The Intermediary - May 2023

RESIDENTIAL ▮The latest from HSBC, Metro Bank, Danske Bank and more

LOCAL FOCUS ▮The spotlight is on Leeds – Yorkshire’s unofficial capital

PROTECTION ▮Opinion from Guardian, Royal London and Scottish Friendly

The

Intermediary. www.theintermediary.co.uk | Issue 4 | May 2023 | £6

REINFORCING THE SAFETY NET How Consumer Duty rules will shape the future of the protection market

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

From the publisher...

S

kipton Building Society stole the headlines this month with its 100% mortgages launch. This led many commentators to ask if they are a good thing. In my humble opinion, they are, and pardon the laziness here: 100% so.

To be clear, what I am about to say here is in no way aimed at The Skipton; I believe it is sincerely trying to help a truly underserved sector, and I hope more lenders follow. The issue is that there is a middle ground between reckless lending – see 125% mortgages from Northern Rock – and these 100% products that we will certainly see others offer in the coming months.

If you don’t have access to the ‘Bank of Mum and Dad’ and have no deposit, you rent, paying more than a mortgage costs. People get trapped in a cycle, and the issue comes down to paying rent or other bills. You pay rent because, above all else, keeping a roof over your head – and in some cases, your kids’ – is the priority.

My dearly departed grandfather always told me: “Keep a roof over your head and then deal with the rest.” But based on that logic, a credit card payment may be late, or perhaps you miss a month on a loan to pay for a school trip, or make a payment slightly late to catch up on that missed loan. As if by magic, your credit is impaired.

100% mortgages, I’m happy to be proved

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wrong, will require proof of rent payments alongside proof of affordability and a good credit record.

These things are rarely so clear-cut. Indeed, FCA data shows that the number of adults struggling to pay their bills and debts has soared to nearly 11 million. That’s some 3.1 million more people facing difficulties in January than they did in May last year.

Kudos to The Skipton – it has made a bold move and hopefully started the journey towards helping the underserved. Does this mean a return to sub-prime? Not even remotely.

Is negative equity also a risk? Of course, it is.

But surely this is something that lenders will factor in and find a solution to.

Find solutions, be innovative and don’t create undue risk. Lending at 125% is madness.

Supporting people who can prove that, while not conforming to a standard credit profile, they can pay their potential mortgage, is a noble cause.

I’d like to add that Leeds Building Society, though drowned out by the Skipton news, is also looking at innovative ways to help those who pay their bills but may not be seen as prime.

In this issue, we look at another area of the market that isn’t given the a ention it deserves – protection. Alongside the plight of the renters that Skipton is trying to help, the complete lack of protection in some areas is a serious issue. ●

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Contributors Alexander Manas | Alison Pallett | Allan Smith | Andrea Glasgow | Ben Bailey | Brian West Bruce McDonald | Charles Morley | Charlotte Grimshaw | Chris Needham | Chris Pearson Colin Sanders | David Jones | Hannah Smith | Heidi Deaton | Helen Scorer | Ian Russell Jacqui Gillies | Jason James | Jonathan Sealey | Jon Sturgess | Maeve Ward | Mags James Mark Davies | Mark Roberts | Martese Carton | Mike Illingworth | Neal Jannels | Neil Dyke | Nick Mendes | Nick Russell | Paul Brett Piragash Sivanesan | Ranjit Narwal | Reece Bedall | Robin Johnson | Shelley Read | Steve Goodall | Susan Baldwin | Tom Denman-Molloy | Tony Ward | Victoria Wilson | Will Hale

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RESIDENTIAL ▮The latest from HSBC, Metro Bank, Danske Bank and more

LOCAL FOCUS ▮The spotlight is on Leeds – Yorkshire’s unofficial capital

PROTECTION ▮Opinion from Guardian, Royal London and Scottish Friendly

The

Intermediary. www.theintermediary.co.uk | Issue 4 | May 2023 | £6

REINFORCING THE SAFETY NET How Consumer Duty rules will shape the future of the protection market

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Cover illustration by Studio Ede Cartoons by Giles Pilbrow Printed by Pensord Press

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Contents FEATURES & REGULARS

INTERVIEWS & PROFILES

The Interview 58

Feature 26 Hannah Smith looks at effects of the upcoming Consumer Duty regulations

Local Focus 52 This month The Intermediary takes a look at the housing market in Leeds C EN T R A L T R UST A ND M ERC A N TI LE TR UST

On the Move 66 An eye on the revolving doors of the mortgage market: the latest industry job moves

Commercial director, Maeve Ward, discusses product innovation, second charges, and helping underserved markets

In Profile 20 SECTORS AT-A-GLANCE

Residential 6 Buy-to-let 30 Later Life 34 Specialist Finance 38 Technology 48 Second Charge 57 Protection 62

STRIDE UP

Jon Sturgess discusses the lender’s commitment to helping first-time buyers onto the property ladder

Q&A 24 J O H N C H A RC O L

Nicholas Mendes talks about John Charcol’s legacy, current innovations, broker support and more

In Profile 44 LDS

Mark Roberts shares how LDS’ unique proposition is reinvigorating the development market

Meet the BDM 16 S A N TA N D E R

52

Bruce McDonald tells us about the challenges and opportunities he faces as a business development manager

Local Focus The Intermediary | February 2023

3

RESIDENTIAL Opinion

Sharing knowledge to help build better businesses

F

or us, working closely with the brokers who have access to our mortgages is more than just providing them with the products and the means to submit applications, or answering their case questions in a timely manner. Having a lasting, meaningful and beneficial relationship with brokers is extremely important to us, and providing regular and ongoing opportunities for continuing professional development (CPD) plays a big part of that.

We want to support brokers in developing their skills to become more rounded operators.

One recent example was our second Emerging Talent event, which took place on 27th April at HSBC’s global HQ in Canary Wharf. A room full of ambitious young women and men gathered to invest in their personal development, build knowledge and network with fellow professionals.

It was a real privilege to spend some quality time with the next generation of mortgage professionals coming up

HSBC’s global headquarters in Canary Wharf

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The Intermediary | May 2023

through the industry. The room was buzzing with energy throughout the day, and it’s just amazing how much of that energy you personally capture by being part of it.

It’s one of my favourite events on the calendar, and as with the inaugural cohort last year, it le me in no doubt we are blessed with a healthy pipeline of talented people across the industry.

Thought leadership As an established mortgage lender and part of a major global bank, HSBC UK is in a position of strength to have ready access to insights, data, thought leadership and experience across a multitude of topics.

I’ve always seen this as something to be shared and nurtured, as opposed to just leaving the books on the shelf, so to speak. I think it is extremely important to equip our partners in the industry with knowledgeable insights, especially if that knowledge helps build be er businesses, drives innovation, and ultimately delivers even be er customer experiences. We all benefit from that, don’t we?

CHRIS PEARSON is head of intermediary mortgages at HSBC

So the only question was: how do we go about sharing those insights? Thus HSBC UK’s Emerging Talent Event for Mortgage Brokers was born!

We fully intend make these events a mainstay of our calendar, and we’ll be taking the show on the road next time around, with our next stop being our UK HQ in Birmingham. We’ll be reaching out across the market for candidates for cohort three in the not too distant future.

April’s event provided insights into the economy, the mortgage market, how to be ‘a li le bit more Disney’, how lenders fund mortgages and set rates, being a brilliant broker – by the fantastic David Baker from LIFT Mortgages, the retrofit outlook, and ‘Dreams to reality and personal branding’ – delivered by the amazing Bianca Miller-Cole.

So, whilst we’re always going to mix it up a bit, a endees can expect an action packed agenda on similar lines to this. I personally can’t wait!

Before we host another set of up-and-coming brokers, we have the HSBC UK Intermediary Risk Networking Event, where 50 risk and compliance leads from some of our networks come together to hear and discuss topics that are, or should be, front of mind.

They will receive sessions providing economic and mortgage market updates, an insight into financial inclusion and vulnerability, and a deep dive into cyber threat. I’m expecting another lively session, which will provide important food for thought for those a ending. ●

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RESIDENTIAL Opinion

2023, is it a year of Positivity and Opportunity?

T

o be positive or not to be positive that is the question…

As we left 2022, there was an air of trepidation across the market.

Not only following the impact of September’s mini Budget, but also the Bank of England had raised interest rates to 3.50%, CPI was at 10.5% and mortgage rates were rising rapidly.

Not to mention consumer confidence which had also been severely compromised. In addition early declared forecasts of gross mortgage originations for 2023 of £265bn £275bn were looking extremely over optimistic.

Fast forward several months and we haven’t exited the proverbial woods just yet as CPI remains a real concern to both homeowners and savers. At the time of writing we are waiting for May’s meeting of the MPC and there is an air of uncertainty over the direction of travel of the base rate, with some experts predicting a level of five per cent in the very near future, the highest we will have seen since Q2 2008.

It is still impossible to ignore the major ripple effect caused by last year’s mini Budget. Rates are now starting to gradually fall from the heights which saw two-year fixed rate mortgages increase by 50 per cent in a matter of weeks to 6.4 per cent. However they still remain well above where they were a year ago.

With all of this backdrop, it’s fair to say that neither the UK mortgage market nor the housing market have collapsed. Any reductions in house prices have been far more modest than predicted, even only a single digit correction, which have all helped to return an element of calmness and stability to our sector.

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The Intermediary | May 2023

Reasons to be cheerful?

The intermediary community also appears far more positive than it was 8 months ago. If as expected, we see a UK mortgage market of circa £220 - £250bn in gross new originations this year - it will still rank as a strong year, when compared to the market performance over the last 15 years and in effect a return to an element of normality after the distorted years of 2021 and 2022.

In addition, mortgage maturities are expected to rise by up to 6% this year to a high of £347bn providing very strong remortgage and product transfer opportunities, especially as we approach the middle of the year – with the latter expected to be up 8% to £212bn, according to UK Finance. In addition, on the property side, recently published data suggests “Agreed Sales” may be 18% down on last year, however they have returned

CHARLES MORLEY is director of mortgage distribution at Metro Bank

to levels seen just before the pandemic, with just a 1% differential between March 2023 and March 2019. March has also been the first month where “Agreed Sales” volumes surpassed activity seen in September last year, marking a recovery from the 21% decline recorded right after the mini Budget.

The cost of living crisis is also changing the needs of many customers which in turn is changing the market.

Customers now have more complex needs and requirements, requiring lenders and mortgage intermediaries to develop solutions that support the needs of today’s borrowers. An evolution which we are already starting to see more of as lenders deliver wider criteria choice and look at ways to support those looking to get on the housing ladder – who could have foreseen the return of the 100% mortgage in 2023?

So yes, the market is not 2021 or 2022 and the backdrop and influence of many external factors is making it tougher, however the combination of the pandemic and the cost of living crisis has made our industry far more resilient and resourceful than it has ever been. It is not all doom and gloom and green shoots of positivity and greater stability can be seen in abundance everywhere you look.

Ultimately significant opportunity exists in all areas of the market for those that are ready and want to take it.

Quite simply, we have “to be positive.”

RESIDENTIAL Opinion

The lesson of bank failures for lenders

I

t’s no secret that mortgage lenders and servicers today are under greater scrutiny from regulators, investors and funders than ever before.

Much of this scrutiny results in systems and processes, o en built reactively, to deliver the confidence to markets and law-makers that no undue risk is happening. However, as we have all seen recently, Silicon Valley Bank, Credit Suisse and First Republic, have all encountered problems from systemic risk.

How is this possible, when so much time, intellect and energy is devoted to rooting out risk? Many will be mu ering ‘here we go again’, but history does not repeat itself – it merely rhymes. That’s why things happen again, but differently. I’m not going to comment on the individual cases here, except to say what is evident is that risks evolve. Risk management is an organic business.

Processing power To demonstrate my point, consider the world of IT in banking and financial services. From the 1970s onwards, the development of financial services has been largely enabled and sustained by the exponential growth of systems and processing power available to financiers. The result is that, today, most financial services boards preside over a plethora of different tech platforms.

Built in different eras with varying degrees of interoperability, these platforms, once the launchpads of transformation, are o en now legacy headaches. Worse still, in reality few in these boardrooms really understand the spaghe i of systems and infrastructure over which they preside. How many executives or nonexecutives can write code? They rely on experts and partners.

Risk requires a robust approach as much as accountability to ensure it is managed properly and the interaction

of a business’ moving parts and policy decisions works effectively.

The Mortgage Control Framework is something we have developed to help boardrooms and non-executive directors maintain confidence that what they believe is happening is actually occurring on the ground.

It, too, is designed to evolve as the nature of risks in a business evolve. The risks facing a startup, for example, are very different to those facing an established business. Therefore, the approach should flex too.

At the coalface What is essential is that decisions taken in good faith at the top of a company are being executed properly at the coalface. This is not to say people are deliberately mismanaging the risks on the ground, but it is an acknowledgement that companies can and do create their own silos that prevent effective risk management.

There is a risk chain linking the top to bo om, but also running through different business functions.

Our Mortgage Control Framework is the first in the industry to focus on identifying and mitigating substantive risks across the entire mortgage supply chain. It is an essential reinforcement to a lender’s regular first line of defence, which – if recent events are anything to go by – may be more in need than anyone previously thought.

Our framework updates as legislation evolves, so no stone is le unturned in the pursuit of be er business practice. This kind of approach identifies the risk gaps and risk points in policies, procedures, documents and processes. For every risk point, we can then assess the severity of the risk, how it should be monitored, and how o en.

In his book ‘Outliers’, Malcolm Gladwell writes that “the typical plane crash involves seven consecutive human errors.” Plane crashes, it

TONY WARD is non-executive chairman of Fortrum

If we are always looking for big red flags, then it is likely we will miss the myriad small details that can combine to create a real risk” appears, are much more likely to be the result of an accumulation of minor errors.

Too o en, risk managers at every level have become accustomed to looking at big pictures or small details, but rarely understanding how these things join up. This is important because, as Gladwell observes, the devil is in the detail. It’s why something like the Mortgage Control Framework is so important. If we are always looking for big red flags, then it is likely we will miss the myriad small details that can combine to create a real risk.

Business is by definition full of risks, and one man’s risk is another’s opportunity, but where there is collective acceptance that business risk is not acceptable, either through regulators or customer or investor appetite, we have to be more vigilant.

The recent failures of financial institutions should remind us that every area of business needs to be understood, and that how it interacts with other parts of the business is as important. Heads of risk are important, but for everything else there is the Mortgage Control Framework. ● May 2023 | The Intermediary

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RESIDENTIAL Opinion

NI mortgage market back on relatively solid footing

A

er a quiet start to the year, it appears that activity in the Northern Ireland mortgage market has picked up again in the second quarter of the year.

A er dropping off a cliff in 2020, pent up demand led to a market bounce back in 2021, and transaction levels remained at healthy levels well into the first half of 2022.

Then, like every other part of the UK, the local market was undoubtedly affected in the second half of the year by the economic turbulence caused by the war in Ukraine, the fallout from the September mini-Budget, and the worsening cost-of-living crisis.

Stabilising market January and February were quieter than expected, but we have returned to a more positive outlook through March and April, with house sales and mortgage approvals increasing across Northern Ireland as economic forecasts stabilised.

By those measures, Q1 2023 is still behind where the market was at the same point in 2022; however, local data produced by the likes of PropertyPal and Royal Institution of Chartered Surveyors (RICS) suggest that it is now returning to some sort of normality.

Feedback we’re ge ing from brokers is that many of those first-time buyers who were starting conversations in September have now come back to the table as rates reduce.

In 2022, 97% of our mortgage customers opted for a fixed rate mortgage product, with 70% of them choosing a 5-year fix. This preference has continued into 2023, with 94% of approvals in the first quarter being for fixed rate deals.

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The Intermediary | May 2023

This isn’t surprising in a year when the Bank of England raised the base rate several times, it shows the benefit of ge ing mortgage advice, and also that some of the media commentary on the impact of rate rises on mortgage affordability has perhaps been overdone, with only a smaller percentage of people hit with large repayment hikes.

Affordability does, however, remain a concern. While inflation is expected to ease from record levels, prices are still expected to keep going up this year, so as a bank, we are keeping a watching brief on customers who may run into challenges.

The labour market remains strong, and at present we are not seeing any notable increase in customer distress regarding mortgage repayments.

Nevertheless, levels of distress may change, and we are well prepared to support customers when they need us.

We would certainly encourage people to talk to their bank as early as possible if they are struggling.

Supply and demand Demand for housing is expected to stay relatively strong, sustained in part by the somewhat limited supply of housing in Northern Ireland. This market has an issue around the speed and volume at which new housing stock is being built, which is likely to keep both demand and prices up.

There is also healthy competition, and Danske Bank continues to focus on innovation, particularly around sustainability.

More than half of the new mortgage lending we approved across the UK last year was through our carbon neutral mortgage product.

The first mortgage certified as carbon neutral by the Carbon Trust, it offers favourable rates to properties

IAN RUSSELL is head of homebuying at Danske Bank

Demand for housing is expected to stay relatively strong, sustained in part by the somewhat limited supply of housing in Northern Ireland” with an energy efficiency rating of Band A to Band C. This move to reward the owners of more sustainable housing is a positive step, but there are questions the industry will need to address about how it will treat lower rated properties that don’t meet the criteria for carbon neutral mortgages in the long term.

While the region waits for the rate of housebuilding to catch up with demand, there is a big opportunity in the retrofi ing and upgrading of existing housing that isn’t well rated, to bring it up to standard, so we have launched a personal loan product for this specific use.

Economic headwinds In the short term, we anticipate the market will be relatively steady in Northern Ireland this year, with consumer demand continuing across all segments. It will be interesting to see if the current uptick in activity can be sustained, and whether any further economic headwinds are on the horizon. ●

RESIDENTIAL Opinion

How to build better self-build mortgage cases

S

elf-build mortgages are one of the more complex types of mortgage lending. On the face of it, this is simply a loan that is released in stages, but behind every successful application is a great deal of effort on behalf of the broker and the lender.

Brokers just dipping their toes may feel like this effort-reward ratio is not in their favour. With some investment, though, this type of business is not only very profitable, but also incredibly rewarding.

Here I will touch on five elements that will help brokers provide even be er support for their clients.

It’s good to talk All self-build mortgage applications have some common elements, but there are a considerable number of factors that are unique. No lender will release funds without a thorough grasp of the project, so it’s important that brokers are prepared to put in the legwork.

If brokers are new to self-builds, or just not confident in this area, they should lean on their lender relationships. Most niche lenders in this area are more than happy to hold the broker’s hand from start to finish, and in turn, the broker can do the same for their client.

In fact, most lenders would prefer to hear from brokers before they start, as they will be be er able to spot any potential hurdles and address anomalies early in the process.

Self-build, renovation or knockdown and rebuild Self-build mortgages are not only required for greenfield sites where a brand new property is being developed, but also in other

circumstances, such as for major renovation works.

Whether or not a self-build mortgage is required usually hangs on a number of factors. These include if the property is uninhabitable, whether it is le without kitchen or bathroom facilities for an extended period, whether work alters structural elements, including foundations and beams, and whether work will make the property non-watertight or nonsecure at any point.

Clients may be surprised when they hear a major renovation project actually requires a self-build mortgage, but it will reduce stress further down the road if all parties are on the same page from the outset.

Understand build types It’s important for brokers to get to grips with the various types of construction methods available for self-build. Over and above the basic acceptance criteria, each construction method will have implications for the timing and the cost of the build.

Lenders usually want to know that construction will begin quickly a er the application has been accepted.

Usually, once the foundations are started, the planning permission is locked in. This type of knowledge will grow over time, but gaining awareness of construction types and methods would be time well spent.

Contingency is king It’s rare for a self-build project to progress without obstacles, from weather delays to complications with the ground. One issue o en leads to another, as third-parties will need to delay access to the site and store the components already commissioned.

Demonstrating that the project will not struggle with cashflow is essential.

CHARLOTTE GRIMSHAW is head of mortgage sales at Suffolk Building Society

Brokers must familiarise themselves with the workflow by scrutinising schedules and asking difficult questions of the client.

Setting the stage Clients are likely to have heard that funds are released in stages, but few understand much beyond this, so brokers can support them in deciding which type of stages is best.

A stage payment mortgage is where the funds are released in tranches, as the build progresses, and a borrower only pays or accrues interest on the monies received, and not the total amount from the outset. This helps the lender ensure that the money is being spent as planned, while the borrower has a reduced risk of running out halfway through.

The most common method is in arrears, where funds are released a er each stage is completed and the client must have adequate funds upfront. Advance stage payments are the opposite. This is a li le riskier for the lender, as the security for the loan doesn’t exist yet.

Stages usually include certain benchmarks of the build. Some lenders will offer more flexibility than others, but it’s worth noting that lenders will want a certified valuer to report on progress before funds are released, so there will be a cost to get this approval each time.

Brokers shouldn’t overlook selfbuild because of its complexities.

