Mortgage Introducer December 2019

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A guiding light Broker champion Robert Sinclair reflects on 2019 BUY-TO-LET ROUND-TABLE Proudly different.

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BIGGER ISSUE: XMAS WISHES

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Comment

Publishing Director Robyn Hall Robyn@mortgageintroducer.com @RobynHall Publishing Editor Ryan Fowler Ryan@mortgageintroducer.com @RyanFowlerMI Deputy Editor Jessica Nangle Jessica@mortgageintroducer.com Reporter Michael Lloyd Michael@mortgageintroducer.com Editorial Director Nia Williams Nia@mortgageintroducer.com @mortgagechat Commercial Director Matt Bond Matt@mortgageintroducer.com Advertising Sales Executive Tolu Akinnugba Tolu@mortgageintroducer.com Campaign Manager Joanna Cooney joanna@mortgageintroducer.com Production Editor Felix Blakeston Felix@mortgageintroducer.com Head of Marketing Robyn Ashman RobynA@mortgageintroducer.com Printed & distributed in England by The Magazine Printing Company, using only paper from FSC/PEFC suppliers www.magprint.co.uk

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December 2019 Issue 137

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WeWork c/o Mortgage Introducer, 41 Corsham St, London, N1 6DR Published by CEDAC Media Limited Information carried in Mortgage Introducer is checked for accuracy but the views or opinions do not necessarily represent those of CEDAC Media Limited

The best Xmas gift would be certainty

It has been a strange old year for the UK both in more ways than one.

Having been promised that Brexit would have been concluded the country has had it hang over it for the past 12 months.

We close the year no closer to a deal than when we started it due to a dysfunctional parliament.

The impact of the failure to conclude Brexit has been felt in every market and the mortgage sector has by no means been immune. However, all-in-all the industry has remained robust - a credit to all those who work in it.

We now await the results of a General Election. At the time of writing the polls seem much closer than anyone may have expected at the outset. This election is possibly the most important one since the Second World War. The worry is that this could be more 1974 than 1945.

A Labour minority government emerged from the February 1974 election. This was despite Edward Heath’s Conservatives having won the most votes. However Harold Wilson’s Labour party that won the most seats.

It was down to the poor performances of both parties in the run up to the election - parities can been seen now.

The Conservative government had presided over rising inflation and two miners’ strikes and performed a U-turn on economic policy. Labour, meanwhile had been damaged after it had lurched even further to the left.

There are certain similarities. The last thing the UK needs now is a hung parliament. The country needs a majority government so things can finally be sorted once and for all.

Brexit has dominated the campaign so far along with the NHS. But the state of the property market has been widely ignored so far.

There are real issues affecting an economy that relies so heavily on property wealth. We are at risk of having a lost generation of homeowners.

Homeowners aged between 25 and 35 are down to 38% from 67% in 1991. In the 35 to 44 age bracket that is down to 56% from 78% and those renting at 30 are up to 40% from 10% in 1996. It’s claimed that by 2029 just 25% of 25s to 35s will own their own homes.

Change is needed. Lets hope that when we return from the holiday season that change is underway. Until then Merry Christmas and a happy New Year from the Mortgage Introducer team.

5 AMI Review 6 Market Review 8 Marketing Review 10 Building Society Review 11 High Net Worth Review 12 Holiday Lets Review 13 Adverse Review 14 Relationship Review 16 Market Review 19 Buy-to-let Review 25 Protection Review 31 General Insurance Review 34 Equity Release Review 36 Conveyancing Review 41 Surveying Review 43 Technology Review 46 Education Review 48 The Outlaw

A year in review

50 The Bigger Issue

What’s on the mortgage market’s wish list?

54 Cover – A shining light

Jessica Nangle speaks to AMI chief executive and mortgage broker champion Robert Sinclair to find out exactly what is on the associations radar

58 Round-table – Spotting the trends

Our experts take a closer look at the buy-to-let market in 2019 and beyond

66 Loan Introducer

The latest from the second charge market including an interview with Buster Tolfree of UTB

72 Specialist Finance Introducer Development finance, bridging and FIBA

78 The Hall of Fame Gods and Geddes

Your home for specialist lending

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precisemortgages.co.uk

www.mortgageintroducer.com

Residential Mortgages

Buy to Let Mortgages

Bridging Finance

DECEMBER 2019

Second Charge Loans

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25/11/2019 15:31

Review: AMI

Cultural awareness As a responsible trade body, AMI has always wanted an effective and efficient regulator. In the FCA we have in the past enjoyed an open and participative approach built on mutual trust. The MMR and FSCS funding consultation being two shining examples.

In support of FCA we have always had outstanding access and very open discussions. Accordingly, it was no accident when, in a meeting between senior AMI and FCA executives in mid-September, we raised whether the culture at the regulator was effective or perhaps in need of attention.

The feeling we took away was that our concerns were not recognised.

Perhaps an organisation where the leadership sees the need to simultaneously change both its internal culture and the industries at any price.

Not surprising to us then for November to bring an internal FCA memo citing unsatisfactory staff drinking, theft, bullying and defecation. For an organisation to need to issue this to 4,000 staff speaks volumes. Clearly so widespread it needed general circulation with tacit acceptance that if the story got out it

Robert Sinclair

chief executive, Association of Mortgage Intermediaries

was an acceptable risk. The opposite would infer that management had lost all judgement and control.

Jeff Prestridge’s article in the Mail on Sunday on 17 November based around this set out the case and pertinent arguments with clarity. It included quotes from the recruitment site Glassdoor “So much posturing, positioning, jockeying for favour, building fiefdoms.” and “ineffective at regulating markets.”

There are many people who are long standing excellent regulators and supervisors at the FCA. Some I know well have felt impelled to walk away from projects in frustration at the agenda being pursued, whilst senior people appear to ignore the risks elsewhere in the landscape.

Possibly because it was not in their “line”.

This is just not good enough. The industry pays for this regulator and it is failing good firms by addressing issues in the wrong way and ignoring poor industry behaviour by focussing on innovation and re-engineering markets at the expense of applying proper control. Resource allocation and prioritisation is a genuine executive skill. There have just

been three new board appointments and they really have to get under the bonnet of the organisation and find out what is really going on.

It is not enough to sit in meetings and be presented to through the filters of PowerPoint and management controls. This is a job where walking the floor and really listening to the staff on the ground is the only answer.

With these obvious signs of organisational distress, one wonders what has been happening within the internal whistleblowing process and the investigations which should have resulted. AMI raised these issues out of genuine concern for a well-focussed regulator that gets to the heart of issues quickly.

We remain concerned about prioritisation of change agendas ahead of applying proper controls over their rules and ensuring integrity through sound “on the ground” market intelligence and hard supervision.

The firms who pay and the consumers they protect expect standards of the utmost integrity.

The complaints commissioner has been finding against this regime too often recently, with limited acceptance of those findings. Some humility and less hubris might be order of the day.

The price of “free”dom In the past I have been critical of the marketing by lenders of “free valuations” and free legals.

News is reaching me again of significant delays in purchase and remortgage cases as the service provided through some conveyancers are at crisis point. I remain confused as to how this can occur.

The lender offering the incentive must know the volume of business they are looking to attract and should have planned with their supplier that they have appropriate resources.

That we end up with the customer, broker, lender and conveyancer all involved in chasing and frustrating phone calls is a total waste of time, emotion and resources. I have

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always considered these incentives as a potential conflict of interest. A valuation is never free, as the lender will be paying the surveyor because they will want to rely on that to indemnify their loan.

It is also for the lender not the customer and should be more transparent as such so the customer understands it is just to underpin the lending decisions and should not give them comfort as to the whether the property is worth the amount being paid.

Similarly, where the lender is selecting the conveyancer, they are conflicted and there has to be clarity is whose interest the “solicitor” is acting. Always better has to be a

“cashback” offer to fund the legals.

Where we keep having the recurring nightmare of conveyancers caught in delays so seeing customers reverting to SVR in their existing deal or risking missing exchange and completion, the compensation risk must sit with the lender who has incentivised this poor outcome.

In making the constructive risk decision to offer this incentive any regulated entity has the be in proper control of its delivery chain.

I hope those lenders looking to augment their product with add-ons work a bit harder to ensure that the incentives work as such and not against the customers best interests.

DECEMBER 2019

MORTGAGE INTRODUCER

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Review: Market

The wonderful world of mortgages As 2019 comes to a close, it’s not unreasonable to say that it has proved to be a challenging yet eventful year for the lending community.

There are many areas of the wider mortgage market which have generated strong levels of business. Within mainstream lending, the remortgage market has continued to shine.

The purchase market may have been somewhat subdued due to lingering Brexit uncertainly, but it still generated decent volume for intermediary firms.

However, with precious little clarity insight at the time of writing, let’s take a look at how supply, sales, rates and arrears are currently affecting the wonderful world of mortgages.

Sales

Craig Calder

director of intermediaries, Barclays Mortgages

Housing supply

Annual housing supply in England saw a year-on-year increase of 9% between 2018 and 2019 to reach 241,130 net additional dwellings, according to the latest data from the MHCLG. This was made up of 213,660 new build homes, 29,260 from change of use between non-domestic and residential and 5,220 from conversions between houses and flats. It also consisted of 940 alternative accommodation including caravans and house boats which were offset by 7,940 demolitions.

Some 14,107 of the net additions from change of use were through permitted development rights.

These comprised of 12,032 additional dwellings from former offices, 883 from agricultural buildings, 199 from storage buildings, 69 from light industrial buildings and 924 from other non-domestic buildings.

Steady progress has been made in the increased supply of housing over the past few years, and it’s good to see the government maintaining this positive momentum.

And with large affordable housing gaps still out there, it’s vital that this impetus is sustained throughout any Brexit-related transition to help more people achieve their homeownership aspirations.

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MORTGAGE INTRODUCER DECEMBER 2019

RICS’ latest UK Residential Market Survey has found that the sales market remains subdued with negative readings across new buyer enquiries, agreed sales and new instructions.

However, despite these negative readings, near term expectations for sales over the next three months have shown slight improvement.

Enquiries from new buyers were reported to have fallen for the second consecutive month, with a net balance of -16% of surveyors citing a decline. Newly agreed sales continued to slip across almost all regions except Northern Ireland where contributors noted a marginal increase.

On a more positive note, expectations for the year ahead showed improvement, with Northern Ireland, Wales, Scotland and the North West of England displaying the strongest expectations for house price growth over the coming year.

There are some clear positive and negative connotations to be found in this data, but none which are overly surprising. One thing to keep an eye on in the coming weeks and months is the impact any General Election and potential Brexit bounce may have on the sales market and buyer confidence.

Remortgaging and rates

Staying on the topic of rates and the opportunities presenting themselves in the remortgage market, an article on the Mortgage Introducer website outlined how the latest Remortgage Snapshot from LMS highlighted that the popularity of two-year fixed rate deals grew in September, rising from 35% to 42%.

It went on to add that a majority (96%) of those who remortgaged in September opted for a fixed rate product.

Only 2% of borrowers were reported to have chosen a variable or tracker rate mortgage while purchases of five-year fixes dropped from 48% to 43%. Nearly half (45%) increased their total loan size in September, 34% saw no change and 22%

reduced their total loan size.

Some 42% increased their monthly remortgage repayments, 15% saw no change and 43% reduced it.

It’s interesting to see the surge in two-year fixed rates after seeing a consistent uplift in five-year fixes over the course of the past 12-18 months, and this is an area to closely monitor as we move into 2020.

Arrears

The proportion of homeowner mortgages in arrears has fallen to remain at historically low levels, arrears and possessions data from UK Finance has revealed.

There were said to be 71,590 homeowner mortgages in arrears of 2.5% or more of the outstanding balance in Q3 2019, down 9% year-on-year. Reportedly there were 22,300 homeowner mortgages with more significant arrears, representing 10% or more of the outstanding balance. This figure was 8% less than the same quarter in 2018.

There were 4,550 buy-to-let mortgages in arrears of 2.5% or more of the outstanding balance in Q3, 5% fewer than in Q3 2018. In regards to more significant arrears, there were 1,170 buy-to-let mortgages representing arrears that were 10% or more of the outstanding balance, down 1% year-on-year. Some 1,330 homeowner mortgaged properties were taken into possession in the third quarter of 2019, 19% more than in the same quarter of the previous year, but well below the levels seen between 2009 and 2014.

This slight increase in possessions has been driven in part by a backlog of historic cases which are being processed in line with the latest regulatory requirements. 800 buy-to-let mortgaged properties were repossessed in Q3, up 40% year-on-year.

This data makes for some positive reading, although it’s important for all lenders not to become complacent in terms of providing appropriate levels of support for borrowers throughout the life of their mortgage. Let’s see what 2020 brings. www.mortgageintroducer.com

F132

Thank you for helping us retain five stars in this year’s Financial Adviser Service Awards.

Without you, we couldn’t have done it.

This year we’ve delivered case ownership for all New Build cases, launched regionalised support teams to back up our BDMs, made a number of improvements to NFI Online and introduced soft footprints.

And we’ll continue to deliver even more improvements next year and beyond.

nationwide-intermediary.co.uk/improvements

Building Society

For Intermediary use only Nationwide Building Society. Head Office: Nationwide House, Pipers Way, Swindon, Wiltshire, SN38 1NW. Details correct at time of going to print. F1322 V1 (11 2019) F1322_MI_Ad_205x270_AW.indd 1

25/11/2019 15:25

Review: Marketing

Food for thought for brokers With the award and event season now in full swing, it’s a great chance to talk to the great and good of our industry and to also celebrate those who are delivering excellence in our sector.

A common theme in these conversations has been the health of the ‘vanilla’ mortgage market and the concern that brokers solely operating in the mainstream arena will be squeezed by various market forces in the next 12 to 18 months.

Whether that’s just because of a low transactional market or the retention of mortgage customers becoming harder because of slick lender product transfer processes and the poaching by online brokers and the online aggregators.

I may sound like a broken record and I have worked in the intermediary mortgage market for most of my career so I fully understand the value of advice – but, how many consumers do? Are the above threats there because consumers generally don’t, or this is just a by-product of technology and consumer habits influencing customer behaviour in how they wish to take out and manage their mortgage?

I’d hazard a guess that it’s a combination of the two and so it’s clear to me that someone or some(body) needs to step up and ensure that the value of advice is not only understood by the regulators, but also those with mortgages and those who will be borrowers in the future.

These may be those getting a mortgage for the first time, those seeking to raise money for their retirement, plus those looking to raise short-term funds.

This is a perfect segue into my One on One feature this month, as both stories featured discuss the opportunities for brokers in short-term lending and equity release.

First up is the announcement from the Association of Short-Term Lenders that not only three quarters of bridging lenders are confident about the long-term prospects for the economy, but that 72% said they

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Paul Hunt owner, Paul Hunt Marketing

expect their business to grow over the next six months.

I strongly believe that bridging finance is becoming a product that all mortgage brokers are now coming to terms with and understand its benefits to certain customers.

Our challenger this month is Key, who commented on ONS data which showed that households containing multiple families, which represents 1.1% of all households, were the fastest growing type of household over the last two decades. These households have increased by three quarters to 297,000 in 2019.

Key’s view was that the industry needs to increase the awareness of other options such as equity release for parents and grandparents to

One

ON

transfer wealth down generations.

I am inclined to agree with Key, that these figures show a worrying trend and so for raising these figures with a broker audience.

Such products need to be provided with expert advice and hopefully we will see more advisers taking the revised qualification, as it’s clear demographics support an increased need over the coming years and decades.

The release isn’t innovative or game changing though and so looking at both announcements, I have to award a high scoring draw and I hope both items have given food for thought to brokers maybe not operating in these sectors currently, as both areas are ripe for growth.

One

ASTL vs KEY group AS SO CI AT IO N OF ND ER S SH OR T TE RM LE

DECEMBER 2019

Newsworthiness Customer Benefit Supporting Brokers Innovation r Game Changer Facto

KEY GROUP

I I I F F

Newsworthiness Customer Benefit Supporting Brokers

I I I Innovation F Game Changer Facto r F

www.mortgageintroducer.com

For intermediary use only

SUC CESS for your clients is an empty nest

Our Family Springboard mortgage enables your client’s family or friends to help them buy their home with as little as 0% deposit.

And in return, they will get their money back with interest after five years if all mortgage payments are made.

Find out more at barclays.co.uk/intermediaries

All offers are subject to application, financial circumstances and borrowing history. Terms and Conditions apply.

Your client’s home may be repossessed if mortgage repayments are missed. Savings returned with interest after 5 yrs if repayments maintained, if not, savings at risk. Min. savings amount apply. Subject to application, financial circumstances & borrowing history, (excluding those in Channel Islands and Isle of Man). T&Cs and exclusions apply. Barclays Bank UK PLC is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority (Financial Services Register No. 759576). Registered in England. Registered No. 9740322. Registered Office: 1 Churchill Place, London E14 5HP. IBIM9539 November 2019

Review: Building Society Review

It turns out size really does matter As a smaller lender than some, we have both advantages and disadvantages. We don’t have snazzy online algorithms that underwrite borrower applications in seconds.

But we do have people who will take the time, on the phone or in person, to understand a borrower’s circumstances and what the broker believes makes them a good prospect. We also don’t have the biggest suite of products and criteria variations. But we do have the ability to use our common sense, to flex criteria when we can see a responsible and valid reason for doing so.

We don’t have the biggest team of BDMs touring the country, sitting in brokers’ offices helping to explain the minutiae of our criteria.

But we do have a team of BDMs that punches well above their weight, not only on delivering brokers a clearer understanding of what sort of lending we’ll consider but also considering the volume of lending that we do.

It might sound counterintuitive, but we believe that our size is a strength, especially in today’s mortgage market.

The past year has been eventful for lenders – several have pulled out of new lending altogether – Tesco Bank, AA Mortgages, Sainsbury’s Bank and Magellan to name four.

Each of them cited the increasing competitive pressure on pricing as their reason, something that all lenders in the market know about

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MORTGAGE INTRODUCER

Stuart Miller

customer director, Newcastle Building Society

DECEMBER 2019

only too well. While it benefits those borrowers who fall into the low loan-to-value bracket, with fulltime employed incomes and clean credit, this competition on price has not fed through to the same extent when you go further up the LTV curve and bring in complicating factors such as historical credit blips or self-employment.

Yet, these ‘complicating’ factors are real life. People are rarely vanilla and it’s wrong of lenders to discriminate against them because of it.

Yet, this is what’s happening today: the move to trying to automate mortgage advice is not creating a market that works better and more efficiently for everyone. It’s speeding up the delivery of a mortgage approval for those borrowers who would have had little trouble securing an approval in the analogue days too.

While some lenders try to be all things to all people and others focus very specifically on one type of borrower, at Newcastle, we have chosen to specialise in helping the people we know from old. Real people with real finances.

That might mean they run their own business locally, it might mean they want to get on the housing ladder later in life having rented and saved for many years. It could mean that they need a helping hand from the government’s Help to Buy scheme, or that they’re buying in a new development where homes

are still being built. It could mean they’re a newly self-employed builder, electrician, or hairdresser who has just set up on their own.

That they’ve missed a credit card payment or forgotten to make a final bill for a cancelled mobile phone contract. They may have some credit card debt or car finance they want to consolidate. They may have children they want to support onto the property ladder, or parents who need a helping hand repaying an interest-only loan.

We want to support borrowers from all these walks of life because we take our role as a building society that contributes back to our members seriously.

Over the past year we have worked tirelessly to invest in and improve our service, and it’s paying off. We brought in John Truswell, an industry veteran, to head up our expanding team of BDMs. We are humbled and immensely proud to have been awarded several industry plaudits in the past year, winning both best small lender at the L&G Mortgage Awards and the best regional building society in the What Mortgage awards for the third year running to name just two.

The brokers we work with make this possible. Our ability to help their clients out of seemingly tricky situations where other lenders fail to offer a solution is as much about the willingness of brokers to work with us to support their clients as it is about the flexibility and common sense displayed by our team of underwriters.

It’s also thanks to brokers that we understand what customers want and need from us: it’s not the cheapest rate available or the biggest wad of cashback or free legal fees.

It’s that healthy dose of practicality when it comes to finding a loan that suits them and their financial circumstances.

So we’d like to thank every broker we have worked with over this past year. Here’s to another just like it next year. www.mortgageintroducer.com

Review: High Net Worth

The surprising opportunity in HNW remortgages How are you planning to achieve your targets next year?

Planning can be difficult in an uncertain political environment, but one thing we do know is that uncertainty does little to encourage a dynamic property market.

In a recently published Market Survey by RICS, their chief economist Simon Rubinsohn said: “There are good reasons for thinking the latest dip in both buyer enquiries and vendor instructions is a response to the endless wrangling about Brexit.”

He added: “Unless there is a speedy resolution to the ongoing impasse it does seem inevitable that the stand-off between purchasers and sellers will deepen making it harder to complete transactions.”

With this in mind, it looks like remortgage business will need to form a significant part of your plans in 2020, just as it did in 2019. So, which of your clients present the biggest remortgage opportunity?

www.mortgageintroducer.com

Peter Izard

business development manager, Investec Private Bank

3. Accessing capital

One area that could present a surprising opportunity to grow your remortgage business is among high net worth (HNW) clients.

This group may not immediately spring to mind when you think about remortgaging, but there are a number of reasons why regularly refinancing their property is an important consideration for HNW individuals. Here are four reasons why remortgaging your HNW clients should be at the front of your mind.

1. Large loans mean big savings

It’s an obvious statement but shouldn’t be overlooked that the larger your client’s loan, the greater the impact of reducing their rate. For a HNW individual with a large outstanding mortgage balance on a lender’s SVR, a switch to a cheaper fixed rate could make a substantial financial difference.

2. Impact of Stamp Duty Land Tax (SDLT)

The impact that escalating SDLT has had on prime property buyers in recent years should not be underestimated. The restructuring of SDLT in 2014 amplified the moving costs for HNW clients as the tax burden increases the higher up the property ladder they climb.

Whilst no tax is payable on the first £125,000 of a property’s value, the portion from £925,001 to £1.5m is charged at 10% and any remaining amount over £1.5m is charged at 12%.

This is before you consider the additional 3% levy that is applied on any properties purchased in addition to a client’s main residence.

Consequently, some HNW individuals, who own more than one property, will be charged up to 15% tax on a portion of the value of the property they purchase.It’s little wonder then that a growing number of HNW clients are choosing to improve and extend existing properties rather than move home.

Funding home improvements may be one use of releasing equity for HNW clients, but it is certainly not the only one. In fact, a common trait amongst HNW individuals is they are often asset rich but cash poor, with wealth tied up in business ventures or in deferred bonuses or longterm incentive plans.

A remortgage can therefore provide a way for HNW clients to access their capital without having to dispose of any assets or sacrifice any long-term incentive plans.

4. More efficient use of capital

As well as providing a means of accessing capital, remortgaging could also provide savvy HNW individuals with a more efficient way of using their capital.

Mortgage rates are historically low and by accessing capital with a mortgage your HNW clients could have quick access to funds that are ready to deploy on an opportunity that could provide them with even better returns.

There are a surprising number of opportunities to help your HNW clients with a remortgage, so when you encounter a client who is looking for a high value remortgage, where do you turn?

It’s another common trait amongst HNW individuals that they often have complex requirements and it’s not uncommon, for example, for such clients to have a multi-layered income and portfolio, comprising stocks, shares, carried interest, overseas investments and property. A portfolio like this can present problems for some mortgage lenders – and this is where private banks can help.

Private banks are completely focused on meeting the complex needs of HNW individuals, with experts who are able to analyse every application on its own merits and create a solution that meets the specific requirements of the individual borrower.

So, if you want to benefit from the surprising opportunity in HNW remortgages, think about picking up the phone and speaking to a private bank.

DECEMBER 2019

MORTGAGE INTRODUCER

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Review: Holiday Lets

Holiday lets – a growing opportunity As Sterling continues to come under pressure, and speculation rises about the ease of travel to other parts of Europe, the UK holiday market has been viewed as an area for potential growth. I read something recently which demonstrated how much we love getting away from it all: “A holiday is an opportunity to journey within. It is also a chance to chill, to relax. It is when I switch on my rest mode.”

The demand for holidays and time to rest can be affected by the economy but there will always be people trying to seek a break from it all. Holiday lets are becoming an increasingly attractive investment proposition for many across the UK and it’s not just down to political and economic factors.

As the buy-to-let market becomes more regulated, investors are looking for alternative sources of income.

Holiday lets can be a sensible investment, with potentially higher yields than traditional buy-to-lets, and they still come with a taxable allowance. In addition, the owner will have a holiday home in a desirable location.

At Harpenden Building Society, we have been providing a product and assisting clients in this segment of the market for many years and have learned that applications can sometimes be complicated.

If brokers are armed with the right information, applications and product selection can be far simpler.

When trying to find a lending solution for a client, there are a number of features and characteristics you should be aware of. The big ones are the location of the property, and affordability.

Ken Hale

head of lending, Harpenden Building Society

Affordability

Affordability often looks at income and the value of an applicant’s savings, which can be used as a contingency. Income yields on a holiday let are often higher than a standard tenancy agreement, yet many lenders base their calculations on the tenancy agreement.

“Holiday lets are becoming an increasingly attractive investment proposition for many across the UK and it’s not just down to political and economic factors”

Location, location, location

Other lenders have restrictions on the location, which can include certain counties or regions. Specific geographic locations such as city centres may also be on the exclusion list.

Future sale potential is an area which is often explored.

For example, some parts of Corn-

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wall try to keep properties in the hands of local people, so the next owners have to be either Cornish, or related to or married to someone who was born in the locality. If so, that can be a factor in the lending decision as the future market is smaller.

Cities such as York are constantly popular with visitors as thousands of people head there throughout the year. However, coastal locations such as Newquay are obviously seasonal, and the business plan needs to take this into consideration.

DECEMBER 2019

It makes sense to check how they arrive at their figures. In addition, only some lenders look at the applicant’s total income rather than basing the calculation on the income of the property.

This is how we assess let property lending, using the clients earned income along with a portion of the expected rental income.

We offer a holistic type of lending, for all UK income sources. This approach of assessing total income, helps in many circumstances where property income isn’t sufficient on its own. To make sure the applicant is prepared, they need to have done their sums and considered the various sources to make the purchase possible.

Property type

The type of property and construction methods can also be a crucial part of the application process.

Many, including us, will not lend above a commercial property for non owner-occupied, won’t accept prefabricated buildings, won’t let on holiday parks and are reluctant to accept applications from investors looking at high-rise buildings.

This can be a problem, for example, if a city apartment is being purchased in a prime location but has a magnificent river view from the seventh floor.

On paper it looks ideal, but lenders foresee problems with management fees, access, and fire regulations, which can all affect future profitability for the investor.

Another common element to be checked, unsurprisingly, is construction type. While developers increasingly favour modern construction methods, some still lenders do not.

An opportunity for brokers

We think the holiday let market is going to be one of the fastest growing areas in the industry in 2020.

With the potential for higher yields, a taxable allowance and the chance for personal use of the property, there are many positives.

Clearly, there are all the risks of a rental accommodation, so investors need to be well advised and clear on their business plan.

At Harpenden, we have built up years of experience and recognise the growing demand. We don’t place restrictions on location, we use the enhanced income potential for holiday lets in the affordability assessment, and look at the applicant’s total income from all UK sources before making a decision. Flexibility from providers is often important.

Brokers could see more and more clients enquiring about Holiday Let products.

Those that are able to find the right product, and advise their client efficiently, could be able to access a growing niche in the market. www.mortgageintroducer.com

Review: Adverse

A great reason to pick up the phone Christmas can be the most wonderful, and expensive, time of the year.

