The Intermediary – February 2024 by theintermediary

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BEYOND VANILLA Making the complex simple in a market full of flavour

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From the editor...

nce again proving that you cannot trust predictions these days, inflation held steady at 4%, despite widespread expert certainty that it would tick up. Far from the much discussed 2% target, yes, but worth a collective sigh of relief. Meanwhile, we will all be keeping a weather eye on swap rates, subject to lag as they are, and at the same time wondering how the news that the UK slipped into a technical recession at the end of 2023 will ring in the central bank’s ears. Uncertainty is rife, nowhere more so than in the trade press headlines. Our digital pages have been filled with lender updates, but unlike the start of the year – or indeed the less positive period in 2023 – it’s hard to pinpoint a clear trend. While some lenders pull rates down, others have reacted to the recent upward creep of swap rates and market uncertainty with increases. Either way, it all means more work for all-too beleaguered brokers. Rate rises have reignited a vintage 2023 conversation. Namely, the cruelty of tight lender timelines. It certainly feels like some have no qualms about giving brokers only a ma er of hours to clutch at a client’s desired rate before it slips out of their hands. Or, when brokers are given the luxury of days to work with, those days tend to start with an ‘S’. And really, who needs weekends, time with family, wellbeing, sleep? This was a big conversation last year – driven in some ways by our own platform – but now that the PR buzz has worn off, it seems that we

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are slipping back into old habits. Of course, an obligatory #NotAllLenders applies here, and we’re all aware of the funding and risk restrictions that cause these changes. However, where we might almost have been on the brink of a new age of transparency, the news is once again full of quickfire pulls and last-minute rises with li le to no explanation. It’s all so last year. This is not just about rate rises, either. Brokers, networks and other market players are crying out – sometimes literally, if my own conversations are a fi ing example – for lenders to take their expertise into account when it comes to product development and distribution. Meanwhile, few with any sense – or ability to represent the diverse groups and systems that make up this nuanced market – are able to catch the ear of Government. We’re staring down the barrel of a year of poorly thought-out posturing, while vast reserves of expertise and experience sit untapped. Of course, it’s not enough to simply bemoan the lack of communication – whether from Government, the regulator, lenders, or whoever else is the focal point that week – but instead it’s time to start shouting. Now, more than ever, with the ease of digital communications, social media, and – dare I plug – trade media on your side, it is at least possible to get your voice heard. ●

Jessica Bird @jess_jbird

@IntermediaryUK

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

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OPINION ⬛ The latest from Barclays, Santander, Accord, Together, and more...

INTERVIEW ⬛ MT Finance on the challenges of creating an evolving proposition

BROKER BUSINESS ⬛ Tricky cases, marketing tips and making space for all

Intermediary. The

www.theintermediary.co.uk | Issue 13 | February 2024 | £6

BEYOND VANILLA Making the complex simple in a market full of flavour

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February 2024 | The Intermediary

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Contents

INTERVIEWS & PROFILES

Feature 48

MT FINANCE

The Interview 30

Beyond vanilla: A complex market full of flavour

Raphael Benggio and Marylen Edwards on the challenges of creating an evolving proposition

REGULARS

Profile 58

Broker business 64

D OW N I N G

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

Parik Chandra talks about providing stability for SME developers

Local focus 86

Meet the broker 70

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

PURE STRUCTURED FINANCE

Jacob West on making the switch from lender to broker

On the Move 90

Q&A 80

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

BERKELEY ALEXANDER

Geoff Hall discusses providing insurance access for all types of consumer

SECTORS AT-A-GLANCE

Residential 6 Buy-to-let 34 Specialist Finance 56 Later Life 72 Technology 76 Second Charge 79 Protection 82

Meet the BDM 36 PA R AG O N

Rob Eggleston on the challenges and opportunities for business development managers

86 The Intermediary | February 2023

RESIDENTIAL Opinion

Reflections on Shared Ownership

ffordability is o en cited as one of the largest barriers to ge ing on the property ladder, and Shared Ownership mortgages are a great way to support first-time buyers and provide another option for customers looking to purchase a home, especially in higher priced areas. At Santander, we apply our standard lending policy and affordability for Shared Ownership applications, and customers can choose from our standard product range, resulting in more choice than some other lenders via this scheme. We also have a dedicated team of Shared Ownership specialists to help keep cases moving. The team will work closely with brokers to manage pipeline cases if they can’t be dealt with through the usual dedicated sales contact, escalate and support on any urgent cases, and deal with any more complex enquiries. For a Shared Ownership mortgage, specifically, there are some eligibility requirements which customers will need to meet before applying. These include maximum income thresholds and minimum deposit amounts, and that only certain types of buyers can apply, such as first-time buyers or those forming a new household. It is easy to check eligibility requirements by using the interactive tool on the Government’s information pages.

October 2023 to give a sense of what we are seeing in this area. It was interesting to see that over this period two-thirds of Shared Ownership mortgage applications were from single borrowers, as this type of mortgage can help with affordability for individuals looking to get on the property ladder themselves.

Perfect split While there is sometimes a preconception that Shared Ownership mortgages are just for new-builds, this certainly wasn’t the case with the data I analysed. It was almost a perfect 50-50 split between new-builds and existing housing stock; showing that customers can access a wide range of properties with this type of mortgage product. Santander will also lend up to 90% loan-to-value (LTV) for secondhand houses and flats using Shared Ownership. Indeed, in this data set 60% of applications were for flat purchases and the remaining 40% for houses, of which more than half were for three or four-bedroom properties. The largest cohort of applications, making up 37% of the cases in this data set, was for two-bedroom flats. Finally, it was interesting to see that there was geographical clustering for Shared Ownership applications within

PAUL MCCARTHY is national key account manager at Santander

Two-thirds of Shared Ownership mortgage applications were from single borrowers, as this type of mortgage can help with affordability for individuals looking to get on the property ladder” this snapshot of data. In these cases, the vast majority were for London and the M4 corridor with other clusters around major cities. This focus is perhaps not surprising given the higher house prices in these areas, and Shared Ownership allows customers to part-own, part-rent a property. So, while rent is due alongside mortgage payments, this scheme can be helpful for customers with smaller deposits and can help them access a more expensive property. ●

Shared Ownership snapshot I also want to take a moment to explore how your customers may benefit from Shared Ownership purchases, and share some of the trends we are seeing with this type of purchase. So, what does our data show around Shared Ownership mortgages? I thought it would be helpful to analyse a snapshot of 100 applications from

Shared Ownership mortgages are a great way to support first-time buyers

The Intermediary | February 2024

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30/01/2023 16:05

RESIDENTIAL Opinion

The housing market:

o kick off the new year, the latest Barclays webinar focused on what is likely to be a key conversation for intermediaries and their clients over the coming weeks and months: the economic outlook for the housing market. Joined by Alex Maddox, who leads the Barclays funding and securitisation team, and Rob Thomas, principal researcher at the Intermediary Mortgage Lenders Association (IMLA), this webinar explored a plethora of past and present influencing factors, many of which demand an article in their own right, such is their potential impact from an individual and cumulative standpoint. As we ascertained throughout this discussion, trying to second-guess the market is a difficult enough task at the best of times, but it has become almost impossible in light of the gravity of recent events. Nevertheless, we can reflect with greater certainty now, and there’s no ge ing away from the fact that 2023 was a challenging year for lenders, intermediaries, housebuilders and borrowers alike. This was largely dictated by some lingering economic uncertainty, rising interest rates, inflationary pressure and affordability concerns. However, it’s also a year which provided us, and other lenders, with a chance to think differently as a business and look deeper into where the opportunities for growth and improvement are. By this I mean areas such as environmental, social and governance (ESG), through to intergenerational lending, and through changes in criteria, internal processes and how to present yourself as a business.

Growing confidence Q4 2023 proved to be a period where plenty of encouraging signs emerged from an economic standpoint, with these generating some muchwelcomed consumer and business confidence moving into 2024. From a lending perspective, we’ve seen some relatively bleak – but largely unsurprising – lending figures materialise from UK Finance for 2024. However, on a more positive note, the trade body outlined that the main pressures on affordability appear to be peaking, and that increased competition continues to gradually chip away at mortgage rates. In addition, the sustained resilience on show across the housing and mortgage markets should also provide us with that bit of extra confidence moving forward. As an eternal optimist, I have certainly come into 2024 thinking I'm going to manifest this positive momentum, and it's great to see some

Delving deeper into the underlying detail around inflationary data was also advocated, thanks to its probable influence on future base rate movement, and firms were advised to carefully evaluate artificial intelligence (AI) when it came to helping increase productivity across the board”

RESIDENTIAL Opinion

An economic outlook of the lead indicators following suit. Data from Twenty7tec for January 2024 outlined that purchase mortgage searches surpassed the whole of January 2023, with five days still remaining – making it the ho est ever January market. This showed that seven of the 10 busiest days – and 11 of the 20 busiest days ever – on the platform were experienced in the month, which offers some highly encouraging news.

A pinch of salt However, we do have to temper this slightly by addressing some of the less positive market movements, namely the surprise rise in inflation to highlight the Bank of England’s ongoing ba le. One repercussion seen across the mortgage market being some rate increases to curtail a trend where rates were largely being cut. This offers a stark reminder that we remain in a transitional period with more twists and turns in the offing. Looking forward, intermediaries are urged to keep a close eye on the swaps market, as a one to twoweek lag between swap rates moving and mortgage rates moving provides an opportunity to spot shi ing trends. Delving deeper into the underlying

SIAN MCINTYRE is head of acquisitions and engagement at Barclays

detail around inflationary data was also advocated, thanks to its probable influence on future base rate movement, and firms were advised to carefully evaluate artificial intelligence (AI) when it came to helping increase productivity across the board. We can always look and learn from past events, but we can't always predict the shocks that lie ahead. However, being be er informed can greatly assist the decision-making process, and allow us all to take advantage of the opportunities that will continue to present themselves, despite some lingering market and economic volatility.

RESIDENTIAL Opinion

Domestic policy still has the power to set a confidence bar

his year is set to be one of change, particularly as we approach a likely General Election. Both Government and opposition are already jostling for column inches, and housing is a key policy focus. Help for homeowners and wouldbe buyers is typically a vote-winner, and with persistently above-target inflation anticipated this year, making it easier to get on the housing ladder is likely to be central for campaigners. The Labour Party has already pledged to reinstate housebuilding targets of 300,000 new homes per year – something Sunak scrapped in December 2022, reportedly to fend off a backbench rebellion within his own party. Under Sir Keir Starmer, hopeful first-time buyers have also been given a glimmer of hope with the promise to up homeownership from around 63% to 70%. Achieving those ambitions will take many years and may prove harder than voters believe – yet that matters little in the run up to an election. Action on housing ahead of the election may be an attractive option for those wishing to remain in power. In fact, it’s probable that Government could be planning a so-called ‘rabbit out of the hat’ come the Spring Budget.

Setting the bar Boosting public confidence is going to be high on the agenda. There are various ways Government might preempt a Labour bid to appeal to wouldbe homeowners. Access to affordable mortgage finance, a diverse range of property, and support for first-time buyers by developers are all important. While markets and consumers respond to all sorts of economic and geopolitical variables outside the UK’s

The Intermediary | February 2024

STEVE GOODALL is managing director at e.surv

control, domestic policy still has the power to set a confidence bar. This is especially true of the housing market in Britain. Just cast your mind back to 2020 and the slump precipitated by the first lockdown. While not solely responsible for the strong recovery, then-Chancellor Rishi Sunak’s decision to slash Stamp Duty temporarily was an economic gamechanger. That memory won’t be far from a campaigning Tory Party’s mind later this year.

firms told the Federation of Master Builders that material costs were going to be the fourth biggest obstacle to the building of new homes. More than half are worried that the Future Homes Standard in 2025, designed to ensure lower carbon emissions from new residential property, will cause further material costs in anticipation of its arrival.

Building anew

Affecting everyone

The new-build sector is ripe for support. It’s had a bumpy ride since the Help to Buy scheme wound up almost a year ago. The most recent figures from the Office for National Statistics (ONS) showed annual housing supply in England amounted to 234,400 net additional dwellings in 2022-23, some 212,570 of which were new-build homes. It’s unlikely that this year’s residential construction completions will keep pace – not only has Help to Buy assistance gone from the market, house price inflation is not as strong as it has been for the previous few years, and mortgage finance costs have rocketed. Our latest Property Watch report indicates that the new homes market is facing a period of adjustment as it adapts to changing market conditions. Supply is slowing down, while buyers are becoming more discerning and prioritising their needs. Affordability remains a key concern, especially for first-time buyers. A report published by construction market analysts Glenigan forecasts higher construction costs in 2024, with building materials a particular concern. Indeed, some 43% of small and medium sized (SME) construction

The tougher affordability environment is not just affecting buyers, it is also putting pressure on developers. Our own research found that the shift in buyer behaviour has increasingly prompted builders to offer buyer incentives. These incentives are often designed to assist buyers in overcoming upfront costs, such as land taxes, legal fees, and deposit contributions. While this may be supporting demand – something we should encourage given the pressures on buyers – there is a longer-term challenge facing property developers responsible for supply. Currently, they are operating without certainty on the issues that really matter if they are to keep building homes at pace. Land and planning may be less easily saleable to the voting general public, but delivering easier access to development rights – especially in areas which allow for more affordable homes to be built – is a critical electoral consideration for all parties. Housing has long been understood as an emotive tool when electioneering. Now more than ever, getting policy right to deliver on promises must be the Government’s priority. ●

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RESIDENTIAL Opinion

Navigating the remortgage landscape in 2024

n 2024, the challenges of remortgaging are looming over more than a million UK households. It is expected that 1.5 million homeowners will be applying to remortgage as their previous fixed-rate deals expire this year. According to the Financial Conduct Authority (FCA), January saw 192,000 fixed deals expire, and 420,000 will do so between March and May. The majority of these will be facing a significantly higher interest rate than they will have been used to in previous years. While base interest rates have held steady since August, Bank of England governor Andrew Bailey advised in November that the current rate will not be cut for the "foreseeable future" as the UK continues to tackle inflation. The decision-making process behind remortgaging is multifaceted for homeowners and brokers alike, involving considerations of various product choices and a meticulous examination of affordability and financial priorities. With the prospect of significantly higher mortgage payments a reality now, more a ention than ever will be paid to the options out there. For most households, the mortgage is their biggest monthly expenditure. But with the base interest rate remaining high at 5.25% as of early February, homeowners will be looking for a remortgage solution that meets their needs. For some, that may mean keeping their monthly repayments as low as possible, even if it means extending the length of their mortgage term, while others may be looking for optimum flexibility in areas such as overpayments or missing payments. Now is the time when brokers will be looking at more options than ever

The Intermediary | February 2024

to get these re-customers the best deal to suit their financial needs. In times of such economic volatility, homeowners looking for stability may opt for fixed rate deals – potentially looking at a shorter fix which combines peace of mind for a period, while not tying them in to a longerterm arrangement and missing out on rates falling in a couple of years’ time. All of that is for brokers to determine with their customers, based on their personal circumstances. Flexibility will be a key factor in 2024’s remortgaging landscape. Last year, nearly half of brokers noted a surge in enquiries for interest-only mortgages, according to Opinium research, with customers seeking to lower their initial payments – a trend we could well see continue into this year.

Variable rates While it could be seen as a riskier option at first glance, some homeowners may also want to look at a variable rate remortgage. This would mean a higher monthly repayment to start with, but if rates come down the repayments will decrease in tandem – and of course, variable rates offer a flexibility which fixed rate options do not, meaning borrowers can reassess their options if and when circumstances change. During this period, product transfers for lenders will be critical. As homeowners shop around for the best deal, lenders must do all that they can to retain their current customers with a ractive offers and simple, hassle-free processes. If last year’s trends are set to inform this year, more customers may be opting for product transfers – last spring, intermediaries reported a rise in the popularity of product transfers.

ALISON PALLETT is sales director at Nottingham Building Society

With the base interest rate remaining high at 5.25% as of early February, homeowners will be looking for a remortgage solution that meets their needs” As a lender, we recognise these are tough times for borrowers, and that brokers’ experience it critical to guide them through the process. At The No ingham, our payment support teams are on hand to work with customers to ensure we can help them through difficult financial periods. As brokers work tirelessly this year to find the best deals for their customers, we have recently increased procuration fees to 0.30% on all residential retention products. We understand and appreciate the value of advice to new and existing customers, and all of the work this involves; we hope this increase sends out a strong message and demonstrates our continued support to our intermediary partners, who work tirelessly to do the right thing. The decisions remortgaging households make in 2024 will be significant. As a result, the expertise and support they can get from brokers will be invaluable. We stand ready to help brokers and borrowers alike navigate a turbulent period for remortgaging successfully. ●

RESIDENTIAL Opinion

Yes, working foreign nationals should be able to own a home

oreign nationals are an important part of UK society, and an essential part of the economy. The political arguments in the broader media – which will only get louder and more antagonistic over the coming months – are always about the number of foreign nationals entering the UK. With an election on the horizon, immigration remains a top five issue for voters according to YouGov. However, these arguments o en ignore the contribution of so many. According to the Home Office, in the year ending June 2023 there were around 321,000 grants to main applicants on all work visas, 45% higher than in the previous year and almost two and a half times (144%) the number in the year ending June 2019. Compared with the previous year, ‘Skilled Worker’ visa grants to main applicants rose by 34% to around 69,000, while ‘Skilled Worker – Health and Care’ visa grants to main applicants rose by over two and a half times (157%) to around 120,000. Dependants accounted for around 218,000 visas granted, representing 40% of all work visas. Civil engineers, vets, electrical engineers, programmers and care workers all feature in the shortage occupation list, which is updated based on the output of an independent group of experts called the Migration Advisory Commi ee. There is another list and visa type for medical practitioners, and a further type called the Global Talent Visa – a UK immigration category for leaders or potential leaders in academia, research, arts, culture and technology. This allows highly skilled applicants to come to the UK.

The rules round immigration are constantly changing

The contribution working foreign nationals make to our country should mean they have access to the privileges the rest of us take for granted – such as owning their own home.

Mutual support Building societies have always been about supporting members of their communities to get on the housing ladder. Our communities have changed since our inception – sometimes profoundly – but the concept of helping people own their own home has not. Housing remains one of the most important elements of our economy, and will again feature in the issues that are front of many voters' minds as we approach the election. So, what does this kind of help look like for visa holders? Well, the rules are constantly changing, in part because immigration remains such a live political topic. But our commitment to this market remains steadfast. Of course, as you would expect, some things remain constant

KATHY BOWES is intermediary manager at The Cambridge Building Society

in lending decisions no ma er the origin of applicants. We will look at the ages of all applicants and term of the loan to ensure all income declared will provide adequate affordability until the mortgage ends, and consider all credit commitments and understand the source of the deposit. Specifically for this market, we will accept applications up to 95% loan-to-value (LTV), for applicants with se led or pre-se led status, or permanent rights to reside in the UK, and who have been living here for at least the past two years. These applicants can also apply for a loan with another applicant on a spousal visa. For mortgage applicants holding a Skilled Worker Visa, Health and Care Worker Visa or Global Talent Visa who have two years’ proof of residency in the UK, we will consider applications up to 80% LTV on our standard product range or Shared Ownership, subject to confirmation from the Housing Association that they are happy to proceed. The applicant's deposit must be from their own sources – not gi ed or borrowed – and we will consider a buy-to-let (BTL) application if the applicant owns a residential property. Lending to foreign nationals is a complex and nuanced market that benefits from a pragmatic and experienced approach – one that is well suited to smaller societies, such as ourselves. The rules may change, but our commitment to helping members of our communities buy their own home remains core to what we do. ● February 2024 | The Intermediary

RESIDENTIAL Opinion

Falling rates are welcome, but service makes a difference

t’s been a busy start to the year for many mortgage brokers. Barely a day has gone by without a host of lenders announcing product changes, from new launches to rate cuts on existing deals. At Atom bank, we’ve been busy too, cu ing prime rates by up to 0.30% and near-prime range rates by up to 0.20%. A er the tumult of the past 12 months, it’s a really positive development – activity levels in the purchase market have clearly suffered as a result of higher mortgage costs, and so falling rates may prompt some of those who have put purchases on hold to instead go ahead with a deal, thus giving many reasons to be optimistic about the year ahead. This is borne out by data from financial information site Moneyfacts, which found that average mortgage rates for 2-year and 5-year fixed deals dropped between the start of December and January, the fi h consecutive drop. As a result, the average 2-year deal stands at 5.93%, while for 5-years it sits at 5.55%, the lowest levels seen since June 2023. A steady increase in product numbers is another indication that competition between lenders is ho ing up. Moneyfacts found that product choice has risen for six straight months, with 5,899 products available at the start of January, the highest number in over 15 years. There is well-founded optimism that the trend of cheaper mortgage deals will continue, too. Despite an unexpected blip in the most recent figures, the fact that inflation is continuing to fall means that eyes are now turning to when the Bank of England will reduce the base rate. That prospect is only going to lead to more competitive pricing among

The Intermediary | February 2024

DAVID CASTLING is head of intermediary distribution at Atom bank

lenders keen to win business from brokers and their clients.

Looking beyond rate Nevertheless, it’s also worth remembering that there is more that goes into a broker’s thought process and recommendation than the headline rate. Indeed, one of the fundamental reasons so many borrowers turn to intermediaries is because they can provide valuable insight into what will be the best overall deal. That means taking into account factors like the standard of service. All brokers will have their own horror stories of clients who were let down by a lender promising a low rate, as a result of the service levels not being up to scratch. At best, that means a slow and stressful experience for the client, but at worst it can mean the deal falls through entirely. That’s why it’s always so important for the client to get the full picture, to be educated on the value of working with lenders that can be relied upon to go the extra mile. At Atom bank we’ve focused heavily on making the process faster, recognising how valuable a swi decision is for all involved. The client obviously benefits, since they quickly know where they stand and can get on with the move – no more sleepless nights worrying about what will happen if the application is turned down, or the funds take a long time to arrive. There are clear advantages for the broker, too, as they don’t have to consistently set aside time in their day to chase up lenders for updates on applications. Instead, they can put that time towards helping other clients, developing new skills, or even enjoying some well-earned time off.

We continue to innovate and see the benefits of that work at Atom bank, as we are ge ing ever faster in delivering answers to clients. Over the past six months, more than a third of applicants (36%) have had an offer either the same or next day, with almost a quarter (23%) ge ing an answer the very same day. What’s more, over the last three months of 2023, we got that turnaround time to an average of just two days. We think this level of response has been long overdue in the mortgage market, and we’re certainly not finished pushing it even further.

Best borrower experience A er the fallout from the infamous mini-Budget, it’s clearly welcome that rates are moving in a positive direction. More competitive prices are good news for all types of borrowers, whether they are coming to the end of an existing fixed rate deal, plo ing their next purchase or ge ing a foot on the ladder. With all eyes on whether the base rate will come down at some point this year, there is justified optimism that 2024 will see greater activity levels than last year. However, if we are to deliver the best possible experience to our clients, then there has to be a broader focus than on rate alone. Lenders that can combine eyecatching deals with a swi service are best placed to win business from intermediaries, and deliver the sort of satisfying experience to clients that will turn them into customers for life for the adviser. ●

RESIDENTIAL Opinion

Embrace difficult conversations on affordability

t’s been a positive start to the year for mortgage brokers across the UK. While 2023 was a challenging 12 months, the big trend of the new year has been rate cu ing among mortgage lenders. Barely a day goes by without lenders of all sizes announcing substantial reductions to the cost of their products, making them all the more a ractive. We know that interest in purchases is once again on the rise, with property portals reporting substantial visits from prospective buyers at the moment, and that renewed appetite from buyers is only likely to grow as rates continue to become more competitive. However, while the regular rounds of rate cu ing are prompting greater levels of optimism among brokers and borrowers alike, it’s crucial to retain some realism. A er all, rates are not going to drop to the sort of levels we have seen in recent years, and that is going to lead to some difficult decisions and discussions between clients and their advisers.

What can I borrow? Perhaps the most common question any broker faces from a client is how much they will be able to borrow. Whether the borrower is a first-time buyer or an experienced property owner, understanding what funding is available at the outset is vital – there is no point focusing a property search on homes that are going to be out of your budget, a er all. However, the changing situation with interest rates has had an impact on that answer. Rates may be dropping at the moment, but even once they se le, they are likely to be a good percentage point or two higher than typical rates a few years ago, and

AHMED BAWA is CEO of Rosemount Financial Solutions (IFA) Ltd

products change on what can feel like a daily basis, they will also have to take on the role of educator in helping address the gap between borrower expectation and reality.

Brokers are educators

Affordability: Honesty truly is the best policy

that will feed into the affordability calculations of lenders. To put it bluntly, some clients will have to make do with smaller mortgage budgets than would have been available to them before the difficulties of the past few years.

Expectation versus reality This is no great surprise to brokers. We have been at the coalface and seen the dramatic impact that rate changes have had on countless clients over the past 18 months or so. However, our clients are not necessarily going to be quite so informed. Yes, they will likely be aware that rates have risen from record lows, but do they understand what this means for their own case? The coverage of rate cuts since the turn of the year in the mainstream media is only likely to further boost misplaced confidence around what clients will be able to afford in the view of lenders. Not only will brokers have to ba le against the shi ing sands of mortgage rates, in an environment where

There is a good reason that the majority of mortgage borrowers make use of the services of an adviser when securing their home finance. It’s not just because intermediaries have access to greater numbers of lenders and products – though obviously, that helps – but because advisers are perfectly placed to help guide them. That means more than simply explaining how the products work, but also keeping the client informed on the state of the market, and their borrowing prospects, particularly when it comes to affordability. These conversations are not easy. Brokers obviously want to help clients achieve their ambitions, and having to introduce that perspective to purchasing plans will inevitably result in some disappointment. In the big picture, though, they will only add to the appeal of the broker. It’s far be er for clients to have a more accurate picture of what they can afford from the outset, than to get further down the application process only to discover that they cannot raise the desired funds. Honesty truly is the best policy, and can help secure the client’s business for the long-term, particularly as the client will be well aware that the broker is a crucial ally in securing the mortgage finance they need in the future, as and when circumstances improve. ● February 2024 | The Intermediary

RESIDENTIAL Opinion

A key role to play with product transfers

Brokers are advising and arranging many more product transfers than they did three years ago

he intermediary mortgage sector is starting 2024 in be er health and with more confidence than 12 months ago. While there may well be further unexpected challenges to overcome – such as the surprise rise in inflation in January – the consensus is that the worst is over for both the economy and the mortgage market. It’s heartening to see that our market recovery has been underpinned by intermediaries. The most recent data from the Intermediary Mortgage Lenders Association (IMLA) has predicted that mortgage intermediaries’ share of lending will keep rising this year, from 84% to 89%, and expects it to top 90% in 2025. Drilling down into the data further, we find that residential lending accounted for around two-thirds of intermediaries’ business, with buy-to-let (BTL) about a quarter, and specialist lending around 8%. Within residential lending, there was a slight increase in the proportion of product transfers. Quite simply, this tells us that intermediary advice is fundamental

The Intermediary | February 2024

in the UK mortgage market. Over the past few years, when mortgage applicants have faced challenges which they may not have ever come across before, intermediaries have been vital in guiding them to the most suitable mortgage solutions available. However, this doesn’t mean that any recovery will be at the expense of intermediaries; the data indicates that, even in times of economic improvement, borrowers still recognise the importance of independent advice.

Acknowledgement The product transfer market continues to grow, with brokers on average advising and arranging many more product transfers than they did three years ago. Intermediaries will be at the front of the queue to correct any misapprehension that product transfers don’t require any work or time on their part; the reality is that advising on a product transfer – or a further advance, for that ma er – requires largely the same process as a standard case. While they may not take as long as a remortgage to another lender, they still take time and effort, and it’s only fair that this should be acknowledged.

ALAN LONGHORN is head of sales, distribution and marketing at Bank of Ireland for Intermediaries

That’s why at Bank of Ireland, we’ve made changes in order to fully recognise the hard work and important role that intermediaries undertake in supporting their clients with product transfer and further advance applications. We’ve increased our proc fee for product transfers and further advances from 0.25% to 0.30% and also recently released new product transfer rates. Of course, while a fair proc fee is important, intermediaries also want and deserve to deal with an efficient process for product transfers and further advances. That’s why we’ve recently made a significant investment in our online platform to improve the servicing capabilities for intermediaries and their clients. Improvements include the new ‘Working With Us’ hub which delivers access to all the resources required for every stage of the application process. Plus, we’ve launched Intermediary Live Chat to give brokers support with queries at the pre-application stage. In addition to this, we now allow customers to book product transfer rates up to six months before the end of their current deal, so brokers’ clients can be reassured that they’ll seamlessly transfer to a new product well before their existing deal ends. We all hope and expect that 2024 will be a be er year for intermediaries in terms of business volumes and income. At Bank of Ireland we acknowledge brokers are a fundamental part of the recovery and ongoing support to customers. We’re here to help them navigate the coming year. ●

RESIDENTIAL Opinion

Centuries on and still going strong

hen Richard Ketley, landlord of the Golden Cross Inn in Birmingham in 1775, founded Ketley’s Building Society, his intention was not to create the UK building society movement that subsequently followed. His purpose was much simpler and sought to address a more pressing issue: to provide support for local people to buy local homes. His ‘mutual’ model proved to be much more than a unique solution for local communities in 18th-century Birmingham. The same concept was warmly welcomed and adopted across the UK, and the health of the 42 building societies today is proof of the enduring qualities of mutuality.

Humble beginnings While the 42 societies differ significantly in asset size – between £130m and £2.2bn – they have much in common. The core commonality has prevailed from humble beginnings in 1775. The societies are owned by the members, and all decisions are made in the best interest of those members. This simplicity of this ownership has many advantages over organisations owned by a wide range of shareholders, such as large banks, telecoms, supermarkets, and insurance companies. Member ownership tends to make it easier to deliver upon environmental, social and governance (ESG) objectives, whereas ‘profit’ and ‘shareholder return’ are, through necessity, the key drivers for PLCs. Take, for instance, the number of bank and building society branches in 2023, where 42 building societies are now responsible for 38%, compared with just 16% in 2012. In that time, banks have reduced their branches by 67%, according to the Building Societies Association (BSA).

For example, in the district of Stockport, where Vernon Building Society was formed 100 years ago, the Vernon has more branches than the combined total presence of Barclays, Lloyds, and NatWest/RBS. There is a clear and quite compelling ‘cost-benefit’ argument for branch closures, and therefore, with shareholder return paramount, it’s difficult for bank leadership teams to arrive at any other conclusion. But for building society boards and leadership teams, the costbenefit analysis is just one factor for consideration, alongside other equally and o en more relevant criteria, such as only requiring sufficient profit to support ongoing sustainability, the wishes of members – and no customers have ever voted to close a local branch – and critically, the social impact of a closure within that area. The much-lamented demise of local high streets began long before the most recent swathe of bank closures, with large supermarkets and out-oftown retail parks largely responsible. But removing bank branches from the high street leaves a big hole, and is o en the final straw for local traders. This represents a huge challenge for residents, who rely on the social interaction gained from a walk along the high street, and is particularly challenging for vulnerable customers who find it difficult to access their money, which may include Government benefits and Universal Credit, which must all go through a bank account. That type of fundamental connectivity with the local community differentiates building societies and local Credit Unions from the major banks. There is a genuine homegrown feeling which can only be achieved through being a part of the history and fabric of a city, town or parish. It is this feeling of togetherness driving mutuals to invest in their localities, to agree contracts with local

STEVE FLETCHER is chief executive officer at Vernon Building Society

suppliers to help share wealth locally, to give financial and professional support to local charities and worthy causes, and to provide employment opportunities for local people.

