The Intermediary - April 2023

LATER LIFE ▮The latest from Key Later Life, LiveMore, ERS and more

MEET THE BDM ▮HSBC and Lendco take the spotlight in a double-header

INTERVIEW ▮Kay Westgarth talks later life lending and innovation

The

Intermediary. www.theintermediary.co.uk | Issue 3 | April 2023 | £6

PICKING UP THE PIECES The later life lending market post mini-Budget

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

From the publisher... nd just like that, Q1 2023 is done. It’s amazing how quickly time can pass, as it only feels like a couple of weeks since Christmas. In the first three months of the year, the UK managed to avoid both the recession and the catastrophic house price crash that were predicted by some of the market’s biggest players and institutions.

Indeed, the Bank of England itself was speculating that the UK would be in recession come Q1. That recession, it anticipated, would last for five quarters, with the country set to emerge this time next year. Thankfully for us all, the country has managed to avoid the Old Lady of Threadneedle Street’s predictions for now.

That is despite the best efforts of erstwhile Prime Minister Liz Truss and her Chancellor Kwasi Kwarteng. The human hand grenade, as she was allegedly nicknamed by Boris Johnson, exacerbated the impact of global economic issues on these shores and, in the process, almost tanked the entire economy.

She’s now on a tour of the political speaking circuit, justifying why she was right and why those she refused to listen to, such as pesky economists, the Permanent Secretary to the Treasury, and the Office for Budget Responsibility, to name but a few, were all

A

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wrong. A er all the fallout, it turns out she was indeed right. Luckily for us, her mooted comeback has gone down like a fart in a li .

Hopefully, the duo of Truss and Kwarteng will remain far away from frontline politics in the future.

In this issue, we look at the impact that the pair’s September 2022 mini-Budget had on the later life market in our feature on Page 34.

Hannah Smith looks at how the market has been working hard to support borrowers and brokers in a financial world that has changed significantly over the past six months.

We also catch up with Kay Westgarth of Standard Life Home Finance to discuss how the firm is navigating the challenges faced by the later life, and indeed the entire, mortgage sector.

You can find that interview on Page 48.

As we look ahead at the coming months, it remains to be seen what impact the banking scare will have and if it is set to turn into a fullon crisis. Bank of England Governor Andrew Bailey thinks not, and has played down talks of a banking crisis in a speech to the IMF. The question now is if his comments will pave the way for further interest rate rises, in a market already feeling the strain. ●

Ryan Fowler @IntermediaryUK

Contributors Aaron Scott | Alison Pallett | Amanda Wilson Andrew Dignum | Andrew Gething | Bill Purves Damian Thompson | Darren Deacon | David Jones | David Kempster | Ellen Fell | Emily Chisnall | Graham Evans | Grant Hendry Gregor Sked | Hannah Smith | Jacqui Gillies Jerry Mulle | Jon Dunckley | Jonathan Sealey Jonathan Stinton | Karen Woodley | Louise Chapman | Louise Pengelly | Lucy Barrett Maeve Ward | Mark Blackwell | Mark Gillis Martese Carton | Matthew Cumber | Matthew Dilks | Michael Conville | Miranda Khadr Neal Jannels | Paul Brett | Ranjit Narwal Richard Rowntree | Robin Johnson | Sam Simmons | Shaun Almond | Steve Carruthers Steve Cox | Steve Goodall | Stuart Cheetham Stuart Law | Tanya Elmaz Thomas Cantor Tim Hague | Tom Denman-Molloy | Tom Lee Tom Rowlands | Tony Marshall | Will Hale

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LATER LIFE ▮The latest from Key Later Life, LiveMore, ERS and more

MEET THE BDM ▮HSBC and Lendco take the spotlight in a double-header

INTERVIEW ▮Kay Westgarth talks later life lending and innovation

The

Intermediary. www.theintermediary.co.uk | Issue 3 | April 2023 | £6

PICKING UP THE PIECES The later life lending market post mini-Budget

Copyright © 2023 The Intermediary

Cover illustration by Klawe Rzeczy (Photos ©UK Parliament/Jessica Taylor, HM Treasury Zara Farrar, Adobe, Unsplash)

Cartoons by Giles Pilbrow Printed by Pensord Press

CBP006075

April 2023 | The Intermediary

3

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Better.

Choose Landbay and you’ll find experts at the end of the line, smart technology designed for you, and fast decisions you can count on.

Contents FEATURES & REGULARS

INTERVIEWS & PROFILES

Meet the BDM 46 LENDCO

Graham Palmer on what makes Lendco stand out from the crowd

Feature 34 Hannah Smith looks at the challenges faced by the later life lending sector

The Interview 48

Local Focus 76 This month The Intermediary takes a look at the housing market in Ipswich

On the Move 94 An eye on the revolving doors of the mortgage market: the latest industry job moves S TA N DA R D L I F E

SECTORS AT-A-GLANCE

Residential 6 Buy-to-let 40 Later Life 52 Specialist Finance 58 Technology 72 Second Charge 80 Protection 84

Standard Life Home Finance’s sales director Kay Westgarth discusses navigating challenges, innovating products, and preparing for Consumer Duty regulations

Q&A 60 S A XO N T R U S T

Brian West and Andrew Gardiner from development and bridging specialist Saxon Trust speak about the firm’s growth plans

Q&A 86 LV =

76

Sarah Watts, head of intermediary at LV= General Insurance, reflects on the brand’s first year in the intermediary market

Local Focus

Meet the BDM 18 HSBC UK

Siobhan Moran on the challenges and opportunities facing the mortgage market

The Intermediary | February 2023

5

RESIDENTIAL Opinion

Consumer Duty rules shift the goal posts significantly

M

arch is always a busy month for those in finance.

The end of the tax year and the Spring Budget can have significant implications for businesses in the mortgage market, and importantly, our customers.

In the longer-term view, though, we have a more pressing issue in the shape of the Consumer Duty, which becomes enforceable from 31st July.

Four outcomes The rules include: a Consumer Principle that requires firms to act to deliver good outcomes for retail customers; cross-cu ing rules providing greater clarity on the Financial Conduct Authority’s (FCA) expectations under the new Principle and helping firms interpret the four outcomes; and rules relating to the four outcomes the regulator wants to see under the Consumer Duty. These represent key elements of the firmconsumer relationship which are instrumental in helping to drive good outcomes for customers.

These outcomes relate to products and services, price and value, consumer understanding, and consumer support. The la er is particularly relevant if arrears continue to grow.

The FCA requires firms to consider the needs, characteristics and objectives of customers – including characteristics of vulnerability – and how they behave at every stage of the customer journey. As well as acting to deliver good outcomes, firms will need to understand and evidence whether those outcomes are being met.

It’s quite the shi , from suitable product at point of sale within the boundaries laid out by a firm’s

6

The Intermediary | April 2023

authorisation permissions, to the forward-looking consideration of outcomes.

While my feeling is that all lenders, networks and intermediary firms are supportive of the principle of this regulation, there is distinct nervousness about the process of adhering to it. There is nothing fundamentally new compared with the original regulatory framework in 2004, or the Mortgage Market Review (MMR) in 2014, but the regulator is clearly frustrated about the lack of clarity, and possibly the lip service being paid. So it’s the evidence that is the fundamental shi here.

Where is this duty handed off from one regulated entity to another?

Should the process and evidence base be the same for advisers in branch versus independent brokerages? Is the regulatory responsibility held by appointed representative (AR) networks sufficient to cover both lenders and ARs? What is the personal responsibility for this duty of care when it comes to individual advisers?

How should lenders, networks and advisers judge vulnerability?

How should they document their reasoning? The regulator said Consumer Duty does not remove the responsibility from consumers, but the vulnerable customer tag would certainly imply a higher level of duty.

Where is the line? What constitutes the basis for a legitimate legal challenge that argues an adviser failed in their regulatory obligations?

Ultimately, Consumer Duty requires firms and advisers to ensure they are in no way causing ‘foreseeable harm’ – something that an industry with fewer grey hairs than ever before may find a challenge. ‘How they behave’ is also enshrined into the regulatory wording, but what

TIM HAGUE is managing director of Sagis

does that mean, and how can it be responsibly assessed when people react in individual ways to the stress – or not – of executing a mortgage or remortgage application?

Covering the bases There is no one straightforward answer, or one process that will allow lenders and intermediaries to ensure they’ve done what’s required. Forms, questionnaires, personal assessments, and customers agreeing to sign confirming they are comfortable with the recommendations – we simply do not know if this will cover all liability bases. In basic terms, it’s impossible to know until it becomes law and there are test cases available for scrutiny.

Processes relating to the duty are not going to be perfect on day one.

We cannot know how the regulator will supervise this new regulation until it becomes real. There are things we do know, though. The good old 80:20 rule will inevitably apply.

Networks are more likely to be asked to provide examples of how advisers have approached, assessed and executed advice, but the regulator may force lenders and networks to have even closer working relationships, as the former police the la er.

Ensuring the regulation is implemented successfully is going to be a priority for the FCA. Particularly when it shi s the goal posts so significantly. Be assured, there will be a desire to demonstrate the return on investment in developing and delivering these new rules.

Enforcement will be the tool, and firms must be ready. ●

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RESIDENTIAL Opinion

Retaining clients and importance of the advice process

E

veryday mortgage brokers help thousands of people onto and up the housing ladder. In fact, 80% of mortgage business is now conducted through a broker.

But despite the valuable role many brokers play in the homebuying journey, our data shows that just over a quarter (26%) of borrowers who were introduced to Coventry Building Society via a broker got back in touch with us directly when looking to remortgage.

With this in mind, it’s key that brokers evaluate their client retention strategies, particularly as the current climate is prompting more borrowers to lock in new deals ahead of any further interest rate rises. So how can brokers improve client retention and avoid losing out on these valuable opportunities for more business?

1

Proactive communication

It is in brokers’ best interests to create and foster a dynamic relationship with clients beyond the mortgage journey. By giving clients regular updates on changes in the market, as well as providing

information during key stages in their mortgage journey – from the initial application to assessment and affordability checks – brokers will keep the line of contact open and ensure they are on the front foot when it comes to securing additional business opportunities. It is also essential to strike the right balance between being overbearing and staying in touch. Ge ing it right will mean clients create new associations in their minds with the broker as someone who always provides the most relevant advice and has their interests at heart.

2

The power of tailored marketing

Making use of a variety of marketing strategies can help brokers to stay in touch with clients during the ‘in-between times’. Content marketing strategies such as newsle ers are a great way of updating clients on what’s happening in the market and why it’s relevant to them. Contact can be tailored to different types of clients – first-time buyers, landlords, downsizers – and cover a range of timely topics to help clients keep up with the evolving market.

Blogs are another good way to share

Customer retention: The advice process is more valuable than ever

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The Intermediary | April 2023

JONATHAN STINTON is head of intermediary relationships at Coventry for intermediaries

content with clients whilst improving rankings on Google. A study by HubSpot found that businesses that blog saw their monthly leads rise by 126% against those who don’t blog.

Engaging through social media

3

Social media is a useful way to reach multiple clients at once without being overly intrusive. Many brokers are already social media savvy, with a continuous presence on traditional platforms like Twi er, Facebook and LinkedIn. More recently, short-form video formats like TikTok and Instagram have rapidly increased in popularity, including amongst brokers. Some brokers have already taken their expertise to TikTok, with 10% of brokers revealing they have created a TikTok video for professional use and 36% finding the platform ‘invaluable’.

These platforms allow brokers to create distinctive and personable content for a wider audience.

By simplifying complex topics and cu ing through technical jargon, brokers can also tap into the Millennial and Generation Z demographics. Whatever their preference, these communication tools provide invaluable opportunities to connect and resonate with clients, pu ing brokers at the forefront of customers’ minds when it comes to future mortgage decisions.

These steps can go a long way in making clients feel that their broker is a real human who understands their issues, and who they can rely on for all their mortgage needs. ●

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RESIDENTIAL Opinion

Intermediaries critical as owners face remortgaging

F

or many homeowners with a remortgage on the horizon, the outlook could fairly be described as challenging. The Office for National Statistics (ONS) believes that more than 1.4 million households in the UK face the prospect of an interest rate rise when they renew their fixed rate mortgages this year.

For many, the rates they are offered could be significantly higher this time round. ONS data also finds that 57% of fixed rate mortgages coming up for renewal in 2023 were fixed at interest rates below 2%. But the Office for Budget Responsibility (OBR) forecasts that the Bank Rate will peak at 4.8% towards the end of the year.

That means, according to ONS estimates, that if the interest rate on a £300,000 mortgage increases from 2% to 6%, based on a 25-year capital and repayment mortgage, the monthly mortgage repayment would go up from £1,272 to £1,933 – an increase of 52%.

Repayments shock It’s not hard to see why figures like that are cause for alarm, especially against the backdrop of the cost-ofliving crisis. Inflation, while forecast to fall over the course of the year, is still eroding spending power and wage growth.

The shock of an increase in repayments of that size is going to be even more stark for the growing cohort of borrowers on longer fixes. There has been an increase in the popularity of 5-year fixed rate mortgages in recent years. In Q4 2021, UK Finance said that these accounted for the majority (60%) of all fixed rate mortgages taken out by homeowners, up from 42% in Q4 2016.

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The Intermediary | April 2023

Historically low interest rates over the past decade will have been a contributing factor to that rise. But the uncertainty caused by Brexit also played a significant part in many people’s decision-making, with many choosing to lock in for a longer period in an a empt to secure some stability during volatile times.

‘Great Resignation’ A further dimension to this trend which should not be overlooked is the number of people currently locked into longer fixed-rate mortgages who will have had a career change in that period, in particular those who have become self-employed.

According to the Association of Independent Professionals and the Self-Employed (IPSE), the self-employed population grew continuously up to 2019. While it dipped slightly during the pandemic, the subsequent ‘Great Resignation’ has seen more people choose to strike out on their own.

It’s reasonable to expect that a decent proportion of those who took out a fixed mortgage five years ago may have done so as a full-time employee, but will now be looking to remortgage as self-employed. We know that this is a segment of the population which can find it harder to secure a mortgage.

Borrower support Where does all this leave those facing a remortgage over the coming months?

It’s important not to be too alarmist.

There are options out there, and as a lender we are ramping up our support to borrowers who be struggling with their repayments.

However, with such a fast-moving – and at times complex – landscape to navigate, I firmly believe that the role of the intermediary

ALISON PALLETT is sales director at Nottingham Building Society

The best way to get a holistic assessment and an impartial recommendation is through an intermediary” community in supporting borrowers through the process has never been more important.

It’s likely that borrowing over a longer term will become a more popular option as a way of maintaining affordability; however, that will see more people paying back loans into their 60s and 70s.

Likewise, against a backdrop of squeezed affordability, we can expect to see product transfers become a more a ractive option to many – but that won’t necessarily be the best option for everyone.

Holistic approach These are decisions which should not be taken lightly, and the best way to get a holistic assessment and an impartial recommendation is through an intermediary.

Research from Mintel last year found 85% of people said they would seek mortgage advice for their next mortgage, whether than be a mortgage broker, independent financial adviser (IFA), online broker, or bank or building society adviser. That figure is encouraging.

Through intermediaries, homeowners have the best possible route to ensuring they navigate the options and land on a solution that is right for them. ●

RESIDENTIAL Opinion

Removing housebuilding targets a backwards step

A

pril sees the Levelling Up Bill reaching its final Parliamentary stages.

The Government’s consultation into its proposed planning changes has now closed, and the industry awaits its response with anticipation.

As a result of the new Bill, the Government’s manifesto commitment to build 300,000 new homes each year by the mid-2020s could be confined to the annals of history. Rather than there being a specific Government target for house building, the government wants to make councils responsible for developing local plans for new housebuilding levels.

Everyone agrees that there is no silver bullet when it comes to solving the UK’s housing crisis but nationally set housebuilding targets exist for a reason. Indeed, The Home Builders Federation previously warned that scrapping the 300,000 annual targets could lead to 100,000 fewer homes

each year being built and deprive the economy of £17bn in housebuilding and supply chain output. This is simply unacceptable.

Housing costs are at their most unaffordable level for over a century: There is li le doubt that home ownership remains the preferred tenure of choice for millions of people. Although demand for housing continues to increase, we are facing a chronic shortage of homes resulting in soaring house prices which drive deposit requirements and mortgages ever higher. This means first-time buyers are finding it harder than ever to get on the ladder and it is now the hardest time to afford a home since our founding year in 1875, a sad reflection of decades of Government inaction to tackle the UK’s housing crisis.

But the longer-term aim for the Government must be to address the drastic shortage in housing. The issues facing homeownership are deeprooted and wide-ranging but building

Number of houses built each decade (millions) 4 3.5 3 2.5 2 1.5 1 0.5 0 1950-59

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1960-69

The Intermediary | April 2023

1970-79

1980-89

1990-99

2000-09

2010-19

MARTESE CARTON is director of mortgage distribution at Leeds Building Society

enough homes to meet demand is the right place to start.

Achieving these targets will be difficult, and it will take all parts of the market to deliver this level of housebuilding, from private developers to housing associations and local government, but with enough political will, a decades-old problem can surely be overcome and would start to deliver on the homeownership aspirations of millions of people.

Through the decades To understand why we have a chronic shortage of housing it’s worth looking at the history of post-war Government housebuilding strategies in the UK. There was a huge shortage of housing in post-war Britain – with over half a million properties being destroyed by air raids during the war. It was estimated that around three million new homes were needed immediately and as a result the government aimed to build over 300,000 new homes each year.

However, there were shortages of builders, materials, and money.

Many ‘non-traditional homes’ were built using various prefabrication approaches, which pushed up housing output to 354,000 new homes in 1954.

As a result of these new building approaches, total annual new housing completions soared, and peaked in 1968 at around 400,000 – the highest ever annual level.

The 1960s was the decade of tower blocks, and the availability of new homes pushed up owner occupation levels still further. The decade saw the largest number of new homes

RESIDENTIAL Opinion

Housing targets help to catalyse supply as well as providing consistency and stability, all things the market desperately needs as we seek to rebalance supply and demand”

built at over 3.5 million. Since then, the number of new homes built each decade has declined and the latest figures show that just over 1 million new homes were built in the 2010s – the lowest level since the war.

Despite the continued increase in demand for homes the number of houses built has declined decade upon decade, reducing by 69% since the end of 1960s.

Government housing policy has changed over time. Whereas slum clearance was a key priority in the 1950s and 1960s, it is no longer central to the current Governments housing policy. Post-war Britain saw the large-scale demolition of sub-standard housing. Between 1953 and 1985 over 1.5 million homes were demolished

because of slum clearance – displacing around 3.8 million people.

The removal of so many properties, and the inability to build sufficient homes for a growing and everchanging population has been central to the housing crisis we now see today.

Housing targets help to catalyse supply as well as providing consistency and stability – all things the market desperately needs as we seek to rebalance supply and demand.

Trade-off We need a national conversation about the reasons why we’re building homes. It’s understandable that people are protective of their communities and don’t want undue disruption or pressure on services and

infrastructure, but the trade-off is between that, and millions of people being blocked from the benefits home ownership brings.

Those supporting the effective removal of the 300,000 housing targets argue they want to put control in the hands of local people. We agree this is an essential component of deciding the development of communities, but this is no reason why the Government should step back from having nationally published housing targets.

With the affordability of home ownership now at its worst point for 150 years and housebuilding levels at post-war lows, it is clear that housing must be a key ba leground at the next General Election. ● April 2023 | The Intermediary

13

RESIDENTIAL Opinion

Package cases well so lenders can help you and your client

Stay ahead with best-in-class packaging

EMILY CHISNALL is underwriting service optimisation manager at Accord Mortgages

Try to respond to document requests as soon as possible. At Accord, requests for documents are visible as soon as the lending decision – or decision in principle (DIP) – is submi ed, and assessed as soon as they are received. The earlier they are submi ed, the earlier they can be assessed.

Other commitments

W

e understand that brokers want to provide the best service possible to clients, giving them the best advice they can, and finding the product to suit their needs.

But once you’ve chosen a product, the speed at which a lender can turn around their offer is out of your control, isn’t it? Well, no.

Not completely.

There are actually lots of things brokers can do to help lenders ensure a case goes through as smoothly as possible. Any improvements, however small, will benefit everyone involved – saving time for you, your customer and your lender, with the added bonus of helping to build relationships all round. So, to package a ‘best-in-class’ case, where do you start?

First, it’s a good idea to check whether your chosen lender has any specific advice on how to package a case – each lender might have slightly different requirements, so it’s important to be aware of these.

At Accord, we have a page on our website dedicated to packaging top tips. Here, I will take you through some of the key things to consider.

14

The Intermediary | April 2023

Checking personal details This is a pre y basic one, but you’ll fall at the first hurdle if the personal details are incorrect.

Make sure that your client’s name and address are up to date. Proof of identification and inevitable delays may result if not.

Providing documents Every case will require a certain amount of document submission, so it’s important to provide what’s been requested as soon as you can. Here are some things to bear in mind: Upload your documents at the same time, if you can, so that we have them all at once for when the case is reviewed; Don’t forget about extra documents which could be required for selfemployed clients or contractors, like business bank statements in addition to personal statements; Don’t send us more than we ask for – if we need something else, we’ll let you know; It’s possible that further items might be needed later on. Underwriting is pre y fluid, so there could be a request for more information if something else comes to light;

If there are any debts or financial commitments outstanding when we receive the application, it will slow things down if they are not declared, so make sure these are included up front. These include things like: Declaring childcare costs; Including details of debts, however small, like student loans or credit card debt; Details of any other properties if they are to be included in the affordability calculation.

Pay any initial costs to get things moving This is a simple one, but could easily be forgo en. A valuer will o en be instructed as soon as the valuation fee is paid, if there is one, so ensuring that this is done will help get the ball moving nicely.

It’s a two-way street Brokers increasingly have direct access to underwriting teams – that’s certainly the case at Accord – so it’s easier than ever to have a two-way conversation. Lenders are always looking for ways to make improvements – it helps you, and us, to do our jobs be er, and helps your clients. That’s ultimately what we’re all here for. ●

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RESIDENTIAL Opinion

Meeting the challenges of climate change

C

limate risks are driving significant asset value exposure risks for lenders. It is vital, therefore, that lenders have a clear understanding of how this could affect mortgage offers in the future.

Nevertheless, there is an absence of direction from lenders to their conveyancer panels to verify future risks. This is a big miss, as the data is available and both parties need to be in sync. It’s important that the findings from climate analysis in environmental searches are translated into actionable advice, particularly given the incoming Law Society guidance on climate risks.

Some forward-thinking firms, especially commercial lawyers, are starting to join the dots and see advice on climate risks and use of search report analysis as a way to help discharge their duties. However, it is important that this is not a ‘nice to have’ option for lenders. There are treating customers fairly (TCF) considerations, and lenders have a duty of care to their borrowers.

It’s good that the Law Society is looking to implement guidance on climate due diligence – ge ing on the front foot. Overarching ethical and operational guidance will help conveyancers avoid future litigation exposure. Given their requirements with the Prudential Regulation Authority (PRA), you’d think lenders would be responding similarly.

If lenders want conveyancers to triage risk on their behalf and improve the information flow back to them, they need to admit that and mandate it. They should be specific in their Part 2 and Part 3 instructions.

The UK Finance handbook should include climate analysis into the

16

The Intermediary | April 2023

future in its environmental search due diligence guidance.

We have witnessed a clear acceleration in extreme weather events, driven by human input from greenhouse gas emissions over the past 40 years. As our atmosphere warms, more moisture is created and provides localised, heavier rain. At the start of April, we learned England has endured its we est March in more than 40 years. According to the Met Office, England recorded 111.3mm of rain, almost double the average level.

This presents major issues for homebuyers and owners in terms of making their properties more resilient, and investing in measures to mitigate against the risk.

While successive Governments have channelled millions into flood defences to protect priority communities from the river network, there are still thousands of undefended streams. The insurance bill for 2020 floods alone stands at £375m.

Major considerations The tapering off of Flood Re as a support to the most vulnerable, and high premiums or excesses for those just outside of this extra support, means there are major considerations at play for homebuyers and business owners. Insurers may vary their cover in response, but could lenders offer be er terms for those households that have taken out flood resilience measures as an extra incentive?

As the we er areas get we er, so the drier areas get drier. We have just recorded the driest February since the 1960s. The record-breaking 2022 heatwave brought with it a surge in subsidence claims through clay shrink-swell impacts. Meanwhile, sea levels could rise by as much as 1m in the next century, accelerating coastal

DAVID KEMPSTER is a director of Groundsure

If lenders want conveyancers to triage risk on their behalf and improve the information flow back to them, they need to admit that and mandate it” erosion. Whole se lements could be given up to the sea.

Many properties now have a shorter lifespan and will be unmortgageable and uninsurable. Some cash buyers may walk into transactions with eyes wide open, but some will become trapped. Many will end up staring at a total loss on their investment.

Look at buyers in Hemsby, who bought on the understanding that there could be 30 years le . They are now staring at a total loss within five years.

This is only going to be be er understood if the homebuyer, lender and conveyancer benefit from joined up climate predictive analysis.

I want to challenge lenders to step up to the plate. With The Law Society set to issue guidance, lenders must start to insist that their panels manage climate risks in the transaction, and mirror the risk management here in a joined up way.

This joining up should be across the board, not le to individual lenders.

A concerted policy decision by the representative bodies is in order. ●

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Meet The BDM How and why did you become a BDM? After being a mortgage and protection manager with HSBC UK for six years, I was approached internally to see if I would be interested in the business development manager (BDM) job because of my knowledge of our products and policies, and the Northern Ireland mortgage market as a whole.

I met with Paul Norgate, head of North Region, and straight away was blown away by his enthusiasm and what an exciting opportunity it would be to get involved in bringing HSBC UK Intermediaries to the Northern Ireland market.

The BDM role is very much relationship-driven and I knew that my already established relationships internally and externally in the Northern Ireland market could bring a lot of value to the BDM role.

What brought you to HSBC UK? I joined HSBC 12 years ago after completing a graduate programme with another high street lender.

During the graduate programme I carried out various roles, but ultimately it was the mortgage role that appealed the most to me. I found it so rewarding and satisfying, as it provided the opportunity to help people at an important point in their lives.

I became CeMAP qualified during the programme, and I was keen to gain further experience with another high street leader. The timing was perfect, as an opportunity arose within HSBC just as I was finishing.

I have been able to continue to focus on my personal development throughout my career with HSBC. 18

The Intermediary | April 2023

The Intermediary talks to Siobhan Moran, BDM, Northern Ireland at HSBC UK, about the challenges and opportunities facing the mortgage market

I am a board member of Women in Banking and Finance, and head up their Personal Excellence programmes for the UK.

What do you think are the main challenges facing BDMs right now?

What makes HSBC UK stand out from the crowd?

The first challenge is acclimatising to life back on the road and having face-to-face meetings, whilst also handling high volumes of emails and calls. Having said that, we have a brilliant broker support team to help us and also our chat facility gives brokers quick access to a member of our experienced UK-based broker support team who are always happy to help with quick queries, and can also provide case updates.

The second challenge is the downturn in the mortgage market when we still want to increase our market share. Buyer interest is low, reflecting low levels of

We are constantly listening to feedback from our brokers, and this is reflected in the amount of positive policy changes we have made. This is alongside heavily investing in technology to ensure our broker platform works well.

In addition, we have a fantastic team that enables us to answer thousands of queries a month through our chat facility and our broker support helpdesk.

