Mortgage Introducer December 2022

Buster Tolfree Director of Mortgages

Champion of the Mortgage Professional

MORTGAGE INTRODUCER

www.mortgageintroducer.com

CONSUMER DUTY

Preparing for a major shift

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How was your year?

It has, by anyone’s standards, been quite the 12 months –from the death of the Queen and the outpouring of grief that followed, to the devastation of the war in Ukraine and the political turmoil in the UK, which saw not one but three prime ministers in residence at 10 Downing Street (albeit not all at the same time).

That last matter, of course, was keenly felt close to home, in the mortgage industry, as the fallout from the comings and goings at Westminster directly affected the market, with rapidly rising interest rates sending the cost of lending soaring and sparking fears about the immediate future of the property sector.

Brokers have been at the coalface during this unsettled time – the industry’s go-betweens, if you like – fielding calls from anxious clients and relaying their urgent enquiries to lenders, who themselves have had to negotiate the upheaval of reappraising their products at speed, as the clouds of an economic storm gathered worryingly.

Mortgage advisers are more than glorified messengers, of course. They offer expertise and an ever-evolving knowledge of a fast-changing market to calm the fears of their clients. Increasingly, over recent months, they have also found themselves almost in a counsellor role.

One broker I spoke with shared that she was receiving as many as twenty calls a day from concerned clients at the height of the furore that followed the government’s rather inadequately named mini budget. She confided that she felt protective of her clients, almost parental at times, and explained that the reward was seeing them collect the keys to their new homes or receiving selfies from them standing outside their properties

Few would deny that a little respite from the often-frenetic, yet ever-fascinating world of mortgages will be especially welcome this month, as we step away from our desks for the holiday season and pause to take a breath before … whatever awaits us in the new year. Wishing you all a peaceful season and a very prosperous 2023.

Simon Meadows

Green demand is set to grow

ENERGY EFFICIENCY BY REGION

Lee Chiswell head of secured borrowing, Barclays

The green mortgage market has generated plenty of column inches over the course of 2022, and this increased awareness is vital for a sector that is still in its relative infancy.

Green mortgages represent an import ant component within a wider green revolution, a revolution that includes the reduction of greenhouse-gas emissions and the path to net zero.

Barclays was one of the first banks to announce its ambition to be a net-zero bank by 2050. As a lender, since 2018, we have facilitated £74bn in green financing. This includes landmark projects such as supporting the UK gov ernment in issuing its first green bond, which will finance projects such as off shore wind and schemes to decarbonise homes and buildings.

In April 2018, we became one of the first major UK lenders to offer a product that rewards buyers for purchasing an energy-efficient home, and in January 2022, we launched our first green BTL mortgage products.

At this juncture, it’s prudent to focus on energy-efficiency levels and EPC ratings currently being deliv ered by housing stock across England and Wales, as this will help highlight some of the differing challenges, and potential costs involved, in upgrading certain properties.

Helpfully, the ONS have just pub lished their latest report on the ener gy efficiency of housing in England and Wales for 2022. While not every dwelling has an EPC rating, and thus the report does not cover all housing stock, it can still provide useful insights. Let’s look at this performance by region, property type, and property age.

The ONS data outlined that housing stock across England and Wales varies, and this is reflected in median energyefficiency scores.

The median energy-efficiency score was 67 in England and 65 in Wales for all records up to March 2022, which are equivalent to EPC band D. Within England, Yorkshire and the Humber had the lowest average score (65, equivalent to EPC band D). London and the South East had the highest median energy efficiency out of all English regions, with a score of 68 (EPC band D).

ENERGY EFFICIENCY BY PROPERTY TYPE

Overall, the ONS found that flats and maisonettes were the most energy-ef ficient property type in both England and Wales, with a median energy effi ciency score of 72 in England and 73 in Wales, both of which are equivalent to EPC band C. Detached and terraced dwellings scored the lowest in Wales (both 63), while in England, semi-de tached properties (64) were the lowest. Both of these scores are equivalent to EPC band D.

The ONS noted that this may be a result of external wall exposure being higher in detached properties compared with flats and maisonettes, which are more likely to be grouped in blocks. It added that while there is a wide difference in energy efficiency between flats and houses, there is only a small difference among the different types of houses.

ENERGY EFFICIENCY

BY PROPERTY AGE

It’s the view of the ONS that the age of a dwelling affects its energy efficiency, as building techniques and regulations have changed over time, and older buildings have simply undergone more wear and tear. For example, properties built post-1920 are more likely to have a cavity wall that is easier to insulate, and newer properties are more likely to have

double glazing.

Dwellings in both England and Wales constructed after 2012 were reported to have a median energy efficiency score of 83, which is equivalent to EPC band B. In contrast, dwellings constructed before 1930 had a median score of 59 in England and 57 in Wales, equivalent to EPC band E.

The ONS observed that the propor tion of older dwellings can differ across areas, which can influence energy-effi ciency median scores. For instance, in the EPC records analysed, Wales had a higher proportion (33 per cent) of older dwellings (built pre-1930) than England (23 per cent). They note that this may have had an impact on national medians.

This latest report from the ONS makes for some interesting reading, and for those looking to purchase property, whether for residential or BTL purposes, conversations and actions are more like ly to be taken with EPC ratings in mind, especially in light of rising energy costs.

As awareness grows around more energy-efficient choices within our homes and property investments, we think that client demand for green mortgage products is likely to rise, as will reliance on the advice process to ensure that a range of borrowers have access to such options.

This means that the intermediary market will continue to play a central role in educating clients on the potential benefits attached to green mortgages, greater energy efficiency within the home, EPCs, retrofitting, and other factors that can benefit a range of borrowers over the longer and shorter term. And lenders who are committed to the growth of the green mortgage market can support their intermediary partners by delivering solutions that help meet client demand. M I

References: https://www.ons.gov.uk peoplepopulationand community/housing/articles/nergyefficiencyof housinginenglandandwales/2022

Cometh the hour…

The economic and political situation that has unfolded this autumn is rather more than anyone could have predicted, and certainly more than anyone wants. Swap rates are up, and mortgage rates have consequently followed. The Bank of England has been crystal-clear that base rates will continue to rise. Energy prices are crip pling household and business finances alike, and Westminster’s revolving doors have meant fiscal policy has been anything but consistent.

But thinking about what’s in store for our market in the coming months and years has made me consider the importance of perspective. Looked at through the lens of the media, things are moving at the speed of light, politicians are panicking, markets are twitchy –and many homeowners are facing an uncertain future.

Amidst all the limelight-grabbing political and economic turmoil, other market news can sometimes be ob scured. Too little attention has been given to what lenders will do when customers struggle.

In June, the Financial Conduct Authority (FCA) wrote to lenders’ chief executives stating their expectations as the cost of living hits borrowers. The FCA measures mandate that lenders must deliver an appropriate level of care and support. The level of care needed by customers who have characteristics of vulnerability may be different from that needed by others, and lenders should take particular care to ensure they are treated fairly.

Lenders should give borrowers in financial difficulty appropriate, tailored forbearance that is in their best interests

and takes account of their individual circumstances. They should support borrowers showing signs of financial difficulty or struggling with debt by making them aware of and helping them access money guidance or free debt ad vice. The FCA also ought to ensure that any fees and charges levied on borrowers in financial difficulty would be fair and do no more than cover costs.

The requirements are not exhaustive (there was also instruction on helping consumers avoid falling victim to scams or illegal moneylending in a time of financial distress), but the measures were quickly followed by a further missive from the Bank of England, which issued unequivocal guidance in July that lenders should shore up capital buf fers – advice that all lenders took. Cash reserves are higher than they have been for a decade.

Every financial crisis is different, and the one we find ourselves in currently will largely play out differently from any before – regardless of political policy. It is certain that some, indeed many, bor rowers are going to suffer in the coming months. But I think it is also certain that lenders are not about to embark on a journey of issuing possession orders on them as a result. Tough decisions will face many – though let’s remember that for many, discretionary spending may be curbed and thus bills will still be paid.

For our part, I do not doubt there will be more bumps in the road over

the next year or two – but that doesn’t change our fundamental purpose: to get borrowers into their homes and keep them there.

Mortgage brokers have never been more important in this context. There is an old saying that you really earn your corn when times are tough – not when they are easy. This is true for lenders and brokers.

We cannot do this without you. Nor can our customers. Advice is always crucial, and never more so than now. Our industry was accused of order-tak ing and rate-chasing back in the run-up to the credit crunch. We could not be farther from that today. A borrower facing remortgage or even reversion to a rate several percentage points higher than their existing rate needs help that is complex in its scope. Affordability and proof of income are now just two of a considerably longer list of serious financial considerations.

What borrowers need is reassurance. From some borrowers’ perspective, the world may appear to be an increasingly worrisome place, and they need to know that their mortgage lender is here to support them. While we will do as much as we can to reassure our borrowers, we know it is our broker partners who are really well placed to be able to offer that reassurance, given the incredible trust they have built up with their clients over many years. It is this trust that will stand us all in good stead in the long term. M I

Stuart Miller board member / chief customer officer, Newcastle Building Society

The need for efficiency remains –the motivations evolve

centres and service collapsed.

With luck, product repricing will be significantly more orderly in 2023, with the Bank of England trailing its intentions for monetary policy well ahead of time.

This year’s Mortgage Efficiency Survey shed light not only on lenders’ use of technology to support the origination and writing of mortgage business, but also uncovered issues that are affecting and defining efficient lending and servicing.

Here’s a taste of the major challenges and opportunities lenders see in the coming months.

SPEED INTO AND OUT OF THE MARKET

While we’re all hoping that the extreme volatility of the past few months will die down now Rishi Sunak is in post, the coming year is going to see interest rates continue to climb to tackle infla tion, whoever’s in numbers 10 and 11.

There’s no telling whether swap rates and market confidence will settle either, but the need to reprice products quickly is a certainty.

Following Kwasi Kwarteng’s notorious mini budget and the consequent impact on the bond markets, funding costs in the money markets soared. Lenders were left very exposed.

The domino effect of those at the top of the best-buy tables withdrawing their entire ranges with immediate effect was sobering.

The day after Kwarteng’s unfunded tax-cutting bonanza aired, lenders pulled 935 products – the highest daily drop on record, according to Moneyfacts.

Lenders left in the market found themselves flooded with enquiries and panicked applications; processing

Nevertheless, lenders now recognise that speed into and out of the market, the ability to scale, and the need for ro bust, agile systems are now paramount.

CREDIT CYCLE

The cost-of-living squeeze is already testing parts of the mortgage process that have, if truth be told, lain unexamined throughout an era of historic low and static interest rates.

First among many considerations is how lenders deal with a steep rise in the volume of customer calls relating to credit queries, arrears, and forbearance.

Employment is the single biggest fac tor influencing how big that uplift is, but even if the jobs market remains stable, energy bills, food inflation, and a consid erable jump in mortgage payments and rents are inevitably going to take a toll on millions of borrowers.

How lenders deploy technology in this rapidly changing environment is one of the biggest challenges faced across the market.

BUILDING SOCIETIES

Historically, the mutuals sector has struggled to keep pace with the large high-street banks when it comes to slick customer experience and more stream lined backstage processes. That’s really starting to shift.

Larger societies saw a marked improvement year on year with their application to offer conversion rates, citing improvements in processing effi ciencies through better use of technol ogy. Their offer-to-completion rates remain strong as well.

That said, there is still ground to cover. Smaller regionals dropped back

slightly across both measures as a result of increased volumes, lower-quality packaged cases, and manual processes. But across the piece, the advent of new cloud solutions to challenge legacy thinking and systems has meant lenders are in better shape than ever to meet what the market throws at them.

OPEN BANKING

For the second year in a row, lenders’ enthusiasm for open banking barely registered at all.

In an intermediated market – some 88 per cent of business is going through brokers – getting timely consent is incredibly difficult.

There’s also real concern among the lenders we surveyed that open banking causes more problems than it can solve. Automated income veri fication, a tool used by some lenders, offers as much insight as many feel they need.

Indeed, one participant in the research for this report said, “I don’t need more reasons not to lend; we are a lender – if we don’t do that we may as well pack up and go home.”

PRODUCT TRANSFERS IN A NEW ECONOMY

Product transfers for consumers and intermediaries have been high on the agenda in all peer groups – although some challengers and specialists do not currently have the market share or age of products to justify online product-transfer investment.

In an era when interest rates were not rising, product switches were a relatively easy sell to borrowers. Now the new product rate will in variably be a lot more expensive.

This is a sample of the report’s findings, and I would like to thank publicly everyone who contributed.

You can download the full report from our website. M I

Steve Carruthers business development director, IRESS

Coping strategies for effective mortgage advisers

to do anything else.

If you develop skills in effective working, self-care, and resilience now, they’ll help you get through this busy period – however long it lasts – and you’ll be ready for the next significant peak in demand for your time and service.

gardening, or watching the football – these diversions will help you switch off, rest, and regenerate.

Over the last few weeks, there’ve been numerous headlines on the state of the British economy and its knock-on effect on the housing market. Many of these, quite rightly, have focused on the impact on consumers. However, trawling through social media posts, it’s clear those working in the mortgage industry are also suffering. Despite a dip in the number of sales and purchases, many mortgage advisers find themselves busier than ever.

Of course, as a mortgage adviser, your priority should always be to give customers the best possible service and to secure the right deal for them. But to do this, you also need to consider your own wellbeing and mental health.

WORKING MORE EFFECTIVELY

To give your customers the service they demand and deserve, you need to be more effective. That doesn’t simply mean working longer hours, seeing more clients, and completing more applications. It means understanding yourself, knowing what enables you to work effectively – and, just as importantly, knowing what prevents you from being at your best.

This may not seem like a good time to take on another aspect of personal development, but actually, it’s perfect.

In six months, the market may well have calmed down and you may feel that you have more time to focus on yourself. However, there’s a good chance you’ll tell yourself you survived the crisis, so you don’t need

The great thing about this type of development is that it doesn’t have to be enormously time-consuming. Often, it’s simply about following some obvious steps and creating good habits. Sometimes, it’s even about maintaining the routines you’ve already created for yourself, acknowledging what’s important to you, and being a little more protective of it.

For example, if you value time spent with your family, don’t sacrifice this to review a couple of additional fact-finds. You’ll only end up feeling resentful, preoccupied, and begrudging, and may even fail to find the best deal for your customer.

It’s almost inevitable that, in the short term, many of you will need to work longer hours than you are used to. However, you can do this without damaging your mental health.

TIPS FOR PROTECTING YOUR MENTAL HEALTH

 Make sure that you get enough sleep. You won’t do your best work if you’re burning the midnight oil, especially if you do it frequently.

 Take regular breaks. That doesn’t mean boiling the kettle and having a cup of tea whilst continuing to work. It means getting up, walking away, switching off and doing something completely different.

 Don’t give up the things that are important to you. Whether it’s going to the gym, spending time with your children,

 Prioritise. Not everything needs to be done at once. So make sure you regularly review and, if appropriate, revise your priorities. Accept your limitations. You’re not a superhero, so don’t try to do everything at once.

 Communicate. This means with your customers, your colleagues, and your family and friends. With customers, it’s essential not to overpromise. That only puts more pressure on you and often leads to disappointment, and even complaints.

 Consider declining new business. This may go against the grain, but you need to maintain high standards. If you’re spending all of your time servicing existing clients, is it fair to them, or the prospective new customer, to agree to more work?

IMPROVING YOUR RESILIENCE AGAINST STRESS

 Be self-aware. Understand yourself and how others perceive you.

 Develop mindfulness. There are loads of apps to help you learn how to be fully present in what you’re doing at any given time.

 Take good care of yourself. Eat properly, rest, and exercise regularly. Nurture positive relationships. This is about mutual care and support with friends, family, and colleagues.

These are skills you can develop and practice. By looking after your mental health and developing resilience, you won’t just be helping yourself; your customers will benefit, too.

Gordon Reid business and development manager, The London Institute of Banking & Finance

Consequences

Almond MD, HLPartnership

Iwas not surprised to read a survey that concluded that many brokers are still unprepared for consumer duty and claim not to understand what is expected. According to the survey,* the knowledge gap has contributed to inaction across the sector, with a third of decisionmakers saying their firms won’t be ready by the April 2023 deadline originally set by the Financial Conduct Authority (FCA).

When I say I was not surprised, it doesn’t mean that my opinion of brokers’ preparedness is a negative one. Rather, I mean that the complexities and requirements weigh heaviest on those firms with the fewest resources. I would be particularly interested to know whether, among the third of firms saying they won’t be ready, the majority are small DA partnerships or sole traders.

My guess is that they will figure strongly in that one-third. What is sad is I can see that consumer duty, for all its right intentions to improve customer outcomes, could inadvertently become a barrier that many firms will not be able to overcome. This is not because those firms are incompetent or unwilling to comply, but simply because they may not be able to make the time, develop the understanding, and gain the confidence to make the changes they need to make. Whether in customer advice presentation and more frequent client contact, reviewing and editing written material, or submitting the necessary reports to the regulator that will now be required, the fact is that without a proper template or external

support, many firms are going to be in serious trouble by April 2024, when consumer duty will have been live for a year.

