Mortgage Introducer August 2021 by mortgageintroducer

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MORTGAGE

INTRODUCER www.mortgageintroducer.com

August 2021

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 Robert Sinclair  The Outlaw  Loan Introducer

RATE DROP The repercussions for the market of an interest rate race to the bottom

FLEXIBLE CRITERIA FOR BUY TO LET AND RESIDENTIAL CASES Our product range includes: BUY TO LET • Up to 80% LTV available for loans as high as £3m • HMOs and MUFBs up to 10 bedrooms/units considered • No maximum portfolio size RESIDENTIAL • Up to 90% LTV available for prime • Up to 85% LTV available for near prime • Loans as high as £3m We individually assess every case we receive, so even if it falls outside of our standard criteria, get in touch.

Call us today on 01634 888260 or visit krfi.co.uk to find your local BDM FOR INTERMEDIARIES ONLY Product and criteria information correct at time of print (06.08.2021).

EDITORIAL

COMMENT

Ryan Fowler

Publishing Director Robyn Hall Robyn@mortgageintroducer.com

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Publishing Editor Ryan Fowler Ryan@mortgageintroducer.com Associate Editor Jessica Bird Jessicab@sfintroducer.com Deputy News Editor Jake Carter Jake@mortgageintroducer.com Editorial Director Nia Williams Nia@mortgageintroducer.com Commercial Director Matt Bond Matt@mortgageintroducer.com Advertising Sales Executive Jordan Ashford Jordan@mortgageintroducer.com Advertising Sales Executive Tolu Akinnugba Tolu@mortgageintroducer.com Production Editor Felix Blakeston Felix@mortgageintroducer.com Head of Marketing Robyn Ashman RobynA@mortgageintroducer.com CEDAC Media Ltd Signature Tower 42, 25 Old Broad Street London EC2N 1HN Information carried in Mortgage Introducer is checked for accuracy but the views or opinions do not necessarily represent those of CEDAC Media Ltd.

Make hay whilst the sun shines

he latest figures from the Intermediary Mortgage Lenders Association (IMLA) found that business volumes for mortgage advisers hit a five year high in the last quarter. Individual brokers each placed an annual average of 95 mortgages between April and June, up from 89 between January and March. This represents the highest annual average of successful mortgage applications from brokers since the IMLA started recording the figure in 2016. With government support slowing over as the stamp duty holiday tempers it looks likely that things will slow a little. However, the mortgage price war, which Jake Carter takes a closer look at on Page 53, looks set to maintain momentum. Some 23% of mortgage applications are currently coming from first-time buyers. With rates dropping across the board, it looks likely that the 95% loan-

to-value (LTV) space will also benefit from the softening of rates before too long. And with the market is benefiting from some of the best rates ever recorded in lower LTV bands increased interest in financing looks likely to remain. The sub-1% market has already proved how competitive it is of late. At the time of going to press Halifax has just launched a 5-year 0.98% fixed rate for borrowers with at least a 40% deposit. This is the lowest 5-year fixed rate since records began. It took the mantle from Nationwide which had recently launched a 0.99% 5-year fix at the same loan-to-value. However, despite such an attractive rate the building society was only able to hold onto the title for a fortnight. It will be interesting to see if Halifax isn’t supplanted by the time this issue lands on doorsteps. One thing is for sure the market is buoyant and certainly looks like staying that way. M I

Speak to your local BDM to discuss your buy to let and residential cases, even if they fall outside of our standard criteria. www.mortgageintroducer.com

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AUGUST 2021

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MAGAZINE

WHAT’S INSIDE

Contents 7 9 13 14 15 16 17 18 19 20 22 23 29 37 40 43 44

AMI Review Market Review Education Review Networks Review London Review Holiday Let Review High Net Worth Review Recruitment Review Market Review Technology Review Second Charge Review Buy-to-let Review Protection Review General Insurance Review Equity Release Review Surveying Review Conveyancing Review

BUY-TO-LET

46 The Outlaw The latest from our resident outlaw 50 Cover: The rate race Jake Carter considers whether the market is seeing a race to the bottom on rates, and what this might mean for the future 54 Loan Introducer The latest from the second charge market 56 Specialist Finance Introducer Development finance, bridging finance and more from the specialist market 62 Obituary: John Murray Nia Williams looks back on the life of her friend, and mortgage journalist, John Murray

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SURVEYING

HIGH NET WORTH

RECRUITMENT

AUGUST 2021

MORTGAGE INTRODUCER

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REVIEW

AMI

The missing link? Robert Sinclair chief executive officer, AMI

know that The Outlaw waits with a real sense of expectation for the FCA Annual Business Plan. He sits on the highway in Stratford hoping to loot an advance copy to satiate his appetite to lambast the regulatory hierarchy. This year he was roundly disappointed – no traffic in or out of the aptly named “Endeavour Square” (could try harder) as the FCA continue to work from home due to COVID. BEST LAID PLANS

The plan, once published, took a new format and direction. It was long on theory, rhetoric and promises of change but no detail on the what, who, where or when. With the ghosts of the failures of London Capital and Finance, Connaught and Woodford still haunting the entity it does not bode well. Indeed, there was a real expectation amongst regulatory specialists in legal firms, consultancies and trade bodies that we would get some meat on the bones of their Transformation Programme. There was a mention but nothing to tell us what is happening, how it might impact firms or advisers, any milestones or when we might reach the end. The promise of being a data led regulator sounds impressive – but what does it actually mean? No detail on what new data would be sourced, how it might be used or how its use would have prevented the aforementioned firm failures. With the combined costs of FCA, FOS and FSCS nudging £2bn per annum, the industry expects greater clarity. As the FCA struggles to find its new identity under Nikhil Rathi, it is important for the mortgage sector to call out some issues. We have a highly competitive market with relatively low www.mortgageintroducer.com

levels of consumer inertia. Not perfect but in the top quartile. Providers and distributors work well together and consumers are well served, with good options and improving use of technology. The lack of any apparent recognition of this is what worries the industry. BE THE BEST

We want this FCA to be better than the previous incumbents. In paying £19m per annum in direct FCA fees, it is very hard to see what the mortgage intermediary sector is getting for its money. Few firms have the benefit of a direct supervisory relationship. Firms have no concept of who the individuals are that are in the “portfolio” supervision team. The mortgage policy team have become similarly quiet since MCD. They have been active on prisoners and other areas

but not with a very public face. There was nothing in the plan. The reality of the lost and stolen laptop debacle is that the FCA lost 188 laptops or tablets in 2021 whist working from home. Rather careless. Reality is the FCA had a policy of repairing “broken” technology that meant individuals would have to send it in without a replacement. The only way to get a “new” item was to report it lost or stolen. So a badly constructed policy has led to a headline that belies reality. To firms that is a one way street on culture. The April fees consultation added a new fee class, A22, to cover the management of appointed representatives. We were hopeful the annual plan would provide the detail of why and what was to be done. But again not a mention. A new fee class created and £7.5m levied and no activity specified in the plan. As we move to a new academic year they must try harder. M I

Don’t judge a book by its cover Stacy Reeve senior policy adviser, AMI

ack in June I wrote about the FCA’s GI pricing practices Policy Statement. It appears that the enhanced rules and guidance on product value, which apply more widely than GI to include pure protection products, may have come in under many firms radar. It’s easy to see why. The FCA has not done itself any favours by titling a Policy Statement ‘GI pricing practices’ yet included changes that impact a much wider market and aren’t related to price walking (the one area that took all the headlines). Mortgage intermediaries that distribute pure protection products such as term life insurance, critical illness, income protection and/or GI are likely to be impacted by these changes in some way. One of the new requirements on manufacturers is to ensure that its distribution

arrangement avoids or minimises the risk of negatively impacting the fair value of their insurance products. We expect there to be an increase in the amount of information requested and shared between distributors and manufacturers. Where not held already, manufacturers will be required to obtain at a minimum the type and amount of remuneration received by the distributor (including fees paid directly by the customer) and an explanation of the services they provide, as well as confirmation that their remuneration is consistent with their regulatory obligations. AMI is engaging with the ABI to understand how insurance providers are interpreting and applying the rules and to ensure a pragmatic approach that avoids mortgage intermediary firms being inundated with information requests. Whilst AMI members can access information on this via our GI pricing practices factsheet, we have published this article as it is important that all in the industry understand more about the changes and likely implications.

AUGUST 2021 MORTGAGE INTRODUCER

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REVIEW

MARKET

The heart of the process Craig Calder director of mortgages, Barclays

ere we are in H2 2021, the sun is currently beating down over much of the UK, and there is every reason to be optimistic about economic conditions in the coming months. When reflecting on this time last year, the housing and mortgage markets had really kicked back into gear after the shock of the initial lockdown, and people were being encouraged to ‘Eat Out to Help Out’. The whirlwind of property-related activity experienced over the past 12 months has really highlighted the breadth of homeownership aspirations shown across the UK. The value of advice in an increasingly complex and financially insecure environment has also risen exponentially for many people over this period. You might assume that the sheer volume of property transactions being completed, the number of mortgage enquiries being generated, and the wave of interest being logged in estate agencies up and down the land will have seen people’s understanding of the mortgage journey hit new heights. However, a recent survey from Paymentshield suggests that this remains work in progress. UNDERSTANDING THE MORTGAGE JOURNEY

The survey outlined that 52% of UK adults aged 18 to 34 say they have a fairly or very bad understanding of the whole mortgage process from beginning to end. In comparison, 32% of 35 to 44-year-olds stated the same lack of understanding, with this dropping again to 25% among those aged 45 to 54. UK adults under 35 displayed a similar lack of understanding of the types of insurance required at different www.mortgageintroducer.com

stages in life, with 53% declaring their knowledge fairly or very bad. The research suggested that one of the biggest barriers to understanding the insurance and mortgage processes could be financial jargon. A third (33%) of 25 to 34-year-olds say they are not very, or not at all, confident that they’d comprehend the language used to explain financial products or services. A similar result was collated amongst the 18 to 24 age group (37%).

“The value of advice in an increasingly complex and financially insecure environment has risen exponentially for many” This data highlights some key opportunities for the intermediary market to engage with consumers early on in the homebuying process to help build a long-term relationship – one which may result in fulfilling a range of ancillary financial needs going forward. As a lender, we also have an important role to play when it comes to better supporting our intermediary partners and consumers, especially when it comes to cutting through any unnecessary financial jargon and using plain English where possible. THE HOUSING MARKET

One of the major obstacles facing the younger generations is rising house prices. While it is, of course, tough for many to raise sufficient deposits to supplement price hikes, better financial education and advice when it comes to alternative borrowing solutions and access to government initiatives which support first-time buyers (FTBs) can certainly help. The challenges facing homebuyers were demonstrated in the latest Rightmove price index, which showed that the busiest ever first half of a year has pushed average asking prices to a new record high for the fourth

consecutive month. Prices rose by 0.7% in June, meaning average house prices have now risen by 6.7%, or £21,389, in just six months. With the first half of 2021 seeing 140,000 more sales being agreed and 85,000 fewer new listings than the long-term average, this surge in activity has revealed a shortfall of 225,000 homes for sale which, if available, Rightmove argued “would have corrected this stark imbalance between supply and demand and would have stabilised price growth.” BANK OF MUM AND DAD

The financial implications of a rising housing market are not just affecting the younger generations, but also the older ones. Research from Just Group recently suggested that financial advisers are finding themselves obliged to challenge some clients’ wishes to hand cash lump sums to children, over concerns that gifting money early will leave them short in later life Advice firms reported that around a fifth of their clients had already gifted money to children or were considering doing so. It also found that four in 10 parents aged 45-plus had gifted more than £5,000 to children aged 18-plus to help them cover major expenses, such as weddings, house deposits or education. The challenges facing a range of homebuyers are well documented. There are no quick fixes, as many challenges remain in terms of price, quality, supply and affordability. However, whilst intergenerational lending is already playing an important role, its influence could significantly improve if increased competition and support emerges from within the lending community. Throughout the mortgage chain, education remains key in ensuring that all generations are being armed with the knowledge to understand its benefits and limitations. As always, good professional specialist advice continues to sit at the heart of this process. M I AUGUST 2021 MORTGAGE INTRODUCER

02082 Be GI conference advert FINAL.pdf

09/08/2021

11:33

VIRTUAL CONFERENCE C

CMY

Our second virtual conference of the year will build on the theme of embracing general insurance (GI) and sharing best practice to help advisers make the most of the GI opportunity. The format, which is new for this event, will enable advisers to customise their experience to fit in with their interests and development needs. You’ll also be able to ask questions, share your experiences and ultimately find out more about how Paymentshield can help you grow your GI business. Register to find out how we can become stronger together:

paymentshieldadvisers.co.uk/be-gi-conference For intermediary use only. Paymentshield and the Shield logo are registered trademarks of Paymentshield Limited. Authorised and regulated by the Financial Conduct Authority. © Paymentshield Limited 08/21 02082

REVIEW

MARKETING

Why are you marketing? Martin Reynolds CEO, SimplyBiz Mortgages

arketing is one of the things that we all feel we can do and have an opinion on, and at the same time, still feel that maybe we aren’t doing right. Even focusing on just one area, social media – in all its forms – is awash with links, offers and ‘facts’ about how you should be marketing, what you should be doing and why lots of other people are doing it wrong. I will try to outline a few areas that I always consider when we look at marketing, including what I have learned at previous businesses. This is not an exhaustive list, and it is not ‘fact’ – it is an opinion, and one you can feel free to ignore. Hopefully, though, there may be a few gems in there for you. People often talk about the ‘Five Ps’ or the ‘Seven Ps’. Personally, whilst I use them – or many of them – it is more subconscious than a rigid process. The first question is: to whom are you looking to market? Until you can answer this question and all its subsets, then the type of marketing and media is irrelevant. As mortgage firms, this could encompass a number of things:  Your existing customer bases  New customers  A change in customer type or demographic  New advisers  Lenders and providers The second question is: what are you trying to achieve with this marketing? What do you want to talk to your existing customers about? How do you do this now? Do you want to keep in regular contact, just speak at the appropriate times around their mortgage product renewal, or do you want to have a more holistic type

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of relationship that includes market updates and non-financial contact? New customers and a change of customer type can be bundled together for this exercise. What type of customers are you looking for? Firsttime buyers, high net worth (HNW) individuals, certain industries, such as doctors or accountants, or more geographical areas? New adviser acquisition is a continual challenge that gets fed back to us. Many look to avoid the traditional recruitment agencies, whether due to the cost or because of previous experience. Again, though, a clear plan of what type of advisers or ancillary staff members are you looking for will be needed. Do you want experienced, apprentice, mortgage or protection only or a combination? Finally, why are you looking to market to lenders? Is this to raise your profile with them or to allow them to understand your business model and quality metrics? Who within the lender market are you aiming for – business development managers (BDMs), regional or key account managers, senior executives, or maybe the risk or marketing teams? REFINING YOUR TARGETS

At this stage, there are normally more questions than answers, but that is perfectly normal as you look to refine your targets. This leads to the next question: what mediums do you want to use? The type of marketing available now is expanding rapidly from the traditional online or oﬄine choice. Even with social media, the choices are expanding – LinkedIn, Twitter, Facebook and Clubhouse are just a few that are available. For me, picking the ones that are appropriate for what you are trying to achieve is key, followed by having a clear strategy for its implementation. Using the trade press to raise your profile with lenders and create a positive image for recruitment is an excellent thought process, but

it’s not the right medium for the acquisition of new clients. For example, when looking to attract HNW clients you will need to look at the types of communications they use and read. Traditional forms, such as Country Life, may now be slightly outdated, but understanding their market is key. One method that is increasingly popular and seems to get results, is through voice of the customer (VOC) metrics. Lenders consistently use net promoter scores, and more intermediary firms now display customer reviews and star ratings. Allied to this are case studies, which can demonstrate your expertise at the same time as telling a customer success story, the human element of which can often be a more powerful narrative. These are all elements that should be considered in an overall strategy. The penultimate question in my process is: do you have the time and resources to deliver this marketing? In most cases, the answer will be no, as not many of us are just sat there waiting for things to do. Looking at the resources available to you, whether it is just you or a wider team, and deciding what can or cannot be rescheduled, will be a start. Creating a plan and setting out how many hours per week are to be spent on it will give you some guidance. Alternatively, there are many consultants in the market with years of experience who could help with this, or take some of the time away for you in creating the collateral. The final question is: how do you quantify success? This comes full circle, as you consider whether you have achieved the objectives you set at the start, or can see the start of traction to get to those outcomes. Marketing is a never-ending journey that is punctuated with pit stops as you assess and refine your plans. Take the time and enjoy the journey, but make sure it’s your journey, and not what you feel is currently in vogue in the market. M I AUGUST 2021

MORTGAGE INTRODUCER

REVIEW

DIGITAL

Every captain needs a navigator Tim Hague Xxxxxxxxxx director, xxxxxxxxxxxxxxxx, xxxxxxxxxxxxxxxx Sagis

uly was a busy month for mortgage deals, and I’m not talking about approval numbers. Trussle, the online mortgage broker backed by Goldman Sachs, among others, was sold for a reported $9m to US mortgage lender Better. Mojo, also a digital broker, was snapped up for an undisclosed sum by RVU, parent to Uswitch, money.co.uk and Confused.com. Both deals are interesting. According to reports in the Financial Times, Better is hoping to steal a march on the UK’s incumbent lenders, using Trussle as a front end to drive lending through its online platform. Loans are then sold on to third-party investors, with Better pocketing the difference. Trussle has been loss-making since launch, and despite having raised £26.7m in funding by the start of 2020, its reputed $9m price tag looks cheap. Let’s unpack this a little – Trussle is widely known to be a volume play, with straightforward vanilla loans at the cheapest rate and lowest margin. Better, one assumes, is presumably looking to capitalise on that model, aiming to lend high value low risk and package AAA-rated loans up for yieldhungry investors. Post-pandemic, of course, it will be interesting to understand what ‘straightforward’ looks like, how much will fit a digital distribution model and how the yields for your chosen markets may have changed. The Mojo deal, still subject to approval by the regulator, looks like a similar gambit. FTAdviser reports that RVU already receives seven million mortgage-related queries across its platforms annually, with its chief executive stating that the purchase of Mojo is intended to convert those leads to sales.

MORTGAGE INTRODUCER AUGUST 2021

By digitally linking the sourcing solution with a digital broking solution, the new model aggregator ought to be able to significantly increase income from initial enquiries. The test of the latter will be what those leads look like, and therefore how easy they will be to convert. Increasingly, the UK’s population has complex income patterns, with more borrowers self-employed, working several jobs and relying on commission or bonus payments to top up base salaries. Add to that 18 months of pandemic and its devastating effect on half of the population’s finances, and the care that is needed to unpick and put back together a borrower’s application is considerable. It’s hard to funnel this type of borrower through a digital system without a human touch, and even harder to broke very complex applications to a fixed number of lenders. These deals require specialist knowledge, experience and relationships with niche lenders. What then does this mean for the market’s future? Do any of these moves signal significant change? I rather think not immediately. Technology firms have been coming to market with a lot of noise about disruption and changing the way the market works for good. Not one has succeeded, much less made money. The housing market is a very tough

Making the right choices requires strategy

gig – the network of commercial relationships, regulatory thresholds and additional industries involved in the home buying process make it extremely difficult to ‘fix’ with technology alone. We are beginning to see the issues facing incumbent tech providers who need to adapt to modern, fast changing SaaS type models. The market is awash with rumours of tech platforms up for sale and strategy changes for providers. New entrants are queuing up in the wings. Charting the right course is a matter of having the right crew for your voyage. My sense is that there is a huge amount of innovation going on in the housing and mortgage markets already. There are some really excellent businesses out there, doing some really valuable things. Take Ratesetter, for example, which has augmented a traditional broking firm with technology that will assess a remortgage applicant, taking into consideration product transfer options against full remortgage options. There are others – Mojo’s unique selling point (USP) is its tech’s ability to monitor the rates on offer daily and calculate when a borrower could save money on their mortgage by switching. It’s neat. There are also lenders such as Molo, the wholly digital buy-to-let lender which has sought to own the entire transaction chain, in theory making a purchase or remortgage super slick and quick. No doubt you will have considered how best to use technology to aid in your ability to serve clients, but knowing how and when and where to deploy it is not an easy thing. The reality of digitisation is that it’s a piecemeal approach. Where should you invest to get most bang for your buck? The key to getting this right is not to get carried away with the newest bit of kit, but to assess the needs of your business with an impartial eye. Making the right choices can feel bewildering. It’s why every captain needs a navigator when the view from the bridge is constantly changing. M I www.mortgageintroducer.com

REVIEW

EDUCATION

Ensuring effective learning programmes Gordon Reid business development manager, learning and development, LIBF

t some point in time, we are all responsible for creating learning programmes. If you are a line manager or supervisor, this could be for one person or a team. If you’re part of a learning and development (L&D) team, this could be for a small group or your whole company. If you’re a mortgage adviser without any supervisory responsibility, you will probably still be asked to create your own development plan.