So, it is fair to assume that over the coming weeks the already-large UK personal debt mountain will grow even further.

Recent figures released by the Finance & Leasing Association (FLA) show that consumer finance new business grew by 4% in Q3 of this year, compared to the same quarter in 2018, taking the total balance to more than £103bn. Total borrowing in September alone was nearly £10bn, which is the highest monthly figure for almost a year.

The Daily Mail then carried out some analysis of these figures, stating that in the UK we now borrow £330m every day on car finance, credit cards and personal loans.

This level of borrowing means it is more likely that people will miss payments on their credit agreements, and this can have a significant impact on their outlook and mental wellbeing.

Taking its toll

At Pepper Money, we recently carried out in-depth research in partnership with YouGov amongst more than 4,000 UK adults, to develop a clearer understanding of their credit profile and its impact on their lives.

According to the research, 39% of British adults have admitted to missing more than one credit payment.

This figure rises to 44% of adults between 35 and 54, while only 31% of people aged 55+ have missed more than one credit payment, indicating that multiple missed payments are becoming more common amongst younger borrowers.

The study also found that nearly seven in 10 adults (69%) who have experienced credit problems in the last three years and are planning to purchase a house with a mortgage or remortgage in the next 12 months are concerned about having their application declined due to their credit history. And this is just one of the ways that missed payments can impact people’s lives. www.mortgageintroducer.com

Paul Adams

sales director, Pepper Money

Almost half of adults (48%) who have experienced adverse credit in the last three years say their mental health has been impacted by their financial worries, with 46% saying that their sleeping has been impacted and 34% saying that their personal relationships have been impacted.

Opportunity for you to help

So, what does this mean for you?

In the mortgage press, we spend a lot of time talking about the growth potential of different markets and alternative ways that you can develop your business.

Both of these are true when it comes to working with clients who have missed payments on their credit record, but there is a bigger picture.

In your role, you have the opportunity to provide reassurance and hope to people who may feel that they have nowhere to turn.

For all of the progress we have made regarding mental health in recent years, money matters – particularly missed payments and problems – seem to remain a taboo subject.

There are millions of people who are homeowners or potential firsttime buyers, who have been caught out by their credit commitments and have varying degrees of adverse credit registered to their name.

This adverse credit often presents

DECEMBER 2019

a potential barrier. It can prevent them from improving their financial position by refinancing to a cheaper rate than they currently pay or moving on with their lives if they have ambitions to buy a home.

They are trapped by embarrassment about their financial circumstances and the perception that there is no point seeking help, because there are no options for them.

Reaching out

At Pepper Money, we want to change this situation and encourage more people with adverse credit to seek advice about their finances and realise the opportunity they have to move on with their lives after experiencing credit problems.

This is one of the reasons why we have invested in undertaking this research. If we are able to encourage increased awareness and open discussion about credit problems and adverse credit, we can make it easier for people to seek advice about the options they have with their finances and, ultimately, this will be beneficial to everyone.

In the coming weeks, with Christmas celebrations in full flow, few people will be thinking about adverse credit, but in the dark days of January, when credit card bills start to land, many people will need a helping hand.

This is your opportunity to be proactive and reach out to your clients, to discuss whether they have any financial objectives for the year and any concerns about issues that might be standing in their way.

By starting a dialogue, you can better understand your clients, and they can better understand the options that are available to them.

This may not seem like much, but for the vast number of people whose mental wellbeing is impacted by their credit record, being told they are not alone and shown a way to improve their situation, could make a positive difference to their lives.

And that’s a great reason to pick up the phone.

MORTGAGE INTRODUCER

13

Review: Relationship

A steady market requires a steady hand At the start of this year, all eyes were on Mrs May and the Article 50 deadline for Britain to exit the EU at the end of March.

Fast forward 12 months, two extensions and we have no more certainty than we did then. In fact, with a General Election thrown in, there is quite probably less certainty today than we had under the former premier.

I’d be stretching the truth to suggest that the housing market has not felt the effects of the political maelstrom that has characterised the past few years.

Pockets of the country have seen prices come down with the most recent data from the Land Registry showing that in September, on average, house prices had dipped slightly by 0.2% since August 2019.

There was, however, an annual price rise of 1.3%, which makes the average property in the UK valued at £234,370. The regional data for England indicates that the South East experienced the greatest monthly price rise, up by 1.0%.

These numbers are tiny – barely showing any movement at all. And that is what we are seeing on the ground.

Ordinary flats and family homes have seen much less movement than the overall figures might suggest.

More important than these marginal fluctuations in value is what stagnant house prices tell us about activity.

The October 2019 RICS UK Residential Market Survey continues to show a functioning if somewhat pedestrian sales market.

Near term expectations for sales over the next three months have improved a little, and a stable trend is now anticipated with 12-month expectations also improved, posting the highest reading in nine months, with a net balance of 23%.

While a lower volume of transactions has obvious connotations for many in the home-moving value

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MORTGAGE INTRODUCER

Robin Johnson

managing director, Kinleigh Folkard & Hayward Professional Services

DECEMBER 2019

chain, the ‘steady as she goes’ activity levels we are seeing have supported asset values.

And a strong re-mortgage market, something set to continue into 2020, has also underpinned valuation volumes as well as brokers’ profitability over the past year.

There is more to be positive about in the lettings market as well. RICS data also revealed that the quarterly seasonally adjusted figures on tenant demand point to another rise in the three months to October. Indeed, the net balance picked up to +22%, the firmest reading since the end of 2016.

At the same time, new landlord instructions declined once again.

On the back of this, rental growth expectations for the near term strengthened further, with every UK region and country projected to see an increase in rents over the coming three months.

At the time of writing, the outcome of December’s General Election remains unknown, but it will undoubtedly shape the future of Britain’s housing market.

Labour has floated some dramatic changes to housing policy that industry voices across the board have decried, while the Conservatives have form when it comes to policy designed to win younger votes, to the consequent cost of the private rented sector.

Much tinkering with fiscal policy affecting landlords, as well as prudential changes to the way lenders must assess buy-to-let mortgage applications, has taken a toll on the dinner party landlords in the private rented sector. Landlords continue to reassess the viability of their properties as a result and rents are still rising. Not really in young voters’ interests, but when we and others warned government that this would be the result of cutting landlords’ tax relief, we were ignored.

The next government has an option to stop this situation from getting more pronounced, as it will over the next few years as the financial implications of this policy tighten further.

Whatever its hue, however, it’s unlikely that political and financial pressure on buy-to-let will let up.

How the election pans out will also have implications for the value of the pound, either increasing or decreasing the attractiveness of UK property to international investors.

That said, it’s unlikely that appetite to invest in super prime London property will drop much in the longterm.

London’s economy, for better or worse, operates in a bubble that has more to do with global economic wealth than the rest of the UK. It is a city that operates as a perfect gateway to other destinations, whether European capitals or Northern or Southern American trade centres.

Its history and rule of law by comparison to many of its competitors remain strong selling points to the global financial elite.

As a result, London property remains set to be an investment worth making next year and thereafter. www.mortgageintroducer.com

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Review: Market

Furthering further advances Part of the beauty of the mortgage industry – not a phrase you hear very often, it must be said – is the very different ways in which the same types of practitioners, networks, distributors, lenders, etc, go about their business.

You can’t help but be reminded of that Groove Armada song lyric, ‘If everybody looked the same, we’d get tired of looking at each other…’

However – and you probably guessed this wasn’t going to be entirely a positive celebration of the differences that exist in our market – there has to be a point where, when you’re doing things wrong, or you’re policies are out of step, or you are ploughing a lone furrow (and not in a good way), you then look at the way others act and perhaps agree that your method/approach is not producing the results it was set out to achieve.

There are many areas of difference we could concentrate on, but one that has come up a number of times recently is around the provision of further advances by lenders to existing customers.

This is not an article in which we are going to name those we consider to be the worst culprits but, they probably know who they are, and this piece can perhaps act as a line in the sand for them to look at the way they work in this area, and perhaps conduct some competitor analysis.

Clearly, it’s not a ‘beyond the pale’ request that an existing borrower might wish/need to borrow more money during the term of their special rate.

The likelihood is that, should they come to us as their adviser, we are going to rule out a remortgage because of the ERCs that are likely to be incurred, and therefore our first port of call is probably going to be the existing lender for a further advance.

Let’s try to look at this logically.

Agreeing to that further advance – or at the very least not making the borrower/adviser have to jump through an inordinate number of

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MORTGAGE INTRODUCER

Rory Joseph director and

Sebastian Murphy

head of mortgage finance, JLM Mortgage Services

DECEMBER 2019

hoops – essentially keeps that borrower with the lender for a further period beyond their existing commitment. That is, of course, if they remortgage at the end of their two/ three/five-year deal.

The further advance will probably be on a different rate to the existing product and a different term – job done you might think in terms of locking that borrower into a longer relationship with the client.

However, it’s clear from our dealings with some lenders, with regard to further advances, that this isn’t the viewpoint at all.

The major gripes would be that the systems and processes are archaic – one lender won’t allow you to place the business through their online system, instead you have to supply paper forms which they’ll then transcribe onto their system.

Or they insist that the client applies direct to them, even though the client wants the adviser to do it, and ensure they have the right advice.

Or the rates on offer are so out of kilter with the rest of its offering, that it doesn’t really pay for the client to have that further advance – some lenders have a significantly higher further advance rate or its actually the SVR. In that sense, it seems that some lenders are effectively putting barriers up to this type of business; they don’t want brokers getting involved and/or they are offering wildly different rates direct to customers when compared to what a broker is able to get from the very same lender.

It’s a somewhat bizarre approach

to a client need that, as mentioned, would keep the borrower tied to them, plus of course, this is actual lending business that they are passing up, seemingly on purpose.

Now, don’t get us wrong, some lenders do this very well and we have no problem in naming them – Halifax, Skipton and Scottish Widows being three prime examples.

But others are so far off the pace, that it is perhaps no wonder we are seeing a resurgence in second-charge business, not least because the rates in this part of the market are pretty competitive and they tend not to come with ERCs anyway.

There could be many reasons why certain lenders don’t appear overly enamoured about this type of business – perhaps it’s seen as too low in the margin stakes or there’s a separate department looking after it and they don’t truly understand the needs of advisers and their clients when it comes to further advances.

However, what we might all need to understand is why lenders, who are apparently fishing in the same waters and are supposedly obsessed with keeping hold of borrower customers at the end of their terms, have such different approaches to this client need.

Surely, supporting this type of business, working with advisers and dealing with, what is essentially a very simple part of the market, can’t be that difficult?

As mentioned, the differences in this market are what makes it interesting and competitive for our clients, but in some areas, you sometimes wish certain lenders adopted the processes and practices of their wider peer group. Further advances is definitely one of those areas.

www.mortgageintroducer.com

Review: Buy-to-Let

Rate cut will keep everyone on their toes It’s been hard to pick up the business section of a newspaper over the last few months without encountering feverish speculation as to the likely next move in interest rates.

Not so long ago, some respected economic commentators were confidently predicting that the persistent weakness of sterling since the 2016 referendum would put upward pressure on prices, and that this would also prompt the Bank of England to raise interest rates to keep a lid on inflation. With the base rate at just 0.75%, it could certainly be argued that there is scope for it to rise.

That has now been replaced, however, by a wave of conjecture that in fact the next rate move might be down – back to the 0.5% that has prevailed for much of the period since 2008, in the wake of the financial crisis.

That view was given a fresh boost in November when two of the Bank of England’s Monetary Policy Committee voted against the decision to maintain the 0.75% rate.

There is now a growing consensus that the MPC will indeed cut rates – maybe not today, maybe not tomorrow, but soon.

What lies behind this renewed urge for even cheaper borrowing?

Well, inevitably it’s partly about Brexit.

When it briefly looked as if the UK was on the verge of leaving the EU without a deal – and therefore without a transition period – the expectation in financial markets was that this would hit the UK economy very hard, in the short term at least, and that a rate cut may be required to ‘keep the blood flowing’.

Now that risk has receded – for the time being anyway – the problem has become, once again, one of uncertainty.

The general election campaign raging around me at the time of writing is mostly about ‘getting Brexit done’ and moving on. Hallelujah to that – but it’s not easy to see how it will happen, regardless of the result.

Even if there is a government with www.mortgageintroducer.com

John Phillips

national operations director, Just Mortgages and Spicerhaart

a big enough majority to get a deal through Parliament, the transition period expires at the end of 2020.

So pretty much as soon as a deal is in place, we’d be back to a cliff-edge scenario and everyone screaming at one another about what should happen next. Something to look forward to in the New Year.

Meanwhile, pretty much any other result would probably lead us into second referendum territory, which will at the very least prolong the uncertainty, and quite possibly land us back at square one.

For once, though, Brexit uncertainty isn’t the only issue. There are also fears of a wider global downturn, and it’s not lost on economic policymakers that this would inevitably also have an impact in the UK. Both main parties are promising to turn on the public spending taps to varying degrees, which would normally be a sign for the Bank to think about putting the brakes on with a rise in interest rates.

But these are not normal circumstances, it seems: the after-effects of the great crash linger more than a decade after the event.

A further rate cut could be very

tough for mortgage lenders who in many cases are already operating on wafer-thin margins.

Bigger lenders may be able to boost market share by passing on the benefits to customers, but smaller lenders will struggle and, especially where mortgages are not core to their business, may opt to exit the market.

What is clear is that lenders will have to adapt to survive. That means more competition on criteria as well as rates – which hopefully means customers getting better deals.

From a broker perspective that means we will all have to keep on our toes as well – it’s already hard to keep up with everything that’s going on in the market.

But that’s precisely where brokers get to prove their value to their clients. By getting to know a borrower’s circumstances and aspirations for the future, and building a clear picture of their financial needs, brokers can help clients understand their protection needs and use their knowledge of the market to ensure borrowers get the deal that’s right for them, rather than one that’s churned out by a computer.

DECEMBER 2019

MORTGAGE INTRODUCER

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Review: Buy-to-Let

A time for optimism Moving Brexit deadlines, changes in leadership and a general uncertainty about the economy has impacted everyone in the sector; advisers; lenders; and of course the clients themselves.

Whilst many will be relieved to get to the end of the year, the challenges we’ve dealt with over the past 12 months, such as the rise in longerterm fixed rates, the comments around ‘unnecessary advice’ made in the Mortgage Market Study earlier this year and changes in regulation such as the Senior Managers and Certification Regime (SMCR) have definitely given us a good foundation for 2020.

Embracing technology

Technology has been a focus this year. Initially there was a lot of fear about automated systems replacing human advice and whilst we’ve seen a number of online brokers enter the market in 2019, all have included elements of human interaction.

There is no doubt that these channels cannot and will not replace the face to face contact that the majority of those making big financial decisions prefer.

Conversations about technology now seem to be centred on how it can support brokers rather than put them out of business with so many tools available to improve efficiency.

For us at Accord, the biggest technological change was the launch of our new Mortgage Sales and Originations (MSO) platform which has improved speed of service, turnaround times and ease of use.

The system spent months in planning and was rolled out to brokers across the country over the summer.

In addition to offering brokers a 24 hour turnaround capability on residential applications, new features also include online Decision in Principle (DIP) certificates, uploading of documents at DIP stage, real-time case tracking and the ability to view and print offers, making it easier for brokers to get quicker lending decisions for clients. www.mortgageintroducer.com

Jeremy Duncombe director of intermediary distribution, Accord Mortgages

More advisers are now implementing online Customer Relationship Management (CRM) programmes to increase client contact and retention and improvements in sourcing systems and criteria search functions have streamlined processes to enable advisers to spend more time on the elements of their role they value most – talking to clients.

However, don’t forget that criteria search systems may not cover all of the ‘grey areas’.

At Accord, our underwriters have the discretion to make common sense decisions so, like with any technology, it should be used to help, not replace human interaction. Your Business Development Manager or lender help-desk will always be able to give you advice on unusual cases.

Personally, I think we’ve probably seen less technological advancement in this area than we originally anticipated, but I expect this to accelerate next year, especially with increased Application Programming Interface (API) integration.

Broadening horizons

With increased uncertainty, we’ve seen a conscious shift to flexible lending, with borrowing accepted where it may not have five years ago.

Some of this has to do with tighter margins and increased competition for business, but mainly it’s a greater understanding of an evolving demographic.

Working patterns are changing - one in seven people are currently self-employed - and consequently lending policy has to change too.

This is why, in addition to our well-established common sense lending approach, we’ve just updated our criteria, reducing the number of years’ evidence required from those who are self-employed from three years to two years.

We’ve also recently increased our maximum term from 35 to 40 years and maximum age from 75 years old to 80 years old, to offer brokers more choices to support their clients get the house they want.

DECEMBER 2019

Building your business

When we set out our priorities at the start of the year, developing our Growth Series library and supporting brokers to build their businesses was key.

We’ve expanded our education guides to include a Help to Buy guide which outlines the current scheme and proposed changes and just added a guide to selling protection with plenty of hints and tips.

I’ve also really enjoyed interviewing our podcast guests, talking about a broad range of topics including the future of mortgage governance, turning your brokerage into an award winning business, advising clients through times of uncertainty and how to make your business Senior Managers and Certification Regime (SMCR) compliant.

The free-to-access toolkit now has 5,000 registered users and we have new content themes in development for next year.

We’ve also seen our Welcome Box scheme reach two milestones this year – celebrating 30,000 deliveries in March and 40,000 in December.

Introduced to help brokers increase their own customer satisfaction, these complimentary hampers are sent to first-time buyers or home movers who complete a mortgage with Accord on behalf of their broker. No Accord branding is featured and many advisers report they have secured additional business and referrals as a result of the gift. Both the boxes and Growth Series initiatives are focused on helping advisers succeed and adding that extra value is what really drives us as a team.

All in all, it’s been a good year for the industry and many of the brokers I speak to are feeling optimistic about the year ahead.

Whilst I’m sure there will be some unexpected challenges, if you can retain a good relationship with your clients, understand their changing needs and the opportunities available and focus on the value you as an adviser bring, you will be in a good position to reap the benefits.

MORTGAGE INTRODUCER

19

Review: Buy-to-Let

Looking ahead to 2020 I have never been someone who has made any great fuss around new year resolutions. Not that I’m totally against them.

For those who need a focal point for the implementation of a health kick, or as a starting point for a financial review, then I can appreciate the value that a new year can offer in terms of starting something with a clean slate.

On a personal level, I am someone who has a constant flurry of new ideas and plans - some good, many bad – and I’m also someone who likes to implement them sooner rather than later (within reason on a work basis) without the additional build up or pressure attached to being labelled something as monumental as a resolution. But that’s just me.

This got me thinking about the BTL marketplace and what might be on the agenda for 2020 – resolutions or no resolutions.

As with many areas of the mortgage market, some of this will depend on the outcome of the General Election and Brexit.

In light of lingering political uncertainty, I imagine there is one thing topping many landlords wish lists for the year ahead – and also for many people operating in and around the BTL sector – and that is no further government intervention within the buy-to-let marketplace.

I’m sure there are also vast numbers who are also praying for reverses to tax and stamp duty changes but, for now at least, I’ll try to keep it within the realms of possibility.

Whilst on the topic of political agendas, it was interesting to see the FT recently report that the Labour Party has dropped a plan to give a new “right to buy” to private tenants amid fears that the policy was not workable, according to party figures familiar with its UK election manifesto.

The idea to allow tenants to buy out landlords for a government-set “reasonable price,” was floated by shadow chancellor John McDon-

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MORTGAGE INTRODUCER

Jeff Knight

director of marketing, Foundation Home Loans

nell in September and widely condemned within the industry.

Moving away from politics, and resolutions for that matter, let’s focus on an area which is likely to become more of a focal point for intermediaries and landlords – especially portfolio landlords – in 2020.

Let’s start by saying that competition across all areas of the BTL marketplace is only going to intensify in the next 12 months, with a wider variety of buy-to-let options emerging for all types of landlords.

This is good news for intermediaries as landlords need more support than ever across a sector where yields, costs and tax benefits are being squeezed. And with product numbers increasing - in terms of volume, variety and in some cases complexity – the value attached to

“Competition across all areas of the BTL marketplace is only going to intensify in the next 12 months, with a wider variety of options emerging for all types of landlords. This is good news for intermediaries as landlords need more support than ever across a sector where yields, costs and tax benefits are being squeezed” a good, professional advice process continues to rise accordingly.

A growing proportion of landlords will look to restructure their portfolios through the exploration of more tax efficient methods and focus their attention on limited company buyto-let offerings. This is especially apparent in areas where landlords are looking to ensure greater yields - for example HMOs or multi-unit blocks - and there is growing flexibility in the way lenders are looking at borrowing requirements in these areas.

Focusing on HMOs, we’ve seen heightened landlord demand for such properties in recent times and DECEMBER 2019

this is also a trend which was highlighted in the Q3 landlord research from Foundation Home Loans in conjunction with BVA BDRC. The data revealed a potential step-change in the type of properties landlords were adding to portfolios and where they were likely to concentrate in the future. HMOs continued to generate the highest rental yield for landlords at 6.5%, with 20% of landlords now having an HMO property within their portfolio – landlords were said to typically branch out into HMOs after their fifth property, while 10% of landlords now own a multi-unit block of flats.

HMOs are particularly popular in Wales (31% of landlords have at least one) and the East Midlands (26%).

To complete this HMO mapping of the UK, the data showed that 25% of landlords in Central London and in the South West incorporated HMO’s within their portfolio. The South East (excluding London) saw 23% of landlords own such a property, the East of England 20% and the West Midlands 20%. In the bottom half of the rankings, the North West and Yorks & Humber polled 19%, London (Outer) 17% and the North East came in at 13%.

The types of property typically owned by landlords remained largely unchanged in Q3, with terraced houses continuing to be most common. Portfolio diversity increased in line with size, with 11+ property landlords having an average of 3.3 different property types in their portfolio, compared to the 1.9 held on average by those with 10 or fewer properties. A fifth of landlords were reported to own an HMO property and landlords with 11+ properties were twice as likely to hold an HMO within their portfolio.

On the back of such data, this is a product area – alongside limited company lending –which landlord and intermediaries should be considering for their new year’s resolutions lists. Or at the very least become better informed about HMO’s, licensing and how it can be utilised within portfolios to minimise risk, bolster yields and generate additional investment opportunities. www.mortgageintroducer.com

Review: Buy-to-Let

Trends to watch for in the new year The mortgage market has experienced a steady, if unspectacular, 2019, but there’s still plenty to be positive about going into 2020.

Whilst we’ve had a positive year, for some activity levels have been muted on the purchase side and remortgage volumes on the whole have stayed largely the same.

However, the fundamentals remain strong, with the Bank Base Rate steady at 0.75% and the Monetary Policy Committee indicating that rates are unlikely to be hiked until there is more clarity on the effect that our withdrawal from the EU has on the economy and employment.

Rationalising buy-to-let

Some things are easier to gauge ahead of this, however. Landlords will continue to consolidate their portfolios next year, remortgaging and blending both LTV and rental income calculations across their books.

This is possible with the same lender in some cases and has the advantage of supporting lower yielding but high value properties within a portfolio.

We‘re also of the view that more institutional money is likely to be invested into the private rented sector.

Build to Rent student accommodation blocks are popular and profitable, and it’s likely we’ll see more purpose-built rented accommodation in city centres, where bills are included in monthly rent and tenants don’t have to find the deposit in a traditional sense.

This is particularly interesting, and suggests a move towards providing renting as a service, like AirBnB.

Alan Cleary

group managing director, Precise Mortgages

storeys without planning permission from January 2020.

The extended rules will eventually be rolled out to detached houses. We expect this to support bridge to let developments for landlords looking to expand.

Property as a pension

For two decades, buy to let has offered tax advantages to those looking for a place to invest towards their retirement. Recent tax and regulatory changes have already curtailed new investment of this sort, but we expect that how older people’s wealth in property interacts with their pension in later life is due for some big changes in 2020 and beyond.

Borrowing for longer, innovation in how we assess income in later life and a move towards providing much better choice and options for older borrowers has to be a priority for all lenders and other parties in the mortgage sector.

Self-employment

Self-employment is another area of the market that we see huge opportunity in. The number of us choosing to work for ourselves is steadily rising.

According to the latest data from the Office for National Statistics, there were 4.93 million self-employed people, 15.1% of all people in employment, and 162,000 more than a year earlier.

With thousands of jobs lost in the retail sector over the past couple of years, we expect this trend to contin-

Value add

In the short-term market, we expect developers to continue with the strategy of adding value to properties ahead of resale or rent.

Permitted development rules were extended earlier this year, with Robert Jenrick confirming homeowners will be allowed to extend purposebuilt blocks of flats upwards by two www.mortgageintroducer.com

DECEMBER 2019

ue. How the mortgage market serves these borrowers currently falls short.

It’s not just about accepting accounts and income verification that is practical for self-employed borrowers to provide, but also about taking the time to understand the risk represented by the self-employed.

As a lender, we can view full-time employment as a lower risk than being a sole trader in income terms but this glosses over a vast array of different borrower income types.

The market needs better data on self-employed incomes and also to consider self-employed statuses in a more granular way.

Credit repair

There are debts considered good and debts considered bad. Credit repair mortgages are of enormous value to those who need them because they can allow borrowers to rebuild their finances in a positive and affordable way.

But in order to access competitive products, lenders need to be open to considering these borrowers. As it stands, too few do.

Competitive pressures

Finally, consolidation between lenders, and ongoing pressure on pricing is likely to continue into next year, particularly while political uncertainty endures following the extension of the Brexit deadline.

This year has seen a number of smaller lenders exit the market, as well as other rather larger lenders opting to suspend new lending as a result of such competitive pricing in the mainstream, low LTV part of the market.

Short-term funding costs remain very low in the capital markets, allowing lenders funded this way to price keenly. However, with transaction volumes likely to remain subdued while Brexit negotiations are unresolved and a general election takes place, pressure on volumes will make it harder for lenders playing in low margin areas.

MORTGAGE INTRODUCER

21

Review: Buy-to-Let

Keeping it simple A quick look at Wikipedia reveals that the ‘KISS principle’ – in other words, ‘Keep it simple, stupid’ – was actually coined by a U.S Navy aircraft engineer back in the 1960s, although it wasn’t truly popularised until the 1970s, and perhaps didn’t truly enter the business lexicon until slightly later.

The principle seems fairly obvious but, for those prone to embellishment or over-complication, it effectively means that ‘most systems work best if they are kept simple rather than made complicated’.

I think there’s a lot to be said for this, especially in our mortgage world which can tend to be rather tricksy about what is, at its heart, a very simple business.

My own ethos about lending tends to be just as basic – ‘Only lend to people who can afford to pay it back.’

And, in my view, if you’re starting from this perspective, and operating your lending business along these principles, then you probably won’t do too badly.

Unfortunately, and in rather spectacular ways, some lenders lost sight of this in a rather big way back in those pre-Credit Crunch days, and the history books will tell you everything you need to know about how that panned out.

Having ‘KISS’ at the front of your mind seems like a good strategy to pursue in both mortgage lending and mortgage advice at the moment, especially given the focus on complexity within specialist lending.

Confusion seems to abound in a number of key buy-to-let areas and that, to my mind, is a result of certain lenders over-egging the proverbial lending pudding.

I read a piece recently about buyto-let lenders’ stress tests with a number of advisers suggesting they (and clients) were getting confused about how the rules were being followed, what that meant for stress tests, and where it might lead the landlord client. The argument being that landlords were having to take out five-year products because the

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MORTGAGE INTRODUCER

Bob Young

chief executive officer, Fleet Mortgages

DECEMBER 2019

stress testing in place was forcing them down that route in order that they could meet the rental criteria requirements.

