areas of the commercial market are certainly flourishing, but others are feeling the heat. For instance, it is well-documented that retail on the high street is struggling, with vacant shops on most high streets as the effects of changing buying habits from consumers, and the rise of online shopping, continue to bite. Coupled with factors like the increased costs of parking and the expansion of emission zones, this means it is less a ractive for consumers to travel into city centres when they can click a few bu ons or head for an out-of-town retail park.

A matter of convenience Not all retail is suffering, though. Convenience stores and takeaways, for example, are now considered to be the new ‘blue-chip’ tenant, whereas previously strong covenants such as banks and be ing shops are not considered as strong as before, for many of the same reasons. Given this, many shrewd investors – rather than shying away from retail – are now being far more selective and focusing on the right kind of retail investments, namely the ones that present stronger opportunities. Office space is also an area where there has been, somewhat predictably, increasing nervousness since the pandemic. While it is true that some are now returning to the office, the continued prevalence of hybrid working arrangements continues to impact larger office blocks. This presents challenges to larger firms when leases come up for renewal, causing many to look at downsizing and building more flexibility across their organisational

GAVIN SEAHOLME is sales director at Shawbrook

Many investors are looking to commercial and semi-commercial property as a good opportunity” real estate. However, this does present an opportunity for investors to divide into separate smaller units and lease these out individually, either on fully repairing leases or even short licences, which can increase income while also spreading the risk of having completely vacant premises, given the unlikelihood of all tenants vacating en masse. In terms of industrial units, we have seen a correction in terms of value, but the sharp drops in value that were forecast at the end of 2022 have fortunately not materialised, and this asset class has largely held up, with demand staying strong. As we move towards 2024, many investors are looking to commercial and semi-commercial property as a good opportunity in terms of increasing yields and strong capital growth, and we are seeing lender appetite increase to match. Some of the more successful investors we see at the moment focus on the regions that they are most familiar with, slowly progressing into this market from a solid buy-to-let base, as opposed to jumping in with both feet, into a space that can be notoriously complex. The right advice from a professional broker, and one who can work closely with a lender commi ed to the market, should be front of mind for anyone looking to expand and potentially take advantage of the growing commercial landscape. ●

The Intermediary | December 2023

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A YEAR IN REVIEW Feature

2023

A year in review LOOKING BACK AT THE TRIALS AND TRIUMPHS OF A DIFFICULT 12 MONTHS Jessica Bird is managing editor at The Intermediary I have something of a knack for taking on new challenges during the worst possible moment. I entered the this industry in the second week of Covid-19 lockdowns, getting to grips – at breakneck speed – with a new market that was itself in the throes of panic. Several years later, I was among the many who felt that we were emerging into a settled sense of ‘new normal’ at the start of this year. This was naïve, as it turns out, and when I took over as managing editor of The Intermediary in June 2023, it was with an uneasy sense of déjà vu. The challenges had changed, but once again the market was forced to adapt to turbulent conditions. Lenders were faced with difficult decisions, while brokers were stuck between the proverbial rock and hard place. There are many who blame the disastrous Liz Truss primacy and mini-Budget – or as one commentator aptly refers to it in the pages ahead, her “short-lived lettuce moment” – for these market conditions. However, if we peer back through murky memory to early 2023, there was actually a sense of optimism. Yes, soothsayers saw the writing on the wall of rising 28

rents, constrained first-time buyer numbers, and house price drops in our future, but demand persisted, and lenders were still making price cuts and relaunching products. Indeed, as late as March, Nationwide reported house price growth apparently surpassing any since 2004. As time went on, however, the cautious notes of Q1 rose in volume as inflation proved sticky. Before long, lenders were battening down the hatches, new mortgage business was plummeting, and brokers were run off their feet trying to lock in products, while also casting about for new business areas to keep the lights on. It feels as if the year was taken up with rapid rate rises, product recalls and criteria changes. Brokers were tearing their hair out, lenders’ systems strained and sometimes snapped, new borrowers were nonplussed by disappearing deals, and remortgagers baulked at rising costs. There have, however, been some positives to emerge from all this. For a start, we have seen the events of this year fuel a much larger investment in technology. The rapid rate-change environment, and then the onset of Consumer Duty in July, meant that anyone who failed to

The Intermediary | December 2023

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A YEAR IN REVIEW Feature

Intermediary streamline and automate was likely faced with a Sisyphean task. We also saw the emergence of an important conversation – given a platform in The Intermediary – around lender responsibilities. The ’24-Hour Pledge’ set out to create a more transparent platform to work out the kinks in the market, followed by the Government’s Mortgage Charter, which shone a light for those outside the industry on the work being done to provide forbearance and understanding for borrowers during the most difficult of times. While chaos will likely be the prevailing memory of 2023, I would argue it did not actually take long for things to start looking up. Mortgage rates are dropping once again, even causing some to tentatively whisper ‘price war’, albeit with a higher base than we are used to. Meanwhile, criteria are easing, and brokers can breathe a sigh of relief that their clients are less likely to lose out on their dream deal at the drop of a hat – or the click of a button. That said, with rate drops comes the need to reassess deals, increased regulation makes for yet more work, while high inflation, mortgage rates, and living costs mean that borrowers are still in a tailspin. Nevertheless, this is a market that learns from tough times. As any aircraft engineer will tell you, each crash, albeit devastating, makes the industry exponentially safer. Previous difficult periods have shown us the value in tougher regulation and careful risk approaches. This one has, among other things, reinforced the value and resilience of specialist lending, brought more people into the tech fold, and shone a light on service gaps. My other big takeaway from this year, as an observer of sorts, is that brokers have once again proven their value. The conversation has shifted accordingly, from the threat of ‘robo-advice’ and obsolescence years ago, to the all-important role of the individual. This year, intermediaries have stepped up and be everything from market expert to The agony aunt. Hopefully, TIME FOR CHANGE this skill and What needs to be done to make a perseverance will housing market that works for everyone help the market hold steady in 2024, as we face trials both expected and unknown. For now, though, I would say it has certainly earned all our readers a very “We'll never be able to afford our own place...” Merry Christmas.

RESIDENTIAL ▮The latest views and opinions on a stabilising mortgage market

INTERVIEWS ▮We catch up with Accord, Click2Check and LendInvest

LOCAL FOCUS ▮Mortgage professionals tell us what makes their area tick

Intermediary. www.theintermediary.co.uk | Issue 1 | February 2023 | £6

Nick Mendes is mortgage technical manager at John Charcol

n 2023, the market has shown that despite continuous changes – better and worse – brokers play an integral role in the mortgage journey. I can’t remember, in recent times, when brokers have been so key during an application – from educating clients between a tracker or discounted product over a fixed term, through to continuing re-brokering an existing deal with each lender reprice, saving the client thousands on their mortgage. As activity has taken a fall due to market conditions, building relationships with clients has been increasingly important, both to attract but also retain clients coming to the end of their deals, and to reassure those worried about the impact of higher rates on monthly payments. There have been positive moments in 2023. First, inflation and mortgage rates have come down. Considering some of the forecasts earlier this year, this is encouraging, and will hopefully lead to a slightly more settled 2024. Second, client mindset on protection has shifted. In a higher rate environment, the impact of loss in income due to health or other circumstances has reinforced its importance. Third, the presence of different broker voices in the media has been welcome. Platforms such as Newspage have helped break down barriers, which ultimately makes the industry an inclusive place where a diverse range of individuals can share their views. In terms of how the events of this year will influence the next, core inflation and the bank rate are going to play a significant part. While decreased inflation looks likely, whether the bank

December 2023 | The Intermediary The Interme

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rate follows a similar path is less certain. Some forecasts predict a fall in February, I personally see a shift in August, with a further fall in November, all being well. If we do see a change in the bank rate earlier, this will play into market rates and activity. Sub-4% deals will motivate home movers and first-time buyers to purchase, and further strengthen the commitment from those coming to the end of their introductory deals, rather than holding off. ●

trend. Rather than waiting for the door to swing open, we’ve seen many diversify to increase their value and maximise earning potential, whether that’s through wider financial advice or the likes of equity release, business protection or commercial advice. We’ve also seen case sizes increase, meaning brokers are utilising the training provided and maximising their minutes with clients to support them in a deeper way. ●

John Phillips is CEO of Spicerhaart and Just Mortgages

Hiten Ganatra is managing director of Visionary Finance

he start of the year was certainly filled with fter the calamitous and short-lived Liz promise, as much of the mini-Budget had Truss lettuce moment, we went into 2023 been unwound and the markets had begun with the New Year’s resolution to get to stabilise. This quickly shifted, though, as the things sorted and do what we do best. There was cost of living ramped up and both inflation and a level of optimism, and people weren’t sitting interest rates followed suit. We have seen real just accepting their fate. That sentiment changed pressure on affordability, a key theme for the at the end of April, when core inflation hadn’t year, whether it’s those still trying to buy or move shifted. That stickiness drove massive unease house, or the high levels of mortgage maturity among both lenders and borrowers. Swap rates RESIDENTIAL ▮The latest INTERVIEW ▮Nick Jones IN PROFILE ▮The Broker across residential and the buy-to-let (BTL) space. went up signifi cantly, and rate rises came thick from Barclays, Nationwide on why now is the time to Collective speaks out on its more focus on seconds product withdrawal pledge A key priority for us has been and increasing and fast. Theand clients education – supporting both brokers For BTL clients, things weren’t stacking up in navigating a market the majority are not from a rental stress test perspective. Before, for used to. While lenders are still engaged in every £1 of rental income, they could get a ‘rate war’ to get some way close to roughly £155 worth of lending. Then, their targets, it’s important we it got to a point where it was as low educate borrowers about the as £90 for every £1. These clients ‘new normal’ now that the had to either bridge the gap or days of cheap money are walk away. firmly behind us. Does that The residential market is in mean they’ll never buy their a precarious position in terms own home? Absolutely not – of affordability, as well. opportunities still exist, but In turn, there’s a lack of it’s up to brokers to show what supply of properties, and the the route to homeownership population is only growing, now looks like. while house builders are not Increasing take-up of Shared building because costs have gone Ownership has been a key trend, helping up significantly, and affordability affects people own part of something, rather than people’s ability to buy the properties at the Opportunities abound in specialist finance nothing at all. This will continue. We had six other end. new-build advisers at the London Home Show Battening down the hatches this year, and they were rushed off their feet with enquiries around Shared Ownership. For residential clients, monthly payments are The appetite to buy is there, particularly going up between £400 and £1,500. They’re in those areas most hit by the loss of Help to battening down the hatches and paying down as Buy. It’s up to us to realise this potential by much as possible to soften the blow. highlighting both the opportunities and the BTL landlords, meanwhile, are in dire straits. many tools at our disposal to help make the Those leveraged to 65% loan-to-value (LTV) numbers work. are only just covering their costs with rent. At From a broker perspective, finding 75% LTV they are not even doing that. Those opportunities in a quieter market has also been a ‘accidental’ landlords are, in some cases, saying

Intermediary. www.theintermediary.co.uk | Issue 5 | June 2023 | £6

BELOW THE SURFACE

The Intermediary | December 2023

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A YEAR IN REVIEW Feature

enough is enough, and this is before they come the doomed mini-Budget. Swap rates resembled to pay their tax bills in January. a joyless rollercoaster, recession warnings were The strain the market has caused among coming thick and fast, and inflation and interest brokers is something I’ve never seen previously. rates soared. This is a customer service focused sector, not I have some sympathy for lenders, given least because of Consumer Duty. There is an how difficult it must have been to price deals. inordinate amount of pressure on advisers, which However, at times it felt like they were playing should never have been put on a game of Hokey Cokey. This BROKER BUSINESS anyone. We were fortunate within made life even more difficult for SPECIAL ISSUE our team that could help each brokers, many of whom were The other out, and we have a good already struggling as rising culture. But many in our sector interest rates hit affordability. don’t have that, and are just A degree of calmness and trying to do the right thing, to order temporarily returned in the detriment of their mental Q2, with swaps settling and health and wellbeing. product duration and availability We had some good news in improving. By summer, though, September that inflation would it felt as though someone had start to come down, and have hit the repeat button: swaps since seen positive moves among marched higher, and lenders lenders. We’ve seen 5-year swap were once again scrambling rates stabilise massively to the to protect their profits by THE ART OF THE BROKER repricing upwards. low 4% mark, and we are in a Creative problem solving for surreal times more positive space. Fast forward to the present Looking ahead, there will be and brokers are having to a softening of house prices, largely as some contend with an altogether different problem. At BTL investors want to be done with the hassle. the start of the year, it was a race against time. If However, portfolio landlords will see this as an they missed the boat, the advice process went opportunity, with house prices coming down back to square one. Ironically, while mortgage and rents going up. rates are now falling again, the workload remains The positive is that rates are falling and the same. Brokers are having to repeatedly rekey inflation has moved into more positive territory. cases and switch onto cheaper rates as they I think the base rate has topped out. Nevertheless, change. Calling a client to say you have found we may not be through the worst of it, and rates a cheaper rate is a better problem to have than could rise again. breaking the news that they must pay more than We should move back to the 2% inflation they thought, of course. mark by the end of next year. Unlike the Global Ultimately, most brokers are doing much Financial Crisis, there’s no issue with liquidity, more work for the same amount of money, and banks are flush and willing to lend, but the fact is most likely with the same cost base they had the they need to price their products correctly. It still previous year. Add to the mix that the market is slowing, and it’s bound to have a negative effect isn’t going to be easy for those who want to get on profitability across the sector. on the housing ladder, but we are on the Despite this, I am much more optimistic right track, and we can see green shoots. ● going into 2024 than 12 months ago. The year has shown that things can change quickly, but it Lucy Waters is managing seems we are over the worst. The extent and speed with which interest rates director of Aria Finance rose last year caught most borrowers by surprise, but after 20 months of rising rates, they are acclimatising. What’s more, the market is no ortgage professionals who made it longer talking about interest rate hikes. Indeed, through the Financial Crisis still, quite talk has shifted towards cuts, even as soon as Q1 rightly, wear their battle scars with or Q2 next year, depending on who you listen to. pride. Those were tough times indeed. While Those predictions may be a little optimistic, 2023 is in no way comparable, the past year has but there’s no denying that it’s a more stable undoubtedly been one of the toughest since position than this time last year. That stability those lean and turbulent years following the should give borrowers more confidence, which crisis. The year got off to a difficult start, with should lead to increased market activity. the market still finding its feet in the wake of CASE CLINIC ⬛ Experts provide their tips for dealing with readers’ trickiest cases

OPINION ⬛ MRM, KFS and ClientTree provide insight on the trends affecting brokers

Intermediary. www.theintermediary.co.uk | Issue 7 | August 2023 | £6

December The Intermediary 2023 | The Intermediary | July 2023

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That’s not to say 2024 won’t have challenges. Mortgage rates remain much higher than two years ago, so we shouldn’t expect a full recovery in volumes and property prices. Challenges still lie ahead, but things feel a little brighter. ●

Paul McFarlane and Andrea Smith are mortgage and protection advisers at McFarlane & Iles, AR of Rosemount Financial Solutions (IFA) Ltd

key lesson from 2023 was the need for more support and understanding from lenders. Towards the back end of last year and through into this one, we were given very short notice on rate changes, and it became unmanageable. Lenders don’t get taken to task for this enough. Of course, we understand they are tied up by their funding structures, but such short notice creates a lot of anxiety among both brokers and clients. Moving forward, it’s important for brokers not to be held hostage in the future. We’re lucky to be busy, yes, but some lenders simply assume people can work until midnight or over the weekend, not to mention when the rush to book rates causes their systems to crash, or forces brokers to wait online for – in at least one instance – over seven hours. This has led to difficult conversations with clients, where we’ve been unable to secure a rate through no fault of their own, or ours. If you have a good relationship with your clients, they tend to understand the pressures you’re under, but it won’t stop them being unhappy. Lenders must come up with a better plan that doesn’t leave brokers sitting in the car at their child’s football match on a Saturday morning, just to make sure they can get the best deal for their clients.

