Specialist Finance Introducer Notes on buy-to-let, later-life lending, and FIBA

What does ‘green’ mean?

Steve Cox

chief commercial officer, Fleet Mortgages

The nature of publication means articles like this one are required well in advance of the time when they’ll actually be read. I could pretend to you that it’s currently early September and suggest, “What a summer it’s been!” but the truth of the matter is that, as I write, it’s still summer, and we’ve just had record-breaking temperatures that brought a lot of this country to a standstill.

To say that the infrastructure and, indeed, the vast majority of UK housing stock are not built for heat in excess of 40°C would be an understatement, and while there are always going to be a few lunatic-fringe climate-change deniers suggesting these are merely a couple of hot days in a row, I’m sure it’s obvious to most that what we have experienced this year is much more significant than that.

That being the case, it does bring into stark focus the need for change in terms of the new-build housing stock we create and how it must meet the requirements of more extreme weather. Of course, I’m not just talking about high temperatures in summer, but big shifts during other seasons – a greater risk of flooding, for example, or a greater chance of storms.

UK weather is historically changeable, but we must anticipate that what we’re likely to see in the future is a greater degree of flux in our weather patterns, and this must be incorporated into housing policy.

As a start, I would say that the green agenda being pursued by our policymakers is morally and ethically right. It makes perfect sense to target housing, given it is one of the biggest polluters in terms of carbon output, and I think we would all agree that making our housing stock more energy-efficient – particularly given the cost of energy right now – is absolutely correct.

However (and I guess you could sense a ‘but’ coming here), we also have to acknowledge some truisms about the UK’s housing stock, and indeed ask the question of whether the methods we are using to secure, for example, net zero by 2050 are really going to be successful given the nature of the housing we have. For example, as I think we will all be aware, currently the government is using the energy performance certificate (EPC) as its method of choice in securing change within housing. We’ve yet to hear the final rules, but the private rented sector is effectively being used as a guinea pig for securing the initial energy efficiency gains the government wants to see. We’re all led to believe that by 2025, new tenancies will only be allowed within properties that have hit at least EPC level C, with existing tenancies given a couple of years’ grace. For a country that has a vast amount of Victorian-era housing stock, this could be a significant challenge – but the fundamental question here is whether the EPC is even the right tool to hit the outlined targets. The EPC doesn’t actually show how much carbon a specific property is emitting. But there is the argument that the government has no other method by which to gauge improvement and change in this area – so what else can it do? We’re pretty much stuck with the EPC as a method of green determination, which means we’re going to have a crude analysis that may well deliver crude solutions in terms of what property owners need to do to improve

their EPC levels. This is why we have a lot of focus on heat pumps and the like, effectively meaning that, for example, landlords may have to shell out a considerable amount of money to move up the EPC grades. Let’s also be honest here and say that, as lenders, we’ve not exactly covered ourselves in glory in terms of trying to support these owners and help them get their properties up to the necessary standards. Granted, we still don’t know officially what those might be.

So-called green mortgages, as currently offered, don’t really fit the bill. They seem to be nothing more than a margin giveaway, a 10-basispoint or so price reduction rewarding those whose homes are already at EPC level C or above – and the cynic in me might suggest this is

more about lenders getting these properties onto their back books than about supporting improvement in housing stock. But lenders are doing this because the government is also putting pressure on them to show improvement in this area. It wants lenders to have more energy-efficient properties on their books. This is supposed to be a ‘stick’ approach to improving EPC ratings across the board, but it doesn’t really work if all lenders do is cherry-pick their loans against those properties already at the required levels. And that is really the heart of the problem, because – and I suspect here Fleet is no different from other lenders – we see only about 30 per cent of properties, whether purchase or remortgage, at EPC levels of C September 2022 Mortgage Introducer Advert_The Right DA Club.pdf 1 24/08/2022 10:09:42 pm or above. It means that a significant number of properties will need work carried out – and the next big question is, How do you fund that? And that’s where advisers will play a crucial role, because one point to understand here is that when it comes to securing a further advance on the buy-to-let mortgage, those lenders that are funded by the capital markets won’t be able to provide this. It’s not that they don’t want to, but the mechanics of securitisation won’t allow it.

This means advisers will need to know who will provide a further advance, who can’t, and what other avenues might be available to landlord borrowers who want to carry out the works required to up their EPC level but need finance in order to be able to do so. M I

DA DA

Do you understand your full responsibilities as a directly authorised firm?

We can help.