MEET THE BDM

house purchase activity seen in recent months. With this downturn and borrowing becoming more expensive, many prospective buyers are now priced out of homes they could previously afford. With demand shrinking, sellers are being forced to drop the asking price.

Third, due to the increased cost of living, affordability has tightened.

We have to work even closer with our broker partners to maximise affordability to help get cases over the line.

Finally, interest cover ratio (ICR) is a big challenge currently for bringing in buy-to-let (BTL) business. Any existing BTL mortgages are likely to increase once their current rate comes to an end, and with an everincreasing emphasis on stress rates and ICR, landlords are faced with some real challenges to meet the current market condition.

Now more than ever, it is really important for BDMs to keep up to date with rate and policy changes to stay ahead of the game.

What are the opportunities?

2023 is going to be a record year for product maturities. There are £370bn of product maturities in 2023, £35bn more than 2022, so the total refinance market is set to grow this year. 2023 is therefore a massive opportunity for brokers and their customers to review their remortgage and product transfer needs. Year on year we have seen growth in the total number of product transfers, and more importantly the share of broker product transfers has gone up from 27% in 2018 to 40% last year in the residential space.

With stress testing being based on a lender’s standard variable rate (SVR), an increase in the Bank of England base rate could impact what financial institutions can lend. For those on variable or tracker rates, there will be many households that can’t afford an increase in their monthly mortgage payment.

This is the perfect opportunity for our broker partners to reach out to their customers and really make the most of the substantial remortgage and product transfer opportunity.

Brokers have such an important role to play during the cost-ofliving crisis in order to get the best deals for their customers and their individual circumstances.

The evolving landscape means that there is more of an incentive to look at a full remortgage rather that a product transfer for further funds in order for customers to restructure debts. This is another area where broker advice becomes invaluable across the coming year, and HSBC UK is very much here to support these opportunities.

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

Communication and visibility are vital, especially in the current climate and the uncertainty with the Bank of England and the increased cost of living. Collaborating and building knowledge to ensure brokers are up to date on our products, key lending criteria and the economy as a whole, is a priority for us.

I organise regular events where a local economist presents to my brokers about trends specifically relating to the Northern Ireland economy. Richard Beardshaw, head of intermediary sales at HSBC UK has also been invaluable by attending these events and providing HSBC UK’s thoughts on the economy, how we decide to price, and our predictions for the mortgage industry.

I also regularly hold mortgage workshops and online masterclasses in order to educate brokers on our criteria and any policy enhancements. These sessions, combined with our economy updates, provide my brokers with the confidence to use HSBC UK as their lender of choice, as well as the confidence to have quality conversations with their customers.

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

The main thing is to act rather than be passive. Falling onto a lender’s SVR will almost certainly be more expensive than a new deal. The broker is more important than ever.

While house price growth may be slowing, inflation and interest rates are still high. This, combined with limited wage growth, means the affordability gap is widening. Moving onto or up the property ladder remains a significant challenge.

Although rates have reduced in recent weeks, people are finding it increasingly difficult to choose the right mortgage deal.

Experts expect prices to continue to fall throughout 2023, and given the impact this could have on current and future finances, it’s wise to explore various options. A broker can consider unique personal circumstances, including current and future affordability, as well as the whole market, securing a competitive deal.

Brokers can help customers avoid unnecessary marks on their credit by matching them with the right mortgage lender to meet their needs, first time. ●

HSBC UK Established 1865 Products Residential Buy-to-let International Residential Additional Borrowing Foreign nationals Overseas customers Foreign currency Let-to-Buy Siobhan Moran Email: siobhan.moran@hsbc.com Telephone: 07795 676 861

April 2023 | The Intermediary

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RESIDENTIAL Opinion

Tracker mortgages mainstream again?

Not likely

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he mortgage market tends to go in cycles: if you stick around long enough, you’ll see the same trends reappear and then disappear again from time to time.

One of the more recent has been the supposed re-emergence of the tracker, which at one point could quite rightly claim to be the UK’s mortgage of choice.

Younger brokers may find it difficult to get their heads around just how popular the humble tracker was.

Roll back the clock to 2009 and they accounted for nearly seven in 10 new mortgages, according to the FCA. However, for most of the 2010s swap rates were very low by historical standards, boosting the a ractiveness of fixed rate mortgages, which came to dominate.

Today fixed rates are so dominant, in fact, that they accounted for more than nine in 10 new mortgages at the end of last year.

So, why the sudden media interest in trackers? And does it mean they are once again set to become a mainstream mortgage option for the masses?

To answer the first part of that question, we are hearing more about this once-popular mortgage option because of our obsession with predicting ‘peak’ base rate.

Borrowers are being bombarded with headlines on a daily basis about how the peak base rate is in sight – and how rates may actually fall in the coming months.

For example, just last month Barclays predicted that base rate would peak at 4.5% and would fall by to around 3.5% by the end of 2024.

When borrowers read this, it’s natural they will ask whether it is worth taking a gamble on a tracker

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The Intermediary | April 2023

now in the hope of lower monthly repayments in the future.

However, I find these days most people soon back away from the idea of a tracker when you outline the pros and cons.

Firstly, trackers no longer have much of a price advantage over fixed rates, which severely dents their appeal among borrowers.

Data from Moneyfacts shows the average 2-year tracker is currently 4.84% – just 0.48% lower than the average 2-year fixed rate.

Keen pricing If the BoE does increase rates one or perhaps two more times, that miniscule rate advantage is gone.

Clearly, that can change quickly if lenders decide to price their tracker ranges more keenly, but at the moment that’s not the case.

Let’s not forget, also, that the BoE may take us all by surprise and increase rates much higher than expected.

A er all, it is adamant it will keep increasing rates until inflation falls consistently.

This is a key point. For all of the headlines we read about ‘peak’ interest rates, the reality is none of us really know what will happen to the cost of borrowing.

All it takes is worse-than-expected inflation data and the new ‘peak’ may be higher than we expected.

Conversely, if inflation plummets, rates may be much lower in the medium-term. We just don’t know.

The reality is, the vast majority of borrowers prize security above anything else, even if it means locking in at a slightly higher rate today.

Recent data from LMS, the conveyancer, confirms this. It revealed that 54% of its clients who

LUCY BARRETT is managing director of Aria Finance

remortgaged in February opted for a 5-year fixed rate.

Of those, nearly two-thirds said they did so because they wanted security over their monthly repayments.

Fixed rates have ruled the roost for so long that that mindset is baked into borrowers these days.

It’s worth noting also that when trackers were at their peak, in 2009, the regulatory landscape was very different to what it is today. This was pre-Mortgage Market Review and an era when non-advised sales were still permi ed. Back then, borrowers could walk into a branch and walk away with a tracker mortgage having gone through nothing more than a decision tree with a salesperson.

These days most borrowers must take advice. And most advisers would quite rightly point out that trackers are not suited as a mass-market product for the reasons I’ve outlined above. Therefore, it is no coincidence that trackers went out of fashion the same time that brokers came to dominate the marketplace.

I want to stress, though, that while I don’t think trackers will come to emulate their glory days, they do have a place in the market.

If the outlook for interest rates becomes clearer, they may well become more popular among certain types of borrowers, such as high-networth individuals who can afford to take the risk.

But like most trends, I think the current fixation with trackers in the press and among borrowers will be fleeting and normal order will soon return. ●

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RESIDENTIAL Opinion

How do you define the ‘cheapest’ deal?

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ogic tells us that if two loaves of bread of the same quality are priced so that loaf A is cheaper than loaf B, then clearly loaf A is the one we should buy. Indisputable fact. We can make the same case in an infinite number of examples. The key considerations are that there be no material difference in the makeup of the object or the impact the purchase will have on the person buying the product.

When assessing which mortgage is the most suitable for customers, having chosen candidates from the broadest selection of suitable alternatives that could match the borrower’s needs and individual circumstances, advisers then run into a kno y issue. Namely, the definition of which is cheapest.

The best mortgage If we accept, without further scrutiny, that the best mortgage among those options which fulfil our customers’ needs is the one which has the lowest rate at outset, then are we really providing our customers with the ‘cheapest’ or just ticking a box and in fact not doing the job we are being asked to undertake?

Understandably, the regulator wants the best outcomes for customers and sees cost as the key determinant in assessing the right mortgage or lending arrangement to recommend.

However, the obsession with ‘the cheapest’ has led to a skewing of the meaning. For advisers who use sourcing systems every day, the default se ing, a er all the data has been fed in, provides a list of lender products in order of headline rate cost – i.e. the cheapest available monthly payment at the start of the mortgage.

Job done? Hardly. What we should be ensuring is that the definition of ‘cheapest’ also pays a ention to value.

Mortgages which have a notional

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The Intermediary | April 2023

term of 25 years might have fixed or discounted rates over a set period within that notional term.

While a diligent mortgage adviser would ensure that their client remortgages before the SVR becomes applicable, the fact remains that just because a mortgage has the cheapest 2-year fixed rate at outset for example, it does not mean that it represents the best value for a customer who may not expect his or her mortgage to be the only mortgage they have in their lifetime and therefore look to pay it off early.

Headline rate Let’s also not forget that comparing like for like can throw up anomalies that nullify the argument that the cheapest headline rate is, therefore, the best for the customer. What are the charges being levied associated with the mortgage with the cheapest headline rate?

How about the penalties for early redemption and particularly at this time when lenders are struggling to cope with the post national lockdown and stamp duty holiday housing market boom? Will the cheapest mortgage still be available when required and can it be processed in time to complete?

As an industry, we need to work with the regulator to clarify what ‘cheapest’ means to customers, so that the future definition reflects the actual value of our recommendation and mitigates any risk that we become glorified price comparison websites. The Mortgage Market Review demonstrated that the real value to customers lies in the advice that complements the product recommendation. The regulator’s investigation into the GI market and the disparity of pricing to new and existing customers provided evidence that headline rates do not necessarily offer a true reflection of the value of advice.

SHAUN ALMOND is managing director of HL Partnership

The regulator wants the best outcomes for customers and sees cost as the key determinant in assessing the right mortgage or lending arrangement to recommend” With Consumer Duty around the corner, measuring outcomes replaces the ‘best intentions’ of treating customers fairly and as I have said before, being able to get a client a mortgage will be just the start of a process that measures a successful transaction not by achieving a mortgage offer and subsequent completion, but because it can be proven to be truly in the client’s best interests and most closely matches their needs. On top of that, there is a need to collate the transaction and client communication both during and a er the initial deal.

So, what if the deal is the ‘cheapest’ on paper if it loads the client up with unnecessary cost, for example in the case of using a remortgage for capital raising when the rate of interest charged for the remortgage is significantly higher than leaving the original mortgage in place and doing a second charge for the capital raising.

And let’s not forget any ERCs! ●

RESIDENTIAL Opinion

Consumer Duty: The sourcing of vulnerability data

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ulnerability guidance raised the need to assess and consider the vulnerability of consumers.

Consumer Duty regulations have added the need to evidence this assessment, and show that we can monitor vulnerabilities over the lifetime of products.

For years, brokers have considered the situation of the consumer and taken into account any issues that have come to light. Most of this has been subjective and rarely documented, but all with good intentions. Consumer Duty comes into force from July, so we must now formalise this – just as fact-finds moved from a subjective, informal approach to a formal, documented process. But where do we get the data on vulnerability?

Many have searched for databases of ‘vulnerable people’, but unfortunately these simply do not exist. True, there is socio-economic data, which identifies cohorts of consumers, but this is generally at a postcode level, rather than a personal one. There is also credit data, which is personal, but this is limited to financial vulnerability and affordability.

Consumer Duty has expanded the scope of the vulnerabilities firms need to consider, monitor and evidence.

While financial vulnerabilities are still important factors, firms now need to review all potential issues – including health and lifestyle, domestic abuse, divorce, and learning difficulties, to name just a few.

Larger tech firms use artificial intelligence (AI) to interpret and assess their voice and text interactions with consumers. This can certainly be useful for large lenders – to pick up complaints, for example – but it is limited to those consumers we

already communicate with, where the product is already in place. To meet the Consumer Duty’s requirements, we must assess vulnerability prior to onboarding new customers.

The Financial Conduct Authority’s (FCA) Financial Lives survey identified that around 50% of all consumers are vulnerable, but just who are they in any given group? The only practical and workable way to definitively locate that 50% is to screen all consumers.

ANDREW GETHING is managing director of MorganAsh

Firms are expected to evidence and stand behind customers’ outcomes”

Direct assessment In practice, the only robust approach is to assess all consumers directly, at the point of sale, and to continue to do so on an ongoing basis. For mortgage brokers, this becomes an integral part of the sales process, just like the factfind. The next big challenge is how to be consistent in the assessment, so others can understand vulnerability data today and in the future.

Companies training front-line staff have quickly found that everyone’s interpretation of vulnerability is different. It’s a bit like everyone deciding who is ‘rich’ or ‘poor’ – without guidance you simply end up with multiple answers, based on differing subjective viewpoints.

The more we understand about the considerable variations of health and lifestyle issues, the cost overhead of training becomes prohibitive.

A far be er approach is to use an assessment tool which encompasses an objective and consistent way of measuring vulnerability. For example, the MorganAsh Resilience System (MARS) generates a MARS Resilience Rating – this is much like a credit score, but for client vulnerability.

Brokers don’t need to remember the specific level of vulnerability which applies to, for example, domestic

abuse, heart a ack or divorce, because these are all embedded within the tool. Furthermore, MARS includes different options to gather information – either by broker assessment or by the consumer completing an online assessment.

In practice, those firms using the training approach typically only identify a small proportion of vulnerable customers – usually in single figures. In contrast, those using MARS report vulnerability levels at around 50% – in line with the FCA’s findings. Such a clear disparity shows that it will be tough for many firms to ensure fair value or that products meet clients’ needs – key areas of focus set out by the FCA. Monitoring is a vital part of the duty. Firms are expected to evidence and stand behind customers’ outcomes. Not surprisingly, the FCA’s recent multi-firm review identified that investing in technology and data strategy is a key priority.

Whether as a standalone system, or integrated into an existing customer relationship management (CRM) system, technology can now not only mitigate the challenges of collecting vulnerability data, but help deliver a competitive advantage. ● April 2023 | The Intermediary

23

RESIDENTIAL Opinion

A huge opportunity to

G

iven the rise in the base rate from its December 2021 low of 0.1% to its current 4.25%, the corresponding rise in mortgage rates is unsurprising. That does not mean that borrowers have planned for it, though. More than a decade of mortgage rates that were unbelievably cheap, when viewed within a historical context, has changed borrowers’ expectations.

Adding real value The scale of the challenge for homeowners, and the opportunity for brokers to add some real value, is clear. The Office for National Statistics (ONS) put a figure on it at the start of the year. More than 1.4 million households in the UK face the prospect of a significant interest rate rise when they renew their fixed rate mortgages in 2023. By the ONS’ summation, 57% of fixed rate mortgages in the UK coming up for renewal in 2023 were fixed at interest rates below 2%.

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The Intermediary | April 2023

While many borrowers will cope, for some this is going to be a very challenging period.

In the first quarter of this year, 353,000 fixed rate mortgages will have to be renewed, and borrowers will inevitably see their mortgage rates more than double, with monthly repayments rising by hundreds of pounds for many.

Monthly increase Looking at different indicative amounts le to repay on mortgages from £100,000 to £500,000, ONS analysts said that, should the interest rate on a £100,000 mortgage increase from 2% to 6%, assuming a 25-year capital and repayment mortgage, the monthly repayment on the same mortgage would increase by £220, from £424 to £644.

Assuming the same increase on a £300,000 mortgage, monthly repayments would rise by £661, from £1,272 to £1,933.

You don’t need me to tell you how serious this is. For borrowers who

MICHAEL CONVILLE is chief customer officer at Newcastle Building Society

have high loan-to-values (LTVs) and are facing remortgage this year, it’s extremely worrying for their personal finances and general health. The volume of unhelpful doom-mongering headlines does not help.

Thankfully, some rational and expert help is at hand. For brokers, this is both a challenge and an opportunity. Brokers have a chance to once again illustrate the true value

RESIDENTIAL Opinion

help customers they offer borrowers, and lenders need to step up and play their part in supporting them.

In a bull market, with competitive rates and high LTVs abounding, it’s easy to get a mortgage, provided you have your deposit and a job.

In the market we face today, however, it is much, much harder.

Borrowers have been scared out of their wits by unhelpful national newspaper headlines spelling out the absolute worst-case scenario as though it were inevitable and unavoidable.

Hugely misleading This is what I mean when I say that the pervading sense for many is that it’s impossible to get a mortgage or remortgage. This is hugely misleading. As we all begin to understand the real risks and consider affordability in its real light, I believe

there will be increasing room for lending. The headlines always tend to generalise, especially when writing about a market that is so incredibly diverse. It’s impossible to render its subtleties into headline-worthy words or numbers accurately.

This is why we must remember that this is a market of infinite nuance.

Not everyone is in dire straits. In fact, the majority of homeowners with a mortgage are going to weather this period of economic hardship just fine.

The majority of homeowners will be able to remortgage, they just won’t achieve it simply by searching the best buy tables or hi ing the ‘renew’ bu on online.

Value of expertise This is why broker advice is going to be so critical in the coming months. It is always valuable, but in this market

the value of experience and expertise is almost unquantifiable.

When things are uncertain, people’s reflex reaction is to avoid the unknown. That’s when the reassurance that a broker can offer is at its most valuable and appreciated.

Make things work For brokers, this is also when the ability to pick up the phone to speak to an underwriter, a person with their own financial responsibilities, is the difference between sending a client away and finding a way to make things work.

This year isn’t going to be plain sailing. But that’s when common sense, pragmatic thinking and business comes into its own – and that’s something I and the team here at Newcastle Intermediaries believe in very strongly. ●

April 2023 | The Intermediary

9

RESIDENTIAL Opinion

London’s key role in levelling up

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evelling up. A favourite phrase among Conservative politicians who insist it is what they will deliver, and the opposition who claim Government cannot. Personally, I take a more pragmatic stance.

I was interested, therefore, in the Budget announcement earlier in March, when the Chancellor reaffirmed previous premier Liz Truss’ promise to create 12 new regional industry-focused hubs.

Albeit a watered down version, Jeremy Hunt honoured that vision – and honestly, it is an admirable one.

We do not know as yet which areas specifically will benefit from the funding, for which they must bid, but we do know that the very process should act as a catalyst for further regional investment.

The funding up for grabs is £80m per site, split ‘flexibly’ between investment and tax incentives.

Priority sectors The binding aim is that each site aligns itself with academic centres of research focused on the Government’s stated priority sectors, which include digital, tech, advanced manufacturing, green and clean, life sciences and the creative industries.

It is a laudable endeavour. I hope, sincerely, that it does come to spur the economic growth so needed within the UK at the moment.

Hunt’s March Budget also acknowledged the considerable wider economic challenge facing the UK economy.

The Office for Budget Responsibility (OBR) published forecasts coinciding with Hunt’s statement that the UK will avoid recession this year and that inflation will plummet from over 10% to under 3% by the year end.

This may be so. I hope it is. A stable economy will be extremely good news for everyone.

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The Intermediary | April 2023

However, I am also acutely aware that forecasts rely on historical data.

Did anyone foresee the crippling rise in the cost of living that followed the hundreds of billions of Government bailout support packages? If they did, they were not heard. Everyone else was living in the present. Focused on survival now, not on double-digit inflation on the price of milk.

This reminds me to think of the future in terms of the present. Yes, also with reference to the past.

I do not doubt that everyone living in the UK hopes Government promises to level up industrial and commercial opportunity will come to fruition.

Wouldn’t a renewed financial services hub thriving on cu ing edge technology – be it in Edinburgh, Leeds, Manchester or Teeside – be welcomed by everyone?

Those there already, and others encouraged to move with the offer of prosperous employment, would boost the local economy considerably.

Multiply that effect beyond financial services and into all of those potential growth sectors named by the Chancellor in his speech, and yes, the effect on GDP growth could be huge. I really hope it is.

Experience tells me, though, that these things take decades to deliver.

While this is all the more reason to invest in them, it is just as compelling a reason not to rely on them for immediate economic relief.

Levelling up cannot be a ‘Robin Hood’ policy that neglects the cashcow of London and the South East.

We will need to balance the act of redistribution more carefully.

In prosperous times when there is money going begging for investment opportunities, more risk is tolerable.

I am not wholly convinced this is where we sit currently. We all fervently hope inflation subsides this year – though we must recognise that its effects over the past 12 months have inflicted damage on household

ROBIN JOHNSON is managing director of Kinleigh Folkard & Hayward Professional Services

finances that will not be repaired by a future fall in the consumer price index (CPI).

Healthy economy This brings me back to London, and just how central it is for the health of the UK economy, and most importantly, its ability to thrive in challenging circumstances. It may sound like a cliché, but when London suffers we all do. It is for this reason that Government will divert just as much a ention and funding into rebuilding the capital and its economy, perhaps more.

Consider the relaxation of rules governing companies listing in London. Consider, too, the advantageous capital relief on offer to companies in the UK, the focus on research and development, and the £27bn tax cut for business through ‘radical’ full expensing announced by Hunt in March.

In an ideal world, diverting more of the UK’s wealth to areas outside of London will help our domestic economy in the more immediate term, and consequently, our international clout longer-term.

In practice, the easier and more reliable win is to shore up London and its hugely profitable professional and financial service sectors. It will have implications for the value of property in these localities – implications we shall be watching for expectantly. ●

RESIDENTIAL Opinion

Reality bites: Chancellor does not hold Aces

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he Budget delivered on 15th March was long-awaited, with Chancellor Jeremy Hunt under considerable pressure to reassure markets that the UK is back to being run with a steady hand.

A er a year of turmoil in Whitehall, Hunt’s job was even harder following the backlash that former Chancellor Kwasi Kwarteng’s miniBudget precipitated, crashing the bond market, the pound, and international confidence in the UK. There was much emphasis placed on stability in Hunt’s speech, and on reliability, emphasised by the instruction that the Office of Budget Responsibility (OBR) publish its projections on the same day.

While there were welcome announcements on pensions, though, there was li le to please first-time buyers or homeowners.

The housing market has had an unusual few years, largely as a consequence of the pandemic. The total freeze in transactions that ensued following the announcement of the first lockdown was the trigger for then Chancellor Rishi Sunak to implement the Stamp Duty holiday.

Forced into an early introduction following a leak to the media, the tax break had an enormous effect on both the housing market and the economy.

The desired effect – restarting transactions – was swi , and there’s no doubt the policy did provide much needed support at a difficult time. Yet, as with almost all short-term fiscal incentives, it has also distorted the market significantly.

Not only did the tax break encourage activity, it pushed house prices up at an alarming rate. This was exacerbated – and perhaps enabled –

by the simultaneous cut in the base rate to 0.1%.

Mortgages had never been cheaper and people rushed to secure a home while the sun shone. The race for space, changes in working and living priorities, and access to cheaper finance converged to push prices up.

Clickbait headlines Things have changed since then.

House price inflation – running over 10% – has fallen back as the Bank of England steadily hiked the base rate.

However, we should also remember that annual price inflation recorded by the Office for National Statistics (ONS) remained at 9.8% in December – hardly the crash that clickbait headlines would have us fear. Our own House Price Index – which includes cash and mortgage transactions – reveals that from the start of the pandemic in March 2020 to January 2023, prices rose by some £64,900, or nearly 21%, which contrasts with the increase in general inflation including housing of 14.9% over the same period.

Property prices have thus risen in real terms. Our market is clearly more nuanced.

Boosting homeownership and house prices is always a political win – it’s a quintessential British dream for those hoping to be er their financial situation, and for those already on the ladder, rising values are a welcome salve as we all fork out hundreds of pounds more on energy and the weekly food shop.

While we might think housing is due a new support scheme – the Stamp Duty holiday ended 18 months ago, Help to Buy on 31st March, and with onerous mortgage rates, existing and would-be homeowners are not having a great time – it does not present a systemic risk.

STEVE GOODALL is managing director of e.surv

The Government is in a tricky position. Voters are under significant financial pressure. The red wall that put the Conservatives back in power is increasingly dissatisfied. Younger voters face high and rising rents, receeding opportunities to buy, and uncertain job prospects.

We knew the economy would suffer in the wake of the pandemic, but the reality of high inflation resulting from the hundreds of billions of pounds in support packages, combined with an energy crisis, has been more painful than many taxpayers have experienced before.

The available options to please voters were few.

Though unexciting, the pensions giveaway is a significant boost for older voters and for the public sector – those already weathering the costof-living storm without too much trouble. This is the Conservative Party’s heartland, and its safe policy. Pu ing the bellows under housing, less so.

Millions are facing considerable payment rises when they remortgage.

Millions more are likely to require lenience from their lender to get through. For individuals, it will not be comfortable, but for the economy and broader inflation, there is sense in not launching another stimulus scheme.

The Bank of England’s monetary policy specifically puts the breaks on housing. Undermining that through fiscal policy would be an odd decision, given the threat inflation continues to pose.

It may not be the news we were all hoping for, but this Budget was always going to be a large dose of reality.

This might be what returning to an economy built on work, not money printing, looks like. ● April 2023 | The Intermediary

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RESIDENTIAL Opinion

Improving the homebuying experience

O

ver the years we have heard plenty about how to improve the homebuying journey, but where do we currently stand?

A er the chaos of the early pandemic, where the housing market effectively shut down for a short time, we saw a landslide of purchase business across the residential and buy-to-let (BTL) markets.

Buyer demand This chain of events placed huge additional burdens on surveyors, lenders, intermediaries and conveyancers. Much of this stemmed from pent-up buyer demand, and a Stamp Duty holiday which further accelerated appetites and served to increase both demand and house prices across much of the UK. This was also a time when many firms and lending institutions across the mortgage market were still ge ing to grips with a new set of working conditions in the wake of Covid-19, and the difficulties this generated from a service, delivery and scalability perspective. The result was a rise in the prominence of – and reliance on – a range of online tools, systems and solutions throughout the homebuying journey.

Faster and more accurate Having said that, the need for remote valuations was evident way beyond this period, as pressure on the industry was already growing to improve offer times without compromising quality, accuracy or integrity.

Moving forward, the ability to collate as much property-related information as possible, allowing purchasers to make more informed decisions earlier in the process, is

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key to any ongoing improvement.

As such, there is a constant appetite to explore how to deliver a faster, more accurate and lower risk remote valuation model.

This is one of the reasons why we initially developed PropertyFact, which has since evolved from a desktop-based tool into a more risk-based decision-making model, using data and information to help determine the best approach for an individual valuation.

World-leading market From a speed, efficiency and data perspective, the Land Registry will play a vital role in elevating the homebuying experience. So, in August 2022, it was encouraging to see the non-ministerial Government department outline its strategy to enable a world-leading property market. This was a bold statement, as we are talking about a transaction which, as outlined in the report, can o en be viewed as unnecessarily complicated, opaque, stressful and susceptible to failure.

This strategy centres around five pillars: Providing secure and efficient land registration; Enabling property to be bought and sold digitally; Providing near real-time property information; Providing accessible digital register data; Leading research and accelerating change with property market partners.

Some of the highlights within these pillars include the introduction of automation and digital services that integrate with conveyancing, making its data more accessible, interoperable

MATTHEW CUMBER is managing director of Countrywide Surveying Services

The ability to collate as much property-related information as possible, allowing purchasers to make more informed decisions earlier in the process, is key to any ongoing improvement” with other data, and reusable to increase its wider value, and working in partnership with others in the sector to build a shared vision for the property market.

