The Intermediary – October 2023

Page 1

OPINION The latest from HSBC, Santander, UTB, The Mortgage Works, and more

INTERVIEW Debbie Kennedy talks innovation and purpose in protection

MEET THE BDM Get to know the people at Bluestone and Coventry

Intermediary. The | Issue 9 | October 2023 | £6


Looking back on the first months of Consumer Duty

D I G I TA L E D I T I O N Cover_JB.indd 1

19/10/2023 09:45:38









How can we help? — We take into account earned income up to the age of 70, or even 75 if the client is in a non-manual role. — We’ll consider pension pots, as well as fixed pensions, investment and rental income. Other income can be considered on a case-by-case basis. — We lend in retirement with higher maximum ages than most lenders. — We have a common sense approach to lending and use human beings, not robots, to underwrite each case. This means we can tailor our solutions to each of your client’s needs.


FAMILY BUILDING SOCIETY, EBBISHAM HOUSE, 30 CHURCH ST, EPSOM, SURREY KT17 4NL Family Building Society is a trading name of National Counties Building Society which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. National Counties is on the Financial Services Register. Firm Reference Number 206080.

Comment_JBJOCRF.indd 4 Later Life Flexibility Ad A4_The Intermediary_Q4.indd 1

17/10/2023 14:55:18 08/09/2023 09:17

023 09:17

From the editor...


f I had sat down to write this piece even a week or so earlier, I might have done so with a vastly different mindset. The events of recent days have, if nothing else, been a sharp reminder that world events can turn on a dime. Meanwhile, we are all too aware of the effect these events can have on the economy and, of course, the property market. Following hot on the heels of the ongoing war in the Ukraine, events in the Middle East – a er the initial feelings of horror and sadness – have served to show that stability is not as easy to grasp as one momentary respite from rising base rates might have implied. For those who have been able to move past the initial shock and are watching with a weather eye the effects that global events have on UK soil, it might be hard to remain positive. We saw a fleeting sense of achievement when the most recent inflation stats showed some positive signs, quickly followed by the Monetary Policy Commi ee’s decision, for the first time in two years, not to raise the base rate. Celebration only lasted so long, however, as the more cynical – or perhaps pragmatic – among us pointed out that this did not mean the worst was over, and that recovery would hardly be likely to take the form of a gentle stroll back down from recent peaks. Instead, it seems we are still strapped into the rollercoaster. The cost-of-living crisis is always front of mind, particularly heading into the winter months, with news from every quarter of people

The Team

struggling to buy food and heat their homes. Food costs may have eased somewhat recently, but yet more turbulence on the global stage will have its own ramifications for the population. Brokers, lenders and all other players in the property market will have to be on high alert for vulnerability, as ever more borrowers face a tight squeeze on their finances, not to mention the impact this can have on mental and physical health. On a slightly more positive note, this uncertainty serves to reinforce the importance of the market’s many safety nets, not least Consumer Duty, as well as the benefits this should have when it comes to not only monitoring for vulnerability, but ensuring positive results and long-term financial stability for customers across the board. A er much fanfare in the build up to its implementation, our feature this month takes a first look at the brave new world of ‘good customer outcomes’, and asks the experts what needs to be considered to ensure the regulation’s effective implementation going forward. It is undeniable that the property finance market sits on a hair trigger, with any bad news having the potential to spark yet more instability. If the past few years have taught us anything, it’s that the most we can do is steel ourselves and look tentatively towards a more stable future. ●

Jessica Bird @jess_jbird



Jessica Bird ................................ Managing Editor Jessica O’Connor ...................................... Reporter

Claudio Pisciotta ................................................ BDM

Ryan Fowler ............................................... Publisher Felix Blakeston ................... Associate Publisher Maggie Green ............................................. Accounts

Barbara Prada ............................................. Designer Bryan Hay .................................... Associate Editor Subscriptions

Adam Paddick | Adrian Moloney | Ahmed Bawa Aimie-Jo Shutt | Alison Pallett | Andrew Gething Ashley Pearson | Brian West | Carl Graham Chris Pearson | Damian Thompson | Dan McGregor David Whittaker | Donna Wells | Ed Blackmore Emma Green | Jason Berry | Jerry Mulle | Jimmy Allen John Doughty | John Hardman | Jonathan Newman Kathy Bowes | Kevin Aitken | Leon Diamond Lucy Waters | Maeve Ward | Marc Shoffman Marie Grundy | Mark Blackwell | Mark Gregory Martese Carton | Michael Conville | Paul Brett Paul Goodman | Paul Lewis | Paul Thomas | Peter Izard Piragash Sivanesan | Ranjit Narwal | Rebecca Hill Richard Rowntree | Robin Johnson | Sakeeb Zaman Shaun Almond | Simon Chalk Sophie Mitchell-Charman | Stelios Constantinidis Stephanie Charman | Steve Carruthers | Steve Goodall Stuart Wilson | Tanya Elmaz | Tom Denman-Molloy Tony Marshall | Tony Ward

OPINION The latest from HSBC, Santander, UTB, The Mortgage Works, and more

INTERVIEW Debbie Kennedy talks innovation and purpose in protection

MEET THE BDM Get to know the people at Bluestone and Coventry

Intermediary. The | Issue 9 | October 2023 | £6

UNDER SCRUTINY Looking back on the first months of Consumer Duty

Cover_JB.indd 1

17/10/2023 14:32:11

Copyright © 2023 The Intermediary

Cover illustration by Ed Wishewsky Cartoons by Giles Pilbrow Printed by Pensord Press


October 2023 | The Intermediary

Comment_JBJOCRF.indd 5


17/10/2023 14:55:19

They’re mortgages; just faster

Our mortgages are just like everyone else’s… only faster, and simpler, and designed to save you and your customers time. Mortgages made simple Search | LendInvest

Experience online

LendInvest Mortgages and LI Mortgages are registered trading names of LendInvest Loans Limited. LendInvest Loans Limited is authorised and regulated by the Financial Conduct Authority (FRN:737073). LendInvest Loans Limited is a company registered in England & Wales (Company No. 09971600) and is a wholly owned subsidiary of LendInvest plc. Regulated lending is provided via LendInvest Loans Limited (Company No. 09971600). Borrowing through LendInvest Loans Limited involves entering into a regulated mortgage contract secured against property. Your property may be repossessed if you do not repay your mortgage in full.

Contents_JBJOCRF.indd 2

17/10/2023 14:56:12



The Interview 42

Feature 46

Marc Shoffman reviews the first quarter spent under Consumer Duty

Broker Business 52

A look at the practical realities of being a broker, from marketing tips to the monthly case clinic

Local Focus 82

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

On the Move 90

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


Residential 6 Buy-to-let 30 Specialist Finance 58 Later Life 74 Second Charge 78 Protection 80 Technology 86


Debbie Kennedy talks innovation and purpose within the protection market

In Profile P R I N C I PA L I T Y



Mike Cook looks at a growing buy-to-let proposition, and the importance of variety in specialist lending



Richard Harrison talks about the role of challenger banks in pushing for innovation WEST ONE

Meet the BDM Kelly Powell



Stephen Hogg discusses the firm’s growth and stability during a volatile market


Local Focus


Helen Lewis discusses the firm’s commitment to supporting both brokers and borrowers


Gina England



The challenges and opportunities facing business development managers

The Intermediary | February 2023

Contents_JBJOCRF.indd 3


17/10/2023 16:20:42


Sunshine seen through the perfect storm

AIMIE-JO SHUTT is national key account manager at Santander UK


recently saw the current interest rate environment described as a ‘perfect storm’, which got me thinking. The term is defined as a “meteorological event aggravated by a rare combination of circumstances.” George Clooney’s 2000 movie also popped up as I searched the term – certainly synonymous with a sad ending. However, while the phrase might ring true for the current mortgage market, in that there are a lot of components that have converged over a long period of time to create the turbulence we have all been experiencing, I believe there is still opportunity and positivity on the horizon.

Inflationary pressures Let’s turn to inflation first: it recently hit a 41-year high, driven by a large number of factors. However, the latest inflation figure – at the time of writing – was 6.7%. This was thanks, in part, to reducing food prices. Although this is encouraging, a cautionary eye does need to remain on wage and fuel increases. Reducing inflation may not be a straight downward line. However, many economists still predict that inflation will fall to 5% by the end of the year, and 2.5% next year – almost reaching the Bank of England’s target of 2% again. This decreasing inflation figure saw the Bank of England hold the base rate at 5.25% in September, which will have brought some comfort to home buyers and those looking for new mortgage products. What we are also seeing on the back of stabilising inflation figures is a slight reduction in swap rates, and lenders passing this on through


Challenges lie ahead, but it is imperative to weather the storm

a reduction in mortgage rates. Right across the industry, organisations are keen to lend, and we have seen new products and deals being offered over the course of the past month. Hopefully, both inflation and swap rates will continue to move in the right direction, not only reducing mortgage rates, but also bringing easier affordability in its wake.

Property prices We have also seen reports of property prices softening. While this doesn’t bring any comfort for those already on the ladder, it may help to reduce the affordability challenges facing many first-time buyers. It is estimated that there will be around one million housing transactions this year. This is on the back of two years sitting well above the long-term average of around 1.2 million transactions. While some may disparage a ‘slower’ market, the higher pace of the market in recent years is not the norm, and

Many economists predict that inflation will fall to 5% by the end of the year, and 2.5% next year” nor is it sustainable. Economists have predicted that housing transactions will return to that long-term average from next year, which provides more positivity, and perhaps can be viewed as a return to stability. So, I hope you share my reasons for positivity: reducing inflation and swap rates, a competitive mortgage market and a normalising housing market. Whatever the challenges that lie ahead, we are here to support our customers and our intermediary partners as they continue to weather the storm. We will continue to flex and change to support the ever-evolving economic environment. ●

The Intermediary | October 2023

Residential_JBJOCRFFB.indd 6

17/10/2023 12:47:30


The landscape of mortgages and savings


n today’s volatile economic landscape, saving money has become a real challenge. For many at the moment, that means having to make extraordinarily tough decisions about putting something away for a rainy day versus the basics costs of living day-to-day. It also has a knock-on impact on people’s aspirations for homeownership. We all know that saving is the important first step towards getting a mortgage. But for many, the sheer cost of getting onto that first rung of the housing ladder is a daunting, if not seemingly impossible, prospect. Rising property prices, stagnant wages, and the rising cost of living are creating substantial barriers for aspiring homeowners. With ‘Savings Week’ taking place recently, we wanted to get a picture of how people’s saving habits have been affected by the current environment. While the results of our research do show that habits have changed, there is undoubtedly cause for optimism.

Savings priority The majority of households are still prioritising saving for the future; 75% told us that they are still managing to put money away into savings, recognising the importance of doing so even when times are tough. We did find that people are generally saving less, though, which is not a huge surprise, given that the cost-of-living crisis has made it harder for people to consistently put money away. We also found that household savings goals have shifted over the past 12 months. The proportion saving for an overseas holiday has decreased from 37% this time last year to 28% today, while 20% say they are now saving for their retirement,

representing a three percentage point increase compared with this time last year. Again, that final statistic is cause for optimism, because it reveals that savers are still adopting a long-term outlook, which is tougher to do in a period of economic stagnation. That long-term approach takes us back to aspiring homeowners. The most important thing anyone aspiring to get on the housing ladder can do is to begin early – and set clear goals. Doing this helps break what can seem like a big target down into more manageable stages.

Greater barriers That said, simply starting to save early isn’t a magic bullet solution to getting a mortgage when you want one. We know from talking to brokers that when people are looking for that first mortgage, even those who have saved diligently are struggling to obtain one that works for them. This challenge is particularly acute for people who don’t have what would traditionally be viewed as a ‘regular’ income. For example, self-employed people, those who hold multiple part-time jobs, or people who have undergone a major life event such as a divorce or a move back to the UK from overseas. These people are increasingly becoming the norm, and yet their circumstances mean they face even greater barriers than others to achieving their homeownership dream. Emerging evidence shows that ever more young people are opting for mortgages with minimum terms of 35-years – further proof that, even with a decent amount saved, taking that next step on the housing ladder isn’t straightforward.

ALISON PALLETT is sales director at Nottingham Building Society

For many, the sheer cost of getting onto that first rung of the housing ladder is a daunting, if not seemingly impossible, prospect” It’s essential that lenders, brokers and the wider industry come together to tackle these challenges head-on and make sure everyone, no matter their job or circumstances, can reach their homeownership dreams if they have the means to repay their mortgages. It’s time for us to start thinking innovatively. We at The Nottingham work closely with Generation Home, which offers a deposit booster – a way for homebuyers to secure a mortgage with an interest-free loan from their friends or family members. We are committed to exploring solutions which take into account what brokers, savers and borrowers are going through today. It’s critical that we develop new products that support the people who need it most, and importantly, allow them to feel like their concerns are being listened to and their circumstances addressed. We also recognise the vital role brokers play in this process, and want to work constructively with the intermediary community to ensure their experiences are reflected in the solutions we develop, to help savers achieve their homeownership goals. ● October 2023 | The Intermediary

Residential_JBJOCRFFB.indd 7


17/10/2023 12:47:31


Customer confidence – not just a fantasy


Fantasy or reality? We are seeing some welcome trimming of rates, but can only control the controllable

ere’s an interesting and somewhat fantasy rhetorical question for you: what sort of mortgage rate environment would need to be in place in order to bring customer confidence back, get people moving, and breathe some life back into the market? What’s your view? Does it start with a four, a three, a two, or even a one, perhaps? Answers on a postcard, please. I asked that very question at a recent event, while sat with a longstanding friend, who just happens to be a very senior mortgage distributor and all-round supremely talented individual – no names, of course. They said: “4.59% would be a welcome landmark to see over the next few weeks,” or very similar words – I wasn’t taking detailed notes, and I presumed this was for 5-year deals.

Hearts and minds Back to my fantasy rhetorical question. Yes, 4.59% would certainly be a very welcome move in the right


CHRIS PEARSON is head of intermediary mortgages at HSBC UK

Economic conditions, driven by inflation numbers influencing the Bank of England base rate, all tracked by swap market rates – driving fixed rate mortgage pricing – will play out over the coming months. It’s safe to say that if your fantasy number starts with a two or even a three, you’re in for a wait. So, what to do?

Back to reality

We can’t offer a fantasy mortgage rate, but we can track the very best value throughout the duration of the offer period, whether that’s a new deal or a product transfer” direction for customers seeking a new mortgage, but is that going to create a meaningful change in hearts, minds and – of course – affordability? I personally don’t think so. I’ve long since given up on trying to predict where rates are going to land over any given timeframe. I’ll leave that to the economists. However, we are seeing some welcome trimming of rates across the market at the time of writing this article.

Let’s simply control the controllables and do the job our customers demand from us right now, which is to secure the best value deal in the market for their specific circumstances. That means, from the point of mortgage offer right up to the point of drawdown, the customer has the confidence that they have the best value deal on the market at all times, and not just the original offer on the table. This is a critical service differentiator that brokers can offer to their clients. We can’t offer a fantasy mortgage rate, but we can track the very best value throughout the duration of the offer period, whether that’s a new deal or a product transfer. At HSBC, we have recently introduced a live chat solution that will allow brokers to do just that at the click of a button, and in many circumstances generate a revised offer with a new rate straight away, so hopefully not too much extra work, but a massive benefit to the customer. It’s well worth having the peace of mind of using a broker. ●

The Intermediary | October 2023

Residential_JBJOCRFFB.indd 8

17/10/2023 12:47:34


The real battleground is retail funding


hile many commentators will point to an impending rate war for mortgage business, I think there is a more acute pressure for smaller lenders. For some time now, securitisation has been too expensive to launch competitively priced mortgage products. The go-to alternative for building societies and those with a banking license has been retail savings, which over the past decade have been an incredibly cheap source of funding.

Diversifying funding Non-bank lenders have also tapped into this funding source via flow funding transactions, funded by retail banks and building societies. Indeed, to understand how attractive they have become, you need only look at the list of new bank lenders and applications for bank status to understand that retail savings are an important part of diversifying your funding strategy. Applications to attain such a status are still in relatively rude health, although the cost of complying with the ever-increasing regulatory and capital hurdles for banks, particularly in start-up, is not always well understood or factored in. However, the credit cycle has changed. Inflation arrived, and with it, higher interest rates that have changed the savings environment. Retail funding is no longer straightforward to obtain – savings are harder to come by and far less sticky. Interest rate risk is a doubleedged sword, we have not only the prospect of growing arrears in 2024 as borrowers come to terms with larger

mortgage costs – and lenders with how those are managed – but also a squeeze on the available savings base. For lenders, the challenges are exacerbated insofar as the Mortgage Charter has effectively promised borrowers, vulnerable and otherwise, options including deferral payments, all of which impact capital and risk positions. All of this carries an additional cost for the lender. Against this headwind is, for some lenders, the issue that rising interest rates have made paying back any outstanding debt from the Term Funding Scheme imperative. However, that needs to be replaced, which will invariably mean relying on retail savings. This, in turn, will pitch them further into a fight to offer better deposit rates. Perhaps the biggest impact on smaller lenders’ retail funding was the Financial Conduct Authority’s (FCA) pronouncement in July. The regulator warned that it will seriously consider taking action against banks that appear to be profiting from savings rates or failing to rapidly pass them on.

Fair value Nikhil Rathi, CEO of the FCA, told members of the Treasury Committee that the regulator was likely to consider a variety of “factors and metrics” when determining whether banks were providing “fair value” for savers under the upcoming Consumer Duty regulations on consumer rights. You can now get an easy access savings account, at the time of writing, from around 5% and 6% for a 2-year fixed-rate bond. All of this is what one might call supply side driven. But the consequences for the demand side of retail savings are profound.

TONY WARD is non-executive chairman at Fortrum

According to analysis in the Financial Times in August, the UK’s four largest banks have seen a decline in deposits of about £80bn over the past year, as consumers and businesses search for lower interest rates, households deal with rising prices, and mortgage holders endeavour to settle outstanding debt early.

Robust strategies This last point is interesting. What we do not yet know is how much of the money being withdrawn is supporting living costs or lifestyles, and how much is paying down mortgage debt. If the majority of savings in the country are held in the older age groups, are they paying down their own debt, their children’s debt, or simply shopping around for better returns? It matters, because the one thing we can be sure of is that the retail savings pot is not growing – and other lenders are moving in, too. Chase now has more than 1.6 million UK customers, and deposits have almost doubled from $10bn to $19bn. To lend, building societies and other lenders need funding lines. Retail deposits – along with mortgage lending – may well be in shorter supply next year. A contraction in either or both is unwelcome, and will need careful management and robust funding strategies. The net effect of all this is that boardrooms will require an acute understanding of how regulatory and market pressures are handled – from the back office to the front-line – in order to keep the wheels turning. ● October 2023 | The Intermediary

Residential_JBJOCRFFB.indd 9


17/10/2023 12:47:34

Meet The BDM Bluestone

The Intermediary speaks with Kelly Powell, senior BDM for London at Bluestone How and why did you become a business development manager (BDM)? My journey to BDM is very much down to natural career progression. Prior to joining Bluestone, I had always worked in customer-facing roles and always enjoyed working closely with, and helping, people. While serving as a broker support officer at Bluestone, I established good relationships with brokers and it was this that ultimately motivated me to pursue a career as a BDM. This role gave me the opportunity to 10

expand on my existing relationships and assist brokers in a more significant capacity. I have been in several BDM roles during my time at Bluestone; the first being a telephony BDM looking after Yorkshire and the Midlands. After successfully growing those regions over two and a half years, I was promoted to senior BDM, looking after the London region.

was recruited by Bluestone to join their team as one of the founding members of their newly established broker support team. I loved the customer service elements from my previous role, and Bluestone’s vision to help disenfranchised customers who had been turned away from high street lenders immediately attracted me to the business.

What brought you to Bluestone?

What makes Bluestone stand out from the crowd?

In 2019, Bluestone expanded its operations and opened an office in Sheffield. Being a Sheffield local, I

Our technology. We have invested significantly in building a new broker portal, to streamline the decision-

The Intermediary | October 2023

Meet the BDM x2_JBJOCRF.indd 10

17/10/2023 14:15:19


making process and ultimately get faster credit decisions for our customers. We recently launched a new affordability wallet, as part of our Open Banking service, that provides enhanced security and accurate data for verifying customers’ expenditures in minutes. Such benefits have enabled us to streamline the mortgage process, radically reduce decision times, and ultimately improve customer outcomes. This has also allowed us to dedicate more time to our holistic manual underwriting approach. It is this approach, combined with our mission to help disenfranchised customers achieve their homeownership goals, that makes Bluestone stand out. Additionally, communication has always been key at Bluestone. As BDMs, we act as a point of contact throughout the entire loan process, working closely with our underwriters and brokers to get the deal across the line.

What are the challenges facing BDMs right now? One of the main challenges we face in the specialist lending industry is being put into specific boxes due to the types of cases we look at. We’re often considered the adverse lender, and there’s an assumption that we only deal with one type of client. However, in reality there are a number of other areas we can help with, from supporting the selfemployed and contractors to those with impaired credit ratings. Market volatility is another major concern across the industry. As BDMs, we are required to deliver information about rate changes to brokers, which can be difficult as we know this ultimately impacts their customers’ ambitions.

brokers. This could include educating them on new mortgage products, criteria changes, as well as technology that could aid their clients. For example, I recently hosted my first Bluestone breakfast meeting, where we touched on market trends, the evolution of our technology, as well as our plans for the future. Events like this are a great way to build relationships, particularly at a time when the market is experiencing such volatility, and can help strengthen broker partnerships. In my view, there’s a huge opportunity for us to work with brokers to improve our proposition, by being transparent and reliable, while also collecting feedback on products and refining our offerings.

It’s difficult enough for brokers to decipher the differences with lenders’ criteria, and that’s before you throw elements like criteria on completion into the mix! With this in mind, I like to ensure that every broker feels fully comfortable with every case”

How do you work with brokers to ensure the best outcomes for borrowers?

you might struggle to get a loan with a high street bank, there are more lenders now than ever that understand that credit blips can happen, particularly in the current financial climate. It’s also important to know that complex income doesn’t mean you are not entitled to get a mortgage. If you are struggling to get a mortgage, or you have a unique situation, then speak to a mortgage broker. These professionals can support you in finding solutions that are best suited to your circumstances, and get the best deal tailored to you. ●

While all BDMs have their own individual approach to working with brokers, I personally like to have a more hands-on, transparent approach. It’s difficult enough for brokers to decipher the differences with lenders’ criteria, and that’s before you throw elements like criteria on completion into the mix! With this in mind, I like to ensure that every broker feels fully comfortable with every case, and if not, to reach out so we can help their client. For example, if a broker has a customer struggling with a credit report, I’ll work with them to find the best deal for their applicant, either then and there, or by the time we complete. Ultimately, our main responsibility is to ensure that all our brokers are aware of and understand all of the products we offer.

What are the opportunities for BDMs?

What advice would you give potential borrowers in the current climate?

There’s a wide range of opportunities for BDMs to educate and train

Do not panic if you have a less than perfect credit profile. While


Established 2015 Acquired by Shawbrook in 2023 Products ◆ Residential ◆ Complex credit ◆ Standard ◆ Fee-free ◆ Right to buy Contact

October 2023 | The Intermediary



Trackers and short-term fixes on the increase


t’s hard to believe, but by the time you read this it will have been 13 months since the disastrous mini-Budget of the short-lived Liz Truss-Kwasi Kwarteng era. Budgets often have the power to move markets, but I struggle to remember such a negative reaction in my entire professional career. While interest rates were rising pre-Budget, the fallout almost certainly caused the Bank of England to hike rates higher and faster than it probably would have done. What happened next has been well documented, but it’s worth combing over the numbers to truly appreciate the impact this fiscal event had.

Rates rise Since the mini-Budget in September last year, interest rates have shot up three percentage points to 5.25% – the highest level since February 2008. Of course, when interest rates rise, mortgage rates tend to follow, and they certainly have done that over the past year. At the end of August last year, the average fixed rate was 2.55%, according to the Bank of England. The latest batch of data shows that by July this year the average was 4.58%. To put that into context, on a £250,000 loan, that is a difference of more than £270 a month. Therefore, it’s little surprise that borrower habits have changed somewhat over the past 12 months. Any broker reading this will be aware that higher interest rates have had a hugely negative knock-on effect for purchase volumes. But that’s to be expected, given the affordability pressures many borrowers are currently facing. However, higher rates have also had a noticeable effect on borrower


If borrowers do start to favour shortterm fixed rates and trackers, we may well see a much-needed boost in transaction volumes” preferences. In September 2021, a year before the mini-Budget, 50% of borrowers opted for a 5-year fix, according to conveyancer LMS. By September 2022, that figure had rocketed to 68%. In a rising interest rate environment, borrowers prefer the security of a longer-term fixed rate mortgage – even if they are paying substantially more for than they used to. But how will borrower preferences evolve now that – hopefully – the end of interest rate increases is in sight? As we have seen over the past month, the prospect of peak interest rates has caused swap rates to fall significantly, giving lenders scope to reduce their mortgage rates. This could, once again, alter borrower behaviour. When interest rates first started rising, many commentators said we could see trackers boom in popularity as savvy borrowers looked to profit once interest rates inevitably began to fall again. However, I felt at the time that it was perhaps too soon to make that call. As I said above, when rates are rising, most people want to lock-in to protect themselves not just from rising repayments, but also from future uncertainty.

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

If we have now truly reached peak interest rates, which is looking increasingly likely, there is a very good chance we could see trackers and shorter-term fixed rates become more popular again. Indeed, Twenty7Tec’s latest Mortgage Market Report shows that 2-year fixed rates accounted for 45% of all fixed product searches by brokers in August 2023. In comparison, 5-year to 10-year fixed rates accounted for just 20.2%, down from nearly 36% a year ago.

Remortgage boost For some borrowers, now may be the perfect time to take out a shorterterm fix. For a start, rates have come down and are expected to come down further, and it means that they are not locked into a long-term deal. Traditionally, borrowers looking for shorter fixed rate terms have opted for 2-year fixed rates; however, with cheaper options available through 3-year fixed rate deals, there is an alternative in between 2-year and 5-year deals. Similarly for trackers, if rates do start to come down next year or the year after, these borrowers could well find themselves in a better position than if they had fixed for five years. If borrowers do start to favour short-term fixed rates and trackers, we may well see a much-needed boost in transaction volumes as a result of greater remortgage activity. Of course, all of this hinges on whether rates are at their peak or not. Either way, it will be interesting to see how the market develops. ●

The Intermediary | October 2023

Residential_JBJOCRFFB.indd 12

17/10/2023 12:47:35


Bringing down the barriers to homeownership

MARTESE CARTON is director of mortgage distribution at Leeds Building Society

This underlines the need for long-term solutions. As a mortgage community, we must recognise the challenges this group of buyers is facing, and work together to take action now to protect homeownership for future generations.

Major accelerations


The future of homeownership must be preserved

n the next five years, it is estimated that up to 426,000 first-time buyers in England will be priced out of the UK housing market. It sounds unbelievable, but that’s almost half a million fewer people joining the property ladder. With the Bank of England base rate increasing 14 times since the end of 2021, there is now an even more potent mix of high deposits and high repayments required, making 2023 a crunch year for first-time buyers. A report commissioned by Leeds Building Society, in partnership with WPI Strategy, looks at the challenges of buying a first home between 1982 and 2022, and uncovers the multiple barriers facing first-time buyers, both now and in the years to come. The report tells us that in 2022, house prices paid by first-time buyers were 16-times higher than in 1982, while gross earnings for this group were only seven-times higher. That means the house price to earnings ratio has more than doubled in the past four decades, from two-times

earnings to almost five-times. There’s also an impact on those able to buy a first home, with buyers typically needing higher incomes. This is also reflected in the average deposit value, which in 2022 was £68,700 – 115% of average first-time buyer earnings, taking the average private renter 12 years to save up. In 1982, previous generations were joining the property ladder with an average deposit of £2,100 which was 25.5% of the average first-time buyer salary. Saving up to put down a deposit took just 2.5 years for a typical private renter. Rising rents and interest rates mean that saving for a deposit now is harder than ever, as other expenses are taking up a greater share of earnings. There is a growing gap between people with the ability – or family help – to build up a deposit, and those without. If left unaddressed, the gap will become a chasm, and in the next five years the number of aspiring homeowners priced out of the market could be enough to fill a city bigger than Coventry.

We must build more homes of all types, with a major acceleration of current efforts and policy changes. We must restore mandatory housing targets and the introduction of targets for affordable housing in local authorities. We need to increase the affordable routes to homeownership. The Renters’ Reform Bill could provide much-needed protection for those saving for a deposit. Paired with support for a well-managed and regulated Build to Rent sector, and increased bridges to ownership such as Shared Ownership, the Government can act now to support this generation of lost first-time buyers. First-time buyers need support to save for their deposit, whether that be reform to the Lifetime ISA scheme to reflect house price increases, or new measures to allow people to build and improve credit scores by including rent payments. These factors are all contributing to a lost generation of first-time buyers. We need to work together with the Government to develop a long-term plan before things get even worse. We must call for change and preserve the future of homeownership for the next generation of firsttime buyers. ● October 2023 | The Intermediary

Residential_JBJOCRFFB.indd 13


17/10/2023 12:47:38


London’s long-term p


hen mortgage rates are rising and house price inflation is coming down, the sceptics among you might find my optimism about the London property market somewhat intriguing. However, I urge you to ignore the shouty headlines proclaiming that a housing market disaster is on the cards. True, there will be parts of the country where things are going to be difficult in the coming months and years, but that won’t be the case everywhere. Love it or hate it, London is an international city, and its property market is far less affected by national economic challenges than anywhere else in the UK. The latest Office for National Statistics (ONS) figures show that London’s average house prices remain the most expensive of any region in the UK, with an average price of £528,000 in June 2023. It’s little surprise that London was also the English region with the lowest annual house price inflation, with average prices falling 6% in the 12 months to June 2023, following an annual percentage increase of 0.7% in the 12 months to May 2023. While the average house price in London rose by £3,000 between May


and June 2023, there was a larger increase of £9,000 between the same months last year. According to ONS analysts, this base effect is what led to the slowing of annual inflation in June in London. It’s the first negative annual inflation for London since November 2019, when average house prices dropped 1.2%. It’s also the first negative annual inflation seen in any of the English regions since May 2020, when the North East saw negative annual inflation of 0.7%. Further data released by Rightmove in September suggested that more recent subdued activity in the housing market was due to a combination of interest rate rises and buyer and seller summer holiday distractions. Notably, 36% of properties currently for sale have had a price reduction, with an average reduction equating to £22,700 nationally – some 6.2%. The conclusion is that, although transactions are undeniably down, London’s property stock is still performing.

A strong top layer The latest Knight Frank research shows that in the capital’s super-prime market, demand remains strong. Although the data looks at 2022, that coincides with the worst of the cost-ofliving crisis. Inflation is now coming down, and despite higher mortgage

ROBIN JOHNSON is MD of KFH professional services

rates deterring borrowers in the lower price brackets, the top slice of the market remains healthy. Knight Frank’s research shows that at the very top of the market the number of super-prime sales – defined as over $10m and £8m – in 2022 slipped against the 2021 total. However, it still remained 49% higher than in 2019. New York, Los Angeles and London led the pack in terms of the number of sales in this sector of the market. The even more rarefied ultra-prime market – homes selling for over £20m – was dominated by London and New York, with the UK capital seeing the highest sales since 2014. Knight Frank’s international data shows that London’s market has

The Intermediary | October 2023

Residential_JBJOCRFFB.indd 14

17/10/2023 12:47:46


m property market remained relatively robust throughout 2023, although it slowed compared with 2021. Super-prime sales globally have retreated from recent highs, but are still outpacing prepandemic levels. Although institutional investors reduced real estate investment by 28% in 2022, private capital was less defensive, falling only 8%. It accounted for a record 41% of the $1.1trn committed by all investors. Within that, private investment was dominated by allocations to residential (43%), offices (18%) and logistics (15%). Although US cities led in terms of volume, London took the biggest share (15%) of cross-border investment, followed closely by Singapore. For intermediaries in the UK, these figures may seem erroneous, but they are not. Families moving from one suburb to another are seeing prices come down – a good thing in my view, given the tougher affordability triggered by higher interest rates. However, money coming into the UK property market remains robustly strong.

That supports the housing market overall. And it’s a trend – the demand from international investors hasn’t diminished. Compared with the returns from other asset classes, this is perhaps understandable. Stock markets are volatile, and retailers are under immense pressure, with a number of high street names forced into administration over the past six months.