“If you don’t know why the performance objective is not being achieved, you can’t be sure that learning or training is the necessary solution” So, why is this not as straightforward as it seems?Why do so many learning programmes fail to hit the mark? And what can you do to make sure that yours meets your objectives? The aim of this article is to share some of my learning, built up over 35 years as a line manager, supervisor and L&D consultant. I’ll provide you with a few simple steps which will maximise your chances of success. STEP ONE: BEGIN WITH THE END IN MIND

You’ve probably heard this saying many times before. But have you applied it when creating a learning programme or development plan? Your starting point should probably be a series of questions. You can either www.mortgageintroducer.com

ask these of yourself or, if you’re creating a programme for others, you can address them to your stakeholders. Questions include:  What do want to do or achieve that you are not doing now?  How do you know you are not doing it?  How will you know or evidence when you are doing it?  How will you measure success? These questions are all about identifying the performance objective. Not the learning objective – the performance objective! If this objective isn’t clear, keep asking questions until it is. STEP TWO: CONSIDER WHY YOUR OBJECTIVE IS NOT CURRENTLY BEING ACHIEVED

Learning, or more often training, is invariably seen as the solution to all problems. As an L&D manager, I regularly had stakeholders ask me and my team to create a training course. If I was lucky, they might have completed Step One before engaging with me. They had rarely considered the reasons why the performance objective was currently not being met. If you don’t know why the performance objective is not being achieved, you can’t be sure that learning or training is the solution. Fundamentally, there are four reasons why people don’t do things: 1. They didn’t know they had to do it 2. They didn’t know they weren’t doing what you expected 3. They don’t have the skills or knowledge to be able to do it 4. They don’t want to do it or don’t believe in it. Only one of those can really be addressed by learning. The first is about communication. If you don’t tell them that it’s part of

what you expect, how can they be expected to have done it? The second is about performance management. They thought they were okay at completing the objective. You’ve never told them that they weren’t getting the results you wanted. The fourth is about behaviours. If they don’t want to do something, no amount of training will change that. The only one of these reasons for under-performance that you can address through learning is number three, lacking the skills and knowledge. That’s not to say L&D doesn’t have a part to play in the others, but it isn’t a standalone solution. STEP THREE: THINK ABOUT ALL THE OPTIONS AVAILABLE

As indicated in Step Two, for many years the default learning solution was to create a training course. More recently, this has changed. Instead requests to create an e-learning module or modules are often the starting point. The issue with both of these approaches is that they don’t consider either the learners or the range of possible learning solutions. Again, it is important to think about what you are trying to develop:  Is it a skill?  Is it knowledge?  Is it the ability to follow a process?  Is it the understanding of a concept?  Is it something which needs a lot of practice?  Is it something which needs interaction and feedback? All the questions above are designed not to identify the best learning solution, but what that learning solution must provide the opportunity for. Only once you have done this will you have a true idea of the best solution(s) to address your needs. So, next time you are thinking about your own performance, and how you’d like to improve it, try following these three steps. If it works, share it with your colleagues, or use it next time you are asked to create learning for others. If it doesn’t, go back to step one and ask: “What was I trying to achieve?” Good luck! M I AUGUST 2021 MORTGAGE INTRODUCER

REVIEW

NETWORKS

Price walking ban and broker opportunities Shaun Almond Xxxxxxxxxx managing director, xxxxxxxxxxxxxxxx, HL Partnership xxxxxxxxxxxxxxxx

hile I have written before on the topic of general insurance (GI) and the need for more advisers to give it greater prominence in relation to the amount of care taken over arranging mortgage finance, there is a long overdue change coming from the regulator. This will level the playing field by putting the value of advice above the race for the cheapest premiums. It will provide advisers with the increased incentive to make home and contents insurance a regular part of their pitch to prospective homebuyers and remortgage customers. For a bit of background, let’s discuss the practice used by many insurers known as ‘price walking’, which has been a feature of the car and home insurance sectors for some time. Perhaps many customers will not be familiar with the term, but we will all have seen ‘price walking’ at first hand. It can be described as the process in which insurance products are heavily discounted in year one, increased at renewal and then again in subsequent years, meaning insurers have benefitted via auto-renewal from the inertia of many customers who, as a result, have paid increasingly more for their cover year-on-year. This has allowed insurers to have the cash to offer new borrowers enticing first year discounts. Effectively, existing customers were subsidising new ones, to their financial detriment. Of course, the other main beneficiaries were the comparison sites and aggregators, which saw increasing numbers of customers swapping to the latest discounted rates each year.

MORTGAGE INTRODUCER

AUGUST 2021

This is good news for adviser firms, because you will no longer have to compete against heavily discounted deals offered online. It will change the emphasis from cheapest cost to value for money. In order to comply with the new rules, insurance companies will have to abandon heavy discounting for new policyholders, in order to ensure that existing customers are not paying more at renewal. Brokers will now be in a stronger position to properly advise customers. New policy and renewal premiums will become more equivalent, so the adviser is again in the best position to offer real advice based on actual benefits other than price. This ruling by the Financial Conduct Authority (FCA) provides a great opportunity to revisit your existing client bank and build back a reputation for GI advice, as well as your other specialisms. You will now find it easier to draw more customers away from aggregators and the temporary illusion of cheap deals, and back to policies tailored to meet their specific needs, but which are still cost-effective against the new pricing standard in the market. I am sure I have heard all the reasons why insurance, especially home and

“Price walking can be described as the process in which insurance products are heavily discounted in year one, increased at renewal and then again in subsequent years, meaning insurers have beneﬁtted via autorenewal from the inertia of many customers” contents, has not been treated with the same importance as the mortgage. After all, it is the primary purpose of all mortgage brokers to understand clients’ needs and circumstances, review borrowing possibilities and deliver a funding solution, first and foremost. Yet, the fact-find interview provides the best possible opportunity to research and recommend the most suitable insurance as well. For those of you who had given up trying to compete against the discounting practices of insurers, and who are dealing with customers regularly saying that they can get the cheapest premiums online, this legislation is a real opportunity. Brokers will now be able to compete directly, as heavy discounts via price comparison sites or direct from lenders will be banned. The opportunity is there to increase GI business by offering a tailored personal service for every client. M I

New web apps soon to simplify planning applications

It is good to see that, subject to trials being carried out at the moment, The Ministry of Housing, Communities & Local Government has developed two new apps in order to help homeowners, developers and planners navigate the often tricky and complex requirements surrounding planning rules. The first one is designed to help guide homeowners, while the second will also

help developers and architects by speeding up and simplifying the application process. In addition, it will help council planning oﬃcials manage permitted development applications – tracking progress and putting the information they need to make decisions in a user-friendly format. It puts the focus on data rather than documents, helping planners make decisions much more quickly and eﬃciently.

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REVIEW

LONDON

Human decisions drive value and price Robin Johnson Xxxxxxxxxx managing director, Kinleigh, xxxxxxxxxxxxxxxx, Folkard and Hayward xxxxxxxxxxxxxxxx Professional Services

or those of you living outside of London, flash flooding in the capital may have passed you by, superseded by the devastating flooding on the Continent that came just days later, leading to a tragic loss of life. For those who missed the London news, three inches of rain fell on West London in 90 minutes on 12 July, wreaking havoc on homes, transport systems and offices in the area. Images of Notting Hill’s iconic Portobello Road under a foot of water went viral on social media, as Simon Cowell was quoted in the media suggesting his £15m mansion “nearly floated away” and Queen guitarist Brian May posted pictures of his flooded Kensington basement and the ruin it had wrought. Sloane Square tube station had a river running through it, trains, tubes and roads were brought to a standstill, while the fire brigade was unreachable via 999. For many people living or working in the area it was a rude awakening – climate change in action, affecting them individually and directly. Such was the scale of the flooding that Kensington and Chelsea Council had to find emergency accommodation for 120 people, while Westminster Council set up an emergency relief centre in Porchester Hall. Millions of pounds worth of damage will be claimed from insurers to cover the costs of repair. It is still unclear what, if anything, this means for the property market. Though climate change is widely accepted to be responsible www.mortgageintroducer.com

for increasingly extreme weather conditions, with heavier rainfall and longer spells of drought, there were also reports that the ubiquity of deep excavations under millionpound mansions in West London – to accommodate luxury garages, cinemas, swimming pools and all manner of other things – has done untold damage to the capital’s drainage systems. Whatever the cause, the result was that the water table rose above the sewer system. Consequently, insurers will inevitably be more cautious when it comes to buildings and contents cover in the future. It will fall to surveyors, largely, to assess the level of risk now present in parts of London not previously at risk of flooding.

“London property has for decades been a safe haven for international money needing a place to sit – that is unlikely to change any time soon. The knock-on for homes which Londoners actually live in is likely to be minor” Guidance on how to do this fairly must be forthcoming from the Royal Institution of Chartered Surveyors (RICS). To overstate flood risk after a freak weather event could harm confidence – and consequently values – in the capital’s prime locations. In our view, it is dangerous to draw any conclusions on valuations yet. Consider homes and commercial buildings on known flood plains which are still bought, sold and insured. The truth of the matter is that whatever climate events occur, the

price and value of property is driven far more by human decisions than it is other factors. Indeed, it’s safe to say that the ongoing shortage of property almost makes housing as an asset group look relatively bulletproof. London property has, for decades, been a safe haven for international money needing a place to sit – that is unlikely to change any time soon. The knock-on for homes which Londoners actually live in is likely to be minor. The ongoing stamp duty holiday, loosening of COVID-19 restrictions and return to offices from furlough and home working are much more likely to have sway where house prices are concerned. Add to that the return of government-backed 95% loan-to-value (LTV) lending for all borrowers, and you can see why markets can survive these otherwise considerable blows. A year ago, and company chief executives were warning about the death of the office. Now, everyone has ‘Zoom fatigue’ and wants any excuse to go out and be with people. Even Chancellor of the Exchequer Rishi Sunak has backed the message to get bodies back into workplaces. His reasoning is likely to be economic – more people in city centres means more spending, and therefore economic growth and a faster recovery – but if employees do return to offices at scale, it should also prove a real boost to property values around commuter towns and suburbs. Mortgage rates are also the absolute cheapest they have ever been in history, making purchases more affordable. We are still seeing the effect of lockdown on people’s reassessment of their own personal work-life balance, with moves out of London to greener places with outside spaces still occurring. Younger people, deprived of social interaction and employment opportunities amid the pandemic, are desperate to get into towns and cities with vibrant cultures and nightlife. Jobs will come where people do. This movement is what keeps a market healthy, and that’s what we should all be aiming for as lockdown restrictions lift and life returns to some semblance of normality. M I AUGUST 2021 MORTGAGE INTRODUCER

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HOLIDAY LETS

Should I stay or should I go? Jacqui Turner business development manager, Harpenden Building Society

he summer of 2021 is proving to be a buoyant time for the UK holiday industry. Chances are you will have enjoyed a ‘staycation’ yourself, and while holidaying closer to home may not have been your first choice, it is something many of us have enjoyed. This situation has positively impacted many UK businesses, but what opportunity has this created for mortgage brokers? DEMAND FOR HOLIDAY LETS

According to the Sykes Holiday Cottages 2021 Staycation Index, almost four in five of us planned a holiday on home soil this year. This has created unprecedented demand for holiday accommodation, creating opportunities for savvy investors. Purchasing a holiday let in a prime location continues to be a strong option for maximising returns, creating increased demand for specialist holiday let mortgages. Commentators are predicting that the UK staycation will retain its popularity, so this investment could remain a strong option. Graham Donoghue, CEO of Sykes Holiday Cottages, said: “As people eagerly await an escape from lockdown, opting for staycations is not only the safest option, but our research shows that the Great British staycation is fast becoming the holiday of choice regardless of restrictions.” He added: “Our research also reveals a significant uplift in interest from second homeowners looking to list their properties and make the most of the rise in bookings this summer, with holiday letting proving to be an increasingly attractive investment opportunity by the day.” As well as the obvious benefits of being able to avoid the disruption of

MORTGAGE INTRODUCER AUGUST 2021

constantly changing travel restrictions, a UK holiday can be seen as a more hassle free option in other ways too. Examples include avoiding passport controls at the airport, mobile roaming charges, and fluctuating exchange rates. Further positives include the ease of taking pets away, the opportunity to take your car, and of course the UK’s award winning countryside, coastlines and historic locations, which many of us have overlooked in preference for overseas options in recent years. FINANCING A HOLIDAY LET

With the popularity of the staycation, there has been an understandable upturn in products being offered in this space. The number of mortgage options is up by around 45% in recent months, twice the number in August 2020. Sean Horton, co-owner of Drake Mortgages, which offers a wide range of financial services products with a particular specialism in holiday lets, takes up the story: “Both lenders and brokers have understandably jumped at the business opportunity created by the increased popularity of holiday lets. “With more products on the market, it’s never been more important for customers to be able to assess in detail what’s on offer. “Having been involved in this niche for many years, I always prefer to work with lenders who have a track record in this specialist area so customers can be expertly guided through the intricacies of this product type. “It makes a positive outcome so much easier to reach.” Horton adds: “Holiday let mortgages are more difficult to arrange than normal mortgages and are also very different from standard buy-to-let products, so strong guidance is key. “The devil is in the detail, particularly when it comes to financing. Being able to reach a product expert and underwriter at the end of the phone for instance is a huge bonus, and can significantly help brokers and their customers get the application across the line.”

SOURCING THE RIGHT MORTGAGE

With Harpenden’s new, improved holiday let products, in regard to pricing and criteria, we’re already seeing increased interest from brokers and their customers wanting to buy holiday let properties in the UK. As well as better rates, Harpenden’s specialist product range includes the ability to purchase a property that would have previously been labelled a consumer buy-to-let as a holiday let, qualifying for more attractive criteria. Additionally, there are no restrictions on location for the property purchase, giving wider buying options within England and Wales. Harpenden’s holiday let mortgages are available for purchase, remortgage or release of equity, to include shortterm holiday letting. A minimum income of £30,000 is required. Manual underwriting provides a more in-depth review of the customer’s financial position and a greater opportunity for complex applications to be accepted. Ideally, the let property will be selffunding from the rental income, but in some cases we can also look into an applicant’s income in more detail, so there is greater opportunity to say yes! Earned income is considered from a range of sources in addition to salary, including savings, investments and pension income. The society also takes a holistic view of the applicant’s financial circumstances to ensure they have surplus income and funds available to afford the mortgage and the running costs for up to three months, safeguarding their ability to repay if the property is unexpectedly without visitors, protecting everyone involved. NEW OPPORTUNITIES

When it comes to holiday let financing, the current market provides considerable opportunities for both brokers and their investor customers. Sourcing a holiday let mortgage through a specialist lender will help make that opportunity a reality. M I www.mortgageintroducer.com

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HIGH NET WORTH

Second homes as holiday lets Peter Izard Xxxxxxxxxx business xxxxxxxxxxxxxxxx, development manager, xxxxxxxxxxxxxxxx Investec Private Bank

ith many buyers now seeking the benefit of a rural retreat alongside their urban primary residence, demand for second properties has grown massively since the start of the pandemic. According to data from Hamptons, this saw around 22,000 second homes bought in the UK last year. The boom of staycations in the UK has also contributed to this demand, as opportunistic property owners have sought to generate extra income, using their second homes as holiday lets. At Investec, I’ve been speaking with a growing number of our high net worth (HNW) clients about how lending can help them quickly capitalise on opportunities. Below are some of the key considerations and commonly asked questions which financial experts and intermediaries should be aware of as this trend gathers momentum. INCREASING DEMAND

Just as people have re-evaluated their living circumstances in the wake of the pandemic – seeking properties with home offices or bigger gardens – there has also been a huge shift in where people want to live. Rural locations have seen a huge growth in popularity, particularly as people living in urban areas have ‘escaped’ from the city and relocated to the countryside. However, while some have relocated entirely, others have chosen to keep their primary residence and purchase a property further afield. In the last year alone, 15 of the top 20 most popular areas to purchase a www.mortgageintroducer.com

second home were in coastal locations. From speaking with some of Investec’s clients, for example, there is high demand for homes in regions such as Cornwall and Oxfordshire. HOLIDAY LETS VERSUS BTL

Many people with second homes are choosing to rent their properties out, as it gives them the ability to receive extra income from rent. With the Great British vacation very much ongoing, holiday bookings in the UK have surged as foreign travel restrictions have remained restricted. As such, the opportunity to secure some extra money is greater than before. What’s more, the income secured via this route is subject to a different tax structure than buy-to-let (BTL) income, which can make returns particularly lucrative. To clarify the difference: when we talk about using second homes as holiday lets, this refers to a private residence for personal use that is being let out on an ad hoc basis. A BTL property, on the other hand, is a property purchased solely for commercial purposes. THE BEST LENDING APPROACH

When working with a HNW client looking to purchase a second home – whether entirely for personal use, or to rent periodically – it’s important to work with a flexible lender. There are specific mortgages available for holiday lets, but many come with set criteria and set rates, which can limit the amount that a buyer can borrow. Many of Investec’s HNW clients have complex income structures which require a more tailored solution. For this reason, it’s crucial to take a bespoke approach and work with a lender which can assess affordability based on a holistic understanding of an individual’s wealth.

TAX AND MANAGEMENT

While renting a second home or purchasing a holiday let can be an exciting prospect, it’s important to note that the upkeep and management involved can be costly. With new COVID-19 hygiene protocols introduced over the past year, changeovers between guests need to be even more thorough than usual. There are specialist firms that can manage this process on a landlord’s behalf, but they can charge a commission of up to 15% 20% per booking. Looking at tax, there are also special rules for holiday lets, otherwise classified as furnished holiday lets (FHLs). To qualify as an FHL, a property must be furnished and located within the UK, and be available to let for at least 210 days, with bookings in place for 105 days. This means that if the owner of the property would like to use it themselves, they can do so for the remaining 155 days of the year. Assuming a property meets these requirements, a landlord can deduct the cost of their mortgage from their profits before calculating how much income tax to pay. This is in contrast to the tax structure for BTL landlords, who cannot deduct the interest they pay on their mortgage from the rental income they declare to HMRC, and instead can claim a 20% mortgage interest tax credit. However, as with any tax factors, if a client is considering letting a second home on a holiday let basis, I highly recommend seeking independent tax advice from a qualified accountant. M I

Advising on holiday lets requires a holistic approach

AUGUST 2021 MORTGAGE INTRODUCER

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RECRUITMENT

The rise of the telephone BDM Pete Gwilliam director, Virtus Search

ortgage intermediary sales channels are undoubtedly evolving, and the use of digital and telephony services in support of field-based, external account managers is going to redefine how sales channels operate. The general consensus among mainstream lenders is that there will be more telephony and fewer fieldbased headcounts. A deciding point, stemming from the past 16 months of restricted business practices, is increasingly likely to be this: does the lender benefit from a greater market share in those regions where it has field-based business development managers (BDMs), compared with its overall national average? Where local activity evidences an above average market share, there is likely to be a strong case for keeping a field-facing sales focus. Moreover, there are certain key distributors that are strategically important, which are always going to have a dedicated fieldbased focus. In the larger field sales and national account teams, this will inevitably lead to some degrees of reprioritising sales channel resources, and whilst this is being undertaken there will be little appetite to recruit externally, other than in their telephony teams. For those lenders still pursuing an increase in their market share, acquiring talent that has existing territory knowledge and relationships provides the acquiring lender the chance to ‘buy’ the perceived advantage of hitting the ground running in the drive to grow volume. However, there remains an ongoing consideration