From Fleet’s point of view, we tend to focus on a simple stress-test of 125% at 5.5% across the board, although I appreciate that certain products might come with different formulas – for pay-rate products or HMO/MUBs, for example.

But, on the whole, it’s a straight stress-test that can be applied to the vast majority of our products.

Having that knowledge and certainty as an adviser in this space seems to be helpful, given the feedback that we get back.

It’s certainly not our method of business to operate stress tests which ‘force’ a landlord into a 5-year deal which they are only taking in order to secure any kind of mortgage finance.

That can’t be right for them and it effectively puts the adviser in an awkward position. By operating the same stress test across the vast majority of our products, we are offering a choice of two- and fiveyear options, and not setting up our lending policy so that it’s five-year or nothing.

Having that simplicity does seem to be working, particularly in the growing limited company sector – just this year we’ve seen an 11% increase in limited company applications received over 2018 and it’s my belief that this is a part of the buy-to-

let market that will continue to grow.

Limited company is however a different ‘beast’ to lending to individual landlords, and it’s important that all stakeholders fully understand the specific needs and requirements around that.

It therefore pays to be working with a specialist lender in that regard – for instance, traditionally highstreet lenders have lent to a mixture of trading and non-trading SPV limited companies, whereas we only lend to SPV limited liability companies set up for the sole purpose of buying and renting out properties.

The problem is that when you lend to a trading company with other lines of business, the transaction becomes far more complicated as that company has debtors/creditors and perhaps other credit facilities/liens over their assets. That may complicate matters a lot as it could challenge the priority of the mortgage lender’s first-charge in a default situation. Looking at the options available, and the potential for such issues to arise, we prefer to keep it simple, and would urge advisers to work with lenders who feel the same way. This is not a dumbing-down of the market situation but a focus on clarity and transparency and we think it’s an approach which will appeal to both advisers and their landlord clients.

And with that, and as this is my last article before Christmas, may I wish all readers of MI a very happy holiday season and a very prosperous new year. 2020 is likely to be a very interesting one for all concerned.

www.mortgageintroducer.com

Review: Buy-to-Let

The future of buy-to-let At the time of writing, the UK general election is only a matter of weeks away. So, in homage to the politicians hitting the campaign trail up and down the country, I thought I would take my own whistle-stop buy-to-let tour of the UK to look at a variety of factors currently affecting this sector.

House prices, sales, rental growth expectations and demand

The price of a luxury home in the heart of London is set to climb 20.5% over the next five years after a prolonged spell of sluggish sales and discounting.

According to Savills annual housing market report, next year will see the first annual price rise (of 3%) for high-end homeowners in London since 2014.

Property values are then predicted to rise 6% in 2021, 4% in 2022 and 2023, and 2% in 2025 across the capital’s exclusive locations of Belgravia, Knightsbridge, Mayfair, Kensington and Chelsea, Marylebone and Notting Hill.

Overall, the average house price in the UK is predicted to rise by 15.3% over the next five years to reach £266,000 – with the North West, Yorkshire and Humberside, Scotland, the North East and the West Midlands expected to lead the regional recovery.

When it comes to house sales, the latest UK Residential Market Survey from RICS outlined that newly agreed sales continued to slip across almost all regions except Northern Ireland, where contributors noted a marginal increase.

Expectations for the year ahead showed improvement, reaching its highest reading in nine months.

Northern Ireland, Wales, Scotland and the North West of England were suggested to display the strongest house price growth expectations over the coming year.

In terms of the lettings market, rental growth expectations for the near-term strengthened further, with every UK region or country www.mortgageintroducer.com

Ying Tan

founder and chief executive, Dynamo

projected to see an increase in rental prices in the next three months.

When singling out an area for heightened rental demand, Zoopla cited the Mole Valley in the Surrey Hills as seeing an 84% annual upsurge in renter demand on a per listing basis, the highest increase of any UK local authority in the past year.

Views of Mole Valley rental properties listed on the property portal more than doubled in Q3 2019 compared to the same period in 2018.

The region is home to commuter hotspots such as Leatherhead and Dorking.

Affordable and not so affordable rental areas

Research from Open Property Group found that Durham is the most affordable city to rent in England, with just 23% of people’s monthly salary going towards rental payments.

Northern cities remained the most affordable rental hotspots, with Lancaster and Liverpool requiring tenants to spend just 24% of their salary on rent to suggest that a ‘North/ South divide is highly evident.’

Brighton and Bath were said to be the most expensive cities to rent in, as renters will be expected to spend over half (52%) of their monthly salary on rental payments.

As a side note, it’s also been reported that Durham offers the best option for home buyers looking to save for a new build property, according to new homes specialists Stone Real Estate.

At the other end of the scale, lettings and sales agent Benham and Reeves reported that Westminster was the most expensive borough in London to rent property in.

The most expensive property listed in the borough was said to be a five-bed penthouse at £260,000 per month.

This was followed by a seven-bedroom penthouse in Kensington and Chelsea at £173,333 a month.

Camden ranked third at £140,000 a month for an eight-bed detached DECEMBER 2019

house. Some eye-watering figures I’m sure you’ll agree.

Future rents?

Additional data from Savills highlighted that rents are set to rise ahead of wage inflation in London, growing a total of 18.8% over the next five years.

It added that affordability pressures in the purchase market will continue to push demand into the rental market, with new purpose-built, professionally managed rental homes helping to mitigate but not reverse this drain on supply.

At a regional level, it was suggested that there will be less upward pressure on rents, with growth across the rest of the UK expected to average 13.1%.

Rental voids

The West Midlands saw the biggest decline in void periods, dropping from an average of 34 days in September to 20 in October, as stated in the Goodlord’s Rental Index. Void periods, or the number of days a rental property is left unoccupied, also declined in the East Midlands and Wales. The UK average for void periods remained at 18 days during October. Void periods across the South West and South East remained unchanged month-on-month. The North East saw the most significant shift after a positive September. The South East also saw a shift, moving from 14 to 25 days.

However, despite these shifts, seven out of the eight regions across the UK had lower void periods in October compared to January 2019, marking an overall positive trend across the year. This is a huge amount of data to digest. However, it does help identify the raft of factors affecting the BTL marketplace and provides valuable insight into how tenants, landlords and intermediaries are having to adapt to regional variations in terms of price, affordability, demand and future expectations. Trends which we need to continue watching with interest in 2020.

MORTGAGE INTRODUCER

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Review: Buy-to-Let

Expats still favour buy-to-let in the UK By the time this article is published, the general election results will be known and there may be a clearer picture of how Brexit is going to be delivered.

Alternatively, there could be further delays and more confusion surrounding the final outcome for the UK. Political party manifestos often contain starkly different promises on key issues and it’s probably safe to assume that the election winner will not deliver all of them.

It is difficult to predict what effect there will be on the economy and whether any significant tax changes will be implemented in 2020.

Regardless of the party in power, the UK will probably still be a viable option for foreign property investors, especially if the weakened pound persists during the next phase of Brexit.

The property market in Britain has always attracted overseas investment and is also a popular invest-

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Jane Simpson managing director, TBMC

DECEMBER 2019

ment strategy for British expatriates living abroad.

At TBMC, we frequently receive enquiries for expat buy-to-let mortgages and over the last 12 months there has been an increase in the number of lenders and products available for UK citizens living overseas. In fact, we have over 20 buy-tolet providers on our lender panel offering financial solutions for expats.

Due to the myriad of options available, buy-to-let expat cases can be relatively straightforward to place. However, there are some key criteria points worth being aware of when arranging expat finance.

Although a rather obvious place to start, your client’s country of residence is an important factor when assessing the product options available.

Most lenders will accept any EEA country, others will include any that are on the FAFT list, and some lenders publish a specific list indicating the countries they will or won’t lend

to. It is quite surprising how many places in the world are acceptable residencies for expat applicants, however the majority of our expat clients live in the EU, USA, Hong Kong or Singapore. Most lenders will require applicants to have a UK bank account and an existing property in the UK (either residential or buy-to-let).

As some expats sell their residential property before moving abroad this can be a stumbling block, however there are a few lenders who will consider applicants without a UK property including Saffron Building Society and Skipton International.

Expat lenders usually have specific requirements around employment status, preferring applicants who work for a multi-national company with a higher minimum income threshold, for example, £40,000 for The Mortgage Lender or £50,000 for Interbay. Self-employment income requirements are sometimes higher still. Minimum loan sizes can also be an issue with expat buy-to-let cases as the threshold is usually between £100,000 and £150,000 with most lenders.

However, Saffron Building Society is one of our most popular expat lenders with a minimum loan size of £30,000, neither a minimum income requirement or any specific restrictions on country of residence.

Another competitive provider in the expat space is Foundation Home Loans offering some of the most attractive rates in the market, but they will only accept limited company applications. Keystone products are also priced keenly, and they will accept both personal name and limited company applications.

TBMC’s free online buy-to-let sourcing system has a built-in search filter for expat mortgages and is a useful tool for brokers to use when researching the market for the best expat deals.

Although there is normally a premium to pay for expat finance, we have hundreds of options to choose from currently starting at 2.49%.

Expat buy-to-let cases aren’t necessarily more difficult to arrange but asking the right questions at the outset can help save you time. www.mortgageintroducer.com

Review: Protection

The power of the collective The protection industry is reaping the rewards of the Seven Families campaign, which – for the first time – brought together the many different organisations in highlighting the need for people to plan financially in case they become too ill to earn an income, says Roy Mcloughlin, associate director at Cavendish Ware and co-chair of the Income Protection Task Force (IPTF).

According to figures from the Financial Conduct Authority (FCA), in H1 of 2019 sales of income protection (IP) reaching their highest level since records began in Q2 of 2005.

“The trajectory of income protection sales has been on the up over the past few years and a lot of credit should go to Seven Families,” says Mcloughlin.

“The campaign helped disturb the assumption that individuals would automatically be covered by their employer. In reality, only 8% of people in the UK are covered by group IP. “Those involved in the Seven Families campaign went around to see groups of mortgage brokers and key influencers in the market.

They wanted to highlight to brokers the need for people to check their sick pay arrangements.

Kevin Carr

chief executive, Protection Review and managing director of Carr Consulting & Communications

Mortgage companies have zero sympathy when someone is off sick.”

Seven Families was a charity-led campaign, funded by a large cross-section of UK insurers and with supporters spanning reinsurers, advisers and personal finance editors of national newspapers.

It set out to provide a tax-free income for one year to seven people who had lost their income because of a serious or long-term illness or disability.

“Another reason for the growth in protection new business is of course the fact that Universal Credit has got everyone talking.

Also, the fact that responsible mortgage brokers are adding a question about protection into the fact find and also changing its positioning,” adds Mcloughlin.

“It used to be buried towards the back. But we sense a sea change in its positioning as brokers realise its importance.”

“The trajectory of income protection sales has been on the up over the past few years and a lot of credit should go to Seven Families”

Everyone plays a part Provider improvements to new business processes have also contributed in no small part to the improved take-up of income protection, says Paul Yates, Product Strategy Director at iPipeline.

For Q3 2019 business growth through iPipeline’s protection sourcing tools was up 88.6% on the previous year.

Mortgage brokers outperformed IFAs for levels of new protection business, with a 90.5% year-on-year increase for the former compared with 32.4% for the latter.According to the technology provider, a wider spread of solutions are being selected with the volume of multibenefit year-on-year sales increasing

www.mortgageintroducer.com

63.6% and IP up 65% in Q3.

Yates adds that in addition to mortgage customers now better understanding the potential “perils they face” thanks to distributors putting in place improved processes and solutions, “providers have taken giant strides in improving their new business processes - especially when taken out as part of as multi benefit plan and for the self-employed - and also improving the affordability of income protection through the introduction and extension of short term product ranges: an important aspect for younger first time buyers.”

DECEMBER 2019

News in brief • Cirencester Friendly has added children’s critical illness (CI) cover to its IP offering, providing a fixed sum payout of £2,500 if the policyholder’s natural, adopted or step-child is diagnosed with one of 10 critical illnesses.

• The Exeter has adopted iPipeline’s AlphaTrust - which includes a customised document and e-sign solution - to help digitalise its IP claims process.

The use of this technology also means that The Exeter meets all the criteria for the PDG Claims Charter: a set of standard practices focused on delivering a positive claims experience for customers.

• HSBC has launched ‘Select and Cover’, a monthly subscription service which allows HSBC UK customers to choose a minimum of three types of cover – including life, travel, home emergency, motor breakdown – from £19.50 a month. They can add or remove an option during the year, provided they maintain a minimum of three products.

• Sesame Bankhall Group has made changes to its executive team structure with the appointment of Stephen Harris as chief financial officer. Harris joins from Aviva where he was commercial and finance lead for strategic programmes in the life business.

• The rise in the number of self-employed people last year was greater than the rise in the number of employed people, according to the latest figures from the Office for National Statistics. Experts have expressed concerns about the vulnerability of this group with regards to their lack of protection.

• The Financial Technology Research Centre (FTRC) has awarded a gold rating to six firms for its mortgage protection with life only plans.

MORTGAGE INTRODUCER

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Review: Protection

Grabbing the attention of Generation Z Change is the only constant when it comes to marketing and demographics. As a marketer, I’m always looking out for what’s catching the upcoming generations’ attention and what makes them tick.

Within the protection industry, millennial behaviour is a hot topic.

What’s becoming increasingly clear is there are a lot of similarities between the thinking of this group and that of previous generations.

However, what’s really beginning to intrigue marketers is the behaviour of those born from the mid1990s onwards – otherwise known as Generation Z. Virtual is the norm for them. They’ve never used a landline, they’ve had smartphones since age nine and they communicate through video calls, texts or Instagram stories.

From a personal perspective, whilst not ‘quite’ a Gen Z, I share many of these communication preferences. Why? Because as a timepoor working parent who’s away from home on occasions, these technologies and communication channels allow me to get a lot more done.

In fact, I’m unsure how I would be able to juggle work, home chores, looking after children (and their homework and clubs) and have even a modicum of a social life without these tools. You don’t need to be a Gen Z (or a millennial) to appreciate the convenience and effectiveness of digital communication.

According to research by Bloomberg, Gen Z accounts for 32% of the global population and is now outnumbering the millennial segment.

With the protection industry in mind, I wonder how we’ll fare when it comes to grabbing their attention so we can fully engage and transact with them? Will our current systems and processes work, or will they hold us back when engaging with new generations of customers?

Some may say we have time to prepare for Gen Z, but I don’t think

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Jenny Burt

senior marketing manager, iPipeline

DECEMBER 2019

this is the case. We must accelerate the development and evolution of solutions that will meet their needs.

As an example, although I’m embarrassed to admit it, I have a paper form sat on my desk at home. It’s there waiting for me to complete so my pensions can be placed in trust.

My financial adviser has reminded me (a few times), so what’s stopping me? The reasons are that I’m time poor, it keeps falling behind other tasks which have to be done and it’s inconvenient. Why do I have to fill in a paper form by hand, pop it in the post with my wet signature, get it witnessed and then wait? In a world of digital signatures, we shouldn’t make customers’ lives more complicated.

From a protection point of view, I initially took out cover when I got my first mortgage and before I became a parent.

Back then I had more time to review my options, complete the vast amount of forms, sign and return in the post – there were less distractions in those days. It won’t be long

before I need to review my current cover again to ensure it’s still adequate and I take a deep breath just thinking about it. But I hope when the time comes both my adviser and insurer will have an easier, less time-consuming process for me to follow.

Technology plays a vital role during the protection advice process.

It can add real value by increasing personal relevance and driving awareness. If the customer journey is made seamless yet relevant and personalised to the individual no matter their age, then as an industry we have the potential to grow and succeed.

The truth is we can learn a lot if we look outside our industry. Take the Trainline app as an example; it provides a fantastic user experience offering many features such as the ability to book tickets anytime, anywhere.

You also see live updates including platform numbers and journey progress, plus no paper tickets need to be collected ahead of your trip. I’ve taken advantage of this many times, adding real value to my journey.

Added to this is now Seatfrog – enabling me to bid for a first-class upgrade when I want it.

The good news is there’s a growing trend toward younger clients purchasing more protection, according to iPipeline’s Q3 results. In 2015, the under 30s accounted for just 14% of policies sold.

This has increased to 18% in Q3 2019. Much of this growth is due to improved technology, providers developing solutions that better serve younger people’s needs and advisers engaging more with this vital but often overlooked demographic.

But more still needs to be done.

Gen Z will shape our industry for decades to come, so if we want to have a relationship with them, we will need to consider incorporating digital communication and collaboration tools into products now.

However, the chances of us providing life and income protection for future generations won’t be great if our industry still handles vast amounts of paperwork and struggles to accept fully digital processes. www.mortgageintroducer.com

Review: Protection

Why a GIO can be your BFF For an industry that often suffers from dull terminology, the Guaranteed Insurability Option (GIO) has to be one of the dullest. But, as is often the case with protection, behind the jargon lies an exciting benefit.

While GIOs were once a core element in the protection advice process, advisers now seem reluctant to discuss them with clients. Despite this apparent complexity, the GIO is actually a relatively simple rider and a great benefit with which to encourage new clients to buy protection or when revisiting existing clients to see whether their situation has changed.

A GIO can kick in when someone has a new job, moved house or had a child since the original policy was taken out, and the convenience of being able to get additional life cover without buying a new policy and without additional underwriting is a powerful draw. The added bonus is that premiums on the original sum insured won’t change and premiums

Andy Philo

director strategic partnerships and employee distribution, Vitality

Emma Walker, chief marketing officer at LifeSearch, agrees that GIOs should be a fundamental part of the advice process.

“GIOs give people the sense of security to know that when they have tangible needs to cover they can amend their policies and stay underwritten at their current ages,” she says.

The other benefit of a GIO is the potential to upsell insurance. Insurers often allow general amendments to a policy through a servicing

change rather than needing the client to go through a new application, which gives advisers more time to explore further protection opportunities. Additional cover, for example income protection or critical illness, can be bought through the GIO at various stages such as when a child is born or at stated intervals during the mortgage term.

So, while a GIO sounds boring, it is actually a compelling benefit for new clients and it provides a great reason to revisit existing clients.

“GIOs give people the sense of security to know that when they have tangible needs to cover they can amend their policies and stay underwritten at their current ages” will only rise slightly to reflect the higher benefit that’s being insured.

Roy McLoughlin, associate director at Cavendish Ware, believes GIOs are particularly relevant in today’s fast-moving world. “Life moves far more quickly than before and this means protection must be agile in order to keep up. GIOs are central to this,” he says. “Not only should GIOs be part of the research and advice for new clients, they should also be an integral aspect of the service when revisiting existing clients’ protection needs.” www.mortgageintroducer.com

DECEMBER 2019

MORTGAGE INTRODUCER

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Review: Protection

The best present you could ask for Ho, ho, ho – allow me this month if you will, to focus my whole column on debt and mental health issues. Debt, in light of the Christmas season spending and January credit card paying off.

Or for many no Christmas spending and no wherewithals to pay off the credit card debts. And mental health issues because for many this can be a low time of year and often because of debt worries alone.

So, let’s consider ahead of the new year how we as industries can make resolutions to take some responsibility for how we deal with and help clients and customers with debt issues and those with mental health issues.

The mortgage industry made some sort of a start on mortgage affordability - or got its starting orders to do so – in that the Financial Conduct Authority (FCA) has confirmed that it has removed barriers that stop some mortgage customers from finding a cheaper mortgage deal.

Too many individuals are so called mortgage prisoners; individuals who are locked into their current lender and need to switch to a more affordable mortgage but are prevented from doing so. These problems became exacerbated after lending practices changed around the time of the 2008 financial crisis and tightening of lending standards.

The new rules allow lenders to use a different and more proportionate affordability assessment for customers who meet certain criteria, such as being up-to-date with payments under their existing mortgage and not looking to move house, or borrow more (except to finance certain fees).

The FCA has also confirmed that customers of inactive lenders and firms not authorised for mortgage lending (who are unregulated) will have to be contacted and told that it has become simpler and easier for them to switch to another lender.

Most importantly the FCA says it is ‘taking steps to help those who have mortgages with inactive lenders or unregulated entities to ensure that they are aware that they may now be

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MORTGAGE INTRODUCER

Steve Ellis

head of risk and protection, Premier Choice Group

DECEMBER 2019

able to switch and save money.’

As the FCA wants customers to benefit from the changes as soon as possible the new rules are coming into force immediately. We will be very disappointed for those lenders which don’t or are slow to comply and we have a responsibility to call them out on it as and when we become aware. And we should all be asking our clients – even us as healthcare intermediaries - if their mortgage debt could and should be addressed.

UK Finance is behind this: director of mortgages Jackie Bennett says: “We will continue to work with the FCA’s implementation group as these changes are rolled out, and also urge the government to consider what more could be done to help customers of inactive firms who are unlikely to benefit from the new rules.”

It remains the case however the borrowers with negative equity or who have current or recent arrears may still have difficulties. These are the issues we really need to help clients with – to help them prioritise where they can and clear bad debts.

This is easy to say when new research reveals that 68% of people dip into cash savings to plug their income shortfall, 17% use their bank overdraft, 16% borrow on a credit card and 25% anticipate that the increase cost of living will push them into the red this year. Equity release lender more2life also reveals that 35% of over-55s say their expenditure exceeds their income. 48% of this age group says they don’t have enough cash savings to cover an unexpected bill of £5,000, highlighting a worrying trend towards financial insecurity in later life.

The more2life research also reveals that one in five said they would not be able to cover the cost of an unexpected £5,000 bill and 14% would have to consider taking out a loan. That may be the mortgage market taking some steps, but the insurance and protection industry has some work to do as well.

The FCA has reported on home and motor insurance pricing and concluded that around six million policy holders are getting a poor deal, collectively overpaying by around £1.2bn a year and that about one in three of these customers are considered vulnerable, with circumstances in their lives such as mental health problems that can make switching provider more difficult.

Scandalously tactics by firms include driving up prices and put up barriers to switching.

Helen Undy, chief executive of Money and Mental Health Policy Institute (M&MHPI), said the report: “Confirms that predatory insurance firms are taking advantage of the difficulties that many vulnerable customers face when switching insurance providers, collectively costing them billions in unnecessary changes. Switching insurance can be difficult at the best of times, but for people living with mental health problems who may be struggling it can be impossible. It is shocking that insurance firms have got away with increasing prices for those customers who are least able to switch.

We’re pleased to see the regulator’s plans to crack down on these unfair practices and hope to see strong action taken soon.”

Protection insurance providers are not in the clear but I am hopeful they will ensure they are in the future when they consider this quote from an individual M&MHPI spoke to: “My mental health issues have stopped me working, but I was able to make a successful claim on my income protection policy. I was able to use my employer funded private medical insurance to access inpatient and out-patient treatment for a year. I consider myself to be in a strong financial position because I had insurance to support me through this period - without it I don’t know what I would have done.”

If as an intermediary I had helped a client get that outcome – no Christmas present could compete. www.mortgageintroducer.com

Seize the big customer contact opportunities In my last column I talked about the large-scale insight project we had undertaken at Sesame Bankhall Group to understand the current protection market from all angles and perspectives.

This study highlighted three common consumer misconceptions around the risks to their health, the cost of cover and certainty of claim – all which can be easily rectified by an adviser in their customer conversations.

However, the need for better conversations to educate customers on protection is only one side of the coin, because this will only be successful if advisers take steps to engage their customers in the first place.

This simple reality was brought home to me recently by Canada Life’s research of 1,000 UK adults who had taken out their mortgage through an independent adviser.

Whilst I wasn’t entirely surprised by the findings, I still found them extremely compelling. Furthermore, each potential issue can be easily solved through a simple conversation: ‘One in three homeowners aren’t planning to go back to their current adviser when their fixed deal ends’ Obtaining clients can be costly

Jeff Woods

campaigns and propositions director, Sesame Bankhall Group

and time consuming for advisers, which is why staying in touch with existing customers is so important.

One of the ways that advisers can take the pressure off is by having a conversation about protection cover when advising on the mortgage, and then promising to check-in as part of your ongoing service.

‘Two in five homeowners haven’t heard from their broker since taking out their mortgage’ There’s no reason why an adviser shouldn’t contact their customer after three, six or 12 months to ask after their health, their new property and check if anything has changed for them.

When the customer becomes used to having the conversation with you, without anything necessarily being

sold to them, then further down the line when their circumstances change and the need for protection presents itself your name will be first to mind.

‘Half of homeowners have had a change in circumstances since taking out their mortgage’ As a young broker, I would often make a suite of protection recommendations to my clients.

Regardless of what cover they took out, if any, I would keep a diary system with details of what I had advised and the decision they had taken, along with their reasons. This would provide a natural starting point and timing for the follow-up conversation.

If you’ve done yourself the favour of discussing protection in the first place then you’ll already have the information to hand. So when your customer tells you they’ve had a child or started a new job, you can refresh your earlier conversation with the new details and deliver a great customer experience.

“There’s no reason why an adviser shouldn’t contact their customer after three, six or 12 months to ask after their health, their new property and check if anything has changed for them” www.mortgageintroducer.com

DECEMBER 2019

MORTGAGE INTRODUCER

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Review: Protection

How to get the most out of a communication strategy In the wealth world, post-RDR, most successful businesses segmented their clients into categories, and in reality, the category determined levels of interaction and charges.

Those at the higher end scale would receive more communications more often, usually on the performance of their investment portfolios and it was clear to customers what services they would receive and how often.

In the mortgage world this type of clear segmentation is not as easy.

The hope amongst most mortgage brokers is if they do a good job in sourcing the right product for the customer and help to make the process relatively ‘pain free’, the customer will come back again and again in the future therefore helping to build a sustainable business.

In the same way, if they go on to transact their life assurance and GI in a seamless manner the same may apply. However, for every ‘hope’ there may be a ‘fear. The ‘fear’ of course is the antithesis of the above.

That is, if the process doesn’t go smoothly in any of the transactions, which is not always the fault of the broker I may add, the perception by the customer can clearly be tainted which can have a negative effect on the relationship and of course future business opportunities.

It could be argued that these are the most common scenarios when assessing customer perception – the broker did a great job, or the broker did a poor job (in their eyes).

But, what happens if there is a middle ground – what if the broker did a great job in sourcing the mortgage, chased the lenders where necessary, got the survey done on time, and generally did all the hard yards in making the job look good, but didn’t reiterate what a good job he or she had carried out for the client. This could be as relevant on the protection side as it was for the mortgage.

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Mike Allison head of protection, Paradigm Mortgage Services

DECEMBER 2019

What if the broker carried out an enormous amount of qualitative research on the client, their health, their children’s ages (and perhaps future child plans) then selected not the cheapest cover but the most appropriate giving them access to a wide range of support services and child covers…and then didn’t let them know how hard they had worked – the perception of the broker may again be tainted.

Until mid-November we could have surmised the ‘what ifs’ until the cows came home. Step forward Canada Life with its research into the attitudes and behaviours of 1,000 customers who currently had a mortgage sourced via a broker.

The consumer-based research was designed, amongst other things, to try to understand the perceptions of broker-based mortgage customers concerning their experience with the broker and moreover future opportunities that lay them. It’s fair to say, the results of the survey are a real eye-opener.

For instance, many of the respondents wouldn’t re-use their broker – the research states: ‘One in three (32%) homeowners aren’t planning to go back to their current adviser when their fixed deal ends.’

Furthermore, of those who intend to take a different route when their fixed rate mortgage ends, 15% would try to take out a new product directly with a bank or lender, 10% would review with a different mort-

gage adviser and 6% would attempt to take out a mortgage via a comparison website.