Investors are seeking long-term capital growth and – almost more importantly, when it comes to private individuals and family offices – count London super-prime as a defensive asset class. The economy isn’t in great shape, but it’s not affecting all parts of society the same. Life is defined by ups and downs; London’s property market over the long-term has been defined by its ups. ●


Avg. price Sept 23

Monthly change

Annual change

Richmond upon Thames
















Tower Hamlets












Kingston upon Thames
















Waltham Forest








Kensington and Chelsea












































Hammersmith and Fulham








Barking and Dagenham
























Source: Rightmove

October 2023 | The Intermediary

Residential_JBJOCRFFB.indd 15


17/10/2023 12:47:49


Are you sitting on your greatest asset? SHAUN ALMOND is managing director at HL Partnership


In today’s market, we must maximise the value of our customer base

n my experience, as an industry, brokers tend to be of the ‘glass half full’ persuasion. Some claim that they have to be, given the volatility in the market over the past few years. Yet throughout my career, there have been flashpoints where the market conditions have been less than favourable for brokers and their clients – most notably the Credit Crunch of 2008, when the sub-prime crisis caused havoc across the world. Today, the question we need to ask is how we can insulate ourselves against current and future volatility in the market. Clearly, no business can be fully future-proofed, but there are plenty of steps we can take to improve our situation.

Keep customers close Our biggest asset, and one many of us tend to ignore, particularly when times are good, is existing customers. The lure of new business can tend to divert us from maintaining regular contact. It is my contention that we should take every opportunity to stay in touch. Now that we are living in the age of Consumer Duty, there has never been a better incentive to create a regular catch-up routine with these clients.


But we shouldn’t need to be told to look after our existing clients. Not only are they a relatively untapped source of potential business, but with the increase in competing services aimed at your clients, none of us can rely on inertia for them to still be there when we actually get around to talking to them. Expecting customers to pick up the phone to us, after what might be a year or more since we helped them with a mortgage or similar issue, is not going to work in today’s competitive environment.

Have a contact strategy When I talk to brokers, one of the first questions I ask is whether they already have a process of existing customer engagement up and running. Those who do not tend to cite the amount of work it would need to make it happen. My immediate counter is to ask whether they can afford not to make that sacrifice in terms of time. In the current timeframe, with new business being more difficult to source, turning our back on the potential goldmine of our client bank is not a sound move.

Talk to them If you are talking to your customers then no one else will be, which is the

first step towards keeping them. In terms of the message, here is a chance to reassure them, as there is bound to be anxiety around the future, and the financial implications could – without your help – have significant repercussions. People are worried, among other things, about the cost of living, job security, and how much their mortgage payments are going to rise. If they are on a variable rate mortgage, then they are already seeing the effect that interest rate rises are having on their standard of living. If they are on a fixed rate, do you know how long they have before their current deal finishes? Are you ready to step in? If you aren’t, someone else will! Listening to your client’s situation, which might have changed dramatically since you saw them originally, you will be able to drill down and get to the heart of any issue they might be facing. Allied to a new fact-find, it will allow you to isolate areas for discussion and identify potential areas where you can offer advice and solutions. For example, discussing their existing situation could unlock opportunities to recommend a greater degree of protection, product transfers can produce a steady income stream, and later life lending is one of the fastest growing lending sectors.

Customer value In today’s market, we must maximise the value of our customer base. By constantly looking further afield for business, we are in danger of ignoring the potential in what we already have right on our doorstep. Customers should be for life, but only if we look after them. ●

The Intermediary | October 2023

Residential_JBJOCRFFB.indd 16

17/10/2023 12:47:51


When it comes to large loans, adapting is important


he concept and market for large loans are changing. Historically, it’s easy to think of large mortgage loans as only for the very wealthy in most of the country, or for the comfortably well off, if you happen to live in London or the South East. This is particularly true when we look at the national average house price – £288,000 in June 2023, according to the Office for National Statistics (ONS). The idea that a £500,000-plus mortgage should be commonplace looks illogical. Even when we break it down regionally, the picture is blurred by virtue of the size of the dataset.

Property wealth Average house prices in June 2023 were £306,000 in England, £213,000 in Wales, £174,000 in Northern Ireland and £189,000 in Scotland. However, as far away from those numbers as it sounds, we know that more and more people are becoming property millionaires every year – and it’s accelerating. A report from Savills earlier this year showed that since 2019, the number of £1m-plus homes has increased by some 40%, to reach 730,390 across the UK. Higher price growth and increased demand for larger properties saw 41,223 properties cross over the £1m threshold in 2022, bringing the total value of Britain’s £1m home market to £1.43tn. Particularly interesting is the fact that more than half (53%) of these £1m homes are now located outside of London. That is the highest proportion in at least 15 years. The million-pound house is no longer the preserve of the ultrawealthy; it’s now becoming more mainstream across the whole of the UK. Savills found that it was Wales

that saw the largest percentage increase in property millionaires – up 146% on 2019. There are major implications for the mortgage market as a result. It’s not as simple as just upping loan sizes, because lenders must account for affordability, capital adequacy and fluctuating capital values – all of this with an eye on tenure, demographics, social geography and the future. For example, between June 1998 and June 2023 – the length of a typical 25year mortgage term – the average price of a detached home in North Yorkshire has more than quadrupled, according to Land Registry data. In the City of Westminster, it is more than six-times that of 25 years earlier. Since the pandemic just three years ago, the average detached home’s value has risen by 19% in Harrow, Greater London, by 9% in Westminster, by 22% in Buckinghamshire and by 29% in North Yorkshire. By looking at random locations specifically, it’s easier to show just how significantly affordability constraints affect different locations at different times. The ONS shows the national average weekly wage has risen from £293 in January 2000 to £613 in June this year. While house prices in England have risen in value substantially over that period (£75,219 to £306,000), the average income has only doubled. Not only do mortgage loan sizes have to be bigger today, they must also be bigger proportionately against borrowers’ incomes. The nature of retail banking, regulation and prudential requirements have also transformed. Before the crash in 2008, banks and building societies could set their own capital adequacy ratios under the Basel II rules then in place. Today, the Bank of England holds those reins.

MICHAEL CONVILLE is chief customer officer at Newcastle Building Society

Borrowers’ needs As lenders, we must continue to adapt constantly to meet the needs of borrowers across the spectrum. It is not enough to focus solely on improving access to homeownership for first-time buyers or provide mortgages designed to be repaid over longer terms. We must think about needs at each stage of homeownership and both ends of the market. The number of families requiring large mortgages is only going to rise over the coming years, and based on the past 20 years it looks unlikely that wages will keep pace. It’s simple to think of borrowing £800,000 to buy a £1m home as pushing the bounds of affordability. Depending on the product’s design, it may well be. But in the context of today’s housing market and economic backdrop we cannot be rigid to the detriment of people. For both borrowers and lenders, the best outcome is that, regardless of whether the mortgage is for £100,000 or £1m, repayments are met in full and on time each month. That means adjusting rates and underwriting to fit the needs of the customer and support them through whatever financial adjustments they need to make. We have recently signed the Mortgage Charter, which introduces extra measures for those experiencing mortgage payment difficulties, ensuring we are helping every kind of borrower, no ma er their circumstance. Lenders need to be on this journey, and our perceptions of large loans must shi with house prices. ● October 2023 | The Intermediary

Residential_JBJOCRFFB.indd 17


17/10/2023 16:25:34

In Profile. Principality Building Society

Jessica O’Connor speaks with Helen Lewis, national intermediary manager at Principality Building Society, about the commitment to supporting both brokers and borrowers


ith the advent of the Financial Conduct Authority’s (FCA) Consumer Duty in July, as well as the introduction of Jeremy Hunt’s Mortgage Charter, lenders are, more than ever, placing borrowers at the forefront of the conversation, prioritising transparency and fair value, particularly within a fraught marketplace. According to Helen Lewis, national intermediary manager at Principality Building Society, this has always played a key role within the society’s proposition and decision-making. She says: “One thing that I absolutely love about working for Principality is that we’re a mutual building society – therefore we answer to our members rather than shareholders. “Customer service has always been a massive priority for us, and really at the heart of everything we do.” With this in mind, The Intermediary sat down with Lewis to explore the society’s commitment to its members and brokers, and what it is that sets the mutual apart from the competition.

Consistently delivering

Lewis has worked at Principality for over 16 years, starting out in the marketing division before eventually progressing into her current, brokerfacing role. She says: “I had never worked with brokers before but fancied giving it a try. I’ve been in this role now for the last four years [and] I absolutely love it, it’s a different challenge every day.” One of the things that initially attracted her to Principality was its strong focus on customer service. Indeed, having been named the What Mortgage ‘Best Building Society for Customer Service’ for six years running, as well as boasting a net promoter score (NPS) of over 80, it is clear that for the society, customer satisfaction remains front and centre. 18

“We’ve made some fundamental changes to our customer service to make sure we’re doing what is right for brokers and borrowers,” Lewis says. “For example, now brokers have direct access to our underwriters. In addition, each case now has only one case owner, allowing underwriters to fully understand the case at hand, form relationships with brokers, and get things done quickly.” She continues: “Our BDMs work really closely both with brokers and our underwriters to make sure that we are really consistently delivering for customers. We’ve never been a ‘computer says no’ kind of building society, and if the case makes sense, we will always look to complete it.”

Doing the right thing

Given this staunch commitment to providing the best outcome for its members, it is unsurprising that the mutual was also one of the first signatories of the Government’s recently launched Mortgage Charter. In light of the uncertainty and turbulence in the market as of late, Lewis believes this was absolutely the right thing to do. She says: “I fundamentally believe that we have a duty of care to assist customers who are really struggling and concerned about their mortgage payments. As an industry, we’ve hit record high rates, […] there’s a lot of people out there who have never experienced such rate shocks. “That’s one of the main reasons we entered into the Mortgage Charter. The fact that we can lock in the mortgage deal for up to six months without the need for affordability checks, the fact that they can change the rate if the rate goes down on a residential product – all of that really helps our members.” With the introduction of the Mortgage Charter widely viewed as a success, and many borrowers across the UK now benefitting from increased support and flexibility from lenders, Lewis believes that this Government intervention is just the first step on a longer journey. “It’s hard to think about what further action the Government could take, but I’m sure there is

The Intermediary | October 2023

Profiles and QAs_JBJOCRF.indd 18

17/10/2023 14:25:59


more to be done,” she says. “The Mortgage Charter is certainly a step in the right direction, that – coupled with the fact people are allowed to move deals – is certainly going to help people and make things more affordable.”

Fair value

Aside from its dedicated approach to customer service and its support of the Mortgage Charter, Principality has also placed a firm emphasis on the introduction of its Consumer Duty protocols. Following the official implementation of the regulations in July, the society has done everything in its power to ensure its members have fair value – in line with the FCA guidelines. Lewis says: “Consumer Duty is absolutely the right thing to do from a customer perspective. We’ve always been a lender that has ensured our members have fair value, especially as we are a mutual society already. “We’ve put in a lot of training in place for our colleagues to make sure that we are hitting our Consumer Duty goals – it’s really important that we do whatever we can to make sure customers are supported, particularly in the current cost-ofliving crisis.” While Consumer Duty might mean more of the same when it comes to Principality’s ardent approach to borrower support, there is no denying that the advent of the regulations has changed the face of the industry in a major way. According to Lewis, the duty will open up new opportunities within the market, as well as supporting the structures that are already in place. She adds: “As things start to evolve, and Consumer Duty starts to embed, there will probably be some tweaks going forward. “It has made sure that everyone is now doing the absolute right thing for the customer – making sure that they’ve got fair value and that things are sold in the proper and correct way.”

Prioritising brokers

While much attention has been paid to borrowers in the past few months, brokers remain a top priority for Principality Building Society, as the mutual remains over 80% intermediated. Lewis says that feedback is of the utmost importance for the society. “Brokers are massively important to us as one of our key customers, and we know that it is really important to listen to what they are telling us,” she says. “We go out once a quarter to a number of brokers with

a tracker survey to find out what they think of key differentiations in the marketplaces, and where we can improve. “That feedback is then taken and looked at to see what we can enhance.” In fact, recent changes made by the society based on these broker suggestions include its decision to pushed criteria out to age 75, as well as the removal of the minimum income requirement from its buy-to-let and holiday let products. Lewis adds: “These changes have been us listening to what the brokers want and trying to implement those changes. It’s great that we’ve been able to help in those areas.”

New launches

In light of these efforts to provide as much support to brokers as possible, Principality has also implemented a number of new developments this year. Following the recent launch of porting and broker rate switches – allowing the broker to perform their rate switches online – the society is also taking steps to introduce tracker and Shared Ownership products. Lewis says: “We’re in the process of testing trackers and Shared Ownership at the moment, and whilst they may not be new to the market necessarily, they are things that the society hasn’t been able to do since we’ve had our new Mortgage Sales & Originations (MSO) application system. “Hopefully in the short to medium-term we’ll be back in the market with both of those.” In a further bid to streamline processes for advisers, the mutual has also set its sights on building a new website in 2024. “The website will have more product and criteria information and will be much more intuitive,” Lewis says. “So, from a broker point of view, it will streamline the process a bit more, negating the need for them to pick up the phone and ask us a question.”

Staying relevant

With these growth plans in the pipeline, there is plenty of opportunity on the horizon moving into the final quarter of this year. Lewis concludes: “There’s lots of stuff going on, we’re always looking at what we can do next based on the feedback brokers have given us. “There’s a lot of new criteria that we’re looking at to make sure that we stay relevant, keep up with the market and remain people’s lender of choice.” ●

HELEN LEWIS October 2023 | The Intermediary

Profiles and QAs_JBJOCRF.indd 19


17/10/2023 14:25:59


The questions may change but answers remain the same


hat a difference a day makes. Over the past 18 months, the country’s homeowners have been discovering just how big that difference can be. From paying £500 a month on the mortgage to £1,500 just to cover higher interest rates overnight, it really can come with an adjustment ready to rock families’ finances. For one borrower, the changes have been drastic, but for the market it has been multiplied. Since December 2021, practically the only thing that has remained constant has been change. In December 2021, the month the Bank of England began to raise interest rates, mortgage approvals for house purchase rose to 71,000, above the 12-month average up to February 2020 of 66,700. Approvals for remortgaging, which only capture remortgaging to a different lender, in contrast, were 44,900 that month. The latest data from the Bank of England’s Money and Credit survey shows that in July this year, approvals for house purchases were falling, totalling 49,400 in July, down from 54,600 in June. Remortgage approvals, meanwhile, saw a slight increase to 39,300 in July, from 39,100 in the previous month. On the face of it, market activity is way down – something that much higher mortgage rates explain all too well. If product transfers are included, however, the enormous shift to remortgage is clear. UK Finance figures showed that, in the second quarter of this year, 84% of refinance deals were internal product transfers. Based on Bank of England data for Q2, this translates to 105,200 remortgage approvals


where the borrower moved lender and 552,300 product transfers over April, May and June.

Market mayhem As if the global pandemic wasn’t a big enough shock to the economy, hot on its heels came one political upheaval, followed just weeks later by another, and then a third. Boris Johnson resigned from Number 10 in July 2022, Liz Truss and Chancellor Kwasi Kwarteng arrived on 5th September and launched their infamous miniBudget 17 days later, after which Rishi Sunak and Jeremy Hunt stepped in to calm the markets. Everyone in the mortgage industry recalls the utter mayhem these events caused – not only were underlying mortgage rates ticking up, the disastrous mini-Budget caused a rush to withdraw and reprice products as best buys fell like dominoes. July’s Consumer Duty has added in another layer of consumer protection, but also requires lenders to make further adjustments to their systems and processes to ensure they can evidence compliance. Given the market conditions we are heading into, how lenders achieve this over the coming year will be critical for their business resilience. The latest Bank of England data shows mortgage arrears on residential loans are now at a seven-year high. The value of outstanding balances with arrears rose 13% and 29% over the year, to £16.9bn in 2023 Q2. The base is very low, at 1.02% of outstanding mortgage balances, but new arrears cases accounted for 16% of the total outstanding balances with arrears. This points to yet another major change for lenders to deal with, particularly in the context of borrowers struggling financially.

JERRY MULLE is UK managing director at Ohpen

We are now looking at several years of borrowers heading for a possible, and in some cases unavoidable, payment shock at remortgage. The number of borrowers opting to sell and downsize is likely to rise, and the consequence for house prices is going to add in loan-to-value (LTV) risk to the affordability equation. Written out like this, the past few years have been pretty challenging to say the least – 2020’s Stamp Duty holiday notwithstanding, though that has played its part in exacerbating borrowers’ leverage levels now. But lenders have coped admirably well – embracing the Mortgage Charter and promises to work with borrowers who need support. What this litany of ups and downs, U-turns and screeching emergency stops tells us, however, is that operational agility delivers the decisions made in the boardroom to the ground is now essential to run a successful and profitable lender. Speed is critical to maintaining a competitive edge on pricing, but also to withstanding a sudden shift in competitors’ pricing strategies, amend definitions and actions for when borrowers’ circumstances change, and secure lending at the right returns. Broker and customer service is intrinsically linked into the ability to act and react quickly – move too slowly to withdraw and replace products and it can cripple service levels and result in a significant hit to the pipeline. As the past three and a half years have shown us, anything can happen. Being prepared is more about being able to respond to new circumstances than predicting what’s coming next. ●

The Intermediary | October 2023

Residential_JBJOCRFFB.indd 20

17/10/2023 12:47:53


Nationally, we must take each case on its merit


t can be dangerous to generalise in any situation, but in the mortgage market now, this is definitely the case. Inflation is finally falling back, though at 6.7% in August it remains more than threetimes the Bank of England’s 2.0% target. Pressure remains on the central bank to continually review the base rate, but higher interest rates are often argued to be a blunt tool when it comes to cooling price rises. Not only do they take years to feed into the system as fixed term loans mature, the effect also varies dramatically depending on where you are in the country. It matters what house prices are in a specific location, and what incomes are – along with family wealth, employment rates and property availability. For interest rates to have a meaningful impact on consumer spending, disposable incomes must be tight. Leaving aside the people who own their homes outright, who account for roughly a third of housing stock, and renters who account for another third, mortgaged homeowners are affected by rate rises differently according to their individual circumstances. For mortgage lenders offering home finance to borrowers across the UK, the picture is more nuanced than the averages indicate. According to comparison site Finder, the average outstanding mortgage debt is £127,420. At a policy level, this figure is indicative of a third of the nation’s indebtedness.

Individual experiences For individuals, it is irrelevant. There are so many factors when it comes to mortgage lending that there is no way to generalise. The type of

property matters, for example. Finder shows the average monthly mortgage payment in a detached property rose by 70% between December 2020 and December 2022. For those buying flats, the rise was 53%. Perhaps the most relevant factor affecting borrowers is the loan-toincome (LTI) ratio. The ratio is most extreme in London, where house prices are currently 13.3-times higher than the average yearly salary. Those in the North East of England are arguably in the best position, with house prices just 4.87-times earnings. This ratio influences the age at which first-time buyers can afford to get on the ladder. Lloyds Banking Group shows that first-time buyers in London are 33-years-old on average. In the North East and Yorkshire, the average is 30 – it likely comes down to LTI and the actual amount a first-time buyer must save for a sufficient deposit. Indeed, Office for National Statistics (ONS) figures show that the North East continued to have the lowest average house price of all English regions, at £161,000, in June 2023. There is a flipside to greater affordability in this area, though. The North East is the region with the highest annual house price inflation, with average prices increasing by 4.7% in the 12 months to June 2023, up from an annual percentage change of 3.6% in May 2023. Average house prices in London remain the most expensive of any region in the UK, with an average price of £528,000 in June 2023. These numbers also illustrate why 90% loanto-value (LTV) mortgages have become more popular – due to necessity. The Financial Conduct Authority (FCA) reports that the number of 90%plus LTV mortgages has risen steadily from 1.1% in Q1 2021 to 5.1% in Q4

KATHY BOWES is intermediary manager at The Cambridge Building Society

2022 – an almost five-fold increase in two years. Price comparison website Uswitch forecasts a steep rise in the number of 90% LTV mortgages over the next two years, o 6.7% by Q4 2025. Mortgage terms also vary significantly according to age. Uswitch found that first-time buyers under the age of 25 are most likely to have a mortgage term of less than 25 years – suggesting the ‘Bank of Mum and Dad’ is helping out significantly. Meanwhile, those who are saving by themselves are seemingly forced to take out mortgages over a longer term. The research showed a fifth of 25 to 34-year-olds took a 30-year mortgage term. Just shy of a fifth of those in that age bracket took a 35-year term, and although the percentage of that same age group to take a 40-year mortgage was reasonably low at 6.3%, they were nevertheless almost six-times more likely to opt for the longer term.

A collection of markets When you scratch below the surface of national averages, the UK is a collection of micro-markets. National mortgage lending requires the time and will to respect subtleties. Having the underwriting resources to consider each case on its merits, and not just rely on rules built into a lender’s online system, is vital for the millions of mortgage borrowers who do not fit into neat categories. The number of these borrowers continues grow due to the turbulent environment, and our ability to help and understand individual cases on their own merits remains invaluable to the mortgage market. ● October 2023 | The Intermediary

Residential_JBJOCRFFB.indd 21


17/10/2023 12:47:53


Debunking the 100% mortgage myth ASHLEY PEARSON is national BDM at The Loughborough for Intermediaries


Brokers can help their clients explore other avenues to get onto the property ladder

he subject of a 100% mortgage tends to generate some heated debate, which is only natural given its somewhat chequered history. This was certainly evident when Skipton Building Society launched the first-of-its-kind 100% mortgage product aimed at renters in May this year. This innovative solution captured its fair share of headlines, and the imagination of the intermediary market. However, it’s important to point out that there are a number of alternative mortgage products which can support those borrowers with limited deposits, and a 100% lending figure can be achieved in many different ways, from many different sources. Helping to debunk the myths surrounding the 100% mortgage is where brokers will play an increasingly crucial role in educating first-time buyers (FTBs) about a product type which has many different guises in the modern mortgage market. For example, Loughborough Building Society has a suite of family assist mortgage products which


includes a family deposit mortgage that allows a borrower to take out a 100% loan-to-value (LTV) mortgage product and have another family member – typically parents – guarantee a deposit of up to 20% of the purchase price.

A viable alternative This can be done by placing a collateral charge against the depositor’s own property or as a cash lump sum into a savings account offering a 3% interest rate, both of which are released after seven years, or sooner if there is enough equity in the property when it’s time to remortgage. In the current market, this could prove to be a viable alternative for parents and family members gifting a deposit, as not only will they get their money back; they will earn interest on their money and still help their child buy a house. This represents an attractive proposition considering recent figures from Legal & General, which highlighted that the average amount of money gifted by family members is expected to reach £25,600 this year. This type of mortgage is also available through our joint borrower sole proprietor (JBSP) Deposit

Guarantee product, which enables a family member to provide a 20% security against their house or as cash held in a 3% deposit guarantee account, while also boosting the applicant’s borrowing capacity by using family members’ income for affordability purposes. In most cases, this will be the borrower’s parents, but other family members such as grandparents, siblings and aunts and uncles can also be listed on the application, although the property will only be legally owned by the occupier. As with all forms of borrowing, there will always be an element of risk involved, and family members should always seek legal advice to understand what would happen if the borrower failed to keep up with payments. While these products may not be what many borrowers think about when considering a 100% mortgage in the traditional sense, the fact is that they do offer 100% lending in exchange for a guarantee should the borrower default. This makes them an attractive funding solution for those borrowers fortunate enough to have family members willing to help them onto the property ladder, but perhaps no longer willing or able to hand over large sums of money they’re unlikely to see again. Outlining these fundamental differences to clients could not only help to change the perception around 100% mortgages, it could also enable brokers to help their clients explore other avenues of getting on the property ladder, which perhaps they hadn’t previously considered. ●

The Intermediary | October 2023

Residential_JBJOCRFFB.indd 22

17/10/2023 12:47:58


Putting people at the heart


n December last year, the Intermediary Mortgage Lenders Association (IMLA) published its ‘New Normal’ report, which assessed the performance of intermediaries across the mortgage sector. It found that in 2022, intermediary teams held the lion’s share of the market, with 84% of business. By 2024, this is expected to grow to 90%. The Cumberland Building Society established its own dedicated intermediary team in 2021, which has continued to grow throughout 2022 and 2023. While the intermediary market is enjoying a period of growth, keeping abreast of the drivers impacting the market is vital if the promise of IMLA’s projected figures are to be realised. Those who fail to recognise the issues and opportunities run the risk of being left behind in a highly competitive space. So, putting people at the heart of what they do is crucial.

Assessing plans The rise in interest rates has brought uncertainty, with customers pressing pause on their plans as they assess their options. Investments don’t seem as viable, and the rate changes are impacting confidence in the market. It is up to intermediary teams in the financial services space to support brokers in navigating any challenges which emerge, and to keep a close eye on rates so they can forewarn their clients. In doing so, they can work with their customers to devise a clear plan which avoids confusion during what can be a stressful time. Automation and digitisation are becoming prominent features as intermediary teams look to streamline processes. From lead generation to application submissions and approval, teams are leveraging software to connect with clients more effectively. Meanwhile, artificial intelligence (AI) and machine learning is being used

to assess borrower risk and automate underwriting processes to reduce the time for a decision to be made. While this brings speed, questions remain over whether it serves customers well. Rather than opting for automation, The Cumberland implements a relationship managed approach, focusing on assessing cases in a holistic manner and quantifying the context behind a case. Using a manual underwriting process, The Cumberland puts its people at the heart of the application and looks beyond just the figures. Intermediary teams should assess the application as a whole and review the circumstances behind it – such as the customer’s history and their future prospects – so they can make an informed decision. Additionally, the relationship managers can converse with brokers when discrepancies arise and find solutions. As a result, this approach adds extra value, while delivering a service which applies a more conscious and understanding environment which resonates with customers. Each borrower has their own unique financial situation and goals. Recognising this is crucial. Selfemployed individuals, first-time homebuyers, prospective business owners, and retirees, all have their own individual circumstances. Relationship managers should take a pragmatic approach to assessing their viability and offer the best loan terms for their situation. Meanwhile, institutions have a wealth of financial experience, which – if they rely on automation – can go under-utilised. Instead of placing the onus on an algorithm, teams who use their experience to identify solutions, whether it be suggesting a greater deposit or offering a longer term for the loan, will be appreciated by the broker and their client, and this will further strengthen the relationship between the parties.

KEVIN AITKEN is relationship manager, intermediary lending at The Cumberland

Additionally, customers are constantly evolving in terms of what they want from their banking institutions. Societal change is a huge driver of everything we do, and organisations which disregard what matters to people risk alienating themselves, as customers want to see more from their building society. With ethical initiatives high on their agenda, customers are often asking themselves what they want their money to support.

Equipped to understand Businesses that build links with their communities often have better knowledge of what the people within them are facing, and therefore are better equipped to understand the multiple challenges across the economic landscape they may have to deal with. For example, The Cumberland recently partnered with FareShare, a network of charitable food redistributors who help ensure food reaches the people who need it most, and has developed partnerships with organisations such as Cumbria Tourism in a bid to support the region’s local hospitality businesses, as well as the Association of Scotland’s Self-Caterers (ASSC) and the Scottish Tourism Alliance (STA). People should be the driving force behind all the work that intermediaries do. As the UK continues to navigate a difficult economic period, we remain committed to prioritising people, and in doing so, offering a relationship managed approach which benefits the broker, the customer, and the building society. ● October 2023 | The Intermediary

Residential_JBJOCRFFB.indd 23


17/10/2023 12:48:01


Vistry shift boon for S


istry, the national housebuilder combining Bovis and Linden Homes, recently announced that it plans to move away from traditional housebuilding and focus on its partnerships business. In short, this means that its housebuilding land bank will be transitioned away from private housing and to a partnership model, providing more affordable homes for local authorities and housing associations. The move will see more than 30,000 owned and controlled plots shift to the partnerships model. Combine this with its existing business, made up of Linden Partnerships and the recently acquired Countryside Partnerships, and this is exciting news for social housing and the likes of Shared Ownership. After all, the chronic need for greater social housing is well documented,


while Shared Ownership and other low deposit schemes have offered a valuable route to homeownership in a difficult climate. Successive rate rises, higher mortgage costs and the ongoing costof-living crisis have all hampered the purchasing power of many prospective buyers – particularly first-timers. While many developers have looked to innovate to encourage activity, higher borrowing costs and the loss of recognised schemes such as Help to Buy have created a

JOHN DOUGHTY is chapter managing director at Just Mortgages

challenging environment. Throwing more weight behind the likes of Shared Ownership is only a good thing.

Mortgage rates are falling It is true that, for the first time in a long while, mortgage brokers have been able to share some good news with their clients. Inflation has continued to ease, swap rates have stabilised and mortgage rates have seen significant reductions – with lenders of all sizes regularly chipping away at rates across the board. In fact, for the first time since June, fixed rate mortgage products have dropped below 5%. Given the positive news of a hold on interest rates, greater stability in the market and the fact that lenders have

The Intermediary | October 2023

Residential_JBJOCRFFB.indd 24

17/10/2023 12:48:12


r Shared Ownership stiff competition and their own targets to hit, it’s not out of the question that rates could trickle down even further. As a result, some may question Vistry and its move away from traditional housebuilding, just as it seems one of the biggest barriers for buyers is easing.

Affordability challenges While lower rates may be enough to encourage some to push ahead with their plans, there’s no doubt that affordability remains a real challenge. As resilient house prices defy expectations, a report from the Office for National Statistics (ONS) earlier this year found that buying a home now costs more than eight-times the average full-time annual salary in England. Meanwhile, recent research by Legal Bricks found that homeowners could pay as much as 85% of their income on monthly mortgage repayments, with the likes of Oxford, Bath and London listed as the most expensive places to live. Renters don’t have it much easier, with high demand driving up rent and reducing disposable income to save for the necessary deposit.

Some rather than none Thankfully, brokers do have a range of tools at their disposal to help potential

buyers. Across our nationwide network, we’re supporting ever more clients – particularly first-time and single buyers, through the low deposit schemes available. Shared Ownership has been the clear frontrunner, having grown in popularity last year and continued that momentum in the first half of 2023. Fundamentally, it enables buyers to own part of something rather than nothing at all. Not only are the deposits generally lower, but the monthly payments are often lower than buyers are already paying in rent. Instead of a flat, the majority will be living in a new-build house in a desirable and up-and-coming area. Plus, there’s growing choice, with both new and resale options, as well as the opportunity to own more of the property in the future. The biggest hurdle for the scheme is availability. At around 200,000 homes, Shared Ownership accounts for less than 1% of all households. However, more developers, local authorities and housing associations across the country are getting behind the scheme, and are understanding its value in delivering affordable housing. The likes of Deposit Unlock and First Homes are also growing in popularity, too.

According to Government figures, 19,386 new Shared Ownership properties were delivered in 2021-22, a 14% increase on the year before, and the highest number since records began in 2014-15. Between 2015-16 and 2020-21, around 76,500 new Shared Ownership homes were delivered.

More developers to follow? While there was a clear business and economic case for the move, we must still applaud a major developer like Vistry for placing greater emphasis on affordable housing. The hope will be that the success of its partnerships division will encourage more developers to team up with housing associations and local authorities to add their weight to the likes of Shared Ownership. Of course, we shouldn’t expect all housebuilders and developers to go down the route of a full transition. After all, we do need a diverse mix of housing in the UK, and some developers may prefer not to place all their eggs in one basket. Nonetheless, with more developers working collaboratively with housing associations, lenders, scheme providers and brokers, we should begin to see more affordable homes built and greater opportunities to unlock potential buyers. ●

October 2023 | The Intermediary

Residential_JBJOCRFFB.indd 25


17/10/2023 12:48:18


A duty of care no one should ignore


he pandemic and successive lockdowns have been responsible for a considerable change in what people want from their homes. There has been a huge growth in the need for space to work, separate from space to live, more space to live in, and usable outside space. Today, hybrid working and the growing insistence by many companies on a full-time return to work have altered the balance again, encouraging a renaissance of interest in our cities and commuter belt towns. At the same time, the cost-of-living crisis and increased cost of borrowing is causing many buyers to reassess what they are prepared to afford. However, many people have invested in making changes to their homes as a result of the past three years, and many of those changes will have had a material impact on the property’s value, and how prospective buyers feel about the home they want to buy. Understanding how a property has evolved is important for buyers, who in the end are not surveyors. A building’s fabric, design and functionality is important if you want to be confident about a purchase. While our own house price index has highlighted the diminishing number of transactions in the UK market, and how house price growth has slowed over the past year, people continue to buy homes – not least on account of life events – and as they do so are increasingly looking for peace of mind. This is not least because a buying environment like this – where perceptions of what is valuable are changing – heightens the sense of opportunity and risk for buyers. Money is tight, and peace of mind really matters. In our experience, though transaction volumes may be slowing, the demand for private surveys, and in particular digital ones, is growing.


Buyers can also no longer mistakenly rely on lender surveys in the way they used to. It is almost certainly the case that as the use of automated valuation models (AVMs) and desktop inspections has grown post-pandemic, and it is less likely than ever that a qualified surveyor will actually see a property. If they do, it is on behalf of the lender, whose requirements are very different from a buyer’s. All the more reason, then, for a growth in private surveys that are commissioned by the buyer for the buyer, and fulfil an important part of the Consumer Duty argument to protect customers from undertaking borrowing against a property where the virtues and faults may not be apparent to their naked eye.

