The Intermediary - March 2023

BUY-TO-LET ▮The latest opinion from the likes of Paragon and Landbay

INTERVIEWS ▮Quantum Mortgages on its impending first anniversary as a lender

LOCAL FOCUS ▮Mortgage professionals in Cardiff talk us through their market

The

Intermediary. www.theintermediary.co.uk | Issue 2 | March 2023 | £6

THE WAR ON BUY-TO-LET The future of an embattled sector

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

From the publisher... aybe, just maybe, it isn’t all doom and gloom. Firstly, let’s be frank here. I’m not suggesting there isn’t a costof-living crisis, that inflation isn’t at stupendous rates or that house prices aren’t dropping.

But let’s look at some of the news we’ve seen come out in the past few weeks. Firstly, mortgage applications dropped heavily in the final quarter of 2022. Hands up if you were surprised by that. The mini-Budget knocked wind out of the proverbial sails of the market. It was carnage. No one can honestly have expected any less than a drop, surely?

Meanwhile house prices are down. Again, unsurprising considering the impact of Kwasi and Liz’s “We got carried away” (Kwarteng’s words) mini-Budget. Also, while we’re at it they “got carried away”? It was a national budget not the rice order at their favourite Indian restaurant!

I digress. Despite the drops, which look set to be significantly less than the 15% bandied about at the back end of last year, things, again aren’t that bad.

Earlier this month the Halifax House Price Index revealed that house prices had jumped unexpectedly in February, potentially reflecting improvements in consumer confidence and the mortgage market.

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Prices were up 1.1% month-on-month, following a 0.2% rise in January, Halifax said.

Equally the RICS Residential Survey shows that while the housing market remains downbeat, there are some indications of a more stable outlook emerging. And this issue we look at the buy-to-let sector in our feature on Page 34 where Hannah Smith considers the impact of what many landlords perceive as the ongoing war on buy-to-let.

In the past few weeks alone the sector has been referred to as both “dead” and a “golden opportunity”, in the same national newspaper no less. But data from Moneyfacts shows that overall buy-to-let product availability, for both fixed and variable, has improved month-on-month, returning to levels not seen since August 2022 (2,375). As such there are now 2,400 options available, the highest count since July 2022 (2,746), which is an encouraging sign of recovery.

While rates are still some 2% higher than before the mini-Budget it will be interesting to see what impact increased competition will have on them.

The point of this rant is that things are not as bad as they could be, or were anticipated to be late last year. Could things be be er, most certainly.

However, things could be a whole lot worse. ●

Ryan Fowler @IntermediaryUK

The Team

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BUY-TO-LET ▮The latest opinion from the likes of Paragon and Landbay

INTERVIEWS ▮Quantum Mortgages on its impending first aniversay as a lender

LOCAL FOCUS ▮Mortgage professionals in Cardiff talk us through their market

The

Intermediary. www.theintermediary.co.uk | Issue 2 | March 2023 | £6

THE WAR ON BUY-TO-LET The future of an embattled sector

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March 2023 | The Intermediary

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Contents FEATURES & REGULARS

INTERVIEWS & PROFILES

Feature 34 Hannah Smith looks at the future of the buy-to-let sector

Local Focus 82 This month The Intermediary takes a look at the housing market in Cardiff

On the Move 98

The Interview 50

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

Q UA N T U M

SECTORS AT-A-GLANCE

In Profile 18

Residential 6 Buy-to-let 40 Later Life 54 Specialist Finance 62 Technology 78 Second Charge 88 Protection 94

Quantum Mortgages tell us how they plan to support brokers and their landlord clients

NOTTINGHAM BUILDING SOCIETY

Alison Pallett discusses the return to her mutual roots

Q&A 30 B L U E P L A N E T M O R T G AG E N E T WO R K

Martin Swann, managing director of Blue Planet Mortgage Network, talks economy, regulation, technology and more

In Profile 64 G R E E N F I E L D M O R T G AG E S

Steve Smith discusses how he has built a lender focused on personal customer service

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Local Focus

Meet the BDM 86 AC C O R D M O R T G AG E S

Angelika Christian tells us about the challenges and opportunities she faces as a business development manager

The Intermediary | February 2023

5

RESIDENTIAL Opinion

Lenders and brokers alike must fight to win clients

A

s we close in on our 1,000th broker firm going live — that’s more than 23,000 brokers with access to our mortgages — it’s a natural point to reflect on the journey since we launched our broker proposition back in late 2014.

Even more importantly, it’s a logical platform from which to look ahead at what the market holds in store for 2023, and where we can evolve our proposition here at HSBC. In terms of reflections, our recently published annual results show another year of growth for our mortgage business, with our broker channel playing a huge role in that success, alongside our direct channels.

State of the art We don’t take that success for granted, and we’ve been continually investing in our people, platform, products and service, from a very manual spreadsheet approach in 2014 to a state of the art broker platform, backed by hundreds of people both in the UK and globally, who support the overall broker proposition.

We know that our brokers fight hard to both win and then support clients through the mortgage journey.

It’s our job as a lender to make sure we make the lending journey as smooth and seamless as possible when brokers entrust us with their mortgage applications.

Technology supports that process, but it is our people who interact with brokers every day, either in the field or over the phone, and who make the difference and bring to life the standards we want to set.

Our mantra is to be the ‘natural choice’ for brokers. Every interaction should feel like we’re open for

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The Intermediary | March 2023

business, helpful, knowledgeable, fast, and as keen to get that deal over the line as you are.

We have invested heavily in our phone and live chat capabilities, bringing in more and more colleagues to support our growth, and then continually training and coaching them to be up there with the very best in the industry.

Our approach is pre y simple: when you want to speak to us, you can get through to us fast, and the person you speak to is knowledgeable, personable and sorts your query, fast. Brokers can then get on and do what they do best, supporting more customers with their mortgage needs.

Whilst 2023 is likely to be an uncertain year for the market overall, one thing I can guarantee from HSBC UK is that it will be another year where we’ll continue to push the boundaries on service as well as propositional enhancements.

Winning new customers Turning further to what 2023 holds in store, in gross lending terms the market is going to be substantially down on 2022 levels, as we all know.

That means we’re all going to have to step up to the challenges ahead, and in particular the extra work involved in both winning new customers and then guiding them through today’s market conditions, ensuring expectations are clear in terms of ongoing costs and affordability, given where interest rates are at the moment.

There will be many brokers —newer to the industry — who will have to develop fresh skills where ‘top of the funnel’ activity in winning new customers is just as important as advising on the right mortgage.

Sleeves rolled up, elbows out and hustling for business, so to speak,

CHRIS PEARSON is head of UK intermediary mortgages at HSBC

Sleeves rolled up, elbows out and hustling for business, so to speak, will be a key skill in this market” will be a key skill in this market.

Those brokers with a mature book of customers will no doubt be having early conversations around options — that’s certainly a sensible place to start. Keeping up to date with the evolving needs of customers around protection will also be key, and a great conversation starter; as people’s lives change, so may their protection needs.

It will be no different for lenders, and at HSBC UK we know we’re going to need to earn that business by being visible in front of brokers and having the right balance of products, policies and service for those brokers to entrust us with their hard-earned customer applications. We’re up for that challenge, and we’ll play our part, that’s another guarantee for 2023.

I’m of a certain vintage where I’ve come through several tricky cycles, the Covid-19 pandemic being a recent example, but also the financial crisis back in 2008. What I know on the back of those experiences is that this is a very resilient industry, and it is well served by hugely talented people.

At HSBC UK, our support and optimism for the industry we serve continues to shine brightly. ●

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RESIDENTIAL Opinion

Help to Buy over in England after 10 years

A

t the end of this month the Help to Buy Equity Loan scheme will come to an end in England.

Launched 10 years ago by then Chancellor George Osborne to support the property market in the wake of the financial crisis, the scheme helped first-time buyers buy a new-build property with just a 5% deposit, with the Government providing a loan of 20% of the property value.

In most parts, the scheme has been a success in supporting the new-build sector. Latest figures from September 2022 from the Department for Levelling Up, Housing and Communities show, since its launch in April 2013, more than 375,000 people used it to buy more than £105.4bn worth of new-build properties.

The scheme hasn’t been without its critics, as many believe it has cost the taxpayer and fuelled house price growth in some areas, although there are counter arguments that it has allowed first-time buyers to jump a

rung, arguably saving the associated second-stepper fees.

Furthermore, a report from the Home Builder Federation indicates that the Treasury has had a 10% return on its investments, for those loans that have been repaid.

We can take encouragement that builders have been weaning themselves off Help to Buy over recent years, and whilst the removal of the scheme could have come at a be er time, given the wider market backdrop, the new-build market is in a much be er place today.

Net dwelling additions have grown from circa 125,000 in 2012-13 to circa 233,000 in 2021-22, and its unlikely we will see those numbers fall sharply.

Misgivings over build quality that previously marred the sector are less common, and the recent introduction of the New Homes Quality Board will help further. Moreover, the recent focus on energy costs, combined with a desire for greener living, has increased appeal.

Recent research by the Home Builders Federation highlights that

The scheme has been a success in supporting the new-build sector

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The Intermediary | March 2023

ANDY DEAN is head of intermediary support & new build at Nationwide

85% of new-build dwellings are rated A to B compared with just 4% of existing housing stock, and the average saving for a new build home is now over £3,000 per annum.

Broad appeal The industry is showing its resilience, with most housebuilders already now signed up to support the Deposit Unlock scheme, which also allows borrowers to purchase a new-build property with as li le as a 5% deposit.

This scheme has a broader appeal when compared with Help to Buy, as it is available for second-steppers as well as first-time buyers. There are also no additional costs, and borrowers can access lenders’ standard mortgage rates.

Nationwide is the largest lender offering the scheme, but we expect and would welcome other major lenders also joining, which is likely to happen once Help to Buy has been withdrawn.

Housebuilders are having to become more creative to support buyers, through increasing the use of incentives, such as mortgage subsidies and introducing their own schemes, to help encourage buyers through the door. At the same time, there has been a slowing of ‘forward selling’, which should make it easier to keep buying chains intact, a key issue in the newbuild sector last year.

Brokers, too, have a huge part to play in navigating customers through the complexity and nuances of the new-build market, and we remain commi ed to supporting them and their customers through that journey. ●

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RESIDENTIAL Opinion

Prepare for opportunities and challenges

K

eeping in mind the ever changing market conditions, there is reason to be cautiously optimistic. Here’s what brokers need to keep their eyes on in 2023.

The new normal A er the uncertainty caused by the mini-Budget, mortgage rates climbed higher than many borrowers had seen in over a decade, subduing demand from homebuyers in the final months of 2022.

However, Zoopla’s UK House Price Index shows that buyer demand has now returned to pre-pandemic levels – in fact, data shows that activity is on par with 2018 figures, and 10% higher than it was in 2019. New buyers seem to be more confident about commi ing to their purchase, as cautious optimism about the market and economy grows.

Rates have been falling – the average 2- and 5-year fixed rate mortgage fell back from 5.69% and 5.63% in January to 5.44% and 5.20%, respectively, and this trend may continue through the year.

Concerns about a fall in house prices also need to be put into context. Over the past few years, the market has seen prices rise significantly, with data from the Land Registry showing that average property prices rose by 12.6% in 2022 alone.

A predicted fall of 5% or 10% would therefore only bring the market back to levels seen in early 2021.

A fall may even help bolster demand by improving affordability for those looking to step onto the ladder, and while some parts of the market may suffer more, others will continue to outperform.

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The Intermediary | March 2023

JONATHAN STINTON is head of intermediary relationships at Coventry for Intermediaries

Out of crisis comes opportunity We expect to see remortgaging activity driving business this year, with brokers and lenders facing a wave of fixed rate maturities.

More than half of homeowners will see the fixed rate on their mortgage end within the next three years, with upwards of £289bn-worth of fixed rate products – both residential and buyto-let – maturing in 2023 alone.

Many of these borrowers will have been locked into lower fixed rates over the past two to five years, and they may be concerned at the prospect of fixing on a higher rate at this time.

We expect to see a lot of these consumers turning to brokers as a result, leaning on mortgage market experts to help them find the most affordable deals.

However, intermediaries will still need to remain proactive and reach out to their customers to make sure they get the advice and support they need during these challenging times, and to help them find not just the most affordable product, but the one which best suits their needs.

Something old, something new Finally, there is a growing need to focus on education going forwards, particularly when it comes to green mortgages.

A growing number of consumers are switching on to the impact of climate change, with research

by Credit Suisse finding a strong willingness among younger consumers in particular to increase spending on sustainable products.

Others are trying to find ways to reduce costly energy bills by making their homes more efficient.

With an estimated 59% of property in England and Wales having an Energy Performance Certificate (EPC) rating of D or below, according to Rightmove, renovating existing housing stock and making it more efficient could help millions cut their heating bills, while ensuring their property is cleaner for the planet.

Green solutions will also be crucial for landlords, who face the prospect of new legislation to raise minimum EPC rating requirements to Band C from 2025 for new tenancies and 2028 for existing ones.

The mortgage market has an important role to play here, and intermediaries may find themselves increasingly asked about green products. Brokers must ensure they build up a strong knowledge of these solutions and the different product types that now exist in this growing market. This includes be er rates for energy efficient homes, or schemes that offer financial incentives for those who plan to carry out work that improves their property’s energy efficiency rating, such as Coventry’s Green Together Reward.

Keeping up with new products will also be critical to meeting brokers’ wider responsibilities under the Financial Conduct Authority’s (FCA) new Consumer Duty.

Tasked with supporting customers to make good financial decisions and avoid foreseeable harm, brokers will need to invest their time, expertise and efforts into ensuring their processes fit the requirements of the Consumer Duty, and continue to offer the best solutions for their customers. ●

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RESIDENTIAL Opinion

Waiting to jump back in?

A

t the start of this year we were hopeful that, with swap rates falling from their peaks last autumn and more control at the helm, we would see a more buoyant market than many of the pessimistic experts had forecast.

As we approach the end of the first quarter, we’ve definitely seen that at Accord; however, it’s not all been plain sailing. The market swap interest rates which govern fixed rate pricing have risen again in the past month, and all the signs are that rates may have stabilised, for the time being, at a higher point than some expected.

The factors contributing to that uptick in rates include lower unemployment figures and greater consumer spending over in America than anticipated, resulting in the Federal Reserve having to implement successive rate changes to try to keep a lid on this activity and stem inflation. As we know, what starts in the US often heads quickly over here, and in the UK, too, many people are continuing undeterred with shopping and socialising, while the job market remains strong. It’s perhaps interesting to reflect on why this might be the case – perhaps they’ve got so used to carrying on regardless through successive macroeconomic crises, so much so that it is now almost a way of life.

The mortgage market is rarely a smooth path to a destination, which is why great advice is always so important.

Gambling on the market or waiting for a specific rate point to arrive can backfire, so the important thing is advising based on the information that’s in front of you.

Bank of England Governor Andrew Bailey recently

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The Intermediary | March 2023

signalled his intention to take a watchand-wait approach to future base rate changes, after taking the central rate up a further 0.5% to 4% in February.

We think there could be at least another 0.25% rise before the end of this year, to 4.25%, with markets currently pricing in higher expectations of between 4.5% and 4.75%. The base rate could be dialled down a little after that, potentially to 3.5% by 2024, although any return to the breathtakingly low rates we’ve seen over the past 20 years is very unlikely.

Nevertheless, all forecasts come with a serious health warning, as we know from recent experience. There are signs that borrowers are adjusting their aspirations to this kind of new normal, and if we enter a period of rate stability where the markets and borrowers know what to expect, we could continue to see a pick-up in activity over the next three months.

Representatives from the Intermediary Mortgage Lenders Association (IMLA) and the Association of Mortgage Intermediaries (AMI) told a recent podcast featured in our Growth Series broker resource centre, that we could see a potential 20% decrease in house purchase activity during 2023 – though this could be offset by record numbers of product transfers.

There could also be a 25% decrease in buy-to-let purchasing activity due to pressures facing that sector,

JEREMY DUNCOMBE is managing director at Accord Mortgages

including affordability and increasingly stringent taxation. Averaging out predictions from both organisations suggests gross mortgage lending could total £270bn this year, £41bn less than in 2022, thanks to a 20% drop in transaction levels Interest rates are a key tool for controlling inflation,

of course, and the Government may have to increase the base rate by more than anticipated if this key consumer and business costs benchmark doesn’t start to drop from its current level.

While the recently announced fall in wholesale gas prices will help, what won’t help is that food bills continue to soar by 18% and historically high pay awards are being given to support employees, of 6% or more in many cases. Of course, the mood set by where the base rate lands in light of all this has a major impact on market swap rates.

Now for the good news As with all periods of volatility, this one presents opportunities to come out on the other side stronger, for those who choose to grasp them.

Intermediaries are one group of potential winners, because one thing that’s for certain is that borrowers need their services now more than they ever have done, to help them navigate a path through a market which is changing on an almost daily basis.

There could even be more potential revenue streams to be had for those who see the potential to expand their portfolio of services to include things like protection insurance, and support people with their wider financial planning.

Accord is 20 years old this year, and in the intervening years we’ve seen many market upheavals come and go.

The fact that we’ve managed to adapt and overcome each time, and watched the brokers we serve do the same, gives us the confidence the same will be true this time. ●

The Intermediary | March 2023

13

RESIDENTIAL Opinion

To fix or to track – that is the question

M

arch 1st, 1990, has long been an important date in the history of the UK mortgage market. It was the date when mortgage rates hit their alltime peak of 15.4%.

Rates stayed this high until October of that year, when they were reduced to 14.5%. Record interest rates were one of the main drivers for the record level of arrears and repossessions seen in 1991, where more than 75,000 homes were repossessed.

Of course, the market back in 1990 was totally different to today’s. Fixed rate and tracker mortgages were still very much in their infancy, which meant borrowers had li le or no protection from escalating interest rates and the spectre of falling house prices and negative equity.

Thankfully, today the market is much more advanced, and borrowers have lots of choice regarding products.

However, today’s borrowers have not been immune from their own worries, and have faced real financial worries, as political upheaval and the reaction to last September’s mini-Budget caused the cost of fixed rate mortgages to increase rapidly.

The fallout from the miniBudget was huge. Money markets were spooked, and some lenders temporarily pulled out of the mortgage market altogether. The choice of products was severely reduced, and the price of 2-year fixed rate mortgages hit a high of 6.43% — an increase of around 50% in a ma er of weeks.

To protect themselves from rising interest rates, borrowers turned to tracker rate mortgages — where the interest rate is pegged to the bank base rate — rather than take a risk with fixed rate loans, which reflect the volatility of the money markets. The speed at which borrowers opted for tracker loans was enlightening.

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The Intermediary | March 2023

According to broker London Money, only 2% of its customers took out tracker mortgages in September, but by November this figure had increased to 63%. By January, a er the gap between fixed and tracker rates had narrowed, its customers were opting for an almost equal split between 2- or 5-year fixed rates and tracker mortgages.

Many commentators are now saying that a er 10 successive increases in base rates since December 2021, interest rates could peak this year at around 4.50%. If this is accurate, it could mean that the Monetary Policy Commi ee (MPC) meeting in March might be the final time in the current cycle that interest rates are increased.

It is expected that base rates will then remain at this level until 2024, when they will start to fall again, and quite quickly. We are already beginning to see this reflected in money markets, highlighting the market’s expectation of future base rate falls.

So, when should someone fix?

The general feeling in the industry is that fixed rates are likely to fall further. Fixed rates are governed by not only the bank base rate, but also by what the markets expect borrowing rates might be in the future. These are generally known as swap rates.

With base rates at, or near, their peak, a typical 2-year tracker product will currently be priced at around 5%, whilst a 2-year fixed rate loan is heading downwards from its current average of around 5.5%. It now looks as though the ‘financial crossover point’ could be a ma er of months away.

The popularity of fixed rate deals is well known. They allow borrowers to lock in and give them the chance to cap their mortgage payments. Many borrowers will also want to fix their payments ahead of the forthcoming general election — traditionally a time

MARTESE CARTON is director of mortgage distribution at Leeds Building Society

of political and financial unrest for money markets.

The other key part in this mortgage conundrum is the fact that around 1.4 million borrowers will be coming off existing fixed rate deals this year — with many currently being on sub-2% deals. Lenders will be keen to hang on to their market share, and borrowers will be desperate to keep their rates as low as possible. This fact will inevitably drive fixed rate pricing down still further.

Here at Leeds, we have seen a lot more remortgaging right across the board. Much of this is due to landlords trying to protect themselves from interest rate rises, but there are still some landlords raising deposits.

Although research shows that many landlords have sold or intend to sell properties over the coming months, some professional landlords are still looking to increase their buy-to-let portfolios.

Currently about a quarter of our new mortgage applications are for tracker mortgages, but we certainly expect to see this percentage fall as the popularity of fixed rate loans increases once again.

There is li le doubt, however, that the volatility caused by last year’s mini-Budget has caused financial pain to millions of borrowers, and that this financial pressure will continue for months to come. Research has shown that borrowers prefer the certainty of fixed rate mortgages.

So, as we approach the 35th anniversary of the introduction of fixed rate deals in the UK, I expect that once the ‘financial crossover point’ is reached, most borrowers will once again opt for the safe harbour that fixed rate deals offer. ●

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RESIDENTIAL Opinion

Changing conveyancing from within

PETE DOCKAR is commercial director of Gen H STOCK.ADOBE.COM

Setting a new standard for the process of buying a home

P

erhaps we shouldn’t be so critical of the conveyancing process.

Its mechanics are vestiges of earlier times – perhaps singlehandedly responsible for the longevity of the fax machine in the UK. Conveyancers themselves can o en be overworked and undercompensated for their efforts, which can inevitably cause customer service to take a backseat.

Especially post-pandemic, conveyancers have had to meet incredible demand as they’ve worked to support the housing market through a deeply turbulent period.

This is to say nothing of the opacity of the process itself, which doesn’t help homebuyers who may already be feeling anxious about their purchase.

I should correct myself: while it may be understandable how we’ve got to this point in conveyancing, we should, in fact, be very critical of its shortcomings.

Without taking stock of the many challenges facing conveyancing today, how could we bring about meaningful change?

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The Intermediary | March 2023

It isn’t right that a simple mention of the conveyancing process brings an all-too-familiar grimace to the faces of lenders and brokers I meet.

A new era At Gen H, we are working to build a mortgage lender that sets a new standard for service, affordability and quality in England and Wales.

We routinely interrogate the principles that underpin our operations to ensure they work in service of our number one value, which we call our customer obsession.

Since we began lending, conveyancing – the point at which we outsource our service, as lenders have had to – has not always yielded the high quality of care we demand of ourselves.

This means entering the conveyancing process is o en a jarring experience for our customers, and as we learned, there is no quick fix. Where legacy systems like conveyancing are concerned, change must come from within.

That’s why we created Gen H Legal, our own conveyancing firm, with the modest goal of redesigning the entire

conveyancing process to create be er outcomes for our clients.

Gen H Legal is available to direct customers and all brokers on our panel. Its ethos and systems are built from the ground up, focused around the same customer obsession that has driven Gen H to develop some of the innovative mortgage products and features found in the market today.

Gen H Legal offers customers a simple, transparent pricing structure with no hidden or surprise costs, and takes a proactive approach to managing the entire conveyancing process.

Our prices are fair, and our team provides an excellent, collaborative customer service, working with third-parties along the way to remove blockers, mitigate the risk of unexpected surprises, and help homebuyers move sooner.

Because Gen H Legal works with Gen H as a lender under one roof, our customers are able to benefit from efficiency between the two businesses.

This creates a truly seamless, end-toend home buying service – a first of its kind.

Our efforts alone may not be the silver bullet, but we’re ambitious, and we’re working to make ours the best homebuying experience in the market today.

We hope that by se ing a new standard for the process of buying a home, others will follow suit and find ways to create be er outcomes for their own customers.

We owe it to our customers to do be er. And at Gen H and Gen H Legal, we are. ●

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In Profile.

Alison Pallett

Jessica O’Connor catches up with Alison Pallett of Nottingham Building Society to discuss the return to her mutual roots

ometimes a fresh start is exactly what the doctor ordered.

In a wake of a year that may have scared off many industry professionals – and justifiably so – Alison Pallett chose to tackle issues head on, jumping into her new role at Nottingham Building Society during a period of industry tumult.

Following three years at LiveMore, Pallett has assumed her latest role as the society’s sales director, and has taken the current market challenges in her stride.

To find out more, The Intermediary spoke with Pallett about her move, what attracted her to the Nottingham, and her plans for the year ahead.

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A no-brainer Having a wealth of industry experience working with Bank of Ireland and LiveMore, to name just a few, Pallett brings a high level of expertise to her new role. Despite being a new step, joining Nottingham Building Society also felt familiar.

“I started my working life for a mutual building society – I was a branch cashier with the Leicester Building Society before it became the Alliance of Leicester, so I feel as if I’ve returned to my roots,” Pallett says.

“The Nottingham has enough propositions to make it a really interesting lender, but not so many to make it too complicated.

“The thing that’s really exciting for me is that we work for several different markets.

“We do mainstream residential, but we’re also really strong in buy-to-let [BTL], limited company buy-to-let, holiday buy-to-let, and of course retirement interest-only [RIO].”

She adds: “The Nottingham has been busy building a really impressive team, to show the world how serious we are about being brilliant at mortgages. For me, it was a bit of a ‘no-brainer’ when the job came up.”

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The Intermediary | March 2023

ALISON PALLETT is sales director at Nottingham Building Society

Private landlords The Nottingham has plenty on offer in terms of its proposition, particularly when it comes to BTL. However, in the face of a post mini-Budget market, and with many hailing the private rented sector (PRS) as one on the brink of doom, Pallett has some concerns about the challenges facing this sector.

“I do sometimes get a little bit frustrated about how private landlords are treated,” she explains.

“It looks like the private landlord is someone under attack, with the changes to Capital Gains Tax [CGT] and the recent pressures that have been brought to bear.”

She adds: “But we can’t successfully house and give people the quality of properties that we deserve without the private sector.

RESIDENTIAL

“We’re seeing more professionalisation in the limited company BTL space, and it’s probably at the expense of the smaller private landlords. A lot of those smaller landlords who’ve got a couple of properties, in the main, have been really good landlords and have tried to do the right thing.”

With frustrations on the rise regarding housing policy, Pallett believes that Government should be doing more.

“One of the things that’s interesting about housing policy in general at the moment, is we’ve got three component parts – the private landlord sector, the social housing sector and the residential sector,” she says.

“We don’t have a very joined-up approach to those three, and this can sometimes have the unintended consequence where something that happens in one part of the sector will have a knock-on effect in the other.”

Pallett suggests that a coalition around housing might get the best result, bringing together these disparate concerns, and weeding out potential knock-on effects ahead of time.

She adds: “It is very politicised, but it should be one of the core fundamentals that we all work on.”

Best kept secret Aside from multiple buy-to-let options, Nottingham Building Society also prides itself on its RIO offerings. However, this part of its offering has previously taken something of a back seat in terms of publicity – a situation which Pallett hopes to change.

“I think when RIO first came to the market when the [Financial Conduct Authority (FCA)] made the changes, it was really interesting to see that a number of the mutual building societies did enter this space,” Pallett says.

“What’s interesting is that it has almost always been a little bit in the background.”

“We’ve got some really strong criteria points around RIO, but it was a bit like a best kept secret for us,” she adds.

“It’s a growing and emerging market, but it’s not the biggest focus for many people. It’s another part of the market that really excites me, and there’s great opportunities there.”

Moving together A key component of the Nottingham’s approach is its commitment to supporting women in finance.

With a female CEO and a strong cohort of women across its leadership team, Pallett says that the Nottingham is certainly doing its bit.

