Mortgage Introducer August 2022

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INTRODUCER www.mortgageintroducer.com

August 2022

CROSS-GENERATION MORTGAGES – WHAT’S THE VERDICT? Real talk on the pros and cons

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EDITORIAL

COMMENT Managing Editor Paul Lucas paul.lucas@keymedia.com Deputy News Editor Jake Carter jake.carter@keymedia.com News Editor Richard Torne richard.torne@keymedia.com Commercial Director Matt Bond matt.bond@keymedia.com Advertising Sales Executive Jordan Ashford jordan.ashford@keymedia.com Campaign Manager Amie Suttie amie.suttie@keymedia.com

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t’s always tempting in journalism to lean toward hyperbole.

Situations are often described as “unprecedented,” “unrivalled,” or “unique”… until the next unprecedented, unrivalled, or unique occurrence comes along a week or so later. Yet, with a pandemic that we’re still far from beating, a conflict in Europe, a cost-of-living crisis, and political turmoil on home soil, it would be fair to describe the present environment, at the very least, as tumultuous.

At the time of writing – and presumably resolved by the time you read this – the country was awaiting a new leader in the form of either Rishi Sunak or Liz Truss. A poll released prior to the big vote suggested the majority of Conservative party members would have preferred Boris Johnson to remain prime minister over either candidate, despite the cloud under which he left under – the suggestion being that even those in power are not going to be happy with those in power.

Indeed, it’s been a period of remarkable upheaval, dating back to votes on Brexit and the Scottish referendum, which seemingly only served to leave close to 50 per cent of a country unhappy, and families and

friends divided. These are genuinely times that will be reflected on for their historic significance – but it’s highly unlikely that these tales of leadership, on either side of the red or blue fence, will be used to inspire future generations.

Yet through it all, some positivity has emerged – the most obvious example being the incredible efforts of those on the front line of the pandemic, the NHS and care home workers. Together, we have united and supported each other, lifted each other up, and broken down boundaries.

So what does this all have to do with mortgages?

Well, the role of the broker has always been to support customers, to be their advocate and provide the insight they need on a subject so few know much about. Now, as budgets tighten and dreams of homeownership slip away for many, your role is only becoming more important. Reliability will bring you success in business – because it is so hard to find elsewhere. Be that rock for your clients, and they are likely to repay you with a lifetime of loyalty.

Paul Lucas

Bridging finance with a fast turnaround? precisemortgages.co.uk FOR INTERMEDIARIES ONLY

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AUGUST 2022 MORTGAGE INTRODUCER

1

MAGAZINE

WHAT’S INSIDE

Contents 4 10 11 14 15 16 20 22 23 24 25

Market review Advice review Valuation review London review Recruitment review Technology review Buy-to-let review Protection review General Insurance review Conveyancing review Equity release review

25 EQUITY RELEASE

26 Cover: Are cross-generation mortgages panacea or problem?

Has their time come?

28 Interview: The Mortgage Lender Discussion of adverse credit 29 Interview: finova Helping the self-employed 30 Interview: PropertyHeads Group Shaking things up

40

32 Interview: Quilter Tips for borrowers coping with rocketing costs

LATEST FROM FIBA

33 Interview: Proportunity Helping second-steppers 34 Spotlight: Norton Home Loans The role of specialist lenders in the current crisis 36 Loan Introducer The latest from the second-charge market 38 Specialist Finance Introducer Notes on buy-to-let, later-life lending, and FIBA

30

BEN DAVIS

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MORTGAGE INTRODUCER AUGUST 2022

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REVIEW

MARKET

The lay of the land Craig Calder director of mortgages, Barclays

A

s we hit H2 2022, it’s certainly been an interesting and challenging six months for lenders. On the back of five consecutive interest rate rises, swap rate swings, and a host of influencing factors extending far beyond UK borders, in days gone by it wouldn’t have been too much of a stretch to find a marketplace shrouded in pessimism.

The UK housing and mortgage markets are in a far more robust place than in earlier times, however – and, despite some bumps in the road, I think it’s fair to say that they have performed admirably over this period and continue to exceed expectations.

MORTGAGE BORROWING

This impressive performance was evident in the Bank of England’s latest money and credit data from a mortgage market perspective after it outlined that net residential mortgage borrowing increased to £7.4bn in May, up from £4.2bn in April, to sit above its 12-month pre-pandemic average of £4.3bn.

Gross lending increased to £28.4bn in May from £26.7bn in April, while gross repayments rose slightly to £21.8bn compared to the April figure of £21.6bn.

Mortgage approvals for May also ticked up from 66,100 to 66,200, although this was slightly below the 12-month prepandemic average up to February 2020 of 66,700. However, unsurprisingly, the effective interest rate paid on newly drawn mortgages increased by 13 basis points to 1.95 per cent in May, while the rate on the outstanding stock of mortgages ticked up two basis points to 2.07 per cent.

Of course, some degree of caution has entered the market in recent times on

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the back of rising inflation and amplified living costs. But, to stay on a positive note, demand remains strong, and the reliance on the advice process continues to climb for a range of borrowers in what remains a competitively complex lending landscape.

HOUSE PRICES

Turning our attention to house prices, following two years of unprecedented growth, property prices are suggested to be experiencing the lowest rate of monthly price growth since December 2019. The latest Zoopla house price index highlighted that average property prices were broadly unchanged in May, up 0.1 per cent, as the pace of price inflation loses momentum. Annually, property prices are suggested to be up 8.4 per cent, compared to 9.2 per cent growth in April, with quarterly growth at 1.4 per cent – the slowest since March 2021. The data also showed that buyer demand is still higher than the five-year average, but it continues to decline week-on-week in a return to more usual levels of demand.

Despite a slightly negative air to these metrics, such stability in what remains an uncertain economic climate really is testament to the continued strength of our housing market. In the wake of recent interest rate rises, and increasing speculation about further ones, it‘s certainly not all doom and gloom when it comes to mortgage-related activity.

Opportunities continue to present themselves for advisers in many areas, especially in a remortgage sector that is experiencing heightened demand from homeowners looking to, in the main, secure lower payments and longer-term fixed rates to help limit and stabilise their outgoings.

REMORTGAGE

This consumer imperative was evident in the latest figures from LMS, which pointed to a remortgage surge of 73 per cent in May, with this expected to increase further in the coming months.

Of those who remortgaged in May, 63

per cent were reported to have taken out a five-year fixed rate product, with 26 per cent saying their main aim when remortgaging was to lower their monthly payments, which represented the most popular response.

Rates do remain competitive for such products, but, with affordability constraints increasingly evident, borrowers are – quite rightly – relying heavily on mortgage advisers to secure the most appropriate deals at the best rate. This trend is only likely to continue as the mortgage market becomes even more complex.

AFFORDABILITY

When embarking upon a lending review, it would be remiss of me not to highlight an important announcement from the Financial Policy Committee confirming that it will withdraw its affordability test recommendation.

This will come into effect from 1 August 2022.

Introduced in 2014, the test specifies a stress interest rate for lenders when assessing prospective borrowers’ ability to repay a mortgage. The other recommendation, the loan-to-income (LTI) ‘flow limit,’ which will not be withdrawn, limits the number of mortgages that can be extended to borrowers at LTI ratios at or greater than 4.5.

The recommendations were introduced to guard against a loosening in mortgage underwriting standards and a material increase in household indebtedness that could in turn amplify an economic downturn and so increase financial stability risks.

The fact is that we are operating in a vastly different lending landscape from that of 2014, when the test was first introduced, and it’s vital to reiterate that this withdrawal will certainly not open the doors to a host of irresponsible lending practices. Individual lenders will maintain their own levels of stress testing and appropriate risk appetites, although it’s always prudent to monitor closely any impact this move may have in the near future. M I www.mortgageintroducer.com

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REVIEW

MARKET

Disappearing acts Richard Rowntree managing director for mortgages, Paragon Bank

T

he current economic climate means that lenders are being forced to make quick decisions, so it’s important for borrowers and brokers alike to understand why the rate they see today may not be available tomorrow.

The last few years will surely be remembered as some of the most economically volatile in modern times. Here in the UK, the fiscal fallout from Brexit was still being felt when the COVID pandemic rocked economies around the world, followed quickly by Russia’s invasion of Ukraine.

Each of these once-in-a-generation events, happening in relatively quick succession, has contributed to unstable market conditions. Lenders are constantly reacting to the market in order to protect both their businesses and customers.

Understanding some of the factors

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driving this can assist in informing conversations with clients, hopefully helping them to make informed decisions and minimising frustration that understandably arises when a product is suddenly withdrawn.

Particularly useful here is a basic understanding of swap rates.

Swap rates refer to the price paid by lenders to other financial institutions to fix rates offered to customers, over an agreed period, usually two, three, five, or ten years.

When lenders offer mortgages with interest rates that are fixed over a certain period, their returns are at risk of being negatively affected if the cost of funding rises. The swap rate helps to mitigate this risk for lenders by locking in a cost of funding over the fixed period, with this financial security incurring a cost.

Swap rates are derived from the market’s expectations of what interest rates will be over the term.

This means that as well as the Bank of England’s base rate of interest, events like global health crises or major conflicts can all have an impact, alongside changes to supply and demand for essential items like food and energy.

An important point to note is that swap rates are constantly in a state of flux, changing by the second, so in a market as unsettled as the one we’re experiencing currently, lenders are being forced to re-price products frequently.

If they don’t do this, they can find that the margin on the product they were offering has suddenly been slashed. This effect can also be exacerbated by the delays in the system that we have seen since the surge in activity caused by the stamp duty holiday.

A lender can agree a mortgage at a given rate, but with other parts of the process, such as conveyancing, sometimes taking months to complete, the swiftly moving market may mean that the previously competitively priced product is now making for a loss.

While withdrawing products can lead to frustration for brokers and clients, such losses are clearly unsustainable – a thriving industry is better for everyone, so it is unfortunate to see some lenders forced to suspend their buy-to-let lending due to what they’ve called unprecedented increases in the cost of funding.

And it isn’t just about lenders’ bottom lines; if products are priced well below those offered by the rest of the market, they attract surges in business volumes that are not possible to process within acceptable timeframes, leading to poor service – again, to the irritation of brokers and borrowers.

Of course, this is very much a simplified look at a complex issue. While it’s probably not necessary for mortgage intermediaries to know the nuances of how different lenders are funded and how this influences the products they offer at any given time, I think brokers can benefit from having a basic grasp of the subject.

While we don’t want clients to feel like they’re being given the hardsell, “Don’t delay, buy today!” line, we do need to help them understand why the current extraordinary economic climate means that the products they are offered today may not be available tomorrow. M I www.mortgageintroducer.com

REVIEW

MARKET

Financial hot water requires cool heads Stuart Miller chief customer officer, Newcastle Building Society

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very so often something major changes the dynamics of the mortgage market significantly. In the late 1980s, it was the end of endowment policies. In 1997, it was relaxing tenant-rights rules to encourage buy-to-let. The early 2000s saw loans-to-value climb to 125 per cent; the crash in 2008 triggered the end of self-certification and the introduction of affordability in place of simple loan-to-income ratios.

This year, we are seeing another shift in how the market operates. In seven months, the Bank of England (BoE) has hiked the base rate from 0.1 per cent to 1.25 per cent. Further hikes are expected in short order.

Mortgage rates are rising faster now than at the start of the year. The cost-of-living crisis faced by millions of households in the UK is already biting into disposable income and is set to get worse as inflation may rise to over 11 per cent in October, according to the Bank of England’s forecast. While arrears remain at historically low levels, very early indicators of stress such as repayment requests to change direct debit arrangements have begun.

It has been decades since the UK economy faced the threefold challenge of stagnant growth prospects, wage inflation, and a rapid rise in living costs. Economists continue to argue over whether the coming recession will echo the reasonably short, sharp shock of the early 1990s or will linger on like the www.mortgageintroducer.com

sustained downturn of the 1970s.

Things are different too this time in terms of what measures are available and the impact they will likely have.

Now, central banks are less able to support the economy. The double whammy of COVID spending and lockdown-driven supply chain chaos, together with the war in Ukraine, has battered global markets.

Remember, even though we suffered massive economic shock during the global financial crisis, in 2007, central banks around the world had new tools at their disposal. UK interest rates were 5.75 per cent, and there was no quantitative easing. The BoE had somewhere to go, and it did.

All the BoE can reasonably do now is raise the base rate and scale back QE. While the hope is this will encourage saving and limit spending, the reality is domestic monetary policy has little power to combat inflation occurring outside national borders. The effect that tightening monetary policy has within the UK, then, is largely to dampen investment and spending.

There are obvious implications for the mortgage market.

Mortgage rates are going up, borrower affordability is going down.

It’s likely that criteria will tighten on new lending at a minimum to compensate for the likely rise in the need for forbearance. At the moment, house prices are still rising at rates in the double digits, but there have been murmurings that the housing market is starting to cool, and that next year will see house price inflation drop right back to more historically normal rates.

This puts pressure on credit policy and is likely to rein in credit policy on higher-risk loans.

Such is the uncertainty facing Britain’s economy that the public –

guided by hawkish comments from the BoE and International Monetary Fund – believes that we’re heading into years and years of rising housing costs.

This has triggered very atypical behaviour across the market.

Although evidence is still anecdotal, there has been a definite rise in the number of homeowners who, locked into their fixed-rate deal for months or even years, are opting to pay the early repayment charge and remortgage to a long-term fixed.

Understandable – but it is not the right solution for everyone, and advice here is crucial.

At least one society recently reported that it had seen ERC payments almost double in 12 months, up 88 per cent so far this year. Depending on how long is left on deals, borrowers are paying thousands of pounds to lock into rates they believe are going to be the cheapest available for years to come.

There is a real danger here for intermediaries under pressure from alarmed clients.

Even where there is less than a year left on a deal, one per cent of the outstanding balance could be hundreds or even thousands of pounds more than the savings made by switching to a long-term fix over the duration of that deal.

Add to this the fact that most lenders allow up to 10 per cent overpayment a year, and the savings made in interest payable over the term are likely to exceed those made by locking into a deal.