Taking a breath Now it’s a little more relaxed, and we can take more time with the client without the threat of sharp increases. This doesn’t necessarily take away all the anxiety, though, because some lenders’ time limitations are hard to manage. In addition, on top of our normal workload, we’re having to continuously review all those rates. Rates going down is brilliant for our clients, but there’s still a lot of pressure.

Inclusion and mental health must be taken into account more in the future, but at the moment, lenders are somewhat unchallengeable because they’re such big institutions. It’s not that brokers want to get their own way, it’s about being able to do the best for our clients while still maintaining our wellbeing.

Resilient market

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

INTERVIEW ⬛ Dan Wass reflects back over a year at the helm of The Bucks

BROKER BUSINESS ⬛ Marketing, Meet the Broker, and tips for tricky cases

Intermediary. The

www.theintermediary.co.uk | Issue 8 | September 2023 | £6

COMMONS SENSE

There will always be a Taking party politics out of housing policy housing market and it is starting to stabilise, even for first-time buyers. Clients are becoming more realistic about their budgets. First-time buyers, rather than buying that big three-bed detached house, have gone back to the idea of a starter home. It’s not that people aren’t buying, just that their priorities are changing. One of the best moments this year was when swap rates started to come down and lenders began to chip away at rates. We got to see the huge feeling of relief among clients, their elation at achieving a mortgage in a tricky market. It’s an enormous amount of work, but as long as you still punch the air when you get someone a mortgage, you know you should still be doing it. ●

David Hollingworth is associate director, communications at L&C Mortgages

ou cannot discuss 2023 without acknowledging the period just before – the turbulence following the mini-Budget. Nevertheless, in the early stages of the year, things seemed to be settling. Fixed rates, which had spiked after the mini-Budget, were starting to improve. Things were looking a bit more positive, and there was even something of a price war breaking out. However, base rate rises were feeding through, building pressure on borrowers and rates. Then, as we came into summer, concerns around higher inflation pushed the market into another hugely volatile period. Funding costs leapt again. Just as borrowers were starting to get their heads around rates, suddenly the rug was pulled

The Intermediary | December 2023

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08/12/2023 15:04:47

A YEAR IN REVIEW Feature

from under their feet, and we were back into round after round of product repricing. A lot of brokers will be looking forward to Christmas after another tough year. Volatility and rapid rise in rates have certainly dented consumer confidence, and we’ve seen that persist through towards the end of this year. We are now back into a cycle where rates are easing, dipping below those key benchmarks of 5% for 2-year deals and 4.5% for 5-years. Nevertheless, there are still a lot of borrowers coming to the end of their fixed rate and facing a significant payment shock. Brokers will come out of this year stronger because of everything that they’ve had to deal with. Getting back to a market that’s more stable, after dealing with rapid-fire movements, can only benefit us, and the systems put into place during this period will help in less choppy times. Consumer Duty was another big change. Revisiting everything you’re doing has to be a positive process to undertake. There’s lots of data in our business already, but examining

knock-on effects for first-time buyers. Mortgage affordability is tough, but the alternative of renting is also difficult. Borrowers have been on a rollercoaster ride, dealing with the cost-ofliving crisis, higher interest rates, and products disappearing before their eyes, and brokers have helped navigate that as a calming source of help. It should only underline the importance of advice. ●

Ahmed Bawa is CEO of Rosemount Financial Solutions (IFA) Ltd

hile 2023 has been turbulent, there have been positives. Consumer Duty has had a major impact already. Looking at the protection market, consumers’ cover is still low in terms of the size of the debt they hold. Consumer Duty will compel advisers to talk about protection. What we must do now is educate advisers on how to sell it. At Rosemount, we do master classes for new advisers and those that might need a refresh, and we’re seeing protection sales increase quite dramatically. However, Consumer Duty does increase the workload. Advisers must streamline their processes. To this end, we provide planning and admin support services, to allow them to be able to do their work.

Opportunity through chaos

where there could be gaps and things we can do better is extremely worthwhile. It’s an ongoing piece of work, forcing people to things from the customer’s perspective.

Borrower behaviour The purchase markets are much quieter, but there is still cause for optimism – people are taking a ‘wait and see’ approach rather than being completely disengaged. For those taking new mortgages, we’re seeing more short-term fixed rates, because they are hoping rates will come back down. Tracker rates will play a bigger part due to this trend. The buy-to-let (BTL) market has, of course, been affected by higher interest rates as well. That’s resulting in higher rents, so it also has

Overall, this year has been something of a chaotic environment, but this is a great opportunity to be close to clients. If you’re a good adviser, they will see you as economist, clairvoyant, accountant, debt manager, agony aunt, etcetera. We should embrace this – not just to get more business, but because it will make sure that all-important loyalty stays strong. Sometimes, we get so engrossed in paperwork and compliance we can forget what we’re really there for. This year has reinforced the value of working within a network. Meanwhile, those lenders that have embraced the changes and challenges have done very well – reflected in their market shares. These are the lenders that have invested in supporting advisers. The effects from the mini-Budget are still going, and I’m not sure how much the present Prime Minister has managed to move away from that. We need someone to stand up and say that the housing market is important. We are a nation of homeowners, and we must embrace that. ● December The Intermediary 2023 | The Intermediary | July 2023

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B RO K E R B U S I N E S S Opinion

Diversifying in a difficult market

n previous years, brokers would have had li le reason to look beyond their core business of mortgages and protection. A er all, interest rates were super low, demand was high, and schemes such as Help to Buy generated a flow of first-time buyers to drive the entire market. That was then, though, and factors like the mini-Budget, the cost-ofliving crisis and high inflation have helped to disrupt the market. While the situation is certainly improving, particularly as inflation eases and rates stabilise, there’s no question that brokers need to broaden their horizons in the current climate. Diversifying into new areas of advice should be an absolute nobrainer for any ambitious broker, not just to increase their value to their clients, but to maximise their earning potential in a quieter market.

Expanding licence options Gaining the necessary qualifications and licences is key to accessing new opportunities in the likes of equity release, business protection and commercial advice. While commercial advice may sound like shops, warehouses and factory units, it actually encompasses a much broader range of services, such as development and bridging finance, complex buy-to-let (BTL) and both Sharia-compliant mortgages and those for expats and foreign nationals. This is becoming increasingly popular, especially with growing foreign investment in UK property and the increase of international students living and studying here. At Just Mortgages, for example, we are partnered with CFB UK, which provides licence training and support to enable brokers to write commercial business. We also provide our own licence training for both business protection and equity release

in-house, through our learning and development team. Business protection is underserved, especially as more small businesses learn the lessons of the pandemic and realise the potential impact of the business owner, or a key member of staff becoming critically ill or even passing away. Meanwhile, 2023 has been our busiest year yet for equity release, as older homeowners look to release funds to either top up their retirement pots or support younger generations. Now is certainly the time for brokers to be bold and explore all available opportunities. Across all disciplines, a broker can become fully trained without great expense, receiving support right up to full competence and beyond with help in the background when needed.

Finding opportunities Just as fundamental as having the correct licences is identifying opportunities for further advice. As a result, we encourage our brokers to really focus on their fact-finds to identify scope for greater support. Business protection and commercial advice are good examples, with the fact-find identifying a local business owner who may also be looking to protect or expand their business. The best example, though, is the opportunity for wider financial advice, whether pensions, savings and investments, or wills and estate planning. The fact-find may flag that no pension review has been conducted, for example, prompting the broker to refer to a financial adviser. Some may have an arrangement with a local firm or rely on support from an in-house division. At Just Mortgages, brokers are able to refer clients to our sister firm Just Wealth. In fact, our new Just Refer portal – designed to digitise the process and increase line of sight for brokers

BEN ALLKINS is head of mortgages and protection at Just Mortgages

– has already referred more than 400 clients for financial advice. In any case, the great news is that brokers can further prove their worth to the client, all while capturing part of the revenue share. Plus, wealth advisers can keep clients warm for the next remortgage process. Just Refer has since expanded to include referrals for equity release, business protection and commercial advice, supporting employed brokers and those who may not make the most of gaining the necessary licences.

The right support The vibrant nature of the mortgage market – prior to the mini-Budget – certainly removed the impetus for brokers to step out of their comfort zones. To be honest, who can blame them if the door is always swinging open and the phone is ringing off the hook. The benefit of a quieter market, though, is that brokers can dedicate more time to clients and have those deeper conversations. This is important in making sure they are fully protected, and their wider needs are met. Just as important is the opportunity for brokers to dedicate the time to invest in themselves – identifying opportunities to increase their skillset and deliver greater value and a wider proposition to their clients. The reality is that this is where any network or parent firm should be providing those training routes and opportunities to enable brokers to diversify. This should be just as high a priority as increasing their wider training and support around sales, marketing and compliance. ●

The Intermediary | December 2023

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B RO K E R B U S I N E S S Opinion

Time brokers take to TikTok

early every local pub has that person who, despite having no background in financial advice, always has a ‘tenbagger’ stock tip that you’d be foolish to pass up on. It’s the sort of conversation that would instantly set off alarm bells for those working in financial services, or who are even a li le streetwise. The quintessentially British response is to nod politely at the halfinebriated bloke doling out this oncein-a-lifetime opportunity, and fob him off with a promise to investigate when you get home – which you’ll never do, of course. Increasingly, though, young people are willing to accept shady financial ‘advice’ from unqualified ‘experts’ offering a fast-track to riches. Except they are not ge ing this information from someone down the pub, but rather on social platforms such as Instagram and TikTok, which have billions of users. MRM investigated this increasing – and worrying – trend recently in its annual Young Money Report, and the results may surprise you. Nearly one in seven young people aged 18 to 30 take financial tips, guidance and advice from social media. That number is rising, and is roughly the same as the number of young people who say they get their advice from a qualified and regulated adviser. Now, there is nothing wrong with gleaning genuine financial tips and guidance from TikTok or Instagram. In fact, social media is an underutilised resource in our industry. The issue is that these so-called ‘finfluencers’, many of whom have thousands of followers, o en tout high-risk hacks and investments, and are about as qualified to deliver financial advice as I am to pilot a

space shu le.The Financial Conduct Authority (FCA) recently a empted to clamp down on finfluencers, due to concerns about the impact they have on young people in particular. But the reality is that it’s nearly impossible to stop enthusiastic amateurs posting financial content entirely. Therefore, it’s important our industry a empts to redress the balance, and that independent, knowledgeable, and qualified advisers are visible and vocal on social media.

Altruism aside, it also makes sound business sense to have a presence on social media platforms such as TikTok, given the appeal they have with young people. A er all, these will be the house buyers and investors of tomorrow. Investing some of your time to grow your visibility with future customers is likely to pay dividends.

Harness the power First things first: do your research. See what types of content people are producing, not just within financial services, but outside of it, too. There are some fantastic visual storytellers

PAUL THOMAS is head of news and content at MRM

out there, so take inspiration from them. Even be er, ask your children or younger members of staff what type of content they like to consume on social media. Financial services has a reputation of being a li le stuffy – an industry filled with bland corporate types. Inject a li le personality into your content and try to make yourself relatable to a younger audience. That means ditching the suit and perhaps filming outside the office. Think hard about how you deliver your message. Chances are, your audience will have limited financial knowledge, so make sure your explanations are stripped of jargon and are easy to follow. You’ve got to tread a fine line between being informative and entertaining, so play around with formats to see what works. You’ll make mistakes along the way, but learn from them. This is a process of trial and error. However, you should also remember that you need to remain compliant. The FCA has strict rules around financial promotions, and the regulator is currently consulting on how these requirements apply to social media. So, get your compliance team to run the rule over anything you want to put out. It’s also important to be consistent. To be effective on social media, you need to be visible, and that means posting regularly. That takes time and effort – you’re either in or you’re out. Finally, remember: it’s not about the size of your audience, but instead connecting with the right audience. If you’re producing great content, your audience will grow organically, and so will your leads. ● December 2023 | The Intermediary

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Q&A

Net-Worth NTWRK

The Intermediary sits down with Wes Wilkes, CEO of Net-Worth NTWRK, to discuss the importance of culture and client community Can you introduce yourself and the network? I’ve been in this industry since 2000, including working at Royal Bank of Scotland and other major institutions, as well as a mortgage brokerage – so I’ve got a really strong understanding of that side of the world too. Then, the Retail Distribution Review in 2012 came along, and that gave me the opportunity to do something I’d always wanted to do, which was to go out on my own. I launched launching IronMarket in 2013, initially as an appointed representative (AR) of a bigger firm. After doing that for a period of time, I wanted to do more on the portfolio and fund managing side, as well as providing advice. I’ve always thought, if you think you can do something better, go and prove it. So, I topped up my qualifications to be a certified investment manager and got direct permissions with the regulator in 2014. We added discretionary management to the financial planning side in 2016, and have grown out from there.

How have you maintained relationships while growing? That comes down to the people. Not everyone can come along for every ride, but we’ve got a core of people – some of which have been here for the whole journey – that act in that way and believe in our way of doing things, who have grown with us. It’s about having a huge amount of patience and pragmatism, to bring through the right people, help them get qualified and build the experience to be the next group of advisers pushing the business forward and help clients achieve what they want to. Having a diverse set of advisers is also something that our profession could do with building on. It’s massively important, because our client base are all business owners with 36

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phenomenal expertise in what they do, which means they respect and seek expertise elsewhere, and look for that strong connection. They are also all from diverse backgrounds. They might have a generational business, or have just started it themselves or transitioned from one business sector to another. Having a diverse group of personalities really helps. It doesn’t mean you match them up, but it’s about being confident in who you are, which means you can form really strong relationships.

How has the market changed since the launch of the business? There has been a huge amount of change, and even before the past 10 years, coming out of the Financial Crisis. Having been through all of this change meant that we were able to navigate the past couple of years really well, when the markets were really difficult. 2022 was probably the most difficult year I’ve seen, even more than the Financial Crisis, but there was also 2016 with the Brexit vote, 2018 we had the Fed in America trying to raise rates at the wrong time, then a global pandemic in 2020. It has been a pretty volatile environment for investors. We got our discretionary permissions in 2016, and WES WILKES we couldn’t have made a better choice. My background as an adviser first and asset manager second means I can understand what bothers our members most. For example, most would give up a certain uplift to protect against a drawback. I manage with a view to downside protection first and then build on that.