All mortgage applications are about helping clients realise their property dreams, but there is an even greater level of satisfaction in being involved with a self-build project. ● May 2023 | The Intermediary

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RESIDENTIAL Opinion

The golden age of

W

hen the Coronation of Her Majesty Queen Elizabeth II took place in June 1953, the average house cost just £1,692 and the average salary was £333. Now, at the time of His Majesty King Charles III’s Coronation seven decades later, it’s a very different picture. The average house price currently stands at £294,329 and the average salary is £31,928, meaning that houses are now at their most unaffordable level for 150 years.

Perhaps the only common factor between now and post-war Britain is the severe lack of housing the country faces – it’s this chronic shortage of new-build homes that has been a major contributor to the current housing crisis.

So, the Coronation is a great opportunity to look back 70 years to the ‘golden age’ of UK housebuilding, when well over a quarter of a million new homes were built each year – something which can only be dreamed about today.

Housebuilding in post-war Britain There was a huge shortage of housing after World War II – with no new housing being built during the sixyear war period. More than a fifth of all homes in Britain had been destroyed during the war, with many people having to live in army camps or shared accommodation.

It was estimated that around three million new homes were needed immediately, and as a result, the Government aimed to build more than 300,000 new homes each year.

However, in a post-war environment there were many shortages, including builders, materials, and money.

In May 1946, the Government announced plans to build several ‘new towns’ to relocate people in poor or bombed out areas following the Second World War.

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The Intermediary | May 2023

Commenting at the time about the Government’s vision and its post-war housing policy, Lewis Silkin, Labour’s Minister of Town and Country Planning, said: “Basildon will become a place which people from all over the world will want to visit.”

The new towns were built in three waves, and the intention was to build housing ‘fit for all income groups, not just the working class’.

The first wave of new towns were built between 1947 and 1955.

Stevenage was the first, followed quickly by towns such as Crawley, Hemel Hempstead, Harlow, Welwyn Garden City, Hatfield, Basildon, Bracknell and Corby.

The second wave were built in the early 1960s, and included towns away from the South of England such as Skelmersdale, Telford, Livingston, Redditch, Runcorn and Washington. The third wave were created or expanded in the late 1960s and included Milton Keynes, Peterborough, Irvine, Northampton, Ipswich and Warrington.

A growing economy in the 1950s meant that around 250,000 new local authority homes were built each year.

In addition to the growth of the new towns, around 750,000 brick homes were also built between 1945 and 1953, as well as thousands of prefabricated houses, which were factory made and assembled on site.

Many ‘non-traditional’ homes were built using various prefabrication approaches, and as a result of these new building approaches, total annual new housing completions soared, peaking in 1968 at around 400,000.

The 1960s was also the decade of tower blocks – which allowed many people for the first time to have a new property with modern facilities.

Quantity rather than quality became a priority for the Government – in some cases, good homes were demolished to make way for big estates.

Some new towns were successful, whilst others suffered high

MARTESE CARTON is director of mortgage distribution at Leeds Building Society.

unemployment and high levels of poverty.

Current housebuilding The scale of the current housing supply shortage in England can be highlighted by comparing the actual number of houses built in the past 30 years to the number built in the 30 years prior to that.

Between 1959 and 1988, approximately 7.5 million new homes were built, whereas only 3.3 million new homes were built in the past 30 years. This suggests a total shortfall of around 4.2 million homes.

Yet, even as the growth in housing stock has been declining, demand for homes has been increasing, as the population continues to grow and more ‘singletons’ want to buy homes on their own.

In the Government’s manifesto document published in 2019, it set a target of building 300,000 new homes a year by the mid-2020s. This doesn’t now look achievable. Indeed, the last time 300,000 new homes were built by any Government in a year was in 1977.

In January, the Centre for Policy Studies published an excellent report called ‘The Case for Housebuilding’.

The report stated that the arguments that housebuilding is roughly keeping pace with new household formation are flawed, as are claims that that enough homes can be delivered

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RESIDENTIAL Opinion

UK housebuilding simply by building on brownfield land or building out existing planning permissions. As an example, London could only build 24% of the homes it needs over the next 15 years on currently existing brownfield sites.

Commenting in the report, the Right Hon Kit Malthouse MP, former Housing Minister, said: “We should all be concerned about where and how our children are going to live, but more than this, we also have a duty to give them the same or a better chance at home ownership as their parents and grandparents.

“We simply cannot do this without building millions of new homes.”

This view is supported by several individuals, charities and thinktanks. The Centre for Cities said that it will take at least 50 years to catch up with housing demand, even if the Government target of 300,000 new homes a year is met.

As recently as last month, Michael Gove, Secretary of State for Levelling Up, Housing and Communities, said the UK housing market was “broken” and “desperately” needs a greater supply of new homes and higher building standards.

In the same report, the chief executive of Shelter, Polly Neate, said the UK’s housing policy was “a mess.”

with providing new homes, what is needed from Government is stability and certainty. This is, however, quite the opposite of what is being proposed in the planning reforms.

The watering down of housebuilding targets, alongside a range of other reforms, is already having a dramatic impact.

New planning applications are at their lowest level on record, and councils up and down the country are ripping up their local plans.

At the same time, changes to the way developers contribute to the number of new affordable homes has raised the concern that even fewer will be delivered. The important work being done to design the new Infrastructure Levy this year must safeguard funds for more affordable options to rent and buy.

With enough political will, and by listening to experts in the field, many of these challenges can be resolved.

In the long-term, we can surely start to deliver on the homeownership aspirations of millions of people.

National conversation The issues facing homeownership are deep-rooted and wide-ranging, but building enough homes to meet demand is the right place to start.

Building enough homes to meet demand is the right place to start”

Homeownership was once a rite of passage for young people as they grew up, but over the last decade house prices have become increasingly out of reach for millions of people.

We need a national conversation about why we’re not building enough homes, and we need all the political parties to address the real housing issues this country faces.

As ‘The Case for Housebuilding’ report succinctly concludes: “The fundamental case for housebuilding is that without it, Britain will become a less productive, less equal, less fair, and less happy country.

“If we want to rebuild our economy after the pandemic and create a better society, we need to get building.”

Wouldn’t it be good if we could look back in future years and agree that the Coronation of King Charles marked the start of a new golden age of UK housebuilding! ●

Solving the housebuilding problem There is no doubt that achieving the national 300,000 housebuilding target will be difficult, and it will take all parts of the market to deliver this level of housebuilding – from private developers to housing associations and local Government.

The recent Government announcement, therefore, that councils will keep 100% of their Right to Buy receipts to build thousands of new council homes is to be welcomed.

However, for private housebuilders facing economic headwinds, and housing associations balancing the costs of important remediation work

Jubilee street party, Wordsworth Rd, Lockleaze, Bristol in 1953

April 2023 | The Intermediary

13

RESIDENTIAL Opinion

Self-build requires specialist expertise for sustainability

T

here has been a lot of talk in the industry about green mortgages over the past couple of years, and rightly so. With the country’s long-term objective of achieving net zero and the ever-increasing energy costs, sustainability and energy efficiency are at the forefront of people’s minds.

Whilst much of the conversation has focused on proposed Energy Performance Certificate (EPC) requirements for rental properties, together with the potential application to residential homes and the increasingly stringent requirements for new-builds, another area which represents a prime opportunity to support the green agenda is self-build.

Self-build properties are not only an increasingly critical part of our new housing stock, they’re a fantastic way to build sustainable and energy efficient new homes, and o en, selfbuilders are only too keen to take up the challenge.

Open-minded At Mansfield Building Society, we take a permissive approach to lending criteria, and we’re open-minded when it comes to non-standard construction types – the majority of which are much more energy efficient once a property has been built, but also o en offer a more sustainable option when it comes to choosing materials and building the property.

It’s not all that long ago that anything not built of brick or block was seen as unmortgageable, but this certainly isn’t the case today. We have agreed an increasing number of mortgages to fund projects using timber frame and structured insulated panel (SIP) systems, which can be

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manufactured off-site to exacting quality standards.

This means less wastage and time to construct on site – avoiding the carbon emissions produced when manufacturing masonry building materials – and the opportunity to easily design in carbon saving features to reduce the emissions, and costs, produced when running the home.

We can also consider alternative cladding materials – including timber, which again can reduce the carbon produced during manufacture and incorporate high levels of insulation.

Different considerations Advising on self-build is different to standard lending. There’s more to think about, and chances are most brokers don’t do a large volume of self-build deals. Considerations include additional insurances, costs and budgets, how the client will fund the build, and at what stage to advance funds. Does the client need payments in arrears or in advance?

It’s not all that long ago that anything not built of brick or block was seen as unmortgageable, but this certainly isn’t the case today. We have agreed an increasing number of mortgages to fund projects using timber frame and SIP systems”

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

As a lender, there are also additional risks. What if the client runs out of money during the build? What if they run into problems and the cost increases significantly? What if the build doesn’t get finished? I think we’ve all seen episodes of ‘Grand Designs’ where the build hasn’t gone to plan. In fact, I don’t think I have seen an episode where it does!

Clearly, self-build is not your standard type of lending. That’s why, at Mansfield Building Society, we recognise the benefits of specialist expertise, so we choose to partner with BuildLoan. BuildLoan is the UK’s leading distributor of specialist homebuilding finance for intermediaries, and it provides guidance throughout the process, with a proposition that includes a costings service, handheld guidance to help your clients right through from finding land to laying the final brick, and guidance on the types of insurances needed.

Sustainable new-builds The challenges of the housing sector’s environmental impact are large, let alone the continued challenges of providing new housing stock.

Nevertheless, with the right expertise and support, self-build can bring sustainable new-builds to life.

The team at BuildLoan are experts in their field, and self-build is an area where we believe that expertise is a necessity, not just a nice to have.

Together, we take great care to empower self-builders to not simply create their dream home, but also a sustainable future. ●

RESIDENTIAL Opinion

More homes and support needed for affordability crisis

T

he UK mortgage sector has faced a growing affordability crisis for years, and it’s not showing any signs of slowing down. With house prices rising, real wage rises stagnant, and the cost-of-living crisis not going away any time soon, people at every stage of homeownership are being affected.

Housing in the UK is at its least affordable for nearly 25 years. The average house is 9.1 times the average local wage, and we know that some of the highest levels of inflation we’ve seen in decades are eroding purchasing power for millions. This includes the rising cost of food, petrol and energy – the la er exacerbated by the end of the Government’s Energy Bills Support Scheme.

Right now is, arguably, as difficult a time as it’s ever been to be a first-time buyer. Intermediaries are likely to be seeing first-hand the struggles that their clients are facing. The average asking prices for homes which are popular first-time purchases hit their highest levels of £224,963 this month.

This jump in asking prices means first-time buyers need to save even more for a deposit, and then face higher mortgage repayments – it’s no surprise we’ve seen that the number taking out 40-year fixed rate mortgages has doubled.

Multidimensional In such difficult times, we must look for solutions that can help ease the struggles of aspiring homeowners.

The affordability crisis in the UK is a complex and multidimensional issue, but a key issue for me is that of supply.

Increasing housing supply must be addressed if we are ever to see a fairer, more stable housing market. One of

the aims of the Government’s recently announced new infrastructure levy on housebuilders is to give powers to local leaders to make decisions about the level of affordable housing being built.

Whilst this thinking is a step in the right direction, I fear that its rate of implementation – only to be introduced in a small number of councils in a ‘test and learn’ system over the next decade – will risk today’s aspiring homeowners missing out in the current economic climate.

ALISON PALLETT is sales director at The Nottingham

time position at the same company for decades until retirement – is no longer considered the norm.

At the start of the year, there were 4.39 million self-employed workers in the UK – an increase of 1.19 million since 2020; and 1.21 million people working more than one job. The number of people on zero hours contracts has reached its highest level on record, at more than 1.13 million.

From designers to nurses to tech entrepreneurs, Britain is brimming with people who fall outside of the ‘traditional’ employment model. It is this group of people who will struggle to get on the housing ladder the most as the affordability crisis tightens its hold.

Complicated history

The affordability crisis is a multidimensional issue

We know all savers looking to purchase their first home are struggling with rising costs – and the lack of supply isn’t helping.

However, there is a group of first-time buyers who – despite having saved for a deposit and being able to afford mortgage repayments – still cannot get on the housing ladder at all.

Those with more complex income streams can find that the goal of homeownership feels like a dream which is out of their reach. Yet today, the concept of a ‘job for life’ – a full-

First-time buyers with different financial histories can also find themselves struggling to get on the ladder. Increasingly common financial situations, such as complicated credit history in the past or simply a lack of credit history, can make the process of purchasing a first home more difficult, even though they are not sub-prime.

Lenders and intermediaries will be doing all they can to help today’s aspiring homeowners. At The No ingham, we have recently increased our loan-to-income (LTI) ratio to help ease affordability issues.

However, in order to truly help first-time buyers, the industry as a whole needs to adapt to this shi in the way people live and work, to ensure it offers products and services which are suitable for the modern borrower. ● May 2023 | The Intermediary

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

After graduating from Anglia Ruskin University Cambridge, I gained my CeMAP qualifications and gave mortgage advice via a national estate agency chain. Through this role, I was approached by a BDM who felt that I had the skills and temperament to be successful in a BDM role, he put my name forward and I have not looked back since.

What brought you to Santander?

The Intermediary speaks with Bruce McDonald, specialist new-build business development manager at Santander

There were two main reasons that I was attracted to join Santander.

First, the role of specialist new-build business development manager was a new one, giving me the opportunity to build and develop my own strategy to support key newbuild firms across the whole of the country. Second, this role gives me the opportunity to be more involved with policy discussions, through a close working relationship with the head of new-build.

What makes Santander stand out from the crowd?

Santander offers the intermediary marketplace multiple levels of support. There are teams of field and telephone-based BDMs, a specialist new-build desk, and a dedicated product transfer team. Santander underwriters are encouraged to call or email brokers and BDMs when they require a document or 16

The Intermediary | May 2023

MEET THE BDM

a confirmation from the broker, delivering a four working hour offering, which results in a smoother journey for the customer.

Post-completion the support continues, with customers able to port both simultaneously and non-simultaneously, and when a customer has less than six months on their current mortgage, they can take all of their borrowing onto a new rate and Santander will waive the early repayment charge (ERC).

What are the main challenges facing BDMs right now?

One of the main challenges is the changing working patterns postCovid. Pre-Covid, most brokers were office-based, whereas now a lot of brokers have a flexible approach to working from home or in the office, which can make it more difficult to book appointments sometimes to ensure that you connect with everyone within a firm. In an everchanging marketplace, it is key to adapt to keep everyone updated with criteria and process changes.

What are the opportunities?

The challenge of flexible working practices also opens up an opportunity for BDMs. Systems like Teams and Zoom allow BDMs to reach a wider audience. Balancing face-to-face appointments with Teams meetings gives BDMs the ability to support businesses with market knowledge, economic updates and policy changes, helping brokers educate their customers, signpost potential market changes and ensure the best possible outcome for their clients.

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

It is key to ensure that a BDM understands the full customer situation when answering criteria questions. For example, in the new-build sector, the end of the Help to Buy scheme has resulted in builders increasingly offering sales incentives. At Santander, we can accept a range of cash and non-cash incentives.

Not only do we need to ensure that these incentives are within policy, but also whether these incentives – alongside our flexible deposit criteria – could help the customer to move loan-to-value (LTV) brackets, which can open up lower rates.

We find that proactive dialogue with a broker will always result in the best outcome for the customer.

Santander Established 1857 Products Residential New-build Buy-to-let 95% LTV Help to Buy Large loans Shared ownership Additional borrowing Contact bruce.mcdonald @santander.co.uk

What products does Santander offer?

We support customers with a range of fixed and tracker rates, with differing fee options, including zero fees. We also support them with free valuation and cashback options as part of the rate structure.

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

Do not be seduced by the lowest rates. Advice from a mortgage professional is worth its weight in gold. We have seen our marketplace change rapidly over the past 12 months, and brokers will ensure that customers are placed with a lender that suits their circumstances and future plans. ● May 2023 | The Intermediary

17

RESIDENTIAL Opinion

Valuers crucial in helping clients make informed decisions

T

here are few bigger discussion topics within the property market than the value of our homes. The past few years have seen house price growth hit astonishing levels; the most recent data from the Land Registry shows that the average house price is now at £287,500. While that is down from the peak seen in November last year, it nonetheless represents a jump of more than £60,000 in cash terms on just three years ago.

However, it is indisputable that the drop in demand since the miniBudget has had a knock-on effect on what properties are worth today, with further falls seeming likely in the months ahead.

As a result, ge ing a clear idea of what a property is likely to be worth is absolutely crucial for buyers of all kinds, from first-timers hoping to take that initial step onto the housing ladder, to investors keen to add to their portfolios in a budget-friendly way.

Essential information That is where the role of a valuer is so crucial.

We believe that at the heart of any good valuation business is the desire to help cases actually cross the line and complete; li le good can come from carrying out a full valuation on a proposed purchase that is unlikely to actually proceed.

That was at the heart of our decision to launch a pre-valuation check service more than a decade ago. We felt that we would rather not get a valuation instruction than produce a report which was not going to really assist with a case progressing.

The pre-valuation check service involves collecting the details of

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the property and running it against Rightmove, adding in data around the sales figures of similar properties of a comparable condition in the area.

The idea is to provide the client with a range of what we would expect a full valuation to come in at, helping them make a more informed decision around whether to continue with the purchase process.

Obviously, as brokers know only too well, the mortgage market can shi quickly, so that valuation range is not a guarantee of what the property would be valued at. A proper valuation can only be produced through a true, full assessment of the property.

There are enough additional costs that come with purchasing a home, from stamp duty to removal fees; the last thing we want to do is add yet more” However, this service provides the client with more information up front, allowing them to determine whether they really want to go ahead.

This is something clients value, no ma er what shape the housing market is in more generally.

A er all, few buyers are overly concerned about market averages when they are going through the purchase process – they don’t want to know about the average value of a home in the UK, but rather what that specific property is likely to be valued at by a mortgage lender, and

HELEN SCORER is operations director at Pure Panel Management

whether they will then be able to access the funds needed to go through with the deal.

Saving money and time What’s more, we know that this service makes a real, tangible difference to the firms we work with and their clients.

For example, Dave White, operations director at Fluent Money, says: “The pre-valuation check service that Pure provides is extremely valuable to our process. It allows us to have a preliminary assessment on the valuation of the subject property, which helps the speed and smoothness of the customer journey and the high service that we deliver to our customers.”

Most importantly, the pre-valuation check service does not cost the client anything. There are enough additional costs that come with purchasing a home that buyers have to account for, from stamp duty to removal fees; the last thing we want to do is add yet more costs to the process, which can obstruct the chances of a sale going through.

All of us working within the property industry want to deliver the best possible experience to our customers. We all know only too well that moving home is rarely a stressfree and straightforward process.

By working with the right partners, brokers can ensure that their clients avoid some of those hiccups which can be both emotionally and financially painful, and ensure that ge ing the keys to their new home is as pain-free as possible. ●

RESIDENTIAL Opinion

Consumer Duty: The bigger picture MARK DAVIES is managing director of BCMGlobal

Existential threat

Lord Sharkey: Consumer Duty is deeply flawed

A

head of its 31st July launch date, Consumer Duty is moving full steam ahead, so it is worth considering its likely broader market impact.

A big question is how exactly the rules will be implemented across a non-homogenous web of manufacturers, distributors, and administrators. In a recent communication, the Financial Conduct Authority (FCA) emphasised the progression milestones and what still needed to be achieved. Its tone and language made it clear that there would not be a so launch. Sheldon Mills, FCA executive for competition and the consumer, confirmed: “The deadline of [31st] July will not be moved…and we are here to help’’.

This was arguably a response to recent survey data which suggests 50% of firms are still inadequately prepared for the launch. The message and evidence should be a ma er of concern for everyone.

Furthermore, low levels of customer awareness about the rules suggests that there is an education piece required to manage public expectations. As it stands, the regulator is pushing ahead

even if the industry and public are, at best, only partially onboard.

Mixed feelings At Westminster, the new financial glasnost has had a mixed reception.

MPs and Peers continue to argue the pros and cons of the new rules.

Former Pensions Minister Baroness Altmann is a supporter, saying: “It would be wrong, in my view, to abandon these sensible plans for tightening consumer protection in financial services.”

So is Nick Smith MP, who adds: “Without confidence in a robust regulatory framework, consumers will be worried about engaging with financial services.”

However, City Minister Andrew Griffiths was reported as being concerned that the duty would “impose more regulatory constraints on the sector at a time when the Treasury is seeking to relax EU rules following Brexit.”

A possible inference is that the new rules will make the City uncompetitive versus other international financial centres.

Lord Sharkey, meanwhile, called the Duty “deeply flawed” and unlikely to “drive a change in culture.”

It is just possible that both sides of this debate are valid, but the reality is that there is li le discussion about how the new rules could be implemented, which has three major implications.

First, the biggest firms will have the resources to establish a new division within their compliance departments and will invest in data management capability. For smaller operators, implementation might be more of an existential threat, as they will have to interpret the rules to suit their budget and be far more pragmatic. How the rules are enforced may determine the degree to which these firms can afford to implement them.

