The Intermediary – June 2023

RESIDENTIAL ▮The latest from Barclays, Nationwide and more

INTERVIEW ▮Nick Jones on why now is the time to focus on seconds

IN PROFILE ▮The Broker Collective speaks out on its product withdrawal pledge

Intermediary.

The

www.theintermediary.co.uk | Issue 5 | June 2023 | £6

BELOW THE SURFACE Opportunities abound in specialist finance

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From the publisher...

T

hings seemed to be going so well.

The mortgage and wider property market had been quietly ticking along despite the strains felt by the broader economy.

That’s not to say there weren’t problems, but compared to the near apocalypse predicted by some commentators a er the miniBudget, things weren’t so bad.

However, as I write this, the past two weeks have seen mortgages make the front pages of the national press and been plastered across the 24hour news cycles.

There is no denying that it has been a trying couple of weeks, especially as lenders have been forced to pull products in light of changing money markets and economic outlook.

We have seen calls for intervention from both Westminster and the regulator to address the issues impacting the market and save homeowners from the impending rate rises when they come to the end of their fixed terms.

While it now looks inevitable that mortgage rates will rise further over the coming months, it is worth remembering that only around 7% of all fixed rate mortgages need to be refinanced by the end of 2023. Also, just 30% of homeowners have a mortgage.

That’s not to downplay the issue. For those in that position, it will be difficult. We are emerging from a historically low interest rate

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The Team

environment. Will it be a strain for many?

Obviously, it will. But this isn’t the ‘90s, and nor is it the ‘00s.

As Kate Davies at the Intermediary Mortgage Lenders Association (IMLA) said: “It’s important to keep things in perspective in a crisis.”

Being on the coalface, so to speak, brokers bear the brunt of the impact of turmoil in the market, and they have been vocal about what they are facing. This month, Jessica Bird speaks to The Broker Collective about their newly launched ‘untrade body’ and its inaugural campaign for a 24-hour notice period from lenders before withdrawing products.

While they ask for 24-hours’ notice, they are clear in acknowledging that this simply is not possible in all cases. However, the fact that they feel compelled to ask should ring alarm bells with lenders about making sure the broker community feels that its voice is heard in challenging times.

As a sector, the industry is blessed with having Robert Sinclair and the Association of Mortgage Intermediaries (AMI) championing its cause.

It is equally fortunate to have Davies and the IMLA board focused on how they can support the industry.

Challenging times call for collaboration, and brokers have a key role in navigating them. ●

Ryan Fowler @IntermediaryUK

Contributors

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RESIDENTIAL ▮The latest from Barclays, Nationwide and more

INTERVIEW ▮Nick Jones on why now is the time to focus on seconds

IN PROFILE ▮The Broker Collective speaks out on its product withdrawal pledge

Intermediary.

The

www.theintermediary.co.uk | Issue 5 | June 2023 | £6

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Contents FEATURES & REGULARS

INTERVIEWS & PROFILES

The Interview 66

Feature 46

Hannah Smith explores the role of the CPSP in opening up hidden specialist depths

Local Focus 84

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

On the Move 94

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

SECTORS AT-A-GLANCE

Residential 6 Buy-to-let 38 Specialist Finance 52 Second Charge 70 Technology 74 Later Life 80 Protection 90

52

Local Focus

FREEDOM FINANCE

Director Nick Jones discusses why now is the time to take another look at second charges

In Profile 32 B RO K E R C O L L E C T I V E

Riz Malik and Lewis Shaw ask lenders to pledge to minimum product withdrawal notice periods

Q&A 78 360 DOTNET

David Smith talks about the potential for a more cohesive market, and the tech needed to make it happen

Q&A 88 NEW LEAF

Daniel Hobbs explains the trends facing advisers at the moment, and how to choose the best network

Meet the BDM 18 FA M I LY B U I L D I N G S O C I E T Y

Amar Mashru tells us about the challenges and opportunities that he faces as a business development manager

The Intermediary | February 2023

11:05

3

RESIDENTIAL Opinion

Working to widen the gate, not lower the bar

I

n April this year, Barclays held an event which still has me thinking about the conversations had and the insights gathered over the course of the day. The aim was to create a safe environment for people to come together, discuss and celebrate diversity, equity and inclusion (DEI) efforts, and the unique journeys taken by individuals and firms across the mortgage industry.

This included a keynote speech from Ray Dempsey, group chief diversity officer at Barclays, a panel discussion entitled ‘Diversity wins: How inclusion ma ers’, a workshop discussion, ‘Driving change in our industry’, and culminated in the inaugural Barclays Diversity, Equity and Inclusion Awards. In addition, Dame Kelly Holmes DBE shared her unique experiences from her time in the British Army, on the track, and on recently coming out at the age of 52, in what can only be described as an authentic, enlightening and inspirational fireside chat.

DEI can be approached through many different voices and experiences, which demonstrates the ongoing value of such events. From a business perspective, how, where and why to implement measures can also greatly differ from firm to firm. Historically speaking, there have been arguments over whether DEI investments yield positive results, because inclusion can be hard to define, measure, and influence. However, in February 2023, Boston Consulting Group’s (BCG) BLISS Index showed that the felt experience of inclusion is not only quantifiable, but highly actionable.

Four key drivers The BLISS Index revealed four key factors that enhance feelings

6

The Intermediary | June 2023

of inclusion in the workplace for all employees, across a variety of industries and countries: Senior leadership commitment: When senior leaders are commi ed to DEI, 84% of their employees feel valued and respected, as opposed to 44% in businesses where leaders are not viewed as commi ed. BCG revealed that almost a third of black, indigenous, and people of colour, LGBTQ people, and people with disabilities chose not to apply for or accept a role due to lack of inclusion in the work culture of a particular organisation.

Diversity in senior leadership: When businesses have diversity in senior leadership, 85% of employees report feelings of belonging at work, whereas only 53% feel as though they belong at firms without diversity in senior leadership. Representation shouldn’t be limited to the most obvious groups, such as women, people of colour, people with disabilities, and LGBTQ employees; it should also extend to age, socioeconomic background, level of education, and caregiving outside of work.

Direct managers’ commitment: When executive teams are commi ed to DEI, 83% of employees report that their direct managers are also commi ed, and 86% say direct managers create a feeling of psychological safety – as opposed to just 17% and 29%, respectively, at businesses without a senior leadership commitment to DEI. Direct managers are vital to an inclusive day-to-day work environment. According to the research, older employees, lower-ranking employees, and employees from less advantaged

SIDNEY WAGER is director at Barclays Mortgages

socioeconomic backgrounds are the least likely to feel psychologically safe at work, and direct manager behaviour can influence this.

A discrimination-free, biasfree, respectful environment: Employees who witness or experience discrimination, bias, or disrespect are nearly 1.4-times more likely to quit their job. When employees trust that executives are commi ed to DEI, they are 33 percentage points more likely to feel comfortable speaking out in the face of discrimination, bias, or disrespectful behaviour. When employees feel emboldened to speak up, or see that there are consequences for these types of behaviours, they are more comfortable being their authentic selves, which makes them feel the workplace is more inclusive.

These represent some powerful statistics and messaging. Other studies out there also demonstrate that where businesses have a diverse workforce, they are likely to be significantly more profitable, largely driven by diverse thoughts delivering be er business outcomes.

As an industry, it’s fair to say that – despite significant progress being made – we are still not as diverse or inclusive as we could or should be, and this progress must be tempered with the knowledge that there is still some way to go.

It’s not about lowering the bar, it’s all about widening the gate. This was one of the main themes that people picked up on in our event, and certainly one we are looking to build on as a business, and a prominent voice in the conversation. ●

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RESIDENTIAL Opinion

It’s not easy going green. . .

W

ith new information about the scale of the climate crisis constantly emerging, it’s important that financial institutions play a role in helping the UK and the world achieve net zero emissions. The UK has 29 million homes, which together account for around 16% of the country’s emissions – around a sixth of the total.

Despite this, it’s difficult to know the full extent of emissions lost within the UK’s housing stock. The current Energy Performance Certificate (EPC) framework struggles to account for the complexity of individual homes’ energy efficiency requirements, instead providing a broad estimate of how energy efficient a house of that size should be.

What is clear is that the UK’s housing stock is dra ier, leakier, and older than anywhere else in Europe. This is a national issue, but affects varied areas and demographics differently; for example, up to 16% of Londoners live in housing with damp and where the heating, electrics or plumbing don’t work properly.

Though this predominantly affects renters, mortgage holders are also feeling the squeeze, with many coming off fixed-rate mortgages.

Green refurbishments can help homeowners deal with the negative effects of homes with poor energy efficiency scores. The average EPC rating of a UK home is fairly low at Band D. But there’s also a problem with information asymmetry – though brokers will be well aware of these structural issues in the market, improving energy efficiency can seem dizzyingly complex to borrowers and homeowners alike.

In this highly intricate environment, homeowners are on the one hand confused about what they need to do to make their

8

HENRY JORDAN is director of home at Nationwide Building Society

property greener, and on the other concerned about the potentially high costs of retrofi ing. In the medium term, inaction harms the planet and local ecology; in the short term, high energy bills continue to strain personal finances.

Energy efficiency needs to be made easier. Homeowners need clarity both on what they can do to decarbonise their homes, and on the right financing structures to help them. Financial services firms have a responsibility to step in on both fronts. This is what led Nationwide Building Society to develop a package of support to help people get started.

efficiency measures like air source heat pumps, boiler upgrades, window upgrades, or electric car charging points.

Though the majority of UK citizens agree that it is essential to tackle the climate crisis, in straitened economic times it can be difficult to get the money to get started. This is why it is essential for financial services firms to provide the right incentives and support for these changes in the home.

Understanding energy

Government support

To help tackle the lack of clear information, Nationwide Building Society partnered with the Energy Saving Trust to build a new online tool all homeowners can use to help make their properties greener.

The Home Energy Efficiency Tool asks a few simple questions of homeowners about their property and energy bills to generate an energy profile of the house. This can cover cost, energy and carbon savings that the homeowner can make over the long term. The idea is to help people be er understand the current energy use in their home, and then offer advice on how to reduce usage and save money.

Looking forward, it is clear that while packages of support from financial services providers go some way to helping the UK and the world achieve the energy transition needed to protect the climate, the deciding factor is ultimately going to be the Government’s involvement.

Net zero isn’t achievable without broader policy changes, significant cross-industry collaboration, and further Government support for UK housing, all in addition to individuals decarbonising their homes.

Nationwide is furthering its role as part of the Green Homes Action Group, a cross-industry sustainability group which campaigns for the Government to introduce a long-term solution for these issues and help promote retrofi ing on the national level. Groups like these and others should be heard by the Government to help drive the development of the green economy.

As with so many issues in modern life, the key to success is collaboration.

Only with a joint approach – between people, businesses, and Government – can we affect the necessary changes to make a difference at a national level in keeping the planet healthy, safe, and comfortable for future generations. ●

Easing financial pain It can be difficult to budget for needed energy efficiency upgrades, which is why Nationwide cut the interest rate on its Green Additional Borrowing home loan to 0%. This will enable up to 5,000 households on Nationwide mortgages to borrow up to £15,000 across two or five years.

The intent behind cu ing the interest rate was to make these changes less financially painful and incentivise Nationwide members to get ahead of the game on energy

The Intermediary | June 2023

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RESIDENTIAL Opinion

The political nature of housing is holding us back

T

he Help to Buy equity loan scheme closed to new applications on 31st October last year, with all transactions initially having to complete by the 31st March 2023, though Homes England could give extensions up to 31st May 2023.

Over its 10-year lifetime, Help to Buy supported 325,054 firsttime buyers into homeownership, according to the most recent figures from the Department for Levelling Up, Housing and Communities. A further 58,849 properties were bought by home movers with the help of the scheme’s Government-backed equity loan.

Overall, to the end of 2022, UK taxpayers have backed £24.4bn of equity loans, and the value of the properties sold under the scheme totals £108bn. That puts the average property value bought with the scheme at £281,321.

Throughout its duration, however, there were critics who levelled accusations that Help to Buy merely boosted buyers with a sizeable deposit to enable them to buy a more expensive home. At best, they argued, it helped first-time buyers who would already have been able to buy to get on the ladder sooner. At worst, it lit a fire under house prices as demand from buyers increased, who used the scheme to bid up and secure properties by boosting their purchasing power with the equity loan, which was interest-free for the first five years.

Whatever your view, Help to Buy finally closed its doors a er a House of Lords Commi ee cast doubt on the scheme’s value for money for the British taxpayer. It came as rather a surprise, then, when Prime Minister Rishi Sunak threw in a curveball at

10

The Intermediary | June 2023

the start of May, with newspapers reporting that the Government was mulling the scheme’s resurrection.

Call me a cynic, but I’m not sure Mr Sunak’s primary objective is to boost first-time buyers’ ability to become homeowners. Rumours that Help to Buy would be making a comeback began circulating a er Labour leader Sir Kier Starmer went on a charm offensive to win over homeowners, first-time buyers and renters.

Growing population The politics of all this toing and froing isn’t my concern, but the effect that housing policy has on the market very much is. What we need in the UK is more homes, not more money chasing fewer homes as the population grows.

It seems a li le trite to float the idea of pumping more public money into the economy, and particularly into the housing market, when inflation is stubbornly stuck at around 10%.

Energy and food price rises over the past year have been largely driven by international geopolitics, but let’s not forget that a much larger cause of the sky-high inflation we’re experiencing now is down to hundreds of billions of pounds of pandemic bailouts, while the Stamp Duty holiday also had a strong inflationary effect, increasing post-lockdown pent up demand and placing further upwards pressure on house prices.

So, do first-time buyers need more help right now? Or is it the home movers and downsizers who are really stuck?

There’s insufficient suitable housing stock at a reasonable price – because there’s not enough of it – in the right places for older retirees to move to.

That leaves them ra ling around in large family homes they could sell to the next generation. The competition

STEVE GOODALL is managing director at e.surv

for single dwelling households is acute. The last census showed us exactly that.

Families are stuck in homes that are too small for their growing children’s needs, and because they can’t move, first-time buyers are le competing over ever more expensive homes.

Despite the UK consistently missing its promised house-building targets, first-time buyers actually appear to have done well over the past decade.

Take a look at the mortgage lending and administration return (MLAR) statistics and you’ll see just over 14% of mortgage lending went to first-time buyers in Q1 2007 – well before the Credit Crunch hit. That figure has risen time and again, with 27.5% of all regulated mortgage lending going to first-time buyers in Q4 last year.

The Government is correct – support is desperately needed in the housing market. It is creaking under the weight of homeowners and renters. There is simply not enough of the right kind of stock. Children are having to live with their parents into their 30s. Renters are being made homeless simply because they cannot find somewhere to rent – even when they can afford it. Government policy is pushing landlords out of the market, and it is crippling affordability on all fronts.

We have a social crisis and an election issue, which is in danger of polarising parties when what we actually need is cross-party action, fast.

Perhaps it is time to remove housing from the political sphere – much like healthcare – and create a system where it is managed and delivered to meet what is required, and not just what is politically expedient. ●

RESIDENTIAL Opinion

We live in a time for change

F

or many years now, being socially conscientious before pursuing profit has been a distinguishing factor for businesses.

It has not always been considered conducive to making money, however.

Yet now, with the rapid rise of climate change awareness and the implementation of net zero targets, the urgency of action demanded of businesses operating today has accelerated at pace.

This has permeated the language used in the industry, particularly when it comes to encouraging new sales or contributing to the file of evidence required by shareholders when it’s time for the environmental, social and governance (ESG) litmus test. It feels as though firms’ underlying motivations are finally shi ing. Doing the right thing by customers is becoming less of a marketing ploy; it’s now the approach that can make or break your business.

It was interesting, therefore, to hear lenders divulge their visions for the future of mortgage lending in this light during discussions that took place at this year’s annual Building Societies Association (BSA) Conference.

A social purpose backbone The mutual sector has always put purpose before profit; it is the foundation on which building societies are built.

Nevertheless, for decades the mutual model has been penalised for this perceived conservativism. Now, the tide may be turning.

This year’s BSA conference saw a notable shi of focus to borrowers who need – and can afford – to buy their first home. This was especially true where they have worked diligently and hard to save the

12

The Intermediary | June 2023

Metamorphosis: Discussing visions for the future of mortgage lending

minimum deposit and achieve the income needed to gain a mortgage approval – even in geographies where the demographics typically stretch standard income ratios.

During his keynote speech, Robin Fieth, chief executive of the BSA, was clear that social purpose has been the consistent backbone of the sector since the first known building society was founded in Birmingham back in 1755.

“Despite an ever-changing world, building societies and credit unions continue to work to maximise member value, not shareholder value, as they always have done,” Fieth said.

It was a sentiment reiterated by outgoing BSA chairman Mark Bogard as the two-day conference opened.

He said: “The mutual sector has, by and large, earned the right to have its say. We don’t always get it right, but we start from a base that is memberfocused. We have a moral compass – we really mostly do not need lecturing on the green agenda or diversity, for example.”

Freedom to challenge Bogard continued: “Perhaps too o en, we may think that it is easier, safer, not to have our say.

“We know that our societies and credit unions provide an important service to savers and borrowers. We do have the freedom to challenge.”

During the two-day gathering, heads of industry spoke on ma ers

Watch here

RESIDENTIAL Opinion

JERRY MULLE is UK managing director at Ohpen

including climate change and improving energy efficiency through the lens of positively discriminating lending criteria. These discussions focused not only on the development of practical criteria, but also progressed with a view to ensuring that certain borrower cohorts are not inadvertently le behind.

Helping deliver purpose comes in many guises – all of which will shortly come under the auspices of Consumer Duty, which is due to come into force on 31st July.

A panel chaired by Elaine Morton, the BSA’s head of legal, conduct risk and compliance, discussed the importance of its introduction now.

The conversation shone a light on the various stages of readiness businesses find themselves in.

Fundamentally changing culture Just a few days later, Sheldon Mills, executive director, consumers and competition at the regulator, delivered a speech to EY delegates at a separate conference clarifying the Financial Conduct Authority’s (FCA) expectations of firms.

He said: “The duty’s outcomes run with the grain of what good firms should seek to deliver. Those firms [that] do the right thing and show leadership should welcome action to tackle poor practice by competitors who drive down standards.

“The common thread, the thing we are interested in above all else in our work, is reducing harm to consumers and ensuring firms deliver good outcomes for consumers.

“And the Consumer Duty should deliver this, by fundamentally changing culture: not just yours, but ours too.”

Doing the right thing for the right reason is incredibly important, and helping societies achieve just that is the point of our business. We may do it through technology, but ultimately our ability to deliver the change that societies require at a cost that is affordable and in a way that allows them to keep competing is fundamental. It is an objective that we at Ohpen have been striving for since we began, and which chimes with the aims of the mutual sector.

The mortgage lending industry has had barely a let up over the past 15 years, from the Credit Crunch through to the current challenges that rising interest rates present for so many borrowers.

This year’s BSA conference saw a notable shift of focus to borrowers who need – and can afford – to buy their first home”

If the winds are turning – as so many believe they are – then it seems possible that the industry is now pulling together in the same direction at last. ●

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RESIDENTIAL Opinion

Reckless lending or clever marketing?

SHAUN ALMOND is managing director of HLPartnership

L

The worry is that other lenders might decide to copy Skipton, but offer their 100% products to a wider audience

et’s talk about 100% mortgages. There are a host of 90% mortgages from a variety of sources, even some 95% offerings, but mortgages at 100% have been rarer than hen’s teeth in the past 10 years.

At a time of such financial uncertainty, it was a surprise to find that one lender decided to stick its head above the parapet and announce a 100% mortgage. Skipton Building Society, one of the most astute and savvy lenders in the UK, has launched what it calls a ‘deposit free’ mortgage.

Any broker old enough to remember the Credit Crunch might question the wisdom of bringing such a product to market, but let’s examine the pros and cons.

Skipton claims that the product is aimed specifically at renters who want to buy a property, don’t have a deposit but can prove a year’s unblemished record of rental payments and a clean credit record.

To me, that looks like a logical and well argued reason. A er all, how many of us have bemoaned the fact that many renters pay more in rent than the equivalent mortgage repayments they would have to make, and are turned down for mortgages because of affordability issues?

14

The Intermediary | June 2023

In its calculations to assess the likely impact that this mortgage might have on potential arrears and repossessions, the society must be confident that the behaviour of these mortgages will be li le different from its mainstream mortgage book. Although it has not been published, it would be worth considering just how much funding has been set aside for this initiative, which will, of course, have a direct effect on capital requirements.

Doing something different Another way of looking at this is to say that this is just a clever marketing exercise to keep the lender firmly in brokers’ minds by doing something different, rather like a supermarket running a campaign of price reductions on certain products in order to stimulate interest in the rest of its inventory. Is the intention really to create column inches in the trade press, rather than a serious a empt to rehabilitate 100% mortgages?

At a time when the mortgage industry is facing uncertainty over interest rates continuing to go up and property prices showing greater signs of going down, is this the right time to be advertising a product where negative equity could be a likely result? Add to that the documented trend that people with no equity in

their property are more likely to hand the keys back to their lender in the event of a negative financial event, and there seems to be a strong case not to launch such a product at this time.

Looking at this as a marketing ploy, it has certainly created some interesting reactions. Andrew Bailey, the Bank of England governor no less, has warned that lenders and borrowers have to be ‘very careful’ when looking at zero deposit 100% mortgages. He claimed not to be against this type of mortgage, but seemed to be pu ing a stake in the ground so that – whether proven to be either a success or a failure – he will have made a contribution and can say that he was right regardless.

The question remains: are 100% mortgages just asking for trouble, or a necessary tool to help ex-tenants onto the housing ladder? As a niche product subject to rigorous underwriting, they might very well be the answer for a limited number of applicants.

That said, the worry is that other lenders might decide to copy Skipton, but offer their 100% products to a wider audience. Fortunately, lenders are unable to offer too many high loan-to-value (LTV) mortgages because of capital requirements, but that could change.

It wasn’t so long ago that the regulator was preparing to ease the affordability rules, just at the time when interest rates were beginning to climb. An interesting decision, given the prevailing conditions.

Will the regulator follow the governor of the Bank of England and make an unequivocal statement about the balance between easing affordability rules at a time of such financial uncertainty? ●

RESIDENTIAL Opinion

The return of Help to Buy will be a challenge

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wrote last month about the value of our technology being designed to support lenders with first-time buyer products.

It appears I was prescient.

In May, the first-time buyer agenda once again appeared in the nation’s political discourse. With a General Election not so far away now, both Chancellor Jeremy Hunt and Prime Minister Rishi Sunak have begun to trail potential policies designed to woo various cohorts of voters.

narrative – and that is precisely what the Government is gambling on when it comes to winning votes in two years’ time. To that end, rumours that Sunak and Hunt are in discussions about resurrecting Help to Buy equity loans make sense.

The commentary following the news that Help to Buy was back on the table was mixed. In the end, we all have to make sure we are in a position to deal with it, whatever the shape and form of future support.

As a provider that supports this industry and lenders of all shapes and sizes, we must be ready to respond if the scheme is resurrected, and we must be flexible enough to adapt to any alternative form it takes”

Help to Buy supported more than 300,000 buyers into homeownership, and to a lesser extent, to buy a larger home more suited to the growing needs of their families. Nevertheless, the scheme also required buyers to have the capital in order to make the sums work.

Help to Buy equity loans funded up to 20% of the value of the purchase price on an interest-free basis for the first five years. In London, you could apply for up to 40%. It meant buyers had to save just 5% of the purchase price to put down as a deposit, at a time when mortgage lenders were essentially refusing to lend to anyone with less than a 10% deposit.

There’s no doubt the scheme helped buyers onto the property ladder.

There are buyers for whom it was life-changing, allowing them to escape rented accommodation and start investing in their own capital value by repaying the mortgage on a property they own.

Nevertheless, Help to Buy was dreamed up to support borrowers in different times, and needs a rethink for our modern market.

There have been numerous stories from people who’ve bought with the aid of Help to Buy. Depending on the

In the previous Budget, help for buyers was noticeably absent, almost certainly because of its inflationary impact. However, it is time for politics to trump economics – as it always does – and help, it seems, may be on its way.

Politicians seek to pull at the heartstrings of would-be homeowners, forced to shell out thousands to their landlords in rent each month just for the privilege of being close enough to the office to do their jobs. It is an incredibly powerful

Different times

STEVE CARRUTHERS is business development director at Iress

year of purchase, when charges kick in on the equity loan a er five years, borrowers must pay interest of 1.75% in the sixth year. Each year therea er, the charge rises by the consumer price index (CPI) inflation rate, plus 2% on top. Help to Buy was designed in and for a time that bears li le resemblance to the economic environment we find ourselves in today.

Levelling up Help to Buy may yet still be part of the answer when it comes to levelling up society, and boosting access to homeownership. However, if the rapid change in monetary policy during the few months since the industry began to consider these things is anything to go by, the cost of servicing these equity loans will quickly begin to impact their value.

Regardless of the financial implications for borrowers in a wide range of circumstances, these dynamics will increasingly have a bearing on Government policy designed in a different era to aid firsttime buyers.

So, as a provider that supports this industry and lenders of all shapes and sizes, we must be ready to respond if the scheme is resurrected, and we must be flexible enough to adapt to any alternative form it takes.

It’s one of the advantages of new technology that it can flex, be agile, and deliver change at speed and scale.

If Help to Buy is the answer, the industry will need a rethink in order to design systems that can support a positive outcome for would-be buyers in the run up to an election. ● June 2023 | The Intermediary

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RESIDENTIAL Opinion

Steering a course through the expat mortgage waters

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ortgaging or remortgaging a UK property while living overseas is complicated by many factors: distance, currency, and language, to name a few. With interest rates higher than this time last year and the choice of expat mortgages lower than the norm, brokers must try to help their expat clients navigate a complex market.

Country of residence The list of countries from which mortgage providers will accept expat applications changes regularly, so it is important not to make any assumptions based on previous applications. Socio-political reasons and concerns around money laundering checks are the main contributing factors. Some of these are imposed on the lender, such as the list of the countries in which the UK Government has financial sanctions in place. Other factors that may also influence a lender include whether a country is in a war zone or is economically stable.

Some lenders may also specify that the applicant’s employer must have a UK or international presence, while others are not so strict on this front.

When it comes to assessing income, lending to self-employed expats is a bigger challenge. So, having a clear understanding of the business set up, whether they are a contractor or use an umbrella company, is essential information for the lender.

Currency complexities Even when a specific country is acceptable to a lender, it may not necessarily accept deposits or income in its currency.

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The Intermediary | June 2023

That said, many expats are paid in sterling or a small number of other currencies that are considered to be stable, including US and Canadian dollars, euros, and the UAE dirham.

It can be complex for lenders to keep track of exchange rates and countryspecific tax regimes, so many will apply what is known as a ‘haircut’ to the applicant’s income: a calculation that effectively reduces the applicant’s income to allow for fluctuations. This can have an impact on affordability.

Although some lenders will accept a currency for income purposes, they may not accept a foreign-based deposit. The options for a potential expat borrower may decrease even further if they have a deposit in a third currency. All lenders will expect clear evidence of where a deposit has come from.

Family circumstances Many expats choose to move their family abroad with them. This means they must decide whether to leave their current property vacant or rent it out on a long or short-term basis. Others will prefer to leave their families in the UK and just move abroad themselves. Some will buy a new investment property to retain a foothold for the future and others will refinance an existing property.

A good understanding of the applicant’s situation will really help you place the case.

Some lenders can be averse to ‘lock and leave’ and prefer someone to be living in the property, to ensure future saleability and prevent deterioration.

Another consideration might be the family members living in the property, as some lenders limit this to very close family, while others take a wider view. Similarly, if a property is to be let, the applicant must consider

ANDREW SADLER is key account manager at Suffolk Building Society

whether they will make regular return visits and wish to stay in their own home, or if they are happy to rent it out on a longer-term basis.

Holiday let mortgages are a good option for people in the former camp, as these o en allow the mortgage holder to live in the property for a set number of days per year – typically between 30 and 90. However, some lenders will only consider expat holiday let mortgage applications if the property is in an area with known holiday let demand.

Expat buy-to-let (BTL) mortgages are categorised in the same way as UK BTL, depending on whether or not they were originally or intentionally purchased to be let out. Expats who have been living in their home prior to le ing it will need to apply for a ‘consumer expat buy-to-let mortgage’.

Joint applications It’s not uncommon for an expat application to be in joint names, where the second applicant is a non-UK national. This person’s income usually can’t be taken into consideration, but increasing numbers of lenders are comfortable with naming a second person on the mortgage, as long as the first applicant is a UK passport holder.

Whatever your client’s reasons for requiring an expat mortgage, it’s important to be conscious of changes in lender criteria. An expat borrower is o en very loyal to the mortgage broker who helps to steer them through the mortgage waters while they are overseas. So, the investment can be well worth the effort. ●

RESIDENTIAL Opinion

Recommending surveys protects consumer interests

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he UK housing market is a force of nature. Its resilience – combined with the ongoing strength of homeownership aspirations across the country – means it continues to defy the many negative expectations which, unsurprisingly, surfaced coming into 2023.

This was evident in data from Rightmove, which reported a 1.8% rise in May asking prices – the biggest increase so far in 2023 and significantly higher than usual for this time of year. This rising trend represents further positive news for a housing market which is now benefi ing from more stability in terms of both mortgage rates and the general economic climate.

However – and this is also highlighted in the data – the current multi-speed, hyper-local market remains highly price sensitive, and buyer affordability is being stretched in a rising interest rate climate where living costs continue to escalate. This means that the reliance on, and value a ached to, the mortgage advice process is growing by the day.

As all advisers are fully aware, a major role within the client journey has always involved plenty of hand holding, information and education, and this is increasingly evident in a transactional process which is ge ing more complex from both an adviser and borrower standpoint.

There are many steps in this journey, and many decisions to be made along the way, but whether the client is a first-time buyer or an experienced homeowner, one crucial aspect which can o en be overlooked is the necessity a ached to a house survey.

So, let’s explore why advisers should proactively put themselves in a position to offer house surveys, and why consumers should proactively request them, to highlight the duty of both parties in ensuring a transparent and secure process.

A house survey serves as a vital tool in safeguarding the interests of all buyers during the homebuying journey. It is an independent assessment conducted by a qualified surveyor to evaluate the condition of the property. By offering a house survey, advisers demonstrate their

Advisers should proactively put themselves in a position to offer house surveys

KHARLA MULLEN is chief operating officer at Countrywide Surveying Services

commitment to transparency, consumer protection, and ethical business practices.

A thorough house survey – a Homebuyer or a Building Survey, depending on the property – can reveal hidden defects that may not be apparent during initial viewings.