What does a ‘client community’ approach look like? That’s something we’re still learning as we do it, and through constant member feedback.

The Intermediary | December 2023

08/12/2023 11:44:34

Q&A

It’s about connection. One of the reasons we bought our current office – which is all very open – was to be a living, physical embodiment of that community. The layout is driven by those values. We can get all our clients together, communicate with them, and connect them with everybody that’s involved in the business. We get strong feedback that members really like it when they get to meet the rest of the team, from those who have just come on board as associates, to those dealing with administrative work, and through to planning work, advisers, and all that side of it. We embody that in the events we do – and we have a big calendar for events in 2024. It’s about inclusion, getting people together, and creating an element of community by connecting people. As a business, connecting clients with one another supports our key values of connection and shared knowledge, which is huge for us, as well as humility and openness. Our industry, historically, has probably used what it knows against people, standing behind the ‘cloak’ of financial services – we’re the experts, we know everything. We’re the reverse of that. It reflects back on us by showing that we are comfortable, friendly, and we are what you see. There’s also absolutely a benefit in terms of client retention and loyalty.

What does your culture look like internally? This is one of our huge advantages. We have what we call a ‘think it in’ session every Tuesday morning. We get the whole team together in one room and use it for various things – an example of best practise, an educational piece, or looking at how we can enhance our consumer experience. That’s also an opportunity to constantly inform our team about what’s going on, why it’s happening, where we’re positioned and why, and so on. The nimble size and dynamism that we have – we haven’t got layers of committees to go through to make a decision – helps us benefit our clients, but also means we can communicate with the team immediately.

Are there any challenges ahead for the next year? Aside from something leftfield, I don’t think anything will be a huge surprise – we’re all still waiting to see what really does happen with inflation and growth. We can’t have an almost 500% increase in rates in a little over a year, and it not have a significant impact. We’ve seen

some of it, but we have to be a little bit patient to understand the rest, particularly as all these things are lagged. It was such a steep rise, that some of the effects might be yet to come through. This is particularly true for the smaller business arena and credit – what impacts might there be as things come to be refinanced there? If there is a slowdown in consumers, how is that going to fit with business margins? So, there are a few more things to come. People also need to come round to the fact that rates will stay higher for longer. We’re actually not in an environment that’s particularly high and challenging rate-wise. We perhaps have to get used to this environment. There’s lots of talk of recession, but I actually think we won’t see a recession as we have done before. Recessions might be specific to certain areas and sectors, but things are proving resilient. It’s important to be cautious and have one eye on things coming, watch how things settle, and then be able to build on top of that. There remain great opportunities. The average house price in the UK seems so far away for, say, a 22-year-old. We have some clients who are actually using the investment tools we have created to get to that point of buying property. They are moving away from the old British mentality of bricks and mortar being the first investment.

What is on the cards for the business in the near future? Obviously the development of talent internally, the growth of the firm through internal development opportunities, and outside of that, working closely with our clients to create opportunities. We really want to help get young investors interested in investing, who might have been turned off by some of the recent narratives. These are the kinds of people who come to an adviser when they’re 40 and say they haven’t done anything about their futures. We can access that demographic, matching the energy of young people who want to invest, with the opportunity to invest in things that are interesting to them, where they can connect with us and we can add in all the experience we have, directing them to something that is really exciting, fundamentally sound, and ESG compliant, too. We’ve got an app coming out soon, and within that we are going to have an education suite, with videos about how and why to invest, to hopefully educate and engage an entire generation on why investing is so good. ● December 2023 | The Intermediary

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B RO K E R B U S I N E S S Opinion

Let’s hear it for the boys

en’s Health Awareness Month runs across the world every November. Most of us know it as ‘Movember’, as brave men around us embrace their inner Tom Selleck and grow a ‘tash – with various, and mostly hilarious, degrees of success. For many, it’s an opportunity to raise money for charities involved in prostate or testicular cancer, but Movember aims to achieve much more than that. The month-long event focuses on promoting physical and mental wellbeing among men, including mental health challenges and suicide prevention. Movember provides a platform for men to discuss their health openly, seek support, and take proactive steps towards a healthier and happier life. The need to raise awareness of mental health, give men the tools to understand the signs when it is deteriorating, and encourage them to seek help, has never been greater. Throughout the ‘Keeping the conversation going’ series of videos I’ve filmed for the Mortgage Industry Mental Health Charter (MIMHC) with leading mortgage industry figures this year, the same themes have cropped up time and again when speaking with men. Many have struggled with their mental health, and either put on a brave face and tried to keep going – because some men don’t like to talk about their emotions – or have used the crutches or alcohol or drugs as their coping mechanisms. The triggers were many and varied, ranging from experiences in the armed forces to family breakdown, or simply the daily stresses involved in running an organisation and being responsible for the financial wellbeing of others. Many endured some form of breakdown, which then led them to seek help. But it should never come to that.

The finance industry is particularly affected by this issue simply because it is – sadly – a male dominated industry. According to the Financial Conduct Authority’s (FCA) records in 2022, just 16% of financial advisers were women. MIMHC’s Annual Mental Health Report reflected last year that mental health provision is improving, with 58% of brokers having access to support at work; however, 42% don’t. This highlights the work still to do to normalise mental health provision. So, how can we best help the men in our industry not only look a er their mental health, but also improve it and become the strongest versions of themselves? Here are just a few ideas to get your organisation started: Awareness campaigns: Host seminars and discussions on mental health, addressing topics like stress, anxiety, and depression. Promote mindfulness and meditation sessions to help men manage their mental wellbeing. Workplace wellness programmes: Programmes could include ergonomic and stress reduction initiatives. Encourage your company to provide health assessments for its employees. Fatherhood and parenting workshops: Offer workshops on effective parenting, communication within families, and balancing work and family life. Highlight the importance of fathers in the wellbeing of children. Volunteer opportunities: Do you have a volunteering scheme at work? Encourage men to get involved. Highlight the positive impact of giving back to the community on mental and emotional wellbeing.

Active support Sport and exercise are also closely linked to strong mental health, so also think about: Fitness challenges: Organise fitness challenges to encourage physical activity. Partner with local gyms or

JASON BERRY is group sales director at Crystal Specialist Finance

trainers to offer discounted or free classes during the month. Sports and recreation events: Organise sports tournaments or recreational activities to promote physical fitness and camaraderie. Emphasise the importance of regular physical activity for overall wellbeing. If none of these initiatives – and there are many more examples – exist in your organisation, then I would encourage you to first speak to HR, make them aware of MIMHC and ask them to get in touch. Our key aim is to support our industry in keeping the mental health conversation going by providing guidance, tips and a simple framework for member companies to embrace and then tailor their own bespoke services. If your organisation isn’t yet a member of MIMHC, then I urge you to join today. MIMHC is going from strength to strength, represents a true crosssection of the mortgage industry, and includes mainstream mortgage lenders, challenger banks, insurers, mortgage clubs, networks and conveyancers. It now represents more than 15,000 people working within the mortgage industry. Movember has become a vital initiative in raising awareness of health and wellbeing among men, and it celebrated its 30th anniversary this year. But let’s remember that, in our industry, we face unique challenges that need specific frameworks to be in place. MIMHC exists for that very reason. So gents, thinking about your mental health shouldn’t stop now that you’ve shaved off your ‘tash until next year. Please, let’s keep the conversation going. ●

The Intermediary | December 2023

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08/12/2023 11:58:51

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08/12/2023 11:58:51

Meet The BDM Octane Capital

The Intermediary speaks with John Smith, business development manager at Octane Capital

Why did you become a business development manager (BDM)? I have been in the mortgage industry since the age of 16. Like a number of people I have spoken to throughout my career, I stumbled into this industry. I remember asking my Mum on the way to the interview for a mortgage processor position what a mortgage was. I spent eight years working in mortgage processing, progressing to be an underwriter and then to managing a team of underwriters. An internal BDM vacancy became 40

available, and I wanted to test myself with a new challenge working towards a different set of targets. A secondment opportunity became available to be an external BDM, which then became permanent. I enjoyed meeting new people daily and trying to find a solution to the deal they were trying to place.

What brought you to Octane Capital? I am thrilled to have joined Octane Capital; it is a fantastic business, and I have witnessed its growth over a relatively short period. I’m excited to help in the next phase of the firm’s

growth and spread the details of its proposition to brokers far and wide. The way the business conducts itself is amicable and impressive. Everyone looks out for each other, abd everyone feels part of the team.

What makes Octane stand out? Its products and its people. We are not simply driven by volume, but want to assist borrowers in their investments and make a real difference to brokers and customers. The proposition is a real standout offering, with both competitive

The Intermediary | December 2023

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MEET THE BDM

It is good practice for a BDM to know not just their own products inside-out, but also those of the other lenders in the market. This allows them to advise the broker on where they can place the deal if they are not able to assist themselves” pricing and criteria. Our most popular product is our refurbishment bridge, which provides 70% loan-tovalue (LTV) net day one, and provides 100% of the refurbishment costs. Customers use this product when converting properties to houses in multiple occupation (HMOs) and flats, commercial to residential, rear or side extensions, and general decorative refurbs. We also offer unregulated bridging, be it for an auction purchase, preplanning, or development exits. The credit managers in place are highly experienced and approachable. Not only do they want to do what’s best for Octane, but they want the customer to succeed and be profitable so we can assist on the next project, and the next. At Octane, the credit manager deals with the application from agreement in principle (AIP) through to completion, as well as servicing the loan right up until its repaid. This allows them to have a full understanding and know the client’s needs throughout the process.

What are the challenges facing BDMs right now? In the current landscape we find ourselves in – where we have seen mortgage rates change daily, LTVs go

down and back up, as well as lenders’ appetites – it is a challenge keeping up to date with products, rates and current lending appetites, as well as keeping brokers informed. It is good practice for a BDM to know not just their own products inside-out, but also those of the other lenders in the market. This allows them to advise the broker on where they can place the deal if they are not able to assist themselves.

What are the current opportunities for BDMs? I believe there are opportunities for BDMs to educate their brokers on how they can generate more business enquiries, whether this be by widening the lenders they work with and their offerings, or reaching out to their client base to pass on the education. This might mean speaking to landlords and developers about the opportunities which are available to them, such as with our refurbishment scheme. At Octane, we are seeing an increased number of HMO conversions, for example. We have therefore been educating brokers and investors regarding the opportunities that exist in converting low-yielding single let properties into multi-lets such as HMOs, in order to improve their rental coverage.

to hand seems acceptable to the business. The next stage is to produce credit-backed terms. This provides reassurance to the borrower that an underwriter has assessed the deal and is happy to proceed. It is also vitally important to be able to say no to a deal at the first instance. A quick ‘no’ is better than a long dragged out one, if I feel that there are no legs in the deal. I find brokers appreciate this rather than being told to ‘just dip it’.

What advice would you give potential borrowers in the current climate? Don’t sit back, wait and do nothing. There is opportunity out there to be had, be it in the residential and buyto-let spaces, or more investor-led bridging. Interest rates back in 1957 jumped up significantly, if borrowers had waited for rates to go down to what they were 18 months prior, they wouldn’t have purchased a home until 2008. Don’t wait to buy property, buy property, and wait. ●

How do you work with brokers to ensure the best outcomes for borrowers? I like to gain a full understanding of the deal at hand and have constant communication with the broker throughout. Communication is key to making sure a deal gets through the various stages until it completes, whether this is directly with myself or orchestrating between credit managers and the broker. The way we work at Octane is for indicative terms to be produced in the first instance, if the information

Octane Capital Established 2017

Products ◆ Bridging loans ◆ Refurbishment loans ◆ Developer exit loans Contact john@octanecapital.co.uk 07552 118744

December 2023 | The Intermediary

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08/12/2023 15:12:05

S P E C I A L I S T F I NA NC E Opinion

A specialist lending market review

t’s always interesting to compare the transactional volumes that we are seeing as a business with the statistics and data which are constantly emerging from the wider mortgage market. For much of 2023, volumes across a variety of specialist sectors have been fairly robust, although there have been some inevitable ups and downs given the economic climate, inflationary pressures, interest rate rises and affordability concerns. Q3 2023 was certainly a noteworthy period for the market, especially when compared with the same stretch the previous year, which included a mini-Budget that I’m sure we’d all like to forget. So, how have the specialist markets performed in Q3, and how have they matched up to our experience?

Bridging finance Starting with some positive news from the bridging finance sector, Q3 data collated by the Association of Short Term Lenders (ASTL) showed increases across all areas of lending, with bridging loan books continuing their upward trend, growing by 2.0% to reach a new high of £7.3bn. Applications were rose to £9.7bn, an increase of 5.6% compared with the previous quarter. Completions hit £1.4bn, an increase of 5.8% on the previous quarter, and average loan-to-values (LTVs) were virtually unchanged at 57.7%, a tiny decrease from 57.8% in the previous quarter. Additional data from the Q3 Bridging Trends report also suggested a bounce over the quarter, with bridging loan transactions rebounding from a slower second quarter to total £191m, representing a marked increase from £165.7m in Q2. This is an area of the market which has generated a wealth of enquires and opportunities for our introducers over the course of the year, and shows no

sign of slowing down anytime soon. This is especially true when it comes to supporting an array of residential chain-breaks and providing property professionals with funds to embark on refurbishment projects, energy efficiency upgrades and a growing number of auction purchases.

Second charge Figures from the Finance & Leasing Association (FLA) showed there were 7,833 second charge agreements in Q3 totalling £354m, down 17% by volume and 20% by value compared with the same quarter in 2022, while the year to September saw new deals fall by 7%. The value of new business in September (£109m) represented a fall of 22% by volume and 25% by value compared with the previous year. These may seem like substantial drops, but – as outlined in the commentary around these figures – this followed a particularly strong performance in the same period of 2022, and was also a reflection of the weaker economic outlook. From our perspective, second charge business is still out there. It’s prudent to point out that a number of second charge lenders remain well placed to support a range of borrowing needs. Debt consolidation and home improvements are still generating the highest demand, but in recent times, debt consolidation has been more geared towards creating disposable income and monthly money management in light of the recent cost-of-living crisis.