To take another example, the regulator understandably expects brokers and lenders to be more proactive when it comes to helping vulnerable customers who might be struggling financially as a result of the increasing cost of living. Clients unable or struggling to pay for their mortgages and protection policies are going to be a test for all of us, but having the necessary resources to be able to offer an ongoing service to help existing clients will mean expense that many firms might not be able to afford.

We have all known for some time that the industry had to evolve and become more professional. It would be fair to say that the requirements of regulation have been a positive catalyst in bringing about much of that change. However, what I see is that independent small firms are facing some potentially painful choices; should they

 carry on and hope for the best?

 get inside the tent and look at changing to AR status?

 buy in extra staff to cope?

 buy in external compliance support?

 join with like-minded firms to create a bigger entity to share resources?

The latter three choices involve costs that many firms will not have allowed for in their business model, and the last one also involves disruption, expense, and a lot of trust in one’s potential partners.

Let’s not sugar-coat this. Complying with consumer duty is not a box-ticking exercise, and taking the concept on board has as much to do with changing attitudes and modifying behaviour as it does with absorbing the principles and

applying them to the client advice process. We are all being ‘asked’ to extend our duty of care to our customers throughout the lifetime of the relationship or product. The days of prospect, advise, write business, repeat will no longer act as a viable template as of 2023.

Customer engagement after the initial business has been completed can no longer be ignored. If the pressure from online providers and other brokers tempting customers away was not enough warning that we need to take care of our client banks, there is now a clear signal that the regulator’s expectations of the need to offer much more than the odd phone call or email go much farther.

Yes, CRM solutions promise and deliver on many levels, especially if they are integrated into fact-finding and sourcing as well as mapping and recording the whole of the customer journey through to completion.

Connected to a diary function, a good CRM system will keep brokers from missing crucial follow-up dates with clients – a very useful feature with consumer duty on the horizon!

However, while technology can provide important tools that will help, smaller firms are still going to have a disproportionately steeper hill to climb than their larger peers to achieve consumer duty compliance. Many good firms are going to have to make some hard decisions. M I

Source: *Moneyhub

Shaun

I can see that consumer duty, for all its right intentions to improve customer outcomes, could inadvertently become a barrier that many firms will not be able to overcome

New lending era will require alternative lending models

potentially very toxic.

Past downturns in the housing mar ket have come down to some of these factors – interest rates rocketing, mass job losses, and a far less sympathetic attitude from lenders when faced with borrowers unable to pay the mortgage.

support that aim without compromising lenders’ business resilience – and how to deliver all this while maintaining good borrower outcomes as enshrined in the consumer duty regulation.

In the aftermath of former chan cellor Kwasi Kwarteng’s mini budget and the rout in bond markets it triggered, bank funding costs soared alarmingly quickly. In less than 24 hours after the markets opened on the Monday morning following the mini budget, around 1,000 mortgage products vanished from the shelves.

After a mass repricing across the market, average rates on both two- and five-year fixes were sitting around six per cent. Following Rishi Sunak’s instal lation in Downing Street and confir mation that Jeremy Hunt would remain in post as chancellor, several lenders confirmed another reprice, with some rates coming down by more than 50 basis points and loan-to-values creeping back up.

For borrowers – and brokers, insofar as they’re left managing client expecta tions – this yo-yoing on deal availability is nothing short of terrifying. The major ity of households in the UK manage all their household finances based around their homeownership.

House-price inflation has forced borrowers to take larger mortgages, scale up the LTV curve, max out their loan-to-income ratio, and stretch out terms from the traditional 25 years to an increasingly normal 35 years. Forty-year terms are not uncommon.

The price dynamics of this eco nomic outlook bear very little in common with the pricing dynamics seen in the mortgage market previ ously. The combination of low wage inflation, high house price inflation, high consumer price inflation, and unsustainable public borrowing is

To cope with all of them at once is not going to be straightforward at all.

Rightly, it is the people at the front line of the cost-of-living crisis who dominate the headlines, and thus public consciousness. Their struggles are appalling, and policymakers need their plight thrust into the spotlight so they can make informed decisions to support them. They say a team is only as strong as its weakest member; the same can be said of the health of an economy.

As an industry, however, we may have an even greater struggle. The responsibility for carrying those at the sharpest end of financial deprivation will rest with the public sector. The responsibility for carrying the vast middle – households on good but not excessive incomes, with children to feed and mortgages to pay on their two- or three-bedroom homes in nice, urbane locations around the country –that rests with lenders.

Public finances are not going to recover quickly. The economy has been hooked on cheap money for more than a decade. The splitting headache, sweats, and shaking felt throughout the economy today are hardly surprising now that drug has been withdrawn.

If we accept this and we are to manage it, then we must recognise that it’s not just the pieces on the board that have moved; the board itself looks different.

There are many things to consider when it comes to managing ourselves and our customers through the coming years. These include how to keep cus tomers on the most even keel possible and how to redraw credit policy, risk assessment, and product design to

There are already signs the market is shifting. A recent freedom of infor mation disclosure from the Financial Conduct Authority, sought by wealth manager Quilter, revealed a significant rise in the number of over-40s taking mortgages with 35-year terms or more.

In the first two months of this year, 478 mortgages with terms of 35 years or more were sold to people over the age of 40, and projections showed this figure was likely to grow to more than 3,039 sales of this kind throughout 2022. This would mark a 39 per cent increase on 2021, during which 2,191 mortgages of this type were sold, and a 433 per cent increase on 2020, when just 570 were sold.

The underlying numbers are not too concerning as it stands, but the trajec tory is more worrying.

Far from building a balance sheet with a rolling 25-year maturity, lever age averaging 50 per cent, and that throws off cash every month, lenders now face a very different role.

They are now looking at long-term relationships with customers of 35 or 40 years or longer, whose fluctuating income streams are influenced not just by cost of funding, but increasingly by a borrower’s financial stability.

Long-term fixed-rate products will address some of these issues in terms of injecting some stability into borrowers’ lives, but will raise other questions along the way about lenders’ business models. What does it mean for funding structures? What does it mean for short-term fixed rates? What does it mean for the intermediary fee model?

These are very big questions, and the requirements of lending in the future will demand some answers. The clock is ticking. M I

Tim Hague MD, Sagis

A year of change – and yet reassuringly the same

It has been an eventful and truly difficult year for millions of people. Energy bills are double what they were a year ago. Mortgage rates, hit by both the rising base rate and then, far more alarmingly, by the plunge in long-term gilt prices, have gone up considerably since anyone needing to remortgage in the next 12 months last took a deal.

Food inflation has soared. Taxes went up in April. Stamp duty and the national insurance hike went down in November – the only policies to have survived Jeremy Hunt’s cull of his predecessor Kwasi Kwarteng’s mini budget. And taxes went up again after Rishi Sunak was formally appointed prime minister and Hunt was retained as chancellor.

The turmoil has hurt people.

In the country’s capital, as in so many urban areas across the UK, it’s a tale of two cities. But while in Britain’s other cities the financial divide exists largely between Britain’s rich and its poor, in London, a vast amount of wealth is owned internationally.

That doesn’t mean the capital is im mune to the economic shocks that have rocked us all, but because the pound has struggled this year, foreign money looking for a home has been pouring in.

A report published over the sum mer by Benham and Reeves showed around £91bn of property in England and Wales is now owned by foreign investors. Half of that is in London.

Figures from the City of London Corporation show London continues to hold the top spot for attracting

foreign investment in financial and professional services.

In this sector – the UK’s flagship ex port – the capital pulled in 114 projects in 2021, well clear of Dubai with 104 projects, Singapore with 103, New York with 54, and Paris with 51.

As central government was engaged in its game of musical chairs, London mayor Sadiq Khan announced half a million pounds of funding for the Opportunity London campaign, aiming to increase foreign investment in green infrastructure and real estate projects.

Unlike the rest of the UK, London is and has long been an international city. The troubles we face at home of course affect the capital’s economy insofar as households and businesses must share in the pain of inflation over 10 per cent and energy bills that have risen by hundreds of pounds a month.

But London’s economy is far better placed to withstand the economic turbulence that lies ahead. The rise in corporation tax slated for April – from 19 to 25 per cent – will be absorbed by the City.

The jobs market remains seriously tight, and wage inflation in financial ser vices in particular is soaring well above the rate of consumer price inflation.

The housing market here has always operated on a different basis from the rest of the UK because of all of these factors.

And while it’s tempting to submit to despair in the face of dire headlines day after day, ultimately, most people are ignoring the circus in Whitehall and getting on with life – despite very real hardship faced by so many.

That said, there is evidence that the rampant house-price inflation experienced over the past year or so is beginning to slow – no bad thing given the movement in mortgage rates and af fordability. Transactions are what really matter to the health of the economy.

Halifax’s latest house-price index showed London house prices rising by 8.1 per cent over the past year to September, with a typical home costing £553,849. The capital’s average prop erty price remains by far the most ex pensive in the country – which in itself demonstrates the influence that foreign investment has on property prices.

The rental market is also strong. Rightmove’s latest lettings index put av erage London rents up by 16.1 per cent over the year to September, to £2,343 a month. This is shifting tenant demand trends, and when this is coupled with the reversal of the pandemic-induced escape-to-the-country trend, rents look set to rise farther still.

More new rental properties are available in every region except London. Even so, across England and Wales tenant demand is up 20 per cent compared with last year, and the number of properties avail able to rent is down nine per cent.

It’s not good news for those forced to keep renting as mortgage rates make purchase unaffordable for the time being, but from the market’s perspective it’s a bright spot. It would be complacent to assume the capital will always be able to deal with what is thrown at it, but on past evidence both recent and historical, it is a bold person who would bet against it.

Robin Johnson MD, KFH

While it’s tempting to submit to despair in the face of dire headlines day after day ... most people are ignoring the circus in Whitehall and getting on with life – despite very real hardship

Balance sheet risk is a real and present danger

The country’s finances are in a decidedly difficult place. Lenders were quick to withdraw products from the market amid bond-market chaos and sharply rising swap rates. The levels at which they felt compelled to reprice sent shockwaves through the economy as a result.

The day Rishi Sunak was formally appointed prime minister saw several major lenders cut rates back down, reflecting more stable markets and lower costs of funding as a result. Nevertheless, some household finances are on the brink; some are already underwater.

Everyone is watching to see how lenders choose to deal with such a bleak turn. It seems likely that capital buffers will absorb a considerable chunk of late or failed mortgage repayments – they cannot defy the as-good-as-explicit instructions issued by both the Bank of England and the Financial Conduct Authority.

That will affect their balance sheet on one side, and it is inevitable the other side will feel a ripple effect. The question is whether this will spark a more risk-centred approach to underwriting security.

There are several challenges facing lenders when it comes to the assets underlying both residential and buyto-let mortgages. But the very thing that differentiates secured lending from every other type is exactly that – the security.

It’s thus odd that the condition a property is in at the point of purchase or remortgage is often much lower

down the list of considerations than it should be. The use of automated valuation models, particularly on reasonably standard homes, has glossed over the declining condition of Britain’s housing stock over the past few decades. Buy-to-lets are given a particularly rough time of it, but so are homes securing lifetime mortgages. Without physical valuations – not just drive-bys, either – knowing what state the property is in presents a challenge.

A property’s condition has a huge impact on its value. Early signs that borrowers are struggling are beginning to show in arrears and possessions. UK Finance figures for the second quarter recorded low arrears, but noted a rise in early-stage arrears, up from the start of the year.

The trade body acknowledged this is likely to reflect early signs of pressure on household finances as cost-of-living stresses really start to bite. Within the total, there were 25,160 homeowner mortgages in early arrears – representing 2.5 per cent to five per cent of the outstanding balance. Where loans-tovalue are at the top end and affordability is in such a tenuous position, with worse to come, property values may also soften. And a new focus on the security now means greater scrutiny of other elements underpinning value.

The government’s net-zero commitment is already taking a noticeable toll on the housing market, skewing dynamics in such a way that huge pressure is growing in the rental market as landlords exit.

The withdrawal of beneficial tax breaks had played a large part in this; now, it is the impending energyefficiency legislation.

Set to require landlords to upgrade properties to a minimum energy performance certificate band rating of C or above by 2025, the sheer cost of work needed is forcing many

out of the market.

Statistics published by the Office for National Statistics in October show just how serious this will be for the private rented sector. England and Wales both have a median energy efficiency rating in band D, with scores of 67 and 65, respectively, where the most energy-efficient homes have an energy efficiency rating in band A and the least energy-efficient homes are in band G.

Flats and maisonettes were the most energy-efficient property types in both England and Wales, with a median energy efficiency score of 72 in England and 73 in Wales, equivalent to band C.

In both countries, four in five dwellings used mains gas as a main fuel source for central heating.

Among local authority districts, just 15 per cent had more than half of their dwellings at energy-efficiency band C or above; two-thirds of these local authorities were in London or the South East.

Behind closed doors, estimates put the cost of necessary refurbishments anywhere between £10,000 and £60,000 per home.

Brexit, higher import costs, higher energy costs, higher taxes, higher interest rates, a weak pound – this is a toxic cocktail for the cost of building materials and the training and labour needed to deliver. And that’s so even when property owners have the money to carry out those works.

Consequences will be felt in the residential homeownership market as well – all residential property is billed to be band C or above by 2030. Given the length of mortgage terms, that’s a material risk sitting on balance sheets today.

Ultimately, lenders want to lend. Understanding the balance-sheet risks and opportunities, where appropriate, makes valuations the right foundation on which to ground those decisions.

Steve Goodall MD, e.surv

Clues to navigating the future lie in the past

planned for, even though they should have been.

At times like these, it’s easy to see why people crave stability. Yet stability invari ably comes from under standing and knowledge, and when those are in short supply, the world can appear to be an increasingly difficult place in which to operate.

The answer lies in knowing what to reference at times like these. Data may be historic, but much of it remains, like the lessons of the past, hugely import ant in shaping the decisions we make when confronted by the unknown –especially if we understand the problem we are facing and what data sources can help us overcome it.

The credit crunch and global financial crisis it precipitated are still very fresh in most boardroom minds. Many lenders and brokers came to a sticky end as a result of the chaos

So, even when the unexpected happens, we can act to mitigate the risk. Who could possibly have predict ed the ill-conceived mini budget? The near-total collapse of the bond mar kets that followed was perhaps more foreseeable, but as the major insurers managing billions of pounds of the country’s pension savings discovered, the consequent collateral calls weren’t

It’s always the things we least expect that floor us, and in the property market we’re only too aware of that. The credit crunch and global finan cial crisis it precipitated are still very fresh in most boardroom minds. Many lenders and brokers came to a sticky end as a result of the chaos unleashed in the funding markets. The lessons were hard, and inspired a raft of regulations regarding both conduct and capital to ensure these events could not unfold again. But the thing about recessions and implosions more generally is that we never really see them coming. We can, however, be ready to make the right move if we understand the situa tion we are facing.

For lenders, what really matters is the quality and value of their back books. And it’s becoming a more immediate concern than even just six months ago. The cost-of-living crisis is very real, and it is going to affect balance sheets. The Bank of England warned back in July that banks and building societies must shore up capital reserves for just such an eventuality. The Financial Conduct Authority wrote to chief executives thereafter, urging, if not threatening to force, lenders to exercise forbearance when dealing with customers in difficulty.

The assault on borrowers’ finances takes us once again into uncharted waters. The cost of energy per unit may be capped until April, but what happens thereafter is uncertain. Jeremy Hunt has implied that help could be extended to those most in need – who are unlikely to be homeowners.

Arrears are almost inevitable. That is why lenders have been training customer service staff to deal with calls from worried borrowers for months now. But is that enough?

Lenders must manage their custom ers fairly – the regulator insists on it, and frankly, the economy relies on it. But that’s just one-half of the equation for them.

It is shareholders, as well as custom ers, to whom they are really account able. The strength of their balance sheets is paramount, and that is set to come under serious strain in the com ing months. Again – understanding the value of this is crucial.

So what should be done? I return to the importance of knowledge. If you understand your position, your weaknesses, and your strengths, you’re more than halfway there. It’s impos sible to predict the future accurately, but there are things we can learn from the past. Data can tell us a lot when it is used to identify patterns. Rewind to 2008, 2009, 2010 – all those sub-prime securitisation and whole loan books that plummeted in value overnight. From the ashes of those whose lending policies had contributed to that collapse emerged credit assessment companies. That was a capital crisis, but it’s likely this will be an income challenge. Reassuring shareholders and investors will therefore rely on capital stability; after all, that is what will see lend ers through the oncoming months of forbearance. Knowing your balance sheet’s capital value in today’s market is crucial to providing that reassurance, and it’s easily done using data from sources such as automated valuation models as well as newer assessments of things like EPC value.

Joining up the right data dots can point us in the right direction to weather any storm. Data and experi ence combined remain the most potent form of risk management in any industry. That is the real opportunity for competitive advantage in the market we live in now. M I

Mark Blackwell COO, CoreLogic

Fixing the roof in all weathers

how they behave, at every stage of the customer journey.”

has become a euphemism for beneficial borrower outcome.