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of how the existing sales channel best accommodates such a hire. Across these two themes, progressive sales leaders are using the lessons learned from the pivot in working models caused by the pandemic to not only redefine the skills they feel are essential, but moreover how geographic data and insights can allow a search for more talent to include more diverse backgrounds. Of course, a proven history of working successfully with intermediaries will remain important, but this also feels like the time to apply a balanced scorecard when assessing potential, to include skills, attitudes, and behaviours, whilst marrying these with the importance of how new role requirements meet the wellbeing needs of the team. I place a lot of store in feedback I gain on individuals through the sales channel peer groups they work within. This is not only from within their current employer, but BDMs working within other lenders and calling on the same accounts – let’s face it, if a BDM from a competitor acknowledges that someone has a good reputation, then they must be doing something right! This has always been invaluable in helping build insights on how and why someone is effective, but again can only be part of an equation, particularly

when there is a desire to not simply restrict the lens upon those currently doing the job within the same region or set of accounts. For obvious reasons, the past year or so has been more about being in a job than necessarily looking at external moves, promotion opportunities or any bonus potential. The optimism brought on by a return to more normal working practices means I am already having more discussions with individuals ready to make a move, feeling that their career has been on hold for the last year, even when they have responded to the challenges presented. My advice to these individuals is not to be so relieved – and flattered – because an approach is made. You are in danger of taking the first opportunity to ‘run away’ due to an overriding desire for change. Ultimately, this leads to not working through what is it you want to run towards. Less often now are career discussions about salary increases. More recently, factors such as the lure of a better work-life balance, a more inclusive team, and stronger business dynamics are being raised in my consultations. The debate about the merits and costs of an external broker-facing sales channel is not a new one, but the fact that telephony and digital solutions have been effective through the pandemic has really brought the cost versus value discussion to the fore. Undoubtedly, the role of the telephone BDM is now a genuinely influential and important part of the sales model, and a great pathway through which to build a career. M I

The rise of telephone sales teams is broadening the BDM talent pool

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PRODUCTS

High LTV competition is good for borrowers Xxxxxxxxxx Stuart Miller customer director, xxxxxxxxxxxxxxxx, xxxxxxxxxxxxxxxx Newcastle Building Society

s we navigate the remainder of the stamp duty holiday at its reduced threshold of £250,000, we find ourselves in a position where the housing market thankfully did not see the chaotic chain collapses many feared in the run up to the original 31 March cut off. As a consequence, housing market values have remained very buoyant with little sign of easing. NEW INSTRUCTIONS

The June 2021 Royal Institution of Chartered Surveyors (RICS) UK Residential Survey results pointed to another positive month for activity across the sales market, despite agents reporting a slight dampening of new buyer demand towards the end of the month. Crucially, a scarcity of new instructions coming onto the market has become more prominent during recent surveys, with metrics tracking new property listings moving deeper into negative territory over the month. At the headline level, 14% of contributors to the survey reported an increase in new buyer enquiries during June. Whilst this represents the fourth successive month of positive growth, it is a noticeable moderation compared to the high of +43% posted back in April. What’s more, this easing in momentum is visible across virtually all regions and countries of the UK covered by the survey. Nevertheless, the latest feedback continues to signal a clear excess of demand over supply. The rules of supply and demand dictate a rise in price in this scenario, and indeed, all www.mortgageintroducer.com

of the surveys tracking house prices indicate that annual inflation is still around the 10% mark. That means it’s even more important to make high loan-to-value (LTV) lending available to buyers facing the steep rise in savings required to build a deposit large enough to keep up with price inflation. The latest Moneyfacts UK Mortgage Trends Treasury Report, published in mid-July, showed that June 2021 was the first time since June 2018 that product availability rose across all individual LTV bands. Borrowers seeking higher LTV products have seen the largest improvements in choice, according to Moneyfacts, particularly at 95% LTV, where the group recorded a jump of 61 products compared to June 2021, and the current total of 239 products is significantly more than were available this time last year. This competition is good news for borrowers with smaller deposits. Rates have come down noticeably over the past couple of months. We ourselves have reduced rates across our 90% and 95% LTV ranges by up to 25bps; including 2-year fixes for a borrower with 5% from 3.55%, down from 3.8%

Competition benefits those with smaller deposits

when we relaunched these deals earlier this year. Offering products that recognise the diversity of our population, their varied needs and different financial circumstances, is fundamental to our purpose at Newcastle. POSITIVE OUTCOMES

Being a mutual matters to us, to our customers and our intermediary partners – both in the North East and across the wider UK. That means we make it a priority to understand each and every customer applying for a mortgage, utilising our experience and underwriting expertise to deliver positive outcomes. In a rapidly changing world, in which our ways of working and sources of income are many and varied, we also think choice is the most important thing we can bring to the market. Supporting the high LTV market is one way of delivering that choice to borrowers, and it builds on our recent commitment to offer 5% deposit mortgages for buyers of new-build properties, under an innovative mortgage scheme developed with the Home Builders Federation (HBF) and its members. Deposit Unlock aims to give smalldeposit buyers more borrowing options, by allowing them to secure a new-build home up to a value of £330,000 with a deposit of just 5%. Initially, we’re piloting the scheme on selected plots in the North East of England, through Barratt Developments, Bellway, Keepmoat and Vistry. It’s great to be at the forefront of innovation in the mortgage market, particularly when it aligns closely to our purpose. We will have further news in the coming weeks as we expand our support for borrowers in the region and beyond, with a range of products designed specifically for the First Homes Scheme. Helping homeowners realise their aspirations is rewarding in so many ways. Building societies’ roots were founded in supporting people into homeownership; more than 150 years later, we’re proud we are still true to those roots. M I AUGUST 2021 MORTGAGE INTRODUCER

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TECHNOLOGY

Don’t just follow the well-trodden ground Steve Carruthers Xxxxxxxxxx head of business development, xxxxxxxxxxxxxxxx, xxxxxxxxxxxxxxxx Iress

he high-level case for technology in the mortgage process is a largely accepted one. The sheer number of providers of various technology solutions underlines the point that many of the offline and overly complex processes of yesteryear are gradually being tackled, replaced, or even removed by technology and data solutions. The impact that technology solutions are having on financial services firms is nothing short of breath-taking. However, every decision comes with compromises and demands detailed understanding if boardrooms are even to hope they get it right. The right technology, the right partner, the internal cultural change, operational challenges, and business benefits need to be thoroughly understood. There is no silver bullet because individual lenders are exactly that. No two lenders are the same. They share similar problems but, in reality, the term ‘lender’ covers a myriad of funding and operational and distribution models which all require distinct consideration. Not all parts are equally broken nor all lenders in the same boat or at the same point in their digital journey. As part of our annual Mortgage Efficiency Survey (MES), I spend a lot of time talking to lenders as well as brokers about the technology they use to run their businesses. While there is undoubtedly a huge opportunity to achieve something really meaningful, the reality is that everyone in the value chain is trying to knit together systems that do not often interconnect

MORTGAGE INTRODUCER AUGUST 2021

well at all. This invariably means more risk, more costs and results in patchy service for everyone in addition to the headaches for those using the system and those tasked with trying to fix them. Acknowledging this problem is the start. This year’s MES reminds me that awareness of the need to modernise is rarely the issue. What to do about it and who to turn to for advice is more problematic. We hear close-up how organisations are very different in their needs and ability to inject efficiency into every process.

“Everyone in the value chain is trying to knit together systems that do not often interconnect well at all. This invariably means more risk, more costs and results in patchy service” For many the entire change process can feel akin to trying to eat an elephant. For others, funding or operational constraints can mean a piece-meal approach is the only solution. Shared platforms or bespoke solutions loom large and rarely do buyers seem content with any of the route they select and yet they know too well they cannot do for themselves. Financial services businesses are, however, increasingly tech businesses. IT ‘projects’ are becoming a thing of the past. The thinking that technology is a project with a beginning and end has been consigned to the dustbin of management thinking from the 1990s. Technology is a constant work in progress, an integral part of the business, and an investment requirement in much the same way that we have long considered people to be.

If you’re in any doubt look at the tech giants of today. It’s so important to analyse the moving parts and understand their relative value because technology evolves as our lifestyles change. A good example of this, even now, is the way it is evolving to accommodate new users. The pandemic has taught everyone new lessons. According to 2019 ONS figures on internet users, almost half the UK population of people at 75 and over (47%) were recent internet users. There are more older people who have had to turn to and rely upon using the internet for the very first time during the COVID-19 pandemic. This brings its own challenges for some lenders who are now having to consider how to simplify their authentication processes easier, especially for first time digital shoppers. It’s a small example but you can see why the project mentality is not right when 12 months ago this phenomenon might never have been an issue. Building a road map is a critical part of the process – no matter how big or small your technology aspiration because for every technology change you undertake something else changes. We have heard many times about how building societies need to innovate but fear of losing the personal touch which is so beloved of many members. Understanding value is sometimes about acknowledging what tech will not deliver in previous ways and whether new formats are appropriate for your markets. Historically, many lenders have worried about closing branches because so many members have valued the footprint of local branches. Now, as we have seen, the older generations are quite happy to use the internet for a lot of their daily business. Understanding what is right for you is not about following well-trodden ground. It is about knowing what is necessary for the markets in which you currently operate and may want to do so in the future. The right partner is important to navigate the issues that go beyond ‘which tech’ to the heart of what type of business you need to deliver. M I www.mortgageintroducer.com

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TECHNOLOGY

Tech first for seconds Neal Jannels managing director, One Mortgage System

econd charge lending has long been a highly competitive sector within the wider mortgage market, and an increasing number of firms are embracing technological enhancements to ensure they keep pace. In recent times, lenders have made rapid strides in adopting and developing their own systems, solutions and integrations to make life easier for intermediary partners. Here at OMS, we are establishing relationships with a number of forwardthinking companies throughout this sector which are constantly striving to make their front and back-office operations even more efficient. I’ve made this point before, but I make no apologies for repeating that technology and the specialist lending markets have not always been viewed as an ideal fit. However, judging from a growing number of conversations we are having, this relationship continues to go from strength to strength. ADMIN SUPPORT

Of course, the second charge market will never be solely reliant on technology, due to the complexities of some transactions, the importance of flexible lending capabilities, and the need for in-house underwriting. However – and jumping on another little bandwagon which more and more firms are now realising – the best parts of technology are being used to support a variety of administrative burdens and offer access to documentation and application forms, without the need to rekey any additional data. These additional efficiencies help speed up a process which often needs to be completed swiftly. Whilst – generally speaking – second www.mortgageintroducer.com

charge lenders are impressive in completing speedy turnarounds from an underwriting perspective, admin burdens can sometimes hinder this process. So here comes technology to the rescue, again. SECTOR EVOLUTION

In terms of the continued evolution of this sector, the latest Finance & Leasing Association (FLA) figures showed that second charge mortgage lending increased for the second month in the row in May, with new business volumes pegged at £84m, up from £81m in April. Year-on-year, the value of new second charge mortgage lending business more than tripled, from £21m to around £84m. In addition, there were reported to be 1,910 new agreements during May, up from 486 in May last year and 1,890 in April. Although, to maintain some perspective, May 2020 was a period where business levels were down across the whole of the mortgage market as a result of the initial lockdown. The FLA also outlined that new agreements in the three months to May came to 5,848, up from 3,221 yearon-year, and that the improved levels of consumer confidence driving the recovery in new business will continue during the second half of 2021. Meanwhile, the latest version of Evolution’s quarterly data tracker showed that more second charge borrowers are using the proceeds from their loans for other purposes beyond debt consolidation. Looking at its total lending data for the three months up until the end of May 2021, the product split by volume of mortgages was said to be 74% debt consolidation versus 26% prime, and by value, 64% debt consolidation versus 36% prime. For those borrowers specifically using a second charge mortgage for debt consolidation purposes, the average loan amount was close to £21,300, with an average term of 125 months, and average loan-to-values (LTVs)

Tech supports a variety of admin burdens

falling back to 72.4%. Borrowers, on average, continued to consolidate five specific debts, but the average value of the debts consolidated had dropped to below £14,400. INCREASED DEMAND

This raft of data makes for some interesting reading, showing how diverse the need for second charge lending is, and how an array of borrowers are utilising this type of funding. With that in mind, it’s no surprise to see more advisers carefully evaluating the second charge options on offer for their clients. With people keen to pursue plans they may have previously put off over the course of the pandemic, it’s likely that demand will continue to grow. As will the quality of tech support to facilitate this increasing demand. At OMS, we already have application programme interface (API) integration with sourcing systems, criteria engines, credit searches, scoring and the lenders themselves, as well as e-signatures. Anything that can help the broker to consumer relationship find the quickest and easiest way to transact, for whatever the requirements, can only be a good thing and enhance the customer experience. This part of the market appears to be embracing the tech journey quicker than others, so make sure you are taking full advantage of it. M I AUGUST 2021 MORTGAGE INTRODUCER

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SECOND CHARGE

Are brokers getting more value? Tony Marshall managing director, Equifinance

s recovery in second charge business gathers pace and volumes begin to exceed pre-COVID levels, there is still no time for complacency. Every forward-thinking practitioner and stakeholder in the sector is committed to growth and seeing a wider acceptance of second charge mortgages across the intermediary channel. There was a time when master brokers – packagers – were the main, and in some cases only, conduit for accessing second charge lenders. However, in the past few years more lenders have opened their doors to direct business. The simple fact remains that advisers are expected to ensure that customers are given recommendations based on thorough analysis of the products and prices that are available and most closely match their needs. How they reach a recommendation is based on a mixture of industry

knowledge, experience and sifting through all the information they gather to reach a conclusion leading to a specific recommendation. Of course, technology has leapt forward, and sourcing systems are an indispensable weapon for every mortgage broker. However, the more complex a client’s individual circumstances, the more likely that advisers need to turn to specialist distributors to provide a finer level of sourcing that traditional engines cannot yet match. Advisers are time poor and are having to sift through masses of lender information, a lot of which is hard to find, and yet so much of the heavy lifting could be done by simply exploiting the resources provided by specialist distributors. They not only help to educate advisers about second charge mortgages and the wider specialist lending sector, but also convert many practitioners to the concept of making more use of their experience and human expertise, backed by their broad-based panels and close relationships with those lenders. If I was a broker coming to second charges for the first time, used to

Does increased product choice equate to better broker value?

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dealing directly with mortgage lenders for most of my first charge needs, I would like to know that, if I wanted to, I could deal with a lender directly – but would I want to? Whilst real or perceived barriers to entry must be dismantled if the sector is going to grow, and whether it is about fees, differing processes or just old fashioned prejudice, education remains a priority. Part of that education means helping new introducers understand that they do have a choice as to how they can access second charge lending. Whether they choose to use it is up to them. What I would say to all brokers is that they should assess the advantages and disadvantages of direct contact, as opposed to using a third-party specialist distributor. For brokers with the luxury of a backup team – to make the string of individual enquiries to each lender, in order to come up with a genuine recommendation based on rate, service and suitability to the client’s needs – going direct can work well. However, my question to brokers working on their own and without the benefit of a researcher or paraplanner, is how much time do they really have to make that kind of assessment before making a recommendation? I would suggest that, because of the need to research further advances and remortgages as well, the answer in many cases would be ‘not much’. More lenders are likely to offer a direct route now, but for the majority using a third party to provide origination, communication and the all important preparation of the application, there is no real business case to make the change. I am an advocate of the specialist distributor route. If I was a broker, there would be a real advantage in having a distributor resource with access to all the major lenders in the sector. Their knowledge of lenders’ individual requirements and the option, should I choose it, to provide my client with a full advice service, would leave me free to concentrate on new business. This, therefore, still makes the most compelling argument. M I www.mortgageintroducer.com

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BUY-TO-LET

Bullish outlook for buy-to-let Cat Armstrong, mortgage club director, Dynamo for Intermediaries

he second half of 2021 is now in full swing. As lockdown restrictions ease – for now at least – we are entering the final phase of the stamp duty holiday, and the Summer really is hotting up, in more ways than one. Looking back on H1 2021, it was a ridiculously busy time across the housing and mortgage markets, especially in Q1. In the second quarter we saw sustained levels of activity across the buy-to-let (BTL) sector, as landlords continued to carefully assess yields, costs, appetite and the ability to capitalise on opportunities to add to their portfolios. RENTAL YIELDS

Fleet Mortgages’ Buy-to-Let Rental Barometer suggested that rental yields have remained flat on residential BTL properties across England and Wales in Q2 (5.6%). This average figure was the same as that recorded in Q2 2020, although yields have shifted on a regional level. The biggest yearly rise was found in Yorkshire and the Humberside, where average yields rose from 6.1% to 7.2% – a gain of 1.1%. This was closely followed by the East Midlands, where landlords saw average yields grow from 4.5% to 5.5%. The other side of the story is most apparent in Wales, where yields went from 15.2% to 6.3% – a downward change totalling 8.9%. However, Fleet does point out that its numbers for this country are based on limited data. In the North West of England, average yields shrank by 1.2%, going from 8.1% to 6.9% and in the South East, there was a reported reduction from 5.8% to 5.2%. www.mortgageintroducer.com

The data highlighted just how robust rental yields are, with these becoming more centralised as regions with lower yields improved and those on the higher end mellowed. Yield will continue to be driven by tenant demand outstripping supply across many regions, and demand for a variety of family homes continuing to stimulate rental activity, with landlords reacting accordingly. This combination will encourage more landlords to add properties to their portfolios moving forward.

landlords coming to the end of a 2-year fixed rate term. The research found that in July 2019, the average rate on a 2-year deal was 3.01%, which is 0.03% higher than in July 2021. The average 5-year rate was 3.50%, 0.22% higher than the July 2021 average. In addition, the average rate at a 75% loan-to-value (LTV) on both 2 and 5-year fixed deals has fallen since 2019. The average 2-year rate at this LTV fell slightly, down by 0.01%, and the average 5-year rate at 75% LTV saw a more significant fall of 0.15%.

PRODUCT AVAILABILITY

CONFIDENCE AND BTL BUSINESS VOLUMES

An important factor when it comes to supporting landlords in their purchase and remortgage needs is the matter of access to competitive funding and product choice. There is more good news here, as research carried out by Moneyfacts. co.uk found that the number of BTL deals has recovered from the impact of the pandemic to reach 2,709 at the beginning of July.

“Although rates are reported to have risen slightly in recent times, average rates have actually fallen since 2019, which represents good news for landlords coming to the end of a 2-year fixed rate term” This was the highest number recorded since March 2020, when there were 2,897 available deals. Perhaps even more interesting is that there are now an additional 365 products when compared to July 2019, which demonstrates the strength and resilience of the sector in the aftermath of an unprecedented 18 months. Although rates are reported to have risen slightly in recent times, average rates have actually fallen since 2019, which represents good news for

On the back of robust yields, increased product numbers and competitive rates, it’s no surprise to see confidence rising across the BTL sector, and there is little to suggest that this is likely to fall anytime soon, despite the tapering of the stamp duty holiday. This is a sentiment which was highlighted in recent data from Paragon Bank, which revealed that 53% of mortgage intermediaries expect to see an increase in buy-to-let business over the next 12 months. This compares to a figure of 50% when respondents were asked the same question in Q1 2021, whilst the proportion expecting declining levels of buy-to-let business remained consistent at 10%. In addition, brokers also reported high levels of demand for buy-to-let during Q2, with 42% of intermediaries stating demand was ‘strong’ and 8% ‘very strong’. That compares to 26% in the corresponding period last year, which was at the height of the pandemic. Just 10% of respondents reported buy-to-let demand as ‘weak’ during the period, compared with 30% during the second quarter of 2020. This confidence is certainly evident in our ongoing conversations with a range of landlord clients and lending partners, which bodes well for a bright and sunny outlook for the BTL sector in Q3 and beyond. M I AUGUST 2021 MORTGAGE INTRODUCER

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Starling revelations Bob Young chief executive officer, Fleet Mortgages

t’s fair to say that the last few weeks – indeed the last few months – have been a particularly interesting time in the life of Fleet Mortgages. I’m sure you will have seen by now that we announced the acquisition of the business by Starling Bank at the end of July, and while it looks like this news happened ‘overnight’, you can probably guess the work that went into the successful completion of the deal prior to us being able to make it public. Since we established the business seven years ago, Fleet has worked with a number of excellent, worldrenowned institutions as our funders. We effectively started this journey talking to them and others about our future funding requirements, what we wanted to achieve, and that ‘holy grail’ – cheaper funding costs away from the capital markets. We have had plenty of discussions on this over the years – clearly, though, when it came to Starling Bank, those conversations went in a slightly different direction. We feel this outcome goes a number of steps further and better than what we were originally trying to achieve. CULTURAL FIT

To be able to work with an organisation like Starling – which feels like a very close cultural fit to Fleet – and to be able to tap into the huge success it has already had, particularly in the current and business account market, was quite frankly a marvellous opportunity. Plus, of course, there was recognition from Starling of what Fleet had already achieved, and what it was capable of doing in the future. There is a lot to be said for the boost we have received from working with the Starling team, and the confidence it has placed in this business, not

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forgetting the fact that Starling has made us its first acquisition and its first foray into the mortgage market. BUSINESS AS USUAL