SCAN ME Abigail Carr Operations Manager

Get in touch with The Right DA Club today

Scan the QR code to find out more, or give us a call on 01564 732 748

Self-build – we want to say yes!

Emily Smith

head of intermediary sales & distribution, Harpenden Building Society

Self-build properties come in all shapes, sizes, and specs, and as such are becoming an important contributor to the property market. According to the National Custom and Self Build Association, nearly a third of GB adults (32 per cent) are interested in designing and building their own home. The ability to create the perfect property, avoid compromise, and include a long list of bespoke requirements has made self-build an increasingly popular option, and is giving mortgage brokers a strong opportunity for business development.

Various factors are creating this self-build interest, including the government’s Right to Buy initiative; working from home providing flexibility on location; and an increasing desire to create a dream home to the exact specifications of the owner, as many are spending more time living, working, and entertaining at home.

Self-builders also have a blank canvas allowing them the opportunity to include, for example, the latest green features in construction, so important to customers today. These factors combined are making self-build an attractive proposition with strong uptake.

FINANCING

Alongside growth in incorporating modern construction methods is the increasing diversity in financing requirements, including a trend toward later-life lending for these projects. As this trend continues, Harpenden, as an experienced selfbuild lender, is seeing repayments come from multiple sources. Income from assets and pensions is commonplace, and more contractors and self-employed people are looking to build their ideal home. We are able to consider income, savings, and investments from various sources (UK-based and in sterling).

There is also a desire for more flexibility over how and when funds are released. Our policy is to release funds on a timescale agreed with the broker and the customer. We know from observing the market that a prescriptive process for release simply doesn’t work, and flexibility is not only desired but is now a requirement. Without it, the build comes under increasing pressure. If the solution is fluid and there is strong dialogue, then all parties can move efficiently to completion.

PARTNERING WITH A SPECIALIST LENDER

As a long-established lender in this sector, we have observed that selfbuilders are becoming increasingly perceptive when it comes to financing. They don’t just want a mortgage deal based on price; they are also looking for a product that meets their exact financing needs, and an expert lender to guide them through what is a complex financing situation. As such, it’s important for those looking for a self-build mortgage to partner with a lender that who can best accommodate these requirements and provide them with the best mortgage product for their needs. Here are some key features relating to Harpenden’s self-build products, providing a benchmark for when you are considering future opportunities with your customers.

Key self-build features:  loans available up to £2m  LTVs up to 65 per cent considered, with 75 per cent available in the South East.  knock-downs, rebuilds and refurbishments considered  no ERCs  flexible construction types (valuer-comments dependent)  flexible stage releases  product available direct  complex incomes considered  up to a maximum of three properties being built on one title, for which one must be the subsequent main residence  no maximum age

WE WANT TO SAY YES

Every time we say yes to a mortgage application it’s a great feeling for us as the lender, for the broker, and of course, for the customer. In the case of a selfbuild applications, it’s even more satisfying. We understand what’s at stake for the customer – not only the financial commitment, but also the emotional energy that’s expended when building a very special, personalised dream home.

One recent application typically illustrates the complex self-build cases we deal with on a regular basis. The main feature of this case was that the applicant was looking to convert a multi-use three-storey building. The ground floor was an office, with two residential flats above. The objective was to convert this three-storey building into one property. With the complex nature of this case, finding a lender proved difficult for the broker. We used our flexible, pragmatic, and sensible approach to assess and understand the application. After going through the necessary checks and processes, we were able to say yes – and there’s no better feeling. For every mortgage application we receive – whether its self-build, residential owner-occupied, lending in and into retirement, or development mortgages – we get great satisfaction from getting the deal done for our brokers’ customers.

If you have a self-build application, go to an expert in this sector. By partnering with a specialist lender, customers can save both time and money – and we want to say yes. M I

Expand the later-life lending lens

Stuart Wilson

CEO, Air Group

Whatever happens to you in life, and even if you don’t have kids or they have long since flown the nest, September is always going to feel a little bit like the start of a new school year.

Whether or not you have spent the last couple of weeks getting your kids ready to begin the next year of their academic life, this month feels like we’re embarking on a new beginning, even if it’s just the beginning of the road to the end of 2022.