When you factor mortgage fees into the balance, this could make even less sense financially. Fear is driving some behaviour, but good advisers must be prepared to steady the ship as we ride this coming wave. Following the tide of public opinion and not the numbers poses risks for us all. M I AUGUST 2022 MORTGAGE INTRODUCER

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The latest on BNPL and 50-year mortgages Shaun Almond MD, HLPartnership

A

s the cost of living rises and incomes remain obstinately flat, buy now, pay later (BNPL) schemes present an appealing option for spreading the cost of goods over a period of months and paying no interest for a fixed period. On the face of it, borrowing at no cost and paying off a loan in easy-to-manage chunks seems perfect. The whole principle of using OPM (other people’s money) to fund purchases, particularly at no cost, seems like a dream come true.

The benefits are very clear, provided payments are kept up. It can be hugely beneficial from a cash flow point of view – but the downsides are not so immediately evident to customers, and can become a major problem.

Missed payments can mean the imposition of fees and then having interest charges imposed on any outstanding balance. Some companies may also pass unpaid debts on to debt collection agencies.

As the negative outcomes around BNPL become more apparent, regulators and other agencies are waking up to the fact that this kind of borrowing is largely uncontrolled and are finally reviewing it. Until recently, there was no compulsion for BNPL lenders to share their client data with credit agencies, but that is now changing. For all of us working to provide suitable borrowing options in the mortgage

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market, BNPL creates another potential hurdle in our quest to help our customers.

If payments are late or missed altogether, or a large number of BNPL deals are registered, a person’s credit score can be affected, especially if debt collection agencies become involved. In turn, this can lead to difficulties in obtaining mortgages or other forms of credit.

BNPL schemes are fine while payments are being made, and a positive case can be made for them because they usually stretch over just a few months, during which no interest is charged. But because the bar for qualification is so low, they are more likely to attract those who are financially vulnerable.

According to a BBC report for Panorama, an estimated 15 million adults of all ages in the UK are actively using this form of credit, an increase of more than two million from the start of the year. Also, research by Equifax suggests about 30 per cent of those are 20-to-30-year-olds.

A sign of the potential trouble with this comes from a Citizens Advice survey of 2,288 people who had used BNPL during the previous 12 months. It found that while 52 per cent made repayments from their current accounts, 23 per cent were using a credit card, nine per cent were using a bank overdraft, and seven per cent were borrowing from friends and family.

While there are reports that tech giant Apple will soon be adding a BNPL facility to its iPhone, pressure is growing on BNPL providers to become more transparent regarding borrowers’ activity, ahead of likely action by the financial regulator to formally regulate the sector. Swedish financial company Klarna, the leading

BNPL provider in the UK, started sharing customer data with two credit agencies, Equifax and TransUnion, from 1 June, meaning credit card companies will be able to see transactions and debts when conducting formal checks on potential borrowers for mortgages and other finance.

We would recommend every adviser with customers who have outstanding BNPL arrangements review them, particularly if they are thinking of taking out more credit, remortgaging, or moving house.

50-YEAR MORTGAGES

Many people will pour water on the idea of a 50-year mortgage, and yet, according to the Building Societies Association, 37 per cent of first-time buyers have taken out mortgages of between 30 and 35 years, whilst only 10 per cent have opted for terms of less than 20 years, with the main reason being the growing mismatch between accelerating house prices and slower-to-grow pay packets. So, on first examination, 50-year mortgages don’t seem so much of a stretch.

But the question we should be asking is whether increasing the term to make mortgages more affordable without really tackling the historic inability to meet the demand for new-build property is just another sticking plaster to keep the market moving.

Also, the idea of passing mortgage debt down the generations opens up many more questions, especially around fundamental points such as whether a generation possibly not even born yet would want to accept that responsibility or whether a 50-year mortgage would be portable enough for a lifetime, particularly if a homeowner wanted to downsize.

I can’t wait to see lenders’ analysis of the risk/reward equation. M I www.mortgageintroducer.com

REVIEW

MARKET

Landlords will be the pioneers of EPC-based lending decisions Mark Blackwell COO, CoreLogic

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n 30 May the Department for Levelling Up, Housing and Communities approved a new set of methodologies used by energy assessors in a bid to provide a more consistent and fairer approach to how energy performance certificate ratings are set for new buildings.

In six months’ time, the new definitions will also apply to EPC ratings given to existing homes.

Under the new methodology, EPC ratings will favour homes that use more electricity and less gas, with the CO2 emissions calculation cutting the carbon impact of electricity by half while leaving gas where it is.

It may sound like technical minutiae, but it’s a material change designed to push landlords and housing developers into replacing old gas central heating with electric heat pumps by rewarding that move with a higher EPC rating.

The updated standards also give assessors a clear definition to use when rating a property’s thermal performance and ventilation, and introduces a measure on how prone to overheating a home is.

It comes after years of complaints that EPC ratings on two properties that are virtually identical can vary widely.

Developers and landlords are the two groups most immediately affected by tighter building regulations that will set minimum EPC band C ratings on new builds and for all homes let on new tenancies from 2025.

While the industry’s reception www.mortgageintroducer.com

of the changes has been broadly positive, many argue that the certificates remain an imperfect measure of true energy efficiency.

I make no judgement on this view, but would observe that the point of data is to make things measurable.

Consistency of data is material if the EPC is to function as a reliable measure of energy efficiency, and we’re moving in a direction that provides greater clarity about what the government considers good energy efficiency to be.

The implications for poorer households and landlords unable to meet the cost of renovating homes to meet minimum standards, set to become stricter and stricter over the next decade, will take time to filter through to public awareness.

However, the changes will affect the costs of running a home significantly. Not only will better insulation and ventilation mean higher EPC band-rated households use less energy to heat and cool their homes, but the cost of that energy will also get cheaper.

By contrast, homes heated by gas boilers and with gas ovens and hobs will see their energy bills rise far more quickly, exacerbating the existing energy crisis.

There is no doubt that, far from being an erroneous piece of paper that buyers couldn’t give a monkey’s about, the EPC rating is going to become an important factor affecting the desirability and therefore value of a property.

Lenders know this. And there are early signs that it is already directing lending policy. Some lenders have begun to offer buy-to-let borrowers free EPC reviews along with remediation work plans to help them get an early start on costing out mandatory expenses.

Other lenders are offering green mortgages – on both buy-to-let and owner-occupier mortgages – with rates directly linked to the property’s EPC rating. A few adjust the rate down as energy efficiency ratchets up the EPC band rating.

Landlords and lenders have to be able to trust the energy efficiency rating on properties in order to assess and account for the costs of bringing homes up to standard accurately and in a relatively short timeframe.

Until now, that uncertainty and lack of trust have meant the cost differential on mortgage finance for energy-efficient properties has been negligible compared to that for homes with poor EPC ratings. It has not spurred meaningful action from a significant proportion of landlords.

But this will change, and fast.

It looks increasingly likely that lenders will begin taking a much more active role in making the cost of finance contingent on those improvements.

There is also a risk that loanto-values will be rerated where remedial works are not carried out by the deadline – perhaps even before that, given the very clear impact that an insufficient EPC rating will have on the value of a property. This is particularly the case for landlords, who will be unable to offer new tenancies without meeting band C or above in just two and a half years’ time.

No tenants, no rent, no income.

Some buy-to-lets could be rendered effectively valueless as rental properties until sufficient works are completed.

Until now, net zero has been a reasonably lofty ethical idea that hasn’t merited practical changes in the here and now. That’s about to change – and it will reshape the private rented sector most clearly in the very near future. M I AUGUST 2022 MORTGAGE INTRODUCER

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REVIEW

ADVICE

Making the most of mortgage industry events Gordon Reid business and development manager, The London Institute of Banking and Finance

O

ver the last few months, and for the first time since 2019, there’s been a full programme of mortgage industry events for advisers to attend – in person.

These include conferences, seminars, exhibitions, forums, and even the musical-sounding symposiums. It’s been a joy to get out there and meet others in the industry after two years of working, and networking, from home. But now we’re in the summer recess – that period when events are much rarer for a couple of months. Organisers know people are taking their annual holiday, or that capacity in their firms means that they’re less likely to be able to come to an event.

This lull in activity is the perfect time to take a step back and reflect on what you want to get out of events – to look back at the ones you’ve already attended and give more consideration to those you might go to later in the year.

Having a taste of events after a twoyear break may have given you a fresh perspective, too. You can use this to be more discerning when choosing which industry events to attend – and planning how to get the most out of them.

WHAT TO CONSIDER BEFORE CHOOSING AN EVENT

As you look back on the last few months, ask yourself which events have served you well and why. It may be worth noting the following:  what made them successful  what you enjoyed about them  what you learnt  anything else you got out of them Similarly, you could ask yourself why the ones you weren’t so keen on were less successful. What didn’t you like?

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And what were you hoping to get out of them, but didn’t?

Events don’t all satisfy the same needs. That’s why it’s important to pinpoint your interests – and what you want to gain – before you decide what to attend. Think about whether you want to do any of the following:  develop your skills and knowledge  learn about the latest industry innovations and insights  meet industry experts and influencers  make new contacts and build relationships  get feedback on your own products and services  engage in team discussions and debates  build your team Hopefully, this list includes some of the reasons you’ve attended events in the last few months. It probably helps explain why you consider some events to be more successful than others.

It’s also, however, the key to planning your activities over the second half of the events season – to ensure that you get even more out of those you attend. If you’re looking to build your network, for example, you may want to ensure there’ll be opportunities to do that at coffee breaks and receptions. Are the organisers reputable enough to attract the best industry speakers?

HOW TO SELECT WHICH EVENTS TO GO TO

Even without a personal invitation, a quick search online will throw up numerous industry events scheduled for the autumn and winter – including LIBF’s mortgage conference in November. It’s therefore crucial that you do a bit of research before deciding which ones you’re going to.

Refer to the notes you made about the events you attended recently and to the list above to refine what your priorities are. What do you want to get

out of the next event you attend?

Once you’ve established this, look at the organisers and, crucially, what they’re saying about their event.

This five-question checklist could prove useful:  What type of organisation is running this event?  What are their objectives?  What benefits are they claiming it will give you?  Who’s exhibiting or attending?  Who will be speaking – and about what?

Now you’re in a great position to compare your aims and objectives with those of the event. Remember, an event may look great on paper, but if it doesn’t meet your personal aims, you’re likely to come away feeling unsatisfied.

So if, for example, you’re looking to gain some insight into how the industry is changing, take a close look at which thought leaders are attending. What are the speaker sessions and facilitated discussions going to be about?

If you’re looking to develop your network, who’s exhibiting? What are they looking to promote? And who are they saying they’d like to meet?

GET THE MOST OUT OF THE EXPERIENCE

Once you’ve decided which events to attend, take time to plan what you’ll do when you’re there. Review the agenda carefully. Make a list of exhibitors you’d like to visit and speakers you want to listen to. You won’t be able to do everything, so you need to prioritise.

During the day, or afterwards, make a note of anything you learnt, discussions you had, and who you met. Did you discover a new area of interest that you’d like to pursue, for example?

Events are a fantastic way of developing your contacts and knowledge and continuing your professional development – so make the most of the opportunities out there! M I www.mortgageintroducer.com

REVIEW

VALUATIONS

Changes in the notion of value Steve Goodall MD, e.surv

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hen it comes to valuing a property, it’s as simple as understanding how much someone will reasonably pay for it. The thing that complicates the process is on what grounds a buyer makes that decision. The reality is that it is a far more complex and complicated decision-making process than many of us would like to admit. People’s willingness to pay may ultimately be driven by many considerations – some not even related to the property, but to their personal circumstances. That said, we are all being encouraged to consider broader environmental value.

It’s so hard to define how a valuation is made in standard terms. Britain’s homes are not standard – far from it.

Our housing stock is centuries old in some cases. Our working patterns and infrastructure needs are constantly changing, creating demand currents that affect local pricing patterns that can shift very quickly.

Access to fibre and, thus, 5G may just be beginning to influence property values, but as cloud computing and technology develop, the lack of fibre and the connectivity it supports will very likely begin to matter to the tune of thousands of pounds on property asking prices.

Understanding of how the green revolution and net zero will affect property valuations is also still in its infancy. But with the built environment estimated to be responsible for around 40 per cent of the UK’s carbon emissions, the ability to improve our homes’ energy efficiency will be makeor-break for the government in its pursuit of net zero by 2050.

What this means in practice is still poorly understood. However, the Royal Institution of Chartered www.mortgageintroducer.com

Surveyors recently published a framework designed to highlight “core principles” that need to be assessed and managed in during the operation of the built environment.

ENERGY USE AND SOURCING

Understanding from where homes are sourcing their energy is just the first step in the UK’s transition to a net-zero economy. It’s not simply a case of using a supplier reliant on renewable sources (and who’s probably actually relying on oil and gas and then offsetting them on the markets). How this develops has the potential to be really interesting – and to have a significant impact on both property values and on the way surveyors think about valuations.

Improving buildings’ energy efficiency in line with the government’s net-zero targets isn’t just about insulating roofs and cavity walls, switching out gas central heating for electric heat pumps, and popping some solar panels on the roof.

The whole energy network is going to have to change to support the transition to renewable energy, particularly because our capacity to store energy generated by wind, water, and sun when it’s in abundance remains very limited.

It’s likely that energy supply will become far more localised, with the grid offering backup power to supplement supply when there are demand spikes or insufficient local generation. Homes’ access to reliable and local renewable energy sources will increasingly affect their desirability as fossil-fuel costs get more and more expensive. Indeed, the ongoing conflict in Ukraine and the West’s reliance on Russian gas and oil supplies may accelerate this change, given it not only helps reduce emissions but also insulates Britain from geopolitical risks like these.

Homes that meet legal energyefficiency requirements and have access to cheap renewable energy sources present less financial risk for lenders, who are already carrying the risk relating to borrowers’ ability to fund the necessary renovations in their back books. They will also appeal to buyers

looking for lower household costs and more environmentally sustainable living environments. Prices will start to pull away from older stock that presents major renovation costs.

WASTE

Reduce, reuse, recycle has been a slogan emblazoned on raffia shopping bags for decades – but only recently has its material impact on property values begun to be properly considered.

A home’s sustainability will not be measured based solely on its energy supplier and the presence of a heat pump. RICS’ guidance refers to a number of different approaches to waste management and the effect it has on sustainability metrics. “Circular economy approaches” such as greywater recycling will increasingly affect value, as will slick services enabling residents to reduce and recycle easily and efficiently.