Structural issues, damp, faulty wiring, or plumbing problems may exist beneath the surface, posing potential risks and requiring costly repairs in the future. A comprehensive survey report provides valuable insights into the property’s condition, allowing buyers to make informed decisions and ensuring that clients are as formed as possible to calculate any future expenditure.

Risk mitigation By offering and recommending house surveys, advisers help mitigate the risk of potential legal disputes and financial losses. Should significant defects or structural issues emerge a er the purchase, a survey report can serve as evidence to support claims for compensation or renegotiation.

Of course, buyers must take their fair share of responsibility and control over any property purchase, but by providing the right information around surveys and offering access to a trusted surveying partner, advisers can help ensure that their investment aligns with their expectations.

A er all, it’s those advisers who prioritise their clients’ duty of care who remain best positioned to build trust, bolster referral levels and cement longer-term relationships going forward. ● June 2023 | The Intermediary

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Meet The BDM How and why did you become a business development manager (BDM)?

I had some 20 years’ experience in the banking and mortgage sectors, starting in admin and then moving to client-facing roles, before becoming a mortgage broker.

I moved to Lloyds covering various roles, including mortgage adviser, private banking mortgage adviser and underwriting. During my time in the mortgage world, I had got to know a number of BDMs well, and my background made me ideally suited to become one.

The Intermediary speaks with Amar Mashru, BDM for Central London at the Family Building Society

What brought you to the Family Building Society?

Honestly, the biggest reason was a personal one. In my previous job as a BDM at Furness I covered a third of the country, including Central London. There was a lot of travelling.

During lockdown, our daughter was born and my life changed.

When the opportunity came to join the Family, to cover ‘just’ seven postcodes in Central London, I leapt at the opportunity.

I can be in the City within the hour from my home, and while I’m working just as many hours, I see our daughter in the morning before I leave and when I get back home in the evening.

What makes the Family Building Society stand out from the crowd?

The Family has a special approach to underserved borrowers, not only first-time buyers (FTBs), but also 18

The Intermediary | June 2023

MEET THE BDM

the self-employed, expats, landlords and those coming up to and in retirement.

Our approach to assessing applications on a case-by-case basis, which are then manually underwritten, is very special. We find out much more about the wouldbe borrower than the mass market major lenders.

There is no computer to say ‘no’ at our Epsom head office, and nearly all cases, apart from the very standard ones, are different.

What are the main challenges facing BDMs right now?

A dozen successive Bank of England base interest rate rises, and counting. This is something we haven’t seen for over 30 years.

Applicants, used to 15 or so years of extremely low interest rates, aren’t just unhappy, they’re also pretty bewildered.

The slowdown in mortgage applications – new deals and remortgages – has meant that the brokers are doing less business, too, so we have to work harder to help them help their clients.

However, there is always a market for lending. Cammy Amaira, who is our head of strategy, distribution, told me that when rates were at 15% there was still plenty of borrowing going on. However, inflation was then running at 25% and two pay rises a year weren’t uncommon. One could buy a property for two-times one’s salary.

What are the opportunities?

Opportunities are there at the top end of the owner-occupier and buy-

to-let (BTL) markets in London and the South East, anything over £2.5m.

The very wealthy, particularly City types, aren’t as affected by the costWITH US of-living crisis and can see this as a , Family Building Society buying opportunity. In fact, we have EstablishedR 1896 T I L Y I IE GE XIB seen gazumping recently.

E TS EAS L F

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

IN LA

Products

T EFixed, variable and R LIFE

tracker mortgages Savings offset First-time and family assisted WE KNOW YOUR CLIENTS WON’T ALWAYS FIT THE MOULD. THAT’S WHY WE OFFER F L E X I B L E S O L U T I O N S FOR LATER LIFE LENDING. Later life lending How can we help?

Expat borrowing I build relationships based on trust.

Individual and limited company BTL I know my patch well and am on — We take into account earned income up to the age of 70, or even 75 if the client is in a non-manual role.

— We’ll consider pension pots, as well as fixed pensions, investment and rental income. Other income can be considered on a case-by-case basis.

— We lend in retirement with higher maximum ages than most lenders.

excellent terms with the leading Contact brokers, who I have known for FIND OUT MORE AND SEE JUST HOW FLEXIBLE WE C AN BE! amar.mashru@familybsoc.co.uk intermediaries.familybuildingsociety.co.uk some years.

01372 744155 07500 912149 I am in the City at leastmortgage.desk@familybsoc.co.uk four days a week, sometimes five. I can be at the offices of most brokers within 10 or 15 minutes’ notice, and I often pop in to help with applications that might not be straightforward.

— We have a common sense approach to lending and use human beings, not robots, to underwrite each case.

This means we can tailor our solutions to each of your client’s needs.

VISIT

C A LL US ON OR EM AIL

FAMILY BUILDING SOCIETY, EBBISHAM HOUSE, 30 CHURCH ST, EPSOM, SURREY KT17 4NL

Family Building Society is a trading name of National Counties Building Society which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. National Counties is on the Financial Services Register. Firm Reference Number 206080.

Later Life Flexibility Ad A4_The Intermediary.indd 1

13/04/2023 11:36

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

Economic uncertainty is the biggest issue we face. Do you wait until the markets calm down and interest rates stabilise? Frankly, they are not going to retreat to lockdown levels, and probably not even those seen since 2008.

However, if you are keen to move and want to stay in your new home – yes home, not investment – for the medium term at least, go for it. As long as, of course, you can afford the contractual monthly payments.

Once you have found the home you would like to buy, then seek the advice of a whole of market mortgage broker! ● June 2023 | The Intermediary

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RESIDENTIAL Opinion

A stepping stone for first-time buyers

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urchasing a first home has long been seen as a normal, expected part of life for many of us, just like learning to drive, ge ing married or pursuing a fulfilling career. These things involve big steps with their own unique challenges, but nonetheless, we expect to achieve them at some point in our lifetime.

Over the past few years, instead of being that natural next step on the timeline, homeownership has become increasingly elusive for many potential first-time buyers.

Property prices have risen dramatically due to a lack of housing stock and increased demand, and although there’s plenty of news coverage about house prices falling, they remain significantly higher than they were even just five years ago.

As house prices increase, so does the deposit required to secure the purchase. One of the biggest hurdles for first-time buyers is saving up that deposit, which is no surprise considering an average deposit can run into tens of thousands of pounds.

According to the May 2023 Money Charity Report, it now takes an average of 16 years for a buyer to save the required deposit for their first home. This extended savings period poses significant challenges for those eager to enter the property market at a younger age, especially when coupled with repaying large amounts of student debt or paying out large amounts in rental costs.

As property prices have soared in recent times, so has the age of firsttime buyers. The Halifax conducted a First Time Buyer Review, released in 2022, which looked in detail at various factors. It found that the average age of a UK first-time buyer had risen to 32, an increase of three years just over the past decade.

This increase in age can be a ributed to several factors, including

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The Intermediary | June 2023

the ongoing cost-of-living crisis, the failure of wages to increase in line with inflation, and stricter lending criteria issued by mortgage lenders, as responsible lending rightly continues to be a core focus for the regulator.

This range of circumstances has le many aspiring homeowners with li le option other than to delay their goals until later in life.

Recognising the difficulties faced by first-time buyers, and with the intention of stimulating the housing market, the Government introduced a range of schemes to assist purchasers at this end of the market.

Following the recent closure of the popular Help to Buy scheme, the most common initiative currently remaining is the Shared Ownership scheme, where buyers can purchase a share of a property whilst paying rent on the remaining portion.

Over time, buyers have the option to purchase additional shares, commonly referred to as staircasing, eventually owning the property outright and therefore ending the need to pay the additional rental payments. The main benefit of this scheme is that it allows buyers to enter the market with a smaller deposit and smaller monthly mortgage payments, although rent does still need to be factored in.

Shared Ownership is generally geared towards the new-build market, with Housing Associations throughout the country taking part in the scheme, although an increasing number of resale properties are available.

Specialist products Beyond Government initiatives, various lenders have also developed specialist mortgage products to support first-time buyers. Notably, Skipton Building Society recently launched a first-of-its-kind product purely for long-term renters, further demonstrating the innovation that exists in this space.

CLAIRE ASKHAM is head of mortgage sales at Buckinghamshire Building Society

Over the past few years, instead of being that natural next step on the timeline, homeownership has become increasingly elusive for many potential first-time buyers” Speaking of innovation, here at Buckinghamshire Building Society, we offer a Family Assist mortgage product which allows a parent or grandparent to use a portion of the available equity in their property, by way of a collateral charge, to act as a deposit on the child’s purchase. This allows a first-time buyer to purchase a home with a lower deposit – or even no deposit at all!

Although the current mortgage market presents significant challenges for purchasers looking to step on to the property ladder, a variety of options are available to make the process a li le easier.

Now more than ever, I would urge anyone considering buying their first property to speak to a mortgage broker to get a full overview of the range of options available.

It’s a changeable environment with unstable interest rates and products ge ing withdrawn and relaunched on a seemingly daily basis.

A good mortgage broker that can hold the customer’s hand and guide them through the process while acting as a stepping stone between the borrower and lender is worth their weight in gold! ●

RESIDENTIAL Opinion

Terms increase while prices go in opposite direction

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record 19% of firsttime buyers (FTBs) took out mortgages lasting at least 35 years in March, compared with March 2022, when the figure was one in 10. The average mortgage term for FTBs has been steadily climbing since the initial research in 2005.

A big factor in the increase will be house price increases over the past few years, fuelled by cheap mortgage rates and the Stamp Duty holiday.

Affordability has also played a role, as the increased cost of living is making it harder for FTBs to save deposit, in addition to mortgage rates and the impact on monthly budgets.

Average terms are not the only thing that has been increasing for FTBs. Average age has also steadily been rising. Figures from 2021-22 showed the average age of a first-time buyer outside London was 33.4. In 20056, the average age was 30.6 outside London, and it was as low as 29 in the 1990s.

These findings come during a period where property prices have steadily been falling. As of March 2023, the average house price was £285,009 according to Nationwide, meanwhile Halifax’s recent survey highlighted that house prices fell 1% on average over the past year. The average house price remained broadly flat monthly, with zero growth in May leaving property values si ing at £286,532.

With the end of the Help to Buy scheme, it’s positive to see lenders innovate – such as Skipton’s track record mortgage, along with the other longstanding schemes like Barclays’ Springboard and Family Building Society’s Family Assisted mortgages – as they support FTBs overcome the difficulty of raising a deposit.

Along with products, lenders have also supported FTBs by relaxing their criteria. Last year NatWest raised its age limit to 75, for example, and we’ve started to see many lenders increase mortgage terms from 35 up to 40 years, most likely due to the rising retirement age and fact that many are working and paying off their home loans for longer.

While we have seen many lenders make these changes, others haven’t yet taken these steps, possibly indicating a reserved approach to their lending appetite.

While longer terms are a means to supporting homeowners, we also need to ensure that clients are aware of the risks. Longer terms can reduce the monthly payments and bring down a homeowner’s total outgoings, but this will impact the total amount of interest homeowners pay back, pu ing them in debt for longer.

Extending the term may be useful as a short-term solution, but the longerterm impact could cost thousands.

Understanding options Educating a client is key to ensuring they are aware of the impact, not just now but later in life. We must make sure they know they have the option to review the term each time their fixed rate comes to an end.

When we consider how quickly the mortgage market can change, it’s clear that ge ing advice from a broker is always important. It just seems so much more relevant in a period brimming with volatility.

We have seen homeowners overwhelmingly opt for a product transfer versus a remortgage. With lenders keen to tie in existing clients in a period where overall mortgage lending is down, we must ask: how many clients who opt for a product

NICK MENDES is mortgage technical manager at John Charcol

transfer directly are reviewing their options appropriately?

For those that do choose a product transfer, look to utilise overpayments.

Each year, fixed rate products typically allow you to make overpayments of up to 10% of the outstanding balance so you can pay off your mortgage quicker.

You can typically do this by increasing your monthly direct debit or making lump sum payments.

As the average age and term for a first-time buyer increases, there is growing concern around how much individuals are preparing for retirement. In April 2019, minimum contributions to auto-enrolment workplace pensions were raised to 8% of earnings. However, thinktanks feel that even the increase is unlikely to give people the pot needed. There have been calls for the Government to increase it to 12.5% by 2028.

The same issues that are affecting FTBs are also having a knock-on effect on home movers. Roughly a third of home mover mortgages are now for terms of more than 30 years, meaning that built up equity no longer has the same impact. Paying off your mortgage over a longer term means that you won’t build up equity as quickly – equity that you could use towards your next property to reduce the size of your mortgage.

Property is an emotional subject; regardless of the costs and considerations, we all desire to be a homeowner. Ge ing advice and speaking to a broker is an incredibly important step in that journey. Just because things are changing, doesn’t mean you need to miss out. ● June 2023 | The Intermediary

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RESIDENTIAL Opinion

Bolstering client retention in an era of uncertainty

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urturing existing client relationships has never been more important for brokers. With more than half (57%) of mortgages set to come to the end of their fixed-rate period this year, according to the Office for National Statistics (ONS), brokers must find ways to successfully engage clients and keep them coming back over the long term.

Financial sense Our own research suggests that it is between 5% and 25% more expensive to acquire a new customer than to retain an existing one. Equally, when it comes to return on investment, a 5% increase in retention could boost revenue by 25% to 95%.

Not only does it make financial sense, but satisfied, loyal customers are also more likely to highlight the service to friends and family, leading to an increase in new customers as well.

So, what can brokers do to increase client retention?

The key is to hit the ground running on completion day. Don’t allow for a lag between the time you win a client and when you start reengaging with them about the next stages in their mortgage journey. The opportunity to make a lasting first impression only comes around once, and this is your chance to lay the groundwork for a strong retention strategy.

It is common for people to experience a mixture of stress, excitement and being overwhelmed on completion day. Sending a housewarming gi such as a hamper or plant can be a simple but memorable gesture, making the relationship less transactional and more personable.

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The Intermediary | June 2023

LISA MARTIN is development director at TMA Club

Constant communication Equally important is keeping up the communication with clients, checking in with them at regular intervals, even when their mortgage is not up for renewal anytime soon.

The third and sixth months, as well as the year anniversary, can all be good opportunities to touch base with customers by giving them a quick call or text. By investing in customer relationship management (CRM) systems, you can automate the process to ensure that you keep in touch and schedule frequent follow-ups.

A three-month catch up could also be an opportune moment to open a conversation about protection, general insurance (GI), life status, home improvements, and more. If, for example, the client reveals that they did not take out any protection with their mortgage, you can emphasise the importance of doing so to ensure they are protected in the worst-case scenario. Once again, a CRM will allow you to record information and feedback more easily, while saving valuable administration time.

For anniversaries, it’s a good idea to offer a free consultation to review any changes over the past 12 months, and chat through long-term goals. Some clients may want more of a casual chat, while others will be interested in having an in-depth conversation to explore changes they may wish to make, such as new policies to take out or switch to. To keep up the momentum, it is always worth ending such conversations by scheduling a time for the next phone call.

Product renewal review Once you’ve established a strong connection with your client, it will seem more organic and natural when

you get back in touch to remind them that they are coming to the end of their current product.

They’ll also be more inclined to return to you, given the time and care you’ve invested. It is worth sending them an initial reminder when they enter the last 12 months of their current product, and le ing them know that you will be back in touch with them in the next six months.

Obtain customer feedback Annual review meetings and surveys can help gather valuable feedback, identifying pain points and improving your service for all customers. You can ask clients who are happy with your service if they’d be willing to post a review, and you may also be pleasantly surprised to gain a few unexpected customers through referrals.

Look to see, also, if there are any similarities between customers who have le , to determine if there is a common reason for their switch.

Client retention has never been more important than it is now, amid unusually high interest rates and turmoil in the mortgage market.

The impact of brokers maintaining regular contact with their clients and having frequent check-ins cannot be underestimated.

TMA Club supports directly authorised (DA) brokers with useful tools, templates and links to facilitate regular and meaningful contact with clients. Those who invest in a retention strategy are likely to see more customers return to them when the time comes to remortgage or transfer products. ●

RESIDENTIAL Opinion

Greater than the sum of its parts CARLY NUTKINS is head of lending at Cambridge Building Society

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Rent to Home: Cambridge Building Society’s scheme returns 70% of rent to tenants ready to buy

irst-time buyers have been the subject of a lot of a ention recently, not least because lenders like the Skipton Building Society – with its launch of a 100% loan-to-value (LTV) mortgage, which has been broadly welcomed by commentators – have shone a light on the problem of affordability for this section of the market.

With the private rental sector (PRS) going through its own evolution, rents rising and supply in many parts reducing, renters are paying more each month than they would if they actually had a mortgage, and would o en legitimately be be er off owning a property rather than renting one.

Of course, any new buyer’s ability to purchase a property is materially affected in most cases by their ability to raise a deposit.

This is a difficult task if rental payments are soaking up any income you may otherwise have put aside for buying your first home – all the more difficult when, notwithstanding the rise in interest rates, deposit rates have been slow in too many cases to reflect the rise in rates.

As the saying goes, one swallow does not make a summer. The Skipton mortgage simply provides an

additional option for first-time buyers.

Deposit Unlock, First Homes, Joint Mortgage Sole Proprietor, Guarantor, and Gi ed Deposit are all market and Government options to help the firsttime buyer and new-build market.

All have their place, but none can be expected to solve the problem of a lack of affordable housing for firsttime buyers.

The impending election will throw the light back on housing. Only recently, the Government let slip that it is considering the return of Help to Buy. The news was received by many with limited enthusiasm – ‘Help to Sell’ some said – but the political expediency of an election will win out.

The scheme already has a track record.

House price support Over its 10-year lifetime, Help to Buy supported 325,054 first-time buyers into homeownership, according to the most recent figures from the Department for Levelling Up, Housing and Communities, pu ing the average property value bought with the scheme at £281,321. This is undoubtedly meaningful in volume.

But the scheme also supports house prices, the bellwether of UK economic confidence. No Government wants to go into an election with voters feeling substantially poorer. Equally, on a

longer-term basis, if our homes are expected to pay for our care in old age, they need to have a value that can be realised. From a policy point of view, let alone economic one, you can see why house price growth is important for Government and voters alike.

Ultimately, affordability is just one part of the problem. Supply is the other part. But a considerable stepchange in the volume of homes available depresses prices – not helpful politically, to a Government that supports homeownership and needs prices to rally.

Lender innovation This is why innovations from lenders are important, and building societies can play a central part. We have been running our Rent to Home scheme for some time, and while admi edly targeted at those living in our regional heartland, it has been designed to support first-time buyers in taking that first step onto the property ladder, specifically those who can afford to rent but are unable to save a deposit to purchase a home.

The successful applicants rent a newly refurbished property located in Greater Cambridge for a period of between one and three years. When they’re ready to purchase, we return 70% of the rent paid to help with the deposit and provide the mortgage to finalise the move.

It’s a very different mechanic to the Skipton proposition, but nevertheless is a hugely important step in offering a real pathway to homeownership.

For the moment at least, the whole is greater than the sum of the parts, and building societies are providing innovative schemes to help. ● June 2023 | The Intermediary

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RESIDENTIAL Opinion

Every tenure in the capital must work harder for everyone

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ondon is one of the world’s greatest international cities, and as King Charles III processed humbly up Westminster Abbey’s aisle on 6th May, this was truer than ever. With even more pomp and circumstance than we’ve become used to – even with four royal weddings and several Jubilees over the past 15 years – the King’s Coronation excelled.

It also brought hundreds of thousands of tourists to the capital.

Analysis from Key Data, which tracks the short-term lets market, showed the number of bookings made by international visitors was up more than 75% in the two weeks around the Coronation, compared with the same fortnight last year. More than 70,000 foreign tourists came to watch the spectacle from the city, bringing a £20m boost through accommodation, hospitality and leisure spending.

It wasn’t just tourists from overseas pouring into the city. The number of people arriving in London during the Coronation from both elsewhere in the UK and abroad was up 47.4%.

Although the Coronation is very much a one-hit wonder when it comes

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to such a large influx of tourists, it nevertheless put the UK and its capital city firmly back in the minds of millions around the world who watched the historic service on TV. More than 20 million viewers watched in the UK alone, while another 10 million Americans had their proverbial popcorn out, and estimates put the worldwide number at 277 million.

Although the Coronation took an estimated £20m to £50m out of the public purse to pay for the display, the Centre for Retail Research estimates that the total value brought into the UK economy by the event came to £1.41bn. The London Chamber of Commerce and Industry’s James Watkins even described the event as the massive boost that businesses needed to get back on track.

Future path of values More broadly, the capital’s local economy is also showing promise.

Data from The London Assembly show London’s Purchasing Managers’ Index measure of business confidence remains firmly net positive.

House price inflation continues to slow, but far from worrying, I view

ROBIN JOHNSON is managing director of KFH Professional Services

that as a much-needed boost to buyers’ affordability. As the Bank of England confirmed its widely anticipated base rate hike from 4.25% to 4.5% in midMay, higher mortgage costs need to be offset to support transaction volumes.

A bigger risk is that headlines shouting about house prices falling start to erode seller confidence and encourage buyers to low ball offers.

This said, even should we start to see that type of behaviour take hold, the long-term supply and demand dynamics in the housing market simply do not leave room for a crash, or anything like. Perhaps a dip in the road as we progress up a steady, albeit shallower, incline.

Last month’s Royal Institution of Chartered Surveyors (RICS) report showed surveyors are feeling slightly more sanguine about the future path of values in London. The majority continue to predict a so ening in values, but sentiment is improving materially. We need more stock for young people to buy if we are to maintain London’s standing as a place for young people to come and work.

It’s key to keep in mind the interplay between owner-occupier stock and that in the private rented sector (PRS).

Renters are struggling as record numbers of private landlords throw in the towel amid the ongoing onslaught of tax changes and expensive regulatory burdens.

Knock-on from the PRS Polling by research consultancy BVA-BDRC found that in Q1 2023, 33% of private landlords in England and Wales planned to cut the number of properties they rent out.

This is an all-time high recorded

by BVA-BDRC, up from the 20% who planned to cut the number of properties they let in Q1 2022.

This exodus comes despite demand being at a record high. According to the research, commissioned by the National Residential Landlords Association (NRLA), 67% of landlords said demand for properties from prospective tenants was rising.

In every region of England and Wales, more than 70% of landlords said demand had increased, with the East of England recording the highest levels of demand. This is particularly meaningful in London.

Last year’s English Housing Survey showed that, compared with the other English regions, London has a very

different tenure profile. Renting is more prevalent than in the rest of England, with 29% of households in London being private renters at the end of March 2022, compared with 17% in the rest of England.

If landlords continue to exit the market, pressure on rents will continue to build, and even as mortgage rates rise, the incentive to buy is stronger than ever.

As the cost of servicing a mortgage climbs, the corollary is that purchase prices so en – particularly in outer London and the areas where average incomes are more rate sensitive.

That makes it easier for first-time buyers to save for a deposit – as do higher savings rates, for that ma er.

We are coming to a tipping point where buying – in spite of higher rates – looks cheaper than renting, and that will support transaction volumes.

Our King is in place. Now we should consider what needs to be done to house everyone else. ●

Although the Coronation is very much a one-hit wonder when it comes to such a large influx of tourists, it nevertheless put the UK and its capital city firmly back in the minds of millions”

June 2023 | The Intermediary

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RESIDENTIAL Opinion

Pricing stability will bring a long sigh of relief

I

n the second week of May, the Bank of England raised the base rate by another 0.25%, bringing it to 4.5% – for the time being. Although markets are of the view that this is where the Old Lady of Threadneedle Street will call a halt to rate rises, that very much depends on what happens in the wider economy.

So much of this will fall to international geopolitical factors, over which domestic monetary and fiscal policy have absolutely no power. This does not mean though that the policy action taken by the Bank of England is impotent. The opposite can be said to be true. The rapidity with which interest rates have risen has had an almost immediate slowing effect on public spending.

Given that tighter monetary policy is in response to persistently high inflation, the considerable squeeze on the purchasing power of the pound in our pockets – driven from both sides simultaneously – is not just dampening demand, it is stifling it.

While this boom, bust, boom, bust has been the natural cycle of economies in the Western world over the past century, for personal finances coping with fluctuations as volatile as market movements, it can result in a much more serious and lasting shock.

It is interesting to consider how different European – and indeed worldwide – economies have addressed this broader market sensitivity for those living within their geographical borders. In the UK, the mortgage and rental markets evolved over many years in an unregulated environment. Arguably, this precipitated the development of increasingly astute sales techniques, which tougher regulation then sought to rein in later on.

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It has taken some time. Today, we are seeing how successive waves of regulation and fiscal intervention are changing entire markets, in addition to macro-trends such as inflation impacting affordability of every tenure. Wiggle room for landlords, homeowners and mortgage lenders alike has become narrower and narrower in the past few years.

A toxic combination of tax changes, rising bills and heightening interest rates is starting to bite. Not only has borrowing become much more expensive in a relatively short period of time, the cost of enjoying oneself has simultaneously risen enough that it has curbed people’s ability to spend purely on fun.

Tougher constraints Alongside the unrelentingly tougher constraints imposed on mortgage lending criteria, the UK has now endured no fewer than 12 consecutive rises in the base rate since December 2021. A er almost 15 years of the base rate below 0.5% and mortgage rates below 2% fixed up to five years, the idea that the cost of servicing a home loan could ever rise back to the levels seen in the mid 2000s had become almost unthinkable.

Yet here we are again. This may not be the first stagflationary period Britain has struggled through in the recent past, but it does serve to remind us just how quickly public finances can go from stable to pear-shaped, and how the resulting stresses upon people mean there is a compelling case for changing the way we understand what they need, and the risks in delivering it.

Across the channel, there may be clues as to how we might approach the challenges we face. Even more so since the euro was adopted in multiple

TIM HAGUE is managing director at Sagis

Across the channel, there may be clues as to how we might approach the challenges we face” jurisdictions and the European Central Bank was forced to administer a single monetary policy across multiple and diverse countries.

The nature of Europe’s financial system, based in part on the diversity of its heritage, leans itself more readily to new funding structures that have enabled more flexible finance sources to step in and allow greater product innovation.

While to the UK’s ear, fixing one’s mortgage for 25 years may sound like the opposite of product innovation, the way in which products of this sort have been designed and brought to market in countries such as the Netherlands has managed to smooth market volatility out of mortgage pricing.

The trick is in the funding model, as any bank or building society treasury department will tell you. As last year’s ill-fated mini-Budget policy statement rendered crystal clear, market confidence turns on a sixpence.

The UK has some way to go to find a happy equilibrium between mortgage products that are highly sensitive to market sentiment, and the pricing stability that much longer-term fixed rate products could offer.

We have much to learn from our European friends. ●

RESIDENTIAL Opinion

Consumer Duty: An opportunity, not a burden

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he countdown to Consumer Duty is underway. The Financial Conduct Authority’s (FCA) long-awaited new rules come into effect on 31st July – but what will these new rules actually mean for intermediaries and mortgage providers, and how will they change how our relationship works?

These rules, which apply to all financial services businesses, are summarised well by the new Consumer Principle itself, which requires providers “to ensure that good outcomes are provided for customers.”

These outcomes relate not just to the products and services which customers use, but the price and value of these products and services, the customer’s understanding of them, and the support given to them during the process.

While preparing for any new regulation can be costly and time consuming, I believe this presents a perfectly timed opportunity for lenders and intermediaries to work together to further improve our industry as house hunters navigate a difficult housing market.

Changing operations There are no set rules in place for the mortgage sector to make specific changes to the way it operates. Instead, it is our own responsibility to look at the mortgage journey and explore what we can do be er. Everyone at the No ingham Building Society supports this exercise.

For example, some lenders might review their product mix or key features to ensure that they are truly in line with needs of the borrowers of today. A er all, we know that a potential borrower is increasingly

likely to have multiple income streams, be self-employed, or work contracted hours and shi s, rather than having been in the same full-time position for a decade or more.

This shi in the way people live and work is something the industry has been slow to react to. Now is the chance to collectively ask ourselves what we can do to ensure the products we’re offering reflect the changing needs of the modern borrower.

Integrated service Beyond a review of products, the biggest opportunity Consumer Duty presents to both lenders and intermediaries is in considering where we can improve our levels of customer service. How can we tighten our relationship to work as a truly integrated team, and to ensure the best outcomes possible?

Consumer Duty will, in my opinion, place even more importance on the role of intermediaries.

Therefore, having a strong intermediary-lender relationship will be absolutely crucial.

This will involve working together to streamline the customer experience, looking at where the pain points are which cause stress, and what we can do to ease them. From paperwork to understanding affordability criteria, the responsibility is to ensure that customers have a confident level of understanding and don’t come up against unnecessary barriers and delays.

We are proud of the working relationships we have with intermediaries, but now we have a fresh opportunity to renew and strengthen those relationships, founded on seamless and efficient information sharing.

ALISON PALLETT is sales director at Nottingham Building Society

Open channels For intermediaries, they may be required as best practice to update lenders on changes in customer circumstances which could affect the borrowing process – everything from promotions at work to bereavements.

For lenders, we will need to make sure that we continue to maintain open channels of communication so that customers are given the latest critical information – for example, if product offerings or rates change.

How lenders and intermediaries will go about this in practice will be up to them as individuals and businesses, but efficient communication will be the key.

Everybody wins These rules have been brought in to support customers. When looking specifically at the mortgage industry, the ruled will ensure that they are ge ing the best prices for products which are right for them, and that they access these best value prices and applicable products in a way that is clear and digestible.

But it’s not just customers who will benefit. Both mortgage lenders and intermediaries will see advantages from improved lines of communication.

We will reap the rewards of increased efficiency and the longterm repercussions of happy, satisfied customers. Pu ing customers’ interests at the heart of all our dealings will only serve to improve our sector, and I look forward to seeing how we can work even closer together to achieve this. ● June 2023 | The Intermediary

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RESIDENTIAL Opinion

Reassuring clients amid rising rates

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ortgage rate increases have caused concern among homeowners nationwide – my clients included. Just recently, a client sent me an article with the headline along the lines of ‘Lender product withdrawals wreak havoc for mortgage market!’ and asked me if they should be worried.

As a mortgage adviser based in Staffordshire with Concept Financial Services, I’ve been reassuring my clients regularly and providing them with a grounded outlook of the market. However, I’ve seen a trend of customers who, prior to speaking with an adviser, have nearly commi ed to remortgage deals from their bank based on the pressure felt from gloomy headlines about a worsening mortgage market. This illustrates the importance for advisers to be proactive with clients and assure them that, despite the challenges of the current market, there are still options to protect their finances.

Inevitably, mortgage rates were going to trend upward due to inflation and failed predictions of a decrease.

While it’s frustrating for homeowners to see products pulled, lenders must respond to market conditions, and with rising swap rates, mortgage rates were bound to follow suit.