Eyes wide open The case for buyers to get a survey remains compelling. But commissioning the private survey, in my view, offers an opportunity for brokers, conveyancers and lenders to make sure borrowers are buying with their eyes wide open, and that they are looked after. After all, housing is the one purchase you make in this country which you cannot hand back if anything is subsequently found to have gone wrong. It’s particularly important, given that so often home buying is an emotional decision in a market where supply is so constrained as to inflate prices, and perhaps also notions of value. The Consumer Duty rules set a higher standard of consumer protection in financial services, which means borrowers should get the support they need, when they need it, as well as communications they understand, and products and services that meet their needs and offer fair value. Of course, when we consider the finances themselves, we can

STEVE GOODALL is managing director at e.surv

So often home buying is an emotional decision in a market where supply is so constrained as to inflate prices, and perhaps also notions of value” see how this will likely work. But when that finance is secured on an asset, it should extend to that, too. If borrowers can enter into agreements with their eyes wide open, then this is to the benefit of everyone. The condition, geography, design and performance of a property all go a long way to impacting how buyers feel about what they are buying. Of course, at the moment there is no borrower comeback on not taking a private survey in the current market, but this may not always be the case – especially on higher loan-to-values (LTVs). As the litany of risks facing our properties evolve in terms of severity and probability, we will ned to reassess how much we know about the homes we buy before we buy them. Getting an accurate survey is an invaluable way of laying to rest any unforeseen issues for borrowers, and while it’s not in brokers’, conveyancers’ or lenders’ remits to advise on the type of survey borrowers should or shouldn’t do, I’d argue there is a duty of care they should not ignore. ●

The Intermediary | October 2023

Residential_JBJOCRFFB.indd 26

17/10/2023 12:48:20


Lender versatility vital to supporting foreign buyers


he UK continues to be an incredibly attractive option for workers around the world. Indeed, figures from the Office for National Statistics (ONS) show that net migration hit a new record high of 606,000 last year. That’s a 24% jump on the year before, and a useful demonstration of the fact that – despite the economic challenges faced of late – this is still an enormously desirable place to live and work. Brexit has obviously had a significant impact on the way that people from foreign nations are able to live and work within the UK. Whereas once any EU national had the right to settle here, things have changed following the decision to leave, leading to the establishment of the skilled worker visa. The visa essentially opens the door for people to come and set up home in the UK, though there are important criteria that need to be met for the visa to be granted. The person needs to work for an employer that has been approved by the Home Office and have a certificate of sponsorship from their employer. On top of that, they need to be fulfilling a job that’s on the Government’s list of eligible positions, be paid a minimum salary, and have a proven knowledge of English. The visa isn’t automatically a long-term solution, either; it can last up to five years, but will need to be extended if the person wants to remain in the UK.

Putting down roots The reality is that for some of these workers there will be the desire to put down longer lasting roots. They may meet someone, wish to extend their stay, and even look to establish a home here. While the rental market

TOM DENMAN-MOLLOY is intermediary sales manager at Mansfield Building Society

What borrowers need

Foreign national workers need support in homebuying

could offer some options, plenty of foreign national workers will want to purchase a home instead. Yet this can prove incredibly difficult, should a mortgage be required. Recent years have seen a host of lenders tighten up their criteria when it comes to foreign national buyers, putting yet more hurdles in the way of those who simply want to purchase a home here, but who don’t enjoy UK nationality.

Overcoming complexity However, things do not need to be quite so complex. It’s all just a question of attitude from the lender. At Mansfield Building Society, for example, we have recently revamped our lending criteria to open up greater options for prospective buyers who hold the skilled worker visa. These mortgages will be available to residential buyers at up to 80% loanto-value (LTV) within our Versatility range, with the deposit having to come from the applicant’s own resources rather than being gifted.

Sadly, it’s not uncommon for complexities – or rather, perceived complexities – to make it seem all but impossible for some borrowers to obtain the financing they need. This isn’t just about their nationality, either; borrowers with complex income arrangements, or who are looking to borrow against an unusual property, may find themselves excluded by the criteria employed by high street lenders. There is no room for manoeuvre with these lenders. If something about the case falls outside their automated assessments, it’s simply a rejection. This isn’t the case with all lenders, however. At Mansfield Building Society, we believe in taking the time to understand the applicant and their situation, to make a more informed decision on whether we can lend. It means that many of those apparent complexities do not prove an impediment to the borrower getting the finance they need. The attractions of the UK to foreign nationals are not likely to disappear any time soon, and while political parties of all colours have talked about bringing down net migration, the truth is that we will still see extensive numbers of foreign nationals arriving on a skilled worker visa. Given the extent of migration, there will be a potential for overseas home buyers too, so it’s crucial for brokers to work with flexible lenders which are best positioned to support these clients as they achieve their homeownership dreams. ● October 2023 | The Intermediary

Residential_JBJOCRFFB.indd 27


17/10/2023 12:48:24


Atom Bank

The Intermediary speaks with Richard Harrison, head of mortgages at Atom Bank, about the role of challengers in pushing innovation, and the bank’s priorities for the future

First, can you introduce yourself for our readers?

improved service levels means we can grow lending while continuing to provide great value products to customers.

I’m head of mortgages for Atom bank and have been with Atom for almost three years now. The role involves all the things you’d expect, but my primary objective is to ensure our mortgage proposition works well for brokers and customers alike. Our commitment to invest in technology and challenge the traditional processes used within the mortgage journey means we can provide excellent service to brokers, and makes the role really interesting. I’ve always been attracted to challenger banks in some form, those that are looking to do things a bit differently, and which have strong social values. We have ambitions to grow our mortgage book, and our relationship with brokers is fundamental to achieving this. We are well placed to achieve this given our innovative technology platform, which allows us to scale volumes while maintaining our leading service proposition.

What makes Atom Bank unique among other challengers?

Is the role of challenger banks to bring innovation to the mortgage ecosystem? For various reasons, innovation and product development within mortgages has probably not been quite where you would expect it to be over recent years, when you compare this to other product areas within financial services. Our technology allows us to be quicker and speed up the journey to deliver better customer outcomes. Utilising automation to drive

Our mission is to be faster, easier and to provide better value to customers. We’re among the fastest in the industry when it comes to application to offer times, and that’s down to our highly automated approach when assessing income and property valuations. As a result, our average speed to offer in September was six days, and 25% of offers were made on the same day. Speed and certainty are important to brokers, and provide genuine benefits to their customers. It’s a key advantage we have, and we want brokers to know that we can issue offers on the same day, and in many circumstances have issued offers in seconds, even for higher loan-to-value (LTV) purchase cases. Then from a customer perspective, they value how our app keeps them fully informed from the point of application through to completion. Being able to accept their mortgage offer and terms and conditions electronically in our app gains great feedback. This simplifies the process and makes it more transparent, which we see as a real advantage.

Is speed and automation becoming increasingly important at the moment?


With the advent of technology, customer expectations are growing all the time through every aspect of their lives. That shouldn’t be any different in financial services or the house buying process.


Profiles and QAs_JBJOCRF.indd 28

17/10/2023 14:26:17


Being able to provide brokers and customers with an offer quickly, in some cases within seconds, is particularly important given the recent volatility in mortgage pricing, and with customers facing higher mortgage costs. It provides greater peace of mind to customers when trying to finalise the purchase of their new home or when remortgaging to avoid paying the standard variable rate (SVR).

Is there a balance to be struck with tech, as cases get more complex? Undoubtedly there is a place for manual underwriting within the industry. At the same time, we feel the customer journey can be quick, easy, and efficient for a broad range of customers. This is evidenced by the fact that our near-prime proposition, for customers with less than perfect credit, offers the same experience as prime.

Can you talk us through the nearprime proposition?

Speaking of evolving support, Atom bank has made a series of criteria changes recently, what was the reasoning behind these? In the summer we made a series of enhancements designed to improve our affordability criteria and help customers gain the borrowing they require. We felt this was particularly important given the fact that house prices remain significantly higher than before the pandemic, with the cost-of-living crisis also adding pressure. We increased our maximum loan amounts at higher LTVs, where customers can now borrow up to £750,000 at 90% and 95% LTV. This move puts us into a market-leading position and has been particularly helpful for borrowers in London and the South East. We also improved our LTV criteria, with self-employed borrowers now able to borrow 5.5-times income up to 90% LTV. The final change is to increase the amount of variable income which can contribute to our affordability assessment, from 50% to 70%.

Prime lending represents the majority of our business, but we offer a near-prime proposition that still utilises this high level of automation to ensure we provide these customers with the same level of service. It remains a part of the market where we feel the needs of customers could be better served, and we aim to do this. This product aims to support customers in two ways. Initially, we look to offer a fair value product to customers who have experienced some form of adverse credit performance, whose options are more limited in the market. Second, we aim to support these customers in improving their financial status with the intention of offering them a prime product when their initial deal matures. It’s all about accelerating that transition for these customers so they can gain access to better value products.

How does the firm’s commitment to environmental, social and corporate governance (ESG) show in the day-to-day?

Have you seen an increase in this group of customers recently?

Beyond this, what is on the horizon for Atom Bank?

I think the cost-of-living situation is naturally leading to a bit more activity in this area of the market. There are signs in the market that some customers may be struggling to meet credit commitments. This may be more pronounced in terms of customers’ unsecured credit rather than their mortgage. We’re there to support these customers and give them more choice, and this is where our near-prime proposition can help.

We’ve got an unrelenting focus on speeding up the mortgage journey. While we are market-leading today, that doesn’t represent the limit of our ambitions and we are going to automate that process even further. We are looking to grow and scale the bank so we can challenge the incumbents, which will mean expanding our offering and developing our relationship with brokers in the years to come. ●

A strong ambition for us is our commitments around climate change. We’ve made a pledge to become carbon positive by 2035, ahead of the Government requirements. From a mortgage and lending perspective, we’ve just announced a partnership with Kamma which is going to help us understand the carbon footprint of our mortgage book. Once we have a better understanding of our funded emissions, we will look to develop product options which help customers reduce their carbon impact.

October 2023 | The Intermediary

Profiles and QAs_JBJOCRF.indd 29


17/10/2023 14:26:17

B U Y - TO - L E T Opinion

Understanding the U-turn on EPCs


he Government has made a U-turn on various net zero policies, including the proposed requirement that all rental properties must have an Energy Performance Certificate (EPC) rating of at least Band C. To summarise, the Government is slowing down the phase out of gas and oil boilers to 2035 instead of 2026, and delaying the ban on new petrol and diesel cars from 2030 to 2035.

On announcing the U-turn... Rishi Sunak explained that he was concerned about how achievable it was for all properties to meet the Band C rating minimum” The proposal that rental properties must have a Band A, B or C-rated EPC by 2028 is no longer on the cards. It must be emphasised that this date – and the previous 2025 date for new tenancies – was never set in stone, and was always just a proposal. However, what the proposed Band C rating dates did was bring to landlords’ attention that they must upgrade their property, although they had a few years to do it. These proposals were first mentioned in 2020-21, and we have been waiting since then for final clarity on the date. The first inclination that the date may be dropped or pushed further into the future was in August, when Housing Secretary Michael Gove said the Government was asking “too much, too quickly.” He suggested that the pace of reforms expected


from landlords should be relaxed. On announcing the U-turn, Prime Minister Rishi Sunak explained that he was concerned about how achievable it was for all properties to meet the Band C rating minimum. He said that scrapping the EPC requirement would relieve pressure on both consumers and manufacturers.

Inefficient housing stock According to the latest Government statistics, EPCs cover around 60% of the housing stock in England. There are two measurements within the EPC, the Energy Efficiency Rating (EER) based on estimated fuel costs of the property, and an Environmental Impact Rating (EIR) based on CO2 emissions. The vast majority of newly built homes are energy efficient in terms of both lower fuel costs and carbon emissions, as shown by the EPC ratings for April to June 2023.

The numbers Looking at the EERs for existing dwellings: 48% are Band C, 4% are Band B, 37% are Band D, 8% are Band E, and 2% are Band F. And for new dwellings: 83% are Band B, 11% are Band C, and 2% are Band D. Meanwhile, considering the EIRs for existing dwellings: 33% are Band C, 6% are Band B, 39% are Band D, 17% are Band E, and 4% are Band F. For new dwellings: 78% are Band B, 13% are Band A, 7% are Band C, 2% are Band D. The problem lies with older property, although the figures are improving. In Q3 2021, 55% of existing homes were rated Band D to G, based on EER, a figure which sits at 47% now, and 65% were rated Band D to G on EIR, now 60%.

Home improvements This could be because there is a higher sample – all newly sold houses and rental properties must have an EPC –

PAUL BRETT is managing director, intermediaries at Landbay

but we also know that homeowners and landlords have been making home improvements. We conducted research in May which found that 65% of landlords surveyed have property rated Band D or lower. Of those, 34% intend to make improvements as soon as possible, while 39% will wait until nearer 2028. Only 4% said they won’t make any changes, while 22% would sell. We are in the process of carrying out new research to see how that mindset has changed now that there is no deadline.

Reform of EPCs There is also another angle to EPCs, with some questioning if they are fit for purpose. For example, we’ve heard about heat pumps being installed to replace gas boilers which have actually lowered an EPC rating instead of improving it, apparently due to outdated measurements. The Government published a comprehensive report earlier this year, ‘Mission Zero’, with recommendations as to how the UK can reach net zero greenhouse gas emissions by 2050.It stated: “Government must urgently reform EPC ratings to create a clearer, more accessible Net Zero Performance Certificate (NZPC) for households.” Just because there is no longer a deadline to improve energy efficiency does not mean we should ignore this. It gives landlords and homeowners breathing space to upgrade if and when they can afford to. A new date may well be mooted in the future, especially if there is a change of Government at the next election. This issue has not gone away, it has just been parked for the moment, and net zero by 2050 is still a Government commitment. ●

The Intermediary | October 2023

Buy-to-let_JBJOCRF.indd 30

17/10/2023 12:59:47

B U Y - TO - L E T Opinion

Not the end for net zero


ishi Sunak’s decision to scrap the 2025 and 2028 implementation dates for new Energy Performance Certificate (EPC) requirements for privately rented property was a clear case of playing to the gallery ahead of next year’s General Election. It was clear a long time ago that these dates were unworkable and unrealistic, based on a consultation launched nearly three years prior. To hit the proposed requirement of a minimum EPC Band C for new tenancies by April 2025 would have required thousands of properties to be upgraded each day. Without the right infrastructure, skills, resources and legislation, it clearly wouldn’t have happened. That is a message we have relayed to Government for some time. We are pleased they have listened.

Coherent plan What the Prime Minister’s announcement does give us is breathing space, and time to develop a proper cohesive and coherent plan to upgrade all property. This should be cross-party and involve the industry, including landlord groups, the supply chain, lenders and technology providers, among others. Those who think his statement signals the end of net zero are plainly wrong. The Government has a legally binding commitment to hit net zero by 2050, and housing will need to be a key area of focus if we have any chance of hitting that target. The UK’s housing stock contributes approximately a fifth of the country’s carbon emissions. A large proportion of our homes are poorly insulated properties constructed pre-WWII. It’s a momentous challenge, but one that is not insurmountable. At Paragon, the Government’s announcement has no impact on

our strategy to support landlords to upgrade their homes and add more energy-efficient stock to the rental sector. Our experience is that landlords are committed to supporting the net zero target, but were worried about being hit by poorly planned legislation, causing some to either sell property or consider leaving the sector. Many have already started to take action to prepare for a net zero future. We recently surveyed more than 1,200 landlords, and six in 10 said that even the mere threat of the implementation of the Government proposals was influencing their business strategies. We found that 15% have already purchased property with an EPC rating of Band A to C, while a further 10% have acquired D-rated property with a view to upgrading. Of course, operating in this uncertainty is not healthy for any business, and nearly one in 10 was in the process of selling property that would be too expensive to upgrade. Substantial improvements have been made to the energy performance of privately rented homes. The number of properties with an Energy Performance Certificate of between A and C in England has risen by 165% over the past decade, to 1.92 million. Additionally, the number of homes rated D and E have fallen by 21% to 2.18 million, while those rated G – which is not legal under current rental legislation – have reduced to 54,000. The private rented sector (PRS) now outperforms the owner-occupied sector for energy performance, with 44.5% of stock between A and C, compared with 42.9%. Lenders have encouraged landlords to buy more energy-efficient homes through preferential pricing. Lending on our own green buy-to-let products increased by 30.1% during the first half of the financial year, to £457.8m. What does this tell us? That landlords were already committed to

RICHARD ROWNTREE is managing director of mortgages at Paragon Bank

adding more energy-efficient homes to their portfolios, even before the Government mooted its consultation, as well as upgrading property. Our survey showed that the main drivers for doing so were to attract better tenants, to reduce energy costs for their tenants, and to increase the capital values of their homes.

Turbocharged upgrades Landlords did this largely without any support infrastructure; they did it off their own back. Imagine what they could achieve if the framework was put in place to enable them to turbocharge these upgrades – if the Government invested in developing the skills required to upgrade homes, as well as technology innovation, if it gave better guidance on what technologies were suitable, if it encouraged investment through tax incentives. For lenders and brokers, as well as the varied list of businesses that operate in the growing green energy sector, opportunities exist in providing such support, but it’s more important than a business transaction. The PRS is an essential component of the UK’s housing infrastructure, so the challenge of making millions of homes fit for a sustainable future is an issue impacting a broad mix of stakeholders, not least the diverse population of tenants. The Prime Minister’s decision to scrap the 2025 implementation dates does not derail the move towards net zero in the PRS. It simply gives us the breathing space to develop a proper strategy for success. ● October 2023 | The Intermediary

Buy-to-let_JBJOCRF.indd 31


17/10/2023 12:59:47

Meet The BDM Coventry for intermediaries

The Intermediary speaks with Gina England, BDM at Coventry for intermediaries

How and why did you become a business development manager (BDM)? Building and maintaining relationships has always been where my passion lies. When I first started my financial career, I was in a commercial banking role, but after Covid-19 I wanted to try something slightly different. The BDM role was the perfect fit for me! 32

I love connecting with our intermediary partners and helping them understand who we are as a lender.

What brought you to Coventry? I love that we’re a big lender with big ambitions, yet we still maintain our building society values. Our purpose drives us to make changes which have a positive impact on the lives of our members, colleagues, and the broker partners we serve.

The Intermediary | October 2023

Meet the BDM x2_JBJOCRF.indd 32

17/10/2023 14:15:38


What makes Coventry for intermediaries stand out from the crowd? The one thing brokers should know is that when we say we’re Coventry for intermediaries, we really are for intermediaries. Our aim is to make dealing with us as simple and straightforward as possible. It starts from the very first point of contact – it’s so easy and quick to get through to us by either phone or live chat, and the support team is super knowledgeable. Brokers love that we try to give as much notice as we can before making any product changes. We don’t dual price, and we always try to ensure clients are directed back to their brokers in the first instance. I’m proud to represent a lender that offers all this and more!

What are the challenges facing BDMs right now? I can’t speak for all BDMs, but the main challenge I face is keeping up to date with an ever-changing market, and the impact that can have on borrowers. However, while it’s a challenge it’s also a massive interest of mine – I really love understanding the economics behind the market, and I like to stay up to date with the daily changes. In fact, the entire BDM team at Coventry takes pride in being industry experts. We want to make sure the time we spend with brokers is useful, and we know that understanding the insand-outs of the market makes a huge difference to our meetings.

What are the opportunities for BDMs? The market has been fairly turbulent for the past few years, and it feels like things are constantly changing. That leaves brokers facing different

challenges when they’re looking to place cases. This brings so much opportunity for BDMs, who can be in touch with brokers and update them on our criteria. One thing I’ve learned since joining the team at Coventry is that even the most experienced brokers are open to learning about new things when talking to me, and end up placing the case with us that they thought was going somewhere else!

How do you work with brokers to ensure the best outcomes for borrowers?

Brokers love that we try to give as much notice as we can before making any product changes. We don’t dual price, and we always try to ensure clients are directed back to their brokers in the first instance”

One of the main things which helps both borrowers and brokers is getting the right decision in a timely manner. I know I’m experienced enough to give a quick decision on a case, so brokers will have a good idea if it’s one for us or not. From there, I’ll be on hand to support the case right from agreement in principle (AIP) to offer. I also have a good relationship with other BDMs, so I can point brokers in the right direction if it’s not one for us – obviously we’d love to take every case, but if it’s not something we can help with I still want to do all I can to help brokers help their clients.

What advice would you give potential borrowers in the current climate? We are a nation of homeowners – and while nobody loves having a mortgage, most of us will need one to have a foot on the property ladder. The interest rates over the past few years have been historically low, and while it’s a shock to see how they’ve increased, the most important thing is understanding if the rate you’re being offered is affordable for you. Brokers are the experts who can really help with this. ●

The Coventry

Established 1884 Products ◆ Residential purchase and remortgage ◆ Buy-to-let purchase and remortgage ◆ Portfolio landlords ◆ Offset ◆ Interest-only ◆ Interest-only offset ◆ First-time buyer ◆ Green further advance Contact 0800 055 6618 georgina.englandBDM@thecoventry.

October 2023 | The Intermediary

Meet the BDM x2_JBJOCRF.indd 33


17/10/2023 14:15:39

B U Y - TO - L E T Opinion

HMO opportunities that are shaping the landscape


ver the past decade we’ve seen demand for houses in multiple occupation (HMOs) increase. This is backed up by data from industry body UK Finance, which shows that mortgage lending to buy HMOs more than doubled, from £310m to £699m, between 2018 and 2022. Although the upfront costs for HMO landlords can be high, the growing demand for these types of properties from renters can help landlords looking to enhance and diversify their portfolios, while mitigating the risk of void periods. From our conversations with brokers and the landlords they work with, we’ve identified a handful of trends we expect to shape the HMO landscape for the rest of this year, and into 2024.

Limited company HMO mortgages In the current market environment, mortgage brokers should anticipate more borrowers enquiring about limited company HMO mortgages. In many cases, it can be the logical course of action for landlords, as holding property in a limited company offers a range of tax benefits. A recent example we saw at Kent Reliance for Intermediaries (KRFI), which is part of OSB Group, was a client looking to purchase their first HMO via an inter-company loan.


The client, a director of a limited company, already had two singlefamily household rentals, but their long-term ambition was to diversify their portfolio in order to include multi-unit properties. Despite the applicant having a complex limited company structure and no prior experience with HMOs, it’s a scenario that the underwriters at KRFI had seen before. Brokers should be assured that in most scenarios it is possible to reach a solution, even if the case falls outside of standard criteria, especially if you have a good relationship with a lender that understands this area of the market extremely well.

Navigating regulations As we’re all well aware, the Government has now scrapped the planned Energy Performance Certificate (EPC) legislation for rental properties. But while the policies continue to change, properties with higher EPCs will remain in demand, simply because they cost less to heat and light. Our ‘Landlord Leaders’ research, carried out in 2022, found that the majority of landlords appreciate this logic, with 68% saying they had already or intend to upgrade their properties ahead of any formal changes to EPC requirements, many as part of their existing maintenance programmes. Ultimately, brokers and lenders should continue to consider the value of retrofitting properties with their

ADRIAN MOLONEY is group intermediary director at Kent Reliance for Intermediaries

clients, despite the Government’s unexpected change in policy.

One-size-fits-all is outdated You do not have to be a property finance expert to understand the importance of a clean credit score. Recently, a broker explained to me that a high net worth landlord was finding it challenging to remortgage an existing HMO property. In this case, the landlord had missed one buyto-let mortgage payment, which then had an adverse effect on their credit report, and in turn restricted their refinance options. Our experienced business development manager (BDM) was able to prove the arrear was due to an administrative error. An agreement in principle was submitted, and the landlord was able to refinance. This just goes to show that a one-size-fitsall approach does not always drive the best client outcomes.

Advice advantage Of course, with the current market volatility showing no signs of ending anytime soon, brokers will continue to caution HMO landlords to ‘not go too big, too soon’. Buying a new property is a huge commitment, and as with all major financial investments, it’s important to seek the advice of an expert before making any decisions. Using a seasoned broker who has in-depth knowledge of the sector is always going to present clients with an added advantage. ●

The Intermediary | October 2023

Buy-to-let_JBJOCRF.indd 34

17/10/2023 12:59:49

B U Y - TO - L E T Opinion

No tenants, no problem


iven the financial pressure that some landlords are facing due to rising rates, they are likely to start looking for ways to maximise returns across their property portfolio, if they haven’t been doing so already. One effective strategy for achieving better returns can be to renovate or upgrade the properties within their portfolio. Capital raising against one or more of their properties can be an effective means to raise the funds needed for renovation. Whether it’s an extension to add another bedroom, an upgraded bathroom or kitchen, converting the property into a house in multiple occupation (HMO), or a complete refurbishment from scratch, these changes could potentially help boost a landlord’s yield.

Void opportunity Similarly, adding a new purchase to the portfolio may require substantial renovation work before tenants can be moved in. An obvious time for landlords to carry out an upgrade might be at the end of a tenancy before new tenants move in, or immediately after the property has been purchased. Given the scale of the refurbishment, however, it may require the property to be vacant for a set period, creating a rental void. For some lenders, rental voids can put a spanner in the works when it comes to capital raising, but there are specialist lenders, such as ourselves, where potentially, no tenant means no problem. As long as the client can provide evidence of having sufficient rental income in their bank account to cover the void period, and the works are completed over a set period of time and take no longer than three months, rental voids don’t need to hinder an investor’s plans.

MAEVE WARD is director of commercial operations at Mercantile Trust

Rental voids don’t need to put a spanner in the works

There are several reasons why a landlord might consider investing in renovations in today’s market. We have seen record high rents over the past 12 months – with annual rental growth of 10.5% for new lettings, according to Zoopla’s latest Rental Market Report. Yet, in some cases, landlords may not be significantly better off, due to the substantial increase in the Bank of England’s base rate over the past 12 months, and subsequently their buyto-let (BTL) mortgage rate. Even those landlords who have not yet had to remortgage onto higher rates will potentially be evaluating their portfolio and looking for ways to make the highest return.

No longer ‘making do’ The rental market has undergone significant changes over the past couple of decades. Recent research from Zoopla found that 42% of adults aged 18 to 39 who do not own a home have abandoned the idea of buying one in the next 10 years, including 38% of those earning £60,000 or more. This segment of renters is potentially no longer ‘making do’ with a temporary home while they save for a deposit, but rather looking for a longer-term rental to call home. While rental demand may be high, and in some cases, competition for

properties fierce, many tenants still have high expectations and are seeking quality, especially in the highend market. Research from Legal & General last year found that renters are willing to pay a 13% premium for a low-carbon property, for example. Up until Prime Minister Rishi Sunak scrapped the deadline for energy upgrades to rental properties, such improvements were at the forefront of some landlords’ minds, and many might still be heading down this road, either in anticipation of a U-turn or to save on bills. There may also be those landlords looking to take advantage of the Government’s boiler replacement scheme and incorporate this into a wider refurbishment of a property.

Refurbishment capital Depending on the scale of the upgrades, clients may not need to borrow huge sums, potentially making bridging a suitable option. For experienced investors, raising capital through their existing portfolio, either to purchase a new property or refurbish an existing one, can make financial sense. Given the size and complexities involved in some investors’ portfolios, however, this will always require a specialist approach, looking at all of the finance options available. Now more than ever, lenders in the bridging and buy-to-let market need to take a more personalised approach and recognise that there are instances where rental voids can lead to longterm gains for investors. ● October 2023 | The Intermediary

Buy-to-let_JBJOCRF.indd 35


17/10/2023 12:59:51

In Profile. MFS

The Intermediary speaks with Mike Cook, chief mortgage officer at MFS, about the growth of the buy-to-let proposition, and the importance of variety in specialist lending


ike Cook, chief mortgage officer at MFS, started his career in the tech field, moving into mortgages at a fledgling Kensington Mortgages. Since then, his experience has spanned specialist lenders to prime, with firms such as ING, Bank of Ireland, and Vida Homeloans, before arriving to build out the buy-to-let (BTL) proposition at MFS. The Intermediary sat down with Cook to discuss the importance of innovation, as well as MFS’ strategies for sustainable growth.

The case for difference

Cook has built a clear appreciation for the diversity of the UK lending ecosystem, and the need for lenders of all shapes and sizes. He says: “If you look at a lot of the largest specialist lenders, they’ll typically have very similar funding lines and risk appetites. This means a lot of their credit appetite is very similar, and they often have the same systems. This can become more a choice of brand. “With some of the smaller lenders, they are just more specialist, doing more complex deals, not bound by their tech or lending rules so much, and able to approach things somewhat differently – firms like MFS.” For MFS, the goal has always been to have diverse funding lines, allowing for greater flexibility and security. This is only more important in the context of the current market. “If you rely on one funder, and that funder gets cold feet with a particular economic event, all of a sudden you’ve got to stop lending,” Cook explains. “We’ve always been very careful to make sure we’ve got plenty of capacity and plenty of different funders. It gives you resilience and, in turn, that gives you longevity.”

The expansion of buy-to-let

MFS uses this diversity and flexibility of funding to handle complexity, and nowhere is this more 36


prevalent than in BTL. The lender completed its first BTL loan in December 2021, following a soft launch in October, and received more than £100m-worth of enquiries in the first two months. In the almost two years since, the buy-to-let market has continued to face ups and downs, which have perhaps shifted borrowers’ priorities. Cook notes that in turbulent times, although rates are always important, there are various other factors – certainty, funding amounts, speed – which emerge as part of the puzzle. He confirms that the firm has been able to move with customers’ changing needs: “We’re very comfortable with huge loans, with putting more than one property on the loan, we may split or transfer cases between bridging and buy-to-let, defer interest to aid a landlords cashflow. “Whereas others might have similar methodologies to one another, we tend to look at the landlords’ experience or wider wealth. By using different tools and techniques, you can actually lend a lot more. We tend to look a little differently

The Intermediary | October 2023

Profiles and QAs_JBJOCRF.indd 36

17/10/2023 14:25:44


– such as deferring some interest until the loan redeems, which means the rent income over the 2-year tracker term can now support a larger loan – we are happy to allow flexibility if somebody knows what they’re doing.” While reports abound of landlords leaving a difficult environment or stuck on a lender’s standard variable rate (SVR) as rent doesn’t support a higher interest loan, the real trend seems to be a shift away from single-property investors, and toward portfolios and limited companies. Naturally, this has made for increased complexity – or from MFS’ perspective, a greater chance to find innovative solutions. Cook adds: “It’s been a tricky time, but last year was a boom year for buy-to-let. Yes it’s going to be lower this year, but things will recover, and people will realise that 3% rates are not realistic in the current environment. There’s a little bit of optimism coming in – rates will start to trim down a little bit, and we’ll see landlords regaining confidence and appetite in the coming months.”

The rate war

For MFS, remaining competitive does not mean fighting for the lowest headline rate, but providing a service and lending approach that is fit for a complex market. “That flexibility was always part of the proposition from day one,” Cook explains. “But that means your cost of funds can be higher. You’ll find that with a lot of complex, nonbank lenders. It’s not in our DNA to go and fight on really low rates – that’s not our model. What we do is help people the best we can and give them an excellent service while doing it. “So, the flexibility of our underwriters and the empowerment that they have is very different to larger lenders, which tend to be very risk averse. It’s refreshing and allows us to approach buy-to-let in a different way.” Of course, to make things like the income coverage ratio (ICR) work in the current environment, borrowers need lower rates. This is where MFS’ flexible approach can further help – for example, while higher fees might make some people unsure, this is about providing choice within the complex economics of the product, and working out how the maths works for the individual consumer. This is also where the firm’s online calculators can come in particularly handy. “We’re not forcing anyone into a big fee, because it won’t be for everybody,” Cook explains. “But there are certain cases where it can work, so we’ve changed our online calculator to reflect this. Paying a little bit more on a fee to reduce the rate might allow you to do what you want to.”

The role of tech To handle find the most effective deal for their borrowers, brokers deal directly with MFS’ sales and underwriting teams, including being able to call and discuss cases throughout the process. The firm also underwrites upfront on BTL, to give as much certainty as possible. The human touch is complemented by a ‘hybrid’ approach to utilising technology, Cook explains: “When I came in, it was all pretty manual. What we’ve tried to do is bring in tech that will make us scalable and make the underwriter’s job easier. We’ve actually taken a system made for brokers and turned it into a lender system, as well.” This system uses application programming interfaces (APIs) to connect with credit referencing agencies, Land Registry, fraud detection and antimoney laundering (AML) tools, as well as running certain rules to aid the underwriting process. However, he adds: “The cases we take on are typically more complex, and you can’t go into an automatic yes or no, so we do still deal with the broker how they want – there’s no set application form, we’ll get the information we need and we will put that into our system and produce all the necessary documentation. “Now we’re bringing in a servicing platform as well, because I am a big fan of in-house servicing. You might come up with the best product in the world, but if your servicer can’t handle it, then you can’t do it at the front end.”