TRANSPORT

Our roads may still be clogged up with gas-guzzling vehicles, but make no mistake – government is determined to phase out petrol and diesel cars in favour of electric vehicles, replace diesel trains with hydrogen-run engines, and buses pumping out clouds of black exhaust with cleaner, greener alternatives.

Fibre and 5G are critical to support this vision – without them, transport infrastructure will be severely limited and dysfunctional. Proximity to a train station will still matter when it comes to valuing homes, but so will the new generation of transport – connectivity.

The only thing that differentiates mortgages from unsecured lending is the security. It matters. And physical inspections matter because they offer the most complete form of security check. As borrower demand for more sustainable (and consequently more affordable) homes ramps up, pricing dynamics will adjust. Lenders, too, will drive this shift, with TCFD disclosures requiring a far more comprehensive understanding of carbon embedded in their businesses’ supply chains and asset exposure. M I AUGUST 2022 MORTGAGE INTRODUCER

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LONDON

A step in the right direction Robin Johnson MD, Kinleigh Folkard & Hayward

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lmost exactly a decade after the Financial Services Authority published its final Mortgage Market Review rules in October 2012, the Bank of England (BoE) has scrapped one of its toughest measures.

On 1 August, the Financial Policy Committee ditched the requirement that lenders stress-test borrower affordability to ensure borrowers could make monthly repayments even if they defaulted onto their lender’s standard variable rate plus another three per cent, just in case interest rates rose.

Had that measure been in place before the credit crunch, we might not have had the global financial crisis. The BoE rate was climbing in the mid-2000s and got as high as 5.75 per cent in 2007. Northern Rock would definitely not have been handing out 125 per cent loan-tovalue mortgages had the stress test been required.

Imposing that test on lenders and borrowers from 2014 on, when the rules finally came into force, was rather a case of bolted horse and locked stable door. The BoE rate plummeted to 0.5 per cent, where it remained for the best part of a decade, while screwing the affordability lid onto the market left fewer borrowers able to buy or move so freely, which resulted in less housing stock – and, hey presto, rapidly rising house prices. It’s a spiral that feeds itself.

So the FPC’s move to get rid of the stress test makes a lot of practical sense if you want to encourage economic growth and individual prosperity. Housing transactions

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drive productive spending on construction and among ancillary industry workers like plumbers, electricians, and decorators. Retail spending on home furnishings and DIY rises, too.

The sceptical among readers might say this is history repeating itself.

The BoE has only just begun to raise its rate consistently; surely this is yet another horse-and-stable-door situation – particularly if you factor in rampant inflation, which will just be exacerbated by additional spending?

I disagree with this view. I think the FPC’s decision to press on with removing the affordability stress test is more nuanced.

First, it only ever applied to fixedor variable-rate deals lasting less than five years. With the base rate heading steadily upward, borrowers are leaning toward terms of five years or longer – meaning there is absolutely no change in the way affordability is assessed for the majority of borrowers.

Second, uncontrolled spending that leads to serious inflation such as we have now is rarely in the gift of central banks. They’ve said repeatedly that consumer price inflation will ease toward the end of next year. The reason everything is so much more expensive now is Russia’s war on Ukraine and postpandemic supply-chain chaos.

That is forcing everyone to spend uncontrollably on something totally unproductive for the UK economy.

Third, spending on infrastructure, manufacturing, and improving British citizens’ quality of living while money is – interest rate rises notwithstanding – historically unbelievably cheap creates real and healthy economic growth domestically. We need to focus on improving productivity, and making housing more affordable for those who are opting for two-year finance to keep payments lower will do that.

Concern about the rising cost

of living for borrowers has been levied as a criticism, but again, I think the BoE has that covered, too.

The banking crash and consequent taxpayer-funded bailouts have built up a considerable amount of credit where customers are concerned.

Forbearance has characterised the past decade, arrears have been carefully managed, and flexible payment plans necessitated by the pandemic remain in place for borrowers facing financial struggle.

Interestingly, the BoE said in its latest Financial Stability Report that while it considers banks to be very well capitalised, it was nevertheless telling them to double their capital buffers to prepare for the “uncertainty” of future economic health. This sounds like not-sosubtle code for “Banks need to have enough capital to support customers through this painful period, which cannot and will not last forever.”

I am particularly sanguine about the effect that removing the stress test will have on the capital, where property prices are still very high in relation to salaries. Allowing borrowers, many of whom are extremely affluent by any reasonable standard, to make use of lower short-term fixed rates to get on that first step is a very smart move.

Many of these borrowers are paying high rents, and the sooner they start paying a mortgage instead, the better for their financial prospects.

The advantage of shorter-term deals is also that most borrowers will see their wages go up over the next two years – wage growth is strong, as is employment, even with inflation where it is. If one is remortgaging in two years’ time, even if rates are higher than they are currently, the affordability balance will be different, and quite likely better for this type of customer.

On balance, dispensing with the stress test is a good move – for borrowers and for the broader economy. M I www.mortgageintroducer.com

REVIEW

RECRUITMENT

When the going gets tough, the tough get going Pete Gwilliam owner, Virtus Search

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he well-documented socioeconomic and political issues that the UK currently faces mean the mortgage sector is at a tipping point. Following the record lending volumes of 2021, many operating models started this year focussed on a business plan that is no longer deliverable, bringing cost-income ratios into sharp focus.

Moreover, market conditions are really going to test the working capital and funding commitments of any start-up, which may well have been planned based on indicators and projections from the outlook present in 2021.

After a significant amount of movement over the last three years, there is now a very big additional reason why businesses will find it difficult to attract and recruit the skills and experience they want.

The importance of feeling secure inevitably weighs more heavily when there is market turbulence, which means the number of candidates who can be enticed to consider change will diminish, until the tipping point arrives at which individuals are inclined or forced to actively seek change owing to the pressures they feel in their current world.

Of course, there are still many who recall the significant cuts in the sector in the credit crunch era, and there are aspects of that cycle that will offer perspective on what this means to the jobs market and career planning now. There is one www.mortgageintroducer.com

significant difference now from the landscape of late 2007 onwards, however, and that is that lenders and distributors were nowhere near as advanced in the development of telephony, digital, and technology enabled solutions.

This is important because during the pandemic there was an enforced pivot of working models, and it has now been a year since COVID restrictions were lifted. Businesses can now readily assess the impact of face-to-face relationship development and thereby evaluate their sales acquisition and distribution strategies and identify who is completely integral to working through the more challenging times ahead.

None of this has meant recruitment activity has dried up completely, but what is very apparent is the laser-like focus on what needs to be delivered through bringing in a new hire.

From a candidate viewpoint, it is understandable that being assured about the resilience of any business is now a top priority. Whereas previously the calculus candidates would undertake may have weighed up the financial return vs the potential risks attached, there are now far more considerations at play.

To illustrate the point, in the month of July I had consultations initiated by 15 individuals, 14 of whom came from the nonbank lending sector. The two predominant concerns were that 1) after an H1 performance that fell below expectations, the change in management style was jarring to some; and 2) the economic turbulence and challenges facing the capital markets have given them reason to enquire into opportunities with deposit-taking lenders.

Whereas previously the calculus candidates would undertake may have weighed up the financial return vs the potential risks attached, there are now far more considerations at play The main emphasis I have noted in recruitment instructions is the desire of lenders to nurture and deepen their relationships with key distribution partners, which has meant that strong knowledge of and good relationships with corporate accounts (networks/clubs), specialist distributors, and new build have given candidates strong leverage in discussions about the next steps in their careers.

There will be some who have yet to experience the implications of a downturn, and there is no easy way to sweeten the pill of what this might mean. But, as Billy Ocean once opined, “When the going gets tough, the tough get going” – and resilience and agility are going to be required more now, by businesses and individuals alike, than in benign market conditions.

When I’m asked what can be done to develop a career when mortgage volume is contracting, my advice remains as it was through the last two years of change: keep investing in and developing your network, knowledge, and value.

In simple terms, this both offers protection against being deemed surplus to requirements should any downsizing ensue, and also creates the best chance of making you desirable to a firm that might have a progressive role in mind. M I AUGUST 2022 MORTGAGE INTRODUCER

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TECHNOLOGY

Open banking a work in progress Steve Carruthers head of business development, Iress

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he phrase “less is more” became synonymous with the early twentieth-century Bauhaus architect and designer Mies van der Rohe. In three words he encapsulated the central ethic of modernism – the idea that true beauty is what remains when every unnecessary adornment has been stripped away.

This sentiment holds good today in many walks of life, and yet in the world of technology, it is rarely uttered. The most seismic change in our generation has been the dawn and evolution of the internet. It has fundamentally and irreversibly changed our lives – and it’s always about more.

The majority would argue this technology revolution has improved our lives – and it undeniably has. But nearly all of us would also admit that’s not all there is to it. The proliferation of information facilitated by the web, social media, cloud computing, and, imminently, the metaverse is incomprehensible to the human brain.

While computers haven’t got to the stage of harvesting humans to power their inorganic world (yet), I am not kidding when I talk about this.

Technology is so often hailed as the answer to everything.

If it’s hard to get – tech’ll fix it. If it’s impossible to understand – tech’ll translate it. If it takes too long – tech’ll speed it up.

Technology will do all of these things, and they are, more often than not, to our benefit.

But van der Rohe had a point when he said less is more. The advantage of more information should be that it makes us better-equipped to make informed and therefore responsible

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decisions. But there comes a point when it is impossible to judge rationally based on all the facts – there is too much information, there are too many facts, and there is not enough knowledge to interpret it all sensibly.

Sometimes I wonder just how much data there is in the world now and what proportion of it is actually used.

Which brings me to mortgage lending.

In our own world, the mortgage market, open banking has been heralded by many as the ultimate solution to all problems financial. The answer to the ultimate question of life, the universe, and everything is 42, if you will.

I’m not such a Luddite that I would argue open banking hasn’t improved things for both customers and businesses in the years since it first came in. It has.

Savings habits facilitated by apps connecting via API to customer current accounts and credit cards to allow spending round-ups to be swept into an investment or savings account are a wonder. Linking cloud accounting software to your business banking and pulling in tax calculations has probably averted several hundred thousand heart attacks.

But open banking is not a panacea.

How we use information is the defining factor in whether its use is a help or hindrance.

When it comes to assessing borrowers’ affordability, I am wary of blindly believing that total visibility of a person’s finances is actually terribly helpful. For lenders it means vastly more information to consider – information that, once received, they must consider. For borrowers it means absolutely no room for imperfect financial behaviour or complex income.

Anyone who’s had emotional, familial, social, educational, romantic, or health ups and downs in their lives will tell you that it affects financial behaviour. But so does experience. Sometimes the past isn’t a reliable guide to the future. So said

someone wise, anyway.

Predictive behavioural analytics notwithstanding, I still question whether data crunching can always rival human judgement when it comes to nuance and individuals.

For lenders, the degree to which underwriting integrates and relies on open banking frameworks and the 360-degree visibility of a customer’s financial circumstances will be a pressing consideration.

As with all decisions, I would tend toward the idea that the answer depends. The aggregation of big data to inform analytics that can then be applied to average customer types is usually helpful. Assessing one person’s data – or one data point from a median behavioural point of view – is probably less helpful.

This is especially true for anyone whose risk presents as even a moderate outlier. Lenders understand the right questions to ask when determining whether a borrower is a reliable prospect. Introducing vastly more information into this assessment might sound like it will help deliver better lending decisions and therefore consumer outcomes. But in fact, it might just muddy the waters and leave lenders at a loss as to how to make a sensible and responsible judgement that results in the borrower being approved, the home being bought, and – 99.9 times out of 100 – the loan being repaid.

Open banking is clearly not a panacea, but very much a work in progress. It needs to enable lending – not prevent it – and part of that is lenders knowing what issues and bits of the mortgage process it fixes for them. Discovering more about individuals at face value must be a good thing, but it depends on what you find out, and then what you decide to do (if anything) about it.

Is the mortgage process ready for much more complexity? For many lenders, there are more pressing issues to address. M I www.mortgageintroducer.com

REVIEW

TECHNOLOGY

The world is turning – businesses must turn with it Jerry Mulle MD, Ohpen

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he financial services sector has long been criticised for being behind the curve when it comes to technology adoption and reducing friction in customers’ buying process. That’s a fair charge if we’re talking about incumbent businesses that have an incredibly tough job working out how to adapt themselves to take advantage of the opportunities on offer in the digital world.

It’s also fair to acknowledge that in a highly regulated market, developing technology that not only offers improved customer service and higher conversion rates but also satisfies constantly shifting compliance requirements is not an easy feat.

We’re getting there, however. The environment in which financial services has the space and freedom to embrace what technology can do for its business is finally here.

On the agenda for many lenders is how exactly that can be done. The range of approaches is extensive.

Lenders of all shapes and sizes that have grown out of amalgamation, rescue, takeover, and mergers are dealing with incredibly complicated systems, data stored in thousands of different iterations and formats, and the very real terror that transporting customer data from legacy systems to technology that makes sense today will result in loss of critical material.

From origination to systems of record – everything is under the microscope, and for many, the picture is not a pleasant one. www.mortgageintroducer.com

We have reached an inflection point.

But not understanding precisely what problems you are trying to fix (and in what order) can be expensive and instil fear in even the most visionary CIOs. This can often result in sticking with what you know – meaning either doing nothing (not an option for most) or adopting the approach of a decade ago and building bespoke systems to suit specific needs.

Time and again, those who have done this (or brought in source code to manage for themselves) end up returning to market because they cannot adopt and adapt later on down the line. It is the surest way to spend millions, if not billions, on a system that will be out of date a week after it launches.

Technology is no longer just a quicker, cheaper, and more efficient way of improving processes within a business. Decisions about how businesses use digital services belong in the boardroom. Solutions offer more than just lift-and-shift; they offer ways of delivering interoperable, scalable, robust platforms at prices that confound old business-model thinking. Many businesses recognise this; fewer are confident about what this really means in practice.

The key characteristic of technology today is that it changes constantly – every second of every day it develops exponentially and organically. And that change is driven by market forces and customer choices, not just by programmers.

What businesses need from their tech systems today is not just a solution to a specific problem they have right now. The problem facing all businesses – whether in financial services or elsewhere – is choosing a platform that will be able to deal with the problems they will have tomorrow and next week and next year.

Lenders are only too aware of the challenges change brings. And change is particularly unpredictable right now.