Of course, the most common question you tend to get after such an announcement is: what happens next? The somewhat boring short-term answer tends to be: nothing changes. We’ll have the same management team, the same sales team, the same underwriting team, the same admin team, and we’ll be conducting ourselves in the same way you have come to expect from Fleet. It really is ‘business as usual’ in terms of how you deal with Fleet, what you receive in terms of our day-to-day service delivery, and the level of support, communication and interaction you will continue to receive. Starling has made it clear that we are being bought because we are very good at what we do, and to a very large extent, we are going to be allowed to carry on doing what we do well. Of course, though, we haven’t sold the business to stand still, and it was a huge part in the choice of acquirer that we have a new shareholder which is as ambitious as we are and wants to help us take Fleet onto the next level. NEXT LEVEL

I appreciate that acquired businesses always talk about moving onto the ‘next level’, so what do we actually mean? Well, as already outlined, Starling Bank will now become our

sole funder and the future loans we write will sit on its balance sheet. We still have two pools of loans with other funders which may be securitised, but there are no plans for Starling to do this – although I might add that all the loans we write going forward will meet the requirements of an issuance, if that is the course of action decided upon. However, what is likely to be of more interest to advisers and their landlord clients, is that we now have that holy grail – a cheaper source of funds that can be utilised to provide highly competitive buy-to-let products, and potentially allows us to look at offering further products in our specialist sector, but to also perhaps look at other opportunities that are undoubtedly likely to open up. This ambition has always been there for Fleet, but because of Starling’s involvement, we can now look to accelerate those ambitions – a pathway which is unlikely to have been available to us if we had remained as we were. For those wanting ‘spoilers’, all I can say is that we want to become a much bigger player in the mortgage market. But it will still be the ‘old’ Fleet in terms of the way we work with advisers and their clients, and perhaps that is the most important takeaway at present. There will clearly be a lot more news to come from us in the months to come, but in the meantime, we will continue to deliver what we always said we would – that is not going to change. M I

Starling made its first acquisition and its first foray into the mortgage market

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Getting on the right energy efficient track George Xxxxxxxxxx Gee commercial xxxxxxxxxxxxxxxx, director, Foundation xxxxxxxxxxxxxxxx Home Loans

s one of the first specialist lenders to launch a green mortgage offering, our ongoing aim is to help a variety of borrowers benefit from energy-efficient properties. As such, in early July, we made the decision to extend this range to landlords looking to expand their portfolios, as well as for remortgage purposes. The initial response to this move has been extremely positive, and feedback from our intermediary partners suggests that a growing number of landlords, homeowners and potential homeowners are becoming more environmentally conscious when it comes to their homes and investments. This is a product area which has followed from a strong government lead. The government has itself set an ambitious target of net zero greenhouse gas emissions by 2050, and it’s widely thought that in order to do this we’ll need to eliminate energy inefficiencies from UK housing stock by 2030. As outlined in a January 2021 paper from the Department of Business, Energy & Industrial Strategy, proposals are in place to raise the energy performance standard to Energy Performance Certificate (EPC) energy efficiency rating (EER) Band C. There is a phased trajectory for achieving the improvements for new tenancies from 2025 and all tenancies from 2028. Lenders and landlords are certainly familiar with EPCs. Since 2008, all rental homes in England and Wales have been required to have a valid EPC, and new rules introduced in 2018 mean that rental properties must have an E rating or above. www.mortgageintroducer.com

Nevertheless, increased profile, awareness and education are still required in order to maintain this important momentum in both the residential and rental markets. Focusing on the buy-to-let (BTL) sector, this was outlined in the latest BVA BDRC Landlord Panel research for Q2 2021, which showed that just under six in 10 landlords claim to have full awareness and understanding of the new EPC legal requirements. The data did suggest that full awareness and understanding of the requirements increases in line with portfolio size, ranging from 46% for single property landlords to 66% for those with 20-plus properties.

“The quest for eco-friendly properties and an array of other factors which impact the buying patterns of landlords will be closely monitored by all lenders” However, 18% of landlords were said to be completely unaware of the requirements, with this figure almost doubling for those with only a single property (34%). The data also highlighted that the average landlord has 2.8 properties with an EPC rating below Band C, although just over a third of landlords have no properties with an EPC rating below this level. On a regional basis, landlords who let property in Yorkshire and the Humber were said to have the highest average number of properties with a rating below C (4.6), whilst those with properties in the North West have the least (2.1). Due to the new legislation, 62% of landlords say they will be less likely to purchase properties with an EPC rating below C in the future.

Around a quarter claim EPC rating compliance will make no difference to their likelihood of purchasing D, E, F or G-rated properties, while smaller landlords are significantly more likely to be unsure about the impact of the legislation on their future purchasing compared to their larger counterparts. For those with one to three properties, 12% were unsure, dropping to 7% among those with four or more. Staying on the subject of adding to portfolios, additional data from BVA BDRC illustrated that the incidence of recent sales activity is now slightly higher than recent purchase activity. In Q2, the average number of properties bought or sold was largely unchanged, at 1.7 and 1.4 respectively. Landlords with 20-plus properties continued to be most active in terms of both recent buying (16%) and selling (29%) activity. Terraced properties remain the most attractive purchase target, whereas flats have become the most popular to sell. A higher proportion of landlords intend to divest flats than was the case in Q2 2020, with the figure up seven percentage points. The South East and South West are still the regions which are most likely to see purchase activity in the next year. The South East is also where the most landlords are looking to sell, with anticipated sales activity in this region standing at 17%. Linked to the downturn in yields and tenant demand, just 2% of landlords intend to purchase in Central London in the next 12 months, whilst 9% are looking to divest from this region. The quest for eco-friendly properties and an array of other factors which impact the buying patterns of landlords will be closely monitored by all lenders. It’s still relatively early days for the green mortgage market, but it’s encouraging to see an array of lenders entering into and extending their offerings within this space. Landlords are becoming far more aware of their environmental and regulatory responsibilities, but this remains an area where lenders and advisers will play a key role in ensuring that they stay on the right, energyefficient track. M I AUGUST 2021 MORTGAGE INTRODUCER

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Brokers beware of buyers in BTL John Dobson CEO, SmartSearch

he rental market in the UK is booming, and demand for properties to let is hitting new highs. Alongside the record-breaking housing market, there is a huge desire to move from renters as well. Cities are making a comeback, as the UK slowly begins to exit lockdown, with Zoopla’s recent Rental Market Report finding demand is increasing in wider commuter zones and wellconnected towns. However, alongside the increasing number of legitimate landlords, brokers need to be aware of the possibility of criminals looking to the buy-to-let (BTL) market in order to ‘wash’ illicitly gotten gains. While the pandemic has spurred action in the housing market, it has also presented opportunities for fraud and money laundering. As we predicted way back in March 2020, cases of fraud and attempted fraud have sky-rocketed during the pandemic, with criminals seizing on the lack of face-to-face contact as an opportunity to profit.

The rental market in the UK is great for laundering money

money-laundering, and had increased surveillance over the past 12 months Those lax in their approach may leave themselves exposed to hefty fines. VERIFY YOUR CLIENT

BUY-TO-LET A PRIME TARGET FOR MONEY LAUNDERING

The rental market in the UK is great for laundering money. Not only does the criminal get to ‘clean’ their money through the initial purchase of the property, but they can then continue to make money each month through rental income. Then in a few years, they can sell the property – most likely for a tidy profit – and there you have it, legitimate funds. Brokers need to be vigilant to this threat, as the Financial Conduct Authority (FCA) is looking to crack down on those who facilitate money laundering. The FCA warned that it is actively monitoring the property market for fraud and

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To prevent fines and reputational damage, brokers should look to accurately verify who their client is, and then ensure they are not on any sanctions or Politically Exposed Persons (PEP) lists. This can be an arduous task – requesting a passport photo and accompanying selfie, checking these match, ensuring the passport is legitimate, scanning the hundreds of sanctions lists across the world. Doing this manually can be an incredible drain on time. The easiest way for brokers to ensure they are compliant is to use an electronic verification system such as SmartSearch. With just a name, date of birth and address, the system will check credit data from the three largest

providers in the UK, and also scour the sanctions and PEP lists to ensure the client is not wanted in Peru for drug trafficking. This all takes place in just two seconds. The credit data is virtually impossible to fake and will give the broker peace of mind that the client is a legitimate buyer. Outside of the moral obligations for preventing money laundering, brokers need to ensure they are doing their due diligence to avoid getting blacklisted by lenders. If a broker passes on a few fraudulent cases, then a lender may decide that the intermediary is not to be trusted and completely shut them off. With demand for rental properties set to continue, buy-to-let brokers will be rushed off their feet in the coming months. What they can’t rush is their anti-money laundering checks, and the best way to comply is to use an electronic verification system like SmartSearch. M I www.mortgageintroducer.com

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Life after the stamp duty holiday COMPLEX BTL

Jane Simpson managing director, TBMC

rom 1 July the zero rate stamp duty threshold was reduced from £500,000 to £250,000, and on 1 October it will revert to £125,000, so there is still time for those purchasing properties to make some savings. Although buy-to-let (BTL) property investors pay a 3% surcharge, the stamp duty holiday has created a boost in rental property purchases over the past 18 months. Despite the stamp duty incentive coming to an end, there are still strong drivers for landlords to maintain their portfolios and look for opportunities to make additional property purchases.

The complex buy-to-let mortgage market is also flourishing, and specialist lenders are perhaps being used more than ever, especially for cases that don’t fit with mainstream providers. It also appears that complex buyto-let lenders are in favour with the intermediary community, according to recent research by Smart Money People. The research involved 597 brokers who were asked to rate 44 different mortgage lenders from across the industry. The complex buy-to-let lenders included in the research were rated highest by brokers for flexibility, with a score of 96%, followed by mainstream buy-to-let lenders with a score of 87%. This underlines that within the buy-to-let mortgage sector, brokers value being able to deal with lenders that take a flexible approach to underwriting, especially for more complicated cases.

However, the complex buy-to-let lenders only scored 67% for their ease of use, compared with 80% for mainstream lenders. This is perhaps unsurprising, as complex cases normally involve more thorough underwriting practices and have greater requirements in terms of supporting evidence. BROKER BENEFITS

Buy-to-let intermediaries can take confidence from a recent report from Hodge, which showed that nearly three quarters (73%) of portfolio landlords use a mortgage broker to arrange finance for their buy-to-let properties. Furthermore, 71% of large portfolio landlords – £2m to £50m portfolio value – said that using a mortgage broker had saved them money. This clearly highlights the value placed on buy-to-let mortgage brokers, and an appreciation for the service they provide to their landlord clients. M I

STRONG YIELDS

Average rental yields across England and Wales remain strong, recent data published by Fleet Mortgages shows. Landlords benefited from an average rental yield of 5.6% in the second quarter of 2021, with some interesting regional variations. Year-on-year, Yorkshire and Humberside had the biggest increase rental yield, rising from 6.1% to 7.2%. Although London has suffered with falling rents during the pandemic, it is likely to recover well once the capital opens up more fully following the enduring lockdown measures. For those seeking to remortgage, release equity or expand their portfolios, buy-to-let lenders continue to demonstrate their appetite to lend. Increased competition means that buy-to-let mortgages are keenly priced, and there are now more options available at higher loan-to-values (LTV), particularly in the 80% bracket. This bodes well for BTL brokers looking to write more business with their landlord clients, as there is a good choice of products for most scenarios. www.mortgageintroducer.com

Landlords continue to look for opportunities to make additional property purchases

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Supporting landlords who think differently Xxxxxxxxxx Richard Rowntree managing director of xxxxxxxxxxxxxxxx, xxxxxxxxxxxxxxxx mortgages, Paragon

he sustained period of increased demand that we have seen in both the sales and rental markets, stimulated by pandemic influenced priority shifts and the stamp duty holiday, have meant that one of the most prevalent market conditions currently is a shortage of stock. A recent RICS poll found that the gap between supply and demand is at the widest for eight years, with a net balance of -32% of contributors reporting a decline in new landlord instructions. Zoopla, meanwhile, reports that the stock of homes for sale on the platform per estate agency branch is 30% lower than normal levels. Present market conditions for landlords makes investment particularly attractive. Tenant demand is at record levels, whilst the availability of finance at competitive pricing has broadened. The issue they face is a lack of property to purchase at reasonable prices. The shortage of stock in the current market is understandable. Some potential sellers don’t want to have people looking around their home during a global pandemic, whilst uncertainty over job security is hampering some despite the resurgent economy. Intense competition also means homes are selling in days, rather than weeks, and often off-market. However, lack of stock is maybe more rooted in the long-term undersupply of new homes in the UK. A Parliament-produced research briefing, published at the start of the year, estimated the number of new homes needed in England at up to

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345,000 per year. The paper also highlighted that the total housing stock in England increased by around 244,000 homes throughout 2019/20. The government’s target has been 300,000 for a number of years now, but not once has this figure been met. CONSTRUCTION CHALLENGES

Two key issues will have further hampered construction over the past 18 months – Brexit and Coronavirus. Brexit has created labour issues as many of the UK’s construction industry’s workforce came from EU countries, whilst the industry is also experiencing materials shortages from overseas. Meanwhile, Coronavirus has delayed the completion of new homes as the sector was temporarily mothballed. Although construction was exempt from lockdown, by the first week of April, activity ground to a halt on as many as 42% of residential sites, according to findings from construction market analysis company Glenigan. And while overcoming these issues would inject more stock into the market, the reality is that home ownership would remain out of reach for some sections of society. Last year, house prices were 7.7 times average salary, and the 10% jump in average property prices over the past year has only exacerbate that. MHCLG figures show there were approximately 1.1 million people on English local authority housing waiting lists last year, evidence of the inability of current social housing provision to meet demand. ONS lists the number of homes rented from local authorities at 4.59 million in 1971. This fell to 1.58 million in 2020, and even though these figures were supplemented by ‘other public sector dwellings’ from 1991 to reflect the transfer of ownership from local authorities to housing associations, the stock of social housing has declined

over 40 years by two million homes overall. The private rented sector has proved vital in filling these gaps and this is something I see continuing for many years. But with stock so limited, investors will need to increasingly think differently to meet demand. This may take many forms, one of which is the opportunity presented by some of the biggest issues of today. The rise in e-commerce has seen a downturn in high street footfall in recent years and this has been accelerated by COVID-19. While some online retailers have recently recorded record profits, those slower to adapt to restrictions have literally had to shut up shop, adding to the growing proportion of vacant retail units. Labour has called on the government to allow councils to re-purpose these, but with the UK Housing Review highlighting that publicly funded social housing investment in Great Britain has fallen from just under £16bn in 1980 to approximately £8bn in 2018, private investment could help to unlock potential residential stock. Although it may be more difficult to find tradespeople to undertake the work at present, in May, the Prime Minister announced what he billed as landmark reforms that will revolutionise skills and training opportunities to ensure that provision meets local needs in sectors including construction. With the government also promising to make it easier to change commercial buildings into residential as part of their ‘Build back better’ plan and people returning to city centre living, we could be seeing an alignment of conditions leading to landlords adding some much needed stock into the sector. And if landlords are looking at different ways to develop their portfolios, lenders will be presented with semi-commercial applications that are outside of what they may have considered previously. With some arguing that the planning reforms could be exploited, opening the sector up to cramped, sub-standard homes, this will require thorough surveying and underwriting from skilled professionals, something that specialist lenders are well placed to provide. M I www.mortgageintroducer.com

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If you write GI business, read this Kevin Carr chief executive, Protection Review; MD, Carr Consulting & Communications; co-chair, Income Protection Task Force

istorically, brokers who write general insurance (GI) business, such as building and contents, haven’t written much if any protection cover. But is that about to change? There is growing opinion within the industry that the gaps between the general insurance and protection worlds are not only closing, but that bridges are starting to emerge. In no particular order, let’s look at some of the reasons that might be driving this chain of thought: The GI market review is leading some brokers to consider looking at alternative revenue streams to grow their income.  The public are – hopefully – coming out of a global pandemic which has driven increased interest and awareness of protection products, especially income protection.  Awareness among renters of the benefits of protection is growing, and according to Legal & General just 2% have any form of income protection, versus 14% of mortgage holders  The existence of accident and sickness (AS) or accident, sickness and unemployment (ASU) policies was decimated by COVID-19 due to the renewable nature of contracts, which saw insurers increase prices or revoke cover, but this hasn’t happened in the long-term protection market, where products weren’t pulled and prices didn’t shoot up.  Technology now enables brokers to quickly compare prices and features from a range of insurers.  A range of options also exist for the application process, which can be www.mortgageintroducer.com

NEWS IN BRIEF The Income Protection Task Force has launched a consumer-facing awareness brand known as ‘Ziggy Money Moves’ Anorak has joined with app Plum to deliver protection to millennials

done digitally or by phone to suit the customer, and with or without the broker’s involvement.  It’s never been easier to refer to a specialist protection broker via British Insurance Brokers’ Association’s (BIBA) signposting initiative. Let’s not forget that commission still exists – and rightly so – on protection products, where the average monthly premium is around £30, paying around £600 to 700 upfront commission. Roy Mcloughlin, associate director at Cavendish Ware, said: “What we have found from the brokers who introduce protection to us in particular is an increased interest in business protection. We believe this is down to those brokers checking that businesses have the correct indemnity and liability covers in place – and then turning the conversation towards the directors and what might happen to the business if they weren’t around.” Alan Knowles, group chair of Protection Distributor, added: “There’s a natural synergy between general insurance policies, such as home insurance and [AS], and protection insurance. Many mortgage brokers and protection advisers will look at both, but this doesn’t seem to happen as much in reverse. “Whether GI brokers write it themselves or refer it, it’s a great

Legal & General launched a range of benefits including fracture cover and private diagnostics LV= launched two income protection (IP) products that could help people who typically struggle to find cover The Exeter recently announced a revamped IP proposition

opportunity to offer more cover and generate additional revenue.” Insurers, it seems, also agree. According to Peter Hamilton, head of market rngagement at Zurich, customer needs are changing. He said: “It’s understandable why many GI brokers won’t have focused on protection discussions historically – a mixture of concerns over regulatory permissions, potential complexity, competing opportunities and quite possibly silos within insurers. “The customer need, though, has been brought into even sharper focus by the pandemic, and the opportunity for GI brokers to broaden their footprint, whether by writing life business themselves, or in partnership with others, has never been more accessible.” M I

The gaps between the GI and protection worlds are closing

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PROBABLY THE MOST IMPORTANT BROKER EXPERIENCE STUDY EVER GET YOUR VOICE HEARD It's time to make a difference. On 1 September we will be launching the most comprehensive study into brokers' experience with lenders ever. With so much having changed over the last 15 months or so, it has never been so important to get your voice heard. Share your views. Tell us what you think of lenders. In confidence. Together we can drive chan ge.

FOR UPDATES ON THE SURVEY AND REPORT, VISIT www.mortgageintroducer.com

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Showcase the value of income protection Emma Thomson head of protection and GI propositions, Sesame Bankhall Group

“Y

our home is at risk if you do not keep up repayments on a mortgage or other loan secured on it.” Homeowners and certainly mortgage advisers are familiar with this warning, but how many people take action to ensure those repayments can be kept up in the event of losing income? Research undertaken last year by personal finance website Finder found that 41% of Brits don’t have enough

“Given all that’s happened since last March, it should be easier for advisers to discuss the risks, ask what contingency plans clients have in place should they be unable to work, and explain how IP is designed to provide that financial safety net” savings to last a month without income. This is a stark reminder of how fragile financial resilience is for many, and the important role income protection (IP) can have in helping consumers continue to pay their mortgage in the event of illness or injury. The furlough scheme is arguably the biggest group income protection scheme the UK has ever seen. Millions of people have experienced how important it is to have a financial safety net in place when unable to work. Self-employed people have also discovered how difficult it is to

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get support compared with their employed counterparts. Meanwhile, the mainstream media has reported how inadequate Universal Credit and Statutory Sick Pay is, highlighting the risks of relying on the State. So, given all that’s happened since last March, it should be easier for advisers to discuss the risks, ask what contingency plans clients have in place should they be unable to work, and explain how IP is designed to provide that financial safety net. We’ve recently seen a flurry of IPrelated activity, which bodes well for the market. The Exeter revamped its proposition, replacing the Income One and Pure Protection plans with a new Income First policy, which includes extended features such as the ‘employer change promise’ for those who change jobs and experience restricted sick pay during their probation period.

LV= has launched two new plans; Executive Income Protection and an innovative mortgage and rent cover. The latter should particularly appeal to mortgage advisers, as it provides a specific means for clients to protect mortgage payments. The Income Protection Task Force (IPTF) has launched two initiatives. The first, a consumer-focused brand called Ziggy’s Money Moves, aims to increase awareness of money matters amongst 18 to 35-year-olds. The second is Income Protection Awareness Week, commencing on 20 September. This week of events will showcase the value of IP and encourage advisers to increase recommendations. Sesame Bankhall Group has been proud of its increased protection results this year, but we’re mindful there is more for our industry to do to improve consumer financial resilience. Increasing the number of clients who buy IP will ensure fewer people have to worry about how to pay the mortgage if they can’t work. It’s not simply enough to help clients buy their dream home, we also have a responsibility to help them stay in it. M I

There is more for our industry to do to improve consumer financial resilience

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Business Expo 2021

Evolving financial business since 2002.