Like any business, lenders can’t work at a cost disadvantage and don’t benefit from having to pull products as they know it causes challenges for their broker partners.

The current market is reminiscent of last year’s mini-Budget, where lenders temporarily withdrew products but reintroduced them shortly a er with revisions. To keep clients informed, lenders have been proactive in communicating product withdrawals and the anticipated reintroductions with revisions to reflect the change in the market.

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In the context of the past few years’ low rates, current mortgage rates may appear concerning. However, when compared with rates over the past 20 to 30 years, and considering wage increases, the market is not as dire as the media portrays.

Despite the fact that the market isn’t matching mortgage pain the likes of which was once endured in the ‘90s, it’s still easy to see how such strong media reactions to rate rises will cause homeowners to be concerned for their finances, leading them to make rushed decisions. It’s crucial that clients take the time to consider all the remortgage options available, rather than commi ing to a deal they aren’t certain of.

All the facts I recently worked with a client where we had been discussing a particular lender’s product for a week, only for it to be pulled. I was able to source them new deals through my access to different lenders, so they weren’t without options. Still, despite the market conditions, they’re looking through these new options carefully and not making hasty decisions.

When they make the choice that’s right for them, they can go into it confidently and with all the facts, as opposed to making a blind choice motivated by fear.

This illustrates the value of having an adviser. If they had approached the bank directly, their choices would have been limited to the bank’s products, where instead they’ve had more access to suitable options, and backups when the original product was pulled. Keeping updated on the market is sensible, but my message to clients is to not let doom and gloom headlines send you down a spiral. Rely on an adviser with expert insight, rather than articles that are not always authored by experts. We understand the market, and we know your circumstances.

JONATHAN BAGGULEY is a mortgage and protection adviser at Concept Financial Services

I’ve seen a trend of customers who, prior to speaking with an adviser, have nearly committed to remortgage deals from their bank based on the pressure felt from gloomy headlines” Many clients assume that once they commit to a specific mortgage term, they are locked into it. However, sometimes the focus should be on finding a solution that aligns with a client’s current financial needs, with a view to reassessing in, say, two years’ time.

Advisers can explore options, such as term extensions, to ensure clients do not enter a deal that strains their finances. When conditions improve, their situation can always be revisited.

Clients who have sought my advice and carefully considered the available deals, without pressure, have felt comfortable when choosing a deal that suits them and protects their financial wellbeing.

Ultimately, Consumer Duty plays a pivotal role in fostering positive relationships between consumers, lenders and financial advisers promoting fairness, and driving the growth and improvement of our industry. It is going to be a challenging landscape ahead, and as expert advisers we must be fully engaged with our clients to ensure they make choices that are right for them. ●

RESIDENTIAL Opinion

Saying yes when the computer says no

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redit scoring is important. It serves as a guide to filter the business that a lender wants to do.

Lenders have their own appetite for certain cases, which helps to differentiate them when you are considering who to choose based on a client’s situation.

I do, however, feel that some lenders do not have enough power when it comes to accepting quality cases when the algorithm says ‘no’, and seem to hide behind the machine.

A common response when running a case by a business development manager (BDM) is: “It sounds fine, subject to passing credit score.” In most cases, when a case then declines, it seems to fairly reflect the situation. It may be that the applicant has adverse credit, a high debt to income ratio, or high loan-to-value (LTV) lending with not much borrowing history to assess.

However, this is not always the case.

Caught in an algorithm When an application fails an agreement in principle, I ask them to send over a copy of their Check My File report to see data from Experian, Equifax and TransUnion.

As much as I don’t want to see adverse data on there, when it shows, it makes it easier to see the reason behind the decline and move on to a lender that has an appetite for the case.

What makes it difficult is when you scour a credit report looking for the culprit for the decline decision and see no adverse data reported. You then have the job of telling the applicant that although they have clean credit, the correct deposit, low debt, etcetera, an algorithm has caught them out and there’s no appeals process.

In these situations, it would be great if more of the larger lenders could make a human decision to override that of the machine. However, when you call, the response is o en that if it

STEPHEN KERR is director at Kerr & Watson

Unpacking a case: The human element

Lenders have some very experienced underwriters in house, so it’s a shame when these cases are not worthy of a second look, and may now be looking at near prime routes affecting their pocket” has failed the internal scorecard and there is no moving forward. O en, the person you speak to has no more knowledge on how their machine works – for good reason – which makes it very hard to clearly explain to your client why you need to look for a new lender.

However, it may be that you chose a certain lender for a unique bit of criteria and your options are very limited.

In this situation, more lenders should be able to look at the situation

from a human point of view to decide whether the case has merits. Many cases won’t, and the initial decision should stand, but I’m sure that there are may that slip through where an applicant now must move to a new lender and pay a higher rate of interest, or take a lower loan when the case was high quality.

Lenders have some very experienced underwriters in house, so it’s a shame when these cases are not worthy of a second look, and may now be looking at near prime routes affecting their pocket. It can seem like the applicant does not always get a fair trial.

This can really hit hard when you are applying to port a customer’s mortgage to a new property, and it fails the scorecard. I have seen situations where a client has made every mortgage payment, paid all of their creditors, kept debts low and clearly meets criteria, but still gets declined. When there’s no appeals process, telling the customer that they may need to pay a heavy redemption penalty if they want to move isn’t fun.

There are still some lenders that do not credit score at all, only carrying out a credit check to gauge how the applicant has conducted credit in the past. This gives the choice of using them instead, but these are o en smaller lenders, resulting in higher interest rates or lower affordability calculations.

It may be linked to capacity, as manually looking at every case that fails the scorecard is not realistic for many larger lenders. However, some good cases are going in the bin, when an experienced underwriter would have considered them good business, which does not result in the best outcome for the client. ● June 2023 | The Intermediary

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RESIDENTIAL Opinion

Demystifying the green mortgage market

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ith 21% of the UK’s carbon emissions coming from residential homes, according to the Energy Saving Trust, the property market has a key role to play in improving the energy efficiency of existing housing stock.

Growing awareness of the global climate crisis – combined with high energy prices and living costs – means consumers are looking for ways to increase their homes’ energy efficiency and save money at the same time.

To align with this shi towards a greener lifestyle, and the rising demand for products that help homeowners bring down energy bills, lenders have introduced green mortgages and products to financially incentivise consumers to make green home improvements.

Despite the increased availability of green mortgages, keeping up with the variety of products and each of their benefits can be challenging for consumers, especially since they don’t necessarily go out looking for them.

The overarching goal is to get the best possible product that helps them save in the long run, and as such, brokers will be fundamental in helping homeowners be er understand the world of green mortgages and to dispel any misconceptions.

Knowing just what is on the market, and being able to advise clients according to their wishes – including which sustainable changes they can make to save money on household bills and boost their return on investment – is vital.

While consumers will be motivated by the environmentally friendly aspects of these products, they

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will also want to see a return on investment. Green mortgages usually offer lower interest rates, extended loan terms and energy cost savings to reward homeowners making changes.

By using energy efficiency tools, such as our Home Energy Efficiency (HEE) Tool, supported by Energy Saving Trust, brokers can create an action plan that shows clients their Energy Performance Certificate (EPC) rating, information on CO2 emissions, estimated energy costs and suggested improvements based on the desired budget.

Return on investment By helping clients calculate their potential energy and cost savings, brokers can help clients work out their return on investment from these ecofriendly changes.

On top of that, homeowners will be interested in knowing how going green can benefit them when they come to sell. As demand for energy efficient homes is already gathering pace, especially with expensive energy bills and proposed EPC regulation changes, sustainable homes will become more a ractive to future buyers.

Already, almost nine in 10 prospective buyers deem the energy efficiency of a home as important, according to research by Bloomberg Intelligence, so we might even see a market where buyers are willing to pay a premium for more energy efficient homes in the future.

Communicating the long-term financial advantages of making eco-friendly home improvements will really add value to conversations with homeowners, and providing the option of a green mortgage is a great way of helping achieve their longterm goals.

JONATHAN STINTON is head of intermediary relationships at Coventry for intermediaries

Green products for all If the UK is going to hit its net zero targets by 2050, we cannot solely rely on green new-build developments to reduce our carbon footprint.

The Financial Conduct Authority (FCA) has commented that, despite many green products rewarding clients who have made the ecofriendly decision to purchase a newbuild home, such products o en fail to help reduce the UK’s existing housing stock emissions.

As such, lenders have started to launch green products that allow brokers to help their clients with the cost of retrofi ing older homes with sustainable features.

For example, there are green mortgage products available to help homeowners with lower EPC ratings.

In fact, products like our Green Further Advance reward homeowners who retrofit their property with energy efficient features such as lo insulation, energy efficient heating and even installing double-glazed windows and insulated doors.

Consumer demand for green solutions which simultaneously help the planet and are financially rewarding, will lead to further development and innovation within the green mortgage market.

As the first port of call for many homeowners, brokers are in the best position to help them understand the benefits of sustainable options and identify products which help them on their journey to creating a greener home. ●

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In Profile.

Riz Malik, R3 Mortgages and Lewis Shaw, Riverside Mortgages Jessica Bird speaks with Riz Malik, founder and director of R3 Mortgages, and Lewis Shaw, owner of Riverside Mortgages, about why they are asking lenders to make the minimum withdrawal pledge

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ver the past few weeks, brokers have been plagued by the news of lenders responding to soaring swap rates and high inflation by pulling their products. While this is an expected reaction to a turbulent market, in many instances these announcements give brokers only a matter of hours to shore up deals for their clients before products disappear, potentially for good.

In an attempt to bring some calm to these choppy waters, three brokers have stepped forward to form the 24 Hour Product Withdrawal Pledge campaign, asking lenders to commit to minimum notice periods when making changes to their range.

The campaign has been met with mixed responses. Some institutions have been happy to commit, cementing practices already in place.

Others, however, have spoken out about the potential impracticalities, as well as suggesting that their hands are tied by their funders.

This, according to Riz Malik and Lewis Shaw, who formed the movement alongside fellow broker Jamie Lennox, is all part of the plan – namely, to stoke the conversation and shine a light on the need for greater transparency in the mortgage market.

Constructive conversations

Hailing from different geographies and brokerages, Malik, Shaw and Lennox have regardless faced many of the same challenges in recent times, as they deal with rapid withdrawals and rising rates.

For many brokers, this means having difficult conversations with clients, often with little to no information on why the changes are happening from the lender, other than a generalised picture of market trends.

For an industry that is so heavily focused on building trust, particularly with the fast approaching Consumer Duty regulations, the campaign looks to open up a dialogue that works towards better outcomes.

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Malik says: “The whole process started because of an increase in the rapid withdrawals of products from the market. The challenge that we have is that we’re the ones who are communicating those to clients, who are already seeing their rates jump in a short space of time.

“It’s not that lenders are withdrawing products and repricing them, which you would normally expect them to do depending upon their appetite in the market or their service levels, but that we could be given a couple of hours to get those applications fully packaged and submitted.

“We’re asking that if you’re going to pull rates, please give us 24 hours’ notice, which we feel is perfectly achievable in the current environment.”

With the system as it is, borrowers might feel pressed or railroaded into a decision, or even that the sudden onset of a deadline is a sales tactic by the broker, none of which lends itself to a healthy relationship and a happy customer.

Shaw says: “There’s additional stress caused for everyone involved, particularly consumers.

As brokers, we’re used to knocking about with interest rates and numbers day in, day out.

“The problem arises because consumers are forced into making a decision that they may not follow or understand.”

However, Malik says, the campaign is not about “bashing” those lenders that find themselves unable to make the 24-hour commitment. This is why it centres around a pledge, rather than pushing for something more codified.

“We’re not asking for a contract,” he explains.

“We want to start a conversation, because as brokers we don’t feel our voices are being heard at the moment. We want to use this to start a conversation with the lenders.”

Funding transparency

One of the ideal results of the 24-hour pledge campaign would be to facilitate greater transparency around the funding lines that sit behind lenders’ decision-making.

For those lenders that are unwilling to make the minimum commitment, Malik, Shaw and Lennox

I N P RO F I L E

hope that at the very least, they hear the call for better communication.

“We want to open up a dialogue where lenders are explaining their funding lines,” Malik explains.

“That way we can better understand what’s going on, and we can communicate that to clients.

“All we want to do is to start a conversation where we have lenders come to the table. We know if we didn’t have lenders, we wouldn’t have a business. But conversely, considering the amount of business that the broker community originates, the same goes the other way.”

He continues: “If there’s a reason that lenders can’t do it, a reason they can only give one or two hours’ notice, then explain it to us, so we can then explain it to our clients. But if there isn’t a reason, and it’s just because it’s just always happened that way, then let’s take this opportunity and see if we can get some better outcomes for our clients, especially with Consumer Duty around the corner.”

Malik also explains that, while brokers are able to accept that pricing upwards is a natural reaction to the market at the moment, there should be more onus on lenders to outline the specifics.

This could also create an opportunity for these institutions to reiterate how, when swap rates start to calm again, they plan to pass on rate reductions to consumers, providing a more balanced view of what can be a dense process for those outside the market.

Customer service

For Shaw, the practical benefits of the pledge are clear, particularly for brokers of course, but with the chance to feed into a more positive image for this industry as a whole.

“Let’s say I have a client who is seeing all this stuff in the media about ranges being pulled,” he explains. “I might know that his deal’s fine, but when a withdrawal affects another client, I have to drop everything I’m doing on his case.

“You then get consumers ringing to find out what’s happening, and I have to tell them I’m not able to work on [their case] at the moment.

“They then feel as though they’re getting a subpar service, because you have to drop things to prioritise others. We continue constantly firefighting, when we shouldn’t have to.

“So, it’s affecting not just the consumers whose deals are actually being pulled, but the consumers you are not dealing with, and that has a knock-on effect for everyone.”

For this reason, Shaw hopes that non-broker institutions will also eventually join the call for minimum notice periods, recognising the good it could do for the market, service levels, and customer satisfaction, at a time when good press is much needed.

Mobilising the market

Even when facing pessimism from some corners of the market, Malik says the pledge campaign is having the desired effect already.

“There have even been some brokers saying, fair play to you, but you’re not going to get anywhere,” he says.

“But the thing is, we can at least try. This has already reached ears much higher up the food chain as a key issue, so if anything positive comes out of it, we are all in a better situation.

“Brokers can complain, but let’s do something about it, have the conversations, and ask the lenders the questions.

“Change is not going to happen overnight, but we can make inroads, and if it starts a better dialogue between the lenders and the brokers, where the client wins as a result, then what’s not to support?”

The campaign does not have an end goal of moving towards making minimum notice periods a regulatory issue. Malik says that there must be a balance, which takes into account that these are businesses, which do not need to be needlessly “battered” by the Financial Conduct Authority (FCA).

Shaw adds: “We’re not looking for this to be codified from a regulatory point of view, but just to bring an element of compassion in for everyone involved, whether that’s the broker, the customer, or the vendor of the house who might see a chain collapsing. People’s lives are affected, it’s not simply numbers in a spreadsheet – it has a material impact.”

With 89% of respondents to a poll on The Intermediary’s LinkedIn page voting in favour of the 24-hour pledge, it seems there’s a rising swell of support out there in the market. The question now, according to Malik and Shaw, is how best to mobilise it.

In the short-term, this means utilising social media as a forum for awareness and discussion.

Longer-term, the three have launched The Broker Collective – a non-hierarchical structure through which brokers can represent themselves on the key issues, and encourage greater transparency across the mortgage market. ● June 2023 | The Intermediary

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IN THE NEWS ...

IMLA and AMI issue joint statement on product withdrawals (IMLA) and The The Intermediary Mortgage Lenders Association a joint statement issued (AMI) es ediari Interm Association of Mortgage regarding short-notice product withdrawals. is frustrating for Kate Davies, executive director at IMLA, said: “This products and raw withd to ns brokers, customers and lenders, but decisio cause is the root The ary. necess tely absolu re-price are taken only when continuing the with ned combi t, marke swaps the in current volatility rate.” speculation about further rises in Bank of England base ever be a ‘oneShe continued: “In practice, we do not think there could a particular of rawal withd the of notice size-fits-all’ approach to giving which will ies, strateg g fundin lender erent diff to product. This is due y in order to remain drive the need for some lenders to move very quickl n increases to sudde and prudent and profitable when there are large sly and will seriou very issue this funding costs. IMLA members do take reasonably is as notice much as rs broke give to continue to do their best

s m r ffi a e ry r t n e 8 v 4 o o C t t en m t i m d o i r com e p ice t o n r u ho

4of the 2 oduction s’ notice tr in e ur to th e 48 ho d n prior nt to giv ress the issue an ries, eve e ia d m e it m m r m d te o d c in a r a to d y fo rties aign, ha Coventr w all pa in ge camp r to allo d e le d p r o had this r u in ho deals, ies have given the ctions. r g a s ia in n d ll a e u tr m p before tanding for inter use brokers are any outs oventry a uments complete sperson said: “C nd it works bec s and assess doc a n e ade atio A spok an a dec te applic eir r more th ir clients, comple fo nsider th e c la p ger to co to the n . k lo s a d e e a v p a s lo h time to ing work ns their clients overload ea m.” m e o th ls r a without fo it t more, is righ “Further hether the deal and w options

We all look forward possible when a product is about to be withdrawn. ts settle down.” marke and rates to a less bumpy outlook when interest acknowledges “AMI said: AMI, at ive Robert Sinclair, chief execut s to protect lender for need the and ions condit t the volatile marke n product sudde er, their pipelines, margins and profitability. Howev pipeline cient insuffi of tive withdrawals could be seen to be indica period notice um minim atory mand a monitoring. We recognise that r broke their about think to s lender ask we but might be difficult for many, much as giving by partners and their current and potential customers periods could be rawal withd if able prefer be would It le. possib as notice to when cut-offs given ht thoug with measured in hours and not minutes, day. the in late or nds are announced, not at weeke to give 24 hours’ “It would be helpful if lenders could commit to try between [9am to notice, with both announcement and deadline falling all.” to t benefi great 5pm] Monday to Friday. That would be of

Finova calls for faster tech to facilitate notice periods Natalie McNamara, na tional sales manager at finova, said: “It’s important to recogn ise that there is pressu re on both sides. Product withdraw als are a real pain point for brokers, as sudden changes disap point customers, create extra work for brokers, and slow do wn the purchase journe y.

The large movements in swap rat es are having an impact across the industry, and it is true that many brokers are feeling the brunt of short-notice withdraw als.

“In the majority of cas es, lenders do give prior warning for any change to their pro duct offering. With cur rent market conditions, it is under standable that timelin es get squeezed and notice becomes sho rter.

“However, further collab oration between interm ediaries and lenders on what is acc eptable would be benefi cial - especially as there is no one-size-fi ts-all here.

“In the current climate , lenders may consider if speedier technological solution s could enable more dyn amic repricing in times of market vol atility so they can pre pare brokers for any market changes, all owing brokers to do wh at they do best: providing customers wit h high quality advice.”

Lenders comment on product withdrawal A spokesperson for Santander said: “We continually review our products in light of changing market conditions, and we always look to give brokers and customers as much notice as possible ahead of any planned changes.

“The timings of any changes are based on a variety of factors, including balancing demand with capacity to ensure we maintain high levels of customer service.”

Jeremy Duncombe, managing director at Accord Mortgages, said: “We’ll do everything we can to provide as much notice to brokers as possible when we have to pull products, and have always provided 24 hours’ notice wherever we can. We have a strong track record of managing market volatility and supporting brokers through difficult times, and that commitment remains.

“However, current market conditions are extremely volatile for everyone, and as a prudent lender we will occasionally have to take steps where we believe it is absolutely necessary, to ensure that both profitability and customer service are maintained to protect the interests of brokers, borrowers and our business.”

Source: www.theintermediary.co.uk

MHBS makes 24 hour commitment Market Harborough Building Society (MH BS) has made the pledge to provide at least 24 hours’ notice befo re withdrawing products.

Iain Kirkpatrick, chief executive at MHB S, said: “It’s difficult to watch the impact on intermediaries and their clients unfold again as quick decisions are needed and work -life balance and mental health is compromised to manage the fallo ut.

“MHBS will commit to providing a minimum notice period of 24-hours for withdrawals, without exception, and only make changes between 9am-5pm during the working week.”

Kirkpatrick added: “In challenging time s it’s more important than ever to work together.

“Trust and communication between us and the intermediary are key to delivering the best outcome for clien ts.”

t r o p p u s s ou i t u a c s e c i vo d e r e w o e p g d M e l p e c i t o n m u m i n i for m

y remaining y we think an kl ic se, qu ow h , and of cour inating, e we are orig hedge will be m ew lu n vo at h th uc of m cost st, what the oken out in okers. sibly to hedge will la ages has sp tg impact our br or l it M il be w al ed to act respon al , er n ty aw w ig du dr po pa h l M it m ga w r ca le y de e how an ry and ole. The key al Pledg tgage len e a regulato omise in dustry as wh ct Withdraw av pr in Fintech mor h du e e d ro th th rs P d de r to an e en ou s “L to adher stomer the 24-h the market, an be possible business, cu support for d brokers in r ot an ei n s th er t ay m ec ow ot rr it pr that on bo with caveats tgages, said: g the impact evitably is minimisin Powered Mor M is initiative. at th d . e es an se m this would in ag ca es co s, y tg el om od or w ri tc ever e m w pe ou of y e er h O ic w E am, C tee not this is e rising, and d consum hen rates ar Stuart Cheeth ere to guaran g brokers an . In 95% of w w n se ti ly rs ca s, or ar y de ul n pp er ic le ev su f rt “I for borrower ssible in cated to costs, pa ortgage rates “We are dedi and higher h notice as po tand brokers m rs uc ld ew er m de n h ou ig w as un to h e e ve n w ad W gi le r to oid. ly mea e and t will endeavou most certain vanced notic e trying to av y of differen stry-wide ar this would al s at a variet le to offer ad s to position er du ab te e in om ra ar ay rs st e m ap de cu w e n w h s, sw le it e e w er at case th h g th w in g s on at in ce e ic ey stan vice.” someth commun s to keep an c set of circum er the best ad are regularly e all broker ntinue to off e are a specifi or co er pl d th im , an er ge ev d ta e nee an advan stages. How much notice. swap rates, w themselves at oblige to too ow movement in h e on rg la d n a not be able to pe is e ably de when ther is will inevit “As a lender, we react. Th ow h to as ll to make a ca

RESIDENTIAL Opinion

The great housing

I

n recent years, the number, size, and type of new homes being built in the UK has been a huge topic of discussion for politicians and homeowners alike. We all know that the number of new homes being built has been dropping each decade, with the latest figures showing that just over one million new homes were built in the 2010s – the lowest level of any decade since the war. The lack of new-build properties coming onto the market over the past few decades has been a huge driver of soaring house prices.

However, some housing commentators believe that another factor impacting rising house prices is that developers are still building homes that are too large for an everdecreasing average UK household size.

While this is partly true, in that the actual number of detached properties being built in the UK is increasing, evidence shows that newly built houses have steadily reduced in size since the 1970s, as developers try to navigate outdated planning laws and try to fit more properties into their limited building plots.

According to Which? the typical home in the UK is now 20% smaller than the 1970s. A study by Cambridge University found that the size of new homes in the UK is now actually the smallest in Europe. At just over 76 square metres, new properties in the UK are almost half the size of new properties in Denmark, at 137 square metres. Another study by The Royal Institute of British Architects (RIBA) suggested that more than half of the new homes being built in the UK are now too small to meet the needs of the people who buy them.

Are households shrinking?

According to the Office for National Statistics (ONS), the UK’s average household size was 2.4 people in 2019.

This number has been declining over the years, as more people choose to

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live alone or in smaller households.

For instance, in the 1960s the average household size was more than three people.

Over the past 50 years, a combination of an ageing population, an increase in the number of divorces, plus more people choosing to live alone, has caused a fundamental change in household composition – particularly among single person households, which have doubled in number. These changes have increased the demand for properties.

The number of one-person households has risen sharply in the UK. In 2021, there were around 8.2 million one-person households, up from 7.7 million in 2018. This trend is expected to continue, with projections suggesting that by 2043, almost one in three households will comprise just one person.

But it’s not just one-person households that dictate what type of properties are being built. In its excellent recent report entitled ‘The Case for Housebuilding’, The Centre for Policy Studies highlighted two other key changes in household composition. The fastest growing household category over the past two decades has been households containing multiple families, which increased by two-thirds to an estimated 278,000 households in 2020.

The report states that this could be because of major social change, but it seems strange that this increase in multiple families has gone hand in hand with higher house prices.

However, the report states that there has been a major increase in the number of 20 to 34-year-olds who have either never left their parents’ home or have returned to live there. In 2000, around 20% of 20 to 34-year-olds lived with their parents (2.4 million), rising to 22% (2.7 million) in 2008, and currently the figure stands at 28% – equating to around 3.6 million people.

The lack of affordable homes is a particular issue for younger generations. Research suggests that

MARTESE CARTON is director of mortgage distribution at Leeds Building Society

Millennials and Generation Z are struggling to afford to buy their first home, with many forced to rent for longer or live with their parents.

It is this lack of affordable options that means that housing is currently at its most unaffordable level for around 150 years. At five to six times average earnings, first-time buyers currently have a higher average house price to earnings ratio than ever before.

This particularly impacts young people and their ability to get an initial foothold on the housing ladder. The rate of homeownership among 25 to 34-year-olds is currently 41.4%; this has collapsed since 2003, when it stood at 58.6%.

Are houses getting smaller?

Yes, all the evidence suggests that newbuild properties are getting smaller.

Although developers have been taking account of changing household patterns, the availability of suitable land to build on has also had an impact on the size and type of properties.

It is estimated that in the decade following 2005, around 44% of all new-build homes were flats. Coupled with the actual dwelling size falling,

RESIDENTIAL Opinion

squeeze the number of bedrooms in homes has also hit a record low. Homes in 1940 boasted an average of 3.63 bedrooms per property. Today, that number has fallen to an average of 2.95, and interestingly the size of these bedrooms has not increased to compensate; if anything, they have been getting smaller.

It’s not just bedrooms. According to property firm Spring and housing market analyst Propalt, the average living room in 1970 was 268 square feet, but by 2020 that had shrunk by almost 30% to 195 square feet.

Meanwhile, the average kitchen built in 2020 was almost a fifth smaller than its 1970 equivalent.

In the past, new-build properties had bigger and separate rooms. Now, many properties are open-plan, and this is one of the reasons developers can build higher numbers of smaller properties in limited spaces, making smaller homes work for homeowners.

Is the planning system fit for purpose?

It’s very clear that the UK planning system is outdated, complex, underfunded and under-staffed. Years of partial, stop-start reform and budget cuts have slowed the process which must now be brought back up to a sensible speed. That starts by recruiting and training enough new staff to support the planning process in local government.

The availability and cost of land is one of the most significant long-term barriers to building more homes of the right size and of decent quality – and all at affordable prices.

We urgently need to have a serious conversation about the green belt – the current guidelines were introduced in the 1950s, and were designed to stop urban sprawl. Despite conjuring images of our green and pleasant land – and evoking the kind of reaction to development that would match – the truth is that much of it is neither green nor pleasant, and the rules now hinder many planning decisions.

Single occupancy households 9

14%

8

12%

7

10%

6 5

8%

4

6%

3

4%

2

2%

1

0%

0 1971 Millions

While brownfield sites have a key role to play in the provision of new development, we also must acknowledge the cost and complexity of getting this land ready for building, not to mention its finite availability.

According to planning and development consultancy Lichfields, brownfield sites can only deliver around 1.4 million new homes. In the midst of a housing crisis, clearly this is not a practical long-term approach.

Last November, Leeds Building Society published a public policy report which looked at how the UK could address the housing crisis it currently faces. Part of the report looked at current planning guidelines and how they might be reformed.

We support calls to reform the 1961 Land Compensation Act and end ‘hope value’, an old law that inflates the cost of land by making councils pay more to landowners based on what it could be worth after planning permission is granted. The rule pushes up the cost of housing, seriously impacts builders, and makes affordable homes less viable.

2021 Percentage of total population

Not only do we need to reform land compensation laws, but we also must ensure that any change to land value rules facilitate more affordable homes. Section 106 agreements – which a developer pays towards local infrastructure as part of the planning process – are by no means perfect, but remain the biggest funding source for affordable housing in the country.

We need a clear commitment that the purpose of reforming Section 106 is to deliver more affordable options.

It’s clear that not enough homes are being built, and that the homes that are being built are getting smaller as builders try to negotiate outdated planning laws.

The problems affecting homeownership are deep-rooted and wide-ranging, but building enough homes of the right size, design, and quality to meet demand is the right place to start.

With housing now at its most unaffordable level for around 150 years, reforming the planning system surely must be top of the Government’s housing policy. ● June 2023 | The Intermediary

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B U Y - TO - L E T Opinion

Adapting to succeed in unstable times

T

he fiscal stability of the last decade has helped to shape the mortgage market, but the volatility today means we must adapt, supporting clients to navigate an everevolving economic landscape.

In the a ermath of the disastrous mini-Budget, we saw a shi in demand towards variable rate mortgages. The number of fixed-rate deals available reduced substantially, and these products were priced to reflect the economic uncertainty.

Instead of locking into a higher rate for a number of years, many landlords opted for variable products that offered lower rates, but more uncertainty.

This disruption was fleeting, though, and in the period since we have seen the market normalise.

Product availability rebounded, and improved interest rates and interest cover ratio (ICR) calculations reaffirmed fixes as the buy-to-let (BTL) mortgage product of choice.

More recently, however, market stability has again been disrupted, a er Office for National Statistics (ONS) figures highlighted how inflation had not fallen at the rate expected by financial markets. With inflation becoming embedded, the markets priced in the Bank of England having to set the base rate higher for longer.

Swap rates are an indication of where markets anticipate interest rates being at the end of a given period – five years, for example – so an uncertain economic outlook o en results in a volatile swaps market.

This is what we’ve seen recently, with the ONS inflation data causing swaps to rapidly increase, leading to 7% of residential mortgages being withdrawn, and double that in buy-to-let.

The fees paid by lenders to fix the cost of funding the loans they provide

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The Intermediary | June 2023

to their customers, indicated by the swap rate, are a mechanism of mitigating the risk of their funding increasing while the revenue they earn through the interest paid on the loan remains static. I say ‘mitigate’ the risk, and not ‘remove’ it, because few things in lending come without risk. Swap rates are fluid – steep, sharp increases can result in mortgage products quickly being under water.

Sometimes it’s necessary for lenders to withdraw mortgage products as a way of protecting against potentially damaging losses. The instability of the swaps market, along with the need to manage applications within acceptable timeframes, means this must be at short notice, something that can understandably leave brokers and their clients frustrated.