Buy-to-let In the spirit of maintaining positivity levels, the latest BVA BDRC Landlord Panel research undertaken on behalf of Foundation Home Loans found that landlord confidence across various different metrics has improved over the course of Q3, with many anticipating continued increases in rental yield, a stronger performance

DONNA WELLS is managing director at Envelop

For much of 2023, volumes across a variety of specialist sectors have been fairly robust, although there have been some inevitable ups and downs given the economic climate” from their own le ing businesses, capital gains across the portfolio, and a be er private rental sector (PRS) as a whole. The research also showed that the landlord community had responded positively to the Government’s September announcement not to take forward plans to introduce mandatory Energy Performance Certificate (EPC) levels at Band C and above for all PRS properties. Indeed, 12% of landlords said the Government announcement meant they would be able to stay in the rental market. It’s highly encouraging to see rising landlord confidence, and we’ve certainly seen some steady growth in activity levels from the more professional end of the landlord spectrum, as they adjust to the rapidly changing property landscape and maximise the opportunities to add to their portfolios or divest into more alternative, higher yield property types. Long may these upbeat and progressive trends continue across the whole specialist lending market. ●

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S P E C I A L I S T F I NA NC E Opinion

Search Funds: Could this be what you’re looking for?

uccession is an age-old concern for many small businesses. It can be a challenge to find the right successor to take on the mantle of leadership. Owners want to ensure that whatever the future, it benefits the company and the employees. Meanwhile, the future of small businesses is integral to the economy. Many would-be entrepreneurs are looking for the right opportunity to fulfil their ambitions of running a business, and possess the skills to take it to the next stage. A li le-known but growing trend has taken hold that connects driven individuals with small to medium enterprises (SMEs) exploring succession plans, enabling them to acquire an established business. Many mid-career professionals have a desire to own and run a business. Historically, the barriers are quite high. However, acquiring an already established SME presents an interesting and less risky option. Those going down this path will need to raise equity from their own funds and investors, then find a business to buy, o en engaging with a lender like Shawbrook to add a debt element to the funding package to secure the eventual acquisition. There are lots of factors that must converge for a transaction to happen, so the search period can o en extend to months or even years before a perfect match is found. Then, trust needs to be established and the deal specifics need to be agreed.

Specialist help While the equity raised from investors will support the searcher in their quest to find a business, the searcher will, more o en than not, require

additional support to make the acquisition happen. Specialist lenders have the expertise in-house to support the searcher, by helping to identify the fundamentals needed to secure debt. The searcher can build this into their search and deal structuring strategy, reducing the potential execution risk. Clear guidance from a lender, balancing the interests of the searcher, bank and vendor, is invaluable. By working in partnership through the search phase, there is a be er chance of ensuring a flexible funding package that enables the acquisition, and any subsequent follow-on funding to support growth plans. Shawbrook has a strong heritage supporting these transactions, and our team has built up expertise in this growing area of the market. To lend to a searcher, we look for four key qualities: meaningful previous operational experience and a level of transferrable skills; quality leadership skills and a growth mindset; willingness to develop and be guided through the transition process; and adaptability and good cultural awareness. In addition to areas that we consider with any business we lend to, three key elements are particularly important in search transactions: indicators of future success within the business model; an experienced CFO or FD either in place or positioned to take over; and a second-tier management team that is invested, incentivised, and commi ed to the future prosperity of the company. Within the deal structure, we look for three key features. First, a balanced capital structure with a mix of new cash equity, personal contribution, bank debt and vendor rollover or deferred consideration.

OLIVER WILSON is managing director, commercial loans at Shawbrook

Next, we look for an alignment of interests between the searcher, the vendor and the lender. Any deferred consideration due is always going to be subordinated to the bank debt, and managing vendors’ expectations early can save valuable time and stress later. Finally, we look for an agreed management team and strategic plan post-deal. This includes a clear outline of who will be in charge of the dayto-day operations versus developing the wider strategy. For most deals, some vendor handover is helpful, but ultimately it’s best for a vendor to transition out over six to 18 months, to avoid confusion among the staff

Good relations We will also look to understand the longer-term business strategy in any search deal we provide funding for. This involves regular dialogue with both the existing management team and the searcher, in order to ensure there is no sense of discord or cultural clashes. Good relations within these deals are what make them so successful, so talking to and understanding both parties is crucial. Alongside this, constant honest and open communication is a must, and we expect to be working closely with elements like reporting, key performance indicators, and management information, especially when there are other parties such as investors involved. Search Funds, or Entrepreneurship Through Acquisition, are still a nascent strategy in the UK, but could be suitable for many aspiring entrepreneurs and businesses. The route can be long, but specialist lenders are on hand to support. ● December 2023 | The Intermediary

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In Profile. Tuscan Capital

The Intermediary speaks with Jaxon Stevens, sales director at Tuscan Capital, about how the firm is facing the future, and why now is the time to broaden brokers’ horizons

axon Stevens has enjoyed a wideranging career in finance from the moment he entered the workforce, including running national sales teams, building up both broker and packager experience before moving into the lender space, and developing his knowledge across mainstream and specialist fields. In September 2023, he joined short-term finance lender, Tuscan Capital, as sales director and a key component of its push to revolutionise its sales approach. The Intermediary caught up with Stevens to look at how the first months of his tenure have progressed, the exciting times ahead for Tuscan, and why he is passionate about spreading the specialist message.

Changing minds

Throughout a varied career, Stevens noted a key concern about the specialist market, in the simple fact that even people involved in the property market simply lack awareness and understanding. “I took it upon myself to raise awareness over the past decade,” he says. “I’m passionate about making people realise the potential options available for each and every client. There’s often a bit of creativity needed, some outside-of-the-box thinking.” This is a core part of his approach to running sales teams, installing the knowledge in those around him to get the message across on a larger scale, and building a broad network of brokers and other third-parties. “It’s always about expanding that specialist solution knowledge across the market,” he adds. The push to educate people around bridging is only growing in importance, as the turbulence of the past few years, combined with tightening restrictions from the high street and wider affordability challenges, mean the demand for short-term finance is higher than ever. A dip in mainstream activity also means now is the time for brokers to see where else opportunities might lie. 44

“I’ve been telling people for years about the importance of diversifying,” Stevens explains. “But it has become a necessity in recent years, where ever fewer people are helped by the mainstream, and more of the typical ‘high street’ borrowers have been pushed out of that space and need alternative solutions. “For a long time, you could ignore that space and be fine, still placing enough business with the people in front of you, but certainly in recent times that has been impossible. People have had to look into the specialist space more than ever before.” In fact, while a dip in mainstream residential activity might seem daunting, Stevens’ view is this can be a positive, freeing up brokers’ time to expand their horizons, where before a high volume of deals kept them too busy. This is also where tech comes into play, streamlining the more timeintensive processes that make up a broker’s work, and allowing them to flex their muscles in more meaningful ways. “There’s a lot more tech-led processes in the market now, so a lot more opportunities to create more time for yourself,” Stevens explains. “You can decide to fill that by doing more of the same, but if you’re really listening to your client bank, you’ll use that time more wisely and diversify your knowledge, to be able to help more types of people.” Of course, for many of those whose bread and butter has been the mainstream market, a barrier to diversification is a lack of knowledge – or an assumed lack of understanding – of bridging. “People think it’s too complicated, but then when you talk to residential or buy-to-let [BTL] brokers, their world can be a lot more complex than the bridging market,” Stevens says. “It’s about trying to make people realise the simplicity of some of the solutions that are available, and where they fit.” Stevens adds that for many who do not believe they have clients in need of these solutions, the reality is they do, and in fact, these have become missed opportunities.

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In the past, he adds, this has been fuelled by the fact bridging has been something of a “dirty word.” However, market movements have helped people become more open to the opportunities that are available in the short-term and specialist markets. Still, some of the stigma remains. This may, in part, be due to the image of this being an unregulated market, which in the past was fuelled by some players working in a less than upstanding fashion. One of the key messages Stevens wants to get across, to this end, is that the majority of lenders – and Tuscan in particular – run themselves with the same standards and values as they would if they were functioning in a fully regulated market. The message Stevens wants to get out to brokers not yet familiar with this space is simple: do not be afraid to ask, and do know that lenders are there to help.

Best practice

Opportunities

When it comes to educating more brokers around the many opportunities to be found with shortterm solutions, Stevens points to matters such as refurbishment, complex and portfolio BTL, conversions and houses in multiple occupation (HMOs), to name just a few. These terms, which might have sat on the fringes a few years ago, will be ringing increasingly familiar notes with many brokers. Clients, particularly in the BTL space, are likely looking for increasingly creative ways to increase yield, get returns on their investment, or handle energy efficiency and tenant demand, to name a few. In the residential space, it has been hard to miss the push to refurbish and improve the spaces we live in, particularly as the chance to move up the ladder becomes less certain. It is worth brokers learning about alternative solutions, to be sure that they are the person to help clients reach their increasingly varied goals. “This whole market has grown massively,” Stevens says. “It’s down to introducers to make sure they know what will be best for the clients. If they aren’t offering these solutions, the broker round the corner will be.” He adds: “By knowing about these options, your ears then open up to the potential opportunities. “It’s quite easy to go through a full fact-find with the client and not hear them tell you about a second property wish, or a refurbishment opportunity, because it may not be said explicitly. “But when you know about the options, you are more likely to see the signs where there might be an ‘in’ to the discussion.” Potential opportunities to deploy short-term finance are many and varied across the residential, rental, and commercial markets, from title splits and building on existing properties, to downsizers, HMOs, and multiunit freehold blocks (MUFBs). Stevens says: “Brokers need to be really aware and confident in talking about these things with their clients.” →

Prior to joining the team, Tuscan was already a known entity for Stevens, and he attributes much of this to the clarity of messaging around its clearly defined Tuscan brand. This, he says, is something he is keen to push out further, by getting out in front of more people and growing those allimportant personal relationships, particularly as the lender’s offering fits well with the challenges of the current market. In his first months in the role, Stevens has focused on getting to know the sales team, understanding the skills in place and the potential for expansion and improvement. This also means taking the time to understand the processing, underwriting and credit sides, rather than just focusing on the front end. “It has been excellent to get in and understand the business,” he says. “The sales team is only really as good as the people behind it. You can’t provide certainty without understanding the people, the process, and how it all works. “The team is experienced and has worked together for quite some time. It’s very impressive, which is no surprise. Every part of the business is cohesive. I’m always determined to stamp out any sense of ‘us and them’, internal or external.” This means creating a clear workflow, having an understanding of the parts each team and individual play, and ensuring people know where they stand within a transaction. “Grey areas can lead to internal battles, misunderstandings and miscommunications,” Stevens adds. “Everyone knows their role, from origination to completion.” The plan as he moves ahead with the role is to continue building on this ethos and doing what the firm does well, just for more people. JAXON STEVENS

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Indeed, if there is a lack of knowledge among brokers, this issue is only exacerbated within the wider public, and the potential borrower base, all of which puts more onus on the intermediary.

Breathing space

an alternative to a RICS property valuation and

The market is only getting more complex as time goes on – whether due to political, economic, and social pressures, or simply the evolving nature of the housing industry. 2024 promises more of the same in this regard. “As lenders, we have to keep a close eye on Government changes, for example, and adapt our products and solutions around that,” Stevens says. He points to the Government’s recent decision to push back on Energy Performance Certificate (EPC) legislation, in order to give landlords in particular breathing space. While this may have been met with many sighs of relief across an already beleaguered sector, the education piece has to remain, as those regulations are still on the horizon. Landlords who forget about them and rest on their laurels may well find themselves in dire straits once again. “It has given people enough time to get wise as to how they can help their clients in that market,” says Stevens. “It will become clearer and clearer that the more energy efficient your property, the more competitive products will be available. Meanwhile, landlords have savvy tenants and will do well to offer energy efficient properties.” He adds: “It’s hard to make those changes without spending money, and there are various ways of raising capital. In particular, when it comes to purchasing low-performing stock and bringing it up to the right level, that can be where bridging comes into play. It can also be used to improve stock in an existing portfolio. “Properties that might be unmortgageable now could be viable options with just a bit of shortterm financial help.”

Changing with the times

The next year, much like the last, will be typified by change. One of these things will be a continued realisation that, for many, property portfolios are not performing sustainably. This will lead to a necessity for new approaches, which, as Stevens puts it, “leans heavily into the specialist space.” In turn, he points to the changing shape of the country’s high streets, the shift as businesses find new ways of surviving, and the residential invasion into previously commercial spaces. For the business, the next year will be about building on existing selling points, including its Fast Track bridging service, which utilises automated valuation models (AVMs) and desktop 46

uscan Capital’s Fast Track process, introduced in July 2022, allows an

automated valuation model (AVM) to be used as inspection, where Hometrack data supports the client’s estimated value or purchase price. Tuscan can rely on an AVM up to 70% loan-to-value (LTV) for purchase and 60% LTV for refinance up to £70,000. Higher value properties can also be underwritten with a desktop valuation, while title insurance and search indemnity insurance can be utilised, and credit-approved term sheets can be issued within four hours of an enquiry. Meanwhile, Personal Guarantees, which require all parties to have independent legal advice, are not required on cases at 65% LTV and below. Tuscan’s average turnaround time since Fast Track launched is 41 days, with purchases taking 23 days on average. The fastest deal under Fast Track took just seven working days. AVMs and desktop valuations have been utilised in 35% of all completed cases since July, while loan enquires since Fast Track’s introduction are 26% greater than in the first six months of the year. The firm has seen a 38% increase in conversion rates.

valuations to help cater for those facing a tight turnaround. Stevens says: “We have plans to diversify our offering, continue to grow our education and awareness piece across the UK, keep up with solution-based sales, enhance our refurbishment offering, grow a more competitive commercial offering. “Across the board, these are enhancements to ensure we are simply bigger and better in areas that we are already doing really well.” When it comes to moving forward with Tuscan Capital’s revamped approach to sales, Stevens says that market knowledge and relationships are front and centre. “We want to be on hand to help, so brokers feel there’s nothing they can’t ask us,” he explains. “A call to the team can point them in the right direction and suggest something they might not have thought of, whether that’s a Tuscan product or not. Think of us as a ‘specialist market GP’.” Stevens concludes: “I’m an advocate for industry growth across the board – everyone should be working together towards it.” ●

The Intermediary | December 2023

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CASE STUDIES

Urgent refinance of an Essex conversion project

he applicant originally purchased the property to convert into two flats, but delays with the buy-to-let (BTL) mortgage meant that the current bridging facility was due to expire, which would have resulted in 5% extension fees, despite all works having been completed. John Tarazi from Echo Finance approached Carl Graham, regional director at Tuscan Capital, who ensured the case utilising the lender’s Fast Track product. A desktop valuation was turned around in 24 hours and the case completed in just nine days. Tarazi said: “Tuscan Capital, and especially Carl, moved this case under exceptionally tight deadlines to enable the client to refinance an existing bridging loan. “Carl and the team pulled out all the stops to ensure that we could complete the deal in nine days, which ultimately saved the client a 5% default interest fee, totalling around £15,000.” Colin Sanders, chief executive officer at Tuscan Capital, said: “When we introduced Fast Track we knew that many of our bridging loan customers would benefit from both cost and time savings. “That said, we’re delighted to [release statistics] which provide real evidence of the advantages from using Fast Track.”