However, this is not necessarily the norm, and Pallett suggests that more needs to be done in the wider industry to push progress onwards, creating a more diverse and inclusive market.

“I’ve been in this industry for more years than I care to remember, and for me, the progress is still too slow,” she says.

Nevertheless, Pallett does point to some signs of success, adding: “Within the sector we have a variety of different trade bodies, and I think where we’ve seen the likes of [the Association of Mortgage Intermediaries (AMI)] and [the Intermediary Mortgage Lenders Association (IMLA)] work together on some issues, particularly around diversity and inclusivity, and we’ve seen much more rounded outcomes.”

Pallett recommends going beyond occasions like International Women’s Day when it comes to getting the word out.

She adds: “Try and post your soundbites more regularly, and get behind some of them.

“Last year alone, Sue Hayes was appointed as our CEO, I was hired as director of sales, and we’ve got Christie Cook as head mortgages and product.

“We’re making great progress at the Nottingham, but we need to see more done industry-wide, and at a faster pace.”

Exciting times ahead After over three months in her new role, and with plenty of time to settle in, Pallett has big plans for the year ahead.

“What really excites me about working at the Nottingham is the real chance to extend and build out on our propositions,” she says.

“We’ve got these great propositions that not enough brokers are aware of, so I’m on a mission to make sure as many people as possible know what we’re about.

“Another key priority for me is growing the team.

I believe passionately in face-to-face business development managers, giving us a greater geographical spread.

“We want to continue building some closer partnerships with our key people – Legal & General and Openwork to name two – and also help to support the process around some of the wider partnerships that we do.

“The retail funding we are providing to fintech lender Gen H means we can support the more specialist first-time buyer market and multiple buyer propositions – it’s a trailblazing partnership.

“And of course, making sure we get Consumer Duty over the line.”

Pallett concludes: “What’s great about The Nottingham is that we are at both ends of the sector. There’s immense opportunity around some of the first-time buyer stuff, there’s further opportunity around the older borrower stuff, and then there’s this huge swathe in the middle around all the buy-to-let options that we have, so it’s really exciting times ahead for us.” ● March 2023 | The Intermediary

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RESIDENTIAL Opinion

In a fluctuating market, should your clients fix?

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ecent times have dictated a significant shi in thinking by lenders, brokers and borrowers alike about the value of standard variable rate (SVR) products.

For a long time, SVRs were a pricing dynamic that was almost irrelevant in an era of historically low interest rates, where borrowers simply and seamlessly moved from one fixed rate to another.

Now, the SVR product is featuring in many brokers’ calculations in answering the question: in a fluctuating market, what is the right advice for my client?

Only a couple of months ago, fixed rates were no longer a feature of many new borrowers’ financial options.

Swap rates had rocketed as a result of the infamous Truss-Kwarteng mini-Budget, and all of a sudden, discounted variable rates became a popular choice — offering as they did a cheaper initial rate and the ability to refinance without any penalty in the near to medium-term.

This created a further challenge of its own, because until the chaos of last September, some brokers — particularly those who came into the business post-2007 — have had li le need to understand the mechanics of SVRs. An SVR is an interest rate set by a financial institution that can fluctuate over time based on a variety of factors, including changes in the wider economy, market conditions, and the bank’s own cost of borrowing.

It can change at any time and is usually set as a certain percentage above a base rate, such as the Bank of England’s, but even this relationship is at the discretion of the lender. It is not set in stone.

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As swap rates se le, fixed rates come down in price, and SVRs move in response to a rising Bank of England base rate, the task of giving mortgage advice has become less straighforward since October 2022.

With the Financial Conduct Authority’s (FCA) new Consumer Duty rules coming into effect on 31 July, ‘to fix or not to fix’ becomes a genuine consideration in providing good outcomes for borrowers.

Delivering these good outcomes is arguably nothing new for mutuals, whose purpose for more than a century has been exactly that. It hasn’t always been plain sailing, of course, but by and large we know our purpose.

But taking a long-term view is easier when you are the lender. The shortterm pressures of managing a cashbased intermediary business can be very different.

Under scrutiny So, as discounted variable rate products track higher and fixed rates slowly do the opposite, what is the right advice for borrowers in a world where the outcome will be under scrutiny like never before?

A couple of months ago, the right advice might have been a discounted variable rate or lifetime tracker. Fixed rates have gone from as low as 2% nine months ago to a staggering 7% in October. By February, products priced at less than 4% — the base rate — had begun to reappear. For some borrowers, simply defaulting onto a SVR and delaying the decision until the dust se les might have been a sensible option. Borrowers of a more nervous disposition may well have insisted upon fixing no ma er what.

Arguably, some of the best rates available today are on longer-term fixed rates; but the question remains,

TRACY SIMPSON is head of lending at Cambridge Building Society

Only a couple of months ago, fixed rates were no longer a feature of many new borrowers’ financial options” are there any borrowers for whom taking a product like a 5-year fix today will result in the best outcome? Might rates fall further?

This ma ers, because arrangement fees are not inconsequential to the cost of a fixed rate product, not to mention if rates move and end up costing the borrower thousands of pounds more than sticking with a variable rate for another 12 months.

These products o en come with he y early repayment charges (ERCs), so moving out of the fixed rate may be prohibitively expensive.

Andrew Bailey said consumer price inflation is likely to fall back from more than 10% to around 4% this year.

The markets — and myself for that ma er — are inclined to believe him.

But many investor advisors are still expecting a moment of correction.

The mood at the moment is that inflation appears to be stubbornly built into the economic framework, so we may have higher rates for longer. But that is a view, not a reality.

As John Lennon once said, “Life is what happens while you’re making other plans.”

Discounted SVR products are not ready to become a distant memory just yet. ●

RESIDENTIAL Opinion

Fierce competition should stop rates from spiralling

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hen Harold Macmillan was once asked by a journalist what he feared most as a Prime Minister, he allegedly replied: “Events, my dear boy, events.”

If you were a broker or a borrower searching for a mortgage at the back end of last year, there is one event in particular that would have sent a shiver down your spine.

That, of course, was the former Chancellor Kwasi Kwarteng’s ill-fated mini-Budget.

What happened a er is still fresh in the minds of many of us, so I won’t spend long going over old ground in this column.

But I think it is worth, six months on, looking at what has happened to mortgage pricing, and considering where it might go from here.

Rate jump Any brokers reading this column won’t need me to tell them that rates have jumped significantly since September 2022.

However, the data really drives home how much more expensive mortgage finance is now than it was pre-Budget.

According to Moneyfacts, the average 60% loan-to-value (LTV) mortgage leapt from 4.34% in September to 6.19% in November.

From that recent peak, the average 60% LTV loan had se led back down at 5.27% by last month. A similar trend can be seen right across the LTV bands.

Curiously, though, mortgage rates have edged lower as swaps rates have started to increase again.

At the end of February, 2- and 5-year swaps rates were around 4.49% and 4.01%, respectively. That means they

are both around 50 basis points higher than at the end of January.

If swap rates have a direct impact on the price of fixed-rate mortgages, why are they going in different directions?

I think there are two plausible reasons for this peculiar phenomenon.

Ranges pulled The first goes back to fallout from the mini-Budget itself. In the days following, many lenders pulled their entire fixed rate range, simply because they had no idea how to price them.

Lenders I spoke to at the time said they would prefer to temporarily bide their time on the sidelines, rather than risk coming to market with a product proposition that would be loss-making five minutes later.

Some lenders came back to market quicker than others, of course, but I imagine all lenders are now feeling that they need to make up for lost ground. A er all, lenders need to lend money, and last year, many of them probably didn’t do enough of it, for reasons that are entirely understandable, of course.

Secondly, many of those lenders came back with fixed rates that were,

Competition is the reason swap and mortgage rates have uncoupled since the end of last year. That should act as a natural cap on pricing for the rest of the year”

LUCY BARRETT is managing director of Aria Finance

in my opinion, priced significantly out of kilter with where the rest of the market was at the time.

Again, that’s understandable. I imagine the laggards eventually concluded it was be er to be in the game with an uncompetitive range than si ing in the stands watching their rivals hoover up volumes.

Cut some slack Regardless, those lenders are now feeling as though they have a bit of slack to give when it comes to the price of their fixed rates.

Both of these factors have created intense competition in the market.

This competition, I believe, is the reason swap and mortgage rates have uncoupled since the end of last year.

In my opinion, that should act as a natural cap on pricing for the rest of the year, barring any unforeseen deterioration in either economic or market conditions.

That is not to say mortgage rates won’t rise this year. If swap rates continue to edge higher, lenders will have no choice but to tweak their rates to avoid lending at a loss.

However, if that happens, I don’t think lenders will raise their fixed rates in line with swaps, but at a slower pace, for the reasons I’ve outlined above.

Of course, if swap rates level off, then we may see fixed rates stabilise or even edge a li le lower, as they have done so far this year.

Given the events of the past six months, we ought to consider that to be a positive outcome for the market. ● March 2023 | The Intermediary

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RESIDENTIAL Opinion

Stretching firsttime buyer affordability

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ewspaper headlines may herald stagnating house prices, but the reality for most firsttime buyers is that demonstrating the income to achieve the mortgage they need to buy their first home remains a considerable challenge.

In fact, according to a recent report

by Schroders, a typical property now costs nine times average wages, pu ing house prices at their most expensive level for 147 years. In London, the study found, the average home now costs 12 times the average wage in the city.

With the cost-of-living crisis continuing to rumble on, and interest rates se ling at a level higher than we have seen for many years, it seems that affordability is going to continue to prove a significant hurdle to homeownership, even if property prices do take a dip.

So, what options do you have to help your clients?

Diverse approach The affordability landscape has evolved, with many lenders taking a more data-driven approach to affordability calculations, enabling a more diverse approach to meeting different client requirements.

This has resulted in some lenders actually reducing affordability calculations, while others continued to offer similar loan sizes, and some even enhanced their affordability.

One example is HSBC, which has made a number of enhancements to its proposition, such as mortgages for professionals, those on higher incomes, and Joint Borrower Sole Proprietor products.

In addition to this approach, a number of new providers have

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launched in recent years, providing an alternative approach to help clients stretch their affordability enough to get a grip on the housing ladder.

These providers use methods such as second charges and shared equity to open up new opportunities for first-time buyers, and in some circumstances, home movers as well.

Here are some of the options: Proportunity: Provides Help to Buy style shared equity loans for owner-occupier property purchases of both new and old builds in England and Wales, boosting client deposits by up to 25% to help them maximise their affordability. This can enable them to potentially buy higher value properties and pay less per month by accessing a cheaper main mortgage deal at a lower loan-to-value (LTV).

For example, a Proportunity shared equity loan with a Halifax mortgage will o en significantly extend the borrowing capability of a client by up to six times loan-to-income (LTI), with as low as 5% deposit.

Generation Home: A new affordability-focused lender that helps buyers enhance their borrowing using friends and family funds as ‘boosters’.

Income boosters enable family members to be added to the mortgage and their income to be included in the affordability calculation, up to a maximum of six applicants. While deposit boosters enable buyers to receive help towards their deposit in the form of an interest-free loan, either as a gi or equity.

According to MBT Affordability data, Generation Home can increase the average borrowing power of their first-time buyers by an extra £65,000.

StrideUp: A unique product offering that combines a first charge mortgage with a top-up equity sharing loan, meaning that it can

TANYA TOUMADJ is CEO at Mortgage Broker Tools

The affordability landscape has evolved, with many lenders taking a more data-driven approach to affordability calculations, enabling a more diverse approach to meeting different client requirements” provide up to 6.5 times LTI where affordable for homebuyers. The lender supports buyers with complex income streams, such as overtime, bonus or commission, and it also accepts one year of trading history for standard self-employed applicants.

Alternative solutions Each of these lenders provide alternative solutions that could help thousands more buyers achieve their dreams, and could help you to meet the needs of even more clients.

Understanding which approach would be most suitable for your clients and how each compares against the loan sizes available from a standard lender is the key to unlocking this opportunity. Sophisticated research so ware like Mortgage Broker Tools can present these alternative options clearly as part of an affordability search, enabling you to source innovative solutions as simply as more standard options. ●

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RESIDENTIAL Opinion

Customer outcomes:

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f the 2020 Financial Lives Survey marked a low point for the sector, with one in four saying they lacked confidence in financial services, and only slightly above one in three agreeing that firms are honest and transparent in their dealings with them, then this summer will see a significant step up in the rights of consumers. On 31st July, the Financial Conduct Authority (FCA) implements its new Consumer Duty rules.

Modelled on four pillars, firms will be expected to provide appropriate support to borrowers that meets their needs throughout the life of the product or service.

Bold and new, this comprehensive charter for consumers promises a paradigm shift by shining a spotlight on consumer outcomes. The customer, it insists, must be better protected and offered increased levels of care.

The current cost-of-living crisis has given fresh meaning to these new rules, which in relation to the residential mortgage industry, capture equally the whole ecosystem, barely differentiating between the players.

Whether manufacturer or distributor, the regime promises a ‘nowhere to hide’ ethos, and the

current economic climate suggests there will be no soft launch.

A key tenet is that consumers should be supported when they experience financial difficulties.

It seems likely that, as thousands struggle to pay their mortgages, the regulator will be inclined to follow the money and target the biggest and most influential elements of the value chain: the lenders.

The new diktat insists that each and every company in the sector follow the same principles, and demonstrate that the consumer is truly at the centre of their business. So, lenders are not excused scrutiny. The manufacture, distribution and administration of mortgages all receive equal attention.

Products must be ‘fit for purpose’ and market segments targeted at a granular level. Under the new guidance, there will be no excuses for poor commercial behaviour Even if customer contact is via independent brokers, the rules insists that mortgage companies carefully consider their distribution channel when designing products.

So, under the new regulatory regime, if it goes wrong, the lender will be as culpable as the distributor.

Equally post-sale, the rules cover

MARK DAVIES is managing director of BCMGlobal

what forbearance lenders offer and how they treat customers who find themselves in financial difficulty.

The ambition and scope of the Consumer Duty extends to new and innovative technology initiatives, such as artificial intelligence (AI) and data analytics programmes. Even if, by using these, lenders or brokers deduce more about their customers, the regulator makes it very clear

RESIDENTIAL Opinion

Follow the money that they must be made aware of any incremental insights and potential for further revenue generation.

The rules are foundational, and to be compliant, firms have been told to focus on building and maintaining the availability, stability and security of systems and processes.

With their multiple verticals, mortgage companies are affected by all the rules. Firms need to design products with the consumer in mind, explain them adequately, sell them appropriately, and of course, support customers throughout the process. Also, the expectation is that firms assess, test, understand and evidence the outcomes.

This is likely going to be far more

difficult to achieve in reality than it is to write in a sentence of a guideline.

So, the need for the entire industry to demonstrate that they are embracing the rules by proving and recording the evidence of good process isn’t just a game changer, but will drill deep into the corporate skeletons of all players.

After a period of review and analysis, the FCA announced that some firms have underestimated the requirement and are being complacent in their preparations. It is five months until the official launch, but firms are being asked to evidence their preparedness before 23rd July.

The rules require a focus on the client in a way that has not been seen before. Their tone demands a different relationship, more partnership than

transactional, more understanding and empathic than confrontational.

To make it work, the probability is that the regulator will actively enforce from launch. So, if proportionality is a reality in terms of expectations, remedial measures cannot be entirely loaded on small brokerages. Lenders will also have to demonstrate their support, with resources appropriately trained and qualified to comply with the spirit of the duty. As the consumer is stretched financially already, the extra cost will also stretch the industry for sure.

If it goes wrong and firms fail, history tells us the regulator will follow the money. Lenders and brokers beware. ●

RESIDENTIAL Opinion

The London market is in both good and ill health

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o you have a favourite bit of London? Maybe it’s trendy Shoreditch or the trim stucco of Kensington and Chelsea, with Instagram-ready houses dripping with lilac. You may prefer North of the river or South, lean toward East London grit or hanker for West London privilege.

Anyone who understands London knows it isn’t one thing, one place, one culture or one property market.

It’s also worth remembering that London is not just ultra, super and prime, suburbia or social housing tower blocks. Certain areas are characterised by one type of building, and in others you’ll find council estates flanked by Victorian mansion blocks.

Diverse performances A four-bedroom stucco Victorian terraced house in South Kensington will set you back just shy of £6m, but in Dalston might cost around £2.5m, and in Croydon £500,000.

It’s all too easy to accept average house price indices which conclude that the London market is struggling.

However, that is just not true.

London agent Benham and Reeves recently did some research which illustrates this point precisely. While the Greater London area on average saw house price inflation of 2.2% last year, Rightmove data shows pockets where values have soared.

Benham and Reeves identified a group of up-and-coming neighbourhoods where average house price inflation has significantly outperformed. Churchill in Westminster has seen prices rise by 64.5% in the past year, to sit at a current average of £1m. In Northcote, which connects the north side of Clapham Common with Wandsworth

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The Intermediary | March 2023

Common, prices are up by 61.4%, to an average of £1.3m. Rightmove’s February analysis, meanwhile, suggests that Camden house prices are up 17.2%, in a year while average values in Kensington & Chelsea fell by 2.2%.

The huge diversity of location, property type, age, condition, and proximity to amenities makes it impossible to judge if the London market is in good or ill health. The reality is that it is always in both.

Nuance is everything Activity in the prime market has recovered strongly a er September’s mini-Budget. Property analysts at LonRes said the upset following the move to cut taxes for the wealthy had, conversely, kicked the prime London market back into action.

Neal Hudson of BuiltPlace said: “The turmoil of the last few months has returned the market back to the levels of sales and under offers recorded prior to the pandemic.”

Sellers have become more realistic about pricing, with the highest number of price reductions recorded in January since 2018. Average achieved prices across prime London fell 1.4% over the year, but despite the challenges, Hudson said the top end of the market remains strong, with sales up 56% and new instructions up 43%.

The le ings market in London is experiencing different fortunes, however. Private landlords face stricter energy efficiency rules on new tenancy agreements, along with significantly higher mortgage costs.

The improvements necessary to take a property from Energy Performance Certificate (EPC) Band E to C will cost several thousand pounds minimum.

Depending on the condition, that figure could rise to tens of thousands.

ROBIN JOHNSON is managing director of professional services at Kinleigh Folkard & Hayward

Rising rents Such a huge jump in the cost of maintaining rental stock at a time when margins have been eroded by rising interest rates is having an adverse effect on rents across the UK, but in London — where rents are already high compared with takehome income — the effect is amplified.

Rightmove’s rental price tracker shows that average London asking rents have hit a record high of £2,480 per calendar month, while in inner London rents surpassed £3,000 for the first time.

High rental inflation reflects the ongoing imbalance between supply and demand. According to Rightmove, the number of properties available to rent nationally is down by 38% compared with 2019, while the number of people enquiring about a property to rent is 53% higher. Owing to this ongoing imbalance, Rightmove predicts that average asking rents for newly available properties will rise by a further 5% in 2023.

These shi s in supply dynamics are worth watching. Valuations are already taking account of the effect that net zero deadlines will have on both saleability and rentability of properties. The knock-on effect on supply will also affect valuations in both the residential and le ing sectors.

We are seeing a significant realignment of market make-up at the moment — one that looks set to persist for the next few years.

All of this serves to underline the importance of nuance when trying to understand London’s many markets. ●

RESIDENTIAL Opinion

The year of holding our collective nerve

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et’s start on a positive note. The latest Lloyds Bank ‘Business Barometer’ showed confidence among firms rose for the second consecutive month. The upturn was driven by a more optimistic assessment of the wider economy, which has posted sizeable gains since November’s slump.

Firms’ own trading prospects were unchanged month on month, but continued to outperform economic optimism, suggesting some resilience in the outlook for business activity in the face of economic headwinds.

Headline business confidence rose by five points to 22%, taking it to the highest level for six months. Given that the long-term average is 28%, that is significant headway.

Anticipated staffing levels for the year ahead edged higher, though the broad trend is still lower since the summer.

Investors are unsure that things are totally rosy, however.

Swap rates in Europe indicate that markets expect the European Central Bank (ECB) to raise interest rates to an all-time high, amid a persistent nag that inflation will remain stubbornly high. If markets are proved correct, the ECB will have hiked its central bank rate from 2.5% today to 3.75% by September. Although investors seem reasonably se led in the UK and US, both economies have recently posted growth more positive than expected.

While growth is positive, it is under threat from wage inflation. That is a major concern in Britain, as well as across the English Channel.

Union action has ramped up over the past year, as junior doctors, railway staff, teachers, public prosecutors, nurses, ambulance workers, university staff, civil servants, firefighters and postal workers have walked out of work. All are demanding higher pay rises based,

quite reasonably in many cases, on the disproportionate rise in the cost of living.

It is those earning at the lower end of the scale who are feeling the worst ravages of inflation. The proportion of household income going on housing costs, bills and food is far higher than for those in higher paid jobs.

The Resolution Foundation calculates that the cost-of-living gap between the richest and poorest households grew to 2.9 percentage points in January. The poorest tenth of households experienced an inflation rate of 11.7%, compared with just 8.8% for the richest tenth.Then, consider that Office for National Statistics (ONS) records show private sector pay grew 6.9% between August and October 2022, while public sector pay grew 2.7%. With inflation still running over 10%, both are losing purchasing power in real terms, highlighting why central banks are watching wage inflation very closely.

If it slips out of control, we could be in for another bout of rate rises, which would have a material impact on the housing and mortgage markets.

Reinvigorating the market The thing about economies is that they rarely do the absolute best or absolute worst thing investors can imagine. It’s more likely — unexpected events such as the pandemic and Russia’s invasion of Ukraine notwithstanding — that we will rumble on somewhere in the middle of these two scenarios.

Provided the Bank of England doesn’t feel obliged to push the base rate up significantly in the near-term, the mortgage market should remain reasonably stable. Yes, monthly repayments are rising enough to dent homeowners’ finances as they come to the end of fixed rates, but no one is expecting mass repossessions.

Unemployment is the key measure to watch there, and we remain near full employment.

STEVE GOODALL is managing director of e.surv Chartered Surveyors

The majority of existing borrowers can afford higher mortgage rates, even if they don’t like it. Those who can’t are being offered help by lenders to manage their affordability.

House price inflation, as our House Price Index and others show, is slowing, and that is likely to continue as the effects of the stamp duty holiday fall out of the annual comparisons.

But the idea of a property market collapse is wrong.

The toughest thing facing the housing industry is to reinvigorate transactions, particularly in the purchase market. House builders, as we approach the end of Help to Buy, are flagging the fall in firsttime buyers.

Meanwhile, Energy Performance Certificate (EPC) regulations are impacting the buy-to-let market, as our own Property Watch Report highlights, but the remortgage market looks strong for the foreseeable future, and swaps indicate that pricing has fallen back from last year’s post miniBudget hiatus, and has now stabilised.

We are not out of the woods, but we’re not lost in a panic either.

My own view is that the considerable heat generated by pandemic support packages is coming out of the market, and that’s no bad thing.

A generation of people in business are facing this volatility for the first time without the certainty of government support.

That might change slightly with the upcoming Budget but — and it’s a big ‘but’ — if it does, it will not be anything of the order we have seen in recent times. ● March 2023 | The Intermediary

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RESIDENTIAL Opinion

Why hope is not lost for first-time buyers

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t’s not exactly a secret that saving a decent-sized deposit has been incredibly challenging in recent years.

Since the pandemic, renters have faced the inflationary pressures of rising prices and interest rates, making saving even harder.

Even if these would-be owners reorganised their finances to deal with these hurdles, they will likely have seen any spare money eaten up by increased rental payments.

Figures from Hamptons recently found that rents rose by 7.7% in the 12 months to December 2022, equating to an extra £1,000-plus a year for the typical tenant.

All of this has come at a time when house prices have rocketed at a frankly incredible rate.

What would have been a sufficient deposit six months prior may no longer be enough for that first-time buyer to get onto the housing ladder a er all.

A fresh approach However, I would argue that the prospects may not be as bleak as you would think.

A er years of rapidly rising house prices, 2023 appears to be a year in which prices may move downwards at last. We have seen a succession of house price indices, from lenders and the Office for National Statistics (ONS) alike, report that house prices are falling.

The turmoil of the end of 2022, the subsequent knock-on effect on mortgage pricing, and general economic uncertainty have all led to buyers across the board taking a ‘wait and see’ approach.

Those expected house price falls may well make that first purchase a li le more a ainable.

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What’s more, with some innovation, lenders are still able to support first-time buyers who aspire to own their own property.

That desire to do things differently led to the development of the Family Assist mortgage, which allows the borrower to obtain a mortgage for 100% of the value of the property they wish to purchase.

To access the mortgage at 100% loan-to-value (LTV), a family member needs to open a savings account or allow a legal charge over their property equal to 20% of the purchased property price.

It offers clients the best of both worlds. All being well, the family member can retain their finance or equity long-term, rather than handing over a gi ed deposit, while the borrower can pick up their first home without needing a deposit at all.

Clients require lenders to embrace innovation in product design” Of course, such a product won’t be right for everyone, and there’s still very much a need for mortgages with low deposits. We wanted to maintain greater choice for those borrowers who have managed to build some level of deposit.

Our recently launched fixed rate up to 95% LTV also includes our flexible approach, such as allowing gi ed deposits and Joint Borrower Sole Proprietor, allowing loved ones to contribute to the mortgage payments without ownership rights over the property.

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

It’s easy to talk about wanting to help first-time buyers, but the proof is in whether lenders really offer a cando a itude.

Understanding underwriting We regularly hear from mortgage brokers who have been frustrated by how lenders go about assessing applications from a client who has anything slightly out of the ordinary in their circumstances.

This could be as simple as being on a zero hours contract, having a couple of different income sources, or even the odd historic credit blip.

There’s nothing inherently risky about clients in these situations, and yet we frequently hear about lenders seeing that perceived complication as a reason to decline a case outright.

Lenders can make a real difference by taking the time to actually get to grips with the important elements of a case, rather than those slight deviations from the norm which – in practice – make li le to no difference.

First-time buyers are the lifeblood of the property market – the sector simply cannot work if those new to homeownership are unable to purchase their first home.

Yet in order to do that, these clients require lenders to embrace innovation in product design, and then find reasons to say yes to an application rather than excuses to walk away.

Working with lenders which adopt that more positive, versatile a itude will help brokers assist more clients in taking that first step onto the housing ladder. ●

RESIDENTIAL Opinion

The time is now to chart a new policy course

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his month, Chancellor Jeremy Hunt will present his first Spring Budget. I believe this much anticipated moment represents a golden opportunity for the Government to show its commitment to supporting aspiring homeowners.

Many in the mortgage sector – not to mention those looking to own their own home – were surprised when the Government confirmed it would not be pursuing a mandatory target for building new homes at the end of last year. The Prime Minister’s decision to water down housebuilding targets, following a reported rebellion from Conservative backbenchers, was criticised for pu ing party unity over the national interest, and exacerbating the existing housing crisis.

Significant shortfall In response, many local authorities have scrapped or delayed their housebuilding plans, with analysts estimating that the confusion over targets could cost 100,000 new homes over a five-year period – a significant shortfall that will detrimentally impact those in genuine need of affordable homes. Furthermore, a report from Policy Exchange last month found that failure to build enough homes could see the UK miss out on an economic boost of nearly £18bn.

While housebuilding targets were central to the Conservatives’ 2019 manifesto and levelling up mission, this policy U-turn is further evidence of the need to set a new course to ensure people can secure the homes they crave.

We have seen four different Housing Ministers in the past five years, and that lack of continuity is reflected

in a housing strategy which feels unfocused and unclear. This needs to change.

With homeownership a widespread and fundamental ambition for younger people, it is understandable that many are disappointed and worried by recent developments around housebuilding targets, which will impact access to affordable housing. Studies show that almost three-quarters of renters would prefer to own their home if they had a choice.

Yet youth home ownership halved between 1989 and 2016.