Personal touch Providing local employment opportunities also supports other businesses, local housing, and the very fabric of the area. It is highly unlikely that you will see building societies ‘outsourcing’ or ‘offshoring’ their customer service centres. It’s more likely that a human being will answer your telephone call – such a refreshing contrast to most organisations – avoiding the frustration of keying options into your handset while being told your call is important, and then directed to their website and ultimately being none the wiser! But the mutuals are not without challenges. Perhaps the biggest one is being able to obtain a sufficient share of voice. Indeed, the BSA is calling on Government and regulatory policy teams to consider the benefits of co-operatives and mutuals at the start of policymaking, and not as an a erthought. There is a clear argument that the model developed to address social injustice and to support community and inclusivity in the 18th century is even more relevant now. The question is this: how do the mutuals help more conscientious customers recognise the true underlying values of the organisation when making their financial choices? ● February 2024 | The Intermediary

RESIDENTIAL Opinion

Optimism, excitement I

’m writing this in early February, with January behind us and spring coming soon, and in a positive mood. I feel optimistic, I feel confident, I feel excited, and I’m hopeful. Manifesting positivity is in my nature, and while recent years have taught me to expect the unexpected, I’m positive because I see the mortgage market being more active in 2024. Before I explain why, let’s quickly look at why last year was difficult, and why feeling positive is so important to me. It's fair to say that aspiring firsttime buyers and existing mortgage borrowers faced challenges in 2023 – incomparable to earlier generations. Indeed, it was one of the hardest years to buy a home since our founding year in 1875, due to a toxic combination of too few houses being built to meet demand, the high cost of living, historically high house prices, high deposit values, and average mortgage interest rates at their highest since the 2008 Financial Crisis. It was no surprise that mortgage lending fell by 23% to £130bn last year, according to UK Finance, and broker confidence dipped. Nevertheless, we see green shoots appearing, and it’s not just the spring bulbs! Stability in the economy over recent months is a reason to be optimistic for the year ahead. Inflation is easing,

The Intermediary | February 2024

the financial markets are pricing in a cut in interest rates by the middle of the year, the Bank of England held the base rate for a fourth successive meeting, and mortgage rates are heading downwards, prompted by the so-called mortgage price wars in early January. Average rates for 2-year and 5-year fixed mortgages have plummeted by over 1% in the past six months. At LBS, we have reduced rates on 11 occasions since October, across 328 products – the biggest cut across our residential range was 0.49% and our average reduction was 0.21%. A typical customer could save around £300 per month on these improved rates.

Consumer confidence According to the Intermediary Mortgage Lenders Association’s (IMLA) latest Mortgage Market Tracker, around 83% of brokers said they were confident in the outlook for the mortgage market. Our view is that continued stability in the economy will drive an increase in activity in the housing and mortgage markets this year. While this view isn’t revelatory, we can back it up with evidence of what happened in January. We received a record number of mortgage applications – our highest since the previous record in March 2023 – and saw a 6% increase in applications by first-time buyers versus January 2023.

Our view is that continued stability in the economy will drive an increase in activity in the housing and mortgage markets this year. While this view isn’t revelatory, we can back it up with evidence of what happened in January. We received a record number of mortgage applications – our highest since the previous record in March 2023”

RESIDENTIAL Opinion

confidence, and hope One month does not make a trend, but this suggests that consumer belief is returning, and that more people feel ready to take that first step onto the property ladder. The expertise, knowledge, and empathy I see from brokers is my reason to be confident. There are 18,000 mortgage brokers in the UK, who do a great job of helping people through what’s a really complicated landscape. One of the challenges we face this year is the especially sobering increase in interest rates for those nearing the end of a fixed rate deal. According to the Resolution Foundation, 1.5 million households remortgaging this year face an annual payment rise by £1,800.

Bolstered by brokers This serves to emphasise the significant role of brokers this year. I know that they – as well as lenders – will do everything possible to help those struggling with repayments, because the right thing to do is to remove uncertainty and protect something people have worked their life to buy. As a mutual building society, we proudly stand by our members, placing their financial wellbeing at the forefront of our decision-making. We were one of the first to sign up to the Mortgage Charter last year, and we have an amazing customer service team which helps those with

MARTESE CARTON is director of mortgage distribution at Leeds Building Society

financial difficulties to look at options such as extending mortgage terms, or temporarily moving to interest-only. I am excited by the potential opportunities we unlocked for brokers in 2023 through new products, improvements in customer service, and by delivering new digital technologies. Among many others, we launched innovative solutions such as Reach Mortgages, and we broadened our product portfolio through green mortgages and limited company buyto-let (BTL) schemes. We invested in customer services, created more engaging experiences and streamlined lending journeys, reducing the average application to offer time by 24%. Brokers can now receive a mortgage offer in principle as quickly as within 17 seconds a er submission. Finally, in a year in which many predict an election, my hope is for the political parties to show intent to solve all aspects of the housing crisis. It is clear that both homeowners and aspiring homeowners want to see action to tackle the causes, and not the symptoms, of our housing crisis. Of course, time will tell whether these feelings are misplaced. But what’s wrong with a bit of positive thinking at the start of the year? A er recent times, I think we can all be excused for wanting to look to the future with a li le optimism, confidence, excitement, and hope. ● February 2024 | The Intermediary

RESIDENTIAL Opinion

Do we have the tools to boost first-time buyer numbers?

e ing on the housing ladder is hard. It always has been, barring a few years in the run-up to the Global Financial Crisis when credit conditions were laxer than they are today. Nevertheless, it’s always been said that if you save hard enough, and you’re willing to make some sacrifices here and there, you’ll be able to buy a home eventually. However, the reality is that the dream of homeownership is becoming less a ainable for many people, particularly those living in expensive areas such as London and the South East. There are two main reasons for this. First, house prices have soared over the past few decades. If you go back 30 years, the average house cost threetimes the average salary, according to Nationwide – today it’s six. Not only have UK homes become more expensive, but first-time buyers (FTBs) also find that their incomes do not stretch anywhere near as far as they did a couple of years ago due to rampant inflation. Throw in the fastest escalation in interest rates in a generation, and the odds are stacked against FTBs. In fact, data from Yorkshire Building Society suggests there were 21% fewer first-time buyers in 2023 than in 2022 – the lowest number since 2013. However, FTBs accounted for 54% of all purchase activity, which is a positive. But why? According to the Building Society Association’s (BSA) monthly Property Tracker survey, the affordability of monthly repayments has been the biggest barrier to entry since last summer. However, the affordability crisis we are currently experiencing could be

The Intermediary | February 2024

less of an issue if inflation comes back down to target and interest rates fall, which may even happen this year. Once that happens, raising a deposit will go back to being the barrier facing would-be FTBs, as it has been pre y much since the Global Financial Crisis, according to the BSA. Recent press reports suggest that politicians are even considering allowing lenders to offer 99% loan-tovalue (LTV) deals. But the issue is not a lack of products – there are plenty of options at 90% and 95% LTV available on the market.

Both the Conservatives and Labour have pledged to build new homes in a bid to win over voters" Reducing deposit requirements further would be reckless, and would just heat up the market, making it even more difficult for FTBs to get on the housing ladder. Therefore, the obvious question is this: do we need new solutions to help people onto the housing ladder, or do they already exist?

Already equipped For me, we already have two highly effective solutions that, given enough backing, could help make the dream of homeownership a reality for thousands more people: Shared Ownership and Right to Buy. While critics point to Shared Ownership’s flaws – it can be quite restrictive, and you’re effectively still a partial tenant – it makes ownership accessible for families who would otherwise struggle to get on the

MARIE GRUNDY is managing director of residential mortgages and second charge at West One Loans

property ladder. The same can be said about Right to Buy, which allows council tenants to buy their homes at a significant discount to market rates. Right to Buy was one of the flagship policies of Margaret Thatcher’s administration in the early 1980s. To date, more than two million tenants have bought their own home through the scheme. Some commentators blame Right to Buy for fueling the housing crisis facing FTBs today, but there is nothing inherently wrong with the scheme itself. The issue is, instead, that successive Governments have failed to replenish the housing stock sold off under the scheme. Both the Conservatives and Labour have pledged to build new homes in a bid to win over voters as we head towards the election. Labour has also pledged to build more social housing, which would be welcome. However, very li le has been said about Shared Ownership and Right to Buy, which is disappointing. I would like to see MPs and the wider industry give both schemes a concerted push, alongside reform of the planning system and a drive to build more affordable homes. If we could achieve all three, we would make it far easier for prospective FTBs to purchase their first homes. Rather than wasting time, money and energy dreaming up ‘innovative’ new ways of expanding homeownership, maybe more focus should be placed on making the schemes we have available work be er. ●

RESIDENTIAL Opinion

We should all help the next generation of homeowners

s the country braces itself for another year, Prime Minister Rishi Sunak has given the strongest indication yet that Britain will be heading for the polls in Autumn. The UK has been governed by the Conservative Party for the past 14 years, and constitutionally, Government must call the next General Election to be held no later than 28th January 2025. Housing will be central to both main parties’ political campaigns, being an emotive subject felt as keenly by those who own their homes outright as by those aspiring to get their first foot on the ladder. As of yet, specific policy details remain thin on the ground. Both Labour and the Conservatives have pledged to build 1.5 million new homes over the next five-year Parliamentary term, and there are murmurs of planning regulations being loosened that would allow greenbelt land to be released for housing development.

For many people the only question that matters is whether they can afford a roof over their heads” In early January, Shadow Housing Minister Ma hew Pennycook suggested Labour would slash Right to Buy discounts back down to 2012 levels. Reversing a Conservative push under David Cameron to allow social tenants the right to purchase their council home for up to 70% off. The Conservatives, meanwhile, have been reported as mulling over

another housing market boost, waiving Stamp Duty for first-time buyers, or introducing some form of revamped Help to Buy scheme.

Party political We cannot ignore the simple fact that property is political. According to a poll carried out by YouGov in December, roughly a quarter of homeowners who own outright intend to vote Conservative at the next election. Just above a fi h said they plan to cast their vote in favour of the Labour Party. The poll of 10,000 also found that 15% of those with a mortgage plan to vote Conservative, while more than twice as many (35%) said they will back Labour. People who rent their homes privately also lean heavily towards Labour, with 36% currently intending to vote for Sir Keir Starmer’s party, and just 8% likely to vote Conservative. Those who rent their homes from housing associations or local authorities currently also break for Labour, by 29% to 8% over the Conservatives. At face value, these numbers seem to show that those most affected by much higher interest rates and with disposable incomes further squeezed by persistently above-target inflation are tired with the status quo. Renters who have seen their homeownership aspirations thwarted for years by rising house prices, making saving for a deposit all but impossible in parts of the country, seem similarly disillusioned. While one in four of those insulated from a significant hit to their finances by virtue of owning their homes outright seem content to vote Conservative, it’s telling that the

MICHAEL CONVILLE is chief customer officer at Newcastle Building Society

polling suggests that one in five plans to cast their vote in favour of Labour.

Confidence shaken However, property is in its essence about people and the practical necessities of life. Housing is a ma er of need. In December, Ipsos asked the British public for their views on the coming year. It found that confidence in the housing market is not as low as last year – just one in four expected house prices to fall in their area compared with almost half who said the same last year. Yet confidence in the British economy more generally remains weak, with two-thirds of adults not expecting their personal financial situation to improve this year. This is the crux of it. For many people, the only question that really ma ers is whether they can afford a roof over their heads. Ultimately, this is lenders’ responsibility, perhaps now more than ever. Addressing the issue of affordability is what’s really important to homeowners and renters alike. Our industry already works tirelessly towards this end. At Newcastle, we’re commi ed to continue offering a wide range of products designed to ease affordability challenges as varied as individuals are themselves. Whether it’s through Deposit Unlock, First Homes, Joint Mortgage Sole Proprietor, Shared Ownership, gi ed deposits, or high loan-to-value lending, we’re already doing as much as we can to support a new generation of homeowners. We sincerely hope that policymakers are as willing to do their part in the coming months. ● February 2024 | The Intermediary

RESIDENTIAL Opinion

Why politicians misdiagnose the issues facing FTBs

riter Sir Ernest Benn once reportedly said: “Politics is the art of looking for trouble, finding it everywhere, diagnosing it incorrectly and applying the wrong remedies.” This pithy oneliner was first a ributed to Benn – and o en incorrectly to the late comedian Groucho Marx – in the 1940s, but it arguably still rings true today. With an election now less than a year away, the ba le to win the hearts and minds of the British public has kicked up a gear. MPs from both sides of the political divide will spend the next few months testing potential policy ideas and quietly discarding the duds. The sensible thing then, would be to treat what MPs say with a pinch of salt until the election is confirmed – a er all, there’s a chance what they say won’t become policy anyway. But for today, let’s indulge a li le.

Long-term fixes Recently, both the Conservatives and Labour have teased mortgage policy ideas that they presumably believe will go down well with younger voters. First, Shadow Chancellor Rachel Reeves proposed that we move to a more continental system of 25-year fixed rate mortgages. Following that, reports suggested that the Conservative Party is keen on introducing a scheme allowing for 99% loan-to-value (LTV) mortgages. Let’s take these proposals one at a time, starting with Reeves’ 25-year fixed rate plan, an idea that resurfaces from time to time – floated last year by Housing Secretary Michael Gove. Reeves argues that long-term fixed rates, popular in parts of Europe and

The Intermediary | February 2024

the US, would leave UK borrowers less exposed to interest rate risk, so there would be no need to stress test the loan. It would also make for a more stable housing market. On both accounts, she’s right. However, there are plenty of reasons why 25-year mortgages would not take off in the UK, the first being demand. 2-year and 5-year fixed rates are by far the most popular products, with only a tiny portion of borrowers fixing for longer. It is baked into our culture to hunt out a good deal, hence the desire to remortgage every few years. Second, while you remove interest rate risk with a 25-year fixed rate, you also tend to pay a lot more for the privilege. In the US, you’ll pay north of 6% on a 30-year fixed rate, according to Freddie Mac. By contrast, you can pick up a 5-year fixed rate for well under 4% now in the UK. If you’re a borrower, you have to ask yourself: is the added peace of mind a 25-year fixed rate offers worth paying thousands of pounds in additional interest? It’s also unclear whether it is even possible to offer 25-year mortgages at scale in the UK. It would require a radical overhaul in the way lenders fund themselves, and I’m just not sure the appetite is there to do so. Moving onto the idea of 99% LTV mortgages – is that really a path we want to go down again, given that no or low-deposit loans are still widely blamed for fanning the flames of the Global Financial Crisis?

Getting to the bottom What’s the one thing both these policies have in common? They don’t address the root cause of the problem. It is not a lack of suitable products stopping first-time buyers (FTBs), it’s the difficulty of raising a large enough deposit.

LUCY WATERS is managing director of Aria Finance

Proponents of 99% LTV mortgages may argue they are the antidote to that problem, but at what cost? Overheating a property market that has already spent most of the past decade at boiling point? Unless 99% LTV loans went hand in hand with a significant expansion of our housebuilding capabilities, the likes of which we haven’t seen since the '70s and '80s, then it would just make things worse. It is encouraging that Labour has pledged to build roughly 1.5 million homes over the life of the next Parliament. However, our poor record when it comes to building enough homes in this country suggests this is unlikely. The Government has also previously promised to build 300,000 new homes a year in England by the mid-2020s. It’s currently not on track to meet that aim. A root-and-branch reform of the planning system, something Labour says it will make a priority, would be a sensible first step. But politically, that has proven difficult for many Conservative backbenchers and their constituents to swallow. What’s to say Labour will have be er luck? Put simply, if we relax credit conditions without major planning reform, we will simply store up problems for the future. We would make it even more difficult for the FTBs of tomorrow. I understand this period in the election cycle is about testing potential manifesto ideas. However, it’s time MPs started focusing on the right solutions to the real problems facing the market. ●

RESIDENTIAL Opinion

Another year of opportunity and challenge

he beginning of the year is traditionally the time to a empt to work out what’s in store, but this rarely goes well. “Life,” as John Lennon once sang, “is what happens to you while you’re busy making other plans.” While predicting might be a fool’s errand, planning ahead is most certainly not. There are a number of important milestones over the course of 2024, each of which poses both challenges and opportunities.

Net zero Whether or not you’re a diehard environmental campaigner, legislation deadlines to curb carbon emissions are marching on. The task of reducing the carbon footprint of Britain’s 26 million homes is huge. Some 14% of our total carbon output is generated by heating and powering our homes – cu ing those emissions will take drastic, fast action. We’ve already seen Prime Minister Rishi Sunak roll back the deadline for upgrading private rental sector homes to Energy Performance Certificate (EPC) Band C. The Government also excluded 20% of homes from the phase -out of fossil fuel boilers. Phasing out oil and liquid gas boilers for off-gas-grid homes won’t now need to be completed until 2035. While UK Finance welcomed the delays, delivery will take time. The industry needs guidance and a proper plan if sufficient change is to be delivered. This will mean, ironically, a lot of energy and effort over the coming years.

Living costs The past two years have been very hard on households with low and middle incomes. Notwithstanding a small

rise in December, rampant inflation is now coming back under control, with the Bank of England forecasting that it will be back at its target rate of 2% by the end of 2025. Mortgage rates have adjusted, but we are not out of the woods. Forecasts can change, however. We also have a year of political uncertainty, while the global economy may be vulnerable to geopolitical shi s – especially because there are more than 50 national elections around the world 2024. For mortgage lenders the bigger challenge is how to support borrowers who have already been affected by much higher living and refinance costs. More than 1.5 million more borrowers are due to come to the end of their existing low rate fixed mortgages over the coming year. New mortgage arrears are already up. UK Finance Q3 figures show a 10% rise in arrears between 2.5% and 5% of the outstanding balance. This year will see more households struggle to cope with a steep rise in mortgage repayments – particularly if inflation remains stubborn. The impact of global conflict can cause shocks to energy and food prices, as we have seen in the Ukraine and may yet see in the Middle East.

Governance The governance element of environmental, social and governance (ESG) now takes centre stage. The Financial Conduct Authority (FCA), Competition and Markets Authority (CMA) and Advertising Standards Authority (ASA) are clear that corporate greenwashing is no longer tolerated. Sustainability targets, cyber security, data protection and consumer protection are all high on company agendas in 2024.

STEVE CARRUTHERS is business development director at Iress

Part of the wider scope of governance for financial services companies is the expansion of Consumer Duty rules for closed products or services, which come into force on 31st July 2024. In December, the FCA published its findings following a review of how the retail banking sector was implementing the rules on current products. It looked at the actions firms had taken for customers in financial difficulty, dealing with bank accounts of deceased or incapacitated customers, fraud and security breaches, business current accounts and mortgages for debt consolidation. The regulator found that a number of firms had submi ed ‘evidence’ of their assessments of consumer outcomes that was simply insufficient. It stated: “Some only provided excerpts from the analysis or simply a statement saying they had not identified any harms, but with no evidence to support the statement. This will be a significant area for lenders, networks and brokers over the coming 24 months.”

Outlook Early indications suggest 2024 is likely to be be er for the mortgage market, especially if we consider the latest Money and Credit statistics that show mortgage lending to individuals was at net zero in November, compared with £0.1bn of net repayments in October, while net mortgage approvals for house purchases rose from 47,900 in October to 50,100 in November. Net approvals for remortgaging also rose, from 24,000 in October to 27,000 in November. 2024 will be another year of opportunity and challenge. ● February 2024 | The Intermediary

RESIDENTIAL Opinion

A new year bounce for the mortgage market

he mortgage market has seen a more positive start to the year than initially anticipated, driven by pent-up consumer demand, accompanied by lower interest rates. Consumers have benefited from a rate war, with lenders competing for market share, resulting in significant rate reductions. This has had a positive impact on both existing and new business, as well as product transfers, with a flurry of activity for advisers anxious to secure the most competitive product available for their customers. However, this market dynamic is a double-edged sword; delivering good consumer outcomes on one hand, while increasing the workload and time and resource pressures on advisers on the other. It’s a balancing act I expect to see continue throughout the first half of 2024.

Market optimism The combination of a slight increase in inflation in December and holds in both the bank base rate and unemployment levels have helped to create some stability and certainty in the market, thereby improving consumer confidence. The market view is also cautiously optimistic, and for good reason. Indeed, scrolling through estate agency websites has become the tonic to replace my gin and tonic through dry January. What I’ve seen locally supports the strong property listing figures reported by the likes of Rightmove. Activity is up 26% on last year, and buyers contacting estate agents is up 20%, clearly demonstrating the resilience of the UK housing market. There was also good news for house prices, with Nationwide’s House Price

The Intermediary | February 2024

Index reporting an overall reduction of 1.8% in UK annual house prices, significantly under the 8% to 10% reduction that was being forecast at the beginning of last year. However, as we’ve seen volatility in swap rates return and lenders start to increase their pricing – albeit with products more a ractive today than they’ve been for several months – it’s worth keeping an eye on what impact this might have on activity, going forward.

There is still huge opportunity for advisers to grow their share of the product transfer market” Meanwhile, we saw intermediated mortgage business in 2023 increase to an all-time high, demonstrating the growing need for advice, which is another trend I expect to see continue this year. A significant upli in intermediated product transfer business is one of the drivers behind this, although it is still tracking behind new business in proportionate terms. With a maturity market of £295bn, equating to 1.5 million customers, this means there is still a huge opportunity for advisers to grow their share of the product transfer market even further.

Still in crisis Longer-term, we’re likely to see a swing back to remortgaging over product transfers, with increasingly competitive remortgage products available from lenders, while feedback from advisers is indicating that lower rates are having a positive impact on

STEPHANIE CHARMAN is group partnerships and propositions director at Sesame Bankhall Group

affordability. That said, stark research from Nationwide Building Society found that the number of people in the UK with no spare cash at the end of the month had doubled over the past 12 months, from 11% to 21%. With an average increase of approximately £230 a month on mortgage payments, the cost-of-living crisis will continue to impact many people for a long time to come. Elsewhere, there are market sectors with pent-up demand. The buy-tolet (BTL) market was impacted more severely than other sectors, however we are starting to see the green shoots of recovery. Cash transactions accounted for a third of homes sold in 2023, increasing from an average 20% in 2022, with speculation that this increase is primarily due to landlords purchasing property in cash. The expectation is that more landlords will be ready to remortgage and leverage their portfolios once interest coverage ratios (ICRs) become viable. Indeed, research from The Mortgage Lender found that 52% of landlords had grown their property portfolios in the past 12 months, with more than half looking to continue this growth in 2024. Recent rate reductions are starting to make buy-to-let an a ractive opportunity for landlords, contrary to reports that record numbers are disposing of property. With a bounce back in both the house buying and buy-to-let markets, it feels like there is plenty to be positive about, and we’ll be keeping a keen eye on these trends in the year ahead. ●

RESIDENTIAL Opinion

Long-term fixed rate lending already exists

ver the next 12 months, more than two billion voters living in 50 countries around the world will head to the polls to decide the political and social futures that will shape global geopolitics for the next decade. According to the Centre for American Progress, this is a year that will break national election records. The US, India, Mexico, South Africa and the European Union elections are confirmed; in the UK, it looks likely that the Government will call the next election in the autumn. While Prime Minister Rishi Sunak has so far declined to confirm a date, party campaigning has already begun. Both Conservatives and Labour have started to draw lines in a number of policy areas, across the green agenda, personal taxation and, importantly for those in our industry, housing. In an interview with The Times in early January, Shadow Chancellor Rachel Reeves laid out her party’s plan to alleviate the pain that higher mortgage rates will continue to inflict on middle income households. The Resolution Foundation’s Macro Policy Outlook for 2024 estimates that around 1.5 million households are due to reach the end of their fixed-rate deal in 2024. By their calculations, that will see their annual mortgage bill rise by £1,800 on average. Those affected make up a considerable bulk of potential votes. According to the Resolution Foundation, nearly two-fi hs (37%) of households that had a mortgage when the Bank of England started raising rates have still not reached the end of their fixed-rate deal. So ening the very real financial shock experienced by millions of mortgage borrowers is an objective

worth talking about – particularly now, when it’s all too close to home for so many. Reeves’ plan is to deliver a cultural shi away from short-term deals, towards 10-year, 15-year or even 25-year fixed rates. Her logic is that these deals enable people to buy with smaller deposits, lower monthly repayments, and without the burden of interest rate stress-testing. She’s asked the independent panel of industry heavyweights appointed by Labour in December to conduct a review of financial services, and to work with the mortgage industry to deliver on that.

Not a new idea The idea of moving the UK’s mortgage market away from regular refinancing from short-term fixed rates is not a new one. In fact, just six months ago Michael Gove said he’d like to see more 25-year fixed rate mortgages come to market. He told The Telegraph that these would remove “the oscillation of how much you pay every two or five years.” Having “certainty over as long as 25 years on what you pay…is something we should look at,” he said. Ask anyone who has been knocking around in the mortgage industry for a while, and they’ll tell you that simply saying the UK should offer long-term fixed rates is moot. The way mortgages are funded in the UK has effectively ruled out that model for years. Reeves even said it herself – a Labour Government would not countenance the taxpayer underwriting this type of product. In the States, it is this very thing that enables lenders to offer such long-term rates. Talking about the potential benefits of an idea appeals to politicians regardless of their party allegiances.

TIM HAGUE is managing director at Sagis

Turning that idea into a reality is far from the same thing, however. To create a meaningful alternative to 2-year and 5-year fixed rates takes innovation, commitment and the ability to demonstrate the commercial argument. What ma ers in the market is whether brokers can justify advising clients to take a long-term fixed rate – is it the right and most appropriate product for them? The viability of brokers’ business models is also fundamental to the success of an intermediated product sale. ‘One and done’ does not make sense for firms reliant on repeat business. These have been stumbling blocks for the industry in the past – but there are ways to overcome them. Longterm fixed rate providers are coming to market. Clients can fix for between 20 and 40-years, doing exactly what both Labour and the Conservatives have argued for – bringing monthly payments down and allowing larger loans without the fear of being vulnerable to interest rate shocks. Long-term fixes may yet be beyond the imagination or desire of many borrowers, but 10-year fixed rate products are not. These products are evolving and in some cases offer much more flexible early repayment charge (ERC) options to overcome borrowers’ concerns about lock-ins. This is not the end of political back and forth designed to win the votes of hard-pressed households over the coming year. But whatever the result in the upcoming election, it should ma er li le for borrowers who do want the security of a long-term fix. Politics aside, the product already exists. ● February 2024 | The Intermediary

RESIDENTIAL Opinion

What’s in store for the UK mortgage market in Q2?

rom volatile mortgage rates and an uncertain political landscape to stubbornly high inflation and the ongoing costof-living crisis, it’s safe to say that the UK property market has had its fair share of challenges to contend with over the past year. This was recent exemplified by statistics from Zoopla showing that the national average house price has now fallen to £264,100 – £2,100 less than it was 12 months ago. On the surface, this might make for quite a gloomy forecast, but the fact of the ma er is that the rate at which house prices are falling is actually slowing. On top of this, mortgage rates have already started to decrease steadily since the beginning of 2024, with several big lenders having dropped rates for the first time in months. Despite the challenges that the property market continues to face, these recent indicators certainly give reason for optimism. That said, the question remains: how will the mortgage sector fair over the next quarter, and what should homebuyers and property investors alike be considering when making their next move up – or down – the ladder?

Slowing market, lower rates I don’t have a crystal ball, so I – like anyone else – can’t say with complete certainty what’s in store for the property market over the coming quarter. However, it’s my personal opinion that the market is highly competitive, due to there being considerably less property business being transacted. This means that lenders are really having to fight for their share of the market, which has

The Intermediary | February 2024

in turn prompted the drop in interest rates that we’ve seen from some. In response to this, we’re now seeing a significant number of property owners choosing to improve and develop their existing homes rather than moving. It’s easy to understand why – a er all, with most homeowners having secured a lower rate when purchasing their current property, it stands to reason that they would prefer to avoid the unnecessary increase in their mortgage repayments that buying a new home would likely bring. It’s probable that this inertia will cause interest rates to remain stable throughout the course of this year, before we begin to see a steady decrease in 2025 and 2026. That, at least, is my hope.

Regional differences While it’s true to say that the UK property sector has experienced something of a dip over the past 12 months, this is not necessarily a statement that can be applied to all corners of the country. Indeed, it’s clear that some regions are far outperforming others. For example, the latest data from Zoopla has put an emphasis on a clear divide between the North and South. While major cities in the North like Manchester (+0.4%), Leeds (+0.6%), Liverpool (+0.9%) and Edinburgh (1.3%) have all seen increases in average property prices, many urban centres further south – such as No ingham (-0.6%), Oxford (-0.6%), and Leicester (-1.8%) have experienced decreases. In those areas where there’s been a rise in prices, houses have been practically flying off the shelves, where in others they’ve been taking much longer to sell. Looking at the country as a whole, however, the majority of people need

GARY DAS is founder and CEO of Active Mortgages

to accept that they are going to be paying more for property, with even a drop in value marginal at 1% to 3%, and that the mortgage interest rate correction has been long overdue.

The right time to move? Ultimately, mortgage rates are coming down, albeit slowly. However, for those holding off for the ‘right time’ to move – such as when rates dropped to the all-time low of around 1% in 2020 – the unfortunate truth is that we are unlikely to see this for the foreseeable future. As such, it’s important to consider that any move will likely come with interest rates of between 3.5% and 4.5%. For the self-employed individual or business owner, the right time to move does take more planning. I always advise clients to think one step ahead if intending to move within the next 12 to 24 months, and reverse engineer for deposit, profit, salary, expenses, turnover, and business structures to ensure they are in the strongest possible position for lenders.

Reasons to be cheerful While there are certainly some reasons to be cheerful about the outlook for the UK mortgage market, it’s clear that there is still uncertainty around rates. With business in the property sector having slowed, especially in certain regions of the South, many homeowners in these areas are likely to stay put for a li le longer before taking the plunge to move. That said, the situation simply can’t stay as it is, and the market will inevitably pick up in due course – even if it's later than many would like. ●

RESIDENTIAL Opinion

Wise buyers are waiting to strike in London

he start of a new year spells an uptick in housing market activity. Buyers are optimistic and ready for a fresh start, while mortgage rates tend to be more competitive in a bid to entice borrowers and get that first slew of funding away quickly ahead of first quarter targets.

Bucking expectations Toward the end of last year, buyers, sellers and estate agents were a bit more cautious than usual. The economy faces the dual challenge of above-target inflation while higher interest rates are biting into borrowers’ affordability. Speculation that house prices will so en further has also contributed to a sense in the mortgage and property industries that activity is most likely to pick up later on in the year – a er a General Election, and with the potential for a cut in the Bank of England base rate. Yet there are early signs that the market is bucking those expectations. A fortnight into 2024 and Rightmove said estate agents were already reporting a busy start to the year. The property listings site published figures showing that the number of new properties coming onto the market for sale was 15% higher than in the first week of January last year. The level of demand from those looking to buy a home was also up compared with 2023 across the UK. In the capital, the rise in demand was particularly noteworthy, up 19% in the first two weeks of the year compared with 12 months ago – the biggest jump anywhere in the UK. Meanwhile, data from rival site Zoopla revealed that, across London and the South East, asking price

discounts grew from 2.1% in 2022 to 6.1% – which equates to £25,000 on an average property. House price gains in the city and its environs have been much lower than for the rest of the UK in recent years, which has helped improve affordability for buyers – particularly as wage growth has strengthened. Many more highly leveraged property owners may be downsizing or selling second properties to boost equity and make higher remortgage costs more palatable. The sell-off by smaller independent private landlords is also a factor, though given London’s persistent demand for employees, sensible investment properties are not hanging around. With the prospect of a General Election towards the end of the year, it’s probable that activity will be tempered temporarily as the country waits to see who will take the reins in Government for the next five years. Depending on the election result and size of majority, markets may rally on the hope of a more stable domestic economy. That would give the Bank of England more wiggle room on interest rates – especially if we see GDP fall over the first half of the year. An injection of confidence is very much on the table.

