Advice review

How education will help you in the cost-of-living crisis

Gordon Reid

business and development manager, The London Institute of Banking and Finance

As the old saying goes, knowledge is power. Acquiring knowledge and education will give you the power to make the right decisions and take the right actions.

And in my view, while you’re there to advise your customers about their mortgage needs and help them make the right decisions, you’re also there to educate them.

DEVELOPING YOUR KNOWLEDGE

So, as a mortgage adviser, how does being educated help you? Why should you continue to develop your knowledge, when you’re already a skilled and fully qualified adviser?

Well, for a start, things change. And, unless you’ve been a mortgage adviser for over 30 years, you’re unlikely to have seen an economic environment similar to today’s. Even if you have been in the sector that long, there are significant differences between now and the last bout of high inflation.

A key part of your education is actually understanding what’s going on in the economy. The context this provides is an essential component in the toolkit of any mortgage or financial adviser. No, it won’t necessarily tell you what’s going to happen next. But it should help you understand the implications of different scenarios. In turn, this will help you educate your customers about the possible benefits and risks of different options, and how these might be affected by future changes.

It’s also worth understanding what’s happened in the past. As I’ve said, there are significant differences between today’s economic downturn and previous ones. However, there are still lessons to be learnt from 30 years ago. One example that can be applied to both mortgage advisers and your customers is the importance of minimising unnecessary expenditure.

From an adviser perspective, other important lessons from previous economic crises include:  diversifying your business model  investing in your business at the same time as reducing expenses  taking short-term measures for long-term gain  embracing changes – seeing them as an opportunity, not a threat

PERSONAL DEVELOPMENT AND SOFT SKILLS

In the current climate, education may also increase your ability to empathise with others and to understand the world from another person’s perspective. If you know what’s worrying your clients and why, you’re in a far better position to investigate, and possibly alleviate, those concerns.

Education may also change your attitude to risk. By broadening your understanding of risk and becoming better at communicating and explaining risk to your customers, you will be educating them – again enabling them to make more informed choices.

Of course, education isn’t purely about developing your skills and knowledge. It’s just as important to learn how you work most effectively so that you can always present the best version of yourself to your employers and your customers.

Confidence and resilience are key to surviving any form of crisis, and you can increase both of those by understanding the following:  what’s happening around you –

and why  how these changes affect you and others  what the potential risks are – and how to manage or mitigate these  how you work at your best

Education will help you retain control and plan the best way forward for you and your customers.

Choose your CPD carefully to develop the skills and knowledge you need. Why not undertake an advanced mortgage qualification, such as the CeMAP diploma? This will help you better understand the financial impact of global and personal changes on your mortgage customers.

HELPING CUSTOMERS BECOME FINANCIALLY CAPABLE

So far, I’ve focused primarily on the benefits of education, either directly to you as a mortgage adviser or to your customers as a result of your advice.

However, your customers and their financial health will also benefit hugely if they understand, and can adopt, a financially educated approach to managing money.

With financial education, your customers will:  be able to make better-informed decisions  be less likely to fall into debt  know when to seek help or advice and from whom  understand and actively manage risks  have better overall control of their finances

You have a responsibility to educate your customers about their mortgage and associated financial products. If you can also provide them with a thirst for further knowledge, you could have a greater impact by encouraging them to thrive in challenging economic times. M I

Agility has never been more important

Grant Hendry

director of sales, Foundation Home Loans

People enter self-employment for many different reasons, at different times in their lives and with different motivations. This includes a variety of occupations, roles, and income-generating opportunities. Experiences also tend to vary from person to person, and this is often reflected from a borrowing standpoint, as financial situations tend to be quite fluid.

For many, this was especially evident over the course of a pandemic that hit a number of industries hard, with the repercussions still being felt by the self-employed community as income and profit reductions suffered over the last two years are still proving highly persistent for some.

This was the finding of the fifth, and latest, LSE-CEP survey, entitled COVID-19 and the self-employed – A two-year update. The survey also found an ongoing impact on the number of self-employed people. While in the last two years the number of employees working in the UK has grown above pre-pandemic levels, self-employment has not recovered to pre-2020 levels.

However, it’s certainly not all doom and gloom. Many self-employed people have not only survived but have thrived over this period, although there still appears to be a little disconnect over how they view the mortgage market.

As such, it’s important to outline how lenders and intermediaries can work together to help, not hinder, the self-employed. With that in mind, let’s outline some ways in which a specialist lender can support self-employed borrowers in achieving their mortgage and property-related aspirations.

HIGHER LOAN-TO-VALUE LENDING

This is pretty self-explanatory. Despite some lenders capping their LTV limits during the pandemic, deals up to 90 per cent LTV do remain.

THE INCLUSION OF GRANTS AND BOUNCE-BACK LOANS

Grants and bounce-back loans were all prevalent over the course of the pandemic, and many specialist lenders are using the flexibility attached to a manual underwriting approach to support those self-employed borrowers who were affected during this period.

BUSINESS RECOVERY

Some businesses’ profits have been hit over the pandemic, which could, historically, have affected potential borrowing limits. More lenders are now taking a more pragmatic approach by accepting one year’s accounts and a verified accountant’s projection for the following year.

YEAR-ONE TRADING

Businesses set up toward the latter end of the pandemic may still be in their earliest form, but highly profitable. A few lenders will consider using net profit plus salary or salary plus dividends in this scenario, together with a verified projection from an accountant.

MAXIMUM AGE OF 75 AT END OF TERM FOR NON-MANUAL ROLES

It isn’t uncommon for some business owners to be in more of an admin/ managerial role as their business becomes better established. If they are in non-manual labour roles (for example, have staff working for them), lenders may consider taking the mortgage term to age 75, with no proof of pension needing to be evidenced.

NEW DIRECTORS NOT YET WITH A FULL SET OF BOOKS

In the past, advisers may have come across customers who had been made partners in firms by which they were previously employed, and wondered where to place the case, as they didn’t yet have a full set of books with those customers as directors. Some specialist lenders can work on the previous year’s salary as income and write to a firm’s accountant to verify income in their new role.

GENEROUS CONSIDERATION OF INCOME FOR SELF-EMPLOYED CONTRACTORS

Over the past year or two there has been a significant increase in contractors since the changes to IR35. Many specialist lenders have also shifted criteria requirements and may now even consider borrowers who have been contracted less than a year, if they have relevant industry experience.

ADDITIONAL PROVISION FOR CIS CONTRACTORS

When speaking to self-employed persons who work in the building trade, advisers need to make sure they establish whether these people are self-employed, or are CIS contractors. CIS contractors can be assessed in different ways. They may have more borrowing power by using the last three months’ gross pay rather than using the last year’s net-profit figure.

USE OF ‘SALE OF PROPERTY’ AS THE REPAYMENT VEHICLE

Some customers prefer interest-only mortgages and would like to use sale of mortgaged property as their repayment vehicle. Again, this is something many specialist lenders can assist with.

This is not an exhaustive list, but does hopefully offer insight into some criteria-related solutions that can meet a range of self-employed needs. M I