Second, a core requirement is end-to-end responsibility for a customer’s journey, from scoping and defining the product, through to sales, support and solving major problems, including managing a customer through financial or personal difficulties. Companies are exposing themselves to greater liability.

Third, in an economically challenging climate, it will be difficult for the financial sector to pass the extra costs through to the customer. To be compliant, firms will have to fund the change in other ways – perhaps by increasing interest margins or reducing product ranges – without compromising service delivery.

A er 31st July, a possible outcome may be a poorer first level of customer service, relying on technology and chatbots to deliver basic communication and signposting and frontline remediation – but followed therea er by a far more expensive people-centric operating model for issue escalation. ● May 2023 | The Intermediary

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In Profile.

Jon Sturgess, StrideUp

The Intermediary catches up with Jon Sturgess, StrideUp’s head of intermediary sales, to talk about its recent emergence into the broker space, and its commitment to helping firsttime buyers enter the market

or those looking to get onto the property ladder for the first time, the barriers to homeownership may seem higher than ever before.

As purse strings tighten in the face of the rising cost-of-living and higher mortgage rates in a post mini-Budget world, issues surrounding affordability are rife.

However, StrideUp hopes to level the playing field for prospective homeowners.

Championing property purchase through its Home Purchase Plan, StrideUp not only helps customers get onto the ladder, but also focuses on buying bigger and better.

F

Great successes Since John Sturgess joined StrideUp last October, the mortgage market has been turbulent, to say the least.

Nevertheless, despite the market’s reaction to the Truss Government’s ill-fated mini-Budget casting a dark shadow over much of the industry, according to Sturgess it has been an extremely busy few months.

“Prior to me joining, StrideUp hadn’t entered into the broker space with the networks, clubs, and packages,” he explains.

“So, we were looking for a route into market, and how to design a proposition so that we could get it to brokers and make it something that they would use. We’ve delved into that now, and we’ve had some great successes with many introducers, as well as networks and clubs.”

He adds: “We do see that the proposition is moving more along the lines of [directly authorised (DAs)] and clubs, who are obviously looking for our type of product.

“We have taken that out to the market and we’re having great success with key partners already.”

Settling back down Speaking on the chaos surrounding the autumn mini-Budget, even though he does not expect rates to return to where they were previously, 20

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JON STURGESS

Sturgess says he has seen some improvement: “We are now seeing some decline in pricing which is great to see.

“I think that it has introduced more certainty with people who are looking to purchase as well as remortgage, and they’re getting a more balanced view of what the funding is likely to be now.”

He adds: “What I do think, though, is that it has shown that there is a challenge in the market around affordability, where obviously rates have gone up and people’s ability to borrow because of increased rates has reduced – this is where our proposition is really helpful.”

A win-win StrideUp’s unique selling point centres on affordability. Utilising an innovative Shared Ownership model that aims to make life easier for both brokers and customers alike, StrideUp aims to break down the barriers to homeownership by lending up to six and a half times income.

I N P RO F I L E

“One benefit of our product is that, as a lender, we can put a 20% equity share into the equation for the customer, and then they only require a 15% deposit,” Sturgess explains.

“And we have a lot of flexibility when it comes to the deposit – like many lenders, we can utilise parents and family, but also friends. We’re quite unique in that we allow that to happen.”

He adds: “We’re helping a lot of people who can’t get on the ladder due to affordability – that’s one of the main areas we operate in.

“Our income stretch will allow them the flexibility to increase what they’re looking to purchase and get the home of their dreams, and not just accept a smaller property.”

There are key differences when compared with standard Shared Ownership or equity loan schemes.

Sturgess explains: “I think the biggest unique piece for us is that – unlike a lot of the other lenders and Shared Ownership schemes – if there is any equity produced in the property, the client usually has to share that with the housing association or the other lenders.

“But with us, the full equity increase goes to the customer. We don’t look to gain any value out of the property increases.

“So, it really is a win-win for the customer. We help them get on the market with a 20% equity share, we do their mortgage, and we give them an affordability stretch, granting them the benefit of the equity.”

Working with brokers Having recently launched a brand new broker portal, StrideUp is not only committed to supporting potential homebuyers, but investing in its relationship with brokers, too.

“With most lenders, the ability to do business for brokers and make it as seamless and as smooth as possible is paramount,” Sturgess says.

“Because our proposition is slightly different in that we do the advice, brokers need to have confidence in us and fully understand where they are throughout the process.”

He continues: “We have a referral route so brokers can become basically a formalised packager, they place business with us through our [decisions in principle (DIPs)], and we take that over and then they package it.”

However, even in light of this invaluable broker support, there is still education needed surrounding StrideUp’s unique product offering.

StrideUp’s product is offered as a Home Purchase Plan, which traditionally has been used for Islamic finance mortgages.

“I do think there is an unawareness out there of what the product can do, and that – because it

is obviously linked with Shariah compliance and Islamic finance – people could potentially not realise how it can also help other types of clients,” Sturgess says.

“So, it’s about giving brokers the awareness that really, despite slight differences in the process, the outcome for their client will simply be an accessible way to buy their home.”

He concludes: “We do the advice, but apart from that, with everything else we want the broker to have complete control over the process.”

First-time buyers Sturgess believes that more innovation is required in order to get first-time buyers into the market.

“The majority of our customers are first-time buyers, which obviously shows that we must be doing something right, because they are coming to us,” he says.

“But I do think that the industry and the market need first-time buyers to be assisted, and that could come more from the Government side of things.”

He adds: “There’s got to be a smarter way for lenders to be able to assist first-time buyers.

“Some of that comes down to affordability, some of it comes down to regionality.

“But I think the market is there. It seems to be the biggest area at the moment, but we, as lenders, do need assistance with it.”

New opportunities ahead After a year of both positive growth and market turbulence, StrideUp is only just getting started.

With a focus on diversification and streamlined technology on the horizon, it is clear that there are bright things ahead.

Sturgess concludes: “For us, it’s about having our website and our portal completely utilised, and to continue expanding the proposition with our introducers.

“We’re looking to diversify in terms of the different ways in which we think the market can work.

“We have introduced a new product range – Iman – that’s for Shariah-compliant Islamic finance, and IncomeMax, which will be more attuned to a traditional specialist mortgage lender with the opportunity to lend up to 6.5-times income. So there’s two opportunities for brokers to look at us.

“As we’re new and believe in innovation to support aspiring homeowners, we’re understanding ways to work better with our brokers, whether that be automated valuation models (AVMs), adverse credit or loan-to-values (LTVs).

“So, there’s lots of activity ahead.” ● May 2023 | The Intermediary

21

RESIDENTIAL Opinion

Pressure on our capital’s housing is not going away

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hile the papers might claim catastrophe, a er having the privilege of a front seat in the housing market for some time now, I’m skeptical whenever I see click-bait headlines foretelling an impending housing crash.

We are not on the brink of a house price crash. To be frank, that summation couldn’t be further from the truth. However, that’s not to say there aren’t serious challenges facing the housing market at the moment.

Far more important, and worrying, than any assumed crash in values is the lack of stock available – particularly when it comes to the most in-demand types of property.

Agents say the market is fragmented, with discounts available for some types of housing, such as flats, but very li le supply of indemand properties like family homes.

According to the Financial Times, the latest Royal Institution of Chartered Surveyors (RICS) report revealed that the stock of residential properties for sale is close to its lowest level since records began in 1978.

Crystallisation It’s not entirely clear why, but higher interest rates, high inflation and the risk of being made redundant are all contributing to a collective reluctance among homeowners to sell and crystallise what they consider losses, albeit paper, based on lower selling prices. It’s a trend that can be seen across the UK, and honestly, it’s expected. When the economy takes a turn for the worse, the urge to move to a new house usually abates.

There are some mitigating factors when it comes to the capital, however.

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The Intermediary | May 2023

There is strong evidence that lockdown leavers are returning to London and the commuter belt.

While 73% of workers said they would look for a new job if told to work five days a week in-person, according to Bloomberg Intelligence, This is Money reported that Tony Danker, head of the Confederation of British Industry (CBI), recently said bosses ‘secretly’ want staff back.

Andrew Monk at City broker VSA Capital said too many are looking to have their cake and eat it, with young people shooting themselves in the foot as a result.

Bucking the trend I don’t take such a hard line on this: what’s right for one person isn’t always right for another. However, the comments do highlight the broader move by businesses to get staff back into the office. Indeed, Rightmove’s most recent market review showed that London has bucked the trend of residents abandoning the city in favour of the countryside.

According to the property portal, the number of agreed sales of flats is now 23% higher than in March 2019.

There is a noticeable shi in the makeup, however. Market analyst Propcast found that the 10 ho est property markets across the capital last month were outside Zone 2, with buyers willing to accept longer commutes in return for countryside access.

Given that apparent willingness to stomach longer journeys into work, there appear to be serious bargains to be had in some areas of London which particularly suffered in the wake of the pandemic.

Research by Savills shows that prices paid by first-time buyers in Barking, a Zone 4 stop in East London, are around 24% lower than a year ago,

ROBIN JOHNSON is managing director of KFH Professional Services

presenting an opportunity to get a lot more bang for your buck.

Just down the road in Dagenham Heathway, the average house price is up more than 8%.

The whole story Disparities such as these, however, underline the need to employ the aid of an experienced agent. Average price movements never tell the whole story, and it’s important that buyers understand the nuances affecting the value of a property they wish to buy.

As has always been the case, the health of the property market – for those in the industry at least – has much more to do with transactions than property prices.

On that front there seems cause for optimism. The Greater London Authority is forecasting that London’s population – already in excess of 9.6 million people – will expand by another 700,000 by 2031.

There is no way that the current housing supply can possibly support that expansion. It will necessitate considerable housebuilding, along with the provision of more public services including medical centres, schools, and basic amenities.

We must hope that those who need to move to a new house are not so spooked by headlines designed to use fear to induce clicks that they stall their plans.

The truth is that Britain’s housing market is so constrained by supply that a collapse is almost unthinkable.

The real threat is a loss of confidence, and we should not indulge in that kind of talk. ●

RESIDENTIAL Opinion

We must go beyond ‘make do and mend’

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s we plough through another sticky period for UK housing, policymakers might be forgiven for not seeing the wood for the trees. However, there are some significant micro-pressures building up in the market which impact other parts significantly.

As a start, we have a situation where private landlords are seemingly looking to leave the sector in their droves as more regulation and higher financing costs make it less profitable.

It’s pu ing a huge strain on the private rented sector (PRS).

Reducing the supply of rented housing, to my mind, makes things considerably worse for first-time buyers, who are having to dole out more and more of their income on rising rents. Saving for a deposit on top of that, and dealing with inflation over 10%? It’s just not realistic for most would-be homeowners.

Then there’s the pressure a contracting PRS has on the social housing sector. How many landlords are already taking yet another hit on their dwindling profits by buffering tenants from rents rising in line with higher mortgage costs? For registered social landlords, the situation is much worse.

Housing benefit has been frozen for the past three years, and even before this, margins on le ing to local authorities were tight. Now, landlords are virtually paying local authorities to house social tenants. Where are those on housing benefits supposed to live? How are these policies protecting tenants? They’re doing the reverse – simply removing available housing from the market.

Combined with inflation and interest rate rises, the situation is becoming untenable. And yet, in Jeremy Hunt’s first formal Budget in March, housing was conspicuously absent.

Help for those struggling to pay energy bills and cope with the rapidly rising costs of basic items, including food, is needed. Nevertheless, a policy of cash pay-outs to abate the cost-of-living crisis ignores the wider problems facing our economy. Any help is quickly eaten up with rising mortgage costs.

The cost of living is rising, in large part because of housing. The retail price index (RPI), which includes housing costs, was 13.5% in March.

Consumer price index (CPI) being over 10% is bad enough, but it’s masking the considerable pressure that keeping a roof over one’s head is also having on families across the country.

A proper plan For far too long, successive Governments have tinkered with housing policy, bankrolled firsttime buyers whose parents have the money to gi their deposits, and made promises to build more houses which haven’t materialised.

We need a proper plan for housing in this country, not a succession of tactical schemes designed as much to win votes as to address affordability bumps in the market. This plan must address tenure, quality and the type of builds needed to meet the needs of a changing population.

We currently have a shortage of the right kind of homes. For example, retirees who want to downsize are stuck in big family homes, while there’s a shortage of family homes on the market. Our latest Property Watch showed e.surv surveyors report that semi-detached and detached remain the key under-represented property types in demand. In the past year, the number of our surveyors reporting this has risen from 35%, to 41%.

There is also Net Zero to take into consideration. UK homes remain the least energy efficient in Europe, with heating residential properties accounting for 14% of our total carbon

STEVE GOODALL is managing director of e.surv

emissions. UK Finance estimates it will cost UK homeowners around £300bn to reach the Government’s required Energy Performance Certificate (EPC) ratings alone.

Our carbon footprint is just one side of the climate change challenge.

Last summer, temperatures in the UK went above 40°C for the first time on record. This summer is set to be even ho er. Winters are ge ing we er, and anyone who drives will know only too well the damage that combination is wreaking on our roads. Coping with potholes aside, the changing weather is also affecting the condition of homes across the country, which were never designed to cope with these extremes in temperature and precipitation. New risks are emerging as a result, with potential increases in subsidence as the ground swells and contracts to a higher degree.

There’s also a global shortage of the type of sand needed for construction, and last year the UN warned it’s rapidly turning into a crisis. It’s all very well to agree we need to build more houses, but how we do that and what materials we use must be part of that equation too. As sand becomes scarcer, the cost of using concrete, rendering and bricks to build new homes is going to keep going up.

Mortgage lenders remain cautious of lending on properties built with modern methods of construction, as this industry is still establishing itself.

We’re now on our sixth Housing Minister in a year, so I’m not holding out much hope that we’ll see a proper plan any time soon.

Sticking plasters on specific troublesome areas will work to an extent, but without a vision for UK housing we will be making do and mending for many years to come. ● May 2023 | The Intermediary

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Q&A

Nicholas Mendes, John Charcol

Nicholas Mendes, mortgage technical manager at John Charcol, explores how the business has grown and changed in recent years, and how it ensures that no borrower gets left behind How long have you been with John Charcol?

I’ve been with John Charcol since 2019. I joined as a broker initially, but my background prior to John Charcol was always around the commercial markets. So after a while, I moved into the commercial, second charge and bridging side of things. About two years ago, due to a number of factors, an opportunity for me to step into my current role came about and everything kind of fell into place.

For me, one of the key things was trying to make mortgages and property ownership more accessible – to try and not make it such a scary process. Those were my motivations coming into it, and since then it’s been great, meeting loads of people and sharing new ideas – there’s loads of stuff you can get involved in out there now.

Would you say John Charcol has a whole of market offering?

Yes, we are definitely whole of market. So naturally, we do the things like residential, buy-tolet (BTL), bridging, second charges, all that stuff.

The only area we don’t do at the moment is equity release. It’s an area which we looked at operating in in the past, and one we might potentially move into in the future.

We recently decided to partner up with Propp to help deal with our commercial side of things.

Propp’s systems are great in terms of sourcing, and we felt that in order for our clients to get the best support, this was the perfect relationship for both ourselves and the clients.

As a broker, we still do one or two bits in-house with regards to commercial, but we are referring most of our business to Propp.

This is where we’re seeing packagers come into their own. Naturally, with the second charge market really expanding, as well as the commercial 24

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and specialist markets, it’s great from a client perspective, in that products which a couple of years ago were seen as ‘dirty words’, as the market had a bit of stigma to it, are now becoming more commonplace.

When people talk about first charges, they are thinking about seconds potentially at the same time.

Having gone from being largely mainstream residential-focused, how has it been transitioning into this broader mindset?

I guess in a lot of respects, people that have dealt in the residential and buy-to-let markets probably would have come across bridging scenarios quite often. Whether it’s to do with a property that is uninhabitable, a property doesn’t meet a first charge lender’s requirements, or a buy-to-let purchase at auction, we’re increasingly seeing different lenders come into the market.

Take buy-to-let, for example. We’ve got refurbishment BTLs with lenders like Precise and Castle Trust, and then we’ve also got new lenders coming up like Octane Capital, which does great products where it can basically offer a purchase within 28 days. So, a lot of brokers will probably already have dealt within certain lenders that can also do bridging within their products.

Moving forward, getting into that more specialist mindset, we try to educate the client around the risks we take into account when we talk about bridging. The key thing we talk about with bridging is the exit. Whether that’s going to be the refinance or sale of the property, it’s important to give the client a plan A, plan B and maybe even a plan C. In having those conversations, you’ll be able to find the right product. Most brokers who have dealt in the industry for a period of time will have

Q&A

come across situations where a bridging product is needed. For those who have not previously delved into bridging or second charges, there are great opportunities to have those extra conversations.

One of the things we’re trying to encourage within John Charcol, in terms of the network, is that if advisers come to us without that background, we try and support them, helping them upskill and educating them to be able to give the right advice.

Do you think we are going to see some lenders transition away from the typical high street model and become more of a one-stop shop?

If you think about the past few months, in terms of the mergers and acquisitions that we’ve had in the marketplace, we’re in an interesting place.

When you look at some high street lenders, their systems are pretty archaic in terms of criteria, background finance and everything else.

But we’ve also got these smaller, more niche lenders which are nimble and able to lend on adverse credit and things along those lines.

Going forward, we’re going to see the more of these niche lenders swallowing up traditional lenders and trying to adapt; yes, they may try to offer better rates, but I think it’s their IT systems which will fundamentally play a key part.

We’ve seen the start of it with Starling Bank and Fleet Mortgages. Here, we had a fintech bank doing the opposite of what we’re accustomed to – usually the more established building society or bank would take over a fintech, whereas this time it was the other way around, which was really interesting. This poses a bigger question for later down the line, when we look ahead to the next 20 years: will we start to see big players like Amazon and Apple delve into lending? That could be the next step when we talk about financial products.

It’ll be interesting to see how non-financial companies step into the market and disrupt it.

How does John Charcol stand out when it comes to giving brokers advice and training?

There’s a few things that we try and do when it comes to support, especially as we deal with the whole of market.

We work closely with lenders. Lenders often come to us to provide updates on their products and criteria. We also work hard in the background

when it comes to different types of matrixes. In the expat market, for example, we keep a real-time sheet of all the lenders, criteria and rates available to our advisers.

Anything that we see as a gap in the market, or if we’ve had a number of enquiries about a certain topic, we try to use data to emphasise its popularity so that we can spread the word to all our advisers. This means no one gets left behind.

Whether employed or self-employed, we make sure that advisers have all the support they need.

What is next for John Charcol?

We have taken a bit of a shift. Pre-pandemic, we were more focused on employed and selfemployed, but in the past two years we’ve focused on trying to grow the network.

We’ve seen it before, where certain advisers have been with other networks, or were employed previously by estate agents or other brokerages, and are unhappy, looking to make a move.

We’ve seen more and more people looking to join John Charcol, which is great.

We offer our advisers plenty of benefits, including remote working, uncapped lead support with competitive commission, the ability to write their own protection or refer it to an inhouse team. We have a fantastic administration team, we don’t have any network fees, and we offer marketing support, whether that’s helping advisers grow their own introducers group, or support with brochures or social media.

One thing we’re really proud of is that we get a lot of people who come into the John Charcol network and after a month or so say that they weren’t expecting to have so many diverse leads. They might feel overwhelmed to a certain extent, but we support them in a range of different ways.

We give them the support they need, and then months later, they end up feeling it’s the best decision they’ve ever made. ●

NICHOLAS MENDES

PRODUCTS, PRICING, PERCEPTION HOW WILL CONSUMER DUTY AFFECT THE PROTECTION MARKET? Hannah Smith for The Intermediary

The Financial Conduct Authority’s (FCA) Consumer Duty rules come into effect for new and existing financial products and services on 31st July, and closed products and services a year later. The rules are designed to improve outcomes for customers across the financial services space, but what does a good consumer outcome look like for protection firms, and how will regulations change the way they do business?

In February, the FCA wrote to firms in the general insurance and pure protection sectors to set out its expectations ahead of the Consumer Duty deadline, reminding CEOs: “We want good outcomes for customers to be at the heart of firms’ strategies and business objectives.”

Many in this market will no doubt feel – correctly in countless cases – that they already put good customer outcomes at the heart of their business practices. However, the FCA has made it clear that some firms are over-confident that the policies and processes they already have in place are enough to comply with the Consumer Duty.

Products and services, price and value Under the Consumer Duty, protection firms will need to review their products and services to make sure they meet customers’ needs, and fix problems where they are identified.

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For example, it should be as easy for consumers to make changes, switch, or cancel as it is to buy the product or service in the first place. The quality of customer support should also be the same, regardless of what action the customer wants to take.

Where firms work with third parties to deliver products and services, the regulator has asked to make sure every business in the distribution chain meets the Consumer Duty standards.

Authorised principal firms will be expected to have greater responsibility for their appointed representatives (ARs), to make sure they remain compliant.