Mulle MD, Ohpen

If ever there were an abject lesson in the consequences of failing to do your disaster planning, it has been the past couple of months in Westminster.

While the country and markets hope for certainty, we’re all now acutely aware that uncertainty is inevitable. What does that mean in practice for those operating in the mortgage market?

It’s impossible to predict the next downturn in granular terms – as the say ing goes, no-one has a crystal ball – but that doesn’t preclude us from using past experience to shape the way we plan for the future.

Key to this is learning how to mea sure how you deal with the unforeseen, and that has to be understood within the context of regulation, economic health, and customer outcomes. While I would hesitate to call it a storm, the next change is rolling over the hillside and into view.

On 31 July next year, the Financial Conduct Authority (FCA) will enact its new consumer duty regulation, requiring firms to “act to deliver good outcomes for retail customers.”

The rules are unequivocal in their expectation, and state:

“Rules relating to the four outcomes we want to see under the Consumer Duty represent key elements of the firm-consumer relationship which are instrumental in helping to drive good outcomes for customers.

“These outcomes relate to products and services, price and value, consumer understanding and consumer support.

“Our rules require firms to consider the needs, characteristics and objectives of their customers – including those with characteristics of vulnerability – and

This is a big shift in the way banks and building societies have managed customer interactions, until now gov erned largely under MCOB principals relating to treating customers fairly. Those principles still apply, but the specificity of evidence required as of summer 2023 adds a layer of clarity to this compliance.

In today’s market, where the econ omy is extremely vulnerable to shocks and the cost of living is really beginning to hurt homeowners along with ev eryone else, getting the evidence right really is make-or-break.

It’s an enormous job. You need systems that can support the delivery of operational models that give you more than interaction – they provide and record fair value for borrowers, and good outcomes.

Before technology came into the mainstream processing of deals, the decision to lend depended on the lend er-borrower relationship.

As technology and its applications boomed during the 1980s and the great privatisation of the mutual market really got underway, getting a mortgage became increasingly commoditised. The aim of the game was shifting as much product as possible.

That continued into the 1990s, and it wasn’t until M Day in 2004 that regu lators imposed rules on banks, building societies, and advisers.

Even so, technology served to allow lenders to process larger volumes of busi ness, with fewer customer touch points, ending abruptly with the pot boiling over and complete closure of the market from 2007 and 2008.

Even the Mortgage Market Review, which from 2014 put borrower afford ability at the centre of the transaction between lender and borrower, did not achieve a return to that old-world rela tionship-based lending agreement.

The market has become more and more product-focused. Keen pricing

I don’t expect that to shift overnight, but the consumer duty rewrites the bal ance. That relationship between lender and borrower becomes paramount on 31 July 2023.

It won’t look the same as it did more than 40 years ago, but I do think it will transform the role technology plays in the process.

Order-taking has been facilitated by tech – the focus has been volume, efficiency, consistency. Now, be haviour will become a central part of the origination process. Knowing what to record and when will be a learning process, but systems will need to be flexible to cater for nuanced changes in what is required to evidence the very best possible practice.

The next big challenge facing the market is how it responds to the cost-of-living crisis and its impact on borrowers – both at the point of orig ination and throughout the lifetime of that loan.

Credit departments are suddenly having to manage asset and borrower risk from a financial perspective and from a social perspective.

To get this right, and to demon strate that for compliance purposes, cannot be done without changing the function of technology systems. Box-ticking to satisfy the lender is out. Serving the customer in a way that suits them is very much the direction of future travel.

I’m not convinced that anyone would have guessed how quickly the market has moved and changed post-pandemic – even if some of it is perfectly logical in hindsight. But there is no reason to assume this pace of change and require ment to make operational improve ments on the go will abate.

Flexibility, adaptability, and speed will become the backbone of successful lenders. You need systems designed to give you that, and not just a string of never-ending workarounds.

Jerry

The bird is freed?

Neal Jannels MD, One Mortgage System (OMS)

As we’ve recently seen from the Twitter takeover by Elon Musk, the tech space is a constantly evolving beast. There have been many reports circulating around how the online news and social networking site may be revamped by the multi-billionaire –or chief twit, as he describes himself in his Twitter bio. In equal measure, it’s inevitable that there will be murmurs of discontent over some elements of his stewardship.

The past few months and years have taught us that change is everpresent across all sectors, and that it’s inevitable. The mortgage market remains susceptible to the influence of a host of internal and external factors, often changing at breakneck speed. Therefore, it’s vital for firms to have systems and processes in place that can help combat some of the turbulence. And these systems and processes must keep pace with the demands of the market and customers to spot trends and deliver solutions that fill an important void.

Energy performance certificates (EPCs) have certainly generated plenty of attention from potential borrowers, existing homeowners, landlords, lenders, and the intermediary market in light of rising energy costs and growing demand from the UK population for greater energy efficiency.

This is especially apparent in a BTL sector where, despite wellpublicised government proposals still not set in stone around changes to EPC legislation, landlords need to ensure they are carefully evaluating their green options to help protect future income and ensure properties will be legally lettable in the future.

Research from Shawbrook recently highlighted that green mortgage discounts could be a key tool in helping landlords make the necessary upgrades to achieve an EPC rating of C or above. Forty-one per cent of landlords would like to see the lending industry introduce mortgage discounts for properties with better EPC ratings. Under current government proposals, buy-to-let properties will need to have an EPC rating of C or above by 2025 to be rented out to new tenants. This is expected to be extended to all tenancies by 2030.

However, while a number of lenders have introduced ‘green’ propositions over the last year, more than a quarter of landlords said they were unaware that they could access ‘green’ mortgage discounts, and just 18 per cent of landlords are currently making use of them. With 23 per cent of landlords saying one or more of their properties are rated D or below, and a further quarter unsure of the current rating of their properties, there is a concern that many properties may be unrentable in just three years.

More than half (59 per cent) of landlords said they would consider

a green mortgage discount in the future. In addition to discounts, some landlords would like to see lenders help them with an action plan to improve their rating (33 per cent), or bridging finance to help improve ratings (28 per cent).

Awareness around EPCs, and the importance of how up to date these are and how they can be used in the mortgage process, have certainly risen higher and higher on the intermediary and client agenda. As such, we have recently added a system integration with the EPC register on the back of this growing demand. The aim is to provide users with the ability to search EPC records using a property’s address. In addition, we’ve also integrated with Companies House to allow users to search by name or registration number to retrieve all available details on a company from the Companies House database.

This pair of important integrations follows a series of new OMS platform updates to further enhance user experience. Highlights include a Lead Gen API to include more information around an applicant’s current mortgage, marketing preferences, additional security properties, and notes. This is in addition to a portfolio step including fields for date purchased, value at purchase, rate type, current rate end date, and MUFBs. There is also a lender submission step that allows users to see all lender integrations set up via the platform and to easily choose the one required for the case in question.

All service providers across the mortgage market have an ongoing commitment to investing time and energy in improving customer experience. There are times, as with Twitter, when change may ruffle some feathers, but change certainly doesn’t have to be bad. Especially when it comes to implementing the right kind of enhancements that better service the needs of everchanging consumer demand.

Supporting landlord clients

Cox chief commercial officer, Fleet Mortgages

Buy-to-let and the private rented sector (PRS) will have a serious number of issues to confront in 2023, the most pressing being how to support and help landlord clients who are either looking to refinance or who might have been seeking to add to portfolios.

I’m conscious that I’m writing this many weeks before publication date, and there may have been some further movement in the market regarding rates, product availability, and transaction lev els; however, as many have pointed out, it seems unlikely that we will get back to something like ‘normal’ in a short period of time, and therefore the challenges that exist today will continue to face us for some time to come.

But there has been some good news in recent weeks with a degree of political stability adding to the certainty the markets crave. Swap rates have come off the nosebleed highs we saw, and it is to be hoped this trend will transfer to providing lenders with the certainty they need to be able to price mortgages effectively and to return to market across all product sectors.

As advisers won’t need me to point out, for example, the provision of fixedrate buy-to-let mortgages has been hit – particularly when it comes to two-year deals, but also right across the board.

That certainly doesn’t help advisers and their landlord clients; however, one hopes there are currently enough product options available to them, even if these are shorter-term deals that allow them to secure finance for the moment and perhaps in six months look again into what will hopefully be a market with far more options.

We at Fleet have been offering a range

of both tracker and green tracker prod ucts that we hope will allow advisers and landlords to secure competitively priced mortgages and that come with only a six-month early repayment charges (ERC) period, meaning they can review in mid-2023.

However, I also think we need to think much more in the medium-tolong-term about what the current finan cial situation will mean for landlords and their ability to keep providing the supply the PRS needs. Indeed, I’m not sure this increase in mortgage pricing could have happened at a worse time for the PRS,

In a much-changed interestrate environment, [yield is] going to be even more vital in order to match the increased cost of mortgage payments with suitable rental coverage to deliver ongoing profitability

given the reliance so many people have on it for their living arrangements.

If things continue as is, then supply will remain subdued, to say the least, because landlords – particularly those with only one or two properties – may increasingly realise they can’t cover both the extra costs of their finance and the extra costs that come with running a private rental property, full stop.

There has been significant anec dotal evidence that some landlords have already reached that point, and the only option they have is to sell. Ordinarily, a lot of those properties up for sale would be bought by other landlords, and the property would go back into the PRS mix. However, as advisers will know, the deposit/yield requirements to make a new purchase profitable have gone up significantly, which means landlords who might

want to buy may not be able to.

Overall, it means supply continues to fall, plus for existing landlords as their finance costs go up, they are going to need to find higher yield in order to keep those properties they do have. Yield has always been important; however, in a much-changed interest-rate environ ment, it’s going to be even more vital in order to match the increased cost of mortgage payments with suitable rental coverage to deliver ongoing profitability.

That has repercussions for tenants. Landlords will cherry-pick tenants far more than they have previously done. The overwhelming demand for PRS properties will allow them to do this, meaning rents are likely to go up to levels where they can only be met by tenants with a good deal of money.

Supply constraints – an issue we have been trying to highlight for many years as various governments insisted on disincentivising property investment by landlords – are already hitting home. The PRS will become an investment only for the richest landlords and will be available only to the richest tenants if we do not find the ways and means to get more landlords active and to allow those who are already in this sector to keep their properties and add to them.

The cuts to stamp duty would be a good incentive were they available at any other time and not when mortgage costs have gone up. At the moment we are waiting for those costs to fall, and hoping the powers that be recognise that the PRS needs more supply, not less –and that without landlords, the problem is going to get a lot worse.

If we thought 2022 was a topsyturvy year, then when it comes to 2023 we probably haven’t seen anything yet. We need full and frank recognition that the provision of UK housing means more, not fewer, landlords are required. We also need policies that incentivise rather than punish. Without them, the PRS will increasingly be for the few, not the many. M I

Steve

Exploring BTL opportunities

Professional portfolio landlords are currently dominating the BTL market as the number of ‘amateur’ or ‘accidental’ landlords continues to dwindle slowly due to tax and regulatory changes, rising interest rates, and additional required levels of expenditure.

More recent economic events have placed individual property investments under even greater scrutiny, in terms of immediate returns and more medium-tolonger-term aims. There is also the hassle factor for landlords to take into account, which can often be misinterpreted or underappreciated.

Over the years, landlords have built portfolios in a variety of ways in different times and under contrasting market conditions. Many professional landlords may have started as accidental ones, but came to appreciate the potential of the BTL sector. Others may have entered this arena with a more structured and scalable plan – and then there are those who have the ability to acquire whole portfolios in one fell swoop.

For those landlords who are fully invested in their portfolios and the BTL sector, opportunities for growth and additional investment options will continue to emerge. But at which end of the landlord spectrum will these fall, or, more pertinently, which landlord type is likely to maximise them?

A webinar poll undertaken by Countrywide Surveying Services (CSS) highlighted that 66 per cent of property professionals expect

growth and opportunities across the buy-to-let sector to be experienced by landlords/property investors with a portfolio of 10+ properties. Twenty-two per cent opted for those with four to 10 properties, and 12 per cent selected those with one to three properties as the most likely to experience growth/maximise opportunities in the near future.

A further poll taken during the webinar found that only five per cent were “very pessimistic” when it came to confidence levels around the buy-to-let sector for 2023. Fortyone per cent said they were “very or somewhat confident,” 29 per cent indicated that they were “neither confident nor pessimistic,” and 25 per cent suggested that they were “slightly pessimistic.”

In addition, 45 per cent of respondents suggested that the greatest challenge currently facing the buy-to-let sector is rising interest rates. This was followed by cost-of-living increases and EPC regulations, with both recording 18 per cent, and then by greater regulation (13 per cent) and escalating taxation (six per cent).

This emphasis on professional landlords has also been evident in the swathe of limited companies being set up, and an increasing number of lenders are tailoring their BTL offerings to take this growth into account. The main advantages obviously stem from a tax perspective, and this shift is evident in recent figures released by Hamptons suggesting that the total number of companies set up to hold buy-to-let property has doubled since 2017. This is thought to represent over 300,000 landlords as incorporation becomes mainstream among property investors.

Over the 12 months to September 2022, a total of 50,445 new companies were set up to hold buy-to-let property – the second-highest figure in any 12-month period.

Estimates by Hamptons researchers

suggested that about 40 per cent of all new buy-to-let purchases are now made via a company structure. This is a record figure and one that is up from around 10 per cent in 2016, before the Section 24 tax changes were tapered in. It also predicts that more buy-tolet companies will have been set up in 2022 than in any previous year, despite fewer buy-to-let homes being bought this year compared to last year.

As demand for privately rented homes has climbed consistently since the pandemic, it’s little wonder that landlords who are committed to the BTL sector are constantly evaluating ways in which to be more tax-efficient, reduce outgoings, and maximise yields where possible.

Focusing on demand, research conducted on behalf of Paragon Bank found that, for the second time this year, the proportion of landlords reporting increasing tenant demand hit an all-time high. This revealed that a net increase in tenant demand during the past three months was seen by 65 per cent of respondents. This surpassed the previous all-time high of 62 per cent recorded during the first quarter of this year, marking a consistent and significant rise in tenant demand since a low net increase of 14 per cent was recorded in Q2 2020.

Breaking down the net increase also shows that the 39 per cent of landlords who reported that demand had “increased significantly” was the highest proportion since the metric was first tracked in 2011. Additionally, only one per cent of landlords felt that tenant demand had “decreased slightly,” while none said it had “decreased significantly.”

On the back of such a turbulent period, it’s difficult to second-guess any market performance in the early part of 2023. However, it’s inevitable that portfolio landlords and limited company lending will continue to play a key role, and this is a factor of which all advisers should be aware. M I

Cat Armstrong mortgage club director, Dynamo for Intermediaries

Challenging times

Jane Simpson MD, TMBC

We have seen lots in the news about the negative impact of the challenging economic ewnvironment on borrowers. With many of us taking on mortgages to buy our own homes, the worry caused by rising rates is something we can relate to.

That said, I think we should also spare a thought for the people who have also been affected from a professional point of view.

Speaking to brokers, I know that many are concerned by the feeling that business has almost ground to a halt. With rates expected to continue to rise and squeezed households struggling to save for deposits, there is an expectation that things will get worse before they get better as more would-be borrowers are either priced out of the market or choose to sit tight, awaiting a better time to buy.

Sadly, for some, all of this is starting to have a noticeable effect on mental health, and I can see why. While there will be some advisers who will remember a time before the global financial crisis (GFC), for many, the current conditions are like nothing they have ever experienced. Even someone with years of experience may have only ever worked in the financial services sector during a time of relative economic stability.

This is because the tighter regulation introduced in the wake of the GFC has significantly shaped the market. Minimum underwriting standards for lenders, introduced by the Prudential Regulation Authority,

have meant that borrowers are subject to more stringent assessment, while the concept of loan-to-value pricing, not seen before that time, helped to ensure that borrowers would not be too highly geared in a bid to mitigate the risk of negative equity in the event of a market downturn.

Along with relatively few crises to disrupt the global and domestic economy, such bolstered regulation contributed to a period of fiscal stability, and borrowers have enjoyed low interest rates for some years.

As a result, a large proportion of borrowers were able to lock in to a fixed-rate mortgage, paying interest at a rate they could easily afford with the certainty provided by static repayments. The five-year fixed-rate mortgage has dominated the market, with a handful of two-year fixes sold in situations where the rent calculation worked and the borrower didn’t want to commit to the longer term.

With rates so low and stable, there had been little to differentiate products – with money so cheap, the 10 or so basis points separating two competing products made little difference to borrowers, as they could comfortably afford repayments on both.

Before this time, when rates were higher, borrowers would often adopt different strategies in order to get the best deal for their circumstances. Lenders offered a range of different options to cater to this, so brokers were more accustomed to offering advice on a broader mix of products.

An obvious example is the tracker mortgage, because, while they have accounted for a small proportion of business in recent years, they were once more common and have started to re-emerge as one of the few viable options for some clients.