Complex incomes On top of this, the current cost-ofliving crisis and surging interest rates and inflation – which reached an all-time high of 11.10% in October – are impacting people’s ability to save and borrow.

The effects of this economic backdrop are particularly acute for a growing cohort of aspiring homeowners with complex incomes or working pa erns, for whom it is o en harder than normal to secure a mortgage. People who are selfemployed, have different income streams, or don’t have a strong credit history, may find themselves disadvantaged – not only by a lack of housing, but also by the ability to secure a mortgage offer that suits their circumstances.

The upcoming Spring Budget presents a chance to provide focus and clarity for current and future homeowners everywhere. At the very least, I would like to see a recognition of the importance of new homes to both the economy and to the aspirations of millions of people. But I would also like to see action.

The current approach to housing must become less political. A first

ALISON PALLET is sales director at Nottingham Building Society

step would be the creation of a new coalition, including representatives from the mortgage industry, to work together to develop a housing strategy designed to meet the needs of this generation of homeowners.

We know that joined-up activity between industry and government works. Trade bodies across financial services have proven they can work effectively with the Government to develop practical policy solutions.

Take the Association of Mortgage Intermediaries (AMI), for example, which is in conversation with the EU Commission to structure legislation so that it does not hurt the UK mortgage market.

Principle of mutuality Mutuals like us have always been strong supporters of the housing market, and we want to be part of the solution. Mutuality is the bedrock on which The No ingham has been run since its inception, a principle that ma ers more than ever now, and we are proud of our longstanding determination to help people own their own home.

A new approach is needed. I encourage the Government to reinstate the housebuilding target and ensure that houses are being built that meet the needs of aspiring homeowners. Together, we can forge a new, be er approach which directly addresses the needs of homeowners in these extraordinary times – from younger generations looking to get on the ladder, right through to older ones looking to downsize or considering other options. ● March 2023 | The Intermediary

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RESIDENTIAL Opinion

Meeting FCA Consumer Duty requirements

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rom 31st July 2023, all companies selling financial products or services to retail customers will be required by the Financial Conduct Authority’s (FCA) new Consumer Duty to act to deliver good outcomes for their customers in four key areas by ensuring: Customers receive communications at the right time, that they can understand; Products and services meet the need of their target customers; Products and services offer fair value; Customers are given the support they need.

In order to ensure the requirements are met, firms will need to assess and monitor whether they are delivering good outcomes to customers, with additional reporting required for their board. For some businesses, this level of insight may mean entering a new territory of increased data collection and information gathering.

As specialists in financial services

Consumer Duty may mean increased data collection

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consumer insight, Smart Money People is perfectly placed to help companies with their Consumer Duty reporting requirements, as we have been collecting feedback from customers on key FCA outcomes for over eight years.

With more than 1 million reviews captured over this time, we have a wealth of historical data on the industry to support and supplement a business’ reporting requirements, and to ensure good outcomes for your customers.

Comprehensive service Our service ensures companies are provided with an independent and impartial view of their performance, using genuine customer data that can help with Consumer Duty needs. This includes always-on customer surveys that provide 24/7 capture data on Consumer Duty outcomes throughout the customer’s interaction with a company, as part of our standard review process.

Brokers working with us are able to implement the feedback requests into their processes with ease, allowing

JACQUELINE DEWEY is CEO of Smart Money People

them to achieve greater insight into customer satisfaction and Consumer Duty outcomes, as well as specific data on key truth moments in the customer lifecycle, such as purchase, renewal and post-interaction.

This includes data on whether customers feel they have been fairly treated, as well as whether they understood product details and thought the products were good value for money.

These specialist customer insight capabilities can also prove integral in providing companies with the ability to benchmark their feedback against that of their peers on both a product and industry basis, ensuring your business maintains a competitive edge.

Data can be accessed at any time using an always-on dashboard, and we can also provide a consultative approach to advise on best practice for reporting and data collection.

Independent insights Smart Money People provides an independent source for reporting and data collection that can help brokers by providing greater insight into their business.

This impartial view of their performance, using genuine customer data, not only helps to enhance a business offering, it also helps to deliver good outcomes for customers, while simultaneously meeting the requirements of the regulator.

The solution is easy to implement.

Firms can claim their review page on Smart Money People for free and start collecting and listening to their customer feedback straight away. ●

RESIDENTIAL Opinion

What makes a building society?

The Golden Cross Inn, Snow Hill, Birmingham

I

n the current economic climate of rising interest rates and global money market volatility, the flexible, personalised and tailored approach to lending offered by building societies has seen demand for services soar.

Driven by the growing number of specialist clients seeing a squeeze on affordability as a result of the cost-of-living crisis, more and more brokers are starting to acknowledge the benefits of using a building society to help their customers get the best mortgage outcome for their individual and ever-changing circumstances.

Yet the fact is, building societies have been catering to the evolving needs of consumers for almost 250 years, ever since the first – Ketley’s Building Society – was established in the Golden Cross Inn in Birmingham in 1775. Created with the sole aim of building houses for its members, many of these early establishments were dissolved when each member had built a house.

Over the years, the evolution of building societies has continued with the first ‘permanent’ building society, Metropolitan Equitable, created in 1845 in response to those seeking a safe haven for their money, rather than to solely purchase land or a house.

This resulted in the creation of deposit accounts and the offering of a broader range of financial services to the wider population.

Since then, many more building societies have been and gone, either through a change of ownership via demutualisation, or through mergers and acquisitions, resulting in the loss of 23 building societies in the past 22 years.

Today, there are 43 building societies remaining in the UK, with the oldest – Sco ish Building Society – first established in 1848.

Although there have been a number of changes in the building society sector over the years, one thing that has always remained the same is the way in which they operate. Ownership is still retained by members, and any profits made are always reinvested into the business to service the needs of savers and borrowers.

Tailored solutions This means building societies can typically offer niche product offerings such as Family Deposit and Joint Borrower Sole Proprietor, competitive interest rates on mortgage products and savings accounts, and a highly personalised service.

Unlike banks, they do not have to pay out dividends to shareholders.

This makes building societies particularly a ractive in the current economic environment, where continued market uncertainty means brokers are having to dig a li le deeper to find more tailored solutions for their clients.

Building society members are also entitled to voting rights, so they get a say in how the business operates. This

ASHLEY PEARSON is national BDM at The Loughborough For Intermediaries

Building societies have been an integral part of UK communities for hundreds of years, created to serve the needs of their members. This ethos continues today” is in direct contrast to many banks, where the main focus is generating returns for shareholders and investors, and customers have li le or no say in the way the bank is run.

Following the financial crisis, building societies are subject to strict lending rules under the Prudential Regulation Authority, making them safe and reliable financial institutions with a low risk profile. Lending must be spread evenly across all mortgage books – such as fixed versus discount – reducing the risk of over exposure, as it is members’ money being used for lending purposes.

Building societies have been an integral part of UK communities for hundreds of years, created to serve the needs of their members. This ethos continues today, through market innovation, flexibility and individual underwriting, making them agile, approachable and adaptable when it comes to addressing your client’s borrowing needs – an approach that has never been more pertinent than in the current economic climate. ● March 2023 | The Intermediary

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THE WAR ON BUY-TO-LET AND THE FUTURE OF AN EMBATTLED SECTOR Hannah Smith for The Intermediary

The UK needs private landlords more than ever as demand for homes far outstrips supply, but many are selling up and moving on in the face of mounting pressures.

Several changes to Government policy in recent years have made it more burdensome and less profitable to be a small-time landlord, leading to talk of a ‘war on buy-to-let (BTL)’.

Private landlords supply about one-fifth of the UK’s total housing stock. However, in 2022 they sold 35,000 more properties than they bought, which means that Britain’s rental sector lost the equivalent of 66 properties per day, the largest net loss in three years, according to Hamptons International's analysis of Countrywide data.

A survey by Cornerstone Tax found that one in five landlords said they took on the role without sufficient knowledge of what would be involved, and have lost thousands of pounds as a result.

So, what are landlords up against?

Tax breaks scrapped Landlords used to be able to claim tax relief on their buy-to-let mortgage interest payments, but this was scrapped in 2017 under Section 24. Mortgage and broker fees are also no longer tax deductible, and landlords no longer get a 10% wear and tear allowance for furnished rental properties. This policy shift pushed many

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The Intermediary | March 2023

landlords with large mortgage commitments into the red.

The cost of green upgrades Landlords may have to spend £10,000 per property to upgrade older houses to the government’s proposed new green standards.

Rental properties will have to have an Energy Performance Certificate (EPC) rating of at least Band C by 2025 for new tenancies, and by 2028 for all tenancies.

The Renters’ Reform Bill In 2019, the Government consulted on several legislative changes aimed at protecting tenants under the Renters’ Reform Bill, which is expected to be debated in parliament and voted on before May this year. These include: ◆ Scrapping Section 21 no-fault evictions, giving tenants more security by making it harder for landlords to evict them, for instance if they ask for repairs or complain about mould. ◆ Extending the Decent Homes Standard to the private rented sector (PRS) for the first time. It is estimated that 21% of private renters currently live in unfit homes. ◆ Making it illegal for landlords and agents to discriminate against families with children

or people on benefits and refuse to rent properties to them. ◆ Making it easier for tenants to keep pets, while not allowing landlords to charge a fee for this, or raise the tenancy deposit beyond the maximum of five weeks’ rent allowed under the Tenant Fees Act 2019. ◆ Moving all tenants to periodic tenancies so they can leave more easily if circumstances change or housing quality is poor. ◆ Doubling the notice periods for rent increases, and giving renters increased scope to challenge them.

According to the Government, the bill will “redress the balance between landlords and 4.4 million private rented tenants."

HMO rule changes In 2018, the Government brought in new rules about houses in multiple occupation (HMOs), meaning that any property housing five or more unrelated individuals would require a licence.

There were also tighter rules around the number of people who could occupy a room, and minimum room size. The aim was to improve standards and safety for tenants. The result was

p

“I expect it to be thrown out of the house” March 2023 | The Intermediary

35

“To get my EPC certificate I've got to insulate the whole place” a 21,000 reduction in HMOs in the past two years, according to Octane Capital. Soaring energy prices may also be a factor, as these tenancies typically include utility costs.

Higher mortgage rates Aside from the regulatory pressures they face, landlords are also grappling with rising mortgage

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The Intermediary | March 2023

interest rates. Profits from buy-to-let properties have fallen to an all-time low, according to My Auction. For the first time in 14 years, mortgage payments are exceeding rental incomes. The average interest rate on a 5-year fixed buy-tolet mortgage was 5.81% in March 2023, almost double the 3.05% average rate seen a year earlier, according to Moneyfacts.

Profits from buy-to-let properties have fallen to an all-time low, according to My Auction. For the first time in 14 years, mortgage payments are exceeding rental incomes”

The Buy-to-let Market

In Short.

“The Government is driving out smalltime landlords to enable big business to snap up huge swathes of rental real estate.

It's hard to think of a worse policy failure over the past 25 years.”

Graham Cox, Self Employed Mortgage Hub

It’s no coincidence that private tenants are seeing their rental costs rise at the highest rate since records began in 2016, according to the Office for National Statistics (ONS). Rents increased by 4.4% in the 12 months to January 2023, as landlords tried to cover the costs of higher mortgage rates.

“Making it more expensive for landlords to own means the end effect is felt hardest by tenants and first-time buyers, the very group the Government was intending

Exodus gathers pace

to benefit.”

All of these factors combined are causing the long-predicted exodus to gather pace. A report from the National Residential Landlords Association (NRLA) found that a third of BTL investors plan to sell rental properties this year.

Dirk Parker is a landlord who owned 13 properties in Cornwall through his property company Parkfish, but has recently sold off two and changed the rest into short-term holiday lets.

These short-term rentals involve more work, but are subject to more favourable tax rates and offer higher profit margins, he says.

Parker has several friends who fit the classic mould of the small landlord, with just one second property they let out as an extra income stream for retirement. The English Private Landlord Survey 2021 reveals that 43% of landlords own just one property, and just over a third initially bought the property to live in themselves. Parker says many of his friends are now selling their rental properties.

“With the tax changes, being a landlord doesn’t make sense for a 40% taxpayer,” he says. “We had a three-bed house rented out to a family in a typical town, and it got to the point where we were actually losing money on it.

"We could have put the rent up by 40% to try to cover our backs and make some money, but it just wasn’t worth it. I had to kick the family out

David Conway,

p

Clayhall Financial Services “The Government would be better off tackling the issues around second or holiday homes, rather than continuing to attack landlords.”

Luke Thompson, PAB Wealth Management “Politicians want to be seen to ‘crack down on slum landlords’, when in fact very few landlords would fall into this definition, yet all are then caught by the rule changes that ensue.”

Scott Taylor-Barr, Carl Summers Financial Services

and sell the house, it was that simple, and it felt stupid. I actually wrote to my MP about it.”

Parker slams the ‘greedy landlord’ narrative, arguing that landlords provide an essential service. He is currently a renter himself, and says rental properties give people flexibility to move around, such as for jobs, so a lack of rental stock has many knock-on effects.

“If there was a shortage of food, you wouldn’t turn around and start attacking farmers," he adds.

"There’s a shortage of rental properties, and we should be asking what we can do to get higher standards of accommodation, lower rent, and better conditions which benefit everybody.”

Accident or design?

Richard Campo, founder of mortgage broker Rose Capital Partners, argues that the war on BTL is more accident than design, pointing to the incompetence of policymakers. He notes there have been 15 Housing Ministers since 2010, six in the past 12 months alone.

“There’s no consistency, just firefighting rather than dealing with long-term problems,” he says, adding that the Government’s most pressing concern has been a huge tax grab to try to tackle the budget deficit, and landlords have been an easy target.

Recently, when Campo has phoned clients whose mortgages are coming up for renewal, many have told them they are selling or have already sold their buy-to-let properties. He argues that landlord will continue to exit the sector “until the tax position changes on buy-to-let so you can offset the interest from the mortgage versus your income, which you can in every other asset class in the UK." Campo also notes that BTL mortgage lenders are now stress-testing on future scenarios of 7% or 8% interest rates, stretching landlords’ affordability even further. He would like to see lenders relax those rules, given that the scenario they previously stress-tested for - higher interest rates - has already happened.

Lynne Moss, owner of Brighton Lets, says the Government is sending mixed messages on what it wants from the buy-to-let sector. On the one hand, it wants landlords to be professional and commercial, but on the other hand it won’t allow them to claim expenses as a business.

Running an HMO is more effort but can generate more income, but the cost of a license in Brighton and Hove is £680, before the landlord even does any work to a property.

She says: “We’re not building enough homes, and tenants get squeezed in the middle and rents go up. Landlords will suck up a lot of it, but if you squeeze a landlord too much they will just go.”

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With the Government falling far short of its own target to build 300,000 new homes a year in England by the mid-2020s, it seems predictable that the housing crisis will roll on, made worse by small landlords exiting the sector”

What does the future hold?

Looking to the future of the buy-to-let space, it seems likely that many more landlords will simply sell their properties. Who will take their place? It could be big business.

Joe Garner, co-founder and managing director at property developer NewPlace, posits that the Government is orchestrating the exodus of smallscale landlords to make room for corporations to come in.

“The Government, quite clearly, is looking to move the buy-to-let sector from accidental and unregulated landlords to big corporate,” he says.

“The war isn't on buy-to-let per se, it seems to be a move to big, new-build, built-to-rent schemes with on-site amenities which are professionally managed.

"As small, non-corporate landlords exit the market, those properties are naturally going to fall into the residential sales market, which reduces the amount of available and affordable properties to rent, pushing rental prices up, making another sector of the property market unaffordable for those on low incomes.”

With the Government falling far short of its own target to build 300,000 new homes a year in England by the mid-2020s, it seems predictable that the housing crisis will roll on, made worse by small landlords exiting the sector.

Tenants who cannot afford to get on the property ladder will have to fight for a shrinking pool of rental housing stock, where high demand and low supply will push up rental costs.

Whatever the reasoning behind the Government’s perceived war on the sector, it seems clear that the ones who will suffer most are the tenants it claims to want to protect. ●

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B U Y - TO - L E T Opinion

Is the future of buy-to-let in newbuild stock?

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or many investors and landlords, the riskreward disconnect of buy-to-let investing has never felt more stark.

At GetGround, we talk to hundreds of landlords weekly – both newcomers and experienced – and their observations are consistent: they are being skewered by a system that knows it needs them, but never makes it easy to participate.

However, while the risks feel sky high, the rewards are still there for those that persevere to seek them.

Property investment is a longterm game. There are few assets that perform as solidly as UK property, but – fix-and-flips aside – it’s an asset that landlords and investors enter with plans to be around for a while.

As such, it’s fundamentally important that each investor picks the right buy-to-let property for their circumstances. You can’t change horses halfway through the race.

Increasingly, our research and customer experiences make us conclude that the future of modern buy-to-let investing may lie in new-builds.

New-builds could fit for investors seeking fair investment and moderate effort for an a ractive return.

In today’s climate, new-build buying could be easy to dismiss. Here are some reminders as to why those undeterred by negative assumptions stand to benefit hugely.

Lower energy costs Energy efficiency is a vital consideration for any landlord or investor seeking a new investment.

What used to be a ‘good to have’ is now an essential. With Energy Performance Certificate (EPC) requirements coming down the line –

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The Intermediary | March 2023

without concessions for Covid-related delays – forward-thinking landlords are choosing investments that are going to help not hinder them turning a profit from year one.

Research by Lovell Homes in late 2022 found that the average secondhand home emits two and a half times more CO2 than its corresponding new-build. New-builds require less – if any – remedial energy efficiency work and offer landlords the lowest relative energy costs anywhere in the market.

Landlords that pass on lower energy costs to tenants benefit, too. Few things keep tenants more happy and se led than lower bills.

Success and failure Anyone who has taken notice of planning application success and failure in the past few decades will know that permi ed developments are hard to a ain. Such is the control local governments and councils have on developments in their area, those that do win approval are sure to be located where they are most crucially needed.

Look at Manchester – here, schemes by home-grown developers as well as established national builders are creating homes that appeal to owneroccupiers and private investors alike.

New-build schemes are pu ing homes where local people need them most, allowing young professionals and families to put down roots and build their careers, and housing people contributing to their local economies and communities.

In other words, these developments make good investments. They have strong tenant demand, and are highly suitable for tenants.

On a practical level, new-builds are typically easier to buy than secondhand stock because every purchase is chain-free. Then, keys in hand, there’s

MOUBIN FAIZULLAH-KHAN is CEO of GetGround

next to no work to do on arrival, and many developers provide heavily subsidised furniture packs. Buying a made-to-let property means minimal maintenance too, especially when buying where schemes are rubberstamped with the National House Building Council’s (NHBC) 10-year Buildmark warranty.

Finally, when a buyer does purchase off-plan, either before or during construction, there is a possibility the value of the property will rise provided markets are favourable.

Even in today’s climate, where value inflation will be limited a while longer, buying off-plan should be no less appealing. The cost of finance is forecast to much reduce by the second half of year – buyers can look to obtain financing near to completion rather than now, allowing them to lock in be er mortgage costs.

Successive governments have tried and failed to turn the tide on new housing. Targets have come and gone unmet, and too many good planning applications have been squandered under red tape. Build-to-rent has its place, but will never be the silver bullet to erase our housing deficit, as it denies tenants and homeowners the opportunity to co-create successful communities, and schemes are not permi ed in some of the most necessary, in-demand areas where private developments could flourish.

Matching more private investors with new-build opportunities needs to become a priority. Sometimes the best ideas aren’t lurking in obscurity, it’s just that not enough of us have turned to look at them yet. ●

B U Y - TO - L E T Opinion

Fix or track?

Preferences are changing

5

-year fixed rates have been the most popular mortgage product both in the residential and buyto-let sectors in recent years, and it’s easy to see why. Up until last year, mortgage rates had been at historically low levels for 13 years, so locking into a rate was sensible. But that low rate era has gone – we are in uncertain times and no one can predict the future, only speculate.

During the period of low rates, the Bank of England consistently said that when the base rate does start to rise it will be gradual and in small increments. Well, it hasn’t turned out like that, has it?

There were 10 rate changes over 13 years to get the base rate from 1% in February 2009 back to 1% in May 2022. But it’s taken just 15 months and 10 consecutive changes to get from 0.1% in December 2021 to 4% in February 2023.

The mortgage rate landscape has changed and so has the popularity of different products. While 5-year fixes are still the choice for many, some are turning to other products.

Landlord shifts We recently conducted research among landlords and found sentiment had changed on what type of product they were likely to go for when it was time to remortgage.

Our previous research was carried out last August, just before September’s mini-Budget, which kickstarted the sharp increase in mortgage rates. There is a noticeable difference between the two as to what landlords anticipate they will do when it’s time to remortgage.

There are three key changes in the responses from landlords: fewer want 5-year fixed rates, while an increased

PAUL BRETT is managing director, intermediaries at Landbay

number are looking for 2-year fixes and variable rate trackers.

Change in fixed rate mix Let’s start with the fixed rates. In our most recent survey, 46% of landlords said they would fix for five years, but this is down from 68% in August – that’s quite a big drop.

On the other hand, shorter-term fixes gained popularity, with 24% preferring to fix for two or even three years, which is almost double the 13% seen in the previous survey.

Longer-term fixes, such as seven or 10 years also get a look in, but only by 8% of landlords, up marginally from 7%. The longer-term fixes still haven’t grabbed people’s a ention, but the respondents who do like them said they were into property investment for the long-term so a 10-year fix gave them certainty around their monthly payments.

Rise in trackers Another interesting result from our survey was the rise in people opting for tracker mortgages. Not one landlord said they would remortgage to a tracker when we carried out this research last summer, but now that has gone up to 17%.

We asked landlords why they would choose a tracker, and it was mainly due to uncertainty around mortgage rates, the economy, inflation and not wanting to commit to a long-term fixed rate at the moment.

Some respondents believe rates will come down in the next year or two, so it would be be er to wait to fix to a more competitive rate.

Although trackers do follow base rate – or another benchmark like SONIA – there is speculation that base rate will rise again. But the general expectation is that inflation will fall

During the period of low rates, the Bank of England consistently said that when the base rate does start to rise it will be gradual and in small increments. Well, it hasn’t turned out like that, has it?” back towards its 2% target over the next one to two years, and the base rate will therefore come down too.

Our trackers have no early repayment charges (ERCs), so a borrower could move onto a fixed rate whenever they want to without penalty.

The swap markets, which fixed rates are based on, have been edgy over the past year. But if things se le, fixed rates will become more competitive, which may be the tipping point to bring people back to 5-year fixes.

You can predict and forecast as much as you like with today’s information, but you never know what’s around the corner, and there have been plenty of curveballs in the past year. We’ve just passed the year anniversary of Russia’s invasion of Ukraine and witnessed the devastating impact that has had not just on the people of Ukraine but globally. What happens in the future is anyone’s guess. ● March 2023 | The Intermediary

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B U Y - TO - L E T Opinion

Build on progress made in improving standards

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aragon recently published a report highlighting how investment in privately rented homes has contributed to a substantial improvement in the standard of property in the sector.

The Government’s English Housing Survey reveals how the decade from 2008 to 2018 saw the proportion of private rented sector (PRS) properties classed as non-decent fall from 44% to 23%, outperforming all other housing tenures.

Driving quality Overlaying this data with UK Finance figures, which reveal a 61% rise in the value of outstanding buy-to-let mortgage balances to £280bn between 2013 and 2021, supports the idea that buy-to-let finance is an important element in driving up the quality of rented property. Further analysis of data reveals how this positive change has been driven by two main factors.

First, the proportion of PRS homes classed as decent increased by 83%, from 1.8 million in 2008 to 3.3 million by 2021. The proportion of properties that don’t meet standard has been watered down by a boost in the number of quality homes.

Second, eight in 10 landlords undertake refurbishment or renovation works to enhance each property they acquire. The result of this investment is a PRS that benefits from homes that are safer, larger and newer, providing more tenants with comfortable living environments.

Importantly, given the need to reduce our negative environmental impact, BTL properties are also now more energy-efficient than a decade ago.

Since 2011, the number of PRS properties with energy performance

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certificate (EPC) ratings of A to C has swelled by 1.2 million, to 1.9 million, outperforming the owner-occupied sector, according to Government data.

Alongside these official numbers, our own research undertaken for our UK Tenant Report challenges the ‘reluctant renter’ notion. A survey of more than 2,000 tenants found that 79% like their property, 71% believe their landlord fixes issues promptly, and 78% say that their property feels like home, despite not owning it.

Dispelling myths With lots of evidence supporting the idea that BTL is a force for good in driving up property standards, why are landlords and privately rented homes so synonymous with poor quality housing?

We need to start by acknowledging that there is still work to do to rid the sector of the substandard properties that remain. Until we do this, we will still see relatively rare cases of poor practice used as examples to illustrate that the entire sector is failing tenants.

Our viewpoints are o en influenced by the media we consume, and human nature means we’re drawn to headlines and shocking images shared on social media that outrage us. Scandal will almost always outsell stories reassuring us that everything is just fine, so it’s unlikely that we’ll read about all of the good work of buy-to-let investors anytime soon.

While it isn’t the responsibility of the media to fly the flag for the PRS, the picture painted by inaccurate articles is a cause for concern due to the impact it can have on public and political opinion.

This can be seen in the vilification of the PRS, and the openly anti-landlord language used by politicians in si ing and shadow Governments. While

RICHARD ROWNTREE is managing director of mortgages at Paragon Bank

most landlords have developed thick skin, this sentiment extends beyond rhetoric and permeates policy.

Much-needed investment It is now widely accepted that the shi from tenure-neutral Government policy that started midway through the last decade has made much-needed investment in privately rented homes less a ractive. This view is supported

by UK Finance figures, showing a decline in the number of BTL mortgages outstanding since 2016.

This might be welcomed by those who view renting as inherently bad, but record levels of tenant demand, compounded by a sustained shortfall of affordable housing, continues to make renting more expensive. Supply and demand dynamics suggest we need more rented homes, not fewer.

Of course, renters deserve quality as well as quantity, and we fully support proposals such as the Decent Homes Standard and landlord ombudsman, that aim to deliver this. BTL finance can play a part too, if lenders refuse to fund homes that aren’t fit.

Housing policy that recognises that renting can meet the needs of a diverse population is unlikely to win votes from a public conditioned to see homeownership as aspirational, but it’s necessary to solve what has been labelled a housing crisis during the terms of successive governments.

Alongside other interested parties, we will strive to inform such policy, providing balance in what is o en a polarised argument where villainous landlords go head-to-head with honest aspiring homeowners. ●

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The buy-to-let reset is upon us

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ver the past few months, there has been a lot of doom and gloom surrounding the buyto-let market and the challenges facing both landlords and tenants.

Media coverage hailing the end of the sector, a housing market crash and a long-lasting recession have been plentiful, with the woes facing those in the private rental sector (PRS) extremely well documented.

While it is true that the short-lived yet catastrophic mini-Budget handed down under the leadership of Liz Truss and Chancellor Kwasi Kwarteng had long-lasting consequences on both the economy and the UK’s mortgage sector, markets are now beginning to se le. We are starting to see an uptick in activity, as more lenders return to the market with competitively priced products.

Appetite returns Hampshire Trust Bank recently cut its buy-to-let 5-year fixed rates by up to 1.3%, while Virgin Money also moved to reduce its buy-to-let rates by up to 1.5%. In addition, Fleet Mortgages reintroduced its range of 2-year fixed buy-to-let products, while simultaneously launching a number of 5-year fixed rate solutions.

Other lenders are expected to follow in the coming months, as appetite returns.

The lull in activity at the start of the year, followed by almost daily announcements of the availability of reduced rate buy-to-let products, is to be expected following the recent period of artificially high interest rates, when market forces drove up the cost of borrowing and lenders subsequently retreated from the sector to catch their breath while applying a degree of caution.