There are many other commitments within these pillars, but I’m sure that these examples offer a flavour of both the aims and the challenges for a Land Registry which is looking to move to real-time or near-time registration of transactions with only the most complex cases requiring additional time and manual checking.

Streamlining information As a business, we also have an important role to play in improving the homebuying experience. We need to educate more consumers, streamline the information required to buy and sell a home, develop innovative products, and deliver the service standards that homebuyers need and deserve.

This is an experience which we are fully commi ed to enhancing. ●

RESIDENTIAL Opinion

Control your uncertainties

“T

he only certainty is that nothing is certain.” If ever a quote sums up the property market this is it.

The industry mostly uses historical trends and data to predict the future of property prices, and whilst useful, it’s rather crude. Every event that impacts pricing is different, with various sectors being winners and losers on each occasion.

12 months ago, both the commercial and residential markets were bouncing with confidence. Then came the appalling events in Ukraine, which impacted the economy as energy prices increased and inflation took hold. We all know what then happened on 23rd September 2022.

The total number of company insolvencies registered in England and Wales for 2022 was 22,109, the highest number since 2009, and 57% higher than 2021. Pre y grim reading.

However, the first months of 2023 have put a li le more bounce in our

step. There are many reasons to be optimistic, and it’s time to take control, quantify the uncertainties, and make strong decisions.

The green property revolution has begun to accelerate. From 1st April 2023, it will be unlawful to continue to let a commercial property with an F or G Energy Performance Certificate (EPC) rating, even if the lease was granted prior to Minimum Energy Efficiency Standards (MEES) coming into force in 2018. Whilst most property owners are unlikely to be fully prepared for this, it must be seen as a catalyst for change. A er years of talk, the industry must take tangible action to decarbonise and build a sustainable future.

The use of tech in property also needs to be fully embraced. Real estate has been slow to adopt, other than prime office buildings where datadriven decisions benefit the owners and occupants. Technology has the potential to transform almost every aspect of the property lifecycle, and those prepared to embrace it will outstrip their peers in short order.

LOUISE CHAPMAN is commercial director at VAS Panel, part of the VAS Valuation Group

There’s no ge ing around the unse ling pressures of energy prices and supply, inflation, interest rate rises and internal politics, which are adding to the overall uncertainty.

However, the property industry likes a challenge, to solve problems and to face up to adversity.

Stability is what everyone craves in H1 2023, and there are some early indications that market conditions are steadying. Most housebuilder stocks are no longer oversold and have a ‘hold’ rating. Real estate investment trust (REIT) stocks have stabilised.

Average house prices have stabilised following significant monthly falls.

Industrial and warehousing now looks competitively priced.

So, some things may be out of our control, but if we remove uncertainty where we can, then we’ll be in a far be er place. ●

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RESIDENTIAL Opinion

Taming the process of conveyancing

H

ave you ever presided over a period of change in a business?

It doesn’t have to be a wholesale restructure, even a simple change of so ware programme, for example a new customer relationship management (CRM) system. If so, you will know only too well how resistant to change people can be. It’s hard to learn new processes, particularly when you are under time pressure and doing a difficult job governed by strict compliance. It’s an interesting conundrum, especially for those businesses that wish to improve, innovate and drive efficiencies.

The challenge is to bring people with you. Those who work in conveyancing will, I think, know what I mean.

Indeed, every year when we conduct our Mortgage Efficiency Survey, lenders, for the most part, partake in a collective sigh about conveyancing.

As a sector, conveyancing is resistant to change – and I recognise that change in a world that has been unchanged in terms of processes for more than 100 years is very hard to embrace.

The structure of the market also makes consistent change across the sector far more complex than it might be in other industries. This is a sector made up of many smaller firms, o en having been instructed by individuals guided by word of mouth rather than based on specific experience in residential property.

Meaningful change Driving efficiencies should not be solely about changing the way people work. Too much change is counterproductive. By the same token, incremental change that is reasonably easy to accept by those responsible can be more materially effective.

Let’s look at conveyancing, and the typical process, specifically. In spite

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of the technology and automation that has been developed over the past decade to improve the speed, efficiency and execution of legal work when it comes to residential purchase, a minority of firms have actually adopted it. It doesn’t have to be this way, and one change at a time can make a huge difference.

We talk a lot about the tech required to make the front end much slicker and more user-friendly for the customer. Rarely do we discuss how fixing – or even just tweaking – the back end can impact that user experience, adding a disproportionate scale of improvement.

Every client uses technology in a different way and for different reasons. Predominantly, the willingness to embrace new untested tech goes hand in hand with newer businesses with less to lose as a consequence of disruption.

Still, it is worth thinking about properly. Let’s consider one small change and the difference it could make to you and your business.

Electric dreams The electronic certificate of title (COT). For almost 10 years, it’s been possible – to various degrees of ease – to execute the conveyance of residential property between parties without commi ing a wet signature to paper.

However, most solicitors do not do this. I’m not entirely sure why – such a simple switch from paperbased conveyance to an electronic version, which is in fact more reliably consistent, surely makes sense?

We have clients who use the eCOT and confirm its efficacy in saving time and money. But it is o en the last piece of the mortgage sales and originations journey to be implemented.

I wonder if this industry -wide reticence is, in fact, not reticence at all, but instead a preoccupation with the allure of front end tech

STEVE CARRUTHERS is business development director at Iress

innovation. The problem with improving the back end – and with justifying the spend – is that it’s not sexy. In terms of the home moving experience, once the borrower is approved, the job is effectively done.

The completion date is not within the gi of the lender.

You can’t shout about it in annual reports, it doesn’t improve net promoter scores immediately – it’s an investment in the future efficiency of the business.

It can be hard to communicate that value to decision-makers in the business, particularly when the results take time to filter through.

Nevertheless, it’s for that reason that it’s worth considering this type of investment in more than just monetary terms.

Taking away basic administration, repetitive tasks, and standard contract origination, and reducing the risk of human error from the process, may sound unexciting from a marketing perspective, but it’s investment in this that really affects the front end performance and, ultimately, customer satisfaction.

Completely reinventing the front end customer interface might be a more a ractive prospect if you’re looking for an apparently quick win or to consolidate or win market share. But consider the issue of consumer outcomes – if the outcome is to be be er, might it not be worth implementing technology that already exists, in order to make for a be er borrower experience?

If you want a truly quick win, delivering cost reductions and making profit margins more resilient longterm isn’t a bad way to start. ●

RESIDENTIAL Opinion

Fitful markets and the importance of speed and nuance

T

he March Budget held few surprises, particularly for the housing market. Following the Chancellor’s statement, the lack of new support for the sector was bemoaned across the industry.

In advance of the statement, there were inevitable calls for another Stamp Duty holiday, while other felt that help for those facing higher mortgage repayments was muchneeded and overlooked.

One commentator even said that a promise to keep interest rates on hold would have been something. Not really within the Chancellor’s gi , but I understand the sentiment.

There are several challenges facing homeowners and landlords and their tenants at the moment, which in the end impact lenders’ operational models. These are not small, and it looks likely that some of them at least could deteriorate over the coming year.

The key will be being able to adapt to the changes in conditions, and deliver any necessary changes to propositions and processes to continue delivering at margins that add up.

News yo-yo The fallout from the autumn miniBudget hit the housing market hard, and we still have the challenges of limited housing stock and rising rents.

Indeed, as I write, there are news releases that the housing market is in recovery. This yo-yoing of news and sentiment suggest we may have sectors of the population in very different places when it comes to affordability.

It further suggests that having an agile approach to issues such as affordability is key.

We can all remember how old product launch and withdrawal processes were put to the test following the Truss-Kwarteng Budget – untested for such a long time in the era of static low interest rates. Some lenders paid for being too slow to get out or reenter in terms of margins and service. Bad processes cost some a lot of money.

Now, some lenders are realising they may have over-cooked their affordability models. As UK Finance notes, most lenders took a rather crude approach, applying a 10% upli across all Office for National Statistics (ONS) expenses data. But this masks the fact that prices are rising at different rates for the different types of goods and services. Also, the decision for so many to work at home means they have actually saved money in some instances, so expenditure is down.

Affordability sliding scale Affordability models are effective in a one-size-fits-all market, but where many micro-markets are in play, they will need refining and finessing. It may be that these models become a permanent feature of review.

The mortgage market is far from homogenous, so while some good borrowers are being locked out by overly cautious affordability models, others will be struggling. A onesize-fits-all model may not be right if you want the best business at the right margins.

Affordability is now a primary concern. Millions of homeowners are facing very large rises in their repayments as they remortgage, and even with lenders exercising forbearance, it is not going to be easy.

There is li le point arguing that fiscal policy should ‘fix’ this challenge.

In fact, even to try is likely to cause

JERRY MULLE is UK managing director of Ohpen

Volume control would have been chaotic without lenders taking a very hawkish view” more unintended harm than good.

That said, it is a challenge which will become increasingly central over the coming year or two at least. For lenders, managing this challenge must be a priority, especially given the imminent implementation of the Consumer Duty.

The unpredictability of financial markets over the past six months has shown just how commercially important it is to be able to respond quickly. It has also highlighted the need to adjust that response quickly.

That mortgage rates spiked dramatically following the mini-Budget, and its effect on swap rates, was hard enough for lenders to respond to responsibly.

Understandably, risk concerns overtook measured decision-making.

It had to – volume control would have been chaotic without lenders taking a very hawkish view.

However, there is also the realisation that has followed in Q1 of this year that having to price in the unknown, and being hamstrung by that pricing for a commercially sensitive timeframe, has thrown lending targets off completely.

Reacting responsibly to the impact of regulation and market sentiment is one thing. Managing it so that you win when times are unpredictable – that’s the difference that can set you apart. ● April 2023 | The Intermediary

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RESIDENTIAL Opinion

What can we expect from mortgage rates?

I

n March, the Bank of England raised the base interest rate for the 11th consecutive time, continuing a trend which has seen the base rate steadily rise over the past 12 months in an a empt to counter high inflation.

That has influenced a rise in mortgage rates, in turn.

Those rising rates were exacerbated by the Truss Government’s miniBudget in September 2022, which was not only poorly communicated, but marked a significant change in policy. In the a ermath, mortgage rates rocketed and a number of lenders withdrew products from the market.

What followed was consumer panic, as homebuyers began to fear that the availability and affordability of products might rapidly decline.

Curbing inflation However, since then the key policy changes made in the mini-Budget have been reversed, and their impact greatly reduced, with the Bank of England now returning its focus to interest rate rises in an a empt to curb higher inflation.

More recently, though, uncertainty caused by the failure of SVB and Credit Suisse has increased the complexity of the market once more, triggering a volatility that has been reflected in the swap curve over the past few weeks.

While lenders will have moments when they are able to hedge at lower costs, this uncertainty can mean they end up hedging at higher costs instead. As a result, mortgage rates will remain volatile as long as this environment exists.

Mortgage pricing is being driven by three key factors: higher inflation, the Bank of England base rate, and swap rates. The first two go hand in hand – as inflation rises, the Bank of England

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has chosen to respond by raising interest rates to keep price increases under control.

Inflation is predicted to start coming down in the second half of 2023, backed by recent comments from the International Monetary Fund (IMF).

However, if it remains entrenched, it is very possible that we will see a further increase in the base interest rate. This means that interest rates are unlikely to come down until we see inflation fall.

Until then, mortgage rates will be heavily influenced by competition and market volatility. A weaker purchase market has meant lending volumes are down. This has led to stronger competition between many lenders, o en pricing at near to or zero margin in a bid to write business to ensure their fixed base cost is covered.

At the same time over the shortterm, volatility in swap rates resulting from market uncertainty will continue to impact hedging costs.

That could mean mortgage rates rise or fall, but it will be largely impossible for lenders to predict, and therefore not hugely helpful in determining the medium to long-term outlook.

For brokers, the focus will need to be on advising clients in the here and now. This means helping them secure the most suitable product, not simply the solution that offers the best rate.

Even if mortgage rates continue to rise, it is worth comparing these rates against those we have seen over the past few decades. In recent years, we have become accustomed to a market where many mortgages have offered rates below 2%. This was always a highly unusual situation to be in – these rates were, a er all, record lows.

In fact, the average mortgage rate over the past 25 years has been 5.62%, peaking at 8.87% in 1998.

STUART CHEETHAM is CEO of MPowered Mortgages

Enabled buyers As we look ahead, we will hopefully see the market begin to recover in the second half of 2023 for two main reasons. First, house prices have begun to fall and are predicted to continue doing so. While this reflects a tougher economic environment, it should drive activity in the market as people look to take advantage of lower prices a er record highs in 2022.

The IMF stated that it expects interest rates to return to prepandemic levels depending on the economy’s performance this year.

As prospective interest rates fall towards the end of the year, the affordability burden will fall as well, particularly with more muted house prices. This will enable more buyers to take out mortgages and either get a foot on the ladder or move to their next home.

Second, a deep recession is now looking unlikely – this is something which might have impacted the natural levels of activity driven by people moving as a result of normal life events. Underlying demand should therefore remain respectable and continue to support market activity.

However, with ongoing market complexity, seeking advice from an independent professional is essential, whether someone is looking to buy or remortgage. At MPowered, we are commi ed to supporting brokers by offering an AI-powered solution which speeds up and simplifies the mortgage journey, helping to free up time and resources whilst delivering the best service possible. ●

A DV I C E Opinion

Cost-of-living crisis is affecting all areas of our lives

W

e know that financial worries have always been a concern for couples, but spiralling living costs are undoubtedly adding more pressure to many relationships, and independent financial advisers (IFAs) are increasingly finding themselves in the centre of questions relating to family law advice.

Under pressure Sadly, due to extra funds being few and far between, and difficulties arising with maintaining the family home, many relationships are coming under pressure.

In some cases, couples may decide to physically separate without taking steps to formalise their separation and the financial ma ers that flow from it, or they may make the decision to stay in a broken relationship, simply because they don’t understand the legal options available to them, fear they can’t afford a divorce, or are worried about the prospect of living alone.

At Hall Brown Family Law, we have experienced high volumes of enquiries over the past couple of months, which in part seem to be connected to the strain of the cost-of-living crisis. The pressures of the financial landscape can result in people postponing seeking legal advice at an early stage due to concerns about the associated costs. However, this can simply fuel a lack of certainty and security.

I support many people experiencing some sort of relationship or family breakdown. It is a highly stressful and emotional period in people’s lives, but with a li le forward planning and advice, this can be managed, and those

individuals can feel supported as they make decisions about their future.

Obtaining expert advice at an early stage is invaluable, and can o en save money in the long run.

There are several options that can be explored when clients find themselves in this position. Our aim is always to minimise the financial impact for clients and to try and reach an agreement as swi ly as we can, outside the court forum where possible.

It’s important to advise clients that they have options available to them, and that taking a step back to find a way forward – whilst trying to remain civil and understanding – is generally the best way to help the situation. Forms of alternative dispute resolution (ADR) such as mediation, collaborative law or arbitration can o en be a good way to reach a resolution, or at least narrow the issues.

Mediation navigation We find that mediation and family counselling can be very well utilised in certain situations to help keep the lines of communication open and to navigate these issues with confidence and dignity.

We regularly work with specialist mediators and counsellors, and have

The cost-of-living crisis may accelerate relationships, with couples taking steps to cohabit and pool their resources”

ELLEN FELL is senior associate solicitor at Hall Brown Family Law

seen the benefits that talking through issues with trained professionals can have on relationships, even a er the point of separation.

For others, the cost-of-living crisis may accelerate relationships, with couples taking steps to cohabit and pool their resources. It is equally as important for those individuals to take advice in order to understand the implications of doing so, and to protect their assets. An effective way to achieve this is by entering into a cohabitation agreement.

This is a legal document between unmarried couples in which they can set out intentions regarding finances, property, and children, both whilst living together and in the event of a separation.

Whilst you can enter a cohabitation agreement at any time, it’s always best to get ahead and do it before moving in together. Having this agreement in place protects the client, and any other family members who might be affected.

Understanding options We understand that financial advisers o en find themselves dealing with clients who require family law advice, and there are many unanswered questions clients may have.

Financially, it is always in the best interest of the client to seek legal advice at the earliest possible time to safeguard their finances, understand all the options available to them, and allow for future plans to exist.

At Hall Brown Family Law, we thrive on working with clients to help them enter or exit commi ed relationships in a financially secure way. ● April 2023 | The Intermediary

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LATER LIFE LENDING SIX MONTHS ON FROM THE MINI-BUDGET DISASTER Hannah Smith for The Intermediary

Liz Truss and Kwasi Kwarteng's ill-fated mini-Budget was disastrous for the later life lending market, as well as many other sectors, as rates shot up and lenders pulled mortgage deals.

Six months on, how is the sector moving on from the chaos?

Later life lending was not the only area of financial services affected by the mini-Budget, but the impact there was dramatic. Investors took fright when the then-Chancellor announced £45bn of unfunded tax cuts, all later reversed.

The pound sank against the dollar, mortgage rates jumped, and gilt yields rose.

The sudden jolt this caused in stock markets caused worried lenders to pull mortgage products off the shelves. More than 40% of available mortgages were withdrawn from the market in the week following the mini-Budget speech, as volatility made it hard for lenders

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to price products. Mortgage lenders tightened their criteria, property sales slowed, and there were fears of a hard landing ahead for the housing market.

Will Hale, CEO of equity release specialist Key, says: “We saw a number of lenders get spooked and that caused some of them to withdraw from the market completely or remove certain products. Across all lenders, we also saw a more conservative approach to pricing in terms of rates and in reducing [loan-to-values (LTVs)].”

Prospective borrowers looked at rates compared with what they could have got just a couple of months prior, and sat on their hands.

But there was worse to come. The Bank of England raised the base rate to 4.25% in March, the 11th successive increase. Some economists expect the base rate to top out at 4.5% this year before reducing to 3% in 2024. In the meantime,

the result of the hike has been more expensive mortgage products across the board. Last month, Moneyfacts data revealed that the average standard variable rate (SVR) on a residential mortgage had leapt above 7%.

Samuel Mather-Holgate, independent financial adviser at Mather and Murray Financial, says: “Truss and Kwarteng's fiscal statement, when they came to office, certainly caused lending rates to shoot up quickly, but the devastation caused at the time was just front-loading the pain to come.

“The Bank of England has continued to raise interest rates, and we are in the same position now that we would have been whoever was chosen as Tory leader and PM.”

Bigger impact In the later life lending space, where lending is priced over a much longer period than

residential mortgages, rates are stabilising.

However, they still have further to fall.

Andy Vickery, director and equity release adviser at Money Release, says: “The mini-Budget had a much bigger and longer impact than I was initially expecting.

“We saw the number of equity release products drop overnight to about 170 from more than 400.

The ones that disappeared were the ones that were lending higher loans, and those higher LTV products have not yet really come back.”

Vickery estimates that there is about 30% less borrowing available in terms of the amounts lenders are approving.

Since the mini-Budget, Vickery has noted the average client profile changing too. Where the typical client before was someone in their 70s, now many more people in their 50s want to unlock equity to pay off interest-only mortgages

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April 2023 | The Intermediary

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“It's amazingly flexible!” they can’t afford. Some people have seen their mortgage rates go up from 1% to 4% or 5%, and are now struggling to meet monthly repayments.

Equity release offers a solution to a problem exacerbated by the cost-of-living crisis.

“It’s definitely a change of client that’s coming to us, it’s much more of a need than a want in most cases,” Vickery adds.

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The interest rates on equity release products are in the 5.5% to 8% range at the moment; however, rates are starting to come down, and some products are returning to the shelves.

Stuart Wilson, chairman of later life lending community Air Club, says: “We are seeing more products on the market, better LTVs and some rates starting with a five, but we have not

Later Life Market

Where the typical client before was someone in their 70s, now many more people in their 50s want to unlock equity to pay off interest-only mortgages they can’t afford.

Some people have seen their mortgage rates go up from 1% to 4% or 5% and are now struggling to meet monthly repayments”

Innovations Drawdown Borrowers can secure an overall agreed facility and then take it in tranches as needed, paying interest only on the amounts withdrawn.

Fixed ERCs

returned to sub-4% rates. It may be a few months before this becomes possible.”

Nick Lovell, equity release director at Concept Financial Services, says the market has somewhat stabilised as clients have got used to the new conditions. However, he adds: “The landscape has been altered, resulting in an increased amount of equity being at risk.”

Lovell explains that it will be crucial for advisers to forecast and strategise when planning for clients, especially if gilt rates drop back, as remortgaging could mitigate loss of equity.

Flexible products Once seen as an expensive and inflexible option of last resort, equity release has become much more mainstream in recent years, valued as a way for the older generation to address some of their financial challenges.

There is now huge opportunity in later life lending. In the UK, property wealth is estimated to stand at £5.2trn after mortgage debt, and much of this is in the hands of over-55s, according to the Equity Release Council (ERC).

Product providers have been innovating to make the most of this opportunity, and there has been an impressive level of creativity and change in the later life lending sector over the past decade, with products moving closer to traditional mortgages.

Hale says: “Modern equity release products are really light-years away from the products that were available 10 years ago."

For instance, borrowers can now serve interest and make capital repayments, and early repayment charges (ERCs) are often fixed, so

p

Variable early repayment charges linked to gilt yields were confusing, now often replaced by fixed early repayment charges.

Grieving windows Many plans now offer a window three years from the death of a partner during which the surviving partner can repay the loan without any ERCs.

Downsizing protection Where a new property is not acceptable to the lender, borrowers can repay the loan without penalty and move to another provider.

Inheritance guarantees Borrowers can protect a percentage of their equity to pass on as an inheritance.

Source: The Equity Release Council

people are aware at the outset what it will cost them to repay.

“Indeed, for some products, those early redemption charges disappear in as few as eight years, so the products are already a lot more flexible than they were historically, and there are embedded protections around things like inheritance or downsizing protection,” Hale adds.

If customers’ circumstances change, lending can adapt to meet their new needs.

Wilson agrees: “Product flexibilities are becoming increasingly important in the discussions people are having with their advisers.”

Borrowers are increasingly considering whether to make some mortgage repayments so as to reduce the impact of higher interest rates.

Best of both worlds Hale predicts that more products will come to the market which hold the middle ground between equity release and traditional mortgage products, giving customers the best of both.

For instance, there might be a period of mandatory repayments, with the product later converting to a normal equity release mortgage.

This would help people better manage their borrowing, prevent the impact of interest rolling up over time, and increase the LTVs they can access, while still providing the security of being able to remain in their home.

“These are products the market has been talking about for some time, but the sort of

Where is more progress needed?

Value for money There is potential for rates to be lowered. Product safeguards such as the ‘no negative equity’ guarantee come at a price and are not necessary for all customers.

Scrapping them could bring down costs. Commission rates are high, so advisers must be doing the right level of work for the remuneration they receive.

Early repayment charges Consumers find these charges hard to understand and they can be extremely expensive, up to 25% of the amount borrowed. Consumer Duty will require providers to look again at whether these charges are reasonable.

Lending criteria Lending rules are stringent. Properties can be rejected for later life products due to factors like a flat roof or nearby commercial premises, leading to customer frustration.

Hybrid products A hybrid lifetime mortgage or retirement interest-only (RIO) mortgage could offer the option to benefit from lower rates while both partners are alive. It could then switch to a lifetime mortgage on a roll-up basis when one partner dies and affordability is an issue, with the option to make additional payments.

Source: The Equity Release Council, L&G 38

The Intermediary | April 2023

conversations I’m having with lenders suggests those will likely emerge in the next few months, which is really exciting,” says Hale.

“That will force advisers to continue to evolve their advice processes as well, to make sure their service proposition extends beyond the point of initial advice.”

Looking forward, Wilson would like to see some of the technological advances being seen in the residential market take root in the later life lending space. He caveats this, however, by recognising that technology is not the answer for everything, and ‘soft skills’ remain a vital part of an adviser’s toolbox.

Embracing Consumer Duty The Financial Conduct Authority's (FCA) Consumer Duty rules will make players in the later life lending space reflect on whether they are delivering fair value for customers. While advice is mandatory before taking equity release, some products are complex, so there is perhaps more work to do around communicationof products and charges. Advisers should also make sure they are helping clients consider alternatives to equity release.

Vickery says in his own firm this takes the form of suggesting other types of lending, such as an older borrower mortgage, as well as no lending at all, and even signposting prospective borrowers towards debt charities.

In 2021, the Financial Ombudsman upheld 6% of complaints about equity release, compared with 23% for mainstream residential mortgages.

The ERC says this suggests that the checks and balances on equity release are effective in protecting consumers.

Wilson believes the imminent Consumer Duty has encouraged organisations to question why they are doing something, and how they can do it better, to provide good outcomes for customers they can clearly evidence.

He adds: “Following the pandemic years, and the record transactions of 2022, this is a huge opportunity to stop and question whether we can do things better, faster or just differently.”

No one knows how long the cost-of-living crisis will roll on, or how the mortgage market will look this time next year, especially if there is a General Election in May 2024.

It seems likely, though, that changing consumer needs will endure, while mini-Budget disruption continues to ripple through the market. This means the later life lending sector will need to keep adapting and innovating to serve these customers appropriately.

Hale concludes: “The nature of retirement is changing, so we shouldn’t stand still.” ●

The Financial Ombudsman upheld 6% of complaints about equity release, compared to 23% for mainstream residential mortgages. The ERC said this suggests the checks and balances on equity release are effective in protecting consumers”

Later Life Market

Key stats ◆ 2022 was a record year with equity release lending totalling £6.2bn. ◆ The market has increased six-fold since 2011. ◆ More than 300,000 customers served in the past decade. ◆ Overall releases expected to reach £12bn in 2030.

Source: The Equity Release Council, L&G

April 2023 | The Intermediary

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Landlords facing energy efficiency retrofit demands

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022 delivered a series of bi er pills to swallow for landlords, and whilst brokers will be more than aware of the demand for privately rented homes reaching a new high, landlords continue to face a ra of challenges.

By far the most significant is the ongoing uncertainty around changes to the Minimum Energy Efficiency Standards on rental properties.

Over the past year it has become clear landlords need clarity if the private rental sector (PRS) is to remain a viable option.

The Government has indicated that rental properties’ Energy Performance Certificates (EPCs) must be band C-rated on new tenancies by December 2025, and on all rented properties by December 2028. What isn’t yet clear is if this will be the final position, how the Government expects portfolio and individual landlords to meet these standards, and how the industry can play its part.

We must learn from the Green Homes Energy Grant, the Government’s recent a empt to encourage the greening of UK housing stock, and recognise that it won’t suffice to just identify new ways of funding green improvements.

In my view there are several major issues to be collectively addressed to make the retrofi ing of Britain’s housing stock happen at scale, efficiently and effectively. These are: finding the appropriate funding structure, improving landlord awareness, and developing the right skills for Britain’s tradespeople.

Green improvements A recent survey for the Mail found one-third of landlords were not confident they would be able to get

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their properties up to a minimum Band C. Many said they would be unable to afford the required improvements. With the existing EPC improvements cap currently at £3,500 and likely to be raised to £10,000, there will be more financial pressure than ever on landlords.

If landlords are to deliver the best standards for their tenants, they need time to plan their finances.

This means the Government must make a long-term commitment to encourage the greening of housing stock, including supplementary grant funding as a stimulus and to help those who can’t afford to pay.

In a high interest rate environment, with record inflation pushing up the cost of materials and labour, ge ing this wrong will push many good landlords out of the market.

Landlord awareness Confusion and misinformation remains rife around the timelines for required energy efficiency changes.