Buyer opportunity These variables will put warier buyers off until there’s more certainty, but there are still plenty who recognise that it is these relatively uncertain dynamics right now that give them the opportunity to capitalise. This is particularly true for buyers in London, where the housing market operates in small pockets, each adhering to slightly different micro market stresses. Some boroughs have seen prices come off more than others,

ROBIN JOHNSON is MD of KFH Professional Services

with Zoopla data showing popular commuter spots such as Croydon, Harrow and Bromley seeing house price inflation fall back by 3.4%, 3.2% and 2.9%, respectively. In areas such as these, popular with first-time buyers, tighter mortgage affordability is being offset by more realistic selling prices.

Supply and demand While supply is up for the moment, it’s worth remembering that a slowdown in new-build completions in London will restrict the availability of homes to buy over the coming year or two at least. A report by real estate consultancy JLL revealed that in Q3 2023, data insight firm Molior recorded construction starts in the capital as down by 74% on the 10-year average, while completions were down by 37%. The number of units started in Q3 2023 across London almost halved compared with the previous quarter, with the largest falls seen in zones two, four, five and six. While affordability is a constraint, developers will keep their powder dry, releasing new-build plots in line with buyer demand, so as to keep a floor under prices. There are undoubtedly challenges facing the housing market in 2024, but it was ever thus. The market fundamentals in London have not shi ed; if registrations are anything to go by, wise buyers are waiting in droves to take advantage of what is, realistically, a blip in confidence, not in credibility. ● February 2024 | The Intermediary

RESIDENTIAL Opinion

Breaking records: 2024 is hopeful for first-time buyers

wenty7tec recently reported the busiest day on record for mortgage searches since its inception 10 years ago. In January 2024, searches for first-time buyers were up 125.9%, and we saw total monthly mortgage searches surpass the two million mark for the first time ever. These figures follow pent-up demand a er Christmas, a er a subdued Autumn and slow December. This flurry of activity was spurred on by increased certainty in interest rates, a wide pool of product availability, and falling mortgage costs, which have seen us have a hugely busy start to the new year. It’s important to note that while the proportion of mortgage search volumes by first time buyers rose – 17.3% of the market in January – it still remains lower than the long-term average, so we expect to see more activity here as the months go on.

Demand for firsttime buyers is slower in London than nationwide” While more positive interest rate headlines, spurred on by a flurry of lender repricing, will have helped pique the interest of some buyers, it’s the harmony between decreasing rates and a be er narrative from the Bank of England that has led to considerable change in consumer confidence in a short period of time. This was validated further by the Bank of England’s decision to hold interest rates at 5.25%. As long as we don’t see a significant change in

The Intermediary | February 2024

the rhetoric, it’s likely that this will encourage higher activity over the coming months.

First-time buyer activity What do the latest figures for January 2024 versus December 2023 tell us about the first-time buyer market in London compared to nationwide? As expected, demand for firsttime buyers is slower in London than nationwide. The squeeze on affordability for prospective London buyers is more pronounced with the higher-than-usual interest rates, combined with the backdrop of higher property prices. As a result, house buyers are o en saving for deposits for longer, which keeps overall activity at a lower level than nationwide.

Family gifting Our latest data shows that in January 2024, family gi s for deposits on purchase mortgages peaked higher than ever since May 2022. January and February have historically been the busiest time for people looking to purchase a property with a deposit from family gi s. Perhaps this follows the Christmas period when families spend time together and decide on gestures like this, but it’s also likely that firsttime buyers have been supported by families who are mortgage free. These homeowners are unaffected by rising interest rates, and probably benefit from higher saving rates, and are in a strong position to support family members to get on to the property ladder at what is still a challenging time.

Mortgage marathons Longer-term mortgages are becoming increasingly commonplace,

NATHAN REILLY is director at Twenty7tec

particularly with first-time buyers. The combination of smaller deposits or lower monthly payments when rental costs are soaring will certainly be appealing to many, and these extended terms may be the only way for some people to get on the housing ladder. Since UK homebuyers were offered their first 40-year fixed-rate mortgage by Habito in March 2021, long-term mortgages have become ever more popular and innovative; this month, we saw Perenna reduce its pricing on its flexible long-term fixed rate mortgage, and April Mortgages offer a Dutch-style longer-term fixed rate mortgage, where the interest rate comes down as the loan is paid off. The cost of living has undoubtedly played its part – alongside longer life expectancy and retirement ages dri ing upwards – and more providers are entering the market. Whereas previously it was harder for some prospective buyers to afford the monthly payments on a traditional 25-year deal, home buyers now have a viable alternative. However, it’s important to note that longer mortgage terms can also increase the size of the total debt, and in some cases, the home buyer won’t be mortgage-free until they are nearing retirement, so careful consideration is necessary.

What can we expect? Usually, the busiest time on the housing market is between March and September, so we expect that in the coming weeks, more records will be broken as first time buyers and other movers take to the market to find their homes. ●

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The Interview. MT Finance

filled, where some borrowers were underserved at the time. “We wanted to bring regulated bridging back to basics,” he explains. “We took a ‘need’ rather than ‘want’ approach to underwriting – no frills, we ask what we have to ask to satisfy our requirements, get comfortable with the loan, and get it through to completion as quickly as possible. We felt there was a need for that kind of lender in the regulated bridging space.”

Market trends

Jessica Bird speaks with Raphael Benggio, head of lending – bridging, and Marylen Edwards, head of lending – BTL at MT Finance, about the challenges of creating an evolving proposition

T Finance launched around 15 years ago, originally as an unregulated bridging lender. Over the years, it built up its reputation through an approach that focused on seeing each case as unique, underwriting them on their own merits, and ultimately working to find solutions to the complex issues facing borrowers. The Intermediary sat down with Raphael Benggio, head of lending – bridging, and Marylen Edwards, head of lending – BTL, to take a look back at the firm’s evolution over the years, and how this sets it up for the future. In 2020, MT Finance made the move into regulated bridging. Benggio notes that the firm saw a gap in this market that needed to be

The Intermediary | February 2024

Market trends at the time showed MT Finance that regulated bridging was becoming increasingly popular, with ever more borrowers finding themselves with a need for the product, to the extent that the market was underserved by the lenders that existed at the time. Benggio adds: “There weren’t many lenders able to think on their feet and move quickly. It was mainly specialist banks doing regulated bridging, which naturally have a lot more red tape to adhere to. “With our reputation for service, there was a real opportunity for us to go into that space as a breath of fresh air.” When it comes to risk management and underwriting, MT Finance focuses on who it is lending to, the type of security in question, what the funds are being used for, and the proposed exit route. “Each deal is different, and we assess it based on the totality of all those factors and on its own merits,” Benggio explains. “As an asset-based lender, of course, it’s in our DNA to ensure that the security is adequate.” MT Finance aims to provide a direct line to decision-makers as part of its service, keeping brokers up-to-date consistently while progressing a case as quickly as possible. “We see it very much as a transactional need to progress the case as quickly as possible once we’re satisfied,” says Benggio. “Anybody coming to us for a bridge is doing so for certainty of funds and speed of completion. We try and give our clients that certainty of service every single time.” In the years since MT Finance was founded, and particularly in the recent period since the first impact of Covid-19, the firm has seen bridging finance grow as a product.

I N T E RV I E W

The biggest challenge we’ve had over the past year is getting deals done in the timeframes we wanted to. Brokers were hesitant to get applications in, because rates were changing frequently, while clients were reluctant to commit” Marylen Edwards Benggio says: “Bridging finance has become a lot more respectable. It’s more of a respectable financial product than it ever was, and that’s mainly because it’s becoming slowly more mainstream. More brokers and introducers are switching on to the fact that bridging finance is a real, useful tool for their clients, and can be the best solution for their situation. “On the regulated side in particular, you can see how over the past five years it’s become more popular. A regulated bridge can really assist day-to-day borrowers with their financial situations.” Bridging has traditionally been a product driven by need and necessity, which means that in times of turbulence – when an increasing number of borrowers are driven to that position of need – the natural result is greater awareness of the benefits. In this way, the market has benefitted greatly from recent upheaval. These needs in recent years might have been chain-break scenarios, the push to do work on an existing property at a time when moving is less feasible, and even buying a borrower time to wait for interest rates to shift in the mainstream mortgage market. “People who may never have considered a bridging loan, might – with the recent upheaval – have been put in a position where it was the only option,” says Benggio. “Bridging has been able to help those people, but it has also shown its value as a tool in the future.” In a more positive view, now that more brokers have had their eyes opened to the product’s value, this growth is likely to be sustained even as the market moves into more stable times, particularly as bridging rates are increasingly reasonable.

For example, the pandemic showed many people the value of bridging for refurbishment purposes, which will likely continue as a trend. “It’s always been a ‘need versus want’ product,” says Benggio. “While we could all do with a bit of stability in the economy, I don’t see the demand for regulated bridging diminishing. I think it will grow in popularity, because it’s a product that can really help people in their day-to-day lives, when sometimes a mortgage isn’t the best solution. “On the unregulated side, for investors and landlords it can be an exceptional tool as well, giving them the speed and flexibility to move on opportunities as soon as they spot them. Bridging is here to stay.” This does not mean the work is over, however. Benggio notes that while more brokers and introducers are approaching bridging lenders for the first time, lenders also “have a responsibility to go out there, see these mortgage brokers, and educate them around how useful bridging can be for their clients.”

Buy-to-let challenges

Continuing its evolution, the launch of MT Finance’s buy-to-let (BTL) proposition was, Edwards explains, a “continuation of our DNA – service and relationships are key, as is the ability to look at something manually and take a view on it, rather than ‘computer says yes, computer says no’.” The BTL proposition was soft-launched in July 2022, but this was shortly followed by the Liz Truss mini-Budget in September, which threw all property markets into a tailspin. At such an early stage in its progress into the BTL market, MT Finance focused on honouring and completing those cases already on its books. The firm then really started to establish its place in the BTL market from this time last year, growing as the sector found a steadier footing. MT Finance grew its pipeline from there, seeing positive results month on month. Nevertheless, rates are still unpredictable even now, and the BTL market in particular is fraught with challenges. Edwards says: “The biggest challenge we’ve had over the past year is getting deals done in the timeframes we wanted to. Brokers were hesitant to get applications in, because rates were changing frequently, while clients were reluctant to commit. Offers were taking the full three months to complete.” Nevertheless, she notes that things have started to pick up. Indeed, where some people are unsure that recent rate changes are for good, they are looking to lock deals in faster → February 2024 | The Intermediary

I N T E RV I E W

If an application fits our AVM criteria, we can feed back within 30 seconds whether it has passed and what value it comes in at. We can then press ahead, giving them the immediate peace of mind that the deal works from a loan-to-value perspective” Raphael Benggio before the next potential bout of instability. When it comes to adapting to rate changes, Edwards says that those landlords who have been around since before 2008 are perhaps less fazed, but those who have entered the market in the past 10 years are less prepared for the current environment. She explains: “They’re suddenly seeing for the first time that it’s not quite as easy to capital raise, and they’re having to think about what they buy and how they structure their assets to gain more capital and utilise the assets to their full potential.” In terms of the wider market, Edwards notes a key development for landlords in the pushing back of proposals such as those around minimum Energy Performance Certificates (EPCs). Indeed, this is simply the most recent shift in a market beset by continuous tax and regulatory changes. For MT Finance, this is part of the importance of the buy-to-let offering. Edwards says: “It’s for us to stay on top of things as they change – be it criteria, products or policy – and try to adapt ourselves to accommodate as best we can and assist landlords. “Our product range is quite wide and diverse, allowing landlords to be flexible on the assets they have secured with us. For example, some lenders have separate products for holiday lets and short-term lets, ours falls under our residential let products, so if someone does want to flip, they’re not breaching their offer.” This approach aims to cater for the fact that landlords are having to be increasingly inventive in order to keep business profitable. For example, MT Finance is able to accommodate the conversion of properties into houses in multiple occupation (HMOs) 32

The Intermediary | February 2024

and multi-unit freehold blocks (MUFBs) to maximise the use of the space. The key to providing this kind of flexibility, Edwards says, is communication. “A lot of it comes down to the knowledge of the people in the company, and their work talking to brokers and BDMs, having conversations with people,” she explains. “We’re always trying to look at ways to assist. We also value our relationships with our valuers and solicitors, so we can help people get things across the line quickly if needs be.” Edwards adds: “The key to creating the smoothest journey possible is communication between the lender, broker and client – really understanding what the client wants and needs.”

Fast and flexible

With an approach that is deeply tapped into the needs – and feedback – of brokers and their clients, MT Finance recently made a move to take these conversations on board, by introducing automated valuation models (AVMs). Benggio says: “From a client and broker point of view, it’s essentially an instant win. It’s less up-front costs from the borrower, where valuation fees have been getting more and more expensive in the past few years. “Beyond that, it gives an immediate certainty. If an application fits our AVM criteria, we can feed back within 30 seconds whether it has passed and what value it comes in at. We can then press ahead, giving them the immediate peace of mind that the deal works from a loan-to-value [LTV] perspective. “It speeds up the underwriting and shortens transaction times. In the bridging world, where time is always of the essence, this can be a huge win for a borrower.” AVMs whipped up something of a storm in the market during the Covid-19 peak, as they seemed to offer a chance to keep transactions moving, without the health and safety issues – or time constraints – of getting valuers out on site. However, those opposed to the movement pointed out that these models were not applicable on a broad range of properties, largely catering for the most vanilla cases with the highest number of comparables. However, Benggio points out that times have changed. In fact, the reopening of the market for physical valuations has only created greater opportunities to boost the data available for automated ones. AVMs, while not a panacea, are increasingly relevant to a wide variety of deals.

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C A S E S T U DY

he client, a limited company, sought long-term finance for a multi-unit freehold block (MUFB). They had taken out a bridging loan elsewhere to fund the purchase and a subsequent refurbishment, but this loan was now due for redemption. They had an exit in place, but it turned out there was a shortfall, and they were now facing £17,000 in penalties. In addition, the client required a second charge bridging loan on their main residence to complete the final stages of refurbishment on the MUFB. Therefore, the bridging loan needed to be completed simultaneously with the buy-tolet mortgage. Due to the urgency and MT Finance’s ability to assist with both elements, their broker immediately contacted the lender to step in. With less than four weeks to complete the transaction, a Red Book valuation was instructed for the BTL property. Thanks to strong relationships with professional partners, MT Finance received the report within three days. The firm issued a BTL mortgage of £390,600 at 75% LTV of the property’s confirmed value of £500,000. The term was set for 15 years. Meanwhile, the bridging team processed the bridging application and issued a £315,000 second charge bridge on the same day, as requested by the client. The LTV was 54% and the term was set for 18 months. Issuing a buy-to-let mortgage and a second charge bridging loan simultaneously, and before the client’s deadline, allowed them to complete the refurbishment on the MUFB and repay their existing bridging loan, avoiding the £17,000 redemption penalty. The clients now have a long-term investment loan that will allow them to generate profitable income from the MUFB.

“Each lender has to look at the AVM piece and pick criteria and risk levels that fit their organisation,” says Benggio. “It’s something quite new for us, as we’ve only just rolled it out, but we think we have fair criteria. It’s something that will progress and grow as we become more familiar with it.” Despite the UK property finance market historically being slow to adopt new tech and innovate, Benggio says this is all part of MT Finance’s approach to keeping up with broker and borrower needs. Nevertheless, technology has to have real value, rather than being adopted for the sake of it. “As a lender, we’re always looking at emerging tech,” he explains. “We always have one eye on how tech is improving service levels across the market. That might be using tech to streamline our internal [know you customer (KYC)] requirements, or with AVMs. BDMs are a big part of that – it’s down to the relationships and communication, getting feedback on what would improve the service and the products.” However, in a part of the industry where service is everything, not all tech revolutions are suitable. “Our DNA is our service offering,” says Benggio. “We would never add tech just for the sake of it, it has to have a tangible benefit for our clients and introducers.” Indeed, Edwards adds, the ability to take a nuanced, manual approach to lending is one of the core reasons that the specialist market was formed in the first place. “The high street can be fully automated, but specialist lending has always been there to help those that couldn’t get what they need from the high street,” she says. “The manual approach will always have a key part to play in how things are structured.” In fact, Edwards adds that the revolution caused by Covid-19, while helping to propel the market’s understanding of tech and automation forward, has had the effect of taking some of those relationship elements away, possibly to its detriment. Benggio adds that taking a personal approach built on communication means that, if and when issues do arise in a case, it is a matter of a quick conversation to overcome hurdles and find a solution. For the future, while MT Finance has enjoyed some successful and busy years, Benggio notes that the firm is “never one to rest on its laurels,” and no matter the achievements of 2023, 2024 will still be a year to review and reassess what this lender can do to grow and progress within the context of a changing market. ● February 2024 | The Intermediary

B U Y - TO - L E T Opinion

Banishing the blues with holiday lets GRANT HENDRY is director of sales at Foundation Home Loans

30% of UK adults won’t be holidaying abroad this year as the cost-of-living crisis continues to bite

t’s that time of year when it’s almost impossible not to be drawn into some kind of holiday-related thinking – a short break to help banish those winter blues, the planning of an overseas adventure for later in the year, or anything and everything in between. My head has admi edly been turned by a deluge of holiday images and the term ‘Blue Monday’ urging me to seek fun and sunshine. A er all, there’s enough for everyone.

How does it feel? I’m reliably informed that ‘Blue Monday’ was coined as a marketing tool to sell more holidays. It originated from a ‘mathematical equation’ to find the bleakest day of the year by combining weather data, amounts of debt, time passed since Christmas, motivation levels and the time since New Year’s resolutions were made. I’m sure that the sceptics among us won’t be too surprised by this revelation. The question is this: with the rise of the ‘staycation’, is this sundrenched imagery still working? I’m no marketing guru so it’s not for me to say, but if research from Sykes Holiday Co ages is anything to go by, this gimmick now needs far more strings to its bow as holidays and breaks

The Intermediary | February 2024

within our very own shores remain a highly a ractive option for a strong proportion of the population. This research revealed that 30% of UK adults won’t be holidaying abroad over the next year as the costof-living crisis continues to stretch household finances. Concerns for the environment (18%) and foreign conflict (17%) also appear to be pu ing Brits off je ing abroad, with many choosing to discover what lies closer to home. Sykes’ booking data also shows that the cost-of-living crisis is impacting how people travel in the UK, with the holiday let agency witnessing a significant increase in the volume of late bookings and short breaks in 2024. The holiday let sector has certainly risen in prominence over the past few years from a lender and intermediary perspective, having experienced sustained demand even in the postpandemic era. However, much like the wider buy-to-let (BTL) sector, this area continues to evolve from a legislative, licencing, tax and complexity standpoint. For example, plans to introduce a statutory registration and licensing scheme for all visitor accommodation in Wales have been recently announced by the Deputy Minister for Arts, Sport and Tourism, with

legislation expected to be introduced to the Senedd before the end of the year. Northern Ireland has had a certification scheme established for all visitor accommodation since 1992, with Scotland having recently introduced a licensing scheme for short-term lets. The UK Government is also pursuing a registration approach for short-term lets.

Balancing act Any property investment has always come with its fair share of risk and reward, although increased regulatory and local council scrutiny on holiday lets is making some investors now think twice. Having said that, demand remains robust from professional landlords due to the lure of potentially higher yields and the opportunity to introduce greater divestment across their portfolio to help negate their risk exposure. This is an area of the buy-to-let market which we are pleased to offer as a core proposition within our ‘Buy to Let by Foundation’ range. Holiday lets may not always be the most straightforward cases, and landlords incorporating these into their portfolios might not always have the most straightforward financial profiles. They differ from shortterm lets, in that holiday lets o en have seasonal fluctuations in rental income, but we are able to average out that income over 39 weeks. This is where our manual underwriting and expertise in handling mixed portfolios comes into its own. As a specialist, our criterialed approach can offer a far greater array of options to our intermediary partners and their clients. ●

B U Y - TO - L E T Opinion

Time for the carrot, not the stick

he target has been set for a while now for the UK to get to net zero by 2050, which will take a lot of work from various sectors and industries. One such is our own industry, which last year thought it would finally get clear guidance on the one measure designed to make inroads into the elephant in the room – the UK’s old and leaky housing stock. There remains no doubt in my mind that something needs to be done, especially considering that we have some of the oldest and least efficient homes in Europe.

41% [of landlords] believe it’s important to meet the proposed EPC requirements" The Government scrapping plans to encourage landlords to improve their homes is not going to help solve the problem. However, with the U-turn being largely welcomed by landlords, it’s vital to note their concerns were valid, both around how we measure energy efficiency and how it’s promoted, alongside what some saw as unrealistic expectations with harsh repercussions. With the last effort to reform the private rental sector’s (PRS) homes focusing much more on the stick approach, 2024 should be the opposite. We must focus on the carrot, by offering incentives and promoting the upsides of retrofi ing, rather than touting fines and consequences. One way to incentivise green changes could be to refund Stamp Duty Land Tax (SDLT) once a property has been retrofi ed. A potential SDLT rebate may incentivise landlords and buyers to upgrade a property’s

energy performance. Despite there no longer being an imminent target for landlords to retrofit, there should still be a focus from lenders and the Government to incentivise green changes. Another option is to give homebuyers with a low Energy Performance Certificate (EPC) the opportunity to upgrade to a Band C or above, and become eligible for an SDLT rebate. This would help cover the costs associated with retrofi ing, encouraging buyers of these properties to purchase and upgrade them.

Win-win situation There is demand for more energyefficient properties. Our research found three in four (74%) prospective homebuyers see higher EPC-rated properties as more a ractive. More than 51% are considering a home with a higher EPC rating to reduce overall utility bills, with 36% looking to keep warmer in winter for less. However, it isn’t just cost cu ing that’s spurring homeowners on for more energy-efficient homes. There’s also a moral obligation felt, with more than a third (36%) wanting to be more eco-friendly and reduce their impact on the environment. It’s also clear that landlords do support the idea of going green. When we surveyed landlords last year prior to the U-turn on EPC requirements, we found that 41% believe it’s important to meet the proposed EPC requirements as they’re good for the environment. We also found that this was at the forefront of tenants’ minds, with nearly a fi h (17%) of landlords saying they’d been quizzed on the subject.

Navigating roadblocks Very similar concerns are shared by landlord and residential buyers alike around the cost of making these upgrades. Given that we’re currently in a period of high interest rates and a lack of purchasing power, this is

BEN THOMPSON is deputy CEO at Mortgage Advice Bureau

a big roadblock. Whereas previous proposals focused on the punishment of not upgrading, I believe there needs to be a shi . Despite almost half (49%) of mortgage lenders and a third (32%) of advisers saying they would welcome any decision to reverse the EPC U-turn – whether by the current or a newly elected Government – this wouldn’t help with the main barrier, which is cost. A defined and properly thoughtout reform to SDLT could be one answer from a legislation perspective. However, another is fully within our grasp as advisers and lenders. A er a difficult 2023, I think 2024 could see a rebound in focus and a ention being shi ed back onto green mortgages. As our research reflected, despite a lack of discussion on green mortgages, 45% of advisers say there has been noticeable progress in the space compared with a year ago. It’s important that lenders and advisers continue to educate and inform clients about the possibilities and benefits of green mortgages. There’s still a lot of progress to be made in this area to make green mortgages more a ractive – be that innovations that give customers the potential to borrow more, receive a lower interest rate, or through offering other benefits. As the market se les and finds a new normal, green mortgage innovation – and, more widely, ecoinnovation – should be at the very forefront of the industry’s priorities. Our range of easy-to-understand guides on the Green Hub can help both customers and advisers inform how they operate in the homebuying space where sustainable living and energy efficiency are concerned. ● February 2024 | The Intermediary

Meet The BDM Paragon Bank

The Intermediary speaks with Rob Eggleston, regional sales manager – Central, North and East London at Paragon Bank How did you become a business development manager (BDM)? I have worked in mortgages ever since I graduated. Initially this was processing applications for Halifax, before moving on to underwriting them. I then moved into broking, initially via a panel of lenders at Pearl Assurance, but ultimately as a whole of market broker. This means that I bring a broad mix of experience to my current role, and I can see things from a broker’s perspective. I always liked the idea of being a BDM, it’s great to be out speaking to people, and it’s rewarding to help find solutions for customers, especially when it’s something a bit more complex. When the opportunity to become a BDM arose, I didn’t think twice. 36

The Intermediary | February 2024

What brought you to Paragon? After being made redundant by Accord due to the fallout after Northern Rock, I went back into broking but was always looking at getting back into being a BDM. It was a case of ‘who you know’, as my partner got talking to one of the existing Paragon BDMs, who said they needed someone for Central London as she was currently covering two regions. Contact details were exchanged, and after a couple of interviews, the rest is history.

What makes Paragon stand out? Paragon is a lender that helped develop the first buy-to-let (BTL) mortgages. As such, we have a

We know that while rates are obviously important, the priority for landlords who are looking for finance is the amount that they can borrow” wealth of experience and our knowledge of the market really is second-to-none. We are buy-to-let specialists, which means that we are able to put a real focus on working with brokers and supporting landlords, particularly in the more complex end of the market, such as limited company lending, structured

MEET THE BDM

companies, large houses in multiple occupation (HMOs) and multi-unit (MUB) properties. We also offer a short-term finance product for landlords wishing to refurbish or alter a property, as well as a forward funding facility so a landlord can fully underwrite an amount of lending for future use. This can be particularly useful for those landlords looking to expand their portfolio, or those who have a number of remortgages coming up in the near future. We are currently in the process of enhancing our systems, which will fundamentally improve almost all aspects of the way we work, and help us to really stand out from the crowd in terms of the level of service we provide. While much of this will happen as a result of tech wizardry in the background, intermediaries will notice that the whole application process is slicker and easier. The idea is for this to complement our manual underwriting processes so we can continue to lend on some of the most complex cases, but in a much more streamlined way.

What are the challenges facing BDMs right now? We are in a very different market to the one we have been in for several years. Interest rates and product fees are higher than they have been, which is putting pressure on what landlords can borrow. Speaking to intermediaries regularly, we know that while rates are obviously important, the priority for landlords who are looking for finance is the amount that they can borrow. To make the sums work in more situations, we’ve recently reduced our reference rate from 5.50% to 5.00%, and have also relaxed some of our criteria, upping the maximum loan term and reducing the minimum experience borrowers need for HMO and MUB applications. Working from home has changed the dynamic of meetings, as a lot of

my brokers do not regularly go into offices now. Video meetings have become much more common, and while there is nothing like an actual face-to-face meeting, we’ve adapted to this change.

What are the opportunities for BDMs? With the economic instability we’ve experienced over the past couple of years impacting new business opportunities, more brokers are starting to diversify what they do to write business. Intermediaries that traditionally only wrote residential or simple buy-to-let business are now looking to place more complex applications. Additionally, commercial brokers are also looking to place BTL business. Like last year, I’d expect to see business focused on maturities, with landlords looking to remortgage or switch to another product offered by their existing lender. However, with promising signs that the economic picture is improving and demand still so high for rented homes, I think we may well start will see levels of purchase business increase, too.

How do you work with brokers to ensure the best outcomes for borrowers? Having been a broker myself, I have had experiences of both good and bad BDMs. As such, I try to work in a way that I wanted a BDM to work with me back then. There are two main elements to this: being honest and being contactable. Brokers are very busy, especially with everything getting more complicated and taking longer, so there is no point letting someone think a case might work when it simply doesn’t. I prioritise voicemails as the first things I deal with. If someone has taken the time to call me, I will take the time to call them back.

Having been a broker myself, I have had experiences of both good and bad BDMs. As such, I try to work in a way that I wanted a BDM to work with me back then”

What advice would you give potential borrowers in the current climate? Get the right advice. Discuss your options with your mortgage broker as well as your accountant or tax adviser – ideally get them talking to each other. With the tax changes that have taken place, more borrowers are looking at limited company buy-tolets, as well as incorporating their portfolio. It is essential that borrowers do not just talk to their accountant, as any advice needs to work for their mortgage lender as well. ●

Paragon Bank Established 1985

Products ◆ Self-contained properties ◆ HMOs and multi-unit blocks ◆ Limited company lending ◆ Short-term finance ◆ Product switch and further advance ◆ Forward funding Contact details Mobile: 07974 980150 Tel: 0345 849 4040 Robert.Eggleston@paragonbank.co.uk

February 2024 | The Intermediary

B U Y - TO - L E T Opinion

Technology is transforming the buy-to-let market

nnovation in technology is transforming lending into a more efficient, transparent and customer-focused process – particularly in the buy-to-let (BTL) space. This is good news for everyone, whether they are lender, broker or a landlord. Lenders are integrating technology into their operational processes to great effect. A good example is the evolution of the broker portal. While most lenders use third-party technology firms to supply their broker portals, some are building their own portals in-house, including Landbay. An in-house portal allows a lender to make enhancements on their own terms, react to feedback faster, and provide a more stable platform that’s supported by an expert in-house engineering team. Before launching our own broker portal in May 2022, we spent two years designing, user-testing, and building it. The result is a fast and intuitive system that brokers are finding easy to use. Our portal provides streamlined form filling and fast decisions as it works out which mortgage products are available for a broker’s client. The portal automatically saves each answer as the broker completes the form, and runs a full eligibility decision in under 200 milliseconds a er each answer. This tells the broker which products are still eligible, and provides details of why a product is unavailable. An in-house portal means new products can be launched very quickly. We can also tweak criteria, make changes, and add new functionality when we want – or when it is best for the market. In addition, we can quickly react to market conditions and instantly respond to broker and market feedback.

The Intermediary | February 2024

This ability to move fast has been invaluable during recent turbulent times. In pursuit of greater efficiencies in the lending process, many mainstream lenders have integrated automated valuation models (AVMs) and specific AVM products into their portfolio. An AVM combines mathematical or statistical modelling with databases of existing properties and transactions to calculate property and rental values. An AVM is most effective when there are similar properties nearby that can be used as the basis for comparable evidence. In January, Landbay became the first dedicated buy-to-let lender to integrate AVMs to significantly speed up offer times. Before our whole of market launch, we ran an extensive pilot which found that AVMs speed up the time to offer, and are on average three times faster than a standard application. In some cases during the pilot we could issue an offer within 24 hours from the decision in principle (DIP).

AVM savings We also found that using an AVM helps applicants save on average £500 as they do not have to pay valuation fees. In our trial, one client saved nearly £4,000 in valuation fees on their portfolio. This is a considerable saving, given the pressures facing landlords in the current climate. A contributing factor to achieving these results is the integration with our broker portal, helping to streamline the application process. Brokers are advised to pick an AVM product at the outset, as during the DIP the system will run both policy and product rules in real time, and flag as soon as possible if an application is not suitable.

JOEL VINNICOMBE is head of product at Landbay

If the application doesn’t qualify for an AVM product, or the AVM is unsuccessful, it can be swapped to an equivalent standard product without starting again. To ensure the underwriters have all supplementary documentation to make the mortgage offer as soon as possible, our portal has a document requirements engine which automatically tells the broker what documents should be submi ed based on the application details. AVMs are, of course, not a magic cure-all solution. They become more challenging for valuations of unusual or complex properties. This is because comparables are hard to come by when properties are not standard. For example, an AVM is unlikely to be accurate for a large, detached house or a multi-unit freehold block. For this reason, our AVMs are available for standard properties only, on a range of 5-year fixed-rate products, with a maximum property value of £750,000 at 70% loan-to-value (LTV). AVMs also do not function well when there is a gap in valuations data. There will always be a place for physical valuations, especially for non-standard properties. But where and when the circumstances are right, AVMs can offer real efficiencies for lenders, brokers and landlords. When timing can be the make or break of a successful transaction, these efficiencies are absolutely critical. There is no doubt that the integration of technology has already made significant changes to the buy-to-let sector in terms of speed, convenience and cost savings. It will be exciting to see what further benefits technology brings as it continues to evolve. ●

B U Y - TO - L E T Opinion

Swaps are volatile but mortgage rates will still drop

DAVID WHITTAKER is CEO of Keystone Property Finance

Getting back to targets

The economy continues to defy expectations, but there is a drag on growth

rchimedes, o en known as the father of mathematics, was the first person to discover that the shortest path between two points is a straight line. The ancient Greek academic can’t have had the UK mortgage market in mind when he developed his theory. In our market, constantly changing conditions mean things are rarely short and simple. Periods of calm are o en punctuated by episodes of volatility that can throw us off course. That’s been especially true over the past few years.