Often easier for lenders to fund, tracker products will likely have a more competitive headline rate

compared to the fixed-rate options available, increasing the chance of the rental calculations working in the landlord’s favour.

Whilst opting for a tracker in a rising rate environment can be deemed a risky move, the greater flexibility, particularly on products with no ERCs, can be a real positive while clients keep a close eye on the market.

The rate differential at the start of the contract can be significant, so landlords may wonder whether rates will rise to a level where their tracker becomes more expensive than the fixes currently available to them. Of course, even if they do, the borrower would have already benefited from months of lower payments.

In addition to this, it is anticipated that following a peak next year, rates will start to fall, so those on trackers could benefit here instead of being stuck on a high fixed rate for a number of years.

So we can see that, despite the prominence of fixed-rate mortgages in recent years, the best option is often influenced by current market conditions.

Advising on these types of products will represent a significant shift in the way that some brokers work, but by becoming well-versed in the different options that are increasingly seen in today’s market, they can offer valuable advice to clients and hopefully continue to place plenty of business.

With rates expected to continue to rise and squeezed households struggling to save for deposits, there is an expectation that things will get worse before they get better

If you want to know how to mine coal…

customers. At the end of this correc tion, it will undoubtedly be looked back on as a time when the value of a mortgage adviser shone through – al though, listening to many, it probably doesn’t feel that way right now.

what is needed to ensure that they are properly insured. The now eagerly awaited AMI Viewpoint survey tells us a lot here regarding consumer be haviour, and is well worth digesting as we all think about plans for 2023.

There exists an old but often-forgotten adage that if you want to learn how to mine coal, ask a coal miner. It is simple to see the logic that they will know best.

Simple as the idea is, whichever industry we are in, we often forget the basics and plough on and do what we think is the right thing as opposed to seeking the thoughts of those who know best.

There are a couple of examples of this that have raised their heads over the past month or so where the prin ciples of telling rather than listening may have been better focused.

To give some context, we must go back a little, to the last liquidity crisis in 2008 and its relative effect on life insurance sales. As banks had no ap petite to lend due to the liquidity cri sis – and they certainly wanted to use their own distribution for what they did have, rather than that of interme diaries in the main – many advisers turned to reviewing their client banks and advising on protection.

This did bring about a surge in life sales, and was a benefit to insurers and those doing it in terms of income streams. If we look at the position to day, however, it is somewhat different.

For reasons well-documented in the mortgage trade press, it is now tougher to get clients the mortgages they want at a price they can afford, and firms are handling several times the workload they were previously to achieve the best outcomes for their

What I don’t think is a positive measure is to trot out the lines heard from late 2009 touting the simplistic view that when the mortgage market is slow, the life market will rise.

In the current situation, for exam ple, advisers often do not have the time to speak to clients about their life needs that they did back in 2008. In addition, many potential custom ers are not happy about their revised mortgage payments, and may there fore not want to discuss the merits of protection as immediately as many might think.

So this and other simple mes sages, such as “Don’t forget to add indexation now we’re in a cost-ofliving crisis,” should be well thought through before being bellowed from the rooftops.

Listening to the current plight of mortgage firms, we might think that a focus on sales of non-core mortgage products is the way forward for them, followed by finding solutions to cut down on the administration of life and GI sales.

Clearly some insurers (both life and general) have been striving to do this, and should be applauded.

The heightened awareness of sign posting, especially in relation to the upcoming consumer duty implemen tation, can help here, too. We must remember that signposting is not an all-or-nothing scenario, but instead can be used as a back-up plan for advisers when things are especially fraught.

In turning to consumers themselves, it is vital they be listened to before we as an industry try to determine

Listening to what customers think of us and our industry should be used to shape how we do things. The research tells us that consumers still think advisers are more concerned with getting commissions than with finding the right solutions for them.

There is still a huge amount of anxiety out there regarding claims – which has led to over half (56 per cent) of consumers still not believing claim statistics. Each year the ma jority of those asked say they “don’t trust” them.

If that is what consumers are think ing, then it probably would be wise to add the statistics produced by insur ers into client presentations; if that is not the case already, then it should be done as a first-strike measure.

I am not going to go through all of the research in this article, as I think it is worth looking up and reading through, and we will certainly be pro moting it to Paradigm Protect firms –in an empathetic manner, of course.

As things start to settle down a little, and with the advent of a change in lending habits – perhaps more product transfers than were previ ously imagined, depending on the pricing of lenders versus remortgage opportunities – I believe firms will look at life sales as an avenue for de veloping their own income streams.

That, along with the consumer duty, will undoubtedly be formulated into 2023 business plans for many – but this must be done at a time when advisers can control more of their time and resources, and not attempted with a simple flick of a switch.

Mike Allison director of protection, Paradigm Mortgage Services

AMI research shows the way forward

added-value benefits, yet a fifth have used them (these could include virtual GP appointments, expert medical second opinion services, or counselling).

articulate the value of protection ad vice to consumers and that firms need to consider their approach to protec tion, considering consumer duty.

The Association of Mortgage Intermediaries (AMI) recently launched its third annual Viewpoint survey on protection insurance as part of the mortgage industry.

“The great protection shift” report takes a detailed look at barriers, con sumer expectations, communication, perceptions, misconceptions, and more, based on extensive consumer and adviser research.

The findings are highly interesting.

KEY FINDINGS

One of the standout numbers is that 44 per cent of advisers expect the consumer duty to increase mortgage brokers’ focus on protection. This is astonishing, especially as the cost-ofliving crisis escalates, as affordability is one of the main reasons people don’t currently have protection – cit ed by over a third of consumers.

Regarding cost and keeping poli cies in force, 37 per cent of advisers are currently “not doing anything” to help customers keep their existing cover in place, preferring to wait until customers contact them, if they do at all.

Advisers think all parties, includ ing themselves, should be doing more to promote protection among consumers, while customers still think advisers are mostly motivated by commission.

Just half of those consumers with a protection policy are aware of the

Almost a third of consumers mistakenly think they cannot buy income protection if they’re self-em ployed, rising to 42 per cent among those aged 18 to 34, while two-fifths of consumers think protection cover is always the same whether purchased through an intermediary or directly.

And if they were buying protec tion today, over half of consumers would go online compared to just a quarter who would want to buy it face-to-face – and just three per cent by video.

CLAIM STATISTICS

It is getting on to twenty years since protection insurers began regularly publishing claim stats.

Back then, we knew most claims were paid – but there were several high-profile declined claims in the media that were giving the industry a very poor reputation, and many poli cyholders were looking to cancel.

Nowadays, over 98 per cent of all protection claims are paid, and the industry has been praised by the media for its transparency. However, over half (56 per cent) of consumers don’t believe claim stats, with this scepticism higher among older peo ple. Are the numbers too good to be true? And more importantly, what more can be done to amplify them?

FIVE-POINT PLAN

In terms of outcomes, AMI CEO Rob ert Sinclair proposes a new five-point plan to “propel the industry forward.”

He says advisers need to consider whether they clearly and confidently

For advisers who don’t want to write protection, there are many to day who can provide services to act as their protection adviser in a way that suits all parties.

For insurers, AMI want improve ments in service in which providers commit to working with advisers to understand the pain points and address them where possible.

In addition, we need to make far better use of claim statistics and work with industry bodies to tackle the barriers highlighted. As AMI chair Andrew Montlake notes, “We have to accept that it’s time to evolve, and to look at things differently.”

NEWS ROUND-UP

 Paradigm Protect has announced a partnership with Assured Futures, which sees the firm providing signposting options for Paradigm members.

 According to research by LV=, 60 per cent of surveyed 25-to-44year-olds who don’t have protection in place would feel more “financially resilient” if they were covered; research among 4,000 surveyed UK adults found that while 12 per cent of respondents have income protection provided by their employers, 26 per cent of surveyed adults who don’t have a group or individual policy would like to have one.

 Guardian has partnered with UnderwriteMe on its IFA protection portal.

 Aviva has made improvements to its Core and Upgraded Critical Illness plans. M I

Kevin Carr CEO and MD, Carr Consulting & Communications

Protection advisory could provide additional income

surely there is a duty-of-care require ment to advise on and arrange suitable protection against the perils of prema ture death, serious ill health, and lack of sick pay.

Most people in the protec tion industry consider critical illness plans to be the most complex product. There are a number of reasons for this, some of which are:

 the use of precise and often complicated medical terminology;

 the wide and confusing range of options available;

 plan documentation that is often badly presented and lengthy;

 the necessity, now bolstered by the imminent consumer duty requirements, to properly understand the product.

Mortgage brokers, like financial advisers, are busy people. Whether they’re dealing with clients, search ing for new business, or placating the regulator, they often have little time to focus on areas that might be deemed peripheral to the main tasks of arranging mortgages and remaining financially solvent.

2023 promises to be a grim year, possibly on a par with 2008, the year when thousands of mortgage brokers went out of business, and brokers must look at other sources of income to balance the books. Moving into the protection advisory world seems the obvious answer, as it conveniently dovetails with the core business of arranging long-term debt.

This also raises a moral as well as a financial issue. If you have arranged a long-term debt, probably the largest debt thus far in the borrower’s life, then

So, back to critical illness and why it scares many mortgage brokers. How many brokers are interested in or willing to bone up on understanding medical terminology? The truth is that it is infernally difficult to under stand variations in condition wordings and the impact of sometimes-subtle differences. Trusted resources such as CIExpert can resolve this problem by comparing plans and providing plain-English descriptions of what each condition actually means.

The majority of insurers offer both a budget plan and a comprehensive version of their critical-illness policies, complete with future guaranteed insur ability terms and valuable additional benefits such as second medical opinion and 24/7 GP access. Children’s critical illness cover is generally an optional benefit, as are total and permanent disability cover, fracture cover, waiver of premium, and other worthwhile options such as global treatment. However, these choices should not be a cause of concern for brokers who are looking to protect the debts they have just arranged for their clients. The overarching job is to ensure that clients are insured when contracts are exchanged, and the old adage that something is better than nothing resonates here.

With over 85 per cent of all claims down to cancer, heart attack, stroke, and multiple sclerosis, it is evident that the majority of plans can address likely claims areas. Therefore, it is often simply a question of whether cost dictates a quality or a budget plan.

Policy documents, key facts, and oth er brochures provided by insurers have a tendency to over-inform. Quite a few

present their contents in an ad hoc fash ion, making it difficult to easily uncover the information sought. Some insurers, such as Canada Life, have worked to cut through this and provide the required information with a minimum of fuss.

Understanding the product is another matter entirely. Those brokers who only occasionally dip their toes into the protection murk will likely not feel confident about their ability to under stand fully the scope of the various plans. Again, one of the available resources – CIExpert, DeFaqto, and Protection Guru – can assist in discriminating among plans.

It is much easier to retain an existing client than it is to find a new client, and this is where expertise shines through. The best mortgage broker may still lose a client to another who has proved his/ her protection knowledge. The path to protection expertise is not an easy one, but is ultimately worthwhile, and as clients’ circumstances change, new business will flow through from them and their family and acquaintances. M I

Alan Lakey director, CIExpert

Potential mortgage crisis looming – don’t forget GI

WINTER IS A HIGH-RISK TIME FOR YOUR COMMERCIAL CLIENTS

Your commercial clients can face sig nificant risks when it comes to winter weather. Following is some valuable risk-management advice you can use to assist your clients.

Mortgage lending in the UK may be heading for its biggest plunge for more than a decade. According to one report from consul tancy firm EY, loans may total just £11bn next year, a fraction of the £63bn seen in 2022.

An unhealthy mortgage market is obviously bad news for brokers, but it’s not all doom and gloom. If you’re a regular reader of my column, you’ll know how strongly I believe that advisers should grab the opportunity of general insurance (GI) sales to see them through hard times.

The good news is that GI sales deliver a differentiated point of service and additional value for clients as well as commission for you.

The even better news is that selling GI doesn’t have to be an administrative burden. Whilst you will probably have the expertise to handle the standard cases, for more complex ones, referrals to a GI provider enhance your opportunity to support customers and eliminate the administrative burden, whilst providing you with more income.

Don’t limit yourself to household policies. GI offers the chance to diversify, and access to potential new sources of income. Clients will be trying to save money across the board, as well as protect themselves as much as possible; talk to them about income protection, specialist mid- and highnet worth cover, and rent guarantee and other insurance for property investment portfolios. Likewise, don’t ignore non-standard, commercial, and difficult-to-place risks.

 Mitigate against potential liability issues. Companies have a duty of care to protect their staff from injury – something that becomes more difficult in hazardous conditions. The shift to home working may reduce the likelihood of claims, but it’s worth noting that businesses may also be liable for injury occurring to delivery drivers, customers, and other people visiting their business premises. Advise them to fill potholes and uneven surfaces, monitor ice on entry and exit points, and so on.

 Protect against property damage. In the current economic environment, clients may be tempted to turn the heating off when the property is empty to reduce fuel bills – but burst pipes present a major risk to property, equipment, and stock. Encourage clients to uphold good property maintenance and arrange to lift stock off the floor (on racking or even spare pallets), away from potential floodwater.

 Limit the risk of business interruption. Storms can cause damage that means business owners have no choice but to shut down operations. Protection and preparation are vital. Speak to them about their business interruption insurance policy, and ensure it is adequate for lost income and costs incurred.

 Protect the motor fleet. It’s critical that businesses service their motor fleets and prepare vehicles for cold weather with oil, fuel, battery, and tyre checks, and so on.

It’s also worth considering conducting safe-driver training; many providers offer this vital added benefit, so it’s worth checking whether your clients have this option.

SMES RISK JEOPARDISING COVER DUE TO UNDERINSURANCE

On the subject of your commercial clients (and that means your own busi ness, too!), around 3.5m of the 4.3m SMEs in the UK may be underin sured. A report by Towergate high lighted that valuation experts Barrett Corp & Harrington found that on average 77 per cent of the commercial properties they survey are underin sured by an average of 45 per cent.*

Geopolitical risks, supply-side disruption, the high cost of living, and labour shortages can all increase the risk of underinsurance. Talk to your clients about the following:

 Is their building insurance adequate? Getting the rebuild costs wrong can result in reduced claims settlements and delays that could affect the viability of their businesses.

GI providers like Berkeley Alexander have a desk-based valuation service that can help avoid such underinsurance.

 Is their business-interruption policy fit for purpose? Do they have the right limits of cover and correct length of indemnity period?

Many firms take 12 months’ cover, but many claims last well beyond that, leaving the client at risk of bankruptcy.

 Have they reviewed their liability policy limits recently? Again, awards are escalating, but too many firms still want only £1m or £2m in public liability when £5 million should now be the norm. M I

*Source: https//bch.uk.com

Geoff Hall chairman, Berkeley Alexander

Does the development of adviser tech need more input from advisers?

Pengelly proposition director, Paymentshield

The key in any industry when developing tech is not just to listen to what your customers or partners are saying but to go one step farther and really unpick the challenges being faced. Only then, once you have that input and really understand the prob lems you’re trying to solve, should you start to apply your own tech nology and insurance expertise.

When it comes to getting input from advisers, Paymentshield proac tively gathers insight to support our understanding. From the day-to-day interactions of our sales team, to the GI Live roadshows that are currently taking place across the UK, through to our annual adviser survey, we strive to use every opportunity to understand the problems advisers are facing at any given time. We’ll also do live testing of our major tech developments directly with advisers to make sure whatever we develop is truly fit for purpose.

What we’ve learned over the years is that being able to offer clients a reliable and positive customer experi ence is actually what’s most important to advisers. It follows, then, that when trying to solve problems for advisers, it’s imperative never to lose sight of the customer, as this will only cause problems down the line.

The home-insurance quote expe rience illustrates this point perfectly. Advisers are under pressure to offer a fully protected home in the short time they actually get in front of the client, and therefore the quick and easy an swer to the question “Why don’t you

do more GI?” is often “I don’t have time.” Recently, this has led to an almost single-minded focus on trying to limit the questions asked to generate an insurance quote.

Whilst reducing the number of questions asked during the quote process will go some way to helping advisers, in our 2022 adviser survey, conducted with over 330 advisers, over 80 per cent agreed that an accu rate quote is more important than a fast one.

initial feedback at face value and just look at reducing the time it takes to get a quote, then there’s the risk of sacrificing customer outcomes. That’s where quotability comes in, which is arguably one of the biggest drivers of the customer experience.

The importance of quotability is often misunderstood, but it’s basically a measure of how likely an insurance provider is to offer a quote to clients based on where they live, what their property is like, and what they’re looking to insure, along with their personal circumstances and claims history.

The more quotability is optimised by a provider, the more likely an ad viser will be able to offer their clients a quote in the first place, which is arguably the most fundamental part of the customer experience and not something that can be overlooked in the pursuit of speed.

Furthermore, when we asked specifically about what might make discussing GI with remortgage customers more appealing, only nine per cent said a quicker quote process – far below things like sales train ing and a generous quote validity period to help match up renewal and remortgage dates.

These results highlight that advis ers might have different priorities from what might initially spring to mind once you start to gather more insight. Rather than how long it takes to get a quote, the concern about time potentially arises from how long it might take advisers to feel comfortable with products, or from having to go back to clients if the quote expires and then spend time re-keying their details to offer a new quote.