14th October 2021 ALREADY CONFIRMED: • Bank of England Keynote • CPD seminars • Leading lenders and service providers in a face-to-face environment • New central London venue at the Business Design Centre • Purpose built, natural light and bespoke seminar rooms • Clarity on which products and services are still available, plus what’s new to the market

E WEBSITE FREE REGISTRATION IS OPEN VIA TH

mortgagebusinessexpo.com Stands and sponsorships are available, contact mike.mikunda@clarionevents.com for more details

14th October 2021, The Business Design Centre, London

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The proof of the pudding Mike Allison head of protection, Paradigm Mortgage Services

he saying ‘the proof of the pudding is in the eating’ was first recorded in English in the early 17th Century, but it is likely much older. Similar phrases denoting that to taste something is to test it go back to at least the 14th Century. Back then, no one was talking about the kind of sweet, creamy ‘pudding’ confections we get today – puddings were gutsy, literally. They were essentially sausages, boiled or steamed. In the Middle Ages, these could be very good or very bad – or possibly fatal if the meat used was contaminated. To find out, you had to put it to the ‘proof’. The link to fatality in the context of this article is very real. Usually in civilised environments, we have a choice as to whether we try things or not, but during the past 18 months or so, some of our choices have been curtailed. Some of the most basic needs have been denied, and we have needed to try something else to get by. In some instances, this has had profound effects on lifestyles in a very positive way – one of which has been access to healthcare. Not only have we found different ways of accessing it, but in many instances the service and treatments have been quicker, and in some instances life-saving. Regular readers of this column will know that the term ‘added value benefits’ from life companies has featured on a number of occasions. We at Paradigm have been doing our utmost to shout about the benefits. Many of our highly successful online workshops have featured different angles and elements, and will continue to do so moving forwards. As we move out of the pandemic, I have asked a number of providers about

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these services, for a report on how they fared not just as a quantitative analysis, but a qualitative one too. This is partly to see how they fared under pressure, and partly to see how valuable they potentially will become moving forward, as NHS waiting lists are not likely to decline anytime soon. Many have responded, but one of them – Teladoc – provided me with some interesting and eye-opening facts on usage and quality. WHAT IF...?

Most would have expected demand to rise, for obvious reasons, but worldwide Teladoc saw 2.5 million consultations in 2019 rise to over 10 million in 2020. Having a four-times increase in demand in any area of work is a challenge, but doing that with stretched resources is an incredible feat. If we look at the most basic of services offered, the GP 24/7, we see that usage has increased considerably, and yet 96% of customers would recommend it in feedback gathered – a ringing endorsement. When we look deeper into these numbers, there are even more reasons to commend the services, especially when users looked at what would have happened if they wouldn’t have been able to access the service:  66% would have gone to A&E – using the service 58% were able to stay at home and 7% were referred.  11% would have gone to their GP – using the service 22% were referred to their GP for a follow up.  4% would have gone to a specialist – using the service 13% were referred to and scheduled a specialist appointment. Perhaps the most startling of all is that 19% would have waited for their issue to get worse. Using the service, no one did this, everyone was supported. I have heard some heartfelt examples. One was a young lady who was referred early enough – not from their own GP remember, but from someone who knew little of her medical history. She would not have survived if she

hadn’t used the service – her diagnosis was early onset cancer, found from an online consultation and treated. Basically, she wouldn’t be alive today without access to GP 24/7. Imagine the positive feeling of being a broker who recommended the policy that went on to save a life. However heartwarming these stories are in relation to the past months, the clearer opportunity exists to explain to clients the benefits of such addons to life policies. Even the phrase ‘added value benefits’ does not do the support justice. For those who have had the benefit of the usage, they would probably argue they are the core benefit, with the life cover element being secondary. WHAT ABOUT MOVING FORWARD?

As I mentioned earlier, we see almost daily references to NHS waiting lists growing, specifically within the overburdened mental health support sector. Teladoc analysed a significant number of patients with psychological stress in the UK between January and May this year by using a tested ‘before and after’ measuring process. Of those with ‘moderate to severe’ and ‘severe’ psychological distress at the onset of therapy – around 30% of the total surveyed – only 2.5% showed some evidence of still suffering at the end of the therapy, and not one of the 2.5% were those originally in the ‘severe’ bracket. Moving forward, the benefits of having life assurance arrangements with either individual or group insurers will become an everyday part of our lives. It is currently estimated that accessing treatment directly for stress could take six months using the NHS, and yet the majority of providers can currently place those suffering on a programme within two to four weeks. The proof is definitely proven, and I urge all of those who consult with clients on accessing life cover to shout about these benefits at a time when the value is at its greatest. M I AUGUST 2021

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PROTECTION

IP is a growing necessity for renters Steve Bryan director of distribution and marketing, The Exeter

ouse prices in the UK have reached new record highs, with the ‘race for space’ and the pandemic causing buyer demand to outstrip the number of available properties on the market. According to research by the estate agent Hamptons, this means that it is now cheaper to rent long-term than it is to buy a home. As house prices continue to rise, so too does the average age of renters, with more than half of UK private rental households now headed by someone older than 35. Research from HSBC also predicts that the average age of first-time buyers could rise to 40 once the government’s Help to Buy scheme ends in 2023, meaning more people are likely to be stuck in the rental sector for longer. As a consequence, many of these individuals are likely to have greater financial commitments while still renting, including families to support.

However, research from The Exeter shows that only 15% of the conversations that advisers have had with clients regarding protection in the last year have been with renters. This leaves renters at serious risk, should they find they are unable to work due to ill health, with some people likely to struggle to pay rent and cover everyday costs. Indeed, the UK Rental Market Statistics 2021 Report revealed that British renters spend on average 31% of their income on rent, rising to 80% in some London boroughs. ADVICE REMAINS KEY

Advisers have a crucial role to play in raising awareness of the wide range of protection policies that can be tailored to meet the needs of those who rent, including products where cover levels increase steadily to keep pace with rising rental costs or for people who change tenancy agreements regularly.

Highlighting the affordability of these products is also vital when speaking to clients, as many will be unaware that there are policies available for less than £20 a month, depending on their circumstances. RENTER REQUIREMENTS

As an industry we must move past the idea that income protection is only valuable to homeowners, and realise the opportunities that come with speaking to other types of clients. With the property bubble looking unlikely to burst, advisers must instigate conversations with renters about their protection requirements and get them thinking about how they will cover rent and maintain their standard of living should they have a fall in income. M I

“As renters get older, they have an increased chance of being unable to work due to serious illness or injury, so it’s crucial that advisers are approaching this demographic”

RENTAL PROTECTION GAP

Despite this, renters have historically been less likely to have any form of financial protection, such as income protection (IP). Taking out a mortgage has been a traditional trigger for advisers to discuss protection with their clients, but with so many people unable to take the first step onto the housing ladder, a huge proportion of the population are not having these vital discussions. Particularly as renters get older, they have an increased chance of being unable to work due to serious illness or injury, so it’s crucial that advisers are approaching this demographic.

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Renters have historically been less likely to have any form of financial protection

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GENERAL INSURANCE

Making non-standard standard James O’Hara commercial director, Ceta Insurance

ootball fever took over last month thanks to the European Championships. Now, you may well be wondering why I am talking about football in a column for mortgage brokers. Well, it is all about perception. Football is a global sport, and in many areas it’s also one of the most technologically advanced. So, when Real Madrid failed to sign Spain and Manchester United goalkeeper David De Gea because the paperwork wasn’t submitted in time due to a technological failure, it made headlines. De Gea was literally moments away from moving to Real Madrid, but it all fell through because a fax machine failed to get the forms through before the transfer deadline. ADVANCED INDUSTRY

The perception of football is that it is at the cutting edge, yet it is still depending on ‘80s technology. The reverse is true of the general insurance (GI) industry. It’s more advanced than you might think. The perception is that getting cover for clients requires dealing – over several days – with a person in a dusty room with a fax machine and several ring-binders with paper quotes in them. You can multiply that process if it’s a non-standard application. While this may have been the case in the past, it’s not the reality now. Some brokers I speak to remain skeptical, assuming that – even if they are able to find their client nonstandard cover – the admin associated with it will be so time consuming that it will either be a loss-leader, or the premiums will be so high that their client won’t want to go ahead. Yet, for those brokers who are prepared to venture into the world of www.mortgageintroducer.com

Got it covered: The modern insurance industry is technologically advanced

non-standard insurance, there is a huge opportunity to be had. That is because, firstly, almost a third of all properties in the UK are classed as non-standard – that’s nine million homes, and makes for a pretty sizeable market. DIGITAL PORTALS

Secondly, accessing non-standard cover has never been easier for advisers. Thanks to the latest digital platforms and non-standard insurance portals, you can now compare non-standard GI for your clients, and it won’t involve fax machines, phonecalls and three-day waits for quotes. You can now access leading specialist insurers, manage non-standard risks,

and retrieve a quote in less than two minutes. You don’t need multiple logins on multiple platforms with multiple agencies, either. It can all be done digitally in one place, with one login accessing dozens of products. You can then monitor everything onto a live dashboard. Non-standard portals like ours are also adding new products and new insurers all the time to increase digital comprehensiveness. So, my advice to mortgage brokers is not to assume that general insurance is a time vacuum that will suck your attention into its antiquated processes. It’s not like that any more, and unlike the Premier League, you don’t need to rely on a fax machine. M I AUGUST 2021 MORTGAGE INTRODUCER

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GENERAL INSURANCE

An online presence, one click at a time Xxxxxxxxxx Rob Evans CEO, xxxxxxxxxxxxxxxx, xxxxxxxxxxxxxxxx Paymentshield

ould it surprise you to know that, in today’s digital age, only 53% of advisers use social media to promote their business? Perhaps pre-pandemic this finding from Paymentshield’s 2021 Adviser Survey would be somewhat expected of the insurance industry, given its longstanding stereotype as ‘technologically challenged’ – an unfair cliché, I may add, which the past 18 months have proven untrue. SOCIAL PLUNGE

However, advisers’ reluctance to take the plunge into the worlds of LinkedIn or Twitter is nothing new, says Aleka Gutzmore, an adviser at Moneysprite and a speaker at our recent conference. Unfortunately, she explained: “There are many misconceptions around social media. That it takes too much time and energy is a big one.” The last two Paymentshield Adviser Surveys back this up, with advisers citing lack of time as one of, if not the biggest, reason for sidestepping socials. Nowadays, though, having a digital presence is no longer just an option. It has become a fundamental part of modern life, as social media has shaped how we communicate with others, learn about what’s going on in the world, and research purchases. Many people have improved their digital competencies during lockdowns out of necessity, and even with life returning to normal, the benefits of having a digital presence will remain. This means that by overlooking social media, 47% of advisers are missing out on several key opportunities

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to supercharge their business. Gutzmore set out exactly what these opportunities are. Social media can give advisers access to dispersed, global audiences, enable them to engage new and existing clients and therefore improve retention, and provide a platform to showcase their business and build profile, influence and trust among their target communities. Indeed, social media and the widespread change in attitude we’ve seen towards it since the onset of COVID-19, has made it possible for advisers to both expand and localise their reach. By that, I mean that social media removes location as a barrier to business, but also enables advisers to build local impact. By their nature, advisers play a significant role in building the community they are based in. Participating in those communities by joining online groups or keeping up-to-date with local events and news are all valuable ways to boost visibility and set up several potential avenues to clients. In short, social media could be the game-changing strategy that helps advisers’ businesses to flourish following the pandemic. There’s no need to over-complicate it, either. Compliance is an issue that often crops up and turns advisers off social media. However, “while important to consider, it doesn’t have to be a big headache,” Gutzmore explained. This is because, rather than going down the route of overt promotion that often fails to engage audiences anyway, the most powerful way for advisers to leverage social media is to “showcase their expertise and be informative.” One effective way to do this is by joining local online groups and simply answering the query of someone seeking financial support, pointing out the benefits of professional advice

and letting them know you can help. As Gutzmore explains: “It’s just like walking into a pub and sitting down for a chat. Advisers should be focusing on inviting people to speak to them and ask questions, because we’re the experts who know the intricacies and have the knowledge to hand.” KNOWLEDGE SHARING

Ultimately, it comes back to the power of conversation – a topic we continue to strongly champion at Paymentshield. Through a combination of industry-wide knowledge sharing and technological support, such as our Adviser Hub, we’ve been trying to empower advisers to feel confident about initiating client conversations, particularly around the topic of general insurance (GI). That personal touch will always win out, and in the case of social media it’s clear to me that personality trumps self-promotion every time. Whether it’s sharing case studies, blogs, announcements or videos, people want to get to know the individual, not the business. As Gutzmore perfectly puts it: “Advisers should see social media as an extension of themselves.” It’s about starting small, whether by updating information or connecting with other industry professionals, and then scaling up until it becomes a habit. Beyond the first hurdle of starting, Gutzmore explains that it’s a question of “having fun with it and embracing being social.” On a positive note, there are starting signs of a social media uptake among advisers already, with two-thirds of those Paymentshield surveyed declaring they’d upped their use for promotional reasons since COVID-19. Advisers have shown an admirable ability to adapt over the past year and a half, with most being forced to digitalise their entire business model, rethink their sales strategies and build client relationships virtually rather than in-person. Social media is another string that advisers can add to their bow to maintain this momentum, make themselves and the service they offer more visible and, in turn, see their business grow. M I www.mortgageintroducer.com

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GENERAL INSURANCE

Consolidation and M&A Geoff Hall chairman, Berkeley Alexander

here has been a rise in mergers and acquisitions (M&A) in the mortgage and insurance markets, with a record £10.5bn of UK insurance distribution M&A in 2020, according to IMAS. In both sectors, many of the fundamentals driving M&A persist, such as competition for assets, and the need to diversify portfolios, add digital capabilities and increase scale and market share. Industry commentators predict more activity to come from long-term investors, with vendors keen

to sell due to pandemic uncertainty, rumoured tax changes, strong valuations and flexible deal structures. The need for mainstream providers to compete against larger specialist lending groups created as a result of M&A – and their need to adapt to the impact of technology more broadly in the sector – is likely to lead to more M&A involving the larger mortgage providers, too. This will reshape the sector and lead towards greater competitiveness and efficiency. From an insurance perspective it will mean that working with a general insurance (GI) provider with a broad panel to provide choice has never been so important. M&A inevitably leads to consolidation of products and services and ultimately less choice.

Dual pricing ban

ntended to provide customers with a fairer deal, the dual pricing ban comes into force in January 2022 and is expected to have a profound impact on GI, including – perhaps surprisingly – reducing fraud. Dual pricing is where new insurance customers receive cheaper premiums compared to existing customers renewing their cover. Price comparison websites have become an important source of business to many insurers, but the only way to win on the aggregators is to be the cheapest. It’s not surprising, therefore, that some insurers have done everything they can to be the cheapest provider and layer on additional costs and price increases later. The ban is widely expected to negatively impact comparison sites and could drive more business to brokers. Perversely, the Financial Conduct Authority’s (FCA) strategy may lead to fewer consumers requoting their policies every year, as the amount they will be saving by switching is www.mortgageintroducer.com

going to fall, so people might switch less often or look elsewhere for insurance advice. If more customers are being serviced by brokers, the ban could also reduce the rate of fraud. The Association of Business Insurers’ (ABI) 2020 figures highlighted that fraud was up over 200% in comparison to the previous year, and counted 760,000 cases of fraud, worth £1.4bn. LexisNexis research says that two out of three homeowners and renters feel it is admissible to manipulate the truth in order to get a cheaper home insurance quote online. Having a broker in the chain makes customers think twice. With less emphasis on price and people being driven off comparison sites, customers should see more value in the broker proposition – both at the point of purchase and during a claim. As well as being good news for brokers, it’s not hard to see how this could also have a dramatic impact on reducing levels of fraud in future. M I

According to recent research from AKG, advisers are braced for firms to shut or be sold and more advisers to retire in the wake of the pandemic. More than half (53%) of advisers believe firms will shut as a result of the pandemic, while 45% expect more advisers to retire and 34% forecast a rise in the sale of businesses. Will yours be one of them? Most sales came from broker owners aged between 55 and 59, according to IMAS, and selling is a well-trodden exit route. For any brokers out there thinking of selling their businesses, remember that GI should always form a part of your exit strategy. It is a scalable and credible way of creating recurring income, and therefore value, now and into retirement. M I

New horizons?

or businesses that need staff to travel abroad, most will have put their commercial group travel insurance policies on hold during the pandemic. As borders open again, there’s likely to be a demand to reinstate those policies. Video might have replaced international meetings, but for some there will be no substitute for face-toface dialogue. This could be a nice opportunity for brokers to increase their portfolio and earn some added GI income. It is also worth noting that the European Health Insurance Card (EHIC) is not the same as an insurance policy. The EHIC only entitles you to access medical care at the same level as local citizens in the EU country you are travelling in. Unlike the NHS, this may not be free at the point of delivery. Also, the EHIC will not cover the cost of bringing you back home in a medical emergency. Only a travel insurance policy will help here, and without one, people could be faced with a bill running into thousands. M I AUGUST 2021 MORTGAGE INTRODUCER

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EQUITY RELEASE

The more things change… Claire Barker Xxxxxxxxxx managing director, xxxxxxxxxxxxxxxx, xxxxxxxxxxxxxxxx Equilaw

n 1849, French writer JeanBaptiste Alphonse Karr first penned the now famous proverb that ‘the more things change, the more they stay the same’. It suggests that while change may be regarded as the predominant driving force within our society, its ultimate effect is to strengthen the underlying status quo. Nevertheless, while the impact of radical changes may be regarded as a consolidatory force at a macro level, their effects are invariably less benign when applied to members of society who happen to be old. With the fallout from COVID-19 continuing to exacerbate many of the issues associated with longer living populations, and social funding stretched to near breaking point by the surge in public spending, there is growing evidence to suggest that pension costs could increasingly be targeted by governments to compensate for these shortfalls, with potentially serious – some would say punitive – ramifications for retirees in the UK for generations to come. Recent comments by both Boris Johnson and Rishi Sunak have raised serious questions as to whether the government will honour its triple lock pledge at the next budget, with projections from the Bank of England suggesting that average wage growth could rise by as much as 8% this year – increasing pension costs by an eyewatering £3bn. Financial analysts have repeatedly called for an overhaul of the rules surrounding these calculations, with some advocating changes that would blunt the impact of unforeseen economic developments, and others pushing for the scheme to be scrapped. While common sense would dictate that the government is unlikely to risk

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an all-out assault on one of its frontline pledges, recent reports have suggested that the Chancellor could bypass this quandary by slashing tax thresholds on lifetime allowances, introducing flat rates of tax relief, or taxing employer pension contributions – none of which are likely to play well with savers. INCREASED LIFE EXPECTANCY

An influential think-tank chaired by Iain Duncan Smith has already recommended that state pension ages be raised to 70 by 2028, and 75 by 2035, in order to reflect higher life expectancies and the issue of “longterm fiscal sustainability” – a proposal which former Conservative Pensions Minister Ros Altmann described as “chilling and immoral.” None of these ideas are close to being adopted at the present time, and the government has been careful to distance itself from suggestions that the triple lock is under threat – although it does admit that pension costs are being kept under review. Nevertheless, the feasibility of using pension cuts to pay for spending shortfalls has undoubtedly gained traction at an executive level, with current soundbites suggesting that any such measures would be introduced to promote intergenerational parity – a dubious claim. While the rights and wrongs of these proposals lie beyond the scope of this article, it’s important to remember that pensions in the UK continue to rank amongst the lowest in the developed world, with official figures confirming that more than two million pensioners already live in poverty. Moreover, with recent research by more2life revealing that more than 25% of over-55s have experienced financial loss as a result of COVID-19, and levels of debt amongst retirees continuing to rise at unprecedented rates, there can be little doubt that any reduction in pension spending at this time is likely to greatly increase the numbers of people facing shortages. Indeed, the more2life research found that more than three-quarters of

advisers expect a sharp rise in people applying for equity release (ER) loans to cover basic needs over the next 12 months, while a survey of homeowners by Canada Life found that 12% of respondents – most in their 40s – are already planning to use property equity to supplement retirement incomes. This is a staggering number for such a young age group, and one which makes a timely point. With growing numbers of people compelled to work beyond retirement ages or access pension savings prematurely, the need to target younger generations and to promote higher standards of financial literacy has become a matter of considerable urgency. PROMOTING THE INDUSTRY