It would seem that during this time many lenders were simply taking

stock and waiting for stability to return, while exploring ways in which to be more creative in a new higher interest rate environment, given the increased cost of borrowing and pressures on affordability facing buyto-let landlords.

The result has been the introduction of lower rate mortgage offerings with higher product fees, which has enabled lenders to make the rental serviceability and stress testing measures on buy-to-let products work more favourably for landlords.

This ultimately helps to stimulate the market and keep the buy-to-let sector mobile.

The knock-on effect of this is that landlords have a bit more room to manoeuvre, which enables them to refinance if needed, preventing them

With lenders working hard to be creative, and their appetite to lend increasing, we are likely to see more attractive deals come to the market”

HITEN GANATRA is managing director of Visionary Finance

from becoming mortgage prisoners or having to offload property.

Similarly, with rates on buy-tolet products starting to come down, the price differential between new products and product transfers is not as great, which also allows landlords to service the debt and continue with their mortgage commitments.

Obviously, for many landlords, interest cover ratios (ICRs) and borrowing capacity are lower than this time last year, but with lenders working hard to be creative, and their appetite to lend increasing, we are likely to see more a ractive deals come to the market in the next few months.

This will hopefully help to stimulate further investment in the buy-to-let sector and prevent more landlords leaving the market, which will, in turn, stop rents from rising and the supply of rental property contracting even further, which can only be good news for both tenants and landlords alike. ●

Landlords have a bit more room to manoeuvre

March 2023 | The Intermediary

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Many landlords in

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s the climate crisis worsens and energy bills skyrocket, the property market finds itself on the brink of new energy efficiency rules. However, all the signs suggest that this will not be an easy transition.

From April 2025, the private rental sector (PRS) will have new energy performance certificate (EPC) regulations to contend with. The minimum EPC rating of a newly let property will be raised from Band E to Band C, with many buy-to-let (BTL) landlords facing an immindent need to renovate their properties in order to comply.

A study by Market Financial Solutions (MFS) among 459 UK landlords sought to uncover just how aware they are of the upcoming rule changes, and what their sentiments are towards the reforms.

Still in the dark Worryingly, there seems to be a significant lack of awareness among landlords as to what the new rules mean.

As few as 58% of landlords polled, for example, are aware that there are changes coming, leaving 42% of them entirely in the dark, while just 38% stated that they fully understand what the new rules will entail.

Delving deeper into the data, it becomes clear that those landlords with just one or two buy-to-let properties are the least aware of the new rules.

Indeed, just 57% of landlords with a single property are aware of the new rules, compared with 77% of those with four or more BTL properties.

This is a concern. A er all, singleproperty landlords account for 33% of the BTL sector. Clearly, many could be blindsided when the proposals become law, risking a fine for non-compliance.

Awareness aside, how do landlords feel about the upcoming changes?

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Much-needed efficiency MFS’ research showed that there is support for the changes. For instance, the majority (56%) of landlords said that the sustainability of their properties is important, irrespective of changing EPC regulations.

Meanwhile, 48% said that the Government is right to take action to improve the energy efficiency of rental properties, compared with just 21% who are against the decision, while the remaining 31% are undecided.

However, perhaps this support is more for the notion of improving efficiency in the sector, rather than EPC ratings themselves. A er all, a government consultation from 2020 revealed that fewer than 3% of landlords believed the EPC rating system was fit for purpose.

Indeed, many have argued that the EPC rating system penalises landlords for the cost – rather than the emissions – of their property’s energy usage. Therefore, landlords with sustainable features o en receive a lower EPC rating, purely because they cost more to run.

For now, however, this is a debate for another day; the regulations are coming in two years’ time, and action must be taken across the PRS.

Making changes So, which changes are landlords going to make, and how will they finance them?

Obviously, there are relatively cheap adaptations to make. Most landlords (73%) have replaced or are planning on replacing old lightbulbs with LED lighting, for instance, while 64% will install more energy-efficient kitchen appliances.

However, for those planning to make more significant changes – 70% are going to prioritise lo or wall insulation, for example – financing the renovations may be more difficult.

As such, a significant majority (65%) want more support to help them adapt their homes, while more than

PARESH RAJA is CEO of Market Financial Solutions

half (52%) are considering increasing rent to pay for any adaptations.

For those landlords requiring capital to help adapt their properties, the specialist finance sector can – and must – help. Lenders and brokers will need to come together to achieve this, paving the way for BTL investors to access the fast, flexible finance they need.

The specialist finance sector can help There are many ways in which lenders in the specialist finance sector can support landlords as they prepare for the new EPC rules. Education from lenders to brokers and borrowers will undoubtedly be important.

In the current climate, many landlords will not have the liquid capital needed to make these changes to their properties. Flexible financial options – like bridging loans or BTL mortgages – could prove vital for those looking to keep up with a rapidly changing regulatory landscape.

Despite the challenges, it is positive to note that the PRS is collectively working towards a greener, more sustainable market. At MFS, we are keen and ready to support brokers and landlords on this journey. ●

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dark on EPC rules There are relatively cheap adaptations to make. However, for those planning to make more significant changes, financing the renovations may be more difficult”

March 2023 | The Intermediary

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Landlords struggle after removal of interest relief

SOFIA JONES is managing director of Penny House

The removal of mortgage interest relief has had a significant impact on the rental market

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he Government’s decision to phase out mortgage interest relief for individual landlords since April 2017 has sparked heated debate among landlords, tenants, and policymakers alike.

The tax benefit allowed landlords to offset the interest paid on their buy-to-let (BTL) mortgages against their rental income when calculating their tax bill. Its removal has had a significant impact on landlords and tenants, and further-reaching effects across the housing market.

The changes hit hard landlords who were heavily reliant on tax relief to generate a profit from their rental properties. The reduction in net income makes it more challenging to cover their costs and maintain their portfolios. This has led some to scale back or sell properties, reducing the supply of rental housing in some areas. This has not only made it more challenging for tenants to find suitable properties, but has also pushed rents higher in some areas.

It is also more challenging for new landlords to enter the market, as the reduced tax relief means that rental

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income is likely to be more heavily taxed. This has dampened investor interest and slowed growth in the rental market, further exacerbating the housing shortage.

To mitigate the impact, some landlords have increased rents to cover the additional tax costs. However, this has in turn made it harder for tenants, particularly in areas where rental prices are already high. This has increased the burden on tenants, who are already struggling with rising living costs and stagnant wage growth.

Limited strategy Some landlords have found ways to circumvent the changes by purchasing or moving their buy-to-lets into a limited company. This enables them to continue benefiting from mortgage interest relief and reduce their tax bills. Moreover, some have shi ed their borrowing pa erns by increasing the mortgage against their limited company BTLs and paying down or off their residential mortgage.

This approach provides greater flexibility and stability in managing their portfolio, as they can access tax benefits and generate a more stable income stream.

The removal of mortgage interest relief has also brought to the fore the wider issues facing the UK rental market. The shortage of affordable and suitable properties is a longstanding challenge. The removal of mortgage interest relief has only exacerbated this, creating a ripple effect that has made it harder for some tenants to access the housing they need.

To address these issues, policymakers need to adopt a holistic and integrated approach that tackles the root causes of the housing shortage. This should involve a range of measures, including increasing the supply of affordable housing, encouraging new entrants to the rental market, and supporting tenants with affordable rents and secure tenancies. Moreover, policymakers must consider the broader social and economic implications of changes to the tax regime, including their impact on landlords and tenants.

In conclusion, the removal of mortgage interest relief has had a significant impact. Landlords who were heavily reliant on this tax relief have seen a reduction in their net income, making it more challenging to maintain their portfolio.

This has had a knock-on effect on tenants, who are struggling to find suitable and affordable rental properties. While some landlords have found ways to circumvent the changes, policymakers need to adopt a broader and more integrated approach to address the root causes of the housing shortage and support both landlords and tenants. ●

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Buy-to-let still presents plenty of opportunity

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ccording to the Financial Conduct Authority (FCA), there are around 2.7 million landlords in the UK. Investing in property has become a popular way for many to seek an improved return on savings, plan for retirement, or make property their full-time occupation.

With the private rental sector (PRS) needing around 227,000 new homes a year to meet demand, there won’t be a shortage of tenants seeking the right properties for many years to come.

In 2022, more than 211,000 buy-tolet (BTL) mortgages were approved, comprising nearly 14% of total mortgage lending for the year.

When United Trust Bank (UTB) first entered the mortgage market in 2015, we set out to offer a be er deal to the hundreds of thousands who simply weren’t being well served by the mainstream mortgage market.

We started with second charges and immediately shook the status quo with a refreshing, common-sense approach to lending that won us broker fans and quite a few awards.

We took a human underwriting approach — no credit scoring — were willing to take a view on marginal cases, and offered loans on a wide variety of property types, including non-traditional construction styles.

We also welcomed applications for loans on properties in locations other lenders wouldn’t consider — over commercial premises, for example, or next to prisons.

We subsequently extended into residential first charges for purchases and remortgages, and last year we launched into BTL, all supported by that same ethos: we want to lend.

Like other purchasers, not all landlords — or their investment

BARRY LUHMANN is head of buy-to-let mortgages at United Trust Bank

properties — fit the tick-box criteria demanded by many mainstream lenders, and that’s a space UTB is very comfortable occupying.

Hassle-free We’ve invested heavily in technology to provide a slick, hassle-free broker and customer experience.

For instance, we recently launched a new process which accelerates and simplifies the underwriting of applications involving the landlord’s background buy-to-let portfolio. Our BTL portal now includes a section which matches the existing portfolio with the mortgage data supplied by our credit reference agency (CRA).

Lenders generally need the same information for each of the applicant’s rental properties, including property value, mortgage balance, mortgage payment, and rental income.

Frequently, this information is provided on a spreadsheet which might be out of date or difficult to match to the mortgages or secured loans on the credit search, particularly as CRAs don’t hold records on all mortgages from all lenders.

A manual underwriting process then starts, with lots of back and forth between the lender, broker and borrower to resolve queries. This takes time, and can lead to delays and subsequent frustrations. Our system removes all that.

Although the recent increase in interest rates may have taken some of the heat out of the property market, we’re still seeing significant buy-to-let activity.

Although higher rates have made affordability and stress testing a li le more demanding, most lenders, including UTB, still use an income cover ratio (ICR) from 125% and have a range of higher fee, lower

rate products to complement the core range.

We will lend up to £500,000 at 80% loan-to-value (LTV) and all the way up to £1.5m at 65% LTV. At the other end of the spectrum, we’ll lend from as li le as £50,000 as long as the property value is £100,000 or more, and we’re happy to lend to first-time landlords, as long as they already own a property.

We’ve seen a significant increase in borrowers funding higher yielding property investments, including holiday lets, houses in multiple occupation (HMOs) and multi-unit blocks (MUBs). Although they can be more work to manage, they can undoubtedly deliver a higher income, which can overcome higher borrowing costs.

If a landlord is looking for holiday lets, it’s probably not important to the guest that the property is of nonstandard construction or in a mixeduse building, as long as it fits the bill for their stay. But these properties can be great value and deliver an excellent return, if the landlord can find a lender willing to lend on these more unusual cases.

We recently provided a landlord with a mortgage to buy a converted water tower. It had a strange layout and might not have been everyone’s cup of tea for a permanent residence, but it was a good price and made for a quirky and popular holiday let.

Investing in property is no longer the preserve of the wealthy, and at UTB we’re keen to help both experienced and fledgling landlords make a success of their buy-to-let businesses. ● March 2023 | The Intermediary

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The importance of underwriting in buy-to-let

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he buy-to-let market has — rightly — been dominated by the volatility in rates over the past six months.

While some stability has returned to the market in the past couple of months, the underlying uncertainty that drove increasing rates at the end of 2022 remains, and will stay in place — we expect — throughout this year and into 2024 before it se les.

However, we are not expecting a huge slowdown in buy-to-let applications; remortgage business will remain high, landlords on tracker mortgages will look to keep their options open, and while some investors will scale back their ambitions, a fall in house prices could create a buyer’s market.

So, now the conversation needs to move on, not necessarily to wait and see where the market normalises at, but to how we support brokers and their landlord clients through the next year.

Lenders that provide clarity, simplicity and reliability will be those that stand out and earn the loyalty of their customers, for when they are approaching deals as rates start to come down.

Offering simplicity A er a year of trying to understand swap rates, making buy-to-lets simpler will be a welcome relief, particularly for landlords with larger portfolios who are looking to consolidate.

Our approach to these types of transactions is one of common sense.

These make great sense for the client as a more tax efficient way of owning the properties in their portfolio, while ensuring the transaction follows the right procedures.

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We deal with these types of transactions every day, and always look for the best way of incorporating the clients’ assets, in a way that works for them and ourselves, by exploring all possibilities.

Our flexible approach to these is what sets us apart from a number of lenders, and allows us to come to a resolution that suits everyone involved.

Technology plus experts As the current market is moving quickly, we have increasingly seen the value of our technology improving the speed at which we can turn applications around for brokers, who need to deliver for their clients before the market has moved on.

What should not get lost in this, though, is the role of expertise, especially around working through the criteria and particulars of a deal to make sure it is the right one for the landlord in question.

This is one of my key objectives: bringing the underwriter into the room, building relationships with both business development manager (BDM) and broker partners, understanding the deals from the outset, giving guidance without giving advice, and looking at ways we could make a deal work in line with our lending policy or criteria.

We are piloting an idea where we have a designated underwriter dealing with a particular broker — it will improve the relationship and help us to understand the type of investors and properties the broker deals with. In addition, it will ensure that policy and criteria is adhered to at all times.

We have examples of this working recently, where a client and broker visited our office in London and requested that they deal with a

RAHEEL BUTT is head of buy-to-let underwriting at LendInvest

Lenders that provide clarity, simplicity and reliability will be those who stand out and earn the loyalty of their customers, for when they are approaching deals as rates start to come down” particular underwriter; although this may not always be possible, we will endeavour to do our best to accommodate where we can.

The road ahead Resilience is a theme that has underpinned the UK property market — and buy-to-let — over the past decade, and it will continue to be displayed over the next year.

People need high quality homes, and with investments in build-tolet growing, there will be plenty of opportunity for landlords.

Our job, as lenders and underwriters, is to support property investors to calmly get past the noise around rates, and focus on the longterm opportunities. ●

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Refurbishment buyto-let can improve balance sheets

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any of my friends have reached a particular milestone birthday recently, sparking multiple discussions about age and how to combat its effects. Is it time to activate that gym membership?

Switch to veganism? Become MAMILs (middle-aged men in lycra)? Those who have embraced the saddle have further decisions to make: how much should they spend on a bicycle? £500? £1,000? Or really go for it with an Aston Martin/Storck road bike, RRP £15,777? Yes, really.

Cost of maintenance A li le maintenance is probably sensible a er a certain age, whether we’re talking humans or houses, and there is generally a price tag of some size a ached.

In the UK our housing stock is mixed and varied, but the majority of it is undeniably ageing. Almost a quarter of all homes in the private sector in England are over 100 years old, and according to the BVA BDRC Landlord Panel Survey Q4 2022, 58% of landlords have at least one terraced house in their portfolio.

These good, solid properties were evidently built to last, but need periodic refurbishment to keep them in line with modern standards. The same goes for much of the 55% of English private sector homes built between 1919 and 1980.

Roofing, foundations and piping in older properties can all cause problems if not checked, invested in or even replaced when the time is right. Ill fi ing, single-glazed windows, insufficient lo insulation, old fashioned heating systems and inefficient boilers also need to be

updated to keep energy bills as low as possible – a key consideration in the current market of ongoing elevated energy costs.

Buy-to-let landlords, particularly portfolio investors, tend to be switched on and aware of the benefits of maintaining their property to a good standard – namely higher rents, increased capital value and enhanced tenant loyalty.

Investing in quality These landlords understand that you need to pay out to make a return, and that includes investing in the quality of your portfolio. Soaring fuel bills are likely to add extra impetus for those considering upgrading the energy efficiency of their buy-to-let rentals, regardless of the potential tightening of Energy Performance Certificate (EPC) criteria.

Indeed, according to the Landlord Leaders research we carried out in H2 2022, 40% of professional landlords had already invested in energyefficient property improvements, with a further 35% planning upgrades ahead of possible EPC changes.

At the same time, however, the higher interest rate environment and general economic uncertainty may be acting as a disincentive for landlords to dip into their capital reserves to fund improvements.

Flexibility and exit Refurbishment buy-to-let products can provide the ideal solution. These loans offer the flexibility of bridging finance with the certainty of an exit onto a long-term buy-to-let mortgage once the improvement work has been done, provided the property meets the expected valuation.

Landlords can usually choose whether to pay the interest on

ADRIAN MOLONEY is group intermediary director at Precise Mortgages

In the UK our housing stock is mixed and varied, but the majority of it is undeniably ageing.

Almost a quarter of all homes in the private sector in England are over 100 years old” the bridging finance during the refurbishment work, or keep their costs down during this expensive time by adding it to the buy-to-let mortgage once the property is le able. They also have the reassurance of knowing what their buy-to-let interest rate will be post-works from the start of the process.

According to the BVA BDRC survey, landlords estimate the average bill for of making a property EPC Band C level energy efficient would be £8,300, and 62% of landlords would dip into their savings to cover this cost.

They might be very pleased to hear about viable alternatives from their broker, which would allow them to leave their savings for a rainy day, use them to leverage up their portfolio – or maybe start that bike collection. ● March 2023 | The Intermediary

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The Interview.

Quantum Mortgages

T With landlords battling new regulations, lower rental yields and Government mismanagement, the buy-to-let market has never been more challenging.

The Intermediary sat down with Quantum Mortgages co-founder Jason Neale, and Spencer Gale, director of distribution and marketing, to find out how they plan to support brokers and their landlord clients through these difficult times

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he past few months have left the mortgage sector in a vulnerable position, to say the least. But as the mini-Budget fallout gradually dies down, it is becoming increasingly evident that no area of the sector was left more exposed

than buy-to-let.

Battling in the face of Government mismanagement, lower rental yields and upcoming energy performance certificate (EPC) regulations, the average landlord is struggling more than ever.

This is where Quantum Mortgages comes in.

Coming up to its first anniversary, Quantum specialises in supporting landlords, and offering flexible options for specialist cases in an increasingly complex market.

The Intermediary caught up with co-founders Gautam Panday and Jason Neale, as well as director of distribution and marketing Spencer Gale, to discuss a challenging but rewarding first year, and to ask the all-important question, where next?

Not just a number Launching is a difficult task for any non-bank lender, let alone doing so in a year that saw unprecedented challenges in the shape of a catastrophic mini-Budget.

Indeed, even beyond the obvious obstacles, Neale explains that it was much harder than anyone had imagined.

“It’s been really challenging, especially when you consider what we’ve had to overcome,” he says.

“There are so many obstacles – even little things like getting the bank to allow you to collect direct debits for your mortgage payments, is a challenge.”

Neale adds: “We launched this lender against the backdrop of a new war in Europe, inflation at a 40-year high, a cost-of-living crisis, an energy crisis, three different Prime Ministers, a disastrous budget in October, and swap rates

I N T E RV I E W

going up by about 3.5%. As a backdrop, it was pretty challenging, and that’s as well as doing all the logistical stuff you need to lend.

“But we’ve stayed the course and we’re really proud of what we’ve achieved, and the feedback since the early days has been incredible. Most brokers can’t believe the proposition we’ve put together, but it’s because we understand the market.”

Gale agrees, citing early broker feedback as overwhelmingly positive.

“Brokers have actually taken to it really well; our figures demonstrate that,” he says.

“We’re not just a number, we’re trying to build something special here.

“We found a little niche in the marketplace – not chasing the rates, but working hard on properties and those experienced professional landlords, we’ve been able to add value to a lot of people’s portfolios.”

Strong institutional backing As for funding partners, Quantum seems to be well supported.

With backing from AB CarVal, an established global alternative investment manager, Quantum has been able to enjoy the successes of its first year, according to capital markets director Pandey.

“In addition to providing funding for mortgages, AB CarVal is the majority shareholder of the business, providing for a long-term strategic alignment,” he says.

“Funding and capital markets have widened out materially in the last couple of quarters.

“There was a clear negative impact from this to lenders, as their cost of funds widened out, and much of that has had to be passed onto borrowers.”

He continues: “Quantum remains better positioned than many peers to weather this and provide financial solutions throughout – as we did in 2022, when we honoured the rates on all our applications and were the first to provide our broker partners with new fixed rates products after the mini-Budget disruption.

“As landlords seek to grow their portfolios with more specialist properties, we look forward to partnering with them to deliver compelling customer-driven financing solutions for their various property types.”

Neale adds: “We’re very secure in our funding, the initial arrangement we had was £1bn, and we’ll just keep rolling it over from there. We’re fortunate to have some brilliant partners who have a stake in the business – we are totally aligned.”

Face-to-face Aside from its emphasis on specialist cases and its strong funding line, Quantum also champions the personal touch. While technology remains a key part of the proposition, Gale believes it is a nuanced and personal approach that sets the business apart.

“Because of the way sourcing systems work, and the way the brokers work, it is best practice to give the best rate available to the client,” he begins.

“But we’re the whole thing. It’s not just about rates, it’s about the property, it’s about their experience, and most importantly, it’s about adding value to their portfolio.” →

We’re very secure in our funding, the initial arrangement we had was £1bn, and we’ll just keep rolling it over from there. We’re fortunate to have some brilliant partners” Jason Neale and Spencer Gale

March 2023 | The Intermediary

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Gale adds: “As a sales team and as a lender, you can’t just sit back and wait for the phone to ring.

“You’ve got to be in front of those brokers and ask what they have on their desks, and how can we add value to their business.

“There’s the larger organisations which have got advisers all over the country working on Teams, but then there’s those like us, who are actually handholding, face-to-face, and looking at those cases together.”

Northern Ireland Quantum also has a unique proposition, in that it is one of the only buy-to-let lenders which operates in Northern Ireland.

Despite historical market challenges, Neale says that landlords there are no different than they are here.

He adds: “For the past 15 years, Northern Ireland has had a bit of a rough ride from mortgage lenders.

“After the financial crash in 2007, it’s no secret that Northern Ireland suffered the worst in terms of house price reductions and some of the mortgage books that went really bad – it is being treated based on what happened 15 years ago.”

He continues: “There are three or four banks in Northern Ireland that will do the ‘vanilla’ stuff all day long, but when it gets a bit more complex, the market is massively underserved.

“We aren’t a balance sheet lender, so we can’t do unlimited amounts of lending in Northern Ireland, and it’s going to need more than Quantum Mortgages to help that market.

“But we understand the market, and fundamentally for us, there is no difference.”

Landlord diversification With single-unit landlords under pressure due to squeezed rental yields, many are increasingly being forced to diversify or jump ship altogether.

Quantum has made a point of reacting to this shift, and supporting landlords during a stressful time.

Neale says: “Spencer and I have worked with landlords for a long time, and we are seeing this migration from the very easy single-unit, one property, one tenant type scenario – into more specialist properties.

“The biggest reason for that is yield. In terms of the lending space, the biggest challenge that landlords have now is the [interest coverage ratio (ICR)] calculations, because as the cost of borrowing has gone up, the rental yields 52

The Intermediary | March 2023

As landlords seek to grow their portfolios with more specialist properties, we look forward to partnering with them to deliver compelling customer-driven financing solutions for their various property types” are getting squeezed. This forces landlords to get into more specialist property types, and of course, this is where we come into our own.”

He adds: “The type of properties that we offer are the higher yield, more specialist stuff: multiple tenancies, smaller properties, smaller value properties – where the rental yield is so much greater.

“So, we’ve got the perfect proposition for landlords who want to move into more specialist style properties.”

Gale agrees, adding: “I respect the fact that lenders have tried to find an ICR calculation by increasing the fee to get cases to fit, but some have taken it too far by charging as much as 7% product fees, which not only eats into landlords’ equity, but also increases risk, because a 75% exposure becomes an 82% exposure.

“While we do, of course, have a limitededition product with a slightly higher fee, designed to help remortgage customers, for us that’s not the way we want to go, because that’s a marketplace we don’t really fit in.

“But our added value is really in our specialist range and multi-unit range, where we differentiate ourselves considerably from our peers, and where we’ve separated ourselves from others over the past 12 months.”

EPC regulation Another major issue facing landlords is the prospect of increased EPC regulations by the Government.

Under the new regulations, landlords will be required to raise their energy ratings to at least a Band C by 2025 for all new tenancies, and by 2028 for existing tenancies. The Government has estimated that bringing a property from a Band E to a Band C rating could cost approximately £4,700 on average. Those that do not comply in time could face a fine of £30,000.

However, due to unclear guidance and a lack of formal confirmation, many landlords have been left scratching their heads – or worse, ignoring the regulations entirely.

The Quantum Mortgages senior leadership team

We have a fairly unique proposition in the sense that we will actually break our loan-to-value banding to fund energy improvements”

are answers when it comes to the whole EPC thing. At some stage, someone has to turn around and say: we’ve got this white paper to be delivered. We’ve given landlords until 2025 to get it right, but it won’t be delivered until 2024. That’s just not enough time.”

Appetite to lend Neale and Gale both suggest that much more needs to be done on the part of lenders to help facilitate landlord understanding and progress, but without clear Government guidance, many do not know where to begin.

“I haven’t seen any evidence that landlords are taking any notice of it or doing anything about it,” Neale admits.

“However, as a lending community we are doing a pretty poor job to help them.

“We see lots of green mortgages out there, but it’s just noise – it’s not actually doing anything to help landlords.”

He continues: “We have a fairly unique proposition, in the sense that we will actually break our loan-to-value [LTV] banding to fund energy improvements.

“We can only lend up to 80% LTV, but if someone commits to improving their property from below a C to a C or higher, we will break our LTV band and lend them an extra 2% to do the work.

“That’s one of the only ways I’ve seen that lenders have actually been proactive – but as a lending community, we have to do more.”

Gale agrees, calling on the Government to be more transparent.

He adds: “There’s been so much documentation since the white paper got pulled, but there are more questions than there

One year on, it is clear that Quantum is still reaping the rewards of a successful launch.

By helping brokers navigate the difficulties of the current buy-to-let market, and offering bespoke, specialist solutions to complex cases, Quantum has established itself as an up-andcoming non-bank lender.

So, following this initial success, where will the business go next?

“For us, it’s business as usual,” Gale says.

“We’re looking to double our numbers from 2022 into 2023. We’ve got an appetite to lend.

“But our biggest challenge is changing broker habits and getting noticed in the marketplace.

Because we’re not well known, and we’re not on page one of the sourcing systems, we need feet on the ground.

“We will be knocking on as many doors as we can to raise our profile against some very big brands in the market.”

While there is still work to be done, Quantum has certainly already made an impact.

“We’ve had an amazing first year,” Neale says.

“We’ve managed to secure a place on pretty much every major mortgage network and club panel in the country.”

He concludes: “We hope for more of the same in 2023, with some additions to our proposition, because we are not the type of people to stand still.” ● March 2023 | The Intermediary

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

How will Consumer Duty impact later life lending?

T

he Financial Conduct Authority’s (FCA) Consumer Duty is a significant milestone for the financial services sector. The three-year strategy, announced in 2022, will impact everything firms do, pu ing consumers firmly at the forefront of all decisions.

In practice, Consumer Duty means doing right by consumers throughout the lifecycle of a product or service.

Regulated firms – including those in the equity release sector – must ensure the price a customer pays for any product or service is reasonable in comparison to the benefits.

As the representative body for the equity release market, we welcome the greater importance being placed on consumers. Long before Consumer Duty was conceived, we commi ed to going the extra mile in pursuit of positive consumer outcomes, by requiring members to uphold safeguards and standards that complement statutory regulation.