In relation to regular communication, two in five (42%) homeowners said their adviser hadn’t contacted them to review their mortgage since taking it out, including 49% of people who had a mortgage for over 10 years.

The message appears clear - advisers would benefit from opportunities to stay in touch with their clients.

With the move from two- to fiveyear deals being prevalent in our market for all sorts of reasons, the need for meaningful communication with clients is becoming more and more important.

Customers lifestyles will change over elongated periods of time; whether it be forced due to health issues, changes in employment or starting or increasing family, all of these present opportunities to keep i#]#]n touch with clients and to be able to assess client needs and requirements linked to those lifestyle changes.

This is particularly relevant for life cover, especially where the initial sale built in options to increase cover at lifestyle events such as the birth of a child. Often these are included in the initial pricing and have a ‘sell-by’ date relevant to the option.

Good practice would be to review those options, as and when they are due, especially if the cover was made bespoke for the client for the lifestyle reason.

Being able to increase cover or have a premium holiday on the birth of a child for example, is likely to change the perception a client has on the value the broker brings to the party and would undoubtedly help bring the broker/client relationship to where it should be.

Regular and quality communication to the client is key and will no doubt help in cementing relationships akin to those wealth firms who are benefiting post-RDR. Canada Life are to be applauded for investing heavily in such research to bring this to the attention of the market – let’s make sure we all put into practice the clear results of such a survey. www.mortgageintroducer.com

Review: General Insurance

Five GI developments we can expect in 2020 Recent history tells us that gazing into a crystal ball rarely provides anything other than incorrect predictions.

Fortunately, at Paymentshield, we take a more scientific approach to preparing for the future and invest in continually evolving our technology, products and processes to ensure we lead the way in meeting the changing general insurance (GI) requirements of customers and advisers.

So, with this in mind, here are five GI developments we expect to see in 2020.

GI will become more crucial to mortgage advisers

I’ll get the obvious one out of the way first, and before you say, “well you would say that wouldn’t you”, just take a look at the evidence.

According to the RICS Residential Market Survey, purchase activity “remains subdued” and “forward looking metrics imply that the market is unlikely to gain impetus” in the immediate future.

Up until now, the quiet purchase market has had limited impact on adviser business due to the level of remortgaging, but with more borrowers opting for longer-term fixed rates, the pipeline of activity is likely to slow.

The latest Financial Adviser Confidence Tracker produced by Paragon Bank, says that in Q3 2019, 46% of all fixed rate mortgages were taken with an initial period of five years.

This is up from 30% in Q3 2014.

In the same period the number of 2-year fixed rates has fallen from 49% to 39%.

This shift towards less frequent remortgage business puts more emphasis on advisers establishing alternative income streams and GI provides an excellent way for advisers to add value to clients and supplement their existing business.

You only have to look at the recent floods across many northern parts www.mortgageintroducer.com

Technology will adapt to match your processes, not the other way around

Traditionally, provider systems have been inflexible and pretty rigid when it comes to the options advisers have had to integrate them into their processes. You needed to change the way you worked to suit your provider’s system.

But things are changing and one of the benefits of more advanced technology is that it can be more flexible and offer advisers the option to configure an approach that precisely matches their business need.

This means that you can build processes that are designed to deliver the best results for your business.

of the country to see the value of appropriate insurance that meets customer expectations when they most need it – and you are in a position to deliver this.

Rob Evans

CEO, Paymentshield

GI will become an integral part of the buy to let advice process

General insurance doesn’t just protect homeowners. The private rental sector is an increasingly important form of housing tenure and there’s a growing number of options to offer appropriate cover for landlords as well as tenants.

We’ve focused a lot of attention on developing our proposition for landlords insurance, rent protection, tenants contents and tenants liability insurance – and we expect this be another opportunity for businesses to evolve their offering to meet the changing needs of their clients.

GI platforms could become home protection platforms

Another consequence of more connected data is that it could help you to deliver your clients an enhanced customer experience throughout the life of their policy. Insurers already have access to data that can warn of events that might influence their risk decisions, such as a spree of breakins at a postcode level, for example, or of a severe storm that might hit a particular part of the country.

More connected data = more client conversations

A big investment for Paymentshield in 2019 has been the development of our integration capability.

Like other businesses, we have actually utilised API technology for a number of years, but the developments we have launched this year have introduced a step-change in the quality and volume of integrations possible between Paymentshield and third-party systems such as network platforms, sourcing tools and CRMs. This is important for advisers because it makes it easier to optimise a GI fact find and integrate it into a mortgage application, so you can produce a GI quote based on customer generated data, with no extra effort.

And this means that you can spend more time having meaningful conversations with your clients to help you better understand and respond to their individual circumstances and requirements.

“You can build processes that are designed to deliver the best results”

DECEMBER 2019

With more connected data, this information doesn’t need to just benefit the insurers – a sophisticated platform could use it to create personalised, proactive alerts for clients – enabling them to prepare for the potential risk and hopefully avoid or reduce a claim. In doing this, a GI platform becomes more than just a tool to use at the beginning of a policy to submit an application or in the event that a customer needs to make a claim. It can be a way of adding value to customers’ lives throughout the entire life of the policy, creating more frequent and more valuable touchpoints that can build positive engagement and encourage stronger and longer relationships.

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Review: General Insurance

FCA ‘remedies’ – really?

The FCA has published the interim report of its market study into the pricing of home and motor insurance. In particular, the FCA found that policies are often sold at a discount to new customers whilst premiums increase when customers renew.

To tackle this, they are proposing a number of changes including banning or restricting practices like raising prices for consumers who renew year-on-year or requiring firms to automatically move consumers to cheaper equivalent deals.

There could be consequences in the FCA’s thinking, meaning a broker may be expected to automatically switch clients to a cheaper deal at renewal.

However, not all policies are the same. Whilst a broker can identify the differences in cover and discuss the benefits of a lower premium but with potentially less cover, the broker cannot make that value judgement on whether specific cover available under one policy and not another, justifies the different cost.

Insurance is not like a utility supplier where at the end of the day the electricity coming through the cables is all the same. Each policy is different, with different terms and

Geoff Hall chairman, Berkeley Alexander

conditions and each client has different needs.

The FCA is also considering restricting or banning auto-renewals.

This could be dangerous on two fronts. Firstly, many clients choose to pay by direct debit, so they have the peace of mind that they won’t be left uninsured by forgetting to renew cover.

Secondly, the price paid by clients is based on the insurance risk and cost of delivery; if auto-renewal is banned, that could significantly increase the cost at renewal, which may ultimately be passed onto the consumer.

The FCA intends to publish a final report and consultation on remedies in Q1 2020. Ensuring the UK insurance industry treats customers fairly is paramount if we are to maintain customer confidence. Transparency is a good thing, as is ensuring dual pricing is avoided.

However, some of the competition remedies they suggest may cause unintended consequences and different types of customer harm.

I urge you to read the report and respond to the FCA with your views during this consultation phase, while the industry still has an opportunity to influence the outcome.

‘Events dear boy, events’!

This year’s Rugby World Cup in Japan was a huge undertaking. So big, in fact, it has been billed as the world’s thirdlargest global sporting event.

The heady sums involved with the World Cup might represent the glamour end of this area of insurance, but particularly as we run up to the festive period, it nonetheless highlights a crucial area of concern for organisers of UK events, of whatever size.

As an event organiser, the responsibility and duty of care for the visitors, staff, entertainment, equipment etc. lays firmly in their hands and the possible risks and cover needed are extensive.

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Events insurance will cover for cancellation, abandonment, postponement or curtailment. Most policies also include public liability and employer’s liability.

Other insurable perils associated with event cancellation insurance can include natural catastrophes, acts of terror, communicable diseases, venue damage, power failure, strikes, and even national mourning!

From the World Cup to a business conference, exhibition or even the village nativity, your customers could be hosting or attending events that carry significant liability. Providing the GI on clients’ mortgage related risks should be

DECEMBER 2019

Thomas Cook collapse highlights supply chain risk

The recent failure of Thomas Cook had far reaching ramifications, not least for its employees. Its bankruptcy is certain to have impacted the many hundreds of suppliers and sub-contractors that did business with it.

For those brokers with commercial clients, or clients who own or run their own businesses, make yourself aware of the types of insurance available to mitigate the risks associated with the supply chain. Its not an area many brokers talk about, so you can add value to your clients because it’s as much a risk to businesses as damage to their own property through fire, theft of flood.

Businesses can insulate themselves from the risks posed by the collapse of a key supplier using trade credit insurance. Trade credit is there for those concerned about the possibility of being knocked by a bad debt and is well worth considering for clients that sell products or services to businesses on credit terms.

Cover for supply chain risks has historically been part of business interruption (“BI”) insurance. Some BI policies will provide limited cover for loss of revenue and/or profit following a property claim at one of the clients or suppliers that affects your client’s business, and policies can often be extended where needed. For example, would a manufacturer be impacted if their key raw materials supplier suffered a fire at their own premises, meaning they couldn’t supply the raw materials needed by the manufacturer?

The broker’s role is key and underinsurance is a real risk. Understanding the extent of the supply chain is vital to getting insurance that’s suitable. www.mortgageintroducer.com

Review: General Insurance

Is it the end of comparison site introductory offers?

Research by comparison site MoneySupermarket claims that home insurance policy costs have increased by 25% over the last three years, with average premiums rising by 13% in the last 12 months alone.

I had to take a second look when reading this startling claim, because it’s not in any way reflective of our experience here at Cavere, or indeed the feedback from our intermediary community.

According to MoneySupermarket the average combined buildings and contents home insurance policy now costs £144.70 a year, 25% more than 2016. They claim this is down to more volatile weather, squarely placing the blame at the door of insurers and their overriding concerns that there will be more floods, storms and associated damage in Britain over the coming years. I believe what MoneySupermarket have unintentionally highlighted in this research is that their prices are rising significantly faster than those seen in the intermediary space – where we’ve

Paul Thompson

founder and CEO, Cavere Intermediary

seen no more than small rises in line with inflation.

This leads me to question if the tide is actually turning, and the comparison site hay day is finally coming to an end. I would suggest that aggregators aren’t necessarily seeing an increase in the base cost of insurance, but more likely a reduction in the availability and size of introductory offers.

As more customers shop around the insurers and brokers selling via price comparison sites are seeing their margins come under pressure.

Interestingly there is no mention

If the regulator continues to apply pressure or intervene to prohibit the kind of pricing practices proliferated by the aggregators they should expect to see more of the same over the coming years”

of MoneySupermarket’s costs and charges, which providers ultimately have to pass on to customers! The cost of acquisition has to be paid for by someone, does it not? Hence one of the reasons we have the dual-pricing issue in the first place.

If the regulator continues to apply pressure or intervene to prohibit the kind of pricing practices proliferated by the aggregators they should expect to see more of the same over the coming years. Good news for intermediaries and brokers!

A crack-down on dual pricing will create greater opportunity for intermediaries to compete equitably on price.

An advisor or broker who can get their customers the right cover at the right price from the outset, so the premium doesn’t go up or even reduces at renewal will be valued – a level of service that far out-strips what a price comparison site could ever hope to match.

If the tide is turning, get prepared.

Make sure you are working with a GI provider who has relationships with insurers that have fair pricing strategies, as well as those offering the flexibility to consider special circumstances within those pricing strategies. Leading me nicely on to my next piece…

Vulnerable customers – a point of differentiation for intermediaries If aggregators are not as competitive on price they lose their unique selling point. Whilst on the surface of it feels like the FCA is encouraging consumers to shop around even more, the unintended consequence is likely to very different.

With few or no below cost introductory offers on their sites the aggregator’s whole mantra for existing becomes eroded, with brokers and direct providers being able to beat them on price.

Furthermore they must be starting to feel a little anxious about the current focus by the FCA on vulnerable customers – as they should!

The FCA continues to be concerned about the problems faced by vulnerable customers and is soon expected to unveil new guidance on its expectations of firms. If the aggregator cannot compete on standard pricing, how can they possibly hope to compete with brokers and advisors when it comes to their ability to recognise and service vulnerable customers?

After all, it’s not a massive assumption to suggest that

www.mortgageintroducer.com

customers buying without an in-depth understanding of the cover they require, or that which is being offered, using an aggregator could make them even more vulnerable?

A vulnerable customer, i.e. someone who, due to personal circumstances (health conditions, major life events, financial burden to name but three), is especially susceptible to detriment, particularly when a provider isn’t acting with appropriate levels of care.

Brokers and advisors are far better placed to understand the true nature of a customer’s personal circumstances, and make protection recommendations based on a fair and personal analysis of the market. To do this however, they need to work with a GI provider whose relationships with insurers afford the flexibility to consider special circumstances. They also need a GI provider with the technology capability to flag up any customer issues as they arise in real time, such as a missed payment or policy cancellation, so that they can act fast to maintain beneficial outcomes for vulnerable customers.

DECEMBER 2019

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Review: Equity Release

Information and innovation will dispel consumer myths Like many others, my newsfeed has been invaded by all things politics.

As I scrolled through an array of campaign collateral – some good, some not so good – I was reminded of the power of clear, well-presented facts, best couched in a simple story.

And with verifiable information key to helping the electorate reach a considered decision by 12 December, I considered how important it is that consumers have access to goodquality information that can help them decide what Home Finance product is right for them. If the equity release market is to move into mainstream financial planning, the industry must combat so-called fake news as a matter of urgency.

Today, there are too few consumers who understand equity release.

New research by Canada Life found that 15% of UK homeowners say they wouldn’t use equity release to fund their retirement because they don’t understand it – triple the percentage in 2016.

Illustrating this problem, the primary reason that consumers wouldn’t turn to equity release in retirement is the fear that they will lose control of their property.

Of course, this isn’t how lifetime mortgages work. Customers who meet the terms and conditions of their loan will remain in control, and always retain ownership of their property.

These consumer myths continue to hold back the industry. But people’s affinity for a tale, a bit of hearsay, presents a challenge and an opportunity.

Unfortunately, scare stories from previous decades have left some consumers wary of equity release.

This is why a new narrative needs to be told – something clear and memorable that relays the importance of holistic financial planning, product safeguards and the very real, material benefits that equity release can bring to many.

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Alice Watson

head of marketing and communications, Canada Life Home Finance

To that end, Canada Life has published an ‘Equity Release Explained’ brochure – a simple guide that advisers can give to consumers, and that family and friends can read to boost their knowledge of the Home Finance product. We think this can help improve the understanding and perception of equity release.

Encouragingly, there are already signs that a significant number of consumers are aware of the role that their property can play in funding their retirement. More than half of UK homeowners believe their pension pot is worth a lot less than their property . This reflects the stark reality that roughly £1 in every £5 of the average consumers’ wealth lies in their pension pot, whilst the remaining £4 comes from their property wealth.

However, moving consumers from awareness to action is crucial.

This is where advisers, who are key providers of clear and relevant in-

formation, can play a critical role.

And when advisers speak up, the industry should listen. Earlier this year, advisers told Canada Life that getting more support is the number one thing needed to make equity release more attractive and accessible in 2019.

We responded by putting on a range of workshops, which have been really well received.

Another way that the industry can challenge consumer misconceptions is through quality innovation.

Figures from the Equity Release Council show that there has been a twofold increase in the number of Home Finance products in the 12 months between January 2018 and January 2019 . Yet more isn’t always better. Instead, products that give consumers what they most value – flexibility and certainty – are key to sustaining market growth.

At a time when the average UK retiree is predicted to outlive their retirement savings by 11 years, equity release can be a crucial source of financial support for many.

Together, targeted information and innovation can broaden the appeal of equity release and help people enjoy their lifestyle in retirement.

“There are already signs that a significant number of consumers are aware of the role that their property can play in funding their retirement”

DECEMBER 2019

www.mortgageintroducer.com

Review: Equity Release

The need for professional and impartial legal advice Figures published by the Equity Release Council have revealed that around £1.85bn worth of housing wealth was unlocked in the first six months of the year as demand for later life funding reached record highs.

The organisation’s Autumn Report showed that over 41,000 plans were taken out by financial consumers during the first two quarters (rising by 6% on figures for the same period in 2018), while the number of market products also continued to accelerate and average interest rates continued to fall; a remarkable market precedent.

Yet, while it has become something of a cliché to preface any discussion on the merits of equity release by referring to its growing mainstream acceptability, the sheer flexibility and applicability of ER means that it is no longer sufficient to view it as simply another successful financial product but, rather, as an option which is revolutionising later-life choices and changing people’s lives for the better - a meaningful force within our society.

Indeed, the list of possible scenarios which can be supported and enhanced by ER is beyond parallel (whether it is to service debts or home improvements, provide financial support for loved ones or offer a lifeline to clients who are coming to the end of an interest-only mortgage), while the range of in-built safeguards (such as the no negative equity guarantee) should be apparent to even the most jaundiced of observers. However, as levels of demand continue to grow with every passing year, so too does the need to maintain irreproachable standards of protection for prospective custom-bases, especially those whose individual circumstances may not be compatible with the demands of ER (for example, those who are reliant on means tested benefits or who wish to leave the full value of their www.mortgageintroducer.com

Claire Barker managing director, Equilaw

property as an inheritance).

This means that taking professional and impartial legal advice alongside that of a financial adviser is nothing less than essential- a means of establishing whether clients are making the right financial decision. Thankfully, however, one of the great strengths of equity release is that all customer applications are supported by a rigorous legal process.

All of the key players within the ER industry are members of the Equity Release Council; an organisation committed to maintaining high standards of service and advice throughout the sector and of ensuring that firms comply with regulatory rules and provisions.

One of the principal requirements of ERC membership is that providers must confirm that their clients have had at least one face to face meeting with a fully qualified and independent legal adviser and to submit a signed Solicitors Certificate to support this consultation before they are allowed to proceed with the completion of a contract.

In practice, this means that a solicitor will prepare a written report which is specifically tailored to reflect the type of plan that the client has been offered.

This report will outline the way in which the plans works and list the comparative pros and cons of proceeding with such an option, although it will not advise clients on whether one product is more suitable than another.

The solicitor will also address a range of other pertinent and potentially crucial issues (such as the desirability of making a will or, in the case of couples, of taking out a Lasting Power of Attorney in order to ensure their wishes are followed in the event of any future loss of mental capacity) and analyse each and every aspect of the report to ensure that the client understands the full impliDECEMBER 2019

cations and obligations of their plan.

The process also allows solicitors to gage whether a client has been unduly influenced or even pressurised into entering an ER contract by a third party and to ensure that they have sufficient mental capacity to proceed; a valuable safeguard, especially at a time when the treatment of potentially vulnerable customers is of such a concern and apparently growing.

Indeed, given the rigour of this process, it is easy to see why the ERC has so warmly welcomed the FCA’s draft recommendations on vulnerable customers as many of the suggested safeguards are already in place. Once this stage has been completed, all records relating to advice are then stored for a minimum of six years in order to safeguard practices from the possibility of complaints at a later date, either from clients themselves or, perhaps more likely, from disgruntled beneficiaries; a policy which effectively protects all parties and maintains high standards of accountability.

Indeed, it is widely acknowledged that the number of complaints received by the FCA in relation to ER products has been consistently low over the past decade or so, especially when compared to the mainstream mortgage market, and that those which are filed are almost never upheld.

This is testimony, in and of itself, to the robust quality of financial and legal advice within the sector and of the stark contrast between the principles which govern ER and the complete absence of legal advice required to take out a Retirement Interest Only mortgage; a ticking time bomb on the horizon.

Ultimately, equity release represents a substantial financial commitment on the part of clients and therefore our position as solicitors means that we can make the difference between positive outcomes and the possibility of harm - a position which we take very seriously. But, it’s also one that we believe is helping to contribute to the success of equity release while availing customers valuable peace of mind. And, that, for us, is priceless.

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Review: Equity Release

Spending your time wisely As an adviser, what do you spend most of your time doing?

It’s an important question because it’s often the case that analysing such a question results in a sea-change in your activity – ‘work smart’ and so forth.

We often talk about the administrative side of the advisory profession, and whether advisers are better off getting other members of staff to do this, while they focus on the advice. Again, it can be difficult for one-man/woman bands to let this go if they’ve spent a working lifetime doing everything – I understand that, but you should still ask yourself the question: is it the best use of my time?

What about product and lending criteria research? Most advisers would probably say this is a core part of their job.

I read research recently which showed a real difference in the number of hours advisers say they spend on this task – over a third said they only spend one to three hours, about the same said four to seven, while the rest said they were over eight hours, with a significant number over 12.

The tendency in this type of research is to suggest those carrying out the smallest amount of research are somehow ‘shirking their responsibilities’ but the fact of the matter is that we now have technology systems which can conduct criteria searches in a matter of seconds.

I suppose there is a difference between those advisers who are not using such systems and are (effectively) manually researching lender criteria, but my own view is that the market has moved on and systems such as Knowledge Bank can do all of the above and more.

This is as true in the later life lending space as it is in any other mortgage sector. We, via our Air Sourcing system, recently announced a strategic alliance with the aforementioned Knowledge Bank which will effectively give our users the best of both worlds – a fully-comprehensive product and criteria search across all

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Stuart Wilson

CEO, Air Group

later life options. In seconds.

It also provides benefits in terms of data entry between the two systems – helping on the administration side of things too – and advisers can product search first before moving onto criteria, or indeed, vice versa.

This is what technology can do today and it means that advisers needn’t have to spend the same amount of time on such tasks as they might have done in the past. This is definitely working smarter and, if the technology exists, why not use it?

A year to take the later life plunge The year has flown by and here we are at the end of 2019 with a new decade in front of us. In my opinion, these are incredibly exciting times for later life advice, not just when it comes to lending but the entire gamut of wants and needs of older customers.

In that sense, I truly believe there are a plethora of opportunities to be grasped because this demographic is crying out for advice; it’s just that in many cases they can’t see the route to it. I think our job is clearly to support advisers in educating older

DECEMBER 2019

consumers about what is available to them, and we will also be doing our bit (and then some) to push this highly-important message.

Let’s be honest, the demographics and the underlying drivers of this sector are not going to change anytime soon.

So, my Christmas and New Year message to those advisers who are not active in the later life space is to (at a minimum) explore the sector and understand where you might be able to fit your advice capabilities, and where you can make referrals in areas you don’t cover, plus of course (as mentioned above) make use of the technology that exists.

It’s not just about sourcing products and criteria, but it’s also about keeping your customer base informed and ensuring you’re fully on top of their needs when it comes to products and services.

That advisory role will not change, regardless of what year we are about to move into, but it’s almost certain that we’ll see a much larger number of older customers seeking advice.

Enjoy your Christmas and New Year break, and if you need it, take the time to consider how best you can market your services to those in later life, the tools you need to do that job, and the benefits that will bring to both them and your business.

www.mortgageintroducer.com

Review: Retirement Interest-Only

Dancing across the RIO grand As mortgage brokers, you’ll know how good it feels to find just the right arrangement for your clients.

“Another satisfied customer”, as the saying goes.

You’ll know too that the market is constantly changing, with new products from a wide range of providers all aimed at making the most of developing opportunities.

Among these, the Retirement Interest-Only mortgage (RIO) is a relative newcomer you may be currently wary of, and so feel reluctant to recommend.

In fact though, it’s a flexible and attractive proposition for retired clients who need to raise a capital sum, and are able to service regular interest repayments.

If you’ve shunned it up to now, it may be time for a second look.

What are RIOs?

The RIO is a product designed expressly for older borrowers which allows them to borrow against the value of their property in return for monthly interest repayments.

Borrowers can also rest assured that the loan is secure for as long as they live, or until they move into residential care.

Why might you want a mortgage in retirement? You may want to purchase a more suitable property, you may want to give money to a family member, or you might just need to top up a pension income.

Borrowing in retirement has until recently been difficult, but the RIO makes this possible beyond the usual upper age limit for mortgage applications with the additional benefit of the debt not increasing from accumulated interest over the term, which is common ground for many other lending into retirement options available.

Proof of pension income is required to prove the ability of meeting the interest repayments.

The growing retirement market The Council for Mortgage Lenders (CML) notes a growing trend for new loans to extend beyond the www.mortgageintroducer.com

Anita Arch

head of mortgage sales, Saffron Building Society

nominal retirement age of 65.

Around a third of home movers’ mortgages fall into this category, along with a similar proportion of mortgages taken out by first-time buyers.

Extended loans mean lower regular repayments, a significant consideration in the current economic uncertainty. These trends are expected to increase.

The percentage of over-65s in the UK population is rising. Currently at around 17%, it is projected to increase to almost 25% by 2034². For a variety of reasons, there will be many in this age group wishing to release capital from the value of their properties, or perhaps planning to re-mortgage.

Traditional mortgages are insufficiently flexible to meet this range of needs, but the RIO could be an attractive proposition.

Older borrowers in particular will benefit from a higher Loan-to-Value (LTV) entitlement, as it is expected that the loan will be repaid sooner.

Income trends

Recent research shows that far from the popular idea of older people blowing all their capital on Lamborghinis and such like, they are in fact continuing to save, and often in low

DECEMBER 2019

yield accounts. While this clearly does not apply in all cases, the International Longevity Centre UK (ILC UK) found in November 2015 that retired people’s savings totalled £48.7m, which equates to 2.8% of national GDP. Older people are representing a growing percentage of the population, and they will need stable and long-term sources of income.

There is then an increasing opportunity for targeted financial products to meet their needs. The RIO is one possible option.

Saffron has considerable experience in helping clients with specific needs and will continue to support them. We also want to support brokers who may be finding it hard to find the right product for people looking for solutions later in life.

We still notice some confusion about whether the RIO is the way forward; it might well be for some clients, but be sure to discuss all potential options, and check that they have sought legal advice and will apply for a Power of Attorney if appropriate.

RIOs were only introduced by the FCA in March last year.

They’re clearly taking a while to catch on, as the popular suspicion of equity release products in general is proving hard to dispel. But there’s a crucial difference.

Equity release plans require no regular repayments, so that over the term of the loan, the debt increases with interest and must then be paid off in full.

By contrast, the RIO’s monthly interest repayments mean that the final sum to be settled is much lower.

It was claimed this February that at least 25% of all advisers felt that they didn’t fully understand how RIOs worked, and as a result had never discussed them with their clients.

Perhaps though it’s now time to reconsider the RIO; not only does it offer substantial advantages to the ‘silver saver’, but there’s a rapidly expanding pool of potential clients.

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Review: Conveyancing

Getting the right type of conveyancer The transfer of legal title from one person to another represents a pivotal feature of the property transaction process.

As such the need to employ a conveyancer or solicitor who can perform their duties to a high standard counts as one of the most important decisions that a prospective homebuyer or seller can make.

Yet, many solicitors believe that expectations of conveyancing services need to be squared with the realities of a procedure which is both time consuming and laborious, constituting a seemingly never-ending checklist of duties and obligations in order to complete all work to the required legal standard.

However, as many solicitors will attest, conveyancing is a hugely unpredictable and convoluted process and one which can throw up any number of difficulties and delays; issues that are often beyond the control of even the most dedicated case handler.

Indeed, whether it’s because of a third party failing to provide necessary documentation or to answer outstanding queries, a local authority taking longer than expected to return a search, the collapse of a property chain, the emergence of undisclosed facts or an understaffed solicitor’s firm handling bulk panel cases that lead to mistakes (to name but a very few), the scope for delay is an omnipresent reality of the conveyancing process.

Which means that defining precisely what constitutes the ‘right’ type of conveyancer from a consumer perspective is something of futile exercise, particularly in a market characterised by its imperfections.