As the role of property wealth continues to assume an ever greater part of pension planning, the ER sector should adopt a wider role in promoting these standards, using educational seminars, webinars and other online resources to help younger property owners evaluate the need for equity loans – alongside traditional saving plans – at an earlier stage. After all, the ER sector has successfully helped hundreds of thousands of retirees to fund better lives over the years, and has consistently evolved to meet the needs and circumstances of clients. So, why not expand our sphere to help younger age groups avoid the pitfalls of post-retirement penury, while also enhancing our own commercial dimension? Spreading our message to encompass customers who would otherwise be ignorant of its benefits, while enriching our reputation as a force for positive good. Forewarned is forearmed, and as the weight of accumulative change conspires to sweep the cosy certainties of yore aside, we can use our unique position to help people establish a new form of financial continuity, and to prosper in a world that is defined by doubt and insecurity. Let’s seize that opportunity. M I www.mortgageintroducer.com

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EQUITY RELEASE

Choosing the right solicitor partners Stuart Wilson Xxxxxxxxxx CEO, xxxxxxxxxxxxxxxx, xxxxxxxxxxxxxxxx Air Group

ooking back over the past year, particularly in the period following the announcement of the stamp duty holiday in July 2020, and the significant amount of demand this brought into the housing market, there are likely to be certain stakeholders within the house purchase process that we are all incredibly grateful for. For instance, despite the later life sector not having anywhere near the number of completions to work through than the mainstream mortgage world, in the lead up to the end of June there were a significant number of cases later life advisers – and their clients – will have been seeking to complete in order to secure the stamp duty saving. Talking to advisers and providers about these types of deadlines, and in particular the most recent one, a clear theme has emerged in terms of the ability to secure a completion before the end of June, and the solicitor firms that have been able to achieve that. Because, of course, while they wouldn’t have been dealing with the same sorts of volume, the complexity of the typical equity release case is greater. There is the requirement for independent advice from a solicitor, there is family to consider and bring into the equation, not forgetting the specialist nature of this type of work and understanding the nuances of the cases so that they are not subject to severe delays. Of course, on top of this, solicitors in our space are just as subject to the logjams others will have been dealing with over the past few months, specifically in terms of getting searches returned

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or perhaps getting through to Land Registry and the like. Add all this together and you can understand why many advisers and clients are incredibly grateful for the work that specialist equity release solicitors have been doing, especially when most practices still have the vast majority of staff working from home. A lot is made in the mainstream space of advisers getting involved in the conveyancing process, providing their client with a recommendation, and for the main part, ensuring they go down the specialist conveyancer route. This seems doubly important in the equity release sector, because quite

“Specialist operators tend to charge a fixed fee, while some firms charge a fee upfront and then add on other fees as they go along, ultimately charging far in excess for a service which is likely to be inferior” simply, there is no hiding away from the expertise required. The fact of the matter is, unless you are a specialist equity release solicitor – and there are a number of them around who carry out fantastic work – then the case is, at worst, likely to confound those concerned, or at best, simply take far longer to get through to completion. At a recent ‘Breakfast with Stu’ meeting, one adviser asked if they could insist their clients use a specialist equity release solicitor, and while that unfortunately isn’t allowed, advisers can of course provide all the information and evidence required to show to the client what choosing the wrong solicitor could do to their case, and what benefits a specialist would actually bring them.

Not only do we have that factored in expertise and experience from the solicitor of dealing with all types of different equity release cases, but we also have the cost, time and resource arguments as well. For a start, a local solicitor who has not really worked on equity release cases is likely to charge more, because they are learning on the job. Specialist operators tend to charge a fixed fee, while some firms charge a fee upfront and then add on various other fees as they go along, ultimately charging far in excess for a service which is likely to be inferior. Then we have those time and resource arguments. Using a specialist provides advisers and clients with both of these, because the firm will simply get on with what’s required, working with you to move forward to the case’s completion. I’m aware of cases where a nonspecialist was used and the constant toing and froing between solicitor and adviser or client was enough to send everyone to distraction. Plus, if the client feels that a solicitor – a profession people tend to trust implicitly – is finding the case difficult or unable to get to grips with it, then they may lose confidence in the whole process, including the advice they’ve been given, when the fact of the matter is that with a specialist they would have that trust and the expertise being shown with every interaction. There’s clearly a lot advisers can do here. Obviously, they can’t force the client down a route they don’t want to, but they can direct them energetically and ask them to consider what ‘good’ looks like for them. Ask them to check if the solicitor they plan to use is a member of the Equity Release Council (ERC). Ask them to check how many equity release cases they’ve worked on recently. Ask them to check the fee structure and ask just how transparent it is. At the end of the day, the client has come to you for advice to meet their financial needs. There’s no reason why they shouldn’t accept similar advice when it comes to the fundamentals of getting their case completed, and who might be best at doing this. M I AUGUST 2021 MORTGAGE INTRODUCER

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EQUITY RELEASE

The softer side of advice Alice Watson Xxxxxxxxxx head of marketing and communications, xxxxxxxxxxxxxxxx, Canada Life xxxxxxxxxxxxxxxx

roviding quality financial advice can be incredibly complicated, and advisers must prove they are up to date with the latest qualifications and regulatory developments. As a result, it can be easy to lose focus on the people side of financial advice, which is key. So-called ‘soft skills’ are becoming increasingly essential. They are the focus of our Canada Life workshops and a dedicated module in the Competency Framework. First, letters to clients should always be written to be read and understood

by your clients, not to ‘tick’ a compliance box. Suitability letters, for example, can easily become full of complicated language and jargon, which risks alienating your client. Most interactions with your client will not be recorded, and so a suitability letter can sometimes be your only physical record of reasons for a given recommendation. By taking the time to explain a complex subject in an engaging manner, you can be confident your client really understands the product and its specific features. There are several practical steps available, such as including subheadings or creating distinct sections, as well as introducing a concise summary before giving a more detailed overview, along with trying to cut out any unnecessary jargon.

Second, it is essential that you understand enough about the client’s needs to release the right amount, avoiding higher costs down the line, or higher interest than necessary. It’s important to understand the client’s thoughts, attitudes and feelings towards their future. Do they want to protect an inheritance for children? Have they got aspirations to landscape the garden? Even if it’s not for another 15 years, the answers to these questions will determine how much to release. Allow yourself to be professionally curious about their plans and ask openended questions. By prioritising development in these ‘softer’ skills, you can feel confident that your clients have a complete understanding of equity release and why it is, or isn’t, the best decision for them. M I

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SURVEYING

A first half of the year like no other Xxxxxxxxxx Steve Goodall xxxxxxxxxxxxxxxx, managing director, xxxxxxxxxxxxxxxx e.surv

s if we needed any reminding, many of us are working harder than ever before. In a release from the Office of National Statistics (ONS) in July, data that excluded furloughed workers suggested that output per job among those still working was 9.2% higher on average in Q1 2021 than a year before – 7.5 percentage points above pre-coronavirus levels. The picture doesn’t represent all industries. The changes vary considerably across the many sectors of the UK economy, highlighting how the productivity shock from the pandemic and political upheavals such as Brexit have had an uneven effect. Nevertheless, we know from our own experience that the housing market has bucked almost every trend as people have sought to move during the pandemic – encouraged by continued low interest rates and fiscal interventions such as the stamp duty holiday, and growing confidence in the success of the vaccination programme. The Law Society reportedly said solicitors “have been working 24/7” to meet clients’ needs, and removals firm AnyVan reported a 200% increase in demand in June, compared with the same month only a year ago. Similarly, our surveyors have been working tirelessly to support home movers, as well as bringing their expertise and knowledge around issues such as cladding to lenders and homeowners alike. While some lessening of market intensity looks likely – even before the stamp duty holiday ends – the government introduced further www.mortgageintroducer.com

fiscal support in the shape of its 95% loan-to-value (LTV) Mortgage Guarantee Scheme. This is giving continued support and confidence to borrowers and mortgage lenders, many of whom have reintroduced their own higher LTV lending to the market. This is good for the market and for home movers, and will continue to support volumes. The results, in terms of the impact on the market and the workloads of everyone in the industry, are there for all to see. The Financial Conduct Authority (FCA) reported that the outstanding value of all residential mortgage loans was £1,561.8bn at the end of Q1 2021, 3.6% higher than a year earlier, and the share for house purchase for owner occupation was 64.1%, up 17.3 percentage points from Q1 2020. I expect Q2 figures to be just as positive. INCREASING RATE

Data from our own May House Price Index corroborated the FCA’s view of Q1, and went further into Q2. Wales and five of the nine regional areas in England saw the annual rate of house price growth continue to increase. It is now 14 months since any of these areas have recorded a fall in house prices, despite the UK economy having been in reverse during this period, as a consequence of the pandemic. Any slowing of price rises in the period of March to May because of the initial expected end of the stamp duty holiday has been short-lived. This is in part because of the extension of the holiday, but also the more general optimism in the economy which has seen many transactions that were previously postponed come back online. My take is that a combination of continued low rates, fiscal support and lack of supply will continue to support a busy time ahead.

We should acknowledge the achievement of keeping the market going over the past 18 months. There were times when this looked like a tall order, but everyone from estate agents to brokers, valuers to conveyancers and lenders, has played their part in delivering the success we see being reported now. While there are reports from the front line that things are calming a little, this return to normal will almost certainly feel like what we used to understand as busy. The Royal Institution of Chartered Surveyors (RICS) members certainly reported back as much last week. The diminishing supply of new properties coming to market with no sign of any reduction in demand is supporting prices, RICS said. With demand increasing and supply continuing to falter, a net balance of 83% of surveyors reported an increase. Looking ahead, a net balance of 56% anticipated that prices will continue to increase over the next 12 months. Nothing is ever straightforward when it comes to the UK’s housing market, but we should remember the key point: we will continue to need and appreciate everyone involved in helping people secure that dream move at such a difficult time. Challenges may come, but so far, we have all shown they can be overcome. M I

Demand for houses in the UK exceeds supply

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CONVEYANCING

Remortgage retention opportunity Karen Rodrigues sales director, eConveyancer

hile this year has been dominated by purchase activity, in large part due to the stamp duty holiday, it’s important not to overlook the remortgage market. Over the course of 2021, there are mortgages worth a massive £183.2bn set to mature, according to analysis from CACI. That’s a lot of borrowers who – within just a few months – will face the prospect of their monthly mortgage bills increasing significantly. As a result, they will be very open to the prospect of shifting to a new mortgage product if it means they can avoid that bill shock, and could represent a significant client bank for brokers to work with for years to come.

If brokers don’t trumpet their own services – to old clients as well as new – then nobody else will do it for them. Once that client is lost, whether to the lender direct or even to a rival adviser, then it’s unlikely that they will be back.

“Brokers are already familiar with the need to diversify, not only from a business perspective but also in order to deliver the best possible standards of advice” That communication can take many different forms. Some brokers like to produce their own newsletters covering industry developments, while others prefer to keep it personal with a periodic email to touch base with a client and see if their situation has changed at all. Whatever your preferred model, the sheer number of mortgages reaching maturity presents a terrific opportunity.

WHOSE CLIENT IS IT ANYWAY?

However, brokers need to be on the ball in starting that conversation. Lenders are only too happy to communicate with clients directly, highlighting the remortgage or product transfer opportunities, and in doing so essentially break the link between the broker and client. With that in mind, it’s vital for brokers to get in there first. Client retention is always a big consideration for mortgage brokers. Ultimately, that repeat business is the lifeblood of any successful advice business, but it doesn’t happen by accident. Brokers have to be proactive in order to secure repeat business, and to make sure that those clients are aware of the benefits of going back to their initial broker when the time comes to remortgage, rather than heading directly to the lender.

MORTGAGE INTRODUCER AUGUST 2021

THERE’S MORE TO ME THAN MORTGAGES

Clearly it’s important for brokers to maintain a dialogue with their clients after arranging that initial mortgage, so that they are regularly reminded of how the advice process helped them land a competitive mortgage product. That should not be the extent of it, however; brokers can improve their chances of long-term client retention by providing a more comprehensive range of financial services, ensuring that they are always the first port of call for clients whenever a financial question or need arises. Brokers are already familiar with the need to diversify, not only from a business perspective but also in order to deliver the best possible standards of advice to their clients. For example, highlighting the benefits of protection

products like life insurance and income protection has long been a staple part of any broker’s workload. Yet there are plenty of other complementary financial areas that brokers can raise with their clients which may make the moving process less stressful or leave clients better off. It’s something we’ve focused on at eConveyancer, partnering with a range of businesses which will boost the appeal of individual brokers. For example, brokers can help their clients to arrange a digital will through Beyond, a Financial Conduct Authority (FCA) regulated after-life services provider. Brokers can help their clients to get their affairs in order should the worst happen, and save hundreds compared to going through a traditional solicitor, to boot. There’s also Just Move In, a home setup service that means clients can devote their energies to the move itself, without having to worry about all of the additional admin that can make a transaction so stressful. A ‘move specialist’ is appointed, who will help cover everything from arranging the council tax and energy provider, to sorting out the TV licence and putting a Royal Mail redirect in place for any post sent to the client’s old property. GOING THE EXTRA MILE KEEPS CLIENTS COMING BACK

Each conversation you have with a client should be viewed as an opportunity. The relationship with the client does not have to end – and honestly, should not end – when they receive that first mortgage. If clients understand that your business can help them with far more than a home loan, then they are more likely to keep coming back, year after year, for their various financial needs. That will leave your clients on a more secure financial footing, as they will benefit from guidance on a host of additional areas beyond just the mortgage itself. It will also mean that you and your business enjoy a stable foundation from which to build in the future. Going the extra mile, delivering those extra services, leaves everyone involved in a better position. M I www.mortgageintroducer.com

REVIEW

CONVEYANCING

We do need an education Xxxxxxxxxx Mark Snape managing director, xxxxxxxxxxxxxxxx, xxxxxxxxxxxxxxxx Broker Conveyancing

inancial education in schools is always a subject that seems to polarise opinion, even if it seems like just common sense to have at the very least some of it, and probably for the best, more of it. That’s an incredibly basic way of looking at the issue, but from what I gather, while financial education is included within the various UK country’s curriculums, it tends to be tied in with other subjects such as maths or citizenship. In other words, we don’t have standalone ‘financial education’ as such. Pupils are expected to learn and know about budgeting and saving, calculating interest and the like, but it appears there isn’t a huge amount of resource put into teaching an understanding of financial products, and that can obviously have an impact on their ability to take out those products and services later in life. Now, there are a couple of arguments that might get thrown back in my face here, the first of which might be, ‘that’s what advisers are there for’, and to an extent you might be right. However, I think we’re all acutely aware that significant numbers of consumers don’t use the services of advisers for any number of reasons. Just in the case of mortgages, if they are going direct to banks and building societies, then are they certain about what they are signing up to, the costs, whether it’s the most appropriate deal, whether it’s the cheapest deal? I could go on. There might also be an argument made – particularly in the case of mortgages – which looks at the gap between any financial education provided in school and the time it takes for that education to be utilised. The average age of a first-time buyer (FTB), www.mortgageintroducer.com

according to Savills, has recently gone up from 30 to 31. I’ve seen other sources cite a higher age than that – in the mid to late 30s. Any information gleaned during school years may well have been forgotten by then, or perhaps be out of date, although the basic structure of a mortgage is unlikely to have changed even in the interim. What we do know, however, is that, when it comes to the mortgage market, mortgage products and the whole

“Pupils are expected to know about budgeting and saving, but there isn’t a huge amount of resource put into teaching an understanding of financial products, and that can have an impact on their ability to take those out later in life” process, the younger you are, the less likely you’ll have a good understanding of what’s going on. Recent research from Paymentshield revealed that more than half (52%) of all UK adults aged 18 to 34 had either a ‘fairly bad’ or ‘very bad’ understanding of the whole mortgage process. For 35 to 44-year-olds the figure was 32%, and 25% for those in the age bracket 45 to 54, which would obviously make sense, as it’s much more likely that the older you get, the more likely you would have gone through that process at least once. So, in this potential borrower group, the understanding simply isn’t there for the majority, which means by the time they do come to be looking at their purchase options and seeking mortgage finance, there is a danger they could be motoring down some blind alleys, particularly if they have chosen not to seek advice. As James Watson, sales director at Paymentshield, neatly puts it: “The FTB market presents a key opportunity for advisers: this is a cohort lacking

in confidence and knowledge about both the mortgage and insurance processes, meaning that they need more guidance.” You can’t really argue with that, and it will not need reiterating to advisers that if they can get in on the first floor with a first-time buyer client, become that figure of trust and provide a quality service, then the chances of holding onto that individual in order to deliver their advice needs for a very long time to come are going to be boosted significantly. Not forgetting the recommendations and referrals this should also deliver. Of course, we are not simply talking about a process which begins and ends with the mortgage – far from it. Indeed, with the help of an adviser, you might argue that the mortgage part of the process could be the most simple to talk through and deliver. It’s perhaps when you get past this and go into the realms of conveyancing and the like that you might well begin to scramble some minds. Again, it comes back to the overall offering and value of advice, which sits beyond the mortgage itself. The client is likely to need protection and insurances of various kinds, and if buying for the first time – or indeed any time – they are likely to want advice and recommendations for a conveyancer. It is not always a ‘done deal’, as sometimes clients may have thoughts on the conveyancer – a recommendation from a family member or friend, perhaps – but the likelihood is that anyone new to this will be open to support, as they would be for other financial services and products. Financial services and product education might well need to be improved through our schools, but once into a work environment, that education can – and should – come from advisers. It is a perfect opportunity to grasp, and one that can ensure a steady stream of clients for many years to come. M I AUGUST 2021 MORTGAGE INTRODUCER

THE OUTLAW

THE MONTH THAT WAS

THE

THE THE

AND THE

Rishi: Hang in there…

Every month, The Outlaw draws some tongue-in-cheek parallels between society at large and a mortgage market in flux

ith summer sadly drawing to a close, we are now braced for Sky’s total and nauseous overabsorption of the transfer window and footie season, and the so very predictable ‘back to school’ pep talks from all and sundry. This might be from an ever-lazy Boris Johnson, a still-at-home Financial Conduct Authority (FCA), or the grossly overpaid managers and players who are like pigs at the trough of our national game.