Providing support to our members The Equity Release Council has worked with the regulator and other key industry players, including hosting a webinar for members in conjunction with the FCA, providing members with a forum to ask questions about the duty.

Ahead of the implementation date, the council has worked with a global advisory firm to publish guidance focusing on a key component: the fair value assessment. Fair value is part of the price and value outcome, which the FCA itself has said is one of the most important parts of the duty.

Members’ questions also identified this to be an area of particular interest.

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The duty will change the dynamics around responsibility across the financial services market, requiring firms at all stages of the advice and sales process to ensure they provide fair value to consumers.

While embedding industry-wide changes will take time, the duty provides a significant opportunity to take stock and move towards a more accessible market and customercentric approach.

The industry reality For advisers, the greatest shi will come in assessing the initial and future needs of potential customers, including what equity release might help them to fund.

Adviser firms will be required to take “reasonable steps to determine the amount, or make a reasonable estimate, of the customer’s current income and expenditure.” This builds on existing regulations and the council’s Checklist for Advisers, which highlights the importance of ensuring customers have made a realistic budget before releasing equity.

Where an income reduction is likely upon retirement, advisers have a responsibility to forecast the impact, to ensure customers maintain a good standard of living. This extra check will help build a true picture, in order to accurately assess the options and alternatives available to their clients.

The Consumer Duty places greater responsibility on advisers in the initial sales process. In addition, it encourages ongoing communications, to ensure a customer has be er outcomes as their needs evolve during the lifetime of a product.

These communications have been a focus for the council in the past year, and we welcome regulatory support.

KELLY MELVILLE-KELLY is head of risk, compliance and regulation at the Equity Release Council

Making sure providers’ products are aimed at the correct target market will also require a greater contribution and assessment of customer data.

For example, if a customer was originally advised to take out a drawdown product, but has not made use of this function, perhaps a different product type would have been more appropriate for their needs.

An optimistic future While the Consumer Duty has been long anticipated, the sector must continue to take proactive steps to prepare. For council members, this is another important milestone in the evolution of working practices.

Our own standards have already transitioned to a principles and outcomes-based approach, which fits with the direction of modern regulation and will stand members in good stead. We’ve seen first-hand the great lengths firms have gone to in order to embed the new approach, but it’s important that those who still have work to do make the best use of the months ahead.

Consumer needs are not static, and there is always more to do to ensure suitable solutions for every individual.

There will never be a one-size-fits-all solution to the duty. Building on the council’s guidance, member firms must develop their own bespoke procedures and appoint a champion to drive forward the initiative.

We will continue to work closely with our members ahead of the first critical point, and provide support and guidance, with fair value for consumers at the forefront. ●

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

Six months on from the mini-Budget . . .

W

hether you are a mortgage market newbie or someone who clearly remembers each Mortgage Market Review paragraph, the fallout from the September mini-Budget is something most are unlikely to forget in a hurry.

So, what has happened to the equity release market in the six months since ‘Trussonomics’ became a phrase, and where is it going?

In the immediate a ermath, as with the broader mortgage market, there were changes to the product landscape as well as customer appetite.

Indeed, product ranges were pulled and amended as lenders worried about whether they could responsibly support advisers and customers with their offerings. This saw a sharp reduction in the number of products on the market from 582 in Q3 2022, to 317 in October, and 242 in December.

Increased products As with the traditional residential market, we’ve started to see slow growth in the number of products available since the start of the year, up to 260 in March 2023. However, this is likely to head towards the 300s sooner than some might think, if the noises we are currently hearing across the market are correct.

The September announcements also impacted interest rates – 5.70% in Q4 2023 – but they were already starting to nudge up from a historic low of 2.80% in Q4 2019, as funders considered whether gilts – which were showing significantly improved returns – might be er suit their investment portfolios’ needs.

With a correction in the property market a strong possibility, funders and lenders were also more cautious around loan-to-values (LTV), and we saw the average fall to 27% in Q4 2022 – compared with 30% in Q4 2021.

This has gradually increased in 2023 as confidence grew, which is good news for many customers and advisers, who found that the need to borrow a larger sum – o en to repay a mortgage – was more challenging than they hoped.

This is particularly important, as while rates, LTVs and products were changing, so was the customer base.

Indeed, we saw more people looking to fulfil ‘needs’ such as mortgage or debt repayment or providing a boost to their retirement income, rather than fulfilling ‘ambitions’ such as a new kitchen or a holiday of a lifetime.

A completely understandable reaction to the current cost-ofliving crisis, when people can see

We are hearing that while customers understand that interest rates are higher, many are still keen to access the equity in their homes when the figures add up” the real impact of inflation on basics such as utilities and their supermarket receipts.

On a more positive note, hardwon flexibilities, such as the ability to make interest as well as capital repayments, downsizing protection and fixed early repayment charges (ERCs) thankfully remained core parts of lenders’ offerings.

This was a significant boost for customers who did want to borrow, as it allowed them to be er manage their borrowing and mitigate against higher rates by making ongoing payments.

So what is next? With equity release cases typically taking several months

LES PICK is director of manufacturing and adviser propositions at more2life

from initial advice to completion, we are still feeling the impact of the slowdown in November and December, but there are green shoots.

Indeed, speaking to advisers, we are hearing that while customers understand that interest rates are higher, many are still keen to access the equity in their homes when the figures add up.

Discretionary purchases are still not driving decisions, but having put retirement ambitions on hold due to Covid-19, there is pent up demand that will be released.

More time is also being spent on lead generation and – especially in light of the upcoming Consumer Duty regulation – more formal referral arrangements are being built.

Touching on that legislation, advisers in the equity release market are working hard to ensure not only that they are able to provide good customer outcomes, but that they can clearly evidence how these were achieved.

Thriving market Lenders have not rested on their laurels either.

Whether is it is workshops, face-to-face meetings or new tools, lenders – including more2life – are keen to support advisers as they tackle advice in the a ermath of Trussonomics.

All of this provides me with the confidence to say that, while we may not hit the record-breaking totals seen in 2022, the market will continue to thrive, as advisers and lenders focus on supporting customers. ● March 2023 | The Intermediary

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

Repayments as a tool to manage borrowing

O

ne of equity release’s unique selling points is the ability for clients to release tax-free cash from their homes without having to make mandatory repayments – a particular benefit as the cost-of-living crisis continues to bite.

However, 49% of those who took out equity release in 2023 said they did intend to make some repayments, demonstrating an understanding that in the current rate environment, serving the interestor making ad-hoc capital repayments could help save thousands in the cost of borrowing.

The benefit of making repayments is an important discussion to have as part of the advice process. However, with the current pressures on household finances, it is a message that can be difficult to land.

Tools, calculators and case studies such as the one provided here can be really useful for advisers to help illustrate the long-term benefit of making even modest payments.

Paula is a perfect example of why it’s imperative to explore whether your client can make use of the flexible repayment options embedded within modern lifetime mortgages.

How these discussions are incorporated within the advice process is for each firm or adviser to define, but there’s lots of support out there from lenders and mortgage clubs to help create personalised illustrations to demonstrate the benefits.

It should also be emphasised that managing borrowing in this way is likely to open up more remortgaging

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options in the future. If the property value increases or the balance of the loan has been managed through repayments, customers may be able to transfer to a lower loan-tovalue (LTV) product at a lower rate, or alternatively to raise more cash through their existing product.

Flexible features The growth in remortgaging has been a feature of the market in recent years, and while activity in this area has fallen due to the increase in rates following the mini-Budget, it will inevitably return as the sector continues to mature.

While the absence of affordability criteria and the fact that repayments are not mandatory remain a ractive features for many exploring equity release options, it is important that advisers encourage customers to consider how they can take advantage of flexible features to manage their borrowing. This is particularly important in a higher interest rate environment where, if repayments are not made, the impact of compounding can be significant and limit options down the line. ●

WILL HALE is CEO of Key

£94,000 Borrowed over 15 years from a property that was originally valued at £295,000, but grows to £342,479 (+1% annual house price growth) Monthly Repayment

Total Repayments

Total cost of borrowing inc. initial release

£0

£0

£249,704

£100

£18,000

£218,181

£250

£45,000

£170,893

£400

£72,000

£123,613

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

Case Study Paula, 66 aving split from her partner just prior to the pandemic, Paula chose to keep the keep the house (£295,000) with a small mortgage (£74,000) that she pays £520 per month on.

When added to £650 per month paid on a personal loan as well as a credit card, this eats into her disposable income of £2,375.

Retirement will see her income fall below £1,700, so she needs to keep working, though her health is not what it once was.

Having reviewed her options with her adviser, equity release is found to meet Paula’s needs, as repayments are not mandated and she does not need to pass affordability criteria, which she has fallen foul of recently.

Looking at the illustrations her adviser showed her, Paula is keen to make some repayments on the £94,000 she has borrowed to clear her debts, as it will reduce her total cost of borrowing and boost the inheritance she can leave.

Without making any repayments on her plan (6.64% lifetime rate), over 15 years she would owe £249,704 in total, which with modest house price growth of 1% (£342,479) would mean leaving £127,000 to her estate.

Boosting this amount to £400 – which is still only about a third of her previous total monthly repayments – would save almost £100,000 in compound interest, and mean leaving £218,867 to her children.

And even by repaying £100 a month, she would owe £58,523 less than if she made no repayments – leaving £124,299 to pass on as an inheritance.

H

The benefit of making repayments is an important discussion to have as part of the advice process. However, with the current pressures on household finances, it is a message that can be difficult to land”

March 2023 | The Intermediary

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

World events and short-term focus impact retirement

O

ver the past three years, the relentless series of world events and their effects on the financial markets have been especially pronounced. From the pandemic, to Brexit, to war, and most recently the mini-Budget, the wider landscape has undoubtedly had an impact on consumer confidence, and willingness to engage with their finances and future planning.

Likely as a direct consequence of having to live through unparalleled changeability, people are beginning to take a more short-term approach, focusing on day-to-day considerations rather than financially securing their future.

Financially engaged Recent research from L&G suggests that pre-retirees – over-55s still in work – remain more financially engaged than the UK average, at 62% versus 54%. However, more than a third don’t check their workplace pensions, 28% don’t review their personal pension, and one in five reach midlife without having engaged with their retirement at all.

This comes amid a wider backdrop of concerns surrounding the growing numbers of people accessing their pensions early, or reducing their contributions to their retirement savings. On the la er point, 51% of employers surveyed by LCP have had employees seeking to reduce their workplace pension contributions, and 48% are seeking to stop them entirely.

Perhaps unsurprisingly, the current generation of over-55s are increasingly looking at property to partially fund their retirement. A third (36%) of those surveyed are aiming to take a flexible, dual-stream approach to their

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income, via both their pensions and equity within their homes.

This is echoed by the whole-of-year figures issued by the Equity Release Council, which saw record results despite an especially challenging Q4.

This is likely to continue now that the property market is stabilising, and the doom-laden projections from the start of the year are making way for a more measured analysis that puts the average house price drop for 2023 at less than 3%.

PAUL CARTER is CEO of Pure Retirement

The last thing anybody needs is for people to be taking out long-term products to solve a shortterm problem”

Reducing rates The equity release market is starting to emerge from the effects of last year’s mini-Budget, with product choice increasing and average rates reducing – including our own Classic range, which we were proud to offer as the first sub-6% lifetime mortgage since the mini-Budget.

There will doubtless be an uptick in activity, with 2022’s volumes demonstrating real consumer appetite as later life lending continues to become an increasingly mainstream financial product.

If people are approaching equity release as a means to achieve their financial aims amid a backdrop of inflation and reduced – or even entirely discontinued – pension contributions, then the challenge we’ve got as an industry is ensuring that they’re taking out the right product for their needs.

The last thing anybody needs is for people to be taking out longterm products to solve a short-term problem. This, in turn, places greater importance on the advice process – worryingly, 63% of people surveyed

by Schroders say they have not spoken to a financial adviser about their retirement plans since the cost-ofliving crisis began.

We all have a duty to ensure that those who do make the decision to engage with professional advice benefit from gold-standard wisdom and knowledge.

Those of us operating within that space are supporting advisers in se ing up their clients for the retirement they deserve. We were proud to see our four regional business development managers (BDMs) deliver more than 400 meetings in Q3 alone last year, and we aim to continue that momentum and commitment to keeping our adviser network informed throughout 2023.

Customer journey Ultimately, the looming presence of the imminent Consumer Duty has rightly increased focus on the customer journey.

While it’s easy to split out lender and adviser responsibilities into silos, they remain interlinked at their core, and a part of the same financial services ecosystem.

This co-dependent and symbiotic relationship is vital for delivering effective outcomes for consumers, and remains a point of focus for us over the course of this year and beyond. ●

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

Mortgages can be a cost-of-living help even at 50 or 90

A

s a 50 to 90-plus mortgage lender, we do relentless customer research to understand our demographic.

Recently, however, when we surveyed 2,000 people aged from 50 to 90, we really were struck by the findings – particularly the fear and worry around the cost-of-living.

With the Bank of England predicting a UK recession, many in this age group fear the worst. Threequarters (74%) are already affected by higher living costs, while 83% expect to feel the impact over the next year.

Energy costs are a particular worry, with 55% afraid they won’t be able to heat their home and 42% unable to pay vital bills. A third (33%) are worried about being able to put food on the table.

For many, a er working hard and managing their money for decades, they fear not being able to live the lives they deserve. For example, 25% said they would have to stop a ending clubs and events, while 18% would not be able to go on holiday.

It’s time for the mortgage industry to step up Even in these uncertain economic times, it’s unfair that someone would work so hard to enjoy later life, only to look ahead with fear. So, are there solutions out there?

In short, yes there are. Mortgages can help with all kinds of life plans aged 50 to 90-plus, with 15% telling us they were considering selling or releasing equity from their homes to help with living costs. For those in their 80s, this rises to 27%.

People aged 50 to 90-plus deserve to have access to options they can afford.

Mortgages can be a great help, and

LEON DIAMOND is CEO and founder of LiveMore Mortgages

should be a much greater part of the current conversation.

Huge opportunities for intermediaries We are entering an era of great opportunity for advisers in this mortgage space.

This demographic is bigger than ever, they’re living longer, and they have vast property wealth. Yet incredibly, our research found that only 4% of people in their 50s believe they would be able to take out a mortgage, and that goes down to just 2% for those in their 80s.

As lenders and intermediaries, if we work closely together, we can change these longstanding misconceptions.

Many customers come to us having been told elsewhere – whether it’s by an adviser or on the high street – that they’re too old for a mortgage. That’s why we were founded – to prove these decisions wrong.

Take a recent case as an example: a 58-year-old, self-employed man came to us a er a divorce. He wanted to remortgage to buy out his ex-partner, stay in his home and move on with his life. However, Covid-19 had affected his income and all the high street lenders turned him away.

His adviser recommended LiveMore, because we welcome all incomes. We were able to consider his other incomes, including grant payments, as well as the fact that his income would likely return a er the pandemic. This lovely guy breathed a huge sigh of relief, and we were thrilled when he told us: “LiveMore saved my life.”

Finding the answer All it took was a lender with a can-do approach. There are more than 25 million people over the age of 50 in

Many customers come to us having been told elsewhere – whether it’s by an adviser or on the high street – that they’re too old for a mortgage. That’s why we were founded – to prove these decisions wrong” the UK, so it is no longer feasible for financial services firms and lenders to dismiss them because of their age.

With Consumer Duty rules coming into play this year, it’s also important that intermediaries present clients with all the options available to them.

That means mortgages will inevitably become a bigger talking point with property-rich clients seeking to release or generate extra cash. For intermediaries, these conversations are coming. So be ready – when a client aged 50 to 90-plus says they want to overcome cost-of-living worries, open the ‘Bank of Mum and Dad’, do some home improvements or any other big plans, let them know that a mortgage might be the answer. ● March 2023 | The Intermediary

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

Identifying demand

THOMAS BRETT is head of mortgage and lending at Contact State

O

ver the past 10 years, the equity release market has exploded.

In 2012, lending was at £1bn, and the number of plans taken out stood at around 18,000.

By 2017, the value of the market had tripled to £3.06bn, with almost 40,000 new equity release plans agreed, and in 2018, growth was even steeper – total lending activity grew for a seventh consecutive year to reach £3.94bn, up 29% year-on-year.

Fast-forward to 2022, and – after a pandemic-driven dip in 2020 and 2021 – figures were back up to the highs of 2018, with a record 49,285 homeowners taking out equity release plans, releasing £6.2bn.

In a climate where – thanks to rising inflation eating into pension pots – retirement incomes have to stretch further for longer, it should come as no surprise that people are increasingly turning to property wealth to support them in their later years.

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However, despite the overall increase in the amount of money borrowed via equity release in 2022, the number of plans agreed in the last three months of 2022 fell 17% from the previous quarter.

Now, this decline is unlikely to indicate a fall in demand for equity release – the reasons why property rich, cash poor boomers need to tap into their home’s equity has not changed. In fact, they are stronger than ever given falling pension values and rising living costs. Instead, this drop is in response to the fact that the attractiveness of equity products has taken quite a hit over the past few months.

Between the mini-Budget in September 2022 and the end of December, interest rates doubled from 1.75% to 3.5%, while the average house fell to £294,000 in December – an annual drop of 9.8%. In response, equity release lenders tightened their criteria – more than 70% of deals were removed from the market, and the average rate increased to over

6% – a 47% rise from where it was a year before.

Now, releasing equity is a big decision, and certainly not something to be taken lightly, so with this perfect storm brewing, it is perhaps no surprise that customers are now holding back to assess their options.

However, there is a still an obvious demand there – albeit from a relatively smaller pool of homeowners – and for those in the equity release market, the challenge is to find them.

This means that providers and lenders need to be much more careful and considered around how they spend their marketing budget.

Spraying marketing spend is not a good way of doing things anyway, but at least in a buoyant market it is easy to hide the vagaries. In tougher market conditions, marketing spend needs to be much more focused.

Lead buyers need to filter down to those that are not just considering equity release, but are considering it now. They need to be able to reach those customers that are serious

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

for equity release

about equity release in the short-term future, which means having a much better understanding of intent.

What I mean by this is that the equity release lead generation path needs to go further than simply matching a consumer with provider.

The era of cheap data is over – pulling customers into a lead gen path they didn’t want or understand is no longer going to cut it. Customers won’t fall for this, and in fact our research suggests they are increasingly inputting fake data to avoid unwanted contact, and lead buyers don’t want it – why waste marketing spend?

Going forward, the equity release lead generation path needs to do much more. It needs to actively offer the consumer the next steps for their enquiry – if they take those steps they are a good quality lead, if they don’t, they are not worth pursuing at this stage.

The customer journey needs to be enriched with underwriting questions, so that once a consumer has registered their interest via a lead generation path, the equity release broker or product provider will be able to start asking questions to help shape the next steps.

Ultimately, in a market where rates are higher and criteria are tighter, fewer genuine leads are going to come through. Marketing spend therefore needs to get more bang for its buck, utilising data-driven technology and analytics to gain a full and reliable picture of the customer’s journey, right from the first point of contact.

Equity release relies on lead generation, and when it is done right, it is hugely beneficial for the sellers, the buyers, and of course, for the end customer themselves. ● March 2023 | The Intermediary

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

A hotspot for short-term lending opportunities

Developer appetite remains strong

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he South West of the country doesn’t generally garner as many headlines in the trade press as other areas. Obviously London and the South East are never short of coverage, but the North – including the North West, typically dominated by Manchester – and the Midlands also feature heavily when it comes to bridging finance.

Nevertheless, the South West region – which encompasses Bristol, Newport, Cardiff, Swansea and surrounding areas – is in my opinion a brilliant melting pot for business and opportunity within the short-term lending space.

Master brokers South Wales, and especially Cardiff, have over the years been a magnet for specialist lending firms, with master brokers and packagers a plenty.

They have made it a proud region that is home to some of the very best financial introducers who support the bridging finance market; there’s a real warmth and community spirit, where you o en see incredibly strong lender and introducer partnerships.

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They have ensured that brokers in the area are largely knowledgeable and up to speed with specialist lending, such as bridging, but also including second charges and commercial finance.

Strong demand Despite the more challenging economic environment over the past year, the South West remains a robust region, where there is still incredibly strong demand for property and investment opportunities.

This is, in part, down to the number of large cities that underpin the area and can boast incredible infrastructure, new developments and thriving business communities.

For example, the Golden Valley project in Cheltenham is a 200 acre Gloucestershire site which is planned to be transformed into both residential and commercial properties. The development promises to combine local communities with an environmentally stable home for the UK cyber, digital, and creative sectors, with 3,700 homes and 12,000 jobs expected to be created during construction, planning, and a er the development has officially opened.

HERBIE BONE is business development manager, bridging finance, at Hampshire Trust Bank

Go further down the M5, and there’s the YTL Arena Bristol scheme, a 19,000 capacity indoor arena currently under construction, located on the former Filton Airfield’s Brabazon hangar.

Scheduled to open in late 2025 to early 2026, the project has inevitably been delayed by the Covid-19 pandemic, but work has begun on major pieces of infrastructure, including new road connections, establishing power supplies, and site preparation works.

Discussions are continuing over a train station at Brabazon, which the developers see as important to plans to make it the leading large-scale music venue in the South West.

Economy boost Looking at South Wales, its largest scheme at present is the Swansea Bay City Deal, an investment totalling up to £1.3bn in a range of projects across the Swansea Bay City Region.

The backers of the plan, which cover both the public and private sectors, believe that over its 15-year life span, the investment portfolio will boost the regional economy by at least £1.8bn, while generating more than 9,000 jobs.

Meanwhile, smaller developers across the South West continue to use lenders such as Hampshire Trust Bank for their bridging and development finance needs.

There’s been no sign of any loss of interest within the property investor community as whole, and at HTB we have maintained our appetite for good quality business. ●

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

Financial friends with benefits

I

t was the advent of the 1988 Housing Act which gave rise to the modern tenancy agreement. In simple terms, it gave tenants the right to live undisturbed in a property for a defined period of time at an agreed rental. It also gave more power to landlords, allowing them to set the rental amount and giving them the ability to evict.

This was a watershed moment for the UK rental market, indicative of the Thatcher Government’s drive towards greater free-market autonomy in the housing sector.

Ultimately, it also gave rise in the 1990s to the modern day buy-to-let mortgage. It’s hard to believe now that such a major component of modern specialist lending – where outstanding buy-to-let mortgage balances now surpass over £200bn – only came into existence just over 25 years ago.

When it did so, it joined another tiny specialist product called bridging.

Bridging loans had come into existence in the 1960s, but had made li le impact in their first 30 years.

Blossoming relationship Li le did we know in the mid-1990s how the relationship between these potential partner products would eventually grow and blossom, to the point where a large proportion of bridging purchase, refurbishment, conversion and development loans today rely upon buy-to-let mortgages for an exit.

These two forms of specialist finance, having become deeply entwined and reliant upon each other, have helped shape the buy-tolet market, opening up this form of investment to a massive number of new, professional landlords.

Whether from auction or private sale, bridging loans allow investors and landlords to seize opportunities.

Properties ripe for renovation, modernisation, or conversion – in

some cases even uninhabitable and un-mortgageable – can be acquired and works funded to the point where they are habitable and indeed le able.

Once let, and o en with a short track record of rental receipts, these properties can then be refinanced onto a long-term BTL mortgage.

BRIAN WEST is head of sales and marketing at Saxon Trust

Interconnected Underlining just how interconnected bridging and buy-to-let lenders have become, in many cases buy-to-let mortgage offers are obtained prior to bridging loans being completed. 12 month bridging loans are obviously not subject to the same stress-testing as a 25-year term mortgage, but with certainty of exit key for bridge lenders, the provision of a mortgage offer to demonstrate a potential exit is a vital underwriting consideration.

It’s clear that the symbiotic relationship between buy-to-let and bridging has allowed both to grow massively in recent years, giving investors, landlords and borrowers a wide and highly competitive choice of options.

Of course, the past 15 months have presented some pre y sizable macroeconomic challenges, not least of all 10 increases in the bank base rate! There are clearly further challenges ahead, but equally, there are factors that could help to underpin demand. With challenges, as always, come opportunities.

Bank base rate rises impact both standard and BTL mortgages, but paradoxically, as first-time buyers struggle with affordability, the rental market receives a boost.

Rising demand for rental property and falling supply has helped to offset some of the negative impacts from restrictions in tax relief, removal of the 10% wear and tear allowance, the introduction of 3% stamp duty, and most recently the reduction in Capital Gains Tax (CGT)allowance. Whilst these tax measures are prompting

some smaller landlords to exit the market, those with bigger and more mature portfolios are generally taking a longer-term view.

Softening market As prices fall and the market so ens, many professional landlords and investors are seeking to grow their portfolios in pursuit of long-term gain. They do so in the knowledge that rising demand for rental property brings increased rents.

At Saxon Trust, we have seen a strong growth in auction purchase, commercial to residential conversions, and residential to house in multiple occupation (HMO) bridge loan deals completing in recent months.

Interestingly we are not quoting for an increased number of auction purchases, but our investors, having previously been outbid on many properties, now seem to be enjoying greater success at auction – another sign of a so ening market.

With rates fixed for the duration of our loans, savvy investors have been securing quality property, bringing it up to the standard they expect from their portfolio, and giving themselves the opportunity to wait for buy-to-let rates to stabilise in the wake of the recent upheavals.

In time, they will secure regular buy-to-let deals to exit our facilities, and so the mutually beneficial relationship between us and buy-tolet lenders will continue to flourish.

Financial friends with benefits! ● March 2023 | The Intermediary

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In Profile.

Steve Smith & Richard Keen

Jessica O’Connor sits down with Steve Smith, co-founder and chairman of Greenfield Mortgages, to discuss his decision to enter the mortgage market after founding retail giant Poundland, and how, with industry veteran Richard Keen, he has built a lender focused on personal customer service t is fair to say that Greenfield Mortgages is quite unlike other lenders out there.

The business comes with a built in pedigree in the shape of its co-founder and chairman Steve Smith, who is perhaps better known as the original founder of popular retail chain Poundland.

Launching in 2009, in a post-economic crash landscape, short-term finance lender Greenfield has gone from strength to strength, hiring a team of dedicated professionals, including industry veteran Richard Keen as its national account manager.

The Intermediary sat down with Smith and Keen to track Greenfield’s trajectory thus far, and to talk about the current market, as well as what to expect next.

I

A great opportunity To outsiders looking in, making the jump from successful retail chain owner into the world of mortgages might seem like a pretty big leap.

But upon establishing Greenfield Mortgages, Smith says it was just the right move.

“After I sold Poundland, it was a fairly difficult time with banks and the marketplace, but I had a chunk of money that I wanted to secure, and I was looking for something to do with it,” he explains.

“Being a property investor over several years while I was still doing Poundland, I also loved doing property.

“I had already done several deals with brokers and lenders, and I’d seen an opportunity to create a lender that provided personal service along with quick decisions.”

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He adds: “There was an opportunity to be the market-leading rate, as I could use my own money and I could make quick decisions.

“There were a lot of people at the time who couldn’t get a loan from the bank, so I thought here’s a great opportunity.

“That’s when I started looking in the marketplace, and I came across David Yates and John Grant.

“I met them, loved what they were doing, and it fitted in with what I wanted to do – so we joined forces and created Greenfield Mortgages.”

Initial challenges During a time in which the economy was still on the back foot following the crash in 2007, launching in 2009 was undoubtedly risky.

Despite Greenfield’s ongoing success, Smith admits that the early days did indeed pose some challenges.

“When we started Greenfield, one of my concerns was about banks going bankrupt,” Smith begins.

“Banks weren’t lending money, so money was scarce in the marketplace.

“Also, banks were taking far too long to make decisions so that was a big problem when we started.”

