The Intermediary – September 2024

BUY-TO-LET FOCUS ISSUE

INTERVIEWS NatWest, Family BS, Redwood and GB Bank weigh in on the market

OPINION Insight on buy-to-let from Landbay, Shawbrook, Leeds and more

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BUY-TO-LET FOCUS ISSUE

INTERVIEWS NatWest, Family BS, Redwood and GB Bank weigh in on the market

OPINION Insight on buy-to-let from Landbay, Shawbrook, Leeds and more

Intermediary.

The

www.theintermediary.co.uk | Issue 21 | September 2024 | £6

BUY-TO-LET GAMES

How new challenges have landlords adapting at speed

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From the editor...

T

he summer – what we got of it – is officially over, and thoughts are turning to cosy autumn scenes, the next school year, and dare I say it, the distant jingle of bells.

While this all might sound quite nice, for those in the mortgage market – whatever their sector – the final quarter is looking a li le less picturesque.

First, the ominous rumble of thunder has already sounded in the distance in the form of Keir Starmer’s warning of a ‘painful’ Autumn Statement ahead. This wasn’t exactly a surprise – everyone knew that Labour was going to try and fill the black hole deficit somehow, and this first Budget is the chance to make some “big asks” of the British public.

Everyone will be keeping a close eye on the Budget, but perhaps no one so much as landlords, and the brokers and lenders that serve the buy-tolet (BTL) market. For this sector, it is the threat of an equalised Capital Gains Tax (CGT) that will likely be the particular bogey-man of the Halloween ‘horror’ Budget on 30th October.

Of course, when it rains it pours – and if there’s anything we’re used to this year, it’s rain.

So, while we wait with bated breath for the events of the Autumn Budget, it won’t be lost on anyone that the Renters’ Reform Bill has made its way to Parliament, likely to a chorus of groans from across the private rented sector (PRS).

It’s not all negative, though. While yes, the abolition of Section 21 is a particular concern, landlords are by and large a sensible bunch who

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The Team

understand that making the market be er for tenants is ultimately a good thing.

No one, despite the rhetoric you might see in the consumer press, is actually bemoaning the improvement of standards across the PRS, and if they are, then perhaps it is best that they find the proverbail door, and their properties find their way back to the market.

What is important, though, is ensuring that this raising of standards is done in a way that does not mindlessly impact on landlords, who are a much-needed aspect of the overall housing ecosystem, itself key to the wider UK economy.

It remains to be seen whether Labour lives up to its scary reputation as the ‘anti-landlord party’, or whether it manages to strike a more effective balance. In the meantime, the BTL market continues to progress and evolve to ensure that landlords are able to run effective businesses and keep the housing market healthy, despite all the hurdles and challenges.

This month, quite fi ingly, we’ve dedicated our special focus to all the developments and innovations taking place in BTL, from everything brokers need to know about helping their clients diversify their property portfolios, to the lenders and products to keep an eye on as this market evolves. We’ve got a huge amount of thought leadership and interview content, and check out our feature and dedicated BTL case clinic for some real-life insights on the market. ●

Jessica Bird @jess_jbird

@IntermediaryUK

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BUY-TO-LET FOCUS ISSUE

INTERVIEWS NatWest, Family BS, Redwood and GB Bank weigh in on the market

OPINION Insight on buy-to-let from Landbay, Shawbrook, Leeds and more

Intermediary.

The

www.theintermediary.co.uk | Issue 21 | September 2024 | £6

BUY-TO-LET GAMES

How new challenges have landlords adapting at speed

Copyright © 2024 The Intermediary

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September 2024 | The Intermediary

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Next level

Ltd Company Buy to Let Enhanced underwriting service Improved lending criteria Bespoke application system

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Buy to Let mortgages which are for business purposes are exempt from FCA rules.

Contents SEPTEMBER 2024 BUY-TO-LET FOCUS

34

Feature 6

Marc Shoffman asks how landlords can adapt to increasingly complex challenges

Profiles and Q&As 20, 24, 30 Redwood Bank and GB Bank discuss the market and their businesses, while Family Building Society examines its Offset product

Opinion 14

Insights into the buy-to-let market from Landbay, Fleet, Keystone and more

REGULARS

Broker Business 78

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

Local Focus 94

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

INTERVIEWS & PROFILES

The Interview 34 NAT W ES T

Lloyd Cochrane discusses changing the face of buy-to-let

Q&As 68, 76 INSPIRED LENDING

Gavin Diamond and Owen Bentley on their vision for a new lender REFRESH

Sam Fox discusses shaking up the network model

In Profile 74 PEPPER MONEY AND L OA N S WA R E H O U S E

On the Move 98

Ian Praed, Rob Barnard and Matt Tristram debate the second charge sector

SECTORS AT-A-GLANCE

Meet the BDM

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

Residential 38 Specialist Finance 56 Second Charge 72 Later LifeFocus 84 Local Technology 86 86 Protection 90

THE EXETER

88

Mike Norrish on the challenges and opportunities facing business development managers

The Intermediary | February 2023

3

B U Y - TO - L E T In focus

Overcoming hurdles ADAPTING AT SPEED TO CHALLENGES IN BUY-TO-LET Marc Shoffman for The Intermediary It’s a tough time to be a landlord. Buy-tolet (BTL) profitability has been hampered by restrictions on mortgage interest relief, while the cost of entry is higher due to extra Stamp Duty rates and cost of borrowing hikes.

Remortgaging is also getting harder, as rates rise and older landlords struggle to meet lender age requirements, while yields are falling due to slowing price growth and rental reductions, as tenant demand falls and the purchase market becomes more accessible for first time-buyers.

The environment could get even more difficult if the Government manages to push through its proposed ban on no-fault evictions through its Renters’ Rights Bill.

Landlords, however, are a resilient bunch – particularly those outside the ‘accidental’ or ‘dinner party’ definition – as are the brokers and lenders that serve them. So, how is the BTL mortgage market adapting to help landlords make the most of a much-changed market?

The challenges of diversification The issues facing landlords today give brokers such as Gary Bush, managing director of MortgageShop.com, pause when a buy-to-let enquiry comes in.

Bush says: “Having first started arranging finance for buy-to-let in 1995, all I can say is that I feel deeply sorry for landlords.

“The past 10 years have seen a relentless attack from the Government and regulators on landlords that leave us in a situation where providing advice to consumers on the financing of such properties, for either purchase or

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The Intermediary | September 2024

refinance, individual unit or eight-bed [houses in multiple occupation (HMOs)], is a minefield.”

One way to cope in this new normal is to diversify, but even that is tricky.

For example, holiday lets used to offer a viable alternative to the private rental sector (PRS).

Since 1984, landlords could rent out holiday homes and claim capital allowances, while getting a reduced Capital Gains Tax (CGT) rate of 10% when selling.

However, former Chancellor Jeremy Hunt announced the scrapping of the furnished holiday lets (FHL) tax regime in his spring Budget, and the Labour Government plans to press ahead with the changes from April 2025. This will bring holiday let tax rates, reliefs and allowances in line with other forms of property investing.

The hope is that first-time buyers in tourist hot-spots will have a better chance of getting on the property ladder locally.

However, Katie Warren, director at holiday home buying agent Fixer Management Services, is sceptical that this plan will release suitable supply to first-time buyers. She says that while the changes are frustrating, this still remains a viable sector.

She adds: “Private landlords have the Renters’ (Reform) Bill and a lot more clampdowns.

Holiday lets are just coming up against legislation, but it will hopefully make the industry better. Mortgages for holiday lets are getting cheaper, and the changing legislation will hopefully level the playing field as long as you are in it for the long-term. This is not something you can flip anymore.”

B U Y - TO - L E T In focus

Howard Levy, sales director at SPF Private Finance, says a less challenging move can be from renting standard properties to HMOs. He says: “The requirements health and safetywise are the biggest hurdle [landlords] have encountered, but they feel this is a small price to pay for a much higher yield. Over time, they have found that holiday lets and HMOs take up more time than standard assured shorthold tenancy [AST] lets though, due to the higher turnaround of tenants and holiday makers.”

The environment could get even more difficult if the Government manages to push through its proposed ban on no-fault evictions through its Renters’ Rights Bill”

Incorporation nation Beyond diversification, another route is trading through a limited company to keep perks such as mortgage interest relief, being able to use company expenses, and pay the lower rate of corporation tax on profits compared with the higher rate of tax for individuals.

Scott Taylor-Barr, principal adviser at Barnsdale Financial Management, says: “We are having more conversations about landlords making new purchases in a limited company, as

that tends to work better for most higher earners in terms of tax.

“For those wanting to pass on their property portfolio to children, it also makes succession plans much easier to facilitate, as they inherit the shares in the company that owns the property, as opposed to having to change the legal ownership of the properties themselves.”

He suggests it is also important to have a good accountant, as property is no longer a

p

“So yes, this property is underwater, technically, but the tax on above ground buy-to-let is just so high at the moment” The Intermediary | July 2023

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B U Y - TO - L E T In focus

BUY-TOLET REMAINS ATTRACTIVE, DESPITE REGULATORY CONCERNS ROB STANTON IS SALES AND DISTRIBUTION DIRECTOR AT LANDBAY

THE MARKET REMAINS AN attractive long-term investment strategy. Tenant demand and rental yields are strong. The ratio of tenants to available properties has increased, presenting greater opportunities for expanding or enhancing existing portfolios.

Buy-to-let has been a part of the housing market for 30 years.The sector is mature, resilient and has weathered many economic crises and uncertainties.

This long-term perspective is mirrored in our recent survey findings. In May, we surveyed more than 1,100 landlords, exploring various topics, from rent increases and property transactions to management practices.

We found that, while most landlords may not be outwardly optimistic about the short-term, they remain quietly confident about the long-term.

Half of the landlords we talked to indicated an intention to purchase property within the next 12 months. Most of these prospective buyers cited portfolio expansion as their primary motivation for buying.

Renters’ rights The Government has now outlined its intentions for a Renters’ Rights Bill in the recent King’s Speech. This proposed Bill aims to build on measures to enhance tenants’ rights, which were initially included in the previous Government’s abandoned Renters’ (Reform) Bill.

Ensuring that tenants have the right level of protection and live in safe accommodation is, of course, vital. Most landlords take pride in providing decent homes and simply want to do the right thing.

Nevertheless, it is just as important that landlords have the certainty that any reforms will be fair and implemented in a timely manner.

Part of the solution Landlords should be recognised as part of the solution to the housing crisis, not the problem.

The key now is to maintain rents at affordable levels while retaining much-needed rental properties.

To achieve this, it is critical that we support good landlords, ensuring they feel confident enough to continue investing in the sector.

“simple DIY tax return investment, and needs to be done properly.”

Additionally, Taylor-Barr says a decent lettings agent who vets tenants properly can also help create a “stress-free rental experience.”

Leaning on lenders It is all very well trying to overhaul and prepare a portfolio, but landlords also need amenable lenders. Regulations may be restrictive, but in fairness to lenders, there are signs of improvement.

Taylor-Barr says: “Lenders in the buy-to-let space – where there are fewer regulatory barriers to innovative thinking – tend to be quite good at moving to market trends.

“We’ve seen a huge uptick in the number of lenders allowing limited company buy-to-lets, we’ve seen a large number look at top-slicing income, and they have always been more generous with age limits than in the residential space. So, there’s certainly no shortage of good ideas and positive moves from the lenders to help support this part of the market.”

Increasing numbers of landlords are incorporating. Data from Hamptons shows a record 50,000 buy-to-let companies were setup in 2024, up 11.6% annually.

Mortgage lenders are responding to this trend, with Moneyfacts data showing that 40 lenders offer deals for limited companies, up from 36 last year and 25 five years ago.

Lenders are responding by bolstering their expertise in this area. For example, Leeds Building Society has hired more specialist limited company underwriters.

Martese Carton, director of mortgage distribution at Leeds Building Society, says: “There continues to be an increasing number of landlords setting up limited companies to address some of the challenges they face.

“Brokers handling applications on behalf of limited companies are often dealing with very complex cases, so they value simplicity of service and criteria from lenders even more than normal.

“We’ve responded by enhancing our team, making our application platform more efficient, and developing case packaging checklists to ensure things are as quick and easy as possible for brokers and their clients.”

Levy says there are lenders, brokers and accountants who specialise in this area, but nevertheless, the job of educating landlords around their options has not been taken up much as it could have been.

He adds: “Lenders could provide products that aid incorporations, even if clients are within their fixed-rate period, for example – without

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B U Y - TO - L E T In focus

incurring early repayment charges [ERCs]. We have seen this from one or two lenders, but we need others to follow suit to make this a viable option for the larger portfolios.”

Product innovation Operating a BTL portfolio through a limited company might not be for everyone, but there is room for other types of innovation.

For example, Aldermore offers a multi-property mortgage for landlords holding several properties.

Jon Cooper, director of mortgages at Aldermore, says: “One of the things we see is that the market is continually moving towards more professional landlords, rather than the amateur landlord with one or two properties.

“For these customers, looking at how they structure their portfolios, there are options to look at like multi-property mortgage products that can save landlords immense time and money over the long term. It’s something we do at Aldermore, along with a few other lenders, and the opportunity here isn’t dying down.”

Cooper say it is imperative that lenders, the Government and the mortgage industry at large

all work together intelligently to ensure that many more landlords do not disappear from the market.

Another example of innovation is Family Building Society’s Offset Mortgage. This lets a landlord deposit money into a savings account linked to their buy-to-let mortgage.

Keith Barber, director of business development for Family Building Society, says: “This might be excess cash that they’re holding against future refurbishment costs, the tax bill or anything else.

This offset money doesn’t earn interest itself, but it does reduce the interest charged on the linked mortgage. This interest saving is particularly relevant now that the tax credit on finance charges is limited to 20%.

“While we can’t negate the full impact of the tax changes, this does help maximise the cashflow being generated by the letting.”

The product was made available to individual landlords in 2017. Barber admits take-up has not been as high as expected, possibly because this is an inherently more complex product, and requires greater some education of landlords by their advisers.

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B U Y - TO - L E T In focus

ked FP so this final page is right hand so feat would fit, also needs end mark -jb

BUY-TO-LET

In Numbers.

UK Finance The average gross buy-to-let rental yield in Q1 2024 was 6.88%, compared with 6.23% the previous year.

The average interest rate across all new BTL loans was 5.40% in Q1 2024, 0.30% lower than in the previous quarter, but 0.76% higher than in 2023.

Uswitch There are currently around 2.82 million landlords in the UK, with 68% over the age of 55.

The average landlord has 8.6 properties in their portfolio, generating a gross annual rental income of around £8,256 per property.

More than a quarter (26%) of landlords reported making a profitable, full-time living in Q3 2023.

Almost two-fifths (40%) of landlords have been operating lettings for between 11 to 20 years.

Shawbrook 2024 has seen a 14% increase in landlords looking to invest MUFBs compared to 2023.

Foundation Home Loans The average number of properties held in a limited company rose from 8.9 in Q4 2023 to 10 in Q1 2024. The share of limited company properties held by these landlords has doubled to 68% over the past four years.

Rightmove The number of enquiries for each property from would-be tenants is 17. While down from 26 in 2023, this more than doubled since 2019.

Despite overall rental supply slowly improving from last year (+14%), the number of rental properties available is still 20% below pre-pandemic levels.

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The Intermediary | September 2024

In recognition of this greater effort, Family Building Society pays a higher procuration fee to intermediaries of 0.50% compared with 0.40% on most standard BTL products Smaller landlords are also being catered for by lenders. Landbay, for example, has a range of non-portfolio products for landlords with three or fewer mortgaged properties.

It also became the first dedicated buy-to-let lender to introduce automated valuation model (AVM) products.

The range offers rapid technology-backed offers at three-times faster on average, according to the lender, while claiming to save landlords £500 per transaction due to the reduced costs associated with physical property evaluations.

Others, such as Redwood Bank, are sticking with manual underwriting, which it claims helps consider a client’s specific situations and provide them with flexibility.

Lenders are also doing their best to help landlords go green. This is all the more important since the Labour Government reinstated a deadline for rental properties to have a minimum Energy Performance Certificate (EPC) rating of Band C by 2030.

Redwood has a Green Reward cashback offer, which provides cashback of up to 0.50% of the net loan value of any new loan deals completed on properties with EPC ratings of Bands A to C. Chief executive Gary Wilkinson says: “We feel that in the current economic climate, receiving a cash lump sum would enable customers to be able to put this to an immediate use as they see fit for their business.

“In some cases, the reward may aid customers looking to improve the EPC ratings of other properties in their possession.”

There is still work to do, though, and plenty of room for improvement.

For example, Levy says: “It would help if lenders took into account where clients have inheritance tax planning in place.

“This could be adding family to the property ownership, by way of shares for example, or the use of trusts.

“Trusts have been underutilised in the past, possibly because lenders haven’t understood their usage, or have regarded them as a minefield.”

The days of double-digit buy-to-let returns may be over for now, especially as legislation and tax burdens in the property sector are likely to increase. Nevertheless, there is at least a clear effort from all sides to keep the buy-to-let market moving – whether the Government wants it to grow or not. ●

B U Y - TO - L E T In focus

Landlords are in it for the long game

I

n a year of rapid change, how are landlords feeling about their prospects, and what does this mean for the buy-to-let (BTL) sector? At Landbay, we decided to find out.

In May, we conducted a survey with more than 1,100 landlords, quizzing them on a huge range of topics, from rent rises and buying and selling through to management. We wanted to understand their hopes, fears and thoughts on the sector.

The main takeaway was that most landlords were confident about their longer-term prospects. Despite some concerns about the short-term, many landlords considered themselves in the market for the long haul.

The underlying reason for this was the continuing strong demand for rental properties.

Overall, fewer landlords were feeling negative about their prospects than our last survey, and most landlords remained neutral. 27% of the landlords felt negative about their business, compared to 37% at the end of last year.

While 40% of landlords were neutral, just under 33% felt positive.

Short-term view That’s not to say that we didn’t discover some anxiety among landlords. But this was largely focused on a shorterterm outlook.

Some landlords, for example, were worried about what a future Government might bring. As we conducted the survey at a time when there was a lot of speculation around when the General Election would be called, this wasn’t surprising. There were also some grumbles about ‘landlord bashing’ in the general media and politics.

These shorter-term worries aside, nearly half of landlords told us they intended to buy property in the next 12 months. 44% said they would invest in property, a significant jump compared

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The Intermediary | September 2024

to our last survey at the end of last year, in which only 32% said they would buy.

Most of the prospective buyers said their main reason for purchasing would be to build a property portfolio.

As one landlord who intended to buy put it: “I think we may see an increase in house prices. I am building my property portfolio.”

As a group, it was the larger portfolio landlords who tended to be more bullish overall. 40% of those who wanted to buy owned 11 or more properties, with 42% having between four and 10 properties.

Long-term stability Long-term prospects and confidence also explained why landlords are continuing to favour the stability of a fixed-rate mortgage, with 71% set to choose a 5-year fixed rate when they come to remortgage. This is a sizeable increase from 49% in our previous survey.

Even longer-term fixes of 7 or 10 years saw a slight increase in preference, with 6% of landlords set to choose this option – up from 4% last time.

Of those planning to choose a 5-year fixed rate, the majority was made up of those operating within limited companies (71%). At 42%, landlords with portfolios between four and 10 properties made up the biggest share of those opting for a 5-year fix.

It was the portfolio landlords, too, who we found were more likely to put up rents. Although most landlords said that they planned to raise rents over the next 12 months, 42% were landlords with portfolios of between four and 10 properties, followed by those with 20-plus properties at 28%.

Interestingly, we found house in multiple occupation (HMO) landlords had the most confidence in their prospects, despite an increase in local authority regulation. Among these landlords, just over 43% felt positive

ROB STANTON is sales and distribution director at Landbay

about their businesses, with just under 30% feeling negative.

Rental yields More than a third (36%) of landlords plan to raise rents by up to 5%, up from 27% in 2023. Meanwhile, 37% intended to increase rents between 6% and 10%, which closely mirrors the previous survey’s findings (38%).

Today’s market means landlords must factor in higher interest rates and operating costs. Higher interest rates were a big reason for the rent rises, but higher operational costs were a significant consideration, too.

Perhaps in an effort to cut these costs, more are turning to property management as a career. More than half treat the management of their properties as a full-time job. Half of HMO landlords use their property or portfolio as their sole source of income. But this strategy may not always pay off. Those who managed their own properties spent the biggest proportion of their rental income on property management.

What, then, can we learn from our survey findings? BTL is an a ractive long-term investment strategy. With affordability still a real challenge for residential buyers, and demand continuing to outstrip supply, there is an abundance of tenants ready to rent.

One landlord commented: “While the world is uncertain, the demand for residential property and accommodation is and will remain very high.”

But the Government must nurture confidence among landlords to overcome their short-term anxieties and retain them. As a buy-to-let lender, we are incredibly positive and remain commi ed to innovating to meet the needs of landlords. ●

B U Y - TO - L E T In focus

Taking the stress away for landlords

2

023 wasn’t exactly a highlight for those in the buy-to-let (BTL) market, with tighter regulations, spiralling interest rates and a high cost of living.

The market is still tough, but how can lenders take some of the stress away for landlords?

The market The BTL market has been hard hit, with purchase activity down by 53% in 2023. However, let’s not forget the significant growth in the market over the previous three decades – the market is still substantial.

It’s a resilient market that has been through many turbulent times, and the outlook is slowly beginning to improve, with the decline forecast to slow to a 13% contraction for 2024.

Demand for BTL properties is picking up. According to the Bank of England’s Credit Conditions survey, lenders have started to up their expectations, with data for the first half of 2024 looking fairly strong.

The Building Society Association (BSA) reported its sixth largest single quarter increase in investors looking for BTL properties.

Demand is still there BTL is a good asset with long-term growth and good rental income.

With demand for housing still outstripping supply, there isn’t

enough housing stock, and many renters are competing for homes in oversubscribed markets.

This has alleviated some pressures on landlords, with rents increasing by 6.2% in the 12 months to January 2024.

Despite the rent increases, the sector is a lot less profitable than it once was, due to the rising costs of being a landlord. In Q1 2018, the average interest cover ratio (ICR) – the landlord’s mortgage costs covered by their rental income – was 342%.

In Q1 2024 it was 191%, according to UK Finance.

The challenges for investors remain, particularly for smaller-scale landlords who are more likely to feel the pinch from higher interest rates, and who are less able to spread costs across their portfolios.

Recent market data indicates that larger landlords are likely to be buying up some of the properties sold by smaller landlords. The accidental landlord may fall by the wayside, but professional landlords are in there for the long game.

How can lenders help?

High stress rates are a bone of contention for clients, brokers and lenders alike. When interest rates were low and house prices were high, there was a tendency for borrowers to max out how much they could borrow, and with that risk there was a higher need for high stress rates to reduce

Smaller-scale landlords are more likely to feel the pinch from higher interest rates

DARREN DEACON is head of intermediary sales at Family Building Society

the potential for arrears. Increasing interest rates pushed up the stress rates, making passing affordability tests hard for many.

Over the past year, arrears for landlords are still remarkably low – UK Finance stated that in Q4 2023, just 0.68% of all BTL mortgages were in arrears – lower than in the residential sector, as it has been for many years.

With interest rates now stabilising and starting to fall, lenders will be able – and may already be starting – to lower stress rates, which will be a relief to those struggling to meet affordability.

In addition, for the increasing number of portfolio landlords, there are some lenders that won’t stress background properties. That’s something we’re able to offer. We also don’t limit the number of properties that can be held by a portfolio landlord. This could become a huge benefit for those snapping up the properties of those exiting the market.

Mid-September, we’ll also be reducing reversion rates, which will improve affordability further.

Lenders that manually underwrite can be hugely flexible. Many high street banks have been nervous, tightening lending criteria, and o en have a ‘computer says no’ approach.

Lenders that manually underwrite o en have much more flexible criteria and can make exceptions where lending makes sense.

Where business development managers have close relationships to underwriters, they can discuss cases and options to improve affordability before the application is submi ed, resulting in a smoother process with a much more positive outcome for brokers and their clients. ● September 2024 | The Intermediary

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B U Y - TO - L E T In focus

Why we’re seeing an increase in limited company buy-to-let

MARTESE CARTON is director of mortgage distribution at Leeds Building Society

to take to support clients. At Leeds Building Society, we began lending in the limited company buy-to-let space last summer and, in response to the needs of our broker partners, we have since launched additional support.

Full visibility

A

Trading under a limited company can reduce the need to increase rents to unsustainable levels

cross the industry it is apparent that the buyto-let (BTL) market is undergoing a period of change. This can feel like an exciting opportunity as well as a daunting prospect for mortgage brokers.

It may be a decade since rules around offse ing mortgage interest costs against income tax were announced, but se ing up a limited company to manage BTL portfolios is proving an increasingly popular choice. In fact, in 2023, a recordbreaking 50,000 landlords launched limited companies.

That, coupled with the higher interest rates that we have seen over recent months have impacted profits for many landlords, and as such we are still seeing an increasing trend towards limited company structures.

However, the buy-to-let sector has been under pressure for some time, and industry data suggests that by the end of 2023, there were 13,570 buy-to-

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The Intermediary | September 2024

let mortgages in arrears, and just over half of landlords feeling confident in the property market.

As responsible landlords, many BTL investors are mindful that continuing to increase rental charges for their tenants isn’t a sustainable solution to maintain profit margins, and there are different options available to achieve success.

Tuned in We know that the impact of inflation continues to bite, and many renters are unable to keep up with ongoing cost rises. Landlords are tuned into this, and trading under a limited company structure can reduce the need to increase charges for tenants given the beneficial tax implications it can provide.

As the trend continues towards investing under a limited company structure, many brokers don’t feel equipped to deal with these more complex applications and can feel confused about the steps they need

We conducted research with a panel of brokers in June that highlighted that an easy application process was the most important factor (16%) when considering lenders for limited company buy-to-let applications.

Clear criteria requirements came in a close second (14%).

As such, we have made some changes to improve service and offer more support.

Our team of specially trained experts has been further enhanced, and has received a warm response from brokers across the industry who have been able to direct application queries their way.

Limited company buy-to-let lending applications are made through our bespoke system, Mortgage Extra, which gives brokers full visibility of how each case is progressing.

To further simplify the process, we’ve compiled a full packaging checklist to complement the online affordability calculator and help brokers progress cases even faster.

As increasing numbers of limited company buy-to-let cases are landing on lenders’ desks, in the changing mortgage landscape we want to do everything within our power to empower brokers and build more confidence in limited company buy-tolet lending. ●

B U Y - TO - L E T In focus

How the Renters’ Rights Bill will affect landlords

T

he new Government recently announced its Renters’ Rights Bill, part of its plan to overhaul the private rented sector (PRS) in England and Wales.

The purpose is to give tenants greater rights and protection. It contains key proposals to end Section 21 ‘no-fault’ evictions and reform landlords’ grounds for seeking to possess a property.

The King’s Speech outlined the Government’s determination to protect renters against unscrupulous landlords, but also acknowledged the contribution that responsible landlords made to the industry – as well as their right to undertake repossession “where there is good reason to take their property back.”

The Bill is also intended to strengthen local councils’ enforcement

powers, making it easier to identify and fine non-complying landlords.

It also contains a plan to introduce a new ombudsman service for the PRS, to prevent disputes between tenants and landlords escalating to court proceedings by supporting quicker, less costly resolution methods.

The Government also plans to create a digital database for the PRS, bringing together essential information for landlords, tenants and councils. It argues that this would help landlords be er understand their responsibilities and enable them to demonstrate how they are complying with regulations and rules.

Councils would also be able to use the database to target and prioritise enforcement actions.

The Bill will also make it illegal for landlords to discriminate against tenants with children or those who receive benefits. It will also

ANDY ROWE is head of sales at Zephyr Homeloans

give tenants the right to request to keep a pet. While landlords ‘cannot unreasonably refuse’ such requests, they will be able to ask the tenant to take out insurance.

The Bill includes the provision of a ‘decent homes standard’ to ensure that all rental properties are safe, secure and free of hazards. Awaab’s Law, which sets clear legal expectations for landlords on how long it should take to make homes safe, will include both social housing and the PRS. Industry commentators will watch the Bill’s progress with interest in order to develop an understanding of its implications for landlords. We will also pass on relevant information to our brokers to ensure they can continue to provide landlord customers with relevant insight – and help them choose products that best meet their needs. ●

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Q&A

Family Building Society

The Intermediary speaks with Darren Deacon, head of intermediary sales, and Nathan Waller, BDM at Family Building Society, about how the BTL Offset product is fit for the modern landlord How does BTL Offset work?

Darren Deacon (DD): It’s a mortgage paired with a savings account – a way for a landlord to utilise their savings or occasional surplus cash flow. They can put money aside, and it will offset against the mortgage balance. We basically give the borrower a choice to reduce the mortgage balance or their monthly payments. If the balance is £100,000 and they have £50,000 sitting in the offset account, we can charge on a £50,000 balance.

The borrower can continue with their contracted payments, if they choose to do that, so they’re effectively overpaying, and more of their payments are going towards the capital. Or they can take the benefit of the offset and reduce their payments.

The borrower has the opportunity to switch between those methods during the course of that mortgage.

Nathan Waller (NW): It’s a way for the landlord to be able to see instantly the impact of an overpayment, having an impact on their monthly balance and therefore their monthly interest.

In a normal mortgage, when rent comes in, they might choose to overpay by £450 on their mortgage. That money is then locked in and getting it back out again is very tricky.

With this product, if they need that money again in six months’ time, it’s available.