Product governance is a key focus for the regulator, and firms will need to show that their products offer fair value to retail customers, including add-ons to policies such as legal expenses cover. For insurance customers, the point at which they make a claim will be when the product’s value and service are put to the test. Claims settlements should be fair and made without unreasonable delays. Cancellation or administration fees, or any other charges, should be clearly signposted.

By 30th April, firms were expected to publish the outcomes of their fair value assessments for all open products, a key milestone on the road to implementation. According to Aegon – which

“The new Consumer Duty rules mean you can't be badly stung” produced summary documents for each of its products, including key features and the outcome of its own value assessments – advisers and distributors can use this information to assess whether clients will still receive fair value after their own charges have been added on.

Subjective value Consumers must be clear on what intermediary fees are being added to the product or service they are buying. At the moment, these can sometimes come to light much later down the line, says Matt Carter, director at Altus Consulting.

However, transparency is only part of the process. Indeed, organisations trying to demonstrate that their products give value for money are facing the issue that this value changes in the eyes of one customer compared with the next, depending on their personal preferences and circumstances. This could remain a work in progress for firms as the Consumer Duty rules bed in.

“Where most organisations, certainly in the protection space, have not been able to square the circle is in proving value, and that’s because it still remains very subjective,” Carter explains.

Neil McCarthy, chair of the Protection Distributors Group, says firms which have

mortgage and protection permissions could also see compliance relating to the mortgage process change over time, as firms try to ensure customers can make an informed choice on whether to take out protection insurance.

“We expect some firms will choose to mandate some level of protection conversation when advisers arrange a mortgage or remortgage,” he says.

Overall, though, McCarthy does not think the new rules will change the status quo all that much, particularly for protection-only businesses.

“Good firms will actively embrace the culture, but bad firms won’t,” he says.

“Unless some of the bad firms are fined or hit with warnings or sanctions, then it’s unlikely to have the desired outcomes. That being said, it is already creating better processes within firms [which] are embracing it.”

Data collection and reporting A key part of the Consumer Duty is that firms should monitor and provide evidence of customer outcomes, and take action where those outcomes are poor.

While many firms will already be collecting information through customer satisfaction surveys, complaints, and transaction data, more detailed data gathering and reporting may

p

May 2023| The Intermediary

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be required to measure outcomes at the level expected by the FCA. McCarthy believes there will be a greater focus on technology to manage this added focus on data, saying: “Tools are already being developed, or are already in place, for this.

“These are likely to become more commonplace, and will allow manufacturers to further evidence the processes and approaches adopted by firms distributing their products.

"These could be [continuous integration (CI)] quality advice tools or vulnerability assessment tools, to name a couple.”

Information and ratings service Defaqto has seen a 40% increase in reports created by general insurance providers using its financial product database since the Consumer Duty was set in motion. It has also seen an 81% increase in schedules, a type of automated reporting which uses product benchmarking to see how products stack up against each other.

Brian Brown, head of insight and consulting for banking and general insurance at Defaqto, says: “This significant increase in reporting volumes shows that firms are embracing the changes that the Consumer Duty brings.”

Carter expects that data will come into play much more during the sales process. This will mean making sure the right information is available in the right tone, that risks are

clearly shown, and that customers are properly segmented so that insurers really understand who they are talking to.

“That does rely on data and systems to make that orderly, so there may be a little bit of investment required to up the quality of internal systems,” he says.

Communicating with customers Firms also need to provide customers with timely information in a format that can help them make informed decisions. The FCA emphasises that information should be tailored rather than being aimed at ‘the average customer’. It also wants firms to give special consideration to customers who might be vulnerable in some way, at every stage of the product or service lifecycle.

This builds on its existing guidance on the fair treatment of vulnerable customers.

Communications on how to cancel a policy should be at least as clear as those used to sell it. Firms must test, monitor and adapt communications to support understanding and good consumer outcomes.

The Protection Distributors Group has been campaigning for all insurers to issue annual statements to boost engagement among policyholders, says McCarthy, who hopes this will help consumers understand whether the cover they hold still meets their needs.

Paula Bertram-Lax, chief operating officer at insurance broker LifeSearch, highlights the importance of using different communication channels, so customers can speak to providers through their chosen medium at a time that suits them.

“By having a combination of online and offline support where customers can move from one to the other with ease, customers feel in control,” she says.

“Social media, web chat functionality, website content, apply-and-buy online options, adviser telephony support, well-timed followup emails and SMS all add value to the customer experience.”

Improving public image

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Insurers are already subject to the EU’s Insurance Distribution Directive (IDD) which requires that, regardless of their position in the distribution chain, firms act in customers’ best interests and deliver clear, fair outcomes. Consumer Duty therefore adds to a broader approach to creating a more widely positive and transparent image of the market.

“There won't be an obvious change but, subtly, things should improve as firms embrace areas such as signposting that deliver better outcomes,”

says McCarthy. “Better communications stating how consumers have benefitted from the protection products they buy and use should help. The cultural changes that are encouraged will, I believe, deliver stronger long-term client relationships that can only improve the image of the industry.”

Bertram-Lax says her firm’s research shows that customers feel more comfortable knowing they are dealing with a company with an approach underpinned by regulation, adding that it is important that they feel this through all aspects of contact.

“We need to maximise the powerful language of Consumer Duty to enhance that feeling of comfort and capitalise on the ‘avoid foreseeable harm’ outcome by challenging the industry to be transparent and consistent about claims success,” she says.

“Insurers do so much to inform advisers about paid claims, but the industry needs to do much more for consumers.”

Clients at the heart In the world of protection, what does a good customer outcome really look like? For BertramLax, it is a successful claim experience, and this means firms need to prioritise speed, manage customer expectations, and provide regular, jargon-free updates.

The Consumer Duty has ramped up existing 'treating customers fairly' principles and made them more practical, says McCarthy. A good outcome under the new rules means showing evidence that customers understand communications, for example by conducting market research with a consumer panel.

It means putting the client at the heart of the business and protecting their best interests.

Where firms cannot help someone, they should be signposting to other providers that can.

“Good firms will embrace signposting when they can’t help a customer,” says McCarthy. “They will work harder to identify and help vulnerable customers, and they will adopt a culture centred on the client and not commission or fees.”

Carter says: “The FCA is saying there are still too many propositions on the market where people are not understanding what they're buying, so we need to double down a bit. With an intermediary that's slightly more complicated, because they have a choice, there is optionality around what they can provide to their customers, so there’s more onus on that bit of the chain.”

The insurance industry has always been one to respond to customer needs, but intermediaries will now have an even more important role to play to engage consumers. ●

Consumer Duty

In Short Under Consumer Duty, firms must ensure that: ◆ Products and services meet customers’ needs; ◆ Products and services provide fair value; ◆ Firms communicate in a way that supports consumer understanding; ◆ Firms provide support that meets consumers’ needs throughout the lifecycle of the product or service.

What does Consumer Duty mean for communications?

Neil Taylor, founder of language consultancy Schwa Many firms haven’t clocked how big the ‘consumer understanding’ outcome is. When you test with customers, for instance, on which financial terms they understand, it’s far less than most firms – or even the consumers themselves – might imagine.

A survey of 2,000 consumers by Definition Group found 83% said they could explain ‘inflation’, but only 57% actually could when they were tested.

There’s particularly tricky stuff around protection. I’d bet lots of people struggle with words like ‘beneficiary’ and ‘sum assured’.

The answer is to do some research to find out how well real people actually understand your communications – and what they would do when they’ve read them. Retest your comms when you think you’ve improved them to check – or prove to the regulator – they’re doing the job.

B U Y - TO - L E T Opinion

Industry rallies behind calls for fair council tax banding

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ith the recent Government consultation, the controversy around council tax banding for houses in multiple occupation (HMOs) has been claiming the headlines.

This follows an increasing number of HMOs across the country being rebanded as individual dwellings for council tax purposes.

Under the current system, some HMOs can be banded per room, making those tenants liable for he y council tax bills on a bedroom in a shared house. Meanwhile, other councils choose to band by the property, generating one council tax bill which is the responsibility of the landlord.

While the Valuation Office Agency (VOA) has the powers to reband HMOs, critics believe some local councils are requesting the VOA looks again at properties to increase tax receipts. In response, a number of Government ministers pushed for the consultation to see all HMOs classified once again as single households from the perspective of council tax.

The proposed changes to bring all HMOs under the same system has received widespread support from across the industry, as it would bring much-needed consistency and fairness for both landlords and tenants.

A er all, the current system can certainly be unfair, with council tax banded per property in the likes of Cornwall, but 140 miles up the M5 in Somerset, banded by room.

In these disaggregated areas, landlords are unable to absorb rising council tax bills and are forced to pass this on to tenants – making rent unaffordable. Landlords then face the prospect of expensive void periods or

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slashing yields to have any hopes of remaining competitive.

One aggregated council tax band not only makes the most sense in terms of ease and fairness, but supporters say it reduces unnecessary additional costs and regulation, and ensures properties remain more affordable for tenants.

As tenants – and landlords, too – already face increasing costs in the current climate, ensuring properties remain more affordable should surely be the priority.

Part of the housing mix The overriding challenge, though, is that local councils forget the vital role HMOs play in the wider housing mix.

Areas like Plymouth have become prime examples, not only looking to limit the number of HMOs, but in some cases branding all landlords with the same brush.

The reality is, these landlords provide accommodation for those on the bo om rung of the property ladder. Without good quality HMOs, lower income tenants, students and young professionals will have fewer places available to them.

This is especially true in Plymouth, where the local university has more than 18,500 students. While some of these will use on-site accommodation or may still live at home, there would be a clear housing crisis without a strong supply of HMOs. It’s the same for those outside further education, where traditional rental or full homeownership is either out of reach or not suitable for their lifestyle or career. Local councils must consider, without HMOs, how they plan to support those who cannot afford to live on their own.

With localised rules, planning and licencing requirements, it can be challenging even for the most

PAUL BRETT is managing director of intermediaries at Landbay

experienced landlord. For example, while some HMOs require different licences, some don’t require licences at all. There’s also Article 4 directives in certain areas, which block traditional permi ed development rights (PDR) for HMO conversions. This can be applied all of a sudden, affecting landlords without warning, so planning and strategy can be difficult.

Meanwhile, each council will look at their legislation and licencing uniquely to their area. It certainly makes things more complicated and requires landlords do extra research.

Brokers play an integral role in helping clients with their knowledge and understanding of local requirements. Some councils have upped their game by providing online questionnaires for landlords to submit their property details and find out what licence and legislation it falls into. This makes it easier to understand the requirements, and for brokers to support their clients, especially first-time landlords.

At Landbay, we work with brokers to ensure they have all the necessary information, correct to their locality and client requirements, before going to underwriting and evaluation.

Our business develpment managers (BDMs) are clued up on HMOs and understand the nuances. With any enquiry, we can provide the necessary guidance, whether it’s on planning, licencing or any other factors.

While it’s clearly a complex process, the good news is support is available for brokers and landlords, no ma er what the outcome of the Government’s consultation. ●

B U Y - TO - L E T Opinion

Green shoots in buy-to-let

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oise around the buyto-let (BTL) market is at an all time high. Landlords are facing considerable challenges, with higher mortgage rates, forward planning for the Government’s revised Minimum Energy Efficiency Standards (MEES), and the Breathing Space Scheme, where landlords are unable to take steps to retrieve rental arrears accrued prior to registration.

Despite these challenges, green shoots are sprouting. Growth in rental demand and sales activity continue to shine a light on the environment today’s market provides.

The future of buy-to-let looks clear, and growth in these areas provides an indirect prediction on what 2023 has in store for us.

This year, landlords will seek out expert advice on how to proceed with their property investments. Mortgage brokers, too, will be looking to find lenders with flexible criteria, and outof-the-box thinking.

How do we know all of this? Let me explain.

Growth in rental demand The private rental sector (PRS) has seen demand for rental property outstripping supply. In addition to demand for rental property, in 2021, the Government discovered a gap in the UK workforce: high-skilled workers. In order to a ract students and other workers to the country, it announced changes to the visa application process and rules.

This influx of workers caused a boom in rental demand, as the a racted individuals required homes.

Rental demand has been hot since the summer of 2021. However, the important note here is the rate of growth. According to Zoopla’s recent UK Rental Market Report, rental demand is 51% higher than the fiveyear average.

Landlords have enjoyed high rental demand for some time now, and will continue to enjoy high demand for their rental properties. This doesn’t seem to be slowing down, providing an area of opportunity for those looking to extend their BTL portfolios.

Non-vanilla More rental demand means the need for more homes. In recent years, multi-unit freehold blocks (MUFBs) and houses of multiple occupancies (HMOs) have been a popular choice for landlords looking to diversify their portfolios at the same time as meeting the demand for increased housing.

We have experienced many landlords taking advantage of this and refurbishing their standard buy-to-lets into HMOs, in turn allowing more access to accommodation for students and young professionals.

As landlords proceed into the challenges of 2023 and beyond, an option that may come to mind is to diversify portfolios.

Unfortunately, due to the high risk associated with having multiple tenancy agreements under one roof, finding a lender to approach the case with a hands-on approach can be tough. That’s where we come in, with HMOs up to 15 bedrooms and limited company transactions.

JASON JAMES is corporate account manager at LendInvest

Climbing rental yields Rental yield is a vital figure for landlords – simply put, it determines the potential return of a property.

Let’s recap. In 2021, landlords enjoyed the Bank of England base rate low of 0.1%. Many remortgaged on a 2-year deal, enjoying the high rental yields this era provided.

Until a few months ago, it was reported that landlords were struggling to make a positive return on their investments due to higher mortgage payments and low rent costs.

Despite mortgage interest rates being higher than they were two years ago, Zoopla’s UK Rental Market Report shows 11.1% annual rental inflation for new lets.

This is a vital statistic to demonstrate how the increasing rates are filtering down to tenants, indicating that rental yields for many landlords will return to a profitable figure.

We predict that the buy-to-let market will continue to show signs of stability in 2023, and longer term growth. ●

Growth in demand and sales activity is on the cards for buy-to-let in 2023

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B U Y - TO - L E T Opinion

Why service is the key

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rom the outside looking in, consumers could be excused for thinking that mortgage lending is pretty much the same, regardless of who the lender is. Buy-to-let (BTL) is the same whoever is proving the loan, right?

You apply, the lender says yes or no, and then eventually they pay out.

Of course, brokers know different.

In specialist lending in particular, while rate is important, service can be the most critical factor for their clients. Often, speed is essential – a borrower may need to move quickly to seize an opportunity or minimise costs somewhere along the line – but if a lender takes five days just to respond to an initial application, then the opportunity could be lost before it’s really got going.

Smart Money People, the financial services review site, surveys brokers on an annual basis in order to ascertain what lenders are doing well and where they need to improve.

In its most recent survey, it considered the key areas that brokers thought lenders should focus on ahead of the Consumer Duty coming into force, in order to ensure their clients are protected.

Communication is vital Unsurprisingly, the key theme for lenders to concentrate on was communication. Brokers felt both themselves and their clients should be kept up to date with responses in a timely manner, and many highlighted the use of jargon-free language.

Smart Money People also found that lenders miscommunicating changes in product offerings or rates, often giving less than 24 hours’ notice or sending messages outside of business hours, was a key concern. Of course, this was particularly germane following the mini-Budget, when lenders were pulling their products with often no notice whatsoever.

Meanwhile, 12% of brokers called for improvement in the clarity of the messaging, asking lenders to ensure

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communication is clear, fair and not misleading, as well as providing additional time to sufficiently understand the communications and make decisions.

Getting it right Any lender which says it has never had service issues is either being economical with the truth or has never offered products which appealed to borrowers!

At HTB, we’ve had times in the past when service hasn’t been where we wanted it to be. Rectifying the situation so it’s very unlikely to happen again isn’t a quick fix; that’s why we now have processes and policies which support effective communication, and therefore faster decision making.

Most lenders now offer broker portals. These have many benefits, with a key one being that brokers can upload documents whenever they want – which is often outside of typical office hours.

At HTB, we have a broker portal and it works very well. That said, we also ensure we provide a human touch, handling every case from start to finish. Our successful service levels are based on investing in human resource, rather than additional technology.

Helping hand We encourage brokers to maintain a dialogue with their HTB business development manager.

Our business development managers (BDMs) are there to educate new brokers with our processes and to help all brokers with their cases.

While all lenders will require some of the same information, many will ask for information that others don’t.

Our BDMs help brokers with asking the right questions of their client, and simplify what seems a challenging transaction. If brokers don’t have the answers, then they haven’t conducted

ANDREA GLASGOW is head of new business – specialist mortgages at Hampshire Trust Bank

B U Y - TO - L E T Opinion

to broker success a full fact-find.The benefits of getting the right information together from the outset is that we can then process the application quickly and with certainty.

Each BDM has a lending manager who will ‘mini-underwrite’ and conduct the credit searches in order to provide a decision in principle (DIP) within 24 hours. Currently, 39% of cases that receive an initial DIP from HTB go all the way to completion, which is an impressive figure for the specialist buy-to-let market.

Fast service I can’t stress enough that we provide a service which competes with the best in the marketplace, if the broker provides the right information promptly. We’re providing same day underwriting at the moment, while our completions officers are responding within 24 hours; this means the whole business is running on 24 to 48-hour turnaround. If brokers are unsure about something, they should just pick up the phone to their BDM. As the market recovers from the turmoil of the brief but extremely

eventful Truss premiership, brokers now have product options once again and don’t have to recommend to their clients products offered by lenders they know will take an age to complete.

Service is paramount, and understanding how they can play their part in helping the lender to work as efficiently as possible is key to brokers’ success. ●

Lenders miscommunicating changes in product offerings or rates, often giving less than 24 hours’ notice or sending messages outside of business hours, was a key concern for brokers”

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

Later life lending is bouncing back WILL HALE is CEO of Key

After the success of 2022, there are signs that this robust market is bouncing back

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he latest Market Monitor from Key finds that we saw a market of £722m in Q1 2023, which included £570m worth of new lending and £152m to existing customers. This is significantly down on the £1.39bn seen in Q1 2022, as a direct result – as with many other property markets – of the September mini-Budget, which resulted in rates increasing, maximum loan-to-values (LTVs) reducing, and a more limited choice of products.

Customer demand has remained strong throughout this period, though, and there is li le question that we are seeing green shoots in the market as rates have come down and a number of products and lenders have returned. However, it is perhaps useful to look beyond these Q1 lending figures to see if there is more that we can learn about the underlying drivers in the market.

First, the average amount released has fallen to £81,703, the lowest level seen since Q2 2020 (£62,183) when the UK was in the grip of a global pandemic. At that point, we had also seen lenders withdraw products, tighten criteria and adopt

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a cautious approach to lending as they tried to maintain business at an unprecedented time.

Customer confidence was low, especially among older age groups who may have been shielding, as people adopted a ‘wait and see’ a itude as they sought to make sense of what the global pandemic meant.

While the impact of the miniBudget was certainly not as personally devastating, there are some similarities, with advisers exercising caution around recommending borrowing for discretionary reasons, and customers wanting to wait and see where rates land.

The right outcome In Q1 2022, 53% of housing equity released was used to repay outstanding mortgages, compared with 34% in Q1 2023, and 11% was used to clear unsecured debt, compared with 6% in Q1 2023. These figures fell yearon-year, as more people found that they either could not get the LTV they needed to meet their mortgage obligations, or could not release sufficient to clear their unsecured as well as secured debt.

Using equity release for debt management has always prompted

much discussion. In a perfect world, people would repay their borrowing ahead of retirement and without needing to resort to housing equity.

However, if the past three years has taught us anything, it is that we don’t live in a perfect world. We need to focus on finding the right outcome for each individual customer based on their specific circumstances, and balancing short-term drivers with longer-term risks and implications.

With the average interest rate si ing at 6.74% in Q1 2023, there is no doubt that following the in-depth specialist advice process, some customers were urged to wait or consider other options. This is a choice that each homeowner must make with the support of their adviser, but while I don’t think we will return to the days of 2.85% (Q4 2020) any time soon, we did see rates starting from 5.00% at the end of April.

Almost half (45%) of customers used 11% of the equity released for home improvements in Q1 2023 which was slightly up on Q1 2022, when 39% used 8%. While adverts o en focus on new kitchens or conservatories, the figures suggest that more people are age-proofing their homes, with a rise in spending on accessible bathrooms, rewiring and central heating, but a fall in new kitchens and extensions.

While there is li le doubt that those of us in the later life lending arena would have been keen to see a healthier Q1 2023 a er the success of 2022, there are signs that this robust market is bouncing back. Lenders are launching or relaunching products, rates are falling, and LTVs are improving. This is likely to be a real relief for the increasing numbers of customers who see housing equity as a key part of their retirement. ●

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

Consumer Duty and protecting the vulnerable

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key focus for the Financial Conduct Authority (FCA) within its new Consumer Duty rules, due at the end of July, is good outcomes for vulnerable consumers.

The FCA’s 2020 Financial Lives Survey found that nearly half of UK adults (46%) showed one or more characteristics of vulnerability – that is equivalent to 24 million people.