Development exit for a Devon holiday let

he client, an experienced developer, obtained planning permission to demolish a former hotel and develop 15 flats on the seafront in Hope Cove, an Area of Outstanding Natural Beauty (AONB) near Salcombe, South Devon. The security consisted of nine units with restricted holiday let use, as well as a manager’s flat within a newly developed three-storey building overlooking the cove. The development also included five residential flats, which did not form part of the security and were sold off on long leasehold titles. Tuscan Capital provided a £3.7m gross loan on a property value of £5.4m at an LTV of 70%. The funds were used to clear the current development finance facility, with the excess to pay off the client’s business partner. Colin Sanders, CEO at Tuscan Capital, said: “This was a particularly interesting deal for Tuscan Capital as the property is a newly developed multiunit holiday let in a prime location in Devon with spectacular sea views. “We could see that the business model was viable and that the ultimate exit for our facility was going to be a commercial term refinance, which was realistic and only a matter of time for the client to establish the revenue streams. “Our loan enabled the borrower to repay the development facility before its expiry and repay an investor; a ‘win-win’ for all involved.” Ed Wylie, specialist finance director at Forecast Finance, said: “When you have an urgent deadline with many moving parts, you need a lender that not only understands the transaction and its complexities but can come up with practical solutions should a hurdle arise.” December 2023 | The Intermediary

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S P E C I A L I S T F I NA NC E Opinion

A delicate dance:

The psychology of business borrowing

n the intricate ballet of the UK’s small business ecosystem, there’s a subtle movement that often goes unnoticed by the casual observer: the dance between a business’ need for funds and its decision to borrow. At the heart of this choreography is a complex interplay of transactional psychology, motivations, and emotions that shapes a narrative and drives financial decisions. Borrowing decisions carry a weight of expression, emotion, and intent. There’s a story to be told, with a beginning rooted in necessity, a middle filled with evaluations and decisions, and an end that either elevates the enterprise or leads to a series of new challenges. At the centre of this intricate performance is the broker – the choreographer, if you will – orchestrating a broader dance between the business and the lender. The broker not only understands the rhythms of the market, but also the deeper psychologies at play, ensuring each step is taken with precision and purpose. Significant studies have delved deep into the nuances of borrowing, attempting to decipher the underlying motivating factors. Beyond just the tangible – like interest rates and terms – lies a realm of emotions: fear, hope, ambition, and sometimes, desperation. How does the spectre of past financial downturns influence a business owner’s decision

to borrow now? What role does peer pressure from industry competitors play? In an era of viral success stories, how much is the decision driven by the dream of rapid expansion and the allure of headlines? As we waltz through this feature, we’ll not only explore the broader elements of transactional psychology, but pirouette closely around the nuances of borrowing money. We’ll seek to better understand both the subtle and not-so-subtle factors that push businesses towards, or pull them away from, the decision to borrow. So, get on your dancing shoes, and let’s embark on a journey to understand both the art and the science of business borrowing, where each step, leap, and turn beneath the proverbial glitterball carries implications far beyond the dance floor.

Recognising the rhythm Within the small business sector, there exists a palpable energy that underlies financial decisions. The tempo is often set by growth ambitions. Indeed, last year’s National Association of Commercial Finance Brokers (NACFB) survey findings confirmed this, revealing that a staggering 88% of businesses borrowed to enable their growth aspirations. But what causes the owners to tap into the rhythm of external financing to realise their dreams? At the heart of every business beat, especially in the initial stages, is the

NORMAN CHAMBERS is managing director at the NACFB

aspiration for more. Each grand jeté and pirouette in the world of business corresponds to expansion steps, be it scaling up operations, entering new markets, or investing in innovative technologies. As the music evolves, the subtle hints of physiological triggers begin to make their presence felt. The dancefloor of business decisionmaking is illuminated by both cognitive and emotional lights. Cognitive rationales often begin with the basic acknowledgment of a market opportunity: a gap that beckons, a new niche waiting to be explored, or perhaps the allure of a broader customer base. However, merely recognising an opportunity is like knowing the steps but not feeling the rhythm. Then comes the emotional impetus. This could stem from a deep-rooted desire to be the best in the industry, perhaps a personal goal to achieve a landmark turnover, or maybe the simple thrill of seeing one’s own creation flourish and bloom. The pride of scaling, the vision of a legacy, or even the hunger to surpass competitors, can all be profound motivators. Even as the steps seem clear, there is a critical juncture: the need for resources. Capital is the oxygen that can ignite the spark of ambition into a roaring flame of success. Bootstrapping can carry the rhythm to an extent, but there is a point where external funding is the only viable key.

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S P E C I A L I S T F I NA NC E Opinion

Aligning steps Intermediaries must find the perfect balance between the undulating needs of borrowers and the rhythmical preferences of lenders. This alignment is more intricate than one might imagine. The borrower’s needs might be in seeking flexible terms or capital to navigate a risky market venture, while the lending market’s cadence often beats to the tune of risk aversion, seeking assurances and solid returns. Bridging these two melodies requires not only expertise, but also an intuitive understanding of the nuances. Selling professional services carries a different psychological pulse than selling traditional products. While tangible products resonate with the senses – what one can see, touch, or feel – professional services, such as financial intermediation, are intangible, their value often resonating with trust, assurance, and the promise of potential. When selling professional services, there’s a heightened emphasis on relationship building – less a flamenco’s fiery passion and more a tango’s intimate trust. Clients seek confidence, credibility, and the promise that their needs are understood. On the flip-side, selling to lenders, especially in today’s ever-

cautious economic climate, is like performing a precise ballet, where every step, every leap is calculated and risk-assessed. The very best intermediaries attune themselves to the subtle undertones of both sides, understanding the emotional and logistical nuances. They’re not just matching numbers; they’re aligning beats, rhythms, and most importantly, expectations.

The final curtain While sales skills are undeniably an essential part of a broker’s repertoire, it is crucial to understand that the role of intermediation transcends mere salespersonship. In financial transactions, the commission earned by a broker may appear at face value to be a nod towards theirs being a more salescentric approach. However, broker commission should be viewed as earned remuneration, a just reward for the meticulous groundwork, diligent due diligence, and unwavering support provided by the intermediary. It’s the compensation for their expertise and efforts in turning potential obstacles into seamless choreography, transforming a hesitant ‘no’ into a confident ‘yes’. There’s no denying that there exist some who can best be described as

mere lead generators for lenders. Their modus operandi involves passing on rudimentary client contact details and swiftly moving on to the next potential lead. However, such entities, while perhaps performing a service, lack the depth and commitment that truly defines a broker. They miss out on the profound intricacies of the dance, and in doing so, will simply never embody the standards and values upheld by bodies like the NACFB. The true art of advisory intermediation is not in the brief encounters, but in the enduring relationships. It is found in the painstaking hours devoted to truly understanding an enterprise, meticulously examining profit and loss statements and balance sheets, and getting into the granular details of a business’ operations. Beyond just the numbers, it’s about grasping the very dreams and ambitions of the business owners. The dance of a high-quality broker begins long before any product type is considered, and well before any lender is approached. As the music plays on, the successful intermediary leads this dance with elegance, ensuring both parties move in tandem – every step, twist, and turn is crucial for the final bow to be one of shared success. ●

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T E C H NO L O GY Opinion

A change in the rules means more change for systems

ealing with change is part and parcel when it comes to running a lender, but the amount of change the market has seen over the past three and a half years has been particularly testing. It’s showing no sign of slowing, either. The Financial Conduct Authority’s (FCA) Consumer Duty rules must be fully embedded by the end of July next year. Though net zero deadlines in the rental market have been pushed back, lenders are mindful of the pressing need to develop systems that allow for environmental risk assessment. The rate environment is also constantly moving, with retail mortgage rates hostage to market sentiment now more than ever. The task on the horizon is to adapt systems to allow for new implementation of the Basel 3.1 standards, outlined in the Prudential Regulation Authority’s (PRA) consultation paper CP16/22, published in November 2022. The rules were due to come in from January 2025, though this has recently been pushed to 31st July 2025. Yet even with the additional six months to prepare, the timing is tight – particularly for lenders still to invest in systems that will cope. The Basel III reforms materially change the way a number of risk weightings must be calculated, requiring a significant shi in capital allocation, and as such, the profile of new origination. Though the final implementation is 18 months away, to be compliant by then, lending strategy today ma ers. The ability to flex that strategy is also vital, given the final rules are still to be published following consultation with the industry. The proposals are many, and too detailed to list in full here, but there

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are some key changes which may or may not happen, which could have a huge impact on operational systems.

Agile strategies The PRA suggests that the valuation of security should be embedded at the point of origination, with valuations reset at remortgage at the end of a fixed term. Revaluation will also be required when: an event occurs that results in a likely permanent reduction in the property’s value; there is a significant decrease in the market value of the property as a result of a broader decrease in market prices; modifications are made to the property that unequivocally increase its value. In these instances, firms would be required within a reasonable time to obtain an updated valuation that confirms the new value of the property. Particularly significant is the intention to require firms to base a property’s valuation on “prudently conservative valuation criteria,” with this valuation needing to be “undertaken by an independent valuer who possesses the necessary qualifications, ability, and experience to execute a valuation.” UK Finance has objected to this, arguing the need for continued use of automated valuation models (AVMs), but lenders must wait to find out which approach must be implemented come the final rules. Another potentially significant change is to impose different risk weight treatments on borrowers with more than three mortgaged properties dependent on cashflows generated by the property.

JERRY MULLE is UK managing director at Ohpen

The borrower’s primary residence is excluded from this threeproperty limit, unless any charge on it is dependent on the cashflows generated by their property portfolio. Additionally, where a lender becomes aware that the borrower has breached the limit subsequent to its own origination, the risk weighting must be changed. This will require residential lenders to have oversight of a borrower’s other real estate exposure – a change imposed on buy-to-let lenders in 2015. Furthermore, risk weights relating to loan-to-values (LTVs) look likely to become much more nuanced, assigning higher risk to higher LTV exposures throughout the lifetime of the loan. To quote the PRA: “Residential real estate exposures that are materially dependent on cashflows generated by the property, firms would be required to risk-weight the whole exposure amount of such exposures using the relevant risk weight determined by the LTV of the exposure. Risk weights for these exposures would range between 30% and 105%. In cases where the firm has a junior charge and there are senior charges not held by the firm, the risk weight would be multiplied by 1.25 (unless the LTV is ≤50%, in which case the multiplier need not be applied).” The effect on capital adequacy is significant. To meet the new standards, the effect on lenders’ systems will be just as significant and the changes will need to be made swi ly. Operational technology is a constant work in progress, and you need to make sure your platform can deliver as such. ●

The Intermediary | December 2023

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T E C H NO L O GY Opinion

2024: The year tech makes a real impact

his is the time of year when most businesses look to make their plans for the coming year and consider the external factors that they need to take into account. In the bridging and wider shortterm lending market, lenders in 2023 have made more use of automated valuation models (AVMs) and desktop valuations, which – rather than being used in a minority of cases as at the start of the year – are becoming the norm for loans where loan-tovalues (LTVs) are around 70% or less. As AVMs are becoming more widely accepted, we can expect more lenders will offer these, and desktop valuations, in 2024. Of course, with the economic situation still uncertain, lenders are unlikely to increase the LTV threshold in 2024, as property prices remain precarious. Any sustained downturn would lead to a return to conventional ‘eyes on’ valuations. Of course, the biggest incentive to adopt AVMs has been brought about by the pressure from brokers and their customers to speed up the whole process from enquiry to completion. Bridging used to be known for its speed of process, but external factors – such as lenders becoming more cautious, especially in light of the effects of the cost-of-living crisis on client affordability and reduced creditworthiness – have had a marked effect on completion times. Lenders have also had to respond to the demands of regulation, regardless of whether they offer regulated or unregulated loans. This has put more pressure on them to make sure that they are only agreeing loans where the customer has been properly assessed, and that the exit strategy to repay the loan is sound. The adoption of AVMs is seen as a way to reduce the time it takes to get to completion, and further moves

towards more automation are going to be seen in 2024.

RANJIT NARWAL is head of origination at Kuflink

Increasingly intelligent Artificial intelligence (AI) is going to really make itself felt next year. We are going to see more lenders adopting AI as a means of assessing risk and checking creditworthiness. The days of manual checks via payslips and P60s and separate credit checks are likely to be numbered. The second innovation that will become more widely adopted by lenders in 2024, is automated income verification and credit checking. It will revolutionise the way that lenders can assess a prospective borrower’s financial position, by providing verification of up to date income and confirmation of other information, such as the employer’s name, employment status and time on the job. Of course, access to banking information will be dependent on individuals signing up for Open Banking, which means giving personal permission to a lender to check their financial situation in real-time. Open Banking will not be for everyone, particularly those who are sceptical of the dangers of data breaches. However, pressure to conform will come from the desire to see more timely completions, and that will be weighed against any security considerations. Having Open Banking permissions established will allow more lenders to streamline underwriting processes and make the journey that much faster. As we prepare for 2024, figures from the Association of Short Term Lenders (ASTL) show that the steady upward trend in the bridging sector this year has continued, in contrast to the first charge market. ASTL members’ loan books grew by 2% from July to September this year, to total £7.3bn – another record.

Open Banking will not be for everyone, particularly those who are sceptical of the dangers of data breaches. But pressure to conform will come from the desire to see more timely completions” This is the second consecutive quarter that ASTL members’ loan books have exceeded £7bn. The ASTL says the figure is 18% higher than the size of bridging loan books a year ago. According to Vic Jannels, CEO of the ASTL, the versatility of bridging finance is being recognised by a greater number of advisers and their clients. They are more aware of the possibilities offered by bridging finance, especially in one of its primary roles of financing a period of transition, particularly in an uncertain economic environment. Jannels also said that the other major reason for growth in the sector was because bridging was becoming more professional and building a strong reputation for both customer service and a robust approach to risk management. With the wider adoption of new technology allied to a greater understanding of the lending possibilities that bridging offers, 2024 could prove to be the best year yet for the bridging market. ● December 2023 | The Intermediary

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In Profile. MPowered Mortgages

The Intermediary speaks with Stuart Cheetham, CEO of MPowered Mortgages, to see how the firm is going about transforming the mortgage market

ith a background that spans not only banking – including as chief executive for Asia at Lloyds – but also sales and marketing, Stuart Cheetham has an insight into the workings of many business elements, and perhaps more importantly, an ability to spot where change is sorely needed. In setting up MPowered, and its partner business MQube, which owns the proprietary artificial intelligence (AI) and tech solutions, he took a fresh approach to the work of providing mortgages. Cheetham says: “We saw where there were areas that lacked innovation, and mortgages stood out by a country mile. We built this technology in order to work with people and transform the mortgage market.”