That said, a single landlord who is self-employed might want to set aside savings to pay their taxes, for example. They can put it into an offset account. While there, set aside to pay the tax man eventually, it might as well be doing something.

NW: The landlord might be a relatively low-geared buyer, and they have the money sitting in their savings account because they were saving it for a rainy day, potentially planning on paying some or all of their mortgage off in the future. Interest rates have gone up significantly, or there’s the dreaded ‘low rate, massive fee’ scenario. They’d rather keep hold of some of the money.

There’s a multitude of different ends out there that can be facilitated by using this as a cashflow option, rather than going down the second charge, bridging, development or commercial mortgage routes.

Generally speaking, it won’t suit the individual landlord who has one property, because they don’t really have a massive need for the ability to offset.

Of course, if they did have a load of savings sitting there doing nothing, they may as well offset it in the meantime – they’ll have more personal income on a monthly basis, and they can then put that money into other accounts.

DARREN DEACON

Why do you think this style of product is so uncommon?

Is the product aimed at a certain borrower profile?

DD: It’s ideally suited for portfolio landlords to reduce their monthly outlay or help with cashflow.

This is not to pigeonhole it as solely a portfolio landlord product. It certainly isn’t, but it arguably has great greater benefits to a portfolio landlord.

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The Intermediary | September 2024

NATHAN WALLER

DD: Bigger lenders are, in the main, automated, which may affect their ability to offer this kind of product. It may also be that there’s a focus on other areas that we don’t do.

I’m a bit of a loss actually as to why the market wouldn’t look closer at this, though.

Offset lending certainly was in vogue in the ‘90s, but since then it has been less commonplace.

Q&A

Broker understanding is probably half the battle, ensuring they have the confidence to explain the product to their customer.

As much we like to bang the drum about it, it’s also not widely known out there that Family Building Society has this product available.

NW: If you go back seven years and think about where we were in the market, with the low-rate scenarios and 75% or 80% borrowing as the maximum, it was just a case of who’s got the best criteria or which criteria fits this client best.

Before the raft of legislative changes, landlords were able to offset a significant proportion of their profits against their mortgage costs. That’s no longer possible, and we’re in a market where mortgage rates are significantly higher. Savings rates, although recently improved, have probably peaked for the time being.

With this context in mind, there should be more uptake of this type of product among lenders, because there’ll be more varied products out there for people to fit their needs

What are some of the challenges facing landlords at the moment?

DD: With rental yields reducing, it’s having an impact on landlords’ businesses.

Properties are becoming affordable where the cost-of-living pressure is starting to ease, and more people are becoming first-time buyers.

Perhaps the accidental landlord – the ones who have one property, maybe inherited – is feeling that as a result of increased regulation and tax changes, being a landlord is not worth the hassle. However, portfolio landlords are really heavily invested in the market. They will see the opportunities, and if they act quickly they can benefit when they arise.

There’s a lot of talk about green initiatives.

Landlords might want to fit solar panels or get their Energy Performance Certificate (EPC) up, and this way they can get their hands on the cash.

NW: People tend to pay slightly more for a premium product. So, there’s a potential cash available to renovate, do things up, make that kitchen that a little bit nicer, make it more ecofriendly, greener, more cost efficient for that tenant. Tenants may be then willing to pay more rent, which will uplift the rest of the portfolio, increase overall yield, which can be filtered back into the offset account ready for a later date.

There are no real limits to what benefits this product could have for the right person, they just

need to think a little bit creatively about what they’re going to be doing with it.

DD: For landlords in general, they’ve had to face a lot of challenges certainly over the past 10 to 12 years, with tax changes and regulation. There are many things that that a landlord will face, and this is a creative, sensible alternative, where you’re not going to tie all your money up into a property and then need it 12 months down the line.

Following the mini-Budget in 2022, the fixed rate world was turned on its head. There are many advisers who have borrowers that have been used to a rate environment that went out the window, particularly in the past year. It’s coming back to something a little more manageable now, but it just shows the need for flexibility.

NW: There are elements where we are quite limited as to how creative we can potentially be as a regulated lender – it would have to come from the top and work its way down.

When it comes to the products themselves, we don’t necessarily need loads of innovation and make lots of quirky, strange products. Something like the Offset product is perfect. We just need more lenders to buy into it and make it more commonplace.

DD: I do think product innovation will be coming down the line, but the driving factor will be the green agenda. That will force lenders to think.

There are products out there, but there really isn’t a lot of choice.

How might a Labour Government affect the BTL market?

DD: Landlords will be watching developments closely, which may result in the departure of more accidental landlords.

NW: Whatever policies or changes come down the line, the sector is here to stay. There are a lot of landlords out there that are extremely resilient.

They’ve had a lot of changes thrown at them. They are extremely adaptable, and for a lot of them it is their livelihood. Of course there are concerns about some landlords leaving, but we’ve seen that time and time again. No matter what is thrown at them, they’ll find a way to continue. It’s our job as a lender to change with that and facilitate them.

We will adapt with whatever changes or policies do get put in place. We’ll take each change as it comes, roll with it and make adjustments accordingly, adapting just as the landlords do. ● September 2024 | The Intermediary

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B U Y - TO - L E T In focus

Expats play a growing role in the PRS

F

or many, there is a stereotypical view of expat landlords.

Invariably, people picture tycoons who own property in the UK, but live a luxurious life outside the country. While that image of people basking in the sun as the rent money rolls in might seem like easy street, the reality can be quite complex.

Understanding that complexity ma ers – especially now, with so many reports of a growing market.

Intermediaries are seeing a rise in enquiries, particularly from Brits relocating to the United Arab Emirates (UAE). The demand from expats moving to cities like Dubai is now higher than the once popular European destinations of France and Spain.

This is supported by data from HM Revenue and Customs (HMRC) that shows that 1.4% of UK property transactions in the year ending March 2023 came from overseas buyers, which is a 20% increase on the previous year.

Brits move from the UK to the UAE not only for the tax-free income and warmer climates, but Dubai is among a city with one of the lowest crime rates in the world, and also boasts a world-class healthcare system.

However, as the figures show, it seems that many people still want to keep one foot in the UK, and that comes in the shape of property ownership.

While living abroad and owning property in the UK may seem like an a ractive proposition, there is a lot more due diligence and specialist advice that is required to ensure a positive property outcome.

Expat landlords need support from intermediaries who understand

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The Intermediary | September 2024

Dubai is more popular among expats than France

everything, from the regulations and restrictions of the country their client is living in, to the impact of exchange rates on the affordability of the product they are offering.

In terms of options for would-be landlords, the good news is that expat mortgage holders now have more product choice, and the option of whether to choose a fix or other type of variable rate mortgage.

Choosing a mortgage that removes uncertainty is crucial for any expat landlord, and opting for a fixed rate can protect against any adverse currency movements. Fluctuations in exchange rates can significantly impact monthly payments.

This was the case a er the Brexit referendum in June 2016, when the British pound went from a high of 1.43 at the end of November 2015, and then remained below 1.2 from July 2016.

By February 2024, there were 1.17 euros to the pound, and today the euro stands at 1.19.

A weaker pound might be good news for overseas investors, but less so for UK expats, which is why it is

KATHY BOWES is intermediary manager at The Cambridge Building Society

important to find an intermediary who understands their client’s circumstances, as well as being able to guide them on the timing of the transaction.

Due to the nature of these propositions, more o en than not, an intermediary will need to talk to a lender that manually underwrites complex and nuanced business, to ensure that a personalised solution and appropriate product is found.

Specialist understanding At the Cambridge Building Society, we have seen a marked increase in demand for expat buy-to-let finance.

We understand the support that expat landlords and their intermediaries need, and have the specialist knowledge to be able to offer a complete financial solution.

We offer a maximum loan size of £750,000, and where a 5-year fixed rate is taken, we use payrate together with an interest cover ratio (ICR) of 140% to ensure the monthly payment is met by the gross rental received.

If a 2-year fixed or discounted rate is more suitable, we use a stress rate of 2% above the payrate, and again an ICR of 140%. Our buy-to-let mortgages are available to expats from any country, with the exception of those under financial sanctions, and all currencies can be considered.

In this specialist market, we believe we recognise the importance of expat landlords within the UK rental market and the extra support that they need from our intermediaries in order to make the right decisions. ●

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In Profile.

Jessica O’Connor speaks with Mike Says, CEO of GB Bank, about growth and flexibility as a new lender in buy-to-let

T

he property market has faced significant challenges in recent years, with Brexit, rising material costs, and planning delays all impacting the sector. Against this backdrop, GB Bank has emerged as a new player, aiming to navigate these difficulties and provide tailored financial solutions to property developers, landlords, and investors alike.

Having secured its banking licence in August 2022, the bank was originally focused on property development lending in the North East of England.

Today, GB Bank has broadened its product range, shifting its focus towards buy-to-let (BTL) and unregulated specialist mortgage lending.

The Intermediary sat down with Mike Says, CEO, to delve further into GB Bank’s burgeoning proposition and its plans for expansion.

Adapting to the London market

Following its recent move into London, GB Bank is positioning itself to tackle the capital’s market, while continuing to provide tailored solutions to developers and investors across the country.

With a capital boost as of May, the bank has been able to expand its capabilities, increasing its maximum loan size in a bid to cater for more investors.

Says says: “Having had the investment come through, we’ve been able to increase the maximum loan size up to £10m, and greater if the project is the right criteria. That means we are now placed to tackle the London market in a meaningful way.”

Despite the move, GB Bank remains committed to its regional proposition, continuing to utilise its active regional sales force.

Says explains: “We haven’t lost sight of our roots. We still will lend in the regions […] but we’re now committed to becoming a key player in the London market as well.”

Standing out from the competition

One of GB Bank’s advantages is its ability to fund through retail depositors rather than capital markets. The nature of this funding allows the bank a greater sense of flexibility over lending criteria, potentially giving the business a competitive edge over non-bank lenders.

Says says: “Unlike the non-bank lenders that fund in the capital markets, your retail depositors 24

The Intermediary | September 2024

don’t put onerous financial covenants on your lending policies. So, we can be a little bit more flexible in terms of how we manage the criteria.”

However, flexibility is not the only differentiator, Says explains: “The key thing for us is to get deals done quickly and with lots of communication through to the customers, either direct or through the brokers, so they know where we are at every stage of the process.

“What you get with some of our competitors is that the salespeople promise you the earth and then the credit team says no, whereas we have our credit partners working with our relationship managers from day one.

“Customers love that, as it takes a lot of the guesswork out of what is quite an involved process.”

Says stresses the importance of maintaining customer focus as the bank grows, explaining that GB Bank sees itself as just one element of a developer’s or investor’s project.

Says cites the example of the Savoy Projects, a project in which GB Bank completed a 62-apartment building deal in Farnborough with a £12m specialist residential funding solution in just 12 working days, from initial contact to completion.

According to Says, even as the bank continues to grow, maintaining this level of service is crucial.

“We have a relentless focus and a ‘can-do’ attitude to deliver reliably and consistently for our customers,” he explains.

Shifting away from development finance

A key part of the bank’s accelerated growth was its decision to move away from the development finance arena. According to Says, this decision was a straightforward one.

“As a bank, the development finance product is not a natural bedfellow,” he says.

Indeed, high risk weightings, planning delays, rising material costs, and labour shortages have beleaguered the planning sector as of late, making it increasingly difficult for development projects to be completed successfully.

Says explains: “We didn’t want to keep beating our heads against the wall in order to service that market, given that we were a new bank, we needed to build our balance sheet.”

I N P RO F I L E

In response, GB Bank shifted its focus to a broader range of products, including standard bridging loans, light refurbishment, commercial mortgages, and buy-to-let offerings.

However, while bridging remains part of the bank’s portfolio, it is no longer a primary focus, with buy-to-let and unregulated residential products taking priority.

Says explains: “We had a lot of success with the bridge product, and we will still do bridge products, but we will do it more as a relationship type product than a core product.

“We expect to do probably about 70% of our business as buy-to-let and 30% in the shorterterm products.”

“We’ve got the products in the shop window [...] but right now we’re just focusing on the longer term, really in buy-to-let type products.”

Serving buy-to-let

GB Bank’s expansion into BTL comes at a time when the market is experiencing significant shifts.

Interest rates have risen sharply to levels not seen since pre-financial crisis, driving up costs for landlords and investors alike.

Even with rates now beginning to fall, uncertainty remains, particularly with a potential increase in Capital Gains Tax (CGT) on the horizon from the upcoming Autumn Budget, which could prompt smaller landlords to exit the market.

Says notes: “The single property landlords are going to feel the pinch, there’s going to be quite a trend for people like that exiting the market now.”

However, for GB Bank, which focuses on portfolio landlords and professional investors, these shifts have been less impactful on its core client base.

“We haven’t seen those trends quite strongly in our core business; if anything, they see the smaller landlords are exiting as an advantage,” Says adds.

With rental demand remaining high and interest coverage ratios (ICRs) expected to recover as interest rates decrease, he explains that professional landlords are actually feeling more confident across the board.

Overseas opportunities

GB Bank sees potential in the underserved market of overseas investors, particularly in MIKE SAYS London and the South East. With more than 100,000 homes in London owned by foreign nationals, there is plenty of opportunity in London for deals between £2m and £10m with this demographic.

Says notes that high-net-worth (HNW) individuals, despite not needing to borrow,

prefer to leverage their investments to recycle funds into other opportunities.

GB Bank’s strategy is to tap into this market by offering bespoke finance solutions to complex borrowing cases, positioning the bank for growth in this space.

Says explains: “The high street banks and the larger banks tend to ignore these cases because they just don’t fit their standard criteria. We know that there’s a big market out there and I think it’s a very big opportunity for us.”

Flexibility for brokers

As GB Bank continues to strategically position itself for further expansion, it is still in the process of developing its broker proposition.

“We are going to introduce more and more technology in order to simplify the funding process,” Says explains.

He highlights the bank’s current strength in adapting to non-standard situations.

“I think what sets us apart today is our flexibility,” he says.

“We will talk to intermediaries to try and find a solution for them – we’re known as people that you can come to to get the job done.”

Rather than just offering “cookie-cutter type lending,” GB Bank works to find solutions for brokers when their clients do not fit the standard lending criteria.

“Sometimes, brokers have really great clients, but something doesn’t quite fit within the standardised criteria – we can be a little bit flexible,” Says notes.

“As a team of people, we will engage and try and find new solutions, which of course is what every broker wants, they want to do the best thing for their customer.”

While the bank plans to also offer more standardised products in the future, Says believes that by offering quick, reliable answers and delivering on its commitments, GB Bank has positioned itself as a strong partner for brokers.

He concludes: “GB Bank is in a good place. We have an ambitious new investor, and we’re keen to do business. Our focus is on maintaining relationships, delivering deals quickly and consistently, and delivering on our customers’ expectations.

“We’ve already seen success, and we’re confident there’s much more to come.” ● September 2024 | The Intermediary

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B U Y - TO - L E T In focus

Interest rate drop will breathe life back into buy-to-let

B

ashing the buy-to-let (BTL) market has become a sport for some, and the chorus of voices willing to play along with the narrative seems to be ge ing louder.

While it may be fashionable right now to kick BTL when it’s down, this market has long been used to such treatment. At various points over the past 20 years, the media and other commentators have wasted no time in sounding a death knell for the sector.

As a Guardian article from 2005 reveals, some were convinced even back then the “the buy-to-let boom is over” due to worries over the housing market.

Fast-forward 10 years and the papers were full of predictions that George Osborne’s Stamp Duty surcharge on second homes would kill off the market. Five years later still, it was the Conservatives’ decision to axe mortgage interest rate tax relief that was touted as the final straw. Over the past year, rising interest rates were the next big thing supposedly primed to bury the sector for good.

No one could credibly argue that the BTL market is in top shape right now.

But, as I have pointed out above, the sector has met significant challenges before, and always emerged stronger.

This isn’t just an opinion, it is fact.

The data doesn’t lie.

Just look at the numbers Between 2004, when the first wave of doom started to emerge, and 2022 – the peak of the market – lending grew an incredible 162.4%, from £21.8bn to £57.2bn. The doom-mongers are quick to point to last year’s 47% drop in new lending as proof that the market is doomed, while glossing over likely increasing product transfer activity.

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The Intermediary | September 2024

It is fashionable to try and kick BTL while it is down

Before we get ahead of ourselves, let’s not forget that 2022 was an aberration. Lending only hit such heights because the Bank of England signaled its plans to hike interest rates, prompting landlords to lock into cheaper deals while they could.

Over the past 10 years, buy-to-let lenders have advanced an average of £40.5bn a year. In this context, 2023’s drop in lending looks significant, but far from life threatening – a 25% rather than a 47% fall.

Change the broken record Still, many will argue that this really is the end of buy-to-let, citing the cumulative effect of tax hikes, tougher regulation and higher interest rates.

But landlords have survived – and even thrived – despite higher taxes and increased regulation.

If the central plank of the doubters is that higher rates are squeezing the breath out of the market, their theory is becoming less convincing by the day, especially as the Bank Base Rate has just gone through the first of several reductions in the next 18 months.

Unless something extraordinary happens, interest rates should be around the 3% mark by the end of

DAVID WHITTAKER is CEO of Keystone Property Finance

next year, with mortgage rates likely to follow suit. If that happens – and there is no reason to suggest it won’t – we will witness a significant uptick in landlord profitability.

Don’t just take my word for it.

Hamptons found that buy-to-let only becomes unprofitable for existing landlords when mortgage rates hit 6%.According to Moneyfacts, the average fixed rate at 60% loan-to-value (LTV) is currently well below that, at 4.21%. In November 2022, the average was nearly 6.4%, meaning that some landlords were indeed losing money.

Let’s assume interest rates do drop another two percentage points, and mortgage rates follow. The impact on landlord profitability would be enormous. At a 5% mortgage rate, a higher-rate taxpayer can just about scratch out a tiny profit a er deducting maintenance costs and tax. At 3%, that profit soars to about £2,000, according to Hamptons.

For a lower rate taxpayer, the increase is even more pronounced, rising nearly £2,000 to approximately £3,700 a year.

Once profits improve, we’ll likely hear less about the death of the BTL market for a while. However, I doubt whether we’ll hear much about the sector’s recovery.

That’s fine. This is a market that people like to kick, and that will never change. Critics will simply look for the next thing that will supposedly bring down buy-to-let, and the process will repeat itself in a few years.

Once again, the buy-to-let market will prove them wrong – just as it has time and time again. ●

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B U Y - TO - L E T In focus

HMO conversions: What do brokers need to know?

H

ouses in multiple occupation (HMOs) have been growing in popularity in recent years. Landlords are increasingly looking to include HMOs in their portfolios and future strategies.

At Shawbrook, we’ve seen a notable uptick, with HMOs making up an increasing percentage of our buy-to-let (BTL) business.

There are numerous benefits and considerations for landlords favouring this asset class, from higher yields to tenant demand. However, ready-made HMOs available for purchase are far less common.

Therefore, landlords interested in diversifying into this asset class need to find an alternative route. At Shawbrook, we’ve seen that many landlords are buying and converting other properties into HMOs. In fact, there is a trend of landlords buying older, tired properties and converting them into HMOs as a way of ge ing into this market. HMO conversions now account for not far off half (47%) of properties being developed using our bridging loans.

With this strategy growing in popularity among landlords, and many considering diversifying in this way, brokers that have the expertise around both HMOs and bridging will be well-placed to offer support and guidance on these new ventures.

The right property The first thing for a landlord to consider will be what makes a suitable HMO investment property. Our data suggests older residential properties, which o en have larger room sizes and the potential for lo conversions, tend to be a popular choice for landlords.

With room size requirements being

28

part and parcel of an HMO licence, they are an obvious choice.

Nevertheless, there are other properties that can also make ideal candidates, particularly for those with a bit of imagination; for example, old commercial units like small guest houses, or the upper floors of retail units.

For brokers supporting their landlord clients, ensuring the right financing is in place – as well as the correct approvals – is vital before starting on the conversion.

A lot of properties will need significant investment to both convert and bring theme up to the necessary high standard for prospective tenants, so understanding what will be involved and having everything in place is important.

Planning permissions and regulations Converting a property to become an HMO isn’t as simple as you may think, and in some cases planning permissions are required. Large HMOs – those with seven or more people sharing – will need planning permission in order to change the use of the building to an HMO, but residential property (Class C3) can o en be converted to a small HMO under permi ed development.

Planning requirements can vary by area and property, so it’s best to ensure that the client has done their due diligence and received the necessary approvals prior to securing financing.

For those concerned about the length of time that planning permissions may take, there is funding available to support during this waiting period.

HMOs also come with specific legal requirements. For example, a property which will have two people sharing a

DARYL NORKETT is director of real estate proposition at Shawbrook

room requires a bedroom size of 10.22 square metres or over.

HMO licensing is dealt with separately to planning so it’s important that landlords have both in place prior to construction starting.

Funding a conversion Depending on the state of the original property, and how much work is required, changing a single-unit home or other property type into an HMO can require significant investment.

With the cost of labour and materials being high, it’s important that the project is budgeted for appropriately.

Over recent years, the standard of finish in the market has improved, which has added to both the typical budgets needed to create a modern HMO, and the rent achieved.

Bridging loans can therefore be an effective product for landlords looking to diversify without impacting their capital reserves. Specialist lenders will also o en offer the ability to transfer from bridging loan to BTL loan once the conversion has been completed.

With conditions challenging in the BTL market, increasing numbers of landlords will consider HMOs as part of their future strategy. It’s not just professional, portfolio landlords making the jump. We have also seen a rise in HMO business from nonportfolio landlords (from 17% to 21%).

Relationships with lenders are important, to understand the products and criteria that will best suits your clients’ circumstances. Brokers who can capitalise on these developing trends will benefit as landlords consider their next moves. ●

The Intermediary | September 2024

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In Profile.

The Intermediary speaks with John Eastgate, chief commercial officer at Redwood Bank, about the growing importance of specialist buy-to-let

J

ohn Eastgate, chief commercial officer at Redwood Bank, has been in financial services for 34 years, including working with Saffron as it returned following the Global Financial Crisis, then with OSB as it progressed through its initial public offering (IPO), going on to Shawbrook and Nottingham Building Society, until he eventually joined Redwood almost a year ago in October 2023.

With a year under his belt at Redwood Bank, Eastgate warns about the danger of underestimating lenders like this one. Redwood reached profitability in year four, which Eastgate lauds as a “pretty impressive performance,” while noting that the “potential for more is tangible.”

He says: “There’s a danger that people assume smaller organisations don’t have the capability.

The talent we have in Redwood is great, and disproportionate to its scale. The joy of that for me is that I see in the organisation a tremendous amount of potential. That potential won’t just crystallise on its own. There are things we need to do to become a better lender. But we have the people and the talent to do that.”

Redwood started off as a smaller business with an “all hands to the pump” mentality, but has since grown to house approximately 150 people, nevertheless maintaining its “family feel,” according to Eastgate. This, he adds, is underpinned by the ethos that talent development is just as important as commercial profits.

Eastgate explains that Redwood has enjoyed plenty of growth, and is now entering a phase where it moves on from this and takes it “up to the next level, to move the organisation on to become stronger, bigger and more professional.”

The proposition

Eastgate points to one of his most important career lessons being the need to be “clear, transparent, consistent and reliable for brokers.”

He adds: “It’s hugely valuable for a broker to put business to you, knowing what the outcome is going to be. At Redwood, we have a lot of people working hard to deliver that.”

Nevertheless, Eastgate concedes that there is always more work to be done, saying: “What we don’t have is the most clarity around what our lending appetite is, and I would like us to build 30

The Intermediary | September 2024

out a greater presence so brokers are more aware of us and our lending appetite. If they’re going to put one of their clients to us, I want them to know from the outset that it’s a good fit for us.”

Redwood’s lending proposition is “firmly aimed at professional investors.” This is predominantly within BTL, but also branches into commercial and semi-commercial lending.

Eastgate says: “The approach we take is quite exhaustive. The extent to which we manually underwrite cases gives us the ability to understand circumstances more than many of our peers – and I say that with direct and indirect experience.

“They absolutely do look at cases on their own merits, but the extent to which we underwrite adds more to that. We spend more time investing in the client’s situation than I’ve seen before.”

He adds: “On the one hand this is absolutely where we gain an advantage from scale – if you want a decision then you get up from your desk and walk five yards, you get to the chief executive’s office. The other thing that helps is that we’ve got a real mix of people in the business. There’s people like me who come from a specialist lending background, but there’s also those from high street banks, from large building societies, and more. It’s interesting to get that different mix of perspectives, along with the ability to pause and ask a few more questions.”

This approach does not mean eschewing tech and automation. Eastgate simply suggests that “the question is not whether we should be using the newest technology, but whether we can do something that makes the process easier.”

He adds: “I very much doubt that a broker or their client cares how a lender gets from the point that they have an application in the building to a decision being made and the loan completed. They care that it happens, but the mechanics of it are external to the headline of it happening.

“If a lender can use technology to make that happen, then that’s great. I have no issue with a specialist lender auto-decisioning, for example, because that will be predicated on the tech presenting the lending policy in code. Whether a human being delivers that or a program, it makes no difference, if you arrive at the same answer.”

Nevertheless, he adds that specialist lenders, by their nature are “great at the stuff that lands

I N P RO F I L E

on the periphery.” That is where the value add of having people-led decision-making comes in.

The state of BTL

the role of specialists in meeting the increasingly complex needs of landlords. Nevertheless, this does not mean an edging out of high street names as the market evolves. Eastgate says: “At some point, the larger high street names will have to reflect on the fact that, if the volume of business that has historically been called ‘specialist’ is so great, why would they not choose to accommodate some of it.

“There will be some competitive threat that emerges from some of the lenders that currently don’t place themselves in that space.”

For argument’s sake, if this market reaches the point where half or more of the lending is by institutions that are classed as ‘specialist’, the definition – and the market’s understanding of the JOHN EASTGATE differences – will likely need to be revisited.

With a proposition stretching across BTL and commercial or semi-commercial, Eastgate has a sense that landlords are increasingly looking toward these areas.

He says: “As we know, the BTL market has become increasingly difficult for landlords since 2016. It has become a more challenging environment for them to operate in, and that has driven the professionalisation of the market.

“If you accept the premise that the ‘amateur’ landlord is becoming less prevalent in the BTL market than professionals, then as the challenge of creating a return from residential BTL is greater, it’s perfectly natural to move into commercial or semi-commercial.

“If you’ve got the infrastructure and expertise in your business to manage residential assets, then you can stretch that into a mix of that and commercial. Any business will start off doing one thing and then evolve and diversify, and what we’re seeing is the BTL market doing exactly that.”

In addition to taxation and regulation challenges over a longer period, Eastgate points to the past few years of higher interest rates. Some – who locked into what are now relatively low interest rates in 2020 – have had a prime opportunity to make the most of recent rental increases.

However, they are the next wave to face the reality of higher interest rates, and the inevitable effect on their margins, in the near future.

No matter the current challenges, Eastgate says that ultimately “property is a one-way bet” if landlords keep an eye on the long-term, adding: “Since about the 1950s, there hasn’t been a 10year period where property prices have not gone up. It’s more about whether you have the capacity in your life to handle all the complexities that come along with being a BTL landlord.

“I don’t underestimate the amount of effort. A characteristic of the most successful landlords I’ve met is that they make an effort, look after their properties and tenants. They also have large teams of people around them to make sure stuff gets done. They make that investment, and they get that return.”

Seeking out specialists

UK Finance’s analysis of the top lenders in BTL shows that – while still dominated by the obvious high street names – there is considerable encroaching by specialist lenders such as OSB and Paragon. This, Eastgate suggests, demonstrates

Trends and challenges

Eastgate points to the emerging implications of a changing Government, which have stoked up plenty of concern in this market.

Nevertheless, the previous Government was “no great friend, either,” and while Labour might prove to be a “political spanner in the works,” any move toward a better quality housing market and better standards for tenants should be embraced.

Of course, one particular shift coming down the road in 2030 is the deadline for Energy Performance Certificates (EPCs).

Eastgate says: “I support the idea that properties should be of a good standard, and if their energy efficiency is part of that, then we should be aiming for minimum standards – that’s a given. Where I have a legitimate challenge is that the EPC system isn’t perfect. It needs to be less subjective, and it needs to take into account that some properties are not improvable.”

Eastgate does note a growing attraction to the idea of improving the green credentials of properties. Part of this is the correlation between a home being greener and better constructed.

These factors, in turn, can pull in higher rents, particularly as the next generation of tenants sets increasing store in green credentials.

Products and service

In a market full of lenders looking to innovate, Eastgate warns that it is not all about flashy products, concluding: “What we pitch to a broker is the depth of the relationship. It’s hard for any lender to say that the product itself is unique.

“The one thing no one else can copy, however, is the people that we have in the organisation. The difference that we deliver is through the people we have in the field, and in the office.” ● September 2024 | The Intermediary

31

B U Y - TO - L E T In focus

Labour must keep landlords on side

T

he Labour Party is in a difficult position when it comes to implementing legislation that affects the private rented sector (PRS). Traditionally, it is the party of the tenant rather than the landlord, so many of its voters will expect rental conditions to improve, and are unlikely to take kindly to measures perceived to help landlords.

However, the reality is that legislation contained in the Renters’ Rights Bill – which includes introducing the Decent Homes Standard to the PRS and abolishing Section 21 evictions – must be combined with policies that make it profitable to be a landlord, or the lack of rental stock will mean tenants have no choice but to pay higher rents.

