Mortgage Introducer July 2020 by mortgageintroducer

Champion of the Mortgage Professional

MORTGAGE

INTRODUCER www.mortgageintroducer.com

July 2020

£5

 Robert Sinclair  The Outlaw  Ipswich interview

FUTURE THINKING IN SPECIALIST LENDING Need a home for your Our panel looks at how specialist mortgage cases?the market is adapting during the COVID-19 crisis Solution Found.

foundationforintermediaries.co.uk

10 years of specialist lending solutions Supporting you yesterday, today and tomorrow, through the good times and bad. Weâ&#x20AC;&#x2122;re pleased to support the return of physical valuations.

Weâ&#x20AC;&#x2122;ve launched a new range of Residential and Buy to Let Mortgages up to 75% LTV.

Virtual appointments with your Business Development Manager.

Wide range of online tools including a searchable criteria guide, calculators and submission checklists.

Contact your local BDM 0800 116 4385 precisemortgages.co.uk

FOR INTERMEDIARY USE ONLY.

Precise Mortgages is a trading name of Charter Court Financial Services Limited which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority (Financial Services Register Firm Reference Number 494549). Registered in England and Wales (company number 06749498). Registered office: 2 Charter Court, Broadlands, Wolverhampton WV10 6TD.

01966 (2)

Get in touch

Visit precisemortgages.co.uk to find out more.

EDITORIAL

COMMENT Publishing Director Robyn Hall Robyn@mortgageintroducer.com Publishing Editor Ryan Fowler Ryan@mortgageintroducer.com Associate Editor Jessica Bird Jessicab@sﬁntroducer.com

Ryan Fowler RyanFowlerMI

Deputy Editor Jessica Nangle Jessica@mortgageintroducer.com Deputy News Editor Jake Carter Jake@mortgageintroducer.com Editorial Director Nia Williams Nia@mortgageintroducer.com Commercial Director Matt Bond Matt@mortgageintroducer.com Advertising Sales Executive Jordan Ashford Jordan@mortgageintroducer.com Advertising Sales Executive Tolu Akinnugba Tolu@mortgageintroducer.com Campaign Manager Joanna Cooney joanna@mortgageintroducer.com Production Editor Felix Blakeston Felix@mortgageintroducer.com Head of Marketing Robyn Ashman RobynA@mortgageintroducer.com Printed by The Magazine Printing Company, using only paper from FSC/PEFC suppliers www.magprint.co.uk Mortgage Introducer, CEDAC Media Ltd 23 Austin Friars, London, EC2N 2QP

Information carried in Mortgage Introducer is checked for accuracy but the views or opinions do not necessarily represent those of CEDAC Media Ltd.

Are they listening?

s we close this issue of Mortgage Introducer the news has been dominated by the changes to stamp duty. Despite the fact that the property industry is crucial to UK PLC, there has been a belief recently that the government isn’t listening to the sector. In no way am I suggesting that we have seen a volte-face in this regard, but there was something positive buried behind the obvious in the recent announcement from Rishi Sunak. The national press had been briefed extensively before the ‘mini-Budget’ – to the extent that little, except for half price lunches, was unexpected (maybe making up for the ‘Thatcher, Thatcher, milk snatcher’ vibe). The briefing message coming across in the run-up was that no change to stamp duty would take place until the October Budget. Had this been the case, the market most likely would have stalled, as buyers would have held oﬀ to ensure they benefitted from the savings.