With so many potentially vulnerable customers, it is hardly any wonder the regulator is keen to ensure financial services firms take this seriously.

What is vulnerability?

The FCA defines a vulnerable customer as: “Someone who, due to their personal circumstances, is especially susceptible to harm – particularly when a firm is not acting with appropriate levels of care.”

It views vulnerability as a spectrum of risk that covers a whole host of characteristics. These include poor health and life events such as losing a loved one, a relationship breakdown, losing your job or new caring responsibilities. Some people also have a low resilience to cope with financial or emotional shocks, and low capability because of limited knowledge, poor literacy or numeracy skills.

Identifying vulnerability At LiveMore we help people aged 50 to 90-plus get mortgages when other lenders won’t help. Naturally, some of our customers will be vulnerable, and we’re very mindful of this. Going above and beyond for vulnerable people has been a core part of our service since we launched almost three years ago.

Currently, 6% of our customer base has some vulnerability. However, we must be careful, because in our demographic, vulnerable customers will o en not consider themselves as such. Many people in this age bracket are in good health, both mentally and physically, but vulnerability naturally becomes an increasing concern with age. The population is also living longer, with increasing chances of ill health and vulnerability.

Ongoing care When designing mortgages for this age group, we have to consider different scenarios that could occur in the future and impact our customers.

For example, what will happen if the borrower’s circumstances change, and the product is no longer suitable?

Keeping in touch with customers is key here, which is why at LiveMore we have a unique ongoing care programme. We ask that intermediaries make an annual care call to their clients to see how they are, and if the product they have taken with us is still appropriate for their needs. In return the intermediary receives a 0.13% fee every year for up to 15 years.

Having the ability to identify vulnerability is vital, as you will be in a be er position to meet customers’ needs as they evolve. It is important that firms understand the nature and scale of vulnerability in their target market, and the impact it has on consumers. All relevant staff should be trained so they have the skills and capability to manage any risks.

Other key considerations Another issue of vulnerability is that customers might not fully understand the product or service they are taking.

Therefore, at the design stage firms

BEN BAILEY is director of marketing at LiveMore

should consider how the product or service could affect vulnerable customers, both in a positive and negative way.

Information provided should be easy to understand and clearly explained to customers in a format that suits them. For example, do they prefer to be contacted by le er, email or phone?

Provider responsibility Customer service is, of course, key.

Firms should have robust processes to spot and respond to vulnerability and make customers aware of what support is available. There must also be systems in place to record and retrieve information about customer needs.

It should also be remembered that customers can move in and out of vulnerable circumstances at any stage of their life. They may lose their job, for example, and struggle to make mortgage repayments for a while. Our customers can take up to a six-month break when situations like this occur.

It is important that we find ways to help borrowers when they are vulnerable. LiveMore welcomes the renewed focus on vulnerability in the Consumer Duty regulations.

Together, we have a responsibility as financial service providers to identify vulnerable people in order to serve them be er.

If all firms follow the Consumer Duty rules and the accompanying guidance, I firmly believe we will have a much more consistent industry, with be er outcomes for vulnerable customers. ● May 2023 | The Intermediary

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

Call to help trapped

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ecently, BBC News released an article exclaiming that mortgage prisoners need help. The article stated that more than 200,000 mortgages were sold to firms, mortgages which cannot offer new deals, and that the companies they were sold to are exploiting the fact that many of these are older borrowers and cannot get mortgages elsewhere due to their age and affordability.

One of the examples The BBC homed in on was Samantha, who is suing over unfair rates. In Samantha’s case, her mortgage payments have almost doubled since last year, for no reason apart from the mortgage lender choosing to do so. The article goes on to say she is worried as to how she is going to afford it month-by-month, and she doesn’t sleep most nights.

Considering situations such as these, as well as those in interestonly mortgage ‘traps’, on top of the rising cost of living, and the whole

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commodity could feel like a never ending losing game.

Within the article, the mortgage prisoners are not given any solutions or optimism. This is a typical doom and gloom news article from the BBC, but what I want to do is think of solutions, not problems, and ways in which these people can be helped.

Alleviating the burden Often, lifetime mortgages as a solution can be ignored.

However, what if I told you Samantha could get a lifetime mortgage plan which clears her outstanding mortgage and alleviates her monthly financial burden altogether? If the BBC mentioned these kinds of solutions, it might make the world a more positive place to know there are options for those who need it.

VICTORIA WILSON is head of equity release at The Right Mortgage Network

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

mortgage prisoners A lifetime mortgage is exactly what it says on the tin, it is a mortgage, but for a lifetime. You do not need to make any monthly repayments, and the mortgage is not based on affordability.

It is simply based on the home and the value of it. The interest rolls up in the background, and is only payable upon death or going into long-term care.

The customer and their beneficiaries also benefit from a no negative equity guarantee, meaning if the amount did increase over time, there would be nothing for the beneficiaries to pay. This leaves your customer with a cleared mortgage and more of their monthly income to be used for more favourable things. At a time where the cost of life is on the rise, this can mean a great deal.

Clearing an outstanding mortgage is just one of the ways a lifetime mortgage can be utilised. Borrowers can also use the funds to clear credit card debts, help with home improvements, and even fun stuff, such as going on holiday, gifts to

children or grandchildren, and getting them onto the property ladder.

They can even buy a bigger house and get the lifetime mortgage on the new property.

of financial help, please do not hesitate or – even worse – think you cannot help them. Get in touch to see how your customer can unlock their goals within retirement. ●

Endless opportunities Have you ever come across an older borrower who is stuck, but who you haven’t been able to help or signpost?

As we all know, in whatever product area we work in, our customers are special and not always as easy to come by. It is imperative in your role to make sure you look into all ways you can help people before you turn them away with no answers.

The Right Mortgage Network is a specialist for lifetime mortgages.

Within our group we have just under 100 specialists based nationwide. Not only do we pride ourselves on doing the best by our customers, we also offer 50% of the commission as thanks for looking at giving your customers more opportunity. So, if you come across an someone over 55 and in need

It is imperative in your role to make sure you look into all ways you can help people before you turn them away with no answers”

May 2023 | The Intermediary

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

Unlocking semi-commercial opportunities

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he semi-commercial bridging space is a specialist area of the market which some brokers have chosen not to involve themselves in. I believe such brokers should rethink this approach, as it is full of opportunities for clients and is especially useful at times like these, when the residential mortgage market is harder for brokers to operate successfully in.

Essentially, a semi-commercial property is a building or land that combines both commercial and residential elements. This typically features a commercial space on the ground floor and residential units on the upper floors. Examples of a mixed-use security might include a classic ‘shop and uppers’, consisting of a commercial unit with flats above, or a pub with residential space on the upper levels.

There are a number of reasons why clients look to invest in a semicommercial property. First, it can help diversify an investment portfolio by providing exposure to both the commercial and residential property markets. Meanwhile, the dual nature of semi-commercial properties can help reduce the risk of vacancies, as the property can generate income from both commercial and residential tenants.

Semi-commercial properties can also o en generate higher rental yields compared with purely residential or commercial, depending on the location and market conditions.

There are risks, of course. Void periods for the commercial element can be longer, and yet the landlord will still be paying rates and other charges. Also, semi-commercial properties typically require more time

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COLIN SANDERS is chief executive officer at Tuscan Capital

and money to manage, as by definition there are distinct residential and semicommercial aspects to contend with.

Today’s market While there is no avoiding the reality that the past couple of years have been challenging for the commercial sector, the fact that the nation has now largely reopened following the pandemic has seen demand for commercial space reinvigorated.

As a result, Tuscan Capital is seeing strong demand from landlords looking to diversify.

Our approach to funding for semicommercial or mixed-use assets might surprise some brokers. Where a property is made up of both residential and commercial use, provided the commercial aspect does not make up more than 60% of the total square footage, borrowers may qualify for our most competitive residential bridging product range. Pricing is cheaper than when lending against commercial securities, and at Tuscan we are able to offer up to 75% loan-to-value (LTV).

When undertaking our underwriting and risk assessment, we assess the quality of commercial tenancies while also understanding the strategy to enhance the yield or improve the quality of the commercial asset. We will also take into account any residential rental income via an assured shorthold tenancy (AST).

Our risk assessment of a semicommercial asset is largely based on the proposed exit for our bridge. If the exit is a refinance, we keep a keen eye on the commercial term products available. We effectively underwrite the loan based on the likelihood of the commercial term refinance being both credible and viable to the client.

Where deals involve property which is predominantly or 100%

commercial, we do offer a commercial bridging product which involves a commercially savvy approach to our risk assessment.

The commercial underwriting focuses on the asset and the viability of what the borrower is trying to achieve.

Our commercial appetite does not reach far into development lending or securing against land with or without planning; we stick to what we are good at, leaving the land and development deals to the specialists in these fields.

Clients can also take advantage of most elements of our FastTrack offering. Mixed-use units get the same approach as residential assets when it comes to auction purchase or refinancing.

Over the past nine months, Tuscan Capital has seen a significant increase in new business through our FastTrack proposition for residential bridging.

However, it seems that many brokers are yet to take advantage of the fact that we can apply the same approach to many semi-commercial deals too.

We have worked hard on promoting our FastTrack proposition, but the true strength of our semi-commercial proposition remains a surprise to some brokers, and we hope to put that right over the coming months.

As the nation continues its recovery from the pandemic, the semicommercial market has been given a boost, with local high streets bouncing back particularly well. With mixeduse assets offering be er results than traditional buy-to-lets, clients need brokers to partner them with a lender that can help them to realise their goals. What are you waiting for? ●

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

No guarantee as to what’s around the corner...

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

The latest increase resulted in borrowing money becoming once again more expensive, and a rapidly increasing number of borrowers found themselves in a situation where they need to source a short-term funding solution.

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

Many lenders do not know which way to turn, so we see this as an opportunity to step in and provide much needed support to our brokers and borrowers. We’re well aware of the uncertain times that are upon us, and are more than happy to adapt our strategy to make sure we can provide support and affordable options throughout this period.

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

We launched our fixed option, the Hope Guarantee, in September 2022, giving the opportunity for borrowers to lock in at a great rate and protect themselves against further rate rises.

We’re o en asked why borrowers should opt for a fixed rate option over a variable one.

As with anything, deciding what is the most suitable depends on the deal and the outcome the borrower is looking for.

However, there are many advantages to having a fixed rate, including: Protection: Certainty is not only important to the lender, but to the borrowers too, if not more so. For most investors and developers, borrowing money is a means to an end.

Borrowing at a fixed rate means one less thing to worry about, and profit margins can be protected.

Budgeting: A key advantage for a borrower is that once they have locked a rate in, they know how much needs to be repaid over the course of their term. As the amount of interest charged doesn’t alter throughout the length of the introductory rates period, their repayments will remain the same, even if interest rates suddenly spike.

Capitalise on low interest rates: It looks very likely that interest rates are only going to continue to rise, and so taking out a loan when they are lower means the borrower will be able to lock in a cheaper rate for a period of time, which could reduce the overall cost of their loan.

Having the reassurance as a borrower that repayments will stay the same – regardless of what rate increase is potentially looming around the corner – is an extremely a ractive proposition.

At Hope Capital, it’s our mission to make sure that brokers and borrowers can access the right products.

We have created a range of secure, affordable and transparent products, meaning they can continue to borrower with confidence, which is just what’s needed at a time when living costs are being squeezed. ●

JONATHAN SEALEY is CEO of Hope Capital

The reassurance as a borrower that repayments will stay the same — regardless of what rate increase is potentially looming around the corner — is an extremely attractive proposition”

May 2023 | The Intermediary

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

Partnerships are the way forward

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t Kuflink, the commitment to cultivating strong, trust-based, and fruitful relationships with investors is a core business principle, further demonstrated by our B Corp certification in April 2023. This commitment is an essential driving force behind the success of our peer-topeer platform, which funds bridging and development lending.

Investor needs To fulfil investor demands, a business platform must first understand investor needs. Kuflink’s focus on providing customers with constant a entiveness and diligent listening allows the delivery of this critical function. Our stellar record of longterm investor retention and Excellent rating on Trustpilot is testament to this investor-focused approach.

Moreover, we frequently survey our investors to identify and implement robust system upgrades in line with customer requirements. Our advanced systems are a key component of our customer service, providing seamless communication channels for our valued investors.

Businesses in the financial services sector o en fail to prioritise individual investors, resulting in a shortfall of resource provision for this group of customers. Instead, Kuflink provides a personalised service, which places individual investors at the nucleus of our business model. Our investors feel appreciated and receive due care via abundant accessible human resources, dedicated to supporting them and forming a partnership. Our platform technology, designed to maximise ease of use, effectiveness, and reliability, further complements and develops this partnership.

Our historical record of zero loss in capital invested is a major achievement, and remains a significant incentive for investment and re-investment in our platform.

Additionally — though investment via our platform is not part of the bank guarantee scheme — the investment in our platform is assetbacked, in the shape of UK residential or commercial property.

Our online P2P platform makes lending an a ractive and viable prospect as a source of short-term bridging and development finance for many borrowers. One of the standout features of our funding source is that, unlike other lenders, we did not have to pull back from lending during Covid-19, and received many more enquiries for funding, because some of our peers had no choice but to withdraw.

Broker benefits

Maintaining partnerships is key to success

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Kuflink does not participate in costly advertising; we rely on a small team of business development managers (BDMs) to take our message to the intermediary market. Through personal visits and exhibiting at trade shows, our team has built up an impressive record of successfully informing brokers of the benefits that dealing with Kuflink for their bridging needs can bring.

RANJIT NARWAL is head of origination at Kuflink

Constant two-way communication, easy-touse technology and simple processes for investors and borrowers must be a given for any business like ours” The important aspect of their work has been to reinforce the importance of personal contact, which mirrors our experience among investors on the P2P side. We have developed a loyal following among brokers who enjoy the experience of dealing with a responsive lender that engages with them on a personal level.

Srengthening bonds So, partnerships on both sides of our business are crucial to our success, but building those partnerships is just one part of the recipe. Maintenance is the key part of the mix. By leveraging a philosophy of continuous incremental improvement, Kuflink continues to strengthen those relationships with investors and borrowers.

Constant two-way communication, easy-to-use technology and simple processes for investors and borrowers must be a given for any business like ours. Investment in human capital and the primacy of making and maintaining personal connections make Kuflink the business it is today. ●

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

Good legal advice is key, provided you take it…

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erious macro-economic and political uncertainty seems to be the persistent backdrop to our lives right now. Despite this, and perhaps because the specialist lending sector grew out of the Credit Crunch and subsequent recession of the late noughties, this remains a very positive sector even in the face of current adversity.

As an industry, we are well placed to offer support in the current tough trading environment. Experienced lenders with access to diverse funding lines are offering an ever wider range of competitive and innovative products, but as they do so, the importance of working with strong legal partners has never been greater.

The short-term lending sector is a fast-paced and highly specialised market which requires a different set of skills and expert knowledge to longer-term lending. The best solicitors in this market have a genuinely commercial outlook, are alive to their lenders’ clients’ needs, offer creative solutions to facilitate complex transactions, all while working to extremely tight deadlines!

Technical expertise and significant experience combine to ensure these solicitors genuinely do have an insider’s view and understanding of the market. They are o en to be found within partner-led teams that include experts in residential and commercial property, banking, and corporate law.

Consequently, they can advise on a wide range of commercial transactions, from traditional residential and commercial bridging loans, through to more complex development and structured finance projects. Crucially, they are familiar with the incredible variety of properties offered as security.

Market-leading firms such as Howard Kennedy, Fieldfisher and Memery Crystal not only look to provide strong, fast, and competitively priced advice, they also work closely with lenders to enhance their brands.

Furthermore, they actively engage with industry trade bodies such as the National Association of Commercial Finance Brokers (NACFB), Financial Intermediary & Broker Association (FIBA) and Association of Short Term Lenders (ASTL) to offer ideas and expert advice, which in turn helps drive industry standards and enhance the short-term lending sector.

Legal assistance At Saxon Trust, we work closely with the solicitors mentioned above and interact with many more leading firms, such as Jury O’Shea, Seddons, Underwoods, Gunnercooke, Brecher, Brightstone Law and Axiom DWFM, to name a few. Howard Kennedy played an intrinsic role in helping us dra our original documents, and continues to assist us as we refine and enhance our lending proposition.

In truth, the best law firms provide so much more than simply daily conveyancing support on each loan.

Of course, it’s vital that the basics are completed accurately in terms of the review and assessment of all title and covenant documentation, that all charges are registered, that undertakings are followed through, and that debentures or overriding interests are filed with Companies House. However, the best firms are also brilliant at guiding and driving the borrower’s solicitors, particularly those unused to the pace and tight deadlines imposed by, say, an auction purchase bridge.

The best law firms will ensure independent legal advice certificates

BRIAN WEST is head of sales and marketing at Saxon Trust

and legal charges are witnessed in a timely fashion by a qualified solicitor, that information provided is true and accurate, that undertakings are given on Land Registry requisitions, and that official copies of register entries are obtained, along with transfers or conveyances for the security property.

Additionally, they will ensure planning permissions, conservation area or listed and standard building consents have all been obtained as appropriate, and that the borrower’s solicitor holds the required mandatory professional indemnity insurance.

As well as doing all the above and more as required, these firms keep lenders informed every single step of the way, effectively becoming an extension of the underwriting team.

They also ensure their advice is continually up to date and compliant by working with both legal counsel and specialist compliance advisers to stay on top of regulation.

Heeding advice Fiercely protecting the lender’s interests is what defines the very best law firms, but of course in a market where commercial pressures are stronger than ever, and some lenders with large, commi ed credit facilities risk expensive non-utilisation penalties, legal advice is sometimes ignored in the desperation to get money out of the door.

It’s worth remembering that some of those lenders most guilty of ignoring advice, much to the exasperation of their solicitors, are no longer trading.

If you pay for good advice, it’s always wise to take it! ● May 2023 | The Intermediary

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

Scottish market needs to support developers

SME developers building 20-home schemes will go a long way to dealing with housing crisis

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here is cause to be optimistic about the Sco ish development finance market, especially when one considers how far it has progressed in the last decade.

Currently, house prices remain stable and continue to rise in certain locations. Registers of Scotland reports that average house prices in the first quarter of the year were up 3.8% on Q1 2022. This caused Re ie & Co to concede that its forecast of a 5% decline in average prices for 2023 — and 2.5% in 2024 — is “beginning to look a li le pessimistic.”

Housing supply is an issue which, of course, underpins this house price growth. Homes for Scotland (HFS) has established that there is a cumulative undersupply of almost 100,000 new homes, which creates opportunities for small to medium (SME) developers and housebuilders.

The Sco ish Government has set a target of ge ing 110,000 affordable homes built by 2032, of which at least 70% will be for social rent and 10%

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will be established in remote, rural and island communities.

In my opinion, if Scotland is going to succeed in meeting these housebuilding targets, the market needs to support developers to grow from building one house, to four houses, to 20. SME developers building 20-home schemes will go a long way to dealing with housing crisis.

Challenging market Unsurprisingly, Scotland has not been immune to the economic challenges of the past 15 months.

The market is becoming more challenging, and I expect to see some lenders either withdraw from the market or reduce the scope of their product ranges. When this happens, one typically sees development finance products being the first to be restricted or pulled.

That said, if we go back to 2008-9, there were only a handful of lenders in the bridging sector with rates between 1.5% to 2.5% per month, depending on the project.

ALLAN SMITH is director of SFC Scotland

The market has really evolved over the past 10-plus years, with rates much lower and lenders now offering specialist buy-to-let and development exit products, in addition to bridging and development deals.

That’s why I believe that — even if we do see a downturn or recession — it is not one that should be feared by SME developers and property investors.

Bank lending may be affected, but today there are lenders — who did not exist during the last recession — with products specifically designed to support developers.

Yes, some lenders may move to restrict funding lines, but many others are well placed to continue funding, just as they did during the Covid-19 pandemic.

At times like these, it’s vital that people find the right partners. At SFC we offer a consultative approach, offering support to introducers, SME developers and investors. We can carry out an initial appraisal of a project prior to purchase to establish whether it is viable, and obtain a decision in principle or heads of terms to confirm funding is available.

With existing projects that have been met with delays and challenges, we can review the position and offer support, as well as taking a solutiondriven approach.

Ultimately, if SME developers and property investors partner with the right lenders and introducers, they are well placed to secure the funding they require and take advantage of demand for new homes in Scotland; there’s no need to be pessimistic, and every reason to be optimistic. ●

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

Choosing the right development lender

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here’s no need to tell you that property finance is a complex world! These days there are numerous sources of funding in a variety of guises across the capital stack. But with so much choice, what are the key things brokers and intermediaries should be mindful of when selecting a finance partner for developer clients?

Introducers should look carefully at a prospective partner’s track record and heritage. Can the lender get on site quickly to meet the principals, assess the proposal and follow up with a credit-backed offer?

Equally, are the people you’ll be dealing with personable while also demonstrating a solid understanding of the construction industry and the challenges therein?