The message to brokers

Part of MFS’ growth strategy includes expanding its reach within the intermediary community. “One thing we’ve never really done is expand into the wider networks and mortgage clubs that are out there,” Cook says. “We’ve often been approached, and we’ve now got a good-sized sales team on the road and on the phone, so there’s a big growth opportunity for us to get the word out.” This strategy includes hosting events, putting out content and fostering the discussion of certain topics that help the broker. Finally, he concludes: “We are probably one of the only specialist lenders that hasn’t ever stopped lending, throughout its history. To have different optionality with multiple funding lines can have its challenges, but it allows us to give brokers confidence and certainty that we’ll hold the rate and that we’ve got availability. “We want to give certainty upfront – when a broker recommends MFS – that there’s a retention proposition. We want to continue growing as a business, expand some of our propositions to appeal to a more customer groups, and be more competitive as and when we can be.” ● October 2023 | The Intermediary

Profiles and QAs_JBJOCRF.indd 37


17/10/2023 14:25:44

B U Y - TO - L E T Opinion

EPC upgrade plans are off the agenda – for now…


n politics, timing is everything. Prime Minister Rishi Sunak will have been cognisant of that when he ‘watered down’ the Government’s net zero pledges last month. The trouble is, while most people support the idea of decarbonising the economy, the dissenters could never accept the costs this policy would pile on ordinary households. With the Conservatives trailing Labour in the polls by some margin and an election around the corner, the timing of the announcement certainly raised an eyebrow or two. So, too, did Sunak’s insinuation that he had permanently scrapped plans to force landlords to bring their properties up to a minimum Energy Performance Certificate (EPC) rating of Band C. The irony is that, despite all the noise surrounding this piece of proposed legislation, it was never actually the Government’s to scrap in the first place. The Minimum Energy Performance of Buildings (No.2) Bill (MEPB) was a private members’ bill (PMB), meaning it was not part of the Government’s planned legislation. As history tells us, PMBs rarely make it onto the statute book. The fact that it spent nearly a year and a half at the second reading stage – the second of 12 in the legislative process, I might add – says everything about how much backing it got from the Government, or indeed any of the opposition parties. In fact, the bill spent so long in political limbo that it was only a ma er of time before it either ended up on the scrapheap, or at the very least, was pushed back way into the future.


DAVID WHITTAKER is CEO of Keystone Property Finance

Making a move Despite the uncertainty, landlords have been taking action, even though they have never been sure whether or not MEPB would be introduced at all. Data from our past securitisations show that 40.1% of our book had an EPC of at least Band C in January 2021. By the end of May this year, in our most recent securitisation, that had risen to 52.6%. That’s an enormous movement in such a short space of time, and I have no doubt it was driven primarily by MEPB. I expect that number to rise even higher over the coming years, despite the fact that landlords will no longer be forced to upgrade their properties. Why? Because it is the smart and commercial thing to do. Landlords with energy efficient properties not only make themselves more a ractive to prospective tenants, they also future-proof their portfolios against future changes in legislation.

Changing tides Sunak has never struck me as a true believer in the net zero cause, despite what he may say in public. However, Labour is a different animal. While we don’t know the any details of Labour’s election manifesto, quotes from key front-benchers, including Shadow Energy Secretary Ed Miliband, suggest the party will hold firm on its net zero plans. Therefore, we cannot rule out the EPC legislation coming back in a modified form under a Starmer-led administration. Anyone who knows me knows I am a strong supporter of the idea of decarbonising our nation’s ageing housing stock. A er all, my lender was one of the first to launch a green mortgage range, and we have been

carbon neutral since 2021. However, if Labour does decide to resurrect the MEPB in a revised format, I hope the party takes the time to iron out the bill’s many weaknesses. My colleague Elise Coole addressed those shortcomings in a previous article for this very publication, so I won’t go into them in depth today. However, for this type of legislation to work, incentives are key. The trouble with the old bill was that it was all stick and no carrot.

With the Conservatives trailing Labour in the polls by some margin and an election around the corner, the timing of the announcement certainly raised an eyebrow or two” If the Government wants landlords to improve the energy efficiency of their properties, it has to meet them halfway or be doomed to fail, as landlords will simply sell up. That would be a catastrophe for tenants. Labour would also be wise to consult with the industry before embarking on such a sweeping piece of legislation to avoid such an undesirable outcome. I’ll be by my phone waiting. ●

The Intermediary | October 2023

Buy-to-let_JBJOCRFFB.indd 38

17/10/2023 16:26:46

B U Y - TO - L E T Opinion

The momentum for ‘going green’ is still real


arlier this year, the newly named Department for Energy Security and Net Zero announced the deadline to improve rented properties’ energy efficiency would be put back to 2028. Weeks later, Rishi Sunak announced further delays to alleviate the growing burden on landlords’ pockets. The policy, which was projected to take effect in 2025, requires private landlords to upgrade homes to meet a minimum Energy Performance Certificate (EPC) of Band C for all new and existing tenancies. The delay is welcome news for landlords, who face having to invest thousands of pounds in double or triple glazing, wall and loft insulation and switching heating systems from gas to electricity. The National Residential Landlords Association (NRLA) suggested that the original decision to postpone was down to there being too little clarity on what upgrading homes looks like. Indeed, the long-awaited response to the Government’s September 2020 consultation ‘Improving the Energy Performance of Privately Rented Homes in England and Wales’ remains unpublished. Ben Beadle, chief executive of the NRLA, has been vocal on the subject, urging the Government to take “a smarter approach with a proper financial package if we want to ensure improvements to the rental housing stock.” As he points out: “The proposals fail to accept the realities of different property and rental values across the country, and that the private rented sector contains some of the most difficult to retrofit homes.” It’s an interesting time for those involved in the UK’s drive to net

zero. After a huge push towards understanding and combatting climate change in the run-up to the UK’s COP26 global conference held in Glasgow in November 2021, momentum has slowed in the face of inflation and rising interest rates, Consumer Duty, and a host of other issues. The war in Ukraine and the energy crisis that it precipitated put a very different spin on our reliance on fossil fuels, most of which are supplied by those on the continent. Inflation over 10% for much of 2022 and the start of this year has also refocused people’s priorities from the green agenda and back onto the business of affording to keep roofs over their heads. It is increasingly dividing the country’s voters and becoming a party-political hot potato. Some have argued that the byelection in Uxbridge earlier this year – triggered by Boris Johnson stepping down – was lost to Labour because voters were up in arms about London’s extending ultra-low emission zone (ULEZ). Tony Blair, former Labour Prime Minister, said in July that the Government should be wary of asking the public to do a “huge amount” to support the transition to net zero, recognising this shift in priorities. The harder right in the Conservative Party is reportedly putting increasing pressure on Sunak to row back on some of the more unpopular and expensive green policies. Energy Secretary Grant Shapps, meanwhile, is for “maxing out” our oil and gas reserves in the North Sea. To top it all, the UK will be heading to the election polls in less than 18 months’ time – how the green agenda fits into the battleground for Westminster over the coming year is going to be key.


The commitment to cut carbon emissions is written into legislation. And, in spite of pushing back energy efficiency measures for private rented sector homes, it is coming.

Not all the same The UK property market is hugely diverse in age, tenure, and construction, and is subject to all manner of location variations. A third of it is held by private landlords. This latest rollback is sensible, it will give policymakers and landlords time to consider how to make the right improvements based on each of those factors. Having access to granular data to inform these decisions is paramount, and we cannot be complacent about gathering it now. With the evidence of climate change all around us, there are also material risks for the housing market that have little to do with energy efficiency policy measures. Flood risk, soil shrinkage, extreme heat – these environmental factors all take a toll, and not all in the same way. Investors and mortgage lenders are acutely aware of the financial implications for asset security and capital value as a result. The momentum for ‘going green’ is still real, and it will become even more so as lenders understand the capital savings that understanding their exposures on back-books and originations will change, in light of knowing how well properties perform So, while the mood music may sound different, the underlying refrain chimes on. Even if the deadlines to meet net zero milestones drift, tackling the resilience of our housing stock must remain a priority for today. ● October 2023 | The Intermediary

Buy-to-let_JBJOCRF.indd 39


17/10/2023 12:59:52

B U Y - TO - L E T Opinion

What to expect in the


t’s no secret that the private rental sector (PRS) needs to operate more effectively for all parties to thrive. Although we’re on the cusp of reform, everyone is feeling the pinch.

How did we get here? For years, investors in the PRS benefited from record-low borrowing costs driving investment among existing landlords and encouraging an influx of first-time landlords to join the market. Rental demand rose as landlords provided homes to a widening demographic. Rentals are no longer just for students and young professionals, but increasingly families and older people, too. Around 4.6 million households in England are privately rented – 19%


of all properties – while UK Finance data suggests that there are just above two million buy-to-let (BTL) mortgages currently outstanding. Over recent years, there have been increased calls for the Government to intervene and create a fairer sector. The proposed reforms are sensible – for example, focusing on the quality of rented properties. However, the lack of a joined-up strategy from Government has led to confusion, and not improvement. Landlords could cope with this uncertainty while other factors were more stable, but as interest rates rose, the ability to withstand the uncertain environment of the private rental sector has changed drastically. We experienced a glimmer of hope in September, when the Monetary

Policy Committee (MPC) kept Britain’s base rate at 5.25% after 14 consecutive rises in just two years, but that will be cold comfort to both landlords and their tenants at the sharp end of the cost-of-living crisis. That isn’t to say that there aren’t opportunities in the sector, but they come with challenges, especially with taxation changes that hit higher earners and those who let via a limited company hardest. Investing in the PRS is not for the fainthearted. We’ve seen the top rate tax threshold drop from £150,000 to £125,140, and the Capital Gains Tax (CGT) annual exemption cut from £12,300 to £6,000. In April 2024, it will drop again to £3,000. This has been a huge blow to landlords, alongside the incremental

The Intermediary | October 2023

Buy-to-let_JBJOCRF.indd 40

17/10/2023 12:59:58


B U Y - TO - L E T Opinion

next 18 months tax changes introduced since 2017 which mean they have been unable to deduct mortgage interest payments for tax purposes. Landlords have reacted to this in different ways, potentially reducing the amount they spend on maintenance or increasing rents, thereby impacting tenants’ personal budgets.

Vital for an effective future However, while dramatic headlines in recent months have claimed that the buy-to-let market is all but dead, this is not the case. While it is more difficult than it was, our data shows that claims of market collapse are somewhat magnified. Buy-to-let lending in the first half of 2023 was £15.2bn, around 45% weaker than the same period a year before; however, the overall stock of properties has remained broadly stable in recent years. Looking ahead, the market currently expects the Bank of England’s base rate to be near its peak, if it’s not there already. At the very least, we are hopeful that the cycle of mortgage rate increases is mostly behind us. However, the next six to 18 months will continue to put the UK’s approximately 2.3 million landlords to the test, as the sector works to improve standards and progress with the implementation of the Renters Reform Bill. The Government recognises that a thriving private rented sector is vital to ensuring an effective housing market, as well as the role of this sector in supporting labour mobility, and the need for a balanced market between landlords and tenants. There’s consensus within the sector and in wider society that reform within the PRS is urgently needed, but getting it wrong carries a high price. We don’t want to drive out good landlords from the market, when they’re needed now more than ever.

So, what can brokers do? Markets operate on confidence – that is to say, people tend to operate

DAMIAN THOMPSON is director of landlord at The Mortgage Works

emotionally rather than rationally. It’s a duty on all of us to ensure that our landlords get the right facts at the right time, and make the right decisions for them. Brokers play a key role in the new environment. You can help educate landlords on the right purchases for them and help to spot opportunities in a falling-price market. Some landlords may wish to remortgage to improve their cashflow, while others would be keen to consider limited company status. That doesn’t mean it will be simple. No business would find it easy to operate under this level of regulatory uncertainty, particularly when having to make vital investment decisions such as refurbishing a property. This is how The Mortgage Works (TMW) can help. As part of the world’s biggest building society, TMW is unlike any other lender. As a mutual, we work to champion the voices of unheard players and we can make a difference by raising awareness of the needs of landlords and of tenants. The sector is adapting rapidly and it’s critical to our mutual success to stay ahead of the curve, whether that be via delivering great service, understanding regulatory change, understanding the huge implications of technological change for us all, or understanding the needs of landlords better. ●

Markets operate on confidence – that is to say, people tend to operate emotionally rather than rationally. It’s a duty on all of us to ensure that our landlords get the right facts at the right time and make the right decisions for them”

October 2023 | The Intermediary

Buy-to-let_JBJOCRF.indd 41


17/10/2023 13:00:00

The Interview. LifeSearch

Jessica Bird sits down with Debbie Kennedy, chief executive officer at LifeSearch, to discuss the need for innovation and purpose within the protection market


ith over 30 years working in the insurance market, first as an underwriter gaining the grounding of a deep understanding of risk and products, then on through a career spanning firms such as Capita, Swiss Re, Axa, LV= and Royal London, it is clear why Debbie Kennedy was appointed to take over from LifeSearch’s founding CEO Tom Baigrie. Two years on from her initial appointment – and a turbulent, challenging two years, at that – The Intermediary caught up with Kennedy to discuss the importance of purpose, the need for innovation, and what might be in store for the protection customer of the future.

Societal purpose at the core

Looking back on her career prior to joining LifeSearch in November 2021, Kennedy says: “I’ve been fortunate to work with a number 42

of great companies in a range of sectors. For much of it, it was not just about manufacturing products, but really starting from first principles and creating new propositions, with great access to global knowledge, talent and research.” She adds that many of her memorable career moments have been about bringing new and innovative protection ideas to the market – whether in the UK or overseas. “The one thing I hadn’t done was work in distribution,” Kennedy continues. “I knew I wanted to do that. It almost feels as if it’s the closest you can get to the customers. “I started from the very strategic types of developments, to manufacturing and creating products, then servicing them, but had never worked in distribution as an intermediary. “This almost felt like that last mile – the closest you can get.” When Kennedy first started out in her career, it was “just about getting a job and earning,” for many people. However, at a time before it became widely popular to equate work with purpose, she found herself aligning the two. “I realised the reason I was staying around in protection was that I was looking for a purposedriven role,” she explains. “No one spoke like that in those days – it was all about career and salary. So, without realising I was being purpose-driven, I was becoming fascinated with the insurance world.” For Kennedy, entering into a career that provides enrichment and value was in part a question of working for the right businesses, but also a sense that the product itself served a clear positive impact. “Protection is a safety net for customers – it has a societal purpose,” she says. Her choices as the years progressed reflected this underlying need to search for and support the societal good provided by protection. This meant leaning more towards the mutual model, for example. Kennedy says: “Why, then, LifeSearch? You could work for a bigger intermediary, one that’s focused on process, but the thing that attracted me was the purpose. It was set up as a way to make protection more accessible for customers, at a time when you could only really buy protection if you had an [independent financial

The Intermediary | October 2023

Interview_JBJOCRF.indd 42

17/10/2023 15:01:50


adviser (IFA)] and you either went to their office or they came to you. Either that, or you went to a bank and possibly didn’t get served very well. “The whole idea of LifeSearch was to get access to quality advice and care, and to be able to do it over the phone. That ethos of providing access for customers, and doing it with quality and care, has prevailed, and that’s what attracted me.” With this focus on customer solutions, Kennedy says that the new Consumer Duty regulations tapped into something that was already at the heart of the business. However, this does not mean the firm could rest on its laurels. “We thought, ‘this is great, this is what LifeSearch is all about’, so we weren’t particularly worried, but it would be wrong to say we haven’t had to do work,” she explains. “What the [Financial Conduct Authority (FCA)] has been really clear about is that it wants to see evidence of good customer outcomes. We pride ourselves on being ‘customer obsessed’, but that doesn’t necessarily mean we had all the evidence at hand.”

Back to first principles

LifeSearch spent a lot of time in the run up to the new rules examining what a good customer outcome really looked like, working with a reinsurer and its insurer partners to understand and benchmark what good quality distribution means, as well as what LifeSearch itself expects for its own customers. “The other piece of work we’ve done is around existing customers,” Kennedy adds. “The FCA is clear that this is about an ongoing duty of care, not just the new business sale. It’s about being clear that the customer has got ongoing value from the product. “We put a lot of investment into existing customers, reviewing their solution and making sure it still suits their needs. “One of the things we’ve discovered from those conversations is that this is where some of that vulnerability has come to the fore. It was a great opportunity to make sure we are servicing existing customers. “We don’t think it’s a zero-sum game – it’s possible to offer good customer outcomes and be aligned with your business interests as well.” As someone who understands the important role played by protection, Kennedy is clear that the market must make sure to change with the times. She explains: “There’s a lot of stagnation at the moment in our sector, and it’s protection

We put a lot of investment into existing customers, reviewing their solutions and making sure it still suits their needs. One of the things we’ve discovered from those conversations is that this is where some of that vulnerability has come to the fore” providers, insurers themselves – a lot of them have decent businesses with decent margins, and actually that doesn’t lend itself to creating an industry that is being pushed to innovate. “Probably more worrying, it’s not being pushed to think about who the customer of tomorrow is, where they’ll seek out services, and who they’ll trust. “There’s a real need for innovation – there’s too many bottlenecks, old systems, legacy technology, all of which is stopping some firms from bringing new products to market.” Turning the lens on distribution, Kennedy argues that it can feel like the market can only do one thing at a time. She continues: “Either mortgages are flying high and brokers want to sell those, and there’s no time to think about doing protection, or you’ve got opportunities to offer holistic solutions and advice, but protection doesn’t really fit when there’s so many other things – such as investments, pensions – to think about. “What we really need to do is find a way for it to be easier for advisers and intermediaries to have these conversations, and also find a way for them to open up innovation and encourage providers to do things differently.” For this reason, Kennedy suggests that compliance – while of course serving an important purpose – can have unintended consequences which stifle innovation. The need to compare like-for-like in order to prove a solution’s worth means that there is little drive – and perhaps even tacit discouragement – around pushing into new product areas. “When you create something new, brokers say ‘looks great, but how can I recommend it when I’ve got nothing to compare it to’, so you always do what → you always do,” she explains. → October 2023 | The Intermediary

Interview_JBJOCRF.indd 43


17/10/2023 15:01:50


LifeSearch, however, is open for innovation – a matter which Kennedy has been vocal about since taking the helm. “I want to help insurers, reinsurers and new partners bring new offerings to customers, to really help create solutions for real customers’ needs,” she adds. “Otherwise, we’re in danger of not being there for existing customers, and not being there for the customers of tomorrow, as well.”

Digital leadership

Through the varied movements of her career, gaining insight into every element of the protection landscape, Kennedy says she has come to develop a “real curiosity for digital developments, technology and data.” So, as well as running protection businesses, she has also spearheaded technological change and digital innovation. At LifeSearch, this digital focus is, as Kennedy puts it, “really a customer strategy.” During the firm’s early years, its commitment to innovation was centred around providing advice over the phone, which 25 years ago was the height of progress. LifeSearch’s strategy of keeping ahead of the newest methods of supporting the customer has continued from there. “What we’re doing now is almost a natural extension of that,” Kennedy says. “What I’m looking for is just to be able to provide the right customer journey at the right time. We know that for some of our customers that will be digital, it will be online.” Much like regulation and compliance, however, a positive force for change and market improvement such as digitalisation can in fact have unintended consequences. Kennedy warns, then, that the market must work hard to ensure that embracing tech does not lead to a tendency to err towards more simple products, or worse, exclude more complex customers. “Our proposition is to be able to offer a blended hybrid solution,” she explains. “For those where it really suits them, we’ve got a straight through, online, ‘buy now’ journey where they can complete there and then. “We also have an ‘apply now’, where we take the details, provide some options, but make it clear that they will likely have to provide more information to insurers. They can still go and do that online. “But the most important thing is that, at any point in that journey, they can still step off the online process and talk to an adviser. 44

What we are seeing is different behaviours from customers. They value protection more, they get it, and although they are making hard household budget decisions, they will tend to keep it. Where it does lapse is where someone might have been sold something purely online, and they really don’t engage with it or get it” “We developed this to be seamless, to come in and out of that online journey and talk to an adviser if they need to.”

Missed opportunities

LifeSearch’s digital innovation begins right at the start of the customer journey, providing them with a tool called Your Needs, which starts with simple questions about dependants, outgoings, and mortgages, and provides an indication of likely costs. “This isn’t about trying to get them into a buying journey,” Kennedy explains. “Most of them simply don’t have a clue what they’re looking for. We know that one of the barriers to purchasing protection is that customers think it’s going to cost more than it actually does.” This is part of an ongoing effort to provide educational tools and dispel myths around affordability, and therefore capture opportunities to provide cover to those who need it – opportunities which might otherwise have been missed. Kennedy adds: “It’s also about making sure there are no dead ends in the customer journey. We want to capture those customers and help them get the right product, at the right price, at the right time, through the right channel.” This seamless digital journey is also a benefit to intermediaries. At a time when mortgage brokers are busier and under more pressure than ever, allowing for a simple, effective referral process might mean the difference between a customer getting cover, or being overlooked. “We know that there are not enough protection-backed mortgages being sold,” Kennedy explains.

The Intermediary | October 2023

Interview_JBJOCRF.indd 44

17/10/2023 15:01:50


“For intermediaries, that mortgage sale itself is quite onerous and demanding for the customer, and the last thing they want to do is then take them through a protection application. Some firms’ way to address that has either been to set up their own protection desks, or to signpost. “Unfortunately, I don’t think signposting is effective.” To combat this, LifeSearch aims to make it easy for intermediaries to hand over or bring the firm into the process, finding the best time to discuss protection without bombarding the customer too much.

Customer wants and needs

Following a turbulent few years, most notably due to the Covid-19 pandemic, Kennedy says customers are increasingly aware of the tenuous, potentially fragile nature of things like health and income. As a result, despite increased inflationary pressures and the ongoing cost-of-living crisis, protection conversations are still very much on the table. “They’re aware now that things might happen – like being put on furlough – that they’d never previously thought about,” Kennedy says. “They’re also facing into a high inflation period, for some of them for the first time ever. “Quite a number of potential customers will be coming off fixed mortgage rates, and people are actually very open to discussions about debt protection and building some resilience into their households. It’s incumbent on us to make sure we’re having those conversations. “To do that, using digital processes and data will help us show up at the right time, make it seamless, reuse information that the customer has already shared – we’re developing this now.” For Kennedy, one of the indicators of continued interest in protection – even at a time when most customers are looking for ways to trim their outgoings – are lapse rates. “LifeSearch has always been one of the leaders in persistency and quality of business, so we are not particularly seeing a trend of customers failing to maintain their policies,” she says. “What we are seeing, though, is different behaviours from customers. They value protection more, they get it, and although they are making hard household budget decisions, they will tend to keep it. “Where it does lapse is where someone might have been sold something purely online, and they really don’t engage with it or get it. In some of that type of brokerage there’s probably higher

lapses. It’s one of the downsides to quick and easy sales, sometimes – it doesn’t always help the customer understand the value of what they’ve got.” While the evidence largely suggests that customers still want protection, the economic situation has made affordability emerge as a concern more than before. “They want value, they don’t actually want something that’s cheap,” Kennedy clarifies. “They want something they’ve got real value for money for, and really importantly, which will pay out for them. “The trust that they are paying for something, and if they have to claim, it will be there – brand is important now.” In terms of product trends, LifeSearch has seen growing interest in income protection spurred on by the financial environment, while the backlogs and difficulties faced within the NHS have pushed more people into understanding the value to be found in private medical insurance. Kennedy asks: “There’s a customer need out there, but is everyone having the right conversations with those customers? “The ‘sell it cheap, stack it high’ approach will just end up in lapses. What’s really needed is more considered conversations.”

The year ahead

LifeSearch is looking forward to a period of growth on the horizon, with a particular focus on how to bring the next generation of protection borrowers into the market. “We’ve had very low growth, if any at all, in our market recently,” Kennedy says. ““One of the things we’re very focused on is looking at Millenials – a staggering proportion will not have life insurance or income protection. But they are the ones going from renting into mortgages, and probably starting families. There’s an absolute need there that is not being met, so we are looking at how to find those customers and bring them into the market.” One method she highlights us utilising the fact that customers engage with other brands – from banks to wellbeing and lifestyle services – to leverage embedded insurance and provide financial solutions. “What’s on the horizon for LifeSearch is really moving into some new customer segments, and offering our services to other intermediaries,” Kennedy concludes. “We want our offering to fit in with other models and help them offer protection in a way that suits their needs as well.” ● October 2023 | The Intermediary

Interview_JBJOCRF.indd 45


17/10/2023 15:01:50

UNDER SCRUTINY LESSONS LEARNED DURING THE FIRST MONTHS OF CONSUMER DUTY Marc Shoffman for The Intermediary The Financial Conduct Authority’s (FCA) flagship Consumer Duty rules were introduced to much fanfare by the City watchdog at the end of July. For months beforehand, the market was abuzz with a wide variety of reactions, from those stressed by the added work created, to others confident in their existing practices, and even those who failed, seemingly, to take the changes all that seriously. Across the board, the rules introduced a new environment in which regulated financial services firms must be open and honest, avoid causing foreseeable harm, and support clients to pursue their financial goals. The regulations have been in place for a quarter now, but despite this, intermediaries are yet to see much difference, which could mean they are comfortably compliant, or that the regulator has not got round to scrutinising their sector just yet.

What the rules mean Firms, including mortgage advisers and insurance brokers, must consider the needs, characteristics and objectives of their customers, particularly vulnerable ones, at every stage of the journey to deliver ‘good outcomes’. There are no specific definitions of what a good outcome is, but the FCA says firms should “put themselves in their customers’ shoes” when considering whether their communications provide the right information, at the right time,


to understand the product or service in question and make effective decisions. In one example, the FCA said some mortgage firms had risked leading borrowers into financial difficulty where ongoing payments are lower than the accruing interest, causing the outstanding balance to escalate. Under the duty, a firm will need to act in a way that avoids the foreseeable harm caused by an escalating balance and equip consumers to make effective, timely and properly informed decisions. Firms will also need to ensure the loan represents fair value for consumers. The Consumer Duty has to be applied in four areas: products and services; price and value; consumer understanding; and consumer support. For each of these, regulated firms must consider the profile of their customers and their objectives from application to when they actually take out the product, and throughout its lifetime. Firms will need to monitor and provide evidence if required from the FCA on whether those outcomes are being met. The rules apply to new products for sale or renewal from 31st July 2023, but will be extended to closed products from 31st July 2024.

Much the same For many intermediaries, the rules are pretty obvious, and largely just act as an extension of the pre-existing treating customers fairly (TCF) and mortgage conduct of business (MCOB) rules.

The Intermediary | October 2023

Feature_JBJOCRF.indd 46

17/10/2023 16:28:14

The difference now, however, is that everything has to documented, lest the FCA should ask for evidence of how firms are complying with the Consumer Duty and ensuring their customers are getting the best outcomes. Many brokers, it seems, have been relaxed about the rules so far. Jamie Alexander, mortgage director at Alexander Southwell Mortgage Services, says: “One might wonder, shouldn't this have always been the standard? The primary changes postConsumer Duty launch have been adopted by those who may not have been adhering to best practices from the start. For us, and likely many other firms, the introduction of the Consumer Duty has served as validation, rather than a catalyst for transformation.”

Like other brokers, Alexander says his firm has not had to make any “substantial alterations” to its business model. He adds: “Our focus has always been on providing fair value and maintaining a customercentric approach, devoid of aggressive targets.”

Warning signs A regular criticism thrown at the regulator concerning the Consumer Duty has centred around the lack of examples about how the rules actually work in practice, and how to define a good outcome. Andrew Hagger of financial website MoneyComms, says: “The general vagueness of the Consumer Duty initiative is no doubt a concern to product providers.


October The Intermediary 2023 | The| October Intermediary 2023

Feature_JBJOCRF.indd 47


17/10/2023 13:11:02

“Once the regulator starts to highlight examples of what it deems to be unfair for consumers, then matters will start to become a little clearer.”

Regulator expectations The FCA provided a taste of what it expects from the Consumer Duty rules in September when it published a review of later life mortgage firms. The review looked at firms responsible for around half of all lifetime mortgage sales, and found that in many cases, advice did not meet the standards expected. It highlighted a lack evidence that sufficient consideration of the consumer’s individual circumstances had been given, and suggested that much of the advice lacked sufficient discussion of alternatives.


Firms were told to improve their advice processes, and almost 400 “misleading promotions” were ordered to either be amended or removed. Rather than a blow, equity release firms have seen this as a positive, as it gives them an insight into what the regulator actually wants. Kelly Melville-Kelly, director of risk, policy and compliance at the Equity Release Council (ERC), explains: “We have benefitted from gaining a clear, practical understanding of the regulator’s expectations. Key lessons include the need for deep customer personalisation, thorough exploration of alternatives to equity release, and the need for meticulous documentation of best practice procedures and advice conversations. “It is vital for advisers to challenge customers’ understanding of their options and alternatives,


The Intermediary | October 2023

Feature_JBJOCRF.indd 48

17/10/2023 13:11:03

When to be proactive or reactive when undertaking vulnerability assessments AnDreW GetHInG Is mAnAGInG DIreCtor At MorGAnAsH


inancial services firms implementing Consumer Duty have differing views on whether to assess vulnerability proactively or reactively. For those who are looking for instructions from the Financial Conduct Authority (FCA), there are clauses within the regulations which support both views. Handbook PRIN 2A.7.4 states: “In relation to the needs and characteristics of retail customers, a firm should, among other things: …. (4) assist frontline staff to understand how to actively identify information that could indicate vulnerability and, where relevant, seek information from retail customers with characteristics of vulnerability that will allow staff to respond to their needs.” Yet, in contrast, in the guidance document, clause 6.29 states: “We do not expect firms to explore customers’ circumstances exhaustively or to identify every customer with characteristics of vulnerability. "We do, however, expect firms to support their staff to identify signs of vulnerability, for instance through training and resources, and to set up systems and processes that enable customers to disclose their needs, if they choose…” While some may bemoan the inconsistency, we think that focusing too hard on the wording misses the point – we really need to look at the bigger picture. The overarching principle of Consumer Duty is to promote good consumer outcomes, to measure those outcomes, and to evidence that the vulnerable do not receive worse outcomes than the resilient. Rather than specify how this is undertaken, Consumer Duty sets out the principles, and then gives firms leeway on how to implement them. However, the regulation is clear that companies must measure, spot and monitor, and take appropriate action when they find unfavourable outcomes for consumers. The challenge is how this information is collated at firm level, to provide robust reports that vulnerable consumers are not receiving worse outcomes.

This is not easy. A recent report on the financial wellbeing of disabled people in the UK highlighted that this group receives worse financial outcomes than resilient consumers. The report particularly highlights a list of those conditions where affected consumers receive particularly poor outcomes, including learning difficulties, mental health conditions, multiple health conditions, disabilities that have been acquired suddenly, chronic fatigue, nonvisible conditions and memory-related conditions. Notably, most of these are highly unlikely to be detected by a firm relying on a simple reactive approach; nor might they be volunteered, unsolicited, by customers, or even known by the consumer themselves. Since using a reactive approach will not identify these conditions, it is unlikely firms can possibly have the required data to report on them when it comes to reporting outcomes. So, what should firms do? Can they rely on clause 6.29 above and only collect information reactively? Well, yes – but only if they are meeting the wider firm-level monitoring requirements. We propose that firms can use a reactive approach if they meet all these criteria: ◆ Have a robust process for assessing and evidencing consumer vulnerability. ◆ Have a robust methodology for identifying vulnerabilities that are not typically volunteered or easily visible. ◆ Fully understand the cohorts of vulnerable consumers across the target market. ◆ Have robust evidence of consumer characteristics and demonstrate comparisons to applicable benchmarks. ◆ Have evidence that cohorts of vulnerable consumers experience no worse outcomes than resilience customers. In its recent ‘Dear CEO’ letters, the FCA refers to “weak identification of vulnerable customers.” What does this mean – and how can it be quantified? Well, from multiple sources, including the FCA’s Financial Lives survey, we know the mean average of consumers having some

sort of vulnerability is around 50%. This is an easy metric to use as an assessment benchmark – and if firms are not doing this, then they should review their assessment method. Our experience shows us that those firms which use only a reactive approach report figures far less than this – which makes their results highly questionable. Furthermore, you cannot just say that “half of our customers are vulnerable” because the regulator will then ask: “which half, and in what ways?” Reporting and monitoring are required at firm level – the challenge is how you collate data at firm level if you don’t have data at customer level to start with. It’s understandable that firms feel that having to go back to each and every customer will be an expensive bind, but waiting for the data to somehow present itself isn’t an answer. The reality is that is doesn’t have to be expensive or onerous – there are automated solutions to help. MARS, the MorganAsh Resilience System, was built from the ground up to work in this way – to get the data from the source, provide tools to manage that data, and deliver extensive reporting. It automates assessments, making them quick, low-cost and objective. Consumers can be easily managed, and vulnerabilities tracked, because most change over time. Management information and reporting is just a click away. MorganAsh is working with Investor in Customers, combining outcome reporting with vulnerability reporting to specifically answer if any vulnerable cohorts are receiving worse outcomes. It’s cost-effective even when just considering the assessment – but because the data is always there, it virtually obliterates costs related to reporting. As it does with many other challenges, technology can provide the scale, efficiency, and low cost to easily tackle the challenge of reporting at firm level – enabling an easy way to move from reactive assessments to proactive ones.