Portfolio landlords may have more understanding of the importance of long-term planning, and be more aware of the minimum energy efficiency targets, but smaller and ‘accidental’ landlords may not expect the sudden financial shock of retrofi ing their property.

No landlord should be at risk of losing their property due to inadequately communicated changes to market regulations. It’s time for an inspirational public information campaign promoted by significant parties in the sector to help landlords understand what is required for their properties, and clarify their role and responsibilities.

It’s important that any campaign makes this understanding as simple as possible. There needs to be easily

DAMIAN THOMPSON is director of landlord at Nationwide

accessible information via a multitude of platforms so all parties, including brokers, can play their role.

Education and skills The UK is at risk of failing to meet its retrofit targets due to a labour shortage across all trades. It has been estimated that more than 400,000 builders and skilled retrofit professionals are needed if we are to meet our insulation target, and the UK is approximately 200,000 workers short.

Government and employers must work together to plug this gap, whether that’s by encouraging school leavers into these positions, promoting apprenticeships, or upskilling our existing labour force.

Landlords should be encouraged

by Government and the industry to make these essential changes now and shouldn’t leave any essential retrofit outstanding for longer than necessary, for the simple reason that demand will drive up the costs.

Integrated solutions The key to success here is a truly integrated approach that goes beyond isolated tactical initiatives and instead delivers a single coherent approach.

We need an entire industry around this so that it becomes self-sufficient.

Only by creating an ecosystem around retrofi ing can we expect to create the required momentum, delivering what the sector needs and giving landlords the confidence to provide sustainable properties for a profitable future, so tenants are in good quality, energy efficient homes. ●

B U Y - TO - L E T Opinion

Amateur landlords have a place in the housing mix

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er years of Government policy designed to disincentivise amateur landlords, it should come as no great surprise to see a serious supply problem in the rental sector.

Whether it’s increasing stamp duty on additional properties, slashing automatic discounts for wear and tear, cu ing the mortgage interest tax relief, or introducing stricter le ing and property laws, the heavy tax burden and ongoing regulatory pressures have made it very challenging for smaller landlords.

The proposed Renters Reform Bill promises to be the next hurdle, especially with its plans to scrap Section 21 notices in England, introduce new powers for local authorities, and create a rental ombudsman. While any good landlord will be in favour of protecting renters’ rights, there are real concerns the bill will make the task of removing problem tenants even harder.

Vital sector In the constant pursuit of increasing homeownership, successive Governments have forgo en just how vital the rental sector is to the wider housing mix. A er all, around five million households in England and Wales – the equivalent to one in five – rely on the private rented sector (PRS) for housing.

Targeting landlords to stifle competition for first-time buyers (FTBs) in a low interest economy is one thing. However, with the decade of low interest rates now firmly behind us and unlikely to return, plus the loss of schemes such as Help to Buy, fewer buyers are either ready or able to get on the property ladder.

That’s not even considering both lacklustre housebuilding numbers and those with no intention of owning their own home.

Now, when UK households need a strong supply of good landlords with quality properties, demand continues to outstrip supply. As a result, rents continue to rise, competition increases, and less reputable landlords are less inclined to maintain or increase the quality of properties.

Instead of forcing out those rogue elements, it’s been the amateur landlords that have seemingly taken the brunt.

In many cases these landlords are not running properties as a business, instead prioritising longstanding relationships with good tenants as part of a more holistic approach” By definition, amateur landlords are classed as those with up to three properties. For some, they may have become a landlord by circumstance, such as taking on a family home a er the death of parents. For others, it’s a way to bolster pensions and supplement retirement income.

In many cases, these landlords are not running properties as a business or as a limited company, instead prioritising longstanding relationships with good tenants as part of a more holistic approach.

PAUL BRETT is managing director for intermediaries at Landbay

But through the combination of Government measures and, more recently, increased mortgage and energy costs, these landlords that are vital to rental supply are weighing up their options. Our most recent survey found that 78% of landlords with one to three properties have no intention to sell. However, half said no to buying more, while 22% didn’t know.

I’m certainly not the first and won’t be the last to say that the UK needs a buoyant rental market and a strong mix of both professional and amateur landlords to properly support the housing market. While those hoping for the Government to roll back measures shouldn’t hold their breath, as a lender we’re doing all we can to support landlords of all sizes.

Since the start of the year alone, we’ve made a ra of rate reductions across products and loan-to-values (LTVs) in an effort to make our offering as competitive as possible.

We’ve also looked at our variable fee structure to help more clients with affordability and income cost ratio (ICR) requirements, as well as reintroduced products for first-time landlords looking to buy houses in multiple occupation (HMO) and multi-unit freehold blocks (MUFBs).

Inspired confidence Beyond high tenant demand and the strong rental yields reported by our survey respondents, there’s still plenty of positives for landlords. If inflation does continue to ease as predicted and rates reduce – as we’ve demonstrated regularly this year – there’s hope it will inspire some confidence among landlords to not only break out of the holding pa ern, but make positive steps to expand their portfolios. ● April 2023 | The Intermediary

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Spring Budget and household debt put finances in focus

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he combination of a Spring Budget which will inevitably impact a variety of people in potentially positive and negative ways – depending on age, employment status, income, number of children, lifestyles, etcetera – and the end of a financial year, is likely to bring the issue of household finances into sharp focus across the UK. Within these household finances, some may still be recovering from the effects of the pandemic. Hopefully, many of these people have now found their financial feet, but there may still be lingering doubts over if, how, where, when and how much they might be able to borrow.

Boundaries have long been blurred for potential borrowers with historical credit issues, complex income streams or even amongst the self-employed community, who have previously been deemed ‘higher risk’. These may be further skewed in light of additional cost-of-living pressures, rising interest rates and affordability constraints.

For lenders and intermediaries, this demonstrates the importance of carefully monitoring a itudes and activity levels when it comes to consumer borrowing and deposits. One excellent source of information for this is the monthly Bank of England Money and Credit report, which helps chart economic trends and developments in the UK banking system.

The latest Money and Credit report showed that individuals borrowed an additional £1.6bn in consumer credit in January, on net, following £0.8bn of borrowing in December.

This was suggested to be the highest net borrowing by individuals since June 2022 (£1.7bn). The additional

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consumer credit borrowing in January was split between £1.1bn of borrowing on credit cards, rising from £0.2bn of net repayments in December, and £0.5bn of borrowing through other forms of consumer credit, such as car dealership finance and personal loans.

The type of credit is important, because credit card debt may indicate borrowers struggling to live within their means, whereas car loans can indicate purchases and upgrades made because people feel they have the affordability available.

So, the bigger picture indicates that, while month-on-month the average effect is a gentle increase of debt, different people are being impacted in different ways.

The annual growth rate for all consumer credit increased from 7.2% in December to 7.5% in January. The annual growth rate of credit card borrowing rose from 12.4% to 13.5% in January, the highest level since October 2005 (13.7%), while for other forms of consumer credit the growth rate was broadly unchanged at 5.1%.

Building a bigger picture These are the types of statistical data which offer a good insight into ongoing consumer behaviour, and alongside a host of other considerations, allow us to build a bigger picture of how we can shape a specialist residential offering to meet the ongoing needs of a range of creditworthy borrowers.

The individual circumstances of residential borrowers continue to diversify in such a way that bulk underwriting suits fewer and fewer of them. Manual underwriting will continue to play a key role, and is an area in which a growing number of intermediaries and their clients are realising the value.

GRANT HENDRY is director of sales at Foundation Home Loans

Boundaries have long been blurred for potential borrowers with historical credit issues, complex income streams or even amongst the selfemployed community who have previously been deemed ‘higher risk’” For example, we don’t always need to look at bank statements. Our underwriters work in partnership with our intermediary partners to carefully assess cases on an individual basis.

This process allows them to navigate some of the more restrictive traditional lending requirements in a more customer-centric manner. All while staying within responsible and appropriate lending boundaries.

This has also been supported by integrating case ownership into our offering, with advisers fully appreciating having direct access to a dedicated and decisionmaking underwriter.

As increasingly complex personal and household financial scenarios continue to emerge, we firmly believe that this type of approach represents the future of the residential mortgage market. ●

B U Y - TO - L E T Opinion

Tenant demand and lending solutions drive landlords

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hen it comes to the buyto-let (BTL) market, I am always of the ‘glass half full’ persuasion, probably because I see the activity that is going on every single day, and I see a highly commi ed and knowledgeable adviser base doing its very best for landlord clients.

Undoubtedly there has been a growing disquiet around the sector, much of it centered on property supply shortages, meaning increased rents for tenants, at a time when cost-of-living increases are also hi ing many hard.

I don’t think there is any doubt that the policies of the past decade have also made it much more difficult to be a landlord, particularly if you only own one or two properties – you’ve seen your profitability hit, and over the past year, your mortgage costs increase substantially as well.

However, even for those landlords, the vast majority are still playing a long-term game, understanding that demand for their properties right now is perhaps as high as it may ever be, that they are likely to have fairly large amounts of equity in those properties, that even if house prices take a slight dip they are forecast to rise again from 2024, and that if they can hold onto their investments for a further five to 15 years, then they are likely to see both income and capital growth.

The demand point really can’t be over-egged, given where we are with the supply of property to the private rented sector (PRS). Yes, there are some obstacles and challenges to overcome, but there’s a very good reason why landlords still want to buy and add to portfolios right now, and a lot of that is down to tenant demand

and its outlook, the ability to maintain rental yields at strong levels, and a future which doesn’t look too different to what it is now.

Earlier this year, figures from Zoopla suggested that demand for rental homes was at its highest for over a decade, and I think we’re all well aware of the reasons behind this.

Many were thinking the Chancellor was going to address the PRS supply shortage in his Budget, but nothing appeared. Indeed, the rumour mill running prior to the Budget suggested he was more likely to increase the extra stamp duty charge for landlord owners which would only have dampened potential purchasing even further.

Plentiful products Thankfully, that rumour did not come true, and while we might not like the extra stamp duty charge for additional property purchases, landlords are able to factor this into their decisions to buy and still make these purchases work for them. Landlords recognise that the current tax rules are unlikely to change any time soon, and instead have reacted to them and still want to add to portfolios.

The further good news is that, while we have been through a sticky mortgage patch in a number of areas – rates, product numbers, affordability – the lending sector is finding solutions, and we are undoubtedly in a much more stable environment, allowing us to cut rates and increase product numbers.

At the start of March, BTL product numbers breached 2,400, the highest since before the mini-Budget in 2022. In particular, we have seen the number of short-term fixes return to the marketplace, plus lenders – including Fleet – have broadened the

STEVE COX is chief commercial officer at Fleet Mortgages

product range as greater rate certainty has been forthcoming.

As I write, Fleet has just been able to cut all our 2- and 5-year fixed rates by 20 bps, and what we’ve seen from right across the industry is a downward trend in terms of pricing over the last few months. Swap rates are prone to volatility still, but the direction of travel over the past six months has been south, and as soon as we do see inflation start to fall significantly – hopefully sooner rather than later – I suspect we’ll get more in the way of product rate competition.

At the same time, we’ve seen products released which aim to help landlords meet affordability criteria to get the levels of loans they need, and we’ve seen specialist lenders like ourselves increasingly able to help those landlords who may have more complex needs, be utilising different vehicles, looking at more specialist properties, or indeed wanting to use finance to upgrade properties in order to meet Energy Performance Certificate (EPC) responsibilities.

All of this adds to the vibrancy of a market which is perhaps more in tune with its borrower cohort than it has ever been, and is here to support advisers in whatever ways required to help those landlord borrowers, particularly when the rate environment still looks very different to what it did 18-plus months ago.

Overall, therefore, advisers and their landlord clients should have a growing number of options to access, whatever they are planning to do with their properties and finance. That is unlikely to change anytime soon. ● April 2023 | The Intermediary

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Supporting the sector to build on green progress

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rivately rented homes and poor standards o en go hand in hand in mainstream media coverage, and this – inaccurate, I feel – perception can also be seen in the political sphere.

In my last column for The Intermediary, I highlighted how improvements made to the standard of the UK’s privately rented homes – driven by private investment – in fact challenges the negative rhetoric, that could otherwise lead you to believe poor standards are almost the norm, and not in the minority.

This may also be true for one of the sector’s other burning issues: the need to make housing more sustainable.

Analysis of Government data for Paragon’s Raising the Standards of Privately Rented Property report, revealed that since 2011 the number of private rented sector (PRS) homes with an Energy Performance Certificate (EPC) rating of A to C has risen from 0.7 million to 1.925 million.

This is an increase of 1.2 million, or 165%, and means the PRS outperforms the owner-occupier sector.

Despite some commentators mistakenly talking about proposed changes to EPC regulations as a done deal, we still await confirmation from Government that the proposals will be wri en into law, and when this will come into force. The void created by this lack of information is being filled by speculation. An article recently appeared in The Telegraph, citing an industry source, stating that the deadline would be set at 2028, and apply to all rental properties.

Until new rules are confirmed by the Government, landlords are only required to ensure that privately rented domestic properties achieve an

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EPC rating of E or above, as outlined in the 2018 Domestic Minimum Energy Efficiency Standard (MEES).

This suggests that, instead of going green due to any Government mandate, landlords are doing so because it’s the right thing to do.

While moving towards more sustainable housing is undoubtably good for the environment, the current economic climate has also accelerated the need reduce the energy required to power a home. With the spiralling cost of energy since Russia’s invasion of Ukraine forming a key factor of the cost-of-living crisis, tenants will welcome the lower utility bills associated with green homes.

Capital value Of course, it isn’t a totally altruistic act; some landlords include bills in their monthly rent, so reducing the energy demands of a property is one way they can keep costs down while many of their other overheads go up. As the shi towards a more sustainable future gathers pace, we’ve also seen green credentials become more of a consideration for buyers, so upgrades can have a noticeable positive impact on capital value.

At Paragon, this is something we’ve seen accelerate. Our last financial year results detailed a 44% year-on-year increase in lending against EPC A to C-rated rental property.

What does this mean for intermediaries?

It’s possible to upgrade some homes relatively easily, with li le need for financial support, but switching to low energy lightbulbs or insulating hot water cylinders won’t be enough for the majority. English Housing survey figures show that just under a third of PRS homes were built pre-

RICHARD ROWNTREE is managing director of mortgages at Paragon Bank

1919, so the construction methods and materials used are unlikely to have the same energy efficiency characteristics buildings benefit from today. This means that millions of homes will require substantial retrofi ing, such as insulating wall cavities and roof spaces and upgrading glazing and heating systems.

If all PRS properties were to be upgraded by the proposed date of 1 April 2025, approximately 3,130 homes would need to be brought up to EPC Band C per day, rising to 4,500 accounting for working days only.

This highlights that it is vital that any new policy considers realistic timescales for implementation.

Such measures can also come with he y price tags, so even if the amount landlords are required to spend is capped at £10,000 per property – as is proposed – it is likely that some, particularly those with larger portfolios, will need to borrow money.

In anticipation of this, we are developing products that will support private investment in the sustainability of the PRS. This is alongside our work to shape future net zero policies as part of Government initiatives, such as the Mission Zero Coalition.

Overcoming such a significant challenge will require innovative solutions, so it is likely that landlords will be faced with finance options that are quite different to those they are familiar with.

As a result, advice provided by wellversed intermediaries will be key to helping them navigate their way to a more eco-friendly future. ●

B U Y - TO - L E T Opinion

2023 could be another strong year for holiday lets

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t would be easy to assume that domestic holidays are no longer in demand now that the pandemic is largely behind us, and that the allure of sunnier climes put paid to the a raction of a week or two within the UK. The reality is rather different, however. First and foremost, the past couple of years have opened eyes among holidaymakers to the potential for a break filled with rest and relaxation without crossing international borders. There are locations within the UK that are more than a match for holiday destinations overseas.

The cost-of-living crisis is also having an impact. Heading off on holiday abroad has never been a cheap option, but it’s all the more daunting when household finances are stretched courtesy of the increases seen on virtually every household bill.

Li le wonder, then, that 2023 looks set to be another strong year for staycations.

Supporting landlords Demand for holiday let properties, understandably remains strong from buy-to-let (BTL) investors.

They are alive to the level of interest in these properties from households looking to stick to a domestic holiday for the foreseeable future, and recognise the benefits that such investments offer to their portfolio.

It’s not just the higher potential yields, but the chance to diversify, too.

A er all, the level of demand and the relationship with a holiday let will inevitably be rather different from the more long-term process involved with a regular buy-to-let property.

Obviously, timing is crucial with holiday lets. The seasonality associated

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

with many of these properties means that investors will want to have them ready to go for the most active periods of the year. There are few more important periods for any holiday let than the summer.

Thankfully, investors who move swi ly from this point can add a holiday let to their portfolio in time for peak season, though obviously this will somewhat depend on how much work is needed on the property to get it up to the desired standard.

they live, and irrespective of the other merits of the case.

These are areas where Mansfield is proud to be different, to take a more open and flexible a itude to affordability, or to those clients who might want to borrow from overseas.

Delivering funding

Understanding borrowers

Unfortunately, we know that brokers and their clients have o en been frustrated by the approach of some lenders towards holiday let cases.

Affordability is an important concern. The reality is that meeting the interest cover ratio (ICR) requirements from different lenders has become more challenging in recent months, as we have seen the interest rates charged on mortgages of all kinds increase. Rising rents might help on this front, but this could also dent the a ractiveness of the property to holidaymakers.

Irrespective of the ICR requirements, these properties can still be more than viable investment prospects. Because of this, at Mansfield we will consider top slicing on a property – allowing investors to use their surplus income to make those particular sums add up.

This can also be particularly relevant to those landlords seeking to remortgage a property and finding that the rates that are currently available are quite different from their maturing deal.

Some lenders are also wary about considering applications from expat borrowers who want to invest in holiday lets, simply because of where

Ultimately, this is all down to approach. Some lenders prefer to set strict boundaries around what they will and will not consider, and anything that falls outside of those boundaries is dismissed out of hand.

This is not an approach that we believe in at Mansfield Building Society. We know that apparent complexities do not have to be dealbreakers, and that just because there is some element to a case that falls outside of the norm – such as whether a landlord lives abroad or wants to improve their affordability position through top slicing – that should not sound the death knell for the application.

By truly ge ing to grips with the key facts in a case, lenders can make a more informed decision. It doesn’t mean that we can help all borrowers in complex positions, of course, but it does mean they will get a fairer hearing.

In the end, it’s only through truly understanding a borrower and their case that lenders can make a proper decision.

This approach means that greater numbers of borrowers can be supported with the funding they need. ● April 2023 | The Intermediary

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Meet The BDM How and why did you become a BDM? I entered the industry as a regulated mortgage adviser for Lloyds Bank back in 2014, and after five years I moved into the unregulated world and became an independent broker for a small firm based in High Wycombe. There, I learned about the world of unregulated lending and how key a business development manager (BDM) is to a firm. I have always said that service is key, and have really enjoyed talking with other brokers, so when an opportunity came up with Lendco to become a BDM back in April 2021, I was intrigued.

What brought you to Lendco?

The Intermediary speaks with Graham Palmer about his journey to Lendco and how the firm works with brokers to ensure the best outcomes for borrowers

I was actively looking for a new career move, and I was approached by a recruiter at the time who had a role for a relatively new lender called Lendco. I’ll be honest and say I hadn’t heard of them at the time – ironically, we are known as the best lender you’ve never heard of – but after speaking with a couple of the senior managers, meeting the team, and getting a feel for the company’s long-term plan and goals, I was very excited to become a part of it!

What makes Lendco stand out?

We use common sense and a can-do attitude to set ourselves apart from the competition. We try our absolute best to find a solution to those cases that may not quite fit the mould, which allows us to take on cases other lenders may not be able to. A daily call with our directors, senior underwriters, and head of risk allows 46

The Intermediary | April 2023

MEET THE BDM

us to offer a quick and honest answer to those cases where we are trying to find a solution, as everybody wants certainty of execution before weeks of work and time go into a deal.

What are the main challenges facing BDMs right now?

It’s a really tough time for the brokers at the moment, with rates and deals moving around and changing so often – almost daily and weekly, rather than monthly! So, at this time, I believe the key challenge for BDMs is getting the right deal for the clients.

We have been fortunate here at Lendco, in that we have had a really good handle on our own financial backing. This allows us to offer a pretty steady set of rates and criteria, which we haven’t had to deviate from too often, even with all the changes going on – meaning almost no conversations about changing deals!

Getting access to the people you’re working with is another issue BDMs have to deal with. We offer direct contact with not only ourselves, but also the case management, underwriting, and completions teams. A great example would be if we have a deal that needs a simple explanation on a reviewed document, or perhaps a clarification point about something our underwriters have asked for, it’s a simple call to any of the team, rather than emails flying about.

What are the opportunities for BDMs? Time management and maximum capacity for the brokers they deal with! I hear on a frequent basis about how difficult it is to reach BDMs, and that it takes ages to get an answer back on a case that has been put to them.

After a few cases like that, brokers rightly shop around for an improved

service, so they can provide the same for their clients.

At Lendco we work as a team, so no one area or postcode is covered by a single broker. I work as a team of three dedicated BDMs, and if one doesn’t pick the phone up, we urge you to call one of the other team members. This is key, as the amount of business I have gained over the years based on providing a simple and quick service has been instrumental to our growth.

How does Lendco work with brokers to ensure the best outcomes for borrowers?

Lendco provides direct access to all members of its team, allowing for prompt responses and speedy case management throughout the application process.

We also have a daily call with the credit team to discuss appetite and ways to make complicated cases work for us and the client.

Lendco’s underwriters look at all new cases within 48 hours, ensuring that the deal works from day one.

Lendco also offers both fixed and variable options, in order to provide clients with security or flexibility, depending on its forward thoughts on the market.

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

Given the market’s frequent changes and the resulting uncertainty, Lendco recommends that borrowers do what works best for them, and not necessarily what works for the rest of the market.

Clients should choose an option that is affordable and sustainable, considering both the loan amount and monthly payments.

Each borrower’s decision should be based on their situation, not on general market trends. ●

Lendco Established 2018 Products Buy-to-let Bridging Finance Refurbishment loans Contact Graham Palmer gpalmer@lendco.co.uk

April 2023 | The Intermediary

47

The Interview.

Kay Westgarth hen ex-Chancellor Kwasi Kwarteng’s now infamous mini-Budget sent shockwaves through the mortgage industry last autumn, it wasn’t just the more mainstream residential and buy-to-let (BTL) sectors that were adversely affected.

The chaos reverberated around the later life lending sector too, and some lenders were forced to exit the market.

However, at Standard Life Home Finance (SLHF), it has been business as usual for the past few months.

Now entering the second quarter of 2023, SLHF is going from strength to strength, as it continues to roll out its popular over-55s Horizon products, and – much like everyone else – fervently prepares for the upcoming Consumer Duty regulations.

The Intermediary caught up with SLHF’s sales director Kay Westgarth, to reflect on the events of last year, and to discuss the lender’s evolving proposition, as well as its plans going forward.

W Jessica O’Connor speaks with Standard Life Home Finance’s sales director Kay Westgarth to discuss navigating challenges, innovating products, and preparing for the Consumer Duty regulations

Shock value Of course, we all know that the impact of the mini-Budget was detrimental to the mortgage industry as a whole. For the later life lending sector in particular, Westgarth says that the steep rise in rates posed a great challenge.

“The shock value of it was the impact it had in such a short period of time”, she says.

“We know that sometimes Budgets do give us what we don’t expect.

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I N T E RV I E W

Was there the expectation the rates were going to all of a sudden tumble down again? Naively, I would say there probably was” “Ultimately though, it came down to how much we were able to lend in this new environment and how much customers wanted to borrow. From a customer’s point of view, but also from a lender’s, we saw other lenders – industry giants, you might say – withdrawing altogether.”

She adds: “For us, we had to re-evaluate the customers’ appetite that was there, and what that meant for the plans we had to offer.

“We saw that at the start of Covid-19, customers came away from that aspirational ‘want’ that you would normally have with equity release, and they went down much more ‘need’-based path.

“As much as the mini-Budget impacted property market confidence, or indeed job losses as we thought it might do, it still massively impacted rates. That was the biggest thing.

“So, as we saw swap rates go through the roof, we had to look at how that was reflected in both residential mortgage rates and, ultimately, later life lending mortgage rates.”

Nevertheless, despite the obvious challenges, Westgarth and the team at SLHF persevered and used this proverbial ‘bump in the road’ as an opportunity for education.

She explains: “Was there the expectation the rates were going to all of a sudden tumble down again? Naively, I would say there probably was.

“But I think where the challenge came, especially in the latter part of Q4, was what the market was prepared to accept.”

Westgarth adds: “I think that was a great starting point for us, by way of education.

“Advisers had to understand that, as much as we all perhaps thought we were chief economists at during Q4, we really weren’t.

“So, we had to figure out what that meant in terms of the reality – 4% rates coming back to the market – and we had to question if something with a five in front was maybe slightly more realistic.

“There was definitely an element of management of expectations, but also education around that wider market impact.”

Current rates With that market turmoil of last autumn now largely in the rear view mirror, the current later life landscape is much more steady “Rates are much better,” Westgarth says. “We even saw some of the lenders enter back into the market in January.

“For Standard Life Home Finance, our headline rate is now 5.41%, and we’re back up to loan-to-value ratios [LTVs] of 50%.”

This does not necessarily mean business as usual, she adds: “I think where you’ll still be challenged is with some wealth advisers.

“Some advisers are still holding out for those lower rates.”

However, where there is a need, there is certainly plenty of opportunity.

Westgarth says: “There are still situations where people are asset-rich and cash-poor, which I know we all speak about in our market.

“Those people will still have to settle a huge interest-only mortgage, or may still have some sort of pension that they need to boost with later life lending.

“But what I would say is, if the need is there, these higher rates will still be considered.”

Innovation With plenty of opportunity still to be found within the market and with rates slowly settling, SLHF is capitalising on favourable market conditions. This is evidenced within its current Horizon proposition, and its future plans for continued innovation.

“What we’ve looked at in particular for Standard Life Home Finance is we’ve brought out some lower LTV plans on Horizon,” Westgarth says.

“This has enabled those customers who perhaps are more high net worth – which tends to be our demographic – to get 23% or 24%, which is an average in the wealth market, in comparison with about 28% in the overall market.

“This enables them to get a better rate than they would at a higher LTV.” She adds: “Product innovation is something that has slowed down post-Truss, but it is definitely something that we are back speaking with our funder about.

“We are looking at how we can reignite that, because I think that it is something we need to continue to do in our market.”

Consumer Duty In any discussion of the market in 2023, there is an inevitable elephant in the room. With the Consumer Duty deadline just months away, → April 2023 | The Intermediary

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For us, Consumer Duty is about being able to help advisers understand what the deadlines are, what the requirements are, but more importantly, what an opportunity this is”

I N T E RV I E W

many brokers and advisers are still wrapping their heads around the new regulations, and what they mean for them.

Broker support is now more important than ever, and SLHF is doing what it can to help those who need it.

“Consumer Duty has been a key thing on everyone’s radar this year,” says Westgarth.

“If it’s not, then it probably should be.

“We started at the start of the year, both with all our networks, clubs, and our key partners, but also really right down to the oneman band, checking in as to where they’re at, because July will come round quick enough.”

In checking in with all relevant parties, SLHF is making sure to check where they are in the process of preparing, and what they need to shore up their approach to the upcoming duty.

Westgarth continues: “We are fortunate enough to work with Key Group, where we have risk and compliance expertise.

“We’ve done quite a few podcasts in relation to it already, and we’re really trying to see what support people require.”