Within the later-life lending market, the seasonal fluctuations that have historically affected the wider residential market might not be there, but I have certainly noticed in recent years just how different the sector can feel between mid-July through August, as people take their summer holidays and/or sit in a six-hour queue at Dover or Folkestone. But summer is over – sort of – and we can perhaps begin to embrace the mortgage market equivalent of new school shoes, itchy uniforms, and the smell of a fresh pencil case equipped with all kinds of things that are either not required or will be broken within days. So what does that mean for the later-life lending sector? Well, in a sense, the answer is baked into the question. For example, if this market has been simply about equity release options for you as an adviser, then there is no doubting that a broadening of perspective is required – and, if I’m honest, slightly overdue. The ‘new’ is all about later-life lending and not just focusing on equity release. To help you make that shift, perhaps have a quick look at what the differences between the two actually mean in terms of business levels and, ultimately, access to increasing demand. Just recently, UK Finance issued its later-life lending figures for 2021 – that is, the amount of borrowing taken out by the over-55 customer class during the last full calendar year. Now, of course, I will be the first to admit that a lot of water has flown under the bridge since then, and we are in a very different economic situation from last year. However, the fundamentals are not likely to have shifted too much, and these figures should be illuminating for those very reasons and what they represent. Last year, there were over 187k new mortgages completed by over-55 borrowers, and the total lending for the period was a significant £28.1bn. And while lifetime mortgages will be a good part of that lending, accounting for about £5bn, it will not take a maths genius to work out that the bulk of lending could be described as other – notably homeowner purchase and remortgage, and buy-to-let purchase and remortgage.

Putting the latter to the side, that £28.1bn of lending was up 22 per cent on the year previously, and the anticipation is that although 2021 was a very different year – due to the stamp duty holiday, primarily – the main drivers of this market have not changed. Indeed, you might well argue, that they have become even more ingrained. So we can see that the main use of funds being released via remortgaging, lifetime mortgages, RIO and the like by the over-55s was to fund home improvement, or to buy second homes, or to help children and grandchildren, especially when it came to funding deposits to help them buy homes. There are, of course, many other reasons for looking at a home’s equity and what might be done with it, especially in 2022. We have had a significant increase in the cost of living – especially difficult for those on fixed incomes to meet; as well, many people do not have the pension income to satisfy their retirement lives, or they need money to fund long-term care, or they want to pay off costlier debts, or they want to use it to enjoy their later life. These are all reasons that are not going away. The younger generation’s demand to buy their own homes is not going to change, but we have limited supply, and high house prices mean high deposit levels. At the same time, we have high rents taking up a big percentage of takehome pay, and wages have not increased by anywhere near the levels we’ve seen house prices go up.

Essentially, over the past couple of years, many over-55s will have benefited from increased property prices, and for all manner of reasons, they may have the need to use their equity; as well, there is a growing sense that taking mortgage debt into later life is not the perceived no-no of yesteryear. Homes are assets to be used – and as I’ve said many times before, why be a victim of fuel poverty when you’re sat in a property worth hundreds of thousands of pounds? The important point for advisers to grasp here is around the acknowledgement of later-life lending in the round, with all the options outlined above, and also around an acceptance that you should be fishing in a much bigger customer pool than that which currently houses only potential equityrelease clients. Of course, this part of our market is growing and is likely to continue to do so in the years ahead, but simply looking at the equity-release silo means you are missing out on some significant business that will be suitable for other solutions, whether RIOs or mainstream mortgages – or, indeed, those later in life looking at their property investment portfolios. In a true sense, you are not looking after equity release clients; you are looking after clients in later life, and that means looking at all their needs, whether equity release or otherwise. Why not take the time to school yourself on meeting the many and varied needs of this demographic? I can guarantee you will broaden not just your horizons, but also your business and income. MI

The remortgage rush: key considerations for brokers

Reece Beddall

sales and marketing director, Bluestone Mortgages

As interest rates rise, and the cost-of-living crisis continues to take its toll, the mortgage market is set to see a surge in remortgage activity. The Bank of England recently put interest rates up by 0.5 per cent to 1.75 per cent, the highest rate rise in over 25 years. This, combined with soaring inflation and energy prices, means many consumers are feeling the pinch and are turning to personal loans and credit cards to provide for their families. As such, we can expect to see remortgage activity ramp up in the coming months as borrowers seek to raise capital to consolidate unsecured debt or simply lock in low rates while they last. This rush to lock in interest rates for remortgage is putting extra demand on the industry to deliver solutions tailored to customers’ needs. So what do brokers need to consider when helping customers who are looking to remortgage?

PROACTIVITY IS KEY

As an industry, we must ensure we are able to provide customers with information as quickly as possible. During uncertain times like these, customers do not have the time to wait around for answers, and, as a result, clear communication will be increasingly important.