Multifaceted approach These recent events highlight how the market is subject to a range of external influences. When viewed against a backdrop of continued global political and economic uncertainty, we can see how we need to adapt to succeed during the current period of volatility.

Doing so will be multifaceted, but there are relatively simple steps we can take to continue to support investment in much-needed homes.

As a lender, we have allocated extra resources to manage surges in business, and are investing in technology to enhance the way we work, focusing on streamlining processes and improving communication with intermediaries.

We’ve also listened to brokers and are experimenting with ways to make the sums work for more borrowers, despite interest rates being higher.

This has seen us lower ICRs and launch mortgages with fixed or no fees to complement our existing range.

This features products with our ‘tack to fix’ option, and we offer those with a mortgage approaching maturity the chance to switch to another Paragon

RICHARD ROWNTREE is managing director for mortgages at Paragon Bank

For intermediaries, educating clients on the implications of a market that is subject to sudden changes can help them understand why products that were perhaps deemed unsuitable previously are now worth considering” product up to six months before their current term ends.

For intermediaries, educating clients on the implications of a market subject to sudden changes can help them understand why products that were perhaps deemed unsuitable previously – such as variable rate options – are now worth considering, and why today’s products may not be available for long. This means clients make informed investment decisions and understand the importance of being ready with documentation.

It can also pay to look beyond the current deal and discuss businesses more holistically. Understanding clients’ plans helps identify future needs, not only as an opportunity to secure business, but also to place landlords in a strong position, ready to modify their portfolios to capitalise on opportunities like high demand or falling property prices, as well as overcome challenges like interest rate rises. ●

B U Y - TO - L E T Opinion

Talk of a landlord exodus is simply scaremongering

W

e’ve all seen the headlines.

Landlords – fed up of meddling MPs, increasing regulation and rising tax bills – are selling up in droves.

If you believe some quarters of our national press, we’ll barely have a private rented sector (PRS) at all in a couple of years.

But have conditions become so bad that landlords have decided en masse that buy-to-let (BTL) just isn’t worth it? Absolutely not – and to suggest otherwise is nothing less than scaremongering.

The trouble with peddling that narrative is that it risks becoming a self-fulfilling prophecy.

Of course, the buy-to-let sector faces headwinds, as do most other parts of the economy, but the fundamentals remain strong. So today I want to set out exactly why talk of a landlord exodus is exactly that – just talk.

Numbers never lie As the old saying goes, numbers never lie. But you can interpret them in very different ways.

Recent research from Hamptons shows that more than 200,000 landlords sold up last year. Of course, the obvious conclusion is that these people had had enough, which fails to recognise that 73% of those sales were because of retirement.

A lot of people forget that buy-to-let is only 27 years old, and for the past decade, the average age of a borrower has been around 45, according to UK Finance. Isn’t it plausible that this first cohort of investors is simply coming to the end of their mortgage terms, and selling to fund their retirements?

You may say: Yes, David, but does it

ma er what their motive is? Actually, it does. A 65-year-old offloading properties to fund their retirement is very different to a 45-year-old ditching their portfolio because they no longer see a future in buy-to-let.

Rental demand is soaring It’s a simple fact, but one that is sometimes forgo en in this debate.

Until we build enough homes, the only real alternative is to rent.

At present, demand for rented accommodation is running an astonishing 51% above the five-year average, according to Zoopla.

That demand for rented property isn’t going anywhere. Buying your first home has always been a struggle.

It is even more difficult now.

In the past 24 months, house prices have soared, interest rates have hit a 15-year high and the worst cost-ofliving crisis in a generation means saving for a deposit has become much harder.

For the past decade, there was Help to Buy, which has helped nearly 384,000 buyers onto the ladder since April 2013, but that has now gone.

There is always the ‘Bank of Mum and Dad’, of course, but parents are already gi ing roughly £17bn a year to their children. How much more can they realistically afford? If those funds dry up – or even stagnate – then ever more young people will be forced to rent. Simple.

Returns remain solid A favourite stance of the doomsayers is that in a high interest rate, high tax environment, the economics behind BTL don’t stack up. But most landlords are still able to achieve yields in the region of 4% to 10%, depending on the area and property type. Also, according to Zoopla, rents have soared

DAVID WHITTAKER is CEO of Keystone Property Finance

more than 11% over the past year, still in excess of inflation.

You also must ask yourself: where else are investors going to get that sort of return for their money in the current environment? The FTSE 100 has returned less than 1% over the past year, while you need to lock your savings away for five years to get a savings rate approaching 5%.

Forecasts look robust UK Finance predicts BTL purchase and remortgage lending will fall 27% and 22%, respectively, this year.

Let’s put this into context. Tougher underwriting rules in 2016 meant that it made more sense for landlords to fix for five years. The first of those loans were due for renewal in 2021 and 2022, meaning that remortgage lending was artificially boosted in those years.

Purchase lending has also received a boost from the post-pandemic reopening of the housing market and the end of the Stamp Duty holiday in 2021. Neither are good comparisons.

Let’s not forget that buy-to-let surged in 2022 to a record £56bn, £10bn or more than any of the previous five years. Looked at another way, the £43bn of lending predicted

by UK Finance this year would be the fourth best year on record.

None of the factors I have listed above are going to change any time soon, which leaves me optimistic that the sector will remain resilient.

It’s up to us, as an industry, to ensure people hear this counternarrative, or perhaps one day landlords might really begin to give up on buy-to-let. ● June 2023 | The Intermediary

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B U Y - TO - L E T Opinion

The realities of incorporated buy-to-let

B

link and you’ll have missed it. The transition of buyto-let (BTL) from personal ownership to incorporation has been swift. Today, as many as three in five property investments are completed via limited companies. Limited company buy-to-let is fast becoming the norm – recognised by investors and advisers alike for its financial, operational and administrative advantages.

At last, it seems the mortgage market is listening, too. However, the limited company mortgage offer isn’t yet compelling enough. More innovation is needed.

At GetGround, our customers are savvy, sophisticated, business-minded people. They’ve chosen limited company investing as an alternative to buying in their personal name for pragmatic, sensible reasons. They expect a lot from the investments they make, and from the services and products they require to go about their business.

Finding the right finance As a platform created to make the business of buy-to-let better, we talk continually to our customers, understanding their financial and operational needs. Pressures on BTL investors have been high in the past year, and their needs are great.

One serious concern we hear repeatedly is where to find mortgage

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finance that really works for their buy-to-lets.

The problem intensifies for those investing from abroad. International investors have limited access to BTL mortgages and are subject to higher interest rates and uncertainty over whether their country of residence is suitable by lenders. Substantial delays to funding make investing in buy-tolet for these investors often difficult, or ultimately unattainable.

Against a backdrop of increasingly difficult local investment opportunities – Singapore, for instance, recently hiked Stamp Duty to 60% for foreign investors to dampen demand – UK property should, and could, become the international investor’s favoured opportunity.

As pressures on UK buy-to-let continue, lenders are looking to bolster the market. They must, after all. Operating in a buy-to-let mortgage market that is now worth £40bn a year makes good commercial sense to lenders for which continually tapping alternative creditworthy, credit hungry markets is a key lever to strategic growth.

However, entering or reentering the buy-to-let market with the same old mortgage products doesn’t work for investment borrowers anymore.

Nurturing green shoots The market is alive with indications that more lenders are developing financial products geared to limited companies. Those that do offer limited

company mortgages – thought to be around a quarter of the market – are doing so on terms that are edging closer to the typically cheaper BTL mortgages for personal investors.

Still, though, innovation remains doggedly slow, and progress is far from universal. The green shoots we are seeing risk dying off too soon if they are not nurtured by greater industry-wide innovative thinking and application.

A key dynamic that needs to be addressed centres around trading property assets without being encumbered by mortgage restrictions.

In any other business endeavour, the ability to sell or transfer assets or shares between different entities or shareholders is endless. This isn’t the case for limited company buy-to-let investors, who are held back by their debt providers from making ownership changes to their companies. A limited company landlord has minimal, if any, flexibility to sell shares in their company to another stakeholder during the term of their mortgage without triggering a default or a refinance obligation, and the associated costs these impose.

Having reached an inflection point where the majority of buy-tolet purchases every year are made through limited companies, how long must investors wait before lenders offer products that allow them to sell part or all of a company, and not the property within? To transfer a buy-

B U Y - TO - L E T Opinion

The shift to limited company investing is not a shortterm market movement, nor a response to temporary market dynamics, but an indication of permanent change...avoiding limited company finance innovation is no longer an option”

to-let company from one landlord to another could invigorate the squeezed industry enormously thanks to its financial and operational benefits.

Simple know your customer (KYC) checks can be carried out on the landlord buyer without activating the messy, inefficient, fee-laden processes that slow the market down, cost players more and leave the industry looking unattractive. The receiving landlord pays less tax, tenancy arrangements needn’t be changed, and lenders don’t lose out to competition.

Facilitating flexibility While the more recent economic environment has placed particular pressure on landlords, the shift to limited company investing isn’t a short-term market movement, nor a response to temporary market dynamics, but an indication of permanent change.

As a substantial number of investors come to refinance their buy-to-lets in a squeezed market, one of the biggest issues they will face is the interest coverage ratio (ICR) test. Personal buy-to-let mortgages for higher rate

taxpayers must satisfy 145% ICR coverage, while limited companies need to achieve as little as 120%.

This alone gives cause to expect an even more accelerated flip into limited companies in the near future; landlords are looking for efficiency and lenders can now play an even more important role in facilitating that.

How landlords and investors find buy-to-let finance that speaks to their own distinctive requirements has for too long been a preoccupation for them, and them alone. The wider intermediary community must fight harder to make the creation of more modern, hardworking buy-to-let mortgages a priority for lenders, too.

Right now, property finance is constructed in a way that benefits the few, not the many. Avoiding limited company finance innovation is no longer an option. ●

MOUBIN FAIZULLAH KHAN is CEO of GetGround

June 2023 | The Intermediary

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B U Y - TO - L E T Opinion

Forging a new normal in buy-to-let

E

very broker and lender has said the phrase ‘let’s wait and see what happens’, repeatedly and for what feels like forever.

The sharp rise in interest rates over the past 12 months has been a shock for us all. A er 14 years of basementlevel borrowing costs, it’s a drastic change to how we do business, and feels like a departure from what we see as normal.

But just what does ‘normal’ look like? If you look back 100 years – bear with me – then the past 14 have actually been the anomaly. The shock is not the level of rates we’re seeing now, it’s how soon they’ve come to this level again.

So, rather than waiting for things to normalise, lenders, brokers and their landlord customers may have to accept this is just how the market looks now, and learn to work through it.

Well-placed to take advantage The greatest pressure mortgage interest rates have applied is to the homeowner market, where higher interest rates have put pressure on the higher loan-to-incomes (LTIs) needed over the past 10 years to support homeowners.

For asset or capital-supported buyto-let (BTL) landlords, reentering the market to grow their portfolios should be more simple than in the homeowner market.

Leveraging across a portfolio to invest in new properties is simple.

The change might simply need to be the level of capital they raise to ensure lower loan-to-values (LTVs) on newer properties if they want to keep rates low.

Obviously this comes with risks, as all property investing does, but the work landlords have done over the past decade should place them in a good position to diversify that risk.

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Changing tenant requirements The Renters Reform Bill, Energy Performance Certificate (EPC) minimum standards, and mooted tougher restrictions around holiday lets – both at a national and local level – may create the feeling of an environment landlords should be wary of.

In fact, there’s plenty of opportunity here to make investments and build a portfolio which caters for the longterm needs of a country where rental demand is at an all-time high and the shortage of quality housing doesn’t look like it’s going to vanish any time soon.

Take the Renters Reform Bill; what we’re seeing is a concerted effort to stabilise renting so that tenants can make rental properties their longterm home. This should be welcome news for landlords, who can build stronger relationships with their tenants and plan for the long-term, shi ing their properties away from the churn of constantly changing tenancies.

Similarly, the shock of energy prices this past winter has given us all more pause around energy efficiency in the home and how we could save more, so we shouldn’t use uncertainty around Government legislation here to halt investments that modernise properties, safeguard them against future changes and increase yields by passing on energy efficiencies to tenants.

What this new normal could look like Rental demand is at an all-time high, and the greater focus on rental properties through the Renters Reform Bill is pu ing a premium on high quality properties tenants can make into long-term homes.

So, what are some actions brokers and landlords could take

SOPHIE MITCHELL-CHARMAN is commercial director at LendInvest

immediately? How can landlords balance these needs with the right yields?

First, they can do so by maximising potential. Larger houses in multiple occupation (HMOs) and multi-unit freehold blocks (MUFBs) have a crucial role to play in the new normal, both ensuring the need for rooms is met, and allowing landlords to maximise yields but spread them across their property so as to not pass on increased rates to tenants.

Next, investing to refurbish or reconfigure homes could be a key part of the new landscape. EPC requirements, the Renters Reform Bill and increased rents are all reasons for landlords to spend time investing in their existing properties to make sure they build homes in which their tenants see value.

Longer-term renting is going to be a big feature of the post-reform bill era, and landlords need to be prepared for it.

Not the time to wait and see We’ve had a year now to watch the market ‘normalise’, and we’re still waiting.

Our position as a lender now is to try and cut through the waiting around, and back brokers and landlords to go out and meet the rental demand that is out there, using the tools at their disposal across their portfolio and harnessing the mood around current reforms to create homes for the future.

Whatever the new normal looks like, one thing we’re convinced of is this: it is time to stop pu ing it off and make it happen. ●

B U Y - TO - L E T Opinion

The real picture for the PRS

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e hear a lot about the downside of changes in the housing market, and there are plenty of good reasons for that. However, there are also positive things happening in our sector that we shouldn’t forget to think about, too.

When it comes to net zero and improving the energy efficiency of the UK’s homes, possible regulation to make it mandatory for all new and existing tenancies to be let on properties that meet Energy Performance Certificate (EPC) Band C or above has caused a lot of disruption in the buy-to-let (BTL) market.

Arguably, this is just one stepping stone to the next goal of net zero in 2050. For now, though, the EPC goal and its pressing deadline understandably command the a ention of most in the private rented sector (PRS).

It is not surprising, all told. Office for National Statistics (ONS) figures for 2022 confirmed that there is some way to go to get housing stock up to that level. England and Wales both have a median rating of Band D, and four in five dwellings using mains gas as a main fuel source for central heating.

Calling for more clarity As energy bills have been so expensive over the past year good landlords want to offer their tenants be er insulation and energy saving features that will bring down their bills.

While some landlords are holding fire, many are cracking on with the upgrades they need to do to properties in their portfolios. What is holding many back, however, is the lack of clarity on what upgrades they should be doing, which has put many landlords in a tricky position.

There are many challenges, and some are incredibly difficult

to overcome – at least while there remains so li le tailored guidance.

Nevertheless, landlords are an entrepreneurial bunch.

It is useful to point out where the Government and regulators need to concentrate more time to support the private sector in reaching new minimum standards, but landlords aren’t waiting around doing nothing.

Recent research from the BVA BDRC Landlord Panel found that in Q1 of this year, 80% of landlords had already carried out some remedial works to properties in response to the new energy efficiency requirements, and in anticipation of future Government measures and action in this area.

Of those that had done so, 52% said they had carried out improvements at the minimum cost required to comply, while nearly 38% said they had done so to maximise the long-term value of their property.

Putting in the work The research also revealed there was a drop in the number of landlords saying they would not carry out any works, and would instead seek to sell or not re-let – down to 13%, from 20% in the previous quarter.

Though this fall may in part be due in part to the number of landlords who previously felt this way having now exited the sector, it shows the commitment that those landlords who remain have towards improving energy efficiency of rental stock.

Landlord owners were also asked how many currently owned a property below an EPC level of Band E, with 19% saying they had one or more in this bracket. The majority (78%) said all their properties were above Band E. As always, there are two sides to this. Upgrading UK housing stock is not straightforward, largely because so much of it is old and, in many cases, unsuited to the upgrades necessary to improve EPC ratings. Where properties are listed, the Government

MARK BLACKWELL is chief operating officer at CoreLogic UK

Upgrading UK housing stock is not straightforward, largely because so much of it is old” has already provided an exemption from the incoming rules.

Meeting the target There are also more banal challenges.

Victorian terrace flat conversions are not good candidates for heat pump installation, for example, while high rise flats are also nearly always a no too, because in order for an air source heat pump to function there must be space to house an outdoor unit that contains the fan component.

Installation also requires space for a hot water tank holding between 100 and 200 litres, which can put an additional 200kg load on the floor.

Then, there’s the noise that the external fan makes, which must be taken into account when neighbours live in close quarters.

It’s encouraging that landlords are already doing what they can to improve their rental properties’ energy efficiency. This commitment must continue in order to deliver on net zero targets.

The data and feedback we are gathering is more positive than many would otherwise think.

Knowing the scale of the opportunity, and understanding the subsequent size of the prize, means using the data available to drive the decisions to act. ● June 2023 | The Intermediary

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B U Y - TO - L E T Opinion

Hope amidst uncertainty?

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t the back end of last year, we forecast that gross lending in 2023 would be down from the artificial peak of £310bn in 2022. This was due to a reduced purchase market, with decreased activity in both residential and buy-to-let (BTL) .

This is playing out as a result of the cost squeeze consumers are facing, a key element of which is higher mortgage interest rates and an increasing Bank of England base rate. Although there have been some very tentative signs of a downward inflationary trend of late, with recent figures from the Office for National Statistics (ONS) showing that the consumer price index (CPI) fell to 8.7% in April, this was still above economists’ 8.2% expectation.

Core consumer price inflation, which excludes energy and food, also continues to run high, hi ing its highest level since 1992 in April, increasing to 6.8% from 6.2%. All of this only increases the likelihood of further rises in the benchmark interest rate as the year unfolds.

Positive signs At the same time, however, there are also positive signs as we progress through quarter two. House builder Taylor Wimpey has seen demand for its homes pick up this year, recovering to 0.66 homes per week at each of its 230 national sites, from just 0.4 at the end of last year. Estate agents have been making optimistic noises too, with Zoopla saying in April that the housing market is defying expectations, with 500,000 property sales expected in the first six months of 2023.

House price growth is slower than it was this time last year, according to data which shows a 1.2% fall in values during March, although despite this, an annual price increase of 4.1% has been maintained. The average price

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now stands at £285,009. A gradual increase in confidence has been fuelled by factors like falling inflation and a slightly brighter economic outlook, resulting in increasing housing market activity and higher stock levels as more vendors decide to put their homes up for sale.

More pessimistic Nationwide House Price Index figures in early June suggested the biggest monthly fall in 14 years, by 3.4%, though it is important to view this in the context of the 20% increase in values over the past two decades.

Contrary to a view that mortgage rates would see a smooth path lower, we have experienced turbulence with swap rates – and therefore fixed rate prices – increasing following market news. These have continued to be volatile, meaning borrowers shouldn’t necessarily be adopting a ‘wait and see’ approach, expecting rates to fall.

There’s no doubt what we’re seeing continues to be a very mixed bag, with HMRC figures for March suggesting a 19% year-on-year drop in sales.

Unusual conditions All of this goes to show why all predictions still need to be taken with a pinch of salt, given we are operating amidst an unusual set of market conditions, making what might happen next incredibly difficult to call.

At the same time, though, the market has been resilient. At Accord, we’ve seen strong activity coming in via brokers across all sectors, including BTL, due to our ongoing focus on service and proposition development. The market continues to trade and work, with demand remarkably robust, and lender appetite remaining in the majority of cases. We are certainly keen to continue providing solutions to brokers and their clients, while always mindful of our risk position, keeping a watchful eye on market and economic

JEREMY DUNCOMBE is managing director of Accord Mortgages

developments to ensure we get the balance right by making prudent lending decisions. We had a great Q1 as a result.

Our focus continues to be on supporting under-served borrowers and evolving our position to ensure that we are being purposeful.

We’re operating in a highly unpredictable market and it’s difficult to say with any certainty what volumes will be in six months’ time.

Much will depend on confidence and sentiment, and how that unfolds partly depends on whether inflation and the costs which fall out of it can be curbed to the extent the Government hopes.

However, while unexpected things will continue to come at us, at Accord we’re used to handling volatility via a highly adaptable and resilient business model. We’ll continue to focus on being a supportive lender and pulling out all the stops to meet the needs of brokers and their clients, whatever might be in store.

We intend to continue driving volume, while monitoring market conditions carefully, and our appetite has not been impacted significantly by anything we’ve seen. The fact that house prices have not dipped as significantly as some pundits were predicting means we are able to continue offering higher loan-tovalue (LTV) mortgages, including on new-builds. Indeed, we re-entered the 80% lending space in late April and changed our interest coverage ratio (ICR) to give landlords a be er chance of achieving affordability.

As gross lending returns to more normal expectations, things look promising. Lenders continue to adapt to a changing market, while lending responsibly. ●

B U Y - TO - L E T Opinion

Gap narrows between 2-year and 5-year fixed rates

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ixed rate mortgages are the product of choice for the majority of borrowers, both in the residential and buy-tolet (BTL) markets, with most opting for 2 or 5-year terms.

Their popularity has risen in recent years, with the latest Bank of England data showing 86% of outstanding mortgages were repaid at fixed interest rates, compared with 51% at the start of 2016. Another change since 2016 has been the growth of 5-year fixes overtaking 2-year fixes, and although they still dominate, 2-year fixed terms have now been creeping back up the popularity stakes.

Fixed facts Recent research we carried out among BTL landlords found that 40% would take a 5-year fixed rate when they remortgage. However, this is down from 46% last December and significantly lower than 68% in August 2022. Conversely, 2-year fixed rates will be chosen by 32% of landlords, up from 24% in December and just 13% in August 2022.

The differences in sentiment are interesting, as much has changed since the fallout of the Liz Truss and Kwasi Kwarteng mini-Budget of last September, the timing of which fell between two of our surveys. Add in other factors such as high inflation, 12 consecutive base rate rises, volatile swap rates and uncertainty as to how far rates will increase, and landlords are having to reassess their finances.

Borrowers are trying to second guess what the future holds – should they fix for the short or longer term, or sit on a variable rate until fixed rates come down?

The main reason for the rise in landlords opting for 2-year fixed rates

is the widely held view that rates will come down within the next two years, then borrowers can move to a cheaper 5-year deal. This is predominantly based on forecasts from the Bank of England that inflation will fall to 5% by the end of this year and hit the Government’s 2% target by late 2024.

Therefore, the base rate could also come down, which in turn should se le the swap markets.

That is the economic theory, but not everyone agrees. Goldman Sachs is forecasting inflation won’t reach 2% until early 2026, although it concurs with the Bank of England that inflation will fall to below 5% by the end of this year.

In addition, 2 and 5-year fixed rates have been fairly close in pricing in recent months, and some landlords don’t want to lock into five years if they think rates might come down.

There were a variety of comments made by our survey respondents, and mortgage decisions very much depend on rates and product fees at the time of taking a mortgage.

One landlord said: “I’ll fix for longer if the rates fall to what I feel will be a more sustainable level. If they remain high, I will remain on [standard variable rate (SVR)] or tracker if it’s more cost-effective or fix for a 2-year period if that is cheaper.”

The tracker option also featured in our surveys, but in August 2022 not one person would have chosen a tracker. In December – post miniBudget – 17% said they would consider a tracker, but that fell away again last month to 4%. The relentless, continual rise in base rate at every meeting of the Monetary Policy Commi ee since December 2021 is pu ing people off. At least with a fixed rate, you know your monthly payments will remain the same.

PAUL BRETT is managing director, intermediaries at Landbay

Like-for-like There are a few landlords who prefer longer-term fixed rates of 7- or 10-years, but that only accounted for 7% of respondents. Nevertheless, the reasons are valid.

One landlord said: “I prefer the certainty of a longer period rather than a constant round of refinancing with the legal costs that involves.”

Some landlords in our survey would like to see a new type of product, such as a lifetime mortgage. Others suggested no charges, which could be done but would mean higher rates, to provide the flexibility to move to be er deals without early repayment charges (ERC). Indeed, we recently launched such a product – a 5-year fixed rate with the option to redeem a er three years with no ERC. Another new product range we have just added is our like-for-like 2-year fixed rate remortgage options with a lower interest cover ratio (ICR) stress test. As long as there is no change to borrowing requirements, affordability will be stress tested at pay rate plus 1%, instead of the standard calculation of pay rate plus 2%. Reducing the rate on the stress test allows borrowers breathing space when the affordability calculation is applied.

The product development team at Landbay is always looking for ways to innovate and listen to what intermediaries are hearing from their clients. As we have our own in-house broker portal, we can be flexible with products and bring them to market quickly, and we are always open to ideas. ● June 2023 | The Intermediary

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the Tip of the iceberg HOW SPECIALIST CERTIFICATIONS CAN REVEAL WHAT IS BENEATH THE SURFACE Hannah Smith for The Intermediary

In May, a new e-learning programme launched which filled a gap in the market, allowing brokers to formalise their knowledge of specialist property finance.

The Certified Practitioner in Specialist Property Finance (CPSP) was developed jointly by the London Institute of Banking & Finance (LIBF), the Association of Short Term Lenders (ASTL) and the Financial Intermediary & Broker Association (FIBA).

According to John Somerville, head of financial services at LIBF, the course was created to raise professional standards across the industry. It aims to meet demand from both brokers and lenders for a training programme that is universal and consistent.

The CPSP is a training programme, which reflects the sense that this market does not want an additional official qualification. In fact, LIBF previously offered one as an add-on to the Certificate in Mortgage Advice & Practice (CeMAP), with a unit which covered commercial lending. However, this was not widely popular, and was eventually withdrawn.

The programme, which takes an average of six months to complete through remote study, aims to improve education on topics such as bridging loans, development finance, buy-to-let (BTL) and commercial mortgages, to help brokers both new and seasoned take adantage of a thriving market.

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Vic Jannels, chief executive of the ASTL, reports that, month-on-month, the association’s members likely sit on balances of more than £7.5bn. Because short-term lending is a large part of the market, he notes that it merits its own educational programme within CPSP.

Why upskill?

Whether through an official certification, a short course, mentoring or self-study, creating a culture which encourages the improvement of skills and knowledge in specialist areas could help facilitate a more joined-up financial services sector, in which more practitioners are singing from the same hymn sheet. This can only benefit the end customer, a factor which is becoming more important as new Consumer Duty regulations loom.

But why take on more work now, at a time when intermediaries are busier than ever navigating their clients through the choppy waters of the mortgage market? Many will feel that they simply do not have enough hours in the day to spend on professional development.

In fact, that is precisely the reason why now is the time for intermediaries to think about sharpening their skills and broadening their remit outside of mainstream products.

The current turbulence in the mortgage market is, of course, due in part to uncertainty over the

“We need a broker who can perform magic." trajectory of the base rate, as inflation remains stubbornly high. With lenders pulling mortgages with increasing fervour, amid continued high demand for the best deals as customers look at their outgoings with rising concern, brokers are operating in a difficult environment.

Somerville says: “I don’t think it’s got tougher than it has been in the last 12 months. If anything, now is the time to really improve people’s skills.

“Those standards need to be right in a world where rates and products are changing rapidly, application requirements are becoming more stringent, and the needs of consumers are really being laid out strongly by the [Financial Conduct Authority (FCA)].”

Under the FCA’s incoming Consumer Duty rules, outcomes for customers will be placed even more firmly at the heart of business. When brokers have the knowledge and understanding to look beyond the mainstream and across the

whole market, consumers can be more reassured that they are getting the best solution for their individual situation.

Jannels likens specialist training to the example of a child putting together an eightpiece jigsaw: “They’re large pieces, but it’s [still] a skill for them to learn how to put them all together. If one of those pieces is missing, the jigsaw doesn’t work.”

Improving public perception Jannels explains that when the organisations behind the CPSP began working on it in earnest in 2020, they understood that many brokers were already very knowledgeable, and were not looking to suggest otherwise.

Instead, the primary concern was about improving public perception, and providing those brokers who had done the hard work of upskilling already with a recognisable ‘kitemark’ to prove it, in turn directing customers to the

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June 2023 | The Intermediary

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right place and helping them feel assured about the advice they receive.

He adds: “We were not actually saying that people weren’t good enough to manage this type of business, because patently they were, but there was no demonstration of that to the one person who pays all our salaries, and that’s the end consumer.”

Short-term lending as a whole needs a rebrand, Jannels argues. The ASTL’s research shows that it still has connotations of ‘the bad old days’, even after much work has been done by players across the industry to combat this perception, which is especially prevalent among older consumers.

The ASTL’s whitepaper, ‘Consumer perceptions of short-term finance’ found that overall only

19% of consumer respondents would consider turning to bridging in the event of a chain-break.

However, perceptions are starting to shift, with this figure rising to 39% among those aged between 18 and 24.

Increasing knowledge and professionalism among advisers will make consumers feel more confident in the products and services in the specialist finance space, because it will be clear that they are dealing with someone credible, Jannels suggests.

Bottom-line boost Higher consumer confidence should translate into greater uptake of specialist products, where suitable. This could then turn into higher

“Well done son, now you're a 'Certified Practitioner in Specialist Property Finance' you can get your own bleedin' house."

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margins for firms, particularly when it means they can keep more business in-house.

Jannels notes that networks tend not to be comfortable with their advisers dealing in this end of the market, so they hand that business off to specialists.

“It would be more sensible for them to keep it in-house if they could, from a pecuniary point of view if nothing else,” he adds.

Emma Jones, managing director at specialist broker When The Bank Says No, agrees that having more qualified people is likely to increase profits in an organisation, regardless of what its fee structure looks like. More important, however, is the ability to better serve the client.

She adds: “It’s not really for us to charge more, because we do charge accordingly for what we do, but it’s just to give advisers the ability to do the right thing by the client, which in turn sometimes would potentially earn them more anyway. The advice that they give will stick.”

A lender’s perspective It is not just brokers and lenders who will benefit from more education and specialisation, says Sundeep Patel, director of bridging at United Trust Bank (UTB). He notes that surveyors and solicitors involved in property transactions could also get a good grounding in transactions that are typically different from those dealt with on the high street.

“This has the potential to give them that insight when they’re dealing with specialist lending conveyancing,” he says. “And it also gives the client more faith in the professionalism of the people they’re dealing with.”

It also could mean more uptake of specialist lending products from the distribution side, because brokers will have the confidence to be able to promote what Patel sees as the whole service. By this, he means they can identify a second charge or bridging loan, for instance, as being the right solution for a particular client.

Somerville agrees, saying that he expects lenders will be far more confident to deal with brokers who can demonstrate their broader range of skills and knowledge, with the “badge of honour” of a specialist training course.

“They’ll be happy to transact with them because they won’t be seen as ‘dabbler’ anymore,” he says.

In fact, those who do choose to upskill in this way might benefit from access to top tier business in future, suggests Chris Oatway, CEO of LDN Finance, who describes the CPSP as a notable industry advancement.