To many lenders, the very first signs of borrower distress, such as requests to move direct debits, are already visible.

What we will need from systems to facilitate quick, safe, scalable product propositions for managing issues like arrears was on few people’s radar twelve months ago. Indeed, the recent quick burst of rate rises has tested old product launch-and-withdrawal processes almost to the breaking point – processes that had not been used for almost a decade.

Equally, the buy-to-let market offers a great example of lenders’ need for flexible, scalable systems. In June, the government unveiled plans to reform the private rented sector, with several proposals surfacing, including scrapping fixed-term tenancies and replacing them with periodic agreements, and further regulatory changes removing section 21, thus banning no-fault evictions.

Corporation tax is currently 19 per cent, but is slated to rise to 25 per cent next year, affecting portfolio lending through limited companies. Some of these changes are still under consideration, meaning they may or may not happen at all – and if they do, they could be in a completely different format.

The message is clear. Lenders who want to stay relevant and competitive must be able to flex not only their product design but also their credit assessment process and underwriting systems so that they can be accurate about risk and opportunity as those change daily.

The reality is that failure to move away from legacy technology and onto cloud-based SaaS systems is building another, more malign risk into your business model. The world is turning.

Businesses must turn with it. M I AUGUST 2022 MORTGAGE INTRODUCER

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TECHNOLOGY

Don’t delay investment decisions Tim Hague MD, Sagis

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s we head into the second half of 2022, many people are questioning what the future holds not just for the housing market, but the country and economy as a whole. As such, it can be difficult to know what to do next – whether you’re advising clients on what mortgage to choose, running a lending business, or the new chancellor of the Exchequer. In more ordinary conditions – even those we saw after the global financial crisis – the path was clearer.

Given where we are today, it’s not unreasonable for boards to question whether the traditional items on the corporate agenda are fit for the shortterm future we are now facing. Many will be thinking – in the face of uncertainty, when no course of action is obviously the right one – that they should wait, especially when it comes to the usual priorities facing a business looking for growth and increased profitability focus on strategic investment. The rising cost of capital, the weight of wage pressure, higher national insurance contributions for employers, and the prospect of a six-percentage-point rise in corporation tax next year are all weighing on the minds of company CFOs. In this time of uncertainty, however, waiting is going to be more harmful than taking decisions today – however nerve-wracking.

The key to getting this right is to remember that a decision made today can be replaced by a different decision made six months from now.

I hear those whose immediate reaction to this will be, “Not after you’ve invested £10million in that first decision.”

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Let me encourage you to reassess your definition of decision. In the past, strategic decisions made by lenders aiming to improve distribution, revenue, and profitability would have brought in more people. If the decision didn’t deliver good results within a pre-agreed timeframe, those people would go. It was a flexible decision that cost money but didn’t force you to nail your colours to a mast for the next 10 years.

When it comes to investing in your offering or service in today’s market, hiring more people is just part of the equation. Just as key are the skillsets of those people and the technology systems they have available to do the jobs expected of them.

This is where finance directors start to get nervous. Wholesale redesign of lender platforms – and, indeed, savings platforms – can be expensive. It is also fraught with risk. And traditionally it has come with the caveat that you must decide what you want to buy before you know how it will perform.

This challenge is compounded by the current uncertainty in the direction the market will take.

When the certainty you have is uncertainty, what is the solution?

Adaptability. In systems terms that translates into flexibility, optionality, and configurability.

So often I work with lenders whose senior people succumb to the clever, slick marketing thrown their way, selling them out-of-the-box tech to make one aspect of their service top-of-the-range. They soon realise that one out-of-the-box solution doesn’t improve their overall offering. Then you get into, “We can hack this, hack that, come up with a workaround and deliver you your own bespoke system that is just right for your needs.”

And then the BoE rate goes from 1.25 per cent to 3.5 per cent in less than a year, and unemployment

goes up because higher inflation, higher taxation, and profit squeeze fuelled by energy and wage inflation pressures force companies to streamline, and mortgage arrears start to tick up.

Now, in under 12 months, your needs are no longer being met. More importantly, neither are the needs of your customers.

This is what is paralysing investment and progress. Worse, it’s hampering future resilience and growth prospects – but that won’t become so abruptly clear until it’s too late to do anything much about it.

To understand what piece of your mortgage proposition needs changing, you must be agile in thought and solutions. Fortunately, those solutions are there, usually powered by the cloud and delivered in such a way that certain aspects can be switched on and off as needed – whether that is scaling up arrears management, if that becomes a priority, or smoothing the pace and ease of refinance, which is going to be critical for borrowers over the coming year.

SaaS cloud-native solutions align lenders’ success with the tech provider’s remuneration – but today, there is also the important operational consideration that lenders need to acknowledge the risks of going early with the advantage of going early.

Resources for implementing change are scarce, and there’s a recognition that many people need to effect change and any delay will only increase the costs of the solution and/ or run the risk of scuppering delivery completely because suppliers won’t have the delivery bandwidth.

Far from riding out the coming ups and downs, doing nothing is your enemy when times are set for so much change. Don’t delay decisions; change the decisions you have in front of you, and change the basis/parameters on which you make decisions. M I www.mortgageintroducer.com

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TECHNOLOGY

Affordable tech and the importance of shopping around Neal Jannels MD, One Mortgage System (OMS)

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he word affordable has always been defined by attitude and circumstance, whether from a personal or business perspective. It’s also something that is coming under an ever-greater spotlight as basic day-to-day costs continue to rise across the board.

Affordability is also a hot topic in the current mortgage market following confirmation from the Bank of England’s Financial Policy Committee that it will withdraw its affordability test recommendation from 1 August 2022. Introduced in 2014, the test specifies a stress interest rate for lenders when assessing prospective borrowers’ ability to repay a mortgage. The bank’s other recommendation, the loan-to-income (LTI) ‘flow limit,’ which will not be withdrawn, limits the number of mortgages that can be extended to borrowers at LTI ratios of or greater than 4.5.

These recommendations were introduced to guard against a loosening in mortgage underwriting standards and a material increase in household indebtedness that could in turn amplify an economic downturn and so increase financial stability risks. The full impact of this move remains to be seen, although there is nothing to suggest that this will result in lenders blurring responsible lending boundaries, especially in the current economic climate.

Turning our attention to the issue www.mortgageintroducer.com

of affordability and technology, I was recently reading about Londonbased Raylo raising £6.5m for its tech subscription payment platform.

Essentially, this provides a platform for consumers to lease new and refurbished devices like phones and laptops from the company, paying a monthly fee for the length of the contract. Customers can then either renew their subscription, apply for an upgrade, or return the hardware.

The subscription model is an interesting one, and we’ve already seen the value of this from a host of streaming services and in areas such as leasing or PCP, which have transformed the way people approach car ownership over the years. It’s fair to say that alternative payment methods for expensive products and services have become more appealing for many people in recent times, although there’s also the argument that splitting costs into multiple payments can result in consumers taking on extra debt without realising the true cost of their purchases.

Focusing on this from a business standpoint, when it comes to affordable tech that is cost-effective and fit for purpose, shopping around and undertaking a stringent testing/trial period are essential to ensuring that firms are getting sufficient bang for their buck. So, with technology playing a more prominent role in the advice process than ever before – a highly positive trend for intermediary businesses and their clients – it was somewhat surprising to read that 79 per cent of brokers admitted that they did not try different affordability platforms before choosing the one they currently use.

The research into the changing

affordability landscape, commissioned by Mortgage Broker Tools (MBT), found that while 70 per cent of brokers said they use an affordability platform as part of the research process on at least-two thirds of their cases, only one in five reported shopping around for the best platform. As highlighted in the commentary around the research, whilst it was encouraging to see that so many brokers use technology to assist their affordability research, it was concerning to see such a large number of brokers settling for the first platform they tried.

It’s fully apparent that time constraints continue to test all brokers in an ever-changing product environment and amidst elevated levels of client engagement, especially from a remortgage perspective. This emphasises the importance of maximising efficiencies where possible at every step of the advice process and beyond.

A strong tech partnership should include in-depth onboarding as well as ongoing support. Firms also need to know what they are actually paying for and be clear on the capacities of a system and how it matches their business requirements from the onset. We have spoken to many firms that have been swayed by multiple features that may sound great in theory but that they either struggle to implement or use initially and then never touch again.

This emphasises how important it is for all firms to take their time shopping around to source the right tech partner and integrate solutions that are aligned with individual business models and practices throughout the length and breadth of the relationship. This will really pay dividends over the short, medium, and longer term. M I AUGUST 2022 MORTGAGE INTRODUCER

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BUY-TO-LET

Many questions coming to the fore in the BTL and PRS sectors Steve Cox, chief commercial officer, Fleet Mortgages

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nderstandably, there is a lot of emotion around the buy-to-let market and the private rented sector (PRS) currently.

It will feel for a significant number of landlord borrowers like they are somewhere between a rock and a hard place currently when it comes to both the here and now and weighing up what their future holds.

Politically volatile times are, of course, not helping. The PRS and buy-to-let landlords’ place within it have been used as a political football for as long as I can remember – but this appears to have moved up a level in recent months, not helped by the turmoil ongoing at the heart of Westminster.

As I wrote this, Boris Johnson had just announced his resignation and the first candidates to be the new Conservative Party leader/PM were emerging. I appreciate that by the time this article is published we will be in mid-August, and there should be a far greater degree of clarity around who that individual will be, so you’ll forgive me if I don’t make any predictions in that area.

However, what we currently have is a new man at the helm of UK housing. With Michael Gove sacked by Johnson, Greg Clark is now in the post – although, again, that might well have changed by the time you read this.

All this upheaval clearly doesn’t help landlords, who are already looking at a significant amount of change and potential cost in the future. Some have suggested that renter reforms could be put on hold, and that we might get a resetting of housing policy under a

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new PM – and that certainly would not be out of keeping with how new leaders often want to put their stamp on an administration.

Will housing strategy stay on the same trajectory, then? One would have to say hopefully not, because at some point, someone in a position of power is going to have to acknowledge the importance of the PRS in filling the housing gap, and the importance of keeping landlords engaged in the sector.

Will the ‘new’ government – when it is formed – be able to see the wood and the trees of our marketplace and set a course that understands that a lack of supply in the PRS is not being helped by the policies previously pursued? We shall have to wait and see.

What we do know is that landlords will have to take the emotion out of their existing investments and be hardnosed about what they are achieving now and what they can deliver in the future. That might well provide them with the confidence they need to keep on acquiring property where possible.

Currently, supply is low, tenant demand is high, rental yields are therefore strong, and landlords who have held their properties over the last couple of years will have benefited from an increase in house values.

Many landlord borrowers will be coming off five-year deals this year, and while, of course, product pricing is currently fluctuating, we believe this will calm down, particularly as lenders get a hold of resource and service issues. It may take the summer months to get to that point, but the anticipation is that from autumn onward we will be swimming in calmer waters, and prices will reflect that.

It means that, for landlord borrowers coming to the end of deals and thinking about their next moves, there could be an opportunity to remortgage and access some of the capital growth

in their properties in order to make further acquisitions.

Again, I appreciate that this may be easier said than done. There is a lack of housing supply for sale in the wider UK property market; however, that may also be shifting. Just recently, according to TwentyCI, data has suggested that all UK regions have seen at least a two per cent increase in property supply for sale, and we anticipate that this will continue, particularly as some of the demand in the sector is being diminished by a combination of factors, including the rising cost of living and increased interest rates.

It may well leave landlords in a much stronger position in terms of being able to access property and being able to inject greater levels of supply into the PRS, which it undoubtedly requires.

Now, of course, all this is predicated on making the numbers work, and there also needs to be an acknowledgement of what is coming over the horizon from an EPC point of view. But buying a property with an EPC rating of D or E, conducting the work to get it up to C and above now – future-proofing that asset and probably raising its value as a result – and accessing strong tenant demand are certainly both doable and clearly advantageous for landlords looking at the long term.

And that is the big, overwhelming message that advisers should now be offering their clients. Yes, the current situation is not ideal, but looking at the PRS, property investment, borrowing, etc, in the context of the long term will give landlords a much better idea of what is achievable.

Certainly, the need for mortgage advice is still huge, and advisers should act as landlords’ trusted allies, helping them through the current environment in order to place them in a very strong position in the future. M I www.mortgageintroducer.com

REVIEW

BUY-TO-LET

Snapshot of the landlord’s landscape Grant Hendry director of sales, Foundation Home Loans

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s a specialist lender who has dealt with a significant number of portfolio landlords, we know how different the needs of every single one of these landlords are and the support required from them, and from advisers, in meeting these needs.

A portfolio landlord is defined as someone with four or more mortgaged properties. An important factor to remember here is that among those mortgaged properties, those held within a limited company also count. So if a landlord holds two mortgaged properties in their own name and two within a limited company structure, then they are officially classed as a portfolio landlord.

This represents a clear definition, but – as we previously highlighted – portfolio landlords do come in all shapes and sizes, with many portfolios extending far beyond four mortgaged properties. In this respect, the words typical and average are not always representative, but it’s certainly beneficial for advisers to form a strong understanding of the characteristics of such landlords and how ‘average’ portfolios stack up in terms of size, value, and structure.

The quarterly BVA BDRC Landlord Panel research provides a good barometer for how portfolios are evolving, so here’s a round-up of its Q2 2022 insights into what a ‘typical’ portfolio looks like.  The average portfolio size has remained stable at around eight properties in Q2, with the typical landlord having www.mortgageintroducer.com

9.8 tenancies.  Just over four in 10 properties in the average portfolio are owned outright, with the same proportion owned using BTL borrowing.  More than six in 10 landlords fund at least part of their portfolio through BTL borrowing. Single-property landlords are most likely to own their property outright (65 per cent), while borrowing is more common amongst those with 11+ properties, indicating that mortgage debt is being used strategically to leverage and expand the more professional portfolios.  The typical landlord owes £442k in BTL borrowing. This is up by about £60k from Q1 and is primarily driven by an increase in borrowing amongst those with 11+ properties, again indicating a continued confidence amongst ‘professional’ landlords in property portfolio growth at this time. Looking only at those who have a BTL mortgage, the total average amount borrowed rises to £695k, which equates to around £129k per loan, although that varies considerably by region.  Terraced houses remain the most commonly owned type of rental property. Almost six in 10 landlords have at least one terraced house in their portfolio. Interestingly, terraced houses have far outrun other property types for many years in terms of which type landlords intend to buy next, but recently, semi-detached houses are scoring nearly as highly (43 per cent) for the next desired purchase versus terraced houses (45 per cent).  Landlords with the largest portfolios continue to have a more diverse portfolio, understandably, and are considerably more likely to own HMOs, detached houses, and/or whole blocks of flats.  On a regional basis, landlords

operating in Yorkshire and the Humber currently have the largest portfolios, with an average of 15.5 properties, whilst the typical portfolio in the North East and East Midlands is also in excess of 10 properties.