Circumstances and criteria will necessarily define what TYPE of conveyancer is required, of course, but beyond that, finding the best ‘fit’ and identifying the ‘right’ type of service traits is the best that a client can aim for.

So, for example, a good solicitor will help to manage expectations by providing a detailed account of the

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David Gilman partner in charge, Blacks Connect

DECEMBER 2019

work that is being undertaken, as well as any potential pitfalls or delays that may be encountered along the way.

They will also ensure that clients are informed of developments and of issues at every stage of the transaction and to cater to circumstantial needs and requirements.

Because a personalised service model which treats each client as an individual ‘stake-holder’, as opposed to a mere component, is more likely to encourage streams of repeat or recommended custom than one which eschews the ‘human touch’, while a system which prioritises mutual reward will offer a smoother and more satisfying completion journey than one which holds clients at arm’s length- providing an experience which drives the reputation of firms amongst both clients and brokers and builds levels of trust and confidence.

Which means that taking ownership of a case to get the job done, even if another party is causing slippage, and making time to respond to queries from clients or to offer advice when problems arise should be regarded as a bare-minimum of service.

Moreover, avoiding situations in which absentee or uncontactable solicitors are seen as contributing to hold-ups is also essential, if only because it serves to tarnish the reputation of the wider sector and to engrain a prejudicial view of conveyancers.

In short, conveyancers need to remember that consumer confidence is a very fragile commodity.

However, customers also need to recognise that an emphasis on speed of service is not always the key variable in housing transactions and that having a job done to the highest possible standard ultimately carries more weight than a slapdash or ‘hell for leather’ approach.

What price speed, for example, if the paperwork is littered with mistakes or inaccuracies? Moreover, customers need to accept that low

rates offer little guarantee of the quality of work they will receive and that paying a slightly higher fee for the right firm invariably offers better value for money in the long-term.

For example, a broker will recommend a lender to their clients on the basis of circumstance, criteria and affordability. Yet, in many cases the cheapest market borrowing rate may not be suitable or even available.

However, when it comes to conveyancing, many clients will make their choice on the basis of the one variable that they know and care about- the price.

Which may not be the wisest option, particularly in more complex transactions. Indeed, a broker wouldn’t recommend the same lender to every one of their clients and the same applies for legal providers.

So, one of the key issues that needs to be addressed is the near absence of understanding of conveyancing amongst custom-bases, irrespective of the consumer websites and service comparison engines that will help to sort the good firms from the bad.

Which places a considerable onus on brokers to educate or to guide their clients as to what good conveyancing might look like and on firms to offer a level of service which corresponds with this sense of realism.

It also offers an argument for firms to promote their services and areas of expertise in terms of quality, speed, knowledge, experience and familiarity as opposed to simply being compared on price and to justify their fees in the same way that a car manufacturer might highlight their quality of workmanship, engineering, materials and reliability.

Because, ultimately, this model, together with an emphasis on good advice, good communication skills and a proactive, personalised service fronted by dedicated case handlers could help to alleviate the difficulties of choosing the ‘right’ type of conveyancer and ensure market growth and consumer satisfaction for many years to come. www.mortgageintroducer.com

Review: Conveyancing

Seizing opportunities in other sectors So, we come to the end of the year; in fact, we come to the end of a decade, which oddly doesn’t truly feel like it.

Why should that be? End of decades should be momentous, shouldn’t they? This one feels anything but and there is a sense, perhaps because of the political situation, that we are limping towards it rather than rushing headlong.

Perhaps it’s because the past 10 years doesn’t appear to have a universally-used, catch-all name?

This has not been the eighties/ nineties/noughties and (after a quick Google search) the only thing I can come up with to describe 2010-2019 is the ‘twenty-tens’ – what a surprise that didn’t catch on.

There’s no doubting in my mind that, for us in the UK at the least, these past ten years are going to be called the ‘Brexit years’, regardless of the fact that the referendum was only solidified in 2015 and took place a year later.

No other issue has dominated the decade like it, and the worrying thing is – as we move into 2020 –it looks likely that (unless there is a major change) it’s going to play a huge part in the next 10 years for all of us.

Of course, by the time you read this, we may well know what the result of the General Election on 12 December has been.

I’m writing this well in advance of that, working to a different deadline and with a number of weeks of campaigning still to go so it’s pure speculation on my part to try and work out what that might be.

After some thought, it seems impossible to call, and I can only fall back on the prediction I’ve made above – that Brexit, regardless of whether it ‘gets done’ or not (and by that I mean a Bill gets through Parliament) is not going anywhere.

Indeed, the rest of 2020 is going to be focused on the actual trade relationship with the EU, should we get www.mortgageintroducer.com

Mark Snape

managing director, Broker Conveyancing

that far. In a sense, we have to park those big political issues to one side, because there are so many issues closer to home that advisers need to be thinking about, not least their own plans for the next 12 months and beyond.

We at Broker Conveyancing are in a similar position because we’re also planning and preparing for what we want to happen next, and as the old adage goes, have some ‘ambitious plans for the future’.

I’m sure advisers and firm owners feel the same way, but I’ve always felt that you need to be a realist when it comes to what you want to achieve and how you’re going to go about this.

I was recently asked by this very magazine, what our plans for the future were, and was able to set out an increase in resource which we be-

DECEMBER 2019

lieve will deliver an increase in adviser users.

Plus of course the ability to give our conveyancing firm partners the volume of business they’d like, and to keep moving forward as we have done for many years.

And to me, that feels important for all firms – this may not be about reinventing the wheel when it comes to plans for the future but building on the strong foundations you have already put in place to deliver the next stage in your development.

We might all have ambitions for the future and some of them might seem fanciful and a million miles away, but it’s a question of how you move towards those plans and at what pace.

Do you really want to break your business, over-stretching it in order to try and reach a goal quickly? I very much doubt it and I certainly feel the same about this business.

It’s truly about recognising what works for you and what you can do to build upon this. In our case it’s more personnel who can offer greater levels of support and resource to our adviser users and conveyancing firm partners.

For you, it might be about dipping a toe into a different product area/sector, perhaps conveyancing, and working with like-minded businesses in order to make the most of this opportunity.

Firms are unlikely to achieve these ambitions overnight, and in my view it’s important to recognise the longterm process and the changes that need to be put in place over that time, in order to get to the end goal.

Big leaps do happen; disruption can change a sector rapidly; but the marginal gain option can often be the right approach for firms who recognise where they want to go but need the time to be able to pursue it.

And, on that note, given this is my last article before the Christmas break, I’d like to wish all readers of Mortgage Introducer a very Merry Christmas and a prosperous New Year. And make sure your New Year resolution includes being as active as possible in the conveyancing advice market in 2020 and beyond. Here endeth the lesson.

MORTGAGE INTRODUCER

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For Intermediary Use Only

Review: Surveying

Brokers could be key to customer experience rethink UX, CX, frictionless transaction, the customer journey – these things are the focus of much investment at the moment. They haven’t always been.

The past 12 years have shifted the dynamics that exist between companies and customers, mostly for the better.

Technology, and mainly, the arrival of smart phones. Mobile technology has created mobile and instant access to services that turns the power balance on its head.

Rather than sellers pushing their services out to a sea of potential buyers, mobile puts customers in the driving seat, using their device to pull in the services they need and want as and when they choose.

In a world where we can call a cab to us wherever we are and where our ability to pay the fare is automatic and invisibly handled, customer expectations of what constitutes good service have changed.

Mobile access

Retailers have understood this.

Amazon has set a precedent in that sector in the same way that Uber has in transport. ZipCar, AirBnB, even Monzo – these firms are all designed and built around the basic tenet that customers are their mobile access.

Flexibility, multiple services, choice, competitive pricing, quality experience and lack of hassle characterise them. Customers want this experience when they buy a home or remortgage too.

And yet, as an industry, we are still struggling to deliver a service really focused on the customer in this way.

There are a thousand reasons – the legacy technology within banks, the onerous regulation that firms must comply with, the number of separate parties and industries involved in a mortgage and housing transaction.

The fact that none of these services has been born in a world where mobile exists, let alone a world where smart phones do. www.mortgageintroducer.com

Kevin Webb

managing director, LGSS

But challenges though there undoubtedly are, it’s vital that we overcome them and improve what is currently a pretty horrible customer experience and I think there is value to be gained from trying to break this problem down into manageable bits.

There’s an awful lot of voices in this industry throwing around terms like AI and algorithms without actually defining what we mean by customer experience and what it ought to look like.

This is particularly tricky because customer experience means different things to different people. And for that matter, who’s the customer we’re talking about here?

The borrower is the ultimate customer, but the broker is another customer. Lenders too are a customer, certainly of the solicitor and surveyor.

The regulator isn’t actively involved in the transaction at all, and yet, they’re a party that requires pleasing nonetheless.

The complexity of this picture is why, no doubt, no-one has really cracked this dynamic yet but I think it comes down to one thing only, for all these vested interests: certainty.

The question is then how we deliver this, to everyone. At the moment, the broker is really the mechanism for this where the borrower’s experience is concerned.

They filter out a lot of the paperwork, the stress, the hassle and the complexity for borrowers. So what if, rather than reinventing the wheel, we build on this model.

Brokers will tell you, only too eagerly if you ask, that most of the problems in a transaction stem from the legals - and in particular the availability of searches. Next, is usually delays or queries on the valuation.

Some newer lenders – Molo and Habito spring to mind – have sought to address this by taking control of DECEMBER 2019

the entire value chain themselves.

But with a largely intermediated market, and legacy systems hampering automation within larger more established lenders, this approach is not easily scalable across the market.

Others have sought to ‘automate’ advice and product selection, finding that the lack of API access and infrastructure within lenders and sourcing systems limits them in this objective; something that, despite open banking, looks unlikely to change in the immediate future.

But if the advice and product recommendation is currently working – and it is, brokers will also tell you – providing customers with a positive experience, then why are we so focused on trying to fix that part of the process?

Approval

Instead, it would seem more sensible to focus on the parts of the process that damage the experience of the customer: the certainty they have of approval.

While it’s perhaps unrealistic to assume that this is achievable on every transaction, it should be for a very large proportion of them.

The technology exists to support a redesign of the process: one that takes a large degree of uncertainty out of a transaction.

The regulator has pointed to upfront income verification allowing borrowers the knowledge ahead that they will qualify for the product for which they are applying.

But this ignores half of the transaction: the security is just as important to the lender as the borrower is.

Automated valuation models are used much later in the application process, but, along with digital valuations, could be moved up the chain to be used at the point of sale.

Similarly, simple property searches could also be pulled up to the point of sale, providing both borrower and lender much more explicit certainty on whether an application will be successful.

This wouldn’t answer all the problems that user experience in the mortgage process is currently riddled with, but it would be a good start.

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Review: Technology

The real progress this year was technological There are several words that reasonably sum up 2019. Brexit and uncertainty are two such words. But rather than moan about the things we don’t have and didn’t manage this year, there are achievements that we should acknowledge.

For me, the word that most sums up our industry over the past 12 months is progress. The legal world has lagged other sectors for many, many years in its ability to adopt new technologies that improve efficiency, security, transparency and, ultimately, customer experience.

This past year the industry has made strides forward, and though there is still much further to go, we are on the right path.

In July 2019, the Law Society helped push things forward with the release of its updated Conveyancing Protocol, reflecting many of the government’s proposed changes to the residential conveyancing sector which are coming down the line.

Critically, the newest iteration of the protocol also improves clarity around the liability of solicitors and estate agents in transactions involving identity fraud, something I believe the industry will benefit hugely from.

Solicitors involved in the house purchase process are only too aware of these risks, with conveyancing now considered the area of law most susceptible to cyberattack. It’s also hugely lucrative for fraudsters who can make tens of thousands of pounds by preying on unsuspecting first-time buyers with little experience of the mortgage process as they transfer their deposit, stamp duty and legal fees in a single transaction.

Earlier this year we asked conveyancing firms what the biggest concern facing their business was. The resounding majority – some 45% said fraud, followed by 27% who said the cost of conducting business and 21% who highlighted business volumes as their most pressing concern. www.mortgageintroducer.com

Steve Goodall chief executive officer, ULS

By far and away the most common way for buyers to communicate with their solicitor is by email – it’s convenient and quick but can easily be compromised. According to our research, one in three solicitors conducts 80% of their day-to-day communications via email. A further 25% of firms are conducting up to 90% of their comms by this method.

These figures highlight just how vulnerable our sector is to this sort of fraud, and it’s having a significant impact on the cost of doing business – the second biggest concern facing firms. There is a material impact on professional indemnity costs across the industry, not to mention the time cost and serious reputational damage that this type of fraud can cause for firms.

But this year we’ve seen government, the Land Registry and the Law Society make a huge effort to address some of these concerns.

Indeed, the 2019 protocol makes it explicit that conveyancers should “recognise the value of making the process as transparent as possible”.

In support of this, it aims to improve how digital documents are handled and identified, with a renewed focus on the potential for conveyancing fraud to occur and steps required to prevent it.

DECEMBER 2019

While the processes do need to change, the application of technology to the right bits of the conveyancing process can solve a lot of problems.

Improving communication with solicitors is the obvious first step, which is why we launched DigitalMove at the start of this year.

Our online portal aims to improve the security of communications during the conveyancing process.

Ultimately, we’ve designed the app with improving the customer experience in mind, but security, compliance and risk mitigation for solicitors and lenders is paramount.

DigitalMove prompts the customer when it’s time to act and keeps them updated on their case.

It speeds up the home move, reduces mistakes AND keeps them safe from fraudsters by offering a secure and encrypted communication platform that only clients and vetted professionals can access.

Lenders, networks, brokers and estate agents are looking to automate their own areas in isolation at the moment, but we think the potential for further improvement next year will likely come from better integration of between the technology developments that are underway in our industry.

Some of those conversations are already happening, but to continue to progress there need to be more of them. We hope, and believe, that the progress made this year is just the beginning of a period of greater change in 2020.

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Mortgage Introducer Advert.pdf

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Review: Technology

Anti-money-laundering needs greater co-ordination The Swedish bank SEB looks set to be the latest Nordic bank to be caught up in a wave of money laundering scandals in the region.

The allegations against SEB come hot on the heels of major investigations into Danske Bank and Swedbank, which have claimed the scalps of several senior executives, and resulted in large fines against the banks, to say nothing of the reputational damage and share price impact.

The latest allegations are a timely reminder that European authorities need to up their game to take on this growing threat.

The EU’s Fifth Money Laundering Directive (5MLD) is set to come into force in all Member States in January and, while this goes some way to reinforcing the defences, there is still considerable scope to improve the security of EU financial institutions.

In particular, while 5MLD contains welcome acknowledgement that electronic verification should be used “wherever possible”, it stops short of making this mandatory.

This is a missed opportunity as electronic verification and screening are not only much more secure, but also overwhelmingly more costeffective than manual processes.

There has been talk of bringing all EU anti-money-laundering (AML) activity under one roof – probably that of the European Banking Authority – and of introducing further AML legislation as a regulation rather than a directive.

This would mean any new rules having direct application across the EU rather than being subject to individual Member States’ interpretation.

The problems are by no means confined to the Nordic banks. The UK is highly susceptible, with the financial services and high-value property markets making particularly tempting targets for corrupt www.mortgageintroducer.com

John Dobson

chief executive, SmartSearch

businesses and politicians.

While the government here has said it will implement 5MLD – regardless of whether or when the country leaves the EU – it has not yet come forward with details.

This is potentially problematic for firms who want to do preparatory work to ensure they remain compliant.

On top of this, we also have disjointed supervision arrangements in the UK, with more than 20 different authorities overseeing the enforcement of AML regulations in various sectors. As the country manages its exit from the EU, it needs to give careful thought to how it continues to co-operate on issues like money-laundering, and financial

DECEMBER 2019

crime more widely. There is already a degree of co-operation at a global level through the G7’s Financial Action Taskforce but it’s not clear how much impact that has had on the ground.

The direction of travel is towards tougher regulation but there is a worrying lack of clarity and co-ordination.

It isn’t just down to governments to take action, however. There is a sense that many firms are trying to muddle through when it comes to AML, when they should be seeking to embed a robust approach in their systems and processes.

But regulators are being forced to get tougher and increasingly this approach won’t be enough.

Firms themselves can adopt more of a ‘belt-and-braces’ approach by putting in place more secure systems that will keep them one step ahead of regulatory requirements and also reduce the cost and administrative burden of compliance.

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Review: Education

Time to develop that specialist knowledge Recent statistics have revealed that equity release is enjoying something of a boom.

In the three months from July to September 2019, the number of UK homeowners aged 55 or over who unlocked wealth from their properties rose by 8%, according to figures from the Equity Release Council published in the last week of October.

That figure amounts to an average of £11m each day over the summer months – an increase from £911m in Q2 of 2019 to £988m in Q3.

This rise is part of an ongoing trend which is not going away anytime soon. And it’s not difficult to identify what’s driving it.

Michael Nicholls

relationship director, LIBF

Pension shortfall

The UK has an ageing population and, according to Age UK, 64% of owned households are headed by a person aged over 65.

At the same time many people are suffering from a shortfall in their pension provision.

After a lifetime of saving, the average pension pot is only £61,897 giving an average income of around £2,500 a year, which – combined with the state pension of £168.60 a week, or £8,767 a year – falls short of the minimum wage and for most is not enough to live on.

Is it any wonder that the financial pages of the Sunday papers have started to feature advertisements offering to “make your retirement more comfortable”? There was a time – not so long ago - when adverts like this were talking about pensions and investments but now the focus is on using the home to fund retirement.

The way equity release is being portrayed is changing too, as it becomes increasingly seen as a mainstream part of an overall holistic retirement solution.

Where traditionally, retirement planning focused on pensions and investments, now a client’s property situation is more likely to be included as part of the mix.

In recent years, we’ve seen a vari-

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ety of new later-life lending products come to market to meet this increase in demand. There are now products available for those in sheltered and age-restricted homes, retirement interest-only mortgages and those offering downsizing protection, inheritance guarantees and drawdown.

Interest rates on equity release products are also becoming more competitive, and this summer started to fall below 5%, with 21% of products priced at 4% or lower.

According to the Office of National Statistics, over the next 20 years the UK’s number of over-65’s will go up by more than 40%, and with increased life expectancy, many of them can expect to live well into their 80s, 90s or even to over 100.

Long-term care provision is another factor that those retiring now need to consider.

Added to this trend, equity release is also becoming a mainstream way of accessing cash for those in later life. Research from Canada Life, released in November, showed that 41% of those freeing up cash from

their properties in Q3 of 2019 are using it for home improvements, 21% for holidays and 12% to make a gift to family members. Nearly a quarter of equity release customers, 23%, used the money to pay off unsecured debt.

So it looks like property is going to play a part in funding later life in the future in the same way that a pension has traditionally in the past.

But consumers are facing a baffling array of products and services, all trying to address their very different – and often very complex – needs.

Later life stages

To serve these customers properly, advisers must get a better understanding of the range of options available, and what’s appropriate for the different stages of later life, as well as different individuals.

That means developing specialist knowledge.

At The London Institute of Banking & Finance, we have been working with the Equity Release Council, UK Finance, and major high-street banks and lenders, to update our Certificate in Regulated Equity Release qualification, so that it can help advisers meet the demands of this ever-growing complicated market.

It’s been an illuminating process and one that has been vital to ensure the qualification – and training it provides – remain up to date and fit for purpose.

To keep in line with the fast-developing equity release market, we have increased the number of topics from three to six. This has enabled us to incorporate broader and more detailed coverage of lifetime mortgages. We also wanted to improve our learning experience in relation to vulnerable customers, powers of attorney and complaint handling.

It’s important that the advice we offer as an industry keeps up with new markets and consumer needs, and vital that training and continued professional development reflect that. www.mortgageintroducer.com

Review: The Month That Was

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

The Good, the Bad, the Boring & the Vulgar So, what do you reckon? Annus mirabilis or annus horribilis?

You’ll probably get 17.4 million votes for one description and 16 million votes for the other...

Actually, it’s 16,000,001 votes for the former. The toe curlingly arrogant Duke Of York has just cast his vote and 2019 is quite possibly a year which he won’t want back (though of course there is now hopefully every prospect that 2020 will be even worse for him. Ain’t karma a bitch, eh?).

For most of us who are not members of the planet’s most privileged commune (with the exception of the largely excellent Queenie and the hard-working Princess Anne), 2019 has been a decent year...

CONSIDERING! Yes indeed... “considering”. Considering that is, the slow-motion sh*tshow that has been Brexit, some of the worst floods in recent memory, Liverpool winning another damned European Cup, the Notre Dame cathedral fire, Arsenal going further backwards and that noisy and irritating pipsqueak Greta Thunberg attaining global foghorn status.

“Considering” is also the validating word to describe the mortgage market’s progress. Despite lots of various headwinds and tribulations in places we achieved a year-end out turn which is broadly in line with the halcyon year which was 2007 (and circa £380bn of lending, with product transfers now

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Prince Andrew: no sweat

legitimately aggregated in). But most tellingly, this is a 2007 market capacity with just HALF of the brokers we had back then and most of the shysters and charlatan brokers of that era now firmly removed, albeit some do remain at the perimeter).

So, in this slightly expanded and final Outlaw piece of the year, I’ll try to keep it snappy and punchy via my customary A to Z synopsis.

A

is for Anhidrosis. A condition I developed briefly earlier in the year. My 5-year old nephew threw his Paddington bear at me and for several months I was in fact unable to sweat. Most unbecoming, I can tell you.

B

is for Brussel sprouts and for Belgium. Home of the planet’s most disingenuous and unelected political construct. Yet did you know that Belgium itself went 16 months with a paralysed government… during which its economy BOOMED! Britain hasn’t done badly either, amid Project Fear and 630 immature and disconnected incompetents at Westminster.

C

is for Charisma and Character. Sadly, so lacking in the modern-day politician. But the public’s kickback is coming. And in spades.

Interbay: a Kloppesque year

www.mortgageintroducer.com

D

is for Digitalisers. 2019 was meant to be the year that the robots and keyboard warriors finally marched on our citadel. What a crock!

Even if each of the two foremost digi-brokerages have actually brokered a billion in loans each this year, that is an embarrassing out turn.

And now we see them moving into lending. Their uninitiated backers clearly have cash to burn. A fool and his money etc.

HSBC: variety and innovation

E

is for Equity... all £383bn of it now resting under the UK’s residential roofs. After three years of turgid remoaning obstruction, just watch the confident British public unlock gazillions of it next year.

F G H

is for Fleet, and its indefatigable patriarch, Bob Young. A challenging year at one point, but you can’t keep a good lender, or man, down.

is for the glorious TV viewing that is Gogglebox!

Please try it if you haven’t... with my own favourite incumbents being the priceless and clearly intelligent Siddiqui family from Derby. TV gold. is for Housing Targets. 2019 was another disgraceful Groundhog Day and simply a recurring soundbite. 200,000 new homes a year? Dream on. Nine gutless housing ministers (with no cabinet status) in seven years says it all.

I J

is for Interbay. Congratulations to Adrian Maloney and his entrepreneurial team. A Kloppesque year. But look out in 2020 (see “S” below!).

is for Jaimie, Vardy and Oliver. The latter continues to pathetically blame Brexit for his commercial challenges. The latter (and his equally annoying and talentless missus) continue to be the couple you’d most like to drop into the Australian jungle. From a height and without a parachute.

K

is for Knight of The Realm. Arise, Sir Bob Sinclair. Only when the tenacious Scot ultimately moves on from AMI will it be realised just how damned supportive and courageous a leader he has been. All whilst his countrymen and rugby union disgraced themselves at an otherwise memorable World Cup.

L

is for Laker. Nope, not Freddie. Nor a Los Angeles hoopster, but Sally. A wholly deserved Lifetime Achievement award last www.mortgageintroducer.com

month, and one of the most adaptable and resilient ladies in the industry (who once remained poised and serene as The Outlaw imploded amid a surfeit of sangria and gin).

M

is for Mortgageforce , the aggregator which has almost doubled its output in the past four years.

Recent marquee signing Walter Avrilli is already making his inimitable mark and I’m told that more Galactico signings are confirmed for 2020.

N O

is for the re-emerging Newcastle Building Society. Under John Truswell ‘s stewardship, this is another fancied runner next year. Lump on.

is for October. Did you see those exceptional transaction figures for the month? October is often a bellwether month and ergo whilst January 2020 may be seasonally quieter for instructions, it’ll shortly be a bumper month for cash receipts.

P

is for Pearson, Chris at HSBC. We like the cut of this fella’s gib. No flashy pronouncements or hubris. Just quite power. In what may be a “me-too” and margin-compressed existence for the big six next year, look out for HSBC bringing some much-needed variety and innovation.

Q

i s for Quarrels. Which the FCA’s Senior Persons Regime is clearly aimed at obviating.

Because now, in the event of mis-selling or incompetence, the Regulator can simply nail any Jo Swinson: useless senior person with the charge of negligence, even if the underlying cause may have arisen the fact that an agnostic regulator might well have been asleep at the wheel as events unfolded (British Steel pension transfers, DECEMBER 2019

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Review: The Month That Was

The Neil Woodford saga being just two examples).

How very convenient.

R

is for Repulsive. The good old Duke Of York. It was 2019 ‘s TV golden moment, notwithstanding its appalling subject matter.

Another unbecoming R this year was Ronaldo.

Preening and posturing at every turn, the man also saw allegations of rape go away. At least for the time being...

S

is for Soporific and senseless soundbites. The latest came from Compare the Market (who told us that London was the most expensive UK city to buy in .... no sh*t , Sherlock). We need a new industry body, perhaps called the The Clickage Police.

Aimed at supervising such blatantly self-serving noise.

See D above for the two worst offenders! They know who they are with their pointless self serving market pronouncements.

S is also for Shawbrook. The sagacious John Eastgate and the thankfully healthy Emma Cox may have a real tiger by the tail there next year. A progressive outfit.

T

is for Trapped Borrowers. The mainstream lenders might barely lift a finger to help. So look out for the much appreciated Building Society sector to once more step in and put the excuseseeking behemoths to shame.

U

is for Useless. Step forward Jo Swinson.

Clearly a well-meaning human being. But PULLLEEESE... Can you STFU about cancelling Brexit. It’s done. Now go get some genuine domestic policies which you and Jezzer the Marxist can doubtless finance via your illusory money tree.

V

is for Vinnie Jones. Sadly, now re-emerging from an American tax exile as the media’s next Danny “F*cking” Dyer rent-a-quote. A thug as a player, a one-dimensional actor and hopefully not

Jamie Oliver: blame game

Brussels: disingenuous and incompetent

as widespread a TV presence in 2020 as he hopes to be. C you next Tuesday, Vincent.

W

is for Wales. Insecure and over – partisan cheering when England lose at either rugby or football left a sour taste in 2019. We won’t miss Gatland’s dour “Warrenball” brand of rugby, nor will that overrated, social media chav, Gareth Bale, be getting too much provincial support should he actually get off the golf course and make it to the Euro’s in summer.

X

is for X-ecution Only. Just where is the clearly confused FCA going with this blatant contradiction of its still recent MMR review?

Nothing to do with the huge levies which the (ever lobbying) lenders pay to support the FCA ‘s bloated waistline i suppose?

Y Z

is for Yorkshire, or more to the point, Accord.

One of 2019’s success stories.

is for Zeitgeist, the term used to define the mood of an era or culture . 2020’s Zeitgeist is going to be “personal responsibility and accountability”.

No bad thing, and something our politicians could also adopt. But see “Q” above. At what point does the assessment of an individual’s behaviour give way to an assessment of the industry’s own regulator and its own governance protocols and market understanding?