New year, same problem This unpredictability most recently manifested itself as see-sawing swap rates, which have been decidedly nervy and twitchy in the first few weeks of the year. We all returned from the Christmas break recharged, re-energised, and confident that swap rates – and the subsequent mortgage rate reductions we saw in December – would continue their trajectory into the New Year. However, swaps – the biggest determiner of fixed-rate mortgage pricing – had other ideas and decided

to lurch higher. For lenders, this meant undoing the rate cuts they had introduced earlier in the month, while for brokers it was 'all systems go' to secure rates before they were pulled. The obvious question is this: what happened to spook markets and cause swaps to spike? Take your pick. While many of us like to enter a new year with a positive mindset, the reality is that many of the issues that plagued 2023 are still causes for concern today. Inflation is lower and the economy continues to defy expectations, but rising geopolitical tensions – and the supply chain issues those bring – continue to act as a drag on growth. We still firmly believe that the direction of travel for mortgage rates remains lower, but there are likely to be unexpected bumps along the way. The rise in inflation in December took the media and markets by surprise, but in reality it had been predicted by some economists months earlier. Indeed, some believe we may well see further ‘surprise’ increases in inflation before the summer. If that happens, expect a reaction from swap rates, particularly 2-year swaps, which tend to be more sensitive to the short-term news cycle.

What does that mean for borrowers and brokers? Well, the trend line for mortgage rates will continue to point down, but they may not fall in a linear fashion. Over the coming months, there will be weeks where rates are falling, but equally there will also be periods where mortgage rates are rising as inflation struggles back to target and global geopolitics continues to throw up surprises. However, barring a completely unforeseen chain of events, this is the peak of the latest rate-hiking cycle. Mortgage rates should continue to fall further when the Bank of England indicates that it is ready to start lowering borrowing costs. In the buy-to-let (BTL) sector, we are also starting to see the removal of the low rate, high fee products introduced last year when rates were rising. The idea behind these products was to maximise the leverage landlords could achieve by front-loading the cost of the loan while offering lower headline rates. These products served a purpose at the time, but they are increasingly unnecessary as the cost of borrowing falls, and so I expect lenders to continue withdrawing them in the coming weeks. As frustrating as the market may be at times this year, have faith that it is moving towards a more stable and ‘normal’ footing, if there is such a thing. However, one thing is for sure: the path the market takes this year will be anything but a straight line. ● February 2024 | The Intermediary

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B U Y - TO - L E T Opinion

What will 2024 bring for England’s rental market?

ach month, the Goodlord Group helps process up to 50,000 tenancies on behalf of le ing agents. That gives us unparalleled insight into exactly how much tenants are paying in rent, as well as key demographics such as age, salary, and location. We also track void periods, which serve as an interesting bellwether for demand across the le ings market.

Rise and rise of rent costs 2023 was seismic for the rental market. Average rents were nearly 9% higher compared with 2022 averages, and several records were broken during the year. Between July and August, we saw rental cost averages rise above £1,300 for the first time. London took the crown, hi ing a record £2,275 per property during September 2023 – a full 10% higher than September 2022. Tenants scrambled to secure properties amid a supply crunch that saw rents rise and competition reach fever pitch. This lack of available rental stock was exacerbated as a not insubstantial number of landlords who found themselves facing rising interest rates decided to sell-up. Reflecting this demand, a new average void record was also set during 2023. England's overall void average shortened to just nine days in July 2023. Regionally, the shortest was recorded in the North East, also in July 2023, at just six days. So, what might the year have in store? The first Rental Index of the year from Goodlord showed a monthon-month increase in rents during January, despite it being traditionally one of the ‘slower’ months of the year for the market.

The rental cost of a property is now up by over 7% year-on-year – indicating that we may not have hit the cost ceiling, with further price rises likely as the year progresses. This rise in costs is being felt particularly acutely in Greater London, which recorded the biggest change in rents over the last month. The region saw an almost 2% increase in rents during January, with average prices in the capital now £1,968. This is just shy of the £2,000 threshold – a barrier which was broken in three consecutive months during 2023. Only one region – the North East – recorded a decrease of more than 0.5% during 2024 to date. Rents decreased by 1.5% in January – down from £853 to £839. The region remains the cheapest place to rent in England. Void periods lengthened during January, which is expected for the season. However, voids have shortened compared to this time last year, indicating the supply and demand pressures which continue unabated.

Pressures dialling up in the rental sector All signs, it seems, point to another red hot year for the market. And all stakeholders are feeling this pressure in different ways. For tenants, despite a significant rise in average salaries over the past year, rents continue to command a growing chunk of their take home pay. In big cities, this will continue to push the renting population into outskirts and suburbs as they chase cheaper prices. Many landlords are facing a doublewhammy of higher mortgage costs and increased regulatory pressures. The long-awaited introduction of the Renters (Reform) Bill is causing anxiety too, and could be encouraging more to leave the sector.

OLI SHERLOCK is managing director of insurance at Goodlord

For agents, things have never been busier, or more complicated. Their existing landlords are leaning on them for compliance support across an ever-expanding spectrum of areas. A shrinking pool of landlords with one or a handful of properties means competition for customers is fiercer than ever.

Looking ahead with optimism However, as the year marches on there are reasons to be hopeful. With key pieces of legislation inching closer to the statute books, we may move into a period of relative regulatory clarity. This will make it easier to plan ahead. For agents and their landlords, new technologies are also making it easier than ever to stay compliant and seek out new revenue opportunities. For tenants, while it seems likely that rents will continue to rise, it’s unlikely that any year will match 2023 for the pace of rental cost growth. We may be edging towards a more predictable set of numbers for renters to grapple with. Likewise, a General Election could unstick the current malaise when it comes to housebuilding and planning reform – something that has been kicked into the long grass for years, and which is the only key with which we can truly unlock the supplydemand issue. Overall, the rental rollercoaster is still very much on the tracks, with all stakeholders firmly strapped in for the ride. The pace of the twists and turns, however, may finally be heading downwards rather than ramping up. ● February 2024 | The Intermediary

B U Y - TO - L E T Opinion

The case for cutting the Stamp Duty surcharge

he anti-landlord sentiment fostered by some politicians and sections of the media means cu ing taxes for landlords won’t win much favour with voters. But doing so could bring about positive social and economic changes. With the General Election almost certainly taking place in the second half of this year, one of the most surefire ways to woo voters is by cu ing taxes. Chancellor Jeremy Hunt has faced increasing calls to do this a er the year started on something of a positive note, with the UK economy stabilising following a fairly tumultuous 2023. More recently, however, with conflict in the Middle East spilling over into supply chain disruption, a number of indices have highlighted how this encouraging start to the year doesn’t mean the course to lower inflation is without obstacles. As a result, the Chancellor has sought to manage expectations, while a empting to reassure voters that the economy is in safe hands under a Conservative Government, talking of “strategic, smart tax cuts” as being “a very important part of the strategy to grow the economy.”

Reducing the burden One such cut that meets the brief is the removal of the Stamp Duty surcharge paid by landlords. While reducing landlords’ tax burden would be unpopular, and as a result extremely unlikely, it could have a positive impact on the economy and society more broadly. Let me explain why. Since April 2016, a 3% surcharge has applied to purchase of additional residential properties above £40,000, namely buy-to-let (BTL) properties

The Intermediary | February 2024

and second homes. Responding to the plans announced by then Chancellor George Osborne, the Treasury Commi ee warned: “The Stamp Duty surcharge is likely to reduce the supply of privately rented properties, and hence result in higher rents.” Modelling by Hamptons suggests that this has indeed been the case, with projections highlighting how landlords would have invested in an additional 250,000 BTL homes, had it not been for the introduction of the surcharge and changes to tax relief on BTL mortgage interest. While tracking the volume of outstanding buy-to-let mortgages hints at the numbers of landlords that sold up and exited the sector, it is more difficult to accurately ascertain whether this was as a result of these measures or for other reasons. Nevertheless, the fact remains that a very pronounced drop in buy-tolet purchases does correlate with the introduction of the tax changes, offering a clue as to their influence on landlord investment behaviour. Each month in the year prior to the changes, over £1bn of buy-to-let mortgages were wri en for house purchase in England, increasing to over £4bn in March 2016, the month before changes came into force. April 2016 saw that value fall off a cliff to £556m and not exceed the billion-pound mark again until March 2017, with most months seeing just over half the value of purchases compared to the year before. Simple supply and demand dynamics dictate that a constriction of the number of homes available for tenants will likely place upward pressure on rents. This is something we have seen come to a head over the past couple of years, with Zoopla data revealing that

RICHARD ROWNTREE is managing director mortgages at Paragon Bank

tenants entering into new tenancies spend an average of around 28% of their salaries on rent, marking the lowest level of affordability for a decade.

Rent out of reach While it’s natural for us to sympathise with those who find themselves sadly struggling to make ends meet, high rents also impact high-flyers, and this is bad for the economy. A higher proportion of private renters (45%) live within 5 kilometres of their workplace, compared with 29% of those in owner-occupation, suggesting that the private rented sector (PRS) is a facilitator of economic fluidity. The flexibility of rented homes offers the ability for the workforce and companies to quickly adapt to changes in demand for their products and services, the labour market and broader economic landscape. Elevated rental inflation hampers this, however, and acts as a barrier for people to take on top jobs that tend to be located in cities where the supply and demand imbalance is o en more evident. Cu ing taxes for landlords clearly isn’t a silver bullet that will fix the UK’s housing issues, but examining the issue does highlight a need to view all tenures as equal parts of the solution to the puzzle. Regardless of which party presides over Parliament following polling day, we need to move away from short-term and siloed thinking, and recognise the social and economic benefits of a thriving private rented sector. ●

B U Y - TO - L E T Opinion

Unlocking value opportunities in buy-to-let

he buy-to-let (BTL) sector has taken a bad press ba ering over the past couple of years. However, while the market still faces a number of economic and regulatory pressures, there are good reasons to look at 2024 as a year of opportunity, especially for those lenders and brokers active in the specialist market.

The story so far… It is hard to tell if there has been a substantial outflow of smaller landlords from the PRS, as was predicted following taxation changes making limited the company structure more efficient, Energy Performance Certificate (EPC) minimums, and the more recent Renters (Reform) Bill. We haven’t seen a big shi at UTB, anyway. In 2023, the Bank of England said it was challenging to measure changes in the size of the PRS, so much so that it created its own method of best guessing, using a combination of sales and Capital Gains Tax (CGT) data, which it admi ed wasn’t perfect. The figures suggest some landlord consolidation and a slight decline in the size of the market over the past two years; if true, this is probably good news for landlords choosing to stay invested, because strong demand is driving rent growth and higher yields. The Bank of England was also quite upbeat about the health of the existing stock of BTL mortgages, saying that “prudent underwriting standards on new lending, alongside strong house price growth, has meant the stock of BTL mortgages has become more resilient to house price falls.” By the bank’s estimation, the share of mortgages with loan-to-values (LTV) of at least 75% fell from around

12% at the end of 2016 to around 6% in Q2 of 2023. It estimated that if property prices fell by around 20%, only around 1% of mortgages would go into negative equity. According to the likes of Rightmove and Zoopla, there are still a lot of tenants chasing a flat – perhaps even declining – number of rental properties. This, combined with lenders now reducing interest rates, is good news for landlords’ profitability, and for those finding it difficult to achieve the traditionally higher LTVs. Some lenders, including UTB, have brought their income calculation ratios (ICRs) back down to 125% and increased maximum LTVs to 80%, which are good indicators of growing confidence in the BTL market.

Will they, won’t they? Everyone seems to have a different opinion on when the Bank of England might start to reduce the base rate. However, even if mortgage rates don’t drop any further, there are still opportunities in BTL, especially if you pick the right asset, with the right yield on the right deal, and manage it appropriately. Recent rate uncertainty has made 2-year fixes the more popular choice, especially as we start to see more blue sky between the economic clouds. 2022 and before was all about the 5-year fixed deals, locking in low rates for as long as reasonably possible. 2-year deals are more a ractive as landlords believe base rate will come down in the short-term, so they won’t have too long to wait to refinance to a lower rate, and naturally avoiding any early repayment charges (ERCs).

Think outside the box In search for higher rental yields, switched on landlords are increasingly

BARRY LUHMANN is head of BTL – mortgages at United Trust Bank

turning to alternative property types. This presents an excellent opportunity for brokers who understand that there are specialist lenders, like UTB, which are happy to consider offering mortgages on such properties. In general, the properties most difficult to finance tend to be high rise flats, houses and bungalows of non-standard construction such as Wimpey no-fines concrete, and properties near or touching commercial premises, and especially those classed as ‘nuisance’ or ‘difficult’ like takeaways and nightclubs. UTB will consider lending on all these types of properties, and more. Larger houses of multiple occupation (HMOs) and multi-unit blocks (MUBs) have become popular asset classes for higher yielding investments, although they are more complex to manage. We have also seen an increase in landlords operating in the holiday le ing and serviced accommodation markets. Properties don’t have to be in traditional tourist hotspots, either. Borrowers with properties in city centres are popular with business users and city breakers. At UTB, we use the holiday let income for affordability rather than the equivalent Assured Shorthold Tenancy (AST) income, again helping landlords a ain the loan size and LTVs they need. We are starting to see beyond the trees, but we’re not out of the woods just yet. However, smart landlords supported by well-informed brokers can use this uncertainty to their advantage. There are high yielding opportunities to be had if you know where to look and how to finance them. ● February 2024 | The Intermediary

B U Y - TO - L E T Opinion

Could 2024 defy all expectations?

he latest housing market analysis released by UK Finance outlines just how subdued the mortgage market was in 2023, with gross lending down 28% and lending for house purchase by 23%, as affordability constraints and other well-known factors dampened activity. Buy-to-let (BTL) was particularly hard-hit. House purchase lending dropped by 53% in 2023, and remortgaging by 47%. Most of the mortgage business that was wri en last year involved product transfers, which don’t require fresh affordability assessments. Nothing new there, you might say. But there are encouraging early signs that 2024 might have a few pleasant surprises up its sleeve. UK Finance predicted that the outlook would be one of “continuing challenges,” albeit with “the main pressures on affordability…peaking.” Gross lending could fall by a further 5% to £215bn, lending for house purchase by 8% more to £120bn, external remortgaging activity by 8% more to £60bn, internal product transfers by 8% to £202bn, and BTL purchase lending by 13% to £7bn. UK Finance expects buy-to-let lending to face additional challenges due to cost, regulatory and taxationrelated headwinds. Despite saying the contraction would likely be smaller in 2024, it recognised the challenges facing smaller-scale landlords in particular, which mean lending would remain weak in this segment during 2024, “with gradual improvement in affordability reflected in a modest increase in activity levels in 2025.” In fact, UK Finance suggested that 2025 could present a completely different picture for the market at large, saying: “By 2025, the combination of wage growth, so er house prices and inflation and interest rates falling back somewhat will see a

The Intermediary | February 2024

gradual recovery in lending activity as affordability improves.” While these forecasts are understandable based on the economic and market position when they were generated, I’m very pleased to say that so far 2024 is defying expectations.

Green shoots appearing Market conditions have shi ed significantly since UK Finance compiled its views last winter, with rates falling around 1% since, and the recent limited uptick failing to dampen the positive effects. The rapid fall in interest rates over the festive season has given borrowers renewed confidence. Now that they have a realistic hope of securing rates of 3% and 4%-plus again, they are dipping their toes back in. We shouldn’t underestimate the role rates play in driving sentiment, as they increase consumer confidence and ease the affordability pressures that have been the main influence on people placing their plans on hold. The pent-up demand has always been there; many would-be borrowers have been awaiting their moment to act. Figures from CACI show that, at the end of January, the size of the buy-to-let market was up 31%. We’re seeing increased activity from BTL customers who – now they can make the numbers work again – are seizing the opportunity to release capital and potentially expand their portfolios. In our ‘Home Truths’ report last year, 66% of landlords said they intend to remain in the sector for at least five years. It appears affordability constraints are easing to give them a fighting chance of doing that. Landlords have taken stock and decided to remain in the game. They’re actioning the plans they had on hold, which contribute to overall market buoyancy. None of this is to say there is any room for complacency. Market trends continue to be impacted by data from

JEREMY DUNCOMBE is managing director at Accord Mortgages

around the world, and volatility will continue. There are also a significant number of external factors at play – including the prospect of a General Election, events in the Middle East, and the European war.

A watching brief Other variables include the Budget in March, and whether that might include some tax cuts or similar sweeteners which could further lighten the nation’s mood. With a fair wind, if the optimism does continue to build, there may be scope for bodies like UK Finance to review forecasts. It remains important that we all remember we are facing continued uncertainties in terms of the economy – where policymakers are continuing to ba le against the conflicting priorities of enabling growth and controlling inflation – alongside political and geopolitical events. To a large extent, all bets are still off. What is certain is that the value of the advice has never been at more of a premium. By keeping a close handle on the many forces at play, intermediaries can help navigate clients through these uncharted territories in the best possible shape. Our Growth Series resource library aims to help by providing expert insights and facts at their fingertips, from what’s happening in the markets and why, to the latest position on buyto-let regulation. Brokers encouraging clients to make decisions on what they know now and not what might happen in the future will be critical, as will continually educating themselves to pass on vital knowledge to borrowers. Armed with this, we can collectively ensure no borrower misses out on opportunities which do arise. ●

B U Y - TO - L E T Opinion

Making the most of an energised market

er the January we’ve had, we could all be forgiven for thinking the good times are back and here to stay in buy-to-let (BTL). But we shouldn’t be too quick to forget the lessons of the past few years; a re-energised market is great, but we must manage this environment from a position of cautious optimism, to avoid hard stops and challenges when the market changes.

Remortgaging right We expect rates to remain lower in 2024, providing landlords with ample opportunity to do two things. First, remortgage – properly – for the first time in two years. Many landlords will have sat on reversion or variable rates since the mortgage rate spike, waiting for a calm down. Second, expand. According to a survey of landlords by the Intermediary Mortgage Lenders Association (IMLA), the majority plan to expand their portfolios in 2024. A er a year where many sat out of the market, the opportunity is back now. In a market where price is dictated in large part by swap rates, landlords can expect some homogeneity across pricing from different lenders. Despite the good news of recent weeks, swap rates will remain fluid in 2024, so landlords should not make decisions based wholly on price. Future-proofing, diversification and expansion should all be considerations, using the opportunity of 2024 to build a robust portfolio. For many who have sat on variable rates, the temptation now may be to remortgage quickly. However, the rental market has changed. Zoopla expects a slowdown in rental growth as inflation has far

outstripped an increase in incomes, and the mismatch between supply and demand has pushed prices up and renters have shown resistance to too many price increases. Zoopla expects the rental market supply-demand imbalance to turn in 2024 as new supply begins to enter the market. This, combined with slow wage growth and cost-of-living challenges, will put pressure on rental yields. If value hasn’t been added to the home in a way that meaningfully increases the offer to tenants, landlords could find themselves with properties they struggle to fill, despite demand. So what’s out there to help landlords overcome this challenge? This month we launched an 85% loan-to-value (LTV) landlord refurbishment bridge. With 85% day one, rolled interest to protect monthly outgoings and no monitoring on works, it is a way of backing landlords looking to add value to their homes. Some recent examples include lo conversions for extra rooms, singlestorey extensions, and change of use from a long-term let to holiday let. Similarly, we don’t cap the number of rooms in a house in multiple occupation (HMO), and with our own buy-to-let products backing HMOs up to 15 rooms, there is lots of potential to use bridging to expand rental capacity. While there is still demand, landlords should be looking at how to meet it. If an increase in headwinds pushes rental prices down, landlords need to protect their assets by thinking cleverly, and seeing what they can build into their portfolios.

Expansion The same principle of the 85% LTV landlord refurbishment bridge applies not just in remortgaging, but

SOPHIE MITCHELL-CHARMAN is commercial director at LendInvest

in expanding portfolios. Purchase, refurbish, rent. It’s a tale as old as the buy-to-let market, and with higher LTVs and more trust placed in the landlord, they can maximise potential by creating high-quality homes. Most landlords aren’t what we’d classify as portfolio landlords, but with the appetite to get back out there, there’s no reason more couldn’t be in the years to come. Indeed, portfolios can help mitigate against challenges, with risk spread across multiple assets. One option is incorporating as a limited company. Landlords choose this path because of the taxation benefits and the boost it gives by retaining profits within a company to fund future purchases. This step can make managing growing portfolios simpler. The other step is knowing the right properties to buy. For a multitude of reasons, auction finance will present a real opportunity in that regard in 2024. Unfortunately for many, the economic pressures of the past year will push up the number of distressed sales. Once again, bridging will have a large role to play here. A lender that knows how to navigate a fast purchase with a bridge before moving into a swi BTL exit will be incredibly beneficial to landlords. It may feel like we’ve overcome the broader market challenges and it is all smooth sailing from here, but in BTL that is rarely the case. Landlords must be proactive and thoughtful about what’s best. The right lender with the right suite of products needs to be there for them to do that. ● February 2024 | The Intermediary

B U Y - TO - L E T Opinion

A lender’s snapshot

Buy-to-let and holiday let

t Principality Intermediaries, we’re aware of the challenges landlords are currently facing in the buyto-let (BTL) sector. Uswitch found there were more than 211,000 BTL mortgages authorised in 2022, almost double the number in 2012, with building societies accounting for almost £9bn in borrowing, according to data from the Bank of England in December 2023. These numbers were forecast to increase in 2023, and reach a peak of almost 250,000 by 2032. Despite that, 2023 was a complex year for lenders and borrowers alike. In the past 12 months, investors have faced significant economic and political challenges, all of which has affected their potential return on investment (ROI).

Rising rates, stress tests and the cost of living A major challenge facing landlords was affordability, in part down to 14 consecutive interest rate rises to 5.25% by the Bank of England as it looked to manage inflation. Overall, from 2022 onwards, mortgage rates have increased at a record pace. This affected rates across all mortgages, including BTL and holiday let mortgages, with the average BTL rate si ing at a high of 6.48% in October 2023, according to CACI. The rising rate environment led many UK lenders to change their stress rates, with a number increasing the rental coverage required. This made borrowing less accessible to some landlords.

The Intermediary | February 2024

Meanwhile, a combination of inflation, escalating housing and energy costs, and in some instances wage stagnation, led to financial challenges for some borrowers. During this period, Principality Intermediaries has continued to work closely with brokers to help them deliver for their buy-to-let clients, and following broker feedback has also made changes to its BTL criteria.

Where and what are customers buying? While there are challenges for both landlords and renters, domestic tourism has grown in 2023. A reduction in consumer spending led to an increase in unique staycations as borrowers re-prioritise what they look for in a holiday, while overseas travel has become less affordable. This looks likely to continue into 2024, according to Verdant Leisure. Despite the

Region

% of landlords looking to purchase in next 12 months

South West England

18%

East of England

12%

South East England

10%

Yorkshire & the Humber

Wales, West Midlands, East Midlands, London and North West England

B U Y - TO - L E T Opinion

challenges and economic outlook, holiday rental properties offer borrowers the potential for higher earnings over a short-term period, as well as more unique opportunities. Unlike a typical residential BTL property, there is no limit on the amount of mortgage that can be offset with the profits generated. For property owners and homeowners, renting out a property is ge ing easier. Online platforms like Airbnb, Trip Advisor and numerous other websites provide owners an accessible channel to showcase and rent holiday let properties. Conversely, the UK buy-tolet market is going through a tougher period, with renters struggling with increased rents and incoming legislation affecting the UK market. Historically, BTL investors are looking for more secure, long-term regular income, plus a potential longer return from a change in a property’s value over time. A mixture of economic uncertainty, changes in regulations and increased costs has le some landlords facing increased challenges. Despite this, BTL remains a popular investment avenue, contributing 8.1% of lending to the UK's dynamic property landscape as of June 2023, according to Finder. Average BTL rate by LTV* 0-60% LTV

60-75% LTV

2023

4.62%

4.68%

2022

2.36%

2.50%

2021

1.82%

2.10%

Difference

+2.8%

+2.58%

Change

+153.8%

+122.9%

Average BTL rate by term* 2-year

5-year

2023

4.70%

4.47%

2022

2.36%

2.48%

2021

1.87%

2.07%

Difference

+2.83%

+2.40%

Change

+151.3%

+115.9%

Average BTL rate by product type* Fixed

Discount

2023

4.63%

5.78%

2022

2.45%

3.76%

2021

2.00%

3.45%

Difference

+2.63%

+2.33%

Change

+131.5%

+67.5%

*Source – CACI. 2023 data up to October 2023. All tables displayed are based on rest of market lenders and exclude Principality Building Society.

How Principality calculates holiday let income Step

Instruction

Work out the season average weekly rental

Multiply this by an assumed occupancy of 30 weeks

Divide by 145% (our rental coverage calculation)

Divide the above using our current stress rate

Rate snapshot A recent review in the Bank of England quarterly bulletin for December 2023 outlined the BTL market from Q1 to Q3 in 2023 and noted the following key points: The majority of new loans had loanto-values (LTVs) below 75%; Approximately 1% of new BTL loans were over 80% in Q1 to Q3 2023; 82% of BTL loans are on interestonly terms; Building societies like Principality accounted for 15% (£9bn) of lending in 2023. Since 2021, buy-to-let rates have risen over 2% and averaged 4.62% up to 60% loan-to-value (LTV) and 4.68% at 60% to 75% LTV, with increases of 153.8% and 122.9% respectively over a 3-year period. There has been similar pa ern between fixed term lengths, with the average 2-year fixed term increasing by 151.3%, from 1.87% in 2021 to 4.70% in 2023. The 5-year fixed average has also increased 115.9% to 4.47% in 2023. Where there has been significant rises in fixed term products for BTL properties, increases in discount products have been less dramatic. Discount products have seen a 67.5% increase over a three-year period, averaging 5.78% in 2023.

How much can your clients borrow? We’ve amended our stress testing to help more cases fit, and the following is correct as of 5th January 2024. For buy-to-let, if the application is a pound-for-pound remortgage on a property purchased on a BTL basis before January 2017, we will require 125% at 5.50% for 5-year fixed products as rental coverage. For 2-year fixed products we will require 7.65%. If the application is a pound-forpound remortgage on a property purchased on a BTL basis a er January 2017, we will require 145% at 5.50% for 5-year fixed products as rental

HELEN LEWIS is national intermediary manager at Principality Intermediaries

coverage. For 2-year fixed products we will require 7.65%. For holiday lets, rental income is calculated using an average of the projected low, mid and high season weekly rental yields.

Looking ahead For holiday let owners, the rise of the staycation is expected to continue in 2024, due to both political and economic factors affecting the price of overseas travel and air fares. For borrowers, it’s expected that rates will start to decrease heading into 2024, as it’s thought that the peak of the Bank of England interest rate increases has passed. The holiday let and buy-to-let mortgage market will remain challenging for brokers and their clients heading into 2024 and onwards. There are challenges facing clients as they look to purchase these types of property, and as rates remain higher from the Bank of England increases, we expect the focus to be on remortgage business in 2024. However, we remain cautiously optimistic as a lender, and have enhanced our own criteria to remove both owner-occupier requirements and minimum income requirements, in order to help make BTL and holiday lets more accessible for your potential clients. ● February 2024 | The Intermediary

BEYOND

VANILLA MAKING THE COMPLEX SIMPLE IN A MARKET FULL OF FLAVOUR by Jessica Bird Hardly a day goes by without headlines crowded with concerns and fearmongering about the growing number of arrears and missed payments, and the increasingly complex nature of the average person’s finances. Although the more positive voices in the market are making tentative predictions that the base rate and cost of living might ease soon, and that some semblance of calm will return to the economy, the past few years have been a lesson in expecting the unexpected. Even if inflation settles back to a manageable level, the effects on borrowers’ financial resilience will take much longer to shift. Complex credit and non-vanilla lending will, therefore, continue to be a key feature of the property finance landscape for the foreseeable. To navigate this section of the market responsibly, brokers and lenders alike must have a keen eye on risk, customer vulnerability, and an ever-growing range of products.

A growing cohort In early February, StepChange and YouGov reported that 44% of mortgage holders were struggling to keep up with bills and credit payments, and 23% had turned to credit to support their mortgage payments. More than a third (35%) of mortgage holders had shown some sign of financial difficulty. In January, Pepper Money found that among those with adverse credit, 43% had seen their debt increase in the previous 12 months, up from

The Intermediary | February 2024

33% a year before. Pepper Money also found that 15 million adults have a history of adverse credit in the UK. Richard Crisp, commercial development executive at Mansfield Building Society, says: “The complex credit market is set to expand, without a shadow of a doubt.” This is due to factors such as the cost-of-living crisis, rising redundancies, and myriad pressures on household expenditure. Crisp adds: “We’re going to see more people with credit blips, not through any fault of their own. Because interest rates increased at such a pace, so dramatically and so quickly, there will be more missed payments, more defaults, more credit issues generally, as people adjust their income and expenditure.” Paul Glynn, CEO at Air, agrees: “The challenges in 2024 are much of the same – there are big trigger factors that everybody's focused on: health, life events, resilience, indebtedness. "A big one for this year is resilience, or capability. We've still people in the market who have insufficient or irregular income. Indebtedness is also certainly one of the major reasons why people release cash from their homes in the later life lending space. "This is all fuelled by a lack of savings the costof-living crisis.” The picture is shifting for older borrowers, with Glynn reporting an increasing number looking toward equity release for “needs-based reasons,” while it is becoming more the norm to carry

debt into retirement. Meanwhile, older cohorts are increasingly struggling to cope with ongoing financial pressures. Emma Jones, managing director at When The Bank Says No, has had a surge of business due to these various factors, handling those clients that have been initially rejected by high street lenders. “We are seeing more clients with a minor blip – as soon as they're rejected by a couple of high street lenders, they come over to us,” she explains. For Jones, there are also issues surrounding the balance of affordability and deposits that are pushing more people into the non-vanilla space. Crisp says: “Those people that are coming off those low fixed rates now are entering a completely different interest rate environment, which means their affordability is a lot tighter. “People get credit blips, people get divorced, made redundant, all happening at the same time as the economic squeeze. We have extended our reach to help more people get on the housing ladder – or stay on it, just as importantly – but the high street banks won't have relaxed their criteria enough to help all their borrowers.” Richard Harrison, head of mortgages at Atom bank, adds: “The main point for us is to look beyond just a credit score, and look to support customers who are credit-worthy. “Prime criteria can be quite restrictive, both for new customers joining the market and those already in it who have understandably had some challenges and difficulties in the not-too-distant past. They warrant support.”

Debt and vulnerability Hand in hand with the rise in complex credit and financial stumbling blocks is the growing issue of vulnerability. For many, arrears could be a sign of something deeper, whether a long-term struggle with financial resilience, or short-term issues such as ill-health, bereavement or divorce. While it is important to support and grow the section of the market that helps these borrowers gain access to the finance they need, this must be balanced with a full understanding of whether their circumstances are fit for more debt.