Our research found that 66% of landlords reduced the size of their investment portfolio in the past year, largely due to squeezed profits. Some have already been pushed out due to previous hostile legislation, so introducing more without chucking them a bone is a risky move.

Mortgage Income Tax Relief In 2015, David Cameron and George Osborne’s move to eliminate Mortgage Income Tax Relief – replaced by a 20% tax credit – was a big one. It looks like a worse decision every year.

Conditions were different. Mortgage rates were low and landlords were profiting from substantial capital gains, so losing out on tax relief was disappointing, but not the end of the world. Now, however, mortgage rates are higher and house prices static, so there’s far less reason to be a landlord.

Why take on the workload and risk when you can get be er returns with stocks or other investments?

Economic conditions have changed, and it would make a lot of sense for Labour to roll back on that tax change. It might be difficult, but it

32

The Intermediary | September 2024

would help reassure investors that Labour is trying to find a healthy balance between pro-tenant and landlord policies.

As it stands, 52% of landlords feel less confident under the new Government, so the party has some work to do to gain their trust.

Section 21 and the courts Some landlords are threatening to exit the sector in anticipation of tenantfriendly policies, especially the move to ban Section 21 ‘no fault’ evictions.

This change needn’t be fatal, however, if Labour does what the previous Government failed to do and reforms the courts, as well as exploring how to speed up the process of ge ing a court-appointed bailiff.

As it stands, some landlords who issued Section 8 evictions have been out of pocket for many months. That’s a problem Labour needs to solve.

Either more cases must be handled out of court, or the courts require substantial investment.

I believe if the party reversed the tax mortgage income change and improved the state of evictions more widely, more landlords would be inclined to stick around, even if they’re hit with some unwelcome news.

CGT and Inheritance Tax This brings us to the Autumn Budget on October 30th. It’s no secret that Labour is looking to raise money, so changes to Capital Gains Tax (CGT) and Inheritance Tax seem likely.

Currently, 75% of landlords are concerned that the Government may equalise CGT in line with current income tax thresholds, from 28% to 45%. If Labour was to adopt that policy, 58% of landlords say they would reduce the size of their buy-tolet portfolio as a result.

My recommendation would be tread carefully, and only make minor adjustments to these taxes. A small

JONATHAN SAMUELS is chief executive at Octane Capital

increase will likely keep landlords on board – a large one could see more exit the sector.

Reasons to be cheerful It’s easy to feel negative, but regardless of what Labour does you can expect the sector to maintain some profitability.

The reality is if rental stock falls, the landlords that remain in the market will be able to benefit from substantial tenant demand against shrinking supply, pushing up rents – not that that’s ideal for tenants.

More promisingly, mortgage rates are on the decline now that inflation levels are coming under control, so landlords who stick it out may be able to benefit from be er returns.

So, while Labour can change the balance by rolling back on policies that are hostile to landlords, investors are likely to benefit from an improving economic backdrop regardless.

On the subject of improved profits, there’s plenty of ways to make healthy returns outside of standard buy-tolet. Houses in multiple occupation (HMOs) are a key example – those with the expertise to transform a property into multiple units can expect to benefit from stronger returns for years to come.

Labour must be mindful that it needs to keep landlords happy without upse ing its core voter base of tenants.

The way to do that is combine tenant-friendly policies and minor tax rises with changes that help landlords.

I have suggested rolling back on the Mortgage Income Tax Relief change, but Government could also reduce the 3% Stamp Duty surcharge.

Ideally, we need to be in a market that works well for tenants and landlords alike. ●

B U Y - TO - L E T In focus

New beginnings in buy-to-let

S

eptember always feels like the start of something new – a school year is beginning and Autumn is heralding what looks likely to be a hugely important three to four-month period as we push toward the end of 2024.

As I write this, Prime Minister Keir Starmer is standing in the garden at 10 Downing Street outlining what can only be described as a hugely negative and depressing appraisal of the public finances.

It’s difficult, at this stage, to read between the lines of what is fact and what is potentially party political manoeuvring, but what seems obvious to note is that next month’s Budget is going to contain a ra of cuts and taxraising measures.

Whether those measures target the buy-to-let (BTL) sector, and landlords in particular, remains to be seen. They have certainly been in the crosshairs in the past, and therefore we can’t rule out further a empts to secure tax revenue from them.

However, what the Government will need to weigh up is the further disincentive to invest and offer properties to the private rented sector (PRS) that any further significant taxation measures might deliver.

Particularly at a time when we have seen positive movement elsewhere – notably in terms of interest rates – and when as a result there has been an easing of affordability, which might well allow landlords to seek to invest further rather than pull back.

Thriving PRS Let’s not forget that the housing strategy of this Government is also going to depend upon it having a thriving PRS, not least while it tries to up the number of homes being built over the course of the next Parliament.

Regardless of whether it gets anywhere near to hi ing its targets or not, there are still going to be millions

upon millions of people who either don’t wish to buy, or still can’t, and therefore we need PRS housing in order to be able to meet their needs.

It would seem like any a empt to tax landlords further, or disincentivise them from continuing their investments or adding to portfolios, is simply going to draw supply from the market and ultimately lead to higher rents. Add in potential policy measures such as rent controls, and the situation will be worsened.

Of course, this hasn’t stopped previous Governments from going a er the landlord tax ‘dollar’, but it is to be hoped this incarnation recognises the consequences of such actions.

From a more positive perspective, as mentioned, we have seen the Bank Base Rate and swaps falling in recent weeks, and this has been reflected in falling product rates, which clearly help landlords in terms of securing the loans they need at more affordable prices.

That ma ers in the next few months, particularly for existing landlord borrowers coming to the end of their deals, and we know September through December is a peak time for maturities.

Boost to BTL According to data from CACI earlier in the year, we have approximately £11.5bn of buy-to-let mortgages coming to an end through this four-month period, with October in particular seeing £3.4bn in just one month.

Notable regional ‘hotspots’ for maturities are London, the South East, North West, North East and South West, although of course there are deals coming to an end right across the entire country.

To say this represents a strong opportunity for advisers would clearly be an understatement, and it’s obviously important that communication is being made right

STEVE COX is chief commercial officer at Fleet Mortgages

now with all landlord borrowers who are coming up to the end of their special rates.

There is a two-fold point to make here. Clearly, a large number of landlords will be coming off 5-year fixed rates at this time, and there is likely to be a marked difference in terms of the rate they achieved back in 2019 compared to now. However, there will also be some borrowers coming off 2-year deals secured in the immediate a ermath of the miniBudget, and who therefore might be able to secure a much be er rate.

The fundamentals of this, of course, remain the same: advisers have the opportunity to secure the finance their landlord clients need, either presenting options which keep any mortgage payment increase to a minimum, or ensuring 2022 borrowers are able to secure loans at cheaper rates than were achievable back in those dark days.

What happens next in terms of rates is, of course, up in the air. There may be future cuts to come, but there are no guarantees.

While some might be willing to wait a bit longer, maybe on trackers, others will want payment certainty for at least a couple of years, when they can revisit their options again, potentially in a rate environment which has moved down further.

Overall, while we await the Budget and what might befall landlords, the options and pricing available to borrowers now is be er than it has been for some time when it comes to mortgage finance.

Advisers should seek to make the most of this, and to ensure their clients are placed in the best position possible in order to continue to run profitable portfolios. ● September 2024 | The Intermediary

33

The Interview.

NatWest

Jessica Bird speaks with Lloyd Cochrane, head of mortgages, proposition and experience at NatWest, about the changing face of buy-to-let

F

rom a law degree to his experience in commercial investment and retail funding, there were many directions Lloyd Cochrane, head of mortgages, proposition and experience at NatWest, might have chosen to move in before diving into the world of mortgages.

Nevertheless, he says: “Mortgages are a passion of mine. Helping people to buy, own and rent out homes is a really important role that we play.”

While much of the narrative might recently have centred on the importance of supporting owner-occupiers, and particularly first-time buyers, Cochrane is clear that a truly healthy housing market must also include a thriving rental system.

The Intermediary sat down with Cochrane to discuss the current challenges and opportunities at play in buy-to-let (BTL), how NatWest’s proposition and approach are evolving, and the lessons learned over years in the business.

34

The Intermediary | September 2024

Looking back over his own experience, Cochrane reflects on the lessons he brought into his role at NatWest, and how this has affected the bank’s proposition.

At the core of his philosophy is the idea that it is important to “listen more than talk,” whether with his own team internally, customers, or intermediary partners.

Linked to this is “knowing when to step back, versus when to step in” to solve challenges and help his team reach an outcome, the correct balance of which can foster creative thought among a team stocked with the right people.

He explains: “You should be leading a team to ultimately be better than you are at what they do. Particularly when it comes to things like digitisation in the past, say, five years, I genuinely know far less than those close to the subject matter. This is where listening more than talking becomes even more relevant – because the nature of my role is changing dramatically.”

NatWest takes a feedback-based approach across various streams, from traditional customer research ahead of making changes to its propositions, and data on how customers use the products and features themselves, to ongoing engagement with feedback via frontline and broker-facing teams.

Cochrane says: “The expertise in the intermediary market in particular is a brilliant resource for us.

“We can go and have a really detailed conversation about the things we should be doing for our brokers and our customers, and get really precise feedback.

“Some of it can be quite hard to hear, but it’s always valuable.”

Increasingly professional

NatWest’s proposition caters for both amateur and professional landlords with up to 10 properties in their portfolios. Cochrane explains that the goal is not to go after the “huge landlord space,” or delve into specialist niches like houses in multiple occupation (HMOs), but to provide products that suit the “standard, high street, prime” segment of the market.

In terms of the balance of its customers, like many, NatWest is seeing a clear shift towards the professionalisation of landlords, and this is having an impact on BTL lending.

I N T E RV I E W

Cochrane says: “It’s been a structural trend for a good few years, now. There are many drivers, but it is generally becoming harder and more expensive to be a BTL landlord, and that is driving smaller landlords out of the market, leading to an increasingly professional class of landlords over the past five years or more.”

He adds: “All else being equal, this professionalisation could be viewed as a good thing. However, I’ve always disliked the title ‘amateur landlord.’ It implies that smaller landlords with fewer properties are ‘less good’ than professionals.

“What’s true is that all landlords that are still in the market providing housing for tenants have had to become better at managing their properties. Standards have gone up and legislation has ensured that is the case.

“Because of that, anyone who is a landlord today is in many ways likely a better landlord than they were five years ago, regardless of how many properties they have. By still being in the market, they’ve made that choice.”

Some of the stock being sold by exiting landlords is becoming available for residential purchase, which is a good thing when viewed through the lens of the supply of housing for the residential market, but it means a reduction in the stock of housing available for tenants.

“That tends to be affecting those on the lowest incomes,” Cochrane adds. “So, it’s a really complex set of factors.”

Fit for purpose

The past year or so has seen NatWest make various changes to its evolving landlord offering, including introducing product-related stress rates, and revamping its buy-to-let affordability calculator.

Cochrane says that these changes were underpinned by an understanding that “the professional landlord market was growing more and more,” and that “our approach for intermediaries serving those customers was too complicated.”

To address this, NatWest’s new digital platform has simplified applications, reducing the number of questions by 60% to 70%. The bank also simplified its criteria, to streamline the process for intermediaries.

“The new platform gives a great digital service to brokers,” Cochrane says.

“It’s a much simpler application process, in addition to good products with great features and competitive pricing.”

When it comes to digitisation, Cochrane says there is a balance to be struck in ensuring that there is continued human involvement,

while making administrative aspects easier to handle. Even more importantly, he says that he has learned that it is “much harder to digitise a complex system or process,” and that in order to make the best technological progress, institutions must simplify first.

Looking at the change to stress rates, Cochrane explains that the aim was to align stress rates with its product rates as they move, in order to “get the most appropriate lend,” as well as providing a “consistent, transparent and flexible” product set, compared with using an ‘assumed rate’ as had been done previously.

“It’s an important way for us to continue to be competitive,” he says. “Price is a given, experience is a given – criteria should really be a given, too.”

As this market becomes increasingly complex, Cochrane emphasises the importance of a streamlined proposition that can provide clarity and flexibility in the face of complexity.

Intermediary partners

Brokers make up approximately 95% of NatWest’s BTL business, and the bank’s relationship with intermediaries has changed considerably over the past decade.

Cochrane says: “Of course, all lenders will have an idea of what their intended approach is to intermediaries, but they should check with intermediaries about whether that’s what they are experiencing in practice.

“What I would hope to hear is that our intermediaries feel they are partners.

“Going back 10 or 11 years, that might not have been the case in this market.

“The vast majority of customers use brokers, and they do so because they want peace of mind and support through their journey, and to make sure that some of the effort is taken by somebody else. Brokers are a really important part of the market, and we like to think we treat them as partners. We’ve got a team of support staff who engage with intermediaries, as well as lots of tech behind that, including things like web chat, so that day-to-day we’re as easy to deal with as possible.”

Part of providing this ease of use is about “consistent service and consistent pricing.”

Cochrane says: “We monitor that closely, through our own management information and by checking what we think we’re providing with the people we’re providing it to.”

Challenges for landlords

Landlords have often made for easy headlines and emotive messaging, with caricatures → September 2024 | The Intermediary

35

I N T E RV I E W

ranging from outright criminality, to simply putting in no work and raking in cash while tenants scrape for rent. This has underpinned the ease with which successive Governments have imposed increasingly strict tax and regulation restrictions on landlords as a seemingly easy win.

Cochrane says: “It’s an easy target to associate landlords with property ownership versus non-ownership, and division and inequality, but the reality is that a properly functioning rental market is a really important part of any community.

He adds: “This is likely to be a feature of the market for a long time. My focus is on the things my team can control – great products and service, and great support for landlords as part of NatWest’s wider work supporting the housing market in the UK across all forms.”

Beyond the challenge of reputation, there are various more pressing factors affecting landlords, which Cochrane explains can be boiled down to those with a direct financial impact, and those with a non-direct financial impact. In the first category, and perhaps most obviously, landlords are being acutely affected by changes to the cost of buying and owning their properties.

In addition to – and compounding – this, are the much-discussed drop in tax reliefs that have made it more difficult to get the kind of profits they might have in the past.

The factors with non-direct financial impact include increasingly complex local and national regulation, including – but not limited to – energy efficiency measures.

After much back and forth and uncertainty, the current state of play is that landlords will need to ensure rental properties have a minimum Energy Performance Certificate (EPC) rating of Band C by 2030.

“In isolation, none of those requirements is unreasonable,” Cochrane says. “It is reasonable that landlords should be providing tenants with energy efficient properties, for example.

However, they are an added complexity and added cost to landlords, nonetheless.”

Green agenda

The energy efficiency of the UK’s rented housing stock is a central sticking point.

For NatWest, it is important to support all customers – whether residential, BTL or beyond into housebuilders and businesses across the housing supply chain – in the push to be green.

Cochrane says: “We have taken an approach that we want to be a real support to all 36

The Intermediary | September 2024

customers when it comes to the green housing transition, wherever it’s relevant.”

In 2023, NatWest launched the Home Energy Hub, which helps users understand the carbon footprint of their properties, the changes they could be making, and the “complex grants landscape” and financing options that might be available to them, as well as providing access to discounted physical assessments.

For Cochrane, this is in part about rationalising and translating the myriad information out there, the confusing nature of which might be causing a blockage for those who would otherwise be willing and able to make green changes.

He points out that this hub is not restricted to direct customers, or just residential borrowers, and that brokers can use it to help build a plan for their landlord clients as well.

Cochrane says: “Using the hub and the physical assessment, you can get specific recommendations for what you could be doing, and how much that might cost you, but also how much it might save you over time – you or your tenant. We also put users in contact with TrustMark to find people in their local area to carry out the work, as well as partnering with British Gas.” He adds: “We’ve invested to help customers understand all the information that’s out there, and make it as easy as possible to make choices, which is a big part of the non-product help we give to customers.”

Looking to the future

There is, as any BTL broker will know, a vast ecosystem of factors affecting the changing world of the private rented sector. Some of these are more certain, such as the 2030 deadline for EPC ratings. Others, however, still hang in the balance.

At the time of writing, for example, the Renters’ Rights Bill is imminently due to be read in Parliament.

Landlords have been buffeted by back and forth over this Bill and its previous iteration under the Conservatives, with particular concerns around the abolishment of Section 21 evictions causing uncertainty about the future of the market.

For NatWest, the future of supporting a market beset with challenges both large and small, and plagued with speculation about both, continues to be about focusing on the “practical realities.”

Cochrane concludes: “In particular, we will continue to cater for, recognise and respond to the professionalisation of the market.”

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RESIDENTIAL Opinion

Broker challenges and the lending league tables

JEFF KNIGHT is director at The Mortgage Marketing Forum

movements. These rate changes, as we know, put pressure on those brokers in the field.

The market needs more Coventrys, Skiptons and Yorkshires, which focus more on their market propositions and positioning. I believe this will really help brokers and give more choice and solutions.

U

Rate wars need to stop, as they clearly make little difference to market share

K Finance recently released data showing the lending figures for 2023 for the vast majority of UK mortgage lenders, including a separate buy-to-let (BTL) table. Exciting, huh?

Well, actually, I found it quite interesting. I do like data, but more importantly, I like to know what story the data is telling me. The lending league tables are showing a story – a story that explains one of the challenges brokers face.

Below the top six lie Coventry, Skipton and Yorkshire BS, all of which saw strong market share gains, as they have strong broker-led propositions.

This is good news for brokers, and we need more like these.

In the BTL market, it is a slightly different story, as many lenders increased their market share last year, including One Savings Bank (OSB), Paragon, Virgin Money and Shawbrook. This shows that a strong market dominance can be challenged, giving brokers and clients more choice.

What’s the story, lending glory?

Taking a slice

Absolute lending is one thing, but market share gives a better measure of the market.

Of the top six, HSBC grew its market share, while Santander lost ground quite a bit. However, the top six still command a whopping combined share of 67.5%, although this actually fell in 2023.

This is too high for a healthy market in my view, and not good for brokers.

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The Intermediary | September 2024

Overall, most lenders outside of the top 10 command a small piece of the market pie. These lenders are frantically trying to win a bigger share through pricing, which just overloads broker inboxes and causes headaches.

The lending league data clearly shows that the top six have too much dominance. When their volumes drop, they fight back with lots and lots of rate changes – as not all rate changes are due to swap rate

Making the market shake The market needs a shake-up in how lenders compete. This will really benefit brokers and their clients. It will also help lenders that want to see their market share grow, and not simply ride the waves of the market.

Overall, most lenders outside of the top 10 command a small piece of the market pie” The real story is that the rate wars need to stop, as they clearly make little difference to market share, and do cause issues. These rate wars apply right across the market.

Yes, I know the challenges for lenders about pricing, as I spent over 20 years pricing products myself.

Nor am saying price does not matter; it does, but there are other ways to compete.

I believe if lenders stop relying on rate changes to drive business growth, we will have a healthier market, with less stressed brokers, and all-round better consumer outcomes. ●

RESIDENTIAL Opinion

A more prescriptive approach could ease the burden

H

illary Clinton once told a room of Wall Street bankers: “There’s nothing magic about regulations: too little is bad, too much is bad.”

That is the fine line regulators must walk – ensuring consumer protection while trying not to unduly restrict the market.

Overall, in my opinion, the Financial Conduct Authority (FCA) gets this balance right. However, given the ever-evolving nature of regulation, constant effort is required to maintain that balance.

I was, therefore, pleased to see the regulator recently launch a review of its rulebook to identify areas to streamline in order to “reduce burdens on businesses.”

As part of the process, the FCA is calling on stakeholders to suggest ways in which it can remove barriers for firms and promote growth – safely, of course.

You’ll be pleased to know I am not about to rattle off a list of obscure rules that I would like to see tweaked or even binned entirely. Instead, I believe the FCA would achieve its goal of protecting consumers while promoting growth by a relatively minor change in philosophy.

Flexibility only goes so far Over the years, the FCA has shifted to an outcomes-based approach to regulation. This broadly means the onus is on firms to figure out how to fully comply.

This type of approach is seen as flexible and allows firms to operate as they see appropriate, as long as it’s within the regulatory framework. But it can be expensive, time-consuming and, dare I say it, growth sapping.

If you are a large advice firm or network with a large and experienced compliance team, your organisation and business model is designed to have the time, resources and expertise in place to interpret the regulator’s intentions.

However, that process is not cheap.

It costs networks such as Stonebridge millions of pounds a year to ensure our appointed representatives (AR) operate competently and remain compliant. That covers everything from authorisation, supervision, quality of advice checking and the deployment of specialist software to help our members compete while remaining on the right side of the regulatory requirements.

Remaining compliant As a network, we are of course structured to absorb those costs. But if you are a privately owned brokerage with a handful of advisers, it can be extremely difficult and expensive to remain competent and compliant.

It’s unsurprising that many firms opt to be part of a network for technical competence, scale and support.

Despite that, the regulator has the opportunity to reduce the regulatory and financial burden on firms – both large and small, AR or directly authorised (DA) – if it were to be more prescriptive about what it expects from them.

I’m not suggesting the FCA explain its thinking for every line of the rulebook, but rather that it could choose to be black and white in certain areas. For example, it might tell the advice sector more explicitly what it considers acceptable and unacceptable when dealing with vulnerable customers.

The FCA may decide that approach would be too impractical in real life,

ROB CLIFFORD is chief executive of Stonebridge

I’m not suggesting the FCA explain its thinking for every line of the rulebook, but rather that it could choose to be black and white in certain areas” in which case an alternative may be to increase the frequency of sharing examples of good industry practice for others to follow.

Either approach would allow the FCA to remove much of the guesswork around regulation, meaning firms spend less time and money working out whether they are compliant, resulting in more time supporting and servicing their customers.

Given the added certainty this approach could provide, it would also reduce the financial burden that comes with regulation. The risk of non-compliance reduces, which may also lead to a number of consequent benefits, such as lower professional indemnity insurance premiums.

Ultimately, moving to an environment where the rules are easier – and cheaper – to follow will result in better value and outcomes for consumers. That ultimately has to be the goal we, as an industry, aim for. ● September 2024 | The Intermediary

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RESIDENTIAL Opinion

Labour must listen as it aims to reform the housing market

M

onths have passed since the public voted in a new Labour Government, and Sir Keir Starmer’s party is now beginning the task of delivering a host of promises on immigration, economic prosperity, transport and more.

Can we build enough homes?

Among these, the goal of building 1.5 million homes over the next five years is of huge significance to the mortgage sector. Most agree that more homes are needed, and that if the Government can get anywhere near this target, it will have an enormous impact on the housing market, and the brokers working to secure mortgages for the people looking to live in them.

However, some have raised concerns that the target may be ambitious.

One key concern is the pipeline of existing planning approvals, which has fallen significantly to 233,000 homes in 2023 – a nine-year low, according to the Home Builders Federation (HBF). This means construction would need to accelerate at an unprecedented rate to meet the Government’s goal.

Labour has proposed reforms to address this, such as reinstating mandatory housing targets for local authorities and releasing greybelt land for development. However, these measures alone may not be enough.

The Government’s plan to add 300 planning officers across England’s 300 planning authorities – averaging just one extra officer per authority – highlights the resource limitations that could slow down the planning process.

42

Another barrier is the shortage of skilled labour in the construction industry. The Construction Industry Training Board (CITB) has highlighted a shortfall of more than 250,000 skilled workers by 2028, a gap that must be closed to achieve the Government’s housing goals.

The industry is already contending with an aging workforce and the fallout from Brexit, which has reduced the number of skilled workers from abroad.

The HBF has further stressed that every additional 10,000 homes built annually would require the industry workforce to grow by 30,000, including 2,500 bricklayers, 1,000 carpenters, and other skilled trades.

This shortage not only threatens the pace of construction, but also raises costs, as developers may need to offer higher wages to attract the necessary talent.

Any delays in delivering these new homes will stifle supply, pushing prices up, particularly in high-demand areas, worsening affordability.

With homeownership still a critical goal for millions, measures like lowering interest rates may become more important to ensuring mortgages remain within reach.

There is an ever-present need for lenders to work with brokers to offer innovative approaches that help borrowers achieve their homeownership dream; this becomes even more critical in a competitive market where supply constraints are impacting house prices.

Tax regime could affect buy-to-let Elsewhere, we should expect the new Government’s approach to tax and private renters to have an impact on the wider housing market.

ALISON PALLETT is sales director at Nottingham Building Society

One key concern is the pipeline of existing planning approvals, which has fallen significantly to 233,000 homes in 2023 – a nine-year low” If widely mooted changes to Capital Gains Tax are introduced, alongside recently announced plans to give tenants greater rights, it’s possible we could see investors disincentivised from entering or remaining in the market. This could lead the supply of rental properties to drop, impacting people’s ability to save for a mortgage and potentially forcing them to turn to homeownership, and supporters like the ‘Bank of Mum and Dad’, sooner than planned.

Lenders and brokers must be heard As we look forward with interest to see what the new Government does, I hope that the voices of mortgage lenders and brokers are heard and our viewpoints taken on board. Homeownership remains a fundamental goal for millions of people across the country, and we are at the coalface, having conversations with borrowers and hearing their hopes and challenges daily.

As well as building more homes, I urge the Government to maintain a dialogue with our industry to ensure the right homes are being built – ones which are affordable and which suit the needs of borrowers today. ●

The Intermediary | September 2024

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RESIDENTIAL Opinion

New-builds will change perceptions of property value

I

t’s time to get Britain building again. So said Prime Minister Sir Kier Starmer in his keynote speech at the at the Labour Party’s annual conference in October 2023.

Just shy of a year later, and he’s in a position to actually deliver on that promise. Labour has put housing at the very centre of its policy plans, promising to build 1.5 million new homes over the next five years, including new towns, of which a minimum of 40% would be affordable homes.

Among a sizeable list of reforms is a proposal to shake-up planning rules, with a new commitment to build on “grey and ugly areas of the green belt.”

New developments are to be focused on brownfield-first planning, failing which a new category called ‘greybelt’ will prioritise development in “wastelands and old car parks located on the greenbelt.”

Building on greenbelt land has long been a misnomer, albeit an emotive one, and Starmer has been clear that so-called ‘greybelt’ land should not receive “the same protections in national policy as rolling hills and nature spots.”

What is very welcome is the mitigating promise that any greenbelt land approved for development must include new infrastructure, such as GPs, schools and nurseries.

Local councils are to be empowered to decide what to prioritise, based on local needs.

A further commitment for new housing developments in the greenbelt will be to protect and improve green spaces available to residents.

All this comes alongside existing legislation passed by the previous Government to introduce more sustainable buildings.

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The Intermediary | September 2024

Pending finalisation, the Future Homes Standard regulations set to come in next year aim to ensure that new homes are built to a minimum energy efficiency standard as part of the UK’s commitment to cutting carbon emissions in residential and non-domestic buildings by 75% to 80% by 2050.

Biodiversity net gain standards have applied from earlier this year, and are intended to leave development sites more environmentally-friendly than pre-development. Taken together, this is a set of policies that demonstrates that Government remains committed to cutting carbon emissions.

A look at the numbers We must not be complacent, however.

More than a million new homes is significant, and is to be welcomed.

Let’s remember though that there are already 30 million homes in the UK. A report published in October last year by the Home Builders Federation (HBF), ‘Housing Horizons: Examining UK Housing Stock in an International Context’, paints a stark picture.

The UK has among the oldest housing in Europe, with 78% of homes having been built before 1980, compared with an EU average of 61%.

Some 38% of the UK’s housing stock was built before 1946, compared with an EU average of 18%.

Age has a considerable impact on the condition of homes, with the HBF citing that 15% of English homes failed to meet the Decent Homes Standard in 2020. This is the highest proportion of substandard homes in Europe, and significantly higher than many other countries, including Germany (12%), Bulgaria and Lithuania (11%), and Poland (6%).

Measures to improve the energy efficiency of our existing housing

STEVE GOODALL is managing director at e.surv

stock is vital if the UK is to meet its net zero targets.

It’s also worth considering that ensuring energy efficiency standards in new developments do not come without compromise. So-called ‘nimbyism’, where existing residents oppose new housing in their local area, is convenient to write off as selfinterested. There is something in it,

The UK has among the oldest housing in Europe, with 78% of homes having been built before 1980” though – new developments affect the areas they sit alongside.

Introducing a large number of new homes into a location with insufficient amenities, and where local infrastructure such as roads, water and broadband provision is underinvested, has an impact on the value of existing homes in that area.

When we invest in new housing and new towns, will we take the opportunity to invest in the local areas to upgrade facilities for all residents?

It is reassuring that Government seems set on overhauling the country’s housing provision. It must do so in the knowledge that policies do not exist in a vacuum, and that there is a delicate balance to be struck. Key to getting this right is understanding value – and that is both quantitative and qualitative. ●

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RESIDENTIAL Opinion

It’s time to refocus on Net Zero

I

f you ever needed reminding about the breadth of work facing the UK’s homeowners, and everyone in that value chain, to meet our commitments to net zero in 2050, then the recent announcements from Government underline its commitment to the goal.

Following Labour’s landslide election result, the new Prime Minister and Chancellor of the Exchequer have been quick to get their early policies out of the door.

One, heralded as ‘new rules’ by many commentators, has been the reintroduction of energy efficiency rules requiring landlords to improve let properties’ Energy Performance Certificate (EPC) ratings to a minimum Band C. The revised deadline has been set for 2030 – a more lenient timeframe than under previous Conservative policy, which had initially proposed these improvements be made mandatory by 2028, before ministers ditched the plan altogether.

The new Government’s decision to put these rules back in place is welcome, and a move widely anticipated by private landlords, most of whom had already begun investing in improved energy efficiency.