Dispelling stigma Not only is SLHF providing advisers with practical support prior to the July deadline, but the lender also hopes, at a broader level, to help dispel the notion that Consumer Duty is nothing but a regulatory nuisance.

In fact, Westgarth believes that the advent of the regulations could provide the perfect opportunity to spread awareness and debunk some common myths about the often misunderstood equity release market.

“For us, Consumer Duty is about being able to help advisers understand what the deadlines are, and what the requirements are, but more importantly, what an opportunity this is,” Westgarth explains.

“That’s what we’re really trying to stress, because anything that supports advisers, networks, clubs – and anything that helps to negate any of the remaining stigma about equity release – is a positive.

“What Consumer Duty does is that it gives customers the trust and confidence that the equity release market is regulated in the same way as all the others.

“It should be seen as a bigger opportunity, because any remaining stigma will go away and the regulation will be seen as a positive.”

She adds: “I think the key is that people use this as a positive, and that they don’t see it as just another piece of regulation.

“If they see this as something to share with their customers, so as opposed to seeing

compliance as a problem, then they may actually see real positives.

“I think you’ll get more trust in the equity release market, and you’ll get improved customer service.”

“If people relate that to Consumer Duty, then yes, it could give that confidence that we need from a piece of regulation,” she concludes.

Market predictions Overall, things seem to be on the up for the later life sector. With rates slowly calming, and Consumer Duty proving to be an unexpected silver lining, opportunity abounds.

If the past year has taught us anything, it is that the future can defy predictions, but Westgarth remains confident in the trajectory of the market.

“When we started the year, the experts predicted around £5bn worth of business for this marketplace,” she says.

“I think if there are no curveballs – of course, nobody expected September last year – that is absolutely doable.”

Far from resting on its laurels, Westgarth says SLHF is prepared to do what it takes to help the market along and ensure a positive experience in 2023.

“What we’re finding though is that advisers need more help to go back to some of the muscle memory that they’ve lost over recent months,” she adds.

“By that I mean maximising the opportunities that come through to them. So, they’re asking things like, ‘how do I generate leads again?’”

While things are settling back to some sense of normalcy, the fact is that the sector will remain changed in the longer term, meaning market players have to step up to the plate.

“That constant revolving door of opportunities just isn’t there anymore,” Westgarth admits.

Nevertheless, Westgarth and the team at SLHF may have just the answer to inject life and opportunity back into the later life lending sector.

“We’ve been working very closely with Air Group on the regional masterclasses that they have been doing, with the likes of Phil Calvert and Jon Dunckley, which have gone down so well by way of just remembering how to actually open up opportunities,” she says.

“I think as long as we continue to support advisers this year, I do see the market could end up over that £5bn mark.

“We just need to keep an eye on any sort of mini-Budget statements that may come up and surprise us all.” ● April 2023 | The Intermediary

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

Using the power of the mind to create more clients

T

he human brain is the single most complex thing in the known universe. How’s that for a thought? Nothing we’ve ever discovered comes close. One hundred billion nerve cells, each connecting to up to 10,000 others, making for 100 trillion connections. But what’s that got to do with marketing, and generating more business? Well, as I’ve been telling audiences on the recent Air and More2Life marketing events, the be er you understand the human mind, the be er you can get inside that mind to generate more business.

This is a subject that fills many a textbook, but here are seven simple ways you can use psychology to help you win more business:

1

Know who you want to talk to

We’re told to treat other people as we’d like to be treated. But this pre-supposes everyone is just like us, which they aren’t. Instead, we need to treat them as they’d like to be treated and that means understanding them.

Take some time to sketch out on paper who you want to work with in as much detail as possible – age, location, background, interests, pain points.

The be er you understand them, the easier you can show them how you’ll improve their life.

2

Be different

Your brain has a very efficient spam filter. It needs one. We’re confronted with around 11 million items of information every second, but we can only process about 50. To break through that spam filter, you need to step away from the mundane.

You get three seconds to grab a client’s a ention – think about newspaper

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JON DUNCKLEY is director of About Consulting Group

headlines. Make your message intriguing and different. No one wants to look at an advert that says, ‘Use our equity release advice service’. They might, however, look at one that says, ‘We helped change Jane’s life – here’s how…’

3

Empathy is key

The human brain is full of ‘mirror neurons.’ Watch someone drop a bowling ball on their toe and you’ll wince because the same parts of your brain will fire as if it were your own foot. So, watch a video of Jane talking about how her adviser helped her change her life, and you’ll experience some of the same feelings as Jane. Video case studies are incredibly powerful marketing tools.

Show them you can be trusted

4

When you book a holiday, what’s the first thing you do? You look at TripAdvisor or similar. This is the concept of ‘social proof.’ We like to do things that others have found to work. Our ancestors survived by doing just that. Watching each other and then doing the things that led to good outcomes. If you’ve got Trustpilot or similar, use it.

The better you understand the human mind, the better you can get inside that mind to generate more business”

5

Use case studies

Before books, the survival of our species depended on stories passed from person to person. No wonder, then, that they still work today. Who wrote the book ‘Fly Fishing’? If you said J.R. Hartley, that’s the power of story – 40 years on from the advert.

6

Give things away

If you ask for the bill in a restaurant, you’ll usually get a mint or two with it. That’s because it’s been proven that we’re more likely to give a tip if we’re given a mint. This is the principle of reciprocity. If I give you something, you’re more likely to give me something. So, give things away to your potential clients. The more, the be er. Guides, brochures, information, even time. The more you give, the more you’ll get.

7

Keep them warm

Not everyone will go ahead straight away – so keep them warm. We’re tribal creatures. Our ancestors would have died if they were cast out of the tribe, so we like to feel part of something. Create your own tribe for your target customers. Use newsle ers that talk about the things they want to hear about.

A fortnightly newsle er for dentists, about dentists and what dentists like, with the occasional piece on financial advice, will get be er results than a weekly spam email about your services. ●

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

Affordability challenges in later life lending

S

peaking to mortgage brokers and their clients, you find that passing affordability criteria – once a big enough deposit has been secured – is o en the biggest hurdle to homeownership. There are horror stories about how seemingly innocuous spending pa erns can raise eyebrows – and then blood pressures – when queried as part of the application process.

So, it may come as some surprise that the affordability of repayments is also a discussion topic in the later life lending arena. Equity release, which makes up a substantial part of the market, typically requires no mandated repayments, whereas retirement interest-only (RIO) mortgages and other traditional mortgages that extend into later life are subject to these criteria, which has impacted their accessibility for some.

With equity release, many borrowers can and do manage their borrowing by either serving interest or making ad hoc repayments, but – and that is, for some, the real benefit of equity release – you do not have to make payments.

This allows people to stay in the home they love by repaying an outstanding mortgage on an expensive standard variable rate (SVR), support family without pu ing themselves under pressure, and boost income at a time of increasing living costs.

Financial flexibility However, with interest rates now starting with a five rather than a two, the challenge with making no repayments on a lifetime mortgage is that interest can compound quickly.

For a borrower who takes out a product at 60 and lives to 85, this can

be substantial, and limit the financial flexibility available to them down the line – including the option to rebroke to another product at a lower interest rate if the loan-to-value (LTV) needed has become too high.

At Key – and as is common for all good specialist advisers in the later life lending market – we include a detailed income and expenditure analysis in our fact-find, and question whether the client can and wants to make repayments. This helps to guide product choice, including whether equity release is the most suitable option, and encourages people to think about actively, rather than passively, managing their borrowing.

Good specialist advisers will ensure that this is a highly personalised discussion around the pros and cons of each choice, weighing up the benefits of products which require mandated payments, compared with equity release options, which offer arguably more flexibility and enhanced embedded protections, such as a no negative equity guarantee and guarantee of tenure.

Making repayments Interactive calculators or case studies can be useful in illustrating the benefits of making repayments and enhancing customer understanding of the concept of compound interest.

Making repayments up to an amount that is affordable without impacting other important needs and wants can be hugely beneficial for all customers, but especially younger borrowers who may still be working and can expect to hold an equity release plan for 20 or 30 years.

One question I have been asked is, if repayments are so important, why don’t we mandate them?

The simple answer is that equity

WILL HALE is CEO of Key Later Life Lending

We include a detailed income and expenditure analysis in our fact-find, and question whether the client can and wants to make repayments” release – especially the modern lending products we are seeing on the market at the moment – is designed to flex with customers’ changing circumstances through later life.

This isn’t one-size-fits-all, and for some customers, just passing affordability criteria doesn’t mean that making mandated repayments is the right option, particularly if that commitment is for rest of their lives.

That is perhaps the most important takeaway from this discussion. As later life lending advisers, we must ensure that customers are not blinded by the immediate financial challenges they face, but instead understand the long-term implications of the decisions they make. Good outcomes come from personalised advice based on a detailed understanding of individual circumstances, where the benefits of making repayments are clear for many customers.

If mandated repayment products are not accessible for customers due to affordability constraints, or are not right for other reasons, then we need to ensure that customers are using the flexible features within modern equity release products to manage their borrowing – not just at outset, but over the lifetime of the loan. ● April 2023 | The Intermediary

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

Setting higher expectations for standards of care

T

he new Consumer Duty is intended to set higher expectations for the standard of care that firms provide to their customers, and the Financial Conduct Authority (FCA) has clearly stated that a firm must act to deliver good outcomes.

As the dedicated Consumer Duty champion here at Equity Release Supermarket (ERS), I see this as an opportunity to showcase what we are already doing to provide a great customer experience, and then build on this by ‘walking in the footsteps of customers’. This will allow us to enhance the customer journey from the very start of their research into equity release, then supporting them throughout their lifetime.

Better understanding If you take a cold hard look at the equity release industry, the lack of technology to aid the customer and allow them to become be er prepared to take advice is a clear and present danger. I am personally 58 years of age, and eligible for later life funding, and in ‘walking in the footsteps of a customer’, the lack of opportunity to complete my own research is startling.

Thinking of my own experience as a customer, if I want to buy a longterm product, such as a motor car, I want access to a website where I can build a car to my own specification before I purchase it. I want to choose the model, add a colour, choose the wheels, add extras like satellite navigation, and then consider the full price and charges before I take expert advice at the dealership.

However, in the equity release industry, my options are largely limited to simply adding my personal data to a website to use a calculator

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which will tell me how much I can borrow, and while there is sometimes information for me to read, I want to complete my own research and be be er prepared to take advice.

I firmly believe that being be er prepared when I take advice is one of the key considerations to Consumer Duty. This is because, as a customer, if I have a be er understanding of the features of the plan I require and the services provided by a company, this will allow me to focus on the advice and not necessarily the detail of the product I am considering.

My research when purchasing a motor car has allowed me to explore what cruise control is, and when completing research for equity release, I would feel more comfortable if I knew what drawdown was, or what an inheritance protection guarantee means within a lifetime mortgage.

GRAHAM EVANS is chief compliance officer at Equity Release Supermarket

Prepared customers

Customers who are well informed when they take advice are likely to feel confident, and this confidence will ensure that they really express their objectives, allowing an adviser to provide a bespoke, personalised solution for their needs”

During my speaker session at the recent MBE conference in Manchester, I was directly asked if there is any negativity with Consumer Duty. I said, apart from increasing my workload in my pursuit of my commitment to Consumer Duty, I see no negativity.

This is because it is notable to me that customers who are well informed when they take advice are likely to feel confident, and this confidence will ensure that they really express their objectives, in turn allowing an adviser to provide a bespoke, personalised solution for their needs.

On the flipside, a customer who is not prepared for the advice may have to focus on the detail of the product and lose sight of the advice that best suits their circumstances.

As previously mentioned, I see Consumer Duty as an opportunity

for Equity Release Supermarket to showcase what we do. Fortunately for our customers, we already be er prepare them to take advice, as they can complete their own research by accessing smartER™ free of charge before talking to an expert.

Using my car analogy, this allows a customer to build their own product with the features they require, and when they are ready to take advice, they are be er informed, have more confidence, and build a be er understanding of the features and benefits of the plan they feel may be suitable. This will then allow them to focus on the personalisation of the advice with their expert adviser, who will check product preferences, and ensure they are aligned with their objectives, long-term goals and aspirations. ●

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

Duty to do right by your clients

A

t the start of March, the Financial Conduct Authority (FCA) wrote to CEOs and directors of mortgage intermediary firms and other financial service providers, reminding them of their responsibilities under the new Consumer Duty regime.

Time is ticking, with the next imminent deadline being the end of April, for lenders to have completed all reviews necessary to meet the outcome rules and shared the results with their distributors. This will allow them to meet their obligations under the duty, with particular focus on the ‘price and value’ and ‘product and services’ outcomes.

The Consumer Duty begins on 31st July 2023 for new and existing products or services that are open to sale or renewal. For closed products or services, Consumer Duty comes into force on 31st July 2024.

At LiveMore, we welcome these changes. Whilst not common, instances of financial misselling, providing the wrong advice, and not explaining things properly to customers all play their part in damaging the industry’s reputation.

Successful implementation of the

duty will undoubtedly result in be er outcomes for all consumers.

The FCA’s le er sets out in detail what it expects, but it makes particular reference to later life lending. Whilst it only mentions lifetime – equity release – and retirement interest-only (RIO) mortgages, these are not the only options available, and we must not forget term interest-only and capital and repayment mortgages as suitable options for our customers.

Client objectives Ever more people are being affected by the rising cost of living, and there is an increasing demand for advice around lifetime mortgages.

It is vital, therefore, that advisers consider all possibilities for later life borrowers and fully understand their clients’ needs, finances and ultimate financial objectives.

The FCA points out that extra care should be taken if products are offered to customers on the edge of the target market. For example, advising a 55-year-old to take an equity release product where an interest paid mortgage is likely more suitable. That person might have 40 years’ worth of rolled up interest to pay back, which will be a sizeable amount.

Firms must provide support that meets the needs of customers throughout the life of the product or service

BILL PURVES is managing director, risk & compliance at LiveMore

Last year, the FCA Supervisory Strategy for Lifetime Mortgage Providers publication highlighted concerns that the advice process for lifetime mortgages may not always ensure that products are properly targeted. The regulator wants to ensure that consumers receive good quality advice and fully understand the implications of using such products to meet their needs.

Due to the rising cost of living, at LiveMore we have seen an increase in the number of borrowers seeking to use part of their mortgage for debt consolidation. The FCA says that customers in financial difficulty are more likely to have characteristics of vulnerability. As such, the Consumer Duty rules makes clear that firms must provide support that meets the needs of customers throughout the life of the product or service – not just at point of sale.

To emphasise the importance the FCA puts on assessing vulnerability, nearly every chapter in the finalised guidance highlights how firms should consider the diverse needs of their customers.

We are fully supportive of this, and have a unique ongoing care fee programme. Under this initiative, the intermediary is requested to complete an annual customer care call to identify if there are new or emerging vulnerabilities we should know about.

At LiveMore, our Consumer Duty plans are already in place, but we see the duty as just the best way of working and doing right by clients.

It is only right that good consumer outcomes should be at the forefront of every financial services provider’s thought process. ● April 2023 | The Intermediary

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

Is property wealth the answer?

TOM ROWLANDS is sales director at Pure Property Finance

Total lending for the equity release market in 2022 reached £6.2bn, a 29% increase from £4.8bn in 2021

I

t is no secret that, as a nation, we are drastically underprepared for retirement.

Another area where we seem outplayed when compared to our European counterparts.

The gold-plated final salary pension is no more, while forever disappointing annuity rates, an ageing population and a lack of awareness are all reasons we are le needing additional sources of income in later life. Do I need to mention the current cost-of-living crisis, which inevitably hits those in retirement, on fixed incomes, the hardest.

Prized asset If the Europeans administer their pensions be er than we do, the same cannot be said about our property. So, why not use it?

Understandably, there has been a reluctancy to give up a portion of your most prized asset. However, with the above economic factors considered, along with benefit of massive house price rises, improved products and added protections, equity release does present itself as excellent solution to supplement income in later life – whether that be as a necessity, or as a luxury which allows you to enjoy retirement to the fullest.

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The equity release market is soaring, which is comes as no surprise considering the financial challenges we are faced with. Total lending for the equity release market in 2022 reached £6.2bn, a 29% increase from £4.8bn in 2021 and a new annual record, according to new data released by the Equity Release Council (ERC).

The market has doubled in size since 2017!

Dedicated team At Pure we have tried to be proactive with the market, and have a dedicated equity release team that services our clients. We are confident that we provide high quality professional

This is a sector that attracts huge attention from the FCA, but greater protection and flexibility all lead to more control for the customer”

advice, understand the market, and provide robust, personal recommendations that are in customers’ best interests.

Seeking advice from an independent financial adviser (IFA) or mortgage broker specialising in the area is the first and most vital step when considering taking out an equity release plan. They can give clients unbiased advice on whether it really is the best option, and find the best deal if so.

Greater control The products have seen massive improvement for the right reasons.

This is a sector that a racts huge a ention from the Financial Conduct Authority (FCA), but greater protection and flexibility lead to more control for the customer. Choosing a provider that belongs to the ERC can protect them from pitfalls such as negative equity and guarantee tenure.

Customers can borrow in stages. It might be more cost-effective to take out a series of smaller loans, paying less interest over time. Borrowers can also consider paying off the interest as they go, so it doesn’t compound.

A full review of circumstances will establish all sources of income, such as downsizing. Only by considering all the available options will you know that equity release is the best one for your client’s circumstances.

Equity release is not suitable in all situations, but with many consumers’ wealth tied up in property, the sector has an important role to play in helping customers navigate their way through the cost-of-living crisis, and continuing to live a secure and fulfilling later life. ●

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

Innovative thinking for FTBs and those in retirement

T

he turmoil that followed Chancellor Kwarteng’s ill-fated mini-Budget on 23rd September 2022 continues to impact mortgage applications, would-be borrowers, the young, middle aged and old.

Although the number and types of mortgages available are steadily increasing, they are nowhere near the volume and choice available 12 months ago. Clearly, more fixed, variable and discounted loans are coming back onto the market, and we are seeing increased competition on rates and loan-to-values (LTVs). The real issue facing the market is how to help those first-time buyers (FTBs) and the self-employed, for example, who may have deposits saved up, but who are now unable to borrow as much as they could have a year ago.

In our experience, mortgage products come in and go out of fashion. In recent times, short to medium-term fixed rate loans have been very popular with the overwhelming majority of borrowers.

Now, those borrowers coming off their fixed rate deals and finding the variable rates on offer una ractive may well consider looking to more innovative lenders for a good outcome.

Guarantor alternative The joint borrower sole proprietor (JBSP) mortgage – or as we know it at the Family Building Society, joint mortgage sole owner (JMSO) – is a good option. Traditionally, the purpose of the product was for parents to assist their offspring to purchase or remortgage a property.

One benefit is that only the occupier is named on the title deeds, meaning that stamp duty is paid by the would-

be owner of the property only, and not by all the mortgage applicants.

This is a much cleaner alternative to a guarantor mortgage.

Consider three typical scenarios.

First, parents apply with their child to buy a property for the la er to live in and own. Second, where the child is separating from their partner and need to remove them from the mortgage and title deeds. In some cases, it will necessary to raise funds to help buy the partner out and move on. Last, we can reverse the traditional scenario and allow the children to apply with their parents to buy a property for the parents to own and live in. Rates can be found that are as competitive as standard mortgages.

JMSO and pension pots We have explained the way the JMSO mortgage works, and its appeal. But let us suppose that the non-occupier parties have a pension pot and wish to use this to assist their offspring.

Many lenders will take a percentage of the pension pot, typically 3%, and assume this as an income.

However, some will not consider pension pot income if it is not already in drawdown.

At the Family Building Society, we take a different approach. We can take 80% of the value of a pension pot and divide it by the proposed mortgage term.

For example, take a £500,000 pension pot. 80% equates to £400,000.

The customer might be looking for a 15-year term, allowing us to calculate a £26,000 income from the pension pot, which makes it affordable.

Another example is of a 74-yearold who needed £300,000 to se le his divorce. His son joined the mortgage, allowing his father to carry on living in the property. The father did not

DARREN DEACON is head of intermediary sales at the Family Building Society

We take great pride in our manual, case-by-case approach to underwriting.

And it works” have enough pension income, so his son became a joint applicant.

We arranged the loan on an interestonly basis over 13 years, relying on the father’s state pension, private and other pension pots, and the son’s earned income.

Other acceptable income Income from investment portfolios, stocks and shares ISAs, other ‘unearned’ or passive income streams such as rental income, state pension and any other annuities can be added to the assumed income for JMSO borrowing purposes. Remuneration drawn by limited company directors also qualifies.

This is how we at the Family Building Society underwrite JMSO mortgages, unlike some of the big lenders that have li le appetite for this type of arrangement.

We take great pride in our manual, case-by-case approach to underwriting. And it works. ● April 2023 | The Intermediary

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

Providing support and affordable options

Developer appetite remains strong

I

n the wake of rising interest rates from the Bank of England (BoE), many lenders are feeling the pressure and pu ing their fixed rates out of reach, instead focusing on just providing variable rates.

The latest increase has resulted in borrowing money becoming once again more expensive, and a rapidly increasing number of borrowers find themselves needing to source a shortterm funding solution.

Since mortgage repayments have become more expensive in recent months – along with the cost-of-living crisis, with rising prices for energy, food and other household outgoings – a bridging loan can help save a borrower a lot of money if they repay the loan as quickly as possible.

With many lenders not knowing which way to turn, we see this as an opportunity to step in and provide much needed support to our brokers and borrowers.

Being a lender, we’re well aware of the uncertain times that are upon us, and we are more than happy to adapt our strategy to make sure we can provide support and affordable options throughout this period.

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In fact, over the coming months I predict that even more lenders will stop providing securable options and instead shi their focus onto how to keep afloat. This is why we fully understand how important our fixed rate option is.

Fixing security We launched our fixed option, the Hope Guarantee, in September 2022.

This gives borrowers the opportunity to lock in at a great rate and protect themselves against even further rate increases. In addition, reacting to interest rates hi ing 4.25% in March, we also announced a few weeks back that we will keep our rates fixed on all deals over £500,000 until at least the end of April, to provide even further security to borrowers.

The interest we’ve received from this offering has been unrivalled, which is why we’ve made the decision to extend this guarantee until the end of May, providing even more time for borrowers to capitalise on cheaper rates on deals over £500,000.

Ultimately, we want as many borrowers as possible to benefit from our competitive rates. We’re o en asked why borrowers should opt for a

JONATHAN SEALEY is CEO of Hope Capital

fixed rate option over a variable one.

As with anything, deciding what is the most suitable depends on the deal and the outcome the borrower is looking for. However, there are many advantages to having a fixed rate: Protection: Certainty is not only important to the lender, but just as important for borrowers, if not more.

For most investors and developers, borrowing money is a means to an end. Borrowing at a fixed rate means one less thing to worry about, and profit margins can be protected.

Budgeting: A key advantage for a borrower is that once they have locked a rate in, they know how much needs to be repaid over the course of their term. Therefore, as the amount of interest charged doesn’t alter throughout the length of the introductory rates period, their repayments will remain the same, even if interest rates suddenly spike.

Capitalise on low interest rates: With it looking likely that interest rates are going to continue to rise, taking out a loan when they are lower means locking in a cheaper rate for a period of time, which could reduce the overall cost of their loan.

Having the reassurance as a borrower that repayments will stay the same regardless of what rate increase is potentially looming around the corner is extremely a ractive.

At Hope Capital, it’s our mission to make sure that brokers and borrowers can access the right products.

We have created a range of secure, affordable and transparent products, meaning they can continue with confidence, which is just what’s needed at a time when living costs are being squeezed. ●

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

Slowdown in newbuild sales could boost bridging

A

t times over the past decade, the UK’s housing market has resembled a runaway freight train. No ma er what happened in the wider domestic or global economy, our property market seemed resistant to market shocks.

It lived through multiple crises, including both Brexit and Covid-19, and has come out stronger on the other side.

However, a once-in-a-generation cost-of-living crisis and an unprecedented run of interest rate hikes has le the housing market looking more vulnerable than it has for some time.

The data suggests the slowdown has already started. Provisional figures from HM Revenue & Customs (HMRC) shows housing transactions were down more than 18% in February. Meanwhile, Nationwide revealed that house prices fell at the fastest pace in 14 years in March.

This suggests that higher rates and soaring costs are having a negative knock-on effect on confidence in the housing market as well as demand.

Logic dictates that when a market slows, all of its key actors – in this case, lenders, developers and brokers – slow with it.

Trade body UK Finance has already predicted that mortgage lending to house purchasers will fall 23% this year, which will be a blow to both brokers and lenders.

However, it is the housebuilding sector that is seemingly feeling the worst of the slowdown. It may sound counterintuitive, but that could well be good for the bridging sector – I’ll explain why.

In its latest half-year results, Barra Developments, the UK’s largest

housebuilder, revealed a significant drop-off in demand year-on-year in the six months to the end of December. During that period, it said net private reservations and forward sales had fallen by 45.6% and 23.3%.

In other words, people are reserving fewer homes, and as a result, the builder’s sales pipeline is smaller than a year earlier.

Recent results from Persimmon, Bellway and Taylor Wimpey – the next three largest – paint an eerily similar picture, suggesting this is an industry-wide trend.

Many traders are private companies, and are therefore not obliged to release such detailed financial statements. However, as drivers of the property market, if the Big Four are experiencing such a significant tailing off in demand, you can almost guarantee the smaller players are, too.

Unsold plots That leaves the housebuilding sector in a tricky situation. Unless they are using their reserves to fund construction, most developers utilise development finance to fund new sites.

With development finance, the terms are relatively restrictive, meaning typically you have two years to construct a site and sell the necessary number of homes needed to repay the facility.

The trouble is, that becomes harder in a slowing housing market, where there are fewer buyers looking to purchase new-build properties.

As I have outlined above, far fewer people are reserving new homes, meaning that many builders are going to be stuck with unsold plots.

While that presents difficulties for the housebuilder, it presents an opportunity for brokers and lenders

THOMAS CANTOR is head of bridging finance at West One Loans

The longer and deeper the slowdown in the housing market, the more likely builders will be to turn to the bridging sector for a solution” operating in the bridging sector. Why? Because a slowing market means housebuilders may need to refinance to give themselves more time to shi any unsold units.

Given the inflexible nature of development finance, a natural alternative is to use bridging as an exit. That way, housebuilders can buy themselves a further 12 months – or longer – to sell their remaining stock and exit the project.

The longer and deeper the slowdown in the housing market, the more likely builders will be to turn to the bridging sector for a solution.

Lenders and brokers are not immune from a market slowdown, of course, and volumes in the bridging sector and the wider mortgage market may also fall this year. However, this unexpected boost from housebuilders could help support bridging volumes at a time when conditions are challenging in the wider market.

If you’re a broker or a lender operating in the bridging space, this is where I would be looking for opportunities in the coming 12 months. ● April 2023 | The Intermediary

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Q&A

Saxon Trust

The Intermediary catches up with Brian West and Andrew Gardiner from development and bridging specialist Saxon Trust, to learn more about their growth plans and what it is that differentiates them from other lenders It’s just over a year now since you joined the Saxon Trust team as head of sales and marketing, how has your first year gone Brian?

It’s certainly gone very quickly. I came on board just as Covid-19 was finally abating, and quickly worked my way through three Prime Ministers and a major economic crisis!

Despite all this turmoil, we achieved all our major objectives for 2022. We’ve certainly raised the profile of Saxon Trust, which had previously flown somewhat under the radar. In addition, we’ve quadrupled the size of our book in the first nine months of last year, grown the team, and most recently launched a brand new website.