The increased amount of BTL borrowing represents an interesting point and helps demonstrate how active landlords with larger portfolios have been in recent times – and this certainly mirrors our lending experience, especially from a limited-company perspective.

This was also reflected within the research, which found that six in 10 landlords (62 per cent) intend to purchase their next BTL property within a limited-company structure – the highest proportion for three years and up from 50 per cent in Q1. This number has been consistently growing, reflecting the increasing popularity of the limited-company structure.

Those with larger portfolios (six properties or more) are significantly more likely to purchase in a limited-company structure – 78 per cent versus 47 per cent.

I appreciate that this is a lot of data to take in, but I hope it offers some valuable insight into the world of portfolio landlords. The many variables help outline just how important it is for advisers to work with lenders who are fully immersed in this area and who fully understand such clients’ specific – and often complex – needs.

Being in a position to access specialist support and the solutions to meet these ever-shifting demands remains key in helping to develop, diversify, and grow portfolios at a time when the value of the advice process and the reliance on specialist lenders has never been so apparent. These are important factors that are unlikely to diminish any time soon. M I AUGUST 2022 MORTGAGE INTRODUCER

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REVIEW

PROTECTION

Practicalities of assessing customer vulnerability will be tough Mike Allison head of protection, Paradigm Mortgage Services

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hen writing here in the past, I have identified the need to consider carefully the treatment of vulnerable customers.

The subject should not be a new one for any financial services practitioner, and each and every firm should have a process for identifying and dealing with such customers.

By the time you read this, the new Consumer Duty rules will have been published, and the anticipation has to be that little will have shifted in terms of the FCA’s thinking.

In the consultation paper published last December, the phrase “vulnerable customer” was used over 40 times. The principle of the importance accorded to vulnerable customers will not change, especially as we move to a more outcomes-based world as opposed to a rules-based one.

That focus has been strengthened further by the recent ‘Dear CEO’ letter sent by the FCA to 3,600 firms telling them of the need to have robust processes and procedures to identify vulnerable customers “as soon as possible” and ahead of the new Consumer Duty rules. Not only that, but the FCA also issued an update on the fair treatment of vulnerable customers, emphasising the same points.

It cannot be an accident of timing that this letter has been sent against the backdrop of the current cost-of-living crisis in which the FCA estimates nearly one in three adults are suffering low financial resilience.

Let’s not get carried away that the Consumer Duty piece is only about

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vulnerable customers – that is only a part of it. But that part is definitely attracting a huge focus.

Every single person who has contact with a client within a firm will have some responsibility to identify and deal with vulnerability, but they cannot ask direct questions on the matter. And of course vulnerability is not only financial; there are many other traits that clients may exhibit or circumstances they may be in that could lead us to think of them as vulnerable. These include bereavement, divorce, physical illness, and others that may be described as more obvious.

Others are less obvious – perhaps poor memory, low literacy or numeracy, and even conditions like dyslexia, which affects 10 per cent of adults in the UK according to UK government data from 2017.

Then there are the potentially hidden issues, such as dementia, cognitive decline, duress, and learning disabilities, which may affect somebody’s ability to make decisions, never mind a financial decision of enormous impact, such as a house purchase or moving a pension.

We should recognise that advisers have a tough job in identifying client needs in this respect and trying to meet them without the skills of clinicians – and of course the regulator will not expect us to have such skills.

What they will expect, however, is a robust, consistent process to try to identify vulnerability, with a clear outcome-based plan when any potential vulnerability has been identified. This plan may be deferring a purchase or simply not giving advice, which may not sit naturally with all advisers.

Potential vulnerability should therefore be identified early in the engagement process.

Where firms fail to meet their obligations to treat customers fairly,

be in no doubt that the regulator will take action – and, in fact, has already engaged with firms that aren’t meeting their obligations.

What is also clear from communications is that fair treatment of customers in vulnerable circumstances should apply across all business areas.

Indications are that those falling short of the current standard are simply not monitoring the information about identification of customer vulnerability – put simply, there is a vulnerable customer ‘plan’ in place, but there is no evidence to support its use or effectiveness, or indeed any buy-in from senior management.

At Paradigm, as a consulting compliance business as well as a distributor of products, we are working to help all our firms arrive at the right decisions when it comes to Consumer Duty generally and vulnerable customers specifically – especially where it fits into the role of senior managers within firms.

In addition to having produced free information on the Consumer Duty, via our website and our work on audit processes for being Consumer Dutyfit, we are in discussions with various third parties, such as Comentis, that are developing solutions not only to identify vulnerable clients but also to provide a support framework with clinical expertise to deliver clear outcomes for clients – a phrase that we will hear again and again.

A final word on vulnerable customers – for now, at least: Do not leave it until the proposed Consumer Duty implementation date to act on your vulnerable customer policy.

The requirement to identify and act is upon every practitioner and employee now, and lenders and providers of insurance are working on their own frameworks to ensure advisers have such policies in place and are using them. M I www.mortgageintroducer.com

REVIEW

GENERAL INSURANCE

Stay home, keep gardening – but make sure you stay insured Geoff Hall chairman, Berkeley Alexander

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t is perhaps unsurprising that 47 per cent of UK households invested in their gardens during the two-summers-long pandemic, according to price comparison site GoCompare. We spent an average of £1,976 each sprucing up these essential extensions of our living spaces with big-ticket items such as garden furniture, fire pits and pizza ovens, sheds and summer houses, and even hot tubs and pools.

But have we invested as much time and effort in making sure that those outdoor acquisitions are adequately protected? The answer is no – at least according to defaqto. Their analysis suggests that insurance cover for contents left in the garden has not kept pace with modern living.

As the staycation trend continues (especially with the current airline chaos), it’s time to up the ante to ensure your clients understand the true value of their outdoor items – and the need to protect value.

According to defaqto, one in 10 home insurance policies has no cover for contents left in the garden, and those that do typically have low limits (£1,000 or less with no option to increase). But there are policies out there for those who do need additional protection, and that’s why the advice of a good broker is invaluable.

Speak to your clients, evaluate their individual requirements, and if you ascertain they need a higher limit then speak to your general insurance (GI) provider about the options available.

There are options out there to give your www.mortgageintroducer.com

clients the cover they need; sometimes you may just need to look past your normal go-to provider.

Also, be aware that hot tubs and pools that are “permanent fixed items” (typically wired or plumbed in) are not generally classed as garden contents; they generally come under the rubric of buildings, so again, make sure these structures are adequately covered under the policy.

ENHANCED GOVERNANCE A BURDEN? REFERRALS ARE AN INCREASING LIFELINE FOR AGENTS

Fair value, pricing rules, and other compliance requirements help ensure you consistently secure appropriate cover, at the right price, and that it is reflective of the value you provide to your customers. But let’s be honest – they are also placing a heavy burden on your time.

There is no denying that governance plays a vital role in maintaining a healthy insurance ecosystem. However, the burdens of increasing regulatory and compliance demands are taking a toll. According to BIBA, one in four employees in smaller firms is now focused entirely on regulatory matters, meaning any knock-on effect on your ability to deliver the high level of service you desire, and every client deserves, could be significant. But there is another way.

Have you considered referrals?

Referrals to a GI provider enhance the opportunity to reach more customers with a wide range of policies, whilst taking advantage of those providers’ strong relationships with major insurers and ensuring the right cover at the right price. They still provide you with commission and a regular income, whilst taking that onerous regulatory burden off your plate.

Every week seems to bring a new reminder, a new proposal, or a new

warning from the FCA. Speak to your GI provider about the referral options they offer, and you may no longer have to suffer the insurance regulation challenges.

DON’T FORGET GI – IT COULD BE A VITAL SOURCE OF INCOME IN THE CURRENT ECONOMIC CLIMATE

Inflation is on the rise, and we are all feeling the pinch of the cost-of-living crisis. The availability of housing stock appears to be declining, and the chances are therefore that your income will, too.

No wonder almost half of advisors (48 per cent) in a recent poll say that general insurance sales have become an important source of income. And yet, three in five advisors (57 per cent) are still missing opportunities to offer GI. I would argue this is especially true when it comes to missed commercial GI opportunities. Believe me – there are opportunities out there. Earlier this year, my team here at Berkeley Alexander secured a £140k commercial motor fleet following a referral from an advisor, and recently renewed a £90k commercial property portfolio, with those advisors earning a valuable and welcome commission. These larger cases don’t come across your desk every day, but they are out there if you look for them. But it’s not just those big wins – you are quite likely to have a raft of existing clients who have commercial or investment property insurance needs, and they all add up.

I understand that GI sales can seem complex, perhaps due to the regulatory challenges mentioned earlier or simply because insurance might not be in your wheelhouse. But you can maintain this vital source of income. Make it a habit to introduce your clients to your trusted GI provider; you’ll receive a valuable commission whilst adding value for your clients and helping ensure they remain loyal. M I AUGUST 2022 MORTGAGE INTRODUCER

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CONVEYANCING

Right legal partners can remove Help to Buy remortgage stresses these second valuations to make the process as seamless as possible.

Karen Rodrigues sales director, eConveyancer

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he clock is ticking for Help to Buy. Buyers hoping to take advantage of the scheme only have a couple of months left in order to get their application in, with the final reservation deadline having been brought forward to 31 October.

There is more to the Help to Buy market, however, than simply those would-be buyers desperate to use the scheme in order to get onto the housing ladder before time runs out.

There are also significant numbers of borrowers who already have a Help to Buy mortgage, and who are now looking to remortgage.

After all, given the pace at which interest rates have risen of late, moving swiftly could make a tangible difference to the size of their mortgage repayments.

That’s an appealing prospect at the best of times, let alone in the current climate, where rocketing inflation means every penny counts.

ONE JUST ISN’T ENOUGH

One of the aspects that’s often overlooked when it comes to remortgaging a Help to Buy case is the need for two separate valuations.

With a traditional mortgage, only one valuation is required – the lender simply wants to have an idea of what the property is worth, and how that compares to the sum the client is looking to borrow.

The situation is rather different with Help to Buy, however. There’s still the lender valuation, but a second valuation is also necessary if the client is looking to repay some or all of the equity loan, to determine precisely how much needs to be repaid. At eConveyancer, we provide

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UNDERSTANDING THE PROCESS

On the face of it, organising a second valuation shouldn’t need to result in a material delay to the remortgage process. However, we know that in practice, things can be very different.

We’ve heard from countless brokers about their frustrations with the legal side involved in Help to Buy remortgage deals, and the source of their frustrations often lies in the ‘free legals’ on offer with some lenders.

As intermediaries are keen to point out, free legals are not really fit for purpose. The providers involved are overworked and under-resourced, meaning that any supposed saving in terms of legal fees is swiftly eradicated by the extra stress and potentially additional cost involved in working with these firms.

These difficulties are only heightened when working in more specialist areas of the market, like Help to Buy. It’s one thing for free legals providers to handle vanilla purchase or remortgage deals, but when things get a little more intricate – such as when cases involve equity loans and housing associations – the shortcomings of these legal firms become all too apparent.

WE’VE NOT HAD ENOUGH OF EXPERTS

We want to handle things differently at eConveyancer. It’s why we have built a wide-ranging panel of legal firms that aren’t just jacks of all trades, but that can offer specialisation in more niche areas of the market.

This gives intermediaries the power to choose the legal firm that’s best for their clients, to steer them toward the conveyancers who are most likely to understand exactly what’s necessary for that case and how to get it over

We want to handle things differently at eConveyancer.

It’s why we have built a wide-ranging panel of legal firms that aren’t just jacks of all trades, but that can offer specialisation the line as swiftly – and with as little stress – as possible.

These legal firms are fully audited and regularly reviewed to ensure that they are still delivering the top-quality service expected, too.

BOLSTERING THE BROKER RELATIONSHIP

The best brokers take a longerterm view when it comes to their businesses. It makes sense to focus your efforts on building a lasting relationship with your clients, so that they keep coming back to you year after year for all of their financial needs, rather than simply relying on new borrowers to keep coming through the door.

In order to do that, brokers put a lot of work into delivering the best possible experience to their clients – but ultimately, many things are involved in a purchase or remortgage that are beyond their control. Finding partners you can trust to deliver, whether that’s a lender who can turn around funds on a tight deadline or a conveyancer who can be relied upon to ensure a smooth deal, is crucial.

Partnering with the right businesses not only means that your clients’ purchase or remortgage will go through smoothly, but it also boosts your chances of retaining their custom for the long haul. After all, when a case goes through swiftly, it’s brokers who get the credit. M I www.mortgageintroducer.com

REVIEW

EQUITY RELEASE

Why are we avoiding the care question?

Alice Watson head of marketing and insurance, Canada Life

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nderstanding how you might pay for the cost of long-term care, or even estimating that cost, continues to be one of the great unknowns of later-life financial planning. While the much-talkedabout social care cap of £86,000 is currently due to be put in place in October 2023, it will only cover spending by the individual, with any taxpayer support not counting toward the cap. This disparity will likely create a new layer of confusion and uncertainty, hammering home the importance of seeking financial advice as early as possible in the process.

Worryingly, many people don’t expect to have to pay for care at all.

Canada Life research has found that nearly a third of over-60s do not expect to have to pay for care, with 41 per cent also not expecting to need to pay for the care of a loved one. In contrast, the UK government estimates that three in four UK adults over the age of 65 are likely to face care costs in their lifetime, with one in seven likely to face bills of more than £100,000.1 It may be that the confusion and lack of clarity around who bears responsibility for paying for care is the reason why so many people are simply avoiding the question and hoping for the best.

For those who have thought about how they might pay for care, more than a quarter (27 per cent) of over-60s say they would use their state pension (down from 37 per cent www.mortgageintroducer.com

in 2021), followed by 25 per cent who say cash savings (down from 35 per cent in 2021), and private pension (18 per cent).