Developments rarely go exactly to plan. Will the lender be easy to get hold of when you need it, returning calls and emails promptly? Can it add value beyond the funding requirements, offering advice, insight and useful industry contacts?

United Trust Bank (UTB) is a coolheaded and flexible partner drawing on decades of collective experience gained through periods of high growth, stable markets, recession, and a pandemic. We are commi ed to supporting our borrowers and brokers through the economic cycle, ensuring that they can help clients protect their existing investments, take advantage of new opportunities, and build their own businesses at the same time.

Sustainable relationships Ask your prospective lender why they do what they do. The answer will o en set apart those that want to build long-term, sustainable relationships within the housebuilding sector, from those in it for a quick return with no genuine concern for the wider impact on our local communities. UTB, for example, likes to finance the right

properties in the right places where people like to live, work and play.

Shared space New Road in Brighton and Hove is a great example of the sort of vision we like to back. It was a typical street found in any city centre, with period buildings housing mainly offices. The pavements were narrow, cracked, and like the adjoining buildings, unloved and unable to cope with modern day city life. A place to work? Maybe. But certainly not a place to live and play.

Then came a council initiative inspired by a scheme in Copenhagen to create shared public spaces – New Road was the test case.

The doctrine of shared space is that the pedestrian and cyclist always have priority over the car. As part of an ongoing wider regeneration plan, the pavements and adjoining roads were merged into one. Pedestrians and cyclists were encouraged to use the whole street, and in doing so, traffic slowed and eventually avoided the area, as the footfall significantly increased over time.

The professional firms once occupying the ground-level offices moved to the upper floors, making way for new bars and restaurants.

The tables and chairs from these new occupiers took the place of cars and buses, and a once decaying theatre is now thriving as a cultural centre where the local residents, businesses and tourists come together.

Stories like New Road are the reasons why UTB currently funds around 400 or so developments across England and Wales which aim to contribute to and improve the locality for residents and workers.

The right choice How a lender does things is the final part of the puzzle. To find value these days, developers regularly buy sites and buildings unconditionally, speculating on the planning gain.

PIRAGASH SIVANESAN is director – intermediaries – property finance at United Trust Bank

Will the lender be easy to get hold of when you need it, returning calls and emails promptly?

Can it add value beyond the immediate funding requirements, offering advice and insight?”

To accommodate this approach, we can provide funding through all the stages of a project’s life-cycle, from initial purchase, through the planning process and construction phase, and supporting the sales or rental period of the finished project.

We also understand that the need for speed and consistency doesn’t stop at the initial decision. We are frequently complimented on our ability to arrange quick, sometimes same-day pay-outs on the completion of stage inspections. This may not sound like an outstanding selling point, but it’s something many developers experience problems with from other lenders. The last thing you need is to be brought to book for se ing clients up with a slow payer.

With so many funding choices now available to experienced housebuilders, making the right recommendation will not only help a client get their project off to a great start, but ensure smooth progress to a successful completion, and hopefully, lead to many more deals in the future. ● May 2023 | The Intermediary

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In Profile.

Mark Roberts, LDS Jessica O’Connor speaks with relationship director Mark Roberts to discuss LDS’ unique proposition in the face of a development market in flux ith market turmoil still going, some might argue there has never been a more uncertain time for developers.

The UK continues to face a substantial shortage of housing stock, while the cost-of-living crisis and rising interest rates still bite, deterring many potential buyers.

With the state of the property market in flux, this poses a serious sales risk for developers investing in new housing schemes. It is this risk, however, that LDS hopes to minimise.

The firm works with brokers, developers and lenders to provide financial security when it comes to developing new housing schemes, while also reducing the amount of equity a developer requires to commit to a scheme.

With its Sales Guarantee product, LDS commits by paying a 10% deposit and guaranteeing to purchase all open market units on a particular residential scheme, creating a safety net for all parties involved, should a property struggle to sell when it is put on the market.

The Intermediary sat down with LDS’ relationship director Mark Roberts, to discuss the future of the development finance market, and how the firm helps brokers and small to medium (SME) developers along the way.

W

Upfront commitment LDS’ proposition aims to support developers taking a substantial financial risk while doing the important work of building up housing stock.

“The Sales Guarantee is an upfront commitment from LDS to purchase all the open market units on a housing or apartment scheme, ranging between five and 60 units within England and Wales,” Roberts explains.

“We guarantee to purchase all those units at an agreed discount, which is typically a 20% discount against the lender’s Red Book valuation.”

Using the example MARK ROBERTS of a £10m gross 44

The Intermediary | May 2023

development value (GDV) scheme, LDS would guarantee to purchase all the units at £8m and exchange contracts, giving the developer a 10% upfront cash deposit of £800,000 to use over and above their senior debt position.

“Whilst it has the benefit of reducing their equity requirement, it also reduces the sales risk from their perspective and the lender’s perspective, and it allows them to build two or three schemes more, because it makes their equity go about 66% further,” Roberts continues.

“The developer then uses our money, along with the senior debt, for an agreed build period and a sales period. This is normally the build period plus six to nine months.”

Once the purchase guarantee is finalised, the deposit made and the units built, the developer markets and sells them on the open market.

“As each unit sells, we get our deposit back for not purchasing it, and a small fee for them having the benefit of our monies and Sales Guarantee,” Roberts says.

“There’s no arrangement fee, there’s no coupon to our debt, it’s purely a fee that we get paid for not purchasing each individual unit.

“That fee, if the developer is successful and sells them all within 18 months, is 2.99% of the Red Book valuation, if it goes beyond 18 months, it’s 3.99%. Any units that are left, we then purchase under the Sales Guarantee.”

A whirlwind With its unique proposition in hand, LDS is keen to support housebuilders, brokers and lenders on their journey to strengthen the UK’s dwindling housing stock.

Established three years ago, LDS is still something of new kid on the block, despite being part of the Landmark Group, which has been trading for over 21 years. Nevertheless, Roberts reports that it has seen great success thus far.

He adds: “We are now through the complete life cycle of some of our transactions, where we’ve seen them be sold and the developers move onto the next scheme, so its’s working very well. →

I N P RO F I L E

Watch the LDS Sales Guarantee explainer video

“It’s been a whirlwind couple of years working with a good number of new lenders that we’ve brought on the panel.

“We work with a wide variety of lenders, from challenger banks to smaller, private balance sheet lenders. This allows brokers and developers to choose a lender that works best for them.”

Roberts continues: “Also, it’s been great building our relationships with the wider broker network to encourage them to apply to us and see the benefits we bring, typically replacing the mezzanine tranche within a transaction.”

Broker benefit Beyond the support provided to housebuilders, LDS’ Sales Guarantee aims to make life easier for brokers, too.

This can be seen, according to Roberts, in the ease with which they can access instant terms via the firm’s website.

“The key point for brokers is the speed at which we can deliver terms,” he says.

“They can literally go onto our website and

generate an instant Sales Guarantee within 30 seconds. It then feeds back to them instant terms to put in front of the client. It’s a very useful tool for brokers.”

Indeed, not only is there a streamlined application process, but LDS also gives brokers an opportunity to access extra earnings.

“The benefit for brokers is that we are reducing the developer’s equity on each transaction,” Roberts explains.

“Typically, every developer will approach a broker saying, ‘get me the most leveraged deal that you can, at the cheapest level’. So, they can get the senior debt and we can tag in nicely on top of that.

“The beauty of our product is that if the developer doesn’t have all the equity required, it allows the broker to convert the deal that they may not have been able to without the Sales Guarantee.”

He adds: “On the other side of that, if the developer has the required level of equity, the broker can still include us in the debt stack May 2023 | The Intermediary

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I N P RO F I L E

able to build two or three schemes of 40 within an 18-month life cycle, rather than it taking a few years,” Roberts says.

He adds that thies goes hand in hand with the LDS Boost magazine.

“Within every quarter we’ll have some specialist commentary from building merchants, developers, quantity surveyors, and other property professionals, aiming to empower those SMEs and give them the network that these national housebuilders have got,” he explains.

“If anyone would like to subscribe for a copy of Boost, they can do so on our website.”

reduce the equity on this transaction, and encourage the developer to maybe do another one or two schemes with the equity that they’ve saved with us putting the sales deposit in.”

Under this system, brokers might get two or three sets of senior debt, plus fees equal to 0.1% of the GDV, allowing them to earn on two or three schemes rather than just one.

“The nature of the Sales Guarantee is that it allows brokers to do more business,” Roberts says.

Empowering SMEs In supporting brokers and developers, LDS is supplying much-needed back-up in a sector currently under threat.

For Roberts, this threat becomes particularly acute for SME housebuilders, which are being disproportionately hit by turbulence in the housing and mortgage markets, not to mention high costs of labour and materials.

“There’s probably no issue with the national housebuilders. They’ve got land stock and can just keep continually churning out housing,” he explains.

“But if you look at the output that the SME housebuilders were putting into the system, going back 15 or 20 years, they were contributing 40% of the new-build houses in the country.

“That figure is unfortunately now down to less than 10%.”

This is where LDS aims to help, by empowering SMEs to regain lost market share.

“That’s the beauty of our product, we can get SME developers to a stage where they may be

Looking ahead Following its first few years of success, even in the shadow of wider economic pressures, LDS hopes to continue on its growth trajectory.

“When I first joined, I was employee number one, which was probably around 24 months ago,” says Roberts.

“We’re up to a headcount of 11 now, with three new starters due this month. It’s a rapidly growing company, and we’ve managed that growth internally.”

LDS aims to keep up this positive momentum for the remainder of the year ahead.

“We want to allow brokers and lenders to do more, spreading their equity further whilst also reducing the sales risk,” Roberts concludes.

“Going forward, we hope to keep up the momentum and growth that we’ve had, whilst continuing to encourage those SMEs, and building on our relationships with brokers and lenders.” ●

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

Commercial mortgages: Help landlords adapt

S

ince December 2021, when the first of a dozen consecutive Bank of England base rate hikes materialised, interest rates and more stringent stress testing have been regularly discussed by lenders and brokers.

High street lenders have a lower risk appetite now, it is more challenging for borrowers to obtain higher loanto-values (LTVs), and the cost of servicing loans has increased. In these circumstances, not all businesses can afford to buy their own premises, and many will continue to rent.

Separately, people are returning to high streets, supporting their local communities, and ploughing money back into businesses, while landlords are refreshing and renovating their portfolios.

Landlords are updating buildings to make them more appealing to employers, in turn trying to encourage staff to return to the office. Employers need to ensure work environments reflect the remote working experience, recognise that the traditional office cubicle is dead and buried, unable to compete with the benefits of working from home.

HR services provider Randstad UK says this is increasing demand for new types of workplaces, including ‘hypersocial’ spaces, where employees are encouraged to intermingle and talk, and where it’s not all about screen time. Simultaneously, employers are trying to develop refuges for people with hectic home lives, to escape disruptive flatmates or noisy kids.

As a result of this shift in demand, landlords are slowly recalibrating their commercial properties.

The growing demand for more environmentally sustainable solutions, and buildings, is putting

pressure on landlords to accomplish these renovations within certain environmental, social and governance (ESG) parameters. Quite right, too. Statistics indicate that 39% of global energy-related carbon dioxide emissions come from the building and construction market.

Long-term certainty It’s on professional landlords to adapt and innovate, and lenders within the commercial market can meet the needs of this cohort of borrowers.

In an uncertain market, professional landlords require longterm certainty, and commercial mortgages might just be the solution. Commercial lenders are an important part of the UK’s financial infrastructure, supporting the country’s economy by financing businesses and landlords across all sectors.

However, the existing commercial lending sector doesn’t appear to have all the answers.

First, commercial property is a diverse sector, and professional landlords often own properties in different asset classes. Professional landlords are looking for commercial mortgage lenders which provide strong LTVs at a reasonable cost.

Landlords also require sector agnostic lenders which can support borrowers across their entire portfolio. This is vital in a market that covers everything from social housing and swimming pools, to stadiums and offices, via bus stops and warehouses.

Second, professional landlords are also looking for commercial lenders that move quickly and make fast decisions. Borrowers are fed up with clunky banks that take too long to make decisions and offer inconsistent rates. Borrowers need firms which

NICK RUSSELL is sales director of TAB

take a more flexible approach to criteria and provide enhanced support for sustainable initiatives, to contribute to environmental conservation efforts.

There is a huge disparity between bridging lenders and commercial mortgage lenders here. The bridging market — worth about £5bn — is diluted with hundreds of lenders. The commercial mortgage market — worth in the region of £50bn — consists of fewer than 100.

Landlords want a lender with the speed and flexibility of bridging, and the long-term view of a commercial mortgage lender. This suggests the commercial market presents a huge opportunity for established bridging lenders to step up and diversify. Those used to offering quick decisions and taking pragmatic views will succeed in a market that demands consistency and transparency.

In conclusion, the cost of borrowing is pricing businesses out of the purchase market. So, the reliance on professional commercial landlords is growing. These landlords are having to upgrade their properties, not only to appeal to employers trying to entice staff back to the office, but also to meet the environmental demands of the property industry.

This poses a great opportunity for bridging lenders, which can use their expertise, technology and processes to support under-served commercial borrowers with longer-term solutions.

With the right approach and mindset, bridging lenders could become commercial mortgage lenders, creating sustainable, flexible solutions that benefit both borrowers and lenders. ● May 2023 | The Intermediary

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T E C H NO L O GY Opinion

The power of Open Banking in the specialist market

O

pen Banking is already revolutionising the way people interact with their finances and improve their financial wellbeing, with seven million active users in the UK. However, its true potential has yet to be fully realised, and this is the case for the mortgage market, and specifically specialist lending.

The application to completion journey for a specialist case has traditionally been a long and burdensome task both for consumers and brokers. During this process, customers must provide an array of financial details, including bank statements, proof of income, identity, address and deposit.

Open Banking has the power to transform the mortgage application journey, thanks to the sharing of secure financial data between banks and third parties. Ultimately, this speeds up the journey and results in be er customer outcomes.

Access to finance The innovation made possible through Open Banking is going to change the specialist lending landscape, particularly in areas of affordability and expenditure pa erns.

In the face of the cost-of-living crisis and rising interest rates, we’re likely to see complex customers become the new norm as a growing cohort of customers faces financial challenges of some kind.

In light of this, the need for a more granular look at a customer’s circumstances, which technology can provide, has been brought to the forefront. Open Banking has the ability to improve financial inclusion for disenfranchised customers –

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The Intermediary | May 2023

those who have found it difficult to prove they can afford a mortgage, such as those with complex credit or income streams. A customer’s current credit position only ever tells part of the story.

Through Open Banking, it is possible to categorise consented bank account data so that lenders can assess how much money customers have coming in and out each month. This enables lenders to foresee risks and reduce defaults by evaluating clients’ financial health, as well as help people access more affordable solutions.

Better outcomes for all Open Banking provides endless benefits to consumers and brokers alike, and has a key part to play in removing the friction associated with the mortgage application process.

For customers, it removes the need to fill out piles of paperwork, as the technology behind it accesses various data points, removing the need to rekey data. At the same time, it allows customers to share and have greater control over their data.

For brokers, it gives them the ability to see all of their client’s financial history, improving the speed at which a broker can complete a fact-find.

Ultimately, this leads to a be er risk profile, enabling specialist lenders

Education and learning will be crucial to the successful integration and adoption of Open Banking in the specialist market”

REECE BEDDALL is sales and marketing director at Bluestone Mortgages

to make the right lending decision quicker, resulting in be er outcomes for everyone involved.

Education While we have certainly come a long way since Open Banking’s inception in 2017, it will only become widely adopted in the mortgage market if we all work collaboratively to improve awareness and understanding of its full potential.

The Covid-19 pandemic, combined with the more recent cost-of-living crisis and rising interest rates, has helped customers, advisers and lenders alike to realise the benefits of automation to generate quicker results. Nevertheless, more needs to be done.

Education and learning will be crucial to the successful integration and adoption of Open Banking in the specialist market. Brokers have a role to play in educating their clients on the merits of this innovation, while lenders need to be as transparent as possible about their technology when it comes to supporting brokers and their clients each and every step of the way.

Looking ahead, the use of technology will be key to the future growth of the specialist mortgage market.

Open Banking will transform the credit application process, making it seamless and easier for brokers and their customers to access end-toend mortgage approvals, ultimately helping their homeownership dreams become a reality. ●

T E C H NO L O GY Opinion

Lenders must accept Open Banking reports

C

lick2Check is an advocate of Open Banking, and there’s no hiding the fact that it’s leading the way in the mortgage industry. However, we still come up against resistance from firms that need to move from the old traditional methods of payslips.

Mortgage lenders play a crucial role in the homebuying process, and while some are accepting Open Banking reports from advisers, many still rely on credit scores, bank statements, and other financial documents, meaning other market players must comply to get their applications through the underwriting process.

Open Banking allows financial institutions to share customer data securely and seamlessly. It enables individuals to grant permission to financial institutions to access their data, such as bank transactions, credit card spending, and savings.

The data is accessed via secure application programming interfaces (APIs) provided by the customer’s bank. This technology provides realtime, accurate information on the borrower’s financial position, which is beneficial to both mortgage advisers and lenders.

There are several reasons why mortgage lenders should accept Open Banking reports from mortgage advisers.

1

Improved Accuracy

Open Banking provides mortgage advisers with access to real-time data, which is more accurate than traditional financial documents.

Mortgage advisers can see up-to-date information on a borrower’s income, expenses and credit score. This allows them to provide lenders with a more

accurate assessment of affordability and creditworthiness.

For example, mortgage advisers can see the borrower’s salary and other income sources in real-time. This is more accurate than using payslips or bank statements, which may be several weeks or months old.

2

Efficiency

Open Banking can streamline the mortgage application process. Mortgage advisers can access the necessary financial information quickly and easily, which can reduce the time and resources required to manually collect and verify financial data, benefi ing both lenders and borrowers in turn.

For instance, lenders can receive instant access to a borrower’s financial data, which means that they can quickly assess affordability and creditworthiness. This reduces the time taken for loan approval, and the borrower can receive the funds faster.

3

Compliance

Open Banking can help ensure compliance with regulations such as the Mortgage Market Review (MMR) and the Financial Conduct Authority’s (FCA) affordability rules.

The MMR and FCA affordability rules require advisers to assess the borrower’s affordability and ensure that the mortgage is suitable for their specific set of needs and circumstances.

By using Open Banking reports, mortgage advisers can provide lenders with a more detailed and accurate picture of the borrower’s financial situation. This allows lenders to make more informed lending decisions, which are compliant with regulations.

Open Banking reports also help to reduce the risk of mortgage fraud, by

DAVID JONES is director of Click2Check

providing more accurate and detailed financial data.

4

Transparency

Open Banking promotes transparency by allowing borrowers to share their financial data with lenders in a secure and controlled manner. This can help build trust between borrowers and lenders, and ensure that lending decisions are based on accurate and up-to-date information. With Open Banking, borrowers can choose which data to share and which to keep private. They can also revoke access at any time.

This provides greater control over their financial data and promotes transparency in the lending process.

Lenders must evolve In conclusion, Open Banking provides mortgage advisers with access to realtime financial data, which is more accurate than traditional financial documents. This allows advisers to provide lenders with a more accurate assessment of borrowers’ affordability and creditworthiness.

Open Banking also streamlines the mortgage application process, ensuring compliance with regulations, and promotes greater levels of transparency.

As the mortgage industry continues to evolve, Open Banking will play an increasingly important role in facilitating lending decisions, improving the borrowing experience, and reducing the risk of mortgage fraud.

Lenders need to evolve, and mortgage advisers need to keep asking them the the question: why won’t you? ● May 2023 | The Intermediary

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T E C H NO L O GY Opinion

How agile is your software provider?

T

he agile way of working has been around for over two decades, and although its roots are in so ware development, all types of firms use it. So, what is ‘agile’?

Agile is a form of project management based around teamwork and collaboration, resulting in higher productivity. A recent Harvard Business Review article highlighted that agile innovation methods have revolutionised information technology, moving away from the functional silos of business analysts, developers, testers, etcetera, to crossfunctional teams.

This has resulted in higher success rates in so ware development, improved quality and speed to market, as well as boosting the motivation and productivity of IT teams.

Phoebus has been using this approach for a while now – and reaping excellent benefits – but it is also increasingly becoming a requirement for existing, and particularly new, clients. Several recent request for proposals have required us to provide case studies of how we engage with clients in an agile manner.

So, if you are unfamiliar with this concept, or just want to know a bit more about it in layman’s terms, read on.

One thing that separates agile from other approaches to so ware development is the focus on the people doing the work, and how they work together. Solutions evolve through collaboration between self-organising, cross-functional teams that value human communication and feedback, adapting to change, and producing working results.

The Agile Manifesto describes four overarching values: 1. Individuals and interactions over processes and tools. As soon as an organisation starts talking about steps in a process, and tools being used, they have stopped being agile.

2.Working so ware over comprehensive documentation.