Indeed, if we were to take the

To maximise quotability, you need to ask questions so the insurer has a good picture of the risk they’re being asked to cover – the more they know, the more tailored the price becomes to customers’ circumstances. You can further improve quotability by creating a panel of insurers, with each insurer having its own indi vidual approach to risk (a property one insurer might not cover, another may). However, with more insurers, the chance is you will also need to ask clients more questions.

The answer to the question of whether innovating for advisers should involve more input from them is thus a resounding yes. But that input can’t be superficial. Furthermore, what businesses should never do is deliver tech enhancements just because they can. As an industry, we can’t lose sight of the fact that tech only adds value to advisers where it also adds value to customers.

Louise

What we’ve learned over the years is that being able to offer clients a reliable and positive customer experience is actually what’s most important to advisers

Challenges will remain in 2023, but so will strong demand for advice

Wilson CEO, Air Group

It seems an odd thing to be writing, but 2022 is nearly over. How did that happen?

It has almost crept up on us, and part of me can’t help but feel that, at times, 2022 had the feel of a year that was never going to end, such were the twists and turns and undoubted challenges that it brought, particularly over the last few months.

However, while the later-life market – indeed, the entire mortgage market – has had a stormy feel to it recently, there are positives to hold onto, particularly as we move into the new year and beyond.

If advisory firms and the business es that support them are currently fishing in somewhat stormy waters, there are only two real options available to them: either they return to port and wait it out, or they keep on fishing. All firms I speak to will continue to do the latter and will make the most of the opportunities that exist.

For a start, it’s an obvious point to make, but we’re clearly in a different interest rate environment now. Premini budget rates beginning with a five were once common, and that’s no longer the case – but compare today’s rates to what has traditionally been the norm in our market, and the situation doesn’t seem so bad at all.

Also, as I’ve said many times before, when it comes to equity release in particular, but other types of later-life lending as well, the rate is what the

rate is, and the customer does not go away simply because the price of the product has changed recently.

There is also a related point for advisers to consider now, and it is the shift in the type of customer we are seeing, and are likely to see in the near future.

It’s very obvious that the ‘need’ customer is much more prevalent right now than what we might have seen in a lower-rate environment, which was more appealing to an ‘aspiration’ customer. Let’s be frank: if you are a homeowner who doesn’t need to borrow, then why would you do so right now? The likelihood is that you will wait it out until bor rowing seems more favourable.

However, for the need customer, that’s not an option. Their need is now, and they must work within the market situation as it is now. If you are, for example, coming to the end of your interest-only mortgage term, and you need money to pay off the capital, then you can’t simply wait for what might be a better time to secure that finance.

It’s interesting that, on returning from holiday recently, I had a look at some of the Air customer/client statistics, and it was obvious that while the number of unique custom ers had dropped, there were far more serious enquiries within the system.

In any given period, as advisers will know, you tend to get a fair number of what I call tyre-kicker customers enquiring about what is available to them, but with little intention of following through with a case, unless the options are staggeringly good and far beyond their initial expectations.

Those tyre kickers have certainly dropped in number recently, and instead – and this is good news for advisers – we are seeing enquiries

grow from those who are deadly serious about their current situation and the financial options that might be available to them via later-life lending.

As was pointed out at a recent “Breakfast with Stuart” meeting, for these customers a drawdown product can be very appealing, as they don’t necessarily have to take all the avail able equity in one go. Plus, of course, basic protections in the equity-release space, like the No Negative Equity Guarantee, are also invaluable to such customers, especially if they are fearful of house values falling, as some are suggesting might happen in the short-term.

Add to this the growing knowledge of equity release/later-life lending options and a greater acceptance from the public that their home is an asset that can be used in later life, and given the financial and economic situation, it will not be a surprise to see more consumers looking for advice in this area – particularly if inflation remains high, as expected, and if cost-of-living increases are with us throughout a longer-than-anticipated recessionary period.

In that sense, 2023 is still likely to be an incredibly active time for later-life advisers, with demand remaining strong and – in my view –developing across many more people in, or reaching, later life. Of course, we need to marry this demand with product supply, and it is to be hoped that, with markets having calmed down recently, we will begin to see products reappearing and rates mov ing in the opposite direction.

Advisers are likely to find their services required more than ever. We may be moving into a different environment, but professional advice still remains a must-have here. As always, we’ll be here to help you make the most of it. M I

Stuart

The shock of the new

The energy crisis could be “a drop in the ocean” compared to the payment shock felt by borrowers, particularly first-time buyers, coming off a fixedrate term and facing spiraling costs, the Mortgage Business Expo has heard.

Rob Barnard, relationship director at specialist mortgage lender Pepper Money UK, told an audience at the London-based show that he worried about the impact on those newer to the property market.

“I really feel for those first-time buyers who went all in two years ago –life savings on a property, maybe had an LTI [loan-to-income] stretch of around four and a half times. They’re in for one heck of a shock.”

Hosting a panel of experts on a discussion of the challenges for firsttime buyers and existing borrowers in the current market, Barnard declared, “Personally, the energy crisis to me is a drop in the ocean as opposed to people who are coming off two-year fixed rates.”

In 2020, there were just over 300,000 first-time buyers. In 2021, that figure rose to a high of 409,000, boosted by stamp duty relief. So what options do first-time buyers have if their existing deal expires and they face a significant payment shock?

Seeking professional mortgage advice is key, said Ryan Davies, strategy director at Bluestone Mortgages, which provides complex credit mortgage solutions for people who don’t fit high-street banks’ traditional profiles. “Trying to navigate the market with its current volatility on your own, without

the support of a financial adviser, is going to be incredibly challenging,” Davies suggested. “I hope customers are starting to speak to their financial advisers. The other thing I would recommend is absolutely start talking to your mortgage lender as soon as possible. People are going to have a lot of difficult decisions to make over the coming months – ‘Do I try to focus on making my mortgage payments, do I focus on putting food on the table, do I focus on heating my home?’ So there’s going to be some really challenging conversations out there.”

He continued, “In terms of payment shock and what people can do to avoid that, I was looking at the correlation between the Bank of England’s base rate and the number of interest-only mortgages. What’s clear is the higher the base rate, the more interest-only mortgages there are in circulation, and

vice versa – the lower the base rate, the fewer interest-only mortgages there are. So I do think we are going to see over the coming months a big tran sition from current propositions with repayment mortgages, where people are looking to move to interest-only, maybe part-and-part options, to try to avoid that payment shock as much as they can, bring down their monthly payments, and ultimately get over lenders’ affordability hurdles, which are going to be a huge challenge.”

Dale Jannels, managing director of broker Impact Specialist Finance, acknowledged, “We are already seeing this payment-shock scenario. It’s going to get a lot worse before it gets a lot better. With everything right now we’re saying, don’t panic – have a look at the situation and what you can actu ally afford. Is there a chance that you can maybe look at the current lender

First-time buyers who fixed two years ago face the shock of rising mortgage payments, London’s Mortgage Business Expo was told, while new buyers will have to negotiate stricter, downward valuations. Simon Meadows reports

and go interest-only? Maybe there’s family who can help out as well. So it’s just a case of sitting down with the customer, having a good conversation with them, seeing what we can do, and we’re trying to explore all angles.”

SPEED IS KEY

In the face of changing market condi tions and rapidly changing products, Barnard urged brokers to respond quickly. “I think one thing that you guys all should be focused on, and I know you are, and we are as lenders, and, I am sure, as distributors: If you’ve got an offer on the table with a customer at the moment, move heaven and earth to get it completed within the expiry frame,” he stressed. “That’s a really key thing. When you’ve got an offer that needs extending, that’s when different rates may be coming to the table, which is a challenge.”

Jannels agreed that it was important for brokers to act fast. “Speed is of the essence across the whole market,” he concurred. “What we’re seeing currently is that every client who’s coming through the door, whether it be a client directly or a broker coming to us, is asking, ‘What do we recom mend for this client, what would you do if you were in my position, what’s the best thing?’ No-one, unfortu nately, has got a crystal ball. We don’t know what’s going to happen. We’re all in this malaise of what’s going to happen next, and how long is it going to take?

“So a lot of people, at the moment, have taken trackers, a lot of people are sitting on variable rates just to see what happens. We’re all spinning a lot of plates; we’re all trying to keep clients happy. We’re all trying to help clients buy those houses. But right now, we’re doing probably more variable and tracker rates than we’ve ever done over the last five, six years, I would say, because clients just don’t know what’s going to happen.”

He advised keeping a close eye on arrangement fees, which had risen. “Watch the arrangement fees currently,” Jannels emphasised. “Where lenders were charging reasonable arrangement fees to do certain deals, especially on the

buy-to-let side, now we’re looking at three to five per cent as a kicker on the back. So just watch the whole cost of this to the client.”

According to Barclays, first-time buyers paid an average property price of £281,900 in 2021, down from £294,500 in 2020 – but 13 per cent higher than the average pre-pandemic price. Most started saving for their first property at the age of 24, but the average age at completion was 32. Almost three-quarters (73 per cent) wished they’d started saving sooner, and 64 per cent worried they would never be able to get on the property ladder. More than half (56 per cent) were reliant on family support.

Current first-time buyers may understandably be worried about whether they will still fulfil the lending criteria if rates change once an offer has been made.

“I think a lot of it just comes down to lender appetite,” offered Davies. “Some lenders will be happy to just let it go through. Others will want to reassess. A lot of it, as well, comes

down to how lenders are funded. Some could be funded at the application stage, which means that they lock in a rate at application; other lenders can be funded at completion, which means that there’s a gap where they think things could change when they reas sess. So generally, it’s down to what lenders think and how they want to treat customers through that process.

“It’s incredibly challenging at the moment – being able to manage that, being able to give brokers confidence that the prices that are in the market are going to be available for a certain period of time and are going to give people time to get their applications in. I think speed is critical, to give the lender the best chance of getting that case through securely.”

Customer perception was key for new buyers, added Davies. “The challenge we’ve got in the vari able rate space at the moment,” he explained, is that “customers are looking at that headline rate thinking, ‘Well, that sounds like a great deal to me compared to a fixed rate.’ Yes, it might look cheaper, but rates are only going to go one way. I think it’s important when you’re looking at variable rates to look at what the fixed rate is today versus what the variable rate could be in six months’ time and try not to get drawn into that head line rate, which may suggest today it could be significantly cheaper. When looking at variable rates, it’s good to look at the longer-term picture.”

“The valuers are going to stand behind the API insurance; they are going to get really, really strict on what prices they’re putting on these properties”

– DALE JANNELS

Dale Jannels

Rob Barnard

STRICTER VALUATIONS

Jannels said he was starting to see the lower valuations that have been widely predicted. “Every client who wants to sell their property has got their own valuation in mind, which is not neces sarily the true valuation of that prop erty,” he said. “But because demand obviously has outweighed supply recently, you’re going to pay what you want for that property. It doesn’t necessarily mean the valuer is going to agree that’s actually what it’s worth. I think now, over the next three to six months, we’re going to see a lot more down valuations occur pretty quickly.

“We saw one this week, where it’s a new-build property that has been down valued by a valuer compared to three months ago. The same guy went out and valued the property, absolutely fine, and it’s already come in 10 per cent lower than what the developers actually want for it. Those are the sorts of things I think we’ll see now where a bit more reality comes back into it. The valuers are going to stand behind the API insurance; they are going to get really, really strict on what prices

they’re putting on these properties. It’s going to take a little bit longer; they’re going to do more research. Those are the sorts of things that we saw in 2008 to 2009. We’re going see it again now for the next year or so.” He told the audience at Mortgage Business Expo that he has never seen valuation chal lenges upheld.

Melanie Spencer, head of payment and mortgage services at finova, envisaged more borrowers exploring debt consolidation. “We’re starting to see those early sort of credit blips, where, you know, people are just starting to miss the odd payment, where they’re starting to feel the pinch, where they are starting to think, ‘Actually, I need to sort this now,’” she shared. “So we are seeing an uplift in debt consolidation, where they’re looking to consoli date into more manageable monthly payments. So they’re trying to take control. And therefore, they are looking at what options they’ve got. What I would say about the specialist market is lean on the specialist brokers within that space, who will be able to help you navigate the lenders and the products.”

Barnard said he believed that second charges, also known as secured loans or second mortgages, could become more common. “I think [that is so] especially if you’ve got somebody now who is on a very, very skinny high-street fixed rate for five years, and they want to do some improvement works,” he said. Second-charge mortgages “are under sold, and I think they’ve got a massive part to play in the current market.”

Maeve Ward, commercial director of Central Trust, an independently owned first- and second-charge mortgage lender, agreed, and said it was her belief that second charges would come into their own. “It should always be considered alongside a remortgage in any capital-raising situation,” she commented, “sold in the right way through the specialist mortgage brokers who understand the lenders and their criteria and have access to products that perhaps those who are purely in the first-charge mainstream market wouldn’t necessarily get

access to directly.” She added, “We have seen a massive uplift in threeand five-year fixed, we’ve seen a noticeable drop in two-year fixed, and I certainly haven’t seen, probably for the last two weeks, a variable being sold at all.”

Customers’ behaviour was changing, Spencer noted, and brokers needed to get closer to them. “You have all probably got CRMs,” she remarked. “But what about things like customer portals? What about having onboarding tools, where we could actually start interacting with customers a lot sooner? Customers are changing the way that they do business with lenders and yourselves because they actually want to be more hands-on and do a lot more research online. So we do find that by having these customer tools available, you can start engaging with your customers as a firm and speak to them directly. That is a big thing. It all comes down to that education piece and getting closer to the customer.

“Are you contacting them, actually reassuring them that you’re there to help? Is it right to do something with their current lender, or is it something that we can do alternatively? Do budget planners with these customers.

“So it’s just about giving those options. I think you’ve heard about what [financial journalist] Martin Lewis said – that mortgage brokers are worth their weight in gold. Totally true.” M I

“Trying to navigate the market with its current volatility on your own, without the support of a financial adviser, is going to be incredibly challenging”

– RYAN DAVIES

Maeve Ward

Ryan Davies

DOING YOUR DUTY

It’s one of the biggest shake-ups in financial services regulation in more than a decade. The new consum er duty has major implications for the mortgage sector and the way it markets itself. Yet industry experts at Mortgage Business Expo in London were pragmatic – and even positive – about the opportunities it presents for greater clarity.

Under the new regulations, which come into force over a phased rollout in 2023 and 2024, the Financial Conduct Authority (FCA) sets out higher and clearer standards of consumer protection, requiring firms al ways to put their customers’ needs first.

You might think that’s a given – and certainly, many upstanding financial services professionals wouldn’t dream of doing anything else. But the changes com ing in reflect concerns about how some consumers, particularly the vulnerable, have been treated for years – subjected, for example, to scaremongering cold calls, texts, and misleading marketing.

“We have definitely seen an increase in complaints to the FCA over the last couple of months over the cost of living and using scare tactics to try to get people to borrow money, not just for equity release but other high[-interest] loans,” Kelly Melville-Kelly, head of risk, policy, and compliance at the Equity Release Coun cil, told the Mortgage Business Expo at the Business Design Centre in Islington. “A big part of what we do is we set standards in the equity-release industry. So the consumer journey is of vital importance to us.”

Ryan Berry, owner of Cornerhouse Media, a finan cial lead-generation company, identified the need for greater consideration. “I feel that the marketing aspect, particularly on the lead-generation side, is the one bit that hasn’t been thought out all of the time,” Berry said. “I’m sick and tired of seeing ads that say homeowners over 55 are rushing to dot, dot, dot,” he said. “And [I hate] this idea of creating business through fear, through terrible advertising – online sites that purport to offer a calculator but really are just data collection that goes through to a broker.”

He added, “I would hope that the diversions of ads

start to fade out over time, but we need brokers to be on board with that as well. This is a very important topic for us because a lot of lead generation has acted as if treating customers fairly is not a concept, as if standard marketing practice is not a concept that we need to think about. Consumer duty finally codifies what marketing should be,

will

what a consumer journey

“It’s time to get our houses in order,” the Mortgage Business Expo in London hears, as the new consumer duty aims to ramp up protection for customers on the mortgage journey

“Consumer duty finally codifies what marketing should be, what a consumer journey should be, and therefore the duty that we need to put in place for customers and brokers alike”

– RYAN BERRY

Ryan Berry

should be, and therefore the duty that we need to put in place for customers and brokers alike.”

There was agreement from Dominik Lipniki, owner of Your Mortgage Decisions, a nationwide mortgage and protection brokerage, and of Access Equity Release, which offers specialist advice. He pointed out that it was a long-standing issue. “Going back 20 years,” Lipniki reflected, “we used to buy leads, and you know how murky that was sometimes – how hit-and-miss that was, and how much more difficult it was to do due diligence and to maintain those high standards. It’s a lot easier now, but you’ve got to just put those processes in place. I think it should be welcomed.”