Other ways over-60s expect to pay for care include:  14 per cent will be selling their assets (e.g., house)  13 per cent say they expect the government to cover the cost of care  nine per cent say they would release equity from their home  five per cent would use an inheritance This reliance on the state and private pensions is particularly dependent on making sure you choose, or are able, to work until the state pension age, currently 66 and soon to be 67.

However, we know that more than two-fifths of 55-to-66-year-olds have taken early retirement since the start of the pandemic.2 This acceleration in plans could have a significant impact on a generation of savers, as analysis from Canada Life shows accessing pensions

before state pension age would on average reduce a pension pot by 59 per cent.

With retirement now lasting up to several decades, it’s vital for those approaching retirement to consider how they will fund the lifestyle they wish to live, and speaking with a financial adviser is a sensible step. This is where advisers have a crucial role to play in helping those in and approaching retirement to plan ahead. The possibility of having to pay for care is now a crucial part of retirement planning. Advisers will be able to help customers navigate the various options available – whether that be using their pension wealth, their property wealth, or a combination of the two – to plan ahead with certainty. M I 1 https://www.gov.uk/government/ consultations/operational-guidance-toimplement-a-lifetime-cap-on-care-costs/ operational-guidance-to-implement-alifetime-cap-on-care-costs 2 https://www.canadalife.co.uk/ourcompany/news/over-two-fifths-of-55-66year-olds-have-taken-early-retirement-sincethe-start-of-the-pandemic/ AUGUST 2022 MORTGAGE INTRODUCER

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CROSS-GENERATION MORTGAGES

Cross-generation mortgages: What’s the verdict?

Experts offer their views on whether they really solve any problems

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he UK government is considering offering cross-generation mortgages to people who may not be able to pay off their mortgage over the entirety of the term due to their advanced age. When an older mortgage holder dies, their children would take over the mortgage in their name until the loan is paid off.

The new plans would see homeowners take out 50-year mortgage terms with little or no expectation of completing mortgage repayments during their lifetimes. It is important to note that inheritance tax is only levied on the net value of the property, so if it is mortgaged when the owner dies, the inheritance tax bill will be lower.

Melanie Spencer, business development director and head of payment and mortgage services at finova, explained it is reassuring to see that tackling the housing crisis is high on the government’s agenda.

“We are certainly in need of new and exciting ways to help more people onto the housing ladder,” Spencer said.

However, she added that the market must exercise a degree of caution when it comes to solutions such as multi-decade mortgages.

While relatively long-term mortgages are helping

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The new plans would see homeowners take out 50-year mortgage terms with little or no expectation of completing mortgage repayments during their lifetimes. It is important to note that inheritance tax is only levied on the net value of the property, so if it is mortgaged when the owner dies, the inheritance tax bill will be lower many reach their homeownership goals in today’s higher-rate climate, Spencer said the prospect of cross-generation mortgages may carry its own set of risks.

“For instance, there is no guarantee that the child being handed the loan will be financially equipped to pay off the debt – and how do we assess their affordability?” she questioned.

Mortgage rates are rising at their fastest pace in 15 years; Bank of England figures have revealed the average interest rate on a new home loan www.mortgageintroducer.com

COVER

CROSS-GENERATION MORTGAGES

Kevin Roberts

hit 1.96 per cent at the end of May 2022, up from 1.5 per cent in November 2021. In addition, homeowners moving to a new deal can expect to see their disposable incomes shrink by seven per cent, according to data collected by UK Finance.

On top of that, Spencer explained that the children may not want to live in their parents’ home, especially if they fly the nest, thus creating another generation of mortgage prisoners.

“Ultimately, the key challenge of today lies in tackling the lack of supply on the market, and without a coordinated effort to solve this fundamental issue, the percentage of first-time buyers getting onto the housing ladder will keep falling,” she said.

As such, Spencer believes the market needs to look beyond solutions that leave people with more debt and find ways to enhance supply levels to meet affordability needs.

Meanwhile, Kevin Roberts, director of Legal & General Mortgage Club, emphasised that with the cost-of-living crisis having a significant impact www.mortgageintroducer.com

Melanie Spencer

on borrowers’ affordability, and the number of products on offer falling, there was a need for creative solutions.

“With the price of everything from food to fuel rising in recent months, getting on the property ladder is no easy feat, so it is certainly encouraging to see the government recognise this dilemma,” he said.

“While the pandemic sparked a new wave of innovation, we must sustain this momentum in the long-term.”

As far as long-term mortgages are concerned, Roberts explained that other countries have had great success with solutions that can be passed on to the next generation. He believes it is an idea the market can be open to, as long as it remains pragmatic in its approach and the industry is engaged in helping find solutions that work.

Roberts concluded by saying, “With all innovation efforts, we must ensure that borrowers remain the main beneficiaries, and that there are enough affordable homes on the market to begin with.” M I AUGUST 2022 MORTGAGE INTRODUCER

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INTERVIEW

MORTGAGE LENDER REPORT

More people “falling outside of the high street’s remit” Head of distribution discusses adverse credit report warnings

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esearch released by The Mortgage Lender showed that more than three million people have missed a major bill payment over the last two years.

The report, titled Exploring Adverse Credit, also found that four in every 100 adults in the UK admitted to having missed multiple payments.

Worryingly for the mortgage industry, the report noted that a tenth of people who said they were planning to buy a property within the next year had missed a payment in the past two years. The report also noted that missed payments could have “big implications for a person’s access to credit in the future,” including for large loans like mortgages.

Mortgage Introducer reached out to Sara Palmer, head of distribution at The Mortgage Lender, to discuss with her the report’s findings and what they could mean to both industry professionals and borrowers in the near future.

Do you think the number of people missing monthly payments will increase significantly over the coming months because of the cost-of-living crisis and a possible recession?

Knowledge Bank reported that applicants with ‘missed or late payments’ entered the top five criteria searches in May. While we can’t say for sure that we are seeing the full effects of the costof-living crisis, this increase in criteria searches coupled with our own experience of increased enquiries is starting to show a trend. Since we improved our residential criteria to help customers

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who had missed unsecured credit payments, we have seen an increase in our application volumes, which would point to more people falling outside of the high street’s remit.

How do you think this will affect the mortgage sector, given that, according to the report, “a tenth of people planning to buy a property within the next year have missed a payment in the past two years”?

The past few years have been particularly hard financially for many people, and brokers are well placed to advise anyone with a blip on their credit score on how to get mortgage-ready and find the right lender. [The report,] Exploring Adverse Credit, showed that six per cent of people in the UK had missed a payment over the last two years – that’s almost 3.2 million adults in total. The research also shows that one in 10 aspiring first-time buyers currently use a buy now, pay later [BNPL] scheme such as Klarna, with 18 per cent of those who use these schemes missing a payment in the last few years. The rise in BNPL schemes could see more people being classed as [being in] adverse credit without realising it, which might soon see more needing support from brokers and specialist lenders.

What advice would you give to people who are planning to buy a property within the next year but who have missed a payment in the past two years?

Our advice would be to speak to a mortgage broker and use their expertise to understand the best options for moving forward with their homeownership plans. They can advise on how

Sara Palmer

to get mortgage-ready and look for the best solution available.

How should the mortgage industry support those who’ve missed payments?

Most specialist lenders already offer solutions for customers with missed payments on their credit profile.

However, these can vary in terms of the recentness of the missed payments and what that means to product availability. Clear and consistent criteria, as well as easy access to business development teams, are vital so that brokers can provide the correct advice and improve the customer journey by placing the case with the right lender the first time. M I www.mortgageintroducer.com

INTERVIEW

SELF-EMPLOYED

Mortgage accessibility for self-employed only becoming harder External factors worsening affordability for the group

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elf-employed borrowers have always had to jump over extra hurdles in order to get a mortgage product – and this has only become more difficult given the current state of the financial market.

The cost-of-living and energy bills crises have both affected affordability, combined with the pandemic, rising inflation, base rate increases, and the war in Ukraine – with the last having affected fuel prices.

As such, people are paying more for the same. And with wages not having increased in line with rising inflation, this has resulted in a significant decline in affordability for the self-employed.

“Self-employed borrowers have always found it disproportionately hard to get a mortgage compared to their counterparts with more traditional income streams,” according to Matt Harrison, sales director at finova.

For example, he explained that in most cases, a self-employed applicant needs to show two or more years of company trading accounts as evidence of income, while an employed applicant may need just three months of payslips.

“This has only gotten harder following the COVID-19 pandemic.

The way the pandemic affected the economy has made it especially hard for people who are self-employed to borrow money,” Harrison said.

Early on in the pandemic, many mortgage lenders began to withdraw from the specialist market, or made significant changes to their self-employed criteria. This made it increasingly difficult for self-employed borrowers to access products and left them stranded, unable to buy unless they accepted much higher rates. www.mortgageintroducer.com

In most cases, a selfemployed applicant needs to show two or more years of company trading accounts as evidence of income, while an employed applicant may need just three months of payslips

Matt Harrison

Harrison explained that government support for self-employed workers was not as clear-cut as the furlough scheme, and many who accessed the Self-Employment Income Support Scheme (SEISS) grant are now finding that this has affected the amount they can borrow or which lenders they can use. The last date for making a claim was also September 30, 2021 – meaning the after-effects of the pandemic are still being felt by the self-employed, without a scheme currently in place to help support them.

According to the Office for National Statistics, there are 4.8 million self-employed people in the UK, which makes up 15.1 per cent of the workforce – a stark increase from 3.3 million in 2001.

With the number of self-employed on the rise, finding solutions for their housebuying needs is only becoming more and more important, Harrison outlined.

“As well as more complex income requirements, a lack of education on situations specific to the self-employed can make it harder for these borrowers to secure a mortgage. Take incorporation relief, for

example,” Harrison said.

He explained that to be eligible for incorporation relief an individual must be a sole trader or in a business partnership and transfer the business and all its assets, except cash, in return for shares in the company.

In order to work out the amount on which one must pay capital gains tax, one must deduct the gain made when selling a business from the market value of the shares received.

“There are many ways self-employed people release income in tax efficient ways, which means that communicating the company outgoings to the underwriter can be increasingly complex, especially when there may be spousal company shareholdings, umbrella companies, or director loans,” Harrison said.

According to Harrison, these complex requirements are then compounded by the other typical peculiarities that come up in a mortgage application.

Harrison concluded by saying, “To deliver the best service, brokers need to put in additional time and care researching, packaging, and presenting a self-employed borrower’s mortgage application to make sure the lender does not need further information, therefore increasing timescales in what can already be a lengthy process.” M I AUGUST 2022 MORTGAGE INTRODUCER

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INTERVIEW

PROPERTY PORTAL

“We’re trying to level the playing field again” CEO of one-stop property portal on “democratising” data

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ack in 2007, just about anyone who had any serious cash at least thought about buying a house. Not so Ben Davis who, as an investment analyst, was convinced something was amiss.

“I came under a lot of pressure from everybody to buy a house in 2007,” he said. “But to me, prices were absolutely nuts and it would have been stupid to buy at that point in time.”

Instead, he made a shrewd move and bought a block of flats in Berlin, “because they weren’t experiencing the same price bubble we had here.”

The rest, as they say, is history.

The financial crisis that subsequently unfolded left people reeling.

Many became so-called mortgage prisoners, as the amount they had borrowed was greater than the value of their property, and it wasn’t long before the phrase “negative equity” entered the vernacular.

When Davis finally decided to buy his first house in the UK it was in 2011, when prices had pretty much reached bottom.

It was that foresight that led him to launch a property portal in 2018.

“I felt that the big property portals weren’t serving either side of the market very well,” he said.

He noted how estate agents “were literally going out of business” because they were paying high monthly subscription charges and only getting buyer and tenant leads in return.

As for consumers, he felt they were effectively being ignored because of outdated, email-based tech.

“We thought we could do better

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than this,” he said, reasoning that by simply providing a free service for estate agents he could trounce the opposition from the starting blocks.

As the CEO of PropertyHeads Group, he now controls three websites – the eponymous portal, which is a consumer-focused socialnetwork site fashioned along the lines of Facebook and LinkedIn that targets people who are mostly looking to find a new home or build a property portfolio.

Then there’s the valuations site MousePrice – acquired 18 months ago – and MousePrice Pro, which is the data business end of MousePrice, mostly used by estate agents, surveyors, and mortgage brokers as a research tool, which Davis claims “is the most powerful UK property search available,” citing the 40 filters that can identify up to 300 attributes on any UK property.

Much of that is down to an automated valuation model that the group acquired with MousePrice, which has since been re-engineered and also allows remote valuations.

The result is that some 8,000 estate agents have now registered properties with the group. “Now it’s about getting all the registered users we have across the three websites on PropertyHeads using it as it should be. We’ve got about 2.5 million, mostly UK homeowning registered users that we’re increasingly getting engagement from,” he noted.

Talk of the current housing market with mortgage professionals invariably leads to wider conversations about the underlying

Ben Davis

problems affecting the sector, such as the lack of stock, and fears – at least for first-time buyers – that house prices have spiralled out of control.

Davis revealed that more properties were now coming on the market – perhaps a sign of a downturn? “We’re not seeing prices decline yet, although we are seeing a levelling off,” he said, suggesting that there may be “some small nominal” declines, but nothing even closely resembling what happened in 2007.

Regarding the government’s efforts to help first-time buyers and kickstart the home-building revolution many feel is needed, he was largely dismissive. www.mortgageintroducer.com

INTERVIEW

PROPERTY PORTAL

Davis was previously critical of the government’s Mortgage Guarantee Scheme, which offered incentives to lenders by backing 95 per cent LTV mortgages; so far it has failed to work as intended, judging by the low uptake.

Since then, there have been stamp duty holidays, which have been more successful, and new, controversial right-to-buy proposals, neither of which addresses the core issues, in his estimation.

“By providing more credit to potential buyers all you’re doing is pushing up prices to the benefit of the people who already own those assets. What they should be doing is building more homes and relaxing planning regulations – that’s what’s going to help younger people get on the property ladder,” he said.

“Unfortunately, the days when

people moved up the property ladder as their wages increased are largely over, that’s why we’re seeing a lot of people stuck in one- and twobedroom flats with young families.”

He speaks from experience.

Growing up in Essex in the 1980s, Davis lived through the city’s Big Bang era of deregulation, which paved the way for London to become the world’s leading financial centre. The reset also reshaped attitudes not just in the city but in working-class suburbs.