“Advisers with the qualification may eventually get access to special deals, as a preferred panel of brokers,” he says.

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The CPSP

In Brief Level 3 Certified Practitioner in Specialist Property Finance covers: ◆ Lending structures and different loans ◆ Regulation including Consumer Duty ◆ Bridging loans ◆ Development finance ◆ Commercial mortgages ◆ Buy-to-let mortgages Average study time: six months Cost: £250

Learning objectives: 1. Understand a specialist property finance loan or mortgage, the process and regulatory requirements and suitability for the consumer.

2. Explore the overall benefits and risks of specialist property finance compared with standard mortgage lending.

3. Understand the basic fundamentals of the shortterm property finance market, the associated costs, and how a bridging loan is underwritten.

4. Identify the different scenarios where bridging finance applies and when it should be used with the correct exit.

5. Understand the basic fundamentals of development finance, the associated costs, underwriting, and when it is applicable.

6. Understand the basic fundamentals of the commercial mortgage market and compare it with the residential market.

7. Explain the basic fundamentals of the buy-to-let mortgage market, compare it with the residential market, and understand the specialist advice that is required.

June 2023 | The Intermediary

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Aside from this, the exam will bring additional credibility and professionalism, potentially setting participants’ CVs apart, and showing they can add value. All of this will make them more attractive candidates in the job market.

Short-term finance in numbers

Who is taking the training programme and why?

Q1 2023 - £1.4bn

Jannels says that the CPSP is intended to be suitable for anyone involved in the mortgage marketplace, not just new joiners. For Jones, though, it is important for the newest members of her team to complete the course. Three of her staff are currently studying for the exam.

“Because we deal with a lot of specialist cases, it just gives them a basic knowledge of what that specialist market looks like,” she said.

“Bridging is going to be more popular, and there’s not enough new talent coming through within the bridging and commercial space, so this can help us give them something to work towards and give them that understanding.”

After six years working in the commercial space herself, Jones sees a skills gap that she hopes the CPSP will bridge.

“There is a massive gap in the types of advisers that are in this space, and this qualification coming through will hopefully give that market a little bit more structure than it has had over the years, from a competency perspective,” she says.

More education and higher professional standards should pave the way for the next generation of advisers, agrees Oatway: “For future generations looking to embark on a career in specialist property finance, the CPSP exam is a much-needed advantage and will contribute to benchmarking the level of knowledge needed when starting out."

Graham Cox, founder at Self Employed Mortgage Hub, is not new to the industry, but is taking the course to add another string to his bow and diversify his business. He plans to add specialist property finance to his service offering for self-employed clients, and to set up a dedicated website for bridging, commercial and development finance.

“My reasoning is that the mortgage market is very tricky and obviously that affects bridging and commercial as well, but it is a different market with different players,” he explains.

“It’s targeting a different niche, which I think, in the current market, is a good thing to do.”

Cox expects the CPSP to lead to a higher number of new brokers starting to advise on specialist finance, introducing healthy competition and potentially lowering fees.

James Vince, managing director at Castle View Finance, and Imran Hussein, director at

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Bridging completions Q4 2022 - £1.3bn Q3 2022 - £1.4bn Q2 2022 – £1.2bn Q1 2022 - £1.04bn Value of bridging loan books Q1 2023 - £6.8bn Q4 2022 - £6.5bn Q3 2022 - £6.1bn Q2 2022 - £6.1bn Q1 2022 - £4.48bn (Source: ASTL audit data) Harmony Financial Services, are both supportive of the CPSP and are encouraging colleagues to take the course.

Vince points out that specialist lending often involves higher loan sizes and unusual business strategies, so it needs a demonstrable skill set.

“We would be happy to have our team carry out additional qualifications, as all knowledge is great knowledge,” he said.

“The better skilled our team and industry are, the better the advice and education passed on to the client. Win-win for all parties.”

The benefits of increased education around specialist finance products reach far beyond brokers and lenders, to solicitors, valuers and other professionals, and ultimately to the consumer themselves.

Jannels has been contacted by businesses wanting to put their office administrators through the course, and insurers looking to train underwriters who deal with title insurance.

This ripple effect means more members of the financial services community, who are already connected in the process of property transactions, building a better understanding of what the other parties need. This can only improve efficiencies and make collaboration more productive.

Overall, raising standards across the industry should improve public perception, proving supportive of both businesses and the clients they serve. In the era of Consumer Duty, this has never been more important. ●

The Intermediary | June 2023

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The development finance experts 03/02/2023 15:52

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

Enhancing service with title insurance

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ervice is fundamental to the establishment of strong relationships between lenders and intermediaries. It can take a significant amount of time to get to a place where brokers don’t give a second thought to recommending a particular lender to the client, but it only takes one case to destroy this trust; brokers are understandably reticent to place a case with a lender if their last experience was a bad one.

This is why Hampshire Trust Bank has developed processes and policies which will ensure that our service levels are where brokers want them to be.

We strategically employ technology when it contributes value; however, we have acknowledged the view of many brokers that some lenders excessively rely on technology when a human touch would be more effective.

While we appreciate the convenience of portals and understand brokers’ expectations for lenders to offer them, we also respect that some may not want to use a portal for every interaction. Therefore, it is important to ensure they can directly communicate with their business development manager (BDM) instead of conducting everything via email.

Using title insurance can speed up processing times

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The Intermediary | June 2023

Assigning a dedicated lending manager to each case is pivotal to high service standards. These managers conduct a preliminary underwrite and carry out credit checks, which enables us to provide a decision in principle (DIP) for a buy-to-let case within 24 hours. This is why 39% of the cases that receive an initial DIP from Hampshire Trust Bank proceed to completion.

We are currently providing sameday underwriting services, with our completions officers responding within 24 hours and providing an overall business turnaround time of 24 to 48 hours. We encourage brokers to reach out to their BDM directly if they have any uncertainties.

Covering title issues What has also proven to be instrumental to our high levels of service is our use of title insurance.

It offers a safeguard against possible complications stemming from the lawful possession of one’s property.

Buying it bolsters the buyer’s financial protection in case such problems arise, offering assurance during such a substantial investment.

Offering this form of indemnity insurance against claims over possible defects in the title, the insurance not only provides cover for the lender,

ANDREA GLASGOW is head of new business at Hampshire Trust Bank

but by speeding up the time it takes to process applications, can cut down on completion times and cost for the client.

One of the many strengths of the title insurance solution that we employ, courtesy of Westcor, is that it’s not just for one type of vanilla case.

Here are two examples of different cases that have recently been expedited because of title insurance.

The first application was for a foreign national residing in Austria, looking to refinance a bridging loan for a conversion of a house in multiple occupation (HMO). It was also through a limited company, so hardly a straightforward case.

The loan amount was £180,000, representing 75% of the property value. By using title insurance, the case went from offer to completion in just seven working days.

Our second example featured an individual borrower, refinancing a semi-commercial property with a ground floor restaurant and four flats above it. The loan amount totalled £675,000 – 75% of the property value. In this instance, it only took 19 working days to successfully move from offer to completion, again helped considerably by using title insurance.

There are many moving parts in a mortgage lender’s finely tuned service operation. At HTB, we recognise the importance of each element and are fully committed to using title insurance when appropriate in order to significantly reduce processing times. There’s no way to go from offer to completion in just a working week without it. ●

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

The lessons we’ve taken from our first year

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t has been a big first year for Provide Finance. It’s been 12 months since we rebranded from Pitch 4 Finance, a move made to better reflect the way our business works, and it’s certainly been a busy period.

First and foremost, it’s been encouraging to see how the new brand has resonated with brokers. Pitching is hard work, yet what we’ve always sought to do is to make life easier for brokers, to ensure they are able to secure specialist finance more quickly and easily. That message has clearly resonated, with the number of brokers using Provide jumping by 50% over the past six months.

Having the right brand is important for any business, but particularly within the mortgage market. We felt that Provide Finance was a better encapsulation of how we work, and more easily understood by brokers who are looking for help in managing their already busy schedules. The positive response shows that we have struck a chord.

Finding the right finance Beyond that, it has also been eyeopening to see how interest in the specialist market has grown.

For example, since Provide Finance began there has been a 60% increase in enquiries for specialist finance solutions, highlighting that growing numbers of brokers and borrowers are becoming more aware of such products to not only solve existing problem, but capture new opportunities, too.

The platform has already processed almost £40m-worth of applications for specialist finance products, with commercial and buy-to-let (BTL) term mortgages proving the most popular.

It’s worth reflecting on the fact

that the past six months have not been an easy one for any area of the mortgage market, but particularly specialist lending.

The fallout from the mini-Budget caused turmoil in the money markets, having a big knock-on impact on not only the pricing of mortgages but the appetite for lending among specialist lenders.

As a result, sourcing the right product became more complicated than usual, presenting yet more challenges for brokers looking to support those seeking finance.

That’s why it has been so welcome to see the response to the Provide platform, and the way that it helps advisers access a wider range of lenders and specialised support than they might ordinarily consider.

What’s more, it is important to acknowledge that despite those challenges, the appetite for specialist lending remains healthy.

For all the concerns around property prices and economic uncertainty, the appeal of bricks and mortar remains incredibly strong. Indeed, if anything the situation has even boosted interest from some investors, keen to pick up a new property to add to their portfolio at a cut price, confident in its longterm prospects for delivering a return.

A personal touch The mortgage market has perhaps not been the quickest area of the financial world to embrace technology, but this is changing. The past few years have given all of us first-hand insight into how technology can be incorporated to help us deliver a better service to our clients.

However, one of the big lessons we have taken from our first year as Provide Finance has been the importance of combining quality

MIRANDA KHADR is founder of Provide Finance

technology with a personal service.

The feedback from advisers has been resounding that they value having a team of specialist experts on hand who they can tap into if and when issues arise, or they have questions around a case.

All specialist cases are unique in some way, and so it’s common for cases to have some sort of additional hurdle – something unusual about the property or the borrower’s circumstances, for example – to gaining finance.

That’s where having a personal level of support has made a real difference.

We know that brokers have welcomed having a specialist team of experts on hand who can step in and assist brokers in identifying the right deal wherever necessary.

What brokers really want It’s been an encouraging first year as Provide Finance, but there is no room for resting on our laurels, with plenty of exciting developments planned for the platform over the next few months, and beyond.

In fact, we are entering an exciting time generally for technology within the specialist market. It’s an area of property finance that is ripe for technological innovation, to take on some of the heavy lifting for advisers and allow them to focus their efforts on what they do best – advising clients.

One thing that seems clear to me is that it will be the combination of technology with a personal touch that will be crucial in order to gain the trust of brokers. ● June 2023 | The Intermediary

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

Coping with the affordability crunch

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or more than a decade following the financial crisis, mortgage borrowers in this country had things relatively easy by historical standards.

Rates were low, the choice of products ample, and inflation ticked up fairly benignly – meaning affordability wasn’t much of an issue for most.

Unfortunately, those days are over, for now at least.

This won’t be breaking news for those operating in our industry, but borrowers are now grappling with a toxic combination of a once in a generation cost-of-living crisis, soaring mortgage rates and falling real wages.

The Financial Conduct Authority (FCA) estimates that those remortgaging this year will see their repayments rise by an average of £340 a month. This comes as the price of everything else is rising, too.

Clearly, this is causing enormous strain for a lot of people. In May 2023, Which? estimated that around 700,000 households had missed a mortgage or rental payment in the preceding month.

Prudent lending As a business, we have always taken a forward-looking lending approach to match the economic environment and ensure we make prudent lending decisions to mitigate against consumer harm.

We have a situation at the moment where there are a lot of borrowers who remain a good credit risk, but are locked out of the market due to malevolent macroeconomic forces.

These people may be on more money than they were when they first took out their mortgage, and they may even have more in savings and lower overall

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debts. However, the challenges around affordability are real, set against a backdrop of rising interest rates and the cost of everyday goods, which has soared with unprecedented speed.

By taking a more manual approach to underwriting, I believe wholeheartedly that lenders can alleviate the pain for thousands of borrowers.

Practical application For those lenders which offer a more individual approach to underwriting, this means increased opportunities to look at applications with more complex income structures.

To give an example, we regularly see applications from borrowers with multiple income sources, such as parttime landlords who generate rental income, or homeowners who have a second job with sustainable working hours. This also extends to pension income, maintenance payments and benefit income.

Utilising regular additional income as part of affordability assessments could mean the difference between a pass and fail for a surprisingly high number of borrowers.

The same goes for borrowers who receive regular and consistent bonus, overtime and commission payments, if the borrower can demonstrate a decent track record of additional earnings in line with previous years’ earnings.

Self-employed borrowers can also face additional hurdles when it comes to obtaining mortgage finance, which again is where that personal approach to understanding individual circumstances can be of benefit. This is particularly relevant following the upheaval caused by the pandemic.

With the right due diligence, there is no reason why a self-employed

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

There are a lot of borrowers who are locked out of the market due to malevolent macroeconomic forces.

These people may be on more money than they were when they first took out their mortgage, and they may even have more in savings and lower overall debts” borrower with shorter trading histories, or who can rationalise any variations in their trading performance, cannot be a good credit risk.

These are just a few small examples of the ways lenders can adapt their criteria to fit the current environment without taking on unnecessary added risk.

By adopting a more flexible approach, more borrowers will have the opportunity to access mortgage finance, particularly those who need options outside of the high street, at a time when an increasing number of homeowners and first-time buyers are in need of our support. ●

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

Short-term lending requires viable exit strategies

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o one would disagree that lenders in all areas favour properly presented applications backed up by suitable supporting material.

However, in the bridging sector, the exit strategy and its viability are where lenders really want to concentrate.

At this time of financial unrest and continuing inflationary pressures, exit plans have taken on even greater significance. That is why, at Kuflink, we are keeping an especially keen eye on the deals we are asked to fund.

The health of the economy continues to vary, and developers of property – who make up a fair proportion of our funding requests – have not been immune to the effects of inflation.This has led to higher development and operational costs, while the rise in interest rates has inevitably led to higher capital costs and lower valuations.

Kuflink has always had a great track record for assessing investment opportunities. Our team is probably one of the most experienced in the market in assessing new requests for funding, and in general, brokers are going to have to employ the same forensic approach as lenders to assess the viability of client plans.

Eye on the exit In the bridging market, apart from meeting affordability criteria and ensuring the property being offered as security is suitable, advisers must concentrate on how clients intend to repay the loan by the end of the allotted period.

Unrealistic exit strategies have been cited as a major cause of penalties being levied by lenders, where customers have been unable to exit at the end of the term.

In some cases, the lack of realistic exit strategies has been cited as a cause of bridging repossessions.

Advisers and their clients must be clear on the strategy they are putting in place to repay the loan, whether by the outright sale of the security, refinancing, investment sale, sale of a second property or inheritance.

Anything that affects the ability to repay means that customers should be advised to consider contingencies in case situations change” Each potential exit has one thing in common: the need for proof. Lenders might agree that a case sounds OK from a summary, but starting an official application without a full explanation of the proposed exit strategy, and then being unable to provide the proof when required, wastes everyone’s time.

Realistic proposals Lenders are looking for plausible and realistic proposals, so anything that affects the ability to repay means that customers should be advised to consider contingencies in case situations change. For example, allow for any delays or potential obstacles that may affect projections, such as the possibility of buyers dropping out of a transaction at the last minute, or of a chain breaking down.

Moreover, brokers should encourage their clients to borrow for longer

RANJIT NARWAL is head of origination at Kuflink Bridging

periods than may be deemed necessary and to safely allow for occurrences that might derail their plans. Indeed, it is far better to choose a longer lending option and to repay at an early date, than to run out of time altogether and face the risk of penalties or worse.

Transparent cooperation In summary, case preparation, well thought out, realistic, achievable exit strategies, and access to documentary proof to back them up, are the keys to satisfactory outcomes that will benefit lender and customer alike.

Sometimes customers can be cagey about their plans, but advisers must try to ensure that their clients are fully engaged and can see the importance of transparent cooperation about their plans. Without this cooperation, their applications can flounder or time be wasted trying to establish a feasible plan.

Ironically, poor exit strategy presentation can mean that clients end up missing out on deals with fixed time limits, because the bridging option that was supposed to provide fast access to funds ends up being declined or bogged down in follow-up explanations.

From the lender’s point of view, extra vigilance in assessing new enquiries is going to be key for a successful and profitable future.

Fringe lenders which aim to stoke new business by continuing to be too relaxed about exit plans could find that it will only lead to a higher proportion of missed end dates and the need then to extend the loans or call them in. ● June 2023 | The Intermediary

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

Valuing our valuers

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t’s hard to believe that over 15 years have elapsed since the start of the infamous Credit Crunch of the late noughties!

In the frenetic boom years that immediately preceeded this seismic shock and subsequent deep recession, many lenders, in an ultra-competitive market, sought to streamline their processes and procedures.

One manifestation of this streamlining saw many lenders place an increasing reliance upon automated valuations models (AVMs).

This trend started at the lower end of the risk curve, typically on low loan-to-value (LTV) mortgages and further advances. At the time it undoubtedly helped ease delays caused by a shortage of valuers. In specifically selected cases, where there was enough comparative data to yield robust results, AVMs worked very well. However, as is typically the case, reliance upon this new technology quickly exceeded its limitations.

Ultimately, in 2008 and 2009, many lenders paid a heavy price for their excessive use of AVMs. The effects were particularly keenly felt in areas such as Northern Ireland, where massive boom quickly turned to painful bust.

Not surprisingly, AVMs all but disappeared as a valuation tool for nearly a decade.

AI looms large...

It’s only in recent years, with technology racing ahead, that AVMs have steadily begun to regain market share.

The valuation process is set to become ever more automated, with the inexorable growth of artificial intelligence (AI) providing ever more accurate local data analysis, blockchain storing the full details on increasing numbers of new-builds, and drones replacing the traditional drive by with the fly by!

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Today’s valuers can call upon continually improving technology, but in an era of increasing regulatory focus and against a backdrop of seemingly endless macroeconomic and political uncertainty, prudence would suggest that several basic conditions should be satisfied on all loans.

As a specialist short-term and development lender of over 17 years standing, vast operational experience tells us that carrying out a detailed and comprehensive valuation report should always underpin any lending transaction. Irrespective of LTV, this is the way to ensure maximum protection for us, our borrowers and indeed our funders.

Put simply, a Royal Institution for Chartered Surveyors (RICS) survey backed by professional indemnity (PI) cover can highlight any number of potential anomalies with a property, while the surveyor’s commentary can also give an invaluable insight into the potential borrowers, which no desktop appraisal can ever provide.

Surveying is a complex process requiring multiple calculations, the review of many documents, including planning applications, Land Registry information, and much more besides.

At Saxon Trust, the strength of the relationship we have with our valuers is akin to that which we have with our solicitors and our borrowers.

Beyond providing us with the two key aspects of a valuation, namely the value of the property we are loaning against and confirmation that the structure is strong and durable, an internal inspection offers so much more.

Of course, obvious defects will be highlighted such as dampness, wiring issues and structural damage – often wrought by overly enthusiastic DIY fanatics! Where appropriate the surveyor can, and very often will, recommend that a more detailed specialist report is obtained.

BRIAN WEST is head of sales and marketing at Saxon Trust

Less obviously, the experienced surveyor with a trained eye can pick up on the signs of Japanese Knotweed even in the depths of winter, and with a trained ear, on the noise disturbance from a large infrastructure project nearby.

Future challenges No desktop assessment is ever going to give you an insight into the mind of a potential borrower or the likely internal condition of a property if you are forced to repossess it.

Technology is advancing rapidly, and AVMs have undoubtedly improved massively in recent years, but it’s important to realise that more interesting challenges will emerge. For instance, the issue of privacy and data ownership will become more acute as AVMs employ increasing amounts of image processing to extract the soft features of a property. The future will provide plenty of fuel for debate.

At Saxon Trust we believe that the pressures of an unpredictable and hugely competitive market to innovate should never compromise the integrity of risk and underwriting processes. We will continue to instruct full internal inspections as a cornerstone of our process, secure in the knowledge that our valuers are also embracing change and new technologies.

Meanwhile, they do so secure in the knowledge that technology can assist them, but it won’t replace them, particularly on complex, nonstandard appraisals. As an industry, we need to value our valuers.... ●

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

Maximising opportunity in the Midlands

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he Midlands is one of the most important and populous areas of the UK. Almost six million people live in the West Midlands alone, while the East Midlands is home to almost five million, and the region as a whole accounts for around 15% of all employment across the country.

There are good reasons for this.

Cities across the region – such as Birmingham, Coventry, and Leicester – have a rich and diverse history for everything from music and sport to industry, and play home to all sorts of employers, large and small. Given its crucial role within the economy generally, housing is undoubtedly an important issue for the area.

Across the Midlands, there have been noticeable increases in property values over the past year. In the West Midlands, the typical property is now worth £273,000, up by 7% (£16,800) on the same point 12 months ago.

While the East Midlands has seen less impressive growth, it has still moved up by 6% (£15,500) to an average of £258,000.

While this capital growth has been important for investors, it also demonstrates how affordable the area is, particularly in comparison with London. That achievable price point is useful, not only for investors looking to add to their portfolios, but also developers aiming to produce new homes in the region for future buyers.

When it comes to the Midlands, the jewel in the crown is most likely Birmingham. It’s known as the second city of England, and with good reason.

As a vibrant, growing city it has benefited from continuous investment in all sorts of infrastructure and projects aimed at boosting the local and national economy.

Little wonder that so many large businesses and organisations have set up roots in the city. We share our office building with the likes of Goldman Sachs, Savills, and the Royal Institution of Chartered Surveyors (RICS), which gives you a good insight into the sort of blue-chip businesses that operate in Birmingham, and of course the property market expertise that can be found here.

Metro network An important development which has further boosted the appeal of the Midlands to property investors has been the expansion of the Metro system in Birmingham.

The tram system offers excellent transport options across the region, and is currently benefiting from a substantial expansion courtesy of a £1.3bn investment from the authorities. It means the Metro tram network will triple in size, taking in more than 80 stops, with the east-side expansion nearing completion.

These sorts of infrastructure developments are an excellent sign for investors considering the region as a whole, since they open up greater areas of the Midlands as options for those looking to commute into the

AMJAD IBN ABDUL is regional manager, Birmingham office at Tuscan Capital

city centre for work. Birmingham’s history as a great area for sports is also an important aspect to consider for investors. It’s not just the region’s long history with football, cricket, and the like, but former sporting venues are actually being turned into housing for the next generation of residents.

Birmingham hosted the Commonwealth Games last year and developed an athlete’s village, which was intended to provide living space for the athletes during the event.

Unfortunately, delays due to Covid-19 meant that the development was not completed in time, but that village is now being turned into residential properties. The first phase of that development has now been completed, comprising almost 1,000 flats, with sales open.

Overall, therefore, there is a strong positive and optimistic feel about the Midlands, and with excellent demand and the ability to secure strong yields, while accessing plenty of property development opportunities, we envisage a growing interest in the broad range of funding arrangements Tuscan is able to offer here. ●

The Metro tram system in Birmingham offers excellent transport options across the region

June 2023 | The Intermediary

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

Self-employed shouldn’t be one-size-fits-all

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he plight of the selfemployed has been an ongoing discussion for Saffron Building Society, both on our webinar series SFI LIVE, and in direct conversations with our broker partners. Since 2020, the self-employed have seen increasing challenges when applying for a mortgage, and the one-size-fits-all approach of larger lenders has seen the accessibility of mortgages decrease.

The situation doesn’t seem to be improving, as the Mortgage Broker Tools (MBT) Affordability Index identified that a third of all selfemployed applications did not pass the lender’s affordability criteria.

Following the turmoil of recent years, with the Covid-19 pandemic and Brexit destabilising the business sector, the two to three years of accounts typically requested on application unsurprisingly became a devastating hurdle for the self-employed.

At Saffron, we have always considered ourselves champions of the self-employed, and we take pride in listening to both our broker partners and borrowers to understand the issues they face. To get a deeper understanding from potential borrowers, we recently undertook an independent survey with 1,000 selfemployed respondents, and the results were interesting.

Nearly half (49%) wouldn’t feel confident finding a suitable mortgage lender that would offer a product fit for their needs, while still passing affordability. Only one in five (19%) believed there was a good choice of lenders offering products for the selfemployed, and just 15% agreed with the statement that there are plenty of mortgage products available on the market for self-employed individuals.

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As a caveat, these statistics may seem shocking, but it is worth remembering many of the respondents may not yet have engaged with a broker. However, it also highlights that we need to be marketing directly to them – in collaboration as brokers and lenders – to ensure self-employed borrowers know that there are specialist products available. For example, does your website make it clear that you have access to products and solutions solely for these customers?

At Saffron, we are pleased we can offer more opportunities for self-employed customers. In recent times, we have applied an even more flexible, case-by-case approach to self-employed lending. We don’t believe in a one-size-fits-all approach – especially when it comes to selfemployed applicants.

We only require one year’s accounts, alongside acceptable projections for the future, on our specialist selfemployed mortgage, and two years on a standard residential mortgage.

We have also added wider education into our lending process by increasing the training of our business development managers (BDMs) and support team to ensure our broker partners get the right advice from the outset.

Moreover, we have altered when we engage our underwriters in more complex cases, allowing us to look at every case on its individual merit.

This also includes direct communication from the underwriter to the broker, where the case is complicated or declined, to discuss next steps and guide the broker through the decision, which has been favourably received.

As lenders, we know that some information we request for your self-

TONY HALL is head of business development at Saffron for Intermediaries

The Mortgage Broker Tools Affordability Index identified that a third of all selfemployed applications did not pass the lender’s affordability criteria” employed applicants is additional to a typical residential mortgage.

A third of our survey respondents raised that their broker didn’t appear to have a definitive understanding of their business accounts, as an example. This is something that is easily resolved, and which we are addressing with the actions we have mentioned above.

Connecting the industry It is now time for lenders and brokers to come together to address the issues faced by the self-employed. The more we collaborate, the better chance we have to innovate and evolve as the market continues to challenge us.

The next episode of SFI LIVE will focus on the self-employed, and we are calling on brokers to join us, to give us your point of view, raise issues you have faced and help us to shape the future of lending for the self-employed across our industry.

Follow Saffron for Intermediaries on LinkedIn to learn more and sign up for the next live webinar. ●

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

Helping brokers with complex finance

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Demand for complex financing solutions is growing

n the current economic climate of rising interest rates and a rapidly changing mortgage market, a growing number of brokers are finding themselves encountering clients with unique and complex financial circumstances.

The dynamics of the past few years have significantly impacted the mortgage and property markets, with rate increases, high inflation and affordability constraints shifting the boundaries for many would-be buyers.

This is happening right across the mortgage market, with fluctuations in the housing sector having an impact on residential buyers. These individuals are increasingly turning to specialist finance mortgage products – such as bridging loans – as an alternative way of financing their property purchase and preventing a chain-break.

Landlords and investors, constrained by tighter buy-to-let (BTL) margins, are also increasingly using bridging for their property purchases as they search for greater returns on investment and more profitable yields by buying properties at auction.

Similarly, the commercial market is starting to see an uptick in activity after a period of slow growth due to the pandemic, 12 consecutive interest rate hikes, and instability following the mini-Budget in September last year. These conditions saw many lenders retreat from the market amid concerns of ongoing volatility.

However, despite the continued uncertainty in the market, specialist lenders remain open for business, and the changing dynamics of the mortgage and housing markets means demand for specialist lending solutions is even greater than before.

The market is moving fast, and there is now a real sense of urgency among many borrowers to try and get the deal done before any further changes can occur.

This can be daunting for brokers, particularly those unfamiliar with the specialist lending sector, but it also presents a real opportunity for brokers to tap into additional revenue streams, by working with a specialist broker like Clever Lending to find solutions for these complex cases.

Placing unusual and non-standard cases is our core business, and we have

MATTHEW DILKS is a bridging and commercial specialist at Clever Lending

built up a wealth of experience over 25 years of sourcing specialist property finance solutions in the commercial, bridging, development finance and portfolio BTL spaces.

We are well versed in navigating the intricacies of complex income portfolios and non-standard mortgage cases and understand that this area of the market can be extremely complex and time-consuming. We also understand that many brokers simply do not have the time, resources or understanding to navigate the challenges that can come with placing this type of business.

Coming across a case that does not fit the mainstream mould can be extremely frustrating for brokers, which is where Clever Lending can help. In situations where a case is non-standard or out of the ordinary, do not let a decline or an area you are unfamiliar with be the end of the road for you and your client.

Instead, refer them to us and we can work with you to gain an understanding of their needs and find them a suitable financing solution from our extensive panel of lenders.

This leaves you free to focus on the other aspects of your business while we do the heavy lifting. We will also pay a commission once the case completes and the funds released.

Navigating this area of the mortgage market can be tricky, but continued uncertainty in the market means demand for complex financing solutions is growing and is likely to continue to increase. This presents brokers with ample opportunity to develop relationships with specialist firms that can help you source complex financing solutions as well as tap into this growing and lucrative area of the mortgage market. ● June 2023 | The Intermediary

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

Why demand for specialist finance is on the rise

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t has been a difficult 18 months for the global economy, and the UK is suffering more than many. In turn, the property market and its lenders are going through a period of adaption.

Inflation has finally fallen into single figures, but interest and mortgage rates have continued to rise at pace, with economists predicting that the Bank of England’s base rate will rise to a peak of 5.5% later this year. As well as rising rates, many high street lenders have been withdrawing products.

Consequently, some homebuyers have opted to put their purchasing plans on hold, or at least revise their budgets downwards, and average UK house prices have dropped in 2023 as a result.

Borrowers’ needs have evolved due to these macroeconomic headwinds, and the demand for more flexible financial products means buyers – particularly landlords and investors – are looking to specialist lenders.

Clearly, as lending requirements tighten, many brokers and borrowers cannot find the flexibility they need from high street lenders or traditional mortgage products, so specialists will have an increasingly important role to play in the coming months.

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Flexibility and adaptability

For those investors keen to capitalise on the opportunities that the UK property market provides, they are unlikely to find the flexibility and range of financial options necessary to invest with confidence through traditional high street lenders”

The current economic climate continues to pose significant challenges for every type of borrower.

For instance, while inflation has experienced a slight decline last month, it remains far, far above the Bank of England’s target of 2%.

It is not falling fast enough, and this ongoing inflationary pressure affects the amount people can save and afford to borrow.

Moreover, although the Bank of England has hinted that interest rates are approaching their peak, the rapid increase in borrowing costs since December 2021 continues to weigh on the amount that people can borrow.

As such, further rate hikes – which are likely considering how sticky inflation appears to be – might discourage some investors from proceeding with their investment plans.

Complex finances Unfortunately for those investors keen to capitalise on the opportunities that the UK property market provides, they are unlikely to find the flexibility and range of financial options necessary to invest with confidence through traditional high street lenders.