So. That was 2019. Have a relaxing break all.

Clearly not every opinion expressed above will match your own pallet. And you know what... most of the political sh*te is exactly that. Just noise.

Because in truth, we all simply got on with business in 2019. And we will again next year, regardless of what kind of majority the gaffe - prone blonde bombshell achieves once the Labour heartlands have decided that Blair, Brown, Campbell and now Corbyn have all sold them and their values out.

I’ll be seeing you. www.mortgageintroducer.com

Let’s have a real conversation.

We understand that not every deal is straight-forward. But that doesn’t send us running for the hills. Our team are experienced & knowledgeable, so if it’s got legs, we’ll try our best to make it work.

So whether your clients are in an industry that’s being let down by other lenders or don’t meet tick-box criteria, give us a call - it all starts with a real conversation.

Tirath Singh, Relationship Director

Tirath Singh, Relationship Director

Real world lending 0800 470 0430 www.assetzcapital.co.uk/borrow

The Bigger Issue

Our experts look at the current state of the market and answer…

What’s on your Christmas wish li Wishes can sometimes seem like requests well beyond our grasp, but my view is that everything I want for the market and, in particular, advisers is achievable. It just needs those concerned to recognise the need and have the will to do it.

So, first up, let’s deal with Rob Clifford product transfers. Currently, we chief only have one major lender paying executive, a full procuration fee to advisers on Stonebridge product transfers – that needs to Group change. Lenders have an example to follow and my hope is that in 2020 the rest follow it.

Secondly, it’s all about the technology. 2020 needs to be the year that we finally deliver to the adviser market a pragmatic and substantial solution to e-trading with lenders. Our own Revolution system, for example, is API-ready but lenders are at varying stages of capability – they need to prioritise this and utilise the tech we have to its fullest. Thirdly, we need to address the issue of making our sector a more attractive (and easier) industry to join. We do not “We need have the same problem as the IFA market, which has a consumers to very old adviser demographic feel confident – Stonebridge’s average adviser age is 44 – but we they can get on do need to put in place a with their lives” better system to attract new blood. Finally, and perhaps unsurprisingly, it’s a hope that UK politics finally secures a new normality and there is a degree of stabilisation.

I’m writing this before the General Election result is known but the uncertainty has gone on for too long.

We need consumers to feel confident they can get on with their lives, and in the mortgage/housing sense, this means being able to move home or remortgage to do whatever they want with their properties.

I’m not predicting a huge wave of new business from the so-called pent-up demand in the mortgage market but I’m quite sure that a significant number of potential mortgage customers have been ‘holding on’. It would be nice to create the political environment necessary to allow them to make those decisions.

That’s not too much to wish for, is it?

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My Christmas mortgage wish list is very clear and based on research we recently completed at Pepper Money in association with YouGov. Our research found that having adverse credit is more common amongst the UK population than you might think – 15% of the Paul Adams representative sample of adults sales director, said that they had experienced Pepper Money adverse credit in the last three years. Interestingly, 16% of this group said that they were planning to buy a property in the next 12 months, which equates to about “My Christmas 1.26 million people. wish is that However, 69% of this group said that they were in 2020 we concerned about having are able to their mortgage application declined because of their communicate credit history and 93% more effectively didn’t know that it was possible to get a mortgage with customers” with a CCJ registered as recently as six months ago.

The really concerning thing was that only 40% of this group said that they would seek the advice of a broker to help them get a mortgage, which was a smaller number than those who said they would talk to family and friends.

This is something that needs to change. So, my Christmas wish is that in 2020 we are able to communicate more effectively with customers and potential customers to help them understand the value of professional mortgage advice and the range of mortgage options they have available to them.

This isn’t just about growing a market for brokers, it’s about helping people to realise the opportunity they have to move on with their lives after experiencing credit problems. If we are able to encourage increased awareness and open discussion about credit problems and adverse credit, we can make it easier for people to seek advice about the option they have with their finances and, ultimately this will be beneficial to everyone. www.mortgageintroducer.com

? ??

h list for the mortgage market?

For many people, Christmas conjures up a very traditional ‘Dickensian’ scene. Central to Dickens’ A Christmas Carol, of course, was the flint-hearted money-lender Ebenezer Scrooge.

I fear this is how many people also see the finance sector.

Mark Pilling Number one on my Christmas managing wish list is to change this director, perception. The bad news is, that’s Spicerhaart not something we can expect Corporate Santa, or even Amazon, to deliver.

Sales The good news is, it’s very much in our gift. At the end of the novel, after his haunting by the three spirits, Scrooge vows to “honour Christmas in my heart, and try to keep it all the year” – including doing the right thing by people who owe him money.

Likewise, we should continue to go the extra mile to try and find solutions that work for our clients but most importantly for each borrower.

Number two on the list is for more people to talk more openly about money. In our profession, it is a sad fact that the people who could most benefit from having an open discussion about their options, are often the same ones who will shy away from such a dialogue. I’m convinced that is at least in part because of the negative perceptions about our industry – so if we tackle one, we will help solve the other.

Last but not least, a “We should very specific wish for the mortgage market. We continue to go know that there are large the extra mile numbers of interest-only mortgages due to expire to try and find over the next few years. solutions that Around 126,000 of these loans are due to expire work for our next year, while between clients” 2021 and 2027 a further 552,000 will reach maturity. Many of these will not have repayment plans in place or will have a significant shortfall. So my final wish is for more of these borrowers to engage with their lenders or specialist companies such as ourselves to reach a positive outcome they may feel is only a Christmas wish. www.mortgageintroducer.com

This year, Christmas comes right after a general election so I’ve already given a bit of thought to what I might want to see government do once that is out of the way.

The first thing on my letter to John Phillips Santa – whether it is Boris Johnson national or Jeremy Corbyn wearing the red operations suit – has to be Brexit. Everyone’s director, Just had enough of the uncertainty and Mortgages in my and many others’ view it has had a real impact on the property market over the last few years.

We need a resolution to the situation. I’m a bit worried that even if Parliament manages to pass a deal in January, My overriding we’ll end up having some of the same arguments a wish is that few months down the line – more people but even that’s better than going back to the drawing get to live in board with a second the sort of referendum.

The great many people home they who pay close attention to want to” my public utterances will not be greatly surprised to know that next on my festive wish list is Stamp Duty. But unlike most Christmas presents, I want less, not more. During his leadership bid back in summer, there were lots of noises coming out of Boris Johnson’s camp about reforming Stamp Duty. If he gets back in, I want to see him make good on those promises. Stamp duty is a tax on transactions and without transactions markets don’t clear. It’s all very well exempting the majority of first-time buyers, but if you want a better-functioning market, you need to make it easier for existing homeowners to move as well – so that people can upsize or downsize as their circumstances require. My overriding wish is that more people get to live in the sort of home they want to. If they’re buying it with a mortgage that has to be affordable in the long run. So if I had to limit myself to just one wish, it’s that everyone remembers that, like a new puppy, a home is for life, not just for Christmas.

DECEMBER 2019

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Interview Cover

A guiding light Jessica Nangle speaks to Robert Sinclair, chief executive of the Association of Mortgage Intermediaries, about how the past year has been and his hopes for 2020 Robert Sinclair is a wellknown stalwart of the industry.

With 40 years of experience and head of one the UK’s most established trade associations – the Association of Mortgage Intermediaries (AMI) – Sinclair’s knowledge and understanding of the industry is integral at a time of uncertainty. Sinclair tells Mortgage Introducer about his career thus far, which has a few surprises, along with his thoughts on the current state of the sector. Sinclair gives his thoughts about the industry in 2020, along with praise and critique of the regulatory bodies that preside over it.

independent entity, where he has been chief executive ever since.

He looks after the day-to-day running of the AMI and his role extends to lobbying regulators and policy-makers. “Moving between the two banks was a challenge, but so was moving into a trade body,” Sinclair says.

“It made me question what drives success and what it is people want you to achieve. It’s a constant learning process.”

The trade body landscape

Currently there are four lender trade bodies, with each looking after different areas of the market.

The AMI looks after prime residential,seconds, buy-to-let and later life, which Sinclair refers to as a “vast engine that needs to be managed on a daily basis”.

Sinclair argues the current trade body environment is slightly saturated however claims that he “wouldn’t know how to go about reducing it”. Discussing the equity release market, which has grown to be worth £4bn, is where Sinclair is critical, particularly about the Equity Release Council – which he claims is a “product lobbyist”. “A £4bn market is very narrow so bringing the lenders, lawyers, conveyancers and the brokers in one place brings about all sorts of risks and issues, which I struggle to understand,” Sinclair says. When questioned about increasing the scope of equity release into the AMI, Sinclair believes there is no

From pole vaulting to mortgages

Believe it or not, Sinclair did not dream of mortgages in his youth.

He was in fact a successful sportsman – a pole vaulter – alongside some formidable sporting greats. It was injury that unfortunately brought that career to a halt and thankfully Sinclair looked towards finance as his next endeavour. “I have had lots of phases in my life,” Sinclair says. “I did a spell in Round Table that centred around charity and fellowship which was great fun, and I also have worked in the big banks.” Sinclair worked as senior manager for HSBC Private Banking back in the late 90s, then moved to a stint as head of advice development at Santander in the early 2000s. It was back in February 2012 that Sinclair helped establish the AMI as an

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DECEMBER 2019

need. “We already represent this within our membership with two board members who work in the equity release market,” Sinclair says. “In relation to the fact that equity release accounts for 1% of the wider market, I think that is enough.” The importance of trade bodies is an argument for Sinclair, who claims that expertise and knowledge is key for daily management. “The quantum of UK financial services transactions is so different to anywhere else,” he says. “The financial services market in the UK is so sophisticated, meaning so much volume and switching runs around that.”

AMI in 2019

The Milton Keynes based association has grown internally throughout 2019, going from two to five members of staff by the end of this year. This has been vital for Sinclair, who claims that now all bases can be covered.

“Not long after the start of the year, it was an admin assistant and I,” he says. “There are now five of us in the room. It was about getting the right team together that could play on the pitch but also effectively for the members”. This year saw a huge agenda for the AMI, thanks to the Mortgages Market Study and the Senior Management Regime, the latter coming into force on 9 December. “The Senior Management Regime was a piece of re-engineering for a lot  www.mortgageintroducer.com

of directly authorised firms. We wanted to make sure we had analysed that and communicated everything to our membership which is a big job.” Team growth is not high on Sinclair’s list of priorities, claiming they now have a full team at AMI to “make sure we are up to speed and can deliver a positive outcome for the membership.”

The agenda shows no signs of slowing this year, with regulatory changes on the horizon and dealing with the next challenges facing the sector. “We are dealing with claims management companies trying to refocus their attention from PPI, and also dealing with the market study in a way that ensures the great work that brokers do can be argued validly with the FCA and with Treasury.” Sinclair refers to claims management companies (CMCs) as a “mess that he is currently dealing with” but praised the FCA for their work thus far. “Whilst I am often critical of the FCA, I think they have done a really good job in getting their heads around what CMC’s actually are,” he says. “I think the work alongside the FSCS to learn about the lessons of the past to work out how they can supervise better is a really positive step.”

Key challenges

Sinclair is not one to shy away from highlighting the key challenges facing the industry, one of which he believes centres around technology. “Trying to get the FCA not to interfere in technology is a challenge,” he says. “The market needs to deliver its own solutions.”

Calling Habito and Trussle “great disruptors to energise the market”, Sinclair believes that the industry needs to keep pace with change, with the backing of its regulatory body. “We have started to see a number of larger firms and sourcing systems acting together to see how they can integrate more technology to deliver an endto-end journey,” he adds. “We 

Robert Sinclair

JULY 2019

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Cover

The rise of technology

have got further down that road, and have got there a lot quicker than I thought. I feel optimistic about this.” Sinclair believes APIs are a growing problem for the sector for a select few. “Some lenders can deliver those out really easily, whilst some of the specialist lenders and smaller Building Societies will struggle.

It is rightly so considering they are about manual underwriting and uniqueness.” It is this USP which Sinclair believes leaves these firms incapable of being systemised meaning the FCA craving for everything being systemised is unrealistic. “Trying to get people to understand that is a real difficulty.”

Advice and execution-only is a subject which Sinclair is passionate about, and an area where he criticises the regulatory response. “Why have this debate about advice and execution-only now? We are using the wrong answer to the wrong question.

If it is difficult, then why? Just saying let’s change is not the right answer for me.” However the regulatory response, which appears to promote executiononly whilst avoiding advice, is a decision Sinclair calls “perverse”.

“It appears these regulators have forgotten everything about what happened in 2005/6/7,” he argues. “I have seen many mistakes and many errors during my time in this industry but I never cease to be amazed that within 10 years, we forget all the lessons that we should have learned and begin to re-write history by saying we have learnt all of our lessons and it can’t happen again. Guess what? It does.”

It is these respondents to which Sinclair is most critical.

“Everybody afterwards says we never could have seen it coming and that is absolute rubbish,” he argues. “It is merely said by people at the top to protect their own images and reputations to avoid them being culpable for the mess they have been presiding over.”

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In an information age, the mortgage market has adapted to suit the changing consumer.

However despite open banking being “here to stay” according to Sinclair, he argues more can be done in a technologyfocussed age. “Most consumers want to be able to search and look – consumers are becoming inquisitive - so we must provide as much data and information as we can,” he says. “What we should do is facilitate, so that they can give as much of their data as they want to give us and we analyse that in a way that works for us.” The importance of conversation is key according to Sinclair, who claims regardless of its source, a discussion must be had. “A conversation of some type is important - whether that be a chatbot or more probably a person. I think the challenge here is that I think most consumers deserve a 20-minute conversation that validates what they have said and whether they mean what they said so that the outcome is the right one. If you are buying a house for the first time, why would you not want to sit down with somebody to discuss the process? Particularly if the cost is low.”

Sinclair discusses what he calls “engaged primary people” or those with 60% LTV with a standardised job in a housing estate type of environment who have certainty about the value of their property. This customer footprint raises an important question. “What is the percentage of people that would genuinely go all the way through from end-toend without talking to anybody and feel comfortable completing their transaction?” Sinclair asks.

“The answer in most financial services markets is 16%. This number may shift over time, but it must be taken into account.”

When it comes to broker choice tools, Sinclair is critical once again of regulatory intervention. “Is this a genuine attempt to help consumers DECEMBER 2019

understand or be able to find a broker that might meet their needs? Or are some of the measures that the FCA wants to apply just a tool to cause more brokers to use more lenders?”

Sinclair asks. This may be a question that answers itself in the coming year.

Looking forward

The next 12 months are set to be an interesting time for the industry, with Sinclair looking towards getting the sector through the new FCA Certification process and input the right data to the Directory so that they understand what they have to do to make that look effective. Sinclair also discusses plans of an extensive review of Financial Ombudsman Scheme (FOS) funding as a priority for 2020. “This has the potential to shift the costs of some firms significantly upwards as FOS will move more of their variable costs to fixed costs and charge everybody. We are not sure that is the right place to be.”

Sinclair will be awaiting the next paper from the Ombudsman in 2020 with baited breath, which he believes will shock the industry.

Core values for the year ahead remain the same at the AMI, with Sinclair outlining their intentions. ”We need to continue to make sure that as many people as possible understand the value intermediaries bring to the marketplace,” he says.

“Intermediaries keep lenders honest and for many we are the only route to market.” As the delayed Brexit deadline looms on 31 January, Sinclair believes that there will need to be a more European focus. “We may have to look towards Europe because until we know the final outcome of Brexit, it may be the case that we will need regulatory alignment to keep financial services in line with the rest of Europe as part of the deal,” he says. “Those involved in the MCDII in Europe are trying to work out how they break the oligopoly that exists in most European lending markets www.mortgageintroducer.com

Cover

where a restricted number of banks have control and sell direct to consumers. They are trying to work out how to grow an intermediary marketplace that begins to break that and allows new competition in,” Sinclair continues. “In the UK market, we appear to be in an opposite position where we are trying to kill intermediaries and give lenders the control.”

The past 12 months has seen subdued growth in terms of gross lending, which Sinclair predicts again for 2020 unless the UK economy is liberated – a result Sinclair does not foresee in the near future. “All of the economic indicators are that the UK economy has been doing quite well, however what is going to turn to make it exceptional, I am not sure I can see.” Ahead of the first December election since 1923, Sinclair references the various pledges set out by each party but believes the plans set out for more building will not “deliver fruit” until 2021/2022.

Sinclair views 2020 as the year of planning and strategising, with the industry looking towards a Help to Buy (HTB) replacement once the scheme has begun phasing out from 2021. “The big problem for the sector and intermediaries is how we deal with the replacement of HTB,” Sinclair says. “There will be parts of the country where HTB borders will give very different numbers between housing estates that are ten miles apart. This means advisers have to be very careful about what they recommend.”

Various solutions of HTB are coming to market, however Sinclair believes that these alternatives are simply a funding solution. “Current alternatives to HTB are a funding solution, which lenders will have to make a decision about. However you only solve a housing crisis by building more - it is no longer a funding issue.”

The UK housing crisis is something that Sinclair remains cautious about, with house www.mortgageintroducer.com

building figures continually not meeting targets. Following his prediction about delayed pledges, Sinclair also believes that excess profit per lot needs to be identified. “Anybody who thinks that the solution to the UK’s housing crisis is on speculative builders whose share price is dependant on profit and not volume is sadly deluded,” Sinclair argues. “I don’t see how the outcomes that have been recommended can deliver what is intended.”

The festive period this year represents two important political events, however in regards to their pledges, Sinclair believes it is a process issue that needs to be looked at. “The road to ruin is built on good intentions,” he says. “There are lot of good intentions with each of the party’s manifestos. The problem is I don’t see a route map that delivers it.”

Discussing the wider financial landscape, Sinclair remains concerned. “The longer we stay on low interest rates, problems are not going to change anytime soon,” he says. “When I am seeing 10-year money coming out at some very interesting prices, I just don’t see how that works

DECEMBER 2019

from a capital return perspective.

The flow of money doesn’t work effectively.”

A guiding light

When asked to describe the AMI in three words, Sinclair described the association as “passionate, confrontational and intellectual”.

However these are three words that can easily be attributed to its leader. Sinclair remains cautious but optimistic that with the right guidance, the market can thrive in difficult times ahead, and before heading off for the festive season on the other side of the world, he had a lasting message. “For the past 25 years, mortgage brokers have done a great job to help consumers, advising them on the correct protection and insurance to stay safely in their homes,” he says.

“Regulators should interfere in this at their peril as they risk damaging one of the best performing markets where there is already a high degree of choice and switching. Moving away from this model presents a huge risk not just to individuals but the UK economy as a whole.” Let’s hope 2020 sees Sinclair’s Christmas wish granted. 

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Round-table

Spotting the trends Our panel takes a look at how the buy-to-let market performed in 2019 and considers what the future holds Jessica Nangle: It’s recently been revealed one in five buy-to-let landlords are reducing their portfolio as a result of tougher tax treatments and tighter lending criteria. Is this a trend you’ve been seeing?

Andrew Montlake: We’ve seen landlords not increasing their portfolios. In the amateur landlord space landlords have stopped on one, two and three properties and aren’t buying anymore. The professional landlords have taken stock for a while. We’re finding they are starting to look again actually.

They’ve taken stock and some of them have taken proper independent tax advice and are restructuring accordingly. I haven’t seen masses of professional landlords selling properties. You get the odd ones but more likely they’re stopping and checking rather than actually selling up and running to the hills. If Corbyn gets in that’d be a different matter.

Rob Lankey: I agree. I think the question is really interesting. I would say yes on the tax question but not necessarily on the type of lending criteria. I think with the market dominated by small players they’d probably have felt a pinch of the falling profits more than everybody else. I think it’s quite interesting with conflicting information. I read on Zoopla that they’re seeing sales of 120,000 buy-to-let properties and ARLA Propertymark reported they were losing about four landlords a month. And on the other hand, purchases are from last year. That

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just confirms what Andrew was saying, that those with the small portfolios are probably feeling the pinch more and have gone although I think we’re getting the tail end of it. These properties are probably being absorbed by the professionals.

Steve Cox: We’re seeing larger portfolio landlords diversifying out of London and the South East to further afield, Midlands and the North West, because they’re getting the yield there. We’re seeing that increase month-on-month.

Steve Olejnik: We did a survey of our landlords, about a thousand landlords and it backed up the statistic that about 21% of our landlords are looking to offload properties while about 40% said they were looking to expand. I think some would have been sitting on their hands waiting for certainty but some would seem to now be cracking on and getting on with it so I think there are positives for the future.

Howard Levy: If other people aren’t buying you’re going to get some good deals on properties they want to be buying in the areas they want to buying in. Portfolio landlords are buying blocks of flats and getting some really good deals from developers who want to offload properties. So, we’re seeing a lot of new build purchases as well.

Adam Kasamun: I haven’t seen

DECEMBER 2019

many people reducing their portfolio, but I’ve seen people changing their search criteria on a portfolio and clients getting used to changes of the criteria and the tax regiment. They’ve had to change what they look at. It goes back to the point of looking at places outside of the South East. The North East of England is very popular at the moment.

JN: Where in particular are the hotspots?

RL: If you’re to combine yield and capital growth, Liverpool and Sheffield are the hotspots but there are quite a lot. It’s cheaper when you go North.

JN: How important is education and collaboration in the sector?

It was recently revealed that many landlords complete refurbishment works out of their own funds due to not knowing the alternative options available to them.

AM: Education is absolutely key to everything.

Emma Cox: In terms of collaboration, I think this is the perfect example of where lenders and brokers can, and do very often, work closely. I think it’s the lenders’ responsibility to ensure our product information is up to date and we’re spotting opportunities to support investors looking to maximise returns by carrying out refurb works but we need to work www.mortgageintroducer.com

Round-table

From L to R: Jonathan Burridge, Master Private Finance; Richard Winston, Shawbrook Bank; Steve Olejnik, Mortgages for Business; Adam Kasamun, LDN finance; Steve Cox, Fleet Mortgages; Rob Lankey, Shawbrook Bank; Andrew Montlake, Coreco; Abbey Gaul, Impact Specialist Finance; Damien Druce, Druce Consultancy; Helen McKinney, Landbay; Howard Levy, SPF Private Clients; Emma Cox, Shawbrook Bank

closely with our broker community to make sure they are fully equipped to advise their customers accordingly.

It’s down to the brokers to ensure when they are servicing a client or looking for an opportunity with a client that they are fully equipped with that information so they can best serve that customer.

SC: I think most lenders are seeing more requests from distributors to do more technical workshops, be that limited companies or more generic information about the tax position.

The demands for that have certainly grown this year. Talking to distribution, looking at the mainstream purchase market where is the opportunity for the mainstream broker? The answer is specialist lending. Without specialist lending they might need to be plugging a gap in some of the income streams if they’ve been reliant on the purchase market.

Damien Druce: I think the small brokers need to upskill moving forward. I think that’ll be their primary www.mortgageintroducer.com

focus and it’ll be the bigger distributors playing that part. The master brokers will be key, distributors and the MFBs will be stepping up to the fore.

Abbey Gaul: I completely agree. I reviewed the portfolios where brokers completed refurb finance on a buy-to-let product. To get in day one they’ve had to go onto a 5-year fixed rate and then their client’s capital is stuck within that project for the next five years because they’ve gone in with the wrong product from the outset.

Helen McKinney: I’m also seeing an increase in terms of going out and doing workshops with the end consumer. Whilst its great to educate the broker population, a lot of investors are having more forums. We don’t do bridging or development finance, but I think there’s a perception you have to wait six months when quite often as lenders you can remortgage based on true market value within DECEMBER 2019

six months if you’ve done refurb. I think it’s making the wider population aware of that.

DD: That falls into the education piece. And that minimal ownership rule varies so much from lender to lender so, it’s very hard for the smaller brokers not handling this kind of business everyday to be able to pigeonhole a deal.

JN: I’ve heard that workshops are becoming increasingly popular. Do you think we need to see an increase in them?

SC: There’s an awful lot of them. I think what’s probably changing in a lot of the workshops that all kinds of distribution put on is it’s no longer specialist complex buy-tolet, it’s no longer one little segment of the more vanilla event.

Distribution wants more technical stuff and specific events to really back up the education piece.

DD: As a lender I’ve attended and MORTGAGE INTRODUCER

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supported broker and master broker workshops this year. It’s about the value they add. If they’re just more of the same there is no incentive for John Smith broker to attend. There needs to be some real credibility behind the workshops. I think Tony Sutton from Specialist Finance does them very well. His are well attended.

Even one of our workshops in a previous life earlier this year had poor attendance, so they are hit and miss.

align as to what the need of the customer is and do that really well.

JN: Are you seeing more webinars, or do you think there still needs to be seminars?

SO: We’ve started doing a lot more webinars both broker facing and landlord facing and we’ve got some great feedback. I think master brokers and lenders should be doing a lot more of that especially on the niche elements of specialist finance like refurbs.

sale price and just keeping them and renting them and seeing what happens down the line. I’ve seen lots of bulk buy-to-lets being done.

AG: I echo that. We’re seeing a lot of developers with entire blocks putting them onto 5-year fixed rates because their intention is to keep them for that long, not just to try and get a rental stress. They’re not necessarily gearing them up either.

SC: We need a blend of both. How people digest information is changing. Just to rely on face to face and to ignore webinars would be short-sighted.

RL: I think there’s something all lenders can do there, just trying to make the customer experience and journey for that development through to term much easier both in terms of the lawyers and valuers and the whole way the product works. Particularly when you have buildings that are reaching the obsolescence as a commercial unit that might have easy planning to be converted into resi there are quite a few of those schemes going around. It should just be with the popularity of it of being able to move from the short to the long and hold it and get it moved out.

It’s almost as if the lender needs to

JN: Many commentators have predicted a rise in popularity for development exits with more product offerings coming to market. is this something you’re seeing?

HL: We’re certainly seeing more bridging companies coming to market. I think I get a phone call every week of a new bridger wanting to see me. A lot of developers are actually keeping their stock and even renting them out longer-term and deciding not to sell them in this market and not taking the lower purchase price or

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DD: I echo what Rob says. I think with the broker community it can often be two transactions in one with refurb and development, so ‘this is where we need to be day one and this is where we’re going to be in six months’ time’. I also think there is scope for more bridging lenders to have separate funding lines in order to create a wider range of products to enable borrowers to transition onto more long-term debt type products.

Shawbrook do it very well and LendInvest do too, it ultimately comes down to broker education, so they are fully aware of which lenders to approach where there is a clear borrower requirement for longer term funding.

RL: In some areas if you have what’s historic planning of B1C which is the light going into C3, sometimes the route through to getting consent can be pretty straightforward. That doesn’t necessarily mean you might not need further consent when pulling the building down but in terms of that initial change it can be pretty straightforward.

EC: I think we’ve seen the intent of the customer so there was a trend whereby customers were developing and they found the sale market purchase activity was down so were forced into position to almost hold. The intent has changed. You’re finding developers building to rent. I think it’s key for customers as a lender trying to provide an ongoing solution, is there is enough flexibility in the end to end journey that should the customer determine it’s probably best they do sell and they’re not

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locked into something, they can, and that’s something we’ve seen in various product designs and architecture. We’re trying to find that end-to-end solution. At some point customers want that natural break point to take stock of the market and reflect and decide if the best thing is to continue to rent or sell. I think that’s the challenge for us as lenders out there, for us to make sure we follow customer needs throughout the whole journey and reflect upon what they need to do to maximise their opportunity. That’s the challenge for us lenders.

JN: How can landlords diversify in the market especially with increasing regulation?