It’s an important signal to the property industry more broadly that there is a renewed commitment to net zero targets, and it builds on legislation introduced earlier this year for the new-build market that stipulates that developers factor in an element of biodiversity net gain when planning projects.

The intention is to make sure that habitats for wildlife are left in a measurably better state than they were before the development. In England, a biodiversity net gain of 10% minimum has been mandatory since 12th February.

Guidance on the Government website advises developers to

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The Intermediary | September 2024

consult an ecologist to measure the biodiversity value of a plot’s existing habitat and advise on suitable habitat creation or enhancement for the land. There is a statutory biodiversity metric which takes different factors into account, including the habitat’s size, condition, strategic significance and type.

It has so far not been easy to assess its implementation. According to the rules, there are three ways a developer can achieve a biodiversity net gain of 10%.

They can create biodiversity within the red line boundary of a development site. If developers cannot achieve all their biodiversity net gain on-site, they can deliver through a mixture of on-site and off-site.

Developers can either make off-site biodiversity gains on their own land outside the development site, or buy off-site biodiversity units on the market. If developers cannot achieve on-site or off-site biodiversity net gain, they must buy statutory biodiversity credits from the Government.

This should be a last resort. The Government will use the revenue to invest in habitat creation in England.

Looking to lenders At the moment, figuring this out is a consideration that lies firmly in the lap of developers. However, it won’t be long before lenders will have to get their heads around it.

Lending against new-build homes that must pass this legislative benchmark will require a new level of due diligence – specifically at balance sheet level. Lenders’ own net zero targets require a much more granular understanding of carbon emissions contained within the business, both directly and indirectly.

National Grid definitions Scope 3 emissions rules encompass emissions that are not produced by the company itself and are not the result of activities from assets owned or controlled by

MARK BLACKWELL is COO at CoreLogic

it, but by those that it’s indirectly responsible for up and down its value chain. An example of this is when we buy, use and dispose of products from suppliers. Scope 3 emissions include all sources not within the Scope 1 and 2 boundaries.

Biodiversity net gain legislation will have an increasingly material impact on lending decisions as new developments complete and buyers apply for mortgage finance. While the Government may have considered the metrics by which a net gain can be recorded by the developer, there is virtually no understanding of how this legislation should be measured when it comes to lenders’ financial exposure. When added into the energy efficiency exposure melting pot for lenders, things get even trickier.

Lenders are already grappling with how to assess and quantify carbon emissions exposure when it comes to assets already on their balance sheets.

Much of the data available to them to inform that assessment lies in EPC bandings. Given homes need only undertake an EPC assessment at point of sale, and certification is valid for the following 10 years, data is often inaccurate and outdated.

Renewed momentum for greener solutions under the Future Homes Standards is widely viewed as positive in the housing industry, but there are big challenges still to overcome when measuring deliverability. Central to that is including the real volume of housing. Existing stock cannot be ignored.

It’s tempting to think the workload for lenders is slightly overwhelming, but the solutions and the data partners are here to help. It’s time to refocus on Net Zero. ●

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RESIDENTIAL Opinion

Helping borrowers find the path back to prime

B

rokers all report seeing an increase in clients who fall within the ‘near-prime’ category.

Rising costs mean that growing numbers of borrowers have gone through payment issues, and while inflation is now back down to its target level, the impact of the last few years is likely to be felt for some time.

Clearly, near-prime is going to be an incredibly important sector of the market in the years ahead. However, I would argue that the focus needs to be broader than simply supporting nearprime clients today, with more effort going into helping those borrowers improve their status and return to prime mortgage products.

It’s not just the right thing to do for those individual clients, but for the health of the mortgage market at large.

Recognising progress An aspect of working with nearprime customers that’s commonly misunderstood, in my experience, is how unsatisfied registered defaults are handled. What’s most crucial is not necessarily the size of that initial default, but where it stands today.

A er all, if the applicant is making progress on paying off that sum, then that progress must be taken into account.

Atom bank recently more than doubled the level of unsatisfied registered defaults that we will consider, from £1,000 to £2,500, motivated by our desire to offer greater support to borrowers heading in the right direction to clearing those debts.

That sum refers to the amount that is still outstanding, rather than the size of the original default. So even if the applicant had more substantial

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The Intermediary | September 2024

defaults, say £5,000, if they have now got that balance down to under £2,500 they will qualify for our range.

Expanding our criteria means that not only can Atom bank work with more nnear-prime customers, but crucially, work with more of those borrowers who are on the right track back to regaining prime status.

Putting problems behind us It should go without saying that it’s crucial for lenders to be responsible in their activity. Providing mortgages to people who may not be able to maintain the repayments for the long term is in nobody’s interest, but it’s crucial to get the balance right. The fact that an applicant has had some level of payment problems in the past should not automatically impact their borrowing prospects going forward.

Lenders must think carefully about how much of a borrower’s past is taken into account when assessing a case.

While the lender needs to understand the borrower’s history, quite how much of that historical information is relevant will come down to the individual approach.

As part of our near-prime criteria changes, we reduced the ‘look back’ period for defaults from three years to two. We all know how challenging the past few years have been for borrowers across the country, and the impact this has had on the ability of some to maintain all of their various repayments.

Given that context, two years are more than sufficient to get an impression of the borrower’s financial position – if they have cleared those defaults from 2021, then we want to help them on that path back to prime, rather than allow it to limit their borrowing options.

RICHARD HARRISON is head of mortgages at Atom bank

Path to prime One of the ways that Atom bank stands out in the near-prime space is our ability to help clients back to prime status. When the client comes to the end of their initial term and wants to remortgage, they are offered a prime rate if they meet our criteria and their situation has improved. This may be as simple as having made 12 consecutive mortgage repayments and cleared outstanding arrears.

It’s making a tangible difference to customers, too – over the past few months, around half of our nearprime clients who met the eligibility criteria moved onto a prime product with Atom bank when their initial term finished.

That’s a compelling proposition – borrowers who may have had arrears in the relatively recent past, but who are back on track, are likely to be eligible for our best priced products.

If they had been with a specialist lender, then when the time comes to remortgage they would only be offered another near-prime deal, which will inevitably be more costly.

The mortgage industry loves to categorise borrowers, but the reality is that their status is fluid. A borrower might be near-prime today, but with the right support we can help them Ultimately, brokers are going to see more clients in the coming months and years with payment hiccups in their history. It’s crucial to recognise the lenders best placed to support those clients, not just with their borrowing needs in the present, but in navigating the path back to prime. ●

RESIDENTIAL Opinion

Every adviser should recommend a home condition survey

T

here isn’t much which shocks me as I get older, but I have to admit to a ‘chin on the floor’ moment when I read that, according to a Countrywide Surveying Services’ (CSS) survey, one in five advisers do not explain the difference between a valuation and a survey to clients when preparing their mortgage application.

Frankly, I find it unbelievable in this day and age that something so basic and yet so important to clients should be ignored or treated as unimportant.

At a time when our industry is constantly striving to improve professionalism and customer care, such a basic point like ‘valuation versus survey’ explanations should be a mandatory part of every adviser’s client discussion.

The CeMap qualification was introduced over 25 years ago to professionalise the quality of knowledge among advisers, and remains the standard that every adviser must reach before being let loose on the public. I am sure that part of the course still covers the homebuying process, so there should be no excuses as to why more than 20% of advisers either don’t explain the difference, or give wrong information.

Even though surveys like this one are generally only indicative rather than conclusive, it is still a poor reflection on the professionalism of our sector.

Another issue is the ‘misunderstanding’ that a valuation is for the benefit of the client, when it is actually for the lender. This should be part of explaining ‘homebuying 101’, and yet it seems that many buyers are still not aware of it, even after having their mortgage arranged.

Unless a property is a new-build, every client should be persuaded to

have a home condition survey when they are buying a house or flat. In addition, although new property is covered by a National House-Building Council (NHBC) certificate, there have been too many stories of sub-standard work done by builders which can take months to resolve, hence the need for buyers to take the simple precaution of ensuring that they are not buying into future problems.

A Home Survey Level 1 – previously a RICS Condition Report – typically costs between £300 and £900, depending on the location of the property and its value.

For those clients who claim it is too expensive at a time when they are hard-pressed to cope with all the other associated costs of house purchase, the peace of mind of having a property expert give a property a clean bill of health, or alternatively give reasons why your client should reconsider, makes the argument that a survey can’t be afforded difficult to justify.

Done in advance I believe it is incumbent on all of us in the industry to make sure that every adviser has discussed the homebuying process in full, so that future polls do not give rise to headlines that do none of us any favours.

However, one of the other parts of the poll is something which I believe would repay greater scrutiny. More than two-thirds of broker respondents are in favour of pre-sale surveys as a way to speed up the homebuying process. I think many of us will have some sympathy with the idea, even though many of us lived through the unloved Home Information Packs (HIPs) era, which attempted to create a bundled package of information, including Energy Performance Certificates (EPCs), title documents

CHRISTOPHER TANNER is CEO at HLPartnership

Not only would the buyer have some peace of mind over the provenance of the property, but the valuation part... would already be done and dusted, subject to a formal lender offer” and local authority searches to help speed up the process. Fine in principle, but poorly executed and ultimately killed off by Government.

Certainly, if a home survey for the buyer with a ‘lender friendly’ valuation portion was made available and paid for by the seller, it could go a long way towards shortening the homebuying process.

Not only would the buyer have some peace of mind over the provenance of the property, but the valuation part – assuming lenders would accept a valuation they had not ordered themselves – would already be done and dusted, subject to a formal lender offer.

There has been talk of revisiting the HIPs concept, especially now that technology is so much more adept at helping to organise EPCs, title documents and local authority searches, but ultimately the key feature would be the survey or valuation done in advance. ● September 2024 | The Intermediary

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RESIDENTIAL Opinion

t e u t i f t o s r b u s No

Y

ou could say it’s been a long time since X has equalled Y in the mortgage market.

Historically, borrowers simply had to walk into a branch or call a broker or lender, prove three-times or so of their salary was enough to cover the cost of buying their desired property, find a deposit totalling single-digit thousands, and prepare to mobilise.

Sensibly, financial markets and the mortgage market have changed due to a series of unprecedented events, kicking off with the Global Financial Crisis in 2008, which saw the back of products like self-certification and 125% loan-to-value (LTV) lending.

What replaced them was a much more prudent landscape, which, although necessary to avoid a repeat catastrophe hitting the financial industry, has made it increasingly difficult for borrowers to navigate factors such as the historically high house prices which followed, in order to get a footing on the property ladder.

It didn’t stop there, with subsequent events like a global pandemic, the UK’s exit from the European Union and the

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onset of a European war compounding matters. These factors, plus changing family structures sparking different housing needs, have changed the whole fabric of society – most notably how and where people live and work – exacerbated by a cost-of-living crisis.

No more one-size-fits-all Hardly surprising, then, that what people need from lenders and brokers is evolving, too.

At Accord, we saw a particular shift in people’s approach to life following Covid-19. We now receive increasing numbers of applications from people who have become self-employed, for example, and this has made things like income streams a lot more complex than they were.

We’ve had to show real flexibility to enable lending in cases where, for example, someone is setting up their own business in an industry they’ve already worked in, on an employed basis, for a number of years.

We try to exercise common sense by assuming that, say, a time-served hairdresser or IT consultant has a reasonable chance of success in setting up their own business, because they’re

continuing in an industry they know – and probably have ready-made clients waiting.

Keeping an open mind Perhaps understandably, given the challenges characterising today’s financial climate, borrowers are finding it harder to prove their worth when it comes to lender underwriting, sometimes because of small and relatively inconsequential things.

They might have received a £60 parking fine they don’t agree with and are disputing. They don’t believe they should have to pay, but sticking to their principles has resulted in it making an appearance on their credit file as a County Court Judgment (CCJ). Or they might have accidentally missed a regular phone bill payment and that has ended up on their credit file – which is otherwise squeaky-clean.

This is where it can make all the difference if lenders are prepared to go beyond automated, ‘non-human’ decisions, take a more personal, hands-on approach to underwriting, and make common-sense judgements as to whether there is truly a risk of a

RESIDENTIAL Opinion

the human particular borrower becoming a nonpayer, doing so in a timely manner and providing much-needed clarity to the broker and their client.

For us, this backdrop saw the introduction of our Cascade Score range of products, providing an alternative for brokers whose clients don’t meet Accord’s higher LTV credit scorecard, but do meet its standard scorecard, enabling them to get a mortgage when they otherwise couldn’t have.

It’s telling that a large number of our cases now require the application of this personal, hands-on approach.

Where brokers come in The industry conversations we’re having suggest that brokers are finding the same – with many of the more out-of-the-ordinary cases coming in and replacing the more straightforward applications they might have seen previously.

Of course, all of this makes the advice they offer more critical than ever before.

Borrowers with more complex incomes and financial histories need to be able to speak to someone who

h c tou

knows which lenders might consider their case, with all its nuances, and is equally capable of telling them what they need to do to get more mortgage-ready in the medium term, if they really don’t believe they will qualify now.

In an increasingly tech-driven world, it’s about relationships, too – with their clients and their lender’s business development manager (BDM) – to give brokers a much better chance of squaring the circle for their clients by having the right conversations, with a thorough overview of all the facts and possibilities.

For us, this means ensuring that our BDM team and our inbound business development advisers (BDAs) have all the knowledge they need, right at their fingertips, to provide the best possible service to brokers and their clients.

Knowing what’s driving the economic and market landscape, as well as what might come next, is invaluable, so that they can include this all-encompassing picture in the suggestions they make.

To help them do this, we make sure our sales teams are well-equipped with the latest market insight, and offer a

GURPREET CHAHAL is corporate account manager at Accord Mortgages

comprehensive library of resources covering every aspect of the industry, via our Growth Series online portal.

The reality is that the UK mortgage and housing market has changed beyond recognition over the past two decades, and all of us in the industry must adapt with it.

Knowledge, plus the willingness to apply it in an open-minded, can-do way, truly is power. ● September 2024 | The Intermediary

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RESIDENTIAL Opinion

Disrupting the dynamic

C

onveyancing is seen as somewhat of a dark art, but a time has come where panel managers can remove the mystery and simply connect the right conveyancer with the right customer like a matchmaker, and help manage that relationship.

Some brokers view it as purely a transactional relationship, or prioritise cost over service. Others understand the importance of working alongside a reliable conveyancer offering consistent communication and solid advice.

It’s important to reframe the debate away from price and back to service when a strong relationship with a conveyancer can shave weeks off a transaction.

I’m keen to disrupt the ‘them and us’ dynamic between brokers and conveyancers that has always underlined that relationship. At the end of the day, it’s the people who get the transactions done, and you can’t replace the essential human touch that drives these processes.

In a competitive broker marketplace, brokers must stand out and demonstrate that they are not just product sellers, but commi ed to building long-term relationships.

This approach not only enhances the client experience, but also establishes the broker’s role as a comprehensive adviser.

Panel management When it comes to a panel manager, impartiality is critical, with no ties to individual law firms or favouritism on the panel. A panel is needed so that brokers have choice and can make informed decisions based on their own business models and service offerings.

There’s always been room in the market for a dominant player in panel management. We are seeing inflated margins driven by private equitybacked interests and the market has become a price play.

For us, this is an opportunity to offer a competitive price, challenging the status quo and delivering be er overall service for clients and intermediaries alike. Our goal is to disrupt the market

HARPAL SINGH is CEO at conveybuddy

by providing a superior relationshipbased service at a lower cost.

That’s why we launched conveybuddy. Ultimately, our goal is to make sure brokers feel confident in the conveyancers they work with, knowing that their clients will receive top-notch service. It’s the management of the relationship from both sides that is our differential.

In addition, referral fees are paid promptly – the week a er exchange on purchases and the week a er completion on remortgages – ensuring a steady and predictable revenue stream for intermediaries.

Conveyancing should be considered part of an adviser’s ritual when giving clients holistic advice, and one of the many client needs, like life insurance and protection. ●

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RESIDENTIAL Opinion

A straightforward remortgage?

A

round 800,000 homeowners who have been languishing on their lender’s standard variable rate (SVR) for six months or more could save a substantial amount by remortgaging, the Financial Conduct Authority (FCA) revealed recently.

Could these homeowners be put off remortgaging because they think it’s too difficult?

There’s a persistent myth among some customer segments that remortgaging must be painful.

However, while not necessarily straightforward, remortgaging can simply secure a better interest rate or release equity, if handled in the right way.

Much will depend on the choice of mortgage product and the law firm undertaking the legal work. Choosing the right law firm with a customercentric focus and the best use of tech can and should make the experience of remortgaging hassle-free, even when there’s complexity.

Many remortgages will involve some level of non-standard work.

This can range from name and address discrepancies to the addition or removal of one of the owners or parties to the mortgage. There can also be a request to postpone another chargeholder’s interest in favour of the new lender, or a requirement to deal with restrictions and other title complications. In essence, there’s a wide range of non-standard matters that may need to be resolved as part of the remortgage process.

In most cases, any non-standard items are identified at the outset of the transaction, either due to the title check or completion of the property questionnaire. The key to ensuring that the customer experience remains on point is identifying these issues as soon as possible. A good law firm will do just that, guiding the customer

through what’s needed and what to expect, including any potential impact on the time it will take to complete the remortgage.

Customer service There are a few ‘must dos’ which help to ensure a smooth and hassle-free service for the customer: o Communicating through a channel that works for the customer and at an appropriate frequency – digital channels work for many customers as a convenient way to interact and progress their transactions, but not all; o Establishing, as soon as possible, the likely pace of the transaction – what is the client looking to achieve and by when? The law firm should help the customer by managing expectations along the way and providing extra guidance and support when needed; o A ‘no surprises’ approach – making the client aware of any complexity as soon as possible, and importantly, clarifying what this means for their remortgage; o And finally, a personal touch – a blend of tech and dedicated case ownership makes all the difference in this regard.

An integrated and efficient use of technology significantly streamlines the remortgaging process. From the get-go, value-adding tech should be in place to drive efficiencies, reduce turnaround times and increase ease for the customer.

We use technology seamlessly at ONP, regardless of the type of remortgage, and have built a remortgage service which blends the latest tech – robotic process automation and a digital customer journey – with dedicated case ownership and a customer-centric mindset. This approach enables us to quickly create a case and understand what complexities, if any, need to be

SHARON BEEDHAM is partner relationship manager at ONP, part of Movera

resolved as part of the remortgaging process. Most importantly, we also match it to the right case manager, with the requisite level of experience dependent on what is required on each transaction.

Another key enabler to a great service experience for the customer is consistency and care, and for that reason our case managers oversee the case from instruction to completion and registration of the charge at Land Registry. Each customer benefits from a dedicated case manager who can provide extra guidance and support when needed throughout their remortgage.

Collaboration, both internally and externally, also helps. Our in-house teams, including operations and IT, are closely aligned. We also work with our partners and others in the industry to identify new opportunities to improve the home moving and remortgage process. This includes our integrated systems, streamlined processes and workflows, and developing new service propositions.

Data and insight also help us to continually improve the remortgage experience. Our in-house data team provides the information we need to understand how we are performing, identify improvement opportunities and proactively monitor and manage performance. This includes capacity and quality management.

At ONP, we have built a remortgage service to guide each customer through their remortgage as smoothly as possible, using a proven blend of tech and personal service.

With the right legal firm, remortgaging can be as stress free as a product transfer. It’s time to put its reputation as tricky and inconvenient to bed. ● September 2024 | The Intermediary

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RESIDENTIAL Opinion

Growth is an unexpected result of Consumer Duty

J

ust over a year since the Consumer Duty was implemented, mortgage brokers are now seeing the opportunity of private surveys for homeowning clients. Avoiding foreseeable harm has made the market understand that protection in the shape of knowledge is part of that process – whether that protection is about understanding what consumers are buying, or protecting it with insurance once the deal is done.

Consumer Duty is becoming a catalyst for brokers to be at the forefront of better care for borrowers, and is an enabler for intermediaries to evidence a holistic approach to customer outcomes, with fair value in terms of price and service quality demonstrated through the entire journey.

In our work, we offer a multifaceted property service, including conveyancing, removals and online auctions designed to ensure the best outcomes for people moving house, and so we see how the principles of the Consumer Duty can come to life. We see how home movers can experience a tangible difference when the duty is applied comprehensively to the conveyance and survey part of the journey, rather than overlooked during these steps.

In fact, we have made it our mission to provide networks, clubs and directly authorised (DA) brokers with a range of services that include private surveys, to further their service and the value they can add to a borrower’s experience. How we do that is equally important.

For our part, we offer our survey price beat guarantee, offered against any price the customer sees, which means brokers can refer this service

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and remain safe in the knowledge that they can avoid causing foreseeable harm.

The Financial Conduct Authority (FCA) has made the principle of avoiding foreseeable harm front and centre of the Consumer Duty, telling firms in February 2024 that it expects firms to have robust systems and controls to do so. Beyond fulfilling regulatory requirements, our price guarantee enables brokers to contribute further to improving the moving experience, supporting a more comprehensive journey for the modern customer – who increasingly expects convenience and quality in all interactions and transactions.

We can reasonably expect the FCA to note such measures taken by intermediaries, as its oversight of the duty evolves.

Bridging the gap In July this year, Sheldon Mills, executive director of consumers and competition at the FCA, said: “We are seeking to ensure that value overall is provided – price is one element, but service and understanding are also key components. We will be taking a holistic approach to the application of the Consumer Duty.”

We should soon expect to see the FCA move from implementation to enforcement of the rules, and asking firms how customers are feeling the difference in service and price.

A recent survey from Smart Money People found that 84% of consumers reported no improvement in how their financial providers treat them since the Consumer Duty was introduced.

This suggests that, in certain instances, a gap remains between implementation and experience.

Looking at the general mood music coming from the FCA during the past

ALEX WILLIS is chief sales officer at GoTo Group

We see how home movers can experience a tangible difference when the duty is applied comprehensively to the conveyance and survey part of the journey” year, one of the consistent messages has been its belief that the Consumer Duty allows the space for firms to find new ways to serve customers.

Partnerships with service providers could offer brokers a route to do this.

In its first year, the Consumer Duty might have been such a major operational and compliance undertaking that, for many firms, the layers of oversight left little room for growth and innovation.

However, the FCA is now starting to talk about it in the context of growth, with Sheldon Mills, in his same speech, stating that “consumer protection and growth are not mutually exclusive.”

He emphasised that the regulator is looking for “inclusive, sustainable growth, where consumers have appropriate access to products and services that meet their needs.”

We know the reality is more complex than that sounds, but the Consumer Duty can still be a catalyst to look at every aspect of the customer journey in a new light. Surveys are just one part where we can collaborate to lift the experience. ●

RESIDENTIAL Opinion

What I learned from my visit stateside

T

hey say you learn something new every day. That was certainly true during my visit to America for the Building Societies Association’s (BSA) US Study tour.

I brought back a fresh perspective on how we do things here in the UK, along with some new thinking on how we might further strengthen the mutual sector.

The closest equivalent to building societies in America are community banks and credit unions. There are just over 4,500 credit unions in the USA. There are some distinct differences when it comes to credit unions and community banks. Credit unions are not only not-for-profit, but also tax exempt. They are owned and managed by their members and tend to cater to specific groups of borrowers, such as the military.

Community banks are owned by shareholders – individuals or institutional investors – and cater for the needs of specific local communities or regions. Given the size of the USA, these needs can differ greatly. A community bank in the Bronx has a very different client portfolio to one in a more affluent area like Newport in New Hampshire.

What we do have in common is that, just like building societies, community banks share the ethos of improving the lives of members and helping those in their local community thrive.

One of the biggest differences to the UK, however, is that long-term fixed rates of around 25-years are the norm in the US. Because of this, they don’t benefit from the same intermediary model we have here. There is a sense that this is the way things have always been done – so why change it now?

Mortgage rates also tend to closely follow US interest rates, so they don’t vary dramatically from one state to another.

Amazed by Consumer Duty In America, they have customer service down to a fine art, and this carries over into their financial services. However, when it comes to mortgage regulation, we’re miles ahead. Consumer Duty blew their minds.

Regulation in the US works in a very different way. There are statespecific laws and regulations, and then federal laws that sit on top, unlike in the UK, where the Financial Conduct Authority (FCA) oversees everything.

Similar to the BSA, they also have trade bodies, such as the American Bankers Association and the Independent Community Bankers of America.

What was particularly interesting was how community banks engage with each other and share services.

Here, and with the help of the BSA, there’s a strong sense of community within the mutual sector, but we don’t match the Americans’ enthusiasm for sharing ideas. In the US, there is a stronger culture of collaboration, with mutuals even going so far as to share back-office systems. Perhaps this comes from not having to compete for business on a national level.

Virtual innovation Another area of potential exploration is the use of Interactive Teller Machines (ITMs). While the US might be a few steps behind in regulation, they seem to be ahead when it comes to technology. One interesting development is the introduction of ITMs, alongside or in place of Automated Teller Machines (ATMs).

Some branches offer a mix of ITMs and real-life staff, while others offer a ‘drive-thru’ virtual teller who can help customers with enquiries while they also withdraw their money. With the right technology, this certainly seemed like a helpful innovation.

ROB OLIVER is director of distribution at Dudley Building Society

Just like here, larger banks in the US are struggling with the closure of local branches, but they’re also finding ways to adapt and remain relevant within their communities.

Capital One for instance, offers the Capital One Café – part coffee shop, part bank, and part office space. Open seven days a week, the space was for anyone who wanted to enjoy a coffee and free Wi-Fi, with someone on hand to discuss financial queries. Capital One customers got 50% off their coffee and access to bookable meeting rooms.

Making banking more accessible and convenient is undoubtedly increasing and widening Capital One’s appeal to Generation Z – something we also need to be mindful of here.

Final thoughts…

For me, while there was plenty to take away, it was reassuring to see how other countries operate, and that there is much to be proud here.

Just like in the US, mutuals are continuously working to build genuine connections with our customers through innovative approaches – striving to be more than just financial institutions and instead becoming integral parts of the community.

The collaborative approach of US mutuals really reinforced the idea that there is strength in numbers, and this is definitely true for us – whether that’s the strength of our own individual members or the collective strength of the mutual sector. ●

Read the full story online September 2024 | The Intermediary

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

I

Unlocking

n its bold plan for small business, Labour made a commitment to “make the UK the best place to start-up and scale-up,” outlining that “unlocking the supply of finance” is the best way to achieve this.

The Prime Minister also pledged that his new Government would take the “brakes off Britain” – predicated on unlocking 2.5% growth or more in the years to come.

It’s a big ask, and while planning reforms and infrastructure investment will help the Government in this aim, it’s only by unleashing the growth potential of the UK’s small to medium enterprises (SMEs) that it has any chance of achieving these goals.

Business concerns There were 5.6 million private sector businesses in the UK as of 1st January 2023, 0.8% more than in 2022.

Government data shows that there were 5.5 million SMEs in the UK in 2023, representing more than 99% of the business population. In fact, 2022 was the first year since 2009 and 2010 that had a higher rate of business failures (11.8%) than business startups (11.5%). But while the total business population has increased by 60% since 2000, the total business population is still 7.1% lower than January 2020 levels.

The economic outlook is giving some businesses pause, with almost two-thirds (63%) reporting some form of concern for their business, according to the Office for National Statistics (ONS), when looking ahead to September 2024. That’s up three percentage points from August 2024.

The most reported concern was falling demand for goods and services (20%).

However, there remains a significant amount of optimism among UK business, which is just waiting to be unlocked.

The BDO Optimism Index has remained above the 100 mark for the second consecutive month, standing

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at 102.09 in June, down slightly from 102.30 in May. Furthermore, the Lloyd’s Business Barometer shows that trading prospects for the next 12 months rose to 56% in July, up from 44% in June. This is the highest level since April 2017.

The fact that SMEs are not just striving to trade, but holding a burning ambition to grow and innovate is hugely encouraging. But they require the right support, and central to enabling this opportunity is successfully closing the SME funding gap.

Recent years have seen numerous industry reports on the issue, assigning figures to the scale of the challenge; Oliver Wyman says that there’s a 35% SME funding gap between UK regions, while the Bank of England has previously put the funding gap for SMEs in the UK at £22bn.

Not only is there a huge regional disparity, but the business lending landscape is such that it has typically catered to the needs of larger corporations and transactions, while too often failing to meet the complex requirements of younger businesses with high growth potential – 75% of which rely on external finance.

Ebb and flow Traditional finance has a habit of fluctuating, retreating to its legacy customers when faced with uncertainty. That has been the case in recent years. It is now starting to shoulder some more of the financing responsibility – growth in business lending from high street banks saw a 15% increase in Q1 2024, according to iwoca’s Q1 2024 SME Expert Index, compared with the previous quarter. But bigger, more established companies occupy an increasingly large share of the lending market, with nearly four-fifths (77%) of bank lending by value going to larger businesses in 2023, up from 72% in

A new 2014 and 2015. Such an approach risks thwarting opportunity and discouraging our brightest and best business leaders, which is why we must build and evolve a more agile funding ecosystem – one where banks, innovative lenders and brokers work together in collaboration.

This new structure is one that places a cohort of digital first – but human-led – finance providers at the forefront. Leaning on relationship building, expertise and shoe leather, they complement this with everevolving tech solutions, using a vast array of data to deliver reliable and fast financing decisions. They thrive in the role as a seedbed for talent, nurturing them until they’re ready to go further The opportunity these firms represent then enables traditional banks to continue to evolve their role.