There is a growing focus on spotting and handling vulnerability, but this often focuses on older borrowers, with a narrative around health and cognitive faculties. However, in the wake of a relentless series of crises and challenges, in which all but a few among the population were affected in some way, there must be a more holistic understanding of the definition. Glynn says: “What we're really trying to get people away from is the headline assumption that the older you are, the more vulnerable you are. It doesn't necessarily go hand in hand that way. Advisers need to be alert to all the potential trigger factors.” For Jones, the balancing act means brokers must take the time to fully understand the borrower’s circumstances. This is not just a case of explaining credit blips, but going further into potential stumbling blocks and the reasoning behind them. She says: “We ask every client what life event they had that impacted the credit report. We see whether they have got any active vulnerabilities that we need to give them additional support on. This also helps us find them a solution more effectively, because we get to understand the client. We paint a picture and make it make sense. “When we delve into that, a lot of clients will open up about that vulnerability. It’s about working with them and supporting them.” Crisp agrees that “skilled brokers will do a very thorough fact-find – not just about personal circumstances, but clients’ attitudes as well and what's most important to them.” He adds: “Then, we can ‘pre-DIP’ cases – a ‘soft footprint’ search before the customer puts pen to paper and pays an application fee. We love to work with brokers to help them to understand what we're able to do. “A frightening number of people in the UK are worried about making sure they've got a roof over their head and food on the table. For us to be able to do that pre-application assessment is one of the areas where lenders have really stepped up. We're not wasting the time of the broker, and

February 2024 | The Intermediary

those brokers are helping educate the customers about what the choices are that are available in the marketplace.” Glynn adds that, particularly with the regulator's push for ‘good customer outcomes’ preoccupying the market, Air focuses on ensuring that borrowers are aware of the options. He explains: “We are laying down as much support as we can around ‘safer tracks’ – triage tools to assess customer affordability and ensure that the broadest set of products are open through the advice process. “That enables the adviser to challenge a customer that jumps straight for one product, really showing them the benefits of different options. This is going to be another important factor for 2024: that customers understand the impact of the recommendations.” He adds: “Our members, supported by lenders, are really alert to the vulnerability challenge. We're working with lenders and firms to normalise the process of embedding vulnerability assessments in your day-to-day activity.” While early assessment is key, the monitoring of potential vulnerability and trigger points must continue after the point at which a potential borrower becomes an active customer, as circumstances can change in a moment. With lenders and brokers working in concert to listen and treat borrowers as individuals, however, taking out more debt does not have to mean worsening financial resilience. Harrison says: “We have regular, ongoing management and monitoring of customer accounts, and a proactive contact strategy where we assess whether they're maintaining, worsening or improving their position. "If there are any signs that stress that could be materialising, we contact customers in advance of that becoming a problem. “Customers might be reluctant to reach out, but we help them start a conversation with us, and we've got a range of tools to support them. "Some changes we made last year include removing charges associated with missed payments or arrears. “We've got a ‘customer first’ approach. If they are facing a financial challenge, we should be there to get them back up to date on their mortgage account as soon as possible, rather than levying fees that may slow that down. We have a whole host of forbearance options available.” Crisp agrees: “We're really keen to make sure that borrowers talk to us – the worst thing they can do is bury their heads in the sand. So, we communicate with them and make sure that we listen to them and treat them as individuals.”

The Intermediary | February 2024

Breaking down assumptions For a country still understandably wary of the factors that led to the Credit Crunch, the idea of non-vanilla, adverse credit or near-prime lending – which might sound to a lay-person concerningly close to ‘sub-prime’ – could raise eyebrows. However, Jones points out that the nonvanilla market does not necessarily fit the sensationalised headlines. “There’s this perception that we're dealing with the low-end clients that don't pay their bills, or low-end properties,” she explains. “But we're seeing borrowers up above the £2bn mark that have had some kind of blip on their credit. Everybody has had the bank say 'no' at one point, and people are getting a little bit more wise to the fact that that doesn’t necessarily mean they're bad borrower.” This is making it “more important than ever” for brokers to have a deep understanding of the diverse needs and circumstances of borrowers, according to Paul Adams, sales director at Pepper Money. He adds: “Adverse credit is just one factor that could see a customer’s mortgage application declined by a high street lender. "Self-employment, working as a contractor, or even working multiple jobs can sometimes make it more difficult for people to secure the mortgage they deserve.” It is also becoming increasingly common for borrowers not to fit with the ‘net borrower to net saver’ dynamic previously seen as the norm as they progress through life, with Glynn calling for “more mortgage products that that satisfy the needs of customers into and beyond retirement.” Crisp adds: “These days, the reality is that pension pots aren't necessarily going to be the answer to everybody's woes.” He also points to the rise in ‘Bank of Family’ support, not only from parents to children, but vice versa, as well as things like the growing number of people divorcing in later life, and the instability that can bring, showing that the traditional journey through certain life stages through to retirement is no longer the norm. Brokers should be open to the idea that products previously thought to be the reserve of first-time buyers, such as joint borrower sole proprietor (JBSP) could be a “terrific solution for those people later on in life that need a bit of help,” Crisp says, adding that Mansfield is able to use downsizing as a viable repayment vehicle, and stretch repayments over longer terms to lessen monthly repayments. “We work very closely with customers,” he says. “We treat them as individuals and make sure that

we come up with a plan that works for them. There isn't one-size-fits-all anymore.” Harrison adds that simply refusing to serve this cadre of consumer, who does not fit within the 'vanilla' norm, could be a problem in itself. He says: “From a Consumer Duty perspective, just saying ‘no’ to customers who have got the means by which to service a mortgage, or just taking those fortunate customers who have very high credit scores and haven’t experienced any challenges, doesn’t fit with ‘best customer outcomes’. We do what we can to support this area of the market, ingrained within a responsible lending environment where we are only going to make loans available to customers who can afford it. We’re not just going to service the ‘cleanest’ customers, because that's not how the world works.”

FINANCIAL DIFFICULTY

In Numbers Stepchange

◆ 23% of mortgage holders have utilised credit in the past 12 months in order to make their mortgage payments. ◆ 44% of mortgage holders are finding it difficult to keep up with their bills and other financial commitments.

Computer says no Complex credit does not always mean having to venture outside the high street, but it does call for an adviser who understands how to investigate and present an interesting case. The work of a broker might also be helping a borrower become a viable lending prospect, even if they are unable to secure a mortgage immediately. This might include looking at debt consolidation in order to manage their existing financial situation, reassessing their choice of property to something better suited to their means, or looking at schemes like Shared Ownership. All of this must be underpinned by a sense of whether a poor financial history is just that – historical – or whether an individual is displaying ongoing signs of vulnerability. Adams notes that the growth of complexity and vulnerability – whether long-term or passing – is leading to an increased reliance on advice. “Brokers can play a significant role in helping customers manage their money and restructure their finances,” he says. Glynn agrees: “Hopefully one of the overarching outcomes from both the cost-ofliving crisis and Consumer Duty is that there's more focus on advice being the product, rather than the eventual financial instrument.” Jones adds: “It's more apparent than ever that brokers are worth their weight in gold. There are some people who have come to us with an issue that meant being put on a complex mortgage, and then who have later been able to remortgage onto the high street. Those people will always want to use a broker after that, because they’ve seen what happens when it goes wrong with things like comparison sites.” For brokers to navigate an increasingly complex market, Jones notes that they

◆ 35% of mortgage holders are showing at least one sign of financial difficulty.

Pepper Money ◆ 43% of people with adverse credit have seen their debt increase in the past 12 months. ◆ 45% of people with adverse credit have seen their use of ‘buy now, pay later’ credit increase.

Equity Release Council ◆ 46% of people do not feel confident about their finances, up from 35% in 2021. ◆ 57% of adults have seen their financial situation worsen in the past year. ◆ People aged 65 to 74 are the worst impacted, with 39% lacking confidence in their finances. ◆ 20% of mortgage holders (1.7 million households) are finding their current loan to be unaffordable.

p February 2024 | The Intermediary

"Welcome to the Bank of Mum and Dad now incorporating the Bank of Son and Daughter!" must curate a holistic market view, with an understanding of the myriad options open to borrowers of all types, as well as the different factors that might make them vulnerable to a worsening financial situation. “There are some good sources of education out there, and some lenders have been trailblazers in in putting vulnerability at the forefront of the process,” says Glynn. “We've also worked hard to make sure our Academy education support includes vulnerability. Therefore, advisers can understand the links and work through how to support vulnerable clients effectively. “There's practical help in there from industry experts on how to mitigate the risks, and it talks through, for example, the difference between

The Intermediary | February 2024

the transient and long-term nature of some of vulnerabilities. We're developing further content on both CPD and master class level to help advisers further develop their skills.”

The right products Understanding a customer’s needs is only one side of the coin, and brokers can only help those for whom there is a product that fits. “Fortunately, there are lenders out there, like Pepper Money, which can lend to customers with a record of missed payments – even when those payments have been in recent months,” says Adams. “Looking ahead, these lenders have an appetite to lend and are supporting this appetite with improving rates and criteria.”

He continues: “At Pepper Money, we have a clear purpose: to deliver positive societal outcomes and promote greater financial inclusion to a more diverse range of customers. "As part of this, we launched an Affordable Home Ownership proposition, which offers a suite of products.” Glynn adds: “Out of a difficult 12 to 18 months has come some fabulous product design. In any market where multiple lenders are looking at designing brand new products, it is a fantastic place to be for customers – when you strip it all back, that’s where we are.” In January, Mansfield Building Society launched its Credit Repair proposition, designed to help borrowers get their finances back on track. Crisp says: “We will cascade customers onto the best product we can offer. So, when you think about those vulnerable customers that have been through a financial squeeze, we make sure that they're put on an appropriate product. That might be someone who has applied for a prime vanilla product but has a credit blip or other criteria issue in the background – perhaps they’re borrowing later on in life – we’re able to cater for a combination of factors.” Atom bank’s near-prime proposition was designed with the ramifications of Covid-19 in mind, and to allow customers to move up through the range back into the prime space, as and when their finances fit. Harrison says: “We can support them on that journey with a competitively priced deal for their circumstances, and with a view to rehabilitating them over the period of their time with us.” Nevertheless, one of the areas where people agree there could be further innovation is in the products available to older borrowers, particularly those in the space before retirement, whose circumstances are becoming more complex. Crisp says: “There's a huge amount that's been done for older borrowers, for example the [retirement interest-only (RIO)] mortgage has been a step in the right direction, but I'm not sure it's the answer to all our prayers. Lenders have been innovative – they've extended the age at which people can borrow. One of the biggest gaps is that transition from being in that family unit to the pre-retirement and retirement life stages. There's more that can be done in the industry as people transition through life.” Glynn adds: “Advice is crucial in how you bridge the gap, but more importantly, so is product design from the lenders. Products must be designed where customers can pay some of the interest up to that interest-only level, for example. So, I do think that space will see further development as we move through the year.”

More than just product design, having a proposition that is fit for purpose across the full gamut of client needs is also about the underwriting approach. This is a part of the market where manual processes, tailored service, and access to decision-makers are all key. “At Pepper, we underwrite every application individually based on its own merits, and this is important for all individuals, including those who are older,” says Adams. “One challenge faced by brokers when working with customers with complex credit is that they have often already commenced the application process with another lender, only for it to be declined, and this puts additional pressure on time, particularly when it’s a customer who is racing to buy a home. “We mitigate against this by offering brokers greater certainty from the outset and a service proposition that delivers quick decisions and fast processing. We don’t use credit scoring to make decisions about product selection – what you see is what you get – and we publish our clear criteria so brokers can understand what we will accept.” Many specialist near-prime or non-vanilla lenders will similarly remove credit scoring from the process entirely, taking a more tailored approach to fully understanding the picture behind a borrower's financial history.

Man versus machine This focus on human underwriting and stripping away the one-size-fits-all, ‘computer says no’ mentality might paint a picture of a market that shies away from technology and automation. However, non-vanilla lending is a realm of innovation – not least because of the complex interplay of factors this market must account for. “We’ve got the same level of automation going through near-prime as prime,” says Harrison. “That’s a key selling point for our mortgage proposition in general, but one that stands out even more within the near-prime space.” He adds: “Tech is more efficiency driven[…] a support tool to help humans give even better advice. We’re very keen as a tech-enabled lender to utilise [artificial intelligence (AI)] as soon as we can, but it would be about speeding things up, document reading, pulling information from various sources into a more intelligible format.” Adams describes a similar approach at Pepper Money: “Technology can help the application process for everyone. Open Banking, for example, has the potential to significantly expedite the mortgage process through more efficient transfer of information, and we want to ensure we’re at the forefront when it comes to implementing this and other transformative technologies.”

February 2024 | The Intermediary

Crisp says: “Within our credit matrix you’ll be able to see everything, from our prime range at one end of the spectrum through to credit repair. Where it does come down to our personal underwriting approach is where the application has multiple factors. We pride ourselves on being able to look at each case on its merits.” Progress with technology across the mortgage market should help brokers dealing with an increasingly complex and non-vanilla borrower profile. Indeed, Crisp notes that sourcing systems have already come on apace in recent years, from simply comparing products based on price, to a more nuanced account of criteria. Nevertheless, Harrison says this is no time for the market to rest on its laurels. With this cohort of borrowers only growing, and lenders’ propositions becoming more sophisticated and varied, these systems will hopefully “continue their evolution to more intelligent product sourcing that will help everyone.” Through all of this, however, is an abiding understanding that technology – certainly as it stands now – can only ever be an enabler when dealing with complex financial histories, and the twinned potential for hidden vulnerabilities. “A real conversation with a real person will always have huge value, whether that’s the mortgage lender or the broker,” says Crisp. “It’s very difficult for any type of digital solution to be able to take into account all [client] circumstances, all of their emotions, their attitude to risk and all the key considerations, to replace the dynamic interaction a human would provide.” Indeed, for Air, which Glynn notes is increasingly becoming a tech-focused firm, this is only ever in service of supporting real conversations with brokers. He says: “Using things like Comentis, we’ve built technology in so as to properly identify and assess vulnerable customers, and then from the reports that come out of that process give the adviser a really clear steer on the practical steps to support that customer and respond to their particular circumstances.” Glynn adds: “The landscape is getting more complicated for advisers now, we’re seeing an increase in the number of products. That’s good, as is the fact that we’re seeing more granular pricing come through – a real personalisation of the rate. All of that needs tech to support it. “The other side of this is that the more efficient we can make the technology, the less time the adviser is bogged down mundane admin tasks, and the more face-to-face time they’ve got in front of the customer, which ultimately leads to better customer understanding.”

The Intermediary | February 2024

A matter of risk The echoes of the Global Financial Crisis can still be seen in the residential mortgage market. However, far from heralding the next collapse, a growth in lending to less traditionally ‘ideal’ borrowers demonstrates the myriad ways in which this market has shored up its processes since 2008. In a simple sense, lenders handle the higher risk elements of lending to those with complex or adverse financial profiles with loan-to-value (LTV) restrictions and higher rates. On a deeper level, however, this is about taking a measured approach to the borrower profile. Harrison says: “We do a thorough assessment at application, and our proposition is aimed at customers who are demonstrating an improving picture of financial health.” Crisp adds: “If we believe that a customer cannot afford it, we will not lend, full stop, even if it’s a good credit history.” He explains that risk is managed through a “raft of factors” beyond LTV and pricing, further reinforcing the value of good advice, and strong relationships with lenders. Adams says: “We can’t speak for all lenders here, but at Pepper Money, we obviously have a wealth of experience and expertise when it comes to lending to customers with adverse credit, and we are continually analysing our existing book and new lending to ensure that we are helping as many customers as possible while also maintaining a robust approach to risk.”

The future of the market There is evidently a great deal of work being done within this market – from supporting first-time buyers to downsizers, and watching for all different types of vulnerability. There are also some Government schemes that are adding to the tapestry of support – but the consensus is that more must be done, and specialist lenders should not be taking sole responsibility. Jones says: “Affordability has been an issue for the past 12 months at least. Lenders’ hands are tied at the minute with rates and market volatility, so the Government needs to take more responsibility and fill the gaps. For example, we had Help to Buy, and now there’s a gap.” Nevertheless, Jones says that with or without Government support, the complex lending space will be busy in the coming year, and she is “hopeful that 2024 will be a better market for everybody, not just those with complex needs.” For Glynn, the year ahead will be marked by changing perceptions around debt and financial complexity in later life, and a greater push for

understanding around the options available to borrowers of all types. He says: “We are trying to support our advisers, through the Academy and our insights hub and wider market activities, to educate customers in in the different product types that are available. “The product designs we're starting to see come through now are modern, dynamic in terms of the pricing capabilities, and they go to the heart of looking at that customer's individual circumstances, whether it's what they can afford to pay or their health and lifestyle factors. “Our challenge now is supporting more advisers to engage with more customers, in order to ensure that happens.” Harrison notes that while mortgage arrears figures remain relatively low compared with the period following the Credit Crunch, they are on the rise, and the market must adapt to borrowers’ changing circumstances. “The pressures that customers have faced are going to continue to create a need for more

options and a more flexible approach from lenders,” he says. “What we're keen to do is provide that flexibility, and really maintain the first-class standard of service, so that those who might have some missed payments still enjoy the benefits that our prime customers do, such as speed to offer, and being kept informed by the app.” Finally, it is clear that growth in this market means greater innovation, which will help borrowers across the board, and push toward a better, more inclusive lending environment. Crisp concludes: “If we're thinking of a positive for the borrowers, it would be that lenders are fighting over a smaller cake, so competition is going to remain high. There's a lot of lenders and a lot of products. “This market is about real life people, real life circumstances. People talk about being in the specialist lending market, but I’m not sure it’s so specialist these days. People’s lives are complicated – we just have to play our part.” ●

"We like to treat people like humans not numbers, 007"

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

Beyond new-build: Rethinking real estate planning

he UK has grappled with a well-documented housing shortage, stemming from decades of inadequate construction since the 1950s. The blame is o en laid on a flawed planning system and local opposition, leading to not only a human crisis but also a substantial economic challenge. Meanwhile, the inability to provide housing and essential infrastructure for growing sectors like life sciences, pharma, and technology also hinders overall economic expansion. Recent planning decisions, subject to bureaucratic delays and uncertainties, have deterred developers, raising questions about the effectiveness of proposed fixes by political parties as they approach an imminent election. With political agendas becoming increasingly populist, concerns have arisen as to whether proposed plans can genuinely boost growth without sacrificing votes. This dilemma emphasises the argument that central and local Government involvement in the planning process may compromise impartiality in decisions that significantly impact their constituents.

Adapt and change An o en-overlooked avenue for addressing the UK's housing needs lies in adaptive reuse – a strategy that is gaining traction, especially in the post-Covid era. This approach involves repurposing existing structures to meet new demands, such as converting offices into residential spaces. Developers actively seek assets suitable for repositioning, benefi ing from increased financing accessibility

The Intermediary | February 2024

as loans can be secured against fixed assets, reducing construction risks and costs in an inflationary environment. Additionally, adaptive reuse is a more sustainable alternative, emi ing less carbon than demolition or ground-up development, and in some instances, sidestepping planning hurdles altogether.

Locals tend to be in favour of breathing new life into unattractive disused buildings and boarded up shops” Permi ed development rules (PDR) enable certain conversions without full planning permission, as exemplified by the successful transformation of an office building in Solihull into 181 apartments. Such projects, funded by ASK, require minimal changes to the core structure, demonstrate efficiency, timely completion, and adherence to budget constraints. Permi ed development projects are not always possible, but where full planning permission is required, conversions of existing buildings are far less likely to receive local objections. Locals tend to be in favour of breathing new life into una ractive disused buildings and boarded up shops to bring back a vibrancy to the local area and economy. An example in this case is the Z Hotels group, which has acquired a number of Central London sites for conversion into its now well-known compact luxury hotels. ASK recently financed the acquisition of a vacant

DANIEL AUSTIN is CEO and co-founder at ASK Partners

office block in Leicester Square, which the group now has planning to convert into a further hotel in its portfolio. Crisis, a homeless charity, highlights a potential solution by revealing that around 250,000 homes remain empty and dilapidated. Repurposing these structures presents a missed opportunity for genuinely affordable housing, emphasising the need to shi focus from solely advocating new-builds to embracing a change in mindset.

Diverse developers This repurposing approach also opens doors for small and mediumsized (SME) developers, offering development opportunities and contributing to a resilient, sustainable, and vibrant real estate sector. ASK Partners, as a specialist real estate debt provider, supports these creative developers through bespoke lending solutions, o en at the pre-planning stage. The flexible underwriting process considers factors like location, underlying land value, and potential, aiming to align with the evolving needs of communities and the UK's dynamic landscape. While the planning system poses a substantial hurdle, the abundance of existing buildings ready for refurbishment and conversion highlights an untapped resource. Creative strategies, in harmony with changing demands for the built environment, present a less controversial and more sustainable pathway to meeting the pressing need for homes. ●

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

Getting around the obstacles presented to you

“B

uilding is about ge ing around the obstacles presented to you.” More famous for his roles in the ‘Avengers’ and ‘Mission Impossible’ franchises, the above quote by Jeremy Renner reveals a lesserknown side to his life – co-owner of a house-renovating business with his best friend! Renner has clearly learned through hard gra that no construction project is without its challenges. Careful planning, collaboration and monitoring can mitigate some risks, but ultimately many developments, to be a real success, will also need a slice of luck. UK construction endured some very challenging economic conditions during 2023, not least the impact of high inflation. This really began to bite with the pain felt by developers and contractors as, further down the supply chain, consultation fees, materials, labour costs, energy prices, equipment rental rates and pre y much anything else you can think of increased in cost. It’s a hard one to prove, but justified price increases were probably, and sadly, matched by opportunistic ones. Li le wonder that the number of starts fell sharply as developers focused on building out existing sites rather than opening new ones. Slowing house sales cast a further shadow over the market, as did perennial and increasingly exasperating planning delays. Our planning process is creaking at the seams. Increasingly erratic, underresourced and burdened by red tape, some departments are taking eight weeks to validate applications, let alone determine them.

As if these frustrations weren’t enough, many more potential developments were hit by much less publicised, but equally frustrating, nutrient neutrality concerns. Add to this the factor of suppliers increasingly demanding up-front payments, skills shortages, and a constantly evolving regulatory environment, and it’s clear just how tough things were last year. The challenges of a ‘speculate to accumulate’ cashflow model have rarely been felt so keenly. Thankfully, despite all the above, the development sector seems to have entered 2024 in a more positive mood thanks to some long awaited, but admi edly fragile, stability. Inflation is falling, mortgage rates have reduced in recent weeks, and long-standing supply chain issues continue to ease. At long last, macro-economic factors are moving in the right direction, making the frustrations just a li le easier to bear. Developers, contractors, and lenders will continue navigating a complex landscape with many obstacles to be overcome, but there are still some great opportunities out there for small to medium (SME) housebuilders and developers.

Opportunity knocks... While interest rates are predicted to remain at or near current levels for the rest of the year, weaker house prices, tax breaks ahead of the General Election, high levels of employment and the continued rise of nominal average earnings should hopefully lead to an improvement in affordability. Consequently, it’s likely we’ll see a recovery in housing starts as developers respond to growing consumer confidence. There are likely to be specific types of development that thrive. One of these is build-to-rent, underpinned

BRIAN WEST is head of sales and marketing at Saxon Trust

as it is by record demand levels for rented homes. Traditionally a sector popular with young professionals, and one favouring city centre locations, it’s estimated that to keep pace with demand we will need a million new rental properties by 2031. Linking directly into this, the city office market is challenging, with the cost of renovating many older offices to the required Energy Performance Certificate (EPC) standards being prohibitively expensive. An estimated 60% of offices currently don’t achieve the Band C rating required by 2027, which is likely to encourage a further surge in commercial to residential conversions, with many of these units being produced for the rental market. More generally, there is growing investor and consumer interest in sustainable and environmentallyfriendly housing projects, growing demand for affordable and social housing, Government-driven growth in urban regeneration and infrastructure projects, and rebounding demand for warehousing and logistics developments as the cost-of-living crisis relents and retail spending increases. Opportunities exist for those that can navigate a successful path around the obstacles Renner, AKA Hawkeye, alluded to in his quote. Projects in 2024 will, more than ever, require a forensic assessment of the risks and opportunities. Developers, contractors, and lenders alike will all need to stay agile, adapt to economic and regulatory changes, and ensure their risk management and monitoring processes are top drawer. Do this, enjoy a li le bit of luck along the way, and 2024 could end up being a great year. ● February 2024 | The Intermediary

In Profile. The Intermediary speaks with Parik Chandra, partner and head of specialist finance at Downing, about providing stability for SME developers

owning is a long-established UKfocused investment management business, managing almost £2bn in investment capital, with both a private and public market strategy. Within that, Parik Chandra looks after specialist lending – one of the firm’s three core private market strategies. The Intermediary sat down with Chandra to discuss sustainable lending during a difficult time for developers.

Stable and competitive

Chandra initially joined Downing because of its longevity, and feedback from the market that it was a “very stable platform, and across all the different private market investment areas, very experienced in construction finance with a thorough understanding of the nuances which come with development projects.” Chandra describes Downing property finance as “a non-bank lender that competes with the challenger banks and has bank-type credit criteria – but is much more nimble with quicker decisionmaking and execution capabilities.” The typical client profile is small to medium (SME) developers with good track records, in the £1m to £30m lending range. The firm positions itself in a sweet spot neither “too high nor too low on the leverage and pricing curves,” to create a sustainable lending strategy. Typically, projects will be run by local developers delivering one to three schemes per year of approximately 10 to 30 units, although Downing has funded schemes ranging from one to 100 units. Chandra notes that the SME funding landscape has changed over the past 15 years, making it difficult for borrowers to meet the “tick-box” requirements of some main bank lenders, which typically lend at quite low leverage, which is where private lenders and challenger banks come in. Due to how they are funded, these firms must balance risk, reward and lending volumes, and cannot only focus on rate chasing or doing as many deals as possible, but on doing the right deals, and creating the right combination of service, leverage 58

The Intermediary | February 2024

and pricing. For Chandra, what makes Downing stand out and strike this balance is experience. “The senior team have been in the market a long time, and seen several cycles,” he explains. “They know what they’re doing, and were purposefully hired for their blend of sales and relationship skills on the one hand, and credit skills on the other.” The firm does not have separate origination and credit teams, meaning less uncertainty for the broker and borrower. Instead, people with experience and an understanding of the firm’s appetite and criteria submit the deals to an investment committee. Chandra explains: “From initial terms to final terms, they don’t really change unless something comes out in due diligence. Our founders and key decision-makers that set the business up 35 years ago are still in it today. We’re a much bigger company now but we maintain the values of a small business, as well the same lean decisionmaking process.”

Hard times for all

Chandra points to 2017 to 2020 as a period of steady growth, during which the firm set up its property finance proposition and proved the concept. When Covid-19 hit the market, many lenders had to make a difficult choice to balance staying in the market and remaining responsible. For investment managers like Downing, actions needed to be in the best interests of both borrowers and investors. The firm took a measured approach and focused on supporting existing borrowers. Since then, progress has been consistent, despite the turbulent market. Covid-19 was not the last of the challenges, of course, with 2023 presenting the issue of rising interest rates, to add to an already difficult period in terms of the sales market, which in turn affects developers. Downing made the move in this time from a fixed to floating rate proposition, to which Chandra says borrowers have adapted well, with an understanding of the market realities. Looking back over both the Covid-19 period, and earlier the Global Financial Crisis, Chandra notes

I N P RO F I L E

that the housing market has deeply changed. In part, this is shown in a more pronounced property shortage, but it is also clear that the lending market has fragmented since 2008, with less systemic risk. Banks are not as highly geared, and there are more checks and balances in place that make another severe Credit Crunch unlikely. “The big difference now is the depth of liquidity,” Chandra says. “If you’re trying to borrow, you may not be able to get 75% [loan-to-grossdevelopment-value (LTGDV)], but you can almost definitely borrow 60% to 65% from somewhere. “There was no liquidity crunch like 2008 to 2010. A lot of us who worked in the major banks at that time have dispersed amongst the various challenger banks and non-bank lenders, and have taken the learnings from those times and fed them into lending policy, criteria and approach now.” He adds: “From a lender’s perspective, I would always assume a downturn is coming tomorrow. I’m not worried about either our live book or about deals being written now, as criteria and pricing have been adjusted to reflect market conditions, we are disciplined in how we write new deals, and we have more than enough firepower for the next 12 months and beyond.”

An eye on the future

With a General Election on the cards, Chandra says reform of the planning system would be an ideal place to start to address the housing shortage. “Both of the major political parties say the right thing,” he says. “They’ve both made housing a key issue. The proof will ultimately be in the pudding.” Chandra hopes that whatever Government is in place brings in schemes to help SME developers, pointing to a shift in the past 10 to 15 years from SME developers making up 30% to 40% of the housing market, to now only 10% to 15%. In order to ease the pressure on supply, support is needed for this tranche of borrowers, and planning is the place to start, as well as encouraging private capital investment. Although it is difficult to take a view on interest rates and inflation, considering how quickly things can change, Chandra says it is easier to predict these trajectories now. In his view, lending enquiries and volumes were up at the end of 2023, and will continue on the same track. Nevertheless, he adds: “The sales market will remain muted compared to previous years, so as a lender, you have to be prepared to be in deals for a bit longer, and in deals which are rolling on. There will be a real skill there in working with developers – who haven’t necessarily done anything

wrong but have just been caught by the market – and having delicate discussions.”

Sustainability and innovation

In the development market, Downing assesses every loan under sustainability criteria, followed by active dialogue with borrowers. Downing has also addressed the fact that Energy Performance Certificates (EPCs) are too simplistic for purposeful sustainability assessments. The firm created its own scorecard, which includes aspects such as biodiversity, emissions, water, waste and certifications, in addition to appointing a head of sustainability. Deals are assessed at the outset and given a score out of 100, with a minimum requirement of 40 to qualify for a sustainability rebate. At the end of the scheme, an independent third-party sustainability surveyor validates the project, and a final score is determined. This drives an interest rate rebate of up to 100bps. Downing also works with developers through the lifecycle of a project to help implement a range of enhancements to improve this score, with the goal of creating steady change within the industry. “It’s all about nudging and encouraging more sustainable building practices,” says Chandra. “We’re not asking anyone to completely change their scheme, but encouraging sustainability. An overnight revolution isn’t practical.”

Delivering developments

During a time full of challenges, Chandra says: “Most developers have had a pretty torrid time over the past 12 months. Timelines are so long to get development deals done, so you want to go with someone you know can deliver.” Downing has benefitted from its diversified structure, having multiple investment strategies. However, the “bread and butter” has always been real estate and construction finance. The team has ambitious targets over the next 12 months, underpinned by its careful approach to risk. The most important thing for Downing in its relationships with brokers is its ability to provide clarity, and deliver for an important borrower base for the UK property market. “Our people value and nurture their broker relationships,” Chandra says. “And those relationships are about clarity. The brokers we work with most often would say that we’re quite clear on what we can and can’t do, if it’s a no, it’s a quick one. We don’t lead people down the garden path. Those on the front line know what they can and can’t do, and that factors into why we get an awful lot of repeat business. It’s a matter of longevity, experience and deliverability.” ● PARIK CHANDRA February 2024 | The Intermediary

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

The future of commercial property

ogether has been providing finance to make property ambitions a reality for 50 years. As it celebrates this special milestone, far from focusing on the past, the company is taking a forward look at the prevailing trends and challenges ahead. From humble beginnings back when the company started out in 1974, to developing a £6.6bn loan book in 2024, Together is now one of the largest non-bank lenders in the UK. This month, we are taking a closer look at our recently launched commercial market report, ‘Opportunities and Outlook', which surveyed commercial property professionals to gauge their views on the future of the market. Our brokers tell us that, despite the challenges of navigating a turbulent economy, there are still sizeable opportunities in the commercial property market. Fortunately, we are now seeing recovery, with increased demand in key sectors.

Areas of opportunity The housing need has never gone away, and building affordable stock continues to rank highly in importance. Change of use and permi ed development are growing tools with which to repurpose commercial buildings into residential sites, breathing new life into buildings – especially in city centres where there has been rapid population growth. Strong demand for houses in multiple occupation (HMOs) and holiday lets proves that there remain opportunities in buy-to-let (BTL), with many landlords diversifying their portfolios, particularly in the student accommodation sector.

The Intermediary | February 2024

Appetite for more office space has been changeable. We are seeing funding applications for smaller, more flexible spaces as business-owning tenants become more discerning about the workspace they rent. This could be down to a reluctance to return to the office en masse a er the pandemic, with employee behaviours changing to favour working from home or hybrid models. Other areas of growth include logistics and industrial sectors, as people increasingly live life online and order goods to be delivered from fulfillment centres instead of visiting physical stores. An ageing population will provide opportunities in the health sector, providing opportunities for both wellbeing sites as well as research labs.