Room for improvement

The property finance market has taken a mixed approach to technology and advancement. Some corners take to new systems relatively well, but others hold fast to their physical filing cabinets and clunky ExCel spreadsheets. Cheetham suggests this might be a matter of understanding: “Most people get that AI is now here and is going to transform our lives. Very few people really understand what it is, and very few businesses have put it into any real commercial use, outside of the really big tech companies. There’s very little adoption of genuine AI in regulated financial services, in particular.” However, this has not deterred the business, and Cheetham is confident that many aspects of the mortgage market are crying out for a revolution. “AI will help with small jobs that humans do today that slow down a massive operational process,” he says. “Machines will do this better, and the whole thing can be sped up and made more easy. Through MPowered Mortgages, we prove this to the marketplace – here is AI improving the experience for borrowers and brokers, and reducing the cost for lenders. 52

Business progress

2023 was the firm’s first full year in the residential sector. Having gone whole of market in Q1 and extended its range up to 90% loan-to-value (LTV), with fee assist products set to launch, Cheetham says the goal is in sight to stand as a competitor for the top six prime lenders. He says: “We’ve significantly increased volume within the business in a very difficult year, seeing great levels of growth. Of course, we’re a new entrant starting from a smaller base, but we have continued to grow month-on-month. That’s because, overall, our proposition has been strong. “We are a prime lender going head-to-head with the top six, we’ve been able to price competitively despite it being a very difficult market. We’ve expanded distribution and the product range.” Being a younger lender has its benefits in a turbulent market, giving MPowered Mortgages the chance to make agile changes to meet quickfire challenges. However, being lesser known has its own challenges – namely, brokers have to work harder to ‘sell’ a new name to their borrowers. “There’s pros and cons for everything,” Cheetham explains. “Our tech is far more flexible, we can reprice in hours, launch products, and release new functionality weekly rather than yearly. The other side of it is that this is a brand that is, as yet, not so well known. But we’re a very well-backed fintech, with equity shareholders that absolutely understand the UK mortgage market, and back us to transform it.” Being tech-focused does not mean throwing caution to the wind in favour of innovation. In fact, until recently, the firm’s tech was not a standalone, fully automated proposition. Cheetham says: “We’ve been working behind the scenes perfecting and parallel running the technology, so we’ve never at any point until now allowed the tech to run completely independently. “This is part of the process of being able to prove to regulators, funders and investors that we’re being very sensible about how we’re bringing tech to the marketplace. “What we will see over the coming weeks and into 2024, is genuine tech that can highly – if not

The Intermediary | December 2023

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I N P RO F I L E

fully – automate the mortgage process.” MPowered Mortgages’ application form takes around 10 minutes, and in that time collects 19,000 data points, pools 28 application programming interfaces (APIs), and reads documents instantaneously with the use of AI. This allows the firm to underwrite and assess in realtime. However, all this automation is underpinned by a confidence scoring process to ensure the right data is being collected and analysed correctly, and ultimately goes through to a human being, who tests and checks that the system is making the right decisions against various risk scores. Cheetham says: “It’s quite a complicated process. There’s no one ‘big bang’ moment, there are little bits of incremental increases. What we’re seeing now is the ability to genuinely bring humans out of the process, and only put them on the bit that we haven’t been able to automate.” This does not mean removing the human element entirely. Again, Cheetham notes that this is an area that needs greater understanding within the market, to ensure that people are not wary of taking up new tech. “There’s no magic bullet,” he explains. “AI does very precise tasks, is laser-focused, and you can point it and know exactly what it’s doing at every single point. It’s doing things like confirming if something is a payslip or a bank statement, identifying payments – those operational tasks that cause queues.”

Broker tools

A key focus in 2024 is reaching out to mortgage brokers and helping them understand that AI exists to help and enhance their work, rather than strip it away. The firm recently launched ‘marketing assist’, which utilises large language models to help brokers generate better content for their marketing materials. Prior to that, it launched Criteria GPT, which allows users to ask complex criteria questions. Through this, MPowered has automated about 98% of broker queries, allowing users to have their questions answered instantly at any time of day. Future projects along these lines include allowing brokers to automate the expenditure part of their fact-find, saving brokers potentially up to 30 minutes on each mortgage application. “What we’re trying to do here is help educate the market, not by standing up and doing speeches, but by giving people genuine tools they will use and learn from,” Cheetham says. “While this is going to change the way they work, they’re not going to become redundant, AI STUART CHEETHAM isn’t going to take advice over.

We want to work with brokers and lenders to help them understand through practical tools to transform the market.” This transformation is also driven by the added regulatory pressures of Consumer Duty, which adds complexity to an already difficult job. This adds to the need for better data, strong analysis, and tech-enabled tools to find the best product. “We want consumers to be treated well and get the right deal,” he adds. “More data is better than less data, but we have to consume that data without destroying our service proposition. “As Consumer Duty beds in, the need to have clear data trails is going to become more important, for lenders and for brokers, and that plays to our core strategic goal, where we make all data machine readable and accessible.” Cheetham looks forward to a greater market understanding of the power of tech and AI, not just because of the wider trends pushing for more of this innovation, but due to the practical demonstrations shown by MPowered. “We haven’t let our tech run at full speed yet, so I wouldn’t expect people to properly understand it until next year,” he explains. “We are switching that on right now.” However, it is clear that the market is ready, and perhaps more receptive, due to some of the recent wider trends, the most notable being ChatGPT. “All of a sudden, here is a super user-friendly interface, that looks like it’s magic,” Cheetham says. “It’s highly unpredictable and very ‘blackbox’ – you would never deploy generative AI like that into a highly regulated environment – but it has set the imagination alight, so the interest is high and people are genuinely curious.” In 2024, Cheetham plans to take this initial spark and use it to fuel further growth for the business, as people come to understand the value of its tech-driven approach. The next six months will be a time of innovation for MPowered and MQube. One of the developments is the ability to start providing contractual offers at the point of submission, doing more to fully automate the process, as well as integrating tech further into the fact-finding stage. This, Cheetham says, is the direction the market should be moving in, doing away with decisions in principle (DIPs) and ensuring that the broker is “in control of the process.” He concludes: “We are a transformational partner for brokers. We give them tech to make their lives easier, transform their processes, become more efficient, and cut costs. It’s a difficult market, and we give them products that are genuinely the best options to recommend.” ● December 2023 | The Intermediary

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T E C H NO L O GY Opinion

Changing tech requires robust planning

ortgage brokers are familiar with lenders’ origination platforms, as making mortgage applications is a big part of the job. Once the mortgage is completed, that is o en the end of the broker-lender relationship for that particular case, until perhaps a remortgage is due. Do you know what happens to that mortgage once you are no longer involved with it? Do borrowers ever contact their broker if they have a query about their mortgage post-completion? I believe it is helpful for brokers to understand the whole mortgage process, even the parts they are not directly involved with, as having a holistic picture improves knowledge. Most borrowers use a broker for mortgage advice and to apply for the loan. Some clients even turn to their brokers later on, perhaps to enquire about how much it would cost to redeem their mortgage, as well as late payments and arrears. Although these types of queries are for the lender to answer, if brokers can explain how things work, they are providing a holistic service.

Servicing systems Once the mortgage is live, it is processed on servicing systems, and o en the technology behind the origination and the servicing is run by different firms. The reason for this is that lenders want ‘best of breed’ for the customer journey, and some firms are be er than others in the different disciplines. At Phoebus, we run the back office or servicing so ware for many lenders, but we don’t cover originations, which means we

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NEIL DYKE is chief technology officer at Phoebus

can concentrate on what we do best. Technology is evolving all the time, and with almost 35 years of experience, we have developed robust and innovative solutions for our clients.

Legacy to state-of-the art As a broker, have you ever changed your systems provider? Would you rather stay with legacy technology that is slow, inefficient and no longer fit for purpose? You would probably say you want good, fast, state-of-the art systems in order to be efficient and remain competitive. It’s the same for lenders, but moving a mortgage book from an old system to a new one is complex and fraught with myriad processes that can go wrong. A er all, the two operating platforms will be completely different. This is one of the main reasons lenders are apprehensive about changing servicing providers, due to nervousness around the migration process. All of the data must be moved seamlessly from the source system to the new platform, and matched up. Data fields such as account numbers, customer addresses, products, interest rates, payments, etcetera, must be cross-referenced so it is all accurately migrated. Ultimately, a er the migration has been carried out, business must continue as usual the following day.

Planning is key The key to a smooth and successful migration of mortgage data is the same as taking on any new technology: confidence in the capability of the platform, coupled with the skill of the people within the firm, and communication between teams, while having a clear plan is of paramount importance.

Any firm buying in technology should talk to the so ware provider and ask questions so you know exactly what will happen and when. Ask what potential challenges there will be, and how they will be tackled. It is absolutely crucial to have a detailed schedule of events, regular communication and progress updates.

Dress rehearsals Another critical part of moving to new technology is the testing phase, especially when migrating data. What you start with and what you end up with a er the migration has to be the same. So, ask about the documented testing strategy, will there be dry runs and dress rehearsals and how many will there be? You also need to ascertain what will happen if things go wrong and the accounts don’t match up. There needs to be an exit plan for the onboarding process so minor issues can be fixed then re-run, or to allow time to stop the process, analyse the issues, and re-run the onboarding later. This involves taking a snapshot or copy of the system before any boarding activity starts so you can roll back to the starting point. These are just some of the issues firms should consider when moving data to a new, more efficient platform. Planning, communication, trust and honest dialogue should be top of mind. The resulting improvements and benefits of the new technology will be worth it. ●

The Intermediary | December 2023

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T E C H NO L O GY Opinion

All about the user: Modular mortgage platforms

nnovators usually develop new products because they have spo ed a gap in a market, or they have a passion for something they want to do. O en, though, li le thought is given to the end user, and their requirements and experience. Most tech developments focus purely on the product –what it’s going to do, the features and functionality. Too o en, the people using the system don’t find it intuitive. At best, the user doesn’t utilise its full capability. At worst, the user becomes frustrated, because the tech isn’t intuitive or doesn’t do what they want. Having conducted hundreds of hours of user interviews, at Target we decided that the priority was pu ing the users first. The starting point for any system or technological development should focus on their needs and requirements. A er all, we want the user to not only have a positive interaction with the system, but for it to fulfil their needs. Focusing on user-based design is the way to achieve this. This involves careful research in order to really understand what the user needs from the technology. It also means studying the way users respond to the system. Do they find it intuitive? Can they navigate it easily? Do they know where to find help should they require it? A user will react more positively to certain colour pale es and formats. Ideally, behavioural scientists should lead this early research. When behavioural scientists and user interface (UI) or user experience (UX) designers have established the requirements, they can then work collaboratively with the developers to create the optimal technology solution for the end user.

KATIE PENDER is managing director at Target

Evolving prospects Once the system is completed and in the public domain, it is not enough to stop there. Pu ing the users’ needs and wants first must be ongoing. Things change constantly, so the product needs to undergo continuous improvements and reiterations. This process requires constant feedback from users and customers. Looking ahead, as the demographics shi and millennials start to make up a bigger part of the workforce, technology and tech products need to adapt. A change in appetite and ambition is needed. There’s increasing awareness within the financial services industry, and the sectors that support it, that customer needs should be at the centre of the ecosystem. Fundamental market forces like digitalisation, propagating platforms, and social change have all expedited this need for change. Customers are looking for similar user experiences to those they access in the retail sector. They want multiple channels and products, suited to their needs and desires, available at their convenience. But it is also important to remember that, in many cases, they don’t realise what it is they want. Any product will need to be as easy to use as TikTok or Instagram. If not, we are likely to find that customers move to something that is. At the same time, this trend needs to be balanced against the risk that older people will feel excluded if they cannot use the tech. The market must move away from legacy tech – a real issue in the mortgage market, particularly in some bigger organisations. This is tech that was probably cu ing edge back when it was developed, but which has gone beyond the point where it can

be further developed as it needs to be. Many lenders are tied to huge systems which require constant workarounds. Technology needs to be easy to use, and easy to update fast. Covid-19 was a perfect example of this need. Overnight, everyone had to work from home and the technology had to be optimised for this. No one knew this was going to happen, but we all had to pivot to change our working habits quickly. Those whose systems didn’t support this really suffered. The world continues to evolve rapidly. The environment in which we live and work is becoming more uncertain, and we must continuously scan the horizon, not only for what is happening in our sector, but in other sectors that could affect us, too. It is essential we plan ahead, not to cater for the a ershocks of the last crisis, but for new events yet to happen.

Build the future A modular system is the way forward. Individual parts of a system can stand alone and be developed as required. Rather like Lego, the system can be toggled on or off to meet changing needs and advances in technology. It is also key that systems integrate with one another, even those built by different companies. To quote the poet John Donne: “No man is an island, entire of itself, every man is a piece of the continent.” As we all interconnect as businesses, our systems need to interlink and continually adapt so the people using them can do their jobs be er. As a result, our companies – and the mortgage industry – will continue to thrive and become more successful. ● December 2023 | The Intermediary

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P RO T E C T I O N Opinion

The next big move is embedded value for brokers

n the aftermath of the Global Financial Crisis, mortgage lending dropped significantly. The demise of sub-prime loans, self-certification, and for several years, discount rates and interest-only mortgages, spelled the end of the lending bubble. It was a ‘new normal’ and a turning point for the industry, as well as for the structure of the market. Previously, mortgages had virtually written themselves. By 2010, getting applications approved was hard work. The domino effect of lenders, packagers and brokers that went to the wall between 2008 and 2010 was astounding. Banks and insurers keeled, while Lehman Brothers all but decimated the market. For the intermediaries who remained – around half – understanding how to build a profitable business took acumen. New models sprang up. Distribution consolidation became a race to snap up the best firms, but crucially, networks began to rethink how to protect themselves from too heavy a reliance on a skinny margin retained from adviser procuration fees. A notable model was Mortgage Advice Bureau, which became so robust a financial model that it was able to float on the Alternative Investment Market. Its income sources were diversified by sector, with a focus on cross-selling protection against every mortgage. Unlike proc fees on mortgage business, which was one and done – and still is for the most part – commission paid on protection repeats annually. In turn, because clients are less inclined to change income protection, critical illness cover and life assurance due to resets leading to the exclusion of previous conditions, that ongoing

commission income lasts years. It embeds value in the business, making firms far more attractive to potential buyers. Rather than depending on ebbs and flows in lender appetite or funding availability, a business throws off cash reliably and regularly. Given that the UK mortgage market has been built on refinancing every two or five years, proc fee income comes in fits and starts. The game is to ensure client retention. There have been multiple efforts to shift the dial on this, with brokers calling for trail commission, even in 2006 when there was no shortage of new applications. Until lenders began to pay product transfer proc fees, the notion of trail commission on mortgage business remained just that: notional. However, I’d suggest that we’re in another ‘new normal’ now. The rapid rise in interest rates, above target inflation, and stubbornly high house prices have conspired to move the market significantly. Estimates put the volume of product transfers at around a third in the mid-2010s. Lucky for brokers, there is a proc fee on offer, but transfer fees earn between roughly 15 basis points (bps) and 30bps. There are a few examples of 50bps, but that’s rare. The reality is that mortgage intermediaries are, once again, at a nexus point. To remain consistently profitable they need to embed value. Selling protection is tried and tested, but there is now another option. The reason protection providers justify paying a trail commission is two-fold. First, it is a powerful disincentive to advisers to ‘churn’ business in order to maintain a steady income. Second, insurance policies are long-term products. Life cover typically aligns with mortgage term at a minimum. Mortgage terms rose as

TIM HAGUE is managing director at Sagis

house prices became less affordable, even when rates were rock bottom. It is now normal to take a mortgage over 30, 35 and sometimes even 40 years. As borrowers remortgage from low fixed rates, extending the loan term to bring monthly repayments down is increasingly common. Sceptics of the long-term fixed rate have long argued that it cannot work in this country, but given the economic circumstances – and in particular the reality of just how painful an affordability shock can be – the tide may be turning. New propositions which embrace this are built for it. Based on its historic model, the mortgage intermediary market is not. That is changing, and is being made plausible as a result of rising demand for propositions that offer longer-term fixed rates. Firms now have an option to benefit from the same recurring income model their counterparts in the insurance market already enjoy. The time is ripe for this approach from a regulatory perspective, too. The Financial Conduct Authority’s (FCA) Consumer Duty rules require firms to ensure good consumer outcomes. The security offered to borrowers fixing for the term of the mortgage is compelling seen through this lens. The introduction of alternative models is about levelling the playing field to benefit the borrower and broker by taking away any disincentive from recommending longer-term products, and rewarding brokers for providing an ongoing service throughout their client’s mortgage life. ●

The Intermediary | December 2023

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P RO T E C T I O N Opinion

Embracing the protection conversation

here’s nothing new in the statement that mortgage intermediaries could, and arguably should, be writing more protection business. I’m not an expert in this field, so this isn’t a piece about how, where and when this kind of business can be generated. However, this is a gentle nudge to highlight that ignoring a clients’ protection needs will mean advisers are not only missing out on a regular income stream – which can also add considerable value to a business if there are any future exit strategies in the pipeline – but also in delivering a stronger duty of care in an uncertain economic climate. That’s why we teamed up with iPipeline early in our development plans, with an integration of their system into OMS, and have also just added UnderwriteMe.