They can confidently find new, more efficient ways of supporting SMEs through partnerships with these innovative lenders, instead of trying to make SMEs ‘fit the mould’ of their own infrastructure, appetite and channels. This gives them the knowledge, the security, and the peace of mind that they can shift their priorities elsewhere without stifling business growth.

Back on the right path Crucially, this also enables them to foster relationships with this new breed of finance or fintech hybrids, utilising their expertise, data capabilities and broker connections to enhance their relationships with, and solutions for, their current and future customers.

Furthermore, through strategic partnerships with this cohort, traditional banks gain a shortcut to

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

finance lending ecosystem Traditional finance has a habit of fluctuating, retreating to its legacy customers when faced with uncertainty"

experimenting with new technology, such as artificial intelligence (AI), opening up opportunities to be involved with the future evolution of financial services and creating a more futureproof funding network.

What matters most is that this gives SMEs the best chance of successfully seizing those growth opportunities, and the economy the best chance of getting back on track.

With a third of SMEs (35%) considering applying for external finance in the next 12 months, according to the British Business Bank, the industry can be on hand to help them achieve their ambitions. ●

YLVA OERTENGREN is co-founder and chief operations officer at Simply Asset Finance

September 2024 | The Intermediary

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

The growing appeal of office refurb

T

he past couple of years have seen office refurbishment become a preferred strategy for many portfolio commercial property investors. One can argue that the shift towards refurbishing, rather than embarking on new construction, is not just a response to economic pressures, but also a strategic move aligned with the market and environmental considerations.

Commercial property investors recognise the value of refurbishing existing properties to meet current market demands, whether it’s updating an office building to attract high-quality tenants or modernising a semi-commercial property to ensure compliance with energy standards.

Such refurbishments can significantly reduce void periods by making the property more attractive to potential tenants, ensuring a steady stream of rental income.

Economic and market dynamics Deloitte’s London Office Crane Survey highlights a significant shift in the office development market. With refurbishment starts exceeding 2.5 million square feet, surpassing new office construction starts for the eighth consecutive survey, the data underscores a growing preference for modernising existing properties over initiating new-builds.

This trend is particularly noteworthy given the overall dip in new construction starts the Summer 2024 survey, which fell by 18% compared to previous editions. However, the volume of new starts remains well above the 10-year average, signalling robust underlying demand.

Several factors contribute to this shift. Economic uncertainty, fuelled by high interest rates, inflation and supply chain disruption,

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has prompted developers to derisk their projects. By opting for refurbishments, they can reduce capital expenditure, shorten project timelines, and mitigate the risks associated with starting from scratch.

Moreover, refurbishments allow developers to tap into the demand for premium office space without the lengthy and often unpredictable process of ground-up construction.

This approach not only ensures quicker returns on investment, but also aligns with the growing market preference for sustainable and energyefficient buildings.

ESG concerns Environmental, social, and governance (ESG) considerations are playing an increasingly pivotal role in shaping the commercial real estate market. Deloitte’s survey highlights that the volume of refurbishment starts has consistently outpaced new-builds over the past several years and that this is largely driven by the tightening of planning policies and the increasing focus on achieving net zero emissions.

Developers and investors alike are becoming acutely aware of the risks associated with holding assets that fail to meet modern ESG standards, particularly as the risk of value erosion for such properties grows.

MICHAEL THOMPSON is lending director at LHV Bank

Refurbishments offer a pragmatic solution. By upgrading existing properties, investors can future-proof their assets. This not only enhances the attractiveness of the property to tenants, who are increasingly demanding better energy efficiency, but also helps to safeguard and potentially increase the value of the investment. For lenders like LHV Bank, financing such projects aligns with broader strategic goals of supporting sustainable development and minimising risk.

Office refurbishments are more than just a response to economic uncertainty; they are a strategic tool for enhancing investor returns and reducing void periods in today’s competitive real estate market.

This approach allows investors to capitalise on the demand for modern, sustainable office spaces while mitigating risks associated with new construction. One can argue that by financing refurbishments, LHV Bank is not only supporting the growth of its loan book, but also contributing to the broader goal of sustainable and resilient commercial property development. ●

Case study A recent project we financed highlights the benefits of strategic refurbishments. The bank provided a £750,000 loan for the purchase and refurbishment of a 62-bed care home in the north of England. This project, which involved extensive renovations, is set to reopen under the management of an experienced care home operator.

The flexibility and speed of the financing, particularly in securing a bridging facility to meet the client’s deadline, were critical to the success of this refurbishment.

The 24-month facility has a planned exit to a commercial mortgage, and the case shows how the right funding can help investors maximise their returns by enabling the swift transformation of underutilised or outdated properties into valuable, income-generating assets.

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

Lending records: Just the start of a very bright future

T

he latest figures from the second quarter of 2024 reveal a significant milestone for our industry, as bridging loan books reached record levels, growing to nearly £8.4bn. This marks a 2.9% increase from the first quarter, where the loan books stood at £8.1bn. Bridging completions also surged to an unprecedented £1.74bn, a remarkable 15.4% increase from Q1.

These numbers are not just statistics; they are a testament to the growing confidence in, and reliance on, bridging finance as a critical tool for home movers and property investment and development.

This dynamic is reflected by the recent UK Bridging Market Survey, conducted by Interpath in collaboration with the Bridging & Development Lenders Association (BDLA). With input from more than 50 market participants, including lenders, brokers, and other service providers, the survey paints an optimistic picture for the sector.

The research confirms that the industry has seen a growth in business volumes over the past year, and expectations are that institutional funding will remain available for the bridging market over the next 12 months, encouraging continued strong levels of competition and a consistent cost of origination.

Importantly, there is an expectation that there will be no change in credit quality as we look ahead.

Uses of bridging The survey found that refurbishment remains the most popular reason for obtaining a bridging loan, with 45% of respondents ranking it as the top use.

Auction purchases and rebridging are

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also common uses, among 23% and 19% of respondents, respectively.

When it comes to exit routes, the survey revealed that refinance onto buy-to-let (BTL) products and sale of property are the most common strategies for bridging loans, with 45% and 42% of respondents, respectively, citing these as their primary routes.

The market’s competitive landscape was highlighted by the importance placed on speed of execution, with 36% of respondents identifying it as the most critical factor when choosing a bridging lender.

Low pricing and high-quality service were also highlighted as significant considerations, reflecting the need for lenders to offer both value and efficiency to remain competitive.

VIC JANNELS is CEO of the BDLA

The research confirms that the industry has seen a growth in business volumes over the past year, and expectations are that institutional funding will remain available for the bridging market over the next 12 months”

Development finance At the BDLA, we do not only represent the interests of bridging lenders, of course, and the role of development loans within this landscape cannot be overstated. According to our lending data, in the June 2024 quarter alone, bridging completions included £108.2m of development loans. In addition, members of the BDLA facilitated £335.5m of non-bridging development loans, bringing the total development lending to £443.7m for the quarter. On top of this, one of our lender members, which reports its figures annually, delivered more than £280m of development lending on its own during the past 12 months in addition to the above numbers.

Development loans are the backbone of many successful property projects, providing the necessary capital to bring new housing developments to fruition. With the newly installed Labour Government pledging to deliver 1.5 million new homes in the next five years, this specialist sector

also has cause for optimism as small and medium sized (SME) developers will be crucial in any attempt to meet this target.

Building momentum Another cause of optimism is the continued success of the Certified Practitioner in Specialist Property Finance (CPSP) accreditation, which was introduced last year as a way for industry profession demonstrates their expertise and professionalism.

We’re aware of an increasing number of people registering for CPSP and passing the exam. As more professionals obtain certifications and commit to maintaining high standards, the reputation of our sector is further enhanced, fostering greater trust and confidence among clients and intermediaries alike.

This will only build on the current momentum. There are plenty of reasons to believe that these latest records are just the start. ●

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

The personal touch is key to tackling complex cases

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s brokers know, the mortgage market has evolved significantly in recent years. The days when ‘vanilla’ clients dominated the landscape are long gone. Today, complexity is the norm, and that demands a more creative, flexible approach from lenders.

At HTB, we do things differently.

Our team of lending managers (LMs) play a crucial role, si ing between the business development managers (BDMs) and underwriters. They effectively wear both hats, balancing the needs of the broker and client with the requirements of the underwriting team. This positioning allows them to carefully review decision in principle (DIP) applications, not just to see if a deal can work, but to figure out how best to structure it for everyone involved.

They also set out how the deal can move forward, outlining the steps needed and specifying the information underwriters will require to give their approval.

The personal touch is essential when handling complex deals. It gives brokers and their clients the clarity they need, knowing exactly where they stand and what’s required from their side. We understand the frustration that comes from lenders se ing expectations they can’t meet down the line.

We focus on finding solutions upfront, rather than postponing tricky issues until the last minute.

If a case isn’t going to work, we make it a priority to let the broker know as early as possible so they can explore other avenues. A quick ‘no’ is always be er than a prolonged ‘maybe,’ even if it’s not the answer you hoped for.

By gathering all the necessary information from the start, we ensure decisions are well-informed. The fact that our post-DIP decline rate is minimal speaks volumes about the thorough work we put in early on to align all the moving parts.

Flexibility matters Flexibility is fundamental in complex cases. Each one is unique. One client might be a landlord with a sprawling portfolio, while the next could be an international investor.

Supporting these clients means adapting to their specific needs and cra ing bespoke solutions that fit their situation. You can’t provide consistent, high-quality service to complex clients with a rigid, tick-box approach.

How brokers can help Choosing the right lender is crucial when you’re dealing with complex cases.

Nevertheless, there are also things brokers can do to improve the chances of success: Keep communication open: Share as much information as possible about the case right from the start.

Even if you think a detail might be irrelevant, it’s be er to share it anyway. This way, the lender can determine what’s important and reduce the risk of unexpected issues cropping up later.

Know what ma ers most to your client: As a broker, you’re in the best position to understand what your client values most. If it’s all about ge ing the lowest rate, there are lenders out there for that, but consider whether the case is more complex, or your client values personalised expert service.

Manage expectations: Speed is key in this market. Investors want to know

CERI BLACKWELL is head of new business at Hampshire Trust Bank

Choosing the right lender is crucial when you’re dealing with complex cases [...] there are also things brokers can do to improve the chances of success” where they stand and close deals quickly. However, it’s important to set realistic expectations, particularly around timelines for processes like valuations. When a deal involves multiple properties, valuations will take time.

Ensure client readiness: Only submit applications when the client is fully ready to proceed. We’ve seen cases where a DIP or application is submi ed, but the client isn’t in a position to move forward for a couple of months due to pending work or other factors. It’s crucial to start the process when everyone is ready to move forward.

There’s no doubt the market is becoming more complex.

Knowing which lenders can not only support these clients, but which also thrive on creating bespoke solutions, is essential for brokers.

At HTB, we’ve created a process powered by people and designed to get under the skin of complexity so that we can make it happen. ● September 2024 | The Intermediary

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

Repositioning the UK on the global stage

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he UK finds itself in the midst of social turmoil, economic uncertainty and political transition.

But strip away this noise and turbulence, and it is also important to remember that the UK remains a global power.

Boasting a thriving tech sector, a robust financial services industry, transparent legal and regulatory frameworks, and of course, a resilient real estate market, this has long been an attractive destination for international investors.

Over the past decade, Britain has been one of Europe’s top recipients of inward investment.

However, the country now finds itself at a divisive point. In the eight

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years since the Brexit vote, the UK has weathered a pandemic, faced 40year high levels of inflation, endured soaring interest rates, and experienced its third – albeit short-lived – recession in 16 years. The impact on foreign direct investment (FDI) has been significant.

According to data from the Department for Business and Trade, 1,555 FDI projects landed in the UK in the fiscal year ending in March 2024, a 6% decrease from the previous year and a staggering 31% below the peak in 2016-17, the year of the Brexit referendum.

With the tumultuous end to the Conservatives’ 14-year tenure behind us, the new Government must seize this five-year period as an opportunity

to build bridges and revitalise the UK’s global standing.

It is time to encourage businesses to expand and export their goods and services globally, while simultaneously opening avenues for international investment flows, particularly into the UK property market.

A fresh start The UK has immense opportunities from an investor perspective, and it is pleasing to see that the Government has wasted no time in drumming up business with the announcement of an International Investment Summit in October, aimed at driving growth through the encouragement of inbound investment from overseas.

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

JATIN ONDHIA is co-founder and CEO of Shojin

Whatever one’s views on the divisive topic, we must remember that one of the key motivations behind Brexit was to enable the UK to establish new trade partnerships outside the EU. The promise was that Britain’s newfound ability to cut trade deals globally would not only compensate for the loss of access to the EU’s single market but also free the UK to strike deals with high-growth economies in Asia and with the Americas. Yet, one of the biggest disappointments of recent years has been the UK’s lacklustre record on international trade.

Research published in the Journal of International Money and Finance indicates that FDI has responded negatively to increases in UK economic policy uncertainty, as well as an increase in the 10-year interest rate and a real exchange rate appreciation. Events like the controversial mini-Budget of late 2022 further exacerbated this uncertainty, shaking investor confidence and leading to market volatility.

Ensuring that the UK remains a global hub for investment must be a key priority for the new Government, with the property sector playing a crucial role in attracting inbound investment.

Backing real estate Global investors recognise the UK’s stable legal system, strong demand for housing, and transparent property market as key strengths.

Despite recent uncertainties, including an unexpected house price dip in the spring of 2024, the property market remains resilient.

Savills’ latest five-year outlook for house prices predicts a 2.5% increase

in average home values for 2024. The recent drop in the base rate from 5.25% to 5% is expected to stimulate buyer demand, too.

The housing shortage across the UK, especially in major urban centres, is expected to be a significant factor driving property price growth. It also underlines the need for more houses to be built.

Labour’s pledge to construct 1.5 million new homes over the next Parliamentary term signals a potential boom in investment opportunities, particularly for those interested in new developments and urban renewal projects. The economic benefits of housing construction are considerable, not least due to the interest of overseas buyers.

Prime office space presents another significant opportunity, with increasing demand for workspaces that offer value for tenants with hybrid working practices. While residential and office real estate in London has always been attractive, there has been a shift towards major regional centres like Birmingham and Manchester.

For global investors, UK property assets offer lucrative opportunities, especially when these can be accessed without the complexities of direct ownership, such as navigating various tax and regulatory challenges.

We should not only focus on how non-UK investors can acquire residential or commercial properties in the UK, but also how they can invest in property development projects through debt investment or fractional ownership.

The right environment To unlock Britain’s construction potential and maximise the benefits of recently announced planning reforms, the Government must forge strong partnerships with the private sector. Access to financial resources is the lifeblood of the property sector, and alternative financing will be essential in driving growth and getting projects off the ground.

As the demand for housing and commercial space continues to rise, so too does the need for capital, especially for developers whose financial needs often escalate as their projects scale up. This creates a funding gap that can hinder developers from progressing their projects to completion.

Securing off-plan sales is particularly critical for large urban developments, as these pre-sales not only reduce the financial risk associated with the projects, but are often a prerequisite for securing debt financing to begin construction.

To address this gap, alternative financing solutions such as peer-topeer lending, mezzanine finance, and senior debt have become increasingly important. These funding methods provide developers with access to capital traditionally reserved for larger firms or larger projects.

The Government must take note of the promises that were made when the UK left the EU, making sure the tax and regulatory barriers are addressed and considering public-private partnerships or Government-backed guarantees to make it more feasible for developers to secure the funds they need.

Ensuring that the UK remains a global hub for investment must be a key priority for the new Government, with the property sector playing a crucial role in attracting inbound investment” By enabling more developers to bring their visions to life, these financial tools not only help bridge the funding gap, but also inject muchneeded investment into the economy, driving growth.

Steadying the ship is crucial; the Government has the chance to make sure the UK is recognised as an attractive place to live and do business.

By taking a less isolated approach, building bridges to international investment and strengthening partnerships with the private sector, the UK can achieve sustainable growth in the real estate sector and beyond, revitalising the whole economy.

There might be pressing issues domestically to address, but Labour must also think global, and there is no time to waste. ● September 2024 | The Intermediary

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

Gear up for a booming end to 2024

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s we enter the final months of 2024, UK mortgage advisers should brace themselves for a surge in activity, particularly in the areas of bridging finance, commercial finance, and buyto-let (BTL) finance.

The evolving landscape of property investment and financial strategy is creating a fertile ground for these sectors, presenting significant opportunities for advisers who are prepared to capitalise on the trends driving demand.

A solution to chain-breaks Bridging finance continues to be a vital tool for clients facing the threat of chain-breaks, a persistent issue in the UK housing market.

The final quarter of the year often sees a rush of transactions as buyers and sellers aim to complete deals before year-end, increasing the risk of chains collapsing.

This is where bridging loans come into play, providing the short-term funding needed to keep transactions moving smoothly. Advisers should be ready to discuss the benefits of bridging finance with clients,

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particularly as interest rates remain relatively high, making the speed and flexibility of these loans even more attractive. By positioning themselves as experts in this area, advisers can help clients navigate these challenges, ensuring they secure their dream homes without delays.

The shift towards commercial property The commercial finance sector is also poised for decent growth, as residential landlords increasingly pivot toward commercial property investments.

With the BTL market facing continued regulatory pressures, increased taxation and stricter energy efficiency standards, many landlords are exploring the commercial space as a more viable and profitable alternative. This shift is being driven by the need to diversify portfolios and seek out opportunities with potentially higher yields and fewer regulatory burdens.

For mortgage advisers, this trend represents a prime opportunity to engage with clients looking to restructure their property investments. By offering tailored commercial finance solutions, advisers can help clients transition smoothly into the commercial sector, whether they’re purchasing office spaces, retail units, or mixed-use developments.

Advisers who can provide expert guidance in this area will be wellpositioned to support their clients in making informed decisions that align with their long-term financial goals.

The buy-to-let market remains a cornerstone of UK property investment, but the focus is increasingly on optimising portfolios to minimise tax liabilities and manage

JASON BERRY is group sales director at Crystal Specialist Finance

inheritance considerations. With the phased reduction of mortgage interest tax relief, and ongoing changes to Capital Gains Tax, landlords are keenly aware of the need to structure their portfolios efficiently.

Optimising portfolios Advisers should be prepared to assist clients in navigating these complexities, particularly as more landlords look to incorporate properties into limited companies or trust structures.

Additionally, with a growing number of portfolio landlords seeking to expand or consolidate their holdings, there will be a steady demand for buy-to-let finance products that offer competitive rates and flexible terms.

By staying informed about the latest developments in tax and legislation, and offering proactive advice, mortgage advisers can play a crucial role in helping clients optimise their property investments. This not only enhances client satisfaction but also strengthens long-term relationships.

Opportunity ahead The final four months of 2024 promise to be a busy period for UK mortgage advisers, with bridging finance, commercial finance, and buy-to-let finance all presenting significant opportunities.

By staying ahead of the trends and offering expert, tailored advice, advisers can ensure they are wellequipped to meet the needs of their clients and capitalise on the opportunities that lie ahead. ●

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

Positive signs of stability and recovery

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hile uncertainty surrounded the market in the lead-up to the election, the decisive result has begun to pave the way for a more stable economic environment, which in turn is expected to benefit property lenders and investors alike.

In the residential market, there has been a noticeable shift in consumer sentiment, particularly following the base rate reduction at the start of August. This reduction, although modest, has provided a glimmer of hope for mortgage holders and prospective buyers.

While many recognise that the immediate impact on their repayments may be minimal, the reduction has nonetheless contributed to a broader sense of financial stability.

This is particularly significant given the backdrop of rising mortgage costs, which have been a source of concern for many homeowners.

The most recent Barclays Property Insights report highlighted that consumer spending on rent and mortgages increased by 5.7% yearon-year in July, but also indicated strong demand for housing despite the challenges posed by higher interest rates.

On a positive note, the reduction in energy costs has further alleviated some of the financial pressures on households. This combination of factors has helped maintain a stable level of confidence among consumers regarding their ability to manage rent and mortgage payments.

Although the outlook remains cautious, the current environment suggests that residential mortgage lenders may see an uptick in business

MARIOS THEOPHANOUS is credit manager at London Credit

as more consumers feel secure enough to explore homeownership or refinance existing mortgages.

Commercial recovery

Housebuilding agenda

The commercial property market has also shown signs of resilience, buoyed by the outcome of the election and the associated economic policies signposted by the new Government.

The construction sector, in particular, has seen a noticeable recovery, with growth hitting its highest level in over two years.

August’s S&P Global Market Intelligence report revealed that all three segments of the UK construction sector – commercial property, housing and infrastructure – experienced strong expansion in July. This is a clear indication that the market is bouncing back from the slowdown seen in June, and it points to a more positive trajectory moving forward.

In the retail and office spaces, the post-election landscape has also brought about cautious optimism.

While retail sales volumes have remained relatively flat, there are early signs of improvement, with average weekly sales volumes in May showing a 7% increase compared to the previous year. Consumer spending may be poised for a recovery, which could, in turn, stimulate demand for retail properties.

In its August UK Economic & Real Estate Briefing, BNP Paribas Real Estate argues that the commercial real estate market is now entering a new period of recovery, helped by postelection stability.

Because it believes the UK is at the start of a period of Bank Rate reductions, and that inflation has stabilised, BNP Paribas Real Estate increased its annual investment volume forecasts for 2024 and 2025.

Meanwhile, Legal & General’s recent partnership with the Greater Manchester Pension Fund to invest in affordable housing is a sign of increasing confidence.

The commitment to play its part to address the affordable housing crisis, coupled with Labour’s ambitious housebuilding plans, underscores the potential for significant growth.

As demand for affordable homes continues to outstrip supply, the involvement of large institutional investors is likely to accelerate the pace of construction, providing much-needed housing and offering attractive opportunities for lenders and developers.

The Labour administration sees housebuilding as a key engine of economic growth, and it intends to make it harder for local residents and councils to block housing schemes.

Of course, Governments of all persuasions over the past 30 years have sought to tackle the housing crisis, but all found that wasn’t as simple as they initially thought.

Overall, the property market, both residential and commercial, appears to be on a cautiously optimistic path.

While challenges remain, the market is showing resilience.

As consumer confidence grows and the construction sector continues to expand, investors will be looking to specialist lenders to provide suitable finance solutions for their needs.

Now that there are real signs that the market is improving, property professionals need to ensure they partner with lenders that share their appetite for portfolio growth. ● September 2024 | The Intermediary

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

New PDR rules open up larger conversion opportunities

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In 2024 there have been further new opportunities for property investors, particularly in rural areas

ermitted development rights (PDR) were first introduced in 2013 as part of the Government’s broader strategy to address the housing shortage. Initially, PDR allowed for the conversion of certain commercial properties, such as offices, into residential units without the need for full planning permission. This aimed to streamline the planning process, reduce costs, and accelerate the creation of new homes by repurposing under-utilised commercial spaces.

Over the years, PDR has been expanded to include a wider range of commercial properties, further increasing the opportunity for investors. In 2020, the scope was broadened further with the inclusion of Class E properties, which encompass a variety of commercial uses such as retail shops, gyms, and restaurants.

This expansion reflected the changing needs of town centres and high streets, particularly as the

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Covid-19 pandemic accelerated the decline of traditional retail spaces.

The most recent changes to PDR in 2024 introduced further opportunities for property investors, particularly in rural areas. These changes have doubled the number of homes that can be created through the conversion of agricultural buildings from five to 10, without the need for planning permission.

Substantial developments Additionally, this year’s expansion of PDR has doubled the amount of agricultural floorspace that can be converted to flexible commercial use, from 500 square meters to 1,000, allowing for more substantial developments.

For property investors, this latest expansion of PDR offers the opportunity for larger scale conversion projects that could be financed with heavy refurbishment bridging finance. The larger the project, the more likely it is that the build time for the project will be extended over a long period, with payments to contractors

ANNA LEWIS is commercial director at Castle Trust Bank

spread throughout the construction.

In these instances, borrowing the whole amount required to complete the build at the outset can leave the borrower incurring unnecessary expense, as they are left paying the balance for the entire loan for a long period before they need to deploy the funds.

So, at Castle Trust Bank, we launched a Heavy Refurbishments with Drawdowns product that enables borrowers to only pay interest on the balance of the loan they have drawn down, with the remaining facility available to draw down at a later date.

This means investors are not wasting money by holding borrowed funds, but can instead stagger their borrowing for when they have costs to fund. The product has proven to be a hit with brokers and their investor clients, and we have recently made it even better.

Our Heavy Refurbishments with Drawdowns product now features a streamlined monitoring process with a standard fee scale, which means that drawdowns on the loan are now even quicker and cheaper.

The expansion of PDR presents a growing array of opportunities for investors to deliver new housing through conversion with heavy refurbishment bridging finance, which is good news for investors, potential homebuyers and brokers.

You have the opportunity to help your clients control their costs by considering their loan options that enable drawdown of funds throughout the term. ●

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

Product innovation: The boost to get Britain building

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he Labour Government has made planning reform central to its mission to drive economic growth and to “get Britian building.”

These were the words used by Rachel Reeves in her first speech as Chancellor, and just over a week later, the King’s Speech to the Houses of Parliament went into more detail, announcing the new Planning and Infrastructure Bill. This legislation introduces a range of reforms, all aimed to “turbocharge building of houses and infrastructure.” Highlights include 300 more planning officers to speed up consent, as well as reform to the rules concerning compensation from Compulsory Purchase Orders.

Allied legislation introduced in The English Devolution Bill also gave the mostly Labour metro mayors new powers to create Local Growth Plans.

Deputy Prime Minister Angela Rayner previously promised these will help mayors “deliver local economic growth with better housing.”

Proposed reforms to the National Planning Policy Framework (NPPF) are currently out for consultation.

Included is the proposal to simplify the granting of consent for major infrastructure projects, the labelling of more schemes as ‘Nationally Significant Infrastructure Projects’, granting final approval to the Housing Secretary rather than local councils.

Brownfield development will be given a default ‘yes’. Previously developed land (PDL) redevelopment restrictions in the in the greenbelt will be relaxed.

There’s a lot of planning reform covered in the 15 chapter consultation!

So, one question must be this: will lenders react to and get on board with the raft of proposed policy changes? For example, will we see

new products designed specifically to boost the redevelopment of PDL? Or enhancements to existing ‘green’ products? All designed to encourage developers to invest in sites and projects that are inherently more difficult and time consuming, and often less profitable to deliver.

Permitted development What isn’t included in the NPPF is any further relaxation of permitted development rights (PDRs) that the previous Conservative Government softened just a few months before the General Election.

This is an area we have long been supporters of at Assetz Capital, and the numbers simply highlight the scale of the opportunity. It is estimated that there are 165,000 privatelyowned commercial and business premises empty across the UK, with an additional 7,000 commercial and business premises owned by local authorities having been vacant for over 12 months. These numbers will likely grow as businesses continue to rationalise commercial space, with the ongoing popularity of hybrid working models and the decreasing use of city centre retail space.

This is an opportunity currently being missed, as a research brief published by the House of Commons Library earlier this year revealed that between 2015-16 and 2022-23, close to 103,000 new homes were delivered through change of use PDRs. Most (89%) were created through the conversion of offices and other commercial, business and retail units.

Research commissioned by the previous Government in 2020 suggested that homes created through PDR were of lower quality than those built through planning permission through the local planning authority

ANDREW FRASER is chief commercial officer at Assetz Capital

(LPA). Some were also in ‘unsuitable places.’ Perhaps that is why Labour is yet to focus on the reform of PDRs to support its goal to build 1.5 million new homes in the next five years.

The conversion of commercial space to residential could be accelerated through a further review of current PDRs, perhaps with incentives – such as additional tax breaks – for developers, and lenders developing suitable products to meet specific needs and to stimulate demand.

At Assetz Capital, we passionately believe that many urban areas in decline could have new life breathed into them through the conversion of empty and decaying commercial spaces. It’s an area we specialise in.

Earlier this year we launched our innovative Planning Assistance Loan, which allows developers to buy commercial space before they have acquired the relevant planning permission. This enables them to buy when there are good deals to be had, and gives them breathing space while they work with their LPA to refine their plans. Once planning permission is received, the developer can then switch out onto a refurbishment loan.

With a £100m fund, there’s plenty of opportunity for us to support developers from the start.

This is just one example of how lenders could get on board with, and show their commitment to, revitalising our towns and cities, creating new communities and boosting local economies.

As a Manchester based company, we only have to look to our city centre to see the power of regeneration. ● September 2024 | The Intermediary

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Q&A

Inspired Lending

The Intermediary speaks with Gavin Diamond, CEO, and Owen Bentley, sales director at Inspired Lending, about their vision for a new lender

Bridging lenders are not in short supply, why launch at this time?

Gavin Diamond (GD): After spending many years in the bridging finance sector, I’ve seen how complex processes can hinder progress. We launched Inspired Lending to bring simplicity and efficiency back into the industry. We wanted to offer a streamlined, straightforward approach where brokers and clients can get quick decisions without bureaucratic delays.

Owen Bentley (OB): For me, deciding to join Gavin in this new venture was one of the easiest decisions I’ve ever made. We’ve worked together before, and we both saw the potential to create a lender that truly understands the needs of the market. Our goal is to offer flexibility and speed, something that we believe is lacking in the current landscape.

How does Inspired Lending differ from other lenders?

GD: Inspired Lending is built on the principle of simplicity. We don’t have an application form; instead, brokers deal directly with decisionmakers – us – from day one. This means no lengthy underwriting processes. If we like the case and it fits our criteria, we proceed quickly; if we don’t, we’ll say so promptly, and also explain our reasons.