Commentators were quick to point this out – as is often the case when the government makes a potential blunder. This time, however, something shifted, and the changes were instead put in place immediately. As an optimist, you must hope that this shows that government sought council from people in the know, or at least paid attention to those who were pointing out the obvious. I for one am hoping they’re paying attention – there are many sage people in this sector to listen to, such as Robert Sinclair of AMI and the respective heads of various trade bodies. Maybe it’s just a case of the government not bodging a job for a change – Sunak does seem to be one of the more competent members of the current establishment. Hopefully, it’s a sign of recognition of the input that experts can have in preserving this most important part of the economy. If that is the case, let’s hope they keep listening. M I

Your home for specialist lending 01966 (2)

precisemortgages.co.uk

www.mortgageintroducer.com

JULY 2020

MORTGAGE INTRODUCER

ONLY FOR USE BY MORTGAGE INTERMEDIARIES

When your product switching customers want an extra slice You asked us if we could offer additional borrowing to existing NatWest customers switching to a new mortgage deal. We thought it was a good idea too, so now your customers could enjoy an extra slice of funding when switching mortgages. Plus: Additional borrowing of £10,000-£500,000 available Application process is straightforward Rates for additional borrowing are the same as for the switch And because we’ll lend up to £500,000 of additional funds, you may be able to cater for those of your customers who fancy a larger slice. For more information go to

intermediary.natwest.com or log on to

NatWest Intermediary Solutions

LiveTALK

MAGAZINE

WHAT’S INSIDE

Contents 7 AMI Review 9 Market Review 10 Self-build Review 11 Advice Review 13 Lending Review 14 High Net Worth Review 15 Buy-to-let Review 21 Protection Review 28 General Insurance Review 31 Technology Review 32 Equity Release Review 35 Conveyancing Review 38 Spotlight: Ipswich David Norrington on how the Ipswich Building Society can support brokers 40 The Outlaw The latest from our resident outlaw 44 Cover: The future of specialist lending Jessica Bird covers the key points raised at Mortgage Introducer’s recent round table, sponsored by Foundation Home Loans, which looked at the future of the specialist lending market

COVER

THE OUTLAW

50 Loan Introducer The latest from the second charge market 57 Specialist Finance Introducer Development finance, bridging and FIBA 62 From the frontline Supporting the NHS

www.mortgageintroducer.com

BUY-TO-LET

IPSWICH BUILDING SOCIETY

JULY 2020 MORTGAGE INTRODUCER

REVIEW

AMI

Criteria says no Robert Sinclair chief executive officer, AMI

hen Rishi Sunak bounced the banks into mass payment deferral programmes, he also indicated that this would not impact a consumer’s credit score. By the time Gov.uk set out its views in May on help with mortgages, it confirmed that “payment holidays and partial payment holidays offered under this guidance should not have a negative impact on credit files.”

To a consumer, that means a free lunch with no comeback. However, the Financial Conduct Authority (FCA) position since late May is that, whilst credit files may be clear, lenders may use other sources to assess creditworthiness. Changes to income, expenditure, indebtedness or types of debt are permissible factors to meet the FCA’s responsible lending requirements. So, despite initial government rhetoric that payment deferral would not impact individuals, we are seeing this have deeper ramifications. Most lenders are now looking wider than the credit score to assess future affordability and taking in other aspects including furlough, use of Bounce Back

Loans, unsecured deferral and others. We continue to challenge this with the FCA, but it is important that advisers check credit files where customers have deferred payment on either mortgage, loans or taken other credit. This is going to be a difficult conversation, but customers should only be using these benefits in cases of genuine need. Lenders offered the option to defer, and we now see borrowers who have taken support be viewed differently. It was and is a choice on both sides. But we risk consumers not looking at our industry kindly. This will be a consumer issue with government, which may have to intervene to tell the regulators to change their guidance. M I

Equity released, but not from FCA criticism

he Financial Conduct Authority (FCA) has published findings from its 2019 exploratory work into later life lending. These focus on the equity release sales and advice process, following a review of advice files from 13 of the largest and most experienced firms in the sector. The three main concerns were: insufficient personalisation of advice; insufficient challenging of customer assumptions; and lack of evidence to support the suitability of advice. The FCA acknowledges that, when sold correctly, equity release products result in good outcomes. However, the fact that it felt the need to publish findings is significant and unusual, as it is clearly concerned about the extent and frequency of potential poor consumer outcomes due to inappropriate processes and unsuitable advice. Since publication, the Equity Release Council (ERC) has added steps to its advice checklist. This appears to miss the point that the FCA found evidence of firms taking a tick-box approach to fact finding.Firms should delve into and explore customers’ circumstances in greater depth, providing evidence and clear justification as to why a recommendation was made.