“With bridging, the typical loan is 12 months, and of course, what’s most important is the exit,” he continues.

“If the banks weren’t lending money, then our concern was, at the end of 12 months, how were these people going to pay us back?

“So, obviously that was a big challenge for us when we first started.”

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

Current market

Making it happen

While times – and the mortgage market itself – have changed considerably since 2009, many similar concerns and challenges have reared up in the wake of a global pandemic, political uncertainty, and rising inflationary pressures on both borrowers and lenders.

However, Keen believes that the chaos of the past few months has actually been beneficial for Greenfield’s business.

“I think the mini-Budget really helped the bridging sector,” he says.

“Rates shot up and you could get a bridging deal at a similar price to a straight mortgage.

“In the current climate, brokers are opening their eyes to alternative means of funding. That’s been a real plus for us.”

He adds: “When everything was going up, we held firm in our pricing. As of January this year, we’ve been busier than we’ve ever been before – maybe that’s because the marketplace is improving. Bridging over the last few months has been the cheapest it’s ever been.”

With its focus on person-to-person contact and quick and easy lending, and with market conditions in their favour, it is evident that Greenfield Mortgages is in for a strong year ahead.

On the back of this success, Smith and Keen have some predictions for what the rest of the year may bring.

Smith says: “The way it’s going at the moment, we are probably doing double what we were last year, maybe even triple.

“I suppose the main thing for us is education really, educating people that we’re here, we’ll talk, we’ll work with you and we’ve got a great service.”

A people business So, with great opportunity now opening up for borrowers in the bridging market, what is it that sets Greenfield apart from other bridging lenders?

Smith believes that it is a focus on personal customer service that makes his offering stand out from the crowd.

“Customers like to speak to the decision makers, so, here, all our [business development managers (BDMs)] can make decisions, whether they want to do the deal or not,” he says.

“So, we’ve tried to educate the people here on how to make the right decisions, and quickly.

“I’ve spent all my life working with people, really – I love working with customers and giving them value for money.

“With Greenfield, we love to provide solutions for customers that are looking for funding, and give them a great service and price.”

Keen agrees, adding: “Having worked for very large organisations previously, Greenfield is unique in comparison to that.

“There’s no smoke-screens where you can’t speak to underwriters, and can’t get hold of BDMs. If someone picks up the phone, they’ll be speaking to a BDM who is also mandated as an underwriter.”

He continues: “Whether they get the decision or not, they educated on the phone as to why.

“For me, having worked in big organisations, this is very different – to be able to pick up the phone, and speak to a decision-maker and get a decision back within an hour.

“It’s very much a people business.”

I think the mini-Budget really helped the bridging sector. Rates shot up and you could get a bridging deal at a similar price to a straight mortgage. In the current climate, brokers are opening their eyes to alternative means of funding.

That’s been a real plus for us. When everything was going up, we held firm in our pricing” He continues: “My advice to brokers is always to speak to us – if there’s an inkling of a deal there, pick up the phone, we’re ready to help. At the end of the day we’re here to help their customers and to give a good service.”

Keen adds: “We’re very much on a case-by-case individual basis, so phone up, talk to us, let us understand the case and we’ll find a way of making it happen.

“Sitting in the regulated, standard chain break, downsize, upsize, light refurb space, I agree that the key thing for us this year is educating.

“Both educating the broker on who Greenfield Mortgages is, but also educating more broadly about the bridging space.”

He concludes: “We need to open brokers’ eyes to the opportunities that exist.” ● March 2023 | The Intermediary

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

What does the future of bridging look like?

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he bridging market has always been resilient.

Even with the recent economic turbulence, landlords and investors alike are still exploring opportunities to increase their yield.

In fact, bridging comes to the forefront when traditional borrowing becomes challenging. This is borne out by the latest figures from the Association of Short Term Lenders (ASTL), which showed a sixth consecutive increase in the value of the market. Property investment opportunities don’t disappear in turbulent times, they just change.

Bridging loans have remained relatively stable, at a time when many fixed rate mortgage options have skyrocketed. They can also offer a level of flexibility, for example through the length of the term.

The future landscape I expect that properties in need of refurbishment will continue to be a priority. Landlords will look into converting their properties to houses in multiple occupation (HMOs) and multi-unit blocks (MUBs), or creating extensions to add additional space.

Speed is, of course, one of the most important factors in bridging.

Lenders such as Together, which have the expertise in bridging finance and knowledge of the property market – allowing them to work at speed – will become more desirable than ever.

This brings certainty to transactions, enabling investors to secure the funds they need against tight deadlines, such as for an auction purchase – another area which I’d expect to continue growing.

We will see a widening of the types of brokers and distribution channels that offer bridging, as well as new

entrants – for example, residential mortgage brokers seeking to learn about regulated bridging products.

Specialist brokers will often seek to be all-rounders, giving them the ability to offer all types of finance to their customers. I expect that there will be more use and reliance on specialist packagers in the future.

One area I would like to see more focus on is communication. Lenders need to use more varied methods to keep broker awareness high and provide updates on cases. This could include lender roadshows, technology and webinars.

The quality of the exchange between lenders and brokers is what matters – avoiding one-word answers and focusing on clear, informative communication as a team. This always leads to better customer outcomes, and it is something Together is keen to encourage further.

The tech of tomorrow In all walks of modern life, technology is becoming the mainstream. This is no different in financial services, where tools and systems need to adapt to an ever-changing society.

We need and want everything quickly and simply, and this needs to apply to bridging loans too.

Technology is increasingly available to enable this – mobile apps, electronic signatures – and so digital transformation and technology adoption will play a key part in the future of the industry.

One example of this is automated valuation models (AVMs). At Together, we use AVMs in the first instance in many cases, to help speed up our processes for both brokers and customers.

This is one excellent example of how technology is being utilised in finance,

TANYA ELMAZ is director of intermediary sales for commercial finance at Together

The quality of the exchange between lenders and brokers is what matters” and something I expect to see more of going forwards.

Education never ends Education has a crucial role to play in the bridging market. Brokers and lenders will want to engage with education programmes and qualifications to improve standards, reputation and demonstrate their professionalism and flexibility.

For example, the Financial Intermediary and Broker Association (FIBA) and National Association of Commercial Finance Brokers (NACFB) both offer excellent programmes which we have recently contributed to.

We will likely see more training in general available to lenders and new brokers about bridging uses and the purpose of loans. Ultimately, the main beneficiary of better education will be customers – they deserve to have knowledgeable professionals providing a consistent level of service As bridging is an area of growth, we expect that there will be new entrants appearing in the market. However, it is worth remembering that experience and certainty will always go far, so key lenders such as Together, with nearly 50 years’ experience, present a safe option. ● March 2023 | The Intermediary

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

Distressed assets and the importance of timely action

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he past year has seen a plethora of issues strangle developers and their schemes. An increase in costs for materials came first, followed by the Bank of England (BoE) rate rises. When you add these factors to the high land prices developers have to pay, some are struggling to make their projects stack up.

There are solutions out there, however, and although not every scheme can be saved, many can, and there is hope to be had!

Ground to a halt Last year, a developer came to me looking for a financial solution to save his development. The client had part-developed a number of houses in

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the South of England via development funding from a lender which had effectively now stopped lending.

The client had taken out the development facility and was nine months into the build when the lender stopped meeting the drawdown requests. Eventually, the site was put into receivership as the works had ground to a halt and the term expired.

The client, through no fault of his own, was about to lose his part-built scheme and have his equity wiped out.

When I first spoke to him, I was shocked to hear the detail of what had happened.

At first I was a little sceptical, as I knew the lender. Although it was common knowledge that it was having issues, putting the site into receivership seemed harsh without

ANDREW HOSFORD is a director of Pure Structured Finance

there being any client fault. After reviewing countless correspondences and digging into the detail of what had happened on the site, however, I could see that there really was nothing the client could have done, and no blame could be attributed to him at all.

Fortunately, the deal still stacked up despite it being in receivership.

The loan-to-value (LTV) wasn’t overly high, and though the receivership issue would put a number of lenders off, I knew one in particular that I thought would be perfect.

First, this lender is well-versed in development exit and partcomplete lending. Second, I have an excellent relationship with the

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

MD, and we are quite happy having frank conversations.

Third, and most importantly, he is incredibly commercial and when he believes in a deal, he will try and move heaven and earth to get it done!

The process hasn’t been the easiest due to the circumstances, which led to a new company being created to buy the property out of receivership.

With help from the lender, though, and the client overcoming the many obstacles in his path, we have managed to salvage the deal, as well as the client’s equity and confidence in the borrowing market.

Complicated deals While that was a success story I am proud to be a part of, I am still hearing about a number of complicated deals where the end result isn’t as successful. A large number of the harder cases – or un-fundable ones – are failing for a number of reasons, mostly down to the rate rise and general build cost increases.

However, time is also a big issue.

I still can’t make my mind up if the post-Covid way of working is an issue for productivity or not. Some people are fully back to being office based Monday to Friday. A lot still are not, though, myself included.

The time saved from not commuting into London every day does help with productivity, but then being available to do an odd chore around the house or pop to the shops

to buy food for the week does eat into the commute time saved.

Obviously we are all digitally connected, and information, documents and thoughts can be shared immediately at the touch of a button.

Nevertheless, there are some tasks that just cannot be done as quickly without being face-to-face.

Updated valuation Valuations in particular seem to be slower than normal. Being told “they’re working from home today, I will let them know you’ve called” is getting a little old.

As an example, I have been working on a deal that has dragged on for a number of reasons, with no one party causing the delays. The original valuation was carried out in the summer of 2022, and when the deal

With help from the lender, and the client overcoming the many obstacles in his path, we have managed to salvage the client’s deal, equity and confidence in the borrowing market”

was finally ready to complete at the start of this year, there was an issue in that the valuation was over six months old.

Nothing had changed on the site and the house prices in that area had gone up. All that was required was for the valuer to re-inspect and update the report. A job that they said would take a week, maybe less – they had all the information and it was a simple job.

Alas, it took nearly three weeks, and when the report finally came back, there were some mistakes made by the valuer. The client, lender and myself were chasing hard and hearing some almost comical excuses, but the main one was, “they’re working from home today, I will let them know you’ve called.”

Unreachable To be clear, I am not blaming the work from home movement. I am sat in my home office writing this very article. However, working from home and being unreachable is unacceptable to me.

While there are still so many deals suffering for a multitude of reasons, time really is of the essence. For clients and introducers, I would just say, try to foresee the obvious potential issues and do not delay in making the decision to either line up new finance or put a solid exit plan in place.

A call to your lender to discuss a plan of action, or to a trusted broker, is always a smart choice. ●

The Intermediary | March 2023

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

Tapping into the right specialist lending boxes

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’m writing this following the hosting of our inaugural Mortgage & Specialist Finance Expo, which proved to be a big hit with our existing appointed representatives (ARs), and some potential new ones.

The aim of the day was to present an opportunity for advisers to have face-to-face engagement with a variety of lenders, and gain a better understanding of their products, criteria, policy and underwriting capabilities, in what is becoming an increasingly complex economic and lending landscape.

Variety of solutions Meeting a new lender from a certain sector is always a useful experience from an insight and educational perspective, but it is not meant to be a tick-box exercise or a catch-all information grab to make any adviser an expert within that marketplace.

What some advisers – who haven’t had much experience dealing with cases in areas such as bridging, development finance or commercial loans – don’t always realise is the variety of solutions on offer from lender to lender, or the levels of dispersion when it comes to policies and criteria within any given sector across the specialist lending community. Then, there are the differences in how individual lenders demand applications be packaged, as well as unique underwriting requirements, service standards, I could go on.

Here at the Envelop Network, we are unique in the fact that we have an internal specialist packaging arm that caters for all kinds of specialist lending needs, including bridging, commercial, development and secured second charge loans.

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When discussing a variety of areas throughout the day, a common theme seemed to emerge around growing demand across these sectors, especially from a commercial and semi-commercial finance perspective.

Multi-disciplinary With that in mind, it came as little surprise to see a headline emerge a few days later which highlighted that broker-arranged loans for small business hit £45bn in 2022.

The data from the National Association of Commercial Finance Brokers (NACFB) survey suggested that 48% of respondents said the total value they introduced was higher than in 2021. Only 17% of respondents said value was lower, while 35% said it was broadly the same. The average loan size was pegged at £563,000, a 23% rise on the previous year’s figure.

The report added that most member firms maintained a multi-disciplinary practice, with more than a third of firms saying their primary business came from commercial mortgages.

More than a quarter of firms said their primary business was leasing and asset finance, then buy-to-let (BTL) mortgages. Around 20%, meanwhile, said commercial mortgages comprised their secondary area of business activity, followed by property and development finance (17%) and shortterm and bridging finance (16%).

The largest tertiary area of business was short-term and bridging finance at 28%, then commercial mortgages (19%) and property development finance (15%). The report added that 62% maintained the same offering as the year before, but a third of member firms had diversified their offering in 2022.

It was also interesting to see that the top three reasons from brokers

STEVE SWYNY is commercial director at the Envelop Network

for applications being declined were a valuation mismatch and reduced sectoral appetite, at 14% apiece, followed by poor credit history (13%) and lack of strong cashflow (12%).

Lenders, meanwhile, said that the main reason for an application decline was that it was outside of lending criteria (33%), while 14% pointed to a valuation mismatch and 12% said it was due to poor credit history.

Strength of relationships The commercial finance market remains an interesting one, as a string of differing challenges remain for a variety of businesses across the UK. These challenges outline the rising importance attached to the support of a good, professional advice process in helping businesses to source the right size and structure of financing, whether this be for cashflow, term loans, acquisition or mortgage purposes.

This is also an ongoing theme across all specialist sectors, as the value of this advice – and the value attached to the support of trusted packaging partners in delivering these solutions – is also rising.

As a network, and in tandem with our in-house packaging partner, we work with many commercial finance specialists. It’s prudent to point out that even in the midst of an uncertain economic outlook, many alternative forms of finance remain available through intermediary channels – provided that strong relationships are in place with experts in their field who are able to find ways to tap into the right specialist lending boxes. ●

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

Speed or rate? It’s horses for courses

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he market for shortterm borrowing has been one of the show ponies of the past 10 years, and has proved to be a hugely valuable resource for intermediaries and their clients alike.

Back in 2008, in the aftermath of the Credit Crunch, the banks withdrew funding from small to medium enterprises (SMEs). For those requiring finance or immediate funding for purchase – be it for business or domestic use – the private bridging market really came into its own and expanded to help fill the gap.

To say that bridging singlehandedly provided all the answers to the lack of credit at the time would be patently absurd. However, a very simple concept of short-term secured funding to help clients purchase, refinance or develop to sell, has provided the intermediary market with a valuable tool to help clients, and it has become a mainstay in many brokers’ armouries.

Currently, there are many bridging companies all setting out their stalls to attract business from brokers and their clients.

Choosing the right one to work with and through can be a bit of a lottery, and I think it is important to shop

around to make sure that the deal offered is the best for the client.

As we have illustrated before, there are plenty of ‘best rates’ being offered, which in real life when applied for actually don’t exist, except in the sense that they are the bait to draw in the business. When it is confirmed that the case does not fit the criteria, but can be done on a higher interest rate, brokers are on many occasions not in a position to turn down the new offer and go elsewhere, because they have run out of time.

The right product This kind of sleight of hand might be part of a legitimate marketing ploy, but the old adage that something that looks too good to be true probably is, should help brokers when simply looking at rate as the only maxim for the right product.

Rates for short-term finance are not as important as they are for longterm lending deals. That might seem like sacrilege to those of us brought up on the mantra that ‘cheapest is always best’.

However, if we look at it logically, the interest accrued on a 1-year bridging deal is miniscule in comparison to a long-term mortgage with a notional term of 25 years,

Need for speed: Time is of the essence when it comes to short-term finance

RANJIT NARWAL is head of origination at Kuflink

regardless of the rate being charged.

So, rate differences between lenders in the short-term lending space, even if they look dramatic, are not quite what they seem in relation to how they affect the client.

Obviously, taking two similar offerings with no differences in service standards, then naturally the cheapest one would be best.

I have talked before about finding a lender that can act quickly, which should trump a cheaper rate. If it is the difference between getting a deal done in the timescale required and not, then it is a no brainer.

The difference between losing a deal or holding out for a lower rate with a lender which cannot meet the client’s requirements is a dereliction of the care needed to justify to the regulator about producing good customer outcomes.

With competition in the short-term lending market, what we are finding are clients and their brokers who have gone for a conventional bridging solution and then found that the process is not as fast as they were led to believe, which is why they come to us.

Brokers need to look again at what is important to their clients – speed or rate? Some will say that both are equally important, but what we have to remember is that this is shortterm finance.

The money saved in application is wasted if clients miss the deal they were after because the process takes too long. Brokers will always need an emergency service when the deal absolutely must be done, so it is time to become less fixated with rate as the most important factor in lender choice. ● March 2023 | The Intermediary

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

The evolution of specialist finance NAME is job at Company

S

pecialist property finance has evolved rapidly in the past few years. As base rates began to rise in early 2022, the landscape of lending changed even further. Lenders’ margins were squeezed, leading to increased costs and stricter stress-testing. Lenders have also had to adapt and innovate, which has culminated in the launch of new products.

In this article, we will explore the evolution of specialist finance and its future direction, including the importance of environmental, social, and governance (ESG) considerations.

Historically low interest rates contributed to a period of sustained growth in the property market.

However, the current base rate, which stands at 4.00% at the time of writing, is the highest it has been in 15 years, and with the majority of lenders’ institutional funding lines linked to the base rate or SONIA, this has introduced a new risk for lenders.

As the base rate rises, lenders face the challenge of squeezed profits, making it increasingly difficult to

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offer competitive rates to borrowers.

All the while, the higher interest rates mean it has become less affordable to service bridging loans.

Where some borrowers pay the interest owed monthly, with rates tracked against the base rate, when the base rate changes, this changes the interest owed by the borrower.

Therefore, lenders need to stresstest affordability more stringently, and borrowers need to be assessed in the long-term and against several base rate scenarios.

NICK RUSSELL is sales director at TAB

Tracking liquidity Lenders have had to find the perfect balance to protect their business in the short, medium, and long-term, but also continue to support borrowers.

One solution lenders have taken is to move products onto a tracker rate, which was adopted early by some lenders, such as TAB. This approach protected the business and enabled it to continue to be liquid and support its borrowers and brokers alike.

More recently, we have also seen bridging become a solution for shortterm stability, to allow borrowers to

realise their assets. With the cost of borrowing and long-term debt being more expensive than it has been for 15 years, by taking a slightly longer term on bridging, particularly when interest is deducted, borrowers can improve their short-term cash flow, and asset manage their properties.

Many can therefore buy time to allow for market stabilisation.

As lenders are adapting to market changes, some have reintroduced fixed rate products back into the market at lower loan-to-values (LTVs) to

mitigate risk. Si ing alongside tracker products, the two are designed to find that perfect balance for borrowers.

Looking forward to the rest of 2023, I expect to see that, as base rates stabilise and property prices reach a reasonable level, yields will rebase themselves, and the market will have a greater understanding of where borrowing will max out and the capital requirement for borrowers will bo om out.

ESG improvements From a new product perspective, ESG considerations are becoming increasingly important in the specialist property finance sector, and property in general.

Coupled with the Government introducing new regulations to landlords and releasing more incentives to make environmental improvements to properties, I expect to see products designed to support this coming onto the market.

For example, customers will be able to borrow money to refurbish a property with a bridging loan, which can then be refinanced with longerterm debt that is ESG-focused, with

interest rates that are more palatable for the borrower. This incentivises borrowers to invest in changes and take cheaper money at the same time.

Sustainable future In conclusion, the evolution of specialist property finance is ongoing, and lenders must continue to adapt to changes in the market. With no crystal ball on what interest rates might do next, and with ESG considerations becoming more important, lenders must find innovative solutions to protect their business, while continuing to support their borrowers.

Bridging loans offer a short-term solution for borrowers to realise their assets and manage their properties, while longer-term debt can be ESG-focused to incentivise borrowers to invest in the sustainability of their properties.

By embracing these changes, lenders can continue to support the growth of the property market, contribute to a more sustainable future, and navigate the next challenge that might be around the corner. ●

The evolution of specialist property finance is ongoing, and lenders much continue to adapt to changes in the market”

March 2023 | The Intermediary

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Why choose Magnet Capital?

• No hidden costs. We are completely transparent about our pricing. decisive approach. No ‘double underwriting’ or slow credit committee process. Brokers and • Quick, Quick, decisive approach. No ‘double underwriting’ or slow credit committee process. Brokers and • • •

clients have direct access to genuine decision makers. clients have direct access to genuine decision makers.

Flexible funding. Our funds are provided by our equity partner in the business and therefore we Flexible funding. Our funds are provided by our equity partner in the business and therefore we aren’t limited by numerous investors or have the risk of funding lines being pulled. aren’t limited by numerous investors or have the risk of funding lines being pulled.

Lower fees. All our fees are based on net loan amounts and not gross.

Lower fees. All our fees are based on net loan amounts and not gross.

Better products. We don’t offer retained interest so the client doesn’t pay interest on a large interest Better products. We don’t offer retained interest so the client doesn’t pay interest on a large interest slice from day one. Interest is rolled up or serviced if the client prefers.

from £200k to £2m.

• Loans Loans from £200k to £2m.

Low surveying - no QS monitoring for loans with build costs below £500k.

• Low surveying fees fees - no QS monitoring for loans with build costs below £500k.

Best Service from a Development Finance Provider 2022 at • ‘Commended’ ‘Commended’ Best Service from a Development Finance Provider 2022 at

•

Business Moneyfacts Awards.

Business Moneyfacts Awards.

Additional introducer fee can be added to the loan.

Additional introducer fee can be added to the loan.

 020 8075 3255   hello@magnetcapital.co.uk   www.magnetcapital.co.uk 

The development finance finance experts experts

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

Overseas investors supporting demand for prime London

G

oing into 2023, much was made of the challenging year ahead for the UK property sector, and by extension, the Prime Central London (PCL) property market. Indeed, back in November 2022, the Office for National Statistics (ONS) predicted a 9% decline in prices

by Autumn 2024.

Admi edly, it’s not hard to see why such forecasts were made. 2022 was a difficult year for the sector to navigate; inflation breached the 10% mark, interest rates jumped from 0.1% to 3.5% in the space of 12 months, and political chaos ruled supreme.

PCL outperforms However, despite the challenges that the PCL market faced last year, the start to 2023 has been strong.

According to recent figures, asking prices in London rose by 2.1% in January, to over £680,000, representing one of their fastest ever monthly increases. Conversely, the wider UK market saw prices increase by just £14 in January, marking the smallest ever increase for the month since Rightmove’s records began.

These figures, combined with the fact that PCL house prices are set to grow by as much as 3% in 2023, suggest that the sector is outperforming the wider UK market – but why?

Demand is growing Analysis by Beauchamp Estates shows that demand for super-prime property – £15m-plus – could grow by 30% this year, while the number of new PCL buyers registering in the first three weeks of the year was 6% higher than in 2020’s ‘Boris Bounce’.

When combined with the perennial lack of supply of PCL properties,

ALPA BHAKTA is CEO of Butterfield Mortgages

this level of demand helps to support property prices in the capital. So, where is this demand coming from?

Maintaining demand Recently, much of the demand for PCL property has been driven by an influx of overseas investors. Following the fallout of the mini-Budget in September, it is estimated that buying a property in late September 2022 was 25% cheaper for foreign investors than it was in June 2021, allowing many to pick up some relative discounts.

In particular, PCL property has become popular among American investors, with the pound falling sharply against the dollar in Q3 2022.

In fact, some brokers reported a 50% increase in enquiries from American buyers. As a result, overseas buyers accounted for 57% of all property purchases in the capital last year.

As long as the pound remains weak against the dollar, this trend is likely to continue to support prices, demand and activity levels in the PCL market in the coming months and years.

Broker and lender support With this in mind, it is in the best interests of lenders and brokers to provide overseas investors with the support they need to help maintain the PCL’s buoyant start to 2023. A er all, they do face some unique challenges.

Qualifying for a mortgage or a large loan from high street lenders, for example, can be incredibly difficult for non-UK residents, as they tend to have highly restrictive lending criteria.

Moreover, even if an investor does qualify for a mortgage or loan from a traditional lender, they will typically be charged a higher rate than UK residents.

For brokers, there is a major role to play in helping overseas investors

2023 started strong for the Prime Central London market

to understand the complexities of the UK lending market. To assist brokers with this, lenders must consider how they can be flexible in the current climate of high inflation and rising interest rates, as well as providing some certainty against a backdrop of economic volatility.

Clear communication and excellent customer service is a good place to start, but lenders can also utilise the financial instruments at hand to broaden their product offering to meet overseas borrowers’ needs.

In doing so, lenders can provide overseas investors with the flexibility they need to capitalise on the opportunities that could arise in the PCL market this year. ● March 2023 | The Intermediary

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

Empty homes are full of opportunity

T

he shortage of housing in the UK is a welldocumented long-term structural issue, and despite Government’s ongoing pledges to build hundreds of thousands of homes, the situation seems to be ge ing worse rather than be er.

What is perhaps less spoken about is the large number of existing dwellings that stand empty.

According to Government figures from November 2022, based on council tax information, there are more than 257,000 homes in England that are classed as long-term empty, which means they have been le vacant for more than six months.

This is a rise of 20,000 compared with the previous year, and the highest level in over a decade, outside the height of the Covid-19 pandemic.

These empty homes, most of which require renovation to become habitable, present an opportunity to address the country’s housing needs.

They also present an opportunity for property investors to purchase existing buildings, most likely at a discount, refurbish and then sell or let them at an increased value.

Bridging the BTL squeeze This approach is particularly appealing to property investors in the current environment, given the squeeze on buy-to-let (BTL) mortgages.

Rising interest rates have increased the rate at which BTL loans are stress-tested, meaning that many transactions that would have worked this time last year are now unachievable, unless the investor is prepared to put down a larger deposit and reduce their leverage.

However, investors could use a bridging loan in order to purchase a property in need of refurbishment, either to bring it up to a be er standard of living, or perhaps to split it into multiple flats, diversifying

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The Intermediary | March 2023

the future income stream. At the end of the bridging loan, the investor will then be in a stronger position to present themselves as a lending prospect, able to show that they have added rental and capital value in order to help temper criteria and stresstesting issues.

Bridging can be used to help fund the purchase of the property, plus the cost of renovation work. There are typically two different types of refurbishment loan available from lenders: light and heavy.

Last year, Castle Trust Bank launched a specialist bridging proposition, supported by dedicated sales, underwriting and processing teams. This includes specialist products for heavy refurbishment, light refurbishment, and a bridge that can be used for chain breaks, quick purchases, auction purchases and development exits.

Our light refurb product is available for works that fall under permi ed development (PD), works requiring building regulation signoff, house in multiple occupation (HMO) conversions up to six tenants, replacement windows, decoration, light central heating and electrical work, internal reconfiguration, full rewiring, and installation of bathrooms and kitchens. It’s available up to 80% loan-to-value (LTV), with a range of 6- to 12-month terms, with rolled-up interest.

Our heavy refurb product can be used where planning permission is necessary, although not on groundup developments, and so it could be appropriate for renovating and extending an empty home. It’s available up to 80% LTV with a range of 9- to 18-month terms, also with rolled-up interest.

Refurbishment success Here’s an example of how investors could use a refurbishment bridging loan to provide additional housing and

ANNA LEWIS is commercial director at Castle Trust Bank

increase their returns. We worked with two married investors, a British national and a foreign national, with properties in the UK, as well as Japan and Malaysia.

They were looking to purchase a three-bed terraced house, valued at £300,000 and convert it into a six-bed HMO. The clients intended to use their own funds for the HMO conversion, as well as completing a lo conversion, a refit and refurbishment – all of which fell under permi ed development.