We also leverage every tool at our disposal, like unconsented charges and desktop valuations, to facilitate rapid lending.

OB: Unlike many lenders, we don’t rely on having a raft of products. We maintain broad lending parameters, but focus on treating each case individually.

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This approach allows us to avoid pigeonholing deals, instead looking at them with an open mind. Our lack of rigid product structures ensures that we remain flexible and responsive to each unique situation.

What is your intermediary strategy?

GD: Our strategy is to create longstanding, positive relationships with brokers. We believe in transparency and providing clear rationales for our decisions. By doing this, we build trust and reliability. Brokers know they can come to us for quick, straightforward answers.

OB: We’re also committed to supporting brokers by being available and approachable. By cutting down on unnecessary paperwork and ensuring direct communication, we make the process smoother and more efficient for intermediaries.

Our goal is to make Inspired Lending a preferred partner for brokers.

What is your product offering?

GD: We offer a range of short-term specialist finance solutions, including bridging and refurbishment loans secured against residential, commercial, semi-commercial, and industrial properties.

As Owen mentioned, we don’t have a fixed product range, but instead maintain broad lending parameters to ensure flexibility. For example, we provide loans of up to £5m, with the possibility to exceed this for the right deal, at a maximum of 70% loan-to-value (LTV) and terms of up to 24 months.

GAVIN DIAMOND

Q&A

Our strategy is to create

By not siloing our offerings into rigid

longstanding, positive relationships

products, we maintain the flexibility to

with brokers. We believe in transparency”

address each client’s unique situation,

Gavin Diamond

ensuring we can meet a wide array of financing needs”

OB: Our focus is genuinely about providing bespoke solutions tailored to each deal’s specific needs. This includes light and heavy refurbishment facilities, the latter deployed in stages across the length of the project. By not siloing our offerings into rigid products, we maintain the flexibility to address each client’s unique situation, ensuring we can meet a wide array of financing needs.

Where does your funding come from, and how does that shape your proposition?

GD: Our funding comes from the Pears family, with whom I have had a strong relationship for over a decade. Their deep understanding of the property market and lending aligns perfectly with our vision. This relationship provides us with the stability and flexibility to make quick, confident lending decisions.

OB: The Pears family’s backing allows us to avoid the constraints often imposed by traditional funding lines. This means we can be more nimble and responsive, shaping our proposition to prioritise speed and efficiency.

Our funding partner’s knowledge and trust in our approach give us the freedom to innovate and provide tailored solutions without being hindered by rigid financial structures.

What growth aspirations do you have?

GD: Simply, we aim to become a leading specialist lender in the market. Our initial focus was on growing our OWEN BENTLEY

Owen Bentley

presence in England and Wales, and we have already expanded to Scotland. Long-term, we see ourselves diversifying our funding and expanding into other areas of specialist finance. However, we’re mindful of not rushing growth. We want to lay the right foundations first.

OB: We have lending targets for 2024, but we believe that by maintaining our core values of simplicity and efficiency, growth will follow naturally. Ultimately, we want to be known for our flexibility and reliability, making us the go-to finance provider for brokers.

How will you maintain the ability to make rapid decisions as you grow?

GD: Staying nimble is all about maintaining our core principles. Even as we grow, we’ll continue to streamline our processes and avoid unnecessary bureaucracy. Our decision-making will remain quick and straightforward, because we understand that speed is crucial in this industry.

It’s also about recruiting the right people with the right experience.

OB: As we expand, we’ll keep our team lean and ensure that our decisionmakers are always accessible. By not overcomplicating our structure and keeping communication lines open, we can continue to provide the fast, efficient service that our clients expect. Our culture of flexibility and responsiveness will be key to maintaining our agility as we grow. ● September 2024 | The Intermediary

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

Reliable lenders crucial as investors turn to conversions

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ne common trend among buyers in the North at the moment is a desire to move quickly. It’s true buyers always want to – quite literally – get a move on when they have spo ed a potential purchase opportunity. They want to get ahead of the competition and secure the keys before rival buyers get involved and push up the price.

However, this need for speed has become greatly heightened as the market has become more active.

Buyers are well aware of the fierce ba le they will face for quality properties, and so are keener than ever to get their move on. Equally, options like property auctions are being more readily pursued, which have their own time pressures involved.

All of this has served to heighten the importance of working with lenders that offer both surety and speed. I’ve heard from a host of brokers in my specific North West region whose clients have been let down by lenders unable to move quickly enough, or that could not live up to their initial promises and deliver the funds.

Lenders that are both fast and reliable have always stood out in this market, but they have become even more a ractive to buyers and brokers.

Conversion opportunities Another aspect that is becoming ever present among investors in the North West is the interest in conversions. It’s no secret we don’t have enough homes to meet demand, and one way to boost supply levels lies in adapting the properties we do have, which aren’t currently being fully utilised.

As a result, we have seen great appetite among investors to pick up an underpriced commercial property

Commercial to residential is booming

and repurpose it into something that would work for residential buyers or tenants. These could be offices being converted into multiple residential units, pubs into flats, or even converting pure commercial properties into mixed-use ones, providing the investor with the best of both worlds going forwards.

Part of this is down to changes in our working habits. While the pandemic is thankfully no longer an ever-pressing concern, it has had a material impact on the way many people work, with hybrid working far more common.

That model has inevitably led to a contraction in office space requirements – businesses where staff members are only in the office a day or two a week simply do not need the sort of commercial buildings they once relied upon.

Instead, far more businesses are opting to move towards co-working spaces, allowing staff to make use of a commercial location as and when

CARL GRAHAM is regional director at Tuscan Capital

needed, rather than every working day. I can see it more clearly than most – there’s a brand new co-working space opening right next door to Tuscan’s Northern headquarters later this year.

It’s a similar story in neighbouring Stockport, where there has been a concerted effort to ensure conversions not only meet the needs of the current generation, but also preserve the heritage of buildings that have served the community for a long time.

Making a move This shi has opened the door for savvy investors, who are able to see not only the potential of the disused office in its current form, but how it could be converted to meet that ongoing demand from residential buyers and tenants.

This trend is only likely to continue with the new Government in place.

The new administration has talked extensively about the need to deliver new homes, and the role that planning reform will have to play in doing so.

Making it easier not only to build new homes, but convert existing buildings to meet residential needs, is likely on the cards, and will mean more investors turn to their brokers for help pinpointing lenders who not only understand this market, but are able to deliver the funds as promised to allow them to push on with conversion projects swi ly. ● September 2024 | The Intermediary

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The development finance experts

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

Helping those that have been excluded

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ven though interest rates are likely to fall later this year, there is an understandable uncertainty as to the direction of travel that our new Government is going to take longer term. The upcoming October Budget has already been floodlit as a ‘serious’ event, with a script making it clear that sacrifices will have to be made by those with the broadest shoulders, in order to plug the deficit purportedly le by the last Government.

While mainstream lenders are falling over themselves to reduce their headline rates to a ract new business, they are still wary over the question of affordability, and although it would seem easier to borrow as rates come down, many people are still struggling to raise capital for whatever purpose.

That could only become more difficult, as many lenders continue to take a more rigorous view on affordability at this time of economic uncertainty.

Financial exclusion While it is up to lenders to decide their risk profile, this kind of financial exclusion relates to those unable to obtain credit via conventional and mainstream solutions, due to the tightening of criteria or a reduction in product availability.

The good news is that there are many instances where a second charge solution can provide a suitable alternative or substitute solution to raise capital.

Deciding to consolidate In the case of debt consolidation, there is a strong case for new finance spread over an agreed number of years, which can reduce an applicant’s monthly

outgoings and ease the burden of trying to repay sums which cannot currently be supported.

However, we all need to be aware that consolidation can only work so many times. Can advisers be sure that, in every situation, another new loan to consolidate debt is the best advice?

The right balance We expect introducers to be the first filter for those enquiries where it is clear that affordability is an issue.

A debt consolidation approach might need to be weighed up against a more realistic strategy depending on their circumstances, by helping the customer to acknowledge that consolidation – even if it can be achieved – only postpones a further decline into greater indebtedness, unless more radical action is taken.

Most advisers would admit that they are not trained debt counsellors, but many times find themselves with a customer who is looking for more funding, and where – on examination of their situation – the client would be be er served by not taking another loan, but instead talking to creditors about mutually agreed payment plans or even seek professional counselling.

It is difficult to find the right balance. Given the state of the economy and the pressure on jobs, we are seeing an increase in requests for capital raising, and advisers are going to have to be particularly careful about assessing the viability of each case they come across.

In a perfect world, best practice would dictate that some cases would be be er served by proper debt counselling rather than another mortgage or loan. In the real world, brokers can argue with some justification that if lenders are prepared to lend to their clients,

LAURA THOMAS is regional sales manager at Equifinance

it is not up to them to be social workers as well.

Lenders are here to lend, and ultimately, the responsibility for making an offer of funding lies with them, provided the applicant has given the adviser a full picture of their past and present situation.

Consumer Duty is clear on the overriding need to seek the best outcomes for clients, and that means that advisers need to continue to become be er informed, especially in the way they interact with clients who might need more consideration than just seeking to arrange another loan regardless of the situation.

Advisers are in the business of giving unbiased advice first and foremost, and if a mortgage or loan is the right outcome, then so be it.

We need to be alive to the responsibility that we all bear to do the best we can for our customers.

Exploring all options Apart from consolidation, second charge mortgages will continue to be a growing part of the capital raising market, because Consumer Duty expects that advisers will explore all funding options without favouring one over another.

Our role as second charge lenders is to try and ensure that the door to finance remains open to everyone, and with the help of advisers seeing the potential in the second charge space, I am confident that second charge will go from strength to strength. ● September 2024 | The Intermediary

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In Profile.

The Intermediary speaks with Loans Warehouse and Pepper Money about speed and service in second charge

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still have a long way to go in terms of marketing.

Praed highlights the unique position of the second charge market, noting that its competition is not necessarily with first mortgages, but rather with unsecured lending.

Customers often opt for unsecured loans due to speed and ease of access. If the transaction times for second charge mortgages can be improved by eliminating points of friction, the market will shine a light on the benefits of using a second, beyond just speed.

He said: “In many circumstances, actually taking out more credit isn’t in their best interest. What they should be doing is looking to consolidate if they do have existing debts, with the advice process explaining how that works.”

Matt Tristram, co-founder and director at Loans Warehouse, adds that the second charge market has consistently maintained a rapid Improved customer journey processing speed, unlike the first charge According to Ian Praed, chief operating officer market where delays of days or weeks for MATT TRISTRAM at Pepper Money, listening to brokers not offers are not uncommon. only improves internal processes, but also He adds: “You don’t ever have a case enhances overall customer experience. where you’re waiting three to four days from He says: “About 12 months ago we reached an offer from a second mortgage company. out to the broker side and asked: ‘how can we In fact, brokers jump up and down if their work together to increase the size of the market?’ lender falls behind within a few hours. That speed This wasn’t about rates or being cheapest. It was is already there, and it’s all the stuff in-between about broadening the criteria and improving the that is now quickly coming around.” processes and the customer journey.”

Tristram highlights that the timeline is The goal has been to offer products that largely dictated by the borrower’s pace, but genuinely meet market needs. Over the past advancements such as dynamic pricing and year, Pepper has focused on the process from desktop valuations have streamlined the process. application to payout.

He says: “In 70% of the cases now, you have “Our focus has been on reducing unnecessary a desktop valuation, and with the likes Pepper, touchpoints, such as replacing 14-page application you don’t even have to go to a different system. forms requiring wet signatures with e-signatures,” It’s built in at the decisioning process right at Praed notes. “For instance, if we consistently the start, so the customer knows up front the receive consent from certain first mortgage valuation is needed.” lenders for second charges, why wait? If we’ve Broker awareness seen a consistent approval rate over recent This all begs the question, why is the seconds years, we can have confidence to proceed on that market not more popular amongst borrowers? The basis. That’s just one example of where we’ve answer – according to Rob Barnard, intermediary significantly reduced the time involved.” relationship director at Pepper Money – is due to a An appealing alternative lingering lack of broker awareness.

With many borrowers still favouring the perceived There remain a large proportion of mortgage ‘traditional’ route of the first charge, seconds brokers who are unfamiliar, or uncomfortable, he second charge market has experienced notable growth in the past few years, with new business volumes increasing by 25% in July 2024 alone, according to the Finance & Leasing Association (FLA). This not only reflects a growing demand among borrowers, but also an increasing awareness of seconds in a market historically dominated by firsts.

Lenders have responded to this flurry of demand, introducing new products, enhancing flexibility and improving the customer journey. With an eye to broadening criteria for second charges, Pepper Money and Loans Warehouse hope to spread awareness of seconds, educating brokers and borrowers alike, opening up the market to new entrants and further innovations.

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I N P RO F I L E

with second charge options, as they often believe they are difficult to manage.

“It’s as simple today to advise and to place the second charge piece of business as it is to place a first charge piece of business,” Barnard says. “The myth that it’s difficult doesn’t need to be there.”

He adds: “I think it’s all about forming a relationship with a master broker or a packager to give you that confidence. The more you use it, you get better and more confident at it.”

Barnard argues that, as brokers become more familiar with second charges, they will begin to see them as viable and regulated alternatives, not just for those with more niche financial needs.

He says: “There are also things like leaving your existing mortgage intact, or people might want to borrow over a shorter term because they want to pay off their home improvements quicker.”

It is the seconds market’s ability to offer such flexible solutions, he notes, that make these products “one of the best solutions in a mortgage broker’s kit bag.”

information we have. It’s really about trying to make sure that we can say yes to things.

“But we don’t just put it through a system […] we will look at every application that we’ve got that’s been accepted, to make sure that we can validate that pay out.”

Growing the market

As the seconds market matures, it is crucial to continue educating brokers about the benefits and flexibility of second charges, while also improving the process. This will enhance customer experience and position second charges as a compelling alternative.

Tristram says: “I think the market can grow significantly and that is the way to grow it. We’ve been out on the road all year, and we aren’t sitting in front of people that have a bad view of seconds, but […] at the moment awareness is a problem.

“These brokers have a choice, if they want to do it, the process is getting easier to allow them to. It goes back to growing the market by changing attitudes. For A flexible solution me, that starts with networks.”

The seconds market has become Tristram emphasises that while new increasingly useful in catering for entrants have improved competition, a diverse range of financial needs. merely adding new lenders will not Barnard emphasises the diverse significantly grow the market without a nature of these products, particularly shift in how second charges are viewed. in terms of debt consolidation and home “You’re not going to grow the market improvements. just adding new lenders, unless you do IAN PRAED AND Pepper Money’s most recent Specialist something differently,” he explains. “But the ROB BARNARD Lending Study found that more than 15 million only way to achieve that is growth through people in the UK have a history of adverse mortgage brokers.” credit, with nearly seven million experiencing Barnard adds that increasing broker issues in the past three years. Of these, nearly participation in the second charge market a million were seeking finance this year, and could serve to expand the market, and benefit the second charge mortgages could be an effective brokers themselves. He stresses the importance solution. of staying close to customers, suggesting that “If you’ve got a credit blip on your credit file brokers who offer second charges can build longwithin the last three years, I think it makes it less term loyalty by addressing client problems. likely that you’re going to be going to a credit score He adds: “For every broker that we finally crack driven, high street lender,” Barnard says. “That’s that agrees to do seconds, there will be lots that where second charge can be a great solution. don’t. So, you become the ‘go to’ for a particular “If it’s a remortgage, leave your existing solution. They’re going to be a customer for life. mortgage intact and just look at a second charge They’ll come back to you because you’re solving a as a solution for your borrowing requirements.” problem.”

While adverse credit is not the sole focus of Praed agrees, noting the importance of retaining second charge lending, Barnard says it remains an customers within the second charge mortgage area of interest for Pepper. market rather than allowing them to seek He adds: “It’s something we should hit head on, unsecured loans elsewhere. because there’s some solutions out there that can While being competitive on price is important, it give your customers really great outcomes.” is not just about offering the lowest rates.

Through a combination of systems-led Instead, Praed concludes that the focus should automation and manual oversight, Pepper aims to be on growing the market by “bringing customers ensure that loans are granted based on thorough who aren’t aware of the value of a second charge evaluation, Praed explains: “We have underwriters mortgage into this space and seeing how we can who will look to see that there’s a deal in the accommodate their requirements.” ● September 2024 | The Intermediary

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Q&A

Refresh

The Intermediary speaks with Sam Fox, founder of Refresh, about revolutionising the network model How does the Refresh model work?

The majority of networks work on a percentage fee model. If brokers make £100,000 a year, the network charges 20%. But what are they being charged that £20,000 for if the service has remained the same?

Our pricing structure is £500 per broker.

That’s a flat fee, and they retain 100% of the commission. For that £500 they get the compliance, the website, access to our lead platform, and a 25% discount off any leads purchased, and all the technolog needed in order to successfully advise clients.

If a broker is making £0.5m a year, it’s still £500 a month. If a broker is making £100,000, it’s still £500 a month. We’re not going to take £150,000 a year off you just because you’re doing great.

We’re not looking to make billions of pounds a year in management fees while tying brokers up into a big, complicated contracts. It’s about having a simple business model that’s profitable, allows us to operate and allows us to scale. We want to offer the same service to every single firm, but also give advisers the opportunity to earn much more as well.

The advisers we spoke to wanted a simple, clear structure. By having that set fee, that allows them to scale as well, with help from our internal recruitment team. If they want to bring in three brokers, they know it’s going to be £1,500 – but they could write £300,000 per year. It allows brokers to be creative and maximise profitability.

We don’t want members to wake up one day and say, I’ve had a great month, and my network hasn’t provided me with anything extra on top of the normal service, but they’ve taken £4,000 just for the privilege of being with them, and I’ve not got a review with them for six more months.

There will be people who don’t like the fixed payment model, because, say, they can go on holiday and the bill will drop along with their profits. But it’s swings and roundabouts, because then when times are really good, we’re not going to be knocking on their door saying ‘you owe me five-times as much now’.

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It provides transparency to brokers. It’s easier to operate a business when you’ve got static costs than it is when they are fluctuating every month.

Why was now the time to launch a new network?

SAM FOX

The market is changing and the world is changing, the economy is taking a beating, and in the whole mortgage industry, for the past two or three years, with all the rate rises and everything, we’ve been under immense pressure.

It’s the right time to come in as a refreshing voice in the industry. We’re here to show people our way of life, and how we feel the network space could operate for a large part of the market.

We want to guide brokers through all that change, and help them come out the other side, like they did after the financial crash in 2007-9.

In terms of the launch, in the last quarter of the year brokers are usually at their busiest, and they’re starting to consider their options for the new year. We are coming in as a different voice in the industry.

What does that voice sound like?

The main values are that we want to keep everything simple.

My experience is that everything can be labour intensive or too complicated. In my work as a broker, I try to make what we deliver really easy, really simple, and really accessible to consumers, no matter who they are.

In the network space, it’s felt like an industry that’s been burdened with really old, traditional methods of doing things. We want to bring forward all the work we’re doing with consumers direct – simple, down to earth, jargon free – and bring it into the network space.

This might be for brokers who are employed and considering going self-employed, but it seems like a daunting task, and they don’t know too much about being self-employed or how to run a brokerage.

Q&A

We can simplify it for them, and then it’s not as daunting to be an appointed representative (AR).

It will still be hard at times, but we can provide marketing and lead support, back-office support, compliance, and we’ve got experience in running multiple businesses. So, we are best placed to help brokers understand how to make the most out of their systems and processes.

In terms of our style, we have less of a corporate feel. None of us are wearing a three-piece suit.

We’re all just normal people trying to help brokers have a voice in the industry.

We want to work with people to help them improve, and help improve the industry, creating positive consumer outcomes. You can’t really do that if you’re too restrictive in your approach as to who you can work with or how you operate.

Everyone feels much closer, with direct access to the Refresh team. There’s not going to be corporate levels to go through endless managers.

We’ve got people on the team who run brokerages as well, and who offer that support network. So, if somebody’s a one-man band and needs help, they’ve got expertise around them, and the people helping them have worked for the biggest corporations and have active brokerages.

How will you maintain that hightouch service as you grow?

As we grow, there will have to be a level of infrastructure, but it’s not a case of making it so far removed from the people with the real expertise.

We’ll continue bringing in that experience, so brokers have got access to someone who’s active in the industry.

We’ve got a clear skill-set that we look for when recruiting, to maintain that level of autonomy.

The ethos behind the company is that it’s brokers helping brokers.

There’s a big human focus, but what about tech?

We’re using Acre as the customer relationship management (CRM) system, which is backed with its own affordability criteria. We’ve been working with those guys now for over a year to build out that network structure. With the click of a button, we can do a file review, send brokers notes, check in on cases. We can operate in real-time.

Likewise, our lead provider provides hundreds of leads on a daily basis into the network that brokers have got access to via the system.

We are building an ecosystem of tech to make it even easier for us to operate, which means we can operate lean. The leaner we are, the fewer levels of management, and the fewer mistakes. It’s more cost-effective for brokers, and we’re bringing in the latest technology to build that ecosystem.

From the oversight point of view for us, it’s easy to maintain and easy to pull data.

What is it about your background that led to the launch of Refresh?

I really wanted to change the experience that I had with my own mortgage – lack of context, knowledge, experience, and fear of asking questions, feeling stupid, not knowing the answer.

We set up our own brokerage, and then we had a period where we had self-employed advisers that worked for us. We did that typical thing of thinking it would be great to have two or three brokers come on board, earn a clip off the top and kick back. It turned out to be more of a headache than I ever imagined, because I was still trying to write business as well as coaching three or four other advisers. So, we changed our model to go employed and created our internal academy. We’ve had four people successfully come through our academy, with two now going through training.

At some stage they may want to fly the nest – hopefully inspired by what we’ve done – but we’ve put a lot of time and energy into getting them where they need to be, so why wouldn’t we find a way to still work together?

If you’ve got aspirations to run your own firm, I can share my knowledge and tools. You can use all the same systems, all the same compliances, and very quickly flip into your own company. It’s about improving the industry, retaining fantastic advisers, but letting them have their own business in a really simple, straightforward network.

Do you see the traditional model being shaken up by this?

We know that there are networks that would love to operate a fixed-fee model, but because the traditional methods have been around for 40 years, they simply can’t do it with the overheads and the contracts that they’ve got in place.

Once we get going, people will see that it’s working and believe in our ethos. We’re here to help brokers understand how they can create a voice for themselves, maximise their profits, bring in more leads and have a community around them, and understand how to run their business. ● September 2024 | The Intermediary

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

Sentiment is looking up

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entiment in the housing market can be rather flighty at times, turning a 180 on the publication of a positive house price index and back again on the release of another showing a drop.

Rightmove’s monthly report on house prices and the general health of the market is one of the more weighty ones. August’s led with this month’s base rate cut “spurring a further upturn in market activity.”

Tim Bannister, director of property science, said: “The first Bank of England rate cut for four years at the start of the month has helped to accelerate mortgage rate drops and contributed significantly to improved buyer demand.

“These be er conditions are helping to set up a positive Autumn market, and a further spur to activity following the Bank Rate cut has led Rightmove to raise its 2024 forecast from a 1% drop over the whole of 2024 to a 1% rise in new seller asking prices.”

While Rightmove conceded that there are still “some uncertainties ahead,” the scene is now set for “a positive remainder of the year.”

Positive outlook The number of sales agreed continues to track positively at 16% ahead of last year. The number of new sellers coming to market is now a stable 5% ahead of this time last year.

Mortgage rates continue to head downwards and have picked up some pace in recent weeks. The average 5-year fixed rate is now 4.80%.

Though still high compared with three years ago before 14 consecutive base rate increases, this is an improvement from 5.82% at this time in 2023.

A more positive outlook is very welcome indeed – all brokers know it’s been a tough and highly unpredictable four years. It is worth being a bit circumspect, though. As Bannister noted, uncertainties remain.

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We are yet to hear the new Government’s economic plans in detail, with Chancellor Rachel Reeves’ inaugural Autumn Statement scheduled for 30th October.

One base rate cut from the Bank of England has provided a confidence boost, but it’s far from certain that another will follow.

The US is in full swing election mode, with Kamala Harris’ nomination throwing a huge curveball. Whether she or Donald Trump lands in the Whitehouse will have a massive impact on the US economy, and thus, on our own.

Survive or thrive?

Brokers are all too aware that surviving and thriving in the market today is about much more than competitive mortgage rates.

The Financial Conduct Authority’s (FCA) Consumer Duty rules are perhaps the biggest reinvention of financial services regulation in the mortgage market since M-Day in 2004.

Complying with the duty, embedding its spirit into the advice process and demonstrating that evidentially is an ongoing commitment for all intermediaries.

It brings both opportunities and challenges, and ge ing it right is imperative.

Recent experience has also taught us that markets can be volatile and customer expectations have to be realistically managed in that context.

Even for very large and established firms, keeping all these plates spinning is a big task.

The signs for the moment are that a fairer trading environment may be on the way, and that is without any stimulus from Government, which may be unlikely, as tax revenues, we are being told, need to rise. How this impacts markets like buy-to-let (BTL) is a key question. Capital Gains Tax (CGT) is a direct tax on the profit

RICHARD HOWELLS is group managing director at Primis

Complying with the duty, embedding its spirit into the advice process and demonstrating that evidentially is an ongoing commitment for all intermediaries” realised from the sale of certain types of assets, property being one of them.

The right network Choosing a network that will take as much of the extra responsibility off your shoulders, freeing you up to do what you’re good at, is important.

The myriad micro mortgage markets do not all face the same challenges, and the knowledge needed to operate effectively in any or all of them, as well as operating and systems support, is a lot for any business to think about.

Then there is the issue of capital.

With so many facing challenges in various markets, we know from experience that having a balance sheet to address them ma ers.

As we saw with Tenet Group going into administration, this caused major disruption, not least in terms of pipeline commissions being trapped.

It’s where the importance of being part of a well-capitalised network really makes a difference.

Sentiment is looking up and customers are feeling more positive.

Give yourself the space to make the most of it by partnering with a network that makes that possible. ●

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

Try it sometime: Why coaching gets results

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hen I am asked what I do as a leadership psychologist, I o en say, “I transform people.” Regularly, people in a variety of social situations will reply: “Yes, but people don’t really change, do they?”

I wonder what they think I have been playing at for the past 20 or 30 years!

Somehow, everyone believes they have the qualifications to make assumptions about the science of psychology, where they might not challenge a physicist, an IT expert or a neurologist.

The belief seems to persist that we are fixed, with li le scope for real change or development.

In contrast, I take joy, delight and immense job satisfaction from the fact that people have the capacity to change, sometimes so dramatically that it even takes me by surprise.

Making a change The first step to lasting development is always garnering a be er understanding of yourself – your strengths, drivers and beliefs. Once you have achieved insight into the impact your beliefs and behaviour have on your own success, and on other people around you, change comes much more easily.

Our clients tend to be dynamic people who want to improve and achieve a range of ambitious goals in their lives. That is a good starting point, especially if they also realise how much choice they have in life.

I believe almost everyone has this stunning capacity to learn and change, but may not have the opportunity for, or access to, expert coaching. This is where you, dear reader, come in. You may not have the time or inclination

to train intensively as a coach, but by using coaching techniques in your management communication style, you will enhance wellbeing, but also gain greater commercial success.

Attitude Before you begin to incorporate coaching skills into your communication repertoire, though, you need to check your a itudes.

Curiosity. People can be very irritating when they don’t think and behave – or ‘get it’ – like you do. One way to cope with that is to develop a deep interest in finding out why.

One of my most difficult clients, described as a ‘bully’ by others, turned out to be so driven for the firm to succeed that he didn’t notice the bodies he le in his wake. Commending him for his passionate support, I was able to coach him to channel his drive in more constructive ways.

Everyone has this stunning capacity to learn and change, but may not have the opportunity for, or access to, expert coaching” Respect. Even when people seem to be ge ing it badly wrong, there is always space for finding something to respect. When you coach for development, it shows real respect, especially if you can find a way to let them know why.

Positivity. We know from all the research that optimists succeed. Be optimistic about people’s capacity to

AVERIL LEIMON is co-founder of White Water Group

grow – or deal with it if they decide they don’t want to!

Skills Don’t give them the answers. Realise that while you may have a lot of experience, you still don’t have all the answers, especially when the world is changing fast. If you are a manager, you are probably prone to fixing. It can be very challenging to hold back your opinion and ask them what they could do to fix a problem, but that way growth lies.

Learn to listen – to what is being said, what isn’t, and how it is being said. We hear, ‘it’s fine’ and walk away satisfied when the glum look and depressed tone of voice should have us asking about their doubts.

Ask open questions. How are you going to achieve that? What do you think will work best? What did you do that worked before? The trick is to make the other person do the thinking and the work, while you do the real managing.

Reap the rewards There is, of course, much more to coaching than these few suggestions, but the more you use these basic skills, the more you will find the team stepping up, achieving more and becoming more motivated.

People I’ve worked with recently at first thought coaching was a ‘so option’ when there were performance issues. They obviously haven’t seen me at work! When you give someone the opportunity to reflect, review what they have done, and come up with options for improvement, it can be both positive and challenging. ● September 2024 | The Intermediary

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

Case Clinic Want to gain insight into one of your own cases in the next issue?

Get in touch with details at editorial@theintermediary.co.uk

CASE ONE Returning expat with a missed mortgage payment

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client has moved back to the UK, having lived in New Zealand for three years. They are looking to remortgage their buy-tolet (BTL) to secure a new rate, but the existing lender will not help as they were on a residential mortgage with consent to let. Due to the recent increases in rates, the rent did not cover the stress tests required, so she had to use her income to support the shortfall. In the past 18 months, the tenant was also unable to pay rent, which resulted in the mortgage going unpaid for a short period, due to the time it took the client to transfer enough funds., impacting her credit score.