The next 12 months Our broker community remains optimistic, despite the challenges ahead. Many banks are tightening up their criteria and looking closely at the asset classes that they will lend on, meaning accessing funding could get tougher. That’s where it is important to seek out a lender that can fully appraise the opportunity and its viability, even in more complex cases. Sustainability will continue to be a theme in the market. While there is a substantial appetite to create environmentally-friendly buildings, the knowledge and cost of materials to repurpose existing buildings or build from scratch is still a challenge. Yet good tenants need assurances in place that any site they rent meets certain sustainability standards.

Policy changes A boost to the commercial property market has so many positive ramifications for the economy.

TANYA ELMAZ is director of intermediary sales at Together

These include building homes for those that need them, creating jobs constructing and renovating buildings, and creating workplaces to provide goods and services that are needed in communities. The real change that is needed is in planning. Processes need to be easier and quicker, with skilled resources in place to make sensible decisions. Subsidised taxes and grants to encourage the adoption of regulations will support the refurbishment of existing stock. Currently, the task can just be too onerous for a landlord to contemplate, so more streamlined, accessible processes need to be put in place to encourage adoption. A renewed focus on improving transport links is also needed, helping to make travel into our towns and city centres easier. In turn, these improvements would boost urban offices, leisure and retail businesses and local economies.

Access to funding Our ‘Opportunities and Outlook’ report finds that one in five property developers are not confident they could access the additional finance that they need. Traditional lenders are increasingly taking a much more cautious approach and can take weeks in their decision-making process. Delays not only affect the business' liquidity and ability to progress with a scheme, but can also see opportunities disappear from view. We found that landlords place value in speed, service and reliability as key factors in influencing who to borrow from, and high street lenders are just not set up to deliver this. ●

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

Broker thoughts on the biggest bridging trends

t the start of every year, the trade press is full of comments from lenders reviewing the previous 12 months and making predictions about what’s on the horizon. This can be very valuable, of course, but at Castle Trust Bank, we like to do things a bit differently. We work in close partnership with brokers, so we understand that the cases we lend on o en form only part of your overall business. When it comes to identifying trends, brokers are on the front line of client demand. So, we asked you about your experiences over the past year and your hopes for the future when it comes to the bridging market. We will release the full results from our latest Castle Trust Bank Pulse Survey over the coming weeks, but in the meantime, here are some of the trends you experienced in 2023 and your expectations for 2024.

Robust year for bridging When it comes to bridging business volumes, 2023 remained robust, although demand from first-time property investors was either static or down on the previous year. The main use for bridging finance was quick property purchases, and when it comes to property, it’s clear that investors were targeting higher yields, with most brokers saying houses in multiple occupation (HMOs) and multi-unit freehold blocks (MUFBs) were the most popular type of property for bridging. The least popular uses of bridging finance were found to be development exits and auction finance. While the mainstream mortgage market was particularly challenging

The future of bridging looks bright

for brokers last year, our survey found that bridging brokers either maintained their staffing levels or increased the size of their teams. Perhaps unsurprisingly, in an uncertain environment, certainty of decisions ranked highly as a consideration for bridging clients when it came to choosing a lender.

Expectations for 2024 Our survey found that brokers are generally positive about the prospects for the year ahead, regarding bridging volumes and the outlook for their business, although few of you expect there to be a big influx of first-time investors this year. There are, of course, clouds on the horizon and questions marks remain around the economic outlook. Our survey told us that you think the two biggest risks to a more promising year are continued high interest rates and political uncertainty. What conclusions, then, can we take from broker views on 2023, and looking ahead to 2024? From the first weeks of the new year, it seems that

ANNA LEWIS is commercial director at Castle Trust Bank

uncertainty will continue to prevail, at least for the coming months. The upcoming General Election is likely to be later in the year rather than earlier, and while the year has started with mainstream lenders cu ing rates, international unrest has put upward pressure on swap rates. Bridging, however, is a product built to finance periods of uncertainty, so there is li le reason to doubt brokers’ optimistic view for the year ahead. At the same time, as landlords continue to experience pressure on their finances, higher yielding investments such as HMOs and MUFBs are likely to continue to grow in popularity. Of course, in periods of uncertainty, everyone craves something certain, so those lenders that are able to provide this will continue to be in high demand. My view on your feedback to our Pulse survey is the continued importance of strong partnerships. The future does look brighter, but there remain some hurdles ahead. Last year, the most successful brokers were those who worked in partnership with their clients to help them succeed, and the most successful lenders were those that worked in partnership with brokers to enable this. 2024 will probably feel a lot like 2023, and we can all use the experience from the past 12 months to educate the approach we should take in the year ahead. ● February 2024 | The Intermediary

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

Navigating bridging in an unpredictable landscape

s we find ourselves several weeks into the new year, we eagerly anticipate what 2024 may unfold for the bridging market. It's important to acknowledge that the short-term property lending sector operates within the broader mortgage market, so there’s a strong relationship between bridging and term mortgages. Buy-to-let (BTL) mortgage rates, in particular, hold a pivotal role in providing a viable exit strategy for bridging finance. Towards the end of 2023, and in the first weeks of 2024, term mortgage rates showed encouraging signs, with many lenders making significant price cuts. This triggered a surge in mortgage enquiries across all sectors, and this positive momentum extended to bridging finance, with heightened enquiry levels and a growing sense of confidence.

As we embark on the new year, the direction of rate fluctuations remains uncertain” However, since then there has been a slight uptick in swap rates, likely correlated with elevated living costs spurred by unexpectedly high inflation figures. This uptick prompted some-term lenders to adjust their pricing upward, one to withdraw its complete offering. Simultaneously, other lenders persisted in implementing rate cuts, rendering the present environment and future outlook somewhat unclear.

The Intermediary | February 2024

So, as we embark on the new year, the direction of rate fluctuations remains uncertain. This uncertainty, coupled with ongoing global conflicts, suggests that clarity might be elusive for some time.

Cool in a crisis Fortunately, bridging finance is designed to thrive in periods of ambiguity, and can prove invaluable for funding transitional phases for a variety of purposes. Consequently, resilience is expected to characterise the market throughout the year, with the possibility of sustaining growth akin to previous impressive levels. This optimism is fuelled by the expanding reach and reputation of the bridging market, a racting a growing number of brokers who recognise its multifaceted benefits for clients. A cornerstone of this burgeoning reputation lies in the Certified Practitioner in Specialist Property Finance (CPSP) program. This optional e-learning initiative encompasses bridging, short-term finance, development finance, and specialist buy-to-let, delivering a comprehensive education program for the short-term and specialist lending sector. The program, launched in mid2023, has seen more than 500 advisers register, while nearly 100 have completed it, passing the end-ofprogram assessment. Prominent broker firms have also commi ed to supporting their advisory teams in obtaining CPSP accreditation. The Association of Short Term Lenders (ASTL), Financial Intermediary & Broker Association (FIBA), and London Institute of Banking and Finance (LIBF), as joint promoters of the CPSP program, are

VIC JANNELS is CEO of the ASTL

pleased with the widespread uptake and examination success. This fosters a broader perception of enhanced professionalism in the sector. The ASTL's commitment to promoting CPSP extends beyond simply launching the accreditation. We plan to collaborate with the national press this year to help grow understanding of how CPSP can help to ensure the highest quality advice for end customers. We also plan to encourage the public to seek out those advisers with CPSP credentials when embarking on short-term lending projects. Continuing engagement with regulators remains a priority for the ASTL, and we continue to hold halfyearly meetings to discuss the sector's progress and its broader impact on the mortgage marketplace. These conversations serve as a barometer for gauging market temperature and understanding the regulator's perspective on the evolution of our sector. One certainty – amid the broader political and economic uncertainty – is that the bridging market persists in progressing positively. Credit for this goes to the professionalism and customer focus of our industry practitioners, particularly those ASTL members that adhere to our stringent membership rules and Code of Conduct. While caution is warranted in approaching 2024, optimism prevails for the bridging market in navigating these challenges with resilience and adaptability. ●

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

Helping clients with refurbishment bridging needs

or property developers and investors looking to fund a development project, refurbishment bridging finance can offer the perfect solution for their borrowing needs. Despite the economic challenges seen over the past few years, this area of the specialist lending market has seen increased demand in recent months, and investor and lender appetite still remains strong. Refurbishment bridging loans continue to be in demand from property investors and professional landlords looking to purchase a property at short notice, or carry out light and medium renovations to improve existing stock in order to maximise yields in a challenging economic environment. In the majority of cases, these refurbishment bridging loans are used as a form of short-term financing by investors and landlords looking to renovate, convert or build residential properties or commercial premises, with the aim of increasing a property’s value until it is sold on the open market or refinanced with a mortgage. Generally, refurbishment bridging loans are used in light to medium refurbishment cases, which typically includes cosmetic updates to a property such as plastering, painting or new flooring, or the replacement of fixtures and fi ings such as a new kitchen or bathroom. While they can also be used in some heavy refurbishment cases, it is generally considered that any project requiring major structural work or enhancements that require planning permission could require a development finance loan instead. One of the many benefits of a refurbishment bridging loan is

MATTHEW DILKS is bridging and commercial specialist at Clever Lending

that it is ideal in situations where an investor or landlord has to move quickly because they are facing a tight deadline or have spo ed an excellent investment opportunity and need quick access to funds in order to secure a property purchase, such as at auction. In this situation, a refurbishment bridging loan can provide the quick and flexible finance needed to enable the borrower to purchase a property and close the deal in a short space of time. The capital raised can then be used to renovate the property and make it more appealing to potential buyers or future tenants.

Change of use Most recently, Clever Lending has seen high demand for refurbishment bridging loans used to convert a property into a house of multiple occupation (HMO) or holiday let. In some cases, investors are purchasing commercial property such as an old pub and converting it into flats, while others are snapping up properties in popular locations across the UK and converting them into holiday rentals. One of the main a ractions of a bridging loan is that is can be approved in a ma er of weeks, allowing investors to take advantage of time-sensitive purchases. Terms of up to 12 months are standard across the industry, and most lenders will offer loan-to-values (LTVs) of up to 75%, provided the borrower meets the affordability criteria. For some borrowers, we can arrange loans for longer terms of up to 24 months. Given the short-term nature of refurbishment bridging loans, all borrowers need to have a detailed exit strategy outlining how the loan will be repaid. In most cases, this will be the sale of the property upon completion

Change of use: A bridging loan can be the right move

of any planned improvements, or by moving onto a buy-to-let mortgage and renting the property on the open market. This is particularly important in the current economic climate, and should clearly demonstrate that the investor has a clear and realistic understanding of how the loan will be repaid. Brokers dealing with clients looking to take out a refurbishment bridging loan, but who are unfamiliar with this particular area of the specialist lending market, should refer their clients to a master broker like Clever Lending, which can carry out the advice on their behalf. This will enable them to focus on other clients within their business, safe in the knowledge that the needs of their specialist client are being met, while also being remunerated for their referral. ● February 2024 | The Intermediary

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

ovid-19, in many ways, taught us a lesson about the importance of human contact. While this should have been a lesson learned in the mortgage industry as well, instead it seems as though some banks, and even brokers, are a empting to remove everything that’s human about the process. In a recent example, dealing with one of the major high street banks on a case that should not have been dealt with via web chat, I got home at the end of the day having truly reached the end of my tether. I was trying to do the right thing for my client – a vulnerable, disabled individual – and was le feeling that the banks don’t care about their effect on brokers, who are trying to do their best for the real people behind the business they’re bringing to the banks every day. This includes sacrificing our evenings, and lately, even our weekends too. Banks, meanwhile, are very clear on their accessibility and service commitments for borrowers. As brokers, our job is not just about ge ing people the best deals – that’s the byproduct, but it’s not our job. Our real job is to remove the anxiety, the

The Intermediary | February October 2023 2024

overwhelm, and the stress from the process – we do a good job of that, and I don’t think banks do the same. Brokers are seen as being a cog in the machine, but we are really the bank’s customer at the same time as the end user.

A space for everyone The other point that comes in here is about difference and inclusion – where banks are refusing to make space for brokers as people, they are especially pu ing people at a disadvantage who might be neurodiverse or have diverse needs. It’s important that we raise awareness, because everybody is different – even just among those with ADHD, for example, each type brings with it different characteristics. Take myself, I was diagnosed with ADHD at the age of 45 last year – only a shock to me, as it turns out. I don’t like web chats, they cause me huge anxiety because I find it harder to process, but I am very happy in the room with people or having a phone conversation. With this major bank from my recent example, once the application is in, the only option is a web chat function, even for complex cases

that clearly don’t suit that style of communication. What I will say is that the person I was dealing with called me outside of his own working hours – but he should not have had to give up his spare time, either. Different forms of access should be built into the bank’s systems. You can’t talk about diversity and accessibility and not offer it to everybody in the chain. This question is even more important with regulation around vulnerability throwing it into the spotlight. I have to fill out a vulnerability sheet for every single client, to investigate multiple areas of vulnerability, as a Financial Conduct Authority (FCA) requirement. However, when I asked what this bank’s policies were for brokers, for protecting the wellbeing of those who worked alongside them, there was nothing. And yet, every day these banks are the catalyst of good brokers across the industry wondering whether they should simply quit their business. In an ideal world, these factors would already be being considered by banks. But how will they know there’s an issue if we don’t tell them? People won’t do anything until it’s brought

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

to their a ention, so we need to use whatever platform we have in order to have these conversations.

Not just a number For many of these banks, the logic is that – whether it’s outsourcing callcentres or focusing entirely on web chat – this is a cheaper and quicker way of communicating with brokers. What they fail to realise is that an investment in treating brokers like people – the same as they commit to doing for the borrowers – would pay back dividends in terms of loyalty, reputation, and service. Increasing use of artificial intelligence (AI) and automation might drive costs down, creating less need for staff, but it ultimately misses the point. Banks should be focused on service, as opposed to cost – because if brokers stop bringing them business, that investment will be for nought. On a practical level, banks need to understand the person sat on the other side of the computer trying to use these services. For example, there are various idiosyncrasies, from the innocuous (such as file uploads needing to be done a certain way) to the more systemic (such as one bank’s policy to set to one side applications

that are missing a certain form) that must be communicated clearly to brokers in order to keep the market moving smoothly. How are we to keep track, particularly when each and every lender we deal with will likely have any number of these factors to consider? All it takes is for this information to be clearly explained on the broker-facing website – for the bank to consider how to make life easier for the human being on the other end of the application. Sometimes, the only break I get in a day is the drive from the office to home – which I just call a change of scenery. My girlfriend jokes: “Can I have one of the Calendly links you send your clients so I can book some time in with you?” I know deep down, it’s just a half joke. Banks should be aware of this issue among brokers, and doing what they can to help them grow their business sustainably. It’s therefore especially difficult when there are simple things that banks can do – like providing more information about applications – that they don’t, which simply feels lazy. A simple screen recording of a product transfer, a remortgage and a purchase would do a world of good, save us a bucket full of

RICHARD CROW is founder and director of RC Financial

time, and remove all of the pointless calls where we sit on hold for 15 minutes, to have to ask “I’m typing in this box and it wont let me proceed?”, only to be informed “oh you don’t put anything in that box...but be careful of the box that looks the same later on that you must type in!” People don’t remember what you do – they remember how you make them feel. I know this from my own clients, from their stories of how I have impacted their lives. That’s worth more than any money, although we do have to earn money...but hopefully without removing all that is human in the process. ● February October 2024 2023 | The Intermediary

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

Prepare properly for media interviews

e’ve all put our foot in it at some point or another, said something that we shouldn’t have, and later regre ed it. It may have been a clumsy explanation that triggered a misunderstanding in the office, or perhaps an off-the-cuff remark that caused offence among friends. It happens. When you make one of these blunders in private, they can be embarrassing, but they’re o en soon forgo en. However, if you say the wrong thing in a public se ing – or in front of a journalist – it’s not so easy to brush off. Most people have a hugely misguided notion that all journalists are out to get you – they’re really not. But at the same time, when you’re in front of a camera or meeting a journalist, you do need to choose your words carefully. If you botch an explanation or express something clumsily, it could lead to a misunderstanding that causes significant reputational damage for both you and your firm.

Out of touch? Sir Howard Davies, chairman of NatWest, found this out the hard way last month, when he suggested it was not “that difficult” to get on the housing ladder. Davies later clarified that he “did not intend to underplay” the challenges facing first-time buyers, adding that he was referring to the bountiful supply of mortgages currently on offer. I will give him the benefit of the doubt, and allow that he simply didn’t explain his point clearly enough. A er all, it’s unlikely that the chairman of the UK’s second largest residential mortgage lender would suggest it’s easy to get onto the housing ladder

The Intermediary | February 2024

when first-time buyer transactions are running at their lowest level since 2013. Whether he meant it or not, the damage is already done. Some have suggested that the ensuing media storm has been overblown and that now he has clarified his position, it should be forgo en about. Maybe so, but it rarely works like that.

Don’t put your foot in it – or worse!

To most people, this episode is yet another example of a wealthy, out-oftouch banker being dismissive about the challenges facing most people. From a professional perspective, this debacle simply highlights the importance of good media training. It doesn’t ma er how senior you are, or how many journalists you know, learning how the media operates is vital.

Keep calm In my 15 years in the mortgage market, first as a journalist and now at a PR firm, I’ve seen my fair share of under-prepared and overconfident spokespeople fluff their lines in front of a reporter. They get flustered, become too wordy, li er their points with jargon, fail to tailor

PAUL THOMAS is head of news and content at MRM

their arguments appropriately for the audience, and most importantly, become oblivious to potential bear traps. On the other hand, those who have been media trained tend to be calmer, express things more clearly, and are generally less phased if the questions get a li le tricky. The idea of media training is not to create an army of carbon-copied robots, but simply to help you express your thoughts more clearly and to avoid an embarrassing faux pas. Practicing allows you to hone your key messages, which can provide refuge if the questions start to get a li le challenging in an interview se ing. A good media trainer will kick the tires on that messaging, focusing on areas that are likely to come up in an interview, along with a few curveballs for good measure. The idea of these sessions is not only to learn the theory, but also to put the theory into practice so that it’s second nature by the time you sit down in front of a reporter. You should learn how to artfully address difficult questions, spot the pitfalls and to maintain your composure even when things get tough. This perhaps makes it sound as though media interviews are an ordeal – they’re not. They’re a great opportunity to boost brand awareness and gain valuable coverage for your firm. But there are a few things you need to prepare and to be mindful of before you open yourself up to media scrutiny. Good spokespeople are not born; the skills can be taught. So, if part of your marketing strategy is to improve your media profile, start by finding someone who can show you the ropes. ●

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

Clubs continue to evolve in supporting brokers

s a new or smaller businesses, many principals choose to start their business journey in mortgage broking as an appointed representatives (ARs) of a network. It makes sense to a degree, as it allows them to concentrate on running the business and doing the things they wanted to do in the first place – support and advise borrowers.

Shouldering burdens Few business principals start a business because they are desperate to become embroiled in the minutiae of back-office process. Networks can shoulder this operational requirement of compliance, regulation, training, advice and technology. Understanding risk and its business impact is not the same as managing it on a day-today basis. The alternative solution is to take a directly authorised (DA) status, which offers the prospect of complete autonomy so principals can run their entire enterprise on their terms. Like many issues in life – one freedom o en means losing another. Autonomy grants you the freedom to run your business as you see fit within the Financial Conduct Authority (FCA) regulatory requirements, but it brings the responsibility of risk management for the business. This narrative, however, hides another possibility. It is now entirely possible to have the best of both worlds. There are many reasons why, as an established or growing business, you may choose, or have been forced, to adopt DA status. Clubs like TMA are able, because of our group relationships, to offer much of the support of a conventional

network relationship – but still as a club. With increasing scrutiny by the regulator through its Consumer Duty lens, firms are having to learn a lot very quickly, and some will feel they need more help than others. It’s one additional reason why having access to advice and guidance services can make a real difference. By understanding what best and common practice is, you can make more informed and comfortable decisions for your own business. Ultimately, our network members need to understand and deliver on these expectations, and we can use those learnings to help our DA membership make sound decisions, too.

Facing down change When you step back, the volume of change facing the mortgage industry is impressive. The market environment is challenging and will continue to be so. The regulatory agenda is growing and technology choices remain bewildering. The regulatory requirements of the entire mortgage value chain mean the shi in reporting and evidence-based reporting which will impact lenders, networks and brokers alike. At TMA, we are agnostic in terms of which customer relationship management (CRM), client portal or other tools a broker selects or prefers in order to support and gain efficiencies within their business. We are proud to have relationships with an array of suppliers to help our brokers choose the systems that best suit their requirements. We have a full suite of options, including our in-house system which offers a secure, white-labelled client portal.

LISA MARTIN is development director at TMA

From continued professional development (CPD) learning and toolkits, to professional indemnity (PI) and recruitment support, and everything in between, a mortgage club will allow advisers access to a comprehensive bank of resources which the adviser can pick and choose to use at their own convenience. All this will ma er more as increasingly complex lending propositions come to the market. Long-term fixed rate products have been the subject of lot of policy-maker and mortgage industry headlines in recent months. Understanding when they offer the best outcome in an economy of fluctuating inflation and mortgage rates will be important if the right customers are to be clearly informed.

Better practice From business and regulatory support, technological or otherwise, to tools and resources and networking events, clubs are offering more than ever before to facilitate be er DA practice. In today’s market, where every business could do with an extra pair of hands, being able to select the support you need as and when you want it is a compelling idea. As we progress, I honestly believe that the existing binary model of AR and DA will evolve to enable DA firms to cherry-pick the best of both worlds. It makes sense that this should be the case. As regulation moves slowly from product result to consumer outcomes, so must the technology and broader business support offered by clubs to support their firms. ● February 2024 | The Intermediary

B RO K E R B U S I N E S S Case Clinic

Case Clinic Want to gain insight into one of your own cases in the next issue? Get in touch with details at editorial@theintermediary.co.uk

CASE ONE Remortgage with Airbnb

client is looking for a pound-for-pound remortgage, having spoken to a number of high street banks which were not able to help. They live in the main building on the lot, but often let out the converted barn at the back of the property via Airbnb. The lenders they approached were not happy to consider their home as suitable mortgage security, given that the barn takes up a high percentage of the overall property.

is relatively low. It would be advisable to provide as much information about the property with supporting photos and previous sales particulars so a judgement call can be made.”

VERNON BS

“Vernon Building Society is happy to consider a residential remortgage with an annex let out on Airbnb. The percentage of the overall floorplan compared to the main residence may be an issue, but we wouldn’t rule it out based upon the information provided. “We would need to review the property, address, and size guide to that of the main house and make a decision once we know more. “Our standard criteria is 20%, but we do have discretion based on the overall case and our valuer’s opinions on if the property can be readily re-sold as a residential property.”

BUCKINGHAMSHIRE BS

“We can consider this as the society’s security will be registered on the residential property. The loan-to-value (LTV) would need to be 50% or less for us to consider. The only consideration is that we would need to understand if the barn has been registered as a business, as they would be paying commercial rates. If it is registered as a business, then we would be unable to proceed.”

WEST ONE LOANS

“Borrowers generating income from Airbnb properties is becoming more popular. There are an increasing number of lenders open to considering a standard residential mortgage in these circumstances. The issue is the size of the barn in relation to the main residence. There are some specialist lenders that can take a view on nonstandard property types, especially where the LTV 68

The Intermediary | February 2024

CASE TWO Residential mortgage with lodger income

client is looking to remortgage, but struggling to meet required affordability due to the high stress rates. They are in receipt of income from a lodger – a situation which has been going on for six months. Without this income being used for affordability, the client cannot borrow what they need, and their existing lender is not offering competitive rates in comparison to what else is available in the market.

B RO K E R B U S I N E S S Case Clinic

WEST ONE LOANS

“The rent a room scheme allows homeowners to let out furnished accommodation tax free up to £7,500. Combine the increased cost of living, and it is easy to see the appeal of lodger income. “For most lenders, having a lodger in the property is not generally an issue. There may be some additional legal requirements such as occupier consent forms, but it is generally acceptable. It is less common, though, for lodger income to be used in the affordability calculation. The short-term nature of this type of arrangement, which is not always subject to formal contractual agreement, makes it trickier. “That said, there are some innovative mortgage products out there which will consider lodger income, such as the rent a room mortgage from the Bath Building Society, which allows income from up to one tenant to be included in the affordability calculation.”

MPOWERED MORTGAGES

“There are a few reasons why lenders may be reluctant to accept lodger income. With responsible lending at the forefront, they will look for income that is stable and consistent. Lodger income may not be guaranteed over the longterm. Lenders like income from stable and regular sources, and ones that can easily be verified. “If the lodger moves out or faces financial difficulties, this could impact the borrower’s ability to meet mortgage payments putting them in a difficult spot. There is always an element of risk in everyone’s circumstances; however, this poses a larger risk compared to other forms of income. “MPowered understands that customers may look to lodgers to supplement their income, and we will accept lodgers as long as the agreement is informal, or if formal, the lodger has signed a deed of occupier’s consent, but not for affordability purposes. We wouldn’t want to risk someone being over-committed and reliant on an income which, through no fault of their own, could be unavailable to them.”

BUCKINGHAMSHIRE BS

“Buckinghamshire Building Society is unable to accept lodger income towards affordability, if the lodger does not have a tenancy agreement with the applicant. “We could consider a Joint Borrower Sole Proprietor (JBSP) offering if the applicant has parents who are willing to support with the affordability. The parents would be on the mortgage, but they would not be on the deeds to the property. If we were to proceed on this basis the lodger would need to sign a form of consent.”

CASE THREE One year of trading history with a CCJ

customer wants to get his first mortgage. He is currently self-employed; however, his company has only been trading for one year and his year-end does not match the fiscal year. This means that he needs to work based on net profit rather than dividend income for affordability. He also has an unsatisfied County Court Judgement (CCJ) from four years ago worth over £1,000, from a car insurance policy that he thought was cancelled.

WEST ONE LOANS

“There are more than four million self-employed workers in the UK, so it is important that the mortgage needs of self-employed borrowers are catered for wherever possible. “This type of situation is unlikely to meet the requirements of a high street lender, but would benefit from a more individual approach to underwriting. We have products which offer mortgages for self-employed borrowers with a shorter trading history of just one year. “For sole traders and partnerships, it is usually normal to assess affordability off the net profit figure and there are some lenders that will also consider using net profit and salary for limited company directors in certain circumstances. As there is a disconnect between the fiscal year and the company year end, it may be helpful to select a lender that relies upon accounts or accountants’ certificate to assess income. “Regarding the CCJ, West One would lend to this borrower, as although the CCJ is unsatisfied it is not recent and should therefore not prove a barrier to obtaining a mortgage.”

BUCKINGHAMSHIRE BS

“Buckinghamshire Building Society could not consider this case alone for the applicant, as we would need two years self-employed income evidence. However, we could consider a JBSP offering. We would look for a 5-year exit plan so would need to understand how the applicant’s income will increase to support the borrowing in future years without support. We can accept up to four applicants up to 90% LTV. “The CCJ would no longer be an issue for the society as it is over three years old; however, we would ask for this to be cleared on completion.” ● February 2024 | The Intermediary

Meet The Broker Pure Structured Finance

The Intermediary speaks with Jacob West, associate at Pure Structured Finance, about making the switch from one side of the market to another How did you end up at Pure Structured Finance? I went to Surrey to study business management, disrupted somewhat by the pandemic, and graduated in 2022. Saxon Trust was looking for a graduate to take on a broad range of tasks – marketing, underwriting, case management. I worked there for just over a year, and then, keen to see a different view of the industry, I decided to ‘switch sides’ and become a broker. I joined Pure in October. The standout thing I discovered is that everyone at Pure Structured Finance has incredible experience. They need to understand many different areas of the industry, wearing many different hats. That made it a lot easier to transition from lender to broker, because if I had a question, I knew I’d get a 70

The Intermediary | February 2024

good answer, backed with years of practical experience. It has also given me something to aim for – to build my own specialised knowledge base and network, so that I can start to give that same help back. It is also part of the broader group, which includes Pure Property Finance and Pure Wealth Management. The size and offering are very impressive. That’s been very helpful, because if I have an enquiry that’s not in my wheelhouse, or which I can’t progress, there’ll be a specialist in the group who I can refer my client to with confidence.

What is it like going from lender to broker? The lending and underwriting side is very much focused on ‘what we

can do’, and ‘how we operate’. On the broker side there’s much more of a client focus. You have to really switch your mentality to focusing on what the client needs and wants. Every client is different. While the knowledge I brought with me from the lender side was useful, I quickly realised that you need to combine that with a knowledge of what’s in the market now, with individual lenders and individual products. I think that’s just as, if not more, important. At the same time, understanding all aspects of a deal makes you a more effective voice for clients, ensuring you provide the funder with all the information it needs. As a broker, there’s a difficult balance to strike. You should respect your clients and their knowledge, but at the same time, not everyone is going to be familiar with this

M E E T T H E B RO K E R

industry, or the terms and jargon you use. You have to be clear, concise, and tailor your communication to each client. This means making sure that, every time you speak with a client, you’re checking if they have questions or concerns. I’ve found that it’s important to take the time to speak with clients over the phone – emails are great, but it’s easier for clients to ask questions and raise any issues. From the lender side, I have a much better understanding of what happens when I submit a case – the discussions, the processes, and the questions that are asked every time a new transaction is received. That has made me spend a little extra time when I submit a case making the key details clear and make the job of the underwriter as easy as possible. No matter how experienced the underwriter, first impressions are always important.

Do you have any advice for graduates looking to enter this market? This is maybe a bit cliché, but joining any industry you have to remember that you’re not going to have the experience of people who have been doing it for years. At the same time, this presents an opportunity to experiment and find out what works. It could be simple as finding a new contact, a new network, a new lender, or a new partner. Being younger, you’re often going to be more technologically savvy than people who have been in the workforce for years, particularly as a lot of university courses increasingly focus on technology. So, remember you can bring in a lot of skills outside of that marketspecific experience. That could be social media, web design, creating ads, copywriting, or graphic design – there’s a there’s a lot of skills you can learn the basics of quickly. I’d recommend young professionals selfteach if they haven’t learned these skills as part of formal education.

While I’ve met plenty of other young professionals in the industry, I think the market could always do more. That’s true in every industry, but the financial industry can be especially focused on experience and market knowledge. As someone with recent experience of being a graduate, the number of entry-level roles in our industry is not as high as others. Experience is great, but at the same time, there could be more young people in the industry.

What are your goals for 2024 and beyond? Primarily to continue to develop my knowledge – both of specialist finance as a whole and productspecific. I’m also looking to grow my presence in the industry, speaking to as many like-minded professionals and new clients as I can. As I said earlier, you can have the best understanding of development finance, bridging, or commercial mortgages – but if you don’t have up-to-date market knowledge, you’re not going to be as useful to a client as someone who does. During the next six months I’ll be studying towards a Certified Practitioner in Specialist Property Finance (CPSP) qualification. That will give me broader understanding, especially in areas like commercial finance and buy-to-let (BTL) – areas I have less experience in, but in which the rest of my team thrive. Beyond that, I’ll be running cases, attending events, speaking to clients, and growing my personal network.

Is there an area of the market you enjoy most? I’ve been focusing on bridging finance a lot more since joining Pure, but development is a really exciting market. Every project is unique and complex, and it’s great to watch developers grow and to assist them in their journey. I also love seeing the practical result of a project.

What key trends are you preparing for in 2024? I could speculate about the base rate and house prices, but I suspect that most people who read this will already have read their fill of housing market predictions. What interests me is the potential for change, both in our industry and the wider economy. On the technology side, changes will continue to have a knock-on effect on this industry – for example, the rise of remote working is having an impact on demand for commercial office properties. At Pure Structured Finance we’ve seen several transactions completed very quickly recently, thanks to new products and new technology being used by lenders. Other trends I expect to continue include the number of lenders offering discount or promotional rates for projects that meet sustainability and energy efficiency criteria. That’s a positive movement, particularly for small to medium (SME) developers. If the election goes as most are predicting, a lot of projects could become more feasible with the initiatives that might follow as a result.