The consumer duty undoubtedly means a significant shift for firms and, indeed, the team at the FCA. Some may view it as an extra pressure in already trying times, but the authority is clearly keen that it be viewed as an opportunity for a fairer basis for competition and the flexibility of an outcomes-based approach, aimed at driving growth and innovation.

It requires businesses to deliver good outcomes for retail customers consistently, in terms of products and services, price and value, consumer understanding, and support. Businesses must consider how they behave at every stage of the customer journey, and the needs, characteristics, and objectives of their customers. The regulation takes into account activities such as lead gen eration, by which potential customers are sought and identified for a business. Its processes and outcomes must be evidenced and documented.

Thomas Brett, head of mortgage & lending at Contact State, which aims to stop fraudulent data practices and set a new standard in consumer data exchange,

explained that the FCA will require businesses to have a consumer duty plan in place. Large firms will need it signed off by their boards; smaller firms will need to write it and sign off on it themselves. Brett pointed to a 100 per cent increase in homeowners searching online for their next mortgage, and referred to a survey of 5,000 people that suggested 73 per cent have had a negative cold-calling experience in the last 12 months, posing a risk for those doing things correctly.

“I’m a firm believer in lead generation as a force for good,” Brett said. “It gets so many customers the advice they need and deserve, and it’s a hugely important route to market for thousands of customers. It can help when you’re starting a business, to prop up your own marketing, but lots of established firms are also built on external lead generation – leaving it to the experts, as it were. However, this needs to be completed safely and be a fair customer journey that is signposted and signed off by the relevant people.” He added, “The biggest question you need to ask yourself is, ‘Will my marketing or external lead-generating partners pass the new consumer duty regulations?’”

From 31 July 2023, the duty will apply to all new products and services, and all existing products and services that remain on sale or open for renewal. The duty will then come into full force 12 months later, applying to all closed products and services. The FCA believes that boards and senior management have a critical role to play in overseeing firms’ implementa tion of the duty. Failure to comply may lead to FCA enforcement action, resulting in fines and associated damage to reputation, but it has indicated that it is committed to working closely with the industry during the implementation period and beyond to get it right.

Dominik Lipniki

Kelly Melville-Kelly

Thomas Brett

“I think it’s the biggest change we’ve had for quite a long time,” acknowledged Melville-Kelly. “And I think if you’ve underestimated what you need to do for it, you need to look at it again. It’s TCF [treating customers fairly] on steroids. It’s taking TCF, what we’ve had, and taking it that step farther. And it’s not just about doing the right thing at the right time. For me, it’s about doing the right thing all of the time. And I think that’s a significant change for people.”

Lipniki believed the change would have a big impact on marketing “in terms of advertising – how the leads are developed, where you purchase the leads from, taking that responsibility and making sure that the marketing is right and complies,” he stated. “Thinking about vulnerable clients, clearly thinking about the target group that you want to advertise to and get the leads for, and really taking that responsibility from start to finish – so, before you talk to them, but also post-sale and throughout the whole process, seeing it as one whole process rather than individual steps. I think it’s important that client journey be positive, well informed, ethical.”

He drew on his own professional experience. “I know my client services team,” he said. “The last thing they want to do is speak to a client who is not expecting the call, who’s been promised a rate they can’t get or a quote they can’t get, or one who’s been bullied

into applying. I think ultimately you know the sort of standards that you’d expect from your mortgage or equity-release adviser when they speak to a client, when they give advice. Well, it’s now time to do that from the start for those firms that haven’t. I’m sure there’s loads of brokers out there who will do the right thing and will do due diligence. Now it’s not just doing the due diligence, but it’s also monitoring it throughout to maintain that high standard.”

Berry believed that changes in practice were already becoming evident. “One thing that has changed a little bit is the transparency on the lead-buyer side,” he said. “So what we want to know is the entire process that they have – how the advisers work, typical sales techniques. We can echo that in our marketing as well. Whereas before, it might have typically been, ‘Hey, we want these leads for roughly this age and a certain volume per month,’ now it’s actually, ‘Let’s have a joint project here and work together more closely.’ And that can only be a positive.”

Melville-Kelly supported a move toward greater open ness within financial services. “I do think that there’ll be a lot more transparency, and I think that will drive activity,” she said. “The more people understand this market, the more, I think, it will kick away some of the misconceptions that people have had in the past. So that, to me, is a good thing. There’s always more that you can do in this industry. What the consumer duty also asks of us is, as well as doing all of this good stuff, is to make sure that we’re buying good, ethical leads and doing our due diligence. It’s about testing any of the marketing that we do, you know, so it’s not enough just to do it – you actually have to test it on a continuous basis, to make sure it’s hitting that right demographic, that people understand it, and that they’re making informed decisions. We have to make sure that customers continue to understand the product that they have at certain life points. So it’s not just about pre-point, it’s post-sale and beyond. There’s a lot for firms to take on board and a lot to put in place.”

The argument for consumer duty is that if the in dustry and its regulators get this right, everyone wins – from the consumers who receive the right products and services at a fair price to the firms that will retain loyal customers and, by good reputation, attract new ones. In turn, the FCA will need to step in less often, and the wider economy ultimately benefits. That, at least, is the theory.

Brett told the Mortgage Business Expo that regulat ed, online consumer journeys would become the norm in future. “The FCA has made it very clear that con sumer duty rules will be prevalent for the whole cus tomer journey,” he emphasised. “So it’s certainly time to get our houses in order when it comes to marketing. We don’t want everyone tarred with the same brush. By certifying data transfer, we can help eliminate these issues and make marketing and lead generation safer for buyer and customer – and profitable.”

“The biggest question you need to ask yourself is, ‘Will my marketing or external lead-generating partners pass the new consumer duty regulations?’”

– THOMAS BRETT

Keeping in touch

As the mortgage industry and its customers reel in the turbulence of the UK economy, Landbay’s Paul Brett tells Simon Meadows that communication with brokers is key

“It’s been a very challenging time for everyone,” declared Paul Brett, managing director of inter mediaries at buy-to let-lender Land Bay, referring to the recent tumultuous period for the British economy. “No one was immune to the shock – it didn’t matter if you were a lender, a broker, a borrower, or an applicant. The most important action we could take was to keep communicating with our broker partners.”

It was reported that more than 40 per cent of mortgage products were withdrawn across the industry in the week after former chancellor Kwasi Kwarteng’s controversial mini budget. Brett, who has been with Landbay’s fast-growing lending plat form for five years, acknowledged the pain that the Bank of England’s interest rate increases had caused for both the broker community and its clients. Landbay had actively worked to ensure it maintained a direct dialogue with them, he said.

“Across the mortgage industry, we have seen applicants who have been disappointed because they lost the rate they initially applied for, especially if their application was in the days preceding the mini budget,” Brett reflected. “We weren’t immune to this, and had to offer revised pricing to a relatively small number of cases that were at the very begin ning of their journeys.

“It’s incredibly disappointing for me to disappoint our brokers

and applicants. However, difficult decisions had to be made to ensure our funders were not significantly in the red.”

DIRECT CONTACT

Brett said he ensured that Landbay’s team spoke directly to brokers.

“As I mentioned, communication is key, and any difficult conversation was had either face to face or over the phone,” he said. “One of our brand behaviours states, ‘We never hide,’ and it was imperative that we not hide behind an email in this instance. Ultimately, it’s about trust. If brokers don’t trust us, then how will they ever promote our products?”

Brett said, “We make sure that our underwriters are also available to our brokers. Every case is different; that’s what keeps the specialist buy-to-let market interesting. Some applications can be quite complex, and that’s why you need experienced underwriters, who can actually look through and review cases, using all of their knowl edge and experience.”

He continued, “I am very mindful that there can be a level of anxiety and tension along the chain, in a purchase scenario especially. The applicant may have chosen the broker from among many, and, of course, the broker is well aware they have to deliver. I’m also very mindful that there are plenty of other lenders in the marketplace a broker could choose. So it’s important that, as a lender, we constantly remind

ourselves of this fact and work hard to keep on our A game.”

Some mortgage advisers were in regular contact with Landbay and there was already an established rapport, he said.

“It’s also important, I believe, that the brokers feel assured that there is an empathetic person dealing with their enquiries and case submissions through to completion,” said Brett. “There has never been a greater need for brokers and the detailed knowledge they provide, in my view.

Paul Brett

Any lenders who discount the need to engage with brokers ever more closely do so at their peril. However, this may not be true of all lenders, and factors such as lender size and market segment lead to differing levels of engagement.”

BROKER AND LENDER

What perhaps helps Brett take a more encompassing view of the mortgage sector is the fact that he’s seen the business from several perspectives. “I’ve been in the industry a long time,” he said. “I’ve been a broker, a packager-distributor, as well as a lender, and I recognise the massive importance of brokers. We’re in it together with them.”

Over the last few years, we have invested significantly in our own technology – we don’t use a thirdparty platform to process applica tions – and this has gone a long way in increasing the user experience for our broker partners. We will shortly be in a position to offer a streamlined retention product to our borrowers, as it’s clear across the industry that, in a world of turbulence, lenders work to keep existing borrowers on their books – in full collaboration with their brokers, of course.”

A PROFESSIONAL’S MARKET

Brett said it was his belief that, in future, the buy-to-let market will be geared toward professionals.

since the post-Second World War council-house building programme have governments met their new-build property targets. Too many housing ministers providing short-term strategies and tactics cause inconsistency and chaos over the longer term.”

Brett added, “Rental yields increase, and in some areas we’re already seeing an uptick of around 20 per cent over the last 12 months. There will inevitably be a period of adjustment before such increases permeate the country.

“It’s

to be a challenging year ahead for brokers, and they will absolutely need to keep a very close eye and ear on the financial press, and keep in regular contact with lender BDMs”

Over a career spanning thir ty-five years, Brett was part of the launch team and business develop ment director at Foundation Home Loan, as well as holding senior sales and marketing roles at lenders SPML, Borro, and Masthaven. He owned and ran mortgage packager FastCom, and set up the packager association Freehold.

Landbay has increased mort gage lending year-on-year since it launched in 2014, and is expected to complete more than 3,000 mortgages this year, valued at around £800m. In total it has lent £1.7bn across more than 7,600 loans. Today it employs 146 employees.

Brett described the culture of the London-based business that has been his focus since 2017.

“We look at Landbay internally as a ‘customer experience company,’” he said. “We’re incredibly inclusive.

“You’ll hear some commentators say buy-to-let is doomed, and then you hear other commentators say there’s never been a better time to invest,” he observed. “What I will say is that the market has been moving ever more to professional landlords, and these are the ones who will see opportunities to expand their portfolios.”

He said, “Landlords have been an easy target for governments looking to win political points, and it looks like they may be hit again with a potential increase in capital gains tax. However, professional landlords are a resilient bunch. They’ve expe rienced other challenges in terms of removal of tax benefits and they’ve adapted. We have to remember that we have a limited amount of property in the UK and there is still massive demand.

“Recently I heard a London letting agent say they receive between 40 and 60 applicants for each property [available to let]. If you’re going to take away rental property, what are you going to replace it with? Whether we like it or not, the ability of potential purchasers to save for a deposit to purchase a home has just got a lot more challenging, as if it weren’t tough enough in the first place. We need more landlords, not fewer of them. We all know that we need more homes to be built. Never

“Investors like property as an investment, and of course they can use leverage to get it. Buy-to-let isn’t for everyone; however, for some it’s more than an investment – it’s their business. It’s vital that we always have a strong supply of landlords, or potential landlords, who are wanting to purchase property as an invest ment to provide good-quality homes for tenants.”

A BETTER UNDERSTANDING

What would Brett advise brokers in the current economy?

“My advice would be not to panic and to communicate the reality of the situation we are in right now regularly to their clients,” he said. “Look at all options and actually get a real understanding of what the most important requirements are for their landlord applicants. Really understand the products and criteria that are on the market. If brokers take the time out of their week to upskill and get a more detailed understanding of criteria and lender idiosyncrasies, especially within the specialist lending market, it could enable them to help more poten tial-landlord borrowers, which, of course, will then help them grow their own businesses.

“It’s going to be a challenging year ahead for brokers, and they will absolutely need to keep a very close eye and ear on the financial press, and keep in regular contact with lender BDMs. The difference between now and the credit crunch

going

is that there wasn’t the money to lend back in 2008–09. Obviously, part of the reason why the Bank of England is putting interest rates up now is to try to take money out of the system. However, generally, financial institutions have money to lend, and still want and need to lend it … just at the right rates, so they may continue to operate within the constraints of their commercial and risk models.”

A FABULOUS ROLE

Brett clearly thrives on his work in the mortgage industry and little, it seems, could keep him away.

“There have been a couple of times when I’ve started other ventures, apart from borrowing, to actually move away from the industry – but I feel like it draws me back!”

His current role is one that he relishes. “It’s a fabulous role in that I’m very

privileged to see inside other people’s businesses. There are some incredible entrepreneurs and really creative busi nesspeople in the mortgage market. I’m a very curious person. I’m really, really fascinated by successful people – by good, strong leaders and what makes them tick, what drives them, and how they cope in adversity.

“It makes me feel quite humbled that I’m trusted by some very senior people

within the distribution and lender world. I visit brokers who are incredibly successful, generating a lot of income and employing many people. I also love helping to develop the careers of my team, and look forward to seeing their success in the industry.”

As his interview with Mortgage Introducer drew to a close, Brett said he had made some great friends within the industry.

“There are some incredible characters and some very, very kind, very generous people in the mort gage industry,” he reflected. “And I think that if you embrace the industry, the industry embraces you back. I’m at a very blessed stage in my career. It doesn’t feel like work. I feel like I’m helping other people.” He laughed. “I didn’t choose to come into the industry, I feel like the industry chose me – and I’m very pleased that it did.” M I

“There has never been a greater need for brokers and the detailed knowledge they provide, in my view. Any lenders who discount the need to engage with brokers ever more closely do so at their peril”

First-time nerves

Caught up in the recent anxiety surrounding the UK economy, first-time buyers have likely felt as stressed as anyone. Mortgage Introducer spoke with two brokers to get their takes on the current first-time buyers’ market

in value. Usually, if you hold a property for 10 years or more, you will most likely sell it for more than you bought it for, so my suggestion would be to buy as soon as you can afford to.

Richard Campo is founder of Rose Capital Partners, a London-based mortgage and protection brokers that set up in 2014, specialising in dealing with higher earners with more complex incomes.

“I bought my first place in 2007–a one-bedroom, ex-local authority flat in Battersea – just before the property market crash in 2008. To be fair, I probably could have bought sooner, but it was the early noughties and I did a lot of partying. I didn’t sell it until 2012, and by that time it had risen significantly

“As brokers we are here to educate people so that when it comes to deciding on a mortgage product, they will be fully informed and make the right decisions. Typically, our first-time buyer clients are usually early-to-mid-30s, and mostly they are couples, because it’s difficult to buy as a single person, as there aren’t many properties in London and the other areas we operate in for under half a million pounds. It’s tough to raise the finance, so you really need two incomes to make it work. This means that most people are buying later and buying bigger. It’s been quite a pronounced trend over the last few years – missing out that first step, saving up for longer, and buying a bit later.

“I find some younger people’s attitude to money unusually guarded, whereas in the past I definitely recall clients being more open with each other if they were buying together. I can tell you of

multiple occasions of couples who are buying together for the first time who don’t know what each other earns. You’ll share a home with someone, but you don’t know what their financial position is, which is not ideal when you’re looking at securing a mortgage together.

“Fortune favours the brave. Anyone buying with all these headwinds, political turmoil, and financial market instability, if they’re brave now, I think they’ll look back in five years and say, ‘Yes, that was a great idea’”

– RICHARD CAMPO

I would say that well before entering a broker’s office to discuss your lending options, couples buying together need to have an open and honest conversation about their finances first, so that everything is on the table – outstanding debts, loan commitments, income,

Richard Campo

outgoings, and so on.

“What I think is the really relevant point about house prices coming down that people are missing is that lenders are tightening up their criteria. We’re used to an ultra-low rate environment where clients are getting five, five and a half times’ their income. So, if banks will now only offer around four and a half times’ your income, that’s a 20 per cent drop, give or take. Even if house prices correct by 10 per cent and lenders tighten by 20 per cent, you’re frozen out of the market. That half-a-million-pound loan is now actually only £400,000, and you can’t afford what you wanted. I think this is a very real risk for firsttime buyers.

“Therefore I would strongly recommend that clients carry on with their buying plans, because the lending environment is only going to get tighter. The reality is that if the base rate is at four per cent or five per cent, you’ve already missed the boat, and this is a very difficult message to get across. Instinctively, why would you buy in a falling market? But I would respond by suggesting that it’s better to buy now or never at all because from 2024 onwards it’s only going to be more difficult. My worry is that there’s a real risk in the next year or two that first-time buyers who don’t move quickly could end up getting frozen out in totality. And, let’s face it, living with your parents is pretty naff, so buying and getting on the property ladder is the better option. I think any first-time buyers who don’t make their move now will regret not taking the opportunity when they could.