TOGETHER

We can support both expats and overseas applicants with funding solutions on both an unregulated BTL and a regulated consumer buyto-let (CBTL) basis – they do not need to be a UK resident. We also do not need the applicant to have returned to the UK for a specific period, we would just ask for proof of address for the past three years, including their overseas address.

If the loan is unregulated, and the rental agreement does not cover our interest cover ratio (ICR), we could consider assessing the affordability on a full income and expenditure assessment.

This would be subject to the income earned by the applicant, and if they are a professional landlord. If the loan is regulated, we will need to see that the rent will cover our ICR assessment.

We also offer top-slicing where the rental income falls below what we need, so the 80

The Intermediary | September 2024

customer can use additional income to evidence affordability. It can also be used where a customer has enough surplus income from employment to supplement the rental income and illustrate to the lender that they can afford the repayments.

We do not assess customers based on their credit score and have solutions available to customers with imperfect credit profiles.

BUCKINGHAMSHIRE BS

The society could consider this case as long as it fits the BTL Non Standard Credit criteria. As the society manually underwriters all cases it allows the case to be reviewed with a common-sense approach. A soft search at decision in principle (DIP) stage would be done to allow the credit profile to be reviewed, and as the society does not base its lending decision on credit score, the fact that the applicant’s credit score has been impaired a view could be taken. The case would need to fit full affordability as, if it is not fitting the ICR, there is no other option as top-slicing is not allowed. The maximum loan-to-value (LTV) would be 75% on the BTL Non Standard Credit product.

KEYSTONE PROPERTY FINANCE

We can consider this case as long as the client is remortgaging the property as a BTL and will continue to receive rental income. As the applicant has now returned to the UK she would not be treated as an expat applicant and would be able to choose from our standard product range. This would give her a better variety of arrangement fee options to maximise her lending and meet the necessary stress tests. However, we would need to investigate the missed mortgage payments.

WEST ONE LOANS

West One’s approach to lending to applicants with credit blips, as well as our ability to lend

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

without credit scoring and our flexible approach to products with scaled arrangement fees, means that we would be able to support the client in this scenario. For example, we’re able to work clients who have missed one mortgage payment over 12 months. However, we would want to see that the applicant could verify their UK address. If the applicant is unable to, we would consider them an expat. That means that we wouldn’t be able to lend, as we’re unable to accommodate credit blips for expats.

MOLO

We would consider where the applicant has missed one secured credit payment in the past 12 months. We would need to be satisfied that the missed payment was an exception, and that the applicant could demonstrate the ability to maintain future payments, taking into account potential rental voids.

Where applicants have returned to the UK, we would only need to see three months’ proof of UK residency. Although we do not top-slice, there may be an option to look at net income affordability using our full affordability calculator instead of an ICR calculation.

FOUNDATION HOME LOANS

As long as the client has been paying UK tax on their BTL income while away, they have a UK credit footprint, so that is fine for Foundation. We can consider mortgage arrears of a maximum one month in the past 24 months, and none in the last six months.

A low credit score is not necessarily a problem, and we can consider expats returning to the UK rather than having to wait the three years other lenders need. We now also lend on CBTLs which is especially useful for expats who started renting out their homes when they moved abroad.

CASE TWO Cladding issues with 15 units

T

he client owns 15 units in a block of 130. 11 are with legacy lenders that offer no product transfer rates. Payments are about to triple.

The block is under a cost consultation with Homes England for remediation of the cladding.

Most lenders will not touch the units without an

EWS1 form. The works have been agreed to be undertaken by Homes England subject to finalising the cost, and will take one year to complete. As such, the works will be fully Government backed.

TOGETHER

If the property has more than five storeys, we require a EWS1. We would also require a Fire Risk Assessment (FRA) if there is a significant amount of cladding on the building, there are aluminium composite material (ACM), metal composite material (MCM) or high pressure laminate (HPL) panels on the building, or if there are balconies which stack vertically, and both the balustrades and decking are constructed with combustible materials.

As the works will take a year to complete once costs have been finalised, remediation works will need to be carried out and completed before we could consider the security. After remediation, a full valuation with an FRA will be required, along with the EWS1 if cladding remains across a significant portion of the building. We can definitely consider lending against multiple units in the same block, provided we are comfortable with the safety of the building.

WEST ONE LOANS

West One would require the works to be completed, and the completed EWS1 form prior to lending on a term basis. However, exposure limits here would be suitable and so we could consider lending on a bridge loan basis until the works have been completed. We could then look at BTL.

MOLO

We are very comfortable with blocks of flats, and can even consider some blocks that are favoured more by investors. Where cladding is concerned, we would happily consider this loan once the block has an acceptable EWS1 rating on completion of the required remedial works.

FOUNDATION HOME LOANS

Most lenders would need to see an EWS1 form.

For specialist cladding like this, the valuer uses the RICS guidance which dictates whether an EWS1 form is required. This is a specialist engineer’s report which rates the property with A-B and 1-3, with the lower score bandings indicating there are remedial costs or the property is not safe.

If the property has a very good rating, and the rest of the case stands up, it is not immediately out of the realm of lending. Borrowers with a lowerrated EWS1 would normally need to action any required changes before looking at borrowing. → September 2024 | The Intermediary

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FOUNDATION HOME LOANS

CASE THREE First time HMO

A

young client owns a BTL flat but does not own his own residential property. He lives with his parents, earns approximately £20,000 from his PAYE job and £600 per calendar month from his rental property. He wants to buy his first house in multiple occupation (HMO) in his personal name. He has been turned away by several lenders as he has no previous HMO experience, and he earns less than £25,000 a year.

LANDBAY

We’d be able to help, assuming the client has owned the existing BTL for 24 months. The main stumbling block is income, as we cater for HMO first-time landlords, but with an income requirement of more than £25,000. With this specific case, we would need the client to have 24 months’ landlord experience for income purposes.

We don’t have an income requirement for landlords with more than 24 months’ experience.

We would also be happy with the client buying an HMO with up to 12 bedrooms. Our product range is split between small HMOs (up to six bedrooms) and large HMOs (from seven bedrooms to 12 bedrooms). Our valuation process with HMOs will also provide the most suitable valuation for the subject property, whether that be standard bricks and mortar or investment valuation.

WEST ONE LOANS

West One does not require applicants to be owneroccupiers, nor do we have any minimum income requirements for HMO products. We’re even able to lend to first-time landlords on HMO properties, subject to the usual license requirements.

We could support the client in this scenario, subject to our usual due diligence, especially given that the client already owns a BTL property.

MOLO

We only require one year of landlord experience – not specifically HMO – to meet our HMO criteria.

The BTL experience can be either from UK or overseas. The borrower does not need to be an owner-occupier or have a set minimum income.

For young applicants, they need to be a minimum of 21 years old.

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We are happy to look at these cases on our standard HMO range, and as the client is already an experienced landlord, we also offer a feeassisted option.

CASE FOUR Holiday let in a company name

T

he client is looking to purchase a holiday let via limited company. A number of lenders would judge the calculations based on standard assured shorthold tenancy (AST) terms, rather than holiday let income. Standard AST value was around £1,500, with the average weekly holiday let income over 46 weeks closer to £6,000.

For personal holiday let mortgages, some lenders will use the holiday let income to support the mortgage instead of the AST figures. However, this does not seem to be the case for limited company.

WEST ONE LOANS

West One can lend to limited companies on a holiday or short-term let basis. We would assess affordability on the basis of standard AST rental income, particularly because of the purchase nature of the transaction. If the client is looking for maximum leverage on a holiday let basis, we can lend with scaled fees products. These products allow the client to borrow more while keeping lower interest rates due to stressing the income on payrate on a 5-year fixed product.

MOLO

We do not treat limited company applications differently. Holiday lets are always assessed as a standard BTL, so the ICR will be calculated on a standard AST rental figure. The property can be situated anywhere within England and Wales, not just in holiday locations. We also permit the use of popular short-term sites such as Airbnb.

FOUNDATION HOME LOANS

For limited company holiday let, we do use the ICR calculation of 125% on that holiday let income, which can really help with the maximum loan amount in this situation. If it’s in Scotland – as we also lend there – it will need a license to be applied for within 28 days. ●

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

How to boost your chance of getting press coverage

I

t can be demoralising.

You spend days – weeks, even – preparing an announcement for the media, only for it to get ignored when you release.

Sometimes, the reason may be obvious. Nobody would have covered your new hire press release if you sent it the same morning Northern Rock collapsed, for example.

Other times, though, you’re left wondering why your rivals are getting coverage for what seems like an inferior story, while you’re getting the cold shoulder.

Trust me, it’s not personal. It’s more likely either that the story isn’t as newsworthy as you thought, or that it hasn’t been presented in the right way.

While coverage is never guaranteed – anyone who tells you that is lying – there are things you can do to vastly improve your chances of your press release getting pick up.

Is this interesting?

Parents often overestimate how gifted their children are, and similarly, companies can misjudge how interesting and newsworthy their announcement is.

Years ago, when I was editor of a mortgage trade mag, I remember having a back and forth with a PR one day after politely declining to write up their press release.

The press release was about an award their client just won.

The problem? First, award wins are marketing, not news. Second, the award was dished out by our biggest rival at the time. Needless to say, we didn’t write it up.

My point is to demonstrate that the person pitching in the release had not only misjudged how newsworthy the release was, but also the audience they were sending it to.

There isn’t enough space in this column to get to the bottom of what makes a news story – that could be a series in itself – but I do have a decent rule of thumb you can follow.

Ask yourself: if this story were about another firm, would I be interested? Would I take time out of my busy day to read the article?

If the answer is ‘no’ to either of those questions, ditch it and move on.

Get to the point Journalists are busy. They get dozens of press releases a day, and therefore they must make a snap decision on whether your story is worth covering.

At best, they’ll read the headline, standfirst and introduction before making their call. So, these need to be spot on.

Don’t overengineer it and try to be too clever, cramming in so many puns that you need to read it several times to get the meaning. Trust me, this is a waste of time.

The job of a press release is to convey the story in the punchiest, quickest and clearest way possible.

If the story doesn’t immediately leap out at the journalist, they’ll move on.

So, keep it simple, get straight to the point and leave your reader – in this case, the journalist – in no doubt as to what the story is.

The best way to do this is to follow the ‘inverted pyramid’ structure, which is the structure journalists use to write news stories.

This means covering off the most vital points up top and the least at the bottom.

In practice, that means hitting as much of the ‘Who, What, When, Where, Why and How’ as possible in first couple of paragraphs, and leaving the background information for later in the release.

PAUL THOMAS is head of news and content at MRM

Nail your quotes People often struggle to write a good press release quote, which is why they sometimes come across as robotic in print.

A good quote adds vital colour and depth to a story. It also gives you the perfect opportunity to explain the rationale behind your announcement and why it’s a good thing.

Don’t simply repeat what you’ve written above, or your quote will sound repetitive and bland. Try to come up with memorable phrasing and, most importantly, sound human rather than corporate.

The right people Once you’ve got a press release you’re happy with, spend some time working out who needs to receive it.

Some PR firms take a scattergun approach to distribution, firing it off to anyone and everyone and hoping for pick up.

But we believe it is more effective to take a targeted approach. So, before any major announcement, we work up a list of the journalists that we want to cover the release or who we think would find it interesting.

It’s also important to ensure that you are sending it to the correct journalist on a particular title. There is little point in the features editor or protection reporter receiving your press release if it is a news announcement about mortgages.

If, after all of this, your release still doesn’t get picked up, try to find out why; or even better, ask the journalist if there is anything else you can provide – extra data, an interview with the key spokesperson – to improve its appeal. ● September 2024 | The Intermediary

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

The options are open for over-50s borrowers

2

3rd September 2022 is likely to go down in UK economic history, given it was the date of the illfated mini-Budget. We are not too far away from the second anniversary of that event.

It won’t need me to outline what this meant for the mortgage market back then – and more importantly, those borrowers who were coming to the end of their deals in its immediate a ermath – but it was certainly not a high point for all stakeholders.

Nearly two years on, we are – thankfully – in a healthier spot.

However, it has clearly not been all plain-sailing, and even now it feels like we are just at the start of a more positive interest rate trend. It has clearly taken some time to get back to the sort of product choice that was available before Truss and Kwarteng got their hands on the economic tiller.

In that regard, the next few months are going to be very important for a considerable number of existing borrowers who are coming to the end of their deals, and will be wondering what product choice, rate, etcetera, is available to them.

For many, they might believe their options remain as restricted as they were back in Autumn 2022, if they were unfortunate enough to be reviewing their mortgage options back then. For others who remortgaged in the years prior, they will likely be looking at higher rates than those they were able to secure three or five years ago.

Certainly, for borrowers who are over 50, we can pre y confidently say that the market has opened up further. Options, specifically for this older borrower demographic, have improved, particularly in the later life lending space, where they are

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not just constricted to, for example, a product transfer (PT) to their existing lender with a continuation of their mainstream mortgage.

Instead – and of course depending on their age, wants, needs, ability to service interest, risk appetite, etcetera – these borrowers can look to other product choices whether retirement interest only (RIO), or distinct types of lifetime mortgage, including full or part-interest repayment, as well as the growing number of lenders that specifically have higher maximum age requirements.

This is clearly a critical area to consider for advisers, because we are looking at a significant amount of mortgage business coming up for maturity through the rest of 2024, with October being a particularly high water mark for those coming to the end of their deals.

Big conversations Of course, with the advent of Consumer Duty, it is increasingly incumbent on advisers to be able to consider all the options available to over-50s clients, rather than just move them onto their next, potentially unsuitable, mainstream mortgage.

In effect, if advisers have clients who are over 50, nowadays this opens up a separate later life lending track that they should be exploring on their behalf.

But, as we increasingly point out, this will need advisers to have a comprehensive conversation with that client, because without knowing their full circumstances, the full details of their financial situation and what they want to do next, you’re certainly not going to be in a position to ascertain whether those later life lending options are appropriate. The other point to mention here is that

PAUL GLYNN is CEO of Air

it’s highly unlikely the client will be aware of the greater number of options now available to them by dint of them becoming older. It’s clearly the adviser’s job to outline these.

In that sense, are you as an adviser in the best shape possible to be able to cover these options? And crucially, are you able to either signpost to specialists who can advise and recommend in this area, or provide that advice yourself?

If not, then not only are you missing out as a business, but the client isn’t being presented with the full picture, and as a result there could certainly be consequences for all if they end up with a product which is not suitable.

The good news for advisers is they already have access to a variety of resources – whether lead generation or education or training or sourcing or technology – that can steadily get them to the point where they are able to offer all their older clients access to everything available to them, both now and in the future.

Of course, it takes some effort, but given so many fundamentals of our market point to growth in later life lending business, not least the ageing population, the likelihood of taking debt into retirement, the growing acceptance of the property as an asset, the greater number of responsibilities that could be funded by a home, etcetera, then it seems remiss not to pursue this as soon as possible.

This is a demographic that needs advice, and should be provided with all available options, not just the ones they have always had. We have a big chance to move this sector forward and make sure everyone gets what they need. ●

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

Addressing the compound interest criticism

O

ne of the biggest challenges people level at the equity release industry when it comes to product features is that if no repayments are made, the amount owed can increase substantially. And they are right.

If you borrow £100,000 at a rate of 5.48% on any product and make no repayments over a 20-year period, compound interest will see the balance increase.

However, what people fail to recognise is that this is far from a binary argument; it is, in fact, far more nuanced. First, while borrowing into retirement is now a fact of life supported by myriad later life lending products, affordability challenges mean that not all those people who need this type of borrowing can access the full range of options.

The interest-only timebomb – as it is sometimes referred to – is a perfect example. In August 2023, the Financial Conduct Authority (FCA) highlighted that there are still 750,000 who have interest-only mortgages.

Now, many of these people will have repayment vehicles or plans on how they pay off the balance – but what about those who don’t? How do we help people to remain in their homes if they can’t find the lump sum needed?

Using a tax-free lump sum from a pension may be an option for some people, but this will reduce their retirement income, and may mean they need to dip into their housing equity in the future to maintain their living standards. Family support is another option, but the older generation is o en not comfortable asking family for help. There is no perfect answer, but equity release can be a lifeline for many people.

So, how do we support people who don’t meet affordability criteria and don’t want to lose their homes, but who are wary about le ing the interest compound?

Sticking to standards Since the end of March 2022, all new equity release mortgages now offer borrowers the opportunity to make ad hoc repayments – within lenders’ criteria. This is the Equity Release Council’s (ERC) fi h product standard and will save borrowers an estimated £300m over the next 20 years.

Indeed, more than 360,000 voluntary penalty-free repayments were made during 2022 and 2023, with the total value of annual repayments growing 18%, from £102m to £120m.

This is despite the headwinds of a cost-of-living crisis, and suggests that customers are keen to actively manage their borrowing.

Analysis suggests that someone who borrowed £60,000 at 6.57% and made a nominal payment of £100 per month

LEE BLACKWELL is director of communications and marketing at the Equity Release Council

would save over £17,000 in interest over a 10-year period. Boosting the repayments to £200 per month would save £34,000 over the same period, and almost £99,000 over 20 years.

How much can be repaid without paying an early repayment charge will be governed by the lender’s criteria, but it is possible to flexibly manage interest payments as and when customers are financially able.

There are also the new Mandatory Payment Lifetime Mortgages which provide a higher loan-to-value (LTV) in exchange for a customer agreeing to make regular payments over a set period. So, when these criticisms are levelled at the equity release industry, it is worth pointing out that while compound interest can be a factor, it can also be managed by the customer and their families. ●

The interest-only timebomb is only one part of a more nuanced picture

September 2024 | The Intermediary

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T E C H NO L O GY Opinion

What to do when your lending model must change fast

O

ver the past few years, a significant volume of change to operating models and operating platforms has been driven by changes in regulation.

It is now less than a year until banks and building societies must conform to updated capital adequacy rules under Basel 3.1, which are expected to be fully implemented by 1st July 2025. The standards, introduced by the Prudential Regulation Authority (PRA) in line with European rules, are intended to improve risk weighting based on more granular data relating to capital assets.

Lenders, their operations, and their technology will need to deliver. This is not only about granular reporting requirements and evidence of action, as with Consumer Duty changes, but should also cause many to reflect upon the margins available in certain sectors. It’s likely there will be a material shi in lender appetite to lend in certain sectors as a result.

Once again, regulatory supply-side factors will drive market change. But it is change that will impact some more than others. The incoming rules put a higher risk weighting on a number of sectors, notably including buy-to-let (BTL) and lending to small and medium sized businesses (SMEs).

Simon Hills, director of Prudential Policy at UK Finance, has suggested this could be transformative particularly for mid-tier banks, which are more likely to use standard risk weightings. These sectors are very o en the preserve of specialist lenders and building societies, many of which still operate legacy systems that drive inefficient workarounds while longerterm fixes are slated for expensive and longer-term delivery.

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A paper issued by professional services firm EY in May highlighted the potential extent of that shi .

According to the report’s authors, implementing the changes of the Basel 3 Reform will in most cases result in higher capital requirements. That means banks will be less leveraged, thereby leading to improved shockabsorbing capacity but also to lower returns.

Agile platforms are delivering much of this change in modern financial services. Rewiring a business requires adaptable, robust and cost effective, scalable platforms. These need to support lenders, not only delivering the understanding of the sectors they are in, within the scope of any new rules or market changes, but also enabling them to pivot swi ly if the conclusions are that certain markets are no longer desirable.

Tactical changes could include adjusting pricing, steering credit production towards or away from certain segments, or similar. More fundamental changes might lead some lenders to move away from business activities that consume the most capital. More fundamental than that may be decisions to abandon certain markets and enter new ones.

The impact will be significant.

EY’s study estimates that this could result in a 24% reduction in mid-tier banks’ appetite for lending to SMEs, or an increase in capital of about 30%.

The increase in risk weights for BTLs will increase capital requirements by around 24%, or bring about a 19% reduction of lending.

UK Finance expects this to impact professional buy-to-let landlords the hardest, potentially decreasing the stock of private rented accommodation, driving more renters in to the social housing sector.

JERRY MULLE is UK managing director at Ohpen

Lending pressure Pu ing the consequences for the housing market aside – considerable as those may be – this is yet another wave of impending change that will put pressure on lenders’ internal processes and strategic lending decisions. Specifically, their need to react quickly to changing market dynamics.

In practice, it’s unlikely that specialist lenders focused on these sectors will want to pull back from markets where they have built trust and loyalty with brokers and customers. That may mean tactical shi s become a much more nuanced competitive ba leground – pricing and quotas take on a significantly more material effect on balance sheet profitability in a post-Basel 3.1 market.

The key here – for mid-tier lenders in particular – is ensuring they have the tools to make those tactical moves quickly enough to manage their internal capital exposures while avoiding any reputational damage that could ensue.

In a market where changing lending appetite becomes increasingly dependent on competitors’ short-term pricing strategies, having flexible systems is no longer a nice to have. It’s the difference between survival and losing the ability to operate effectively in the market we face today. ●

T E C H NO L O GY Opinion

Processes must ease brokers’ workloads MICHAEL CONVILLE is chief customer officer at Newcastle Building Society

O

Submitting a client’s details for a decision in principle should be a straightforward, one-time task

ver the past few years, the reality of being a mortgage broker has been challenging, to say the least, and constant uncertainty has been a key theme. With rampant inflation and the anticipation of each Bank of England Monetary Policy Commi ee (MPC) meeting, the day-to-day unpredictability of working in the mortgage industry – and proving the right advice at any moment – has only intensified.

Brokers are at the sharp end of this constant push and pull, with a lot to consider. At Newcastle, we are all about working in partnership with brokers – so much so that our intermediary brand is based on being ‘powered by partnership.’ We place value in collaboration and support, and we want to help alleviate as much of that stress as possible.

If there’s one thing we know brokers find more annoying than anything else, it’s unnecessary admin.

Submi ing a client’s details for a decision in principle (DIP) should be a straightforward, one-time task, but increasingly, it’s anything but. Full mortgage applications are even more cumbersome.

The delays between requests for further information and

documentation are infuriating and o en avoidable.

The back-and-forth is how information and documents get lost.

Resubmi ing the same documents leaves brokers tearing their hair out.

Repeatedly reminding conveyancers where the process is up to, hearing nothing for a week, only to answer the same question again, is incredibly frustrating.

It can feel absolutely pointless, yet it causes unending stress, especially for brokers caught between a rock in terms of the lender, and a hard place – satisfying clients’ hopes, dreams, and perfectly reasonable expectations.

Streamlining In a world already overloaded with information – email, online messaging, Slack, WhatsApp, X, Facebook, online forums, and more – streamlining is always welcome.

We’re doing our part to help. Two months ago, we launched our new digital broker platform, which we invested heavily in and designed in collaboration with our broker partners, because you know best what you need from a system.

Our objective is to make your life easier. We want happier brokers, less bogged down in admin and repetitive tasks, so you’re freer to do what you do best: looking a er your clients.

The new platform connects us to brokers, and both of us to the client’s conveyancer. It allows for easy editing if the client’s situation changes, and you can upload all documentation, meaning all parties are on the same page.

You can collect the information we need from your clients directly through the platform as you guide them through the process, reducing the need for rekeying.

Since the application is fully digital, the likelihood of being asked for extra information in dribs and drabs is drastically reduced.

I’m thrilled to say the platform has been extremely well received. The brokers who have used the system so far tell us it’s easy to use, simplifies their work, and speeds up the application process.

It’s a fact that many lenders are becoming more cautious.

Compliance with Consumer Duty, capital adequacy rules under Basel 3.1, and the ra of other Prudential Regulation Authority (PRA) rules, is a growing responsibility for all lenders.

That said, I don’t believe this should mean placing even more hurdles in the way of brokers who are simply trying to help clients buy or remortgage their homes.

We all share the same goal: helping more people become homeowners.

That’s it. Everything we do comes back to that. We want to be as diverse and adaptable as our broad range of customers, providing direct access to our underwriters when needed, and crucially, striving to minimise the fuss of the application process.

It’s not an easy market, but we’re doing what we can to make it easier. ● September 2024 | The Intermediary

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Meet The BDM

The Exeter

The Intermediary speaks with Mike Norrish, key account manager at The Exeter How and why did you become a BDM? I left university in 2012, and like many students who finish, I needed a job. I had a conversation with a recruitment consultant who put me in contact with The Exeter, at the time Exeter Family Friendly.

I joined The Exeter as a new business consultant providing support to advisers in the application process. I’ve always leaned towards working in sales, so when the opportunity arose in 2014 to join the sales team as a telephone account manager, I took it, and I’ve not looked back since.

My journey as a key account manager started in 2019, and I can honestly say I think I have one of the 88

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best jobs in the world. Interacting with some of the industry’s best people on a day-to-day basis, helping brokers with their challenges and contributing towards good customer outcomes, all while travelling around the South West.

What made you stay with The Exeter?

I’m in a fortunate position that my career has mostly been with The Exeter, but what I’ve enjoyed most over the last decade is the people within the organisation. I know that this is a generic stock answer, but I couldn’t be more complimentary to my colleagues. The business has transformed dramatically in my time here, so being given the opportunity

to grow as an individual with the business is incredible. I’ve always said that I wanted to work for a provider where I could truly believe in what we offer, and how we offer it.

I’m very lucky that The Exeter has a product set and ethos that I am passionate about, which makes my life easier knowing we are looking to make a real difference for our members and advisers.

What makes The Exeter stand out?

What I like about The Exeter is our commitment to making insurance available to more people, and arguably those that need it the most. Our life insurance, Real Life, provides the flexibility of offering cover to people who have multiple

MEET THE BDM

or complex medical conditions.

This means that we can provide a valuable option for advisers and their clients by making life insurance more accessible to more people.

In addition to this, we have a strong reputation for our income protection proposition within the market. We have several features within our product set that offer flexibility and quality for clients, from covering applicants from the first day of illness and allowing them to fix a proportion of their monthly benefit at application, to providing a range of free health and wellbeing benefits such as remote GP and physiotherapy appointments.

Affordability has long been a barrier to purchasing insurance, but a phrase I like to use is ‘quality is long remembered after price is forgotten’ and that really is an emphasis for me when discussing protection insurance. Cover is often not as expensive as clients may first think, and our claims statistics highlight value of the cover when people need it. In 2023 we paid 96% of new income protection claims, which shows the peace of mind that we can provide our members.

What are the challenges facing BDMs right now?

One of the challenges I think in the market now is trying to compete for advisers’ time. We work in an industry where there are many priorities for advisers and multiple products that they need to advise on, so a lot of brokers they are often incredibly busy dealing with clients.

We all have great things to talk about to brokers, but there are only so many hours in the day!

Another challenge is the ongoing cost-of-living crisis that we find ourselves in. This has, for some, meant that their disposable income has decreased. Coupled with rises in interest rates and the perceived cost of protection, this means the advice process for advisers has become slightly more challenging. With some brokers, there can also be a lack of

awareness, and in some instances confidence, in selling protection insurance. These are key challenges that I can help advisers overcome to ensure that we collectively deliver the best outcomes for their clients.

What are the opportunities for BDMs? Certainly, one of the opportunities I believe is the opportunity to position yourself as a business consultant and not just a BDM. I think it’s easy to fall into the trap of being someone who is just part of a transactional relationship, and in some ways one dimensional.

By also being interested in the challenges that advisers are facing, you are in a much better position to understand what drives them, while also positioning yourself as a subject matter expert. In doing this you then build relationships on trust and mutual appreciation of each other’s skills, which allows you to fully meet their needs.

As I have previously mentioned, advisers are under a lot of strain to understand the different products and propositions of each provider.

BDMs are a great source of knowledge when it comes to both the wider market, and their own individual propositions.

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

For me to be able to contribute to this, I really like to get under the bonnet of their full sales process.

From where they get their leads from to how they position protection to their clients. Once I am able to understand this, I can help support brokers by suggesting improvements that can lead to better outcomes, such as managing clients’ expectations on underwriting and changes to their sales process.

Again, it’s the education piece.

Knowing how a firm operates, I’m

able to understand what’s likely to be the best fit for their clients.

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

Take the time to understand your own financial situation, do your homework in understanding what current provisions you have in place and what your options are. I believe too many clients think that they’ve got it all in place, but the reality of this is they don’t.

Don’t go into a conversation with a financial adviser thinking you don’t need income protection or life insurance as ‘it won’t happen to me’.

It’s easy to concentrate on securing a mortgage, but people don’t always think about how they would pay the mortgage if they were off work due to long-term illness or how a surviving partner would pay off the debt should the other person die.

Other than this, have a think about what’s important to you as a consumer other than receiving an insurance payment during a time of need.

Many providers have great benefits that they provide in addition to core products, such as unlimited GP appointments, physiotherapy and health MOTs. These benefits can provide real value to policyholders throughout the life of their policy. ●

The Exeter

Established in 1927 Products Health insurance Income protection Life insurance Contact Mike.Norrish@the-exeter.com September 2024 | The Intermediary

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P RO T E C T I O N Opinion

Protect and serve your clients

I

f the Global Financial Crisis of 2008 taught us anything, it was the value of having a diversified business with more than one line of revenue.

The collapse of secondary money market funding for residential mortgages spun more than a third of UK intermediaries out of business within months.

Those who survived did so by luck, or by careful planning. In the 16 years since, most mortgage intermediaries have fully accepted the financial benefits of selling protection alongside mortgages.

their protection needs now, whether or not they are due to remortgage.