Will these trends affect how you go about supporting clients? With all these potential changes, whether they happen or not, having a broker to provide advice and support is going to be even more useful for clients moving forward. It will also be more important than ever for brokers to keep up with our responsibilities to clients, ensuring that we are staying up to date, not just with the products being offered in the market, but the broader economy, legislative changes, new initiatives from the Government, and a lot more besides. Clients expect us to provide the best advice possible, and we need to meet this expectation every time. ● February 2024 | The Intermediary

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

How tech benefits the equity release landscape

ast year’s market conditions resulted in an incredibly difficult year – one of the most challenging we’ve experienced in the equity release industry so far, with total lending down 50%. It was a challenging year for homeowners too, for a number of reasons, which only compounded the downturn further. Customers were cautious over rising interest rates, hoping to see a return of the sub-3% rates seen the year before. This – coupled with general uncertainty in light of inflation and the cost-of-living crisis – all added financial pressures. Nevertheless, there is now vested interest within the market following the rise of a broader set of products and increase in retirement interestonly (RIO) and term interest-only (TIO) lending, which brings about higher case values. Plus, with recent innovations in hybrid, diverse and more flexible products, we expect a higher level of borrowing across the broader later life lending industry. Furthermore, the 15-year gilt index has come down from the highs of 2023, enabling lenders to reduce rates. Accompanied with the fact that property values have held their own against expectation, we have now seen lenders begin to increase their loan-tovalues (LTVs). We are seeing green shoots, with advisers feeling a renewed sense of confidence due to consumer appetite for greater lifestyle purchases, as opposed to just debt consolidation and replacing mortgages. The market is now stabilising, and opportunities are arising. We experienced an upli in enquiries and applications in comparison to January 2023, with applications up

The Intermediary | February 2024

41% and average loan size up 80%. This is reflective of our whole of market advice approach, with more RIO and TIO enquiries, plus the rise in lifetime mortgage LTVs and the demand for greater flexibility in retirement. As a business, we focused our efforts on technology last year to ensure we could head into 2024 favourably and present an enhanced experience to customers and brokers. Equity Release Group now services the entire equity release eco-system, supporting customers, advisers, and partners for the complete experience.

Transparent and accessible For brokers, access to advanced digital capabilities can provide their clients with a more enhanced and userfriendly equity release experience. Consumers, with the help of Equity Release Supermarket, can research their options online using any of our 21 calculators, and comparison tables which are all connected into one live product database – kept up to date by the lenders themselves. In addition, smartER™ enables consumers to research real-time deals that match their personalised circumstances. Our technology enables all our client and adviser tools to connect into one centralised product database, and this is how we’re shaping the market for the year ahead, both on the business-to-business (B2B) and business-to-consumer (B2C) side. There are still misconceptions about equity release. Part of our focus this year is to get the word out. Our goal is to make it easier to use tech for referral purposes, for example being able to embed a calculator or even smartER™ on the broker's own website. This in turn will lead to clients utilising these online tools,

MARK GREGORY is founder and CEO of Equity Release Group

which generates a lead for our expert advisers to provide whole of market advice. If the client completes the journey, a subsequent revenue share is made, both at the start and end of the process with that broker. It’s a new way of looking at introducer relationships.

Looking ahead While the next few months are still going to be tough and present challenges for the industry, we feel we’re heading in the right direction to get back on track. Renewed confidence is coming as consumers are beginning to reconsider lifetime mortgages and using property wealth for financial needs. Providing a gateway to more extensive information, access to comparison websites and personalised deals specifically based on individual circumstances will, we believe, help to cut through the misconceptions about the industry in 2024 and eradicate the general lack of information available. We really want to break down the barriers around a lack of equity release information, because we know that once customers do understand equity release – the flexibility and choice around products, and that it’s all very clear and transparent – then they are willing to listen and learn more. Our smartER™ research tool is a step forward in this area, making it possible for people to browse and understand the different products that might work for them, before then going through to an adviser. If the customer is more prepared, the conversation is a lot richer. Technology will create greater efficiencies and transform the industry in 2024. ●

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

What the later life product of the future will look like

he later life lending market underwent significant upheaval in 2023, hit with challenges from all different directions. Higher interest rates, the cost-ofliving crisis and rapid inflation caused affordability issues, leaving those over 50 particularly vulnerable as their fixed incomes were eroded away. Alongside this, the trend which has seen a widening gap between house prices and average incomes has caused a growth in consumers taking borrowing into retirement. As a result, perceptions of later life lending are also evolving, and rather than being seen as a way to supplement retirement income, for some it is now essential for meeting basic needs. This shi highlights the critical need to support more customers' transition to retirement, a need that has been thrown further into the light by the recent Financial Conduct Authority (FCA) review and new Consumer Duty regulations.

Advisers and borrowers These challenges present the industry with an opportunity to make longterm changes. One key lesson from the FCA’s regulatory review is the need to prioritise ensuring customers received the right product, irrespective of whether the initial entry point is the mainstream or later life sector. A ‘triage and referral’ approach to advice is increasing in popularity, with initial reviews to understand a client’s specific circumstances, financial standing, and potential vulnerabilities, and then directing them to an adviser who can best serve their needs. This ensures that customers who might benefit more from a traditional

mortgage are referred to a mainstream adviser, while those be er suited to a later life product are referred to a specialist adviser. The ‘triage and referral’ approach also accommodates advising clients on non-product options, when a mortgage isn’t the right choice for them. Another key takeaway is that, as people’s financial and personal situations become more complex, there is a need for products that help support older customers transition from working life into retirement. Indeed, as advisers prepare themselves for more detailed conversations with their clients, they are looking for a wider range of tailored products to present as viable options.

Rising to the challenge We have already seen the sector start to diversify in response to this, with a more extensive range of products entering the market. These include later life products with features such as voluntary repayments or early

BEN WAUGH is managing director at more2life

repayment charges (ERCs) as short as four years, and products that make capital and interest repayment easier. Moreover, payment term lifetime mortgages are emerging, offering customers the chance to service some or all of the interest for a defined period before transitioning to a full roll-up interest model for the remaining life of the loan. As the economic landscape changes around us, later life lending is set to become more popular. However, these same changes also mean that the more traditional products no longer fully meet the needs of clients. It is more important than ever that lenders and advisers collaborate to adapt to these new conditions, with more comprehensive conversations and a broader range of flexible products bridging the gap between the mainstream and later life sectors. ●

As the economic landscape changes around us, later life lending is set to become more popular”

The more traditional later life products no longer fully meet the needs of all clients

February 2024 | The Intermediary

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

Creating the ultimate user experience

or many, the year starts as an opportunity to take stock and establish priorities for the coming 12 months. Following the implementation of the Financial Conduct Authority’s (FCA) Consumer Duty, it’s safe to assume that a common question in financial services is this: how can we deliver improved customer experiences and outcomes? Within the later life lending sphere, let’s start by reflecting on the sector’s changing audience. The diversified customer profile in recent years, as products such as lifetime mortgages have become more mainstream, has helped drive product innovation and safeguard market resilience. Still, it’s vitally important that we continue to assess the changing needs of an evolving demographic. Their changing relationship with technology can best illustrate the evolution of the over-55 customer profile in recent years. Anyone who has worked from the 1990s onwards will likely have had some need to use computers. At the same time, the prevalence of smartphones over the past decade and a half has meant that today’s retirees are surrounded by technology – and, by extension, are likely more confident in using it – than any preceding generation. This is backed up by recent figures from the Office of National Statistics (ONS), which found that the over-70s spent more time online – excluding working or streaming video – than any other cohort apart from the under-20s. They averaged 43 minutes a day browsing the web and checking email – 10 more minutes a day on average than someone in their 40s. Interestingly, while the over-70s lagged far behind those in their 20s

The Intermediary | February 2024

when it came to playing console or computer games – eight minutes a day on average, compared with 32 – it was still more than those in their 60s, showing that age and willingness to game isn’t linear. That same level of technological comfort extends to using digital means to access services, as evidenced by the NHS app usage figures for the three months to December 27th. The app boasts 3.6 million registered users aged 66 and over, and 62% (2.2 million) had used the app over the period in question, making them the most active users of the app – this includes 256,400 users in their 80s, and more than 17,000 aged 90 and over. This trajectory follows 2021 research from Ericsson which saw marked increases in digital activity among those aged 60 to 69 between 2016 and 2020. This included upticks over the period in question in the numbers of over-60s daily instant messaging (71%, up from 45%), using social networks (69%, up from 43%), watching videos (51%, up from 18%), and viewing fulllength movies (46%, up from 18%). Amid this landscape, it’s unsurprising that the FCA has included a technological element under the customer support outcomes – namely, a continuous improvement action to "provide clients with selfservice tools like online portals or mobile apps to manage their accounts and seek support."

Modern expectations With everything we’ve mentioned so far, and with over-55s having had experience of self-managing their insurance and high street banking online, the question for the later life lending sector must be: what can we be doing to not only feed into the FCA’s outcome but also meet

SIMON HAYTON is chief operating officer at Pure Retirement

the expectations of an increasingly discerning, sophisticated and modern retiree?

Changing stereotypes This was at the centre of our thinking when we created and launched MyPure, our lifetime mortgage customer account management platform, which was designed to bring self-service to the equity release market. The platform lets our customers view their accounts and download documents such as annual statements. Additionally, customers are notified when new documents become available, and they have the ability to complete their Certificate of Continuing Occupancy online. Customers with drawdown plans can apply for a cash release online, vastly streamlining the process, while ad hoc repayments can also be made via MyPure, with the option to set up recurring regular repayments, too. Advancement begins with understanding, and being aware that today’s over-55s are overturning the stereotypes around the relationship between those in later life and technology is as good a place to start as any. As a later life lending sector, how can we best utilise technology to improve our service offering further and, by extension, the ultimate user experience? It’s certainly a question we’ll be asking internally as we seek to enhance our digital offering, and we invite the rest of the industry to do likewise. ●

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

Drawdown – it’s no drawback

t’s probably fair to say that if a person thinks of lifetime mortgages at all, they probably think of it as a one-hit, lump sum solution to a particular need, whether that is a financial shortfall or for aspirational reasons. However, with recent product development, the drawdown facilities now available not only help clients solve an immediate issue, but futureproof them in case of potential additional needs or wants. What follows are a few practical examples of how drawdown can form part of the conversation. It may not always be the solution, but it is always worthy of consideration.

Supplementing income in retirement We see a lot of clients who are asset rich, but approaching retirement with the prospect of a significant drop in income. In many cases, the solution is to look at a small (£10,000-plus) initial loan, with a drawdown facility determined by the client’s anticipated needs and the value of the property. The tricky part is trying to determine how much the client may need over time, and whether a drawdown or planned further advance application is the most appropriate. Although you do not pay interest on funds le in a drawdown facility, the overall size of the facility impacts the

It is important to take the time to understand as much as possible about what the client anticipates, and to plan accordingly”

interest rate banding, so if you arrange too large a facility, the client could be adversely impacted throughout the term. Conversely, if the facility doesn’t meet the expected need, re-broking or needing a further advance later can be expensive.

DAN OSMAN is head of later life lending at UK Moneyman Limited

Care needs Again, it is difficult to assess, but if a client’s overriding priority is to stay in their home for as long as possible, we would always have a conversation about anticipated care provision in the future. It may be that this covers some help around the house and garden, or it may need to align with a formal care package. Whatever the need, it is important to take the time to understand as much as possible about what the client anticipates, and to plan accordingly.

Drawdown as protection A lot of later life advice ignores clients’ protection needs – a er all, the payments are optional, and occupancy is not at risk. The protection issue, however, is just as important as with a conventional mortgage, but for slightly different reasons. The most common is in the case of a couple whose income is healthy while both are still alive, but would be significantly impacted if one of them, typically the one with the higher retirement income, should die. In this case, it is useful to look at current outgoings and whether they could be met on either survivor’s income. If not, there needs to be a discussion about what outgoings could be sacrificed, or how the shortfall will be met. It is rare to find someone who is happy to think about having to tighten their budget significantly while they are grieving. Even if downsizing is the ultimate plan, it is important, if possible, to make enough provision so that the

survivor’s ongoing income needs are met for long enough to mean that downsizing – or any other strategy – doesn’t need to be a knee-jerk reaction, as this would exponentially increase a client’s vulnerability when their resilience is likely to be at its lowest. Care must, however, be taken around estate planning when considering drawdown as protection.

Known future expenses This is o en a li le easier to quantify, and deals with the sort of situation where retirement means a drop in income which maybe doesn’t affect day-to-day living, but would impact on the clients’ ability to meet future significant expenses. These are generally holidays, replacement vehicles, planned gi ing and future home improvements or maintenance. O en this process involves a degree of expectation management and talking to clients about making the available money stretch with budgeting from monthly income to reduce the burden on what they need to take from a drawdown facility.

Key part of the discussion There could be many more, and as ever, there will never be a blanket approach, but clients need to be aware that at lifetime mortgages can be much more of a flexible, future-proofing option than a single one-off solution. The fact that you only incur the interest if you exercise the option only adds to the a raction, and this should form a valuable part of a lifetime adviser’s toolkit. ● February 2024 | The Intermediary

T E C H NO L O GY Opinion

The cost-of-doingbusiness crisis: Time to go digital

egulated firms across the UK are facing a significant ‘cost-ofdoing-business crisis’ as budgets continue to get slashed, while demands on a business and its team only increases. Much like the cost-of-living crisis, businesses have been impacted by the likes of high inflation and soaring energy costs, but also growing wage bills and other associated costs and expenses. In our conversations across the country, a consistent challenge we are hearing about is also the growing burden of compliance. Businesses across multiple sectors are all feeling increasing regulatory pressure, forcing them to have to do much more, but now with significantly less budget. This is a dangerous position for firms to find themselves in, piling additional work on stretched staff and increasing the margin of error for critical compliance checks. A report by Thomson Reuters last year revealed similar findings, as an overwhelming majority of financial services firms said they expected regulatory activity to increase. At the same time, survey respondents cited managing cost pressures, as well as growing regulatory expectations, as key challenges. Meanwhile, the Regulatory Barometer from KPMG also highlighted growing pressures, in particular around the likes of environmental, social and governance (ESG), sustainable finance and payment systems.

Resource-heavy checks When it comes to compliance with the UK’s strict anti-money laundering (AML) rules, many regulated firms continue to prioritise time-consuming and resource-heavy manual checks.

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Not only does this saddle them with additional pressure and avoidable cost – at a time when many can’t afford it – it exposes the business to a higher risk of financial crime. At SmartSearch, our latest survey found that nearly half (48%) of regulated firms across legal, finance, property and accountancy sectors still use manual checks in some way to verify a customer’s identity. Just over a third (34%) said they use manual verification methods because it is the only way to truly guarantee a person’s identity. However, tools such as electronic verification (EV) are recommended by the 2020 Money Laundering and Terrorist Financing Act. Whether it’s sticking to the status quo, fears of technology, or cost expectations, firms across many key sectors have been slow to adopt to a digital compliance strategy. However, as both the threat level rises and the regulatory burden increases, firms will have no choice but to modernise their compliance processes to maximise their resources and protect their business.

Economies of scale It may seem counterintuitive to suggest a digital approach when discussing tighter budgets. A er all, any investment in new platforms or technology brings an associated cost. However, when you consider that a digital compliance platform can complete detailed customer checks in seconds, it far eclipses the time, effort and resources spent by team members on manual verification. It also helps minimise the opportunity for human error, especially as expectations and workloads increase. Using a digital compliance platform, users generate as much as six-times

COLLETTE ALLEN is COO of SmartSearch

more information than a manual check, in a fraction of the time. Given the current climate, it’s not enough for firms to verify a customer’s identity, either. They must also consider sanction screening and politically-exposed-person checks, as well as identifying the source of funds and completing detailed business checks to determine the ultimate beneficial ownership. All of the above were once onerous tasks, but thanks to advancements in digital compliance, have now become just another part of onboarding and ongoing client monitoring. Automating these critical tasks not only makes them faster, but much more secure. It also frees up valuable staff and resources. By utilising real-time intelligence, digital compliance platforms will always access the latest data and inform users of any potential red flags – automatically triggering Enhanced Due Diligence across both new and existing customers.

Ultimate cost saving Regulators have their eyes firmly set on non-compliance with AML rules. The penalties facing businesses can be quite severe, whether reputational damage, resource-sapping investigations or considerable fines. In fact, a number of regulators have not been shy in handing out multimillion-pound fines for those firms that fail to comply with the rules. There’s no greater motive for firms to modernise their approach. By doing all the heavy li ing in the background, a digital approach can improve the customer experience, protect the business, and allow staff to focus on their core responsibilities. ●

T E C H NO L O GY Opinion

Risk and exposure assessment must come first

he run-up to a General Election is always fraught with the uncertainty born of opposing pledges, most of which will never see the light of day. This year is unlikely to be different, making planning rather harder than it might be. Barely four months ago, Rishi Sunak pushed back net zero deadlines that would have seen private landlords invest significantly in energy efficiency upgrades. Owner-occupiers were also given more of a reprieve on replacing gas boilers, heating systems and off-grid oil and gas fuelled residential heating systems. Sunak was at pains to point out the decision to delay was not to do with the UK’s commitment to cu ing carbon emissions, but rather a recognition that individuals could not be expected to foot the bill, especially a er two years of consumer price inflation (CPI) scaling double digits, and the financial shock inflicted by the base rate rising from 0.1% to over 5%. Whether Labour would reverse the U-turn is neither clear, nor really relevant. What ma ers for the industry is how this uncertainty affects practical lending decisions, and that boils down to risk assessment – both current and future. Notwithstanding the Government’s pull back from specific net zero compliance dates, lenders are now beginning to start specific projects and departments to conduct more work on Category 15 Scope 3 emissions. The GHG (greenhouse gas) Protocol defines Category 15 emissions as: “Scope 3 emissions associated with the reporting company’s investments in the reporting year, not already included in scope 1 or scope 2. This category is applicable to investors (i.e.,

companies that make an investment with the objective of making a profit) and companies that provide financial services.” According to the UN Environment Programme Finance Initiative, around 97% of a financial institution’s GHG emissions are situated in Scope 3, by virtue of being associated with financing, investment and underwriting activities.

Regulatory expectation The challenge in quantifying this risk exposure is immense, but the regulatory expectation is unequivocal. The UN Environment Programme finance initiative says: “Financial institutions should examine the scope 1, 2, and 3 of their investee companies. It is important to note that one investee company’s scope 2 is likely to be another investee company’s scope 3 (an oil and gas company’s sold products, purchased by an aviation company, to both of which an investor or bank may provide financing), and scope 3 data has traditionally been relatively unreliable.” This is going to be key for lenders this year. The implications for balance sheet risk, capital adequacy requirements and governance disclosures are significant. In December, UK Finance published its response to the Department for Energy Security and Net Zero’s Scope 3 Emissions in the UK Reporting Landscape consultation. It admi ed: “Scope 3 reporting remains a challenge across the economy, particularly in terms of the data challenges for financial services firms which have complex financed emissions chains. “There should be a recognition in any future UK Scope 3 disclosure rules that reporting will be carried out on a best-endeavours basis

MARK BLACKWELL is COO of CoreLogic UK

and will improve as capacity and capability increase. There should be a recognition that banks will obtain data from a range of sources, including International Sustainability Standards Board 2 direct company disclosures and syndicated databases, and that the use of assumptions and proxy data should be permi ed for estimating Scope 3 emissions where primary data is not readily available. “Measurement standards are still evolving and approaches to estimating emissions for all sectors are not available. This means that disclosures will require judgments related to methodologies and initially may lack consistency amongst firms.” For lenders, risk and exposure assessment must come first, but there must also be a clear understanding of the specific elements judged and how, from many different sources, these are used to support disclosures. Ultimately, this – and other corollary regulation to protect consumer outcomes – will shape origination strategies and have ramifications for the entire value chain. Understanding the environmental risk of mortgage books is critical in the valuation of securitised mortgage assets and assessment of risk capital requirements. Robust granular understanding of the property upon which loans are secured will be essential in addressing the global and local regulatory drive to net zero. We will continue to invest heavily in delivering the right systems and data solutions, so lenders have the information needed to meet these expectations and support decisionmaking for their businesses. ● February 2024 | The Intermediary

T E C H NO L O GY Opinion

A different market with different needs

lobal pressures will impact housing confidence this year, but even closer to home we will likely have more change to embrace. This year’s Spring Budget will take place on 6th March, and is likely to be the final time that those currently in Government will be able to announce policies they hope will win with the majority of the electorate come the autumn and a possible General Election. Along with a rise in the state pension and Universal Credit, and the incoming cut to National Insurance (NI) from April, the Conservatives are rumoured to be considering some form of support for those hoping to buy their first home. In the run up to a likely General Election in the autumn, Labour is also gearing up to appeal to younger voters hoping to get on the housing ladder.

Traditional profile There are many in the industry who hope any housing market boost will be a resurrection of old ideas that are easily implemented. The Help to Buy equity loan and Mortgage Guarantee Schemes are options that Government might consider, both of which would be relatively simple to reinstate. While that might be easy, it may not actually be the most helpful way to help both homeowners and those hoping to get on the ladder. Many of the Government’s previous schemes are predicated on first-time buyers fi ing a traditional profile. Full-time salaried employees, buying with a partner, early enough in life to allow for borrowing over a much longer mortgage term. While those buyers do exist – and they’re the Tory heartland when it comes to voters – it’s arguably not them who need housing support. The shape of the housing market in the UK has shi ed considerably in

The Intermediary | February 2024

just 10 years. Homeowners account for two out of three UK households, with more than half of those now owned outright. According to the Office for National Statistics (ONS), dwellings owned outright now make up the largest tenure type in the UK, overtaking owner-occupiers with a mortgage in 2014.

JERRY MULLE is UK managing director at Ohpen

Changing circumstances The average age of a first-time buyer continues to rise, with the most recent figures pu ing it at 34. That means half are older than that still. Analysis by Uswitch suggests that 94% of individuals requesting a mortgage between 2022 and 2023 were in full-time employment. Yet the number of younger people forced to work on zero-hours contracts – or for themselves – is rising. Single person households account for one in three in the UK, meaning considerably more pressure on their mortgage affordability. The cost of childcare for those who are single parents puts even more pressure on. The cost of homeownership for those with a mortgage has rocketed. There are now millions of homeowners either coping with steep rises in their monthly mortgage payments, or not coping and falling into arrears. Millions more are set to find themselves with significantly less disposable income when they remortgage over the coming year. For any Government support on housing to make a real difference, it needs to consider these dynamics more carefully than simply shoring up first-time buyers’ purchasing power. Help to Buy may have helped almost 400,000 first-time buyers onto the housing ladder, but it’s probable that most of those would have managed to buy without the scheme. It’s now widely accepted among policymakers that the equity loan element of the scheme also

contributed to rapidly rising house prices since its launch in 2013. Ultimately, those in a position to save a deposit and borrow against substantial salaries were able to buy bigger and more expensive homes. In reality, a step-change is needed in the way banks and the Government view the housing market make-up, and therefore borrowers.

Wealth transfer The transfer of housing wealth over the past 40 years has to be taken into account – particularly for those who have really benefi ed. Younger borrowers’ reliance on the ‘bank of mum and dad’ is rising. Grandparents and other family members want to redistribute their own housing wealth to their children. All of these dynamics make for a radically different market, with radically different needs. Being in a position to react swi ly to support any new scheme, or to react practically to other lenders’ responses, must be a company’s priority. In the a ermath of the now infamous mini-Budget in Autumn 2022, when long-term swap rates rocketed and lenders were forced to pull almost 1,000 mortgage products overnight, the need for flexible and fast operational systems is stark. As the mortgage market and borrowers’ needs change over the coming years, lenders must be able to change their operational models and their approach to cope appropriately. ●

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

Seizing opportunity in second charge

econd charge mortgages are increasingly becoming a crucial part of the mortgage market. While they can serve a wide range of needs, there are certain common trends that tend to emerge over. So, allow me to outline the typical pa erns we see at The Loans Engine throughout the year.

Debt consolidation As the new year begins, many people seize the opportunity to reset and contemplate their goals for the upcoming months. While some may prioritise family time, personal growth or health, many turn their focus to financial ma ers. Consequently, in January we tend to see more clients looking to consolidate their debts and reduce their monthly expenses. This is largely driven by clients overspending during the Christmas holidays. In the past, choosing a further advance or remortgaging was the preferred approach for this purpose. However, with higher interest rates and a growing number of clients facing challenges like rising living costs, these options have become less viable. Furthermore, a growing number of high street lenders are hesitant to provide loans for debt consolidation. This has prompted a rise in brokers and clients seeking alternative solutions like second charge mortgages. These solutions can be an effective option, as they enable clients to borrow extra money without disrupting their existing mortgage arrangements. This eliminates concerns about losing their preferential rate or incurring he y early repayment penalties, which may be associated with remortgaging. Although we see a significant rise in clients looking to consolidate debt in January, it is a common reason for using this type of loan throughout

the entire year. This is evident from the fact that, in the year leading up to November 2023, Citizens Advice Bureaux addressed an average of 1,083 debt issues each day in England and Wales.

Tax bill deadlines Another trend emerging at the beginning of the year revolves around the January 31st deadline for selfemployed individuals to se le tax obligations. As credit cards are no longer accepted for tax payments, clients increasingly turn to second charge mortgages to fulfill these obligations. Consequently, we see an increase in applications for these purposes throughout January, especially as the deadline approaches.

Springtime renovations As spring approaches, interest in home improvements surges. Improved weather conditions and clients ge ing prepared for summer events may drive this demand. Throughout these months, we always see an increase in applications from clients seeking funding for home renovation projects. Over 2023, we saw a slightly different trend emerge. As interest rates started rising, we saw many clients who had initially contemplated moving homes defer these plans and instead choose to enhance their existing properties. Given that the base rate remains elevated, I expect this pa ern may continue over 2024.

Financing education Around school term dates, there is a noticeable increase in applications from parents looking to finance their children's private school fees. This is particularly apparent around September as the new school year approaches. While these trends are common, second charge mortgages can be used for various purposes beyond those

PAUL ZAMMIT is regulated mortgages director at The Loans Engine

As rates started rising, we saw many clients who had initially contemplated moving homes defer these plans and instead choose to enhance their existing properties” mentioned previously. Applications may also come from clients seeking funds for weddings, dream vacations, or to secure a deposit for a second property and many more. Whenever a client is looking to capital raise, it's essential to explore the option of a second charge mortgage, especially when a remortgage, further advance, or unsecured loan may not be the most suitable or cost-effective solution. Failing to do so could potentially result in losing the client altogether. If clients are unable to find a suitable solution through their broker, they might turn to online platforms and comparison websites, leading to lost income and the risk of permanently losing the client. To illustrate, brokers are responsible for introducing 85% of first charge mortgages and 55% of product transfers. However, they only introduce approximately 35% of second charge mortgages, indicating that many customers may be originating from online sources. Therefore, it's crucial to always consider this option in any capitalraising case, in order to ensure that clients receive the appropriate solutions and expertise. ● February 2024 | The Intermediary

Q&A

Berkeley Alexander

The Intermediary speaks with Geoff Hall, chairman of Berkeley Alexander, about ensuring access to insurance for all types of customer First, can you introduce Berkeley Alexander? The firm has always been involved in the general insurance (GI) space. It was started by a high street mortgage and GI broker, and GI then became the main thrust of the business. At the time it was founded, advisers and mortgage brokers didn’t really have a home for GI. Insurers were not allowing advisers to have their own direct agencies if they couldn’t produce a certain volume of business, which most couldn’t. They needed the systems and the structures in place to be able to manage it. We got involved in the mortgage broking space probably about 25 years ago, and having grown significantly since, that’s now all we do. We don’t seek direct business, and we’re not on the high street any more. I’ve been here for over 35 years, so I’ve grown up with the business, evolving within it and doing pretty much every job within the business. We’ve grown significantly over that time – some years you go a little bit backwards because of the economy, market forces, Covid-19 and everything else, and some years you move forward. But overall, the business has grown and built up a reputation in the market for doing what we do. There are half a dozen firms that deal with what we do, but they tend to deal with high volume business. So, they deal with thousands of policies a month within the volume areas of household policies and single property buy-to-let (BTL). We have those policies, so if an agent wants one home for everything, we can do that, but we don’t target that sector. What we do is fill in the gaps – we do what they don’t. That might be high net worth (HNW), commercial, or non-standard properties and cases. However, we also have plenty of people who don’t want to deal with anybody else, and we can be their entire GI department. 80

The Intermediary | February 2024

How do you approach the broker relationship? We can’t do their job for them – there are things that they will have to do because of regulation – but we support them wherever we can. They come to us with a set of risk factors, we ask all the questions that we need to be able to get a set of quotes and make sure that we get the right policy. We come GEOFF HALL back with the quotes that we sourced and discuss those, allowing the broker to go back to the client. We provide the documentation to then supply to that customer, and we collect the premium from the client and pay a commission. We’ll issue the policy documents when it comes to renewal, instigating the renewal process, and saying if we think it needs re-quoting. We’re very supportive, helping them navigate through the process, but we also give them choice over the products we make available, so they don’t have to just offer the customer the cheapest if there are other preferences. There’s also choice over how they interact with us. Some don’t want to do GI at all – they’re too busy, they don’t get it, it’s not worth enough money – and they can introduce cases to us and we’ll deal directly with the client and pay them commission. We still see that client as their client. The majority of our agents want to deal with the client for the lifetime of the policy, because it’s a good way for them to stay in touch in between mortgage conversations. So, it’s about that choice and about providing that support and that service, with one of the broadest panels in the market.

What is the role of technology? We have had electronic quote engines and portals for many years, going back 30-odd years, in fact. The technology obviously has moved on at pace, and what you can do through that has

Q&A

vastly improved. The speed and the efficiency has improved, and it continues to do so. Tech absolutely has its place in the market, again driven by the product type and the volume. The vanilla side is absolutely driven by tech, but niche products are still very traditionally written. You need to have conversations with people, and it’s about negotiation and skill. You have to collect the data, talk to the underwriters, and negotiate. Technology helps, and will continue to improve the processes, but on those niche products I don’t see it taking over in the foreseeable future. If it does, all that becomes is another vanilla product that is largely price-oriented, and that’s not right for these market sectors. The underwriters, too, need those discussions, need the risk presented in the right way. There are things that might appear to be a negative, and they need to know the story around it. Technology will help you with that, but it will never replace it. The market has always been very good at reacting to needs, dealing with the issues that are present in the moment, and continuing to trade profitably – all while using the technology that exists and is being developed. The market has always been good at doing that, and it’s been around hundreds of years, and it will continue to be around for hundreds more. There are places for technology, but it’s more to do with the centrally held data, ensuring a property is fully insured by using big data.

What key milestones or trends is the business planning for in 2024? There are a few trends in the market this year that we’re already seeing, which continue from last year. The first is pricing. It’s what we call a ‘hard market’. In a soft market, insurers are competing other for policies and prices are coming down, there’s hundreds of insurers, and it’s easy to place a risk cheaply – a hard market is the opposite. Insurers only want the perfect risk, they’re charging higher premiums, they’re pushing rates up and pulling out. Climate change is having a major impact, due to storms, flooding and drier summers. Then you’ve got the cost-of-living crisis, where inflation and availability of materials and tradesmen is pushing prices up when a claim happens, so there’s a lot of pressure on claims costs increasing, even causing providers to withdraw. Meeting that challenge is about having the right relationships with the right insurers. There’s a lot more work involved, and of course, customer demands are pushing that as well.