In fact, the choice of mortgage

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

deals on the market shrunk by more than 370 in the first week of June alone, according to Moneyfactscompare.co.uk.

The recent upheaval in the mortgage market has prompted many high street banks to adopt stricter lending criteria and assessment methods for loan applications. This poses an additional challenge for homebuyers and investors with complex financial situations, as they may face increased difficulty in obtaining financial products from mainstream lenders in the current climate.

These borrowers will be looking for alternative sources of finance, so the demand for specialist finance looks set to grow in the coming months.

Take bridging finance as a prime example. Bridging loan applications (+13.1%) and completions (+11.8%) both rose notably in Q1 2023 when compared with the final quarter of last year, according to data from the Association of Short Term Lenders (ASTL).

With more borrowers considering specialist finance solutions, the onus is now on lenders and brokers to step up.

Those that can provide flexibility and certainty will see the biggest uptick in demand.

For instance, by underwriting each loan from day one, specialist finance lenders are much be er placed to manage even the most complex of loan applications than their high street counterparts. By considering loans on a case-by-case basis, specialist lenders can take the applicant’s overall financial situation into account, providing finance to borrowers with adverse credit, complex structures or undervalued properties.

Elsewhere, for those borrowers experiencing cashflow or affordability issues due to inflation, rolled-up or deferred interest can give them the flexibility they need to remain active in the UK property market. By removing the need to make interest payments until the conclusion of their loan period, lenders can give them the breathing space they need to navigate what continues to be a difficult economic environment.

Finally, in an uncertain economic climate, providing certainty is key.

Understandably, borrowers will have a wealth of questions at present, so proactively communicating with

brokers and their clients about how rates or products might be impacted in the coming months is a good first step.

With so many lenders pulling products, those that can assure borrowers they will follow through on a loan or mortgage will be of the most value, bolstering confidence among buyers and brokers alike.

At Market Financial Solutions, we are aware of the growing importance of specialist lenders in supporting the market. Therefore, we are commi ed to offering flexible financial products that can be delivered quickly and with certainty to ensure that borrowers can invest in the property market come what may, no ma er how complex their case might be. ●

PARESH RAJA is CEO of Market Financial Solutions

The recent upheaval in the mortgage market has prompted many high street banks to adopt stricter lending criteria and assessment methods for loan applications.

This poses an additional challenge for homebuyers and investors with complex financial situations”

June 2023 | The Intermediary

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Strong foundations for sustainable growth

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e recently published the Association of Short Term Lenders’ (ASTL) latest lending data report, which shows that bridging completions, applications and loan books continued to grow in Q1 2023. These figures, compiled by auditors from data provided by members of the ASTL, show that bridging completions passed £1.4bn in the first quarter of 2023, representing an increase of 11.8% on the December 2022 quarter.

Applications also continued to rise, reaching £9.8bn during the quarter, which represents an increase of 13.1% compared with the quarter ended December 2022. The data shows that the value of loan books also increased, rising by 4.0% to another new high of just over £6.8bn.

These figures confirm that the somewhat indifferent performance of the economy has not affected demand for short-term finance, which continues to demonstrate that it can provide a versatile source of funding during all economic cycles.

In fact, we’ve seen a consistent increase in demand for bridging over recent years, as more brokers recognise the benefits of taking shortterm finance to help their clients achieve their long-term objectives.

Transitional funding Bridging shouldn’t really be thought about as a product in its own right, but rather as a solution provides a flexible source of capital in the short-term for clients who have a transitional funding requirement to help them achieve their longer-term objectives.

In many ways, it’s just one cog in the lending environment, but it’s a vital cog that helps to keep the rest of the system working.

Some examples of how bridging is being used include refurbishing a property, converting a property using permi ed development rights (PDR), or even addressing the lease on a flat that might otherwise be considered unmortgageable.

For home movers, bridging can provide a solution where they need to complete on the home they want to move to before the funds are released from the sale of their existing property. One particular trend at the moment is buyers using bridging to put themselves in this stronger position when choosing to downsize from their current property.

The wave of multiple interest rate rises in recent months have made servicing a mortgage more expensive for everyone taking out a new deal. For those homeowners who may not have considered downsizing previously, remortgaging onto a higher rate and

Q1 2023 Trends Quarter ended 31 Mar 2023 Quarter ended 31 Mar compared to Quarter ended 2023 compared to Quarter 31 Dec 2022 ended 31 Mar 2022

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Year ended 31 Mar 2023 compared to Year ended 31 Mar 2022

Loans written (£)

+11.8%

+36.3%

+20.4%

Loan book (£)

+4.0%

+52.1%

+52.1%

Applications (£)

+13.1%

+54.3%

(0.9)%

The Intermediary | June 2023

VIC JANNELS is CEO of the Association of Short Term Lenders (ASTL)

much higher monthly payments than they are used to can provide the stimulus to make them think about a move to a smaller property.

Every day, there are more brokers who are realising how short-term transitional finance can benefit their clients. We continue to see growing demand for bridging lending, and the lender environment remains highly competitive.

Qualifications We have also, of course, now launched the Certified Practitioner in Specialist Property Finance (CPSP), following a joint initiative between the ASTL, Financial Intermediary & Broker Association (FIBA) and the London Institute of Banking & Finance (LIBF).

CPSP is an optional e-learning programme that will cover bridging, short-term finance, development finance and specialist buy-to-let. It provides a definitive and targeted education programme for the shortterm and specialist lending sector, and participants who complete the modules will be recognised through a LIBF digital badge and accredited for continued professional development (CPD) purposes.

It’s a big step forward for our industry and will help to raise understanding and confidence among advisers, as well as further enhancing the professionalism and reputation of the sector.

This flight to quality is an important step in the development of shortterm property finance, and should help to provide a solid foundation for continued, sustainable growth in bridging, even amidst the ongoing economic headwinds. ●

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

Key investments to boost EPCs

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hether they’re looking to sell, want to rent their property out or just want their home to be as energy efficient as it can be, your customers need to be aware that improving their energy efficiency score is key.

With sky-high energy costs stretching everyone’s budgets, investing in some simple changes to boost their Energy Performance Certificate (EPC) rating could help save them money in the long term.

The talk of upcoming EPC regulations for landlords provides an opportunity for you to reach out to your landlord clients and offer your help and expertise. It’s important they’re fully aware of both the regulations and EPCs in general, and where they can invest to help.

Here are some steps you can suggest to boost their EPC rating through investment into their home.

1

Loft insulation

Warm air rises and an uninsulated lo space will mean losing a lot of a home’s heat. Lo insulation fits between the floor joists or ra ers, trapping warm air so it can’t escape through the roof. It’s relatively cheap to buy and can even be laid by the customer themselves with no specialist skills or equipment.

According to the Energy Saving Trust, increasing the thickness of lo insulation from 120mm to at least 270mm will help significantly boost a home’s EPC rating and save money on energy bills; even if the client in question already has some insulation, they can add more, so it’s worth investing wherever possible.

2

Wall insulation

Up to a third of a home’s heat escapes through its walls, so checking there is enough

wall insulation could make a huge difference to energy bills, EPC ratings, and how comfortable a house is to live in. Most homes in the UK have cavity walls, with a gap that can be filled with insulation – and even solid walls can still be insulated.

While they’ll probably need to get professionals in to fit wall insulation, so the costs may be higher, the longerterm energy saving could mean your customers soon see a return on their investment.

3

A modern boiler

One of the pricier options, but replacing an old boiler with a modern condensing boiler is likely to not only save money but improve how comfortable a home is to live in, especially if adding new radiators with thermostatic valves.

For the average home, a modern boiler could cost around £4,000 to install, but could offer more than a £500 per year reduction in bills.

Plus, it can increase a home’s EPC score by around 40 points – a significant boost.

4

Modern windows

Another pricier option, switching old windows to new double or triple-glazed options can give the EPC rating a real boost – up to 10 points. Modern windows stop heat escaping and stop cold air ge ing in.

It is recommended to look for A-rated options to make sure to get the most efficient windows, subject to budget.

5

Hot water tank

If your customers get their hot water from a tank, adding an insulated jacket is a cheap and easy way to save money and improve the EPC rating.

Costing about £25, they’ll save around £35 a year on energy bills, plus help bump up the EPC score. They’re easy to fit too, so could be installed and saving money in minutes.

MICHELLE WALSH is head of intermediary sales for commercial finance at Together

The talk of upcoming EPC regulations for landlords provides an opportunity for you to reach out to your landlord clients and offer your help and expertise. It’s important they’re fully aware of the regulations and EPCs in general” Take the time to look into the detail of your client’s EPCs to understand what they could do to improve the efficiency of their properties. If your client doesn’t have a valid EPC, it’s possible to look at similar properties in the area to get an idea.

There’s also the option of taking a look at the local council’s offering of grants and schemes to see if they’re eligible. Your landlord clients should be doing all they can to improve the energy efficiency of their properties, as it’s likely tenants will use EPCs to find be er rental properties where they can save money on their utility bills.

Keeping your customers informed about ways they can to improve their EPC rating and save money on bills is important. It is worth advising them on specialist lenders to raise the funds they need, such as Together, where we take a bespoke approach to each client depending on their situation and needs. ● June 2023 | The Intermediary

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

In mortgages no one can hear you scream

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he past few months in the mortgage industry have at times felt more like the script of a major Hollywood blockbuster than the stable ebb and flow usually associated with the backbone of the financial services market.

I love a good analogy, and as a keen movie fan who grew up in the ‘80s and ‘90s, my mind turns to what franchise best represents the nature of our current daily lives.

In my mind, nothing in cinema has ever reached the unexpected, jarring levels of the first Alien movie.

That film had it all: a new take on the established horror genre, an amazing central hero, an original setting, and a gut-wrenchingly scary villain.

Looking back over the past six months, the mini-Budget in September last year really was the critical turning point. To me, it was the John Hurt chest-bursting shock scene that defined how the entire movie, and all its sequels, would play out.

Despite many of us being long enough in the tooth to have come through the Credit Crunch in 2008, and if not that, certainly the pandemic in 2020, the mini-Budget still landed with a stupefying level of trauma.

Mortgage products were being pulled left, right and centre, pricing rose stratospherically faster than any time before, and many lenders just paused new lending altogether due to the level of uncertainty in the capital markets.

Before the mini-Budget, your average adviser didn’t need to know the minutiae about what a swap rate was in order to give advice.

However, you can bet your bottom galactic credit that those same people certainly knew enough after the miniBudget to give a short lecture to their family around the dining table!

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Consumers are unquestionably facing a tough ride. The base rate is currently 4.50%, the highest it’s been for 15 years, and has risen at the fastest pace on record. The Bank of England has stated that around four million households face higher monthly mortgage payments this year, of which it is expected around 356,000 may face financial difficulty in the next 12 months. An average 2-year fix in November 2021 was 2.29%, today it is 5.28%. Even those that can pay the estimated £300 to £400 more a month this represents will reasonably have to make a change in lifestyle to do so.

So what’s the good news? Well, about three-quarters of all consumers have a fixed rate mortgage, so their payments won’t change…yet.

However, an estimated 1.8 million households will need to remortgage this year. That’s a big number. Or, viewed another way, around 10% of all homeowners with a mortgage.

Just like in the movie, you think you’re safe, but then the jump scares keep on coming.

Heroes emerge So, we’ve set the scene: something bad happened, it’s snowballing, and we are all looking over our shoulder for the next scare to come out of the darkness.

It’s the second act, and we need a hero in this tale, the mortgage world’s very own Ellen Ripley. So, who you gonna call? Whoops, wrong ‘80s movie!

Maybe one hero isn’t enough in this case anyway, so how about 5,615 of them? That’s the number of regulated mortgage advice firms in the UK. I’ve been around the industry for about 25 years, and while advising has changed massively in that time, the role of the mortgage adviser has never been more important than it is now. Being an adviser today means waiting with bated breath for the latest interest rate bulletin and logging on until midnight to get that final case

submitted and secure the client’s rate.

It means providing quasicounselling to customers who still don’t know what a swap rate is, and just want to understand why their new monthly payment has doubled, and why that means they can’t have a holiday this year.

Setting up for sequels Don’t get me wrong, being a lender right now is no gravity-free picnic. We had started to build some confidence, with the cost of funds stabilising in Q2 and almost – dare I say – began to relax.

Then there it was, the sequel arrived in the June inflation results, and it quickly became clear that while the 41-year high of 11.1% had slowed to 10.1%, this was not the impact we had all been hoping for. Commentators are now talking of a further 1% in base rate rises being needed to quell the oncoming inflationary hordes, taking us to around 5.50%.

In amongst all this, we pan back to the good old hero of the piece to end our story: your expert mortgage adviser. Most consumers do not have the necessary experience or knowledge to understand, or even get access to, the best rates for their specific situation. Mortgage advisers do.

So, in closing, we may well have more sequels, with bigger scares to work through before we reach the final calm and can retire off to a nice sunny planet somewhere in Section 9.

However, I’m confident that just like Ripley, this industry is infinitely resilient. We should take comfort in knowing it is more a question of when things become calm, than if! ●

BUSTER TOLFREE is director of mortgages at United Trust Bank

Something bad happened, it’s snowballing, and we are all looking over our shoulder for the next scare to come out of the darkness. It’s the second act, and we need a hero in this tale, the mortgage world’s very own Ellen Ripley”

The Interview.

G

Nick Jones is director at Freedom Finance

Jessica Bird sits down with Nick Jones to discuss the growing importance of seconds, and why Freedom Finance is at the front of the charge

rowth in the second charge market has fluctuated significantly over the course of the past few years, including most recently seeing a 22% dip in new business volumes in April 2023, according to the Finance & Leasing Association (FLA). Nevertheless, second charge loans amounted to £1.5bn in March, a 24% increase compared with the previous year, and lending rose 18% by value and 11% by volume year-onyear in April.

This market is not immune to the vagaries of a market facing pressure and uncertainty on all sides, from inflation to regulation.

However, whether changing energy efficiency regulations, the tightening cost-of-living crisis, the need for business investment or the ongoing aftershock of the pandemic, there are many trends that may well add to the rising tide of second charge lending.

The Intermediary caught up with Nick Jones, director at Freedom Finance, to discuss his choice to join the business, plans for the future, and why now is the time to freshen up on second charges.

People and culture

After a successful two decades spent working on the lender side – including holding roles at Together, Roma Finance, and most recently West One Loans – it is safe to say that Jones has a very clear understanding of what it is that makes lenders tick.

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The Intermediary | June 2023

I N T E RV I E W

Even more than this, his previous experience has seen him work in close harmony with intermediaries over the years, making for a holistic and well-formed view of both sides of the lending equation.

So, making the move to broking via Freedom Finance in March 2023 was both a logical step and an exciting challenge.

“You always look for the ‘new’ in a new role, and after working with intermediaries for so long and very closely – not just knowing the business they do, but the people and the strategies of those businesses – you get to know the inner workings,” Jones says.

When making the move to the other side of the table, Jones was drawn to Freedom Finance for various reasons, including several factors that he feels places the firm in a strong position to deal with current market trends.

“It’s a different business to most second charge brokers,” Jones explains.

“It’s very fintech-focused, it looks at things in different ways and tries to always improve the customer journey, trying to take the best parts of other financial services that [it offers] and translate them into the second charge mortgage process.”

It was not just the business offering that caught Jones’ eye, however.

He says: “It was definitely also the people and the culture that drew me in. There’s a real appetite for growth and to think about how to do business differently, which is refreshing.

“So, for me it’s very much about the people, the culture and the opportunity to do something I’ve never done before.”

Focus on the journey

This emphasis on culture, innovation and – most importantly – the customer journey, is only becoming more important as the onset of new Consumer Duty regulations looms.

With the regulations coming into force on 31st July, the Financial Conduct Authority (FCA) is looking to set higher and clearer expectations for consumer outcomes across the financial services sector.

In its ‘Dear CEO’ letter sent out this March, the regulator highlighted second charge lending as an area in which firms must be on the lookout for potential vulnerabilities, particularly in the context of a worsening cost-of-living crisis. This means an increasing need for advice around the costs and risks associated with these products, necessitating greater support for intermediaries to ensure they know what to look out for and how to communicate it this to their clients.

On the other hand, ensuring that each client has been presented with the right options to suit their needs means not discounting the potential value of a second charge product, understanding the different uses and pricing structures, and having the confidence to outline all the options to a borrower.

For Jones, getting the best customer outcomes and ensuring potential borrowers are consistently matched with the right product is closely tied with the effective deployment of technology.

“When looking at the customer’s desires and trying to make best match with a product, there’s an awful lot of products available out there,” Jones explains.

“The best way to do that is through technology. You can’t replace experience and

The big driver is ensuring the right customer outcomes, ensuring that you’re considering products you may not be specialist in, and understanding the implications of those products to a customer” someone’s ability to understand the market, but technology is the best way to collate products and present the right ones.

“We can do that by having the necessary understanding of the products and criteria, and also by having a system that mitigates any potential pitfalls.”

The imminent approach of the new Consumer Duty rules underlines the need for brokers to consider products they might not have previously understood or been comfortable with. Under the new normal, simply remaining within your comfort zone or the realms of pre-existing lender relationships may not stand.

This growing call for brokers to step outside the remit of mainstream, standard mortgages will hopefully give rise to more people discovering the potential held in second charges. In order to make the most of this, they will need the help of technology, and of specialist firms.

“The big driver is ensuring the right customer outcomes, ensuring that you’re considering products you may not be specialist in, and understanding the implications of those products to a customer,” says Jones. → June 2023 | The Intermediary

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As affordability becomes harder for remortgaging, there will be customers that struggle to remortgage but still want to raise capital. The flexibility of second charge affordability models can allow for greater capital growth” “It’s about having a broader understanding of all products out there and understanding how they benefit the customer. Second charges aren’t always the best option for a customer, but they are certainly worth considering in the current environment, and should be considered more than they are.

“It’s best to partner with specialists who understand the product, because there’s a wide range of lenders, and of criteria, and there’s definite flexibility within the product range which doesn’t always come across looking at the criteria.”

Indeed, Jones points out that providing the best customer outcome to the FCA’s exacting standards will mean looking beyond basic factors such as the loan-to-value (LTV) and affordability, and instead taking an increasingly nuanced approach to the criteria.

For example, the use of automated valuation models (AVMs) by some lenders can make the process quicker and more cost-effective for the customer, which might make this a better prospect than a product that might look more appealing at first glance.

Rising tide

It is not just Consumer Duty that is likely to draw people towards second charges. There is also a familiar set of wider market forces at play as well. From inflationary pressures to house prices, climate change to rising mortgage rates, seconds have a role to play in seemingly every trend hitting today’s headlines.

“There are the house prices, and the miniBudget last year – we’ve seen a significant increase in applications because of both of those,” says Jones. “There’s also the increase in the Bank of England base rate, customers wanting to secure that cheaper funding that they had on their mortgage, but still raise capital for various reasons.”

There are the best known uses of second charges, namely home improvements or debt 68

The Intermediary | June 2023

consolidation, the latter of which is certainly being driven by the cost-of-living crisis.

According to data from Evolution Money, the period from December 2022 to February 2023 saw an increase in activity from those using second charges for debt consolidation, from 68% to 70% in terms of volume, and 59% to 61% in terms of value.

As rising living costs seem to be part of the new normal, brokers should be considering how second charges could help ease the strain for some of their clients.

However, Jones explains that there are also diverse options that some may not be aware of, but which make this a product worth having in a broker’s wheelhouse.

For example, commercial clients who took out Bounce Back Loans or struggled during the pandemic, or who only have one or two years of accounts, might now want to raise capital for vital investments and business purposes.

Meanwhile, buy-to-let (BTL) landlords are facing changing Energy Performance Certificate (EPC) regulations, alongside tightening margins and rising costs, all of which combines to mean that many will need funds to make necessary improvements to their properties, either to make them more energy efficient, or more competitive prospects for modern renters.

Alongside all of this, the economic picture being painted in the UK is only likely to get more complex and challenging, with further Bank of England base rate hikes being only one factor in the ongoing turmoil. This means that borrowers, more than ever, need to know that their broker has considered every option and has taken a nuanced approach to their circumstances.

“As we move forward, looking at the economic landscape, there’s going to be some hurt ahead,” says Jones.

This is where the seconds market could provide agile solutions to increasingly complex problems, at a time when many of the mainstream banks are battening down the hatches, tightening criteria, and pulling products.

“Second charge mortgages offer a more flexible product range,” Jones explains. “There are also lenders that foresee risk differently, have different ways of assessing affordability outside of the traditional [loan-to-income (LTI)] or debt-to-income ratios.”

He adds: “If you look at the second charge market, it has thrived during downturns. It’s been through two recessions and a pandemic – it is a stable market, and there’s no doubt that

I N T E RV I E W

the lenders in the market now are in it for the long-term.

“There’s certainly a desire for the product, and there’s no doubt that the way the economy is going – and with the difficulties that lie ahead for customers – there’s going to be a place for second charges in that marketplace.

“As affordability becomes harder for remortgaging, there will be customers that struggle to remortgage but still want to raise capital. The flexibility of second charge affordability models can allow for greater capital growth.”

Freedom in the future

After his first months in the job, Jones explains that he is looking ahead to an exciting year on the horizon for Freedom Finance, no small element of which is the opportunity to capitalise on – and shout about – the successes it has enjoyed so far.

The majority of our customers have their funds within half the time of the industry average, and we’ve embraced tech right through that process. We work very closely with our partners in making sure that, when we’re putting cases to them, they’ve got what they need first time around”

Jones says: “It’s one of the top three firms in the market by size, and that’s something that we don’t shout about enough. The reason why it is that large, yes it’s because we have a good number of applications, but it’s also the process that the customer goes on, and the very tech-focused process on the platform side, which is embedded throughout the second charge process as well.

“It’s the speed with which we can act for the customer, as well. The majority of our customers have their funds within half the time of the industry average, and we’ve embraced tech right through that process.

“We work very closely with our partners in making sure that, when we’re putting cases to them, they’ve got what they need first time around, so conversion-wise it’s very strong, near 80%.”

Going forward, Freedom has just launched its new intermediary-focused division, Freedom 4 Intermediaries.

This is focused on using the firm’s extensive expertise to embrace partnerships with those that want to up their education on second charges and need guidance on how to recognise the opportunities in this market, ultimately helping to unlock value for both brokers and their customers.

Jones concludes: “There’s an awful lot of experience at Freedom Finance, a lot of staff have been here an awful long time, understanding the market, understanding the processes. As we start to raise our profile more through Freedom for Intermediaries, our partners will benefit from that experience.” ●

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

FCA must be evenhanded in its approach

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FCA: “Supervisory and enforcement approach will be proportionate to the harm – or risk of harm – to consumers”

ooking in the crystal ball, the likely fallout from the introduction of Consumer Duty is hard to predict, though various surveys of the gloomier persuasion all suggest that the industry is still relatively under-prepared.

I don’t hold with the ‘we’re all doomed’ scenario, but there is uncertainty and not a li le concern over whether both lenders and brokers are going to get it right. One of the outcomes of that uncertainty on the lender side is whether, individually or as a group, caution will win out and the market will become more risk averse when it comes to assessing prospective clients. Historically, lenders have tended to ba en down the hatches when faced with external threats, and Consumer Duty – while not precisely a threat in the same way that economic ones are – may cause an instinct to retreat that is too strong to resist, especially in the short-term while the new rules bed in.

As so much of compliance is down to interpretation, so it is difficult to predict how the regulator is going to react to the way that individual

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lenders see the new rules and implement changes to their processes to encompass Consumer Duty.

From the brokers’ perspective, it might be difficult to adjust to lenders’ changed underwriting stance because of their interpretation of Consumer Duty. However, having been through the wringer over the past 12 months dealing with lenders’ changing requirements, most will adapt to the new reality, I have no doubt.

The medium to long-term impact of Consumer Duty, with all of its ramifications for customer protection and measurably positive customer outcomes, is likely to lead to a restriction on the breadth of would-be borrowers that lenders can entertain for mortgages and loans.

Taking care The overwhelming feeling is that lenders will opt to observe the maxim about ‘erring on the side of caution’, especially in the early days a er implementation of Consumer Duty.

However, the consequence might well be that lenders either feel forced, or become scared, to take risks on borrowers who are even mildly adverse. Leading on from that, the

TONY MARSHALL is CEO of Equifinance

social impact could widen the gulf between the ‘haves’ and ‘have nots’.

Taken to its logical conclusion, a likely outcome of Consumer Duty could mean that it will disenfranchise a significant section of society from the lending marketplace if we are not careful. In a recent speech, Sheldon Mills, executive director of consumers and competition at the Financial Conduct Authority (FCA), said: “Our supervisory and enforcement approach will be proportionate to the harm – or risk of harm – to consumers, with a sharp focus on outcomes. In some cases, firms can expect us to take robust action, such as interventions or investigations, along with possible disciplinary sanctions.”

Much of the concern about possible sanctions around Consumer Duty would be more manageable if the regulator allowed the industry time to adapt to the new rules.

Of course, it cannot allow a situation to develop where the industry is given too much leeway in those early days a er implementation.

However, making immediate sanctions against lenders and brokers would only lead to compliance departments becoming ever more cautious about unintentional rule breaking, and as a consequence building further defensive measures, which will likely require more paperwork and further checks and balances.

Surely, this is not a healthy prognosis? If the industry is constantly in fear of being in breach of Consumer Duty, then those extra compliance protocols, built to further safeguard not just clients, but also brokers and lenders, will in reality just add yet more complexity to the customer journey. ●

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

More of the same in the second half

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f you had to sum up the residential mortgage market in the first six months of 2023 in three words, what would you say? Challenging?

Difficult? Perhaps frustrating, at times?

By the time you read this, we will have reached the halfway mark of the year, making it the perfect time to reflect on the state of the market so far in 2023.

It also gives us an opportunity to ponder what the next six months have in store for us as a sector.

Every broker’s experience will be different, but I would imagine the vast majority have found the resi market relatively tough so far, compared with previous years.

That is especially true of the purchase market, which has suffered most from the undesirable combination of rising interest rates and a cost-of-living crisis.

We only have data covering the first quarter, but we can see the hit to borrower affordability has already dampened purchase volumes.

In fact, if you look at borrower numbers, this is the worst first quarter for purchase lending in a decade, according to UK Finance.

That was to be expected, though.

When finances are tight and rates are rising, buyer confidence begins to dip and there are fewer house transactions.

Avoiding the crash Thankfully, we have avoided a fullblown housing crash – for now, at least – but there is no denying that the market has cooled.

House prices may have risen in April, according to the latest price index from Nationwide, but they are down around 4% from their August 2022 peak. This means brokers have had to plug the shortfall in their revenue with remortgage and product transfer business.

Remortgage activity is also down – by some 10% year-on-year, according to UK Finance – but the number of borrowers remortaging in the first three months of the year is more or less in line with the average of the past 10 years, so things are not as bleak as that number suggests.

Anecdotally speaking, a lot of brokers who introduce to us tell us that they have wri en significantly more product transfer business than remortgage business this year. This is perhaps unsurprising, given that many existing borrowers are facing the same affordability restraints as purchase customers.

In our experience, borrowers opting for a product transfer in the current market do so grudgingly; they don’t like the idea of locking in at a higher rate, but it is preferable to taking the risk of going onto a variable rate.

That’s why, for all the noise surrounding tracker mortgages, the number of borrowers plumping for this type of deal is still relatively small.

What’s ahead?

So far then, while the residential market in 2023 has been challenging, it has been far from a disaster, which is something to be celebrated given the economic backdrop. But where does that leave us for the rest of the year?

That’s difficult to say, and a lot of it will depend on what happens to interest rates and inflation. But overall, the second half of the year is unlikely to be very different from the first.

Markets are pricing in one more base rate increase, taking the benchmark rate to 4.75% later this year. However, that is far from certain given how stubborn inflation has been in the UK. Swap rates have increased noticeably over the past month, reflecting that uncertainty.

As a result, we can probably expect to see mortgage rates creep up as we

LUCY BARRETT is managing director of Aria Finance

enter the third quarter. That said, there is immense competition in the market at present, which will act as a counterbalance to increased funding costs.

This means purchase lending will likely remain subdued, unless inflation drops suddenly and the Bank of England becomes more dovish.

Second opportunities All of this doesn’t mean brokers cannot have a successful year. There remains a huge opportunity in remortgages and product transfers.

The increase in product transfer business naturally means less capital raising, which also opens up a good opportunity for brokers in second charges.

In a rising rate environment, borrowers become increasingly nervous about their outgoings and o en want to consolidate their existing unsecured debts. This is where a second charge loan can help even those who have accepted a product transfer from their existing lender.

This is an increasingly difficult market for borrowers to navigate.

Given the uncertainty surrounding interest rates, those coming to the end of their fixed rates arguably need good advice more than ever before.

Therefore, it’s important we spend the next six months reaching out to our bank of existing clients and helping them navigate the uncertainty. ● June 2023 | The Intermediary

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

The growing problem of rising household debt

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ust when the market thought it was out of the woods for future base rate rises, higher than expected inflation means we could be in line for potentially another four 25 basis point interest rate hikes before the year-end. At least, that’s what the markets appear to be anticipating.

While this spells bad news for those on tracker and discount mortgages, the impact will also be strongly felt by those with a large amount of unsecured credit.

Even before the May rate rise from 4.25% to 4.5%, the average credit card interest rate stood at 20.29% in March – the highest on record, according to the Bank of England (BoE). The average interest rate on overdra s was 21.07% and 7.79% on new personal loans.

Given that some analysts are predicting a base rate as high as 5.5% by the end of the year, we could be in store for further rate rises on unsecured credit – meaning an even bumpier road ahead for those with multiple lines of credit.

Such forms of credit might offer a quick fix to a cashflow problems, but when overused, relied upon or used over the long-term, they can become a problematic and expensive form of finance.

While it might be easy to dismiss this as something not directly affecting the mortgage market, such is the scale of unsecured borrowing and the growing cost of servicing it, that if they have not already, advisers could start to see this impact clients and their mortgage affordability.

The BoE’s latest Money & Credit Report paints a worrying picture.

The growth rate for consumer credit borrowing rose for the fi h

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consecutive month in March to 7.9%, up from 7.7% a month earlier. An additional £1.6bn in consumer credit was borrowed during the month, split between £0.7bn on credit cards and £0.9bn through other forms of consumer credit – such as car dealership finance and personal loans.

Easing the pressure For some homeowners, debt consolidation could offer a way of cu ing not only the number of unsecured payments they make each month, but also the amount they repay, potentially improving their affordability for when they next remortgage. Cu ing the number of payments they make each month could also make the debt more manageable by reducing the administrative burden, and therefore the risk of missing payments.