The planned works would significantly increase the value of the property, so the clients were looking for a short-term loan where they only needed to contribute 20% towards the purchase, freeing up funds to complete the works, before moving on to a term loan when they were completed.

We provided an 80% gross dayone refurbishment bridging loan of £240,000 on an interest roll up basis. The client had nine months of interest roll up available, without any payments, to allow for any overruns, and also time to allow for the le ing or sale of the property.

The works were completed quickly, and a er three months, the client opted to switch without an early repayment charge (ERC) to one of our longer-term BTL loans. This enabled the client to replenish the cash spent on the refurbishment, facilitating their next purchase.

With refurbishment bridging finance, empty homes are full of opportunity for investors to help address the housing shortage. ●

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

What is value for money?

I

f I had a pound coin for every time a borrower thought they had a bargain and that they were buying a property at significantly below its market value, I’m sure my bank would report me on suspicion of raiding the local casino’s slot machines.

It’s a conversation which frequently ends with a valuation being provided by a Royal Institution of Chartered Surveyors (RICS) associated surveyor, only to result in disappointing the buyer and the broker, as it more o en than not comes in at the agreed purchase price.

A er all, a chartered valuer with their professional indemnity at stake is going to take some convincing that they should ignore the old adage: a property is only worth what someone is prepared to pay for it.

Opportunistic That said, there are real and credible situations where buyers do negotiate and agree deals to purchase property at prices sometimes significantly under market value. In my experience, these examples normally come about as a result of the seller being in a distressed situation, and o en where time is of the essence.

It’s these opportunistic situations where credible buyers – with experienced lawyers on board and a ready source of funding available – can take advantage and close out a deal which truly represents a purchase at under market value.

I have regularly experienced opportunistic buyers secure deals with Law of Property Act (LPA) receivers, where they are charged with the disposal of blocks of flats with multiple units remaining or even the whole block available. An LPA receiver is also o en appointed as a result of building projects being incomplete and needing investment to complete.

Again, this represents an opportunity to the professional who

can manage these issues quickly and fund the works, as they are sure to get a significant discount against the value.

Meanwhile, recent base rate rises are hi ing those who have relied on high levels of mortgage debt, or where their fixed mortgage rate has or is about to expire. In many cases they’re looking for an exit and can be negotiated down.

Interest rate rises have squeezed the yield for houses in multiple occupation (HMOs), but just to exacerbate the problem, the allinclusive costs involved in running HMOs – such as utility costs and staff – have somewhat negatively impacted the trend and popularity of investors wanting to be in this market.

That’s where the opportunity lies.

For a well set up and professional landlord with the resources to manage HMOs, and with lower gearing, there will be bargains to be had.

Clever property consultancies buy property at under market value, where they have shrewdly negotiated an option to buy. This is o en at a price the vendor is comfortable with at the time, only to go on – within the option agreement period – and achieve a planning approval for a development scheme, making it worth significantly more to a developer.

Under market value There are other situations where opportunity knocks and buyers genuinely do find themselves in the fortuitous position of being able to buy at under market value. Over the years I have seen it all: siblings arguing over the division of the proceeds in a probate sale, where one of the mourning children sees the opportunity to do a quick deal to buy the brothers and sisters out at under value, or a long-term tenant who has agreed to buy from the landlord at the end of their tenancy, but at the market value when they moved in.

COLIN SANDERS is chief executive officer at Tuscan Capital

There are situations where opportunity knocks and buyers genuinely do find themselves in the fortuitous position of being able to buy at under market value. Over the years I have seen it all” So, when the borrower thinks that they have the deal of a lifetime, I do remain sceptical, but it’s always worth ge ing the full story, as there are some situations where the borrower has been opportunistic or fortunate – or both – and could just need funding for their property purchase at under market value.

At Tuscan Capital, we recognise these opportunities, and we like to support them with funding. We understand that speed is o en the key ingredient, and can aid the process with our Fast Track proposition.

We also provide market-leading leverage for deals where the buyer has negotiated a deal at under its market value, as professional applicants can borrow against the market value even if this is significantly higher than the agreed purchase price.

We have on occasion lent 100% of the purchase price, too, where the borrower wanted the acquisition fully funded. In these cases, they provided additional security to support the deal in order for us to fully fund the purchase at under value. ● March 2023 | The Intermediary

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T E C H NO L O GY Opinion

Open Banking will improve the mortgage process

Y

ou need information to assess the client’s financial profile, so request the client to obtain this valuable information and then wait...What comes back might be photos from their phones of bank statements and payslips, and a credit file sent by email to the adviser several days later.

What you need, though, is real time bank account data highlighting transactions, income and their financial position over a period of time. These checks can be easily performed through the use of Open Banking via companies like ourselves.

Open Banking is a system that allows financial institutions to share customer data with their consent, including information about a customer’s banking transactions, balances, and other financial information, which can be used to help assess their affordability for a mortgage. Open Banking can help improve affordability assessments, and this can bring benefits to both lenders and borrowers.

Accurate and up-to-date One of the primary benefits of Open Banking is that it allows mortgage advisers to access a more accurate and up-to-date picture of a client’s financial situation. Traditionally, lenders would rely on credit scores and self-reported income and expenses to assess affordability. However, this is not always accurate, as credit scores only provide a limited snapshot of a client’s creditworthiness, and selfreported income and expenses can be inaccurate or incomplete.

With Open Banking, mortgage advisers can access a client’s financial data directly from their bank,

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The Intermediary | March 2023

providing a more detailed and accurate picture of their financial situation.

This includes information on income, expenses, and other financial obligations, such as loans and credit card debts. By having access to this information, mortgage advisers can make more informed affordability assessments and offer their client the right lender first time, tailored to the borrower’s financial circumstances, in turn improving completion times.

Streamlining In addition to providing more accurate data, Open Banking can also help to streamline the affordability assessment process.

Traditionally, mortgage advisers would require borrowers to provide a range of documents to support their application, such as payslips, bank statements, and tax returns. This process could be time-consuming and costly, both for the borrower and the lender. Now, these can be supplied digitally, with no need to revert to the client, which you know will take time and slow the process of the application down considerably.

Mortgage advisers can access their client’s financial data directly from their bank with their consent, reducing the need for manual data entry and paperwork. This can help to speed up the application process and enable lenders to provide faster and more accurate decisions on mortgage applications. It can also help to improve the quality of services offered to borrowers.

In addition, Open Banking can help to create a more level playing field for mortgage advisers when presenting applications to the lender.

Previously, larger lenders had an advantage in terms of data access; however, with Open Banking,

DAVID JONES is a director at Click2Check

mortgage advisers can access the same data as the lenders, enabling them to speed up the application process with the peace of mind that they have all the information, enabling a confident and informed decision.

Borrower inclusive The benefits of Open Banking are not limited to lenders and mortgage advisers. Clients find the process easier to manage, and it can also make the mortgage application process more transparent and efficient.

By reducing the need for manual data entry and paperwork, Open Banking can help to simplify the application process and enable borrowers to receive faster decisions on their applications.

Finally, Open Banking can also help to improve financial inclusion, enabling borrowers who may have previously been excluded from the mortgage market to access affordable loans. This includes self-employed individuals and those with nontraditional sources of income.

By providing a more detailed and accurate picture of a client’s financial situation, mortgage advisers can help lenders to make better informed decisions and offer mortgages to a wider range of options.

Open Banking has taken a few years to be embraced, but I am now seeing the signs of it being acknowledged as a business tool. Providing mortgage advisers and lenders with the right tools giving more accurate and up-todate financial data can only be a good thing for all.

See what the lender sees, before the lenders see it. ●

T E C H NO L O GY Opinion

Mortgage tech: Where we are, where we’re going

I

t’s been widely acknowledged that the pandemic was a catalyst for change within the mortgage industry – in no aspect more so than tech.

While the mortgage technology revolution was not born out of Covid-19, it was undoubtedly accelerated by it, and at pace. Indeed, prior to 2020, mortgage technology was already making waves with certain early-adopter brokerages quick to embrace it. It was, however, the onset of the pandemic – and the sudden need for advisers to find an alternative to in-person meetings – which meant that almost overnight, mortgage tech became a staple industry-wide.

This was a significant step forward, because it brought even the most traditional of brokers, the staunchest of in-person and on-paper advocates, on board the mortgage tech train.

This laid important groundwork for mortgage technology to be able to really take flight.

Key to this is undoubtedly collaboration. That is, collaboration between tech service providers developing the tools that make the mortgage journey, and the advisers that use them.

At Smartr365 we have our ‘You ask, we build’ forum, where we provide our brokers with the opportunity to feed back on the Smartr365 platform, suggest improvements and ask for new features. In short, we ask them to tell us what their wishlist would be, and – within the realms of possibility!

– we make that a reality. They ask, and we build.

As a result, progress has been fast.

Looking forward, the sky is the limit.

This is made even more the case by the tech advancements elsewhere, and which run in parallel to mortgage innovation. The fast development of capabilities such as digital ID verification and Open Banking, for example, mean that mortgage tech is able to advance ever quicker.

Tech and fine-tuning

We often get asked if the 10-minute mortgage is a realistic prospect.

Although it might seem far off, it is useful to remember that it’s well within living memory that a mobile phone was the reserve of the very rich and famous, people listened to music on a Walkman, fax machines could be found in offices, if you wanted to find out about something you looked it up in an encyclopaedia, roadmaps were a staple in every car, and not even digital cameras had yet come into existence.

Today, the vast majority of us walk around with highly advanced, dynamic and aesthetically perfect devices that perform the tasks of all of these, within a matter of seconds and simultaneously if we wish, and do so better than their predecessors.

As the saying goes: perfection is the enemy of progress. While initial iterations may have been a bit clunky, with mass adoption driving feedback and increasing the chances of spotting errors or inconsistencies, mortgage technology fast reached the optimisation stage. This is where we find ourselves now.

Mortgage technology has already come on leaps and bounds in the past couple of years alone, and optimisation will now be an ongoing process as tech continues to develop, and innovation brings about new and better ways of achieving an even quicker, more efficient, safer, smoother and all-round better mortgage journey.

The 10-minute mortgage

CONOR MURPHY is chief executive officer at Smartr365

While initial iterations may have been a bit clunky, with mass adoption driving feedback and increasing chances of spotting errors or inconsistencies, mortgage technology fast reached the optimisation stage”

Would we have thought this possible just 10, 15, 20 years ago? It is safe to say that perhaps only the Steve Jobses amongst us would have said yes.

So, back to mortgage tech, is the 10 minute mortgage a realistic prospect? I think we can say that it is, without doubt.

This is not to say that we will have them tomorrow, next week, next month or even next year – but we are well on our way, and from a personal perspective, I am excited about the journey ahead to get there. ● March 2023 | The Intermediary

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T E C H NO L O GY Opinion

The tech evolution of the mortgage market

JODIE WHITE is head of mortgage products & transformation at Legal & General Technology (Legal & General Mortgage Services)

I

n recent years, technology has started to play an ever more present role in the mortgage market. From Open Banking tech to application programming interfaces (APIs), innovations have sought to streamline the mortgage journey by removing old paper-based processes and avoiding the need to rekey data.

At Legal & General Mortgage Services, we saw the potential for technology to play a transformative role in our market and free up advisers’ time to enable them to focus on what they do best: giving great advice. In 2019, we launched our SmartrFit sourcing tool, helping thousands of advisers to find the right mortgage for their clients.

A lot has changed since then, but we continue to work together with advisers and lenders to improve the technology, create a solution that works for ‘real life’ mortgage scenarios, and give advisers the tools they need to deliver a great experience for their clients.

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The Intermediary | March 2023

Now, six months into my role looking after Legal & General Mortgage Services’ technology team, I wanted to look back on the journey of SmartrFit, the role it has played in mortgage applications, and where we see the technology going next.

A step up in mortgage tech The mortgage market of the past was dominated by paper and fax machines.

Even when technology came to the sector, it remained siloed, with an abundance of affordability calculators and mortgage sourcing tools.

SmartrFit was a step up.

We saw a gap in the market for technology that brought these elements, and others, into one integrated solution aimed at creating a more frictionless mortgage journey.

SmartrFit was the first tool in the market to bring together affordability, criteria, and product choice, making it easier for advisers to search the market and find the right products to fit their clients’ needs and circumstances.

T E C H NO L O GY Opinion

Since launching SmartrFit, we haven’t rested on our laurels. The system now searches a vast range of lenders, analysing customer circumstances and product availability, to build a list of the best possible solutions for a borrower, whether high street lenders or specialist providers. We also recently integrated a property check tool into the system, enabling advisers to check whether providers will lend against a particular property, while offering easy access to important information, including Energy Performance Certificates (EPCs).

Our ambition with SmartrFit’s launch wasn’t to promote our brand, but to provide a tool which could really transform the mortgage journey and industry.

That’s why people can use our IP, and bolt the system onto their existing tools, or even white-label it. It’s also why we are continually upgrading the technology, putting in time and effort to develop a system that really works – something evidenced by a host of lenders giving SmartrFit their stamp of approval.

Ready for the future So, what’s next? From the cost of living continuing to impact people’s finances to a return to higher mortgage rates after a decade of record lows, advisers will face new challenges finding lenders and products with the flexibility to help their clients. In this new age, we believe technology like SmartrFit

will continue to play a vital, and even broader role in the mortgage journey.

SmartrFit is readily available to the whole of the market, and we are also looking to partner with networks, mortgage clubs, and other tech providers to further our support for professionals across all regions.

Our ambition is to develop SmartrFit into a system that supports advisers across our industry, helping them to meet their needs and streamline their businesses by tackling today’s challenges, while anticipating tomorrow’s.

To achieve this, we must also continue to invest in our teams here at Legal & General if we are to deliver the tools advisers need to secure great outcomes for customers.

We’re actively investing in the product and relations teams that support SmartrFit, to ensure advisers get the support they need when they need it. Recently, we welcomed Jo Sartain and Joseph Wilson to act as day-to-day contacts for all things tech, retention and sales, with Jo specialising in lender relations.

We’re also actively hiring to build our team further, enabling us to support lenders and brokers by delivering great service at the back end as well as the front.

Through leveraging the expertise of all our mortgage market businesses at Legal & General, we are creating a well-oiled internal team dedicated to technology, giving clarity to advisers, lenders, and crucially, the end customer. ●

Even when technology came to the sector it remained siloed, with an abundance of affordability calculators and mortgage sourcing tools”

March 2023 | The Intermediary

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L O C A L FO C U S Cardiff

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

Cardiff

O

ver the past few months, Cardiff ’s housing and mortgage market has seen many ups and downs.

Much like the rest of the UK, the market is still trying to stabilise itself following the significant impact of last autumn’s mini-Budget.

In the face of political turmoil, continued base rate hikes, and a vulnerable mortgage market, it seems that there has been no end to market challenges as of late.

But how has the local market in Cardiff fared? Is there still opportunity in the region for potential buyers and landlords?

To find out, The Intermediary spoke with local advisers and experts to unpack the recent challenges, and to look ahead to the burgeoning opportunities and potential within the local market.

Current values According to the latest data, the average property price in the Cardiff postcode area is approximately £237,000, while the median price sits around £200,000.

The average price has increased by over £14,800 (7%) over the 12 months through January 2023, reflecting the wider market turmoil that plagued the

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The Intermediary | March 2023

sector in 2022. This reported increase comes as many experts speculate that prices may fall by as much as 10% over the coming year.

Most properties sold in the past year in the region sat somewhere in the £100,000 to £150,000 price range, with 2,369 properties sold in this bracket.

This was closely followed by £150,000 to £200,000 price range, with saw 2,313 properties sold.

The most affordable place to buy in Cardiff was the ‘CF43 3’ postcode, with the average price being £82,700. The most expensive was ‘CF64 3’, which saw properties fetch over £543,000.

Drop in demand According to recent data, Cardiff saw approximately 12,000 property sales in the year through January 2023.

However, this figure shows a marked drop in demand, as sales decreased by approximately 30% when compared with the year prior.

Tom Rowlands, sales director at Cardiff-based Pure Property Finance, says that he has seen this decrease first hand.

Rowlands reports there being far fewer viewings on residential properties, and believes that house prices may level out within the coming months, in direction reaction to this marked drop in demand.

According to the latest data, the average property price in the Cardiff postcode area is approximately £237,000, while the median price sits around £200,000”

Market resilience Despite this dip in demand, things are not quite as bleak as they might seem, as there is still ample opportunity for both residential and commercial buyers.

Research shows that in the past year, the average detached home in Cardiff sold for over £410,000. Semi-detached homes fetched for around £256,000, while flats and terraced houses sold for £164,000 and £181,000 respectively.

According to Rowlands, despite ongoing pressures within the market, house prices in the area have remained somewhat resilient, particularly when compared with other areas across the UK. Hailing Cardiff as an exciting city, ripe with residential and commercial potential, Rowlands →

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He attributes this cool down to a number of external factors. With the cost-of-living crisis continuing to bite, as well as increased mortgage rates following the mini-Budget fallout of late last year, buyers still remain wary of entering the market.

Indeed, this decrease in demand is also on the radar of local mortgage and protection adviser Phil Gamblin of Oak Financial.

With an unsteady market and affordability issues still at play, Gamblin says that some of people who might have sold in other circumstances are choosing not to.

Identifying issues around housing stock and affordability, he agrees that the market is somewhat difficult for borrowers to navigate at the moment, noting that even enquiry numbers have slowed.

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Data source: www.gov.uk/government/ statistical-data-sets/pricepaid-data-downloads

CARDIFF PROPERTY SALES SHARE BY PRICE RANGE Price range

Cardiff

Market share

Sales volumes

● Under £50k

0.7%

90

Residents

● £50k-£100k

11.5%

1.4k

1.1m

● £100k-£150k

19.7%

2.4k

Average age

● £150k-£200k

19.2%

2.3k

39.9

● £200k-£250k

14.8%

1.8k

● £250k-£300k

10.5%

1.3k

Residents per household

● £300k-£400k

12.6%

1.5k

2.39

● £400k-£500k

5.5%

661

● £500k-£750k

4.0%

486

● £750k-£1M

1.0%

121

● over £1M

0.4%

47

March 2023 | The Intermediary

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L O C A L FO C U S Cardiff

A resilient, exciting city

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TOM ROWLANDS is sales director at Pure Property Finance

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ure Property Finance operates within both the residential and commercial spaces.

Cardiff is a city that has been rapidly expanding within the past few years. It’s an exciting city, both in terms of commercial and residential opportunities.

When we’re talking about the cost-of-living crisis and the housing market as a whole, house prices have remained fairly resilient, especially compared with larger cities within England.

This provides a relatively stable opportunity at the moment for investment from a residential

P

adds that it provides relatively stable opportunities for investment.

Gamblin agrees, urging buyers to snatch up a bargain while prices decrease due to lessening demand.

Gamblin also notes a significant increase in business since the advent of January this year, suggesting that perhaps a market cooldown was precisely what Cardiff needed to jumpstart buyer interest once again.

New-builds So, with plenty of opportunity for investment when it comes to residential property, how is Cardiff’s new-build market faring?

Research found that the price of an established, pre-existing property in the year through January 2023 was £236,000. This sits in contrast to the significantly higher new-build price, which comes in at £314,000.

With new Energy Performance Certificate (EPC) regulations on the horizon, and the price of energy at an all-time high, it’s no surprise that buyers are opting for newer, more energy-efficient properties.

This is not a situation that is expected to change any time soon, according to Natalia Kusiak, mortgage and protection adviser at Access Financial Services.

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The Intermediary | March 2023

aspect. However, talking residentially, we have seen demand trail off from a buyer’s perspective.

We are definitely seeing fewer viewings on residential properties.

We are also no longer seeing residential properties being purchases at 10% to 20% above asking price.

That, coupled with the factors of fewer viewings and a decrease in demand, has affected the time it takes to sell a property.

Drawn out transactions is where the main challenge lies for investors and consumers at the moment.

I think the cost-of-living crisis and increased mortgage rates are likely to affect the number of houses that are sold.

That, coupled with a drop in demand, may see the house prices level out or perhaps even decline a bit, but we won’t see the same trajectory that we’ve seen over the past decade.

With plenty of new-builds cropping up in the Radyr and Fairwater communities, Kusiak believes this poses a great opportunity for new families looking to get onto the property ladder.

This, coupled with the multimillion-pound South Wales Metro project that is currently underway, will unite the region, providing some excellent investment opportunities, according to Kusiak.

Buy-to-let However, the same cannot be said of the buy-to-let market.

The private rented sector (PRS) takes up a significant chunk of Cardiff’s housing stock – coming in at 19.0% compared with the national average of 19.2%.

However, in light of last year’s market turmoil, pressures upon landlords across the country have become increasingly challenging.

Unfortunately, the situation in Cardiff seems no different.

Jane Simpson, managing director of TBMC, says that despite Cardiff displaying some of the strongest rental yields in the country in 2022, the stability of the market is in question.

Cardiff landlords are reportedly the most like to decrease their portfolio

Cardiff remains a buoyant market PHIL GAMBLIN is mortgage and protection adviser at Oak Financial

eing the capital city of Wales, and just a 30-minute drive from the English border, Cardiff’s housing market will always be fairly buoyant.

I have noticed a slowdown in property prices, but despite a lower level than was seen in 2021-2022, demand is still there for good properties.

House prices have been coming down slowly over the past few months, and this means buyers may be able to get a better house than before, or a similar house for a lower price. However, we haven’t seen the massive falls that some have been predicting.

There are several challenges facing buyers at the moment, but I think the biggest is stock.

There will always be people that want or need to sell, but due to the uncertainty in the market, some who might have sold in other circumstances, are not doing so now. People decide they might not be able to afford a bigger house, which results in fewer available properties.

Another challenge is affordability. Due to increased interest rates mortgages are costing more every month, which can ultimately lessen people’s buying power.

However, January started strong and I myself have had a very busy February, with both purchases and remortgages. People are realising that getting solid advice from an experienced professional is worth its weight in gold with so much uncertainty in the world.

From what I’ve seen in Cardiff, where houses are not selling, asking prices reduce after a month or so, by between 5% and 10%.

Lower valued properties are scarce, which I believe is due to people not wanting to upsize due to the cost-of-living crisis.

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L O C A L FO C U S Cardiff

size this year, and with changes to the Renting Homes (Wales) Act, and higher mortgage rates squeezing rental yields, it looks like the private rented sector in this region is in for a troublesome ride for the remainder of 2023.

www.plumplot.co.uk

CARDIFF PROPERTY PRICES Data source:

Price

Cardiff

England & Wales

 AVERAGE

£237k

£358k

 MEDIAN

£200k

£275k

www.gov.uk/government/ statistical-data-sets/pricepaid-data-downloads

Recovery

CARDIFF COST COMPARISON OF NEW HOMES AND OLDER HOMES

It is clear that, while the Cardiff market may have suffered at the hands of the mini-Budget fallout last year, there is still plenty of investment opportunity to be found there.

With house prices potentially becoming more affordable, a history of some of the highest rental yields reported in the country, and plenty of new-builds cropping up to meet rising demand, the market seems to be recovering from the turmoil experienced in late 2022. ●

 A NEWLY BUILT PROPERTY

£314k

 AN ESTABLISHED PROPERTY

£236k

CARDIFF COST COMPARISON OF HOUSES AND FLATS  DETACHED

£410k

 FLAT

£164k

 SEMI-DETACHED

£256k

 TERRACED

£181k

The price of an established, pre-existing property in the year through January 2023 was £236,000.

This sits in contrast to the significantly higher new-build price, which comes in at £314,000”

Improving certinainty NATALIA KUSIAK mortgage and protection adviser at Access Financial Services

ost of the clients I take care of have properties in Llanrumney, Rumney, Splot, Tremorfa, Roath, and Grangetown Penylan.

The multi-million-pound South Wales Metro project will unite the region, providing some excellent investment opportunities.

There are new-build properties available the Radyr and Fairwater communities. This is great for new families, but could make things increasingly difficult for clients who are selling properties in older parts of Cardiff.

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The pricing of properties needs to be more in line with the average household earnings. Then, buyers would have a better chance of meeting affordability criteria with lenders.

Local buyers are also struggling to save deposits in the current climate, and many of the houses on sale require a substantial amount of work after purchase.

At the start of the year, demand certainly slowed a little in Cardiff, with many buyers feeling uncertain about interest rates and the increases to living costs.

However, we are seeing some interest again. As rates fluctuate, I am just looking for the best advice I can give our Access FS customers.

My prediction is that we will see the market improve from here.

A return of confidence in 2023 will, in turn, influence an increase in business opportunities.

Yields high, but confidence low JANE SIMPSON is managing director at TBMC

ata published by Paragon as part of its most recent PRS Trends Report shows that in Q4 2022, Welsh landlords achieved the strongest rental yields across England and Wales at 6.4%, up 0.6% on the previous quarter.

Despite this, they are the least confident in the prospects for their lettings businesses, alongside landlords from the East Midlands and East of England.

This could suggest that changes to the Renting Homes (Wales) Act 2016, which are soon to be implemented, are impacting landlord optimism.

It is also worth noting that landlords with properties in Wales are the most likely to have increased rents in the past 12 months, but the least likely to have bought or sold a property during the same period.

They are also most likely to plan on decreasing the size of their portfolios during the next year.

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March 2023 | The Intermediary

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Meet The BDM How and why did you become a BDM? I worked in the Yorkshire Building Society branch network for five years after university.

An opportunity came up to work with Accord on a project to support brokers, and I enjoyed it so much that, when an opportunity arose to join Accord, I jumped at it.

Since then, I’ve continued to progress and recently took on a fieldbased BDM role in October 2022.

What drew you to Accord?

The Intermediary talks to Angelika Christian, business development manager (BDM) at Accord Mortgages, and asks what sets the intermediary-only lender apart from the crowd

I discovered I really enjoyed dealing with brokers, largely because it felt like I could have a much bigger impact through my role that way.

I loved dealing with individual customers too, but I can potentially help hundreds of individuals through each broker relationship by adding value to the broker.

In terms of my own career, it’s also really stimulating, because Accord deals with a wide range of criteria, supporting underserved borrowers.

So I’m learning new things every day, while also helping brokers support their clients.

I also have to build lots of positive internal relationships too, with go-to people like underwriters and valuation experts, who provide answers to more complex queries.

So, no two days are the same at Accord, and I get a huge buzz out of finding solutions.

What makes Accord stand out from the crowd?

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MEET THE BDM

we can often help people with more complex circumstances when others can’t. For example, I’m dealing with lots of broker enquiries relating to self-employed people, who suffered reduced income during Covid-19, at the moment.

Our flexibility allows us to look at every case individually, taking into account the years on either side of those affected by the pandemic in many cases.

Having direct access to specialists within our business is a big differentiator, too – it means if a case is not a straightforward ‘yes’, as many aren’t these days, I can discuss it with a mandate holder to decide whether we’re able to lend.

This is particularly helpful with agreements in principle (AIPs), saving brokers and their clients vital time and cost.

Then, there is our relationship and people-based approach. We consider brokers to be our customers, and go out of our way to get to know them, help them, and add value wherever we can.

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

Not having a crystal ball! Brokers, understandably, have a lot of questions and are trying to get a handle on what might be coming down the line for them and their clients, in terms of things like interest rate trends.

However, the market is so volatile, it’s very difficult to offer them that kind of advice.

Time is also always a challenge – balancing proactive meetings with reacting to questions and inbound calls. This is why we have such a great telephone business development advisor (BDA) team.

They are really knowledgeable on both the phone and webchat.

Giving brokers choice in terms of how they contact us creates capacity to be able to focus on the parts of my role that add the most value.

What are the opportunities for BDMs? Accord Mortgages I think it’s all about supporting brokers and being there to help them strengthen and grow their businesses, more than ever in these uncertain times.