“We were allowed to have the more glamorous roles in the city and lots of people were making money.

I guess that rubbed off on me as an impressionable kid, but I’ve always had an interest in property.”

Certainly, that interest ran in the family. His father was a builder, and even before he went to school, Davis

used to join him on building sites.

As for his mother, she was a planning officer on a local council.

He recalled living in “slightly crappy houses” that were in various stages of renovation, the memory of which left such an indelible mark that “helping everyone to make smarter property choices” became the tagline for PropertyHeads.

Davis concluded by saying, “I don’t think the same opportunities are always available to everyone in UK residential property, but by opening up communication lines and by connecting people and businesses, I think we can go some way to helping people make smarter decisions. We’re trying to democratise things – make data available to everybody and just level the playing field again.” M I

DA

DA

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INTERVIEW

COST-OF-LIVING CRISIS

“People have already reached breaking point” The cost-of-living crisis has hit – but what can be done about it?

Karen Noye

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he cost-of-living crisis has had a major impact on the mortgage market, with rates continuing to worsen for homeowners.

They are now paying as much as 21.5 per cent more, or the equivalent of £162.83 per month, compared to those who locked in when rates were at their lowest point last year, data from Revolution Brokers has shown.

“Given the rising cost of living and increasing interest rates coupled with wages that are struggling to keep up, some people are beginning to struggle to meet their monthly payments,” according to Karen Noye, mortgage expert at Quilter.

Noye explained that cheap mortgage rates have quickly disappeared from lenders’ shelves, leaving many paying considerably more than those who locked in when rates were at their lowest. She added that some people have already reached breaking point and are finding it difficult to keep up with their repayments alongside the rising costs of

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food, fuel, and energy bills.

“With the energy price cap set to rise again in October, there will no doubt be more people left struggling,” Noye continued.

The government has, in the past, intervened to help those struggling to make their mortgage repayments, as was seen with the introduction of a mortgage holiday during the pandemic that provided a much-needed lifeline for many. Should the current situation continue to deteriorate, Noye believes there could be a similar intervention.

“However, should another mortgage holiday be introduced, it should only be used by those who simply cannot meet repayments due to the crisis and need the breathing space to stabilise their finances, as delaying also extends the borrowing period, which is generally not a good idea unless essential,” she said.

Ultimately, Noye believes borrowers who are struggling should be in touch with their mortgage lender. Regardless of whether the government were to introduce a mortgage holiday, Noye believes many lenders offer forbearance, which can allow people to pause or reduce their payments for a limited time.

“While this should be a last resort, it may be an option should the need arise,” she added.

Additionally, Noye outlined that many lenders have already said that they are introducing other measures to help their customers, with Nationwide announcing its cost-of-living helpline, which aims to help those struggling to access support quickly.

WHAT ARE THE OPTIONS?

For those borrowers struggling to make their repayments, Noye

outlined options they can explore.

She explained that if a borrower is currently on a tracker mortgage, their repayments are likely to continue rising if the Bank of England increases its base rate further, as expected over the coming months.

“If this is the case, it may be worth considering switching to a fixed-rate mortgage to help protect themselves from additional rate rises, particularly if they can do so without incurring an early repayment charge,” Noye said.

While the rates on offer are not as low as they once were, she believes it could still pay to lock in now.

Additionally, Noye said it is a good idea to take stock of household expenditure and make cutbacks where possible.

“A good place to start would be to look at whether there are any TV subscriptions or other memberships that can be stopped – shop around to see if there are cheaper options to reduce mobile phone bills and look at ways to reduce food shopping bills as well as avoiding food waste,” she said.

If unsecured debts are an issue, Noye believes it could be worthwhile to look at ways to reduce them, starting with those with the highest interest, as they will cause a significant drag on finances.

Meanwhile, she outlined that those who are struggling should seek professional financial advice to help them manage their finances and find the best solutions for their circumstances.

“There are a number of government-backed services available such as Money Helper, or a charity such as StepChange or Citizens Advice, which can offer free support,” she concluded. M I www.mortgageintroducer.com

INTERVIEW

SECOND-STEPPERS

“You have to strap yourself to the mast and just ride through that wave” 30-year mortgage veteran on housing crisis, affordability woes – and neglected second-steppers

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imon Gerrard has been at the helm of Martyn Gerrard Estate Agents for more than 30 years.

That sort of experience gives you a gravitas you cannot buy.

Outspoken, a staunch defender of the construction sector, and a standardbearer for second steppers – whom he feels get a raw deal – he’s happy to give an opinion on just about every aspect of the housing industry.

His father launched the family-run business more than half a century ago, in 1964. “It runs in my blood,” he once said, adding that the thought of helping customers through the process of finding their dream home is what gives him a buzz.

The belief that a home “is not just a thing” was ingrained in him from an early age while he watched his father’s clients, a view the COVID pandemic only served to strengthen.

“People are less concerned with wealth and a little bit more concerned with living conditions, which is a good thing because I think they should think of where they live as a home rather than as an investment,” he said.

And while it’s not hard to find a mortgage professional willing to go on record on the difficulties first-time buyers experience in the housing market, hearing about the trials and tribulations of second-steppers is somewhat less common.

“There’s a lot of help in place for first-time buyers. You’ve got Help to Buy and you’ve got the benefits of a first mortgage, [as well as] the stamp duty situation,” he told Mortgage Introducer.

By contrast, second-steppers receive no benefits for moving up the ladder. “It makes it very, very difficult for them to www.mortgageintroducer.com

do so, especially while interest rates and the cost of living are rising.”

Nonetheless, he believes house prices have now levelled out, although they will remain strong because “we have a real problem with supply, and demand is considerably higher [than supply].”

And as is often the case, talk of affordability and prices invariably gives way to the wider issues of supply and planning, both of which are close to his heart.

“One of the problems is the fact that the government’s building and planning scenario means that the majority of houses are being built not where people want to live, but in a field,” he said.

He also blamed an “antiquated” planning system and “anti-development” planning officers for the woeful lack of homes being built across the country.

A major shift in attitude is needed to break the planning deadlock, given that the government has all but given up on building the 340,000 or so homes that are needed every year.

Courage is a quality sorely lacking when it comes to drafting planning laws, according to Gerrard. “If every planning decision has to be made with the approval of local residents, I can assure you that other than putting a fence up or doing a small extension that no-one can see, no planning decisions will be able to progress to provide housing,” he added.

Stamp duty has become another hotly debated issue of late, especially after the COVID-led ‘holidays,’ which ended last October, proved to be so effective in getting the housing market moving again.

And according to 41 per cent of people polled in a recent survey by the Yorkshire Building Society, one way of

Simon Gerrard

fixing the housing crisis would be for the government to scrap stamp duty altogether. Gerrard, however, disagreed.

“If you scrap stamp duty, you cut off an enormous income stream to the government. That just isn’t feasible.

What the government should be looking at is reversing stamp duty.”

His proposal would be to pay stamp duty only on the properties that are sold, because in his view the current system unfairly penalizes people who want to move up.

But he confessed that he didn’t hold out much hope that the government would have the wherewithal to make such things happen.

Given his frustration with red tape and the current inertia on the part of the authorities, he was asked how his experience had helped him to weather previous crises.

“Sometimes it’s important to strap yourself to the mast and just ride through that wave, because if you look over the last 50 years, there are cycles in the housing market. We have a growing population, and we have a shortage of homes. And on that basis, the property market will always increase.” M I AUGUST 2022 MORTGAGE INTRODUCER

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SPOTLIGHT

Cost-of-living crisis: time to serve the underserved The issue is now affecting most people

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he UK population is experiencing a once-in-a-generation cost-of-living crisis that is placing unprecedented pressure on household finances – and this on the back of recent figures showing that 3.2 million UK adults – the equivalent of six per cent of the UK population – have missed a major bill payment over the last two years due to the pandemic.

With homeowners’ finances already in a delicate position, and predictions of worse to come, the impact of continued rises in food, fuel, and energy costs is likely to exacerbate this situation, with more missed payments, credit blips, and adverse credit ratings for homeowners increasingly likely.

David Binney, commercial manager of Norton Home Loans, explained that the reality is the cost-of-living crisis is affecting most people one way or another now, and as a lender Norton Home Loans has already started to see the impact.

“Due to where we sit in the market, we are used to dealing with applicants with credit issues, and we have the criteria to help many people when no other lenders can,” he added.

Binney explained that specialist mortgage lenders like Norton Home Loans have been catering for the needs of people with adverse credit records and those who fail to meet the lending criteria of the mainstream mortgage market for decades.

“In fact, the number of borrowers who fail to tick the one-size-fits-all lending definition of the high street has been increasing every year, with 80 per cent of brokers expecting to write more specialist lending cases in

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David Binney

2022, and 43 per cent reporting an uplift in adverse credit case enquiries since the start of the pandemic, according to a recent poll,” Binney said.

Binney believes these trends are almost certainly set to continue as the financial ramifications of COVID-19 and the rising cost of living continue to play out, with more people tightening the purse strings and many others either struggling to make ends meet or defaulting on mortgage or credit card repayments.

For these people, and many like them, www.mortgageintroducer.com

Binney said the specialist lending market is there to cater for their needs.

“This demographic has always been grossly underserved by the general lending community, either because they have a low credit score, a CCJ, or have missed repayments and ended up with defaults on their credit profile,” he added.

Binney explained that in all these cases, specialist lenders have helped borrowers by assessing each case on its individual merits and thoroughly examining the circumstances in which the credit blip occurred, something he expects will continue as the market navigates the financial precarity currently gripping UK borrowers.

“The number of borrowers who fail to tick the one-size-fits-all lending definition of the high street has been increasing every year, with 80 per cent of brokers expecting to write more specialist lending cases in 2022, and 43 per cent reporting an uplift in adverse credit case enquiries since the start of the pandemic As well as people defaulting on payments or falling into arrears, Binney said the impact of escalating living costs is also likely to lead to more people seeking help in the form of state benefits, either permanently or in the short-term, which may also be a concern.

“However, being in receipt of state benefits is not a barrier to securing a mortgage, with some longterm benefits considered in mortgage affordability assessments for those on potentially lower incomes,” he added.

In addition, the use of the so-called bank of mum and dad has also been on the rise, with more and more buyers forced to turn to relatives for support in accessing homeownership or moving up the property ladder.

The fact is, Binney said, as we continue to fall headlong into a period of extreme volatility, there will undoubtedly be more people than ever seeing a reduction in disposable income, which will affect their ability to pay household bills and place them in potentially precarious financial waters. Still, there is help at hand.

He concluded by saying, “Specialist lenders are in a strong position to help those not catered for by the high street while also acting responsibly when it comes to addressing their borrowing needs.” M I www.mortgageintroducer.com

AUGUST 2022 MORTGAGE INTRODUCER

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SECOND CHARGE

The need for speed in the mortgage market Matt Meecham chief digital officer, Evolution Money

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ust like Tom Cruise in Top Gun, we all find we have the need for speed from time to time – not least when we’re trying to complete a mortgage application.

The first- and second-charge mortgage markets have made some great advances over the last decade in their move to digitalisation, but now is the time to step it up a gear.

Technology firm Yapily recently crowned the UK the best European adopter of open banking – beating Germany and Sweden to the top spot for the second year running.

There are now six million active users of open banking in the UK, with such payments growing 500 per cent yearon-year, according to the latest statistics from the Open Banking Implementation Entity (OBIE).

Evidently, the country as a whole and the industries within it are doing well in the fintech process – so why is the mortgage market still lagging?

There is no escaping the fact that some firms face significant barriers to implementing change, and the bigger the firm, the bigger those challenges often are. For some of the largest lenders, significant cost, time, and resources are needed to implement any digital move, in part due to legacy system issues.

In a fast-paced mortgage market – especially one coming out of Covid and, in some instances, struggling with staff shortages – making the time for such upgrades has not always taken priority.

Another big factor is a lack of incentive or urgency. In any other consumer-driven industry, when faced with slow service, clients would simply

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look elsewhere. A time-consuming, non-digitalised approach from a current account provider, for example, would result in the user switching providers.

The mortgage market is unique in that it is not like other financial sectors. The transaction – for mainstream clients, at least – is, for the most part, rate-driven.

Lenders offering a competitive rate thus know they will win business, regardless of the service they offer. This can be frustrating for borrowers and advisers.

The tide is turning, however, as we are seeing an influx of new lenders and advisers to the market who are technology-led. This increased competition should help drive change.

A wider cultural shift will also help prioritise fintech for those providers that haven’t already done so.

More than 70 UK companies and organisations, including Evolution, are currently trialling a four-day working week. Some 3,300 workers, based throughout the UK and representing more than thirty sectors, are receiving 100 per cent of their pay for 80 per cent of the usual working time, in exchange for a commitment to maintain at least 100 per cent productivity.

We have joined this move because we believe that, if the mortgage industry is to continue to attract the best new recruits, we need to compete with firms and sectors that embrace flexible ways of working.

A four-day working week, however, is currently unachievable for many other mortgage firms without further slowing down borrowers’ applications. Thankfully, we are not among those firms.

The recent spate of short-notice product withdrawals in the mortgage market highlighted some of the inefficiencies in the current market, with brokers working out of hours and wasting time on hold, chasing the progress of their cases.

Our ability to embrace a true digital journey, however, means that a lot of the time-consuming manual tasks in the mortgage application process can be eliminated though digitalisation – freeing up underwriters and advisers to focus on more complex cases, and thus reducing our costs.

As more lenders in both the firstand second-charge markets follow our lead and start to implement new technologies – the benefits of open banking and a more automated way of working are becoming clearer – we will increasingly see those that are not adapting get left behind.

Open banking will play an increasing role in helping those clients that require more than a tick-box approach.

The cost-of-living crisis and the increasing complexity of some borrowers’ financial makeup is requiring more in-depth insights into their finances. By accessing a borrower’s bank accounts and up-to-date financial information, we can more accurately assess what products are available to them and gain a deeper understanding of their finances, which leads to a better-informed lending decision.

The pace of advancement is perhaps somewhat quicker in the specialist and second-charge markets, with lenders like us using open banking, apps, and digital ID verification to speed up and streamline the customer process. This is having a significant impact on funding timelines and can provide a competitive edge for those borrowers who may need funds quickly.