October 2023 | The Intermediary

Feature_JBJOCRF.indd 49


17/10/2023 13:11:03

Consumer Duty

In Numbers. 2.4 million households are identified as ‘high’ risk, and 6.3 million as ‘elevated’ risk of vulnerability. The areas making up the highest proportion of this total are the North West (20.2%) and Yorkshire and the Humber (12.1%). Source: Outra 38% of advisers think the Consumer Duty will have no impact on their business; 13% are concerned about a negative impact. 46% of advisers use cashflow modelling to evidence the value of advice, while 45% survey clients regarding their satisfaction. Source: NextWealth

and to document these conversations. We have seen firms already implementing stronger processes and procedures to reflect these points.” Melville-Kelly highlights that larger firms with in-house compliance divisions were naturally better equipped to prepare for the Consumer Duty than others, but says members have taken the requirements extremely seriously. “While firms are learning, adapting and implementing the key principles of the Consumer Duty, it’s important to remember it’s not a ‘one-and-done’ exercise,” she adds. “The new rules will raise the bar for customer outcomes on an ongoing basis throughout the lifecycle of the product, which is exactly what they were designed to do.”

A catalyst for change Three months is a relatively short time in the regulatory world, and it can take a while for a big bank to adapt and improve clunky legacy systems. Rather than a ‘big bang’ moment, according to UK Finance, the effect so far has simply been


clearer explanations of products and services, and continued improvements in customer support. One area where lenders have been making notable changes, however, is fees. Santander announced in July that under Consumer Duty rules, it would refund product fees up to completion if an application is cancelled. It also removed the valuation fee to porting customers who are not borrowing more. Similarly, Family Building Society has brought its product transfer procuration fees in line with new applications for mortgage or buy-to-let (BTL) loans in response to the Consumer Duty, recognising the level of work required by advisers. Robert Sinclair, chief executive of the Association of Mortgage Intermediaries (AMI), says more can be done on charges. “Policies on fees have become clearer, but one area for improvement is where some lenders waive early repayment charges on death,” he says. “There also seems to be a bit of a disconnect in lenders’ fair value assessment between what a broker charges and what they charge.” Stephen Perkins, managing director of Yellow Brick Mortgages, agrees that there is more to do on fees. He says: “Where lenders will have to be more fair and give consideration will be the arrangement fees, possibly early repayment charges – how fair are the level of those? "I think this is something very much under review by lenders, and when one makes changes in this area the rest will follow.” Sinclair adds that AMI would like to see more tangible examples of what the FCA expects. “We are aware there are detailed requests on second charge firms on fair value assessments,” he says. “We expect to see the regulator using the provisions of the duty in a deeper way to get under the skin of what is happening with firms and their interactions with consumers.”

Promoting protection One of the key aspects of the Consumer Duty rules is supporting vulnerable customers and avoiding future issues where a customer could fall into financial difficulty. This is an area where advisers have the opportunity to discuss the importance of insurance, such as life cover, income protection (IP) or critical illness. Having these products in place could be crucial in supporting borrowers if they lose their job or are struggling to work and may have payment difficulties on their mortgage. James Bull, mortgage broker at JB Mortgages, says: “If there is an obvious area where a client could be foreseeably harmed in the future, it is

The Intermediary | October 2023

Feature_JBJOCRF.indd 50

17/10/2023 13:11:03

now our obligation as an adviser to point it out and recommend solutions. “This almost makes a protection review alongside a mortgage appointment mandatory now, so an adviser can fulfil their regulatory obligations, and of course everything has to be documented. This is going to be higher on adviser’s radar, which should hopefully in the long run result in clients getting better advice and more of them being protected.” Insurance broker Dave Corbett, head of protection at Protection 1st, suggests life insurance sales and protecting the client’s incomes will be the big winners as a result of the Consumer Duty rules. “For once, the terminology used in the Consumer Duty rules should really help the protection industry push on,” he suggests. “At its core with protection, Consumer Duty says every adviser needs to have explained to every client what the risks are of inaction. “It’s probably the single most clear instruction, and should have a massive effect on sales, as advisers now need to quote, have an audit trial and refer.” Corbett says the environment is somewhat ‘rule by fear’, as brokers are worried about getting sued, adding: “So they should be. There will be ambulance chaser firms and solicitor call centres preparing to advertise on TalkSport to the growing number of people off sick who can’t pay their mortgage, and whose mortgage broker took the next mortgage call and didn’t advise them on protection. “It’s now just down to seeing if the FCA implement and enforce Consumer Duty.” One area in which analysts would like to see lenders working harder is in using data to help monitor, spot and protect their vulnerable clients. Suzanne Homewood, managing director at open finance firm Moneyhub Decisioning, says lenders are missing some of the opportunities provided by Open Banking to identify and interact with customers who may be getting into financial trouble. She explains: “Particularly in the intermediary and mortgage market, there has been little action to make significant steps to change in how organisations speak to customers through their data. "We were on a call with Citizens Advice, and they are having more inquiries than ever for help and support from people who just don’t understand the products they are on. "That’s the role financial organisations should be playing. “People who receive messages relevant to them at the right time are more likely to take action.

That can be done using open finance, and that’s the point of the Consumer Duty."

Unintended consequences As with any regulatory change, there have been unintended consequences due to nervous and overzealous compliance departments. Mike Staton, director of Staton Mortgages, says: “Brokers should have always aimed for a fair outcome, and not just because a new piece of legislation states they should do so. “The only negative I have is the numerous interpretations given to it by lenders and networks alike, and the lack of a common-sense approach towards compliance, due to a fear of breaching Consumer Duty.” There is also a risk of worrying consumers with extra rules that they do not necessarily need to be concerned about, which can create extra work for advisers in order to reassure them. Alex Morris, mortgage adviser at Clifton Private Finance, has had two questions about the Consumer Duty in three months. He says: “This is from clients seeing their lender’s Consumer Duty report on their website, being confused, and asking me how it affects their mortgage. “The answer is: it doesn’t, especially if you’re using a broker. Because a broker will already be providing that transparency for you on fees, rates, the process, we’ve been doing that for years.” One issue is that on most lender websites, the Consumer Duty section is typically a separate area, with lots of information that can be hard to digest for consumers. Morris adds: “There is no clear: ‘how does this affect me’ answer. The rest of most lender websites remain unchanged in terms of where you go to apply or compare products – instead, their Consumer Duty information is all contained within this bulky and technical ‘consumer duty section’. “For example, with every mortgage product you get a fee product and a non-fee product – you need to figure out mathematically which is better for you. "Brokers have been doing that for years anyway, and providing that transparency, but lenders are only explaining it within this convoluted section of their website, which doesn’t feel like an improvement to me.” It remains to be seen whether the issues being faced in the first few months of the Consumer Duty are simply a matter of teething, or necessitate a greater level of insight and guidance from the regulator, and a more serious approach from brokers, lenders, and all other market players. ● October 2023 | The Intermediary

Feature_JBJOCRF.indd 51


17/10/2023 13:11:03

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

Getting the best out of everyone AHMED BAWA is chief executive officer at Rosemount Financial Solutions (IFA) Ltd

Performance improvement is made possible through a full spectrum of support”


Many mortgage and protection advisers and IFAs join a network because they want to grow their business

s a business, we are proud to offer our clients a truly holistic financial planning service with the ethos of treating everybody we deal with as we would like to be treated ourselves. This philosophy isn’t limited to our outward-facing activities, however. We also take this holistic approach and high level of personal respect to the advisers that make up the Rosemount Financial Solutions (IFA) firm and network. Many mortgage and protection advisers and individual financial advisers (IFAs) join a network because they want to grow their business. They understand that having strong support behind them makes this easier to achieve. But in our experience, a great many of these advisers don’t realise just how much support there is on offer, and consequently, how far they can take their business. We have seen a number of cases where we took on sole traders writing £30,000 of business a year who, within four years, increased this number to


£250,000. This kind of performance improvement is made possible through a full spectrum of support that includes standard offerings from networks, such as compliance services and access to a business strategy manager, to facilities we believe are either unique to us or are executed in a different – and be er – way.

The network advantage For example, advisers of all types in our network can expect to take part in masterclasses on product areas and other aspects of running a business, join regional peer groups of roughly 20 advisers each for some local backup, access training for their administration and paraplanning staff, and get support when looking to recruit new members of staff. As well as this, we offer marketing support – think logos and graphic design, to running a website and social media accounts – alongside numerous other benefits, such as access to an online forum for advisers and to our annual conference in January. Our dedication to offering the full gamut of financial services

means we have a deep pool of knowledge and experience to draw from, and our hiring and acquisition strategy of taking on both directly authorised (DA) advisers and entire firms means this knowledge base is always expanding. All of this is leveraged into our training and support services to help each member of our network grow. Another key part of guiding advisers to becoming the best they can be is our favourable staff ratio. It is common for other networks to assign one staff member for up to 80 advisers. We dedicate one staff member per four advisers, meaning that you can always expect to speak to a human being. We believe this demonstrates a level of care on a truly personalised level. It is a perfect manifestation of how we go about our business, from top to bo om.

Grow together No ma er how smart and hard a worker a single adviser may be, to take their business to the next stage will always require support machinery working behind them. Our offer to mortgage and protection advisers and IFAs of all stripes is to become part of a welcoming, respectful, and high-achieving network made up of people who champion this sector in everything they do. ●

The Intermediary | October 2023

Broker Business_JBJOCRF.indd 52

17/10/2023 13:15:27

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

High net worth individuals: A unique audience


t the end of the day, marketing success always comes down to knowing your customers and how to meet their needs. However, that becomes a challenge when each member of a target audience has their own exacting requirements. Welcome to the world of the high net worth (HNW) individual. What separates this market from the mainstream is not that it might be more insulated from economic shocks; high net worth individuals are just as vulnerable to rising interest rates as the rest of us. The difference, in my opinion, is their entrepreneurial mindset. Yes, high net worth individuals see an uncertain economic climate like everyone else, but they are o en slightly more risk-taking, and are very entrepreneurial and opportunistic. In a market like the one we’re seeing at the moment, there are always opportunities. With that comes the ability to make decisions that others may not have the ability or inclination to make. So, how does that approach manifest itself in practice? And what have the current high interest rates done to a typical high net worth individual’s debt strategy? In the previous era of low rates there was lots of borrowing for investment, but in the past year, there has been a rise in redemptions with high levels of debt paydown. Nevertheless, there are pockets of investment thanks to high net worth individuals’ appetite for opportunity. For example, purchases of undervalued or distressed assets. This entrepreneurial spirit is why these members of the economy are seen as active wealth creators. It’s

their ability to move at pace and use debt to continue the creation journey. Whether you need to invest in business or a private individual that needs funding, the ability to move quickly is absolutely essential, as missed opportunities can be costly.

Three pillars As with any market, once its needs are understood it becomes possible to develop a compelling proposition. While high net worth individuals are supremely unique, they do tend to share a common characteristic: a lack of time. Consequently, they also understand the value of time, which is why professional service providers such as lawyers, accountants and financial advisors play an important role in managing their affairs. Service, then, is a critical pillar of any HNW proposition. But there are two other vital pillars, one of which is flexibility. Off-the-shelf products tend not to work – this market expects services to be designed around its needs and those delivering them to be personally available at any time. The final pillar is price. My clients are very clear about what they want, where they’re going in their business and personal lives. They have a plan and that’s why they are willing to pay for it and value it. It might seem like we all want the lowest common denominator on price, but high net worth individuals are willing to pay slightly more because they understand the value of personalised service and flexibility.

Customer engagement Part of the service pillar is about regular engagement based on audience knowledge. To me, this means spo ing relevant opportunities and presenting them to clients in a timely manner.

PETER IZARD is head of intermediary business development at Investec

Engagement is our number one mantra, and at a time of economic upheaval, it is even more essential. Talking to your clients, understanding their issues, and actually trying to serve them wherever you can, is absolutely paramount. What HNW clients need is engagement that enables them to turn around and say, ‘this is where I am at the moment, but this is my horizon and things can change very quickly’. It’s about being proactive, having that ongoing relationship and reaching out to them regularly – it comes back to service and flexibility. My advice here illustrates the importance of engaging all audiences in difficult economic times. While it might be tempting to reduce engagement to cut costs, opportunities could be missed, and continual engagement strengthens new and existing relationships, preparing the ground for accelerated wealth creation when favourable economic conditions return.

What next for HNW? There’s always a reason to delay financial decision-making – whether that’s a crisis such as the Ukraine conflict, or uncertainty caused by an impending General Election. However, when it comes to serving high net worth individuals, the key is embracing their desire to navigate through challenging times and seek out opportunities. While the jury is out on whether the Bank of England’s recent interest rate pause represents a turning point, no ma er what happens next this unique market’s entrepreneurial mindset will remain as sharp as ever. ● October 2023 | The Intermediary

Broker Business_JBJOCRF.indd 53


17/10/2023 13:15:27

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

CASE ONE Moving to Australia and on to buy-to-let


wo clients bought a residential flat in London about eight years ago, with a current balance of £240,000 and a property worth nearly £500,000. They now wish to move to Australia for work for the foreseeable future, but want to retain the property they bought in order to let it out. They are currently in a short-term deal of 2-years but want to know their best plan of financing this going forward.


“The first thing these clients need to do is get a consent to let from their lender as this will give them the permission to correctly rent out the property and ensure they are not in breach of their mortgage terms and conditions. It is also equally important for them to consider their property insurance, because this would previously have been a residential-based policy, so they need to make sure it is converted into a landlord policy. “This will ensure they are covered for buy-to-let and rental purposes. After their current 2-year deal expires, their lender may offer them another deal, or alternatively, they may say they have to remain on the standard variable rate (SVR) because they are now renting the property out. In the case of the latter, they would need to look at a lender that will allow them to remortgage onto an expat buy-tolet mortgage, the choice of which would depend on their circumstances at the time of application.”


“With the clients moving abroad, the planned usage of the property is changing and the existing mortgage may no longer be suitable. 54

“Assuming the clients do not have the funds to repay in full, we need to make sure that the financing of the property is suitable both now and when the clients are no longer in the UK, at which point options could be limited. “They could seek consent to let. This would retain the existing fixed rate and avoid paying a redemption penalty; however, it may bring complications when the fixed rate period ends, due to a high standard variable rate (SVR). “It is unlikely that the client would be allowed to product switch to a lower rate while consent to let is granted. Furthermore, should further consent to let not be granted the client may be forced to apply for a buy-to-let from Australia. “A further concern would be whether the existing mortgage repayment type is capital repayment or interest-only. The consent to let process is unlikely to allow a change to the repayment type. This could impact whether the rent is sufficient to cover the outgoings. “They could also refinance now as a buy-tolet. This new mortgage could complete when the clients vacate the property to leave the UK. This would give certainty of the mortgage going forwards as the repayment type and initial product could be matched to the clients’ needs. However, this could incur exit penalties on the existing mortgage and is likely to be a higher rate. The rate is likely to be higher as the product needed would be a buy-to-let mortgage from a lender which can lend to overseas resident clients. “To know which option is most suitable, we need to understand how long they expect to be in Australia and whether the move is linked to work. There could be further discretion with consent to let for members of HM Forces or civil servants. “Aside from the mortgage options, an adviser needs to flag other considerations that will impact the clients: whether they need tax advice on rental income while overseas; who would manage the property and find tenants; whether savings would cover void periods; whether they would need to convert money or hold funds in the UK; the estimated rental value and demand compared

The Intermediary | October 2023

Case Clinic_JBRF.indd 54

17/10/2023 14:59:44

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

with outgoings; whether the clients can maintain their living costs in Australia and the potential commitments of the property in the UK.”

CASE TWO Getting on the ladder while in education


he client is a first-time buyer eager to get on the property ladder, but is finding obtaining a mortgage impossible in his circumstances. He is starting a PhD and wants to purchase a flat in the city rather than continue to waste money on rent – however, his income takes the form of a stipend from the university. A stipend is paid for a fixed period of time – four years in this case – while the student carries out research for the university. Very few lenders are willing to see stipend income as something sustainable to support a long-term mortgage commitment, and those that are have additional requirements that he is struggling to meet. Most lenders will only support stipend income for members of the clergy, or expect there to be a guarantee of a job at the end of the PhD. He also has a second job working part-time, but many lenders will not allow that income to be used since he has only recently started in that role.


“This client is going to find it difficult to get a mortgage as the nature of the stipend income is a short-term arrangement with no guarantee of a permanent job or income at the end. This will not be sufficient enough for him to get the mortgage as he won’t meet the affordability criteria. The only option available is to look at a joint borrower sole proprietor (JBSP) mortgage, which will enable him to buy the property in his name but use the income of a family member to meet the affordability test. “He may then be able to use part-time income as a second income. This will allow him to purchase the property he wants and get on the property ladder. When he finishes his PhD and gets a fulltime job, he can then solely remortgage in his own name and the family member named on the JBSP mortgage can be removed.”


“We handle a reasonable amount of cases similar to this at Vernon Building Society. Unlike many conventional high street banks, we would consider

lending to a first-time buyer against a stipend income. In this scenario we would need to know more about the terms of the contract, PhD, future intentions, etcetera. “If it’s over 80% loan-to-value (LTV), then it would also be subject to affordability assessment and mortgage indemnity insurance approval. The biggest hurdle in this scenario is that there’s no mention of a deposit. “In this scenario we would usually look to involve the individual’s support network to help with a deposit or joint application. We have a number of JBSP products which support first-time buyers getting on the ladder, such as our Headstart mortgage. In this instance, the borrower’s family could take out a joint application under the PhD student’s name and either provide the deposit or take out a second charge loan on their property. At a future point. the family members are then removed from the mortgage. We do have a specific Buy for Uni mortgage too, which is very popular, but that is for students who rent out rooms in their house to their fellow students, and there’s no mention of that in this case.”


“Based on the information provided, Mansfield Building Society would be able to lend to this client as we are able to accept 100% of stipend income. We would want to understand the type of role they intend to take at the end of the PhD, but we don’t insist that this role is guaranteed. In addition, provided the client has been working in his role for at least six months, we would be able to consider the income earned from his second job as part of the affordability calculation.”


“I had a case just like this in 2018. My initial research showed the following lenders would consider the stipend income: Bank of Ireland, case by case; Darlington Building Society; Mansfield Building Society; NatWest; Newbury; Secure Trust, subject to sustainability; TSB, only 60% taken for affordability; and The West Brom. “The mortgage was placed with NatWest, which would at the time accept the stipend income with written confirmation from the client that he is expecting to continue to work with the university on completion of the PhD. “I was also able to provide the contract for the doctoral training partnership for the client, which provided enough comfort that the client could sustain the mortgage for the term. “The loan-to-value and purchase was low as the client was buying a small one-bed flat in his university town where there is a lot of demand for similar types of properties.” ● October 2023 | The Intermediary

Case Clinic_JBRF.indd 55


17/10/2023 16:29:38

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

How to hit the right notes with your content marketing


ontent has become a vital part of any marketing strategy – but it’s also something a lot of firms struggle with. Get it right and you will stand out from your competitors, improve your brand awareness, reach new audiences, and potentially even generate new business leads. Get it wrong, however, and it can be a big waste of time, money and effort. Content marketing is an everevolving discipline, and can take shape in various forms, therefore it’s impossible to provide a comprehensive guide within the confines of a single article. However, below are some helpful pointers to get you started.

Find your audience, find your voice This is the first, and arguably most important, step. Once you know who you want to communicate with, working out how to talk to them and what to talk about is a whole lot easier. For example, the topics you choose and the tone you adopt will be very different if you’re targeting first-time buyers compared to, say, landlords. That may sound obvious, but the internet is awash with poorly targeted content that doesn’t quite hit the spot in terms of tone or subject ma er. If you’re struggling for content ideas, think about what types of questions borrowers ask you or what they may ask Google. This will generate plenty of ideas, I promise. Once you’ve nailed down your audience, take a moment to think about how you are going to reach them. Do they use Twi er? Instagram? LinkedIn? Do they listen to podcasts or webinars? Or perhaps they would


prefer their updates via email or a newsle er? Unfortunately, there is no single answer to that question, as every client bank will be different. This part of the process can be a li le trial and error, but don’t be afraid to ask your clients – a er all, they know themselves be er than anyone.

Making your content sing Now you’ve se led on your audience and you’re brimming with ideas, the next step is to actually produce your content. The is the fun bit, but it’s also the part where creative block can set in for most people. Think carefully about your structure and make sure your content is impactful. If you’re writing a blog, for example, make sure your headline and intro paragraphs are punchy and to-the-point. Whether it’s a blog, email or social post, if it passes the ‘Three Cs’ test – clear, compelling and concise – you’re halfway there. That means ditching the jargon and never assuming knowledge. For example, if you are talking about a 90% loan-to-value (LTV) loan, it only takes a few additional words to explain that means you need a 10% deposit to qualify. And remember, good writing is writing that everyone can understand. So, keep your sentences short and sweet, and use words everyone knows. It may feel as though you’re oversimplifying things, but trust me, your content will be much stronger if you keep things uncomplicated – and your clients will thank you for it. Oh, and don’t forget to end with a call to action. A er all, that’s the reason you’re doing this in the first place.

PAUL THOMAS is head of news and content at MRM

Consistent and topical The key to successful content marketing is being visible. That means being consistent. If you dip in an out when you feel like it, you won’t get the results you’re looking for. Therefore, try to set aside time every week or month to produce new content. It’s also a good idea to create a content calendar. As the name suggests, this is a schedule of your upcoming content and how you plan to deliver it. Having a bird’s-eye view of what you have coming down the line is helpful, as it allows you to maintain consistency and also lets you spot any gaps you may have in your schedule. Being consistent is important, but so, too, is being topical. You don’t want to be posting about what the Bank of England’s latest rate decision means for borrowers three weeks a er the event. To avoid such a scenario, populate your content calendar with key dates and news hooks. For example, the Monetary Policy Commi ee’s meeting dates for the coming year. Or, if you want to be a li le more creative, how about using the start of the university year as a way in to talk about student lets? Or maybe using Earth Day as an excuse to write a blog about green mortgages? Finally, have a look at what your competitors and peers are doing. I’m not suggesting you plagiarise their good work, of course, but it may inspire you and spark off a great idea. And most importantly – have fun with it and be yourself. ●

The Intermediary | October 2023

Broker Business_JBJOCRF.indd 56

17/10/2023 13:15:27

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

The value of being present and the cost of presenteeism


s a co-founder of the Mortgage Industry Mental Health Charter (MIMHC), I’ve recorded a series of videos this year, with the umbrella title of ‘Keeping The Conversation Going’, and have had the pleasure of discussing with mortgage industry leaders how they support their own mental health, and that of their employees. In one of the videos I also caught up with Clarke Carlisle, ex-Premier League footballer and now mental health campaigner and activist, and we talked through the results of MIMHCs Annual Mental Health Survey. The survey asked mortgage professionals a range of questions concerning their mental health, one of which was centred on the hours they worked, and their sleeping pa erns. Alarmingly, the response was that nearly 60% of brokers were working more than 45 hours a week, and 64% weren’t ge ing enough sleep for three days a week or more.

Lack of sleep creates ‘presenteeism’ Clarke made the observation that, as mortgage brokers were working these long hours, their quality of sleep would obviously be affected, simply because they didn’t have time to ‘decompress’. Lack of sleep – whatever the reason – has a huge impact on mental health. For employers, the biggest cost isn’t ‘absenteeism’, but ‘presenteeism’. Presenteeism is created when the individual is at work, or on work time, but there is so much going on in their mind that they aren’t sufficiently rejuvenated to give the appropriate bandwidth to the task at hand. They

are physically at work, but not ‘present for work’. Consequently, their end product is sub-standard. Presenteeism far outstrips the working time lost by absenteeism, when someone is regularly away from work. Clarke’s enlightened viewpoint turned my a ention to how much the mortgage industry, and indeed employers generally, focus their mental health frameworks on reducing absence, simply because it can be so easily quantified and has a huge impact on the economy. More than half of all sickness absence days can be a ributed to mental health conditions. It is estimated that economic losses caused by mental health problems account for about 4.1% of UK GDP, and that be er mental health support in the workplace could save businesses up to £8bn per year, according to the University of Cambridge. Finding research to quote on the economic impact of sickness caused by mental health issues was relatively easy, but I couldn’t find any studies on presenteeism, which I believe to be having a far greater economic impact generally, and most certainly on the mortgage industry. Mortgage advisers are dealing with one of the most stressful periods in a client’s life as they source the best property finance deal for them. The economic impacts of the past year or so have made an already difficult and pressured job all the more stressful, as advisers have had to cope with constant interest rate rises, product withdrawals and criteria changes.

Spotting the signs For many – and for many clients – this will be the first time in their professional lives that they have experienced a turbulent mortgage

JASON BERRY is co-founder of MIMHC and group sales director at Crystal Specialist Finance

market, further compounding the problem. So, how do mortgage advisers make sure that the stresses of their work lives don’t lead to presenteeism, and more importantly, how should their employers spot the signs and offer the appropriate support? Going back to the video series I’ve recorded with industry leaders, a recurring theme has been how important it is to be aware of changes in behaviour as a cue to struggling with mental health. It simply isn’t good enough to ask ‘how are you?’, as we are all adept at masking our emotions in the workplace. Instead, employers and line managers must take the time to develop relationships with their teams so that they are able to respond to more subtle behavioural changes, such as becoming withdrawn or avoiding conversation.

Mental health frameworks All the leaders I’ve spoken to have also wanted to emphasise how open they are to supporting mental health, and that no one should be suffering in silence. In a male-dominated industry that is sadly easier said than done, but understanding that non-judgemental support is available is the all important first step to opening up about struggles with mental health. While the work of MIMHC is vital in creating mental health frameworks across the mortgage industry, there is still a great deal of work to be done. It’s never been more important to keep the conversation going. ● October 2023 | The Intermediary

Broker Business_JBJOCRF.indd 57


17/10/2023 13:15:28

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

The legal squeeze that’s putting pressure on lenders


enders have more than enough to contend with at the moment, with the economic environment, rising rates, house price uncertainty, and even more to consider on top of this. The big news in the lawyering world is the closing of nationwide firm Axiom Ince. National and legal media are reporting tales of misappropriation of client money to fund law firm acquisitions and private property transactions, freezing orders against partners, Solicitors Regulation Authority (SRA) investigations, and more. According to the SRA, over the 12 months to end of May 2023, 566 practices have closed. Of these, just above 20% were the result of a merger, while nearly 55% simply closed their doors because the firm had ceased trading. I do not have specific data for interventions, which take place to protect clients and their money, but anecdotally, the number will be significant. Set this against a backdrop, the number of fraud and computer misuse offences in England and Wales recorded by Action Fraud or referred to the National Fraud Intelligence Bureau (NFIB), rose by almost a third (32.8%) between April 2022 and March 2023. Currently, the ma ers of lending money, and to whom, are starting to resemble a minefield. Additionally, in the past 12 months I have seen an increasing number of cases and ma ers where solicitor practices or their insurers have become the focus for recovery action, rather than the debtor themselves. So, recovery of debt is now being impacted by solicitor fraud, and in the very worst cases, professional negligence and professional misconduct.


As a point of information, the Solicitors Indemnity Fund, which exists to compensate the pubic for loss arising out of dishonesty in the profession, has prescriptive eligibility criteria, pu ing its funds out of reach of the vast majority of commercial lenders.

Ramifications for lenders The reputation of solicitors as trusted advisers may have been damaged, sadly, by all of this, but what does that mean for the lending community? First, if you are unfortunate enough to be caught up by the closing of your professional legal representatives, you should take immediate steps to satisfy yourself that any ma ers or funds held are protected and without issues. The process for the recovery of funds or files can be clunky, so get on it sooner rather than later. Second, consider what part thirdparty law practices play in your security process, and the extent of their involvement. Consider who the third-party practice is, its provenance and standing. Be satisfied that the undertakings provided are sufficient, in correct form. Be comfortable that the practice is capable and able to perform. Third, understand the relationships and the individuals you work with. In the long run, emphasise trust and confidence just as much as expertise. Commercial pressures on delivering new originations continue, at the same time as defaults are increasing and exit routes are harder to secure. In this context, there is almost overwhelming temptation to strip back costs and take a leaner approach to operating a business, including trimming back professional support and legal services. This can be a false economy.

JONATHAN NEWMAN is senior partner at Brightstone Law

Many businesses are going through a tough time at the moment, and so it’s important to consider those impacted by these closures with empathy. It’s also important for lenders to really think about how they can best ensure they are able to operate with continuity.

Building confidence There are many lessons here for individual lawyers, lenders and intermediaries. We work in a people business. The most important thing is not the badge of the organisation you deal with, or the price at which you secure the services. It’s who you deal with. That confidence is something that is built through continuity and a regular, open dialogue. The right people, in the right environment, acting in the right way. This takes time, and it takes resources. That’s a salutary lesson for not just the clients, but for lawyers as well. At Brightstone, we are always looking for good people and continue to invest heavily in developing our existing team founded on longevity and performance. We are passionate about what we do and how we do it, a reputation in this niche market built over 30 years. There is a squeeze going on in the legal sector that I have never seen before, at a time when lenders are facing unprecedented pressures. In this environment, business longevity has to come to the forefront, and that means a commitment to transparency and working with the right people. ●

The Intermediary | October 2023

Specialist_JBJOCRFFB.indd 58

17/10/2023 13:37:16

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

Short-term lenders require realistic exit strategies


n times of economic uncertainty, being a lender requires a greater degree of forensic oversight to the way they underwrite cases. The cost of living has affected a great many people and their ability to repay, and it is no surprise that lenders have had to spend more time making sure that deals stack up, and that supporting documentation and explanations are clear and reasonable. The knock-on effect of a slowing property market, the rising cost of materials for developments, and the increasing difficulty in a racting and retaining skilled operatives are also factors which make bridging lenders more wary when assessing a plan and exit strategy. No one would disagree that lenders in every sector favour well-presented applications backed up by suitable supporting material. However, in the bridging sector, and in the case of development loans especially, clear and realistic plans and a viable exit strategy are what lenders must be sure of before making an offer. Lenders have the usual security in the property itself, but the value is not so easy to recover if a project is le unfinished or if a sale takes too long. Unrealistic exit strategies have been cited as a major cause of penalties being levied by lenders, where customers have been unable to exit at the end of the term. In some cases, the lack of realistic exit strategies has been cited as a cause of bridging repossessions. Advisers and their clients must be clear on the strategy to repay the loan, whether by the outright sale of the security, refinancing, investment sale, sale of a second property, or inheritance. Each potential exit method has one thing in common: a reasonable

expectation of repayment. Lenders might agree that a case sounds OK from a summary, but starting an official application without a full explanation of the proposed exit strategy, and then being unable to prove viability when required, wastes everyone’s time.