HM: I think it goes back to what’s already been said. Gone are the days where people are just looking at a single family let, they’re looking to diversify in terms of HMOs, multi-lets and geography. I know the East Midlands certainly has high yields and great returns. I think people are looking further afield and there are different opportunities like limited companies with the tax changes. I think it’s being more aware of what’s out there.

And if you’re a bit of an amateur it’s quite tempting to just say you’ll work on that. The other thing that is not known about much is real estate investment trusts. You don’t get the capital growth, but some people are yielding 8% from those with the REITS. You want to get into property investment and it’s quite tempting when there might be obvious diversification rather than having the pressure of the landlord, for example.

AM: Rates come up quite a bit. It’s what people are looking for.

Otherwise it’s location and short-term lets. There has to be more innovation around Airbnb and how lenders deal with that because that’s something a lot of portfolio landlords are doing with at least part of their portfolio.

DD: Are holiday lets hard to place still? I was at the FP Show and one lender in particular said they’d do them all day long.

AM: There are a few who would do

SO: We’ve seen a lot of increase in the short-term lets and holiday lets.

Holiday lets in particular because they’re not affected by the recent tax changes. We probably need more innovation from lenders and more product availability on holiday lets. We’re also seeing a lot of the drive North to chase yield.

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HL: Holiday lets seem to be a bit more complicated if there are restrictions on the property.

AK: If there are restrictions saying it has to be a holiday let then lots of lenders won’t do it. I think for people to diversify they have to be able to take risks as well. HMO can be quite risky and there is a lot of regulation around it and with holiday lets not many people want to do it. Airbnb, we know about that. It’s about maybe landlords being ahead of the curve. The limited company thing is a lot more mainstream than it was four, five years ago. More people are aware of it but the people who did it four, five years ago are seeing the benefits of it now because they were ahead of it. Do it now and you can make more from it.

RL: More than ever if you’re an investor you have to stay close to your broker because this market changes so much and the products available, the lenders in it and their appetites change so for the amateur landlord who can’t stay in touch with everything it’s impossible without working with a broker.

HL: I don’t think many landlords are looking to diversify. They know what they do, they know the area they work in and they’re not worried about doing anything else.

There’s always work for them over the 20 odd years they’ve been doing. I wouldn’t say there is much diversifying other than accidently having HMOs because of the rule change. They weren’t purposely diversifying but already have. 

RL: What’s quite interesting is sometimes the diversification might not be so obvious. In the last year the FTSE 100 yielded at 4% and you can put them in tax breaks.

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it, but Airbnb is a bit more complex and selective.

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DD: Don’t they move to more traditional commercial rather than HMOs, partially commercial investment?

understand London property.

Despite all the madness politically it’s still relatively safe compared to say, the madness of the Italian political system.

SO: We’re seeing some going to that mixed investment the semicommercial with the retail downstairs and flats above. There are lenders catering for that but probably a gap in between for some decent interest-only mixed investment products in the market.

Some professional landlords are going down that route to chase yield.

DD: Pending the outcome of the election.

RL: We take it for granted because we work in it all the time but there’s an appeal to foreign investors for stability, consistency and expectation of how our mortgage market works. The fact you can buy a property and get a charge on it and its kind of yours, subject on the loan, we take that for granted.

Try borrowing in Estonia or Latvia and it doesn’t work like that.

So, it is clear and proven and established in procedure and process.

AM: Moving into light commercial development, that type of stuff that’s what we’re seeing.

AG: I’ve seen a lot of the smaller units, a multi-unit freehold but under the 30 square metres, between 20 to 30 square metres.

There’s a smaller number of lenders who will do that and I’d like to see more of those.

AM: People understand it. They don’t really understand equity and investing in the market but understand the house, they can see it, visit it and know if they keep it for 20 years it will be worth more than it is now.

JN: In terms of new entrants is this regulatory landscape off putting? If someone wants to become a landlord what does their scene look like particularly with increased regulation?

AG: I think the dinner party landlords have left the table.

HM: If you’re an amateur landlord coming into it you’re going to do all your research. You would have seen it in the press and would be savvier in what you find out before you step into it.

AK: There are also very few barriers to entry to become a landlord, besides financial investment. If you have that rates are really good at the moment and it’s still an attractive proposition for many people.

JN: How do you believe the government can support the market?

AM: The first question they have to ask if do they want to and that’s the key question of whether they want to for various reasons, economically and politically. At the moment its sort of frowned upon politically to support buy-to-let landlords per say, and it’s seen that they have to look after the first-time buyers.

SC: Apart from, with a lack of social housing policy, the population is relying on the PRS for somewhere to live.

JN: So, you’re seeing less of these amateur landlords. But if someone is quite keen and has that knowledge is it an appealing market?

AM: And that’s the juxtaposition of it all. It’s crazy. Housing policy has been buggered in this country for years. Housing is apolitical and will be in the post for years to come if the government didn’t change the housing minister every five seconds.

AM: I still think it is with the right broker and right education. We’re still seeing people especially in London who want to get involved.

At the end of the day property is still appealing. Brits understand property and foreign investors

DD: The two main parties have a tribal approach towards housing so there will never be that joined up approach it probably needs to resolve that. It could be a whole new world should Corbyn lead the next government.

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RL: It’s a lack of cohesion. There’s a problem and the answer doesn’t fit the problem. I’ve worked on the board of a housing association for the thick end of 18 years now. The association I’m with wants to build so many more hundred properties so you put a plan together and your business plan clearly looks a little bit poorer because of that, because you’re investing in double the amount of properties. You submit it to the lender and the regulator then says ‘we’ll change your viability rating from one to two’ and you tell the lender and they say ‘we don’t lend to viability two’ so your facility has gone. Who makes this stuff up? When you think of the legislation brought in for buy-to-let it was to tackle a certain thing that didn’t tackle it. I think that’s the key problem, ideas and key policies come out that aren’t as well aligned as they should be to what’s been trying to be mended.

JN: What would you like to see from the new government in this market?

HL: I would like to see a cladding fund personally where they put some money behind what they’re actually asking everyone to do so they can go and get on and do it because all of the freehold is inundated with all these requests and they can’t get it done quick enough. I think the government needs to put some money aside because at the moment its creating mortgage prisoners accidentally. These are people who can’t remortgage because the cladding isn’t up to standard and are waiting for the freeholders to get on and do it and they don’t have the funds to do it and it carries on like that.

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RL: I think it’s that cohesion point again, for example, with Universal Credit they’ve been trying to roll it out for 10 years and it’s so bad they’re delaying payments in some areas. In the association I’m in we have a different category to measure arrears because of the delays in Universal Credit and general arrears and then there are talks about changing Universal Credit and yet you have the point that lender shouldn’t discriminate to people on Universal Credit but then they are eight weeks behind their payments and you think how do we reconcile this stuff? If there was just some cohesion with all this policy, you could get so much more done.

AG: I completely agree. I have a number of valuations and nothing is budging.

EC: At the end of the day the tenant ultimately will suffer as the result.

EC: I’d like for them to get behind the private rental sector and rather than see it as a cashcow and an easy win on political and emotional statements about landlords and tax revenue. Actually, the PRS is a vital housing solution and is in crisis with regards to the examples we just heard from Rob and to get behind it and encourage responsible social housing provided through the private rented landlords in a sustainable way. At the minute it feels to me that they’re not resolving the issue elsewhere either so we’re still left with this massive void, this massive problem and the answer is there to potentially solve it but they’re not working with landlords, they’re working against them. If the government were to get behind that I think we’d see a lot more of the housing crisis and homelessness and a lot more of the other social economic issues tackled and dealt with.

AK: It would be a lot easier for the government to support the PRS rather than building more social housing. Obviously building more social housing is an idealist solution but people have been talking about it for years. The housing market is treated a bit like political football where it goes around the field and no one has any answers apart form to criticise the supposed cascow landlords are. In the last few years we’ve seen many changes like that. There is a lot they can do to support it, but they have to want to support it and I don’t think they ultimately do.

AM: Rather than nationalising BT they should nationalise the housebuilder, which is perhaps a trick they actually missed in the credit crisis, coming out with a national housebuilder. We need some sort of post war housing boom again. 

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JN: The headlines portray a doom and gloom situation when actually when you look at it as a whole it doesn’t seem to be the case.

AG: And some of the bigger mainstream lenders are starting to push into the specialist space criteria wise and some of the 5-year calculations are going down and some of the appetite for the more complex stuff is edging in there a little bit.

AG: From an advice perspective I’ve started to see and definitely going into next year, clients who have taken advice to just transfer the beneficial interest out to a limited company where the tax adviser has said ‘don’t worry you don’t need to tell the lender, how will they know’. It’s going to start becoming more and more evident as the years go on and we’re starting to have to untangle some messes there so guidance from lenders will be really helpful going into next year.

RL: And a lot are absolutely awash with capital stocks deployed and I think that’ll drive competition.

You can’t just sit on it otherwise you’ll end up with this kind of negative carrier position and you have to get it out somewhere so get it out into this market.

I think lenders will look to protect their position in the market and hopefully that’ll drive more innovation because ultimately our broker community will benefit as will their customers, so I think it’ll be a fairly dynamic landscape in 2020.

EC: We had the results of a broker barometer from our broker panel which cited that going into 2020 Brexit was a big concern, that’s a given, the UK economy was somewhat of a concern but actually they all cited confidence and growth in business for 2020.

What I took from that is the fact there’s a level of uncertainty, it confirmed beyond doubt the role of the adviser in tricky times but also, it did present opportunities.

The opportunities may resolve out of adverse reasons i.e. clients getting themselves into situations or structures that perhaps weren’t necessarily placed with the best advice and the adviser has to unravel some of that, but despite the fact there is a lot of complexities and opportunities there certainly felt there were an awful lot of opportunities still.

From a lenders’ perspective we always have to be aware and reactive to the lending environment and I foresee there will be further competition.

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DD: I think I agree with that. I think you’ll see some of the more prominent established bridging lenders diversify into longer-term debt in the buy-to-let space and I think you might see one or two more entrants.

JN: Does everyone believe it will become a more competitive environment in 2020?

SO: I think whilst we’re still in that transition period next year, rates will stay low. The fear is there will be a drive down of rates to the bottom on price and whether some of the newer specialist lenders can then compete on the margin and you might lose a couple of them. We saw that this year. I can see that carrying on this year.

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AK: When you speak to lenders they seem to have quite a positive outlook for next year. I think the race to the bottom might not happen. I think it’s about diversification. You’ve seen all the regulation on the residential side, Tesco and Sainsbury’s have left the market. They can’t drop rates to the bottom and compete with Santander. The buy-to-let market is very different and not just about rates, but what they can provide in terms of options for potential clients.

HM: If we’re going to discuss specialist lending it’s not just based on price point, but diversification into other areas like holiday lets and Airbnb. I think we’ll probably see a shift in the dynamics in terms of criteria and what we can do in that space rather than just racing to the bottom.

EC: I think a good opportunity for lenders is trying to find opportunity that adds incremental growth to our markets and not just cannibalise what’s there just by the cutting of price. I think that’s where the periphery should be quite interesting and exciting in 2020. 

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DIY surgery, anyone?

Tim Wheeldon, COO, Fluent Money, on the importance of human interaction in uncertain times There are increasing signs that we are on the cusp of a new dark age. Religious zealotry and unsavoury nationalistic views are on the rise, while the number of people who subscribe to astrological guidance or baffling conspiracy theories is multiplying.

Research conducted by the University of Amsterdam and University College of Cork has established that IQ levels in Western nations have fallen by as much as 14 points since the beginning of the twentieth century.

Yet, according to a recent YouGov survey, only 2% of people in the UK believe they are below average intelligence, with 43% claiming they are about average and a modest 47% claiming that they are above average.

However, in the same sense that a surgeon may be forgiven for having a go at self-surgery, or a dentist at pulling their own teeth, the thought of an amateur attempting to perform highly specialised DIY medical procedures is rightly regarded as the preserve of a demented minority. Likewise, while mortgage advisers might reasonably be expected to choose their own mortgage deal with a degree of professional forethought and knowledge, the idea of extending the same principle to customers who lack a basic understanding of underlying market realities would seem to be a highly questionable premise leading potentially to negative outcomes. Yet, this is broadly what is being proposed under the FCA’s consultation into the extension of execution-only (EO) business.

Which isn’t to say that some ‘selfhelp’ customers are not capable of making informed or suitable choices. Nevertheless, it would be

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foolhardy to discount the possibility of overconfident customers making poor decisions and then reapportioning blame when things go awry.

The question here however, is whether, as the instigator, the regulator will hold itself responsible in the event of customer complaints?

It is worth bearing in mind that recent research by Santander discovered that an astounding 76% of first-time buyers believe that LTVs refer to the long-term value of a property, while 63% believe that interest rates are dependent upon cost and location.

Hmmm. But the FCA wants us to believe that some consumers’ ability to search and filter a wider range of mortgage options now supersedes the need for guidance and support when committing to a deal and that unproven ‘value for money’ benefits outweigh the threats posed by a lack of knowledge. That brings us to the crux of the matter. Regardless of professed levels of understanding or the impulse to ‘bag a bargain’, only a fool would argue against the majority of consumers needing whole of market advice or precisely tailored recommendations in order to achieve suitable outcomes.

Indeed, most customers will always welcome, or should be encouraged to seek, a process which fully reflects their individual needs and circumstances.

Any attempt to weaken these principles needs to be regarded as unsuitable for the majority.

For EO to work, aggregators and lenders would both need to assess those cases where a customer expressed a preference for it and the regulator would need to be crystal clear how an assessment is

made. Responsible signposting by these two groups will help to ensure that only those who are fully aware of the consequences of EO are able to enter that journey.

However, a widening of the remit between EO mortgages and those offered by lenders using intermediary only distribution, will undoubtedly hand an unfair competitive advantage to direct lenders, potentially diminish the role of brokers and compound the dangers of consumer harm.

Reducing the influence of intermediaries could undermine the sense of trust which is afforded by human interaction and impact negatively on consumer confidence, while a sales process which places undue emphasis on speed, simplicity and economy could run the risk of reducing or restricting consumer choices to a limited selection of ‘frontline’ deals – hardly a whole of market scenario. So, what price false economy? While innovation and enhancement of greater access and sales processes will always be welcome, betting the house on the unlikely probability that consumers will not overreach themselves and their ability to navigate the mortgage process, is naïve at best. There is still time for the FCA to reconsider the unintended consequences of widening the EO remit too far.

Gambling on the public’s ability to make their own choices, no matter how well intentioned, runs the risk of a slew of claims in a country where consumers have grown used to finding someone to blame, regardless of whether they signed up of their own free will.

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Challenging times provide times of opportunity Natalie Thomas catches up with Buster Tolfree, commercial director of mortgages at UTB, to discuss the ever-increasing role of fintech in the second charge market How much do you think your facial recognition ID app will cut down on fraudulent applications and was this one of your reasons for launching it?

We already have strong systems and controls when it comes to anti-fraud measures. However, facial recognition is certainly a big deterrent for those fraudsters looking to commit financial crime; it’s not a certified photocopy anymore, which can be relatively easily faked or compromised. It’s a whole different story when you have to take a selfie video and the technology compares it to a photo of your official ID, most fraudsters don’t want that type of evidence against them.

Facial recognition sounds fairly futuristic – is it quite easy for non-tech savvy brokers to use?

Absolutely, the digital strategy we have in the mortgage team at UTB is all about making processes easier and adopting technology where it helps with that. We take control of the whole process through the secured UTB Nivo App, so actually the broker needs to do very little.

What further FinTech solutions do you think are on the horizon for the mortgage market?

This is the first of a number of digital solutions UTB are bringing to the market over the coming 18 months. However, the work that has gone in to identifying those www.mortgageintroducer.com

digital solutions that will help both us, our consumers and brokers is extensive. It’s not something that happens overnight. In the wider mortgage market, we are seeing e-signature, open banking for account conduct and income purposes as well as various other third-party integrations. The key is in adopting the right technology at the right time.

Do you think there are still brokers who are wary of technology especially in the context of it replacing their role as an adviser?

Should they be worried?

I totally understand brokers (and consumers for that matter) being wary of changes

MAKING IT PERSONAL Is there something about yourself that people would be surprised to hear?

in technology bringing the risk of disintermediation or marginalisation. As an introduceronly mortgage lender, with no direct proposition, UTB is about investing in technology that makes brokers’ lives easier.

I did play at a pretty decent level for both club and country but was never good enough to make it as a pro. Mortgages was obviously my next choice though, as it so often is for failed basketball players.

I’ll go with the fact that I’m a vegetarian and have been for 30 years, but the food I cook most is meat. I do a lot of the cooking at home and my family are big carnivores, so for me every meal needs a meat-based star of the show. Oh, and I collect comics – I literally have thousands #GeekAlert

What is the best bit of advice you have ever been given?

When you were young, what job did you aspire to as an adult?

If not family, or something related to my wife and kids, I’d have to go with my trusty Dr. Martens. I’m always in a suit and brogues for work… but live in turn-up jeans and DM’s the rest of the time.

From the age of about 5 to 18 I always wanted to play basketball professionally.

Don’t let anyone tell you it can’t be done; you can do anything.

What is your most prized possession (aside from family)?

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Loan Introducer

Seconds and the credit impaired Our experts consider just how entwined the second charge and credit impaired markets are Second charge mortgages are often mentioned in the same breath as subprime mortgages but do the two really go hand in hand?

The market has undergone a dramatic shift in recent years, not just in regulatory terms but also through the range of products and low rates on offer.

Whilst historically the second charge mortgage market might have provided a much-needed home for credit impaired borrowers, is this still the case?

The sector recently recorded its twelfth consecutive month of double-digit new business growth, according to the Finance & Leasing Association, with new business volumes 21% higher in the first eight months of the year than in the same period in 2018, but just how much of this was to heavily credit impaired borrowers?

The sector has undoubtably expanded its reach over the years but has it also moved away from its sub-prime roots?

Loan Introducer asks: “How much of your second-charge mortgage business is sub or near-prime?”

Alistair Ewing, managing director, The Lending Channel We write a lot of prime second charge mortgage business through the likes of Optimum Credit, Prestige Finance and United Trust Bank

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and probably complete about 50% of our business on a near-prime basis or worse.

A lot of our prime business is still for debt consolidation with clients leveraging cash for other property transactions – often protecting a low existing first-charge mortgage rate.

Jo Breeden, managing director, Crystal Specialist Finance We see a real mix between prime and non-prime, however a big point to takeaway is that secured loans are being used by all types of borrower for all types of reasons. Home improvements are still the most popular reason for taking out a loan because as the home purchase market slows, people are looking to improve rather than move and this is therefore the largest crosssection of borrowers.

Darren Perry, head of second charge mortgages, Brightstar Financial We don’t actually see a massive amount of business from people with adverse credit. A popular misconception is that a lot of the second charge market is this type of business, Whilst there are some good options

DECEMBER 2019

for people who have had historic credit issues, more of the time it’s people with clean credit records who see the benefits of raising capital with a second charge rather than a first charge.

Steve Walker, managing director, Promise Solutions It would be wrong to say that a high percentage of our business is subprime as this suggests the borrowers are significantly credit impaired.

However I would say that a significant percentage of our business has some form of complexity which requires a more in depth fact finding, which often suits lenders best able to understand and deal with scenarios involving complex incomes, consolidation or credit glitches.

These types or clients are not well catered for by automatic underwriting but are not sub-prime. They simply require the attention of more expert advisers, underwriters and lenders to help them find suitable products.

Anna Bennett; marketing director, Positive Lending Over 90% of our customers are superprime, which means they have a very good credit www.mortgageintroducer.com

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profile, but our proposition is able to assist clients in all categories.

Jeff List, director, Specialist Money Across the group it varies and depends on lead sources, or the advisor’s client bank.

We see a lot of clients in the 35-45 year old bracket - especially in the South of the country - who are potentially financially overstretched and carry substantial credit card debt which can range from anywhere between £30,000 to in excess of £200,000. We rarely see millennials and the ones we do see will already be highly geared on property to say 90 or 95% LTV or potentially in shared ownership mortgages. This means many millennials only typically wish to raise between £10-£15,000 through a second charge for home improvements and it can make more sense for them to take unsecured products which have no set up costs from the lender or us, and lower fees. We always advise this type of client to look at unsecured lending as 99% of the time it will be more beneficial for them, it’s always about the correct outcome for the client rather than what we can earn from a deal.

Harry Landy, managing director, Enterprise Finance We don’t typically deal with high adverse or high LTV clients but one of the benefits of the second charge mortgage market is that it caters for all sorts of borrowers, facing a variety of situations and scenarios.

Lucy Barrett, managing director, Vantage Finance Very little of our second charge mortgage business is sub-prime or near-prime. We tend to work more with people borrowing for property investment and business use/expansion. We do see some sub-prime or near-prime, but it’s a very little part of our business.

Buster Tolfree, commercial director – mortgages, United Trust Bank UTB’s mortgage business operates at the prime end of the customer spectrum. As such you won’t see us lending to those who fall into the traditional sub-prime definition of adverse credit, or where the values of responsible lending become compromised, such as with 100%+ LTV or where income is stretched beyond what we consider affordable and sustainable. We are a balance sheet lender, so these things are important to us. Our typical customer is 44 years of age, usually married with one child living in an above averagely priced three bed house, with joint earnings of around £60,000 per annum and we put affordability at the heart of our decision to lend.

Note: Eagle eyed readers may have noticed that some answers in November were reproduced from the October issue. Thanks for bringing this to our attention. We hope you enjoy the correct version above – Ed. www.mortgageintroducer.com

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Twelve months of seconds Natalie Thomas looks back on 2019 and examines the main talking points of the year that was As the second charge market gears up to ring out the old and ring in the new, there’s much to celebrate looking back on 2019.

From growing lending to 100% LTV loans, the past 12 months have proved to be some of the most successful the market has seen in recent years.

The industry may not have generated as many headlines as in previous years but those that it did were on the whole positive. Not a month seemed to go by without lending volumes rising or a new record low rate being launched.

So, let’s look back at what made the Loan Introducer news in 2019.

Starting on a high note

The start of the year began the way it intended to go on, with the revelation from the Finance & Leasing Association that in the 12 months to December 2018, the sector experienced a 7% spike in business volumes compared to the same period in 2017. This was certainly a sign of things to come and a trend that continued throughout the year.

Recent figures show that the number of new second charge agreements reached 27,092 in the 12 months to September 2019 - a decade high and up 20% compared to the previous year.

Marie Grundy, sales director at West One Loans, attributes one of the reasons for the rise in lending volumes to an increase in demand for home improvement loans.

“The uncertainty in property prices has encouraged some borrowers to make significant improvements to their property rather than move,” she says.

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DECEMBER 2019

Grundy has also seen a steady demand for debt consolidation second charges over the year as well as applications from those using a second charge to raise a deposit for a second home or to help family members onto the property ladder.

This appetite she says has been aided by the flexibility of second charge products.

Features such as larger loan sizes up to £1m, the ability to make overpayments, speed of completion and being able to differ the loan term from that of the remaining mortgage term have all helped, she reports.

“Although not at pre-crisis levels, the rate of completions has been the strongest set of results for a decade,” she adds.

Low repossessions

Alongside the buoyant lending throughout the year, figures from the FLA also continued to show low repossessions, with the latest figures showing that repossessions in Q3 2019 were 30% lower than in the third quarter of 2018, with just 25.

The trade body expects to report a record low total for the year as a whole.

In July however, Robert Sinclair, chief executive of the Association of Mortgage Intermediaries, warned in its Q2 Quarterly Economic Bulletin, that rising arrears in the short-term and unregulated lending markets might be an indication that arrears were soon to rise in the residential market also.

Sinclair told [ITALS] Loan Introducer: “We are seeing escalating debt and defaults in

the unsecured market and that has to bleed over at some point into other parts of the market.”

FCA investigation

It was not all good news for the market though. In April, the Financial Conduct Authority revealed in its Business Plan that it was to investigate parts of the second charge and sub-prime markets over concerns that some firms’ business models were benefitting from consumers not paying their debts.

“For example, firms may make profits from consumers who do not or cannot repay in full and on time,” it said.

The news baffled many in the industry who could not understand the regulator’s concerns.

A few months down the line however, the regulator revealed in September that it had omitted any reference to the second charge market in a followup statement regarding the investigation on its website.

In a statement released to [ITALS] Loan Introducer it seemed to downplay the second charge market’s role.

A spokeswoman for the FCA, said: “Our business plan committed us to undertake a piece of work to examine whether certain retail lending firms operate with business models that benefit from unaffordable lending.

“The business plan explicitly identified a particular retail lending activity that we would look at as part of our diagnosis of this particular issue. The scope of our work is intended to be www.mortgageintroducer.com

Loan Introducer

much broader than focusing on one type of retail lending activity or a narrow group of retail lending activities. So, we have clarified the breadth of our work by removing the explicit reference.

We confirm that this business plan commitment will continue and that our work will encompass a range of retail lending activities.”

Sinclair believes the seconds market is still on the FCA’s agenda but perhaps not a priority at the moment.

“I think at some stage it will come back and look at the market, especially if it sees a significant uplift in volume as it might question why that is happening,” he says.

The return of 100% LTV lending One of the big headlines of 2019 for the second charge market was the launch of Optimum Credit’s 100% LTV product. The launch proved to be a marmite moment for the industry.

“Optimum’s 100% LTV product was a headline moment but met with very different opinions,” says Darren Perry, head of second charge lending at Brightstar.

“Some people thought 100% LTV was a risky move but the flip side of that is the confidence it showed that second charge lenders have in the market and their willingness to support it,” he says.

Craig Collins, wholesale director at Optimum Credit says he was far from disappointed that the news attracted headlines.

“Our 100% LTV product is a major innovation and a big shot in the arm for the market,” Collins says. “It gives brokers the opportunity to offer a solution to a previously excluded set of customers, so we would have been disappointed if it had not attracted headlines.”

Paul Huxter, head of sales at Enterprise Finance, believes the launch of the 100% LTV deal and other similar products throughout the year was in response to what was happening in the first charge market. www.mortgageintroducer.com

“The second charge mortgage market has responded to the return of 100% lending in the first charge market by creating more flexible products,” he says. “This is important because keeping aligned with the high street will ensure that intermediaries can assist all clients to access suitable finance options, particularly those not able to achieve the lending requirements of traditional outlets.”

How low can you go?

Also mirroring the first charge market was the rate war the market experienced over the past 12 months.

As the temperatures heated up outside during July, so did the rate war, with Paragon Bank launching a second charge variable interest rate at just 3.47%, together with 2-year fixed rate loans from 3.64%, 3-year

“Recent figures show that the number of new second charge agreements reached 27,092 in the twelve months to September 2019 - a decade high and up 20% compared to the previous year” fixed rates from 3.75% and fiveyear fixed rates from 3.98%, all up to 85% LTV. The lender also offered a set of products which came with no Early Redemption Charge (ERC).

“Paragon’s rates were market leading when they were launched,” says Perry, “but you also have Optimum with its rate for risk model, which has on numerous occasions been able to undercut the cheapest advertised rate of Paragon,” he adds.

The lowering rates helped widen the appeal of seconds to a broader market.

“For an increasing number of homeowners this means second charges can be a cost-effective DECEMBER 2019

way of borrowing,” says Grundy.

“Increased competition in the market has improved the pricing for consumers and this has helped to attract higher quality borrowers to the sector, too,” she states.

Speed and technology

Rates were not the only thing that decreased in 2019; so did the length of time it took to complete a second charge.

Together announced in July that it had provided a second charge loan in just four days, while the beginning of the year saw Freedom Finance roll out its Open Banking Solution to second charge lenders, also designed to cut down completion times.