On a personal note, I’m delighted my eldest son Jacob has joined us and is already proving to be a great asset to the business. It’s also great to bring some young blood into the industry.

Andrew, as a founding director of Saxon Trust in early 2020, what do you see as the key points that differentiate this from other lenders in a very crowded market?

In fairness, the market wasn’t quite so crowded when we started lending in 2006 under our original trading name Calmez. From the outset we focused on a combination of development and – as the old trading name implies – mezzanine funding.

By 2020, with more diverse funding and the introduction of a broadening suite of products designed to support borrowers throughout their project lifecycle, we decided that the time was right to rebrand the company. Consequently, Saxon Trust was born.

Of course, rebranding just before Covid-19 struck wasn’t exactly ideal! As the first lockdown 60

The Intermediary | April 2023

began, we immediately focused our attention on looking after and assisting our existing borrowers.

Our longstanding developer clients were facing unprecedented challenges, and by working even more closely with them through 2020 and 2021 we have gained unique insights into how we can best serve their needs, and the needs of new customers, going forwards.

As a business owned by seasoned property professionals, we already had decades of property development, investment, and lending experience.

Added to this, the lessons of the past three years now help to inform our decisions, drive our growth and design our new products.

Creativity and entrepreneurialism are complemented by understanding and collaboration with all our borrowers and professional partners. These characteristics, combined with an eclectic and competitive mix of funding, are our key differentiators.

Brian, it’s clear that the first three quarters of last year went well at Saxon Trust, despite steadily rising interest rates, but what about that tricky final quarter?

It was interesting, that’s for sure! The good news is that the impact of Kwasi Kwarteng’s paradoxically named ‘Growth Budget’ has now largely abated.

For us, in the two weeks immediately after the Budget, our enquiry levels nose dived. However, once we moved into October, volumes picked up again very rapidly. Indeed, I would say in the final quarter of last year that we saw some of the best deal flow and quality of the year, which perhaps reflects an understandably more restrictive approach by other lenders.

What particularly pleased me about this surge in new business was that it proved our hard work to raise the profile of Saxon Trust was now paying

Q&A

dividends. It was no longer a case of ‘Saxon who?’, but more a case of ‘right, let’s see if Saxon Trust can help.’

Andrew, you touched briefly in your previous answer on a broadening product range. It would be great to know in a little more detail what Saxon currently offers Transparent, innovative products have always been a Saxon Trust hallmark, and the specialist development exit products we launched last year are a great example of this. Both our Finish & Sell and Market & Sell products have proven very popular.

Key to this popularity is the fact that borrowers can automatically transition from one of our ground-up loans to the Finish & Sell product once units become wind and watertight. This transition does not incur any additional fees, but can see borrowers’ monthly rates dropping by up to 20 bps. Thereafter, once units reach practical completion, borrowers can further reduce their rate by transitioning – fee free again – to a Market & Sell loan.

Our rationale here is very simple: as developments near completion and our risk reduces, we want our borrowers to see the results of their hard work reflected in pricing.

In addition, by allowing them adequate time to market and maximise on their sales, we can help them minimise their downside risk and place them in the strongest possible position as they move onto future projects.

Product initiatives such as this ensure that many of our borrowers are repeat customers, a trend we want to keep building on this year and in the years to come.

and access to decision-makers. Some even promise contact from ‘real people’ as opposed to – what? I’m not quite sure! For me, all of the above should be a minimum requirement for any specialist lender. Whilst we embrace technology, it’s never at the expense of regular contact from our experienced underwriters.

With enhanced funding capabilities kicking in before the end of the second quarter, we are already working on exciting new products and borrower initiatives for bridging, development exit, refurbishments, and conversions, right through to ground-up projects. Of course, we’ll be informing all our intermediary partners about these new initiatives at the earliest opportunity.

Finally, looking ahead Andrew, where do you see Saxon Trust in 12 months?

From where we stand, sentiment remains very upbeat. Our existing investor and developer clients have strong pipelines, and we are seeing record volumes of new enquiries across bridging, development and development exit loans.

Whatever shocks it faces, the specialist finance market seems to bounce back stronger than ever.

We are proud to be a small but growing part of this industry, and we are determined to keep adding real value and new solutions for our clients.

We’ll see where this takes us… ●

It’s clear to see that your existing product range is working well, but what does Saxon Trust have in the pipeline, Brian?

Whilst we have seen some lenders exit the market, there seems no end to the number of new entrants, many of which seem to be making the same claims about speed, flexibility, the use of cutting-edge technology

●

BRIAN WEST, LEFT, AND ANDREW GARDINER, RIGHT March 2023 | The Intermediary

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

Opportunities for developers in the North West

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live in Cheshire and have worked in property finance roles across the North West for over 13 years. It’s a region built on culture and innovation, thriving off the need for continuous improvement and progress. There are a number of high profile, large scale regeneration and development projects either underway or commi ed to across the region, which will help contribute to future growth, bringing new jobs and people to the area.

Equally, the property market in the North West has shown resilience against the backdrop of some challenging economic headwinds, and the demand for quality and sustainable places to live, work and enjoy remains as high as ever. Small to medium enterprise (SME) developers have a key role to play in helping fulfil that demand.

As the region’s largest city, Manchester has seen tremendous growth in recent years. The number of people living and working in the city has risen enormously. Many positive factors have contributed to this, from the increasing level of retention rates of students having studied there, to the arrival and relocation of high tech and world class companies, complemented by a supply of high-quality residential accommodation across the city and the surrounding areas.

But it’s not all about Manchester; the other towns and cities in the North West have an equally important role to play, and all present opportunity to developers operating in the region.

Take Stockport, which continues to benefit from significant investment and regeneration.

There are a number of key projects across the town, both under development and in the pipeline.

Stockport is now fulfilling its potential as a key regional town, and is quickly becoming one of the most sought a er parts of Greater Manchester.

Adding value Meanwhile, Liverpool Freeport, the UK’s largest Western-facing port, handles 45% of the country’s trade with the USA. Freeport status for Liverpool will likely create up to 14,000 jobs, a ract £800m in investment and add £850m of value to the local economy.

In addition, the Morecambe Eden Project has recently been awarded £50m in the second round of the UK Government’s Levelling Up funding.

Once completed, this project is expected to draw one million visitors annually and create thousands of direct and indirect jobs.

Energy House 2.0, a world class energy performance testing facility, is the largest of its kind. Located at the University of Salford, this facility

The Morecambe Eden Project is expected to draw one million visitors annually

ANDREW DIGNUM is lending director, development finance at Hampshire Trust Bank

plays a pivotal role in advancing low carbon and net zero housing design, shaping the homes of the future.

Demand for properties is not confined to the larger towns and cities in the region. The North West boasts some of the UK’s most sought a er rural locations, and the Covid-19 pandemic has increased the demand for open green spaces. Demand for homes in these local communities remains as strong as ever.

At Hampshire Trust Bank, we understand that the property market is not a single entity; instead, it consists of various subsets based on type of property, tenure and geographic locations, all of which are different to one another and change at a different pace. We take pride in our hands-on, ‘boots on the ground’ approach to our work.

The North West is a region we are fully commi ed to, and we’ve bolstered our team in the North of England in recent months.

There is an abundance of opportunity across the region, and we are passionate about helping as many developers as possible bring to life development plans that will provide much needed housing and employment to local communities. ●

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

Get your customers ready for EPC

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ith new Energy Performance Certificate (EPC) rules coming in, it’s critical to be able to advise your landlord clients on what this means for them.

When they set up any new tenancy agreement as a landlord, they’re obliged by law to provide the tenants with a copy of the property’s EPC, showing its energy efficiency performance based on factors such as insulation, heating and how much energy it uses. A rental property should already have an EPC, and landlords can view their property’s on the Government’s online register using nothing more than its postcode.

The register is free and open to all, so you can view the EPC for any property that’s been sold or rented out since these were introduced in October 2008.

It’s important to know where a property rates, as proposed rules mean minimum energy standards for rented properties will shi from an E to a C rating in the next couple of years.

Although yet to be confirmed, the current proposal is that this change will be introduced for new tenancies from 2025, followed by all tenancies from 2028. While 2025 might seem a while off, finding time to make the necessary improvements and the funding to complete the work can be tricky for many investors, so it’s worth your customers ge ing organised now.

Which rented properties need an EPC? Properties that require an EPC include rented houses, houses in multiple occupation (HMOs) and self-contained flats. Bedsits and non-self-contained flats don’t need an individual EPC, but the property they’re part of does.

Your customers don’t need an EPC if they’re just renting out a room in their own home, or if they have a holiday let which is rented out for less than four months a year or let under a license to occupy.

EPCs on rented properties An EPC is valid for 10 years, and a copy must be provided to tenants free of charge. A landlord can be fined £200 if they fail to provide this.

Since 1st April 2018, any property rated F or G must be brought up to at least an E rating before it can be rented out, and the plan is that this will change to a C for new tenancies from 2025. Landlords who do not meet this standard currently face fines of up to £5,000, rising to £30,000 from 2025.

Typical improvements landlords may need to make include the installation of insulation – such as lo or cavity wall – double glazing, or central heating.

TANYA ELMAZ is director of intermediary sales for commercial finance at Together

Some listed properties and those in conservation areas may be exempt, if improvements – like new windows – would impact on their character.

Which properties have a lower EPC? Generally speaking, older properties have lower ratings, because they tend to lack – for instance – cavity wall insulation or double glazing, unless these have been retrofi ed.

Nevertheless, older properties have always been a favourite with buy-to-let (BTL) landlords, whether it’s two-up, two-down terraces which offer the perfect first home for young professionals, or larger Victorian villas prime for converting into HMOs. While data shows that homes built before 1900 generally have an E rating or lower, older homes can be brought up to the required standard with a li le investment, and could even become more a ractive to potential tenants as a result. ●

Properties that require an EPC include rented houses, HMOs and self-contained flats

What is an EPC? An EPC is a report on a property’s energy efficiency, both currently and if improvements are made. The property will get an overall rating on a scale running from A to G, where A is the best. There is also a numerical score between 1 and 100. This indicates how expensive running the property will be; the lower the score, the higher the cost.

April 2023 | The Intermediary

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

A blueprint for a successful development deal

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o en get asked what the key points are that lenders look for in a development deal. Having worked with developers for many years, and funded hundreds of projects of all shapes and sizes, there are some key points to be aware of.

Unless you have been living on a desert island recently, we have lived – and continue to –through times of change and uncertainty.

But what does that mean to funders?

Obtaining finance is no longer as easy as knocking on your bank manager’s door, providing title deeds and proof of deposit to receive a good luck slap on the back and a ‘see you in 12 months’, but that can only be a positive.

There is more choice than ever among financiers who can assist, but making sure your project is the one that catches their eye is key.

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Project summary

Development appraisal

Most important is a strong development broker. This means one who can understand the integral internal workings of a development scheme, model the financials, work through potential issues presubmission, know which lenders and to approach for which niches – and that’s all before the credit process has even started.

Development finance lenders are inquisitive by nature, so any inconsistencies or gaps will be questioned – or worse declined. As such, presenting a project summary is essential.

Next, location: what does the area look like? Where are the nearest transport links and amenities? Is the development in keeping with the landscape? It shouldn’t be a surprise that most lenders insist on a site visit prior to final credit sanction.

There are no right or wrong answers with location, but having a 360-degree view of the scheme’s surroundings shows a ention to detail.

Financials: The two key aspects here are the financials of the scheme itself, and of the parties carrying it out. We don’t need to see a 65page spreadsheet, but a clear view of each aspect is key to delivering the scheme.

Take into consideration the costs of the land either own or buying, as well as costs to build, including a breakdown of build period and what that means linked to returns and profit.

We spend a lot of time modelling schemes with clients looking at all metrics, not only to make it fundable, but to also advise developers on its viability as a project.

A development appraisal, cost breakdown and build program are key.

We also expect a full picture on the principals, which has become more common with lenders who want to understand the full picture.

What are their assets and liabilities? Do they have any credit impairments? What hard cash is invested, or what deposit is available? How many other projects are ongoing? Are the contractors sound and liquid? Where is the equity coming from?

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

What are their assets and liabilities? Do they have any credit impairments? What hard cash is invested, or what deposit is available? How many other projects are ongoing? Are the contractors sound and liquid? Where is the equity coming from?”

Confidence in skills

Planning and exit

Nothing is a given any more. So, with economic and other external pressures outside of peoples control, can they provide additional resources to put things right if needed? I can’t count how many times I’ve heard ‘I have a contractor on a fixed price Joint Contracts Tribunal (JCT), so there’s no risk’.

Like any element of business finance, lenders want to know that you have the capability and skills to deliver a project and pay them back.

What is the developers working background? What schemes have been completed previously? That includes the professional team. Don’t be afraid to show videos, websites, before and a er pictures, and prices achieved. If you have built single units on your last five projects, why would your next scheme be 30 flats?

Planning is extremely important.

What conditions are required to be satisfied to start? When does it need to be implemented, graded or listed? Are there overages, ransom strips, easements, or access issues?

Understand all aspects, and if you’re unsure, speak to a professional. A planning issue could cause a severe delays and full planning doesn’t always mean a site is ready to go.

Finally, the exit. Do you have an accommodation schedule, market information and evidence from local agents of sales and values? Sales are where the bank gets its money back and you make a profit, so you’d think this would be one of the obvious points, but o en it’s overlooked.

Not each element needs to be a ‘grade A’, but if one area is weaker, we will look to prop up others.

Obtaining development finance is more like a business plan, rather than an application. With lenders available up to 70% loan to gross development value (LTGDV) and 90% loan-to-cost (LTC), with higher gearing through mezzanine and equity, it is still very much obtainable. ●

TOM LEE is managing director of Pure Structured Finance

April 2023 | The Intermediary

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

The right funding is crucial in the ‘refurb boom’

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or many property investors, refurbishment is going to be the key word in the next couple of years. Polishing up an existing property to be er suit the needs of prospective tenants has long been an established tactic among landlords, but it is sure to become an even greater focus over the short-term.

A big factor in this increased focus is incoming rules around Energy Performance Certificate (EPC) ratings.

The current proposal is that from 2025 new tenancies will only be permi ed if the property has at least a C rating, up from its current minimum of E. This would then be extended to all tenancies from 2028, with plenty of rental properties requiring some level of refurbishment in order to hit that level.

EPC ratings are not the only driver for refurbishment projects, though.

Investors may feel that a property needs to be revamped in order to stand out from the competition, or adapted to a ract a different sort of client, perhaps by converting it from a standard property into a house in multiple occupancy (HMO).

As a result, brokers are sure to see significant interest from investor clients hoping to raise the funds to cover those refurbishment projects.

The funding options Thankfully, there are plenty of different funding options available.

For some landlords, it will be most appropriate to simply stick with a remortgage for a higher sum, especially if they are approaching the end of an existing fixed rate deal.

However, if the client is still within the initial period of a fixed rate deal, this option could mean dealing

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with substantial exit fees, as well as abandoning their current interest rate, which is likely to be notably lower than the rates available today.

A more a ractive route might be to look into a bridging loan. Indeed, some bridging lenders offer products specifically designed for those looking to carry out refurbishments. Yet there can be some confusion around which is the right product for a client, as the distinctions between light, medium and heavy refurbishment are not always obviously understood.

In general, the difference comes down to how much is being spent on the refurbishment work, relative to the current market value of the property itself, though the exact lines will depend on individual lenders.

Some will class light refurbishment as being less than 15% of the value of the property, while others would consider up to around 50%. This sort of work might involve installing a new kitchen or rewiring the electrics.

It is usually much the same with medium refurbishment, in terms of the actual work being carried out, with the main difference being the amount spent, or the time taken to complete. Depending on the lender, up to 100% of the current market value might fall within the medium refurbishment definition.

At the other end of the scale, heavy refurbishment tends to mean something more substantial, potentially including structural work.

Any project which involves planning permission, for example, would fall under this heading, with some lenders offering in excess of 100% of the current market value of the property.

In some instances, it may be that even a refurbishment loan isn’t the right choice, with the client best off opting for specialist development

MIRANDA KHADR is founder of Provide Finance

finance. This, of course, will fall at the more extreme end of refurbishment work, such as converting a single occupancy building into a handful of individual apartments.

Fuelling funding Working out the most appropriate type of product for the client is only the start, of course; the big test for a broker can be identifying the actual loan that best meets their needs.

The specialist market is not always a straightforward one when it comes to sourcing products – any adviser working in this industry will have horror stories of the days and weeks spent going through individual lender criteria in order to pinpoint one that might work for a particular case.

It’s because of those overwhelming timescales that we built Provide Finance, in order to support brokers in pinpointing those products in a fraction of the time. We understand that the process can be a slog, and so have developed a platform that takes on some of the burden, allowing brokers to help clients more quickly and efficiently, writing more business in the process.

Brokers are already under enormous time pressure, and we know that they value partners who can help share some of that workload and ensure they can focus their efforts where they will make the most difference.

No ma er whether clients are looking to raise funds to pay for a refurbishment, or for some other project, smart partnerships can help us all deliver a faster, and more satisfying experience. ●

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

Uncertain times can be good for short-term finance

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one of us will be surprised that there has been another wobble in the banking world, with a number of smaller US banks going under. The big one, though, was in Europe, with the ‘merger’ of Credit Suisse with its larger compatriot UBS. Hopefully the central banks and the Swiss authorities have done enough to stop any signs of it turning into a contagion. What is interesting, though, is that banks seem to have the unwri en guarantee that there is always a bailout available, even though governments and central banks would hotly deny it.

RANJIT NARWAL is head of origination at Kuflink

Feeling bullish: Confidence is of great importance to investors

Confidence game ‘Too big to fail’ was the refrain back in 2008, when the Credit Crunch saw the failure of institutions like Lehmann Brothers. It was never formally acknowledged that a fully functioning banking system depends on confidence to operate. Without it, the business world cannot function, and the fallout reaches into the retail and consumer sides, and then into the savings of millions with money on deposit. It seems that a bank does not have to be very big at all in 2023!

The repercussions have been seen in the form of a ji ery stock market over the past week, and this sums up how important confidence is for investors, whether corporate or personal.

Regardless of whether the investor is the funder of a UK lender or a member of the public with money deposited in a bank or building society, the reaction to bad economic news, especially worries about bank safety – remember the queues outside Northern Rock in 2008 – is contagious.

Only the concerted effort of central banks and governments acting in

concert was able to stop a full-scale run on the banks by opening the taps to provide liquidity.

In the case of funders, they will be watching the economic situation very carefully, while lenders relying on that external funding will be keeping their fingers crossed that none of the funders decide to pull support or order a shoring up of criteria. The last time that started to become a reality was during Covid-19, when lockdowns were particularly prevalent.

Rug-pull In the bridging market, a marked effect was created for some lenders when funders pulled the rug out by withdrawing funding at short notice, or severely restricting lending by tightening criteria.

Given that many of the well known names in the sector derive their funding from external sources, brokers needed to be very aware of which were lending fully and which were restricted.

Bridging finance proved to be a great success as a viable funding source” The current financial situation remains fluid at best, and the Bank of England unexpectedly raised interest rates again by 0.25% to 4.25%. Many funders will be considering their existing arrangements.

Of course, the flip side of that is that the current financial uncertainty creates more opportunities for shortterm lending.

Since the Credit Crunch, bridging finance has become especially popular as a substitute for more traditional sources of development funding. It proved to be a great success as a viable funding source, and in the months to come will fulfil the needs of many businesses and individuals. ● April 2023 | The Intermediary

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

Tech innovations that will change short-term lending

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echnology has already driven significant changes in short-term lending. Lenders have invested in online platforms to streamline processes. We no longer rely on paper applications.

Communication between borrowers, lenders, surveyors, and solicitors has never been slicker. Automated valuation models (AVMs) were rehabilitated in the pandemic when surveyors couldn’t get into properties, and it won’t stop there.

I believe the following five technology innovations are set to change the face of short-term lending:

1

Open banking

Open banking refers to the practice of sharing financial information electronically, securely, and under conditions that the customer approves. By leveraging this technology, lenders can assess the creditworthiness of borrowers and investors more easily, resulting in increased efficiency and faster loan approvals. Open banking has already enhanced TAB’s platform, making it easier for borrowers to view and make payments, improving transparency, data privacy and security, and lowering risk in regards to knowing your customer (KYC) and anti-money laundering (AML) checks. In the future, investors will be able to invest directly from the platform using open banking, and can further use the technology to enhance affordability checks and borrower payments.

2

Artificial intelligence

Artificial intelligence (AI) enables computers to absorb information from diverse and non-standardised inputs to generate

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outputs in natural language.

It is poised to revolutionise the lending process.

One example is OpenAI, which is already being used in various functions, from coding to content creation. In the finance sector, AI will soon provisionally assess the risk of a loan and borrower, taking information from accounts, bank statements, and legal documentation.

It will create rounded risk assessments and facilitate be er informed lending decisions.

AI systems will learn by understanding the parameters that affect loan approvals, such as credit history, income, and debt-toincome ratios.

By analysing vast amounts of data, AI-powered tools will automate credit scoring, fraud detection, and loan underwriting, improving the accuracy of risk assessments and streamlining the lending process.

3

Identity management

SmartSearch and Onfidio can already conduct identity verification quickly and effectively.

Gone are the days of sending a paper copy of your passport with a certification signed and dated by a professional. Now, technology allows you to upload a picture of your ID card or passport, with ‘selfies’ taken at that time to verify it’s you.

These solutions facilitate a smoother onboarding journey for borrowers and investors alike, without compromising KYC or AML obligations. By leveraging these identity management solutions, lenders can significantly improve the customer experience, streamline the lending process, and minimise the risk of fraud. They will, therefore, become more prevalent.

MARK GILLIS is technology director at lender TAB

Secondary markets and tokenisation

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Secondary markets are emerging which allow investors to buy or sell investments from others, whether that’s investments in loans or property. To support these secondary markets, there is a growing trend towards the use of tokenisation and blockchain technology.

This involves the creation of digital tokens that represent assets. These will improve liquidity, transparency and confidence within the market.

TAB is well positioned to take advantage of this technology, with our data being stored in a centralised blockchain with its inherent features of audibility and security.

5

Big tech lenders

Large tech companies, social media platforms and other non-bank institutions are beginning to explore the possibility of entering financial services. These businesses are leveraging their technology, scale, large user bases and existing customer trust to offer innovative financial solutions. In China, WeChat and AliPay have dipped their toes into lending. In the UK, Amazon Lending is already in place. Google, Facebook and Apple have indicated they’re going to have a go, too.

These companies are disrupting the lending landscape by using technology to facilitate loan origination, servicing, and repayment. As the platforms grow in popularity and gain traction, they have the potential to reshape the lending industry.

Some short-term lenders may white-label the technology, in order to be er serve their own platforms and customers. ●

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

A rollercoaster ride with stabilising forces ahead

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he UK housing market experienced a rollercoaster ride in 2022, with soaring prices initially, followed by a slowdown and then even a modest fall in prices towards the end of the year, into the beginning of 2023. As we start to see more data on the year ahead, the market seems to be adjusting to new economic factors. These include the impact of higher interest rates, with perhaps the end of those rises now in sight, and also concerns over affordability, but with those beginning to fade as inflation fears also recede.

Better than expected It certainly looks at present like 2023 may turn out to be more benign for the UK housing market than assumed late in 2022 when the mini-Budget nearly derailed everything. Certainly, the Savills forecast price drop of 10% for 2023 isn’t one we presently think will come to pass.

Development lenders watch all of the data closely and get some comfort from the consistency of plot sales completions that continued through all of this noise.

The Government’s extension of the stamp duty holiday, and various incentives for first-time buyers (FTBs), such as the Help to Buy scheme, contributed to the heightened activity. These factors, coupled with low mortgage rates, fuelled a sense of urgency among potential buyers, causing a surge in demand that outpaced the available housing stock.

Whilst those heady days are over, we certainly continue to see demand as a relative strength in a world of low supply, which will at least support prices, if not li them, in 2023.

In terms of other trends to watch this year, we expect costs to continue to rise for many building materials.

However, supply and demand drive most prices, and with slightly slowing new-build market volumes, with national housebuilders pulling back on plot starts, both price rises and price falls could be seen this year, according to the material.

Some overstocked materials could fall in price to help reduce stock levels in a costly higher interest rate environment that penalises full warehouses. Equally, some materials may see over-supply, particularly with reducing national housebuilding volumes, and see suppliers cut prices to compete for a smaller market. Other products, with tightly controlled supply or growing demand, could hold their elevated prices regardless.

Suppliers can be quite resistant to handing back the price increases now achieved, and this will be a drag on any deflationary effects. We don’t expect labour costs to fall at all, and further rises are inevitable with such a significant labour shortage following both the pandemic and Brexit.

Until factory-built homes become a major component of the UK housing stock supply, we don’t expect this situation to change as the borders are firmly closed.

Energy efficient Energy bills look like they will have fallen quite a bit from their peak by the end of 2023, easing household budgets and helping support housing demand and mortgage affordability again, but we live in a time of risk of further shocks, so we can’t be certain that this will play out.

We can see huge demand for air source and even ground source heat

STUART LAW is founder and CEO of Assetz Capital

pumps from new homebuyers, and that has now extended into growing demand for solar and home ba ery systems now too.

Just because energy prices will likely fall back somewhat this year, does not mean housebuilders don’t need to stay with the plan and get their homes increasingly energy efficient, not just for legislation reasons but for sales demand reasons too. Small to medium (SME) housebuilders should use this, and other technology, as a competitive edge against the nationals.

Development margins Development finance surged in cost a er the mini-Budget debacle, and doesn’t look like it will fall back any time soon. SME housebuilders are o en facing pricing that is above 10% per annum now.

This looks like the new normal, though, and rates could remain at this level for quite some time. It certainly adds to the challenge of maintaining housebuilding profit margins, when combined with energy efficiency equipment costs, labour and material inflation, and increasing legislative challenges.

As the UK housing market transitions from a year of robust growth in 2022 to a more muted outlook for 2023, the sector must adapt to the evolving economic landscape.

It remains crucial for housebuilders to be careful with their budgets, factoring in a degree of continued inflation and some healthy contingencies to navigate this period of change successfully. ● April 2023 | The Intermediary

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

Opportunities abound in the bridging market

S

ince the start of the pandemic, the bridging finance sector has continued its rise to prominence, with a growing number of borrowers and brokers starting to acknowledge the benefits this flexible short-term funding solution can offer those seeking to quickly raise capital.

Lack of knowledge and uncertainty around products have been some of the main barriers to the sector’s growth, but figures from Bridging Trends suggest this is changing. Recent data shows that demand in the sector is at its highest level since 2019, with £716.2m worth of loans transacted in 2022, an increase of 14% on the £626.7m reported in 2021.

Increased confidence This trend looks set to continue as increased confidence in the sector, coupled with affordability constraints due to rising interest rates and a lack of housing stock, continues to present challenges for both residential and buy-to-let (BTL) borrowers.

While it is often thought that the bridging loan and wider specialist lending market is solely for property investors or those with a history of credit impairment, this couldn’t be further from the truth.

Bridging finance is available to all types of borrowers, and should form an integral part of every broker’s toolkit, especially in the current

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The Intermediary | April 2023

environment of rising interest rates and affordability pressure.

This is especially true for owneroccupiers, who are currently experiencing a subdued purchase market and delays to the homebuying process due to ongoing market volatility. In cases such as these, bridging finance could be used to prevent a chain-break and ensure a house purchase goes ahead as planned, with the loan being repaid at a later date when the sale of an existing property is complete.