Creating a narrative Obviously once a case has completed, responsibility for repayment is fully down to the lender, but I cannot emphasise enough the vital role of the broker in creating a narrative at the beginning of the process that is convincing enough for a lender to put up the finance. The repayment of the bridging loan can be as simple as a normal refurbishment leading to a sale, which makes a profit for the developer and sees the lender repaid on time, or even simpler, a young couple buying a first home at auction and arranging longerterm funding in good time to pay off the bridge. Lenders are looking for plausible and realistic proposals, so anything that affects the ability to repay means that customers should be advised to consider contingencies in case situations change. For example, allowing for any delays or potential obstacles that may affect projections, such as the possibility of buyers dropping out of a transaction at the last minute, or of a chain breaking down. Moreover, brokers should encourage their clients to borrow for longer periods than may be deemed necessary, and to safely allow for occurrences that might derail their plans. Indeed, it is far be er to choose a longer lending option and to repay at an early date than to run out of

RANJIT NARWAL is head of origination at Kuflink

Lenders are looking for plausible and realistic proposals, so anything that affects the ability to repay means that customers should be advised to consider contingencies in case situations change” time altogether and face the risk of penalties, or worse. In summary, case preparation, well thought out and achievable exit strategies, and access to documentary proof to back them up, are the keys to satisfactory outcomes that will benefit lender and customer alike. Sometimes, customers can be cagey about their plans, but advisers must try to ensure that their clients are fully engaged and can see the importance of transparent cooperation in this respect. Otherwise, applications can founder, or time can be wasted trying to establish a feasible plan. Ironically, poor exit strategy presentation can mean that clients end up missing out on deals with fixed time limits, because the bridging option that was supposed to provide fast access to funds ends up being declined or bogged down in explanations. ● October 2023 | The Intermediary

Specialist_JBJOCRFFB.indd 59


17/10/2023 13:37:16

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

Liquidity issues can affect everyone ED BLACKMORE is business development director at Suros Capital

Being affluent does not preclude the possibility of needing to generate funds for business or investment opportunities”


Asset finance provides liquidity solutions for those clients fortunate enough to own luxury assets

ith the current economic situation, it is not hard to understand that many in the population are struggling to make ends meet. Prices for goods and services have shown a constant upward trend now for the past two years, led by energy costs in particular, and incomes have not kept pace, which has le liquidity gaps in many household budgets. Not many of us are immune to the issue of being presented with a specific financial need and finding that immediate cash is not available when we need it most. Of course, those of us who have savings are luckier, if we can access those funds in time without incurring a penalty. Equally, there is always the ability to borrow, provided we have the right credit history and stable income. Both of these options rely on there being enough time to get the options in place to meet any deadlines. In addition, the requirements to provide personal financial information


and have it verified can slow down the process of receiving the required finance. However, there is a third option open to those who own valuable assets, including classic cars, fine art, luxury watches, fine wine, diamond jewellery and other collectable pieces. Due to the measurable value of luxury assets, lenders such as Suros Capital, which specialise in lending against high value items, provide short-term loans of up to two years secured against luxury assets of up to £2m. Obviously, there is a huge difference between people struggling to make ends meet and those who have had the good fortune to amass significant capital assets. However, being affluent does not preclude the possibility of needing to generate funds for business or investment opportunities, or simply to manage situations where an unexpected tax bill requires immediate payment without having to alter long-term financial plans. In short, luxury assets represent a valuable option as security for a loan, and also have the advantage of not suffering from the level of

financial intrusion that other forms of lending require. In fact, apart from a simple application form, there is no requirement to provide any personal income detail, undergo credit checks or to have any other personal information subject to scrutiny. All Suros Capital requires is an assessment and valuation of the asset being offered as security for the loan. Using its own qualified experts, valuations can be conducted at Suros’ London offices for small items such as watches and jewellery, or can take place at the home of the client or wherever the asset is being stored. The assessment process can take place in as li le as a few hours in the case of items brought to our offices and funds can be transferred as soon as the same day. They are then held securely by Suros until the loan is repaid. The other advantage for clients of using luxury assets as the security for a loan is confidentiality. Our interest as a lender lies purely in the asset, and not in building an exhaustive profile about our clients. In summary, asset finance provides a liquidity solution for those clients who are fortunate enough to own luxury assets, and who can see the logic in making use of them not just as aspirational items, but as a useful means of securing immediate finance. ●

The Intermediary | October 2023

Specialist_JBJOCRFFB.indd 60

17/10/2023 16:32:58

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

Turbulent times ahead


s we move inexorably towards the Christmas party season, it’s fair to say that the UK specialist lender sector has held up remarkably well a er 14 consecutive interest rate rises dating back to December 2021. Those who feared the market would be in sharp decline this year a er Kwasi Kwarteng’s paradoxically named ‘growth Budget’ last autumn have been pleasantly surprised. Further good news last month saw the Bank of England – woefully late in addressing growing inflationary pressures back in 2021 – finally call at least a temporary halt to these rises. Figures for August confirmed the recent trend of falling inflation, thereby ensuring rates were held at 5.25%. Of course, the sudden switch from easy money to a sharply tightening monetary policy has caused some turbulence in the financial sector, but we haven’t seen the bank failures that have occurred in the USA, and closer to home with the demise of Credit Suisse. The big question is, have we passed the worst? Prior to Saturday 7th October, it was certainly tempting to think we had, but if the past few years have taught us anything, you never know what’s around the corner... Just like Middle East wars of the past, the conflict that has erupted between Israel and Hamas has the potential to escalate and disrupt the fragile recovery of the world economy. The impact of pandemic policy stimulus, stretched supply chains, and Russia’s invasion of Ukraine last year hit the world economy hard. Just as it’s recovering from this bout of inflation, another war in such a key oil producing region could see prices rising sharply again. Since base rates in the UK began rising, specialist finance, in the shape of bridging and development, has

become even more competitive. While monthly rates have risen, they have not kept pace with base rate increases, ensuring that products are relatively more competitive than they were two years ago. With broker proc fees remaining relatively constant and funding costs increasing, it’s lender margins that have been eroded further. Why? The simple answer is competition. Thirdparty funders in the shape of private investors and family offices, hedge funds, major financial institutions, challenger banks and even the average man in the street through peer-to-peer lending platforms, have all fuelled the market, allowing it to maintain momentum despite some very strong headwinds. There are now literally hundreds of lenders in what has become a very overcrowded space.

Pinch point On the face of it, this ability to buck market trends has served consumers well, but with house prices now falling – the latest data from Halifax suggests prices fell 2.4% year-on-year in July – we seem to have reached a pinch point that could be exacerbated by current events in the Middle East. A slowing property market, combined with intense competition between established specialist lenders looking to maintain their market share and newer entrants looking to gain some, has inevitably seen some lenders offering both rates and loan-to-values (LTVs) at unsustainable levels in pursuit of new business. It’s clear that some bridging lenders have paid inadequate a ention to their clients’ exit strategies, banking on the fact that rising property prices would always ensure an exit by refinance. Equally, in the development sector, funding a couple of light refurbs doesn’t suddenly mean you have an underwriting team capable of dealing with the complexities of large ground up projects.

BRIAN WEST is head of sales and marketing at Saxon Trust

Brokers and borrowers need to take a holistic approach when determining the lenders that they deal with” The frequency with which developers are being le in an invidious position by lenders, unable to fully fund all the stages of a development, is increasing. The acceptance by these same lenders of unrealistic build and marketing periods has contributed to many schemes overrunning, and in turn, the rapid growth of development exit products to try and save developers from he y default rates and fees. Now more than ever, brokers and borrowers must take a holistic approach when determining the lenders that they deal with. A simplistic focus on lower rates, particularly when the average duration of bridging loans is counted in months rather than years, can be a mistake. Rate and LTV should always be balanced against a multitude of other factors including access to experienced teams, the autonomy to make fast decisions in-house, transparent and fair terms, and perhaps most importantly, certainty of funding. The coming months could be much more challenging than we anticipated following the terrible recent events in Israel and the Gaza Strip. Consequently, now more than ever, it’s important to make sure you are working with the right lending partners. ● October 2023 | The Intermediary

Specialist_JBJOCRFFB.indd 61


17/10/2023 13:37:18

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

A soft landing while


022 was something of a turning point for the UK property market. Following a decade of historically low rates and relatively modest house prices, we saw lots of change last year. In just 12 months, interest rates surged by more than five percentage points, mortgage rates doubled, and there was a notable decrease in demand for property purchases. The question is, how much of a knock-on effect have these factors had on the bridging sector, and how is the market performing?

Changing demand Regulated bridging loans have gained more popularity over the past few months as an alternative to longerterm funding. This is down to the fact that rocketing rates and product pulls in the mainstream mortgage market have prompted an increasing number of borrowers to opt for bridging finance to complete their property purchases. That said, I think the bridging market has adapted well to the economic storm and has proven to be resilient this year. Meanwhile, flexibility and speed have long been the bedrock of the short-term lending industry. This – and how quickly you can complete compared with traditional financing options – will always be key factors to why people turn to this product type. A er years of recovery, the specialist residential market is once again operating at a decent scale, which I believe is also adding to levels of demand for bridging. But in my opinion, the primary driver for the recent surge in demand has been the increased clarity and education around the product offering. The roll-out of the new Consumer Duty has, of course, played a part, in ways such as promoting the fair treatment of customers and responsible lending practices. Ultimately, though, the industry has


worked tirelessly to ‘clean up’ and simplify bridging, to the extent that we now have a refined product capable of meeting so many financial needs of individuals and property investors.

Changing attitudes Every year, bridging loans become more mainstream and increasingly recognised as a valuable finance option by investors. The past couple of years, in particular, have significantly boosted the reputation of bridging loans. Consider the Stamp Duty holiday and the bustling property market, in which buyers had to act quickly to secure deals. An adviser who may have previously never worked on a bridging case might have experienced more requests for fast, short-term finance where clients were experiencing broken property chains, but now they’ve become savvier, and are able to offer it as an option moving forward. I have already alluded to the Consumer Duty, which has fundamentally changed bridging and development finance for the be er. With customers’ best interests at its very core, customers can now make be er choices, block out the ‘noise’ behind this product offering, and when working with a knowledgeable broker, be confident that they are using the best lender from the many on offer, particularly in the nonregulated space. I truly believe that the new Consumer Duty will lead to a major shi in financial services overall, promoting competition and growth based on high standards. Moving Fluent’s bridging division into a ‘Consumer Duty world’ is one of those tasks that we have relished as an organisation. By implementing the initiative, brokers and lenders like ourselves have been prompted to sharpen their focus and really understand what is important to their customers, and how they can deliver the best outcome for every client, every time.

This must be a good thing when it comes to creating a more positive narrative around bridging finance.

Rising rates Rocketing rates and squeezed household incomes have continued to impact the wider property market throughout 2023. But as we enter the final quarter of the year, I feel that optimism is continuing to grow among lenders. The desire to purchase property has not disappeared; borrowers are still continuously looking at how they can maximise profits from property. While rates can be higher than those of traditional mortgages, interest rates for bridging finance have become more competitive due to increased market competition and lenders diversifying funding lines. To put it simply, rates for bridging loans will always be higher than that of a traditional mortgage; lenders get 12 months, maybe two years at best to

The Intermediary | October 2023

Specialist_JBJOCRFFB.indd 62

17/10/2023 13:37:20


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

chaos reigns supreme

derive a return from capital, whereas a traditional mortgage lender gets up to 25 years – sometimes more. That said, the gap in pricing between long and short-term debt has closed up in the past 12 months. Couple this with the fact that there have been some great leaps forward in terms of educating people on bridging, clarity around the product type, and ease of process, and it’s no surprise that we’re seeing bridging transition from a niche product offering to becoming far more mainstream.

Available options Rising rates have encouraged strong competition between lenders. Trying to find a lender willing to advance cash to someone with County Court Judgements (CCJ’s) or with a less than perfect credit history once felt like trying to find a needle in a haystack. What we are seeing now is the emergence of specialist lenders, offering tailored solutions and

flexible loan terms to meet borrowers’ needs, in what is a very challenging economic climate. This has expanded the range of options available to borrowers, and in turn increased market competitiveness. I believe that this increase in lending options and greater flexibility around loan terms have played a huge part in why the sector has managed to sustain its momentum and flourish. But with so much choice, it’s essential that our clients make the right decision on who they partner with and their choice of product, which is where our team of dedicated bridging experts are on hand to ensure the best outcome. Using a bridging loan to prevent a chain-break or purchase an investment property is the bread and bu er of the cases we work on, and unsurprisingly remained the main purpose for people using a bridging loan during Q1 of 2023, according to Bridging Trends. Chain-break finance is an everpopular choice for regulated bridging, particularly in the cases where customers are struggling to meet stricter affordability criteria for residential mortgages due to sharp rate rises. But bridging loans go well beyond a last resort, and a growing number of people are recognising this. With continued affordability challenges for borrowers due to rising rates, the use of regulated bridging to fund onward purchases before their current home is sold remains a viable option, and I don’t expect to see this trend go away any time soon. With flexible loan sizes, fewer lending barriers and no early repayment charges (ERCs), there’s no doubt that bridging loans are also meeting the demands of portfolio landlords and property investors.

Market fluctuations Bridging loans are closely tied to the property market; as you’d

JOHN HARDMAN is managing director of the bridging division at Fluent

expect, fluctuations in property prices and market conditions can have a huge impact on the sector. Changes in property values, housing demand, and regulatory policies can influence both lending criteria and borrower demand. But one of the best things about the bridging sector is how far down the track lenders continually look, assessing the wider market and economy and not just their own balance sheet. The market has seen many contractions over the years, and by working closely with our key lender partners, I can quickly ascertain their worries or concerns over future liquidity, property values and exit strategies, etcetera. Making subtle tweaks to our offerings has enabled brokers and lenders alike to experience a relatively ‘so landing’ during the past 12 months, when chaos has o en reigned supreme elsewhere in financial services. Long may this continue. ● October 2023 | The Intermediary

Specialist_JBJOCRFFB.indd 63


17/10/2023 13:37:23

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

Home purchase plans can help clients in need


t’s been a challenging period for the property market since the mini-Budget caused mortgage mayhem. Rising interest rates, combined with the general economic situation, have cooled house purchase activity. This has been borne out in house price falls – the latest index from Halifax, for example, suggests that prices dropped by an average of 4.6% in the year to August. However, it would be wrong to think that demand has simply disappeared. As brokers will be aware, there are still plenty of would-be buyers – and refinancers for that ma er – who are keen to proceed with a case, but might struggle to obtain the funding they need from conventional mortgage lenders. This is where StrideUp’s Home Purchase Plans (HPPs) can shine, providing an alternative solution.

What are HPPs? An HPP works in much the same way as conventional mortgages, but has the additional benefit of being Shariahcompliant. It operates on the basis that the customer and the home finance provider jointly purchase a property. The customer then makes monthly payments, with each installment gradually increasing their ownership. This process ultimately results in the customer’s full ownership of the property by the end of the plan, which is exactly the same as a conventional mortgage arrangement. As with a traditional mortgage, clients can make overpayments as and when they can, if they wish to be mortgage free a li le earlier. Similarly, there are no issues should the client want to sell the property before the end of the term – they will simply need to se le the outstanding sum.


HPPs are valuable for a wide range of customer profiles, making them an accessible option for those aspiring to enter the property market, including first-time buyers. While they are traditionally associated with Shariahcompliant customers, they are in fact useful to a much wider audience.

Help onto the ladder It’s not just the inclusive nature of HPPs that make them an important option for brokers to consider, but the fact that they can deliver the desired outcome for many prospective buyers otherwise struggling to obtain the finance they need. Affordability continues to be a significant hurdle, particularly given the current economic situation. However, StrideUp has an innovative approach meaning certain customers could access up to six-times their income, opening up the potential buying power for a much wider range of properties. Equally, buyers can take advantage of a flexible underwriting approach. At StrideUp, we can accept a wider range of income sources than the norm, while opting not to use credit scoring or automated decisioning means a more informed response. Each case is assessed by experienced underwriters, meaning a fair and understandable response, rather than the disappointment of a ‘computer says no’ rejection. StrideUp can assist customers who face challenges in obtaining a conventional mortgage due to our flexible criteria for the self-employed, those with low credit scores, and those with more complex income arrangements, such as clients with locum or contract work. We believe that this form of funding can address a real need within the

SAKEEB ZAMAN is chief executive officer and co-founder at StrideUp

market. It’s inclusive, efficient, and transparent.

A question of regulation These plans are regulated by the Financial Conduct Authority (FCA), but advising on them requires different permissions from a traditional mortgage. Some intermediaries have already recognised the potential and obtained the necessary permissions, but there are others for whom this remains a new area of the market. Whether you have the required permissions or not, partnering with a Home Purchase Plan provider like StrideUp makes sense. Brokers with HPP permissions can advise the customer and submit the case directly to StrideUp, while those without can refer the client, safe in the knowledge that they will receive the highest level of advice and guidance. StrideUp will also pay a procuration fee to registered brokers for successful referrals and for those who provide the advice.

Meeting client needs Brokers know only too well that no two clients are the same, and a wide range of lender options are required in order to deliver for them. There are perfectly good clients falling through the cracks, not only between the big high street lenders but from the specialist market, too. Alternative options like HPPs can fill in those gaps and open up homeownership. Working with flexible firms that understand this market can ensure we help those clients onto the housing ladder. ●

The Intermediary | October 2023

Specialist_JBJOCRFFB.indd 64

17/10/2023 13:37:23

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

One year on: The mini-Budget


n September 23rd 2022, then Chancellor Kwasi Kwarteng presented the mini-Budget to the House of Commons. The goal: to provide financial stability across the UK. Just one day prior, the Bank of England base rate increased from 1.75% to 2.25%. Landlords, homeowners and – let’s be honest – the whole country, closely watched the announcement, eager to learn how Kwarteng’s growth plan would impact the economy. Hours later, we witnessed a financial market panic. Confidence fell, and as such, swap rates rose substantially. 40% of available mortgages were withdrawn from the market, according to Moneyfacts. Lenders of all shapes and sizes declared rate rises with li le notice, and some even paused lending for new business. One year on, how do we assess the impact of the past year, and is the market stable again?

The announcement

to ‘help’ the economy. Many more announcements were made, and the evolution of Kwarteng’s Budget caused what seemed to be irreversible damage to our currency.

Impact of the pound on property In response to the mini-Budget, the pound sterling fell firmly. The value of the pound dropped below $1.09 against the US dollar due to the planned spending increases and tax cuts, pushing inflation further. This is the ‘domino effect’ – the value of the pound fell, leading to inflation increases, resulting in rising interest rates, subsequently

Postcard from the past: It has taken almost 12 months to begin to see recovery from Kwarteng’s mini-Budget

It was named ‘the mini-Budget that broke Britain’ for a reason. It’s not common for a miniBudget to strike this level of political and economic damage. To encourage a non-stagnant mortgage market, Kwarteng announced Stamp Duty cuts, aimed at helping first-time buyers and homeowners by making properties more affordable. The plans doubled thresholds from £125,000 to £250,000. The abolishment of the 45% top rate of income tax was also introduced, sending shock through Parliament as the pound looked weakened. A month later, Jeremy Hunt paused the controversial bid

SOPHIE MITCHELL-CHARMAN is commercial director at LendInvest

followed by a loss of confidence in investors. House prices made the largest monthly fall since the pandemic began. In a market that was already slow and ‘not the norm’, are we surprised? Not entirely, especially when you take into account the overall reaction to the mini-Budget. As a result, a weakened demand for homes was created due to the uncertainty.

Have we fully recovered? It has taken almost 12 months to begin to see recovery from Kwarteng’s 2022 mini-Budget.

Alongside other roadblocks, including new strains of the Covid-19 virus and the Russo-Ukrainian War, the past year has been painful for homebuyers who needed to remortgage in a rate environment unheard of for 15 years, while landlords have felt the pinch across their portfolios. There has been opportunity, despite the pain, as we’ve seen the demand for bridging lending hit record levels as investors use the downtime to consolidate portfolios, acquire properties stuck in chains, or – a sad consequence of any downturn – purchase more properties at auction as a result of distressed sales. Could the mortgage market be over the hill? An article in the Daily Express recently pointed out that savings interests have stopped rising, while mainstream lenders have begun cu ing back their mortgage rates in earnest. It remains to be seen what the long, long-term effect of this could be. We pointed out at the time that in the context of the past century, the period between 2008 and 2022 was the exception when it came to low interest rates, rather than the rule, and we shouldn’t expect to reach those days again. However, we’ve seen the worst that could happen over the past 12 months. It is now up to lenders and advisers to manage the consequences and deliver a future for their customers. ● October 2023 | The Intermediary

Specialist_JBJOCRFFB.indd 65


17/10/2023 13:37:24


West One

The Intermediary speaks with Stephen Hogg, COO at West One, about growth and stability in a volatile market

What brought you to West One, and why does it stand out? I cut my teeth on working with management teams and businesses buying portfolios, securitising. I went through the Credit Crunch, and built the servicing business that’s now Pepper Advantage UK. I later worked for Metro Bank for six years, initially to build out its mortgage business, particularly the technology platform. After that, I was looking to get back into the smaller, nimbler, more entrepreneurial businesses I was used to, and deploy some of the lessons learned through my career about how to build value there. I was instantly impressed with CEO Danny Waters, and he was looking for someone to take West One to its next stage of growth. I’ve been here for almost five years now, and it has lived up to the billing. For a non-bank, West One is large, stable, with deep, broad funding relationships, and a globally significant equity investor. Of the non-bank specialist lenders, those that you would rank for stability, reliability, size and balance sheet dependability, which have also been around for a long time and demonstrated growth and profitability over many years, make for a short list. If brokers are looking for experience, reliability in choppy markets, and a lender that’s going to do what it says, West One is front and centre. We recruit and train some of the best and most creative people in our market, and we promote them through our business. The people running our bridging and development finance business came in as underwriters. That works really well with our customers, bringing energy, creativity and inventive solutions to bear to solve their problems. As for products, it’s more than just selling boring mortgages for us; it’s about making our entire product suite work for the customer’s lifecycle. We love it when customers use our money to make money. If they want to buy land with a bridging loan to get planning, use development finance to build units, and then bridge the development exit while they sell – we’re focused on is doing it all under one roof, and making it frictionless. 66


Has the customer profile changed? On the one hand we’ve got those we’ve been dealing with for 10 years – it’s easy to lend where there’s a relationship and a track record. As we’ve got bigger, we can do more. The genesis of our development finance business was people leaving bridging loans who said they would stay if we offered those products – it was a completely customer-led market entry. At first, we might have been nervous writing a £1m loan, but fast-forward and our balance sheet is £2bn and we’ll happily write a £20m development loan. As our balance sheet grows, so has our ability to house larger customers and to grow with them. There are new parts of the market we are moving into, for example with the launch of our first charge residential mortgages a year ago.

How has the initial year of first charges been? We would have liked to have done a bit more, but when the market is difficult, it’s as easy to lend

The Intermediary | October 2023

Profiles and QAs_JBJOCRF.indd 66

17/10/2023 14:26:31


too much money as it is to lend not enough, and it’s much more dangerous. We trimmed our credit appetite quite early, bringing our loan-to-values (LTVs) down. Across all of our propositions, where the market has been turbulent, we’ve had some record months – a couple of our best ever – but then rates will jag in a different direction and the pipeline falls again. So, it’s been fits and starts rather than a consistent year of month-on-month growth. However, the underlying core of our business remains incredibly resilient and strong. I’m absolutely delighted with how well we’ve gone through this – we haven’t written loans that have lost money in any of our lending lines, and now what we have is quite a lot of pent up supply. We don’t want to sell money too cheaply and we don’t want to sell money that won’t come back in the door, and that means deliberately trimming our appetite. First charge resi has probably suffered the most through our own prudence, but that just means more opportunity next year.

Is there work to be done to improve market reactions to difficult times? We have never pulled an offer once issued, and we never intend to – that’s sacrosanct, even with the volatility. We have a pricing committee and we look at swap rates every day, we have an excellent CFO with a very intelligent hedging strategy, which was in place long before the volatility hit. So actually, we haven’t seen anything like the profit destruction that some of our peers have. Sometimes the customer service principle bumps into the principle of never writing a loan at a loss – the challenge this year has been balancing that. Every single lender has had the same experience. We’re not chasing super profits. We’re chasing a reasonable return on our risk and working hard to be efficient at transmitting our prices into the market, as well as being predictable and clear. Any lender has to give bad news to brokers sometimes. If they can do it quickly, clearly, with a rationale and with some alternative options, that’s a hell of a lot better than just saying ‘no, you can’t have that product’. We’ve seen lenders in the specialist space belatedly realise they’ve got pricing exposure and make handbrake turns. Particularly in smaller lenders where they are less resilient, less well capitalised. The high streets are slightly different. It’s more of ‘computer says no’, scorecard-driven approach, where a treasurer somewhere makes a decision based on the model output, and suddenly cuts a swathe through hundreds of pipeline cases.

All this actually works out in West One’s favour. Our business model is meant to be resilient, to offer the best of what specialist lending can be, at scale and in a dependable way. In a market where there’s lots of volatility, if we can be a north star, that’s a good place for us to be.

What would you say to brokers looking to diversify? Bridging is peculiarly resilient. When the market’s red hot, people borrow to turbocharge their speculation. Then, bridging is also really good for solving problems if customers need to raise liquidity against a property asset quickly. Development finance is a bit more cyclical, but structurally, we simply haven’t got enough houses. That is going to carry on being true for decades. Developers with good sites, building good assets at prices that the market can bear, are going to be there forever. The ones on the margin, where projects are a bit thin or they are less experienced, do come and go with the market rising and falling. Some are talking about the death of the buy-tolet (BTL) market, but it’s much exaggerated. What we will see is consolidation – smaller landlords selling to bigger ones. The rental sector is still quite strong, but you need scale and you need to run it as a corporate exercise for it to make sense. Looking at second charges: if people have property and they need to consolidate expensive unsecured debts, then providing they get the right advice, and providing the affordability is there, it’s a really useful product. It’s slightly more complicated than first charge, but brokers can add real value to customers with good advice. It’s about having many strings to your bow. It’s easy to say, and it’s hard to be a broker across all of these things, but the defence against volatility is distributed effort across all products.

Does West One have plans to change or grow its proposition? Grow yes, but not major change, no. We’ll look at additional product lines, and the closer they are to what we do already, the more attractive. So, I could see us one day doing semi-commercial mortgages. Our strong equity base also means that we tend to look at M&A opportunities as they arise. We must have looked at 10 this year, but none were quite right for the core of what we do, and it’s not a strategic priority to grow through acquisition. Our future is doing what we do, better and bigger. It’s sticking to our knitting and simply focusing on growing quality and profitability. ● October 2023 | The Intermediary

Profiles and QAs_JBJOCRF.indd 67


17/10/2023 14:26:31

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

Basel III and its unintended consequences


n recent months, the narrative around the Basel III framework and its potential implications for the UK’s small to medium enterprise (SME) lending landscape has intensified. Having penned a le er to the Government earlier this year, I expressed genuine concern on behalf of the National Association of Commercial Finance Brokers (NACFB) that the consequences of the Basel III regulations might inadvertently increase borrowing costs and stifle competition, pu ing SME access to critical funding at risk. Our concerns are not isolated. Having a ended several All-Party Parliamentary Group (APPG) sessions since that le er, hosted by challenger banks such as Allica and other specialist lenders, there’s a resonating sentiment: these new measures, endorsed by the Prudential Regulation Authority (PRA), could critically hamper lenders’ ability to extend financial support to SMEs at a time when such a retreat it is least needed.

The framework’s impact Under the Basel III PRA proposals, there is a planned imposition of a 100% floor risk weighting on propertysecured business loans. Coupled with the slated removal of the SME support factor, which presently allows for an approximately 24% reduction in capital requirements, we could be staring at a concerning scenario. Challenger banks, responsible for a record share of gross lending in 2022, could see their capital holding requirements for SME lending rise by nearly a third. Such a measure could inadvertently funnel SMEs toward alternative lending avenues, intensifying an already established trend since 2008.


European counterparts, seemingly adopting a so er stance on the Basel III requirements, might then find their lending sectors enjoying a competitive edge over ours. This creates a perplexing dichotomy: while the Government seeks to tread a delicate path between prudential regulation and capitalising on post-Brexit growth opportunities, it is likely se ing SME lenders up for undue challenges. The invaluable role of challenger banks in the UK’s financial ecosystem cannot be understated. Over 49% of the £45bn in SME funding originated via the NACFB’s commercial intermediaries last year came through such institutions. Conversely, high street lenders accounted for a mere 24%. These numbers aren’t intended to criticise more traditional big brand lenders; they merely highlight the growing reliance on the more nimble, adaptable tier two institutions in meeting SME financial needs. Yet the looming Basel III framework poses a tangible threat to this momentum. The question is, how do we safeguard the interests of UK SMEs, ensuring they continue to have ample access to crucial funding? Recent warnings to MPs by SME lenders depict the proposed regulatory alterations as regressive. The potential removal of the SME support factor, in particular, is causing trepidation. Such a step would necessitate SME lenders to earmark a more significant capital amount against loans extended to this sector. Reports commissioned by impacted banks, like Allica, indicate that such changes could culminate in a staggering £44bn downturn in SME lending.

Enabling solutions While the PRA’s forthcoming regulations are daunting, it’s worth

PAUL GOODMAN is chair of the NACFB

noting that solutions, albeit not exhaustive, are on the horizon. Impacted lenders might do well to consider evaluating how the British Business Bank’s ENABLE Guarantee programme could pave the way for unlocking wholesale funding lines. This initiative, developed to bolster additional lending to smaller businesses, may provide a temporary respite. Participating institutions, incentivised by a Governmentendorsed portfolio guarantee, could find this a viable pathway to counteract some of the challenges posed by the Basel III regulations. Late last month, and following sustained industry pressure, the Bank of England confirmed the postponement of the introduction of the final segment of the post-financial crisis international bank capital regulations until July 2025, aligning with the US Federal Reserve. The bank plans to unveil nearfinal policies on market risk, credit valuation adjustment risk, counterparty credit risk, and operational risk in Q4 2023. By Q2 2024, it will release policies on credit risk, the output floor, and reporting and disclosure stipulations. As both your trade body and the industry at large continue to raise concerns with increasingly loud voices, the potential repercussions of the Basel III framework could well reshape an SME lending community that has had to adapt to more than its fair share of challenges post-2008. Ensuring that UK SMEs continue to thrive, with unimpeded access to crucial funding, must remain our shared objective. The future economic vitality of the nation might very well depend on it. ●

The Intermediary | October 2023

Specialist_JBJOCRFFB.indd 68

17/10/2023 13:37:24

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

Educating customers on the value of brownfield sites


arlier this week, the Government announced a new £60m fund to allow councils to regenerate disused and unloved land across the UK. Derelict car parks, industrial sites and town-centre buildings which have fallen into disrepair will all benefit from the publically available funding, in the latest signal of national intent to deliver housing on brownfield sites, rather than the countryside. There is potential value for customers looking to invest into brownfield sites. At Together, we were interested in seeing the true value of this land, and – focusing on Yorkshire – we recently conducted research into brownfield sites to get a snapshot of the current landscape. Yorkshire has an estimated £53.2bn of brownfield land ripe for the development of new homes. Our study, carried out using valuation data from development site sourcing specialist Searchland, shows the potential for 175,602 new homes. This highlights the immense potential for the region to not only address Yorkshire’s housing shortages but also a way to breathe new life into communities. The Government first signalled its new focus on building on disused, previously developed land rather than concreting over the greenbelt, when it announced that it was launching an initial £1bn fund earlier this year. Despite this support, it is clear that cost increases, viability challenges and access to private finance remain a barrier for brownfield development projects. The lack of available new homes – and where to build them – will be a key ba leground in the run-up to the next General Election.

New research has revealed that the Government is already missing its own targets by about 80,000 new dwellings a year, according to the Home Builders Federation. Ministers have been warned that new homes will have to be built in even greater volumes than the current target of 300,000 per year in England to keep up with the rate of building in other developed countries. However, the regeneration of brownfield land in cities around the country could go some way to meeting this future housing need. Previously developed sites tend to come with more complex issues. For example, remediation, particularly for old industrial land, can prove challenging. This means that mainstream lenders may shy away from looking to provide funding to kickstart smaller brownfield renovation projects. I strongly believe it’s time for brokers, developers and investors with a clear vision to come together with funding partners to provide innovative urban regeneration schemes which can really revitalise the landscape.

Delivering high standards There are already some incredible projects underway to rejuvenate previously developed land. We have the £500m South Bank scheme in Leeds, for example, which is designed to extend the city centre by making the best use of brownfield land. The regeneration we have seen of some of Sheffield’s disused industrial areas has also been impressive, with whole new communities springing up at Kelham Island over the past few years and plans for similar urban regeneration at A ercliffe, just outside the city centre.

TANYA ELMAZ is head of intermediary sales at Together

Our data has shown that brownfield sites could certainly assist with levelling up” These kinds of schemes can – and should – be replicated in other areas of the country to really maximise the potential of available land. Making your customers aware of this is essential, and so staying up to date with the latest developments around brownfield sites and urban regeneration is key. It is worth noting that converting empty shops and other commercial buildings into homes, following the relaxation of some planning constraints in recent years, has led to concerns of poor quality housing. It’s therefore important that your customers adhere to planning and building standards and safeguards when delivering homes for those who most need them. Sadly, it is likely that there will continue to be a shortage of housing in the UK’s towns and cities. While there is no quick solution, our data has shown that brownfield sites could certainly assist with levelling up both in Yorkshire and across the wider UK by delivering growth and prosperity for future generations. At Together, we recognise the need for lenders which are flexible enough to meet the financing requirements of developers and can work quickly to secure the brownfield land needed to achieve their ambitions, while addressing country’s housing shortages. ● October 2023 | The Intermediary

Specialist_JBJOCRFFB.indd 69


17/10/2023 13:37:24

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

Funding the future


he health of the housing market is predicated on consumer confidence and affordability, and we have found ourselves in an extremely fast moving economic environment with lots of change but very li le certainty. Loose monetary policy has come to a shuddering halt, while higher mortgage costs and an inflation rate almost four-times higher than the Bank of England’s 2% target have reduced affordability. This has flipped the demand side of housing from a sellers’ to a buyers’ market. Thankfully, in the past few weeks the tone has become slightly more positive, with some larger lenders reducing their fixed rates for new products. This will be welcomed by first-time buyers who, for the first time in 25 years, are without any form of Government assistance to help them reach the first rung. As future house sales complete, new comparable evidence reflecting our economic reality will dictate future land and site values. However, this will take time to filter through to landowners, meaning lower transaction activity on both the supply and demand side until we reach a point where landowners are prepared to accept sensible offers based on housebuilders’ need to hedge a potentially less forgiving market. With material shortages and other cost pressures still a prominent feature of most schemes, existing projects may feel the squeeze, with some struggling to turn a profit. Whether working with a small or volume developer, the lack of updated local plans, availability of planners, and dysfunctional nature of the planning process has been – and probably always will be – the number one gripe of housebuilders, and the biggest barrier to business. Planning time and cost implications must be priced in at the outset of the



UTB’s property development team was approached to fund a £20m development of carbon neutral apartments in South West London, known as The Zero. The energy efficiency and sustainability of the apartments were key to the marketing of the new homes, which are extremely thermally efficient, with triple glazing and an exhaust air heat pump system providing underfloor heating. The building has solar panels generating 35,000 KWH of electricity each year, and on sunny days excess electricity is stored in 10 Tesla Powerwalls to be used during peak pricing times. Combined, the features have led to the apartments being awarded a coveted A-rated EPC, achieved by only 0.1% of UK homes.

site buying process. Be er resourced planning departments would be a quick fix ahead of longer-term reforms – which may not ever come.