The target of agile development is so ware that works, and iterations to continuously improve it, versus a focus on detailed ‘requirements’ that can’t change. Documentation is still important, but it is not the overarching focus.

3. Customer collaboration over contract negotiation. Engagement and collaboration are key tenets of agile development, rather than a proscriptive ‘contract’.

4. Responding to change over following a plan. Agile means being able to respond to changes in priorities or requirements, instead of being locked into a predefined plan.

What is agile?

Agile is iterative, meaning that it is done in pieces, called sprints, with each sprint building and improving on the lessons from the previous sprint. This is where the scrum comes into play. Scrum methodology is a workflow framework made up of sprints and reviews used to promote agile project management.

Key to agile project management is efficient communication, as opposed to lots of documentation, convoluted email chains or excessive meetings.

According to the 12 principles behind

Ultimately, agile is a mindset informed by the Agile Manifesto’s four values and 12 principles, which provide guidance on how to create and respond to change and deal with uncertainty. For agile to work effectively, the whole organisation needs to support that mindset.

The Agile Manifesto was originally developed in 2001 by a group of likeminded so ware developers, and according to recent research, more than 70% of US businesses now use it.

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The Intermediary | May 2023

Sprints and scrums

NEIL DYKE is chief technology officer at Phoebus

Agile is a form of project management based around teamwork and collaboration, resulting in higher productivity” the Agile Manifesto: “The most efficient and effective method of conveying information to and within a development team is face-to-face conversation.”

If you can communicate something with a short conversation instead of an email, you should.

Agile is about producing tangible, working results a er each iteration.

According to the 12 principles: “Working so ware is the primary measure of progress.”

Let’s use a non-technology example and apply agile to a newspaper editorial process – a writer delivers a rough dra , which is then revised based on the editor’s suggestions. One piece is not delivered all at once on the day it goes to press.

Productivity improves with the maturity of the scrum team – the more you work in this way the be er you become. Allowing the team to remain together while gaining maturity and experience enables productivity to improve significantly.

The advantages of working in an agile way can be seen for both the so ware provider and its clients. By building up a project as we go along, the client can see progress and make changes, giving them more control over the final outcome. ●

T E C H NO L O GY Opinion

Technology and the personal touch

H

ave you heard the one about the artificial intelligence (AI) system which taught itself Bengali even though it hadn’t been trained to? There is no punchline, this is just something that I learned from a recent interview with James Manyika, Google’s SVP for technology and society.

Manyika confirmed that there are still elements of how AI systems learn and behave that surprise experts, saying: “There is an aspect of this which all of us in the field call a ‘black box’. You don’t fully understand it. And you can’t quite tell why it said this.”

Although he did go on to say that the business has some ideas as to why this could be the case, it needs more research to fully comprehend how it works.

Fuel to the fire Concerns about AIs developing skills independently of programmers’ wishes have been expressed by various sections of society for some time, and stories like these will undoubtedly add fuel to the fire. So, are these concerns warranted in financial services?

Science fact? Society has concerns about AI learning

Around this time last year, I remember writing a piece highlighting an article in the Financial Times, and now seems like an appropriate time to revisit this.

The article centred around UK regulators issuing a warning to banks looking to use AI to approve loan applications. The basis being that banks can only deploy the technology if they can prove that it will not worsen discrimination against minorities who already struggle to borrow. Quite rightly, concerns continue to be raised over the implementation of AI, and the safeguards which must be in place to protect individuals and businesses.

Striking fear As a tech provider focused on the intermediary mortgage market, we have the ability to utilise AI, but we have to remain careful about how we do so. This scenario reminds me a li le of when the term ‘robo-advice’ first emerged. Initially at least, this term struck some element of fear into the hearts of many advisers across the UK. Advisers’ guards were raised, and they came out fighting to demonstrate how their skills, knowledge and ability to interact with all kinds of people – from first-time buyers through to the most experienced property investor – could add value and support to such a highly complex and emotive transaction.

We are some years down the line from this initial robo-advice threat and what we now know is that this was actually one of the early ways in which technology made an impact on a market which had traditionally lagged behind the tech curve.

In fact, many elements of the robo-advice process have been utilised by tech providers to create a range of front and back office systems, platforms and solutions which have since been adopted by new firms and established those that may have

NEAL JANNELS is managing director of One Mortgage System (OMS)

previously lobbied hard against its entrance into the market.

The reality is that the adoption of technology has been a steep learning process for many across the mortgage market. Here at OMS, we’d run our own brokerage and master broker business for over 25 years, and realised that we had to take steps to embrace technology to improve our efficiency and maximise potential revenue streams.

We initially looked for a system or solution to help us achieve this, but the truth is that we couldn’t find anything suitable, so we started developing our own.

This journey helps underline just how important it is for lenders, brokers and distributors alike to realise exactly what problems they want technology to solve, and to do their due diligence in building or securing the right solutions to solve these problems.

Balancing act The successful implementation of technology can be a delicate balancing act from both a provider and customer perspective, and within the intermediary mortgage market specifically, there remains huge value in technology maintaining a personal touch.

The best kind of tech is here to support and enhance the service a broker can provide their client base.

This is why we take our time to get to know our users and our strategic partners, to ensure we deliver exactly what they want, while maintaining the ability to adapt the system to meet their future ongoing needs.

Which leads to the question: does your tech provider do the same? ● May 2023 | The Intermediary

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L O C A L FO C U S Leeds

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

Focus on ...

JESSICA O’CONNOR is a reporter at The Intermediary

Leeds

ike the rest of the country, Leeds was no stranger to the tumult caused by the autumn mini-Budget in 2022, or the challenges in the wake of market unrest that plagued last year as a whole.

With the cost-of-living a weight on everyone’s shoulders, and interest rates still on the rise, this region is not quite out of the woods. However, with mortgage rates dropping from their dizzying heights, and worries – albeit only slightly – abated, the industry in Leeds marches on apace.

L

This month, The Intermediary sat down with local brokers and property professionals from Leeds to investigate the current state of the housing market, and to ask the question – what’s to come for the remainder of 2023?

Current values

The average property price in the Leeds postcode area is approximately £276,000, and the median price stands at £228,000.

In direct reaction to the turbulence experienced in late 2022, the average price in the area has increased by a substantial £20,100 (8%) LEEDS PROPERTY PRICES over the past 12 months.

The most affordable place Price Leeds England & Wales to buy in Leeds is currently in the ‘LS11 0’ postcode, where £276k £362k  AVERAGE properties can fetch an average price of £103,000. £228k £275k  MEDIAN Conversely, the most expensive place to purchase COST OF NEW HOMES AND OLDER HOMES a property is ‘LS17 0’, where buyers will have to fork out an £310k  NEWLY BUILT PROPERTY average £907,000.

The average detached home £275k  ESTABLISHED PROPERTY costs approximately £524,000, while semi-detached homes LEEDS COST COMPARISON OF HOUSES AND FLATS fetch a more modest £276,000.

The typical terraced home in £524k  DETACHED Leeds costs around £205,000, £276k and the average price for a flat  SEMI-DETACHED in the area comes in at £171,000. £205k  TERRACED Out of the 105 postcode areas in England and Wales, Leeds is £171k  FLAT the 38th cheapest.

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The Intermediary | May 2023

Residential market There were approximately 9,400 property sales recorded in Leeds in the year to March 2023 – an annual drop of 32.1%, or 5,100 transactions.

While there has been a considerable slowdown in the market of late, it is clear that the residential sector in Leeds still remains buoyant.

According to Mags James, director of Leeds-based Step by Step Mortgages, there has been a slow increase in the number of property viewings in the past few months.

She notes that, while demand is there, buyers are increasingly cautious and uncertain in light of the steep rise in interest rates and the continued cost-of-living pressures.

However, among those brave enough to enter the market, James

First-time buyers Even with slowdown and hesitation in some areas of the market, opportunity seems rife for first-time buyers in Leeds.

Heidi Deaton, business development manager for Leeds Building Society, says the society has helped a lot of first-timers onto the market of late.

With a strong range of products to help support those tackling the first rung of the ladder, and with summer closing in, Deaton anticipates the firsttime buyer market picking up even more over the coming months.

Needham agrees, having seen a lot of new stock being snatched up quickly.

With the price of an established property coming in at around £275,000, compared with newly built properties at £310,000, there is also a clear demand for newer housing stock.

First-time buyers are particularly drawn to the east of Leeds, according to Needham, where there is now a wealth of new-build developments around Colton.

PR

IC

ANGE E R

SALES BY

finds there is an overwhelming penchant for properties further away from the city centre, as long as they still boast good transport links.

This trend has also been observed by Chris Needham, mortgage and protection adviser at BR Needham.

He says this surge in popularity for more suburban, and even rural, properties is likely a result of the recent adoption of hybrid working by many businesses.

In light of this, apartments in the city centre have become less desirable, providing city-based buyers with a new opportunity for negotiation.

Buy-to-let With private rental property in Leeds taking up a significant 21.2%, compared with a national average of 19.2%, there is no shortage

of demand when it comes to prospective tenants.

However, according to Mike Illingworth, senior mortgage consultant at Mortgages by Whiteworths, this increasing demand is contributing to the ongoing turmoil within the buy-to-let (BTL) sector in Leeds.

Illingworth says that, despite healthy tenant demand, landlords are struggling to make a sufficient return on their investment due to high property prices and interest rates.

Unable to keep up with rising costs, some landlords in the area have opted to either reduce their portfolio or sell up altogether.

James also notes this slowdown in the buy-to-let market. However, she believes this is down to recent regulation changes, →

LEEDS PROPERTY SALES SHARE BY PRICE RANGE Price range

Leeds

Market share

Sales volumes

● Under £50k

0.3%

27

● £50k-£100k

6.1%

571

● £100k-£150k

15.6%

1.5k

● £150k-£200k

19.6%

1.8k

● £200k-£250k

17.3%

1.6k

Residents per household

● £250k-£300k

12.1%

1.1k

● £300k-£400k

13.8%

1.3k

2.34

● £400k-£500k

6.3%

592

● £500k-£750k

6.1%

571

● £750k-£1m

1.8%

170

● Over £1m

1.0%

Residents

832k Average age

38.1

www.plumplot.co.uk Data source:

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L O C A L FO C U S Leeds

Uncertainty in the market MAGS JAMES is director of Step by Step Mortgages

here is a lot of uncertainty in the Leeds market. There are still new houses going on every day, but a lot less are getting snapped up than before. There has also been more of a shift towards a buyer’s market, and more of a chance for negotiation. Investors should keep their eyes open for houses staying on the market for a long time, for which they could maybe secure a good price.

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A question of quality Sellers are more aware of the value of a quality buyer, and those in a clean proceedable position seem to have the edge. Lenders have certainly been protecting themselves a lot more, as the underwriting is much more intense and takes much longer than normal.

Affordability has been a challenge, too. Clients can’t understand why a year ago they could borrow a certain amount, and now it’s a much lower loan.

We are being asked to send all sorts of different documents and asked lots of ad hoc questions in addition to the normal ones. This is why the service we provide it so invaluable to clients, as the support lasts all the way through the process.

Changing priorities Buyers are still looking for rural properties with good links, since Covid-19 and the increase in working from home. Priorities have changed, and people have reevaluated what they are looking for with the next step.

The appetite for residential mortgages has been much lower than it was previously. There are still buyers about, but they are still very uncertain and worried about the future of the market.

On the remortgage side, some clients were relaxing on the variable rate to see where the market was going. But since September, clients have needed security. Some clients, when rates were going up, were rushing to us to tie themselves in six months before their mortgage was due, to give them that security.

Some clients are only willing to tie themselves in for two years to see where the market is, whereas some still like the 5-year option.

Every family’s situation, earnings, and outgoings are different. So again, we like to understand every person’s situation and discuss all the options available.

Shifts in BTL Buy-to-let (BTL) has massively slowed down. Investors have ha their eyes opened and are investigating more into auctions for bargains.

Due to the BTL changes, some landlords are just sitting and waiting and not buying at the moment, unless they are happy with the purchase price.

BTL rates have gone up a lot over the past six months. Some are taking the increase in the rental market as a good time to buy, whereas existing landlords are thinking alternatively. They may have existing clients in rental contracts and cannot take advantage of rent increases unless they get new tenants or raise rents substantially.

While 5-year fixed products are currently lower than 2-year products, landlords like the 2-year trackers.

Everyone’s circumstance is different, so I don’t think one product suits all personal situations.

which have seen landlords grow more cautious when it comes to purchasing additional properties.

With rising rates taking their toll, James has seen many investors and existing landlords turn to online auctions in search of a potential bargain.

the area. This, combined with new investment in infrastructure and approved plans for a large residential regeneration project in the city, could see opportunities open up to create new commercial and residential properties in the area.

Commercial proposals

Despite ongoing challenges, particularly in the BTL sector, the mortgage market in Leeds continues to operate as close to normal as possible.

Illingworth believes that, even in light of economic pressures, the property market in Leeds is a popular choice for investors and homebuyers alike. With appetite returning in the residential market, plenty of options for first-time buyers and a wealth of development, there is plenty of opportunity on the horizon. ●

The commercial market is also undergoing some change. According to Deaton, there has been a proliferation of proposals as of late that would see unused commercial properties in the city centre turned into purpose-built student accommodation (PBSA).

As a university city with plenty of students arriving each year, this solution could make great use of properties currently available in

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Looking ahead

With the price of an established property coming in at around £275,000 compared with newly built properties at £310,000, there is a clear demand for newer housing stock”

L O C A L FO C U S Leeds

Heating up

Caution required

HEIDI DEATON is business development manager at Leeds Building Society

MIKE ILLINGWORTH is senior mortgage consultant at Mortgages by Whiteworths

nderstandably, it has been a slower start to the year than in 2022. However, many estate agents have had an influx of new properties recently, which is encouraging.

Over summer we tend to see the market hotting up, as many people spend this time getting their homes ready to go up for sale. Leeds City Council recently approved plans for a large residential regeneration project in the city centre, which should also have a halo effect on the market.

As with the rest of the UK, there is a focus on greening our housing stock. It was recently reported that an aerial heat mapping exercise – aiming to identify buildings that should be prioritised for green retrofit projects – has been deployed in a bid to help with decarbonisation.

Work is also underway on the infrastructure in Leeds, with the opening of the new East Leeds Orbital Road. Various villages benefit from much better transport links.

At Leeds Building Society our purpose is to put homeownership within reach of more people, generation after generation. We have supported first-time buyers with products including 95% mortgages and enhanced affordability on more energy efficient homes. We also recently launched a new purpose-led savings account which rewards savers with a £500 bonus when they take out a mortgage with us.

eeds has historically been popular with both first-time buyers and investors, due to its affordability and potential for growth. A growing economy, strong job market, and cultural attractions make it attractive for many.

Leeds has also traditionally been affordable in certain areas, making it a good location for firsttime buyers, and with a vibrant centre with excellent amenities, there is a growing demand for city centre apartments from young professionals.

However, property prices have been steadily rising. In some areas, a typical house is now more than 10 times the average salary, putting homeownership out of reach for many people.

In recent years, Leeds has been a popular location for buy-to-lets. However, tax and regulation changes mean many landlords are looking to sell.

Many are struggling to find tenants and generate a decent return due to escalating interest rates.

Nevertheless, despite the ongoing cost-of-living crisis, many are still keen to invest in the property market, and Leeds remains a popular choice for investors and homebuyers alike.

I would advise people to approach the market with caution and seek professional advice wherever possible. By doing your research, understanding the risks and rewards, and seeking the right advice, you can make informed decisions and increase your chances of success in the property market.

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A busy time for first-time buyers CHRIS NEEDHAM is mortgage and protection adviser at BR Needham

he market remains buoyant, particularly for first-time buyers. A combination of rising rents and limited stock means that demand for property is protecting prices, and new stock is not hanging around for long. Reductions in interest rates since the start of the year also mean that home movers that previously delayed listing are now looking to move as mortgages seem more affordable.

With employees no longer expected to work from city centre offices five days a week, first-time buyers are increasingly looking to buy in the suburbs.

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With less demand for city centre apartments, there is often a chance to negotiate on price.

Aside from the obvious challenge around limited housing stocks, buyers benefit from the advice of mortgage brokers more than ever. With ever-changing lender criteria, and rates and schemes changing at short notice, it’s critical to take advice to ensure the most suitable deal.

After a quiet start to 2023, we’ve been busy with residential remortgages – helping clients secure a new scheme as their existing fixed rates come to an end.

With most seeing a significant increase in monthly payments, it’s been more important than ever to ensure that the new mortgage is affordable, and that clients have adequate protection in place to ensure that they can remain in their home, should the unexpected happen.

May 2023 | The Intermediary

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

Perceptions on seconds have turned a corner

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hose of us who have worked in the second charge market for some time know that it has at times suffered from an image problem.

More o en than not, if we saw an article in the mainstream media about second charge mortgages, we already knew what the narrative was likely to be.

Over the past few years, and more noticeably the past few months, there appears to be something of a seachange when it comes to coverage about second charges, and we are starting to see acceptance and a be er understanding of the product.

This struck me when reading a recent article in The Times, entitled: ‘Second-charge mortgages: Are they a good idea?’ The article offered a balanced and fair look at the pros and cons of a second charge.

The cheaper option The article gave the example of a borrower who was one year into a competitive 5-year fixed rate mortgage, and looking to raise £100,000 to build an extension, with £300,000 le on the mortgage and the property worth £500,000.

The homeowner would have faced a 3% penalty of £9,000 for remortgaging and paying the early repayment charge (ERC). Their loan-to-value (LTV) would have also been pushed up from 60% to 80% – potentially incurring a higher interest rate.

Before factoring in any potential fees, keeping the mortgage in place and obtaining a second would work out cheaper by around £250 a month – even with the rate being 0.50% higher than the remortgage rate.

This, of course, may not be the case for every borrower. But for some, the

maths speaks for itself, and this is aiding the sector’s growth.

Given the popularity of 5-year fixed rates over the past few years, and the historically low rates that were on offer during this period, more advisers are discovering that a second charge may be beneficial to their client, rather than disturbing a low rate first charge.

We also see advisers who feel more confident and assured in advising in this area once they have completed their initial second charge.

Consolidating debt We are also seeing this with debt consolidation. Borrowers are coming to us with a number of debts and looking to consolidate into a lower monthly payment. In some instances, a second charge can save them hundreds of pounds per month.

The Bank of England’s monthly Money and Credit Report highlights how our reliance on credit – especially credit cards – has increased significantly over the past couple of years.

Debt consolidation is a main driver of the current second charge market, and we expect the sector to continue to help borrowers consolidate their debt in the coming years.

As well as the genuine potential to save through a second charge, the sector has also benefited from regulation by the Financial Conduct Authority (FCA) since 2016, which put it on an equal footing with the first charge market. Hopefully, Consumer Duty obligations will also widen the sector’s appeal, and promote the need to take seconds into account when reviewing a client’s financial options, when they come in this summer.

As part of the duty, advisers will need to show they have acted in their

SUSAN BALDWIN is interim head of lending at Evolution Money

client’s best interests, and considering a second charge may form an integral part of this.

Secured lending volumes now routinely sit above £100m on a monthly basis, and the increase in business is a clear sign of greater recognition among advisers and borrowers.

Figures from the Finance & Leasing Association (FLA) show that there were 2,406 agreements during the month of February, totaling £106m.

This compares with just £81m in February 2018, when there were 1,742 agreements.

While there is still more to be done when it comes to educating and informing the adviser community of the benefits of second charges, we as an industry are advancing that message.

Alternative solutions We are also in a very different mortgage market to where we were perhaps 10 years ago.

Other forms of finance and shortterm solutions that once sat on the outskirts have moved further into the mainstream fold, accelerated by growing borrower need for alternative solutions.

Given the financial pressure many borrowers are currently under, and the cost-of-living crisis, we are likely to see some borrowers continuing to fall outside of lenders’ affordability criteria for mainstream remortgages.

The second charge sector has come a long way in the past 10 years, and we believe it has another exciting decade ahead. ● May 2023 | The Intermediary

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The Interview.

Maeve Ward is director of commercial operations at Central Trust and Mercantile Trust

ollowing an unprecedented year for the mortgage sector, which saw Government mishandlings followed by skyrocketing rates, Maeve Ward of Central Trust and Mercantile Trust believes the need for innovation has never been more pressing.

As director of commercial operations for both brands, Ward has overseen a wealth of new product innovations over the past year, including Central’s introduction of a flexible 1-year fixed rate, and the launch of Mercantile’s Homeowner Business Loan.

To further understand these developments, The Intermediary sat down with Ward to discuss second charges, current market trends, and Central and Mercantile’s evolving proposition.

F Jessica O’Connor speaks with Maeve Ward about sparking innovation from necessity in a constantly changing market

Borrower flexibility With the concept of a 1-year fixed rate being somewhat unprecedented and unconventional within the current mortgage market, Ward says that the need for both flexibility and certainty was the key driving force behind its release.

“We wanted to keep challenging the norm,” she begins. “Broker feedback indicated that there were a lot of borrowers seeking certainty but also wanting flexibility.