Growing demand In fact, the Bridging Trends data shows there is growing demand for this type of financing, with the number of borrowers using bridging finance for chain-break purposes increasing from 18% in 2021 to 20% last year, while the overall number of regulated bridging transactions accounted for 44% of all bridging loans in 2022, up from 40.8% in 2021.

Bridging finance has also proven to be an excellent borrowing tool for property investors and BTL landlords facing a very short completion deadline, such as when buying at auction or in cases where a property is deemed to be unmortgageable because it has no kitchen or bathroom, and needs extensive work to bring it up to a suitable standard.

In more complex cases, bridging loans can also be used for commercial property development purposes, or

in situations where an investor is converting a property into a house in multiple occupation (HMO), refurbishing owner-occupied business premises, or finding it difficult to secure finance because they are developing a property to change its use or purpose.

Given the short-term nature of bridging finance, most loans come with a maximum term of up to 24 months, with borrowing amounts ranging between £50,000 and £10m.

All applications need to include a viable exit strategy, such as selling or securing a mortgage on the property once all modifications have been made.

Knowing where to start The element of complexity involved in the majority of bridging loan applications means knowing where to start when placing a case for the first time can be daunting for those brokers unfamiliar with the sector. This is where specialist finance packagers such as Clever Lending can help.

With over 25 years’ experience and access to an extensive panel of specialist lenders, we are well versed in finding financing solutions that fit the unique circumstances of each individual client.

We can guide brokers through the application process and remunerate them for both the referral and repeat business, leaving them to focus on those cases with which they are more comfortable. ●

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

MATTHEW DILKS is bridging & commercial specialist at Clever Lending

April 2023 | The Intermediary

71

T E C H NO L O GY Opinion

The many changing faces of technology NEAL JANNELS is managing director of One Mortgage System (OMS)

Facial recognition technology is gathering pace

T

he art of facial recognition was once the domain of a crowded pub and frantically trying to remember the name of someone from afar in a drunken haze.

Or so I am led to believe, at least. Today we can barely walk down a street without cameras trained on us, and the debates over the merits and pitfalls associated with Big Brother are long and complex, so let’s not even go there.

What we do know is that there is no ge ing away from technology, especially in London, which remains one of the most monitored cities on the planet. In 2020, it was reported to be the only one in the top 10 outside China, coming in at third. London was suggested to have nearly 630,000 surveillance cameras, or 67 cameras for every 1,000 people – a higher level of monitoring than in Beijing, Shanghai or Hong Kong.

The use of facial recognition technology has become even more widespread since this data was released, and has even transcended into the mortgage world. There are solutions available which use machine learning and facial recognition to help simplify and streamline certified ID requirements, usually provided by a

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The Intermediary | April 2023

solicitor. As well as being quick to use, these can help eliminate the human error associated with hard-copy documents, and mitigate fraud.

Despite information security, data privacy and compliance being cited as top priorities, many intermediary firms still struggle with digital transformation projects, and it’s important as a business to carefully assess ways to streamline the application to completion process.

Unrelenting pace Anything that makes it easier to offer the kind of modern mobile experience that clients have increasingly come to expect is a step forward for the advice process, and this is a road that we have to continue treading if the mortgage market is to keep pace with the rest of financial services and beyond. The pace at which technology moves is unrelenting, and should be at the heart of any forwardthinking business operating in the mortgage space.

One of the biggest disruptors in the industry at the moment is the Consumer Duty. As outlined in the Financial Conduct Authority (FCA) review at the beginning of the year, some firms were understanding and embracing the directive to establish

extensive programmes to comply, but others firms were further behind in their planning.

This was evident in a recent survey of financial advisers by Copia Capital Management, which revealed that almost three-quarters of advice firms polled are either behind the curve (65%) or haven’t started yet (8%) when asked how ready their firm was for the Consumer Duty regulations. Only 27% felt they were totally on top of the work needed to comply with the rules.

These figures are indicative of what we are hearing out in the market.

Technology will have a prominent role to play for a variety of firms in delivering a successful Consumer Duty solution, while also supporting advisers from a compliance and delivery perspective and helping firms to be er manage their client records.

Technology can o en be deemed as a non-personal, faceless type of support, and while this can have its merits in certain systems, in a world as complex and personal as the mortgage market. a human touch has to remain.

The skill, knowledge and faces behind our platform are crucial to our success. Our users are equally important, and we need to ensure that we use this expertise to ensure that our systems work for them. In order to do this, we spend a huge amount of time speaking to our clients – whether face-to-face or over numerous calls – to tailor their solution and deliver the functionality and outcomes that their business demands.

So, when talking about technology, let’s not forget the importance of the people behind the solutions, and recognise how their proficiency and experience both in tech and the industry can benefit a host of firms across the mortgage market. ●

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

Why choose Magnet Capital?

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• No hidden costs. We are completely transparent about our pricing.

• Quick, decisive approach. No ‘double underwriting’ or slow credit committee process. Brokers and Quick, approach. ‘double decision underwriting’ or slow credit committee process. Brokers and clients decisive have direct access No to genuine makers.

direct access genuine decision Flexiblehave funding.

Our fundstoare provided by ourmakers. equity partner in the business and therefore we • clients Flexible funding.

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numerous have risk of funding Lowerlimited fees. Allbyour fees are investors based onor net loanthe amounts and not lines gross.being pulled.

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• Loans from £200k to £2m. from £200k Low surveying feesto- £2m. no QS monitoring for loans with build costs below £500k.

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Awards.

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The development finance experts finance experts

T E C H NO L O GY Opinion

API integration with CRMs and other systems

A

pplication programming interface (API) integration with a customer relationship management (CRM) and other proprietary system can be a game-changer for mortgage companies. It can help automate processes, streamline operations, and provide be er customer service.

In-sync One of the main benefits of API integration with a CRM system is data synchronisation; for example, pulling in credit and banking data.

The mortgage market has many different applications and forms that mortgage companies use, and which must be populated using this data – sourcing engines, affordability or budget planners, fact-finds, and other third-party solutions, offered under one roof. Without proper integration, these systems can create

a data repository, which can make it difficult to track and manage customer information.

API integration can help synchronise data between these systems and the CRM system, ensuring that all information is up-todate and accurate across all systems.

Seamless flow API integration can also help with application processing. In the mortgage market, loan applications can be a complex and time-consuming process. Mortgage businesses need to be able to manage customer data, calculate loan amounts, and verify information quickly and efficiently.

API integration can, however, help automate the loan processing workflow by enabling data to flow seamlessly between the CRM system and the loan origination system.

This can help reduce errors, improve efficiency, and speed up the loan processing time.

DAVID JONES is director of Click2Check

Marketing automation is another area where API integration can help mortgage companies. With API integration, firms can automate marketing campaigns and personalise communications to their customers based on their interests, preferences, and behavior. This can help nurture leads and retain customers more effectively, which can lead to increased sales and revenue.

Finally, API integration with a CRM system can help mortgage companies provide be er customer service.

By having access to all customer information in one place, credit and banking data, mortgage companies can quickly and easily respond to customer inquiries and requests.

This can help improve customer satisfaction and loyalty, which can lead to repeat business and referrals.

Numerous benefits

Mortage businesses must manage customer data quickly and efficiently

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The Intermediary | April 2023

In conclusion, API integration with a CRM system can provide numerous benefits for mortgage companies.

There is effort required to integrate an API into system, but the time spent applying the API will benefit the company 10-fold.

It can help synchronise data between different systems, streamline loan applications, automate marketing campaigns, and improve customer service. Isn’t that why you started the business?

By leveraging the power of API integration, mortgage companies can reduce costs, increase efficiency, and grow their business.

See what the lenders see, before they see it. ●

T E C H NO L O GY Opinion

The growth of machine learning is elementary

W

henever the mortgage industry talks about technology and innovation, there is an immediate and almost inevitable objection to any claim that the home purchase process could be dramatically streamlined. It’s just not doable, they say. There are too many separate touch points to co-ordinate from customer to broker, to lender to surveyor, conveyancer and back to the customer.

Of course, digitising processes has been underway for some time, but I am talking about rewiring entire processes. From product selection to application, valuation and conveyancing.

Machine learning may be about to change this. We are at the beginning of an era of change that will change how we think about and conduct our businesses.

Though machine learning remains thin on the ground, the use of technology to make the application and advice processes slicker has come on leaps and bounds. The availability of be er data to support more efficient automated decision-making has meant substantial change has already been achieved.

Lenders’ front-end tech has been transformed as have other parts of the value chain – especially where easy wins have meant a be er outcome and cheaper operational cost. Property risk has adopted Automated Valuation Models (AVMs), Desktop or Remote Valuations and be er interoperable on-site technology has revolutionised how the house valuing process has evolved. Qualified surveyors and valuers still sign off on given judgments, as they should, but the

journey to these judgments is more appropriate than it was.

But there is room for much more.

Ultimately data will underpin a new generation of machine-thinking and put even more speed into the process as will new thinking about how and when these judgments are required. If brokers could get an AVM pass at the Decision in Principle stage, then why not. It’s about using the appropriate technology and machine learning to assist in the delivery of the best customer journey. Experts can then focus on where they can really add some value.

Faster and smarter In February, the international law firm Allen & Overy announced a partnership to integrate with an artificial intelligence platform built specifically for legal work. The platform, called Harvey, operates in multiple languages and gives users the ability to generate and access legal content with unmatched efficiency, quality and intelligence. It can work in multiple languages and across diverse practice areas using natural language processing, machine learning and data analytics to automate and enhance various aspects of legal work, such as contract analysis, due diligence, litigation and regulatory compliance.

There remains a need for a qualified solicitor to review the platform’s output, but during Allen & Overy’s trial of the so ware, the firm reported that the insights, recommendations, and predictions based on large volumes of data meant lawyers could deliver faster, smarter and more costeffective solutions to their clients.

Housing, and in particular understanding and assessing all types of property risk, will be transformed if this type of technology is integrated

MARK BLACKWELL is chief operating officer at CoreLogic UK

across the market. Particularly, it has the potential to drastically reduce the amount of time it takes to carry out tasks such as validating vast swathes of property data, searches, product selection and crucially at alternative points in the decision-making process.

There is now the means to reduce or remove that administrative burden from specialists’ workload. There has long been a fear that the onset of artificial intelligence would result in the loss of jobs for people. In some industries that may become true, but for most it will allow experts to deliver and charge where they really add value.

Now that a global, leading law firm has announced its use of AI and extolled its virtues to boot, I suspect the momentum for change will mean we are going to see more of this in future. The prospect of AI will get many outside as well as inside the industry thinking hard.

Which parts of the process could be disintermediated? How much cost could be saved? How much more standardised could the process become? How much more consistent and with less risk of human error in those parts of the process which are effectively mechanical? Where do people really create and add value?

How do we leverage that?

It bears thinking about certainly, because if the technology exists and it works you can bet that someone will move to disrupt our market. It’s vast, worth trillions of pounds, millions of people interact with it multiple times in their lives. We are edging toward more seismic change in our management of risk across the board.

The game’s afoot. ● April 2023 | The Intermediary

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L O C A L FO C U S Ipswich

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

Focus on ...

JESSICA O’CONNOR is a reporter at The Intermediary

Ipswich

uch like the rest of the UK, Ipswich’s housing and mortgage market is certainly no stranger to challenge.

In light of the current volatility of the mortgage market, rising costof-living pressures, and the ongoing national shortage of housing stock, the market in Ipswich has undoubtedly felt the squeeze as of late.

But with a softening of prices and a potential end to base rate increases supposedly on the horizon, have property professionals seen an uptick in the market? Or is it still doom and gloom as some would have us believe?

This month, The Intermediary placed its a magnifying glass over Ipswich to find out just that.

M

Current values The average property price in the Ipswich postcode area is £340,000, while the median price sits around £285,000.

The average price in the area has increased by over £24,500 (or 8%) over the past 12 months, undoubtedly as a result of the market turmoil that came about last year due to rising interest rates and the ill-conceived Truss mini-Budget.

The most affordable place to buy in Ipswich was in the ‘IP1 2’ postcode, in which properties fetched an average of

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The Intermediary | April 2023

£142,000. The most expensive place to buy property was found to be in ‘IP15 5’, with an average purchase price of over £749,000.

The average detached property was found to cost around £482,000, while semi-detached homes fetched £296,000. Terraced homes in the area were reported to cost over £256,000 on average, with the price of the average flat coming in at around £170,000.

Bucking the trend Last year, the Ipswich area reported approximately 7,800 property sales, a drop of around 37.1% when compared to the year prior.

However, despite its reported struggles, it seems to be a market on the rise.

According to Sam Simmons, senior mortgage and protection adviser at Just Mortgages Ipswich, almost 62% of the properties that have come onto the market this year have been sold.

He attributes this gradual return of market confidence to Ipswich’s affordable house prices.

Citing the area as one of the only places in East Anglia that offers three-bedroom properties for around £200,000, Simmons believes that Ipswich is ripe with investment opportunities.

Indeed, this gradual uptick in the property market has also been noticed

by Aaron Scott, broking manager at Try Financial.

Despite a slower market since October 2022, Scott says that even during the market downturn, things did not go silent. In fact, he has seen an increase in enquires as of late, and predicts that things may finally be settling down.

Scott remains optimistic about the future of the market, as he reports that Suffolk is “bucking the immediate trend” and showing signs of recovery as an attractive commuter town, perfect for those who don’t desire a ‘big city’ life.

New development In light of this ongoing market recovery, Ipswich could very well be a hotbed of potential development opportunities. According to

First-time buyers According to Simmons, first-time buyers (FTBs) continue to be the main focus of opportunity within the Ipswich market. With plenty of affordable options and a market in recovery, he explains that not →

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www.plumplot.co.uk

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recent data, the average price of an established property in the area is currently around £340,000, while the average for a newly built property is reportedly £355,000.

This difference in price reflects buyer demand for new-builds in the area. With Energy Performance Certificate (EPC) ratings becoming all the more important due to the rising cost of energy, and public consciousness ever more focused on sustainability and climate impact, it’s no wonder buyers are looking to invest in newer, better insulated homes.

As a result, new developments are rife within the city. Several housing developments are popping up in sought-after areas. In particular, the Ipswich Waterfront is one of the most up-and-coming areas, and Scott highlights in particular the development of more than 163 rental and affordable housing options on Grafton Way. With the Waterfront undergoing steady development over the past decade, he believes that the addition of these properties will greatly benefit local businesses, all while invigorating the Ipswich housing market.

Simmons also reports a wealth of new-builds in the newly created Henley Gate, a development located in the north of Ipswich. The area has provided plenty of opportunity for aspiring homeowners, as well as providing a new school for the area.

IPSWICH RE

GI

O

Data source: www.gov.uk/government/ statistical-data-sets/pricepaid-data-downloads

IPSWICH PROPERTY SALES SHARE BY PRICE RANGE Price range

Ipswich

Market share

Sales volumes

● Under £50k

0.1%

6

● £50k-£100k

1.6%

127

● £100k-£150k

6.4%

499

● £150k-£200k

10.9%

846

● £200k-£250k

19.1%

1,500

Residents per household

● £250k-£300k

17.5%

1,400

● £300k-£400k

20.2%

1,600

2.36

● £400k-£500k

10.9%

851

● £500k-£750k

9.3%

726

● £750k-£1m

2.6%

199

● Over £1m

1.3%

103

Residents

639k Average age

43.4

April 2023 | The Intermediary

77

L O C A L FO C U S Ipswich

Strong outlook for the Ipswich market AARON SCOTT is broking manager at Try Financial

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here is a large variety of properties for sale in the Ipswich area, ranging from £80,000 to £800,000, and from bedsits to larger family homes. The average price for a standard three-bedroom home is £337,000. With its stunning waterfront and easy access to London, it’s a very popular town for those not wanting the ‘big city’ life. Major work is being undertaken on the Ipswich docks, with housing developments popping up in sought-after areas.

We’re also seeing business pick up after the initial shock of the Bank of England Interest rate rises, with the latest being the 11th time in 18 months.

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Affordable housing There is a degree of uncertainty facing the housing market currently, and increases in rent values mean we are seeing more customers seeking affordable housing. Indeed, we expect to see more people using joint borrower sole proprietor (JBSP) mortgages, others buying jointly with friends or family to increase affordability, and using shared ownership.

Borrowers also have access to a new product which allows family members to contribute towards the deposit, owning a percentage share in the property, which will take the place of the Government Help to Buy scheme, providing additional deposit funds.

Building relationships With the Bank of England raising rates to 4.25% and lenders’ affordability calculations seeming to tighten month by month due to the cost-of-living crisis, we’ve seen a number of frustrated and worried customers in Ipswich.

Managing client relationships and being empathic towards all situations has never been more

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The Intermediary | April 2023

vital. We see customers on lower incomes, or now with higher outgoings, who fall into the vulnerable customer category.

Another challenge in this market is to ensure that the customers we are advising and assisting fully appreciate the risks and benefits involved, which we do by working closely with them and securing a product that best meets their circumstances and objectives.

In the current market, it is even more important to ensure that customers understand the details of what they are being advised on, the risks involved, and the service they are being provided with. We have had some great customer reviews to show we are on the right lines, and our delighted customers value the service they’ve received.

Development dreams The Ipswich housing project has been approved by the council to build 163 homes on Grafton Way, located near the Ipswich Waterfront. This will be mainly market rent properties with a small number allocated to affordable housing. The waterfront area has been steadily developed over the past 10 to 15 years, and the addition of these properties will certainly be good for the town and local businesses.

Settling nerves Since the turn of the year, like many brokers, we’ve seen a decrease in the number of clients trying to access mortgages, due to interest rates being over 6% for 60% loan-to-value (LTVs) with some high street lenders.

Customers either could not afford to purchase or were waiting for rates to drop.

Available deposit amounts are also lower, with more customers looking to use 5% deposits than previously. This could be a knockon effect of the cost-of-living increase and base rate rises, with customers and the ‘Bank of Mum and Dad’ having less surplus

income available to save. This in turn effects affordability, which lowers the number of products within reach of customers.

Another trend we have come across is an increase in the number of enquiries for larger income multiples, with some customers now needing over five-times income. As mentioned earlier, we have also seen an increasing number of enquiries from customers looking into shared ownership properties, and who need help to arrange funding.

Remortgages and product switches have remained at relatively stable levels, but with a lot more interest in tracker products and shorter fixed rate periods. Encouragingly, in the past four to six weeks we’ve seen an increase in enquiries across all areas, and we are re hopeful that the latest base rate increase won’t dampen the appetite.

It’s always very satisfying to help first time buyers take those important first steps on to the property ladder.

The Suffolk market has, like most, been slower since October, following the nervousness caused by the mini-Budget. We are relieved, though, to see that things finally seem to be settling down.

We have had an increase in enquiries, and landlords are beginning to restart both the development and refurbishment of their properties.

Good outlook Suffolk is bucking the immediate trend slightly, and as both national and local media has been saying, it’s only becoming an even better location for business, given the Government’s sign off for Freeport East at Felixstowe and Harwich.

Even during the market downturn there was still activity, driven by professional investor landlords who were looking to take advantage. We believe that the outlook is good, and expect by this time next year, the market will feel more confident still.

L O C A L FO C U S Ipswich

only will first-time buyers be increasingly able to make it onto the ladder themselves, but they may also bring new money into the market – thus simulating new growth.

Scott agrees, reporting an increase in the number of joint borrower sole proprietor (JBSP) mortgages, as first-timers receive help from loved ones in securing their place on the property ladder.

He adds that, despite deposit affordability struggles, there is still a demand within that all important first-time buyer market, as shared ownership mortgages are also steadily growing in popularity, allowing buyers to find more affordable ways to purchase their first homes.

IPSWICH PROPERTY PRICES Price

Ipswich

England & Wales

 AVERAGE

£340k

£360k

 MEDIAN

£285k

£275k

IPSWICH COST COMPARISON OF NEW HOMES AND OLDER HOMES  A NEWLY BUILT PROPERTY

£355k

 AN ESTABLISHED PROPERTY

£340k

Buy-to-let Much like the rest of the UK, Ipswich’s rental market is undoubtedly under strain. With landlords everywhere struggling to make ends meet, rental prices continue to skyrocket, even as renters continue desperately seek out affordable housing.

In Ipswich, the private rented sector (PRS) makes up about 18.6% of the property market, a substantial figure when compared with a national average of 19.2%.

According to Scott, rent increases have indeed played a major role in the Ipswich market of late, with high prices pushing renters towards thoughts of homeownership purely out of the necessity for more affordable housing options.

However, despite obvious challenges, Scott says there is opportunity within the buy-to-let sector. Even during the market turmoil last autumn, Scott found that professional landlords continued to operate as normal. As well as this, he has seen a recent increase in landlord activity, as many have taken advantage of market recovery in order to begin the development and refurbishment of their properties once more.

IPSWICH COST COMPARISON OF HOUSES AND FLATS  DETACHED

£482k

 FLAT

£170k

 SEMI-DETACHED

£296k

 TERRACED

£256k

On the mend As a picturesque city on the waterfront with plenty of areas for new development, the Ipswich market is facing down the challenges of the past few years, and is undoubtedly on the rise. Offering affordability for both new and old buyers alike, a wealth of investment opportunities and even a recovering market for landlords, the future looks bright.

Having successfully weathered the storm that was 2022, Ipswich has come out stronger than before, and now boasts a market ready for new growth and opportunity. ●

Generation and redevelopment of Ipswich SAM SIMMONS is senior mortgage and protection adviser at Just Mortgages Ipswich

n Ipswich, statistically, almost 62% of the properties that have come on the market this year have sold, which I believe shows we are in a good market.

First-time buyers (FTBs) continue to be one of the market’s primary opportunities. They bring new money into the market, creating more chances for people to make the necessary moves that they need. We are seeing more people upsize because of this, whereas before they would simply stay put and extend.

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A current and recurring challenge is supporting homeowners to overcome their initial nerves, which are a repercussion of what they are hearing and seeing across the media.

Although the Bank of England base rate has increased, we have had multiple lenders in recent weeks and months regularly reduce their interest rates.

Positive changes Sadly, the public is not seeing these positive changes in the media. Therefore, the crucial thing has to be getting in front of as many people as possible to help them understand the reality.

Henley Gate is a current development located in the north of Ipswich which is generating a range of new homes, as well as a

new school for the local area. This continues a trend of new generation and redevelopment throughout Ipswich.

March has been a great and very busy month for business, I alone completed more than 10 residential mortgages for both FTBs and home movers, as well as a number of buy-to-let mortgages on top of this.

Ipswich is still one of the only places across East Anglia that you can purchase a three-bed property for £200,000 to £210,000, so the investment potential and opportunity is excellent.

With accessible commuting links to London, Cambridge and other large cities, this also makes the market very attractive for buyers who are being priced out of the market in their region.

April 2023 | The Intermediary

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

More haste, TONY MARSHALL is managing director of Equifinance

T

he title is an old proverb meaning that we make better progress with a task if we don’t try to do it too quickly, which is why I want to pose a question. Just how important is speed in terms of the quality of service we offer? A first reaction might be that it is of paramount importance, overshadowing all other considerations. However, I would argue that speed is interpreted in different ways by all of us, whether as customer, adviser or lender, and that we need to take this into account in the advice process.

Under pressure As lenders and advisers, we tend to think that it is all about the time taken to complete the mortgage process, but that represents only one interpretation, although admittedly an important one.

Another factor to remember is that the longer the production line, the greater chance of delays. While first charge lenders were under particular pressure recently because of the property purchase mini-boom, local authority search, valuation and

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conveyancing backlogs also added to the problem. It is easy to see how the house purchase market can stall, but where does that leave homeowners who want to raise capital?

With the welcome news of increasing volumes of second charge mortgages as this market recorded the highest monthly level of new business since the start of the lockdown, it is worth considering how much influence the need for fast resolutions has had on those numbers.

When first charge mortgage providers were struggling to cope, it was reasonable to suggest that advisers relying on fast remortgages were likely to be disappointed. Therefore, what I want to do is connect with open-minded advisers who follow the guidelines of informing customers that a second charge mortgage can provide an alternative to a remortgage.

I am not going to list the many examples where a second charge mortgage is a more appropriate choice for capital raisers, but instead just concentrate on meeting a customer’s need for a fast resolution.

The first issue that needs assessing is exactly how pressed the customer is to receive the capital required. In other

words, is the deadline realistic for them and for the lender?

Next, whatever the funding solution being considered, does it come with conditions which increase costs unnecessarily?

Serious consideration A good example here would be the choice of a remortgage which involves an early repayment charge (ERC). Are the customers prepared to pay that price just to get the money they require, can they wait for the ERC period to end? If they do not want to wait but are unwilling to pay the ERC along with the costs of remortgaging, a second charge should be a consideration.

This has been compounded of late with rising interest rates, where the client would not only pay an ERC but might also refinance onto a higher rate for the whole balance. Would it not be better to leave the first alone and seek an alternative source of funding for the capital raise element?

Speed must be interpreted on different levels. How quickly must the customer have the money? Can the lender meet that deadline? Then, is the customer going to end up having

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

less speed

to pay a financial penalty for taking a particular course of action?

In the example outlined, there were better choices, especially if the capital was needed immediately. However, if the customer had been in a position to wait for the ERC to end, then the need for speed was not really the issue it seemed to be, and both a remortgage and a second charge loan would be equally valid alternatives.

Perhaps cases like this serve as a reminder that there is no such thing as a one-case-fits-all lending scenario.

When offering advice, the need for speed needs to be properly understood and applied to the path recommended to the customer. ● April 2023 | The Intermediary

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

Restructure finances with a second charge

T

he cost-of-living crisis, currently fuelled by rising interest rates, soaring energy costs and the increased cost of everyday living, is squeezing the household budgets of UK consumers and forcing many borrowers to re-evaluate finances and take stock of their everyday spending.

For some, this may mean waiting for interest rates to fall before tackling mounting debt levels or trying to repair their credit profile, while for others, it may mean pu ing off, moving or delaying projects such as home improvements or extensions until the cost of borrowing becomes more a ractive.

Money management However, with interest rates unlikely to return to the historically low levels seen a er the global financial crisis, acting sooner rather than later when it comes to money management has never been more important, particularly for those homeowners with expensive credit card debt or unsecured loans, who are already finding themselves struggling to make ends meet.

In situations such as these, taking out a second charge mortgage and borrowing against the equity in their home could help your client manage their finances and repair their credit record, by helping them get them back on track.

Recent figures from the Finance & Leasing Association (FLA) show new business volumes in the second charge mortgage sector grew by 8% in January 2023, the equivalent of £103m in value, and an increase of 14% on the previous year.

In total, 61% of transactions were earmarked for debt consolidation

purposes alone, demonstrating the growing demand for this type of financial solution in the current economic environment.

Admi edly, the second charge market may be unfamiliar territory for many brokers, and rarely will a client directly ask for this type of financing. Nevertheless, it should always be an option for those seeking to capital raise, and might well prove a more viable and be er customer outcome, depending on your client’s individual circumstances.

Perhaps your client has recently changed jobs and is unable to borrow by the traditional means because they haven’t been in their job for long enough. Maybe they are self-employed and need to raise funds but cannot do so through their main mortgage.

Or maybe they had planned to move but decided to renovate instead because their employment situation has changed.

Preferential rates In all these situations, taking out a second charge mortgage could help your client raise capital to consolidate their debt and pay off any outstanding credit card or unsecured debt with a single monthly payment, making budgeting more manageable.