MORTGAGE INTRODUCER AUGUST 2021

We’ll start with the FCA, which last week indicated that its 4,200 employees are unlikely to return until next year at the earliest. The average salary of an FCA staffer is circa £55,000. Unbelievable. Yet, whilst watching ‘Loose Women’ and re-runs of ‘Neighbours’ each day, they still manage to find time to produce dictats concerning such weighty matters as the inadequacy of their present fee income for monitoring our sector, or better still, a fresh policy on whistleblowing. Yes folks...whistleblowing, the new term used to define the FCA’s own inability to spot and rectify misdemeanours, instead simply relying on you – the already fee-paying reader – to get its under-educated bloodhounds on the right trail. Bloodhounds who are normally gone after just 24 months of tenure. You just couldn’t make it up, could you? That level of hubris is matched by few in modern society, but Pep Guarrdiola – now referred to as Fraudiola on countless social media sites – manages to live up to it. www.mortgageintroducer.com

With £100m already dropped on a player who is arguably the thickest to ever kick a football, he now has the gall to potentially defend a further £100m splurge on another chavtastic player from London. Yet he still rails against any accusation of financial doping at the presently goal-less Oilchester Citey, with the crass words “if we are wrong, prove it.” I get flashbacks to the OJ Simpson trial for sheer brazen arrogance. What’s slightly poetic, therefore, is the revelation that Lionel Messi didn’t even bother calling Pep when he was leaving Barca. That must really stick in his craw. Let’s not be in any doubt, readers, football lost its soul over a decade ago and is now just the plaything of ignorant billionaires. Thankfully, sportsmen such as the British Lions, Mayo’s Gaelic footballers, and most of the UK’s olympians can in some way compensate for all the vulgarity infecting the national game. Back to the matters of regulation and governance. Specifically, Boris and Rishi. One is now irrevocably an insecure and peacocking ‘C u next Tuesday’, and the other is our great hope of salvation from his neighbour. Johnson’s childish rebuke for Sunak said all we need to know about him. Where Boris continues to reveal his indolence, Rishi is busy cajoling many of this country’s 450,000 handsomely paid civil servants back to work. Rishi can also claim some of the credit for last week’s milestone in our own sector, which has now surpassed £20bn in funds lent via the Help to Buy scheme. Hang in there Rishi... the clown next door will eventually sign his own warrant, and hopefully take his interfering missus with him. The mortgage sector does indeed appear to be in rude health, with the asset profiles of lenders and brokers very much in demand. It was a month in which Charles Cameron was sold again for a handsome earnings before interest, taxes, depreciation, and amortisation (EBITDA) multiple, and where Starling made what was an industry-defining swoop for Fleet. Rumours abound in the City that two more similar deals will be completed by Christmas. We are yet to hear too much about the expected acquisition spree that Pollen Street Capital was touted to be commencing. I reckon that we will in Q4, and it’s pretty clear that well-run mortgage businesses represent superior value to many other investment classes, because COVID-19 →

→

Cleary: One step ahead again…

AUGUST 2021 MORTGAGE INTRODUCER

THE OUTLAW

THE MONTH THAT WAS

Bloodhounds: FCA needs help to get on the trail

did not de-rail them, and indeed they proved to be versatile and revenue-generating. In lender-related news, my eye was caught first by good old NatWest lowering its buyto-let (BTL) stress rate, and then by several competitors hinting at the removal – or at least softening – of pandemic-related criteria. My hunch is that in the first week of September there will be a rash of ‘back to school’ specials for brokers. After all, bankers do like to earn bonuses – which of course, the several recent write-backs on 2020’s ridiculously over-provisioned losses will now allow?! Finally, it was cheering to hear that life has returned to normal for some intermediaries, and specifically the folks at Mortgageforce who went ahead with their annual conference and awards in London as planned. I understand that, amid the 200 delegates, no fewer than 20 lenders chose to attend on the day at the Ned Club in the City. Among the deserving award winners for 2021 were Accord, One Savings Bank, HSBC,

and Coventry. Santander was also honoured from a safe distance. The Association of Mortgage Intermediaries’ (AMI) illustrious raconteurs Bob Sinclair and Martin Reynolds kept a packed auditorium informed and entertained, and are now undoubtedly to the mortgage industry what Hinge and Bracket were to 1990s Saturday family viewing. It was poignant also that OSB’s Alan Cleary received a Lifetime Achievement Recognition. This would ordinarily be a hint to Lord Cleary Of Highgate to retire, but he stylishly beat everybody to that punch last month. Seemingly there is a full colour page supplement in next month’s edition showing pictures of brokers and lenders actually meeting up, sharing knowledge and enjoying their mutual company. Perhaps many corporates – and dare I say it, certain lenders – up and down the country might benefit from seeing that, in a country where almost 80% of the country is now double-jabbed, events of this kind shouldn’t be the exception any more. Fraudiola may want to see the evidence, but what lily-livered snowflakes we’ve all become. I’ll be seeing you. M I

Hinge and Bracket: New must-watch for the industry?

CONTACT A MEMBER OF THE TEAM TODAY TO FIND OUT MORE MATT BOND 07525 456 869 matt@mortgageintroducer.com

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FEATURE

INTEREST RATES

ENTERING THE Jake Carter considers whether the market is seeing a race to the bottom on rates, and what this might mean for the future

ews emerges on an almost daily basis of yet more lenders dropping the rates on their mortgage products. Household names which have so far stepped into the sub-1% bracket include Nationwide and HSBC, while early August saw Halifax launch its lowest ever 2-year rate at 0.83%, up to 60% loan-to-value (LTV). Market players and borrowers alike are aware of the benefits of this environment, with strong deals to be had for consumers and high activity levels contributing to a buoyant market. However, does a potential ‘race to the bottom’ spell disaster when it comes to service levels, and what might it mean for the future? BOOMING COMPETITION The current trend of increasingly low rates is seen by many as a sure sign of confidence in both the economy and the housing market. This is particularly reassuring when looking back to early 2020, when many commentators were bleak in their outlooks as the pandemic hit and the market all but ground to a halt. Since then, a number of factors have combined to return the UK to a healthy property market. Prominent among these factors is government support, most notably the stamp duty holiday, which has now started the first stage of its gradual phasing out. For now, the effects of this incentive are still being felt throughout the market, with buyer demand remaining high, and this bullishness is reflected in the low rates now being seen. Meanwhile, nearly two-thirds (63%) of UK borrowers say that interest rate is the most important factor in deciding their next mortgage, according to analysis by Legal & General Mortgage Club.

MORTGAGE INTRODUCER AUGUST 2021

www.mortgageintroducer.com

FEATURE

INTEREST RATES

RATE RACE Martin Stewart, director of London Money, says: “There are many moving parts to understanding a lender’s funding line and appetite to risk. That said, there is huge PR value and very little downside to under-cutting your competitors by 0.01% during the notoriously quiet summer months.” Indeed, Stewart adds, it would be good to see these low rates being pushed out to greater numbers of borrowers not currently able to take advantage of such strong conditions. He explains: “These phenomenally low rates are also only for the lower [loan-to-value (LTV)] bracket, and those with impeccable credit. “We really need to see some of this cheap money filtering into other demographics in order to level the playing field a bit more.” Sarah Tucker, managing director of The Mortgage Mum, notes that excitement and publicity around these headline-grabbing rates is, in itself, fuelling competition and attracting customers. However, she adds, low interest rates are not necessarily a sign that things are bullish, and can instead indicate a weaker overall economy – in this instance due to the fallout of the pandemic. COVID AND NON-COVID CAUSES With the stamp duty holiday coming to end, and higher demand levels possibly due to follow suit, some have questioned whether lenders are attempting persuade customers to continue purchasing homes – even without the tax saving incentive – by reducing rates. Stewart says, however, that this does not mean rates will necessarily rise after the incentive draws to a close in September, unless the overall cost of borrowing increases, or lenders start to lose their appetite in the face of a deteriorating economic backdrop. Nick Chadbourne, chief executive of LMS, believes that the stamp duty holiday has influenced lenders’ decisions to lower rates, but it is unlikely to be the main driver. This suggests the incentive’s end is unlikely to have the cliff-edge effect some fear. “Many borrowers have increased their savings, meaning that banks have more options to offer very low rates,” he says. Similarly, Nick Morrey, product technical manager at John Charcol, does not believe that the end of the stamp duty holiday is likely to have an effect on rates. www.mortgageintroducer.com

He says: “I think the decisions some lenders are taking are to do with volume of money needing to be lent in order to hit annual targets, which may have been quite high given some predictions. “Obtaining or maintaining market share for these lenders – the big six especially – is really important, and the quickest way to achieve that is by being the most popular for ‘clean’ applicants with low-risk situations. “They can also do this without compromising their criteria, which smaller lenders, who do not have the processing power or financial leverage, need to do if they wish to increase market share.”

“Many borrowers have increased their savings, meaning that banks have more options to offer very low rates” Mike Brown, director of Crystal Clear Financial Services, also believes the tax holiday has had, and will continue to have, little overall effect on mortgage rates. He says: “The market did not require any further stimulation on rates, and the reason for clients taking advantage of the stamp duty holiday was not because interest rates were low. They were clearly a helpful factor, but not the underlying reason why someone would take advantage of the stamp duty holiday.” However, Conor Murphy, chief executive of Smartr365, has the contrasting opinion, namely that the emergence of sub-1% rates came as a response to the unprecedented level of demand generated by the stamp duty holiday. He says: “In turn, this came as a precautionary measure to ensure market activity did not plummet amidst the broader economic downturn. As such, the ‘mortgage rates war’ can be considered an indirect consequence of the stamp duty holiday.” If this is indeed the case, the question remains as to whether the eventual end of the incentive will bring with it a sudden trend of rate rises, or whether the other factors mentioned will exert enough influence to keep them low. Additional factors which may have impacted the decision to lower rates also revolve around the pandemic, which Brown believes to be one of the key drivers in lowering rates. → AUGUST 2021 MORTGAGE INTRODUCER

FEATURE

INTEREST RATES He says: “Coming through the pandemic, the economy [is] in dire straits and one sure way of getting the economy back on its feet is to get people to spend. The lower the interest rates, the more disposable income clients have to spend and therefore stimulation of the economy through spending will help.” Murphy points to the influence of the Coronavirus Job Retention Scheme and Business Interruption Loan Scheme in boosting activity and causing lenders to lower rates. However, Morrey does not believe the pandemic has had any direct impact, saying: “It did alter pricing upwards to restrict the number of applications lenders received due to their staff and IT infrastructure adjusting to working from home, but now it is about business as usual with targets for lending volumes and overall profitability leading the way.” FUTURE SHIFTS For the most part, despite ongoing news of lenders coming to market with lower rates, commentators do not predict that the figures will push much lower than they are now. Morrey, for example, notes that lenders operate a model that sees them pay saver’s rates that are below the lending rates. He adds: “If they do not have enough in savings then their capitalisation requirements become a problem.” As a result, Morrey does not believe these current low rates can fall much further given they are already, saying: “In fact, the money markets currently have the swap rates for 2 to 5-years between 0.45% and 0.69% which are perilously close to the rates some lenders are offering borrowers. Swap rates are not the only thing that govern fixed rate pricing, but they are a good indication of the margins involved.” Brown also agrees that rates are unlikely to fall further when considering the cost of borrowing, and of setting up a mortgage, for lenders. Chadbourne also believes that the low rates will be short-lived, saying: “They are a result of banks taking advantage of borrowers’ high savings to balance the risk profile of their books after the last 18 months. “The rates are very criteria-driven, aimed at borrowers with high deposits who represent low-risk for the banks.” In the short-term, however, Chadbourne does expect to see a continued flurry of activity from lenders looking to rebalance their books, or to press ahead once government schemes come to an end, which could result in even lower rates on offer. “Many will have one eye on the remortgage market as lenders focus their attention,” he explains. “In anticipation of the home mover market softening in the coming months.” MARKET RAMIFICATIONS While a low rate environment is certainly good news for borrowers looking for a good deal, there are other

MORTGAGE INTRODUCER AUGUST 2021

concerns that need to be taken into account, such as the profit margins for the lenders themselves. Morrey says: “This does rather look like a race to the bottom really, which is great for consumers, but the whole country needs lenders making certain levels of profits, so in reality we do not want to see a raft of loss-leading products.” Morrey explains that cheap mortgages are contributing to the current boom in the housing market, which he believes is positive when the transaction numbers are increasing, but not such good news if prices continue to rise too steeply and transactions start to fall off. He goes on to say that in a worst case scenario there is the potential that either a big lender or several smaller lenders might drop out of the market. This is, in turn, a negative for consumers, as he points to the UK as having one of the most sophisticated and diverse lending markets in the world. Morrey says: “This is because it is such a competitive market with over a hundred players across many sectors. If we start to lose some lenders, big or small, then choice is restricted, and options become limited, plus fewer lenders are carving up the lending pie so they do not have to work so hard to maintain lending volumes therefore less pressure on prices.” Stewart says: “We can take two stances here. The apocalyptic one and the pragmatic one. We are in many respects still in the financial crisis, as we enter our second decade of cheap printed money and a government prepared to support a market that is now clearly too big to fail.” He adds: “The consumer is borrowing money and backing it with fumes and prayers in the hope that their salary will increase but the cost of borrowing will not.” Meanwhile, Murphy believes that the only potential negative could be house price inflation. He explains: “I am of the view that anything that helps demonstrate home ownership is a good thing, and a housing market which a greater percentage of the population is able to participate in, despite an overall higher market value, is preferable to a market with the opposite conditions. “Low interest rates are helping to push the market in this direction and thus should be celebrated as a positive development.” DOUBLE-EDGED SWORD Brown, agrees that the longer-term impact could be concerning, and not just for lenders and the market, but particularly if there is a correction later on for which borrowers are unprepared. In the long-term, although low rates benefit customers in getting better deals, once these return to standard levels, many may be faced with payments outside their means. Brown says: “Rates as low as this lull clients into a situation where they think this is the ‘norm’, which it www.mortgageintroducer.com

FEATURE

INTEREST RATES may or may not be, but any rate rises in the future will have a significant impact upon monthly outgoings and commitments. “Also, there is only so far that the rates can be cut before something else has to be sacrificed. Ultimately, this could hit service. “This would be far from ideal, particularly with some lenders already unable to offer a reasonable level of service in processing and call answering.” This concern about the impact on service is not just the preserve of the mainstream, high volume mortgage market. Roxana Mohammadian-Molina, chief strategy officer at Blend Network, notes that she too has seen rates being cut in the specialist market, and that often, things are not as attractive as they might seem. She says: “The issue about the development finance and bridging market is that there are a lot of small, unregulated lenders who are happy to pick up one-off business from borrowers by showing very competitive headline rates and then charge the unsuspecting borrower exorbitant penalty rates if for any reason the borrower gets delayed. “So, the drop in rates is a double-edged sword, and borrowers must be very careful with the small print, because as we all know in property things always get delayed and unexpected things come up and borrowers do not want to put themselves in a situation where ridiculous penalty fees start eating into their profits.” Mohammadian-Molina believes that the market will see a consolidation, whereby regulated lenders which bring transparency and professionalism will reaffirm their position, and borrowers stung by hidden caveats will reassess the importance of service over headline rates. She adds: “And of course, borrowers are interested in building long-term relationships with decent lenders who can support them in their development journey, not necessarily just the cheapest one.” Seeing the difference between a good deal and a cheap one will demand expertise. Brown says: “This, in terms of mindset, will have an impact and the role of a professional adviser in guiding clients, instilling confidence and outlining the reality has never been so important as now.” RATE-CHASING Chadbourne notes that borrowers need to avoid getting sucked in by headline rates, and stresses the importance of advice from intermediaries. He says: “A 2-year fixed rate with a £1,500 or £2,000 arrangement fee may come with a headline rate below 1%, but in the long-term, it may not be as attractive as a higher rate with a lower fee. There are some good deals out there, but in 2017 the rate war only lasted a couple of months. “Intermediaries should therefore be making the most of the opportunity and contacting their back book of customers to make them aware.” www.mortgageintroducer.com

“The drop in rates is a double-edged sword, and borrowers must be very careful with the small print” Morrey agrees that good advice is essential, saying: “Brokers should always be looking at overall cost over the initial product period unless their client expressly instructs them not to. This should highlight any hidden fees and charges to make sure the recommendation is the cheapest option.” Morrey also says that brokers should discuss with their clients other factors that will affect the final recommendation and decisions. For example, lending criteria, speed of service, flexibility, future changes, overpayment options and the chances of needing to apply for consent to let. Tucker agrees: “It’s our job to point out what could happen in the future – interest rates are likely to go back up – but clients should enjoy the opportunity they have while it’s there. This is another positive from a difficult situation, and yet another indication that our industry is well supported!” For the specialist market, Mohammadian-Molina presses the importance of increased standardisation, as well as agreeing about the importance of spending time educating potential customers. Brown believes that this rate-chasing is most prevalent when clients go direct to the lender, rather than through an intermediary, as they will not have been given advice tailored to their individual situation. Intermediaries have to consider both the market as a whole and their customer’s full circumstances if they are to ensure that their customers are getting the best product for their needs. He says: “We are currently living in one of the most affordable lending periods in recent history, so buyers looking to take advantage of these competitive deals should consult an independent, experienced mortgage adviser to avoid being drawn in by low-rate deals which may incur higher costs in the long-term.” However, Stewart is of the view that for many, rate-chasing is in fact a way to get the best deal. Nevertheless, he notes that it is essential that – in a complex and fluid market such as mortgages – the consumer is educated about the potential impact of any decision they make. Overall, the mortgage rate war is a topic which creates contrasting views, whether around clients’ decisions to reach for the lowest rate, the market’s ability to sustain long-term low rates, or the causes and future ramifications of the current environment. One thing remains clear, however – the importance of proper advice, which takes into account not only the multifaceted nature of finding the best deal now, but the future twists and turns the market and wider economy might take. M I AUGUST 2021 MORTGAGE INTRODUCER

LOAN INTRODUCER

SECOND OPINION

Seconds for landlords A second charge has all manner of uses. Loan Introducer asks the experts how buy-to-let investors can utilise a second charge Matthew Arena managing director, Brilliant Solutions Property investors typically choose to use gearing to drive a higher return on their investments. Some investors may be on incredibly low interest rates that they cannot refinance without switching to a more expensive product. A secured loan allows them to pay a marginally higher rate across a smaller additional sum instead of paying a marginally higher rate across the full mortgage. This benefit is increased if the mortgage is within an Early Repayment Charge (ERC) period. There are also criteria and speed benefits, which may be worthwhile when time is of the essence, typically an auction or fire sale property. There should be a word of caution though; if a secured loan is the only viable option then a sensible investor - and adviser- should always ask whether the extra gearing is worth the risk. After all, a downturn in property prices or rents can leave a heavily geared portfolio in difficulty; if an investor is already experiencing refinance restrictions, a cautious approach should be taken.

Steve Walker managing director, Promise Solutions

From speaking to buy-to-let (BTL) investors it is clear that second charges are not generally on their radar - whether secured on their investment properties or

MORTGAGE INTRODUCER AUGUST 2021

their home and I think brokers are missing a trick here. In my opinion, brokers should have the full complement of products to hand, as so often the investors’ requirements are complex and can involve multiple properties. While some lenders have reduced their LTVs for second charges, others have pushed into the space with second charge flexible overdrafts and adverse credit loans up to 80% LTV. So there are useful products property investors need to consider.

Mike Walters sales director, property intermediaries, United Trust Bank The substantial growth in house values over the last 20 years has created a lot of equity for many homeowners. With interest rates at historically low levels, releasing some of that equity to invest in BTL opportunities has become quite attractive and commonplace. We’re also seeing borrowers using second charges on their own homes to release cash to provide a chunky deposit for purchasing an investment property in conjunction with a BTL mortgage. And in other examples customers are releasing equity in their homes to refurbish or improve investment properties, sometimes newly purchased or in other cases properties they’ve held in a portfolio for several years and now in need of updating to maximise their rental yield. The speed, simplicity and flexibility of seconds makes them a popular funding option for first time and experienced property investors alike.

Barney Drake chief executive officer, Specialist Mortgage Group

Some of the core reasons why a second charge might be suitable for a BTL landlord are just the same as for residential borrowers. Namely, that a borrower might be tied into a nice rate on their first-charge mortgage but want to access some of the equity tied up in their property/properties without having to remortgage and pay potentially costly ERCs. Certainly, over the last year or so, landlords may have seen an increase in the value of an individual property, or indeed a portfolio of properties and want to use that equity to potentially purchase more or carry out renovations/improvements if a tenancy ends. Speed of turnaround can be critical for property investors who might spy a bargain and need to access funds quickly.