www.mortgageintroducer.com

A c u s to m e r- ce n t r i c a p p ro a c h i s imperative; firms need to put themselves in their customers’ shoes when designing sales processes, and review all parts of the journey. The customer may think they know what they want, but it is the job of the adviser to educate, guide and challenge them. The FCA is concerned that the costs of compounding interest over a long period of time can make equity release an expensive way to meet a short-term borrowing need, while the costs of ending these contracts or repaying early if personal circumstances change can also be significant. In its review, the FCA warned that advice given to take out equity release products could not always be shown to be in the best interests of all consumers, given their personal circumstances. The FCA has given firms individual feedback, but it has also published these findings as it wants all firms to digest and take action where necessary. It is aware that firms are keen to address the issues. Many may question why the challenge of holistic advice and regulatory siloes is not called out in the review. It is important to understand that the

comments are specific concerns the regulator has on the quality of advice given, and not the way that the market is split. Changing the structure in itself would not address the basic flaws in how people are advised. It does not see initial disclosure which limits the scope of service as an indemnity clause for driving a consumer to a particular solution. Where there are other products that may be appropriate but not available within the firm, then the consumer must be advised and, if necessary, signposted elsewhere. Advisers must be aware of what else is available across the market. Similarly, regulated firms should not rely on an independent legal review as validation. The recommendation and solution must stand alone. Firms need to be clear they are being measured by the rules and guidance set by the FCA and not be deflected by other standards. The FCA will be undertaking further work in the lifetime mortgage market to monitor progress. Despite low volumes of complaints to the Financial Ombudsman Service (FOS) and low overturn rates, there should be no complacency, as this review uncovered baseline advice issues.

JULY 2020 MORTGAGE INTRODUCER

Buy-to-Let (BTL)

Opening doors. With just 3 products and a recently launched online application facility, we keep the process simple to help your clients continue along their property journey, even when times are tough. Shawbrook - a safe pair of hands looking to support your business.

Get in touch today

0330 123 4521 cm.broker@shawbrook.co.uk property.shawbrook.co.uk

THIS ADVERTISEMENT IS INTENDED FOR INTERMEDIARY USE ONLY AND MUST NOT BE DISTRIBUTED TO POTENTIAL CLIENTS

REVIEW

MARKET

Dazed and confused David Lownds head of marketing and business development, Hanley Economic Building Society

ack in the early days of the COVID-19 crisis, Rightmove made the sensible decision to temporarily halt its monthly house price index, as statistics on the number of properties coming to market, new seller asking prices, and new sales agreed had been rendered meaningless. However, forecasts over the short and medium-term future are now back with a vengeance; barely a day seems to go by without reading conflicting reports around activity levels, house prices, desirability or demand. Even to those of us operating in the mortgage market, these give rise to a certain degree of confusion. So, what impact must they be having on consumers? Second guessing the housing market is tough enough at the best of times, especially on a regional basis, but it’s more complicated than ever in the current climate. Care has to be taken over the headlines are being generated, and how they might influence potential buyers and investors. In terms of the bigger economic picture, there are still many questions to be answered, although positive signs are emerging. As I write this, the Bank of England (BoE) has announced that it will pump an extra £100bn into the UK economy to help fight the ‘unprecedented’ coronavirus-induced downturn. Policymakers voted 8:1 to increase the size of its bond-buying programme. In addition, there’s growing evidence that the hit to the economy will be less severe than initially feared. The BoE noted that the UK has seen a recovery in consumer spending in May and June, while housing activity was also starting to pick up. However, it also warned that the outlook for the economy remained uncertain.

www.mortgageintroducer.com

WHAT ABOUT THE LENDING COMMUNITY?