“I understand that there are worries about the risk of negative equity, but this chance is very slim, because if house prices do go down five or 10 per

cent and you’ve put down a 10 to 15 per cent deposit, you’re not going to fall into negative equity. And even if you do find that you fall into negative equity, chances are that the impact will be negligible, because if your house price has fallen and you need to move, then the price of your next house will have gone down, too. I also strongly believe that your home isn’t an investment. You can’t eat equity! So it doesn’t matter if house prices double or halve, because it’s your home and that’s what is most important.

“So what are the options for first-time buyers? Well, it’s about what can you afford and what your alternative is. In the buy-to-let market, we are seeing increasing numbers of landlords selling up, so there will be fewer rental properties available, which will push rents up higher. So if you simply sit and wait, and your rent goes through the roof, how on earth are you going to save a decent deposit to be able to buy?

“I think what would really help the situation for younger people who currently can’t afford to buy is if the government started building homes again and made these available to first-time buyers. The benefits are twofold. You get cheaper property coming onto the market, built to a good standard, so the government then alleviates the housing problem, plus you create a bunch of jobs in the interim. There’s no downside.

“My opinion is that fortune favours the brave. Anyone buying with all these headwinds, political turmoil, and financial market instability, if they’re brave now, I think they’ll look back in five years and say, ‘Yes, that was a great idea. I’m really glad that I did that.’ Prices are soft now as well, so buyers can always agree a deal, particularly if house prices come down five per cent next year as predicted.

“This a really great litmus test. Everyone thinks the market is expensive – but speak to your parents, speak to your grandparents. They’ll tell you that they were stretched to buy their first place and it was disgustingly expensive. Nothing ever changes.”

Tara Panayi is an executive mortgage broker with national brokerage Just Mortgages. Based in Cardiff, Panayi was named best broker for first-time buyers at the British Mortgage Awards in 2019 and 2022.

“My first property was with a housing association shared-equity scheme. I was 24 and a single parent, and that was my route to getting onto the property ladder. I then managed to pay off the housing association share after the five-year period.

“I was a mortgage adviser, and if I hadn’t been I wouldn’t understand a lot of the terminology that brokers use. It is really about breaking things down into layman’s terms for people to really understand and appreciate the entire process. And, also, making sure that they’re protected should the worst happen, looking at different insurance policies.

“About 70 per cent of my business is first-time buyers. It has been very

Tara Panayi

difficult. There is definitely a lot of uncertainty with my clients at the moment as to whether they should hold off to see what will happen in the new year.

“After the mini budget, we had a lot of people pulling out of properties, deciding that they didn’t want to go ahead because they were worried. I had at least 10 to 20 calls a day during that week from buyers worrying that lenders were pulling their mortgage offers, which wasn’t the case.

“I could have spoken to somebody four months ago, giving them an idea on what their payments would have been, and they’re around £200 pounds more a month now.

“I would never advise a client to go ahead or to hold off. It is more to do with their situations and what they’re comfortable with, and I need to be comfortable as well that they can actually afford it, especially with the increases in the cost of living.

“First-time buyers now may be more inclined to look at some tracker

and discounted rates, as opposed to fixing, which hasn’t really been on the cards for a long, long time. The difference in pricing is significant.

“What I’ve noticed more recently is that the loan-to-value doesn’t really have an impact anymore on the interest rate. So I could have a first-time buyer with a 10 per cent deposit and another client with 25 per cent deposit, and their interest rates will be very, very similar.

“For a first-time buyer, there really isn’t any need to panic. I think the panic is more understandable for people who are in an existing property and their interest rate is coming to an end and they’re seeing a real change in their payments.

“People don’t just want to live in a house, they want a home, and they want to have a life as well. So I think the budget planner, which every broker should complete, is imperative at the minute to make sure that they can feel comfortable that once those clients have moved in, they’re not going to have any issues in repaying

that mortgage.

“I would say for brokers not to panic, and to persevere and really just look at all opportunities for business. There’s peaks and troughs in this job – it’s never plain sailing – and you’ve just got to ride the wave.

“Lenders need to be looking at affordability and understanding that there are a lot of sole first-time buyers who cannot purchase a property at the moment. They need to be more innovative with their products and options available.

“I think next year will be pretty similar to this quarter. I do feel interest rates will stay the same, but things may start to settle toward the end of next year.

“I do spend a lot of time with my first-time buyers and try to handhold them through the process. Seeing clients on completion date, collecting their keys, it’s just a wonderful feeling – you know, getting people out of paying really, really high rent and owning their own property.

“A lot of my clients send me selfies outside of their new properties, and that feeling is lovely. It’s helping people achieve their goals. I think the majority of people want to own their own property, and it’s a huge step for anyone at any age. It’s nice to be a part of that life’s journey.”

“I would never advise a client to go ahead or to hold off. It’s more to do with their situations and what they’re comfortable with, and I need to be comfortable as well that they can actually afford it, especially with the increases in the cost of living”

– TARA PANAYI

WHITTLESEA MORTGAGES

A supportive role

Sam Whittlesea’s path into the mortgage industry was prob ably like that of few others. “I worked with disadvan taged young people and families,” he explained, “with youth offending teams and career services, in schools and pupil referral units. I’d always been on that advice or mentoring side of things, and then when we had the financial crash, funding for support for young people dried up massively.

“I’d always been interested in finance. I luckily knew someone who was chief executive of a growing financial services company down in the South West. And he said, ‘Well, the average age in this industry is about 60. We really need to get in some young blood; do you want to come and work for us?’“

A DIFFERENT CHALLENGE

Nearly twelve years on, his work is challenging, but in a different way. He is owner of Whittlesea Mortgages, based in Bridgewater in Somerset. The business has grown by recommenda tion, rather than a large advertising budget, and it continues to expand. Its offering includes advice on remortgages, buy-to-let, and interest-only and port folio mortgages.

“There is a huge market now,” Whittlesea said. “For consumers to have any idea what’s out there, or what choices they should make, it’s almost impossible, it’s so complex. Our average client, if there is such a thing, could equally be someone with fairly straightforward circumstances buying a house – nothing complicated – right through to someone with 20 proper ties, HMOs, the whole portfolio.

“I’ve never had anything that we’ve turned away from an adverse credit

history point of view. I know a lot of advisers aren’t keen on that sort of stuff, but, maybe because of my background, the more complicated stuff I find much more interesting and rewarding. Sometimes it just doesn’t work out and you’ve wasted days of research. But when you work them out, it’s brilliant, and the client really sees the value.”

PROTECTION IS VITAL

Whittlesea considers giving advice on financial protection products a vital part of his business, be it life insur ance, critical illness or serious illness cover, income protection, or private medical insurance.

“I’m an absolute evangelist for protection; it’s not just an add-on,” he emphasised. “I had a very sad case with clients whose daughter became very ill with a rare form of brain cancer. But I had arranged critical illness cover for the parents, including children’s cover. Sadly, their daughter died – but they could stop work and have enough money in the bank from that claim to allow them to give their daughter a lot of time and a lot of care.”

LENDERS NEED TO COMMUNICATE

In terms of issues facing the market currently, Whittlesea believes lenders should improve their communication.

“They need to be managing their notice periods better – for rate changes, product changes, criteria changes –but also be much more realistic with themselves about how much business they can take on, pricing themselves appropriately so that they’re not getting themselves in a pickle from a processing point of view,” he said. “Work with us.”

BROKERS ARE VALUABLE

Whittlesea remains upbeat, identifying an opportunity for brokers’ reputations to be reappraised.

“Advice firms have got a real opportunity to be professional – to be financial advisers rather than just brokers – and make a difference and see a change in that perception of mortgage advice. You’ve got to be really open to looking at the widest possible range of lenders.”

The uncertainty over recent months has been overwhelming for some. Whittlesea has known advisers to quit.

“If you’re struggling – either just with all the stress of everything that’s going on with mortgage rates and lenders pulling rates and everything else and the clients getting upset – or because you’re not an expert in a particular type of mortgage,” he reasoned, “ask the mort gage adviser down the road, take them for a coffee, have a chat with them. Use them as a support mechanism.”

He concluded, “I make sure I am active. I try to make sure I’m getting outside, whether that’s walking my dog, going out on my bike, seeing my daughter, going out for a meal, or just getting away from it all. It’s brilliant.

Before he became a mortgage adviser, Sam Whittlesea had a different job: supporting troubled youngsters. He’s still supportive –of his clients and other brokers, as he tells Simon Meadows

Sam Whittlesea

A woman’s work

hen I joined SoMo nearly seven years ago, there were six of us,” recalled sales director Jade Keval. “It was exciting; a small company that was growing. Now we’ve grown to 80-plus staff. We kitted out our new office in Altrincham, Greater Manchester, just before COVID, and nobody could come into it. We traded right the way through the pandemic, which was incredible for us as a lender.

“W

“I decided to continue coming in and because I’m a single mother, my son Jayden was in one of the boardrooms doing schoolwork, right the way through both lockdowns. One of the things that’s kept me at SoMo is the human element that we’ve got here. So many companies say that they’re a huge family, but we really are.”

Keval added, “Balance is a very big thing for us. We have meditation in the office, we’ve got counsellors if people want to go and speak to them. So it is quite a big thing, the culture within SoMo.”

This culture has clearly paid off for SoMo; an abbreviation of Social Money Ltd, it offers peer-to-peer bridging loans – short-term finance secured on UK property. Forty people work within the group’s bridging division, and, according to its own figures, as of August this year, 1,168 loans had been made, to a value of £237m. Its completion rates are 21 per cent higher than the industry average, it says.

GOOD AT NUMBERS

“I have been in financial services since I left school,” said Keval. “I was actually a shopkeeper’s daughter. My dad had a few Spar shops, and when they upgraded the till systems,

the old ones used to come home, and we had a little shop in the garage.

“I had my son when I was 18. I was sitting down thinking about what I was going to do with my life. The only thing that I was ever really good at was numbers and talking to people. I started off in the high street banks and absolutely loved it. The recession hit and I started as a case manager for a bridging company.”

She continued, “I hadn’t heard of bridging. It wasn’t a viable funding option for most people. Talking with solicitors, valuers, and clients and understanding deals just clicked with me. Structuring a deal, especially with bridging finance, wasn’t like working for

As sales director for SoMo, Jade Keval is thriving in a market where women were once few. If your mind’s focused, you can achieve your goal, she tells Mortgage Introducer

Jade Keval and son

a bank. It wasn’t a tick-box exercise. I quickly became a business development manager [BDM], and have been doing bridging ever since.”

When Keval started, it was still unusual for women to be working in bridging. “It was a bit of a boys’ club, and I think women had to work doubly hard,” she said. “Now if you look across the market, there are loads of really good female BDMs doing this job. If you can find yourself a great mentor, ask the right questions, and retain that knowledge, you can do well.”

When it was founded in 2014, SoMo was the UK’s first platform dedicated solely to secured bridging property loans.

“The reasons why people are borrowing money are so different,” Keval noted. “Of course, we’re in an unregulated field in terms of SoMo. We can look at deals on a deal-by-deal basis and look at the bigger picture. We can say yes a lot more, where the mainstream lenders would have to say no.”

A BUSY SECTOR

The specialist finance sector as a whole, and bridging in particular, continue to be busy, she said, with enquiries coming in from those who say they have been let down by other lenders. “Bridging really boomed through the last recession,” Keval pointed out. “Rates have increased, there’s no point denying it, but we’re still a viable option and we know how we can help clients.”

SoMo is eyeing further growth, including a timely new product to support clients facing insolvency. “There are certain scenarios where clients just want to buy themselves a bit more time to be able to gain control of things,” Keval explained.

Her positive attitude has clearly served her well in achieving her recent promotion.

“It’s a huge thing, to be sales director, at the age of 32, being female in this industry, as a single mother,” Keval said. “I like the fact that my son can look up to me and say, ‘Yes, she did all right.’ I’m a big believer that if you can get your mind right in terms of something that you want to do, then you can achieve it.” M I

“I was sitting down thinking about what I was going to do with my life. The only thing that I was ever really good at was numbers and talking to people. I started off in the high street banks and absolutely loved it”

Expected growth in the secured lending market

Tony Marshall CEO, Equifinance

Here we are in the middle of yet another monetary crisis, this time partially sponsored and created by our very own government. That is not meant to be a political statement, just a factual one – and, to be fair, it ignores wider interna tional issues.

At some stage you would have thought that the advisers to the thenprime minister and chancellor might have shouted louder regarding the negative effect that the mini budget could have on the markets and, there after, consumers – consumers who are already suffering from runaway inflation and increased interest rates, and therefore increased mortgage payments, or at the very least a reduc tion in products available to service their needs. We should be thankful that Ms Truss and Mr Kwarteng did not make it to a full budget!

Anyway, what might this mean to the second-charge mortgage market (assuming we ignore the effects of increased borrowing costs for lenders)? Well, if we assume markets and funding supply return to some form of normality, the opinion here is that the outcome might lead to the golden age of secondcharge lending.

Let’s think about that. Our average loan size is c. £40,000. Our products provide solutions to many consumer needs, but primarily that of restructuring consumer debt to a usually lower-cost product. This means a reduction in monthly debt commitments, which in turn frees up disposable income and enables

customers to honour their other essential commitments.

“Restructuring consumer debt” is an interesting phrase compared to the historical term “consolidation,” which in some quarters is considered a dirty word. Let’s consider this for a moment. Don’t nations, governments, and companies large and small sometimes restructure their debts for the greater good and for long-term financial gain – or, in some cases, survival? Of course they do. So why shouldn’t a consumer do likewise?

Of course, there are alternatives to secured loans for this need: remort gages, unsecured loans, debt manage ment plans, IVA, bankruptcy, or just burying one’s head in the sand! I shall ignore the last one, and for the purpose of this exercise will not comment on debt solutions and bankruptcy, given that these create longer-term issues that are not just financial. Definitely not for Christmas, these!

So, here we are – two alternative lending solutions to solve customers’

problems. Once, their monthly commitments were affordable, but have become stretched now that their other essential outgoings have increased by at least one-third due to inflation.

The unsecured solution is an honourable method. However, most consumers do not have access to the kind of products with features that would assist in this regard. Typically, the term offered would not provide an adequate solution, nor do most unsecured suppliers offer loans of an adequate size.

A remortgage in a low-rate envi ronment is potentially one of the best solutions; however, we are in different territory now. Most of our customers’ existing first-charge mortgages are fixed, mostly for a few years, and at incredibly low rates given where we have come from. This presents a dilemma. To consolidate unsecured debt of £40k, a customer would need to restructure not just their unsecured debt but also the larger first-charge debt. The outcome leads to restruc turing a large mortgage from a low rate to rates that are currently double or triple their former rates, along with the early replayment charges (ERCs) built into the first-charge.

It’s fair to say that, in a lot of cases, it’s wise to leave the first-charge undis turbed and consider alternatives. This is where a second-charge comes into its own; the extra portion of borrowing might be best dealt with in isolation from the first, and not just because of ERCs, which have historically been the argument for considering a secondcharge as an alternative.

A second-charge loan is a viable form of borrowing for the consumer, what ever the need, and should be a part of the holistic review of a customer’s needs. This is probably truer now than it has ever been. M I

Debt conversations needn’t be awkward with open banking

Matt Meecham chief digital officer, Evolution Money

Debt, even for borrowers with very little, can be an uncom fortable topic of discussion.

The perceived stigma around debt means some borrowers are reluctant to reveal the true extent of their loan or credit card borrowing, not only to friends and family but also their own mortgage adviser.

Either due to embarrassment or for fear it may harm their mortgage appli cation prospects, not all borrowers feel at ease disclosing their debt. Yet as the cost-of-living crisis continues, advisers are increasingly likely to encounter clients who find themselves in some form of unsecured debt.

The latest Money and Credit report from the Bank of England shows a colossal £0.7bn was borrowed on credit cards and other forms of consumer credit in September alone.

Open banking can help ease the process of disclosing debt for clients and advisers, however, and eliminate some of the awkwardness for those borrowers who may be hesitant to discuss it.

Through open banking, lenders and advisers can gain access to all of a borrower’s financial commitments, seeing exactly what and how much they are repaying each month.

As mortgage rates and bills rise, a borrower’s ability to meet first- or second-charge mortgage payments will increasingly be analysed. This makes it crucial that lenders and advisers have a clear and accurate financial profile of borrowers as early in the application process as possible.

A technology-led approach can better

identify not only a borrower’s existing debt, but also ways in which a lender or adviser can best help. While it may not always be immediately obvious to clients, disclosing all of their debts in full will prove beneficial in the long run –and, instead of closing doors to them, it may actually do the opposite.

Open banking not only identifies a borrower’s debt but also their repayment history, which could potentially show them in a better light when compared to a traditional credit score and afford ability assessment. The more insight advisers and lenders have into a client’s finances, the more we can help.

Clients looking to remortgage with their first-charge lender, for instance, and seeking to raise additional funds for home improvements, may find that due to their additional credit commitments, “computer says no.” Through open banking and a thorough examination of their finances, we may find a secondcharge is a viable option, either for debt consolidation purposes or by means of a home improvement loan – or both.

Consolidating debt may make it more affordable and manageable by reducing it to one payment to just one provider, as opposed to several.