Marie Grundy sales director, West One Loans Second charge mortgage products can offer flexible capital raising solutions for landlords, including options for consumer BTL applications and interest-only repayment vehicles. With an increasing number of landlords benefitting from longer-term fixed-rate mortgage products -or preferential terms on their first charge mortgage- , the option of a second charge can enable property investors to release equity from their property portfolio, www.mortgageintroducer.com

SECOND OPINION

Complex Second Charges? We’re the Experts Mortgage Arrears accepted Unlimited Defaults & CCJs accepted Discharged Bankcruptcy without disturbing their first charge mortgage arrangements. Property investors can access this type of finance for a variety of loan purposes. For example, using the funds to renovate properties within their existing portfolio to improve rental yields and/or property value. Landlords can also release equity towards further property purchases or even raise funds for personal use such as home improvements to their main residence, debt consolidation or business purposes. M I

DMPs can be left in place

Simon Mules commercial director, Optimum Credit

No matter how complex, we’ll consider the case. We’re Expertise You Can Trust. Marie Grundy 01709 321 665 sales director, West One Loans www.nortonbrokerservices.co.uk

THIS INFORMATION IS FOR INTERMEDIARIES ONLY AND SHOULD NOT BE DISTRIBUTED TO POTENTIAL BORROWERS.

www.mortgageintroducer.com

AUGUST 2021

MORTGAGE INTRODUCER

LOAN INTRODUCER

SECOND CHARGE

Consolidation and M&A for brokers Barney Drake chief executive officer, Specialist Mortgage Group

orking within the secondcharge market, you are almost continually involved in a series of ongoing debates. They tend to focus on a core number of areas and, at any given time, involve lending levels, product options, consumer (and adviser) education and awareness, the nature of debt in relation to home ownership, fee levels, regulatory requirements, and the like. Indeed, you might say that for a sector of this size – recent figures from the FLA showed that new business levels in May were £84m – the amount of debate around the sector is disproportionate compared to the level of activity. However, at that point, you realise that despite (in my opinion) the second-charge market continuing to undershoot its potential, we are still dealing with thousands of customers every single month, and these are homeowners who are getting the funds they need in order to (for the most part) pay off costlier debts and/or carry out home improvements. That said, and it’s always a point worth repeating, given the nature of the pandemic, it’s ongoing impact on people’s finances/their jobs/incomes, etc, the second-charge mortgage option should (at the very least) be a far greater consideration for all advisers and their customers, and (at best) we should be carrying out levels of lending way in advance of what we are currently doing. I say this for a number of reasons, and to hark back to the ongoing debates we have in this sector, almost all of them

MORTGAGE INTRODUCER AUGUST 2021

are perhaps more relevant than they have ever been. Take customer demographics and the types of clients advisers are increasingly seeing. How many existing homeowners are over-indebted and/or have numerous lines of credit they are trying to service at higher rates of interest? How many would like to access the equity they have in their home to pay off that debt or to carry out much-needed home improvements, but have a first-charge mortgage with a hefty ERC? How

“Given the underlying strength of the mortgage market in recent times – certainly since the years after the credit crunch – we may perhaps have lost sight that securing a remortgage is not a natural part of the process for many borrowers” many have an interest-only mortgage which they would lose access to if they remortgaged in order to secure additional borrowing? That’s just three very common themes for any number of homeowners, who ordinarily might simply wait to be able to remortgage but, for those reasons and more, are simply unable to do this. Given the underlying strength of the mortgage market in recent times – certainly since the years after the credit crunch – we may perhaps have lost sight that securing a remortgage is not a natural part of the process for many borrowers. The tale of ‘mortgage prisoners’ from that time is one worth remembering because their access is still curtailed, but there are now likely to be many

more existing borrowers who do not have access to the remortgage market. Perhaps they have missed mortgage payments or other bills/utilities, perhaps their credit record looks markedly different from when they first took out that original mortgage, or perhaps more positively, perhaps they have secured themselves an excellent first-charge product that they have no intention of remortgaging away from for a number of years. I suspect advisers see these types of clients all the time and still don’t perceive the second-charge as an option. I would hope not but I think we should also be able to acknowledge there is an awareness issue and that some advisers are reluctant to present the second-charge solution, even if it is a necessary part of the regulatory structure to do so. In that sense, we do have an ongoing education piece to present. Because it’s also likely that some advisers will have common misconceptions about the second-charge market, particularly in terms of packaging these cases, the fees that are charged, the extra resource and cost it must cover, and the fact these fees tend to be added to the loan – much like they are in the first-charge market I might add. However, we do need to address this. To be totally transparent about those upfront costs, what they pay for, why they are required, why they are reasonable and commensurate with the work involved, etc. If we can’t convince advisers of this, then what chance do we have in getting them to present these product solutions to these clients. So, we freely admit this can be a tricky area to navigate, that it comes with a perceived added layer of complexity which is deemed not to be there with the first-charge sector, but it does not mean that the secondcharge mortgage shouldn’t be the go-to solution for a far greater number of borrowers. It fits their purposes in far more cases than some might think, and once we change certain perceptions, it’s my belief that this is a sector where activity and volume will grow, and grow quickly. M I www.mortgageintroducer.com

LOAN INTRODUCER

SECOND CHARGE

First class solutions Steve Brilus chief executive officer,, Evolution Money

ave you been watching ‘The Hundred’? By the time you read this, the new cricket competition – held over from last year – will be reaching its crescendo and there will no doubt be cricketing ‘purists’ bemoaning its impact on the Test game, while (from what I can see) a whole new generation use it as a gateway to playing and watching. One thing has already been noticeable from the coverage and that’s the number of children at grounds watching what is probably their first live games. If that isn’t deemed a success for the format, I’m not sure what is? We constantly hear, in all works of life and business, about the need and importance of bringing in ‘new blood’, whether that’s in our own space when it comes to new clients and customers, or it’s trying to get the next generation engaged with a game which has been off terrestrial television for a long time. From our own perspective, I think it’s fair to say that we face this challenge within the second-charge sector, not just in terms of borrowers themselves but, perhaps more importantly, in terms of advisers and brokers. In that sense there are still a fairly large number of ‘purists’ who see the second-charge mortgage option as some sort of second-class solution when nothing could be further from the truth and indeed they are doing their client a huge dis-service by not looking at seconds, particularly when the circumstances and needs align. However, like in most sectors, the important step tends to be the first one, and once you can take an adviser past that, and you can show what you can offer, it tends to snowball and one case suddenly becomes many more. www.mortgageintroducer.com

“New Blood” is essential in every walk of life

Certainly, from our perspective, and perhaps increasingly so as 2021 has moved forward, we’ve seen the number of advisers and firms using Evolution for the first time grow each and every month. In June that number hit a record high – which is not just firms registering with us but having cases completed for the first time, many of which then went on to have further cases funded during the same month. What is important to us in that regard is the submission routes we provide. Part of the reason why some advisory practices are reticent about recommending a second-charge mortgage is that they haven’t done any in the past, they are not up to speed on the products themselves, they are unaware of the different options, and are therefore nervous about making that recommendation. This can move in one of two ways. They either use, what we call, a ‘hot key’ option with us which means we take over the case completely, providing the advice and the recommendation, which means the adviser can be sure the customer is getting the right service and product, without that advisory burden. Or, and this tends to be the case for smaller brokers who are still new to seconds but want to keep a much greater level of control, they can package the cases themselves and submit it to us. Again, both options are completely accessible however when it comes to the new, more volume-driven firms they tend to opt for ‘Hot Key’ because of the ease and speed with

which cases get dealt with and funded, and they know the client has the right product and the adviser can have full confidence in that process. The point here perhaps is not to put barriers and obstacles in the way of your potential customers, and to be as flexible and accessible as you can be when it comes to supporting advisers. You have to cater for both approaches; so, much like not everyone will want to watch a game of cricket that is over in a couple of hours, at the same time, not everyone is enthralled by a five-day Test match. To mix my metaphors (and sports) here, it is a case of ‘horses for courses’.One further thing I would point out, especially in a marketplace where speed to completion can be anything but, is the focus advisers should have on those lenders who make life easier for them, and those that do not. Recently, we’ve dealt with a growing number of cases where customers have, for example, multiple income streams. These clients are being presented to what we might call, more traditional lenders, who are saying ‘no’ but are taking an age to do so. A recent case – which we eventually funded within three days of submission by the adviser – had sat with another lender for six weeks before they rejected it. Seconds are not supposed to work like this, and those lenders who are treating their advisers/ clients in this way, perhaps need to exit this space for those that don’t. Again, it’s a choice for advisers, but it’s especially important if you’re not writing a lot of cases in this space. M I AUGUST 2021 MORTGAGE INTRODUCER

SPECIALIST FINANCE INTRODUCER

BUY-TO-LET

Complex BTL: Service is key Hiten Ganatra managing director, Visionary Finance

he UK mortgage market is probably now the most competitive it has been for years, but one part of the sector seems especially so and that’s complex buyto-let (BTL). First of all, let’s qualify what complex BTL actually is. At its most basic it will encompass mostly portfolio landlords, many of whom will be using limited companies, and then criteria will also incorporate houses in multiple occupation (HMOs), multi-unit blocks (MUBs) and for some lenders holiday lets. Other lending criteria will include first-time landlords, adverse credit, top slicing, high rise flats, ex-local authority properties, and more. MARKET COMPETITION

According to Knowledge Bank, there are currently 33 lenders which offer limited company BTL to portfolio landlords. Despite this, the top 10 BTL lenders command approximately 76% of the market, and the majority of these concentrate on landlords with one to three properties. This leaves the other lenders competing for the remainder of the market, fighting for attention and business through continuous rate cuts or improved criteria. The route of lenders moving from bridging into complex BTL is a welltrodden one, and I am aware of many lenders considering this route to entry over the coming 18 months, so if we think the market is crowded now, we ‘ain’t seen nothing yet’. The competitiveness of the overall BTL sector was highlighted recently by Moneyfacts, which stated that the beginning of July saw the highest number of product options on offer in the buy-to-let space. The 2,709 deals on the market represented a 971 leap

MORTGAGE INTRODUCER AUGUST 2021

on this time last year when availability was limited following the product withdrawals which took place during the pandemic. This amount of choice is unsurprisingly bringing down pricing, as the average 2-year fixed rate is lower now than compared to 2019. However, due to the influence of the pandemic, interest rates for BTL climbed yearon-year, with the overall 2 and 5-year average interest rates of 2.98% and 3.28% being 0.37% and 0.31% higher respectively than a year ago. Therefore, there may be some room for manoeuvre

“The route of lenders moving from bridging into complex BTL is a welltrodden one, and I am aware of many lenders considering this route to entry over the coming 18 months” in the months to come, especially as we have started to see loan-to-values (LTVs) increasing, which again shows that lenders are fighting for volume. As with the residential market, another opportunity to stand out as a BTL lender is through affordability. The spread of affordability between the largest and smallest loans available to a BTL mortgage applicant is more than double the spread in the residential market, according to data from Mortgage Broker Tools. It found that the average maximum loan available to residential customers in February was £235,475, whereas the average minimum loan was £136,000 – representing a spread of £99,475. For BTL, the average maximum loan was £346,153, while the average minimum was £131,687. This equates to an affordability spread of £214,466, which is more than double that in the residential market. BTL affordability, of course, is ordinarily a straightforward calculation based on rental income and the stressed

pay rate of the mortgage. Some lenders are able to enhance affordability calculations with consideration to the borrower’s personal income, known as top-slicing. In addition, some lenders aren’t under the Prudential Regulation Authority (PRA) supervision and so can be more flexible on their interest cover ratio (ICR). LENDER PROPOSITIONS

As you can see, the variables and choice available to brokers and their landlord customers is probably greater than ever before, but because of the amount of choice, I fear that it is difficult to see the wood for the trees and determine the minute differences between lender propositions. One area lenders can differentiate themselves is service, and this was underlined by the latest Smart Money People Lender Benchmark Study, as although complex BTL lenders were rated 96% for their flexibility by brokers, they were only rated 29% for speed and 67% in terms of ease of use. However, underwriting from complex BTL lenders was higher than mainstream BTL lenders, with a rating of 50% compared to 32%. The overall average across all lenders was 51%. Of course, by its nature, complex BTL can be complex, and so the speed of processing along with more hoops needed to go through as part of the application process will undoubtedly suffer when comparing against more mainstream lenders. Despite this, there is room for improvement, and an opportunity for lenders. By delivering superior service, top quartile rather than market-leading pricing can be sought, which will make a significant difference to margins and profitability. The complex BTL sector is set to become even more competitive, so can lenders step up on service and how they articulate to brokers where and how they are different? I can’t wait to see, as whatever happens, the customer will surely win. M I www.mortgageintroducer.com

SPECIALIST FINANCE INTRODUCER

OVERSEAS

The role of international investment in the UK Jamie Johnson CEO, FJP Investment

here are vanishingly few success stories to be told about the health of any market since the onset of the pandemic in March 2020. The impacts were just as rapid as they were unexpected, shrouding businesses in a haze of uncertainty and forcing most into streamlined emergency operations in response to precarious markets. The success of the UK property market, then, is quite remarkable. The impressive growth of the sector, a natural feature of the UK economy for years prior, was accelerated to a fever pitch as investors looked to capitalise on a reliable and resilient asset class at a time where few opportunities looked quite as certain. Indeed, UK house-buying activity reached the highest levels since records began in June 2021, registering 213,120 sales with HMRC in that month. This acceleration in activity was matched with a surge in house prices recorded across each of the major recognised UK house price indices. Halifax, for instance, noted a rise of 9.5% in the 12 months to May 2021 – up to another record, this time in price levels, of £261,743. None of which is to suggest that the property market is impervious to shifts in fortune as market volatility continues. Indeed, the travails of other sectors in attracting investment should be of some concern as we approach the end of the stamp duty holiday over the coming months. It is heartening that the UK’s vaccination roll-out has been a www.mortgageintroducer.com

qualified success and social restrictions are lifting, as it will once again afford greater freedom to turn to international investment. This will be a significant boost to the long-term sustainability of the impressive growth seen in real estate throughout the pandemic: but will it be as simple as simply reopening? HOW LIKELY IS THERE TO BE A RUSH OF INVESTMENT?

Despite the buoyancy of the market as a whole, it is clear that there has been something of a lull in international investment. For a property market that’s intrinsically ‘global’, this presents a challenge. While traditionally recognised as a safe avenue for investment with excellent yield potential, the UK must be proactive in welcoming back international investors when possible. The market is, after all, well-placed to capitalise on the unleashing of global investment, driven by the accumulation of pent-up demand. EY’s 2021 UK Attractiveness Survey suggests the UK is perceived as the most attractive investment avenue in Europe, with more than four in 10 (41%) international investors planning UK investments in the coming year. A particular factor noted in the survey was the relative health of the UK’s pandemic recovery alongside a robust vaccine programme implementation. Savills reports that the private rental sector in three rapidly developing cities – Manchester, Birmingham and Leeds – combined to over £1bn in 2020, a near three-fold increase from levels recorded in 2018. Because of London’s prestige, the costs to enter are naturally high, while new urban areas emerge with a tremendous potential for capital growth through rental and development investment.

So, the UK’s response to changing circumstances has positioned the sector strongly to capitalise on international investment, but the innate existing factors must also come under consideration. For instance, London real estate is recognised globally as a lucrative cornerstone portfolio asset and has been for some time. In the meantime, various emerging provincial areas present excellent growth opportunities themselves, affirming the enduring appeal of UK property. WHY DOES INTERNATIONAL INVESTMENT MATTER?

The UK property market’s ability to attract non-domestic investment is critical. Its importance is not limited to the role it will play in sustaining the market’s growth through the pandemic once domestic activity begins to slow, but in the UK’s economic recovery as a whole. Crucially, international investors can play a key role in helping to address the country’s housing shortage by helping fund halted or collapsed off-plan development schemes to completion and providing new available properties already assessed by planning commissions and approved by councils, at a greater pace. In turn, this will help rejuvenating the UK’s flagging construction sector, and renew domestic firms’ competitive appetites for building residential units in areas where a backlog of demand exists. The property market is, in many ways, the foundation of the UK’s economy. From creating jobs, to supporting the growth of cities; powering the development of homes, offices and retail units, and contributing funding for local infrastructure and communities, the market has tremendous influence over most others, and as such, greater levels of investment in real estate can ultimately bring fluidity to the UK as a whole. As the economy prepares to emerge from the pandemic after an unprecedentedly challenging 18 months, it is crucial that international investment is welcomed back into real estate with open arms. M I AUGUST 2021 MORTGAGE INTRODUCER

SPECIALIST FINANCE INTRODUCER

DEVELOPMENT

New developers can help housing shortage Luke Egan director of bridging and development, Pink Pig Loans

ouse building is recovering well from the pandemic. The latest figures from the Ministry of Housing, Communities and Local Government show that between January and March this year, building work started on more than 46,000 sites in England alone. That’s not just up by 7% on the same period last year, but it’s also the strongest start to a year seen since 2007, which is incredibly encouraging. It’s no secret there’s a significant housing shortage across the UK, and the only way of tackling that in any meaningful way is by ramping up the rate at which we produce new properties. The Government has talked about building 300,000 new homes a year by the mid-2020s, but that won’t simply happen through goodwill - it takes money and effort to give developers a boost so that it’s easier to get their house building projects off the ground. After all, if we are going to hit those ambitious targets then we need far more developers, of all sizes, active in the market. Looking to the big-name builders can only get us so far.

world is exactly what’s needed in order to increase the number of homes produced. What’s more, it’s a good indication of the health of the market overall; these would-be developers recognise the demand for new homes, and the revenue opportunities open to them if they do a good job. There was a time when first-time developers would struggle to raise funds. The perception was that without experience in a development project, whether that was something relatively small like a light refurbishment or a more complicated project that involved building a brand new unit, the risk was simply too high for lenders to take on. As a result, all too often those projects simply didn’t happen. STARTING SOMEWHERE

That situation has changed now though. There are far more lenders involved in the development finance market, and some have carved out a niche by considering cases from firsttime developers. Let’s be clear, those developers will still face higher costs than borrowers who have been producing new housing units for decades, but the reality is the cost of that financing is still incredibly competitive. What’s more, the perceived level of risk is further

reduced when those new developers partner with experienced firms who have been active in the market for some time, and who can help guide the project towards a successful conclusion. FINDING FINANCE

First-time developers rarely come to the market with no property experience at all, though. In our experience, they tend to be existing property investors, who have already got a good feel for the buy-to-let sector and want to branch out. It’s not uncommon for these borrowers to look to build a handful of units, sell some of them in order to repay the finance and then retain one or two of those units to supplement their existing portfolio. But for advisers who perhaps only deal with one or two development cases a year, finding finance for those landlords turned first-time developers can be easier said than done. There are simply so many lenders in the market, and so much variance in the sorts of terms, conditions and criteria being employed. That’s why it can make sense to partner with a specialist, safe in the knowledge that the client will be properly looked after and advised to a high standard. Tapping into that expertise not only helps the client, but it means advisers enjoy an additional revenue stream to boot. What’s more, demonstrating that you can help clients even when their needs are somewhat out of the ordinary boosts the chances of them continuing to come back to you for their regular mortgage needs in future. M I

MAKING A START

Promisingly, we have seen substantial interest in property development from those who haven’t done it before. While they may have a relative lack of experience, these borrowers have demonstrated an excellent understanding of what’s needed in order to make their projects a success and the classic mistakes to avoid. This is a great cause for optimism, since fresh blood in the developer www.mortgageintroducer.com

The shortfall of housing in the UK brings opportunity for both newcomers and more experienced developers

AUGUST 2021 MORTGAGE INTRODUCER

OBITUARY

JOHN MURRAY

John Patrick Murray 1 9 47–2021 Nia Williams reflects on the life of her friend, John Murray

John Murray

he mortgage industry has been paying tribute to John Murray, former editor of Mortgage Finance Gazette, who sadly passed away last month. To use many of his own words, John thought of himself as an accidental Englishman. His mother was Austrian and father was Irish but, as chance would have it, they met in Jerusalem and John was born in England while they were in transit between Ireland and what was then Palestine. In fact they didn’t settle in England until he was five and the family were to all intents and purposes economic refugees, moving from one temporary home to another until they finally settled in Shepherds Bush, West London. It was a quirky start but from an outsider’s perspective his upbringing and education was conventional enough. A spell in a Roman Catholic primary school was followed by seven years in a West London comprehensive and then three years studying media in Birmingham. After that he said he became a wordsmith - either as a journalist, a script writer or, on the darker side of the business, in PR! He worked for Sun Alliance & London Insurance Group and the Distributive Industry Training Board before joining the Building Societies Association (BSA) in 1982, running corporate communications and events. He edited Mortgage Finance Gazette (MFG) from 2000-2006 when he left to set up Lending Strategy. Even after leaving that publication in 2009, he continued to be involved in the mortgage sector, writing articles and working as a consultant before retiring completely to

MORTGAGE INTRODUCER AUGUST 2021

travel the world and write novels, publishing Elvis and the Virgin Mary back in 2015. He felt that overall his career had been good to him, with his personal highlights including launching a magazine and assignments in Europe, Africa, India, and the Caribbean. I first met John Murray in his role as head of corporate communications at the Building Societies Association and, it is fair to say, I’d not met anyone quite like him. His knowledge of the mortgage market and the characters within it made our regular meetings discussing the Building Societies Yearbook something to look forward to. I also loved hearing stories of his beloved dogs, bands he had seen and music he loved, and plans for his next trip. When the opportunity arose, I recruited him to edit MFG – a role he was perfect for. He became known as Mr MFG, although I think he was more proud of being Mr Aston back in his university days! My favourite memories of those days all involve John, usually with a glass of red in hand, gossiping and putting the world to rights – glint in his eye and tongue firmly in cheek. Fortunately that continued after he left MFG and I always looked forward to hearing about his travels, his family (of which he was very proud), and his ideas for his next novel. I was lucky enough to see him and his wife Pamela just before his diagnosis and lockdown prevented any further meetings, but he kept me up-to-date, with his typical humour, of hospital visits and treatment. He was very happy to celebrate his 74th birthday, albeit in hospital, surrounded by nurses, chocolate cake and his family. In typical John style, he planned his funeral with his family, leaving his own message for those who would attend. And his choice of music for his final farewell sums up his humour perfectly – We Will All Go Together When We Go by Tom Lehrer. So please have a listen and a laugh and raise a glass to John. M I

Paul Broadhead, head of mortgage policy, BSA, said: “I’m so sorry to hear the sad news about John. He was an oracle on everything relating to the mortgage and savings market and a strong supporter of building societies, having spent over 20 years working at the BSA. “I have very fond memories of the time I spent with John, usually in a bar or over an extended lunch. He was always knowledgeable and engaging when discussing the various policy and product innovations of the day. He never tired of telling me what he thought building societies should do next! John always had a point of view, a story to back it up and a knack for writing in an amusing and thought-provoking way. “The thoughts of everyone at the BSA are with John’s family at this sad time.”

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