Brokers have a crucial role to play here, in ensuring they are more accessible than ever and are communicating regularly with their customers, to provide them with updates throughout the process. It’s important to stay in touch with clients regularly, rather than just waiting until their current deal is about to finish. Simple steps such as contacting them when market changes could affect them, such as when rates change, will let them know their needs are being looked after.

SHOP AROUND

With a plethora of products available, it’s vital for brokers to shop around for their customers. While a certain deal may look the most attractive, ensuring they have read the full terms and conditions is key. During a cost-of-living crisis, brokers should be particularly on the lookout for how they can help bring down their customers’ upfront costs. For example, certain lenders offer no fees on remortgaging, which could save them as much as £2500, when you add up the cost of arrangement, valuation, and solicitor fees. However, price point isn’t the only thing to bear in mind. Certain lenders may offer a marginally lower rate, but may not allow for individual voluntary arrangements (IVAs) or capital raising for business purposes. As such, brokers must move away from a one-size-fits-all approach and think about the individual needs of their customers.

THE VALUE OF SPECIALIST LENDERS

As the cost of living continues to increase, we are already seeing a growing number of customers who do not meet the criteria of high-street banks. This could be because they have multiple income sources, or are selfemployed. Rising living costs are also creating a more complicated financial picture for many borrowers, and there is likely to be an increase in the number of customers with impaired credit looking for support. This is where specialist lenders have a vital role to play. With their manual approach to underwriting, they will assess customers on a case-by-case basis, providing solutions built on real customers’ needs, not outdated rules and automated processes. Looking ahead, remortgaging activity is only set to grow, and there is a clear opportunity for brokers to support customers in this. As more customers find themselves turned away from high-street lenders, the specialist lending market will play a significant role in supporting people who do not fit the vanilla criteria due to their financial situations – and it’s our job as an industry to educate them on the options available. MI

After the summer is over

Adam Tyler

executive chairman, FIBA Ltd

At FIBA we recently held our regular broker and lender committee meetings. I always start those meetings with an open discussion of how our market has been and what we can expect in the future. The considerations and the thoughts of those around the table should really be heard over in Westminster; they could perhaps learn a lot from what we know, how we perceive the next 12 months, and what we can do to mitigate some of the turbulence we all expect after this summer and into next year.

There is, of course, divided opinion on what, as lenders and brokers, we have seen since the start of the costof-living crisis. This follows hot on the heels of the last two-year crisis, which coincided with the change in our European status, and we can only stand back and admire how resilient our industry has been throughout this whole period. We are now entering a new era of higher interest rates, one never experienced by some in our Industry or in the wider community.

I could write many words here on past experiences of huge interest rates and what caused previous financial crises, but that was in the past. I know we can always use the past as a guide, in some circumstances, on how to deal with current difficulties, but there is no need to revisit these details in this narrative, when we need to look forward.

As I said, there is a difference of opinion on not only what we have seen, but also what is coming down the track for all of us over the next 12 months. There are those who have already withdrawn products from the market and those who are seeing reduced enquiry levels. So where are we with enquiry levels amongst our members? My own experience in deal flow has seen a reduction in numbers, but not drastic; however, my commentary would include a reference to a drop in quality in some sectors. This is across commercial mortgages, buy to let, and bridging enquiries, with the first area being the most difficult to place unless it is truly of the right standard and fits the more stringent of criteria levels.

On a positive note, I can report that the education programme has moved on hugely since last month, and we have now introduced a group of authors to begin writing sample text to see if it will be suitable material for the programme. The syllabus framework is finalised, and the weighting of the subject sections and the proposed assessment criteria are also completed. The current position means that we are now negotiating the final contract details, considering the offers of funding, and working toward a launch date in early 2023. This is a unique moment, when everyone is aligned and in support of this proposal, from the smallest broker to the high-street banks, and, it appears, everyone in between. We cannot afford to miss this opportunity, so it is a real focus for the rest of the year, and seems to be dominating my summer months.

There has been genuine engagement throughout the last two years across the property-finance broking community, which has resulted in a really successful period for both brokers and lenders alike involved in the non-mainstream market. As a continuation of the good news, there are more events to come focussing on this area – the Specialist Property Finance Summit in London in October and a real niche event with a couple of our specialist lenders and providers in late September are starting points. Finally, for those keen to work with a wider range of commercial term providers, there are some really great new lender partners on board at FIBA who are looking to work across our membership and that will be announced over the next few weeks. MI