Prior to the latest base rate rise, around two million households had already missed or defaulted on at least one mortgage, rent, loan, credit card or bill payment in April, according to Which? This is equivalent to a 7.3% missed payment rate, up from 6.5% in April 2021 and 5.2% in April 2020.

As pressure on household budgets continues to mount, debt consolidation constitutes the primary use for a second charge mortgage, and we expect this to continue.

The latest figures from the Finance & Leasing Association (FLA) show 58% of new second charge mortgages were for the consolidation of existing loans during March, with 14% for home improvements and a further 22% for a combination of both loan consolidation and home improvements.

There are a number of reasons why a second charge could prove a be er option for a borrower compared

SUSAN BALDWIN is interim head of lending at Evolution Money

As pressure on household budgets continues to mount, debt consolidation constitutes the primary use for a second charge mortgage, and we expect this to continue” with remortgaging. The urgency to consolidate their debt may be such that the client cannot wait until they remortgage next – potentially in a couple of years’ time if they do not wish to disturb a competitive fixedrate first charge.

Alternatively, it might be that a borrower’s financial situation or credit score has changed to such an extent they no longer qualify for additional borrowing with their first charge lender. They may also face paying a higher rate, due to mounting debt or a recent financial blip that has resulted in some adverse credit.

As with all forms of finance, a debt consolidation loan will not be the right option for everyone, and much will depend on the borrower’s individual financial situation. However, in the right circumstances, it can provide a route for borrowers to get back on track financially in the current climate, offering fixed payments at a time of interest rate uncertainty. ●

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

A useful tool in every broker’s arsenal

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e’re on a mission to make second charge borrowing as normal as walking into a high street bank for a loan, and make equitable charges a well-known and useful tool in brokers’ arsenals.

Seconds fundamentals Second charge loans provide funds to clients by securing the loan against their property which has an existing charge; the equity is then used for a variety of purposes.

Remortgaging can be costly and interest rates have, of course, increased in recent years. But as house prices have skyrocketed in the past few decades and people have equity in their homes, second charge loans are giving landlords, businesses and homeowners the opportunity to access their cash through the equity in their property, while holding onto their fixed rate mortgage or buy-to-let (BTL) deal.

Somo lends on the value of the property, not the borrower profile, so we’re able to get a deal through even if a client has adverse credit or

We know there are landlords who have an appetite to continue to buy or convert property.

A second charge loan could be a good option for them”

their business has a short trading history. For those looking to grow their business, these types of loans can be used for new premises, a fleet of vehicles, a marketing campaign or upgraded IT systems. Nevertheless, the uses of second charge loans are not limited; they can also provide a solution where business debts or bills need paying off, properties need refurbishing or employees’ wages need covering – any business purpose.

Second charge loans can be quick to complete too – we’ve just completed one in 20 days!

Equitable charge loans Our reputation for equitable charge loans is growing and we’re receiving and acting on more and more requests to lend behind other lenders that have a blanket rule of not granting consent, regardless of the situation.

While we write to the first charge lender to ask for second charge consent, lenders and small international banks can reject this.

This may be refused because of the mortgage product a business or individual is tied into, or it could be that they are in arrears on the account.

If a first charge lender refuses consent for a second charge loan, all is not lost. Somo is still able to put the loan on the land registry without first charge lender consent.

We are expecting to see more demand for this throughout the year because of economic uncertainty, banks pulling deals and interest rate hikes.

Ripe for second charge With so much economic turmoil, there is a growing scope for second charge loans, and to a lesser extent equitable charge loans. This year to date, inflation has not declined as

ROB JOHNSON is head of underwriting at Somo

much as the UK had hoped. The Office for National Statistics (ONS) said annual inflation fell less than expected in March, to just 10.1% as opposed to the 9.8% that economists had forecast.

Landlord Today recently reported that the typical monthly interest payments on buy-to-let mortgages have soared by an average 75.7% in the past year, and landlords making a full mortgage repayment each month have seen an increase of 31.6%.

Despite this, we know there are landlords who have an appetite to continue to buy or convert property.

A second charge loan could be a good option for them.

What brokers can do Using a reputable lender, which has experience and a robust approach to underwriting, can add more dimensions to a broker’s business, strengthen their arsenal and positively affect how they operate.

A recent trend report says that, in our industry, the average portion of second charge lending stands at 13.7% of the business.

But at Somo, it counts for around 50% of lending, as it has been designed for almost any borrower profile and scenario. Because of this, we have gathered the knowledge and expertise to put our heads above the parapet and advocate for it.

Although introduced in the 1960s, bridging wasn’t used to its full effect until almost 50 years later, during the Credit Crunch. Let’s not wait this long to take advantage of second charge and equitable loans. We hope they will soon be seen as a standard, and useful, tool in a broker’s arsenal. ● June 2023 | The Intermediary

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Data partnerships and ESG objectives LORENZO TEJADA-ORRELL is chief innovation officer at CLSQ

Intelligent data integrations can help lenders to be more efficient and better equipped to meet ESG objectives

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ith its net zero target, the Government has commi ed to ensuring that the UK reduces greenhouse gas emissions to such an extent by 2050 that the amount of CO2 produced by the country will be equal to or less than the emissions removed.

Households are a big emi er of greenhouse gases, accounting for 26% of total emissions in the UK, on a residency basis. So, as 2050 draws closer, it’s unsurprising that there is increasing momentum in the efforts to make the country’s housing stock more energy efficient.

Over recent months, an increasing number of ‘green mortgages’ have hit the market as lenders try to encourage homeowners to invest in improving the energy efficiency of their property.

One notable recent example is the 0% green additional borrowing product, launched by Nationwide. It will enable up to 5,000 households with a Nationwide mortgage to borrow £5,000 to £15,000 to fund non-structural, energy-efficient home

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improvements, such as solar panels, air source heat pumps, window upgrades, boiler upgrades, cavity wall insulation, lo insulation or an electric car charging point.

There are many other products, launched in the past year that offer an incentive such as cashback or rate reduction to encourage green home improvements. The standard way of measuring the energy efficiency of a home, and therefore whether improvements have been successful, is with an Energy Performance Certificate (EPC), produced following an inspection by a surveyor.

Manual processes However, until recently the problem for lenders has been that in order to find out the most up-to-date EPC on a property they have needed to engage in a laborious manual process.

This is because the only available EPC data feeds have been updated quarterly, providing information that is potentially three months out of date. This has proven troublesome for lenders and has been a major stumbling block in the development of more green-focused products.

This has thankfully now changed thanks to Live EPC, a real-time EPC integration that we have recently launched at CLSQ. Unlike previous offerings, Live EPC offers real-time access to EPC data directly from the official register.

This means, as soon as an EPC assessor submits a new EPC certificate for a property, the data is uploaded and lenders have access to real-time information that can be used for immediate impact assessment of green lending initiatives, new lending decisions and back book analysis.

Encouraging renovation This is an important step in encouraging the development of more mortgage propositions that encourage energy efficient renovations, and it’s a good example of how intelligent data integrations can not only help lenders to be more efficient, but also be er equipped to meet their environmental, social and governance (ESG) objectives.

This is one of the reasons that CLSQ and D-Risk have been named once again as climate partners for Shawbrook Bank, which used the data and insights we provided to complete its quantitative assessment of climate-related scenarios, using the information for its latest Task Force on Climate-related Financial Disclosures (TCFD) Report.

We believe that, by building close partnerships with the lending community, we will help to play a key role in preparing homeowners to prepare their properties to be carbon neutral ahead of 2050. ●

T E C H NO L O GY Opinion

Tech and big data are the future of lead generation

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n recent years, there has been a shi in the way consumers research financial products. The Covid-19 pandemic accelerated the transition towards digitalfirst interactions, leading to increased buyer awareness, and we are increasingly seeing a shi away from physical interactions with brokers and salespeople and towards independent solution-seeking.

While this digital shi has brought greater choice, flexibility, and freedom to consumers, it has also introduced complexity and risk. In addition, the competition between online advertisers desperate to stand out from the crowd has resulted in a decline in respect for both consumer data and the customer journey.

Online ads have become more provocative and aggressive, seeking to drive consumers to marketing landing pages designed to capture contact details – o en in the most deceptive of ways.

Consumers who seek a quote or price are surprised to find themselves treated as sales data and bothered by call centre agents. Our report, Data Control Ma ers, based on a survey of 5,000 consumers, reveals that almost one in three (29%) people have had negative experiences when obtaining online quotes for financial products.

Of those, one in four were unaware that they had to provide contact information when seeking an online quote, and the same number say they wanted an online quote but received a phone call instead.

These issues create problems right across the board. Consumers become frustrated when bombarded with sales calls about products or services in which they have no genuine interest, and exit the sales journey as soon as

ALAIN DESMIER is managing director at Contact State

they can, while financial firms waste valuable marketing budgets on lowquality leads.

Old fashioned So, the financial services industry is moving away from ‘cost per lead’ and towards exclusive retainer and shared revenue partnerships, and as a result, old fashioned lead generators are withdrawing from the market every day because they can’t make the arbitrage of ‘click to form fill’ work at a cost that makes the process affordable for buyers.

The old-fashioned lead gen model is not just financially inefficient, it has significant regulatory implications too. The Financial Conduct Authority’s (FCA) Consumer Duty brings forward long-awaited increased marketing audit requirements.

Regulated firms will have to prove that a consumer has consented to be called before a provider of financial services does so. Capturing, storing and auditing the consent given to be called back is going to become a major talking point.

Key changes must be made Lead generation firms must assist lead buyers in ensuring a fair customer journey, where consumers become leads because they genuinely desire to be. The industry needs marketing partnerships where both sides are accountable for the costs of marketing and outcome of the sale. This way, customers receive information about products or services they are genuinely interested in, while lead buyers avoid wasting resources.

Second, the future of lead generation must go beyond simply matching consumers with lead buyers.

It should actively offer consumers the next steps for their inquiry.

Financial service firms need to enrich the lead generation journey by including underwriting questions so that brokers or providers can guide consumers in their decisionmaking process.

For too long the only two routes available to a consumer have been to fill in a lead gen form and wait to be harassed by a salesperson, or to spend hours filling in very long question sets to buy online. Firms and brokers that strike a balance will win.

Equipped for change The survival of the lead generation industry rests on change. Some customers like to speak to a broker, others prefer going online to compare quotes and make purchases without seeking advice. Firms should be equipped to assist both. For instance, if a lead is received for basic term life insurance with no interest in advice, the customer should be directed to an appropriate purchase path.

The biggest missed opportunity for the vast majority of businesses working with consumer data is business intelligence, the scoring of lead data and understanding the propensity to buy of each consumer.

Through shared revenue models built on data-driven technology and analytics, financial firms will be able to gain a full and reliable picture of their customer’s journey, which will increase their own efficiencies and enable them to make more informed strategic marketing decisions.

Ultimately this is still lead gen, but not as we know it, and those that resist change will get le behind. ● June 2023 | The Intermediary

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T E C H NO L O GY Opinion

The importance of having an ESG strategy

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t is becoming increasingly important for organisations to have an environmental, social and governance (ESG) strategy, as it demonstrates a commitment to sustainable and responsible business practices.

Having a clear strategy in place allows businesses to track activity and drive change in line with their ESG goals, to achieve positive impacts and outcomes. A strategic approach helps businesses break down long-term goals into manageable activities over a number of years in order to take action to achieve future goals and outcomes.

As an example, we have recently begun to work through our carbon emissions reduction plans in detail for the next five years.

At Phoebus, we have always had a strong corporate social responsibility (CSR) ethos, which has now been upgraded to a comprehensive ESG strategy. ESG is extremely important to us as a so ware provider of banking servicing platforms to a wide range of banks, building societies, specialist lenders and third-party servicing firms. But all organisations should have an ESG strategy.

Good governance Many clients, investors, employees and regulators are now seeking reassurance that firms are addressing environmental and social issues while maintaining good governance.

ESG provides a competitive advantage, as clients are increasingly making purchasing decisions based on a business’ ethical and sustainable practices. By adopting and promoting an ESG policy, firms can differentiate themselves from their competitors, a ract environmentally and socially conscious customers, and enhance their brand reputation.

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It can also help with risk management, enabling firms to identify and manage potential risks associated issues such as climate change.

If firms are looking for investment, many investors now also want to see evidence of robust ESG practices.

In addition, Government and regulatory bodies are increasingly mandating ESG reporting and disclosure requirements. Having a well-defined policy helps firms comply with these regulations and ensures transparency.

A strong ESG policy can also contribute to employee engagement and satisfaction, a racting and retaining talented individuals motivated by purpose and social responsibility.

At Phoebus, ESG is part of our DNA, and we champion transparency, integrity, while counting every voice and making a positive impact where we live and work.

We published our first ESG Report in December 2022, which openly reflects our progress in achieving sustainable growth for our clients, colleagues, the environment, and the communities we operate in.

We’re proud to share how we are embedding ESG principles.

ESG strategy Phoebus’ ESG strategy has four strands: Climate: stepping towards a sustainable, low carbon future.

Community: ensuring all parts of society benefit from the wealth and growth of our industry.

People: ensuring every individual can see a place for themselves.

Governance: ensuring robust processes and accountability to drive action on ESG targets.

KATE LANGTON is chief people officer at Phoebus Software

Phoebus has been carbon neutral since 2010, and we are commi ed to becoming net zero by 2030. We partner with Positive Planet, which measures carbon emissions and facilitates offse ing. We’ve digitised our carbon footprint by capturing all the relevant data across our locations and creating a dashboard that helps us to maintain a running tally of our carbon emissions and reductions.

Colleagues within Phoebus are a major focus, and they embrace our ESG policy. An internal Green Team was formed last year, which champions positive environmental activities. It meets regularly and communicates to the wider business on progress of carbon zero plans.

We also have a charity commi ee internally that focuses on events and fundraising, as well as volunteering and engaging our colleagues with our charity and community work.

Each year we choose a charity, and colleagues are also encouraged to fundraise for their own good causes.

Phoebus has a long track record of supporting our communities through corporate giving, employee volunteering and industry-academia partnerships. Our people are at the heart of our business, and we have many benefits, awards, and career progression opportunities.

Governance is key, ensuring firms securely manage data to protect their organisation and the privacy of their clients, which is vital, particularly for a technology company.

No ma er how small or large a business is, having an ESG policy brings many advantages. It is not just a ‘nice to have’, it is a must have in today’s business world. ●

T E C H NO L O GY Opinion

Coming soon to a business near you…

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ou may have seen an interesting development in the introduction of artificial intelligence (AI) in the press recently. It was reported last August that NetDragon Webso – a Hong Kong-based online gaming firm with $2.1bn (£1.7bn) in annual revenue – appointed a new CEO to run its flagship subsidiary.

The new chief, whose name is Tang Yu, has the usual roster of duties associated with such a position – assessing opportunities, understanding risk, analysing data – you get the picture.

But this appointment was different.

Tang Yu is an AI-powered robot that works 24 hours per day and does not require payment.

The world is watching, of course, to see how this turns out in a business that arguably involves a binary understanding of risk conducted at scale. It is interesting that since the appointment – if I can call it that – the business has reportedly outperformed Hong Kong’s stock market.

Artificial intelligence is an existential threat to our way of business. McKinsey Global Institute recently said that more than 100 million workers, or one in 16, will need to find a different occupation by 2030 in its post-Covid scenario. This is 12% more than estimated before the pandemic, and up to 25% more in advanced economies. This may still be an underestimation.

Moving at pace I am reminded of the journey of most successful technological innovations.

We spent hundreds of thousands of years being unable to fly, yet from the Wright brothers’ achievement in 1903 to the development of supersonic flight took only 50 years.

We should expect this technology to move with equal pace.

So, what does this mean? When it comes to understanding business risk in mortgage lending, this kind of move prompts two thoughts: how will the lender of the future add value if everything is binary, and how is that added value monitored so it does not increase unforeseen risk?

If the decision to lend is conducted in a binary environment, then pricing wins. It is a commodity play. If criteria and flexibility – which can also be automated to a degree – are the key added value areas, then automation may still win if the risk of losses can be mitigated by scale. We have seen this in the current level of automation in the big six. However, if complex elements of a decision mean making judgement calls that involve human ‘sense’, then experience and expertise have a place in delivering value.

AI has not mastered clemency, compassion or any of those other features of nuance yet. The second point then becomes: how do we know that what we have decided to enact at a policy level is exactly what is happening on the ground?

At that point I would point you to our Mortgage Control Framework, which is designed to deliver exactly that oversight in terms of ensuring boardroom risk appetites and directives are being followed to the le er.

The third danger is, of course, that in the rush to implement some of the perceived cost savings to be found in implementing this kind of decisionmaking, risks are taken that again are neither fully understood nor even realised.

This will happen, and executives and their boardrooms must understand that what they have – and the place to which they are going – is a controlled move that does not cede competitive advantage, but also does not unduly increase risk. Otherwise they may find themselves meeting their own Tang Yu moment. ●

TONY WARD is non-executive chairman at Fortrum

Artificial intelligence is an existential threat to our way of business”

AI has not mastered clemency, compassion or any of those other features of nuance yet ILLUSTRATION AI GENERATED

June 2023 | The Intermediary

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Q&A

David Smith, 360 Dotnet

David Smith, commercial director at 360 Dotnet, discusses the potential for a joined-up, cohesive market, and the tech needed to make it happen

How long have you been with the business, and what drew you to 360 Dotnet?

I have been in the industry for 35 years but joined the team over a year ago. I have been a friend of 360 Dotnet and worked closely with the team in different capacities for the past decade.

What initially captivated my interest in the business was its reputation as an exceptional innovator and market leader. It launched the UK’s first online customer portal – a great innovation – and it has grown steadily since.

I met with the board last winter and they were ready once again to break all the rules with new transformations, lead some new UK firsts, and I found that exciting. I am a disruptor by nature, and what we are building now is disruptive.

We are developing the UK’s first entirely configurable fact-find. Pen and paper have been the tool of choice for brokers since my career started, because it is the most configurable piece of technology you can ever come across – you can write whatever you want.

When it comes to a digital fact-find, you get given whatever the firm has built, and you cannot customise it or put your own questions in.

What we have been creating for the past year and a half is that pen and paper flexibility, entirely configurable, but digital.

It is clever stuff, and it is disruptive, and that is why I wanted to be part of delivering it.

Do you foresee a time where everything will be automated, or even AI-led, in this market?

I have always said robo-advice will not be around in my lifetime. I am a big advocator of a hybrid approach – humans aided by technology. However, I am slightly changing what I think.

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DAVID SMITH

Many brokers look at the front end, but often forget there are other aspects needed to run businesses, like the accounts functionality, marketing, or compliance”

Q&A

For a certain segment of the market, and for certain transactions – the most vanilla – we are probably closer than we have ever been to full automation through a series of technologies.

However, we are seeing fewer vanilla transactions. We are all unique, with different baggage, and that individuality is a barrier.

Even with more creative programmes like ChatGPT, these systems cannot innovate. They are only as good as the data that is being fed into them. Deep Blue could beat Kasparov at chess, but it could not invent the game of chess – only humans could do that.

What are some of the challenges facing the market?

The current process is protracted and long, with too many repetitive procedures for the end customer. They have to repeat information multiple times, pay high costs for in-person valuations – there are all these parts of the process at the moment that are too expensive, bad value or not joined up.

The capabilities already exist for us to remove that, but the competitive nature of the market does not allow for a joined-up approach.

Different elements do not communicate with each other, and it is a drag on response time.

Surely, we can join the processes up and make it easier – but the sectors, like brokers, lenders, the Land Registry, and conveyancers, are siloed.

There is no easy solution, but ideally we could fold in a multi-agency approach, which in turn fosters more innovation and creativity.

The tech and the systems are there, and we need to implement them.

This is particularly true when it comes to risk teams – they are very conservative, and that means missing out on opportunities or innovation, or chances to bring those cohesive elements together.

What makes 360 Dotnet stand out?

If I was a mortgage broker firm, what would I want from my tech stack? I would be looking for something with scale and breadth to its functionality. Many brokers look at the front end, but often forget there are other aspects needed to run businesses, like the accounts functionality, marketing, or compliance.

You want to choose a platform that has those business elements to it as well, more than just helping you source a mortgage initially. This is something that we do very well.

Surely, we can join the processes up and make it easier – but the sectors, like brokers, lenders, the Land Registry, and conveyancers, are siloed.

There is no easy solution, but ideally, we could fold in a multiagency approach, which in turn fosters more innovation and creativity. The tech and the systems are there, and we need to implement them”

Any final thoughts on the market at the moment?

This is still a great job, and a really good space to be in. We have millions of customers and we do something that is delightful – we help people build a home for them and their family, gain safety and security, and that is a wonderful thing to be involved in.

In every industry there are going to be bad days, but we are at the end of it where we make people happy and we help them purchase their dream home, provide them with that emotional connection of buying a home or moving, which can be such a joy in life.

Being part of that is fantastic. We are a joyous industry, and there is so much for us to do, I would recommend to anyone to join the mortgage industry. ● June 2023 | The Intermediary

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

The impact of changing customer behaviours

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lthough last month’s data showed that inflation is beginning to slow down, with rates dipping below double digits for the first time since October, the costof-living crisis continues to have a significant impact on household finances. As a result, equity release is experiencing a shi in customer behaviours, as a growing number take stock of their finances, including the wealth tied up in their homes.

Customers are increasingly looking to release equity from their homes to meet their own needs, rather than to support lifestyle wants or gi to others. Our data shows that in 2022, a fi h of customers released equity to help with day-to-day living expenses, while 16% consolidated their unsecured debt. So, what does this mean for advisers?

This will not only influence how advisers advise their clients – many of whom may be financially vulnerable – but it will also impact how they conduct their business.

New and existing customers will likely need more ongoing support to ensure the implications of requests to access further funds are properly understood, and that good outcomes are secured.

As a result, advisers will need to be extremely vigilant, considering affordability to ensure optimal customer outcomes, as well as spending time explaining the impact of higher interest rates on mortgage debt.

Impact of Consumer Duty This will become increasingly important as Consumer Duty comes into effect at the end of July. The aim of this is to set higher and clearer

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standards of consumer protection, requiring firms to act proactively to deliver good outcomes for customers at all stages of the journey and for the lifecycle of the product. As a result, advisers will need to consider taking additional steps to meet the standards required and how they define value for their clients.

While some firms are still working through the details and necessary processes required for the July implementation date, over the long term these steps will drive opportunity as the industry comes together to deliver be er outcomes.

Evolving relationship The implementation of Consumer Duty – combined with the shi we’re seeing in customer behaviour as a result of inflationary pressures – presents an opportunity for advisers to reevaluate how they interact with their clients.

Advisers have an increasingly important role to play in encouraging their clients to think about their wants and needs throughout the different stages of retirement, and in helping their clients understand the solutions available to suit their evolving individual needs.

Advisers will need to foster an ongoing relationship with their clients, understanding their evolving needs at every step of the journey, whereas traditionally the equity release adviser-client relationship has been transactional.

We know from our Fair Value Research, conducted in March 2023, that the majority (90%) of consumers with an equity release product place high importance on communication from providers. This demonstrates the need for regular communication and touchpoints throughout the journey

SADNA ZAMAN is proposition development manager at Canada Life Home Finance

Advisers will need to foster an ongoing relationship with their clients, understanding their evolving needs at every step of the journey, whereas traditionally the equity release adviserclient relationship has been transactional” from both advisers and lenders, who will need to continue to consider how they support this.

The future Looking ahead, we need to encourage people to think about their wants and needs throughout the different stages of retirement, and kickstart these conversations early on.

Advisers have a crucial role to play in helping their clients understand the solutions available to them during their later life. It is our duty as an industry to support customers and advisers through the good times and the bad, so they can adapt as their needs evolve over time. Consumer Duty will provide us with an opportunity to reflect on our practices and continue to make changes that put customers at the heart of the process – and ultimately result in be er outcomes for all. ●

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

Different views on fair value

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f the four outcomes that the Financial Conduct Authority (FCA) is seeking to achieve via Consumer Duty, fair value is arguably the one that has caused the most debate. There’s the simple fact that most advisers in this market can clearly see the benefits that the advice and choices they support deliver to individual customers, but value is subjective.

The great debate If you asked a Manchester City fan and an Inter Milan Fan whether the £500 they had each paid for their seats at the recent match at the Ataturk Stadium was value for money, you may find that you received very different answers. Same venue and match, but very different views.

So if value is subjective, it is perhaps worth understanding how the FCA defines it. In relation to the fair value outcome of Consumer Duty, the FCA is looking for firms to assess whether the total price paid is reasonable in relation to the benefits. It expects firms to consider many factors,

including costs, benefits, and utility to customers as well as market rates for comparable products.

Looking at how it has approached the question of pricing more generally suggests that its expectations are high.

Assessments need to be data-driven, with frameworks sufficiently flexible that they can accommodate the different products as well as services offered by a firm, while providing a degree of consistency.

Core topic It is therefore perhaps unsurprising that this topic has led to debate and discussion, as firms, networks, lenders, and trade bodies seek to define what this means in practice – for themselves and their members, as well as their business models and charging structures.

As part of Air’s commitment to supporting advisers, we are looking to facilitate this debate by making Consumer Duty a core topic at our National Later Life Lending Adviser Conference which takes place at the end of June.

However, as we head towards this date and then the subsequent

Most advisers in this market can clearly see the benefits of the advice they deliver

PAUL GLYNNE is CEO of Air Group

introduction of Consumer Duty at the end of July, there are some choices that firms will need to make. Given the specialist nature of the advice, I don’t think anyone is arguing that the fees should not be higher in this sector than in the residential market. However, we do need to look at the status quo to ensure we are comfortable that business models are robust, and anomalies are not going to trip us up.

Fair value Higher value cases are a perfect example. They can take more time – especially when they are driven by the desire to mitigate inheritance tax and boost gi ing – but just how much more time does a firm spend on a £100,000 case versus a £500,000 case?

Given the fact that the FCA is expected to consider cost allocation as well as the revenue allocation – namely, the direct costs of providing the product or service, compared with a scenario where the product may be ‘free’ but the customer may pay via other means such as higher interest – this is a tricky question that firms need to be able to answer, and defend these answers.

Speaking to advisers, networks and firms, I know that fair value is something that the industry is currently wrestling with – and it is something that is unlikely to be entirely put to bed by the introduction of Consumer Duty. However, as an industry, if we work together and take positive steps, this will help us to clearly illustrate to the regulator what our customers already know, our service is top class and can change lives for the be er. ● June 2023 | The Intermediary

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

Keep calm and step up

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aving successfully navigated Covid-19 and weathered the September miniBudget, those of us operating in the residential property market might be forgiven for needing a stiff drink following the higher-than-expected inflation figures announced at the end of May, which once again created shockwaves through the sector.

Whether it was tea, coffee, or something stronger, taking a moment to reflect and introspect before returning to face into the implications of this unwelcome news was probably a wise course of action.

Fundamentally, we are here to help our customers make the right choice for their individual circumstances.

Whether they want to buy their first property, move to their forever home or release equity to achieve their wants and needs in late life, our role is to use our expertise and knowledge to meet these objectives.

Achieving good outcomes for our customers has always been the foundation of how advisers operate, but Consumer Duty requires us all to apply an even sharper lens to how our service propositions and specific recommendations align with customer requirements, both long and short-term.

This isn’t always easy – particularly in a challenging market environment.

However, it is our responsibility to have these hard conversations with customers, to explain why what was once possible is now impossible or unlikely, and to turn business away.

That said, our role is also to provide reassurance and to instil confidence.

Never more than now have customers relied on our specialised knowledge and expertise to provide context and advice. With tabloid headlines suggesting that mortgage deals are being pulled as rates skyrocket, you can understand the

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WILL HALE is CEO of Key Group

Now is the time to ensure clear heads prevail

nervousness of some customers and the need for calm heads.

Not the 1990s It is true that rates are much higher than the historic lows we have seen for residential mortgages, and affordability is now an even bigger challenge as homeowners look to manage their borrowing as well as the cost-of-living crisis.

We are also likely to see the Bank of England base rate increase in the short-term as the Government continues to try to manage inflation and – for the later life lending market – gilts rates are also impacted.

However, we are far from what we saw in the ‘90s, when interest rates hit an eye-watering 15%. Indeed, Moneyfacts suggests that you can still get a 5-year fix for 4.03% and our own internal figures showing that equity release mortgages are starting from just under 6%.

Certainly, in the context of the equity release market, this is not mini-Budget Version II. Lenders appear be er prepared for the market volatility, with product withdrawals replaced by prudent adjustments to rates and loan-to-values (LTVs).

While later life lending advisers’ jobs have become harder, customer

demand is strong and the long-term growth drivers are intact. We must scrutinise our business models and adjust, but ultimately there are plenty of customers for whom we can deliver good outcomes given the products that are available to us.

Innovations have meant that customers can choose to make repayments to mitigate the impact of compound interest, which can be particularly important in this high-rate environment. Fixed early repayment charges (ERCs) which finish in as li le as four years have created the opportunity to rebroke when rates fall, and a lifetime mortgage no longer has to be for life.

Indeed, as mortgage brokers see more older customers who are stuck on expensive standard variable rates (SVRs) or are struggling to remortgage, equity release can provide options where few other alternatives are available. As later life lending advisers, now is the time to reach out to introducers and build awareness of the current terms available while dispelling lingering myths and misconceptions.

Equity release is not right for everyone. However, it is more important than ever that we continue to break down the siloes between advice in the residential and later life markets to ensure all customers gain a clear idea of all their options and the potential outcomes they can expect.

We understand the value of good advice in a tough market, so let’s step up and clearly show this to our customers, as well as those who continue to underestimate us. ●

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

The next step in truly holistic retirement advice

C

onsumer Duty has been a central focus for businesses, advisers and the media ahead of its launch this summer. Its impact is to be felt most by consumers, who will benefit increasingly from later life lending solutions due to a greater emphasis on holistic advice to help people meet their needs in retirement.

The new regulations seek to drive enhanced consumer outcomes across the financial services industry.

Lenders, product providers and advisers are working hard together to prepare, pu ing measures in place to ensure they are complying in the best interests of customers.

Consumer Duty provides an opportunity for both providers and advisers to evaluate their approach.

Is their advice fit for purpose, easy to digest and tailored to the customer’s individual needs?

Collectively, the industry needs to make sure that holistic financial advice is provided, presenting all available options and actively ruling out products that don’t apply to the customer. For advisers, there is the chance to broaden the range of products they advise on and gain additional qualifications. This will also open doors into the specialist sectors, where there is a demand to meet changing consumer needs and specific individual circumstances.

Shifting attitudes The home is a substantial asset for many and can play a key role in helping customers nearing or at retirement achieve their later life goals. With longer life expectancies and the need for pension pots to cover greater costs, Consumer Duty comes at a time when a itudes towards

property wealth are already shi ing from being part of a traditional inheritance, to being part of modern financial planning. Value in the home can be used to provide support through gi ing to loved ones, making long-term home improvements and supplementing income.