Client education is so important, and the value of advice has never been higher, so my response to this is to encourage brokers to make time to talk to a good BDM who can help with signposting, market information and support.

Making time for a BDM visit or call can give a fresh perspective on a case, or an element of criteria they wouldn’t have known about otherwise, which might be perfect for that next client

Established 2003 Products Residential First Time Buyers Contractors New Build Offset Homemovers Remortgaging Cascade Score Boost LTI Large Loans Top Slicing BTL New Build BTL in Scotland Angelika Christian Email: AChristian@ybs.co.uk Mobile: 07753442135

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

Adding value and informing are things we really major in at Accord, with our Growth Series blogs, guides and podcasts.

We also have access to a huge amount of market insight – and our own in-house economists – and share as much relevant information with brokers as possible, to help them get in the best possible shape for what’s to come, and help allay the uncertainty their clients are likely also feeling.

So, I’m not just there to answer questions they might have about criteria. I really focus on providing my broker contacts with as much information as possible to help them to succeed, whether that’s providing guidance on the upcoming Consumer Duty regulations and how they can get prepared to meet them, or how to market themselves more effectively to reach a greater number of potential clients.

At Accord, BDMs like me see ourselves more as consultants, focused on helping brokers grow their businesses.

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

That advice is now more valuable than ever, given the current market volatility. Clients will always benefit from working with someone who has the specialist knowledge and relationships to find the best deal for them – as well as the access to extensive sourcing system information on what kinds of products are available across the market.

Of course, it’s not just about the headline rate, and a broker will look at a whole raft of other factors that need taking into account, in order to decide if a particular product is right for an individual’s personal circumstances or not.

As we all know, the product with the lowest rate isn’t always the best option. ● March 2023 | The Intermediary

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

Higher interest rates bring higher debt costs

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hen interest rates rise, it is not only a homeowner’s mortgage payments that are at risk of going up, but their other financial commitments too. The ‘buy now, pay later’ culture means borrowers may be juggling several loan repayments at any one time.

For some, this debt will be perfectly manageable, yet for others it will not be sustainable.

Why does this ma er? Because a borrower who is behind with their payments or who is relying on credit too much may find their mortgage options limited.

Debt issues The preference for 5-year fixed rates over the past few years means it may have been some time since a borrower last remortgaged, with any debt issues potentially being masked.

The longer we are in a higher interest rate environment, the greater the risk of a borrower defaulting, especially if they are using a variable rate credit card or taking on additional credit at a higher rate.

If homeowners are looking to raise funds, a regulated second charge mortgage might work out cheaper than other forms of finance.

The interest rate on new personal loans stood at 8.16% in December, according to the Bank of England’s Money and Credit Report. This is up from 5.38% in December 2020.

Likewise, the cost of credit card borrowing rose to 19.55% during the month, up from 17.76% in December 2020.

While credit cards and personal loans might be the headline grabbers when we think of problem debt, it is

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also growing in other markets, such as car finance.

Escalating debt is potentially storing up future problems.

Automotive website, The Car Expert, recently sounded an alarm over the growing use of car finance.

It warned that car finance debt has grown so much over the past decade that there is a risk this could lead to widespread defaulting.

Its analysis shows that between 2009 and mid-2022, the average amount of money borrowed on a new car more than doubled, from £11,964 to £25,039.

Taking the total amount borrowed on new cars in the UK to almost £17.5bn a year.

Back in 2009, only about 40% of privately purchased new cars were financed at point of sale, using finance brokered by the car dealership. Most borrowing was obtained from other sources, like personal loans.

Fast forward to 2022 and dealersourced finance has grown to about 93% of all private new car sales in 2022, meaning nearly every consumer new car purchase is tied into a finance contract arranged by the dealership.

Consumer credit borrowing, such as car dealership finance and personal loans, reached £1bn in December – the highest figure since October 2019. The annual growth rate for all consumer credit increased from 7% in November to 7.2% in December. Broken down, credit card borrowing saw an annual increase of 12.4% in December, while other forms of finance, such as loans and car finance, increased 5%.

Household costs This is against a backdrop where a greater number of borrowers may be struggling with increased debts and the rising cost of living. Since March 2020, the number of people struggling

SUSAN BALDWIN is interim head of lending at Evolution Money

The longer we are in a higher interest rate environment, the greater the risk of a borrower defaulting, especially if they are using a variable rate credit card or taking on additional credit at a higher rate” to keep up with household bills and credit commitments has nearly tripled, rising from 7.5 million to 22 million, according to the StepChange debt charity.

The recent interest rate rises – alongside the increased cost of living – risk accelerating the indebtedness of many borrowers, meaning now will be the time to look for solutions.

As mortgage rates in the first charge market start to come down, borrowers will be looking at their options, with outstanding debt potentially working against them.

A second charge mortgage could help ease a borrower’s monthly debt repayments by consolidating their debt into one monthly payment.

This would not only help to make their debt more manageable, but also potentially improve their finances for when they next remortgage. ●

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

Why speedy valuations matter

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here is no denying the fact that the mortgage market has experienced some challenging times of late. Rising interest rates, market volatility and soaring inflation have all placed significant pressure on lenders, homeowners and brokers, with the cost of borrowing skyrocketing and the number of mortgage applications reaching unmanageable levels.

In this environment of fluctuating and rising interest rates, the appeal of second charge mortgages has come into its own.

New business volumes in the sector over the course of 2022 reached the highest annual total since 2008, amounting to 33,772 agreements worth £1,557m, according to the Finance & Leasing Association (FLA).

Driving this growth is the rise in the number of borrowers looking to capital raise in order to consolidate debt, carry out home renovations, or be er manage their finances due to the cost-of-living crisis. The FLA data shows that in December alone, 58% of new agreements were for the consolidation of existing loans, 14% for home improvements, and 22% for both loan consolidation and home improvements combined.

This strong and steady growth in the second charge market contrasts with a slowdown in the first charge market, where continued instability has forced many homeowners to sit tight and reevaluate their priorities when it comes to their borrowing needs.

Second charge appeal This has driven many to start to acknowledge the benefits of taking out a second charge loan to carry out improvements or extend their existing homes, while retaining the preferential rate on their first charge mortgage. This makes sense in the current market, where rates are expected to continue to fluctuate until the end of the year, but the needs of homeowners still need to be met.

The speed at which second charge mortgages can be processed also adds to their appeal, as funds can be released within days of the application being received, as it is the market value of the property that needs to be verified, rather than the income and expenditure of the borrower.

Speedy service Obviously, a quick and smooth turnaround on the valuation report is essential when it comes to securing swi release of the funds, so it is important to work with a solutions

HELEN SCORER is operations director at Pure Panel Management

provider that understands how the valuation process works and what is required to get the job done efficiently and effectively.

Using a provider that has experience working closely with second charge lenders and brokers is important, as it can quickly source suitably qualified and approved valuers from its panel of providers.

An experienced provider can also check access details and liaise with applicants where necessary, as well as following up at every stage of the application process to ensure the service level agreement (SLA) deadlines are met, while also acting as a central liaison point between the broker, lender and valuer in the event of a post-valuation query.

A good surveying panel management company should also be able to supply a valuation report that includes any required photographs within the agreed timescales, as they understand that failing to do so can make or break an agreement.

This means your customer satisfaction rating will be higher, helping you to generate more business and improve client retention.

Using experience

A quick and smooth turnaround on the valuation report is essential

Given the recent surge in growth in the second charge market, it has never been more important for brokers to ensure they are well-versed in what the sector offers and the benefits for clients in the current economic environment.

For those unfamiliar with the market, utilising the services of those with experience will not only save time and money, it will also help boost earning capacity in this ever-growing area of the mortgage market. ● March 2023 | The Intermediary

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

Looking under the bonnet of the market

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month ago rates were stabilising, the outlook was a little clearer, and we thought we knew where we were going.

In the last few weeks, however, the fluctuation has started again, rates have crept back upwards from 3.5% to 4.3%, and everyone is just a little bit unsure again!

This is clear for all to see in second charge lending: multiple lenders changing their rates, some up, some down, some on just sections of their product range, others across the board.

There is a pattern, but you need to look under the bonnet to understand it.

I heard several people, smarter and wiser than I, at the Specialist Lending Senate predict the base rate would top out at 4.5%.That seems to be the general consensus, so let’s go with that for now.

What does that mean for secured loans?

In January, Bank of England data showed that 86% of mortgages were agreed at a fixed interest rate as of Q3 of 2022, this isn’t exactly breaking news, but with so few of these clients being able to improve their current rate at this time, many will need to look at alternatives to remortgaging to raise additional funds.

The ‘Bank of Mum and Dad’ is an option for some, with a staggering

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£16bn gifted or loaned each year by parents to their adult children, but we don’t all have savvy savers for parents.

Another option would be a personal loan, but these are limited in both loan size and term and rate, whilst there are often some eye-catching ‘teaser’ rates, the majority of customers’ rates are much higher.

Analysis from the Centre for Economics and Business Research (Cebr) in 2019 for Shawbrook Bank found “a significant gap between the rate advertised by lenders and the actual rate offered to applicants.”

The research found the average representative annual percentage rate (APR) advertised by lenders for a typical loan of £9,000 was between 2.8% and 5.5%, but that the typical APR secured by borrowers was much higher, at 7% APR. These were 2019 rates, remember, not 2023 rates!

This leaves a second charge as the standout option for borrowers with an attractive fixed rate. It’s a cost-effective way to raise significant funds over a traditional mortgage term.

Additionally, it’s been reported that 1.8 million borrowers will reach the end of their fixed rate term in 2023, it is widely expected that this will fuel demand for product transfers for ease or change in circumstances.This could see intermediaries looking at a second charge for further borrowing.

Ever more lenders are adding product

MATT TRISTRAM is a director and co-founder of Loans Warehouse

transfer options to their product offering to retain clients. This is an attractive path for many due to its ease, but also in some cases, circumstances change and a remortgage isn’t available. Again, these customers have the same choices as a client in a fixed rate, many will turn to a secured loan.

Which lenders will benefit from the current market uncertainty?

Currently, the only active bankfunded lenders in the second charge market are Shawbrook Bank, United Trust Bank and Tandem Bank.

As banks have multiple funding sources, they are less impacted by smaller, short-term rises.

This has handed these lenders an advantage over some of the

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

Demand will be greater than ever, and a second charge will be a sensible option for more borrowers than at any other time ”

traditional warehouse and privately funded lenders.

West One is evidence of this, having increased rates recently across its second charge range from 0.2% to 0.5%, along with Selina Finance, which announced changes to the pricing of its 85% loan-to-value (LTV) product in the past few days.

United Trust Bank, meanwhile, went the other way, reducing rates considerably across its entire second charge product range.

We’ve seen a shift in power at the start of 2023, with Tandem Bank, formally Oplo, currently the biggest originating second charge lender in the market.

That said, stability can change things quickly. Most lenders have claimed liquidity, so returning to the record-breaking lending figures of Q2 and Q3 of 2022 has to be on every lender’s agenda in the second charge market.

What does this all mean? Demand will be greater than ever, and a second charge will be a sensible option for more borrowers than at any other time in my experience.

So, brace yourself for the biggest year in second charge lending since 2006. You heard it here first. ●

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

The seconds market will thrive in the next 12 months

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he second charge market is booming, with new business volumes soaring 40% last year, according to the Finance & Leasing Association (FLA).

In fact, the £1.6bn that second charge lenders advanced last year was the most since 2008.

While those numbers pale in comparison with the first charge market, they show a clear and growing demand for second charge loans as a means of capital raising.

Part of that is down to greater awareness among both brokers and borrowers, but there are other market forces at play.

I believe wholeheartedly that the conditions are perfect for the second charge market to thrive over the coming 12 months – and possibly even beyond.

Here are three reasons why I expect that second charges are fast becoming a mainstream option.

Higher mortgage rates The speed at which mortgage rates rose last year caught many by surprise, especially those homeowners who have known nothing else but rockbo om rates for the past decade.

Some 1.8 million of those are likely to be surprised at how much their repayments are about to increase when they reach the end of their fixed rate this year.

Due to affordability constraints, and the fact that certain groups of borrowers may have experienced a change in their circumstances over the past 12 months, product transfers will become more popular. In fact, UK Finance predicts that product transfers will account for £212bn of lending in 2023, a 7.6% increase on last year.

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At the same time, there are millions of borrowers still on a ractive longterm fixed rates with steep early repayment charges (ERCs).

For borrowers who find themselves in these circumstances, it will be less viable to consider remortgaging, either because of affordability compression or the cost of sacrificing a low interest rate mortgage.

Therefore, a second charge will become an increasingly appealing option.

Debt consolidation The past 12 months has been tough on household finances, with nearly 8.9 million adults showing signs of financial fragility, according to joint research by PricewaterhouseCoopers and Totally Money.

The same research found that the UK’s total unsecured debt pile now stands at £400bn, meaning that the average UK household owes a record £16,200 to personal loan, credit card and other unsecured debt providers.

That is an increase of more than £1,000 in the past year.

If you throw higher taxes, rising interest rates and sky-high inflation into the mix, it’s clear that household finances are going to come under intense pressure again in 2023.

Therefore, there will be lots of families out there looking for ways to maximise their disposable income, while also reducing their monthly debt repayments.

In the right circumstances, debt consolidation can help families navigate the cost-of-living crisis, and second charge mortgages are a valid way of doing that.

As a result, I expect more people to consider a second mortgage for the purpose of debt consolidation over the next 12 months.

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

Stagnant housing market We are already starting to see confidence in the housing market beginning to wane as a result of the cost-of-living crisis and higher mortgage rates.

Nationwide’s latest house price index shows that property values fell 1.1% in the year to February – the first annual fall since 2012.

A stagnant, or even contracting, housing market means potential buyers and sellers may be reluctant to move for as long as there is uncertainty around house prices.

Many may instead opt to extend or improve their existing home by releasing equity from their property.

This is where second charges come into their own.

They are flexible, have quick completion times, and many lenders offer generous loan sizes, meaning seconds are suitable for both minor and major renovations.

A second charge mortgage will be particularly a ractive for borrowers locked into an a ractive long-term fixed rate that they don’t want to disturb.

Bright future The second charge market has promised so much for so long, but remains relatively small compared to the first charge, buy-to-let and bridging markets.

However, as I’ve outlined above, all the pieces are aligning.

I genuinely feel that the next 12 months could be when we see the second charge loan truly become mainstream. ●

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P RO T E C T I O N Opinion

The true value of

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ortgage and protection intermediaries are operating in a dramatically different set of financial circumstances than even 12 months ago, with clients increasingly. and understandably, cost-conscious.

A tougher context for protection conversations Clients still want to borrow to buy their first home, to move up the housing ladder and to manage their mortgage payments as cost-effectively as possible. However, as rate rises and cost pressures loom large, it’s important to understand what this means for protection.

Indeed, at Guardian, we have been devoting a lot of time to considering the implications of this tougher environment, and what we can do about it.

Informed by our research, including conversations with advisers, we think it breaks down roughly into the following: understanding what we’re really trying to achieve for clients; increasing client understanding of why they should have cover; approaching budgeting in a more

holistic way; thinking about whether advice conversations and business practices need a little adjustment; and considering options for the most financially hard-pressed clients.

A year of change First, it may help to look, briefly, at just how dramatically the situation has changed.

A little over a year and a half ago, in May 2021, consumer price index (CPI) inflation was 2.1%, just above the Bank of England target. The base rate was 0.1%. 12 months ago, inflation had increased to 5.5%, but this was to prove only the first leg of rises, as the global energy crisis then took inflation well above 10%.

In the 12 months to January 2023, it is still, just, in double figures at 10.1% with the base rate at a sobering 4%.

Most clients will not be tuned in to the detailed discussions at the Bank of England’s Monetary Policy Committee, but they certainly know that money is tight.

In addition, the mortgage market had a Black Swan moment last autumn, when un-costed tax cuts and a Government promise to support households and businesses on energy bills for two years spooked the gilt

market, causing a host of mortgages to be withdrawn from the market.

When lenders did return, rates had seen a step change increase.

Intermediaries will not forget those few fraught weeks, working early mornings and long evenings, to reassure clients and, if possible, get them the loans they needed.

Things have calmed down and rates have settled into a more predictable pattern, but we’re still dealing with the consequences, as you can see from the heated debate about whether energy support should extend beyond spring this year.

Intermediary opinions If that is where things stand, it is important to ask what we can do about it.

For three years now, we’ve been surveying intermediary opinions – especially your views on client sentiment – in terms of the pandemic and subsequently the cost-ofliving crisis.

Our survey last autumn received 701 responses, prompting us to conduct further interviews with mortgage and protection intermediaries, financial advisers and mortgage networks to really flesh out some of the details.

P RO T E C T I O N Opinion

protection We shared our findings in a white paper entitled ‘On the front foot’, summing up the insights from advisers in 10 takeaways.

I looked at three of these in my previous article, so let’s consider a few more.

In terms of client conversations, many advisers told us they are stressing the point that the financial implications of a loss of household income are even more challenging in the context of sustained rising prices.

While clearly not for clients under the most acute price pressure, that may allow advisers to consider the impact of sustained double-digit inflation on sums assured, and perhaps recommend increased cover or a different style of product.

For those under financial pressure, advisers told us that it was important to consider what is a realistic protection budget for now, and work within it, while suggesting to clients that it could be reviewed in future when cost pressures ease.

In addition, some protection advisers told us that they had a well

thought-out approach to cancellations, asking providers to get in touch with them at the first sign a client was in difficulty, and being prepared to intervene as swiftly as possible. That approach was good for clients and good for the business as well.

Indeed, 30% of intermediaries said they had a formal approach to convincing clients not to cut or cancel cover. Other approaches include skipping increases on premiums, an option available on some indexed policies, or even moving permanently to level term.

JACQUI GILLIES is marketing and proposition director at Guardian

Key lessons In this context, the importance of budgeting was a recurring theme, including updating the budget to the current economic situation.

This could help clients identify less important outgoings, while reducing the risk some might simply carry out a bonfire of the direct debits, with important premiums cancelled along with an unused TV subscription or old mobile phone contract.

Finally, advisers told us that they were making clear that some protection is better than none for clients who were adamant that they needed to cut costs.

To sum up, in conducting this research, two lessons have really hit home. First, that advisers are laser-focused on clients’ changing circumstances and incredibly adaptable in their approach. Second, that intermediaries are the key to building client understanding of why it is so important to insure their health and their incomes.

The protection sector needs to keep that in mind, especially in such challenging circumstances.

To that end, I would love to hear your views as well. ●

P RO T E C T I O N Opinion

Don’t leave dental, or protection, check-up too long

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want you to think back to the last time you went to the dentist, which hopefully doesn’t trigger a traumatic – or expensive – memory.

What was the reason for the appointment? Just a check-up?

If you left it too long between appointments, you might have been recommended further treatments.

A filling, a scale and polish or maybe seeing a hygienist, joining a dental plan, or – if you’re lucky – you just left with a clean bill of health and another check-up for six months’ time.

Whatever the catalyst was for the appointment, there are often other needs identified, and which need to be addressed – especially if you had left a long period of time between check-ups.

With more than 1.4m households expected to see their fixed rate mortgage deals end this year, there’s no denying the remortgage market is going to be driving the need for mortgage advice in the months ahead.

However, bearing in mind that a lot might have changed in customers’ circumstances since they last spoke to an adviser, that also presents the need to offer clients a protection ‘check-up’.

Here are five indicators that protection should be on the agenda.

1

A growing family

How has the household dynamic changed? Are children now in the picture or possibly on the cards? Policies like family income benefit can provide a cost-effective financial safety net so that the family can remain secure should the unthinkable happen.

A child becoming seriously ill is something parents never want to think about, but sadly it does happen.

Many insurers allow children’s

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GREGOR SKED is intermediary protection development and technical manager at Royal London

critical illness cover to be added or moved onto an adult’s critical illness policy, often without the need for medical underwriting.

2

Breakdown of a relationship

If you come across a client who is separating or divorced and there is a jointly owned policy, you should consider whether the insurer will allow it to be split into individually owned policies.

Where clients have had a partner’s income to rely on previously if they became ill, could this gap be filled with an income protection policy?

For clients who are in receipt of child maintenance, how would the loss of this income impact on the children’s upbringing if the payor died or became seriously ill?

A family income benefit policy could be one way of protecting against the loss of maintenance income.

3

Making a claim

Have clients missed an opportunity to make a claim on their policy? Perhaps they forgot they had cover in place, or simply never got around to it.

Research carried out by Royal London found that only 16% of protection policyholders are aware of the support services available to them via their policy.

If you’re made aware of a claim being made, it might be worth pointing out to the client how these support services could provide them valuable assistance at a time where they could be dealing with bereavement, mental health challenges, or a physical illness or injury.

4

Placing a policy in trust

5

Career change

It’s estimated that nearly 84% of single life term policies sold in 2021 were not written in trust. By not writing these types of policies in trust, can you confidently say that customers’ future financial objectives will be met? Or do they risk the benefits from the policy being paid to the wrong person, possibly inflating the value of their own estate and being held up by probate or confirmation delays?Offering a trust review service to clients gives you an opportunity to revisit this important financial planning tool.

Whether it’s a new employer, an increase or reduction in salary, or a change to sick pay arrangements, this should initiate a review of current coverage. In particular, review any income protection plans currently in place, or gaps that could be filled with an income protection policy.

As with dentist appointments, if you leave it too long between checkups the outcome could be more painful. But remember, even though the remortgage market presents opportunities to discuss protection, if we leave customer protection reviews until just this time, there’s a greater risk that a major life or lifestyle change could lead to challenges in the event of a life shock. ●

P RO T E C T I O N Opinion

A balancing act: Fast, accurate and competitive quotes

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ew of us are expecting anything other than a tough market this year, with high interest rates slowing down new mortgages and putting pressure on remortgage customers alike.

When trying to make a purchase, no one wants to answer a long list of questions, especially those which relate to information they’ve already provided or which they don’t know the answer to, before they can walk away with the thing they want.

On the other hand, no one likes paying more than they need to, or – when it comes to something as important as home insurance – not getting the cover that meets their needs.

For advisers who might be delivering those questions to generate a home insurance quote, customer experience, time, conversion prospects, and whether or not it’s adding value to the advice process is front of mind. We know this can sometimes be a deterrent in offering home insurance in the first place.

In recognition of all this, we’ve been focusing on optimising our online home insurance quote journey to strike the right balance between speed, accuracy and quotability.

This is in direct response to feedback we received from more than 300 advisers last year as part of our annual Adviser Survey. While the majority were happy with our existing quote and apply journey, there were still opportunities for improvement.

Of the changes they’d like to see, almost a quarter (24%) said fewer questions, and more than a fifth (21%) said more data integration to reduce the amount of information they have to key in.

We’ve been working hard to deliver these improvements in a way that doesn’t compromise the needs of the insurer, the adviser or the consumer, and we’re now about to launch our slicker, quicker home insurance quote journey.

So, how have we done it? We’re working with third-party data provider LexisNexis Risk Solutions to pull in key property information that can automatically populate answers to some of the question set.

This includes information relating to property type, build year, number of bedrooms and bathrooms, wall type and brick type, reducing the onus on customers to provide this detail and on advisers to key it in – though of course they will still need to check to make sure the pre-filled information is correct.

Faster quotes We also spent time with our panel of insurers to evaluate the value of each individual question, and have identified where the impact on price and quotability was minimal and cut those out. This includes questions that consumers rarely know the answers to, such as the type of window locks on a property where it’s a new property purchase.

Altogether, we’ve reduced the number of questions from 49 to 18, which has cut the average time it takes to get a full and binding quote by almost 60%.

Our new journey will be going live on our Adviser Hub platform soon, as the latest in a succession of enhancements to our quote technology, which have included extending the quote validity period in response to the lengthy purchase process timescales advisers are having to deal with.

LOUISE PENGELLY is proposition director at Paymentshield

We’ve been focusing on optimising our online home insurance quote journey to strike the right balance between speed, accuracy and quotability” In addition to the Adviser Hub, we’ve developed new application programming interface (API) technology so that our integrated partners will be able to deliver the same improved experience to customers, too.

Earlier this year, we began trialling our new quote journey with a select cohort of advisers, to test the process before the full roll-out. We’ve had overwhelmingly positive feedback, including from some advisers who previously didn’t quote on home insurance at all because they felt there were too many questions to ask. They tell us they’re now making offering a quote a regular habit, which is exactly what we hoped to facilitate.

It can be easy to prioritise speed above all else, but throughout this process we’ve never stopped asking what would deliver the best customer outcome. We know that advisers place the most weight on this too.

Our new quote journey achieves this whilst bringing greater efficiencies to them and their business. ● March 2023 | The Intermediary

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On the move...

MT Finance promotes five

Knowledge Bank appoints Jonathan White as sales manager onathan White has been appointed as sales manager at Knowledge Bank. He will support its growth strategy and promote new product developments to lender and broker customers.

He has experience in sales and business development across sectors including insurance, financial services, mortgages, and technology. White was head of strategic relationships at Iress and was responsible for mortgage technology sales and lender development at Mortgage Brain.

Knowledge Bank is the largest database of mortgage lending criteria in the UK, and since its launch in 2017, it has enjoyed significant growth. The launch of KB PRO in 2023 saw lenders embedding the system into their head office processes, and White will communicate the benefits of the system to new customers.

Shane Chawatama, sales director at Knowledge Bank, said: ”We’re thrilled that Jonathan has joined us, and will be a driving force as the business continues with its ambitious 2023 growth plans. We have a ra of new products...and Jonathan will play a pivotal role in communicating these to our customers."

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SimplyBiz Mortgages promotes Merrett and Daffern to new roles implyBiz Mortgages has promoted Richard Merre to director of strategic relationships and Phil Daffern to head of lender relations. The move comes as the mortgage market continues to experience significant volatility, prompting enhanced its support for members.

Merre said: “It is a privilege to work with our excellent team and partners across the market, and continually develop and improve our proposition.”

S

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Daffern said: “Having worked with SimplyBiz Mortgages for almost two years, I am continuously impressed by the support given to lenders, members and, ultimately, their clients, and I am thrilled to be part of the team driving SimplyBiz Mortgages forward in my new role.”

The appointments mark the latest step in the club's growth strategy, which has seen it expand its member base and support services.

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T Finance has promoted five in its regulated bridging team, as part of ongoing expansion plans.

Raphael Benggio, former head of regulated underwriting, is now head of lending - bridging finance, Ayondip Dam is head of regulated underwriting, Sarah Parsons and David Kingham are senior underwriters, and Emily Ha is now a junior underwriter.

Joshua Elash, director and founder of MT Finance, said: “ We have highly-talented, dedicated members of staff, and I’m delighted that their hard work has been rewarded.

“I am looking forward to seeing how Ayondip shapes his new role. Having joined in 2018, he has proved himself to be a highly capable team member and I have no doubt he will flourish as head of regulated underwriting.

"The new role of head of lending - bridging finance is sure to be complex and challenging, but I expect Raphael to take this in his stride and make it his own.

"This is an exciting time for the business and these promotions perfectly complement the company's ambitions."

Benggio added: “I intend to ensure our bridging proposition remains focused on delivering the quality of service we are known for, creating an efficient and seamless loan journey for clients, and maintaining a commercial a itude to our underwriting." ●

Paragon Bank brings in Louisa Sedgwick to drive buy-to-let product development aragon Bank has appointed Louisa Sedgwick as mortgages commercial director. Sedgwick has over 30 years of experience, including as managing director for specialist mortgages at Hampshire Trust Bank.

She will focus on product innovation and increasing the speed of new products to market.

Sedgwick will also support the green agenda in both new business and upgrading existing properties.

She said: “Paragon has a fantastic reputation in the market, its ambitions and culture match my own." ●

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