United Trust Bank’s electronic ‘facial recognition’ ID verification app was without a doubt one of the technological highlights of 2019 for the second charge market.

How low can you go?

Anna Bennett, marketing director at Positive Lending, says the market has seen some fantastic lender innovation this year.

“Some lenders have started to roll-out exciting fintech solutions, streamlining their processes and enhancing the customer journey,” she says “A good example of this is UTB’s facial recognition ID verification, which was launched in the summer, and through a smartphone app takes just 90 seconds complete an ID check.”

No news is good news

Looking back on 2019, it’s safe to say there was little in the way of ‘breaking the internet’ from the news generated. Yet this will no doubt be a welcome relief to a market which has suffered more than its fair share of negativity over the years.

The lack of headlines and specifically the lack of negative headlines perhaps signals that the sector is on a steady footing and can hopefully enjoy some quieter, albeit prosperous and progressive times ahead.

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SFI: Bridging

Corbyn is a unifying force…

Admittedly that’s a sweeping statement to make but it’s based upon my own extensive “public bar” canvassing of industry opinion since the Election was announced! I have yet to speak to a single person who has said they will be voting Labour on 12 December.

Given the entrepreneurial nature of our industry it would be a surprise if the Conservatives weren’t the party of choice for many but the lack of even a single voice in favour of Labour shows just how far they have abrogated the middle ground of British politics.

Today’s Labour Party is even more extreme than that of Michael Foot in the early 1980s, a fact most eloquently reflected by their 105 page wish list, otherwise known as a manifesto.

It is manifestly obvious that a document as rammed with expensive freebies as this isn’t the programme of a party that believes it will ever have to implement this programme in government.

By contrast the Labour manifesto in 1997 made modest promises precisely because Tony Blair expected to

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Brian West

director, Central Bridging

DECEMBER 2019

win and therefore to have to deliver on these promises.

Tuition fees, care for the elderly, childcare and of course broadband have all been promised free of charge. Public sector wages will rocket, the living wage will go up to £10.00 an hour, maternity pay and childcare provision will be extended, masses of new schools and hospitals will be built and benefits will rise across the board.

The list just goes on and on. Pensioners will get free TV licences, bus passes and winter fuel payments, key industries will be nationalised, worker’s rights will be extended, there will be a massive infrastructure building programme and of course Bank holidays will be given on patron’s saint days!

As if this wasn’t enough, no sooner have Labour made manifesto promises of an estimated £82.9bn than they promise compensation to more than three million women who lost out on years of state pension payments when their retirement age was raised. Bang goes another estimated £58bn.

Proposed increases to taxes on the wealthiest individuals, on foreign corporations and nationals investing here and on corporate Britain will barely scratch the surface of bills of this magnitude!

There are undoubted echoes from another apparently “fully costed” Labour manifesto in October 1974.

Less than two years after Labour won a narrow victory, excessively high levels of government borrowing and a current account deficit amongst other factors meant that Britain could no longer service its debts.

1976 saw an International Monetary Fund (IMF) bailout in order to stabilise the value of the pound.

The loan didn’t come without conditions though - most particularly a requirement to cut public spending and raise interest rates!

Manifesto housing commitments see Labour promising to build 100,000 council homes and 50,000

housing association properties a year by the end of the five-year Parliament.

This marks a rapid change, building social housing on a scale not seen for over 40 years, again at massive cost. By contrast the Conservatives have no specific target for affordable housebuilding, simply aiming to have a million new homes of any tenure by 2025.

This would entail an average of 200,000 homes a year, 41,000 below current housebuilding rates, so unexciting but entirely realistic.

Aside from house building, Labour has promised to put an extra tax on foreign companies and trusts buying property in the UK. This is all part of wider tax plans that would see offshore firms charged 20% for property purchases, on top of existing stamp duties and surcharges.

By contrast the Conservatives have said that foreign companies and investors will have to pay a surcharge on purchases but crucially at a relatively modest 3% - not ideal for the short-term market but not draconian.

It’s not hard to see which of the two major parties has genuine aspirations to govern, as exemplified by a Conservative manifesto of just 59 pages that’s extremely modest in terms of tax and spending proposals.

It may not be much of a blueprint for government, but right now the Conservatives probably don’t have to win the election so much as sit back and let Labour lose it. The Tories appear to have learned the lessons of their disastrous 2017 campaign.

Labour, by contrast, steadfastly refuse to learn the lessons of history.

Since 1900 they have contested 31 elections and won a working majority in just five of these. With the publication of their latest manifesto we can all see why.

Boris is undoubtedly a divisive figure but at least, unlike the previous PM, he has a personality.

Barring a spectacular implosion by the Tories it seems that Labour may well gift them a working majority and hopefully thereafter the stability that the short-term lending and wider industry crave. Fingers crossed! www.mortgageintroducer.com

SFI: Packagers

We are all responsible for fighting cybercrime I must admit to liking films involving bank robberies and certainly up there was the recent film about the Hatton Garden Heist.

A true story of seven men with a combined age of 443 years who broke into a Hatton Garden security deposit vault in one of the most audacious heists in living memory.

While decrying the crime, we can admire the chutzpah of the pensioners who pulled it off.

It illustrates that whilst we will go to great lengths to protect those things we see as valuable, where more intangible valuables, such as our own personal data and that of our customers is concerned, especially when it is being sent to third parties, we remain oddly indifferent.

As intermediaries we are called on to store customer data securely. Yet sensitive information is still transferred freely between customers, mortgage brokers, distributors and lenders by email, and it is a growing area of concern in the battle against cybercrime, with many observers describing existing safety measures as insubstantial at best.

Email is still at the heart of a modern mortgage communication process. Indeed, the sheer range of documentation needed to support and verify mortgage applications makes the entire process supremely vulnerable to criminal intervention, if not protected.

Therefore, the need for our industry to protect clients against identity theft is understandably high. According to the FCA, data breaches are on the rise in the UK, with the banking sector experiencing an astounding 25% increase in serious cyber incidents during 2018.

Moreover, despite the introduction of severe penalties for data breaches under GDPR regulations, the FCA actually received its highest ever number of reported cyber incidents from financial service providers in the first month after it came www.mortgageintroducer.com

Phil Jay

director, Complete FS

into effect. So, what can businesses do to protect their customers’ data?

Well, obviously, implementing better safeguards is a good place to start. Making better use of cyber security tools, like password storage apps and anti-virus software, is extremely important. But the ability to receive and send personal data via secure online portals is vital.

It immediately cuts out the chance of intervention and also stores it securely in one simple action.

There are so many other reasons to use a secure portal and the transfer and storage of personal customer data is top of my list. Like a number of other distributors, we now use One Mortgage System (OMS) to safeguard our customers’ data and it is definitely the way forward.

Another simple and effective safeguard, particularly for brokers, is the adoption of encryption technology to secure email communication.

Apart from the clear and present danger, what incentive is there for brokers to adopt email encryption?

Perhaps, the small matter highlighted by GDPR, which states that parties must ‘implement appropriate technical and organisational measures to ensure that personal

data is processed securely’ with email encryption cited as one solution.

At Complete FS, we have adopted an email encryption system called Mailock which is simple to use and totally effective and we are urging all of our introducers to adopt it.

Nobody can be complacent when handling sensitive personal data, and as it stands, we all risk the possibility that fraud can take place unless we take our responsibility seriously.

We have also reviewed our specialist lender panel to verify how we can submit personal data in a secure environment.

Half the lender panel have a facility in place to transfer data via their secure site, which therefore means the remaining half don’t currently have a secure way to transfer personal data from a broker or distributor. An alarming statistic.

However, to be fair, a third of our lenders are happy to receive encrypted emails from Complete, thus securing the data.

So it is comforting to know that 83% of the lenders we work with will receive data in a secure way.

The remaining 17% were unsure their systems would accept encrypted emails - meaning sensitive data would need to be sent by unsecure emails which is a massive risk to those customers using these lenders.

We will be reviewing those lenders.

So, it is not just broker firms which need to get on board and face up to securing their email and its contents, lenders also need to spend more on securing this data from their brokers and distributors.

Of course, these efforts to create a secure environment require all of us to adopt the facilities which now exist to counter this threat pre-empt the threat of data breaches by also helping clients and training staff to recognise the potential signs of malware (such as identifying incorrect web addresses or information for example), encourage brokers to double check all new accounts and reduce the ability of criminals to infiltrate operational practices or impersonate staff members by restricting the type of information that is shared online or via social media.

DECEMBER 2019 MORTGAGE INTRODUCER

73

SFI: Networks Bridging

Love and networks If you are one of the many advisers, either owning a firm or as a one man band, looking at whether a move to become an AR or to move to another network, choosing the right partner is similar to deciding to get married.

With just under one in two marriages ending in divorce in the UK according to ONS statistics, a correct and sober assessment is vital to a long and happy partnership.

One of the contributory factors to divorce is caused by not properly assessing the pros and cons of the match.

The same is also true of considering whether AR status is for you and, if it is, which network offers you the best chance of a long term committed relationship.

How important is it to be single and independent? Clearly, there are advantages in being free of external influence. However, with the grow-

Shaun Almond managing director, HLPartnership

ing compliance burden placed on you by the regulator, highlighted by the upcoming Senior Managers & Certification Regime, just how ‘independent’ are you in reality?

Surely, this is a compelling reason to have a long term partner who can shoulder that burden and leave you to concentrate on business generation?

Also, are you finding it harder to field a true whole of market/representative product panel as lenders look to limit distribution to those firms providing the levels of business they need? A partnership, via a network like HLP, opens up a truly representative panel allowing the adviser to put their hand on their whole of market heart and deliver great advice.

Technology plays a vital role in today’s mortgage market. Being able to create a seamless workflow en-

compassing CRM, mortgage sourcing, documentation production, mortgage tracking, protection oversight and the vital diarising of future customer contact to counter the growing threats to your client bank, is no longer a luxury. It is a necessity and only a few networks offer a truly integrated technology suite.

As a mortgage broker, choosing the right partner depends so much on long term compatibility. Many only realise once they are ‘hitched’ that the deal they signed is far from the reality that was promised. Each network is different both in culture and direction of travel and it’s up to you to choose one dedicated to your specialism, with the support and proposal geared to you.

In business as in life, you should always choose a partner dedicated to you and your needs and you them.

The partnership’s focus is to facilitate your business and support you as you develop and grow.

Choose wisely, divorce can be expensive!

SFI: Bridging

A bridge to certainty

A General Election is looming. Here we were thinking that the markets could not be thrown into greater turmoil! As the current outlook does not bode well, let’s look at a few of the latest reports after which I promise to inject some seasonal cheer!

Despite some banks stating that they will offer more lending, the Bank of England’s credit conditions survey in October stated that they are planning to offer fewer loans to businesses in the next few months.

They believe that UK lenders’ expectations of the availability of business loans has fallen sharply to the lowest level since the financial crisis.

Its gauge of likely loan availability tumbled to -13.5% for the OctoberDecember quarter, the weakest since early 2008.

The BoE found that the overall availability of credit to the corporate sector was reported to have

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remained unchanged in Q3, and this was the case for all. The overall availability of credit to the sector was expected to decrease in Q4.

Alongside this consumer confidence is weakening due to concerns about job security and uncertainty about Brexit. The latest consumer tracker by Deloitte, the accountancy firm, suggested it had fallen back to levels last seen at the end of 2018.

But as with every crisis, smart financial people and businesses know where there is opportunity. It’s been almost three-and-a-half years since the referendum and people still want to move or improve their existing home, and property investors still want to add to portfolios or improve stock. We are seeing a rise in re-bridges too, which provide new bridging facilities to replace existing loans that have gone over or are approaching the end of their term.

DECEMBER 2019

Jo Breeden

managing director, Crystal Specialist Finance

We are also seeing more applications for adverse credit, chain break, multiple incomes, zero-hours contracts, rental and both refurb and heavy refurb. So the demand is there, but we can always do more.

I promised I’d end on a positive note, and here we are… In uncertainty people want certainty, and bridging can provide that short term solution.

It’s clear that now, maybe more than ever, bridging finance must be key part of the finance options that all brokers can comfortably provide to customers. It is up to everyone – lenders, brokers, distributors and eventually regulators and trade bodies – to build the profile of this core finance option.

So I urge you all now to raise a glass to bridging finance and sing to Auld Lang Syne, 2019 continued to see positive and controlled acceptance for the sector, and by working together throughout 2020 we will see even greater opportunities. www.mortgageintroducer.com

SFI: Bridging

Yes, BIG is beautiful!

There are strong reasons for spreading risk and because of this, the bridging market has focussed on loans of between a few hundred thousand and a million or so.

This avoids excessive concentration in smaller lenders’ balance sheets but does not satisfy a gaping hole in the market. So, let’s talk about the benefits of finding a solution.

First, larger loans are usually accompanied by more qualified borrowers, experienced investors and developers and established commercial concerns supported by skilled professional advisers.

In short, getting the job done is far easier when everyone knows the objective and how to reach it. This does not mean every small loan will prove to be a nightmare to close, but sadly many are.

What do we mean by larger loans?

Every bridging lender will have its criteria but to generalise it will be more than £2m and probably less

Brian Rubins executive chairman, Alternative Bridging Corporation

than £10m. Recent data indicates a sweet spot between £3m and £5m.

But this is not a home for larger regulated loans, advances secured on owner-occupied dwellings, unless the LTVs are below 50%.

However, this does not apply to commercial properties and residential investments where some lenders’ appetite is insatiable, particularly for properties generating their own cashflow.

Our recent experience has included student housing, serviced apartments, retail, office and industrial investments, residential developments and sites and a number of property portfolios.

Often these assets are in the course of transition to long-term lending but delayed due to the need to complete refurbishment, lettings or changes to planning permission.

Sometimes it is because of the need to repay an expired facility and the borrower and broker have

Opportunity from challenges The theme at the recent ASTL conference was about bridging in challenging times and I was fortunate to be amongst a good number of fellow members who for ‘challenges’ read ‘opportunities’.

We faced many challenges at Apex Bridging in 2019, as the market continued its expansion and many lenders reduced rates, grew resource and forged partnerships with leading stakeholders, all of which make it more difficult to grow in a competitive market as there is only so much to go around! Successful lenders however will see these objectives as good reasons to put in place the right strategies to attract the right people, to establish the right relationships, that will develop the right service and product proposition, that will overcome the challenges to ensure they maintain their competitive advantage.

www.mortgageintroducer.com

I see several opportunities that should strengthen a lenders proposition in the future. The first is the appointment of a new CEO of the ASTL. I am looking forward to seeing what Vic (Janells) will do to drive the ASTL forward. He certainly has a broad experience of the markets and comes with the best of reputations. I am hoping more lenders will challenge Vic to establish more working parties to extend the offerings of the ASTL across things like training programmes and wider stakeholder agendas.

There are certainly opportunities for lenders to work more closely with developers and local authorities to gain a better understanding of the constraints lenders experience around outlined planning and full planning permissions and how that understanding can be easily explained to brokers who can be con-

Sonia Shortland

director, Apex Bridging

recognised this will take longer than they have. Because of the size of the transaction, there is likely betterprepared information and the lender’s solicitor and the valuer will be more proactive, supporting underwriting to close the deal efficiently.

The quality of the valuations is more under the microscope for larger loans and the use of a panel valuer is usually a “no-no”.

Convenient though it is to have a valuation to present to the lender at outset, with larger loans it is more than probable the lender will specify and insist on their preferred adviser based on previous experiences and their knowledge of which firm is suitable.

There is a need to know in advance who will lend on larger loans as so often, product information is exaggerated and, when tested, disappoints. Have frank conversations with lenders and make sure they are telling you what you need to know, not what they believe you wish to hear.

Big is beautiful but it takes experience and practice to deliver!

fused as to how that impacts on an application.

Technology will always have a place in all the stakeholder’s models. I see a massive opportunity for greater collaboration between all parties to do their best to integrate, for greater efficiencies.

At Apex Bridging we have recently installed Brightoffice as our software system and we are looking forward to working with Michael Fairhurst and his team to enable us improve the Apex Bridging proposition by seeing how Brightoffice can be used to improve the efficiency of our partnership with our stakeholders.

So, as I wish you all a merry Christmas and a prosperous New Year, I believe that prosperity will come because more of Mortgage Introducer readers have half full glasses and seize the opportunities that will see them overflow during 2020.

DECEMBER 2019

MORTGAGE INTRODUCER

75

SFI: Bridging SFI: FIBA FIBA

Let’s get ahead of the curve Following on from last month’s article, I want to take a look at another area of particular interest, where, by acting together, we would help the sector prepare for the likely increase in regulatory oversight ahead of the actual event.

The sector would definitely benefit from an impartial complaint reporting process. While the industry has no formal central point to report dubious practice in any aspect of the industry, the joint industry forums that we have chaired at FIBA have already been effective in providing a place for certain aspects of our industry to be aired amongst all participants, brokers, lenders, solicitors and valuers. The current interest in default rate charges is one particular area to highlight.

In the absence of a dedicated facility in the bridging channel, at FIBA we provide a resource to respond to complaints from members who have issues with the way either a broker and lender or importantly their customers have been treated.

While the sector has significantly improved its standing in the eyes of the whole lending market in many ways, complaints from advisers and indeed customers about difficult experiences, whilst we have a Code of Professional Ethics and Standards, a procedure should be put in place where issues can be recognised.

The likely increase in regulatory oversight may be on its way in the future, but in the meantime FIBA is more than capable of providing such an independent and impartial mechanism to make it happen.

We have already proven that we are in the best position to provide that rallying point, having campaigned hard since inception about the need for higher standards and greater transparency from all parties involved in a specialist property transaction.

The value of expanding this initiative would provide further evidence that the bridging market has the ability to prepare for the future and, in so doing so, would also increase

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Adam Tyler

executive chairman, FIBA

DECEMBER 2019

transparency and confidence in the bridging market as a whole. It would be a very positive demonstration to those who could eventually influence the way in which we have to conduct our industry.

The challenge to commercial finance in anticipation of the change to the Consumer Credit Act in April 2014, is still a very vivid memory and a hard battle was fought to align ourselves closer to a regulated environment.

However, regulation is creeping forward with the latest change just a month away in the form of the Senior Managers & Certification Regime, where as part of the wider SimplyBiz Group, we are providing significant support to our members in making the transition.

Whilst it might not be what many specialist property finance brokers would seek, but nearly all commercial advisers have full credit broking permissions, which has been a good thing for the industry.

It would be seen positively by customers, both private and corporate, to see that the professionalism of the industry is being monitored and its specialist advisers are formally qualified to provide advice.

I have been involved on a number of occasions in discussions and the proposed implementation of an industry standard, not only for the

bridging market, but for all aspects of commercial lending.

The discussions for modular based industry training would perhaps have more support and relevant education bodies in our industry already have this capability.

Discussions have also taken place with specialist property finance industry colleagues on the topic of support for an independent source to consider the issues from our members and their customers.

This also included the wider topic of setting out a framework on which a regulator might model future compliance requirements.

The overall response has been largely supportive. We are heading in the right direction, but it is up to all of us to bring about the changes the sector needs to be best prepared for the possibility of a more regulated environment.

So much potential

It takes a lot to surprise me, but I admit to being taken aback that almost half of small businesses in the UK have never accessed business finance.

According to research by one of the latest firms to join FIBA’s provider panel, insurance specialist Purbeck Insurance Services, 29% of business owners have turned to their overdraft facility to fund their business and 16% of small business owners have taken an unsecured business loan to free up cash for their company, while 10.4% used a commercial mortgage.

Only 9% said they had used asset finance, while 7.6% used invoice financing and 5.2% said that they had used another type of loan secured by debenture or charge.

With competition amongst the many lenders to business at its highest point since the credit crunch, interest rates are getting lower, with specialist lenders offering unsecured funding as well.

Clearly, there is plenty of demand for finance and it is up to us, our members and other advisers in the sector to highlight our presence to SME owners, so that they are aware of the differing ways in which they can access the right type of funding. www.mortgageintroducer.com

SFI: NACFB

To be, or not to be, that is the question This may not be the most appropriate way to begin an analysis into a piece on regulation, but it is curious that there are quite a few quotes from Hamlet that dovetail quite neatly into the wider debate around whether a broker should be regulated or not.

We often provide our Members with guidance on this potentially confusing area thus ensuring that we help protect their businesses. The question that we want to unpack is about whether a broker should be regulated or not.

Many of you will remember that back in April 2014 the Financial Conduct Authority (FCA) took over the regulation of Consumer Credit and this change resulted in credit broking coming under the spotlight.

In simple terms, a broker who deals with sole traders and partnerships of three or less is viewed as dealing with individuals and must possess credit broking permissions from the FCA and is therefore deemed to be regulated.

By contrast if a broker deals only with limited companies or high-net worth individuals then generally, those potential borrowers fall out of the scope of the Consumer Credit Act and the broker does not need to be regulated. These are unregulated brokers.

The situation therefore looks clear cut. Perhaps another quote from Hamlet will provide the link to how this subject can become more nuanced: “We know what we are but know not what we may be.”

The challenge that many in the industry now face is how to address a range of transactions which may not fit neatly in these clearly defined boxes. Whilst brevity may be the soul of wit, the situation remains complex and with interwoven subtleties. Below are some examples below that explore this further.  Bard Brokers do not have credit broking permissions and are therefore viewed as unregulated. They say that they only deal with limited company clients and if presented with www.mortgageintroducer.com

James Hinch compliance consultant, NACFB

an enquiry from a sole trader they pass this on to another broker who has the required permissions. Surely then, this broker falls within the spirit of the regulations? Absolutely not. Without credit broking permissions, a broker is not authorised to place a deal with another broker for an individual, especially when this is by way of business.  Shakespeare Commercial also do not have credit broking permissions and are therefore view themselves as unregulated. Their client, ABC Ltd changed their mind at the eleventh hour regarding a vehicle for their property purchase and decided they wanted to borrow in the names of the three directors instead. As the broker’s main client relationship is with ABC Ltd, it felt alright to continue with the arrangement with the lender, which by now was in the advanced stages. Alas, this also is not acceptable as it would then constitute an irrecoverable loan which could place the lender in a very unpleasant situation if the borrower defaulted or contested the loan.  River Avon Bank open their doors to commercial lending, deciding that their route to market is via the broker market. They are very concerned about compliance and therefore insist on all panel brokers having credit broking permissions -

irrespective of their client base. This is where the debate becomes even more challenging. From the lender’s perspective, this is a safe place to be, because it should protect them from inadvertently acquiring an unenforceable loan. However, there will be broker firms who are prepared to apply for credit broking permissions to gain access to the panel, but who genuinely do not deal with individuals. In these cases, they may experience difficulty in gaining permissions from the FCA. This type of situation strengthens the argument for some brokers that credit broking permissions should not be mandatory.

Having presented some examples, I think this last quote from Hamlet might help frame some current thinking: “There is nothing either good or bad but thinking makes it so.”

A broker with credit broking permissions has passed muster with the FCA. This quality assurance will provide a level of comfort to stakeholders who deal with that entity.

A broker that has no credit broking permissions and is referred to as unregulated may not have the FCA seal of approval, but if it is not required, or will not be granted because of the type of work undertaken, they should not be viewed as any less professional in their arena. The challenge is how those who partner with unregulated brokers view the risk of involvement in future regulated transactions either wittingly or otherwise.

Regulated and unregulated brokers can join as Members of the NACFB. Both cohorts are subject to the same degree of due diligence when joining us and, for everyone’s protection, we look carefully at the business processes of unregulated applicants to ensure they understand and apply an appropriate approach to their clients, coupled with an understanding of the restrictions that are created by the absence of credit broking permissions.

DECEMBER 2019 MORTGAGE INTRODUCER

77

The Hall of Fame

Gods and Geddes The HoF spends a great deal of time listening to certain people in the MI towers bang on about two certain football teams.

In what could be either bald on bald attraction or just a love of Man City MI commercial director Matt Bond is a big fan of the Ethiad supremo Pep Guardiola whilst MI legend Robyn Hall is well known for his love of Liverpool FC. As such the sense of jealousy was palpable when the pair saw this picture (right) of MAB’s very own Rachel Geddes with Guardiola and Liverpool boss Jurgen Klopp at a recent event.

Geddes told the HoF: “It was great to meet these sporting titans but I must admit it was nice knowing how jealous the boys would be at MI. Unlucky lads – maybe next time.”

You’ll have to wait a while yet to meet your idols.

Boxing day special Let’s face it the finance industry is hardly one which requires physical toughness. The heaviest thing that most of us lift is a coffee cup whilst the idea of taking a punch would leave many calling for security.

That in mind it was great to see one of our own breaking the mold. The HoF was lucky enough to get up (up being Hertfordshire. The HoF doesn’t like to leave town - Ed.) to see Magnet Capital CEO Ashley Ilsen take his second bow in the boxing ring.

Ilsen, who had been in training for the past few months (which included moving to a plantbased diet for some unknown reason), laced up and went toe-to-toe with his white collar opponent Patrick.

The fight itself came down to a points decision and unlucky for Ilsen he missed out on victory by 2 points.

Unlucky Ash but the HoF salutes you for having the guts to get in the ring and put in a shift like that. Next time buddy, next time.

MORTGAGE INTRODUCER

DECEMBER 2019

Red Carpet Treatment…

Tour de force

This month The Money Group kicks its way onto the red carpet as it takes a little Olympic spirit out to the children of Yorkshire and the North East. The group took their brand ambassador and GB Judo team athlete Ashley McKenzie on a tour of local schools to promote anti-bullying, healthy living, and discuss his hopes for Olympic success in Tokyo in 2020.

In total, TMG and Ashley visited six schools across Yorkshire and the North East speaking to over 1,500 children, teachers and parents in the process.

The initiative came from Michelle Leyland of Adverse Money who told the HoF: “It was great to see how Ashley interacted with the pupils and he certainly knows how to work a crowd.

“The idea I had was for Ashley to show children from an early age, how you can still achieve great things even though you may not always have the best start in life.

“He himself had to overcome many obstacles, to achieve his success and he talked eloquently and honestly about those issues.”

McKenzie is ranked No. 1 in the UK and 13th in the world and has represented Team GB at two Olympics and will head to Tokyo next year for his third and final appearance.

He added: “It was great to get on the road with TMG and meet other brands within the Group. I love teaching the kids and will look to do more of this next year and will endeavour to visit any school that wants to get behind our positive attitude programme.”

Both TMG and Mckenzie the HoF Salutes you and wishes you luck for the 2020 Olympics.

Seasons Greetings It’s the most wonderful time of the year! And with that in mind we’d like to take this opportunity to wish all of our readers a very Merry Christmas. 2019 has been an interesting one in many ways and 2020 looks set to continue in the same vein.

In 2020 Mortgage Introducer will be even bigger and better with lots to look forward to; more ground breaking news, more exclusive features and a new look magazine.

Until then we’d like to say a big thank you to all our readers, columnists, bloggers, contributors, PRs and advertisers who have supported us over the year. We couldn’t do it without you.

We look forward to seeing you next year. Happy holidays! www.mortgageintroducer.com

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Your client’s home may be repossessed if mortgage repayments are missed. Savings returned with interest after 5 yrs if repayments maintained, if not, savings at risk. Min. savings amount apply. Subject to application, financial circumstances & borrowing history, (excluding those in Channel Islands and Isle of Man). T&Cs and exclusions apply. Barclays Bank UK PLC is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority (Financial Services Register No. 759576). Registered in England. Registered No. 9740322. Registered Office: 1 Churchill Place, London E14 5HP. IBIM9577 November 2019 IBIM9577 Mortgage Introducer magazine.indd 1

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