Challenges The barriers facing developers, particularly small builders, continue to grow in number and scale. There are more regulatory compliance costs and tax burdens negatively impacting cashflow management of a development project than ever before. Adversity can also bring opportunity. Vertically integrated developers and housebuilders with in-house planning and construction expertise will use these skills to create value in the buying and building processes. Small builders are nimble and by their very nature can move

PIRAGASH SIVANESAN is director of intermediaries for property finance at United Trust Bank

quickly when opportunities arise, especially if they have an equally nimble finance partner. Joint ventures, overage or option agreements will allow owners and developers to mitigate or share the risks and rewards as we move through the next cycle. We need to look past the current economic uncertainty and remind ourselves that we still have a housing shortage and a growing and aging population, which will only increase demand for specialist and family housing in the future. We are also seeing increased demand for ‘green’ homes. UTB was delighted to recently support an outstanding net zero development packed with smart technology and energy efficient features. The HBF’s report ‘Wa A Save’ highlighted the benefits of newbuild homes in reducing energy bills and carbon emissions. The report found that new-build homebuyers collectively save £400m a year in energy bills and reduce carbon emissions by over 500,000 tonnes – for an average house, that’s about £1,600 per year, a figure which will grow as the industry begins to implement the Future Homes Standard from 2025. There are very few overnight successes. In property lending, success takes many years of repeatedly backing the right people on the right projects in the right locations through the ups and downs of economic cycles. UTB has been doing it for decades. Housebuilders continually recycle their hard-earned equity into new projects, and it is our job to leverage this to ensure the delivery of housing that future generations need. ●

The Intermediary | October 2023

Specialist_JBJOCRFFB.indd 70

17/10/2023 13:37:25

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

Short-term finance and the evolving auction process


eptember 2023 marked 28 years since the launch of AuctionWeb, a site “dedicated to bringing together buyers and sellers in an honest and open marketplace.” Two years later, a relaunch saw it become one of the most recognised brands in the world – eBay – and revolutionise the role of auctions within our everyday lives. Technology is also supporting the digital evolution of the property auction process. This was especially apparent over the course of the pandemic, resulting in a boom in the creation and expansion of online auction houses and in the rise of properties going under the digital hammer. In addition, the modern method of auction has been adopted by a growing number of auction houses and estate agents across the UK.

Auction demand The impact of the modern auction arena was evident in research from Moverly, which highlighted a ‘notable’ number of vendors choosing to sell their properties at auction over the past year. The number of properties coming to auction was suggested to have risen from 13,854 lots in 2021-22 to 15,424 in 2022-23, even in the wake of demand from buyers slowly falling over the past 12 months. Despite the average auction property price taking a slight dip of -1.8% to £190,871, a staggering £2.9bn-worth of residential property was successfully sold at auction in 2022-23. This growth in popularity has resulted in approximately 40% more property being sold at auction in 2022 compared to 2019 – and this number is continuing to rise.

DONNA WELLS is managing director at Envelop Specialist Finance

Tight deadlines While a private treaty sale takes an average of 171 days from instruction to completion, a more traditional property sale at auction can be completed in as little as 28 days. For an online property sale, this can be extended to a completion timeframe of 56 days, which can certainly provide those buyers looking to secure funds with a little more time. However, with this number coming in at a third of an average purchase, this can still prove to be a short timeframe given additional market complexity and lending restrictions, which can often cause issues when arranging any funding and from a legal perspective. With many mainstream lenders still unable – or unwilling – to accommodate such tight deadlines, short-term finance can often prove a viable and responsible solution. As a firm which is consistently delivering this form of finance for property professionals and those looking at getting into property rental, it’s important to understand not only the limited timeframes involved in completing such transactions, but also how and why such borrowers are looking at different areas to buy, based on investment returns.

Unconventional properties The allure of auction properties lies in their diversity and uniqueness. This was highlighted in the September edition of Property Auction Insights – collated by Essential Information Group – which outlined that, from unconventional structural elements to strategic locations, several factors contribute to the higher number of properties making their way to the auction floor.

Structural intricacies like nonstandard construction, susceptibility to subsidence, or being situated in flood-prone zones often push homeowners to opt for the auction route. Furthermore, roads hosting properties with proximity to key areas such as universities or hospitals – think houses in multiple occupation (HMOs) and flats – tend to experience an influx of auction properties due to the high rental demand in those areas. The report also added that socioeconomic dynamics play a key role. Areas with lower income demographics and consequently lower owner-occupancy rates are more likely to see properties heading to auctions. Lease issues, especially those concerning leasehold properties with shorter terms, contribute to this phenomenon, as traditional mortgage providers are often hesitant to lend on such properties.

Specialist partners The surge in properties making their way to auction, particularly residential, is driven by a confluence of factors including landlords divesting, the economic realities of mortgage expirations, and an increasingly discerning buyer market. This is a complex lending arena which is placing a stronger emphasis on advisers working closely with a specialist packaging partner to ensure the right lender is sourced quickly, the case is structured in a way that even the tightest of deadlines can be met, and a robust exit strategy is firmly in place at the end of the term. Thankfully, help is at hand. ● October 2023 | The Intermediary


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

Investors in the North turn to mixed-use


ne of the most fundamental decisions for any investor is working out which sort of property to invest in. Different forms of property will appeal to different sorts of tenants; understanding that from the outset is crucial if the landlord is to secure a decent return on their outlay. This is why it’s been so interesting to see many landlords express an interest in mixed-use assets in the North, of late. Savvy investors have recognised the opportunity that comes from backing property assets which not only deliver for residential tenants, but commercial ones, too. Industry analysis has pinpointed both the North West and North East as particular hotspots for mixed-use properties, accounting for more than a third of the properties listed for sale at the moment. It’s clear that growing numbers of investors have picked up on this supply and are looking to expand their portfolios by adding mixed-use properties to them.

The case for mixed-use investments There are good reasons why these properties are catching the eye of those looking to invest in property in these regions. First and foremost, there is the simple appeal of diversification – by pu ing their money into assets which combine residential and commercial tenants, landlords can spread the risk, reducing the chances of suffering unduly if either tenancy type starts to struggle. The fact that these properties are in the North is crucial, too, since a range of different data sets have emphasised just how resilient the property market is in this region.


For example, Sourced Financial noted that the North is outperforming the South on capital appreciation and rental yields – absolutely crucial selling points for investors. This is supported by the recent house price index from Halifax, which found that while all areas of the UK have seen values so en over the past year, those in the North have been best at retaining value.

Finding the right finance While the a ractions of this form of investment are clear, it’s equally true that some investors have faced challenges in acquiring the financing needed for purchasing or refinancing such assets. The difficulties faced in the economy, and the mortgage market in particular, have led to some lenders becoming far more cautious around how they handle such cases, imposing restrictive criteria or una ractive interest rates. This isn’t the case across the board, however, with some lenders embracing a different approach. Tuscan can write such cases on our standard residential product, which has proven distinctly popular with mixed-use investors in the North, since it opens up the ability to access loan-to-values (LTVs) akin to the residential line, as well as sidestepping the issue of interest coverage ratios (ICRs). As advisers know, ICRs have been an enormous pressure point for investors over the past year, and being able to remove them from the equation has been hugely welcome for investors in this region. We have seen a suite of investors in this position take a ‘wait and see’ approach. With rates rising and ICR tests becoming more challenging, the prospect of locking into a lengthy fixed

CARL GRAHAM is regional director at Tuscan Capital

By putting their money into assets which combine residential and commercial tenants, landlords can spread the risk” rate is far from appealing. Instead, we have seen investors in this region become increasingly likely to make use of a bridging loan, because of those more favourable underwriting criteria and comparable rate costs. Crucially, they then have an exit route, so that if or when interest rates on longer-term financing drop, they will be able to swi ly refinance, rather than worry about exit fees.

What lies ahead? The fact that the North has performed so strongly compared with the South means that it will continue to a ract the a ention of investors, whether they are just starting out or looking to add to already impressive portfolios. The benefits delivered through mixed-use will also remain strong, as investors aim to tap into be er returns while guarding against future downturns. It’s therefore crucial for advisers to pinpoint the lenders best placed to support them with their borrowing needs, which have experience handling these sorts of cases, and can provide reliable and fast funding. Until interest rates more generally start to fall, the case for adopting a ‘wait and see’ approach through a bridging loan will remain a compelling one. ●

The Intermediary | October 2023

Specialist_JBJOCRFFB.indd 72

17/10/2023 13:37:26

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

Early intervention can stave off crisis for the vulnerable


t’s clear that higher interest rates and the cost-of-living crisis are starting to have an impact on borrowers. Recent Bank of England figures for Q2 2023 show a sharp increase in mortgage arrears, which have risen from £14.9bn in Q1 2023, and currently total £16.9bn, or 1.02% of the total UK mortgage book. These figures can be viewed through two different lenses. The total number of mortgages in arrears is relatively small, but it could also be highlighting an increasing trend that means this is just the tip of the iceberg. It is also clear that some borrowers are struggling more than others. A recent StepChange report found that the number of clients needing full debt advice has increased 8% yearon-year. Meanwhile, the Office for National Statistics (ONS) highlights that four in 10 mortgage holders and renters are struggling with the cost of housing, a 35% increase on last year. With 1.8 million customers coming off fixed rates this year, 79% of those over age 55 have concerns with affording their increased mortgage payments, and research from Key’s Later Life Finance Study found that 23% of over-55s have returned to work or are working longer hours to support increased living costs. More worryingly, 5% – or an estimated two million people – have already cancelled insurance policies, while 73% of adults under 65 do not have adequate protection cover in place.

Making sensible decisions With an increased number of customers looking for advice – not just at the end of their current fixed rate period but also on general budgeting, income, and expenditure – advisers

can play a vital role supporting them through these uncertain financial times. The guidance advisers offer by supporting customers to make sensible budgeting decisions in times of financial difficulty could also protect the retention of protection policies already in place. This could make the difference as to whether someone cancels their life policy rather than a streaming service. With the mortgage usually being the last financial commitment to go into arrears, early engagement with customers who are facing missed payments in other areas such as credit cards, personal loans or utility bills is vital. The impact of financial concerns on people’s mental health and wellbeing is now more widely discussed. Depression and anxiety o en increase for people struggling with debt, and it becomes a vicious circle for many, with financial problems leading to worsening mental health, which can mean customers don’t seek help and the cycle continues. Advisers can direct their clients back to the lender as they may not always be aware of the options available to them, and early action can prevent longer-term damage to their overall financial position. Research undertaken by the Sesame Network and PMS Mortgage Club helpdesk found that advisers are already supporting customers who have experienced some form of adverse credit in the past, looking to place cases with defaults, County Court Judgements (CCJs) and mortgage arrears. There is already a need for the solutions that specialist lenders are currently offering, and this is only likely to increase.

STEPHANIE CHARMAN is strategic relationships director at Sesame Bankhall Group

A recent StepChange report found that the number of clients needing full debt advice has increased 8% year-on-year” Another area where advisers need to be vigilant is mortgage fraud. As customers face difficulty in obtaining mortgage finance, an increase in affordability manipulation is already being seen by lenders. This includes mortgage applications with staged income, questionable sources of deposit and undisclosed credit. Ensuring a customer obtains a copy of their credit file, from both Experian and Equifax, and reviewing this as part of the fact-find process, provides an opportunity for advisers to open a discussion which could start to address concerns. Support for consumers via the Mortgage Charter should keep repossession figures low over the year ahead, with expectations that arrears levels will continue to increase albeit from a low base. It’s clear that the short to mediumterm outlook for some consumers will continue to be difficult, however the impact can be minimised by early intervention. It’s important that the advice community works together to ensure we make consumers aware of all the support mechanisms that are in place. ● October 2023 | The Intermediary

Specialist_JBJOCRFFB.indd 73


17/10/2023 13:37:26

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

The next phase of


s I write this, the Bank of England Monetary Policy Commi ee (MPC) has just made its latest bank base rate announcement. The decision to hold rates at 5.25% feels like the right one, especially a er nearly two years of constant rate rises. No doubt this month’s inflation announcement – and the unexpected fall in both the headline and core figures – has had a significant impact, at least on the five members of the MPC who outvoted their colleagues, and decided that hi ing the pause bu on was the right decision. This is a significant shi since the last MPC meeting, where only one member thought holding rates was a good idea, and it will clearly lead to a wider conversation about whether rates have now hit their peak. For what it’s worth, prior to this announcement I wouldn’t have been surprised if we’d had another base rate rise, but now that it has been held it feels to me like we’re much closer to this being the peak. The further big question is whether, at any point in the near future, we’ll see the MPC bring the rate down. That feels like an altogether bolder option for the commi ee to take. I therefore wouldn’t be surprised if we didn’t see any downward rate movement until well into next year. Which, of course, is not to say that product rates won’t come down.

Keeping steady Talking of 2024, while I certainly don’t want to wish away the next three months of the year, the likelihood is that we’ll see li le change in our later life lending sector over that period, with the caveat that as we do come towards the end of the year, lenders and providers might feel the need to tweak pricing, loan-to-values (LTVs), criteria, etcetera, in order to generate


the business levels that would allow them to get close to hi ing their targets for the year. At the same time, they will need to start filling business pipelines for completions taking place in 2024, as we know cases tend to take months rather than weeks to move through the process to that end goal. Again, that means a concerted focus on securing that business in a market which is not as active as we would like it to be. What is fundamental to the later life lending sector, however, is the fundamentals that underpin it. I’m pleased to say that the demand drivers that have been in place for a number of years now fuelling the increase in activity – particularly over the past 24 to 36 months – do remain. You might even argue they are strengthening with each and every week that passes. For example, we have seen a notable societal shi in the approach older homeowners have to their residential property, in that they are now much more willing to access the equity within it in order to meet their financial needs. That should not go unnoticed, nor should it be taken lightly. For so many years, older homeowners were less than enamoured with seeing their property as an asset to be utilised, whereas now – particularly as the demands placed upon individuals has increased, especially for those on fixed incomes – we see a consumer base far more open to utilising it in some way.

The Intermediary | October 2023

Later Life_JBJOCRF.indd 74

17/10/2023 13:42:27

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

later life lending Big ticket concerns The other important point is about those demands that we see placed upon the individual, not least how to cope with the levels of inflation, the energy costs that have gone up, the food and travel costs that have risen – I could go on. At the same time, there are ‘bigger ticket’ responsibilities that are increasingly landing in the laps of older individuals, particularly those who do not have the pension provision required to meet their standard of living needs, or who might have to fund long-term care needs they hadn’t anticipated, or money for emergency healthcare or unforeseen circumstances that simply cannot be planned for. At the same time, we have the growing focus on the ‘Bank of Mum and Dad’ and what they might be asked to do in order to help their offspring financially, to help them get on the housing ladder, or indeed to help them with their living expenses, particularly if they are at the start of careers. In other words, the responsibilities and demands placed upon older homeowners have not gone away – they have actually increased – and therefore the option to access the value of a home is likely to figure even more heavily in the minds of these individuals, particularly as those financial pressures have grown.

Getting warmer My feeling, therefore, is that this current, somewhat subdued and challenging period for later life

STUART WILSON is chairman of Air Club

advisers is not going to last forever. It is shorter-term pressures such as rates, funding costs, and criteria, that are having their impact now, but the environment will eventually become ‘warmer’ for later life business. It’s not as if this is an exclusive situation for the later life lending market. Far from it. You need only look at what is happening in the purchase space in the residential first charge market to see that it’s a wider issue, with the number of transactions in 2023 so far down sharply on what was achieved by 2022. This is why I’m pleased by the Bank of England’s decision, because hopefully it sets something of a line in the sand, and gives greater confidence that a peak may have been reached, and we can start working our way down the other side. In that sense, I have higher hopes for 2024. However, I recognise that we may still have a way to climb yet before the terrain changes for later life advisers. ● October 2023 | The Intermediary

Later Life_JBJOCRF.indd 75


17/10/2023 13:42:40

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

Later life mortgages can help ease the cost-of-living crisis


lmost four out of five (78%) people between the ages of 50 and 79 say they have been impacted by the cost-of-living crisis. Of those, 19% have been significantly impacted and do not know how they are going to cope. These are findings from research we recently carried out, which revealed that two-thirds (65%) of respondents are most worried about being able to pay vital bills. Not being able to heat their house was a concern for 56% of people. A lady in her 60s told us: “Last winter I didn’t put the heating on, so the house was about 12 degrees. I sat in my lounge under a heated blanket because it was cheap to run, and my daughter was in her room fully dressed in bed, under the duvet. And this year we’re under more pressure financially than this time last year.” Another major worry, cited by 57% of people, was not being able to afford their mortgage, while 45% were concerned about not being able to buy food. Sacrifices are being made, as one woman we spoke to revealed: “Last year I had my shopping delivered by Tesco, but now my daughter takes me to Aldi. I’m in my 90s and not as strong as I used to be, so I’d rather stay home and have the groceries delivered, especially in the winter, but I don’t have a choice.” These are all basic living necessities, but cutbacks are having to be made, including changes to retirement plans. Retirement has been postponed by 26% of people in our survey, and 23% are seriously considering delaying it. Of those who have retired, 28% have had to go back to work due to the higher cost of living – 17% full-time


LEON DIAMOND is CEO and founder at LiveMore

and 11% part-time – and a further 7% are seriously considering it.

Helping customers with financial advice This is where financial services and good advice comes in. Many people could be helped through the cost-ofliving crisis with a mortgage. Even those who are retired or approaching retirement may qualify for a mortgage as their pension and other income can be used for affordability assessment. They don’t have to be buying a house, they could use the money for debt consolidation, home improvements, a be er standard of living, or to help family members. This is a good business stream for brokers, but many avoid working in the later life sector. The main reason is that brokers say they don’t do much work with borrowers over 50, so they either refer the client onto someone else, or simply say they can’t help. However, by doing this, brokers are missing out on commercial opportunities. They could be offering solutions that genuinely make a difference to people’s lives.

Later life lending options At LiveMore, we are always happy to guide brokers through the later life options and answer any queries, no ma er how tricky. Later life lending can be complex, but it doesn’t have to be, and it is o en even straightforward. If it isn’t, our business development managers (BDMs) and underwriters will know how to deal with it. If you want to test out what products are available, from standard mortgages – interest-only and capital and repayment – through to lifetime mortgages, the affordability calculator on our website is a good place to start.

Cutbacks are having to be made, including changes to retirement plans. Retirement has been postponed by 26% of people in our survey” By answering a few simple questions, such as postcode, property value, customer age and income, the affordability calculator will return which products are available and the maximum borrowing amounts. If the broker wants to proceed with an application via LiveMore’s broker portal, the calculations can be retrieved, saving time as no rekeying of information is required. At application stage, if affordability does not fit, counter-offers are displayed so you have other product choices.

Trust in financial advice Another finding from our survey is that 59% of people aged 50 to 79 said they don’t trust financial services providers to understand and support them through the cost-of-living crisis. On a more positive note, though, 32% are trusting, while 9% weren’t sure. We really need to change this mindset, because people over the age of 50 can improve their lives with financial assistance. Brokers and lenders have an important role, not only to advise but to educate customers, and it is in everyone’s interest that we do so. ●

The Intermediary | October 2023

Later Life_JBJOCRF.indd 76

17/10/2023 13:42:40

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

Championing the industry


he Financial Conduct Authority’s (FCA) targeted review of the largest equity release firms, published recently, highlighted that in some cases many companies failed to meet the expected advice standards, as well as uncovering that nearly 400 of these companies were showcasing misleading financial promotions. We do welcome the FCA’s findings and recommendations, as all firms need to be held accountable, and we found this to be true ourselves, following a recent study of online calculators.

Leading by example Our focus is, and always has been, choice, independence, and transparency, and we have spent time building technology to champion this throughout the industry. Our latest digital platforms ensure that the consumer has the ability to research the whole of market for live options and gain the freedom of choice. We have always prioritised a personalised approach to our bespoke advice, and advocate for maximum choice throughout our advisory process, which is especially important now given the application of Consumer Duty. Through our smartER platform, customers can search and compare all four different types of later life lending options: lifetime mortgages, retirement interest-only mortgages, home reversion plans and retirement mortgages. They can also explore products using our comparison tables or obtain accurate quotes using any of our 20-plus calculators. All these tools are connected to a live product database, updated by lenders, providing accuracy and empowering customers from the outset. Over the years, we’ve seen the importance of online search excel

at a compelling rate. Given that consumers want the power and control to conduct their own research – whether that’s for retail shopping, holidays, financial products, or equipment – they can trust that the data they acquire digitally is accurate and not misleading. While in the past it was noted that financial data within the equity release market has been somewhat behind in comparison with the sourcing tools available in the traditional mortgage market, more products and online platforms do now exist to enable consumers to source, research and discover their own personal financial options. However, we recently conducted and co-ordinated a UK review of selected websites, which found that more than 80% of data gained from online equity release calculators could be considered misleading to consumers. The research was conducted on the same day and measured against Iress, the product sourcing tool for advisers, with three scenarios, including the age of the customer, their property value, and their loan-to-value (LTV). We want to ensure that consumers gain accurate information so they can review their options in real time. That’s why we’ve expanded our online offering to provide more research, extensive information, and ultimate accuracy for consumers. This inbuilt technology allows for real-time data to be pulled centrally from our product database. Consumers don’t suffer from any delays, changes within the market or data fluctuations. The results are live – transforming and modernising entry to market by providing precision, while fundamentally aligning with Consumer Duty – providing transparency, accuracy, and whole of market information. Providing real-time, accurate data is critical and will help the wider

MARK GREGORY is CEO and founder of Equity Release Supermarket

industry. We appreciate that it’s a challenging time, but it’s important that we collectively drive the best possible consumer standards, and we’re here to support any equity release firm in achieving that.

Customer needs first The FCA’s Consumer Duty principles set out higher and clearer standards of consumer protection across financial services, and require firms to put their customers’ needs first. Equity release has increasingly become more of a mainstream financial planning solution over the years. Lenders and advisers alike understand the importance of offering customers as much information as possible to help them enter the advice process with the ability to make informed decisions. Therefore, simplifying the whole research process for customers through the use of smart technology only seeks to add greater benefit to all parties involved. Our new fact-find and product confirmation le er (PCL) also represent a departure from the outdated paper-based system of gathering client information and delivering extensive suitability reports. This shi was prompted by the FCA’s ‘Dear CEO’ le er in 2020. Our approach challenges advisers to thoroughly explore all opportunities for their customers. Most importantly, it captures the customer’s responses in a personalised financial questionnaire, reflecting their unique voice. ● October 2023 | The Intermediary

Later Life_JBJOCRF.indd 77


17/10/2023 13:42:40

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

The time is right for second charge JIMMY ALLEN is broker account manager at Norton Broker Services


Debt consolidation can help a borrower get on top of their finances

ast month, the Bank of England’s (BoE) decision to keep interest rates on hold at 5.25% for the first time in almost two years was a positive sign for UK borrowers. The move, which suggests the cost of borrowing has reached its peak, followed the news that inflation had fallen to 5.9% in August. Both announcements come at a time when the cost-of-living crisis continues to drive up debt levels among consumers, with credit card borrowing rising 5% to £65.3bn in the year to June 2023, while total spending was 8.3% higher at £20.7bn, according to UK Finance. Recent data from the Bank of England also shows that the number of mortgage balances with arrears has increased over the past 12 months, jumping 13% in the second quarter of the year to reach their highest level since 2016. While these figures show that the past few years have been challenging for borrowers, the fact that interest rates are stabilising and inflation is seemingly falling suggests that


the recent volatility seen in the UK economy is starting to se le down. This presents brokers with the opportunity to help those clients looking to get on top of their finances by taking out a second charge mortgage to consolidate their debt.

Rising awareness Demand for second charge mortgages has increased significantly over the past few years, as more brokers and their clients begin to acknowledge the benefits of the product as a capital raising tool. This trend is likely to continue as awareness of the product grows. According to figures from Moneyfacts, the average credit card interest rate is currently si ing at a 30-year high of 23.1%, making the cost of borrowing on a credit card significantly higher than taking out a second charge, where rates are currently around the 7% mark. This makes it a highly a ractive proposition for clients looking to consolidate debt, as it will allow them to release any built up equity in their home and use the money to pay off or reduce any outstanding debt they

may hold, without incurring the higher interest rate of a credit card. Taking out a second charge also prevents borrowers from losing the preferential rate on their first charge mortgage by having to remortgage onto a more expensive deal. It also mitigates the need for them to pay an early repayment charge (ERC) for exiting their first charge mortgage early because they need to capital raise. Although debt consolidation is one of the most common reasons why many borrowers take out a second charge mortgage, they can, in fact, be used in other situations too, such as to finance a wedding, to fund the cost of renovations or refurbishments, or even to purchase a holiday home. They can also prove to be a useful tool for those purchasers looking to move quickly, such as buy-to-let landlords looking to add to their existing stock, as the funds can be released swi ly, o en within weeks. In many cases, a physical valuation is also not required, which helps to speed up the process considerably, once again enabling the borrower to move quickly by leveraging their current portfolio and using the funds to purchase an onward investment, all of which presents an a ractive proposition to investors. As with all financial products, a second charge mortgage may not be suitable for every client, but for those looking to capital raise and fund the cost of a renovation, holiday home or other lifestyle purpose, a second charge could provide a swi solution to their borrowing needs. ●

The Intermediary | October 2023

Seconds_JBJOCRF.indd 78

17/10/2023 13:45:24

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

The wider uses of seconds beginning to be appreciated


igures for the second charge market have been largely mixed this year, with one month showing a year-on-year drop, followed by a year-onyear rise the next. However, it is not realistic to compare the conditions of a month in 2022 to the same month in 2023 and expect to draw conclusions about the success or failure of a whole sector, based on such a short period. While I realise that publishing figures on a monthly basis helps keep the sector in brokers’ minds, I would rather we waited for a whole year’s data before jumping to a particular conclusion. However, as we enter the last quarter of the year, we can at least look at the underlying conditions that can help inform how the year might finish in the second charge market. Without doubt, we face – as does the whole finance market – a challenging worldwide economic situation that shows no sign of abating. In the UK, the cost of living continues to rise with pressure on both household and corporate budgets causing a knock-on

I have been campaigning for a long time to brokers about how versatile a second charge mortgage can be, especially when it comes to a decision between a remortgage and a second charge”

effect to affordability calculations. In addition, there are increasing issues with personal creditworthiness, as more people are turned away due to rising levels of debt, or by being out of work for a period, subsequently leading to a credit rating that is lower than when they last took out a mortgage or loan.

Feeling the ripples Rather like the ripples on a pond caused when a stone is dropped in, the knock-on effects of the current worldwide economic situation continue to impact the wider market. However, the signs are not all bad. Demand for second charge mortgages has not subsided. In fact, demand is increasing as economic uncertainty continues. The main impact has been on the first charge sector in the first half of the year, with banks and high street lenders pulling deals, while at the same time interest rates have continued to rise until the recent base rate hold in September. There has been a growing trend of new business, suggesting a greater acceptance of the second charge proposition. This is especially noteworthy in terms of business applications, such as using a second charge loan as a means to develop a business through the purchase or refurbishment of premises, and for capital items such as plant and machinery, including the upgrading of internal systems by renewing out of date IT. There is, however, a limit to how far lending can be extended when the need is to cover business debts or cashflow items such as payroll. Lenders need to be very sure that any loan they make in these circumstances is not pushing the client further into debt and forestalling an inevitable

TONY MARSHALL is CEO of Equifinance

closure of the business. Of course, there is no reason why loans for these purposes cannot be provided to get a business through a difficult time, given thorough underwriting. As a deeper understanding of how second charge can be utilised grows, there are other areas – such as buyto-let – where a loan is being seen as a more suitable medium in certain circumstances than a first charge alternative. However, the bulk of second charge business continues to be centred around the need for a ready source of finance to purchase home improvements and consolidate existing debt in the form of credit and store cards. I have been campaigning for a long time to brokers about how versatile a second charge mortgage can be, especially when it comes to a decision between a remortgage and a second charge. The message seems to be gaining traction, particularly this year, as high interest rates and the implications of Consumer Duty have made the process of automatically equating capital raising with a default remortgage solution much riskier for those who have not thoroughly researched the second charge option. It could be that Consumer Duty will be remembered as a major catalyst in the development of second charge mortgages as a counterpoint to remortgages. At the end of the day, both avenues have their advantages, but with consumer outcomes becoming more closely scrutinised, it will be a brave adviser who ignores one or the other. ● October 2023 | The Intermediary

Seconds_JBJOCRF.indd 79


17/10/2023 13:45:24

P RO T E C T I O N Opinion

Reshaping perceptions around income protection


ave you ever bought something that you really couldn’t afford? Were you unable to resist, even though you knew it might be something you’d regret, just to give yourself a li le buzz of pleasure? How long did that buzz last before reality set in and you realised it had le a large hole in your budget – minutes, hours, days? If this sounds familiar, you are not alone. A survey by Charles Schwab in the US found that almost two-thirds of respondents had done exactly that; 64% admi ed to spending money on goodies like gadgets, clothes or holidays, and then regre ing that decision very soon a erwards. While we know we should be responsible, put money aside for a rainy day, invest in important things such as protecting the things we love, many of us let our hearts rule our heads, and choose instant gratification over the sensible option. Why is this? The answer isn’t a simple one. There are many reasons why people buy things that they know they shouldn’t. Humans are impulsive creatures. We are all hard-wired to focus on the here and now, rather than planning for the future, which we feel may never happen. For example, at one time or other, 47% of UK adults have stopped paying into their pension, according to There is a feeling that there is time to catch up, that protecting the future is for older people to worry about, that we should grasp pleasures while we can. Life today is lived out on social media, where showing ourselves to be living the perfect life with the perfect home and lifestyle has become hugely important for many. Our brains are becoming even more a uned to


wanting instant success rather than pu ing aside money for that rainy day that never seems to happen in the glossy, ‘Insta-friendly’ world. So, how can financial advisers and insurers fight against these instincts to make purchasing income protection a more a ractive option? The key is to start to challenge perceptions and encourage clients to make a conscious shi around their spending habits. A li le can go a long way. Many people believe they need to invest large sums to make a significant difference to their financial security. They think buying income protection is well beyond their means, especially when so many are feeling the pinch.

Small sacrifices While a comprehensive income protection policy that pays out until return to work or retirement – whichever happens first – can seem expensive, this is far from the only option available. There are other affordable options available that will cover essential bills and prevent immediate financial hardship if illness or injury does strike. From our own claims stats, we know the most common reasons for people being unable to work are everyday events such as accidents and musculoskeletal conditions, which usually require months, not years to recover from. Our short-term benefit option, providing cover of £1,000 a month for a guaranteed level premium with a deferred period of 13 weeks costs £10.25 a month. This is less than the cost of a KFC six-piece family feast, Dominio’s small margarita pizza or just one coffee a week from any wellknown chain. When put in these terms, protection suddenly becomes much more

REBECCA HILL is head of marketing at Cirencester Friendly

We are all hard-wired to focus on the here and now, rather than planning for the future, which we feel may never happen” achievable for many people. Going without these items of food or drink might mean a li le less pleasure for an instant, but the long-term benefits could be huge. The key to helping people overcome their natural impulses and adopt a more planned approach is to get them to recognise these instincts exist and give them the tools to spend in a more considered, mindful way. Encourage them to turn off any options they have set up online to buy an item with just one click, requiring them to take a moment to really think about whether the purchase is wise. Get people to keep a diary of their spending so they understand where any money beyond essential monthly bills goes. Urge them to use cash for minor spending, so they have to hand over something physical for any purchase, making it feel more real. All these methods will help people realise they have more control over their spending than they think and there is a way they can protect their future. Helping to change this mindset is something that advisers and insurers can do to make income protection a more appealing purchase. ●

The Intermediary | October 2023

Protection_JBRF.indd 80

17/10/2023 13:47:15

P RO T E C T I O N Opinion

Three different paths, just one destination


ast month, we did something transformational. We presented advisers with a new general insurance (GI) route: enabling them to direct their clients to an online journey, where the client can generate a home insurance quote and purchase their policy themselves. This self-serve option may initially seem somewhat paradoxical to what we’ve long argued: that advice is best when it comes to GI. We still stand by that mantra, but we recognise that the market is changing and increasingly turbulent, advisers are stretched, and not all customers are the same. This is about enabling advisers to offer a variety of experiences that suit the end customer. So, if for whatever reason direct advice is not viable, then steering them in the direction of a quality policy is the next best option.