Data shows that there is not just widespread appetite to plan for financial upsets, it also shows a worrying number of people abandoning existing protection policies who are in need of advice.

Figures from the Association of British Insurers (ABI) showed that record numbers of people took out income protection in 2023, with standalone critical illness sales almost four-times

Volatility The commission model, with recurring revenue generated by trail commissions that can last for many years, serves as a strong and predictable base income for firms that are more exposed to market volatility on the mortgage side.

This is not only a sensible move for brokers, it’s also the right thing to do for clients.

The Financial Conduct Authority’s (FCA) Consumer Duty rules require firms to consider the needs, characteristics and objectives of their customers – including those with characteristics of vulnerability – and how they behave at every stage of the customer journey.

As well as acting to deliver good customer outcomes, firms must understand and evidence whether those outcomes are being met. It couldn’t be clearer – advising clients who are taking on what is likely to be the biggest debt of their lives comes with a grave responsibility to ensure they are as prepared as they can be to handle it in the reasonably foreseeable future.

The time is absolutely ripe for advisers to revisit clients to discuss

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higher than 10 years ago. Sales of new individual income protection policies hit 247,000 last year, a 16% increase on 2022 and the highest level since the ABI started collecting the data in 2000.

Nearly all (97%) individual income protection products were sold with advice. In contrast, sales of mortgagerelated term assurance sales fell last year as activity in the UK housing market slowed.

Meanwhile, research from The Exeter found that a quarter of UK workers cancelled insurance policies last year, citing financial pressure as the primary reason. Among those, 24% said they did so as they had never made a claim, 14% didn’t recognise the value of their cover, and 5% were unclear about the purpose of the product.

LISA MARTIN is development director at LSL Property Services

Most directly authorised (DA) firms have grasped the opportunity that widening out their protection advice offering offers – but as these figures show, the opportunity is increasing.

Of course, with any market growth comes scrutiny, and the FCA recently announced a market study it intends to launch during the 2024-25 financial year on pure protection products. The aim will be to understand whether the market is functioning well, and if customers are receiving good outcomes.

The review will focus on ‘fair value’, to understand the impact of elements such as commissions and loaded premiums, guaranteed acceptance of certain age groups and subsequent lower payouts, as well as the health of competition in the market.

Not an option The focus of the study will primarily be distribution. In 2023, intermediaries generated 92% of income protection and 82% of critical illness premiums, and the FCA will engage with firms, industry groups and stakeholders to gather views on the Terms of Reference. Feedback should be provided by 11th October.

This study links to the FCA’s wider work on Consumer Duty, but simply serves to underline the point that protection is incredibly important in our modern world and continuing to sidestep it is no longer an option.

Mortgage intermediaries’ roles are expanding, and if you need help working out how best your firm can do this, we’re here to help. ●

P RO T E C T I O N Opinion

Buying insurance online can be surprisingly costly

W

e live in a world that provides us with instant gratification from instant food orders, online purchases, drive thru food and coffee, instant messaging, swiping to find love, Uber taxis with a click, etcetera. So, when I saw on my Utility Warehouse App, a message pop up saying ‘Your Home Insurance - Get a quote’ it piqued my curiosity.

Working in the business, and with my own home insurance due next month – which Utility Warehouse’ algorithms had sussed based on the start of my Utility Warehouse account set up – I thought, let’s do some more market research and see what the experience and the prices are like.

The Utility Warehouse experience was fast, easy, intuitive and fed my impatient character. However, when the price popped up, it was £140 more than the price provided by Safe&Secure. So, it got me thinking, how many customers take the easy, convenient route like this to selfservice their home insurance cover in such a direct and sometimes costly way?

It is a route that is fraught with the risk of guessing at the right answers to the many questions that pop up and then just clicking ‘buy’ because it is there in front of you and links instantly to your online banking. Consumers may be overpaying by £100s and se ing up cover that may not pay out anyway due to inaccuracies of answers to questions.

At present, seven out of 10 UK customers arrange or buy their home insurance online, possibly because they do not realise that a fully advised route is available to them. That means that only one third (33%) of

the UK population purchasing home insurance, are receiving proper advice, accurate policy cover and correctly priced home cover.

The big issue though, is how do customers find where this advised route is available? It is not easy to find this via internet searches, which are dominated by the huge aggregator websites’ sponsored adverts. The only real way is to be recommended by a financial or mortgage adviser, an estate agency or le ing agency, or by friends and family.

The issue with buying online The one-size-fits-all approach of online platforms can make tailoring your cover challenging and o en result in underinsurance or gaps in knowledge. Without speaking to an insurance adviser, consumers may not fully understand the policy detail questions, or the exclusions and right level of contents cover – which could lead to uninformed decisions.

Moreover, insurance policies can have complex language, and online customers may overlook or misunderstand key terms which could create issues later on in the event of a claim.

While being focused on just the online price offered, the consumer will o en just choose the cheapest option, which might leave them with insufficient cover, a misunderstanding of the excess, or without the ability to speak to someone in the future due to a lack of any a er-sales customer service.

If a customer is then involved in the stressful situation of making a genuine claim, it is critical that they can quickly get hold of someone to offer support and advice on what to do next and this can be complex and

STEPHANIE DUNKLEY is development director at Safe&Secure

While being focused on just the online price offered, the consumer will often just choose the cheapest option, which might leave them with insufficient cover, a misunderstanding of the excess” drawn-out process if you are unsure of what you are doing.

This is the ‘kryptonite’ of the broker model. At Safe&Secure, once we have done the shopping around through a selection of one of 30 insurances available, and then help them to compete the forms, we set up a policy correctly for them.

The customer is then informed how to contact us and their insurer if they need any help or support during the next 12 months of the cover. This personal service, which is tailored to the exact needs of the customer, is o en overlooked, until later when they require any help, advice or assistance.

Did I take the fast and convenient route of clicking ‘Buy Online’ on my Utility Warehouse app for my home insurance? No, not this time, because every penny counts in 2024. ● September 2024 | The Intermediary

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P RO T E C T I O N Opinion

Keep your eyes on the protection prize

T

he number eight is considered lucky in China and other Asian cultures. However, recent protection data suggests that’s not always the case.

In the Gen Re Protection Pulse for Q1 2024, the number features prominently. For example, income protection sales were up 8% – driving the stability of premium values – compared to Q1 2023, but both term assurance and critical illness sales were down 8% year-on year.

This is concerning, as it suggests that the number of consumers actively engaging in protection conversations is dwindling.

I’m interested to know what’s driving this. Is it because household finances remain tight, or is it that advisers are not having these conversations with their customers?

Neither is ideal, but in the postConsumer Duty landscape, not having those conversations no longer cuts the mustard.

The fourth Association of Mortgage Intermediaries (AMI) Viewpoint report, called ‘The Perception Gap’, found that 28% of customers don’t recall having a protection conversation, but said they would have been interested.

On the generational side, it also shows that more young people – 78% of Gen Z versus 76% of Millennials – think it’s important to have protection, and one in four Gen Z consumers said they would prefer discussing this face-to-face.

Added to this, fewer than a third (31%) of consumers would prefer to buy protection via a price comparison website – all offering a massive opportunity for the advice sector if we choose to embrace it. I await their next Protection Viewpoint, due to launch in November, with great interest.

It’s also worth noting that, one year on from the implementation

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of Consumer Duty, the regulator is likely to have something to say about advisers not prioritising protection conversations.

Thanks to the tireless work of providers and the Income Protection Task Force (IPTF) with initiatives such as 7Families, income protection sales increased 23% year-on-year in 2023. However, it appears that this could have been to the detriment of other products, with income protection becoming the chosen ‘tag on’ protection product at the expense of critical illness cover.

Baked in At SBG, we strongly believe that it’s imperative that protection is baked into every conversation an adviser or broker has with their client. As part of our Protection Pledge campaign in 2022, we found that, of 424 directly authorised (DA) firms surveyed, 48% said they needed more support on how to advise business owners and the selfemployed on their protection needs.

More than 750 advisers signed up and pledged to have a protection conversation with every client, supported by a ra of practical guides to help with some of the challenges they faced in boosting their protection business, such as sales skills and objection handling.

At the time of writing, we’re also enhancing our protection offering, adding sole-tie and short-panel solutions to complement our existing

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

panel of 17 protection insurers, to help overcome any barriers to entry and ensure we’re doing all we can to support advisers.

Clearly, we live in financially challenging times, and the cost-ofliving crisis has impacted consumers’ affordability, including mortgage payments, which have increased by about £500 for more than one million households in the UK. When facing these types of financial pressures, is it any surprise that when affordability comes into play people view protection as a nice-to-have rather than an essential?

With a refinance market predominantly focused on product transfers rather than remortgages, and a purchase market that has become stagnant over the summer, there are market dynamics driving the opportunity for a protection conversation. As insurance is a product most consumers would not actively seek themselves, we, as an industry, need to work hard to raise awareness of the benefits it can bring.

While protection policy uptake is not increasing with any element of pace, the opportunity – and interest – is there. It’s up to us as an industry to keep our eyes on the protection prize and embrace what’s needed. ●

As an industry we need to work hard to raise awareness of the benefits protection can bring

P RO T E C T I O N Opinion

Balancing value and affordability

O

ver the past few years, home insurance has increasingly become more costly for homeowners.

2021 saw severe Covid-led economic headwinds – inflation, rises in property prices and increases in household bills – combine to create the cost-of-living crisis.

Add to the mix insurers having to pay out more in claims than they receive in premiums, and unsurprisingly it’s led to prices rising sharply over the past couple of years.

This is having a pronounced impact upon advisers and their operations.

Our 2024 Adviser Survey found that 90% of advisers reported that clients are now more price-sensitive than ever – a clear consequence of recent financial pressures. As customers chase lower premiums, the value of advice is even more important.

Our Adviser Survey also showed that more than a quarter (25.5%) of advisers feel that price comparison sites are hindering their ability to have meaningful conversations about general insurance (GI).

These platforms o en prioritise cost over coverage, leading to the risk that consumers believe cheaper is be er, because they’re being led to compare on price rather than suitability. It frequently falls upon advisers to redress this imbalance.

However, a conversation about the cheaper costs available online provides the perfect opportunity to highlight the value of advice and get a firm understanding of the customer’s circumstances in order to provide a bespoke and appropriate insurance policy.

Despite a very slight economic bounce back, household budgets remain under tight scrutiny, and as premiums rise, securing the right cover for your clients is more important than ever.

So, with consumers remaining price-sensitive, how can advisers ensure their customers continue to receive a service that justifies these higher premiums?

Cost versus value First, it’s important to explain to clients that what might seem like a price saving today could lead to substantial expenses tomorrow.

Knowledgeable advisers can help their clients understand that ‘value’ does not necessarily equate to ‘cheapest’.

Our data from the previous two years shows the average cost of a Paymentshield home insurance claim has risen sharply. In monetary terms, the average claim has jumped up 20% from just under £3,000 to £3,500 in that time. The rising cost of claims, supported by the latest Q2 data from the Association of British Insurers (ABI), highlights the risk of increased exposure to underinsurance.

Covering the shortfall between the insurance payout and the actual cost of rebuilding a property, especially when savings have dwindled over the past few years, would undoubtedly put significant financial strain on the typical household.

Going back to basics with clients to explain why prices have been higher recently, why comparison sites might not always offer suitable protection, how insurance pricing works, and the importance of the right policy, will go a long way to offer a lot of new homeowners the peace of mind they need at a time of huge change.

In addition, tools like Defaqto Compare can help clients easily compare financial products on a likefor-like basis, and will help explain the differing features and benefits of the policies available to them easily for clients.

It’s why 70% of respondents to our Adviser Survey agreed or strongly agreed that it’s useful when advising clients on insurance.

ADAM RYAN is head of partnerships proposition at Paymentshield

We also provide advisers with a number of tools that can help to convert and retain price-sensitive clients. Our Premium Flex tool enables advisers to adjust their commission to reduce the cost of the quote for more price-sensitive clients, giving them a cost and policy that suits their budget and needs.

However, advisers don’t always have the time or resource for this kind of one-on-one conversation. In those situations, referring clients to our dedicated telephone referral team means they can ensure that clients still receive insight on why prices are increasing, alongside advice on their home insurance, so they can make an informed decision.

Utilising this arsenal of support can help to forge that all-important positive relationship. Whether offered by the adviser or a third-party insurance specialist, it will provide the type of value that consumers quickly realise isn’t available on a price comparison site, which again helps to ring-fence clients and build long-term relationships.

With the latest Bank of England data showing that new house purchase mortgage approvals have li ed to their highest level in almost two years, there is a continuing window of opportunity for advisers to ensure their clients are receiving quality advice on their home insurance.

At Paymentshield, we’ve always championed the power of advice.

But it’s clear that, despite signs of resurgence, the market will remain price-sensitive in the near future.

This shouldn’t quell hope, it just means advisers must continue to be dynamic in delivering a service that balances cost with coverage. ● September 2024 | The Intermediary

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L O C A L FO C U S Newport

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

Focus on ...

JESSICA O’CONNOR is senior reporter at The Intermediary

Newport

A

s recent mortgage rate cuts bolster buyer confidence across the UK, Newport’s housing and mortgage market is seeing a renewed sense of momentum.

The market-wide decrease in rates, spurred on by the recent base rate cut by the Bank of England, has sparked increased interest among potential homeowners, leading to a noticeable uptick in buyer demand across the region.

This positive shift in market dynamics is fuelling optimism among investors and brokers alike, suggesting that Newport could see sustained growth in both property transactions and mortgage approvals in the coming months.

The Intermediary spoke with local mortgage and property professionals to explore how the market is set to grow over the coming months.

Average prices According to the latest data, the average property price in Newport postcode area is approximately £229,000, while the median price stands at around £195,000. This is compared with an average and median of £349,000 and £270,000 in England and Wales.

Properties in Newport have seen an average price decrease of 4% –

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equating to £10,000 – over the past 12 months.

The most affordable postcode area in Newport is ‘NP24 6’, boasting an average price of £90,900. The most expensive place to buy is in ‘NP16 6’, where properties can set buyers back over £493,000.

The average detached property in the Newport area costs approximately £398,000, while semi-detached homes sell for around £228,000. Meanwhile, terraced homes cost an estimated £160,000, with a typical flat in the area averaging at £122,000.

Buoyant market The housing market in Newport has experienced a significant drop in activity over the past year, with property sales totalling 4,200 – a decline of 36.3% or 2,600 fewer transactions.

Nevertheless, Dave Hill, company director of The Money Partnership, says that the market remains buoyant, even in the face of ongoing economic challenges.

He notes: “We’ve seen a steady increase in purchase applications month-on-month since the beginning of 2024, which of course is good news for lots of people. In all, it’s good news for the housing market in Newport.”

Scott Malpas, executive mortgage and protection adviser at Just Mortgages, agrees with this positive

assessment, highlighting Newport’s continued appeal for both residential and investment property purchases.

This appeal, according to Malpas, is largely supported by its strategic location between Bristol and Cardiff, along with easy access to numerous transportation links. This has kept buyer demand relatively high, particularly among buyers from neighbouring areas who are seeking value for money in terms of both property size and quality.

David Stock, director of David Stock & Co Ltd, says that while the overall market is steady, the outskirts of the city have been seeing increased buyer activity, with many borrowers in search of better value. →

Greater stability DAVE HILL is company director at The Money Partnership

T

he housing market in Newport has proven to be very buoyant this year. We’ve seen a steady increase in purchase applications month-onmonth since the beginning of 2024.

The majority of new business is actually coming from first-time buyers, which is great to see; without first-time buyers, the chains simply don’t move, and the housing market grinds to a halt.

We’re also experiencing a comeback when it comes to buy-to-let mortgages, which goes to show that people still view property as a viable investment strategy. Existing landlords seem to be taking advantage of this buoyancy by expanding their portfolios with additional properties.

In all, it’s good news for the housing market in Newport. The appetite for residential mortgage applications has been strong over the last few months.

We’ve experienced greater stability in the mortgage market, with interest rates staying relatively stable and starting to decrease.

This is good news for mortgage clients, meaning that not only have interest rates been steady, but they’ve also now experienced a slight decrease after the general upward trend of the past 18 months.

Mortgage lenders are staying tight-lipped about whether we’ll experience a real-world drop in interest rates, though we are seeing some lenders offering rates below 4% for certain cases – something we haven’t seen for many months. Whether this trend is set to continue is another matter entirely, but we appreciate the small victories the steady interest rate has afforded buyers.

We’ve seen the number of first-time buyer applications rise by 22% since December 2023, which is good news for chains and people looking to move into larger homes.

Interestingly, we are also noticing an increase in the number of deposits being gifted by parents and family members to help their children take a step onto the property ladder.

It’s no secret that saving for a deposit can be a large sticking point for many people wanting to purchase their first home, particularly if they are renting or are a sole applicant on a mortgage. However, the financial help they have received from loved ones has resulted in getting more first-time buyers into their own homes, as well as stimulating the local housing market.

Our key demographic has been consistent over the years, with the majority of our mortgage clients aged between 25 and 55. The spate of first-time buyers has meant that more of our clients are closer to the former rather than the latter figure, but the range of ages we see daily is fairly steady.

We’re noticing several new developments popping up around us here in Risca, and the high street is changing constantly. Luckily, Risca still has a thriving high street, and it’s great to see so many people contribute to the quiet hustle and bustle of Risca’s local economy.

We’re seeing everything from flats to large housing estates being built within a five-mile radius, and there’s quite a hub of activity going on, turning land that was previously used for industry into well-needed homes for residents.

The buy-to-let market was particularly tentative in the final quarter of 2023. This year, however, we’ve seen a huge uptick in the number of landlords refinancing and adding to their portfolios.

Lenders are also innovating with the products they offer, meaning that the stress tests are now being more consistently met to allow for more borrowing.

We are still helping people to buy their first buy-tolet properties and begin their journey as landlords, but the vast majority of buy-to-let business is coming from existing landlords.

We can take from this that the rental market has remained buoyant despite recent legislation changes from the Welsh Government, and the demand for rental housing is still high in South Wales.

September 2024 | The Intermediary

→

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L O C A L FO C U S Newport

A sought-after area SCOTT MALPAS is executive mortgage and protection adviser at Just Mortgages

N

ewport is a sought-after area for both residential and investment property purchases. Despite economic challenges, the average house price has remained relatively stable compared to a year ago, which is encouraging.

Newport’s strategic location between two prominent cities, Bristol and Cardiff, coupled with its transportation links, keeps demand high, as it offers more value for money in terms of property size and quality.

Right now, Newport offers some fantastic opportunities, particularly because prices here remain competitive when compared to nearby regions. This makes the city appealing to a wide range of buyers, whether they’re first-time buyers, those looking to move, or investors.

There’s strong demand from both families and professionals.

The HTB Wales scheme provides substantial support for those looking to get onto the property ladder. However, the future of this scheme is uncertain, we’re not sure how long it’s going to last or what might replace it. So, it’s a good idea to act quickly if you’re thinking about taking advantage of it.

Like most places, Newport is facing a challenge when it comes to the number of homes available for sale. This imbalance often results in intense competition for the limited properties on the market. It’s crucial for buyers to be well-prepared, ensuring they can act swiftly.

In recent months, we’ve noticed a significant increase in confidence.

The change in Government has had a clear impact, and with interest rates gradually declining and the recent drop in the Bank of England base rate, more buyers are feeling optimistic about securing a mortgage.

This renewed confidence is leading to increased activity, both in terms of new purchases and remortgaging.

A few key trends have become apparent recently. We’re seeing a strong interest in remortgaging, as many homeowners want to secure favourable rates before any potential increases. There is also a noticeable trend of homeowners choosing to invest in their current properties – whether through renovations or expansions – rather than entering the competitive buying market. These trends reflect a market where buyers and homeowners are being both cautious and strategic, making the most of the current conditions.

Client demographics With the appetite for residential mortgages in Newport surging in recent months, Stock notes an influx of clients spurred on by falling interest rates, thus resulting in a growing reliance on independent advice. This has been particularly beneficial for first-time buyers (FTBs), who form a large portion of new mortgage applicants in the city.

Hill notes that the number of first-time buyer applications has increased by over 22% since December 2023 alone.

“The majority of new business is actually coming from first-time

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buyers, which is great to see,” he adds.

“Without first-time buyers, the chains simply don’t move, and the housing market grinds to a halt.”

According to Malpas, it is the competitive property prices in Newport that make it an attractive option for those looking to purchase their first home.

Hill has also seen a noticeable rise in the number of deposits gifted by parents and family members, helping more first-time buyers step onto the property ladder.

This financial support is crucial, especially for those who face challenges saving for a deposit due

to renting or being sole mortgage applicants.

He adds: “It’s no secret that saving for a deposit can be a large sticking point for many people wanting to purchase their first home […] but the financial help they have received from loved ones has resulted in getting more first-time buyers into their own homes, as well as stimulating the local housing market.”

Help to Buy Brokers cite the Help to Buy (HTB) Wales scheme as a significant opportunity for first-time buyers in Newport, especially for those considering properties valued up to £300,000. This scheme offers support for new buyers purchasing their first home, making it an attractive option for those entering the housing market.

However, Malpas urges buyers to proceed with caution, saying: “One important opportunity is the continuation of the HTB Wales scheme, which provides substantial support for those looking to get onto the property ladder.

“However, the future of this scheme is uncertain. We’re not sure how long it’s going to last or what might replace it. So, it’s a good idea to act quickly if you’re thinking about taking advantage of it.”

Popular lenders When it comes to the most used mortgage lenders in the area, the bigger household names are dominant. According to Hill, Nationwide, Santander, and Leeds Building Society are popular among his clients, while Stock adds he has seen demand for other prominent lenders such as Halifax and NatWest.

In addition, several Welsh lenders are also proving popular among buyers looking to borrow from lenders closer to home.

In particular, Stock notes that Principality Building Society, Swansea Building Society, and Monmouthshire Building Society are all active in the region.

New-build appetite The appetite for new-build properties in Newport remains strong, with the price of newly built homes averaging £333,000, an increase of £4,700 (1%) over the past year. This contrasts with the average price of an established

L O C A L FO C U S Newport

Activity remains steady

Newport

DAVID STOCK is director at David Stock & Co Ltd

510k

T

he housing market in Newport is steady, but there remains more activity in properties on the outskirts as clients consider them as better value for money.

The appetite for residential mortgages has increased over the past few months as clients are looking to take advantage of falling interest rates and the need to consider all lenders via independent advice. Thank you, Martin Lewis.

Borrowers have been generally favouring the continued security of fixed rate deal over the longer term of 5-years to 10-years in what has recently been a volatile market.

The buy-to-let market has been somewhat disappointing as of late, with a lower number of potential new landlords and existing landlords leaving the market.

property, at £226,000, suggesting a clear mandate from buyers for the continued construction of newer properties in the area.

There were 142 sales of newly built properties over the past year, with most sales occurring in the £250,000 to £300,000 price range, accounting for 32.4% of sales.

According to Malpas, this demand for new-builds is unlikely to cease anytime soon.

Regeneration projects Newport has undergone significant regeneration over the past couple of years, and with more on the way.

He says: “Newport has several exciting developments on the horizon […] particularly in areas that have been in need of revitalisation for some time.

“Whether you’re looking for a vibrant urban setting in the city centre or something more rural on the outskirts, there’s a range of options to suit different preferences.

“We’re seeing new-build developments on both sides, offering modern homes with the latest amenities, which are appealing to a broad spectrum of buyers.”

Hill adds that areas like Risca are seeing a significant transformation, with new developments including flats and large housing estates being built within a five-mile radius.

“We’re noticing several new developments popping up around us here in Risca and the high street is

changing constantly,” he explains. “In terms of housing […] there’s quite a hub of activity going on turning land that was previously used for industry into well-needed homes for residents.”

Buy-to-let The buy-to-let (BTL) market in the Newport area has faced challenges recently, with a noticeable decline in the number of potential new landlords. In fact, Stock has seen a number of existing landlords forced to exit the market altogether over the past few years.

However, despite this perceived slowdown, private rental homes still account for 14.6% of all of Newport’s housing stock, indicating that there are still opportunities for those interested in entering the sector, even if this is below the UK average.

Hill notes that while the market was particularly tentative in the final quarter of 2023, 2024 has seen a substantial increase in landlords refinancing and looking to expand their portfolios.

Citing the Bank of England’s decision to lower the base rate to 5% as a potential tonic for the rental market, Hill also highlights the innovation within the sector, which is enticing investors, both old and new, back to the market.

He says: “Lenders are also innovating with the products they offer, meaning that the stress tests are now being more consistently met to allow for more borrowing.

Residents

Average age

41.9

Residents per household

2.37

Newport postcode area. Source: www.plumplot.co.uk

“We are still helping people to buy their first buy-to-let properties and begin their journey as landlords, but the vast majority of buy-to-let business is coming from existing landlords.

“We can take from this that the rental market has remained buoyant despite recent legislation changes from the Welsh Government, and the demand for rental housing is still high in South.”

Sense of momentum Experiencing renewed momentum, Newport’s housing market has been spurred by recent mortgage rate cuts and the Bank of England’s base rate adjustments.

Despite past challenges, the market shows signs of resilience, with increased buyer demand and strong interest from first-time buyers and landlords alike.

The Help to Buy Wales scheme continues to provide crucial support while it lasts, and new-build properties continue to draw attention from buyers, reflecting the city’s ongoing efforts at regeneration.

As Newport navigates these shifts, the market’s outlook remains optimistic, with opportunities for growth in both residential and investment sectors.

As put by Malpas: “With interest rates gradually declining and the recent drop in the Bank of England base rate, more buyers are feeling optimistic about securing a mortgage.” ● September 2024 | The Intermediary

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On the move...

Simply Conveyancing names Alan Young as CEO

Cambridge & Counties Bank appoints chief financial officer

C

ambridge & Counties Bank has appointed Richard Hanrahan as chief financial officer, reporting to Donald Kerr, chief executive officer, and si ing on the bank’s board. He succeeds Andrea Hodgson, who leaves to pursue a NED career.

Kerr said: “We are very pleased to welcome someone of Richard’s calibre and exceptional experience to the senior team. Richard will play an intrinsic role in

helping the bank to continue delivering on our organisational excellence and turning our strategic focus into results.”

Hanrahan added: “I am delighted to be joining the team at Cambridge & Counties Bank at a time of significant growth. The bank is well positioned to continue its growth trajectory, and I look forward to working with the team to continue delivering on our strategic priorities.”

S

RICHARD HANRAHAN SUAVEK ZAJAC

conveybuddy appoints head of operations

C

onveyancing distributor conveybuddy has appointed Amy Innes as head of operations.

With a background in intermediary distribution, Innes joins conveybuddy a er a role as panel manager at iPlace Global. Innes spent nearly a decade at Broker Conveyancing as a senior account manager.

Innes said: “Once I saw the platform, the pricing and the panel, it didn’t take me long to say yes. I know brokers are going to love it.

“I believe my skillset aligns perfectly with the company vision, and I look forward to contributing to its continued AMY INNES success.”

Ben Jenkinson joins UTB property development division

U

nited Trust Bank (UTB) has appointed Ben Jenkinson as head of product and strategy in its property development division.

BEN JENKINSON Jenkinson has over 20 years’ experience in real estate finance, holding senior positions with lenders and agencies including Nationwide, RBS and Homes England.

Adam Bovingdon, head of property development, said: “Ben’s extensive experience in creating innovative finance solutions will help us to create a suite of new products as we continue to evolve our proposition and service to meet the changing needs of housebuilders.

“The future is looking increasingly bright and UTB aims to be at the forefront of specialist development finance lenders.”

imply Conveyancing has named Alan Young as CEO following the resignation of Doug Crawford.

Formerly L&C Mortgages CEO, Young initially joined Simply in August 2024 as chief commercial officer. Young was also the founder and managing director of conveyancing and survey panel management business Optimus.

Adam Holloway, partner at Livingbridge, said: “Alan has an outstanding track record of driving growth and developing new markets and is an excellent cultural fit for the business.

"We are excited to support him and the company in its next phase of growth.”

Young said: “I am honoured to build on the formidable foundations put in place by Doug Crawford and the talented team here at Simply.

"I look forward to leading the company and its amazing group of people to its next stage of growth and innovation at this transformative time in our industry.”

ALAN YOUNG

OMS promotes Jodie Andrews to head of marketing and partnerships

O

ne Mortgage System (OMS) has promoted Jodie Andrews from head of marketing to head of marketing and partnerships.

Andrews will oversee the introduction and management of third-party partnerships, while continuing to lead the marketing strategy for OMS. She will also be responsible for training and development initiatives, crossfunctional collaboration, and strategic planning.

Neal Jannels, managing director of OMS, said: "Jodie is a natural fit to manage the relationships with our key partners and we are delighted that Jodie has agreed to take on this additional responsibility.

"Her deep understanding of the financial services industry, combined with her strategic insight and dedication as well as her customer-focused approach, has already had a significant JODIE ANDREWS

impact on our business.”

Andrews added: "My focus will be on fostering strong, collaborative relationships that enhance the value we deliver to brokers and lenders, while also ensuring our marketing strategies align with our growth objectives. I look forward to building on the great work we've done so far and further enhancing the value and reach of OMS."

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Skipton Building Society is a member of the Building Societies Association. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority Skipton Skipton Building Society Society is a is member a member of the ofunder Building the Building Societies Societies Association.

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Authorised by the by Prudential the Prudential Regulation Regulation Authority and and regulated regulated byproviding the

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