Diverse products The equity release market continues to flourish, with the Equity Release Council (ERC) reporting record activity in 2022, with 93,421 new and returning customers choosing to access their property wealth via equity release products. Up 23% year-on-year,

As a result of Consumer Duty regulations, we anticipate that advisers will increasingly look to onboard new skills, building their credentials” this is the highest rate of growth since 2018, according to the ERC’s market statistics released in January 2023.

In line with growing demand, there is now a diverse range of products available that cater for individual needs, which can help to supplement smaller pension pots and manage longer life expectancies.

The lifetime mortgage market already has some of the most stringent safeguards in place to protect customer outcomes. As a result of Consumer Duty regulations, we anticipate that advisers will increasingly look to

DAVID JONES is distribution director at Legal & General Home Finance

onboard new skills, building their credentials to provide a complete range of solutions to their clients.

With such a wide range of products now available across the market, and continuing to grow, qualification specifications are changing. It’s going to be even more important for advisers to have a strong network of referral relationships in place, whilst they consider further steps to advise on the full spectrum of later life lending products available.

It is important to note that while advisers are increasingly looking to later life products, some solutions are still sometimes discounted, and we hope that Consumer Duty regulations will hopefully help address this by prioritising consumer needs, ensuring they are given the best holistic outcomes.

To support advisers, we have our Adviser Academy, which not only supports professional development in later life planning, but encourages more advisers to become qualified and broaden the range of products they can advise on.

In addition, our Later Life Mortgages Portal caters for adviser needs and their wide customer base, designed with adviser feedback in mind. Legal & General has supported more than 200 advisers since entering the lifetime mortgage market in 2015.

Consumer Duty is hopefully the next step for providers, advisers and consumers in offering a holistic retirement journey, which takes into account the diversity of people’s circumstances. ● June 2023 | The Intermediary

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L O C A L FO C U S Milton Keynes

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 ...

Milton Keynes

I

n light of recent challenges, potential buyers in local authorities across the country have been struggling to make sense of the property market.

With a mortgage sector encumbered by rising rates, the growing cost of living, and what many see as political mismanagement, getting a foothold on the property ladder is more difficult than ever. This is before borrowers even start to face the recent spate of fast-paced product changes and withdrawals as they try to pin down a deal.

MILTON KEYNES PROPERTY PRICES Price

Milton Keynes

England & Wales

 AVERAGE

£379k

£362k

 MEDIAN

£340k

£276k

COST OF NEW HOMES AND OLDER HOMES  NEWLY BUILT PROPERTY

£426k

 ESTABLISHED PROPERTY

£377k

COST COMPARISON OF HOUSES AND FLATS

84

While it is fair to say that the market in Milton Keynes is no stranger to these familiar headlines, things may not be as bad as they might appear.

Often cited as an area with one of the fastest developing markets in the UK, Milton Keynes’ property sector has gone from strength to strength over the past few decades.

This month, The Intermediary sits down with local property professionals to reflect on the trials and tribulations of the past few months, and to explore how this has affected the mortgage market in the local area.

 DETACHED

£569k

 SEMI-DETACHED

£355k

 TERRACED

£298k

 FLAT

£179k

The Intermediary | June 2023

Current values The average property price in the Milton Keynes postcode area is £379,000, while the median price sits around £340,000. This is compared with an average and median of £362,000 and £276,000 in England and Wales overall.

The average price in the area has increased by over £24,200 (7%) over the past 12 months, most likely as a direct result of the ongoing market turmoil that has been ever-present since the mini-Budget last autumn.

The most affordable place to buy within the postcode is in ‘MK9 3’, where the average price of a property sits at around £183,000. The most

JESSICA O’CONNOR is a reporter at The Intermediary

expensive place to purchase is in ‘MK18 5’, where a property can fetch up to £679,000 on average.

The average detached property in the area costs around £569,000, while semi-detached homes boast an average price of approximately £355,000.

Terraced homes in the postcode cost an average of £298,000, with the average price of a flat coming in at around £179,000.

Growing market The property market in Milton Keynes has long been regarded as one of the fastest growing markets in the country.

Last year, approximately 1,795 properties within the £300,000 to £400,000 price range were purchased in the area. The second most common price range was found to be between

New developments Due to the area’s popularity with commuters and young families, Milton Keynes’ new-build market has become particularly prosperous.

The price of an established property in the area is approximately £377,000, while the price of a newly built property is over £426,000, demonstrating a clear demand for newer homes from the buyers in the area.

According to Hiten Ganatra, managing director of Visionary Finance, the popularity of new-build properties among Milton Keynes’ buyers is undoubtedly reflected in its housing stock. He notes that there are a number of new large-scale developments in the area, including the Whitehouse Park Development, where nearly 4,000 new homes are currently being built.

“More than 11,300 homes have been built in Milton Keynes in the last five years alone,” he reports.

ES

BY

PRICE R

SA

L

Calculated buyers

AN

GE

£250,000 and £300,000, which saw more than 951 properties sold.

Established as a London commuter town in the 1960s, the area attracts many young professionals looking to settle further away from the capital without losing the chance to be close to working hubs.

This proximity to London, according to Dean Jacobs, director at Allegro Mortgages, is what makes Milton Keynes a hotspot for potential buyers.

Jacobs notes that the average price in the area has risen rapidly over the past few decades, recently spurred on by the growing popularity of remote working since the advent of the Covid-19 pandemic.

As an area that boasts a wealth of transport links both by car and train, as well as good schools and new housing developments, Jacobs says that Milton Keynes is an ideal location for both steadfast London commuters and hybrid workers alike.

With many offices and multinational businesses choosing to establish hubs in the area, Ganatra predicts that development will not be stopping any time soon, as building targets only continue to increase.

Despite the area’s continued success over the past few decades, it is clear that the recent uncertainty within the mortgage market has taken its toll.

While there were more than 6,300 property sales recorded in Milton Keynes over the past year, annual sales dropped by a substantial 33.7%, marking a decline of more than 3,500 individual transactions.

Ganatra says it is evident that people are reluctant to buy in the current climate, due to anxieties surrounding the state of the market.

He says: “People want to hold back and wait and see what happens with interest rates.

“There is so much volatility in the market right now and I personally have never known it to change so quickly.”

Kerri Chapman, mortgage and protection adviser for Mortgage Advice Bureau, also →

PROPERTY SALES SHARE BY PRICE RANGE Price range

Market share

Sales volumes

● Under £50k

0.2%

11

● £50k-£100k

2.5%

157

● £100k-£150k

4.3%

272

● £150k-£200k

6.9%

439

● £200k-£250k

9.8%

623

● £250k-£300k

15.0%

951

● £300k-£400k

28.4%

1.8k

● £400k-£500k

13.9%

881

● £500k-£750k

14.3%

907

● £750k-£1m

3.0%

188

● Over £1m

1.6%

104

Milton Keynes Residents

565k Average age

39.2

Residents per household

2.5

www.plumplot.co.uk Data source: www.gov.uk/government/statistical-datasets/price-paid-data-downloads

June 2023 | The Intermediary

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L O C A L FO C U S Milton Keynes

Dynamic and strong in a volatile market DEAN JACOBS is director of Allegro Mortgages

T

he housing market in Milton Keynes is very dynamic and is a hotspot for above average income earners due to the close proximity to London from the train station, great schools and also hybrid working.

The average house price has increased quickly over the last decade, with Buckinghamshire being one of the fastest-rising areas in the UK. The first-time buyer new-build market is vibrant at certain price points, especially below £300,000 as the lower-level deposit and even higher interest rates means that the mortgage payments are still affordable to most households.

The new-build market has also become very creative with the incentives that can be offered to entice new buyers. For example, a 5% gifted deposit to help clients achieve a better loan-to-value (LTV) ratio and therefore better rates, and even mortgage subsidies to help clients with costs of their mortgage payments for a set period, offering incentives such as £500 per month for the first two years of the mortgage.

This year has been the year of the remortgage, which has seen a surge in our business as clients are looking to take action sometimes up to 12 months in advance of their current mortgage product coming to

notes a marked slowdown of late.

Affordability for buyers is the main issue at play here, with people being priced out as lenders’ stress rates continue to climb.

However, despite this slight reticence from potential buyers, Chapman says that the remortgage market in the area remains strong.

Jacobs agrees, stating that he has seen many clients become more proactive amidst the continued market turmoil, with many taking action up to 12 months in advance of their current mortgage product coming to an end.

Struggling landlords When it comes to the buy-to-let (BTL) market, investor reticence continues to pervade.

Landlords across the country are struggling to make ends meet and rental prices continue to soar, even as potential renters desperately seek out more affordable housing.

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an end, and are keen to secure a new product. The remortgage market is a massive, multi-billion pound opportunity, and it’s no surprise that clients are rushing to secure a new rate in what has been a volatile few years in the mortgage market, a volatility that looks set to continue for the rest of this year and possibly into 2024.

Lenders have been particularly poor at giving sufficient notice for rate increases, sometimes as little as two hours, or even sending communications on a Sunday that come into action on Monday morning, giving advisers and clients little time to react. This has not been received well across as the industry and has caused undue stress and pain to all!

The press has been reporting poorly on this matter too, which has led to numerous clients having concerns that their mortgage offer may be withdrawn or subject to rate increases due to the terminology being used in the press.

The buy-to-let market has suffered badly during the last 12 months, with soaring interest rates and buy-to-let stress tests making it difficult to execute on a new buy-to-let purchase, other than exceptionally high yielding opportunities or where a much larger deposit is required.

I really feel for landlords, as they are being forced to remortgage or switch to much higher rates, more than double in some cases, than they have planned for as part of their business plan and cashflows for their portfolio, which completely destroys value in what used to be an exciting sector of the mortgage market.

Private rental properties make up 16.8% of Milton Keynes’ housing stock – a substantial figure when compared with the national average of 19.2%.

Nevertheless, despite a historically healthy appetite for rental properties, there has been a noticeable lack of BTL business recently.

According to Chapman, this slowdown can largely be attributed to the rising cost of mortgage repayments, as many landlords have found themselves struggling to keep up with costs. As a result, many landlords have been forced to hike up rental costs, or worse, sell up and leave the market altogether.

She fears that this may have a knock-on effect on the amount of housing stock available in the area, resulting in further shortages in an already challenged sector.

Upward trajectory As a young, developing city, Milton Keynes certainly has no shortage

of investment opportunities for potential buyers.

Regardless of current market challenges, the area’s historical capacity for growth is evident.

Even as a relatively new city, it has shown its capacity to face down current economic headwinds, as the area continues to grow apace with plenty of new housing developments popping up across the postcode.

Despite a market currently plagued by cautious buyers and struggling landlords, Milton Keynes’ status as a prominent London commuter town with great transport links ensures its ongoing popularity.

With many large businesses both within this market and without – including names such as Red Bull, Santander and Gatehouse Bank – selecting the area as a place to call home, it is evident that the property market will weather current storms, continuing its decades-long growth trajectory long into the future. ●

L O C A L FO C U S Milton Keynes

High demand will drive up prices in city HITEN GANATRA is managing director at Visionary Finance

T

he housing market in Milton Keynes is pretty strong and we are seeing plenty of demand and activity. Milton Keynes has incredible rail links and is well positioned for major UK cities, such as London, Manchester and Birmingham. This makes it a really attractive proposition for buyers looking to get more for their money.

We are seeing lots of young professionals and families moving to the area from places like London, because at £350 to £400 per square foot, it offers better value for money than something similar in parts of London, which would cost upwards of £1,000 per square foot.

This appeals to those buyers commuting to London, as they can retain their London income and still get the fast train from Milton Keynes within 30 minutes. The big punch is obviously that the cost is higher than commuting within London.

In terms of housing, there are a lot of large national developments being built in Milton Keynes at the moment, and if you look at the amount of planning permission that is being granted, you can see there is a significant number of renewable homes and office developments going up as well.

The biggest challenge at the moment is the availability of decent stock. Although affordability is

less of an issue for people on a London salary, increased demand coupled with a shortage of supply threatens to drive up prices. Ultimately, this will have a negative impact on affordability levels.

There are a couple of new large-scale developments in the area, including Whitehouse Park, and another on the outskirts of the city, close to the M1. Many offices are starting to locate here too, which is increasing building targets.

Appetite is certainly there, particularly for those wanting to purchase property around the £700,000 to £800,000 mark. What is putting them off, however, is affordability and interest costs, which have gone up significantly over the past nine to 12 months.

In many of these situations, it is not that the client cannot afford the mortgage, but whether they want to afford it. So, while I would say that there is certainly an appetite for residential mortgages, there is also a degree of reticence.

Strength in buy-to-let

The buy-to-let market is really strong. Landlords in Milton Keynes are finding that the yields are working really well and are still keen to invest.

Landlords are paying a lot less for new freehold stock that can be well insulated and double-glazed, which is particularly attractive when compared with the majority of older-style leasehold properties typically seen in London.

Admittedly, we are not seeing new landlords entering the market, but we are seeing those with established portfolios looking to expand.

Private rental section under strain KERRI CHAPMAN is mortgage and protection adviser at Mortgage Advice Bureau

T

he housing market is still strong in some areas, but we have a lack of first-time buyers and investors. With the ongoing mortgage rate increases, we have noticed a lot of potential buyers are either staying put, or first-time buyers are staying with parents due to increases to the rental market Remortgage customers are still very consistent.

Product transfer has increased over the past few months, with a lot of lenders offering existing customers competitive rates.

At the moment, my biggest challenge is placing buy-to-let business, due to the increase in the lenders’ stress rates – affordability is an issue.

There is a large development of more than 4,000 homes being built between Newport Pagnell and J14 M1 Milton Keynes. There are always major developments being planned in Milton Keynes.

The residential mortgage market has been volatile over the past few months. At the start of the recent rate increases there was a dip in appetite, and then it picked up again.

With recent interest rate rises, the buy-to-let market has been a challenge. A lot of investors are feeling the pinch, and with the combination of rising rates and the unfavourable tax changes, we are seeing more investors selling.

We are beginning to see the market slow down and properties are selling for under the sale price, this is quite a different market from 12 months ago.

Investors have been selling due to large increases to mortgage payments. This will have an effect on the amount of property available, potentially causing a shortage in the already challenged rental sector.

June 2023 | The Intermediary

87

Q&A

Daniel Hobbs, New Leaf Distribution

Daniel Hobbs, managing director of New Leaf Distribution speaks about choosing the right network, market challenges, and nurturing customer journeys Can you introduce yourself and New Leaf, for those who might be unfamiliar?

New Leaf is 22 years old – it’s one of the oldest networks. It’s a family business, started by my dad and providing professional training. I joined in 2009 and became managing director of the network in 2017.

We’re well known for the training piece, as that’s still part of our core culture, and as a result we’re well known for helping new advisers into the industry, whether or not they go on to join us.

Over the years we’ve built a very nice, experienced group of firms that have joined us.

They tend to stay for a long time, partly because of the culture we have as an independent family business. We’re not massive, we’re more bespoke and specialist as a network, and we give people the opportunity to do what they want within that framework.

There are lots of good networks to choose from, but the reputation we have of being more bespoke is something people value – advisers generally don’t like to be just another number, and we really do know every member’s name. We are really with them, helping them build their business.

How do you recommend choosing a network?

When someone’s brand new, one of the big things to consider is the areas available to them – many don’t realise when they get started that joining a network doesn’t necessarily mean getting access to the product lines they might want later on in their career. They then either have to leave and find somewhere else, which can come with logistical problems, or set up a second business with another network, which can lead to confusion, and double the network fees.

Before getting started, advisers should really think about what they want to do, and check what each network is able to provide.

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The Intermediary | June 2023

The other thing that’s important to consider is how the networks run their business, whether they are independent, privately owned or funded by institutional investors or providers.

There are different models, and there’s no problem with that, but you have to bear in mind whether you might essentially become a salesperson for a particular provider.

Are you going to be unbiased, unrestricted?

Some new advisers don’t realise they might be given only four or five advisers to use for protection, for example, and the impact that can have on the customer.

Independents can also be a little more in control, make changes quickly, and try new things out more than perhaps a bigger corporate network.

So, it’s worth doing a bit of research, and understanding these differences.

It’s also worth understanding a network’s finances – can they continue protecting you if something goes wrong or during difficult times? New networks emerge all the time, with appealingly low fees – but it’s about looking at factors other than price.

What are some of the biggest challenges facing advisers and their clients at the moment?

The purchase market has decreased. Clients are sitting it out a little bit – waiting to see what happens. So, advisers may be suffering at the moment.

However, the flip side of this is obviously that it gives more time to make sure they are seeing their existing customers. We’ve really pushed that.

There’s also the protection market, which is a pivot advisers can make during difficult times, and you see other elements such as bridging coming into it.

Hopefully, later this year interest rates will settle, and things will be busier. These things happen in cycles, you just have to have resilience.

Q&A

For new advisers, then, it’s important to come into this market very well-resourced and seeing it as a proper business, not a side hustle – you have to go all in and make it work. Don’t come into this market blind or take it for granted.

There’s room for everybody, but you can’t just jump in without planning it properly.

As for borrowers, when we do get new purchases, especially from first-time buyers, what’s interesting is that they’re not used to the old market, so the recent changes are not necessarily a problem.

However, you do have that payment shock to deal with when it comes to borrowers coming into a remortgage or switch. They’re seeing a £300, £400 increase in their monthly costs, which can be tough to swallow.

A good adviser will be continually checking to take advantage of any changes if interest rates do come down.

With Consumer Duty coming, advisers really need to think about service and support for customers, educating customers, and being a coach, not just being there for the transaction but really helping them through the process.

Consumer Duty is coming soon, and it’s huge – we’ve not seen this type of change to the principles since 2007, and the regulator is taking it very seriously.

Advisers need to realise that it’s not good enough to say ‘we already do that’ – you need to provide clear evidence.

There’s going to be a culture shock for some firms, but there’s still time.

Has the focus shifted from the high street banks to more specialist lenders?

The power is with advisers, and we are in a golden year now. After years of low interest rates – obviously great for the borrower who could walk down the high street and get several options for similar terms – it’s now so varied, and advisers are the superheroes.

We can save people a lot of money, and we can help them access specialist lenders that are less accessible than the high street, less well known, but can give them the deal they need to get.

The other thing this has done is decreased the threat of ‘robo-advice’. For years that dominated the conversation, when lending was easy. Now, it’s all about human interaction, and advisers have a very strong future ahead of them, helping clients who need them. Yes, the market is tough, but there’s a bright future. ●

With Consumer Duty coming, advisers really need to think about service and support for customers, educating customers, and being a coach, not just being there for the transaction but really helping them through the process”

DANIEL HOBBS

P RO T E C T I O N Opinion

Empowering first-time

T

he UK housing market has witnessed a significant surge in the number of first-time buyers in recent years.

Thanks to a decrease in the supply of rental properties, rental prices are hitting all-time highs, encouraging ever more prospective homeowners to take the leap.

Despite the volatility in the housing market over the past year, prospective homeowners appear to be undeterred.

While Nationwide’s latest annual data shows house prices have fallen by 3.4% since May 2022, Rightmove’s shows a notable increase in the asking prices of properties popular with first-time buyers – properties with two bedrooms or fewer – year-on-year to April 2023. In spite of turbulence, demand for these properties has increased by 11% on the level Rightmove saw in 2019.

As first-time buyers begin to navigate the complex and lengthy process of becoming homeowners, it’s critical that advisers are present throughout the journey to educate them on the importance of quality insurance, helping them to adequately protect the most important investment that they will ever make.

In our recent survey conducted through YouGov, we discovered that 27% of individuals aged 25 to 34 plan to consult a financial professional to review their finances this year.

Importantly, Paymentshield has observed a promising gradual rise

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The Intermediary | June 2023

in the interest of this age group in actively pursuing financial advice.

Indeed, this younger demographic likely requires financial guidance the most, particulrly when navigating the process of purchasing their first home and arranging suitable insurance for it.

With 30% of respondents aged 25 to 34 expressing a lack of confidence in purchasing from price comparison sites, or understanding exactly what their purchase covers, advisers have a valuable opportunity to capitalise on these concerns and empower firsttime buyers to make well-informed and bespoke general insurance (GI) choices.

We also found that 45% of respondents from the 25 to 34 age group cited financial worries as their biggest source of stress. In addition, more of this cohort than any other said they would be increasingly scrutinising financial products with a view to saving money.

Optimum outcome With the average age of a first-time buyer in the UK being 33, advisers should guide this demographic to not solely prioritise price as their main motivation, and instead emphasise the significance of value.

Proactive and regular communication between advisers and clients will not only provide much needed GI advice, but also build longterm relationships. A positive initial interaction will help foster a fruitful

long-term relationship, paying off consistently down the line.

With the upcoming implementation of the Consumer Duty regulation, the Financial Conduct Authority (FCA) is explicitly prioritising the delivery of favourable outcomes for customers. Advisers have a golden opportunity to contribute to industrywide improvements by proactively engaging with new homeowners and providing valuable insights and education regarding their insurance coverage.

Our recently launched home insurance quote journey builds on this, and recognises that this crop of first-time buyers will have largely grown up alongside technology.

To simplify the end-to-end process, we’ve reduced the question set for obtaining home insurance quotes, and by automatically populating relevant information, created a smoother and faster experience.

Advisers across our partner network also have access to our marketing toolkit, which includes resources to guide them through GI sales process.

Informing clients about insurance and the value of advice is particularly important, since first-time buyers are typically unfamiliar and will likely need the greatest amount of support.

So, despite the cost-of-living crisis and higher borrowing costs, the eagerness of first-time buyers to get on the property ladder is notable, but challenging headwinds mean they need the assistance and expertise of

P RO T E C T I O N Opinion

buyers with GI advice advisers now more than ever before.

Furthermore, due to anticipated legislative changes in the rental sector, which could reduce availability as landlords leave the market, tenants are increasingly likely to view homeownership as a means to avoid soaring rental costs. In the coming months, first-time buyers could emerge as the most active segment of the market. Advisers can expect continuing opportunities to impart advice, support and expertise to firsttime buyers, supporting them in their journey to becoming a homeowner.

I’m delighted with the steps we’ve taken in simplifying this journey, helping advisers and customers receive the best possible GI outcomes. ●

As first-time buyers begin to navigate the complex and lengthy process of becoming homeowners, it’s critical that advisers are present throughout the journey to educate them on the importance of quality insurance”

LOUISE PENGELLY is proposition director at Paymentshield

June 2023 | The Intermediary

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P RO T E C T I O N Opinion

Ensuring customers are properly insured

SARAH WATTS is head of intermediary at LV= General Insurance

the home costing £1,400 and bicycle claims at £1,350.

One of the highest claim areas we also see is home emergency, which comes as standard with one of our home insurance policies.

Whether it is red wine spilt on the carpet, a broken television screen or a foot through the ceiling, accidents happen, so it’s something your clients should consider when choosing their insurance cover, as they may need to add optional extra covers to their standard policy.

A

Making sure clients have adequate cover, whatever the weather

s our lives evolve, so do our insurance needs. The way we live and work has changed immensely, and advisers need to think about how they can adapt for their clients.

It’s not just the bigger life events like buying a house that are important, but also smaller lifestyle changes which can affect the amount of insurance protection homeowners need.

It’s vital that homeowners consider the value of having cover in place to protect their possessions from loss, damage or theft. People may adopt an ‘it won’t happen to me’ attitude when it comes to thinking about any damage or loss to their valuables, but it’s an adviser’s duty of care to discuss their client’s home insurance needs and to avoid any foreseeable harm, as highlighted by the new Consumer Duty regulations.

Asking questions to understand a client’s lifestyle is a good place to

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start when ensuring customers are adequately protected. For example, do they have any hobbies that involve single high-value items, require additional cover outside the home, or have pets who could cause damage when least expected?

Claim areas According to our own claims data, claims for accidental damage, bikes and thefts away from the home have all risen in 2022. Following some analysis, we identified that 68% of bicycle claims happened away from the home.

What’s more, thefts away from the home of personal items such as rings, handbags and phones were up 54% from the previous year, while 26% of new claims reported were for accidental damage, which included pet damage in the home to items such as sofas and carpets.

The average claim cost for accidental damage in 2022 was £1,300, with the average theft claim away from

False economy Underinsurance is a big concern, and something that needs tackling together. As a sector, we have a lot to do when it comes to demonstrating the value of insurance. This is true now more than ever, as the country faces a cost-of-living challenge and people may look to cut back on products such as home insurance.

With the ongoing cost-of-living crisis, it is more likely that people could fall into a false economy. People might decide to buy policies that don’t have as much cover as their previous one, for example. However, customers should always ensure they still have the right level of protection, as it’s important to avoid being in a situation where a claim needs to be made and the right cover isn’t in place.

Advisers play an integral role in raising awareness and adding value to the customer journey in terms of knowledge, advice and recommendations of the different options available.

By working together, we can ensure that our customers have peace of mind when it comes to their insurance. ●

P RO T E C T I O N Opinion

Guardian’s entry into income protection

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inally, we can talk about the worst kept secret in the protection world!

Advisers have been asking us for income protection for some time, and I’m delighted we’re now able to support this essential part of a holistic protection review. Guardian’s aim is to grow to support all individual protection needs, and this is the next big step on that journey.

We feel now is a good time to enter the income protection market. The various crises have demonstrated strong public demand for insurance, with many giving their health a much higher priority. Advisers have told us that their clients have been much more open to protection conversations since the pandemic.

Flexible options Although cost concerns have come to the fore in recent months, we know that for many clients the need to establish peace of mind and ensure financial resilience can be best addressed with income protection.

That said, clients are dealing with surging prices, which is why it’s

important to have protection options that are flexible and affordable.

The protection sector needs to keep thinking about ways to adapt and continue to be relevant, partly because of the extraordinary challenges we face as a society and an economy.

We have seen the Chancellor of the Exchequer looking for ways to encourage people back into the workforce with incentives and tax reliefs in the most recent Budget.

While the media focus has mainly been around pensions reform and early retirement by choice, it’s clear that the majority of those who have stopped working have done so for other reasons, including healthrelated challenges.

I strongly believe the protection sector – and its intermediaries – has a part to play in rebuilding resilience for individuals and families, including working out how to support those who may, in the short or medium-term, need to stop working or reduce their hours, but would be happiest being able to return to work later.

We will be using our strengthened HALO service to support income protection customers through

Health has become much higher priority for clients when examining their protection needs

KATYA MACLEAN is CEO of Guardian

rehabilitation, including providing help before they even get to the point of claim. With our embedded waiver of premium kicking in at 28 days, we can work with clients from early on in their illness to offer them support.

There is more work for the industry to do to help clients ensure they have the appropriate amount and type of cover throughout their lives, and we look forward to working with intermediaries and other providers to continue to improve this.

In addition, the regulator is setting new expectations through its Consumer Duty requirements. Much of this is of relevance for protection around communications, price and value and foreseeable harm, to mention just a few of the outcomes and cross-cutting rules. We are fully supportive of the Consumer Duty initiative, and see it as the embedding of best practice behaviour that was already happening in many areas.

What’s next?

As you will see throughout this year, Guardian is in expansion mode. We now offer a full menu of products, and we’ll continue to work with advisers to develop solutions that deliver good customer outcomes with a focus on today’s cost challenges. We’ve evolved our business in the past few years by working closely with advisers, and income protection is a good example of how we created a new product in close consultation with them.

The big test, of course, comes once products are launched. We want to hear as much as we can from those advisers who recommend Guardian’s products, so we can continue to evolve and better serve advisers and their clients in the years to come. ● June 2023 | The Intermediary

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On the move...

Age Partnership appoints chief digital officer

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ge Partnership has added Jonathan Thirkill, founder an CEO of Advise Wise, as chief digital officer (CDO), to lead its digital transformation strategy.

Steve Auckland, CEO at Age Partnership, said: “Jonathan’s deep understanding of digital technologies and his strong entrepreneurial spirit make him the ideal candidate to propel our digital and marketing strategy.

We are confident that his strategic vision, insights, and leadership will

unlock new growth opportunities, enhance our customer experience, and strengthen our number one market position.

Thirkill said: “I am thrilled to join Age Partnership...while continuing as CEO of Advise Wise. I eagerly anticipate working more closely with the Age Partnership team to drive innovation that delivers value to our customers and shapes the future of the equity release market.” ●

Former Aston Villa CEO joins Magnet Capital board

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aul Faulkner has joined Magnet Capital’s board as a non-executive director His previous experience includes being CEO of Aston Villa and No ingham Forest between 2008 and 2015, a member of the FA Council and main board director, as well as six years as CEO of the Greater Birmingham Chambers of Commerce from 2015-21. He is predominantly based in the Midlands, which is a growing market for Magnet Capital.

Faulkner said: “I’m delighted to have joined the Board of Magnet Capital.

"It’s a great business, which takes a personal and relationship focused approach to deliver the best service and results for clients seeking development finance.

"I’m looking forward to working with the team and supporting their efforts to continue to grow and develop the business further.” ●

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The Intermediary | June 2023

ZARA BRAY (LEFT) AND MICHELLE WESTLEY Jonathan Thirkill

Legal & General Mortgage Club expands leadership team

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egal & General Mortgage Club has appointed Michelle Westley as propositions manager and Stephen Nobes as key relationship manager.

Westley has joined Legal & General from her previous position as head of marketing at Brightstar, while Nobes formerly served as head of partnerships at Tembo Money.

In their new roles Westley and Nobes will report into Zara Bray who, following an 18-year career with Legal & General, has been promoted to head of broker and propositions.

In her new role, Bray will be responsible for developing and managing relationships with several Legal & General Mortgage Club key account intermediary firms and ensuring the mortgage club remains ahead of the curve.

Bray said: “I’m really looking forward to ge ing stuck into my new role at Legal & General Mortgage Club, especially as we welcome Michelle and Stephen to our growing team.

“Both Michelle and Stephen have extensive experience within the mortgage industry, and I have no doubt that they will play a key role in further developing our relationships and proposition across all channels.” ●

Bibby Financial Services appoints corporate manager

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n a bid to strengthen its support for small and medium enterprises (SMEs) in the North and Scotland, Bibby Financial Services appointed Colin Johnson as corporate manager for Corporate North.

Daniel Williams, regional head of Corporate North, said: “BFS is in growth mode, and our focus is on a racting, retaining and developing industry-leading talent. Colin’s extensive experience in invoice finance, working capital and

asset-based lending positions him perfectly to drive our business and sales strategies forward.”

Johnson will be part of a team focusing on developing transactions for SMEs with a turnover of up to £100m.

Johnson said: “I look forward to working with my existing intermediary contacts and expanding my network across the North of England and Scotland, thereby strengthening BFS’ support for SMEs.” ●

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