Missed opportunities We’ve been exploring referral options for a while, and asking advisers how they’d see it working for their business. In our most recent Adviser Survey with more than 500 advisers, 30% said they’d sell more GI if they could refer to a third-party, while 57% said they still sometimes miss opportunities to sell it themselves. We’ve developed our proposition to address these statistics and give advisers options to reduce those missed sales as much as possible. Earlier this year, we launched our first referral option, which enables advisers to refer their customer to Paymentshield’s own team of in-house experts if they don’t have the time or expertise to offer advice themselves. This latest launch is option number two, and we hope that between them we’ve given advisers a means of having

a GI conversation, even a brief one, with every single client. Advisers will clearly detect if a client is signalling a strong preference to purchase insurance themselves, or isn’t willing to have a separate conversation about it. This might be true for those customers with more experience of buying home insurance. We also know that convenience is a powerful driver. In a YouGov survey we conducted with more than 2,000 consumers earlier this year, we asked what drove decisions to use price comparison sites: 45% said they used these because they don’t have to see or speak to anyone. It’s important, then, that we don’t completely overlook this self-serve appeal. It may also be the case that, as much as an adviser might want to talk to every client about their insurance needs, they simply cannot find the time, or perhaps they find it difficult to integrate the conversation into the sales process. One cohort we know advisers typically struggle to engage in a GI conversation is remortgage and product transfer clients. It’s therefore worth pointing out that using a referral service doesn’t have to be all or nothing. Advisers can continue to hold their own conversations when time allows, or refer when it suits. We’ve built the online journey model to maximise convenience for end customers. A er advisers opt clients in, they’ll receive an email or text to access the online platform, and can enter their details to generate a quote and purchase in their own time. We’re delivering the same optimised quote technology that advisers benefit from, partnering with third-party data providers to feed in property details. This means the input required from the end customer is kept to an

EMMA GREEN is director of distribution at Paymentshield

absolute minimum, and the whole journey takes just a few minutes. We’ve also taken into account adviser preferences, beliefs and practices. Just above 10% of advisers in our survey disagreed with the statement “my clients want advice on general insurance” – a small but not insignificant number. An online referral route could be a good option, helping brokers feel like they’re be er meeting their customers’ preferences and expectations. Likewise, both of our referral routes could be a good alternative to those advisers who don’t currently offer GI at all, around 14%, according to our Adviser Survey.

Moving onward We have plans to develop our referral service further, to make it even slicker for end customers. Meanwhile, our telephony referral option for advisers to pass customers over to our in-house team is already showing really strong results, with average conversion rates reaching 65%. There’s no one-size-fits-all approach to the way advisers conduct GI business, or how consumers want to purchase. Now more than ever, advisers might also be having to adapt the way they’d typically sell GI to cope with increased pressures on their time due to wider market activity. Whatever route they take, whether they’re advising, referring customers to us, or enabling themto buy direct, it still means advisers are able to stress the importance of quality protection – and ultimately, that’s what ma ers most. ● October 2023 | The Intermediary

Protection_JBRF.indd 81


17/10/2023 13:47:15

L O C A L FO C U S Colchester

Each month, The Intermediary takes a close-up look at the housing market in a specific region and speaks to the brokers supporting the area to find out what makes their territory unique

Focus on ...

JESSICA O’CONNOR is a reporter at The Intermediary



ollowing the Bank of England’s decision to put the base rate on hold last month, local authorities across the UK might well breathe a collective sigh of relief. After a year which has seen 14 consecutive rate rises, a failed mini-Budget and months of rising mortgage rates, the property market has seemingly started to recover. With swap rates on the decline, and the re-emergence of sub-5% mortgage rates following a brief rate war from lenders, local markets can finally get back on track after what was an unprecedented 12 months for the mortgage sector. One such market that has its sights set on the horizon is Chesterfield. This month, The Intermediary sat down with local property professionals from Chesterfield to find out what the market has been like over the past few months, and what a path forward to recovery looks like.

Current values The average property price in Chesterfield is currently £212,000, while the median price sits at around £182,000. This is compared with an average and median of £357,000 and £275,000 across England and Wales. The average price in the area has declined by approximately £1,500 (1%) over the past 12 months, most likely reflecting the widespread softening of the property market due to the


many factors, including the cost-ofliving crisis and ongoing inflationary pressures, that are affecting demand. The most affordable place to buy within the Chesterfield region is in the ‘S40 2’ postcode, with an average price of £161,000. Conversely, one of the most expensive places is ‘S40 3’, where a property can set buyers back over £326,000. The average price of a detached property in the region costs around £344,000, while semi-detached homes boast an average price of approximately £195,000. Terraced homes cost buyers around £147,000, with the average price of a flat coming in at around £119,000.

Subdued appetite According to the most recent data, the Chesterfield area experienced a 33.3% decline in sales over the past year, recording 951 transactions. Dan McGregor, mortgage adviser and company director at McGregor Ross Financial Solutions, notes this subdued appetite from buyers, stating that the usual seasonal slump of August and September has been particularly prevalent this year. With stock levels in estate agencies lower than usual for this time of year, McGregor has seen a lower number of purchase enquires as of late. Adam Paddick, senior mortgage and protection adviser at AP Mortgage Solutions Ltd, agrees with this view, stating that high mortgage

repayments and the high cost of living have undoubtedly played a key role in deterring potential buyers from entering the market.

Buyer trends However, despite this marked buyer reticence, Paul Lewis, head of growth at Mortgage 1st, believes that even in light of ongoing affordability challenges, Chesterfield’s property market is still performing well. In fact, there seems to be plenty of opportunity in the area, particularly when it comes to the first-time buyer (FTB) demographic. Research reveals that the most properties sold within the region last year fell within the £100,000 to

The Intermediary | October 2023

Local Focus_JB.indd 82

17/10/2023 13:52:31

First-time buyers remain a key demographic DAN MCGREGOR is mortgage adviser and company director at McGregor Ross Financial Solutions


he housing market in Chesterfield is relatively quiet right now and stock levels are lower than you would normally expect in September. However, there are still clients buying houses. There are a number of new-build developments, not to mention the Waterside Development which is likely to result in the development of residential properties. If rates can continue dropping and house prices can drop to more affordable levels, I am confident this will have a positive effect on the housing market. Home movers can then start thinking about selling and this will mean more houses for first-time buyers. Our main lenders tend to be HSBC, Natwest, Nationwide and Halifax. They tend to be the most competitive on rates and products, although we also have plenty of clients with specialist requirements who also want a great rate and product but perhaps

£150,000 price range, which recorded 257 transactions and made up a substantial 27% of all properties sold. This clear demand for more affordable properties reflects the strong contingent of first-time buyers in the area. McGregor notes that first-timers have always been his target market, while Paddick echoes this sentiment, stating that historically, firsttime buyers have made up a large proportion of his business. When it comes to lender preferences in the area, Chesterfield borrowers seem to favour ‘the big six’, namely Halifax, Natwest, Nationwide, Santander, Barclays and HSBC. However, for buy-to-let (BTL) investors, Paddick notes that brands such as The Mortgage Works and Birmingham Midshires have proven to be popular. →

have unique or unusual circumstances, so they may struggle to get a mortgage from a typical high street lender – we have lenders who can help them too. The appetite for residential remortgages has been very strong, as many people are coming towards the end of their fixed rate and are likely to be on a low interest rate compared to what is available right now. They will be worried about the current situation, but they won’t want to move onto the standard variable rate, as that is likely to be even higher. Residential mortgages for house purchases have been lower, but that is influenced largely by the lower number of houses on the market and the fact that house prices are still quite high, making purchasing a challenge especially for first-time buyers – the higher interest rates only compound this issue. The buy-to-let market is very quiet. The stress rates on buy-to-let mortgages are still very high and buying a property to let out isn’t quite as attractive as it once was due to changes in tax and other legislation. This is clearly having a negative impact on buy-to-let mortgage applications. →



Market share

Sales volumes

● Under £50k



● £50k-£100k




● £100k-£150k



Average age

● £150k-£200k



● £200k-£250k



● £250k-£300k



● £300k-£400k



● £400k-£500k



● £500k-£750k



● £750k-£1m



● Over £1m




44 Data source: statistical-data-sets/pricepaid-data-downloads

October 2023 | The Intermediary

Local Focus_JB.indd 83


17/10/2023 16:34:43

L O C A L FO C U S Colchester

Later life market



England & Wales



















There also appears to be a relatively healthy appetite for later life lending in the Chesterfield area, despite the ongoing struggles faced by this particular sector over the past year. According to Simon Chalk, managing director and later living planner at Laterlivingnow!, there have been a fair number of enquires for later life deals, with many older clients looking for help regarding the rising cost of living and paying for care. However, he does note a decrease in the number of clients looking to use equity release with Inheritance Tax in mind, saying: “We have

Cautious buyers ADAM PADDICK is senior mortgage and protection adviser at AP Mortgage Solutions Ltd


ctivity has certainly cooled over the past 12 months, especially in the purchase market. Buyers are nervous of committing due to higher interest rates, while Chesterfield has experienced only a slight dip in property prices so far this year, which is surprising taking into account the apparent reduction in buyers. This, along with high living costs, has seen people delaying buying that first property or upsizing until things have calmed down a little. There remain many new-build sites, which is encouraging for the industry in the near future. Within just a few miles of our office, big developers continue to build. When buyers feel ready to assess their options again there should be available stock to give them healthy choices. The appetite from residential lenders still seems pretty high.


As the outlook seems a little brighter after the base rate was finally held last month, and as swap rates reduce, we have seen mortgage rates steadily decrease. Also, more residential lenders seem to be reintroducing additional product incentives like cashback options and ‘green’ products, which are getting more popular and competitive. Traditionally our key demographic of clients has been an even split of first-time buyers in their 20s and 30s and a slightly older age group looking to remortgage to secure a better deal, or second time buyers looking to upsize. This used to be around 80% of our core business, with 20% buy-to-let enquiries. Over the past 12 months this split has changed dramatically. Buy-to-let has fallen away sharply, as have new purchase enquiries. A high percentage of our business is currently servicing our existing customers and ensuring that our clients get the best possible professional advice and support throughout this worrying time.

still enjoyed a fair level of enquiries, but many clients have chosen to defer taking action, in the hope that interest rates will reduce.” On the lender front, Chalk says that borrowers in the area have a strong “preference for familiar household names,” typically using Aviva, Canada Life, Standard Life, Pure Retirement, Responsible Lending, and Legal & General.

New developments Aside from an abundance of firsttime and later life lending activity, Chesterfield is also home to a wealth of new property and infrastructure developments, thus making the region more attractive. In fact, the price for a new-build property is currently £100,000 more expensive than that of an older, established property, denoting a clear demand for new-builds in the area. To meet this demand and invigorate the local market, Paddick says that there are a number of new developments popping up in and around Chesterfield of late, with many major developers such as Barratt Homes, David Wilson, St Modwen, Bellway, Harron Homes and Avant setting up shop just a few miles from his offices. As well as new residential property, the region has also benefitted from infrastructural and commercial developments. According to Chalk, the advent of the much-discussed HS2 will bring a wealth of new jobs and homes to Chesterfield, as well as the construction of new tourist leisure resort ‘PEAK’, which has already seen £200m in investment. Chesterfield is also home to one of the largest regeneration projects in the UK. According to Lewis, the region’s ‘Waterside’ has seen the construction of 1,500 modern homes as well as a number of shops, cafes and bars.

Buy-to-let While Chesterfield’s residential market might be developing at a rapid pace, the same cannot be said for buyto-let. When asked about the state of the region’s buy-to-let sector, brokers agree that this market in particular has suffered greatly over the past few months.

The Intermediary | October 2023

Local Focus_JB.indd 84

17/10/2023 13:52:33

L O C A L FO C U S Colchester

A buoyant later life market SIMON CHALK is managing director and later living planner at Laterlivingnow!


here are fewer offers coming in on property over £300,000, there is still lots of activity below that, but the squeeze is coming from the top down. The market slows naturally at this time of year, so it is harder to judge just how much is related to the economy. However, there is a lot of property coming to the market, which is a little unusual for this time of year. Chesterfields’ house price does sit around the national average, so when there is a change in the housing market, property values don’t move as far as other areas, but we have seen values drop. There’s a fair bit of ongoing development. HS2 will support some 1,500 new homes around the site. There’s an exciting tourist leisure resort underway, called ‘PEAK’, which has seen £200m invested in the first phase of infrastructure. Chesterfield Canal Basin redevelopment has seen the first tenants in a mixed commercial, leisure and residential space. Both McGregor and Paddick have seen a severe drop in enquiries, undoubtedly due to the widespread affordability concerns that have plagued the sector, forcing landlords to reconsider their investments. However, according to Lewis, despite it being a slow market at the moment, portfolio landlords have kept the sector afloat in the area. Chalk agrees, stating that portfolio landlords are keeping a close eye on the market, despite the tightening of stress tests by lenders.

Path to recovery In short, it is clear that despite the ever-present challenges, namely that of a struggling buy-to-let sector and a cautious buyer market, Chesterfield should not be discounted. With a healthy appetite from first-time buyers and an active later life market, there is still plenty of opportunity in the area for brokers looked to maintain their business and help clients meet their goals. And now, with plenty of investment being funnelled into its many residential and commercial developments, the region is most definitely on the path to recovery following a difficult few months. ●

The main later life theme this year is clients who need help in meeting rising living costs and paying for care. Repaying existing mortgages and carrying out home maintenance and improvement remain popular, but the lifestyle-seeking clients have fallen back, as have those using equity release for inheritance tax planning. Clearly, it is the higher interest rate environment that has deterred them. Overall, we haven’t suffered the same severe fall in enquiries and completions that many others have, but the numbers are inevitably down all the same. Many clients have chosen to defer taking action, in the hope that interest rates will reduce. There is a greater demand among clients to discuss ways of managing their borrowing. People are pretty keen to have the money they need, but to also leave something meaningful to family. Buy-to-let has really suffered. Portfolio investors have seen the return on their investments fall drastically. Many investors are sitting tight until the direction of the market becomes a little clearer. In all, it feels like we’re seeing small steps of recovery for the market which can only be a positive thing for the industry.

Bucking the trend PAUL LEWIS is head of growth at Mortgage 1st


hesterfield seems to be bucking the trend a little. We have seen some properties reduce or stabilise in valuation, but demand remains high. We are very lucky in terms of investment and exciting housing developments. Chesterfield Waterside has emerged as one of the largest regeneration projects in the UK, with 1,500 modern homes and apartments along with shops, cafes, bars and public square. The town and its centre will also benefit from £20m over the next 10 years, as part of Government levelling up investment. August and September always tend to be slightly quieter in

terms of business volume, mainly due to families taking much needed holidays and children out of schools for the holidays. Our lender spread has changed significantly over the last two years as the county acclimatises to the new norm. We are seeing far more clients buying properties with the assistance of smaller, regional building societies. Common sense is needed far more in this market, replacing the ‘computer says no’ mentality. Lenders being agile and flexible with criteria has been essential this year. First-time buyers have been impacted more than others. The end of Help to Buy had a lot to do with this, and inflation has taken its toll. The Bank of Mum and Dad has been needed far more. Portfolio landlords have kept the BTL market moving. We have not seen a huge amount of new landlords entering the market.

October 2023 | The Intermediary

Local Focus_JB.indd 85


17/10/2023 13:52:33

T E C H NO L O GY Opinion

Mortgage efficiency is evolving


his year marks the 12th anniversary of our Mortgage Efficiency Survey, a landmark piece of research that gives real insight into the challenges and opportunities lenders face. It won’t come as a great surprise that 2023’s survey has highlighted affordability as a major focus. Yet it may not be in the most obvious sense. While affordability has been absolutely central to responsible mortgage lending under the Mortgage Market Review (MMR) rules, which came in almost 10 years ago, its role for lenders has shi ed in the past year. Rising interest rates, high inflation and the cost-of-living crisis that is really hurting lower income borrowers, have together made affordability the single most important factor for borrowers. However, the increasing speed with which many lenders can now get products in and out of the market has made the pricing game a lot more difficult to win. We surveyed 36 mortgage lenders this year, with a specific focus on their experiences in this market and how well adapted their processes are to cope with the challenges they have seen. As well as launching and withdrawing products frequently to stay perfectly priced and maintain margins, lenders have also had to adopt a renewed focus on addressing risk through affordability considerations. In previous years, the Mortgage Efficiency Survey has found lenders focused on how their environmental credentials could be developed. This year, lenders’ thinking seems far more focused on the social and governance elements of their environmental social and corporate governance (ESG) agendas. A clear emphasis on the social responsibility of dealing with distressed borrowers was a priority – one wrapped up with governance standards and risk management.


The challenge of supporting borrowers while maintaining affordability and protecting balance sheet risk levels is increasingly complex, lenders acknowledged, even more so now under Consumer Duty. The cost-of-living crisis has shi ed lenders’ focus towards borrowers’ immediate needs, and there is a consensus that arrears rates may rise in the coming months and years. Bank of England data is already recording this, with Q2 figures showing mortgage arrears on residential loans are now at a seven-year high. The value of outstanding balances with arrears rose 13% over the quarter, and 29% over the year, to £16.9bn in 2023 Q2.

Managing arrears Even with a low base of 1.02% of outstanding mortgage balances, worry remains as new arrears cases made up 16% of the total outstanding balances with arrears. Capital values make this element of affordability risk more complex, with any rise in loan-tovalue (LTV), should property values fall, creating potential problems for borrowers needing to remortgage. Managing arrears is a critical area that lenders know they must invest in to ensure they meet Consumer Duty standards, and importantly, can provide evidence for each customer. How third-party servicers interact with borrowers, for whom the ultimate responsibility lies with the lender, will be under the spotlight. Smarter and more flexible systems and technology are going to be key to ensure individual borrowers’ needs are met at the same time as efficiency is not compromised. Lenders told us that there is still considerable work to be done to ensure the Consumer Duty’s future milestones are met, partly to manage processes, but also to be able to demonstrate that they are upholding the duty throughout the value chain.

STEVE CARRUTHERS is business development director at Iress

A number of participant lenders expressed concerns about broker fees in particular. The preparedness of smaller, directly authorised (DA) firms also emerged as an area to keep an eye on, along with networks’ ability to enforce best practices within their appointed representatives (ARs). Against this backdrop, lenders told our researchers that higher levels of scrutiny given to the mortgage origination and servicing process would likely drive considerable change in the coming year. Traditional ways of servicing mortgage accounts are unlikely to measure up to the regulator’s expectations of both lenders and any third-party service providers under the Consumer Duty. Taken together, these themes tell of a complicated market to navigate – faster origination and product design must be balanced against a stronger focus on customer outcomes. Pipelines must be actively managed, with pricing now less a case of turning the tap on and off. Borrowers must know they are ge ing fair value, and delivering this transparently is still a challenge for some lenders. While it’s relatively easy to communicate pricing, the effect of rates and product fees, and whether a borrower fits the criteria, affordability is far more opaque. Lenders must protect competitive strategies without leaving customers with insufficient understanding of why they are or are not eligible for a product. Consumers and brokers continue to demand a more efficient, more sustainable mortgage sales and origination process. Technology will play a pivotal role in meeting these demands. ●

The Intermediary | October 2023

Tech and stragglers_JBJOC.indd 86

17/10/2023 16:35:38

T E C H NO L O GY Opinion

AI has a lot of potential…but let’s not get carried away


magine the scene: the year is 2030, and a borrower is going through the advice process in hopes of securing the property of their dreams. Except, this borrower is not si ing down face-to-face with a human. Instead, they are interacting with a piece of artificial intelligence (AI) powered so ware, which is doing the job of the now extinct mortgage adviser. For a lot of people, the scenario may sound like an outlandish work of science fiction. But if you believe the AI evangelists, it could be reality in the not-too-distant future. During the past 12 months, the hype around AI has reached a fever pitch, with experts suggesting this technology could upend the global economy. Earlier this year, Goldman Sachs predicted that up to 300 million jobs could be lost to automation. Other studies have sought to predict which jobs may be most at risk from automation. Interestingly, mortgage brokers and financial advisers are two roles that experts believe could be replaced – at least partially – by AI. Only the other day I read about a brokerage that had created an AI tool that was knowledgeable enough to pass the CeMAP exam. But as much as the world has been gripped by AI fever, I remain highly sceptical about the idea that a piece of so ware could replace experienced advisers, even in the distant future, particularly in the specialist end of the market. For a start, I’m not sure people will ever be truly comfortable with trusting an AI-powered solution when it comes to the biggest purchase of their lives. Yes, ‘robo-advisers’ have had some success in the world of personal

investing. However, buying a house is a very different proposition to picking a low-cost passive investment fund using a decision-tree matrix. Property transactions are incredibly complicated, and even now, a er years in the industry, I regularly come across scenarios that I have never encountered before, and which test my knowledge and experience.

Delivering the data ChatGPT caused a storm earlier this year a er it demonstrated it could relatively convincingly produce prose that sounded and read as if it was wri en by a human. However, it could only do so by scanning millions of pieces of text to learn how we speak and write. Any so ware company looking to create a solution would need access to thousands of case files. Where would they get that data from? I cannot see brokers being willing – or even allowed – to give up such data. And without that, any effort would be doomed before it started. A large-scale national mortgage broker with deep pockets may take up the challenge in the future, of course. But it’s a risky investment with no guaranteed pay-off, and from what I can see, nobody is falling over themselves to replace their brokers at present.

Regulating robots Assuming for one second it were possible to create an AI model that could outperform brokers, there would surely be a myriad of regulatory hurdles to clear. For starters, would the Financial Conduct Authority (FCA) allow property transactions to go through that were fully advised by AI? And what if an AI-powered advice solution were to give bad advice?

LUCY WATERS is managing director at Aria Finance

Any software company looking to create a solution would need access to thousands of case files” This would almost certainly happen at some point, given that AI has already proven it can and will go rogue, offering incorrect answers that bear no resemblance to its training. Should this happen, who is on the hook for that bad advice? Is it the so ware company that created the solution in the first place, or the advice firm using its white-labelled so ware package? For me, there are simply too many unanswered questions to consider AI a threat to face-to-face advice. There are too many questions, not just about AI’s ability to ever deliver be er advice than an experienced broker, but also whether clients or the wider industry would be willing to allow so ware to manage the entire customer journey. All of this is not to say that I don’t see any role for AI in the mortgage market – and I’m sure there are plenty of firms figuring out how to work it into their business models. For me, AI will be an assistant to the broker, boosting their productivity and automating the repetitive and mundane tasks that take up too much of their time. That bit, I am excited about. However, I wouldn’t lose any sleep about the prospect of a robot taking your job just yet. ● October 2023 | The Intermediary

Tech and stragglers_JBJOC.indd 87


17/10/2023 14:02:51

id and n Sachs ffice

T E C H NO L O GY Opinion

Six ways to use ChatGPT for marketing


t MPowered, we have always been passionate about how artificial intelligence (AI) can transform the mortgage journey for the customer, and the potential for chatbots like ChatGPT to play a crucial role in companies looking to advance their customer support. However, o en overlooked is the value that ChatGPT can add to your own business. Its capacity to generate content makes it a fantastic tool when it comes to marketing, and lenders and brokers should be exploring how the technology can be incorporated into their marketing strategies to drive business growth as efficiently as possible. Given it reached more than 100 million users in two months, it is unlikely that you haven’t heard or even tried out ChatGPT. You may not, however, know how it works. An advanced chatbot, ChatGPT is trained using a large language model which predicts the best word to use at any given time. The model’s predictions are based not only on the billions of words it is trained on, but also on the previous words in the sentence. In this way, ChatGPT can interact with humans in a conversational, ‘human-like’ way. It can also perform a wide array of other tasks, including translation, text summarisation, coding and content generation. Through creative use of the technology, marketers can significantly cut down on the time it takes to do many of their day-today tasks. We have, therefore, come up with six ways marketing teams can use ChatGPT below, but the list certainly does not stop there.



STELIOS CONSTANTINIDIS is head of research at MPowered Mortgages

Email marketing

Especially in times when borrowers have less confidence in the market, it is important for businesses to regularly engage customers with updates, offers and information. ChatGPT can help generate the basis for text that can be used in email marketing, allowing you to send more relevant, timely and consistent updates to your customers.


Social Media

Social Media is becoming an increasingly important part of any broker’s marketing strategy, and can be critical for generating new leads, and growing brand awareness. With ChatGPT, marketing teams can save time by using it to generate captions, respond to comments, find trending hashtags, and even produce entire social media campaigns focused on specific goals.


Creating blogs

Most marketers know that search engines prioritise websites that are regularly uploading content that is engaged with by visitors to the page, and that blogs can form a significant part of this content. Unfortunately, consistently producing high-quality blogs is hard and time-consuming. ChatGPT can not only support by producing dra s of blog posts, but it can also be used to generate ideas for topics in the first place.


Producing customer surveys

Particularly in the current mortgage market, the needs of borrowers are constantly evolving. To ensure you are meeting the needs of your

target customer, feedback is vital. With the right prompts, ChatGPT is fully capable of generating effective surveys for you.


Recommending marketing tools

Broker marketing teams have an increasing range of tools at their disposal, but it’s not always straightforward to know which ones to use. Whether you’re looking for a content scheduling tool, or a keyword research tool, AI chatbots can provide you with a list of tools and options to explore instantly.


Writing service descriptions

Standing out online not only means describing your services in a way that will appeal to humans, but it also means optimising descriptions for online search engines. ChatGPT can do both. In short, ChatGPT can be a powerful tool for enhancing productivity and efficiency in your marketing teams. That said, it should be treated as a supplement, not a replacement, to human creativity. Human input will always be needed to tailor content to your specific needs, maintain your brand voice, and adhere to subtleties an AI model cannot. If you can get this balance right, the benefits to your marketing team in terms of time saved and variety of content created can be significant. ●

The Intermediary | October 2023

Tech and stragglers_JBJOC.indd 88

17/10/2023 14:02:52

Want to share your message with the industry? Advertise with The Intermediary and reach 10,000 current and next-generation property finance business leaders. With commercial opportunities spanning print, digital and events, The Intermediary has a multitude of creative channels that can deliver your marketing message to the people that matter.

Contact Claudio Pisciotta on CLAUD I O @ T H E INT E R MEDIA RY.CO.UK to discuss how The Intermediary can help your business achieve its goals.

Tech and stragglers_JBJOC.indd 89

17/10/2023 14:02:52

On the move...


Countrywide Surveying Services names director of technical services

ountrywide Surveying Services (CSS) has appointed Martyn Stones as director of technical services. He is a qualified chartered surveyor with over 35 years of experience in the resi market. He rejoined CSS a er two and a half years working across fintech and proptech and as a visiting industry fellow at Oxford Brookes University. He previously held board-level director positions with CSS in both operational and technical roles spanning 19 years.

Ma hew Cumber, managing director, said: “[Martyn] has played a crucial role in helping to build and support the business in many key areas over a number of years. “The additional knowledge and experience generated by his short hiatus will certainly arm us with the type of intel and insight which will help us to evolve as a business." Stones added: “[I] hope that my years of experience across the sector will add value to both [CSS] and its ever-growing client base.” ●

HTB appoints development finance lending director


ampshire Trust Bank (HTB) has appointed Jessica WinstoneAdair as lending director for London and the South East within its development finance division. She has over 24 years of experience, including 16 years at Royal Bank of Scotland (RBS). Most recently, she was the owner of, and developer for, a property renovation and design business. In her new role, Winstone-Adair will work on winning new business and developing client relationships into longer-term partnerships. She said: “[HTB] has an excellent combination of a fantastic development finance product, a significant reputation within the market, and a strong team with outstanding leadership.

“I’m looking forward to using my extensive experience and contacts in this role, in order to maximise new business opportunities.” Alex Upton, managing director – development finance, added: “Delivering the right product, and backing that up with exceptional service, can only be achieved by a racting the right talent that has the same focus, drive, and energy to champion [small to medium] housebuilders across the regions. "Jessica offers exactly that.” ● MATT SURRIDGE

MPowered Mortgages appoints Matt Surridge as sales director as Emma Hollingworth departs


Powered Mortgages has promoted Ma Surridge to sales director, following the departure of Emma Hollingworth, managing director of mortgages. With 20 years of experience, including at Mortgage Brain, Countrywide, and Lloyds Banking Group, Surridge will now head sales across all UK regions. Stuart Cheetham, CEO, said: "Ma will continue to use his talent, skills, experience and ambition to grow our business further as we establish ourselves as one of the 'go to' prime residential lenders [...] Emma will be greatly missed. Not only has her hard work and commitment helped our business to flourish over the past year, but she has been an absolute pleasure to work alongside." Surridge said: "MPowered Mortgages is leading the way for technological innovation in our industry using the power of AI to speed up and transform the process of ge ing a mortgage. "I feel passionately about its goal to bring mortgages into the 21st century." ●

Emma Huepfl named chair of CPF



mma Huepfl has been appointed chair of the Commercial Property Forum (CPF) – a Bank of England convened group. Huepfl previously established two independent businesses managing bank and institutional capital investing into UK real estate debt. Huepfl's industry service includes nine years as a board member for CREFC, the trade body for the real estate finance industry, which she chaired between 2019 and 2021. The CPF meets quarterly and includes developers, lenders,

valuers, agents, advisers, analysts and academics. Sarah Breeden, executive director financial stability strategy and risk at the Bank of England, said: “The [CPF] provides a crucial source of market intelligence and valued input into policymaking functions [...] Emma, with her extensive and varied sector expertise, will provide excellent leadership.” Huepfl said: "I will be working to apply my experience and draw upon a broad network of market participants to support the work of the Bank of England.” ●

The Intermediary | October 2023

On the move_JB.indd 90

17/10/2023 14:09:39



Don’t let your Don’t let your development development lender frustrate lender frustrate your client’s your client’s project project At Magnet Capital we are a genuine solutions provider At Magnet Capital we are a and experts in development finance. genuine solutions provider and experts in development finance. Why choose Magnet Capital? Why choose Magnet Capital?

• No hidden costs. We are completely transparent about our pricing. decisive approach. No ‘doubletransparent underwriting’ or slow No hidden costs. We are completely about our credit pricing.committee process. Brokers and • Quick, have direct access No to genuine makers. Quick, decisive approach. ‘double decision underwriting’ or slow credit committee process. Brokers and • clients Flexible funding. Our funds are provided by our equity • clients have direct access to genuine decision makers.partner in the business and therefore we aren’t limited by numerous or have theequity risk ofpartner fundinginlines being pulled. funding. Our funds investors are provided by our the business and therefore we • Flexible Lower fees. All our fees are based on net loan amounts and not gross. • aren’t limited by numerous investors or have the risk of funding lines being pulled. Wefees don’t retained so the client doesn’t Lower products. fees. All our areoffer based on netinterest loan amounts and not interest on a large interest • Better day one. is rolled up or serviced theclient clientdoesn’t prefers. Betterfrom products. WeInterest don’t offer retained interest so if the pay interest on a large interest • slice Loansfrom fromday £200k £2m. is rolled up or serviced if the client prefers. one.toInterest • slice surveying feesto- £2m. no QS monitoring for loans with build costs below £500k. Loans from £200k • Low a Development Finance 2022 £500k. at Low surveying Best fees Service - no QS from monitoring for loans with buildProvider costs below • ‘Commended’ Moneyfacts Awards. ‘Commended’ Best Service from a Development Finance Provider 2022 at • Business AdditionalMoneyfacts introducer fee can be added to the loan. Awards. • Business • Additional introducer fee can be added to the loan.  020 8075 3255 8075 3255  020    

The development The development finance experts finance experts

intermediary a4 ad V1.indd 1 On the move_JB.indd 91

03/02/2023 15:52 17/10/2023 14:09:40

intermediary a4 ad V1.indd 1

03/02/2023 15:52


PORTFOLIO GROWTH Supporting your client’s next investment No limit to the number of properties you can own

Equity release for purchase or refinance

Limited company lending or individual name(s)

Funding available for large portfolios and borrowings

Interest-only options available

No valuation fee payable until loan is approved

Our experienced frontline team manually underwrite every deal, supporting your clients through the application process and beyond. You won’t find frustrating portals, complicated forms or jargon here. You will, however, find an expert team looking to help your clients grow their buy-to-let portfolio with confidence.

Let’s talk.

0344 225 3939

Scan to see all of our key features

For intermediary use only. Cambridge & Counties Bank Limited. Registered office: Charnwood Court, 5B New Walk, Leicester LE1 6TE United Kingdom. Registered number 07972522. Registered in England and Wales. We are authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Financial Services Register No: 579415

On the move_JB.indd 92refresh A4.indd 1 79117_CCB - BMF Ad

17/10/2023 14:09:42 29/09/2023 13:37

Issuu converts static files into: digital portfolios, online yearbooks, online catalogs, digital photo albums and more. Sign up and create your flipbook.