A small cluster of firms cannot drive change alone, however, and a broader approach is needed from all within the mortgage market to deliver real advancement.

The mortgage industry is very close to a largely digitalised process – but for this to happen, lenders and advisers need to make it a priority. M I www.mortgageintroducer.com

LOAN INTRODUCER

SECOND CHARGE

Let’s add more substance to the statistics Tony Marshall CEO, Equifinance

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epending on which metric you pay attention to, the recovery in second-charge lending continues to make headlines.

However, the rhetoric is still linking the sector to a narrative that is forever stuck in a bouncing-back mode, and over the last twelve to eighteen months, we have become used to seeing gains in new business expressed as a percentage increase over the same month in the previous year.

This presentation of the figures obviously helps to draw attention to how much the numbers have improved in twelve months. Being able to use percentage improvements of 20, 30, or 40 per cent also looks dramatic, but I think we need to move on as an industry. The improvement message has been useful, but the danger is that second-charge business reporting has entered a loop in which the only thing that changes is the monthly percentages – which sound impressive at first, but begin to pall over time.

It probably doesn’t help that when we consider the volume of new business in the first-charge sector, second-charge business is, in terms of size, a sideshow, albeit an increasingly important one.

So there is more than a touch of small-man syndrome in the way the sector sees itself in relation to its much bigger sibling – and that has tended to inform the messaging to intermediaries about the relevance of second-charge lending. This is why I www.mortgageintroducer.com

Yes, we are making progress in getting the message across about where and when a second-charge solution can be a better option for customers think it is important that we start to move away from a constant monthly percentage increase/decrease-led narrative. Admittedly, to make any story newsworthy it needs a hook to draw in readers – but surely it is possible to make our stance more robust so that second-charge lending is judged on its ability to prosper on its own, rather than as a poor relation to its first-charge cousin?

There are good signs. I have been delighted to see some industry figures, whose business propositions to brokers include a strong secondcharge proposition, offering robust evidence of how our channel has more than enough substance and attendant USPs to stand on its own two feet.

Yes, we are making progress in getting the message across about where and when a second-charge solution can be a better option for customers. It has also been a few years since the FCA made it clear that advisers should discuss second-charge as an option in meetings where capital-raising is on the agenda.

However, for all those who still believe that the only method of capital raising is remortgage, the introduction of Consumer Duty and the attendant reporting that will be required to show the regulator why clients were recommended a particular course will ensure that brokers will have to demonstrate

a more even-handed approach to their future recommendations.

In the meantime, I would like to see the second-charge community be more positive about our sector. I am sure we are all delighted to see the monthly percentage increases in new business measured against a previous period – but without more substance in the form of positive reinforcement to back up the data, the average broker will get tired of the same story.

THE BORIS FACTOR

The recent resignation of Boris Johnson as leader of the Conservative Party – and as PM after a leadership contest – has sent many trade journalists into a frenzy about the possible effect it might have on government plans for the property market as well as on the funding industry in which we make our living.

Can we expect radical changes to policy, and will the markets recoil at the change?

In short, no.

Boris’s departure won’t make any difference, and certainly not in the short term. The parliamentary recess will be upon us when you read this, and does not end until September, so not much of anything will happen until the autumn. Then a new leader has to be chosen who will then become PM – that is, if Boris is allowed to stay as caretaker until the leadership contest is decided.

Of course, predicting the future, particularly in such volatile times, can be a little like trying to nail jelly to the ceiling. If the Labour Party and other opposition parties are able to engineer a no-confidence vote leading to a general election, then we might indeed be in for some interesting times in 2023. M I AUGUST 2022 MORTGAGE INTRODUCER

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SPECIALIST FINANCE INTRODUCER

HOLIDAY LETS

UK holiday lets still a shrewd investment Emily Smith head of intermediary sales & distribution, Harpenden Building Society

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ith the holiday season in full swing, here’s a timely reminder to mortgage intermediaries to consider the opportunities created through UK holiday-let financing. The demand for mortgages in this specialist area is as strong as ever.

Despite people being able to travel more widely than at any time since the pandemic first struck, the travel industry is still reeling from the effects of COVID-19. Overseas travel is difficult. As a result, a boom in holidaying at home and the ongoing demand for good-quality staycation accommodation remains. In the coming months, we expect a steady stream of holiday-let mortgage applications. It remains a popular option with investors wanting to make the most of the situation.

THE BACKGROUND

When COVID finally became more manageable, the consensus was that we would be able to travel easily again, whenever we wanted to and as we had done prior to the pandemic. Although this has been the case to some extent, overseas travel has been far from easy in 2022 – a situation that looks set to remain for some time. Whether it’s flight cancellations or delays in passports renewals, it’s a hassle, putting many people off. The obvious solution has been to holiday closer to home, and this is what’s been happening during this peak holiday season.

STAYCATION POPULARITY

According to PwC research, 37 per cent of UK residents plan to travel locally in 2022, creating significant

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demand for holiday lets and thus allowing investors to maximise rental income as demand outstrips supply in British holiday hotspots.

2022 research from Park Leisure also found that over two-thirds of the people they interviewed (70 per cent) agreed they would rather take smaller regular trips in the UK than one big holiday, again pushing up demand for domestic holidays. When asked their reasons for preferring UK breaks to overseas travel, respondents cited less travel time to the destination, followed by reconnecting with nature and the great outdoors. The increasing number of people buying pets during lockdown has also influenced current holidaying trends. The ability to bring pets along on holiday was a huge pull toward staycations, with almost a quarter of Brits (24 per cent) citing it a as reason to consider taking more regular UK holidays.

SURGE IN DEMAND FOR UK HOLIDAY-LET MORTGAGES

With such demand for what we now term staycation breaks, investors are seizing the opportunity to acquire holiday-let property to rent out, providing a stream of financing opportunities for both lenders and brokers. We have many years of experience to compare and contrast in this specialist area of lending and this is a bumper year for holiday-let mortgage applications!

HARPENDEN’S APPROACH

Harpenden’s specialist holiday-let product range is not only price-competitive but also has some interesting features. Additionally, there are no restrictions on location for the property purchase, giving wider buying options within England and Wales, whether it be in a coastal, rural, or city-centre location.

We also recognise that investing in a holiday let is not just about the money.

As such, we have included an additional

feature that allows owners to enjoy their holiday-let properties themselves for up to 90 days per year. Loans of up to £2m are available; Airbnb rentals are accepted; personal income can be used if required to support the loan (top-slicing); up to three properties on one title will be considered; properties above commercial premises are also accepted; and we have 75 per cent LTV available on IO and 80 per cent available on repayment.

According to PwC research, 37 per cent of UK residents plan to travel locally in 2022, creating significant demand for holiday lets In our experience, holiday-let purchases are often made by customers with multiple forms of income from a range of sources. Mainstream retail lenders assessing mortgage applications can’t always accommodate customers with complex income. Applications assessed en masse by an algorithm, a popular assessment tool used in isolation by many larger lenders, can be rejected at the first step for those customers with a non-standard financial profile. At Harpenden we, and some other specialist lenders, manually underwrite every mortgage application, helping us to take a considered view – to assess the risk in more detail and to look at the wider picture. We want to say yes – and with the benefit of manual underwriting, a complex holiday-let mortgage application can often proceed.

The holiday-let market remains strong, with opportunities to secure favourable rental yields. For those of you with customers looking to invest in holiday-let properties, a specialist lender like us will be delighted to discuss the options with you. M I www.mortgageintroducer.com

SPECIALIST FINANCE INTRODUCER

EQUITY RELEASE

Keeping pace with scrutiny Stuart Wilson CEO, Air Group

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t a recent “Breakfast with Stuart” meeting we began discussing what lenders and providers might require from later-life advisers in future, particularly in light of the Consumer Duty rules, which may well have been published by the time you read this.

It was – and is – my belief that lenders will begin to want far more oversight of intermediary advice decisions in the later-life space, particularly in equity release. And if lenders and providers are urged to take more responsibility in this area, this will have implications for advisers.

But what might this truly mean in practice? To what extent could lenders and providers be held responsible for the advice provided by intermediaries? Is this even desirable? After all, back in the early days before statutory regulation of residential mortgage lending, the great debate was around lender responsibility for advice, and it was determined this was not an avenue worth pursuing.

Instead, advisers were – quite rightly – deemed to be responsible for the advice they provided and had to supply evidence to support their recommendations. Will the Consumer Duty shift this somewhat, or is it merely reaffirming the central and pivotal role of the adviser in the process, with the lender/provider offering the necessary backup to those recommendations?

As this is written prior to the final publication of the Consumer Duty rules, it is difficult to give a view; however, I certainly believe lenders and providers are going to take a much greater level of interest in those who advise on their products and in the quality of that advice.

For advisers, what does this mean?

Well, again, you might rightly argue that www.mortgageintroducer.com

the adviser community has always been able to evidence why a recommendation was provided, and that they are used to taking into account all manner of factors, not least the potential vulnerability of customers, particularly during a period when, for example, their income levels are under greater strain.

All well and good, but if we move back to the Consumer Duty rules the likelihood is that these requirements are going to be ramped up considerably, and, of course, will need to be implemented by adviser firms operating in all sectors, not just later-life lending/ equity release.

One of my major bugbears over the years has been the ease with which advisers can, for example, secure their equity-release qualification.

Because the fact of the matter is that the real work and learning only start when you start doing the job To my mind, the focus on quality of advice will be paramount, and lenders/providers are going to need to satisfy themselves regarding, and be confident in, the quality of those who are selling their products.

In order to maintain that quality, you have to maintain standards and processes, but you also have to maintain your training and competence, in order to continue to prove both you and the advice you give are fit for purpose.

One of my major bugbears over the years has been the ease with which advisers can, for example, secure their equity-release qualification.

Because the fact of the matter is that the real work and learning only start when you start doing the job. The analogy is passing your driving test –

it’s only after the test that you truly learn, securing the skills of driving through experience and becoming ‘roadworthy’ over time.

In this new era and environment, the focus has to be on maintaining and improving skills and standards through ongoing T&C work, ongoing CPD, lifelong learning and the like.

It’s why we recently rebranded our Air Academy online training programme for later-life advisers with eight new modules that cover a range of key areas.

Once those modules are completed, advisers and firms can display a unique Accredited Later Life Lending Professional badge in order to promote their credentials and as a signal of ongoing intent to maintain standards, to keep learning, and to do everything they can to get the best outcomes for consumers. This is also fully aligned with the Equity Release Council’s competency framework and accredited by the London Institute of Banking and Finance.

It seems clear that the ability to prove competency regularly – not just at the point of passing an exam – and to satisfy both the regulator and lenders/providers is going to play an even bigger role for advisers in securing their place in this sector.

As always, documentation and evidence of this are going to be paramount; it won’t be anywhere near good enough to say you’ve done it – you’re going to need to prove it and show that you are continuing to do it on a regular basis. This sector does not stand still, and keeping up with those ongoing changes, and showing how you are doing so and the benefits it brings to your proposition and clients, is thus vital.

We know advisers have all the capabilities to do this, and have been doing so for some time. But now more than ever it will be about documenting and proving what you have done and the standards you set. Air will be here to help you do that, and much more, at every step of the way. M I AUGUST 2022 MORTGAGE INTRODUCER

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SPECIALIST FINANCE INTRODUCER

FIBA

Updating the profile of FIBA Adam Tyler executive chairman, FIBA Ltd

O

ver the last two years and more, FIBA has been able to expand the number of benefits we can offer our members.

Along with the number of lender partners, we will be adding two new banks specifically for access by FIBA membership. We have been able to do this and encompass all these elements in the Specialist Property Finance Club, which gives all our members the opportunity to benefit from those unique arrangements and enhanced terms, alongside exclusive access to specialist lenders and their products that previously may have not been readily available to individual firms.

One of my own personal criteria and something that is vitally important is that we set our monthly fee at a level that reflects an association that is affordable whilst also being creative in the specialist property finance market. We are

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MORTGAGE INTRODUCER AUGUST 2022

committed to maintaining this, and now, in our fifth year, I am pleased to say we have made only one change in that time to the cost of subscription, as well as offering all FIBA firms membership support during the pandemic.

As we move into the second half of 2022, and following on from the very successful FIBA annual conference, I am now in planning for our specialist property finance summit in London in October. This will allow us to discuss across the industry what lies ahead in the market; it helps us plan our support for you as members and, more broadly, for the specialist property finance sector as a whole.

As part of the work of this notfor-profit specialist trade body, we are committed to providing best-ofbreed support through our panels of lender and professional partners.

With that in mind, we are in the process of onboarding a series of banks and specialist lenders as FIBA partners to expand that remit. The Specialist Property Finance Club is growing and aiming to enable further easier access to more specialist property finance products for FIBA

members; it is due to be relaunched on 1 September.

One of our major commitments for 2022 and into 2023 is the Industry Education Programme, in conjunction with the London Institute of Banking and Finance.

This has been and will continue to be a huge piece of work for FIBA on behalf of the industry and, on completion, will benefit everyone.

The support from all sectors, including the high street banks and every lender in the market, has been unparalleled. A draft framework document has now been agreed, covering all the areas in a range of modules that make up specialist property finance. Once completed, this will give any candidates an insight into what is required to work in and be part of our industry. It has taken nearly a year to reach this point, but the commitment of all communities has now made it possible, and production of the final programme has begun in earnest.

There has been a huge investment of time and resources over a number of years to provide our members with access to an increasing range of lenders and increasing benefits from FIBA, as well as to the wider group benefits that SimplyBiz offers. This is a unique combination, with FIBA supporting those involved in other forms of property finance alongside those involved in residential mortgages.

We want as many broking firms as possible to take advantage of the many benefits available through the organisation that we have created over the last four and a half years. We are dedicated to creating opportunities for market understanding and professional development, and to supporting business growth in specialist property finance. We are committed to bringing an ever-growing range of unique and exclusive services to FIBA membership. Let’s look forward to a rewarding second half of 2022 for all of our businesses. M I www.mortgageintroducer.com

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Pick ‘n’ six We’ve extended the roll off period on our Product Transfers to six calendar months.

This could give your customers more options and a longer time to complete their transfer with us.

And with no additional underwriting along with quick and straightforward processing your customers could treat themselves to a new deal sooner.

To access our Product Transfer range, go to our products page at intermediary.natwest.com.

ONLY FOR USE BY MORTGAGE INTERMEDIARIES