This is particularly a ractive for those homeowners who may have benefited from the increase in house prices over the past few years, as they may be able to borrow more than with other credit options.

Taking out a second charge mortgage also means your client can keep the preferential rate on their first charge and avoid paying any early repayment charges (ERCs) by having to remortgage onto a higher rate.

Borrowing amounts range between £10,000 and £250,000 and

MAEVE WARD is director of commercial operations at Central Trust

Taking out a second charge mortgage and borrowing against the equity in their home could help your client manage their finances and repair their credit record, by helping them get them back on track”

loan-to-values (LTVs) of up to 80% are available.

Given that the application process is far more streamlined than with first charge mortgages, funds are also o en released within two to three weeks, which can help your client get back on an even keel sooner.

In the current economic climate, second charge mortgages are an essential part of a broker’s toolkit, especially when it comes to helping clients in situations where remortgaging isn’t feasible or the best option for their circumstances.

By using a second charge to unlock the equity in their home to pay off existing debt and be er manage their finances, second charge mortgages can offer your clients a fast and costeffective way to raise capital and gat back in control of their finances. ● April 2023 | The Intermediary

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P RO T E C T I O N Opinion

Family income benefit

W

ith consumers more cost conscious than ever, solutions that keep costs down can be the answer to providing affordable protection. This is where a versatile option, like family income benefit, can be a fantastic addition to a client’s existing mortgage and income protection solution.

According to Royal London’s research, 91% of UK adults are worried about the prospect of further increases to the cost of living. Using a family income benefit policy to replace a lost income on death or serious illness will provide clients or their family with a tax free monthly income, and the reassurance that they can still afford other outgoings.

However, there’s one question that comes up more than most, and that’s whether it’s advisable to write these policies in trust.

Should these policies be written in trust?

The answer is not a clear yes or no, as it ultimately depends on the client’s own circumstances. However, I would say in most situations it’s usually yes.

Why is this? Well, family income benefit is life assurance. If it’s a single life policy, then there could be significant delays in the beneficiaries receiving payment.

This is because the deceased’s estate

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could be subject to produce a grant of probate or certificate of confirmation in Scotland, which is needed as part of the claim process. On average, it takes nine months for the probate or confirmation process to complete.

This is a long time if beneficiaries need access to the funds quickly.

Without a trust, the policy falls into the estate of the deceased, and therefore could be included in the calculation for any inheritance tax which needs to be paid. Then, there’s the question of who benefits from the policy proceeds.

Ultimately, these are the three main problems that writing life plans into trust addresses; we cut out the need for a grant of probate or certificate of confirmation to be seen when making a claim, the proceeds are outside of the deceased’s estate, and the person se ing up the trust has a greater degree of control over who the policy benefits.

When valuing a client’s estate, how does HMRC view a family income benefit policy?

When it comes to estate planning, understanding how family income benefit policies are viewed in the eyes of HM Revenue & Customs (HMRC) is something not to be overlooked just because the benefit isn’t a lump sum.

Let’s assume we have a single client with a family income benefit policy not wri en into trust.

GREGOR SKED is senior intermediary protection development and technical manager at Royal London

Even though the sum assured will be an annual amount of income, to calculate the value of the plan HMRC will look at the total value of the plan over the remaining term.

The calculation for this is the sum assured income of the plan multiplied by the number of years remaining.

So, a level family income benefit policy with a sum assured of £10,000 per annum and a remaining term of 20 years would be valued as £200,000.

This would be the figure that HMRC would consider as part of the calculation of the value of the estate.

What if the estate doesn’t have the funds to repay the tax bill?

This is a potential problem where some or all of the charge has been created by looking at the total

a

P RO T E C T I O N Opinion

and trusts, yay or nay? value of the plan, rather than income payments.

The inheritance tax calculation factors in the total value of the estate.

If part of this is the family income benefit policy, then there may not be enough liquidity to se le the tax bill.

What could then happen is the family income benefit policy, which was taken out with the objective of paying an amount of income payments, may be commuted to a lump sum.

Because the commuted lump sum will usually be less than the total value of income payments, multiplied by the remaining term, this could then result in a revised inheritance tax calculation.

All of this means that the deceased’s original intention and objective isn’t met.

However, if we had placed the family income benefit policy into trust, in the scenario above it would have been outside of the deceased’s estate and would not form part of the calculation for inheritance tax.

When it comes to estate planning, understanding how family income benefit policies are viewed in the eyes of HMRC is something not to be overlooked just because the benefit isn’t a lump sum”

A trust review opportunity?

Thinking about those three good customer outcomes that placing protection policies in trust allows to happen, it is worth offering clients a trust review service to see whether their existing family income benefit, or any protection product, could be placed into a trust. ●

April 2023 | The Intermediary

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Q&A

Sarah Watts, LV=

Sarah Watts, head of intermediary at LV= General Insurance, reflects on the company’s progress since its launch, and the challenges and opportunities facing the protection industry in the current financial climate With the first quarter of 2023 now coming to an end, how has LV= fared over the past few months?

It’s been a whirlwind year after our launch in early 2022, and it’s been amazing to see how the brand has been welcomed in the intermediary market.

Our key achievements include an increase in advocacy for the brand, and continuing to strengthen our existing relationships. But this year has not been without its challenges: the market conditions, the changing regulatory landscape, a cost-of-living crisis, and balancing all this against the importance of Consumer Duty and how general insurance fits in with this – it’s been tough for each and every one of us.

We’ve also built new teams – a partnership sales team along with regional and agency management teams. They help LV= provide a full adviser experience, with bespoke support and focus from start to finish. It’s definitely been key for us, as Consumer Duty really brings home the vital stance around advisers delivering all-round protection for their clients.

Given the ongoing cost-of-living crisis and base rate increases, what do you think are the main challenges facing the protection industry right now?

There’s no question that the cost of living is increasing and real pressures are being placed on households and their budgets across the UK. In the insurance industry, the worry is underinsurance, and this is our biggest task. As a sector, we have a lot to do when it comes to demonstrating the value of insurance. This is true now more than ever, as the country faces a cost-of-living challenge and people may look to 86

The Intermediary | April 2023

SARAH WATTS

cut back on products such as home insurance.

It’s too easy to adopt the ‘it won’t happen to me’ mentality, but some claims can cost thousands of pounds to fix, and people lose their most prized possessions. We want to avoid anyone being in a situation where they don’t have enough protection. By cutting back a little to save in the here and now, it can end up costing more in the future – the false economy effect.

What do you think are the biggest opportunities?

We’re constantly looking at market trends, and I’ve seen that in 2019 around 75% of customers used an intermediary for mortgage advice. This is forecast to increase to around 90% because of the access to a wider range of products advisers have, as well as the undoubtable value an advised sale has for the consumer, which creates a huge opportunity for us. We continue to help advisers have general insurance conversations at every

Q&A

stage of the mortgage journey, but particularly around how this can be incorporated at the remortgage stage.

With Consumer Duty coming up, this is going to play a big part in helping us demonstrate the value of insurance, by setting higher and clearer standards of consumer protection across financial services. This industry already puts the needs of customers first, but communicating this will play a significant part in building confidence in the sector.

How has LV= provided support to intermediaries during this difficult financial climate?

Our products are simple to understand, yet have great value to ensure customers have a really good level of cover. When we launched last year, we really listened to advisers about what they needed and wanted to sell to their clients, and following feedback we made 27 product enhancements, including cover for trace and access as standard with both gold and platinum products.

We also offer a direct debit option for advisers’ clients who prefer to pay for insurance over the year, which is interest free, and there are no fees if they need to make changes to their policy. For those struggling financially, our staff are also empowered to apply judgement and look at claims on a case-by-case basis.

How do you think intermediaries should adapt to this changing financial landscape?

The way we live and work has changed immensely.

It’s not just the bigger life events such as buying a house that are important, but also smaller lifestyle changes which can affect the amount of insurance protection homeowners need.

Our lives are constantly changing and evolving and home insurance needs to, too. What was important when someone first picked up their keys could to be very different to what matters now.

For example, they may have got engaged, started a family, changed career or completely renovated their house – so they may need accidental damage cover, to specify a piece of jewellery on their policy, check their garden office space is insured, or increase the limit on their buildings sum insured, which is what i would cost to rebuild the house.

Using tools like a home insurance questionnaire can help assess someone’s current circumstances and make sure they’ve got the right cover for their home.

What do you think sets LV= apart from other insurers?

Our simplicity, as we’re the only insurer in the market where we’re the sole distributor. Advisers sell our policies underwritten by LV=, but the products are also serviced and any claims dealt with by us. This gives us greater proximity to the customer at all times, to make sure we’re getting it right and continue to strengthen and improve.

What are your predictions for the protection sector for 2023?

There’s no doubt 2023 will continue to be a challenging year, and we’ve all been impacted by the rising level of inflation. For example, materials and labour costs are high, and it’s having a big impact on our claims costs, so we need to use any opportunities we have to communicate why, for many clients, premiums are going up. We’ve not yet seen any movement in customers cutting back on insurance, but we also need to ensure we’re highlighting the value should anything go wrong, to make sure homeowners aren’t underinsured.

What is next for LV=?

Our aspiration is to be the number one insurer in the intermediary market. We want to be the largest, best for value and known for great service.

We continue to listen to advisers and design tools and information to help them, so that they can have the most effective conversations with customers. We seek feedback from advisers on areas of insurance they aren’t sure about, and we constantly adapt to suit their needs. This year we’re already looking to help our advisers delve into the benefits of additional add-ons, and making sure they have all the tools and knowledge to confidently discuss the best options for the client.

We’re also building and growing in the market, increasing our account managers and training them on how best to support advisers, as well as creating campaigns which help spark advisers’ interest in being able to offer insurance.

Finally, environmental, social and governance (ESG) is a really important topic for us, as we’re looking at what we can do to reduce our impact on the environment. We’ve been seeking support from our head of sustainability, and have made small steps at our event stands, such as reducing pens and freebies, as well as offsetting our travel.

This is just the beginning for us, as we continue to look at ways we can improve. ● April 2023 | The Intermediary

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P RO T E C T I O N Opinion

Taking Consumer Duty seriously

H

as the industry underestimated the Consumer Duty in terms of the scale of the challenge it presents?

We know the time and effort it’s taking in terms of workload and workstreams at Guardian. We produced our implementation plan and completed our gap analysis last year. We’re now in the process of collating the required evidence and, at least as importantly, considering how we communicate and share information with intermediaries, as well as how we work with them so that we all apply – and comply with – the duty.

However, we don’t think complying with the duty should be viewed as merely another, albeit substantial, programme of regulatory work, or indeed a ‘tick-box’ exercise.

What it really means It’s o en suggested that reforms like this are designed to bring about a change in culture. In this instance, cultural change is absolutely core to what the regulator is trying to achieve.

Compliance with the duty needs to be translated into a series of actions or steps. Even a relatively new company like Guardian, which was set up with good customer outcomes at its core, isn’t able to just say it complies without going through a robust process to determine where it does and doesn’t deliver.

It also helps to recognise what the duty doesn’t involve. It’s not just about a specific set of new rules and guidance, it’s about continuous improvement to achieve higher and clearer standards of consumer protection across our industry.

However, there is a blueprint.

To recap, there are four outcomes the Financial Conduct Authority (FCA) wants to see under a new Consumer Principle:

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Consumer understanding: consumers are equipped to make good decisions. Information is made available at the right time and is understandable.

Price and value: products and services should be sold at a price that reflects their value. There should be no excessively high fees.

Products and services: the firm’s products and services should be fit for purpose. Terms should match the target consumer’s needs and products, and services work as expected.

Consumer support: customer service should be responsive and helpful. It should be as easy to complain about or switch and cancel products or services as it is to buy them.

There are cross cu ing rules to apply when pursuing these outcomes – that firms should act in good faith, avoid foreseeable harm for clients, and help consumers achieve their financial objectives.

Don’t be complacent These headline requirements may be a li le daunting, given that firms will have to assess and evidence how they meet them.There may be a temptation for well-run businesses to give themselves a clean bill of health, for the understandable reason that they have always been focused on providing and obtaining good outcomes for their customers.

It may be even more of a temptation where you are meeting clients faceto-face every day in an advisory firm and can receive immediate feedback.

However, we don’t believe this negates the need for every firm involved in protection to carry out a formal review, a gap analysis, and provide evidence of how they meet each rule.

Our own position may be helpful.

When we launched Guardian, we identified where the protection market was falling short in its offer to customers, one example being clarity of definitions that would pay out when

JACQUI GILLIES is marketing and proposition director at Guardian

customers expected them to.Because of this, we felt we were in a good position when the regulation first came out, but we’ve still had to go through every rule to make sure we’re evidencing how we’re meeting the duty.

FCA concerns The FCA sounds a li le frustrated with progress to date. In its recent ‘Dear CEO’ le er to manufacturers, it stressed the importance of the implementation timelines and expectations of how firms should embed the duty.

Sheldon Mills, executive director for consumers and competition at the FCA, also said: “Some initial efforts appeared superficial while others were overconfident in their existing systems.” The FCA cited one board that had asked just one question before agreeing its Consumer Duty strategy, while Mills also noted some businesses had not focused on how they would work with other firms along the manufacturing and distribution chain.

The FCA has looked at 60 companies so far, and will look at a further 600 in the next phase.

We see the end of April, when manufacturers must “share with distributors the information necessary for them to meet their obligations” as a crucial date. It is not just a ma er of big firms – lenders, insurers, fund managers, platforms and more – sending a load of information to intermediaries. It’s about exchanging information to make sure everything, and everybody, is aligned.

We want the new duty to work for our customers and your clients, and therefore for all our businesses.

We’ll be in touch. ●

P RO T E C T I O N Opinion

The shape of private medical insurance in 2023

T

he private health insurance landscape is shi ing in the UK, as the cost-of-living crisis pinches budgets and prompts consumers to consider cu ing costs. In addition to ending monthly subscriptions and reducing food bills, some individuals are thinking about cu ing back on insurance cover to save money, and this includes their private health insurance cover.

However, with the NHS facing lengthy waiting times, and easy access to healthcare remaining a worry for consumers, ge ing rid of a private health insurance policy might not be a prudent choice.

In the coming months, advisers have a critical role to play in guiding consumers through these decisions, and one way they can make the case for keeping a policy in place is to highlight the o en overlooked benefits it provides.

Pressure on UK healthcare Recent figures from the NHS show that 7.2 million people were waiting to start routine treatment at the end of December 2022, with a median waiting time for treatment of 14.6 weeks – far higher than the preCovid-19 median of 8.4 weeks in January 2020. The NHS continues to provide a valuable service for many people, but growing patient backlogs have highlighted the value of private healthcare for some.

Accessing care quickly through a health insurance policy does not just help avoid the stress of waiting.

Conditions that are le untreated may become more serious or even life-threatening over time, resulting in poorer outcomes. For example, for every week delay in making a

cancer diagnosis, an individual’s chances of survival reduce by around 1%, highlighting the importance of catching illnesses early rather than waiting for elective treatment.

This is not only the best case scenario for the client’s health, but also their finances. If someone falls ill without a health or financial safety net and is unable to work for an extended period, the lost income will take a heavy toll on their financial and mental wellbeing.

Ongoing flexible support Health insurance is about more than claiming back costs for elective surgery, as many may assume.

Managing health over the long-term is also a priority, and insurers are increasingly offering products that provide access to a wider variety of health and wellbeing support services.

Take our figures from Healthwise, The Exeter’s member benefits app, which recorded a jump in usage of its services by 10% year-on-year from 2022 to 2023. Clients are taking action to protect themselves, leveraging modern health insurance offerings with value-added benefits to access care without delay. There was a 7.5% rise in remote GP appointments, while most physio treatments and mental health support were delivered remotely.

Customers are increasingly benefiting from these solutions, and the ability to access them flexibly is particularly important, given that we all lead increasingly busy lives.

Almost every insurer will offer a policy with some degree of valueadded benefits, like Healthwise, to help individuals proactively manage their health.

Whether addressed through remote GP appointments, medical

KAREN WOODLEY is head of sales at The Exeter

Growing patient backlogs have highlighted the value of private healthcare for some” consultations, or expert advice, these benefits can help manage conditions before they get worse.

The role of the adviser Between rising NHS waiting times and the cost-of-living crisis, advisers can expect clients to be weighing up the financial costs of a private health insurance product.

Advisers play a naturally important role in guiding clients toward the right decision, but it’s not enough to expect customers to get in touch with questions. Instead, this year advisers will need to proactively reach out to highlight the benefits of policies, either during initial advice conversations or during regular reviews of their cover.

As the cost of living rises, many more people may be having second thoughts about their health insurance cover, but with NHS waiting times also increasing, it’s a decision they could be wrestling with.

Advisers will need to meet the moment in 2023 by ensuring that clients know exactly what benefits private health insurance brings to the table, and why cu ing private medical insurance may not be the right choice.

For those who don’t yet have the benefits of cover, now is the perfect time to have a conversation. ● April 2023 | The Intermediary

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P RO T E C T I O N Opinion

Tackling DIY GI

W

e’re big believers that home insurance is one of the most important financial investments any homeowner will make. As such, it should be treated with proper diligence and expertise. That’s why we think it’s so important for advisers to discuss it with their clients.

Nevertheless, there is no ignoring the fact that millions of homeowners opt to take a DIY approach to general insurance (GI) via price comparison sites.

Beyond comparison This year, however, as the UK continues to navigate the rising cost of living, there are some signs that a higher volume of consumers might be looking beyond price comparison sites.

This presents a good opportunity for advisers to step in and address the shortfalls that many consumers clearly feel are there with the DIY

39%

approach. Nearly two-fi hs (39%) of consumers have used a price comparison site in the past year to get a quote for home insurance, according to an online YouGov survey of 2,139 UK adults we conducted last month.

In contrast, only 14% said they have reviewed their finances with a professional within the past 12 months – though that’s set to rise this year, with one in five (20%) saying they are likely to seek financial advice.

Scrutinising products What’s driving this growth in appetite for financial advice? Well, we know there’s a desire to be more diligent: more than half (51%) said they will be scrutinising financial products more this year in a bid to save money.

But the survey also revealed that a lack of understanding is still rife when people take a DIY approach, which is not compatible with the intention to make a more thorough assessment of value. More than a quarter of respondents (26%) were not confident they would understand what a policy covers if they purchased one from a price comparison site.

Younger cohorts have significantly less confidence with this than older groups, with a 30% difference in overall confidence levels between those aged 18 to 24 and those aged 45-plus – presumably going hand-

Nearly two-fifths (39%) of consumers have used a price comparison site in the past year in order to get a quote for home insurance

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LOUISE PENGELLY is proposition director at Paymentshield

in-hand with experience of being a policyholder. The survey revealed other indications that people don’t feel entirely satisfied a er a price comparison site experience. Three in 10 (30%) of those who have used one in the past year didn’t actually purchase the policy a er ge ing the quote, suggesting some hesitation.

All this presents three big reasons why advisers should be offering a home insurance quote for every single mortgage client this year: 1) we know more people are receptive to professional advice; 2) advisers can help with the desired level of scrutiny and help to explain what things mean to boost confidence in the purchase decision, and as such, it follows that;

26% More than a quarter (26%) said they were not confident they would understand what a policy covers if purchased from a comparison site

P RO T E C T I O N Opinion

attitudes head on Statistics based on a YouGov survey of 2,139 UK adults

30% Three in 10 (30%) people who have used a price comparison site in the past year did not actually go on to purchase the policy after getting a quote

There are signs of growing recognition among consumers that a DIY approach might not be the wisest move in the current economic climate”

3) they can help to facilitate more consumer confidence in value.

Thinking about why consumers use comparison sites in the first place could help to pave the way for a smoother GI conversation, and increase the chance of conversion for advisers. When we asked consumers who have used a comparison site in the past year this question, the top three reasons were: I can shop around for the best deal (66%); I can compare lots of insurers’ options at once (66%); and I can save money (55%).

So, how can advisers address this in their GI discussions with clients?

46% Almost half (46%) of people who said they are likely to seek financial advice this year stated that the main reason was because they believe they would be better off than if they did it themselves

A good place to start is educating clients that not all insurers are on comparison sites. Beyond that, a smart tactic to deploy is taking that comparison approach and applying it themselves.

The use of tools such as Defaqto Compare can enable advisors to compare policies alongside one another, but crucially, it encourages a feature-based approach to differentiation, rather than just a price one.

Fast and accurate Speed was also rated very highly in the reasons for using a comparison site, with just under two-fi hs (39%) saying ‘because it’s quick’. Speed should never be pursued in lieu of making sure you’re ge ing it right, but advisers can do both, and are now really well placed to meet those efficiency expectations.

For example, we’ve been working hard to optimise our quote journey, and recently cut our question set by

half to reduce the time it takes advisers to generate a home insurance quote.

In doing so, we hope to help advisers be more agile, while still asking the right questions to get an accurate quote and a competitive premium.

On average, our quote journey now takes 41 seconds.

Among those adults who have used a comparison site in the last year, the mean average time to get a quote was 13 minutes.

Ultimately, there are signs of growing recognition among consumers that a DIY approach might not be the wisest move in the current economic climate, when so many people are worried about looking a er their finances.

Almost half (46%) of those who are likely to seek professional financial advice this year told us the main reason they’d do so is because they think they’d be be er off than if they did it themselves.

Advisers should be ready to capitalise on this sentiment. ● April 2023 | The Intermediary

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P RO T E C T I O N Opinion

Help clients protect their families when situations change

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s the job market continues to shi , more people are looking to switch jobs in search of be er opportunities. In fact, research conducted midway through 2022 revealed that 6.5 million workers planned to quit in search of be er jobs in 2023.

While this can be an exciting time, it’s important for individuals to remember the impact that changing jobs can have on their protection policies. Significant life events – such as moving homes, changing jobs, or having children – can all impact the effectiveness of current protection arrangements.

In this way, families may be le vulnerable to inadequate protection, or have policies that no longer work for them.

To ensure that protection policies remain appropriate, it is essential that details are up-to-date and accurate.

Individuals should also consider what would happen if they couldn’t pay their mortgage, and how their protection policies would respond in such a scenario.

Despite life events, many people fail to consider their protection policies.

Nevertheless, it’s critical to make protection policies an integral part of mortgage and remortgage plans, and some lenders may even require it.

In this way, mortgage and protection advisers play an essential role in educating their clients on the significance of regularly evaluating their protection policies to ensure their continued suitability.

By taking a proactive approach to reviewing protection policies, individuals can ensure that they and their families are adequately protected in unforeseen circumstances.

Ultimately, changing jobs can impact an individual’s protection policies. As such, advisers should encourage clients to regularly review their policies to reflect their changing circumstances.

It’s be er to be over than underprotected, and advisers have a key role to play in highlighting the importance of ensuring policies remain adequate to protect individuals and their families.

Employment market stats: A survey by the Chartered Institute of Personnel and Development (CIPD) found that 20% of UK workers plan to quit their job in the next year.

The same survey also found that the main reasons given for qui ing are be er pay and benefits, be er work-life balance, and more job satisfaction.

A separate survey by Glassdoor found that 42% of employees would consider leaving their job for a 10% pay increase.

The ‘Great Resignation’, as it has been called, is a global phenomenon, with millions of people qui ing their jobs in search of be er opportunities.

ONS Stats: The UK unemployment rate was 3.8% in the three months to February 2023, down from 3.9% in the previous three months.

The employment rate was 75.6% in the three months to February 2023, up from 75.4% in the previous three months.

The number of people in work was 32.84 million in the three months to February 2023, up from 32.74 million in the previous three months.

AMANDA WILSON is director at The Right Mortgage and Protection Network

The number of vacancies was 1.12 million in the three months to February 2023, down from 1.15 million in the previous three months.

The average weekly earnings for employees in Great Britain was £594.10 in the three months to January 2023, up 5.4% on the same period a year earlier.

Protection market stats: The UK protection market is worth £13.5bn, according to a report by the Association of British Insurers (ABI).

The income protection market is worth £6.5bn, according to the ABI. The average income protection policy pays out £1,800 per month, according to the ABI. The average income protection policy costs £20 per month, according to the ABI. One in 10 people in the UK have income protection, according to the ABI. Income protection claims are typically paid out for two to three years, according to the ABI. The most common reasons for income protection claims are musculoskeletal problems, mental health problems, and cancer, according to the ABI. The UK protection market is growing, with new business premiums increasing by 4% in 2021, according to the ABI. The growth in the income protection market is being driven by an aging population, rising levels of debt, and a growing awareness of the importance of protection, according to the ABI. ● April 2023 | The Intermediary

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On the move...

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Equity Release Supermarket bolsters team with new hires

Hope Capital promotes Christy Alokan to senior portfolio case manager ope Capital has promoted Christy Alokan to the role of senior portfolio case manager.

Alokan previously served as portfolio case manager, where she supported borrowers and brokers in managing cases and ensuring clients met their investment goals.

In her new role, Alokan will continue assisting stakeholders and borrowers, while working with the head of portfolio management to evaluate current processes and identify opportunities for service improvement.

As Hope Capital looks to expand the team further, she will also help mentor new team members to ensure they have the necessary knowledge and skills.

Alokan said: "Since joining Hope Capital last year, I've been proud to see the growth of the company and the team we've built.

"We've always been focused on delivering an exceptional service to our stakeholders and borrowers, so I am thrilled to be taking an even more central role in ensuring this can be provided.

"I am fortunate to be part of a company that expands on potential and rewards hard work. I look forward to what the future holds with Hope Capital."

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LiveMore appoints Ben Bailey as director of marketing to expand consumer reach iveMore has appointed Ben Bailey as director of marketing, as it aims to expand its reach into the consumer arena, complementing its intermediary market distribution.

Bailey has a background in growing consumer-focused tech startups, having previously worked with Zipcar, MyBuilder, and Nested. Most recently, he was part of the founding team at first-time buyer equity lender Even.

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The Intermediary | April 2023

Bailey said: "Just as first-time buyers are excluded at one end of the scale, so are older borrowers at the other end. I’m fortunate to have been at the forefront of the growth and exit of businesses that have a relentless focus on great customer outcomes. LiveMore's values closely align with mine on customer dedication, and I’m looking forward to contributing to our growth and making us the default option for borrowers in their 50s and beyond."

quity Release Supermarket (ERS) has added three advisers and a senior marketing executive to strengthen its nationwide consumer demand.

Jon Styles, Adam Lombardo, Kelly Hodgkiss and Amy Payne join the team, bringing extensive expertise from the general financial services sector.

Mark Gregory, founder and CEO at ERS, said: "We are thrilled to welcome Jon, Kelly, Adam, and Amy to our expansive and wellestablished team.

"Their respective expertise will help us to further strengthen our position and reach throughout the UK." Gregory added that the business remains commi ed to providing the best possible service by investing heavily in its people, its expertise, and its technology.

"In a year of significant change for our sector, including Consumer Duty and the mini-Budget in 2022, we have remained commi ed to our values and the industry as a whole, through our quality of advice, level of customer service, and innovation through technology," said Gregory. ●

Freedom Finance appoints Nick Jones as director of Freedom for Intermediaries reedom Finance has appointed Nick Jones as director of Freedom for Intermediaries, to lead the growth of a service dedicated to intermediaries looking to support clients with specialist lending needs.

Jones joins from West One Loans, where he was sales director, having held senior positions at Roma Finance and Together.

Jones said: “[This is] a business that combines industry-leading technology and data with a team that really understands financial intermediaries and their clients. Secured credit is playing an increasingly important role in consumer finance." ●

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