There’s also the regulatory piece. Consumer Duty is just one part of that landscape. Last year, we saw fair pricing measures come in, and at the beginning of this year new rules have come in for multi-occupancy buildings and leaseholders. There’s constantly more regulation coming in, and we must navigate that. I don’t have a crystal ball, but I would not be surprised in the years to come if new rules and restrictions come in about paying commission to agents. There’s already been a lot of noise from the Government about whether commissions are transparent, reasonable, excessive, and whether they should continue to get paid at all. Politicians will love being able to say they’ve saved everyone money. However, people who do work within the chain, who add value, should be remunerated. It should be transparent, and it shouldn’t be unreasonable. It’s about focusing on that fairness piece and looking at fair outcomes. For now, we intend to continue paying commission for the lifetime of the product, for as long as regulation allows. Regulatory change might actually be detrimental for the customer. If regulation is adding extra work into the chain, that work must be compensated, which might mean pushing the price up in order to cover the job we’re doing. If the market can’t find a way, it will stop providing the service, and that would be even worse, particularly for the people with non-standard needs. For the business, we have a strategy to target products based on our sweet spots, the potential in the market, and where there are fewer brokers competing. Those target markets might be HNW, property owners, portfolio property owners, nontraditional elements – someone with half a dozen BTLs, a shop with a flat above, or commercial premises. Perhaps someone is renovating a house with a thatched roof or other non-standard elements – we can not only provide cover during the work, but also when that work finishes. There is a need for businesses like ours. Advisers and brokers, unless they are of a particular size, are not going to get in direct with the likes of AXA, RSA, Zurich, and they won’t have the systems in place to manage those policies. That’s where we come in. We manage the insurer agencies, make sure that our panel is wide enough to handle their inquiries, and get new products to fill any gap. We have the infrastructure and the quote engines to help them place the business. We allow them to deal with their clients, without themselves having to have the full infrastructure of a proper high street insurance brokerage. We’re giving them access to markets that they wouldn’t otherwise get. ● February 2024 | The Intermediary

P RO T E C T I O N Opinion

Protection sales in 2024 – a network view

ome six months on from the launch of Consumer Duty to the market, it is useful – amid business as usual, and dare we say a positive start to 2024 – to take a small step back and look at how well we are delivering. A key area for those firms having commi ed to the provision of holistic advice is to ensure that the proposition is capable of providing the best possible consumer outcomes. The provision of solid, wellresearched protection advice is as important as the mortgage advice that the customer receives. It should, in turn, receive the same amount of a ention within a firm’s proposition. Broadly, having a protection proposition that can provide the following in today’s world would be sensible: To improve and maintain market knowledge and the quality of the advice; To expand the number of customer journeys available; To seek to increase the sales performance of all protection products; To provide a robust sales platform which delivers good outcomes consistently; To provide a market-leading commission structure without the need for weighted premiums. By ensuring that time and effort is well spent checking that your technology has been thought through, sales processes can be full of common sense, while different but necessary systems speak to each other seamlessly and help ensure that the provision of protection advice does not become a burden. Spending time with your advising team will prove particularly

The Intermediary | February 2024

beneficial, checking that your processes are indeed robust and meet Consumer Duty requirements, but equally, that these have been bought into by all the team.

Diverse needs Working with your customers, you invariably meet a mix of individuals, couples, and families – all with varying personal, specific and occasionally unique requirements. With so many different customer circumstances and objectives, it is only natural that you have access to as many quality journeys and deliverable products as possible. By reviewing our own panel of manufacturers, we have been able to expand on our protection target market proposition by bringing in additional insurers to provide a wider coverage of potential solutions.

Staying competitive The protection market has become more complex as insurers strive to differentiate their products in a highly competitive environment. While a greater number of products and features made available are welcomed, adding extra choice and considerable value to the traditional protection solution, keeping on top of these developments is another key challenge for any advisory firm. Providing adviser businesses with direct support and training from both within the firm and from suppliers themselves is, unsurprisingly, a simple but effective way to help advisers deliver good advice confidently and consistently. Tailored and structured training programmes, in turn, can help hugely with ensuring good customer outcomes. The key, we believe, is to help at a micro level – supporting

MARTIN SWANN is managing director of Try Financial Ltd

individuals within the team and providing what they need, specifically, is a crucial and o en missing element

Customer outcomes Over many years, some advisers have not sought to provide protection because they didn’t want to suffer the risk of clawback. Allowing your adviser team to access commission on the drip – non-indemnity – therefore seems a sensible solution. Non-indemnity commission accrual also has the advantage of bringing consistent income, and will usually pay out more than lump sum – indemnified commission – and without the financial risk. Consumer Duty has placed a requirement on all firms to provide ‘fair value’ when advising customers on the purchase of a regulated product. Protection products that do not have weighted premiums allow advisers to look their clients right in the eye, and for those that do, it is truly something worth pointing out. Having a programme that can incorporate the type of support services mentioned already is at the core of integrated adviser protection solutions in 2024 and beyond. This is not just a one-stop solution, but an ongoing commitment and a journey that we are working closely with our members on. Being prepared to adapt, change and adjust to maintain the very best customer outcomes going forward is not only sensible but necessary as technologies improve, products develop and diverse types of customers knock at your door for help. ●

P RO T E C T I O N Opinion

A rising tide floats all boats

rising tide floats all boats, but the opposite requires good old-fashioned gra ! The number of purchase applications we are seeing would suggest the tide is well and truly out, but nonetheless, at TMG Mortgage Network we set a new personal best in terms of the number of mortgage and protection applications that were submi ed in January 2024. This is testament to the proactive nature of the brokers operating within TMG, who are becoming the kings and queens of arranging fully protected remortgages. The likelihood is that interest rates will remain fairly stagnant for the remainder of this year, and until the next General Election. To that end, brokers are faced with two choices: either cu ing their cloth accordingly, or ge ing on the front foot, being nice and bright and proactive, not to mention making sure they are having that protection conversation and really bringing to life the principles of managing foreseeable harm. It can take courage to have the protection conversation with clients – it is a discussion about death and the impact of being diagnosed with cancer, or any other serious illnesses, on your ability to maintain their desired standard of living. This takes not only courage, but skill and knowledge. Again, the responsibility to provide this is, without question, one that must fall on the shoulders of the network; the creation of the TMG training and development function was motivated to provide this support. A broker can drive efficiency into their business by choosing an effective customer relationship management (CRM) system. Integration with other systems is critical, as is enabling brokers to get from A to B as quickly as possible, retaining existing

clients, and a racting new ones. Allowing them to transact with us how they want and when they want underpins it all.

Driving competition At TMG Mortgage Network we have partnered with One Mortgage System (OMS), the main reasons being its willingness to commit to integration, to allow us to develop the system based on brokers’ feedback, and finally, the fact that they are good people who have been in the industry in one way or another for several decades. In 2024, we also have a gi in the form of social media, and the opportunity it allows to organically a ract clients, but for some this is a new world. At TMG Mortgage Network we believe there is an opportunity to provide education and direction when it comes to dipping your toes into these unknown waters – not to mention the freedom and autonomy in being allowed to do so without unnecessary restriction. Competition among brokers has never been as fierce, and the fi est will survive as they always do, but what are the specific inputs that a broker needs to focus on to create an army of raving fans? This is about providing a service clients will value, and developing points of difference – how can you stand out from the crowd?

Network value Any mortgage network should be providing the direction and inspiration to support you in being at the very top of your game, and if they aren’t then you are not ge ing value for your money. A Mortgage Network is a service provider, creating a safe track for a broker to run on. At TMG Mortgage Network, we are respectful of the fact that brokers are, in the main, self-employed, running their own businesses. We appreciate that the fundamental reason we exist

JONATHAN NEEDHAM is managing director at TMG Mortgage Network

is for their benefit, and we must never lose sight of that. We also believe that a broker should be treated as a person and not just a number. We have worked hard to create the right culture and environment. This in itself is a challenge, but it starts with investing in the people, the beating heart of any organisation. To assemble and energise brokers of the future, networks must prioritise

Any mortgage network should be providing the direction and inspiration to support you in being at the very top of your game” the human element, by recognising and supporting productivity and efficiency, providing engagement and inspiration, together with a simple connection. The best way to do this is by recognising brokers as people. A broker needs someone in their corner, whether that be their network, their firm principal, their mortgage club, their colleagues, their business development managers (BDMs), or whoever else it might be – the best thing is not to suffer in silence down a one way street. At TMG Mortgage Network we certainly don’t profess to be the solution for everyone. But we tune in to the concept of abundance, and the idea that we can all work together – collaboration drives efficiency, especially when the water is barely covering your ankles! ● February 2024 | The Intermediary

P RO T E C T I O N Opinion

Tackling the big squeeze

ccording to figures from the British Insurance Brokers' Association (BIBA), regulatory costs for brokers are 40% higher than they were in 2019. Add to this high inflation, a hard market, and the additional expectations resulting from the cost-of-living crisis, and it appears a profitability shock may be brewing. One way to help is to maximise your existing client base, and general insurance (GI) income forms an important element to that. Anyone running their own business knows

and leverage your existing relationship while helping the client to find the right cover for their needs. Arguably, they’ve never needed the help of an insurance broker more than in the current market conditions. If you don’t want to advise on these policies yourself, a referral to a GI provider enhances the opportunity to support your highly valued customers, while still providing you with a regular income. Cultivating your current customer base through wise upselling and crossselling will perhaps offer the truest opportunity to drive efficient and sustainable long-term success in the current environment.

HNW is very much about insuring the individual’s lifestyle, not just the bricks and mortar. They are usually cash rich but time poor and need the peace of mind to know that when a claim is made it will be dealt with quickly”

Commercial clients underinsured

that selling to existing customers will invariably be more successful, and it’s more cost-effective, too. It costs more to acquire new customers than it does to grow revenue from existing ones. All of your clients are buying general insurance, and many will have investment properties or be connected to a commercial business, so why let them talk to another broker about those policies? Ring-fence your client

The Intermediary | February 2024

According to Aviva’s 2023 Risk Insights Report, 50% of UK businesses are likely to be underinsured, and more than a fi h (21%) have reduced or considered reducing their insurance cover in the previous 12 months. This prompted Aviva’s chief executive to warn that the threat of underinsurance has now reached a critical point. With small to medium enterprises (SMEs) making up 99% of all businesses in the UK, the insurance industry is doing them a disservice if we fail to respond. As brokers, whether directly authorised (DA) or appointed representatives (ARs), you are in prime position to help them. With many UK businesses already finding out their existing cover is inadequate, the urgency to respond, and to do so quickly, is growing exponentially. Many of you may not have the expertise or inclination to advise on commercial insurance, and some networks may not permit ARs to do anything other than refer commercial enquiries. Referrals to a GI provider enhance the opportunity to reach more underinsured customers with a wide range of policies and take

CRAIG POWELL is sales and business development director at Berkeley Alexander

advantage of the provider’s strong relationships with major insurers.

HNW in the spotlight In recent years there have been a slew of high-profile burglaries – from footballers to celebrities, and now even reality stars – because criminals can easily track their movements through social media and know when a property is likely to be una ended. These high-profile individuals are also o en seen wearing expensive jewellery and watches, and we have seen examples where a burglary has happened even with the individuals at home. For these individuals, their social media presence is a vital component of their work, but all high net worth (HNW) individuals, whether celebrities or not, need support to ensure they can reduce the risks posed by unscrupulous individuals willing to take advantage of this weak spot, and brokers have a key role to play. HNW is very much about insuring the individual’s lifestyle, not just the bricks and mortar. They are usually cash rich but time poor and need the peace of mind to know that when a claim is made it will be dealt with quickly and efficiently. There is potential for inadequate sums insured around every aspect of a HNW individual’s lifestyle – from properties and cars, to jewellery, art, and designer goods – and brokers must always be mindful of this. With rising inflation the insurance cost of goods and valuables increases significantly, so it is good practice to speak to your clients and check their sums insured are still appropriate. This is part of the collaborative, personal service that HNW clients expect. ●

P RO T E C T I O N Opinion

Ensuring flexibility in your GI strategy for success in 2024

continuously changing mortgage market has presented even the hardiest of advisers with a real challenge over the past 18 months. Yet, with interest rates remaining stationary and several leading lenders kicking off 2024 by reducing fixed mortgage rates, there’s healthy price competition coming back to the market, offering advisers opportunity for the coming year. If advisers are to capitalise on this by strengthening that all-important customer bond and enhancing their overall service level – a non-negotiable in the Consumer Duty era – then it’s critical that they remain open and receptive towards the range of options now available to support customers with general insurance (GI). In our most recent Adviser Survey, conducted with 526 advisers, 92% agreed that it is best practice to speak to clients about GI. Nevertheless, against prevailing market conditions and growing resource demands, delivering this all-encompassing level of service is easier said than done. As a result, this has demanded a greater level of flexibility from advisers in how they engage with GI. So, whether it’s offering advice themselves, employing an in-house specialist, utilising a telephone referral service or signposting clients to a digital journey where they can buy quality insurance rather than leaving them to go it completely alone online – there’s something for everyone. We know that advisers typically feel a strong sense of duty towards seeing their clients through the entirety of the purchase journey for the financial products they recommend. If firms are determined to offer advice themselves then we’d strongly encourage them

to take advantage of the support available. This might be in-person, from our experienced intermediary sales team, or even just utilising our marketing toolkit, which includes resources that help guide them through the GI sales process. However, in today’s market advisers don’t quite have the luxury of time to do that, which is where taking a more flexible approach and looking at other options is crucial. To this end, the summer of last year saw the launch of Paymentshield’s referral option.

In-house experts We wanted to give advisers the option to refer their customers to our own dedicated team of in-house experts, who could then call the customer to discuss their insurance needs at a time of their choosing. Referring a client for a call-back ensures continuity of care for those clients accustomed to receiving guidance from their broker regarding various financial products. We’ve seen great results from this referral service, driven by the fact the customer has set the date and time and therefore knows exactly when they’re going to have a conversation about their insurance needs. This has led to average conversion rates hi ing as high as 65% when our team have called the customer and discussed their GI needs. In a similar vein, many successful advisory firms in the sector actually employ a GI specialist in-house. At Paymentshield, we’ve been keen to ensure these specialists remain supported, and our recent launch of our GI Specialist Community aims to do exactly that. We’ll be providing existing GI specialists, as well as those looking to upskill, with access to in-person

EMMA GREEN is distribution director at Paymentshield

events, to become part of a dedicated community with a stockpile of resources, all aimed at providing GI specialists with the necessary skills they need to operate as effectively as possible for their clients. We’ve always worked to underline the mantra that ‘advice is best’ when it comes to GI. But with advisers contending with a complex and ever-changing market, this isn’t always possible. This is why we launched our selfserve option in September last year, to allow advisers to direct their clients to an online journey, where they can generate a 5 Star Defaqto rated home insurance quote and purchase their policy themselves. Advice will always be best when it comes to GI, but if for any reason that option isn’t feasible, then guiding them towards a high-quality policy would be the next best choice.

The bottom line Our 2023 Adviser Survey highlighted that a huge 57% of respondents sometimes miss opportunities to sell GI. We’ve long made it our mission to close this gap, and with the first anniversary of Consumer Duty approaching, the importance isn’t going to be diluted anytime soon. Whether advisers use these GI methods individually or in combination, I’d urge them to explore different approaches and get to grips with the spectrum of support and options on offer. Be flexible in your approach to ensure every client has the opportunity to buy quality insurance, and I’m confident that you’ll see be er outcomes for you and your clients in the long run. ● February 2024 | The Intermediary

L O C A L FO C U S Edinburgh

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

Focus on ...

JESSICA O’CONNOR is a reporter at The Intermediary

Edinburgh

enowned for its rich cultural heritage and historical architecture, Edinburgh has long been a sought-after destination for homebuyers and investors alike. Nestled on Scotland’s east coast and a short drive from the picturesque Highlands, it is uniquely placed as a popular tourist hub, attracting many visitors each year. As a bustling economic centre and prominent university city, the area has remained popular with buyers and renters alike, drawn to the city’s work and educational opportunities. However, like many urban centres, the local property market has been subject to fluctuations of late. In light of rising cost of living and inflationary pressures, the mortgage market in the city has seen its fair share of turbulence in the past few years. The Intermediary sat down with local experts to delve into the intricacies of Edinburgh’s property market, discussing current mortgage trends, key challenges, and potential opportunities for buyers.

Property values According to the latest data from Walker Fraser Steel, the average price of a property within the Edinburgh postcode area is approximately £335,400. This is compared with an

The Intermediary | February 2024

overall Scottish national average of £222,612 (Zoopla). Prices in Edinburgh have shown an average decline of 3.30% over the past 12 months, a significant decline in comparison to the national price change, which saw the average price of Scottish property rise by 0.40%. On a monthly basis, Edinburgh’s house prices have continued to fall, with a decrease of 0.10% last month. The average detached property in the area costs around £620,800, while semi-detached properties typically sell for £439,100. Terraced homes cost buyers an average of £434,000, while flats and maisonettes fetch approximately £268,300.

Current market trends Local mortgage brokers report an ongoing interest in the Edinburgh property market, with enquiries on the rise and plenty of new ‘for sale’ stock being made available. Kenny Murphy, mortgage and protection adviser at YouMortgage, says he first noted this uptick in Q4 of 2023, and that the picture has been improving ever since. “With stabilisation of inflation and interest rates, we are most definitely seeing that homeowners are keen to move, with lots of appetite to get onto the property ladder,” he explains. “There had been a noticeable

slowdown in 2023, but early indications in 2024 are that clients are coming back to the market, and we are really optimistic that the housing market will show a marked improvement from 2023.” Marc McGhie, mortgage and protection broker at McGhie Mortgages, corroborates this, characterising the city’s market as “buoyant,” with prices that are relatively insulated. Indeed, Lynsey McMenemy, director at Hansar Mortgages, adds: “The market in Edinburgh still seems robust, with properties continuing to sell above the ‘offers over’ number. “However, we are also seeing

A market of its own DOROTA FRACKIEWICZ is managing director at Get Mortgage

dinburgh’s housing market has some unique factors that set it apart. Homes blend the charm of the past with today’s vibe – from charming Victorian houses to modern apartment. As Scotland’s capital and a cultural hotspot, the city attracts tourists, students, and professionals. The numerous festivals and events, like the famous Edinburgh Festival Fringe, also boost short-term rental markets, making it an attractive spot for investors. Our clientele spans individuals aged 18 to 60. They are interested in buying their first property as well as those purchasing for buy-to-let purposes or simply remortgaging. Ranging from employed professionals to business owners. Additionally, there’s a notable segment of younger individuals living in rented accommodation who are eager to transition from paying someone else’s mortgage to owning their own property. Given historical patterns and Edinburgh’s status as a financial and cultural hub, things look positive. The city’s faster growth, driven by a strong service sector, education, and tourism, usually translates to increased demand for both buying and renting. Specific improvements include ongoing infrastructure developments, such as public transport enhancements and urban regeneration. This not only makes certain areas more attractive but also tends to push property values higher. Additionally, Edinburgh’s growing reputation as a tech hub attracts businesses and professionals. Despite the slowdown in 2023 there are still a good number of properties, and a significant portion is selling swiftly. We’ve seen a considerable number of home movers, along with individuals opting to invest in homeownership. The buy-to-let market has shown resilience, with landlords adapting to changing regulations and coping with fluctuations in demand. Regarding anticipated changes in Government policies in 2024, it’s important to stay informed about any new housing or tax regulations. For instance, any changes in property tax, rent control laws, or regulations affecting short-term rentals could significantly impact the real estate market in Edinburgh. These policies could either incentivise or discourage investment in certain types of properties. More first-time buyers are getting a boost from Government programs like the LIFT Scheme. People are leaning towards fixed-rate mortgages for stability, and lenders are looking beyond just credit scores, focusing on overall financial stability. Also, there’s a growing interest in ecofriendly homes, reflecting a wider awareness of environmental concerns. So, in a nutshell, Scotland is seeing a rise in Government-supported home buying, a preference for stable mortgages, a focus on responsible lending, and a greater interest in environmentally friendly housing.

less competition per property, and therefore the premium above this threshold has reduced from what it was 12 months ago, with clients being more successful quicker.”

Buyer demographics When it comes to buyer demographics, Edinburgh presents the brokers active within its property market with a wide range of potential clients. According to Dorota Frackiewicz, managing director at Get Mortgage, with homes that “blend the charm of the past with today’s vibe – from charming Victorian houses to modern apartments,” housing stock in the area caters for borrowers of varied and diverse tastes. Frackiewicz regularly deals with clients from a wealth of different demographics, including home movers, buy-to-let (BTL) investors, and non-nationals. However, the demographic which seems most prevalent in the area is that of the first-time buyer. While both McGhie and McMenemy note an emergent yet strong first-time buyer presence within the market, Murphy cites a marked increase in parental gifts. This suggests that family members continue to support first-timers onto the property ladder in the face of affordability challenges. Frackiewicz agrees, highlighting the popularity of the Government LIFT scheme in the area, which is set to make a return in the spring, and aims to help individuals struggling with affordability step into the housing market.

Popular lenders With buyer appetite on the rise in the area, it seems that brokers and borrowers in the Edinburgh postcode area have a wide selection of lenders to choose from. → February 2024 | The Intermediary

L O C A L FO C U S Edinburgh

Continued development LYNSEY MCMENEMY is director at Hansar Mortgages

he market in Edinburgh still seems robust, with properties continuing to sell above the ‘offers over’ number; however, we are also seeing less competition per property, and therefore the premium above this threshold has reduced from what it was 12 months ago, with clients being more successful quicker. Edinburgh continues to develop its central areas with low emission zones coming into place and also more pedestrianisation of main streets like George Street. Our main demographic is a mix of first-time buyers, investors and onward movers – so we deal with a wide range of ages and financial positions. We have been very busy lately, with first-time buyers being successful at offer stage, and with many clients coming off fixed rates from 2020. We generally work with HSBC, Halifax, Santander and The Mortgage Works. We don’t rely on lenders for area specific needs, as it’s based on who has best rates and who meets clients’ criteria best. There have been many changes to holiday let market since introduction of licensing for Airbnb in Scotland, so this has been quieter. However, we’ve found that the wider buy-to-let market has busy with many available properties.

First-time comeback MARC MCGHIE is mortgage and protection broker at McGhie Mortgages

he market in Edinburgh seems to be buoyant as normal; it’s largely insulated from the rest of Scotland as prices seem to be a bit higher. I’ve noticed some properties at mid-range being stuck or over-valued, we had a client managing to buy a flat in Leith which was only four years old, £10,000 under the home report. Something a lot of people aren’t aware of is that a large percentage of house sales in Edinburgh are done off market, and we work with a property source that can help clients find these properties. We deal with multiple lenders. For high street clients we use lenders like Halifax and Barclays, but there are more unknown private banks like Handelsbanken and Hampden Bank that are good for unusual clients. First-time buyers make up our key demographic. We’re starting to see more of them come back to the market as clients are able to purchase at home report. We’ve also built a bit of a reputation for overseas clients mainly from Australia and the USA who have foreign income, and non-UK residents able to buy property in the area. We’ve seen an uptick in expats moving home with their partners. Residential mortgages have steadily increased, mainly due to firsttime buyers being able to purchase for home report again. In terms of buy-to-let, it’s been pretty much non-existent for us. We’re finding the clients that do want to look at buy-to-let are being put off with the current legislation and 6% Land Buildings and Transaction Tax.

The Intermediary | February 2024

Although many brokers cite the popularity of lenders such as HSBC, Halifax, Barclays and Santander, options such as RBS and Bank of Scotland are also, of course, well established in the area. In addition, McGhie notes the rise of more specialist options, as well as private banks such as Handelsbanken and Hampden Bank, which he finds useful when dealing with more complex cases.

New developments In terms of housing stock, in addition to the older properties and student accommodation which can be found populating the city centre, Edinburgh is home to a number of new development projects. Scott Jack, regional development director at Walker Fraser Steele, notes that following “significant investment” in the area over the past few years, including the tram line to Newhaven, Leith has become an area which stands out in terms of sales activity, recording high levels of buyer interest. Murphy cites the city’s recent rise in population as a key factor in the development of new housing and infrastructure. He says: “In the 10-year period to 2021, the population of Edinburgh grew by 10.2%, whereas the rest of Scotland grew by just 3.4%. “Edinburgh is a superb city to move to, and we are seeing real growth in professionals moving to the city from elsewhere in the UK.” He adds: “With such population growth and economic success, house building hasn’t kept up with the demand, and as such there’s real pressure for new developments, especially with continued population growth predicted. “As such, this January has seen proposals for a 205 acre £2bn town development in the west of the city near Edinburgh Airport, with 7,000 homes, as well amenities such as shops and schools.”

Rental market The average monthly rent in Edinburgh currently stands at over £1,170. This is compared to a more modest national average of £770 across Scotland. This disparity in average prices undoubtedly reflects the sheer demand

L O C A L FO C U S Edinburgh

Keen appetite

RESALE PRICES - CITY OF EDINBURGH

KENNY MURPHY is mortgage and protection adviser at YouMortgage

n Q4 of 2023, we witnessed a growth in the number of properties coming onto the market across Edinburgh, the Lothians, Fife and the Borders. With stabilisation of inflation and interest rates, we are definitely seeing that homeowners are keen to move, with lots of appetite to get onto the property ladder from first-time buyers. We are also seeing a trend of more and more parental gifts and support for first-time buyers than in the past. There had been a noticeable slowdown in 2023, but early indications in 2024 are that clients are coming back to the market, and we are really optimistic that the housing market will show a marked improvement from 2023. As a city, Edinburgh has grown by 12.5% in the past 10 years, proof that it is a resilient economy. This is reflected by a 45% growth in average house prices since 2015. In the 10-year period to 2021, the population of Edinburgh grew by 10.2%, whereas the rest of Scotland grew by just 3.4%. Edinburgh is a superb city to move to, and we are seeing real growth in professionals moving to the city from elsewhere in the UK. With such population growth and economic success, house building hasn’t kept up with the demand, and as such there’s real pressure for new developments, especially with continued population growth predicted. As such, January 2024 has seen proposals for a 205 acre £2bn town development in the west of the city near Edinburgh Airport, with 7,000 homes, as well amenities such as shops and schools. The buy-to-let market has been slow, however, and we’d anticipate it remaining sluggish. The 6% second home tax in Scotland has had a detrimental impact in this space and the Scottish Government announcing that councils in Scotland can up to double the full rate of Council Tax charged on second homes in Scotland, we feel, can only further slow this market.

for rental accommodation within the capital, with appetites driven by young professionals and students wishing to work and study in the city. According to Frackiewicz, the BTL market has remained popular, with landlords showing resilience in the face of a challenging few years in the sector. She attributes this resilience to the city’s numerous festivals and events, like the famous Edinburgh Festival Fringe, which serve to boost short-term rental markets, making it an attractive spot for investors looking for rental income. However, due to ongoing changes in tax rules, its seems that the once thriving buy-to-let market has taken a downturn as of late. Both McGhie and Murphy report a decline in buy-to-let business over

the past few months, with Murphy predicting a “sluggish” market for the remainder of 2024. As a result of recently implemented Scottish tax laws, which see property investors paying 6% on their second homes tax, as well as local authorities being granted permission to double Council Tax prices on second properties, many landlords have been deterred from further investing in the market, with some exiting the property game altogether. Murphy notes that these changes have had a “detrimental impact” upon the buy-to-let market in the area.

Ongoing prosperity It is clear that Edinburgh’s property market continues to evolve against a backdrop of economic

 DETACHED

£620,800

 SEMI-DETACHED

£439,100

 TERRACED

£434,000

 FLAT

£268,300

Source: WFS analysis, 6 month avg, Feb 2024

PRICE CHANGE Area

MOM change

Annual change

City of Edinburgh

-0.10%

-3.30%

All Scotland

-0.30%

0.40%

(Source: WFS Acadata HPI, Oct 2024)

RENTAL PRICE Area

MOM change

Annual change

City of Edinburgh

-0.10%

-3.30%

All Scotland

-0.30%

0.40%

Source: WFS analysis, 6 month avg, Feb 2024

shifts, demographic trends, and regulatory changes. While challenges such as affordability and limited supply persist, the city’s enduring appeal and resilient economy provides a solid foundation for long-term growth and investment. Despite disheartening changes for the buy-to-let market, opportunities for first-time buyers in the area abound, as population increases continue to forge new developments across the postcode. These factors, coupled with an improved economic outlook for 2024, undoubtedly prove that Edinburgh’s mortgage and property market will continue its trend of ongoing prosperity for the foreseeable future. ● February 2024 | The Intermediary

On the move...

Hope Capital appoints hea head of sales

pecialist short-term lender Hope Capital has appointed Kim Parker as head of sales. Parker joined in 2022 as an internal business development executive, and was promoted to sales team manager in 2023. Parker said: “I’m absolutely delighted to have received this recognition. As we continue our track record of consistent growth, I’m looking forward to working [...] to help implement a number of exciting changes we have in the pipeline, which will no doubt accelerate our expansion

Gen H appoints Karen Appleton as head of lending

across the market.” Jonathan Sealey, CEO, added: “Kim has played a crucial role in delivering our growth strategy since joining the business in 2022. This promotion is thoroughly deserved and is in recognition of her leadership through the way she has transformed the sales team to ensure we are continuing to hit milestones on a regular basis.” Kate Cowan, CFO, said: “Internal career progression is something we’re extremely passionate about here at Hope Capital and Kim is a true definition of what can be achieved with hard work, commitment and drive."

Cynergy Business Finance bolsters team with new corporate sales director

OMS appoints Kevin Blount as head of operations

ne Mortgage System (OMS) has appointed Kevin Blount as head of operations. Blount joined from Clever Lending, with a previous role at No ingham Building Society. Blount will manage all new integrations and development activity including the planning and development of a new business roadmap. Neal Jannels, managing director, said: “Kevin knows the intermediary mortgage space inside and out [...] His skillset and extensive knowledge base will be hugely beneficial to our business and our ever-expanding range of clients going forwards. 2024 is set to be a pivotal year for the business following a period of extensive recruitment to bolster a senior management team which will help us to deliver some ambitious and aggressive growth plans.” Blount added: “[I] have always been impressed by how [OMS] have grown as a business over this time whilst still providing a top-class service. “They are one of the biggest success stories in the mortgage intermediary space over the past few years.”

en H has appointed Karen ynergy Business Finance (CBF) Appleton as head of lending. has appointed Dave Green as She will oversee the credit corporate sales director. Green and lending function, has almost 25 years of experience developing the lender’s first-time within the asset-based lending (ABL) buyer focused mortgage propositions. sector, previously as a BDM at RBS Invoice Appleton joined a er nine years Finance. Green will help diversify CBF’s with Skipton Building Society, where customer portfolio. she brought the building society’s Green said: “CBF underwriting service levels down has really established from 17 days to same day turnarounds. itself as an ABL leader Pete Dockar, chief commercial within a relatively officer at Gen H, said: “Karen has a short time period, demonstrable track record for truly building a strong innovative thinking, and her expertise client base and is precisely what Gen H needs as offering an exciting we continue to grow, develop new market proposition.” propositions, and help more people.” Appleton added: “I’m delighted to be joining a team of people who are Unity Trust Bank names Colin Fyfe as new CEO passionate about creating positive nity Trust Bank Fyfe commented on his outcomes for real people and intent has appointed new role: “Unity’s very on transforming the housing market. Colin Fyfe as strong track record, its Having come from a credit risk CEO, bringing social purpose and driving background, I have always embraced over four decades of ambition are compelling… opportunities to collaborate [...] across banking experience to the I’m delighted to be joining the industry so we role, including previous as CEO.” can build a real-life leadership positions at two Chairman Alan Hughes lending culture building societies. expressed confidence in Fyfe’s that meets the Fyfe’s expertise in commercial ability to lead the next growth phase, needs of customers banking and regulatory highlighting Unity’s significant across the mortgage environments is expected to add to expansion since 2015. Fyfe succeeds application value Unity’s mission of serving SMEs Deborah Hazell, recognised for her chain. I know that and socially conscious organisations contributions, including enhancing this passion of mine with a focus on personal service and the digital banking platform and will be well placed KELLY ILES community benefit. external profile. with Gen H.”

The Intermediary | February 2024

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14/12/2023 11:58