Difficult discussions During a period where the number of tough client conversations has been exacerbated, the protection discussion will remain one of the tougher ones, but it is hardly the outlier of times gone by. We also know that many homebuyers and homeowners are only likely to speak to one financial expert, and this simple fact continues to place mortgage intermediaries in prime position to either address their clients’ protection needs directly or, at the very least, have a referral process in place. A er all, it’s not like mainstream mortgage related enquiries are flooding through the door like they have in recent years. This means that intermediaries have to look towards servicing some of the more specialist areas of the mortgage market and

ancillary product types to help bolster income streams. This was evident in recent findings from PRIMIS Mortgage Network, which revealed that its product desk had experienced an increase in enquiries relating to protection. In particular, the desk was dealing with more pre-underwriting enquiries, o en around complex medical conditions or family history. This was alongside a continued increase in cases around mental health issues, stress and anxiety. It was also interesting to see the findings from a recent Protection Masterclass held by a well-known independent financial adviser (IFA) outline the three top learnings and outcomes from a endees. The most prominent of these was said to be the importance of a personalised follow-up to the

It’s not like mainstream mortgage related enquiries are flooding through the door like they have in recent years. This means that intermediaries have to look towards servicing some of the more specialist areas of the mortgage market and ancillary product types”

MELANIE SPENCER is business partnership and growth director at One Mortgage System (OMS)

initial client meeting. Next up was to ensure the client was offered three options and quotes when discussing protection, followed by using pre-prepared templates to explain the benefits of protection and possible outcomes.

Managing client data These responses were of particular interest, as they could all be generated and supported by a fully immersive end-to-end customer relationship management (CRM) solution. A solution like this could help advisers to: be er store, manage and interpret client data, in addition to diarising and personalising those all-important follow-up conversations; filter through relevant information and source clear options to present during the client meeting; and make the preand post-sales process more efficient and effective in a more consistent and formulaic manner. With many homeowners only likely to speak to one financial expert, mortgage intermediaries remain in a strong position to provide support to these clients when and where they need it the most, and technology can help. A good CRM system should serve to enhance the advice process in a cost-effective manner, and arm intermediaries with all the necessary information, support and confidence to embrace the protection conversation – as well as other difficult and complex topics – rather than shying away from them. So, what’s stopping you? ● December 2023 | The Intermediary

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P RO T E C T I O N Opinion

Driving home

s we approach the end of the year, thoughts inevitably turn to delicious food, sparkling decorations and exciting presents. Spending time with family and friends over the festive period just heightens those sentiments. On my Christmas list, aside from a Terry’s Chocolate Orange, is a wish that protection gets the attention it truly deserves in 2024. If you haven’t had time to read the Association for Mortgage Intermediaries’ (AMI) latest ‘Perception Gap’ report, it’s well worth grabbing a glass of mulled wine, or your tipple of choice, and spending time digesting it. This year’s study surveyed 3,000 consumers and covers a wide range of topics with detailed insight. I could highlight many statistics, as it was incredibly informative, but there were two which have really resonated with me. The first is that 31% of consumers would prefer to buy protection via a

The need for

price comparison website, but younger generations – 22% of Gen Z and 26% of Millennials – are less likely to prefer this route compared with older generations – 33% of Gen X and 35% of Boomers. Second, nearly one in four (24%) Gen Z consumers said they would prefer to interact face-to-face, compared with 21% of all adults. However, one in five consumers struggle to identify any benefits of using an adviser for protection. These findings highlight that we need to do more to showcase the role advisers play in helping consumers pinpoint the appropriate protection products, compared with a comparison site, which will provide them with the product they asked for, and not necessarily what they may actually need or should consider.

Christmas wishes My hope and wish for Santa is simply that 2024 is the year that, as an industry, we embed protection into our businesses – and not just because Consumer Duty rules require us to.

Despite consumer finances being constrained through a combination of a cost-of-living squeeze, increasing interest rates and rising unemployment, there has never been a more important time for people to ensure they have adequate protection in place. This year has been focused on refinance, and this trend is set to continue in 2024. We have seen a swing towards product transfers where, anecdotally, it appears that having a protection conversation is less likely. As the cost-of-living crisis continues to impact us all, we have thankfully only seen a minimal number of policy cancellations, with providers putting support measures in place in case customers need it. Now is the time to draw attention to all the value-added benefits available within existing policies, making the cover already in place relevant today through services such as digital GPs, healthcare checks and even added extras such as cinema tickets or discounted spa days.

The Intermediary | December 2023

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P RO T E C T I O N Opinion

for Christmas protection New year, new business The work the industry has undertaken in conjunction with the Income Protection Task Force (IPTF) to raise awareness around income protection has been encouraging, and we’ve seen a 31% increase in policies written in the first half of 2023, compared with the same period in 2022. This shows that consumers do recognise the need for these products, with a strong sense that the furlough scheme – launched as a solution for many throughout the pandemic – has made people acutely more aware of the need to support their income in case the worst happens. The Exeter’s Health & Financial Fears report shone a light on the difference in perception between the average cost of an income protection policy versus a consumer estimate, where people believed that an average policy cost 42% more than the actual figure. Without the guidance of an adviser, customers may immediately view income protection as too expensive and not worth exploring further.

Now is the time to draw attention to all the value-added benefits available within existing policies, making the cover already in place relevant today”

STEPHANIE CHARMAN is strategic relationships director at Sesame Bankhall Group

All of these statistics highlight the need for greater consumer education around the benefits of protection and the value it can bring. This, of course, is something which the advice community is already well placed to undertake. With the protection gap in the UK totalling £2.4trn, there is a huge opportunity for advisers to not only bolster their advice services, but to do so while ensuring that consumers receive the right outcome. ●

December 2023 | The Intermediary

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S E C O N D C H A RG E Opinion

Take confidence in second charge

hen I saw the latest Finance & Leasing Association (FLA) figures showing the value of new second charge mortgage business in August 2023, where the market experienced a 15% decline in new business volumes compared with the same month in 2022, I was understandably disappointed. But the more I thought about it, the more confused I became.

The second charge option As someone who naturally champions the sector, I could not but help wonder how such a drop could take place in today’s market, where costs are very high because remortgage rates are at their highest level for over 10 years, and early repayment charges (ERCs) are also a large disincentive. When you add the increasing costs of unsecured debt and the growing burden of other cost-of-living expenses, why do advisers seem so reluctant to look at the second charge option?

Access and sourcing Today, it cannot be any easier for brokers to access second charge solutions, either through direct access to lenders or via master broker and packagers. Most lenders have some exposure with the main sourcing systems, although I’m not sure if the products align themselves to a direct comparison to a first charge on those systems.

Clear understanding

Confidence in the product

Of course, the lending market is depressed in general, so some of the reduction can be put down to a sluggish market. However, if second charge mortgages are going to be seriously considered as a real alternative to remortgaging, then we need to look at other factors to explain the situation. I firmly believe that Consumer Duty will play a significant future role in changing the way in which second charge mortgages are considered as the ramifications of the new regime are more clearly understood.

There are various offerings from many lenders with different risk appetites, ensuring that a solution is likely available to your client in most circumstances. All types of products are catered for – variable, fixed, and in some circumstances discounted – with terms of up to 30-years in some cases, and loans from £5,000 to £500,000 with some lenders. There is no physical valuation required in most cases, no complex conveyancing processes. In some cases, we do not even need a full legal charge. High loan-to-values (LTVs) are acceptable by some lenders, and refinancing debt is an acceptable loan purpose with most lenders.

Education One of the major factors is the need for positive messaging about what a second charge has to offer from

the industry itself. There are other individual champions like me who talk about the opportunities that second charge lending represents to clients who want to raise funds, but somehow the message isn’t ge ing through fast enough. The FLA does a good job providing data each month, but was never a trade body that pushed positive messaging about second charge mortgages. Perhaps what is needed is a trade body set up to coordinate messaging among lenders and actively campaign for our sector to ensure a consistent message to intermediaries and the public.

TONY MARSHALL is CEO at Equifinance

I firmly believe that Consumer Duty will play a significant future role in changing the way in which second charge mortgages are considered as the ramifications of the new regime are more clearly understood” Second charge lenders are regulated in the same way as first charge lenders, and we follow the same path as firsts if the customer falls into difficulties, and show forbearance as would be expected of a regulated mortgage company. The pricing of our products is based on our funding, operations, and acquisition costs, while being measured by competitive forces in the same way, and none of us seek to profiteer. Most of the second charge lenders do not have a direct-to-consumer arm, and therefore do not cross-sell to your clients. On a personal note, it has always been a mystery to me as to why second charge mortgages are not considered as a viable alternative to satisfy customer needs where capital raising is concerned. I would love to know and I’m open to direct contact with anyone who would like to enlighten me. ●

The Intermediary | December 2023

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L AT E R L I F E L E N D I NG Opinion

Setting the direction of travel for 2024

here’s a risk of recency bias when talk turns to reflections and projections in December. On this occasion, however, I sincerely believe three themes evident over the past month stand out to set a direction of travel for 2024.

Regulatory engagement First on the list is constructive engagement with regulatory priorities in the advice arena, which we saw first-hand at the inaugural Equity Release Adviser Summit, which took place in Manchester last month. It was the first time we took a major membership event outside of London, and dedicated the agenda to the expert advisers who are the human face of equity release to tens of thousands of customers every year. More significantly, it was the first time we heard the Financial Conduct Authority (FCA) speak publicly about its review of later life mortgages. The council benefits from regular engagement with the regulator, and we are very grateful to Mark Burns, the FCA’s head of consumer finance, for sharing first-hand insights with the wider sector from its supervisory work in lifetime mortgages. Since day one, our work has been driven by the goal of embedding the highest standards of consumer protection to create a safe and sustainable market. Consumer Duty has presented a constructive challenge to aspects of current practice across retail financial services, and we will be steadfast in our commitment during 2024 to supporting the FCA’s aims. This means supporting adviser members through events and resources, such as our competency framework, and ensuring standards

DAVID BURROWES is chair of the Equity Release Council

are implemented effectively so that customer experiences live up to the expectations of Consumer Duty.

Fresh product innovation The second theme which gives me optimism is that customers’ options continue to evolve, giving advisers more tools to deliver good outcomes. The launch of hybrid loans is an example of innovation to serve wider needs, enabling a customer to pay off the interest for an agreed period, before payments stop and interest rolls up for the remaining life of the loan. Consumer choice has come a long way in the 20 years since formal regulation of residential and lifetime mortgages arrived. In the past decade alone, product innovation has transformed the lifetime mortgage market and closed the gap between residential and later life borrowing options. Flexible early repayment charges (ERCs) and voluntary penalty-free partial repayments mean perceptions of equity release as ‘inflexible’ or ‘risky’ can be consigned to the past. I’m excited by the clear demonstration that more innovation will follow as the later life market returns to growth. With an ageing population to serve, no adviser can afford not to engage with the growing range of later life propositions on offer.

The call for sustainability Third, with COP28 underway at the time of writing, it is impossible not to heed the call for action on climate change, which will present growing challenges to families and businesses with every year that passes. By helping to retrofit our housing stock, green finance can help to secure long-term energy security and lower

bills, and gi an environmentally secure housing market to future generations. Many of our members have already been proactive in piloting products to make this possible. However, we are fast approaching the point at which these pilots need to be applied more widely. For that reason, we are excited that the independent Green Heat Finance Taskforce has recommended the Sco ish Government partner with the ERC to develop a framework and guidance for green retrofit equity release products. This comes from significant engagement with the industry and policymakers on green finance. It has been a prominent feature of our previous two Equity Release Summits, and we expect growing demand from homeowners seeking to reinvest their housing equity. With political parties shaping their manifestos ahead of the next General Election, it’s an important reminder that equity release can help tackle some of the most pressing policy issues of our time. From funding comfortable retirements to decarbonising the housing market, equity release can be a flexible tool for policymakers, just as much as it is for advisers. While the past 12 months have brought more challenges than growth, the two ultimately go hand in hand. Heavy li ing is being done within advice standards, product development and meeting social needs. The path we choose from here could make 2023 a year to remember for the right reasons. ● December 2023 | The Intermediary

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Q&A

Equity Release Supermarket

The Intermediary speaks with Mark Gregory, founder and CEO of Equity Release Supermarket, to take a look back at 2023, and ahead to what is in store next year How does the equity release market stand after an eventful 12 months? I’ve always considered equity release to be immune to most economic downturns. In fact, I set the business up in 2008, which probably wasn’t the best year given the financial crash around that time. Back then, interest rates were high, but there was a limited choice of lenders, and the market was still developing and has been ever since. Or at least it was, until Liz Truss’ mini-Budget in September 2022. That accelerated many of the inherent issues within the economy, with the Bank of England raising base rates from an innaturally low position, which resulted in a double-whammy – we had equity release interest rates rising to over 9%, loan-to-values (LTVs) dropping more than 10%, and lenders even temporarily withdrawing. That took away a large slice of our market, particularly at the top end. It also affected the number of customers who were eligible, or could use equity release for what they needed. Our market consequently took a hit of between 50% and 60% in written business volumes. Internally, the conversion rate of leads dropped by about half, so not only was the market shrinking, but understandably people were also holding off, maybe waiting for interest rates to fall and LTV’s to rise again. That doesn’t help broker firms right now, but there is interest still out there. Hopefully, all those clients who made enquiries are just waiting until things get back to normal. That said, they’ll never get back to the 2.5% interest rates of 18 months ago, but at least we are starting to see sub-6% interest rates now. The other factor in the equity release market is gilt rates, more so than the Bank of England base rate. The 15-year gilt index has been slowly coming down, which has enabled lenders to reduce their rates. Coupled with that, property values have held their own, against expectation, and we have seen lenders start increasing their LTVs. So, we are seeing the green shoots of recovery. It’s slow, but since the beginning of November, advisers feel a little more confident.