“Having a 1-year fix out in the marketplace provides a solution for those that have an immediate need to capital raise, and that require the certainty of a fixed monthly payment alongside the freedom to leave when their existing mortgage is up for renewal.”

She adds: “The feedback was accurate. We only launched the product a few weeks ago and we’ve already seen plenty of activity on it.

“At the moment, the signs are really encouraging that our timing was perfect.”

Second charges Aside from allowing an increased sense of flexibility, Central Trust and Mercantile Trust also hope to provide borrowers as many solutions as possible. As a staunch advocate for second charges, Ward is vocal about the gulf 58

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I N T E RV I E W

in understanding among advisers. In a bid to help the customer, she believes that traditional first charge mortgage advisers should act more holistically and consider second charge mortgages more seriously. She also argues that the stigma that still surrounds them is a legacy perception, and far from today’s reality.

“Whilst the Mortgage Credit Directive [MCD] back in 2016 made it a mandatory requirement in any capital-raising situation for a mortgage adviser to consider a second charge alongside a remortgage, it’s fair to say that, for many, if they can get a remortage through they’ll go down the remortgage route,” she says.

“But we all know that doesn’t necessarily mean that it’s the right customer outcome.

Whilst there is still a vast number of mortgage products available, the availability of mortgage products is not the issue, acceptance is.

“The mortgage market has tightened up lending criteria – and rightly so, given current market conditions – which means many customers that would have once qualified might find themselves now underserved.

“Mortgage advisers who aren’t considering a second charge alongside the remortgage, or more broadly embracing the specialist lending sector, might find this to be a costly mistake longer term.”

Ward adds that, with the cost of living, inflation and fuel prices continuing to rise, there are increasing numbers of customers for whom the need to restructure their finances is becoming a serious priority.

“If a mortgage adviser isn’t open to considering alternative solutions to help customers to capital, then customers will just explore other options to find a solution,” she continues.

“Inevitably, they will go onto Google and, after using the aggregators, will ultimately end up speaking to someone who will look at solutions more holistically.”

Long-term, advisers may find the cost of this mistake goes beyond the second charge deal alone, stemming into ancillary areas, such as protection and remortgage.

“A lot of mortgage advisers will state they don’t get second charge enquiries, and while that is true, what they will get is customers who come to them with a capital-raising need,” Ward adds.

“Advice is all about understanding the customer’s needs now and in the future, and researching and recommending the right solution. Having more than one product in the offering ensures that the customer will reach the right outcome.”

Of course, one barrier to offering second charge solutions is a lack of understanding.

Instead of being fearful of an unknown market, advisers should do their research and reach out to known and trusted brands in the market, referring the customer elsewhere if needed, which should get the right result without risking damage to customer loyalty.

“Doing nothing means potentially losing that customer long-term, and I’m sure that’s not what any mortgage adviser wants,” Ward says.

Serving the underserved One of the key pillars of both Central Trust and Mercantile Trust’s philosophy is serving the underserved. While many might imagine the customers in this bracket to be those with adverse credit, the reality, according to Ward, is much more nuanced.

If a mortgage adviser isn’t open to considering alternative solutions to help customers to capital, then customers will just explore other options to find a solution” “The contraction of lender appetite has led to more borrowers being underserved by the high street,” she explains.

“That could include people that have impaired credit in the past 12 months, in turn affecting their credit score, [as well as] the self-employed, as a result of their income being affected during the pandemic, contractors, and those with complex income streams, to name but a few.

“The stigma about the underserved being those with adverse credit is just not the case.”

Providing support With so many different types of borrowers at risk, and with the market more fraught than ever, both Central Trust and Mercantile Trust aim to support borrowers.

Ward says: “At Central Trust, our proposition supports those otherwise underserved. Our human underwriting approach allows us to assess each and every customer on their individual merit.

“The Mercantile Trust offering also lends itself to supporting the underserved. There are very few lenders in the second charge buy-to-let market lending up to 75% [loanto-value (LTV)] who will consider smaller advances alongside the ability to top-slice → May 2023 | The Intermediary

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I N T E RV I E W

With another base rate increase imminent, customers will be more hesitant to borrow outside of those that absolutely need to for debt consolidation. Anyone that was perhaps looking to do major home improvements is putting them on hold, because there is still some uncertainty around what is going to happen” where there might be a rental income shortfall.

More recently, we deployed the Homeowner Business Loan, another solution for property investors where the existing portfolio might have limited equity, be on a preferential mortgage rate, or be with a lender that will not consent to a second charge, but where there is equity within their main residential which would enable them to achieve the outcome a different way. The product is available either as a second charge bridge or as a second charge buy-to-let term.”

Energy efficiency agenda With new Energy Performance Certificate (EPC) regulations on the horizon and talk of energy efficiency and climate impact ever more prominent, Ward says businesses in this market are working hard to spread the word.

“I think it’s fair to say that lenders and brokers are working very hard to ensure customers are aware,” she begins.

“Credit to Shawbrook Bank with their white paper, and Together who have done something similar, as they are working tirelessly to ensure the market is well-positioned in terms of what needs to be done and by when.

“At Mercantile, we’re working with Elmhurst Energy, putting an informative guide together that will be available on our website, issued to existing customers as well as broker partners.

It will explain the timeline, provide useful links and guidance on where to find the existing [EPC] rating, and potential costs associated with that rating to making it more energy efficient, as well as the likely costs to make the improvements, as well as the implications if the improvements are not made on time.”

Ward also points to Glenhawk’s launch of its EPC boost incentive as a particularly refreshing direction of travel.

“They are rewarding customers who are looking to do a refurbishment bridge in which their intention is to improve the EPC rating, as 60

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opposed to rewarding those that already have an energy efficient property,” she explains.

Market trends Despite a slight recovery following last year’s mini-Budget, Ward says that some areas of the market are still struggling.

“In the second charge market we’ve seen a little bit of contraction: volumes and conversions are down,” she says.

“Did I expect that? Of course. With another base rate increase imminent, customers will be more hesitant to borrow outside of those that absolutely need to for debt consolidation.”

Ward continues: “Anyone that was perhaps looking to do major home improvements is putting them on hold, because there is still some uncertainty around what is going to happen.

“If we have a look at where the bridging market is in terms of rates, we haven’t really seen that much of a rate increase.

“When we did, it was very early on in the year, and those lenders have actually reduced their rates again.

“We are probably never going to see the rates that we had before, the 1% and 2% rates, I think those days are long gone, really.”

Continued innovation On the back of a recovering market, albeit only marginal at this point, as well as an abundance of newly released products, both Central Trust and Mercantile Trust have been going from strength to strength so far this year.

As for the remainder of 2023, Ward says to expect more changes, as the firms continue to innovate and support the underserved.

“We’re planning to invest quite heavily in technology within Mercantile Trust, as we aspire to be second to none when it comes to our service proposition,” she says.

“In short, we’re going to continue to evolve; I think that’s key across both businesses.

“We’ve got a nice runway of product deployments that we’re going to do, alongside some process enhancements and technology integration that we’re looking to deliver, which will enable us to expedite things quickly.

“We’re certainly not going to rest on our laurels that’s for sure.”

Ward concludes: “It’s undoubtedly going to be tough, but the second charge market is known for its resilience, and with two new lenders looking to enter in 2023, this will only be a good thing for market growth.

“Competition is healthy, and new entrants ensure existing players up their game.” ●

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P RO T E C T I O N Opinion

Change as an opportunity

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s global events affected the UK, particularly throughout the course of 2022, we saw economic growth slow significantly. The result of this is that consumers and businesses continue to face inflationary pressures which show li le sign of reducing as we approach the mid-way point of 2023.

An economic contraction is likely to follow a period of growth; however, the simultaneous occurrence of the pandemic, the war in Ukraine and nationwide strikes have contributed to, and perhaps exacerbated, an economic slowdown.

The cost-of-living crisis is impacting people across the UK, particularly Millennials and Generation Z. In 2020-21 we saw a surge in household savings, which was an instinctive response to a shockwave of panic due to the pandemic. We saw the rate ease in 2021-22 in line with the reopening of domestic and global economies.

Soaring costs may force families into making tough financial decisions, which may lead to a decision to deprioritise saving and investing for the future.

Sco ish Friendly recognises the challenges our own customers are facing. We have supported our members for 160 years and we will continue to be there throughout this period of economic adversity and into the future. Our mutual status aligns with our purpose-driven culture, as we pride ourselves in being dedicated to helping our customers achieve financial wellbeing. We have a responsibility to provide solutions to help customers achieve their financial goals, and a key part of this is understanding customer needs to help people plan more effectively and make good choices with life savings.

The average first-time buyer deposit is £61,000, and to reach this sum over

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an 18-year period, parents would have to make annual deposits of £3,100 into an average cash ISA, compared with a stocks and shares JISA, where the annual deposits fall to £2,700.

As we navigate through the doubledigit inflation in the UK, it is vital that families are aware of their options, as well as the potential pitfalls of relying on cash to protect their children’s future.

Retiring with an owned home mortgage free has been unachievable for many, and this could be a problem for future financial wellbeing.

The best outcomes As an organisation, we view change as an opportunity. We are always working to find and deliver the best outcomes for our members, and we are commi ed to doing the right thing for them. If families reach a point where they feel they have to deprioritise saving, we want to support them so they can save what they can when they can in order to look a er their future. We do this by listening to our customers, conducting market research, and identifying improvements to our products and services.

Our overall ambition is to create opportunities for financial inclusion

ALEXANDER MANAS is commercial director at Scottish Friendly

Our overall ambition is to create opportunities for financial inclusion for everyone” for everyone. There is a multitude of ways in which we can continue to support households, which is why we value our commitment to Action for Children, Sco ish Friendly Children’s Book Tour, and Developing the Young Workforce. Our partnership which these charities speaks volumes to our ambition, as we strive to improve the lives and outlooks of young people, particularly those who need it most, to benefit the family unit and help the wider community prosper.

To tackle the challenges that lie ahead, we are confident in our ability to achieve our ambitions and objectives, and we are commi ed to helping our customers navigate all of the uncertainty we face. ●

Improving the lives of young people through initiatives such as the Scottish Friendly Children’s Book Tour

P RO T E C T I O N Opinion

How can we improve women’s financial resilience?

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here are three primary pillars of financial resilience which support us all: savings, pensions and protection.

However, many women in the UK face additional challenges, including planning for a longer life span, the effects of the gender pay gap, and family commitments, all of which can impact their financial resilience in different ways.

Savings Royal London’s cost-of-living research shows that women have been impacted more than men. In many instances, short-term savings are being used to cope with the increases.

On average, women have about two-thirds of the cash savings that men hold, meaning their safety net is diminished much more quickly.

Women are more worried and likely to make cutbacks across many key household expenses, and this has been exacerbated in recent months.

In March 2022, 38% of women were worried about mortgage costs compared with March 2023, where it increased significantly to 81%.

Pensions While many life stages can have a much bigger financial impact on women than men, there are five core reasons why women can end up poorer than their male counterparts in retirement: caregiving, working pa erns, financial confidence, divorce and the menopause.

Caregiving for children or elderly relatives more o en than not falls to women, which can lead to a reduction to working hours, or stopping completely, a lower salary, and lower pension contributions.

Financial confidence is also a key issue, and whilst women are a lot more concerned about running out of money in retirement, they are also less confident in discussing financial ma ers than men.

Divorce, particularly in later life, can have a devastating effect on women’s finances. O en, pensions aren’t shared on divorce, even when they could be the largest asset and divorced women, on average, have less pension wealth than divorced men.

In addition, the impact of caregiving and working pa erns means that making up long-term income potential can be difficult, if not impossible.

Menopause is also a subject which is rightly being talked about more in recent years. Two-thirds of women think about leaving their job, or have taken sick leave during this time.

A 50-year-old woman who works full-time until the state retirement age of 67 could be be er off by over £126,000 in pension savings when compared to a counterpart who stopped working at the same age.

Therefore, women moving to part-time work, and reducing their working hours by half from the age 50, could lose out on £63,000 in their pension pot.

Protection The outlook for women with protection is challenging, too. Women are at a far greater risk of being under insured than men. This may be due to lower take up of financial advice.

So, what can advisers and providers do to level the field?

The industry must ensure financial advice appeals – and is accessible – to women. This must start with considering their needs, and aligning the services offered.

SHELLEY READ is senior protection development and technical manager at Royal London

Providers have a role to play in helping build confidence and resilience by providing innovative support tools. These can include financial wellbeing services, financial health check solutions, benefits calculators, and practical financial management tips.

Most providers now offer added value services, with a wide breadth of support o en at no extra cost, and the ability to use these outside of a claim. Services such as 24-hour access to a virtual GP, second medical opinions and mental health support and guidance can be invaluable to our female policyholders.

Flexibility of protection products is also key in modern times, to meet the needs of customers – allowing for cover to be added, removed, increased or decreased. Womens’ earnings are impacted by life stages such as pregnancy, divorce and the menopause – events which disproportionately affect earnings, and show the need for robust protection advice.

Social media has helped advisers to raise the profile of financial advice, grabbing the a ention of a broader audience, including women and younger people, and we must continue to innovate in how we engage and educate.

Women are, generally, more financially impacted than men by many life events.

As an industry, we need to ensure we consider the challenges women face and provide access to relevant, tailored services and products, advice and guidance that meets their needs to allow them to build and protect their financial resilience for whatever comes their way. ● May 2023 | The Intermediary

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P RO T E C T I O N Opinion

Income protection increases resilience when living costs are high

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he observation that many consumers continue to grapple with the cost-ofliving crisis, which has depleted their savings and undermined their resilience, makes a compelling case for income protection.

Statistics from Kantar Profiles/ Mintel in January 2022 showed that 59% of people would last less than 12 months without their income, and within that, 43% would be struggling within six months. Others could last a li le longer, but only 10% of the population wouldn’t struggle at all at some point.

This income protection need is amplified by the findings of an Office for National Statistics (ONS) report published in November 2022. This pointed to a steady rise in long-term sickness absence since before the start of the pandemic, with half a million more people out of the labour force due to this since 2019.

Between June and August 2022, around 2.5 million people reported long-term sickness as the main reason for economic inactivity, up from around two million in 2019.

‘Other’ illnesses The ONS report also showed the biggest increases were in illnesses that are not necessarily within the scope of a critical illness policy.

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The report highlighted the biggest change was to ‘other’ illnesses (41%), problems connected with the back and neck (31%) and mental illness and nervous disorders (22%). This is compared to a 1% increase in progressive illness, such as cancer.

So why is it that only 6% of people in the UK have an income protection policy? These statistics clearly show the need. Where does the problem lie?

Lack of awareness or understanding?

Perception that income protection is too expensive or doesn’t pay out? Is it too complex, or just easier to buy life and critical illness cover?

We considered all of these when designing our new income protection cover. We started by looking at how to create more certainty at the point of claim, to dispel the myth that income protection policies don’t pay out. We did this by including an ‘own job’ definition. This not only means we’ll pay out if the customer can’t do their specific job, but it’s also a lot easier for the customer to understand what they’re covered for.

The industry use of ‘own occupation’ has been viewed by many as synonymous with ‘own job’, so the difference has been somewhat overlooked. But we don’t think it should be, as this difference is what can be the cause of disappointment for customers when they come to claim.

People are more likely to understand that they can claim on their policy

JACQUI GILLIES is marketing and proposition director at Guardian

because they’re unable to do their job than be told they can’t claim because they’re still able to do a similar job within their class of occupation.

Take the example of a packer whose work creates a dusty environment due to the nature of the materials used.

If that policyholder develops asthma triggered by this environment, they can no longer work in that area.

Under an ‘own occupation’ definition, they’re well enough to carry out another job within their occupation in another part of the warehouse where they wouldn’t be exposed to the dusty environment.

So, even if there are no current roles available for them to move to, their claim would be declined. Under our ‘own job’ definition, we’d pay the claim until a role could be found for them on an alternative team.

P RO T E C T I O N Opinion

Source: Office for National Statistics

The number of people out of the labour market because of long-term sickness has been rising in recent years. Cumulative change in number of people aged 16 to 64 years inactive owing to long-term sickness, seasonally adjusted, UK, January to March 2017 to June to August 2022

We believe this definition will also deliver good customer outcomes, which shows how we’re aligning with the Financial Conduct Authority’s (FCA) Consumer Duty Principle 12, and delivering on rules within outcomes three and four.

We’ve also chosen not to offer terms where a claim is solely based on the ability to carry out ‘activities of daily working’, like bending or li ing, as these are typically difficult for the customer to make a successful claim under.

Keep it simple To address the problems around income protection being either too complex or too expensive, we asked advisers and consumers what they expected from an income protection policy. They told us: keep it simple.

So, we stripped out all the bells and whistles they said weren’t needed, and added in some flexibility to suit different needs and budgets.

Customers can choose between 2-year and full-term payment periods, and from a wide range of deferred periods, including four, eight, 13, 26, and 52 weeks, according to their needs and how much they want to pay.

We cover 65% of annual earnings up to £60,000 a year.

During the policy term, we’ll provide yearly statements, so customers always know what they’re covered – and paying – for.

They can also take advantage of our Guaranteed Increase Options and Lifestyle Promise. At the point of claim, clients can choose between weekly or monthly payouts, as well as the day of the week or date of the month they want to receive their payout, to align with their regular direct debits and standing orders.

On top of that, we allow customers to add our optional Children’s Critical Illness Protection when they take out their income protection cover, so they can also financially protect their children, even if they don’t have a critical illness policy themselves.

As with all Guardian policies, we’ve included Premium Waiver as standard with a 28-day deferred period – for everyone. So, even if a customer has a longer deferred period and they’re not yet losing any income, we can start to support them from that point with our HALO claims service.

In short, we’ve designed our new income protection product to meet

We asked advisers and consumers what they expected from an income protection policy. They told us: keep it simple.

So, we stripped out all the bells and whistles they said weren’t needed” the needs of today; for people whose financial resilience has been hit by the cost-of-living crisis, but also where budgets are tight.

Our thanks go to the many advisers who shared their views with us throughout our product design process, and we hope we have delivered a proposition that makes it easy for them to recommend, and in turn, easy for their clients to understand.

It also demonstrates to the FCA how collectively we’re delivering good customer outcomes. ● May 2023 | The Intermediary

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On the move...

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Clever Lending bolsters team with two key appointments

Admiral Money appoints Mike Walters as its newest sales director dmiral Money has appointed Mike Walters as its newest sales director. He joined from United Trust Bank (UTB), where he spent six years, and was appointed as sales director – mortgages in 2021.

During his time at UTB he worked across a variety of product areas, increasing distribution across first and second charge mortgages, buy-to-let, development finance and bridging.

Prior to this, Walters worked at second charge lenders Optimum Credit and Nemo Personal Finance.

During his career, Walters has won

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numerous awards and accolades, including the Head of Sales award at the British Specialist Lending Awards 2022, and Loan Talk Relationship Manager of the Year in 2016.

Walters said: “I very much enjoyed my six years at UTB working in London, but I simply couldn’t ignore the opportunity to join an extremely ambitious, FTSE 100 company on my doorstep.

“Admiral Money has built an impressive business, but is not resting on its laurels. It has impressive plans for the future and I have been tasked with building a team at the start of its new direction.”

He added: “I’m really looking forward to expanding the Admiral Money proposition, as well as telling intermediaries about the brand and its exciting plans for the future."

lever Lending, a specialist finance packager and master broker, has made two key appointments, promoting Nicola Ferguson (pictured le ) to commercial and bridge specialist and welcoming Chloe Ison (pictured right) as a new case manager.

Ferguson, who joined Clever Lending as a case manager three years ago, was promoted in recognition of her extensive industry knowledge and recent success in passing her CeMAP exams.

With previous experience as a case officer and technical support officer in the individual voluntary arrangement (IVA) sector, and as pensions administrator for an independent pension company, Ferguson is set to bring significant expertise to her new role. She will be responsible for placing commercial and bridging enquiries, including regulated business, working alongside Clever Lending’s introducing brokers to ensure customer success.

Joining the company as the new case manager, Ison has brought with her 13 years of experience within an insurance firm where she held various roles, from an office junior to office manager.

In her role at Clever Lending, Ison will manage cases from decision in principle (DIP) to completion, supporting Ma hew Dilks, one of the firm's commercial and bridging specialists. ●

Nottingham Building Society appoints two business development managers o ingham Building Society has made two appointments to its growing sales team: Jennifer Curry as business development manager covering the North West, and Rebecca Haith as telephone business development manager.

Curry joined from Aldermore Bank, and was premier relationship

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The Intermediary | May 2023

manager at Barclays for over 14 years.

Haith has been at The No ingham for two years, previously as a mortgage support officer.

Haith said: “I’m looking forward to starting my new role... continuing to cultivate meaningful relationships with intermediary partners and providing support to our clients.”

Curry added: “I am delighted to join at this really exciting time and learn more about The No ingham’s strategy for the future and how the business will evolve.

“With 16 years of my own financial services experience...I am hoping to really enhance connections with brokers in the area and build strong and lasting relationships.”