The changing economic landscape means we are likely to see a greater reliance on specialist finance options to help borrowers who find themselves in temporary financial trouble.

A recent report from the Money Advice Trust found that, as of August 2022, a fifth of UK adults – 21 per cent – were behind on one or more household bills, a figure that has already grown from 15 per cent in March 2022 and is likely to increase further still.

Its findings also showed five per cent of UK adults were currently behind on their mortgage, up from two per cent in March – the equivalent of 2.5 million mortgage borrowers in arrears.

Plus, the study shows the self-employed are disproportionately affected by the cost-of-living crisis, compounded by the fact many will face rising costs not just in their personal finances, but their businesses, too.

Advice and making sure such borrowers are on the most competitive products is going to be vital in future – something that can be helped by the full insight into borrowers’ finances that open banking provides. While not all borrowers will benefit from the financial solutions available, for some, acting sooner rather than later and consolidating debt could help lessen any further damage.

The market is likely to see a pattern of rising unsecured arrears before these trickle through into mortgage arrears. Even in times of financial strain, borrowers are likely to prioritise larger payments such as their mortgages.

Open banking can help identify and pinpoint borrowers in the first stages of arrears who may not be aware they have options open to them and may not be forthcoming about their financial worries.

Technology and lenders who use open banking, such as Evolution, are going to be at the forefront of offering bespoke lending solutions to the growing number of borrowers who find themselves in a less-than-perfect financial position.

Open banking leaves no stone unturned when it comes to borrowers’ debt, leading to more informed and accurate lending decisions – something that borrowers need more than ever right now. M I

References: Money and Credit - September 2022 | Bank of England

Impossible_choices_Cost_of_Living_ briefing_Money_Advice_Trust.pdf (moneyadvicetrust.org)

A man with a vision

them out to the next cohort of students.”

He continued, “In 2002, when I was going into my second year at university, I bought –with the help of my dad – my first investment property. The housing market was really buoyant between 2003 and 2007, so I took advantage of the market conditions and grew an investment portfolio. I developed a real passion and love for all things property.”

SETTING UP IN BUSINESS

Following training in a graduate accountancy programme and eighteen months working for a brokerage, Ganatra set up Visionary Finance in 2008. Today it’s an independent, fee-free mortgage broker, based out of Milton Keynes and London, that last year completed around 830 mortgages and £161m of lending. This year, it anticipates slightly exceeding that. Its eight consultants have access to more than sixty different lenders, ranging from mainstream banks to specialist lenders.

“During my childhood, seeing the hardship my parents went through and the tough graft they put in to make ends meet meant I was determined to push and challenge myself to ensure that my destiny would be different,” said Hiten Ganatra, founder and managing director of Visionary Finance. “My parents came to this country with very little in 1976, from India, after the Idi Amin exodus from Africa, and worked as factory operatives. They worked tirelessly to buy their first home and then bought their first investment property in Leicester in the late ‘90s, when buy-to-let was only just starting to become popular. I recall spending my summer holidays helping my dad out, doing DIY, cleaning student digs, and bringing the properties up to standard to rent

“It was probably the worst time to set up a financial services business because of the credit crisis and the lack of available funding,” said Ganatra. “But I think the key driver for the success was my own experience of being a property investor as well as my sound understanding of numbers. Coupling these elements to provide excellent customer service meant I was on a sound footing to make the business a success. Your customers aren’t just the mortgage clients that you’re dealing with, but equally the introducers you deal with. Communication was a key factor. One thing that we’re really proud of saying to our clients is that regardless of how complex your circumstance, we will always find a lending solution for you.”

BUILDING MOMENTUM

An introduction to leading London developer Galliard Homes, which made Visionary

Hiten Ganatra turned an early passion for property into a successful business, Visionary Finance. He tells Simon Meadows that there’s always a solution to be found for his clients

Hiten Ganatra

Finance its sole mortgage adviser in 2015, and then to the Birmingham developer SevenCapital, which came on board in 2018, built momentum in the business.

“We specialise in the full spectrum of regulated and unregulated mortgages – shared ownership, remortgage, buy-to-let and portfolio landlords, and ex-pat and international clients as well,” Ganatra explained. “We offer specialist advice in every single area of these mortgage types, and because of this, our relationships with our introducers are very strong. I think that’s probably our biggest USP, and something we take real pride in.”

A CHALLENGING TIME

He was realistic about the challenges that the UK is currently facing.

“The specialist market has definitely been affected,” Ganatra stated. “You just need to take a look at the number of specialist lenders that have either completely withdrawn their product ranges or repriced to a level where the figures just don’t stack up. There are strong headwinds in the marketplace, and the fact that house prices are forecast to fall – there is a real sense of nervousness. And I believe that, with base rates expected to level out at around 4.5 per cent, there’s potentially a risk that transaction volumes could drop off a cliff. A slowdown in business activity and application numbers could result in many of these lenders struggling to sustain their business models.”

Ganatra added, “In my view, the dust will settle down probably in the next six months or so. I think we’ll have a clearer picture then of the medium-term outlook. My advice to brokers would be to stay positive, keep your knowledge up to date, educate your clients, and continue making sure that you remain informed about what’s going on around you, because your knowledge will be your biggest strength.

“If we as brokers, specialists within the sector, are finding it overwhelming to keep on top of how fast things are changing, then spare a thought for your average mortgage client who won’t have the frequency of exposure we do. The current climate is going to come as an absolute shock to them. So just keep in communication with your clients regularly, manage/reset client expectations, and provide context, because it’s through education that we will allow the sector to move forward. Remember, the base rate at 0.5 per cent should never have been seen to be the norm, despite it being at around this level for nearly 14 years.”

REMAIN OPEN-MINDED

Ganatra was pragmatic about the opportunities that could still be explored.

“Given that there are a lot of factors and circumstances that are beyond your control as mortgage experts, the important thing is to remain open-minded and agile, and adapt to situations,” he said. “Do not overlook the opportunities directly in front of you, particularly when you look at the number of mortgage renewals that are coming up in 2023. Take the time to review processes and bring about efficiencies where possible; revisit and maintain contact with old clients; speak to them about protection opportunities.”

He enthused, “You’ve got to be in a position where you can harness those opportunities and hold your nerve. What you can’t control, let it play out. Just do what you can do and get through to the other side, because it will be fine. It always has and it always will be.”

When asked what advice he would give to someone coming into the profession, Ganatra was very clear.

“Your client should mean everything to you,” he said. “There may be instances when you’re not able to provide the ideal solution. Provide them with the next-best option, and always look to manage their expectations.”

SWITCHING OFF FROM WORK

The managing director of Visionary Finance admitted it was hard to switch off from the business when he went home.

“It’s stressful because as a business owner you have got stresses from multiple directions that ultimately only you can navigate through,” he confided. “Although I have a strong management team, the buck stops with me. When you shut that office door, you’re constantly reflecting, planning, and strategizing, so it’s extremely difficult to switch off. It’s incredibly important to find time to switch off, and I find that playing/watching sports really helps me to unwind, particularly golf. I love spending time with my wife, kids, and our family dog, Simba.”

And finally, what was the biggest business lesson he had learnt?

“The biggest lesson in business that I have learnt is to be sincere and credible in all your conduct, whether it’s with lenders, clients, introducers, or staff members,” Ganatra said. “Your credibility and reputation will help build strong trust and confidence in others – no matter what your objectives may be.”

A squeezed market will see specialist lending shine

Richard Rowntree MD, mortgages, Paragon Bank

As we come to the end of another tumultuous year, it’s fitting that Collins Dictionary has deemed “permacrisis” to be the word of 2022. The term means an extended period of instability and insecurity, especially one resulting from a series of catastrophic events.

Permacrisis seems to have defined the first three years of this decade, and perhaps applies even as far back as the Brexit vote of 2016 – but as a mortgage industry, we have a proven ability to adapt, innovate, and survive. Buy-to-let, for example, has been written off many times in this period, as it had been going back to its formation in the mid-’90s.

The mini budget debacle and subsequent increase in interest rates prompted much media debate over whether buy-to-let remains viable as an investment option. Of course it does. Tenant demand is at record levels, and there remains a large and committed cohort of professional landlords who are keen to expand their portfolios.

However, I believe the events of 2022 – including an increase in mortgage rates – will accelerate the move toward professional landlords that we have seen in more recent years, with more smaller-scale landlords leaving the sector.

Research carried out on behalf of Paragon revealed that landlords’ confidence in the UK’s financial market and their own lettings business is at the lowest level

since the height of the COVID-19 pandemic. This is particularly true amongst smaller-scale landlords.

When asked how they felt about the prospects for various aspects of letting, positivity was substantially less prominent amongst those with a single rental property than those with 11 or more.

With income naturally lower due to fewer tenancies, smaller-scale landlords are less-well insulated from any economic shocks caused by voids and arrears. Add to this their higher propensity to have another form of employment – 70 per cent of landlords with 20 or more properties say that they make a profitable fulltime living from letting, whereas 69 per cent of those with a single property state that letting supports their day job – and it seems logical that smaller-scale landlords are more likely to exit the sector in the face of an increasingly trying economic and regulatory landscape.

Although limited data exists to confirm this notion, we do see that landlords with 20 or more properties are almost twice as likely to have bought than sold property within the last three months, whereas those with three or fewer properties are more likely to have divested than invested.

A shift in the types of property demanded by tenants may also be shaping the professional/amateur landlord split.

Demand for semi-detached and detached homes climbed over the past year as the pandemic led to a desire for more space for home working and gardens, while smaller flats and shared living options fell out of favour.

Now these trends appear to be reversing as the draw of city living has returned and the cost-of-living crisis means that the more affordable

HMOs and flats are being favoured over more spacious options.

While benefitting from higher yield-generation potential, these types of properties are often considered the reserve of more experienced landlords because they can require more time and money to operate, as well as being subject to additional legislation in the case of HMOs.

So, if the combination of what tenants want, regulatory requirements, and the economic environment creates a competitive advantage for those landlords with larger portfolios and points to a further professionalisation of the private rented sector (PRS), what does this mean for the industry?

While I’m sure brokers and lenders who operate in the vanilla space will still see lots of business, particularly when some stability returns to enable them to offer the competitive rates that typify this type of lending, I think the call for complex lending will grow, with more experienced landlords better placed to thrive in today’s market.

More broadly, what does this likely shift mean for the PRS? We are seeing supply reaching breaking points in certain parts of the market. Images of students queuing around the block to secure a property for the next academic year are a sign of a dysfunctional market. Meanwhile, work by Zoopla shows that tenants receiving housing benefit can only afford seven per cent of two-bedroom and six per cent of three-bedroom rental homes today.

We believe that every tenant has the right to a good-quality, affordable home if they choose or need to rent. That requires more investment in the sector from landlords both large and small.

BTL market remains robust, with increased tenant demand

Grant Hendry director of sales, Foundation Home Loans

The lending curveball on the back of the mini budget, subsequent changes, and swap rate volatility have certainly sent a few shockwaves through areas of the mortgage market.

In order to help the UK population make some sense of this turbulence, an array of broker voices have risen to the fore across our TV screens, radios, in the national press, and on social media. The professionalism and expertise on show throughout these uncertain times have been admirable, and I’m sure they have helped huge numbers of people to get a better grasp of the current and potential impact.

With so many variables still in place, and the speed at which high-level

decisions are being made, all of which could affect the housing and mortgage market, it’s difficult to look too far ahead. However, when it comes to the BTL sector, what we can do is reaffirm its robust nature and highlight the solid foundations that were firmly in place before additional economic pressure was brought to bear.

We can use the latest BVA BDRC Landlord Panel research for Q3 2022 to do just that, as this always offers some pertinent insight into performance, sentiment, and outlying trends across the BTL marketplace.

So let’s focus on some of the more uplifting aspects of this research at a time when we all need that extra little bit of market positivity.

RENTAL YIELD

After a dip in Q1, the average achieved rental yield was reported to have edged up for the second consecutive quarter to 5.8 per cent. Breaking this down, landlords with multi-unit blocks of flats achieved the highest rental yields in Q3, at an average of 6.3 per cent. HMOs also achieved a higher-than-average yield of 6.2 per cent. Linked to this, students and migrant workers provided the strongest average yields of any tenant types, at 6.7 per cent.

REGIONAL RENTS

On a regional basis, landlords operating in the West Midlands, North East, Yorks and the Humber, the Northwest, and East Midlands attained the highest rental yields in Q3, all generating average yields in excess of six per cent for this quarter, higher than landlords in general. Landlords operating in outer and central London continued to generate the lowest average yields (c. five per cent) due to higher

property prices. It also remained the case that over one in four landlords didn’t know their rental yield or were unsure how to calculate it (29 per cent).

TENANT DEMAND

Turning our attention to tenant demand, the proportion of landlords reporting increased tenant demand rose in Q3, with 65 per cent of landlords reporting an uptick, while only one per cent said they had seen tenant demand decrease to any extent. Larger portfolio landlords (11+ properties) continued to be much more optimistic, with 79 per cent reporting increasing demand.

Regionally, landlords operating in the South West of England reported an increase in tenant demand, with 88 per cent saying it had risen over the last three months (v 82 per cent in Q2 ‘22). Yorkshire and the Humber became the region with the lowest proportion of landlords seeing increasing demand (74 per cent).

In order to support landlord clients in achieving strong yields and capitalising on growing levels of tenant demand, intermediary partners need to be fully aware of the current options on offer. Granted, this hasn’t been easy in recent weeks, but many lenders do remain active and are willing to lend.

Here at Foundation Home Loans, we continue to offer a full range, with products in each tier for residential and buy-to-let, as well as in each of our buy-to-let specialist areas – HMO, MUB, short-term let, and green. And it’s fair to say that specialist lenders will play a key role in helping intermediaries and landlords to access the kind of solutions they need now, and will need in the future.

Where are you spending Christmas?

Jean Errington business development manager, Harpenden Building Society

The opportunity for brokers to expand business in the UK holiday-let space has never been stronger. Here are some of my recent observations.

Holiday-let rentals are less and less limited to the traditional summer months. Taking a break over Christmas, for instance, or throughout the winter months, is very much in vogue. With increasing numbers heading off for a Christmas holiday or low-season staycation, demand for self-catering holiday accommodation is booming, giving holiday-let investors the opportunity for year-’round income.

HOLIDAY-LET BOOKINGS UP

Sykes Holiday Cottages say Brits have been signing up in large numbers for UK-based getaways. Notably, there has been a year-on-year increase in bookings over Christmas and New Year as holidaymakers look to close out the year with a festive getaway. Bookings made for Christmas and New Year 2022 are up 15 per cent compared to the same period in 2021.

POPULAR HOLIDAY

COTTAGE LOCATIONS

The top 10 most popular regions for autumn and winter 2022 breaks, according to Sykes, are North Wales; Cornwall; Cumbria and the Lake District; North York Moors; Devon; Yorkshire Dales; Peak District; East Anglia; Heart of England; and Northumberland. These findings concur with the holiday-let hotspots most popular with our brokers’

customers investing in the sector.

As well as holiday lets making a great option for families from the same household, they are a consideration for families spread around the country travelling to meet somewhere in the middle, adding to their popularity.

The top-ranked holiday cottage locations for families travelling from different locations and meeting part way over Christmas 2022 are Cumbria and the Lake District; North Wales; North York Moors; Peak District; and the Yorkshire Dales. Unlike a stay at a hotel over Christmas, families can host their own festivities and spend time with each other in their own way.

As a long-standing provider of holiday-let mortgages, the Harpenden team sees sector trends and what new opportunities are emerging for brokers. Increasing, year-’round short-term rental opportunities make a holiday let an attractive investment opportunity for brokers’ customers.

A SPECIALIST LENDERS’ APPROACH

We recommend that any would-be holiday-let owners consider a specialist lender to finance their purchase – a lender with expertise in and best suited to dealing with the unique aspects of buying a holiday let.

In our experience, holiday-let purchases are often made by customers with multiple forms of income from a range of financial sources. Mortgage applications assessed by a mainstream lender can’t always accommodate customers with complex incomes. 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, like

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; with in-depth scrutiny from manual underwriting, a complex holiday-let mortgage application can often proceed.

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. As such, a Christmas getaway for a holiday-let owner can be a real option. We accept Airbnb rentals; personal income can be used if required to support the loan (top-slicing); up to three properties on one title will be considered, as are properties above commercial premises; and we offer 75 per cent LTV available on IO and 80 per cent available on repayment.

Our experience in this sector, and the refined criteria developed as a result, provide additional safeguards benefitting all those involved in the purchasing process – lender, broker, and customer. We use rental income projections when considering applications, as well as taking a holistic view of a customer’s financial circumstances.

NEW OPPORTUNITIES

The future of UK holiday lets looks strong year-round. With 13 per cent of Brits planning to take an overnight break in the UK over Christmas and New Year in 2022, holiday-let owners have added opportunity to make good returns from their investments.

With the current holiday-let market providing opportunities for both brokers and their investor customers, a specialist lender is uniquely placed to assist and make that opportunity happen.

Mike Walters Sales Director -