How have borrower profiles and priorities shifted this year? At the beginning of the year, it was more people who, in a way, needed the product. They maybe had debt consolidation or potential repossession to deal with, along with mortgage arrears. We’ve also seen a lot of gifting this year, though, from the older generation looking to help people onto the housing ladder. Towards the middle of the year, we started to see more lifestyle goals, like holidays, coming back. That’s nice to see. The market isn’t entirely there yet, but as 2024 starts working its way through and as interest rates come down, people will probably come back to the market and looking at more lifestyle goals, home improvements in spring being one. The product is useful to different people at different times. When its bad, people need to release money, and when it’s good, they want to spend more. This is the first time in the almost 25 years I’ve been in this market where it has actually taken a downturn. Maybe it’s not entirely bulletproof, but certainly it’s good at bouncing back.

How has the business evolved? As a business owner, it was a big learning curve, and meant addressing efficiencies. One was a massive reduction in our lead costs, by over 65%. Additionally, we’ve had to address fixed costs, which involved staffing levels – something that is never nice to do, but essential to survive. Historically, equity release hasn’t been known for its technology, but we are a fintech business, among the first in the industry back in 2008 to have a website, calculators and comparison tables. The tech we’ve got now has helped us through the past 12 months. It’s unique to our industry, in terms of comparison tables and calculators, but

MARK GREGORY

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Q&A

mainly smartER – our customer facing research tool, where they can find out what products, loan amounts and interest rates are available to them. It’s all in line with Consumer Duty. We always felt that we were ahead of the curve. That’s not to say we didn’t understand the fuss ahead of Consumer Duty, we knew that people did have to improve standards. However, from the customer coming to the website, the advisers providing quality advice, the whole back-end application process, to post-application, we’ve got a really good system in place. Consumer Duty became more about documenting what we already did, and adding small things to our existing processes. The smartER tool gathers about 50 data points, so it’s a very warm lead for an adviser and enriched for the customer. During times where conversion rates haven’t been as high, that has been offset slightly by smartER’s greater conversion rate than typical leads. I’m not saying we were immune, we’ve just battled our way through and become even more resourceful. One of the big improvements we made this year was digitising our customer fact-find. Every piece of data can now be read and made a lot more purposeful. We used to have a financial planning report, about 16 pages, and now that feeds directly from the fact-find itself. Those reports used to take maybe three or four hours, and now it can take 30-45 minutes. The Financial Conduct Authority (FCA) did a review back in 2020 of the equity release market, and we listened, bringing in our new digital factfind and our product confirmation letter (PCL) as part of that process. We’re really proud of what we’ve got, and the feedback has been brilliant. We’ve also got a lender portal, where they log in and update products – there’s more than 300 products there at the moment. Our calculators and comparison tables use that database to keep up to date, and that again goes back to Consumer Duty, giving customers live and accurate rates. We did a review of the sector’s calculators three or four months ago, and found that more than 80% of online equity release calculators were actually incorrect. Ours are 99.9% accurate, because the data is constantly updated by lenders.

Does more work need to be done to improve this market’s reputation? A lot of people have their shutters up because they don’t understand the products. Part of the problem is that, other than us, nobody really has a shop window for what is available – the products, the features, the repayment charges. That’s all available on our website, and it’s been there for a

long time, but the smartER research tool enhances that even further. So, it’s not just misinformation, but lack of information in the market and available to customers. It’s a matter of breaking down those barriers, once people do understand – say, the fact that you can make repayments voluntarily – suddenly those shutters are open. The Equity Release Council (ERC) has been doing its part to lift the curtain and help people find out more, but what we do as a company that nobody else does is let customers ‘touch and feel the merchandise’. We make it possible for people to understand the different products that might work for them, before then going through to the adviser. If the customer is more prepared, the conversation is a lot richer. I don’t think it’s as bad as with the customers, but part of our remit next year is to get the word out among brokers about what equity release is. We’re trying to make it easier to use tech as a referral, embedding a calculator on their own website which a client can use, generating a lead we can pick up, and providing a revenue share at the front and end with that broker. It’s a new way of looking at introducer relationships.

What’s ahead in 2024? It’s still going to be tough, but hopefully towards the end of next year we should be back on track. It’s about cutting our cloth accordingly, getting through this period, and creating great efficiencies, which will be great for when it does pick up. Product innovation has just started to happen towards the end of this year. During the downturn, lenders have realised that they need to look at ways of innovating to get more customers. The equity release industry is looking a bit more to the mortgage market for inspiration. We brought in flexible voluntary payments, for example. What we’re looking at now is affordability – helping people access a little bit more money, increasing LTVs based on terms by using mandatory repayments until retirement age. That’s where innovation is going to come in, in new and hybrid product styles. It’s good news to lift up the industry, and for customers as well, hopefully bringing more of them into the market, which will in turn help us get back on our feet a little quicker. As a business, we’re going to share our tech with other brokers. That’s part of what I want to be my lasting legacy when I eventually do leave the industry. I want to know I’ve improved it. The work we’ve done in 2023 has put us in good shape for 2024. We don’t have to catch up, we can keep driving onwards and upwards rather than fixing what was broken in 2023. ● December 2023 | The Intermediary

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Focus on ...

North Pole

rom the calming distant sound of reindeer plodding about their paddocks, to the hustle and bustle of a thriving local business preparing for a year of hard work to pay off, there is much to see at the North Pole in December. So much, perhaps, that you might be forgiven for bypassing the housing market entirely. A savvy broker with an eye for unique destinations, however, will spot that despite its rather inhospitable climate and an overwhelming focus on manufacturing, the region lays claim to a surprisingly vibrant mortgage market. Although insulated from the ravages of the Liz Truss mini-Budget, the North Pole has weathered many storms, both economically and physically. However, with a large working population, appetite for new homes knows no bounds – and despite historical struggles, the market continues apace. The Intermediary sat down with local property profession-elves to decipher the history of this uniquely placed market, and to discover where it stands today.

Present prices In local currency, the average property price in the North Pole area is currently 1,000 silver bells, which translates to approximately £99,000. The median price sits at around

BY JESSICA O’ CONNOR

Each month, The Intermediary takes a close-up look at the housing market in a specific region and speaks to the experts supporting the area to find out what makes their territory unique 740 silver bells, or £73,000. This is compared with an average and median of £357,000 and £275,000 in England and Wales. The average price in the area increased by over 3.4 silver bells the past 12 months, but is expected by many to peak once again in the coming weeks as we reach the end of December, a typically busy period for the region’s property market. The North Pole postcode recorded approximately 57 property sales during 2023, marking an annual drop of 33.3%. The price of a standard detached log cabin was approximately 2,100 silver bells, or £200,000, while semidetached cabins could set prospective buyers back by 980 silver bells, or £97,000. A typical igloo was found to cost over 640 silver bells (£63,000), and the average flat – typically workshop adjacent – currently fetches approximately 410 silver bells (£40,000).

A merry market The property market in the North Pole, although lively at times, is deeply seasonal. According to local

broker Ms Claus, managing director and founder of North Pole Ho-HoHomes, this year in particular has been “a bit of a mixed bag.” She reports that, typically, the property and mortgage markets are mainly active during the late festive season, as a large portion of workers in the region receive their yearly salary in one large lump sum straight after Christmas. In turn, this causes an influx of enquires at the end of the year – a time in which empty housing stock can get snapped up instantly. During the year, however, business levels remain relatively quiet. This business pattern is also corroborated by Dasher, mortgage broker at local brokerage Mad Dash 4 Homes. His business model caters for clients struggling through the end of year rush, and he reports that this year, enquiry numbers already began to rise at the beginning of December. According to Dasher, many eager elves are getting a jumpstart on their mortgage journey, with thousands knocking on his door for mortgage advice – and even some sliding down his chimney.

The Intermediary | December 2023

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L O C A L FO C U S North Pole

Dominant demographics When it comes to key client demographics in the area, professional elves take up much of the market. Aside from the annual Christmas rush, Claus reports that throughout the year – a time she coins as her “11-month off season” – she mainly deals with high-net-worth (HNW) clients. These are often corporate elves who hold high-up positions within the local manufacturing monopoly. According to Claus, these lucky elves often come to her in search of advice when trying to purchase a second luxury log cabin, or even a holiday igloo by the frozen sea. Claus also reports a historical appetite for self-build mortgages in the region. Although not as prevalent at the moment, following the Great Blizzard of 2017 there was a huge demand for self-build mortgages in the region, as many were forced to rebuild from scratch. This was also when the region was first introduced to Modern Methods of Construction (MMC), forcing lenders to embrace modular construction, where component parts of houses were structured off-site from sustainable gingerbread materials, and iced together on-site, to reduce emissions and inefficiencies. Meanwhile, with a current population of more than 3.7 million, and an average age of 165, the appetite for later life lending in the North Pole area has skyrocketed over the past century.

Leading lenders

closer to the city centre, allowing for an easier commute in the often unforgiving weather conditions. As a result of this demand, a new 5,000-unit residential development called ‘Toy-Block Tower’ has been built to accommodate an abundance of factory workers. In addition, a more suburban development has also recently popped up on the eastern city limits. Boasting more than 350 selfcontained stables, Dasher says that ‘Carrot Close’ has proven extremely popular with reindeer buyers looking to enjoy a slower pace of life. These two rather large developments, in conjunction with the ‘Reindeer Roadway’, a highspeed motorway which facilitates international travel, will undoubtedly provide the local market with a muchneeded boost during quieter periods, encouraging further development in the future.

Bristling buy-to-let In the shadow of this successful development sector and increasing buyer appetite, lies the North Pole’s somewhat contentious buy-to-let (BTL) market. The private rented sector (PRS) in the North Pole accounts for over 18.9% of the local housing market, compared with a national average of 23.6% in England and Wales. Despite demand for rental property, however, the area appears to be lacking in opportunity for potential buy-to-let investors. According to Claus, this is due to the dominance of portfolio landlord

Jack Frost, of Frost Rental Limited. Frost has something of an ‘icy grip’ on the area, having snapped up 99% of the existing rental stock. In fact, Frost has ‘discouraged’ many hopeful young elves from entering the landlord space as a result of his frosty business practices. What’s more, tenants would be foolish to hope for a surprise rent decrease in their stockings this Christmas, as according to multiple sources, the concept of a ‘rent freeze’ is not in Frost’s vocabulary. The Intermediary reached out to Frost Rental Limited for comment prior to publication, but was met with a cold reception.

Seasonal sector In short, the North Pole’s mortgage and property market is far flung from those in the UK, but still has a few things in common with areas closer to home. Despite its somewhat unconventional seasonal approach, the market still boasts eager buyers looking to climb the property ladder. From hardworking elves looking to cash in on their years of manufacturing work, to reindeers yearning to settle down closer to nature, the North Pole offers plenty of options. Aside from its troublesome rental market, residential and development opportunity abounds. With the busy festive season fast approaching, let’s hope that, with the help of local brokers, hopeful buyers will be snowed under with potential dream properties. ●

Local brokers report an unsurprising buyer preference for the larger, household name lenders. Popular examples in this region include Santa-deer, Holly-fax and NatWest-ivity. However, Dasher notes that thanks to the region’s festive ‘shop local’ initiative, many of his elf and reindeer clients have shown a preference for more local options, such as The North Pole Building Society.

Delightful developments Dasher notes a number of new developments that have popped up in the region over the past year. Thanks to a recent push for regeneration in the region’s bustling Christmas Business District, there is growing demand for new homes

"Today’s speaker is an expert in distribution”

December 2023 | The Intermediary

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On the move... Paragon director of mortgage sales Moray Hulme retires

aragon Bank’s director of mortgage sales, Moray Hulme, has retired a er more than 36 years of service. Hulme joined Paragon in 1987 working in customer services. He worked in a variety of roles, including managing the sales support team when Paragon launched its first products for landlords. He supported Paragon’s rapid growth in the buy-to-let sector, and took up his current role in 2019. Hulme said: “It was exciting to be there at the start of the buy-to-

let market, to support the sector’s growth, and to have supported our landlord customers to provide a home to tenants...I have worked with countless brilliant people in the industry, including brokers, networks and clubs, industry bodies, landlords and, of course, my colleagues here at Paragon." Richard Rowntree, managing director of mortgages, said: “Moray has been a stalwart of Paragon’s buyto-let story...I wish him a happy and fulfilling retirement.” ●

ModaMortgages appoints head of sales and two BDMs

odaMortgages has appointed Sco Phillips as head of sales and hired Becki FraserTucker and Bec Murray as senior business development manager (BDM) and BDM. Phillips will oversee the lender’s field-based team of BDMs. He has 25 years’ experience in financial services, including at Vida Homeloans, Hampshire Trust Bank (HTB), and OneSavings Bank (OSB). Phillips said: “There is a clear sense that we are at the start of something very exciting, and our no-nonsense approach to buy-to-let lending is exactly what the broker market is crying out for. Having Becki and Bec join the team at the same time is also a real coup. Building strong relationships between brokers and BDMs will be fundamental to ModaMortgages’ delivery of an exceptional service.” Fraser-Tucker has held roles with OSB, Bank of Ireland, and HTB, while

Murray previously spent over 16 years with HSBC. The two will manage broker relationships and assist Phillips in growing the BDM team. Fraser-Tucker said: “What brokers and landlords need right now is a reliable, uncomplicated lender to help them confidently navigate change...I’m looking forward to throwing myself into this journey and helping establish our name in the broker market.” Murray added: “The calibre of the people involved in developing the proposition and bringing it to market speaks volumes about the quality of ModaMortgages. I’m very pleased to be a part of the team and look forward to connecting with brokers.” ●

Richard Merrett appointed managing director of Alexander Hall

ichard Merre has been appointed as managing director of Alexander Hall. Merre is currently director of strategic relationships at SimplyBiz Mortgages, but began his career at Alexander Hall in 2003 and was with the business for over 14 years. He is currently a board member for the Association of Mortgage Intermediaries (AMI) and chairs the steering commi ee for the Mortgage Climate Action Group (MCAG). Merre said: “I am delighted to be rejoining Alexander Hall and thrilled to be given the opportunity to lead this great business and wonderful team to drive further progress. “The foundations that have been laid and the opportunities for further innovations to drive revenue are significant. I spent the first 14 years of my mortgage career here, so it very much feels like I am coming home.” He added: “Helping people to own a home is a great privilege and the value of advice has never been more important, I look forward to us collectively assisting many more mortgage borrowers with excellent customer service.” ●

iPipeline promotes Zoe Mears to enterprise sales manager

Pipeline has promoted Zoe Mears to the position of enterprise sales manager. She will establish and manage relationships, as well as helping to grow iPipeline’s position in the protection sector. Mears joined iPipeline in 2016, and most recently held the position of senior sales manager, client distribution. Kate Buckley, assistant vice president of client distribution, said: “Over the past few years, she has proven herself as one

of the young shining lights in the protection industry. Zoe’s clients recognise her outstanding drive and intense focus." Mears added: “I’ve really enjoyed working with expert advisers and the market’s leading distributors, championing how technology and digitisation can make them more efficient, and consequently, increase their protection sales. “I’m excited to now take my passion and dedication to serve today’s leading providers in the protection market." ●

The Intermediary | December 2023

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