Much of the recent talk across the lending community has been around loan-to-values (LTVs). Nationwide Building Society has recently moved to reduce the maximum LTV amount that it will lend to borrowers across all channels, the aim being to continue lending responsibly during present uncertainties. Other lenders have dipped their toes in and out of the 90% LTV band. It was telling that these were inundated with enquires, with some having to subsequently pull back from the market to ensure that they could service a raft of new and pipeline cases This shows the pent-up demand from homebuyers, but also the lenders’ struggle to maintain a responsible approach to risk, whilst delivering such products in a manageable way. PRODUCT AND PROPERTY TYPE

Getting to grips with what product and property type homebuyers are looking for across all LTV levels is an important factor in the current mortgage market. In terms of specific product areas, it was good to see the Nottingham launch two 80% LTV products for self-builds, conversions and renovation projects, and Kent Reliance for Intermediaries reintroduce its shared ownership residential product range, available for purchase or remortgage borrowers up to a maximum of 75% LTV. These are important areas of lending which need additional support where possible. It’s also interesting that these products are coming from lenders which are able to operate beyond the realms of a more rigid criteria base and automated underwriting functionality, which continues to hold back some of their more mainstream counterparts. As such, I expect the additional flexibility and adaptability of specialist lenders and building societies to propel the mortgage market forward in a responsible but innovative fashion. When it comes to property type, research from Trussle found that,

despite a widely reported trend towards moving to gain more space, the majority of homeowners (82%) are not considering upsizing once the lockdown is fully lifted. However, the research did find that 68% would like to remortgage so as to make improvements to their current home. One in four homeworkers said they now prefer their local area. Those living in London (37%) and those among the 18 to 34 age group (29%) were most likely to want to remortgage to upgrade their home. The top six desired home improvements were: kitchen refits (26%), bathroom refits (23%), garden landscaping (22%), extensions (16%), having a large garden (9%), and creating a home oﬃce (8%). Three in 10 parents said they may use the money saved through remortgaging to employ a tutor for their children while schools remain closed. This demonstrates how a number of homeowners are reconsidering what they think is important in a home and where their priorities lie. REMORTGAGE

Staying with the remortgage market, the latest data from LMS outlined that the first week of June saw a 6% year-on-year increase in remortgage instruction volumes. Month-on-month instruction volumes were also 7.3% higher in the first week of June than the first week of May. Instruction volumes increased by 6.7% from the final week of May to the first week of June. Instructions have remained steady for the last three weeks, with less than a 10% variation in volumes. However, the recent trend of rising cancellations has continued. As outlined in the data, this marks another consistent week of instructions, a continued return towards stability and a steady increase in new cases coming onto the books. All of which makes for some positive reading and further cause for optimism in the lending community. M I JULY 2020

MORTGAGE INTRODUCER

REVIEW

SELF-BUILD

Self-build boosted by home office interest Craig Middleton head of mortgage sales and distribution, Harpenden Building Society

s we continue to navigate through the current pandemic, many aspects of life are changing as the ‘new normal’ is embraced. But what is the new normal? Working from home is one example, and this alone has created a whole set of opportunities for the mortgage industry. RENEWED INTEREST

Despite home viewings grinding to a halt for a time, and the traditional mortgage market slowing during the height of the pandemic, some surprising areas of the market have surged. At Harpenden Building Society, we’ve seen an unprecedented increase in self-build mortgage enquiries, particularly relating to the development of home offices. Any glance at the news over the past few months has featured headlines about the workforce adapting and embracing a new method of working. Recent research carried out by Lloyds Bank reported that two in five workers factor in suitable work space when looking for a new home. The demand for self-build mortgages to fulfil this need isn’t surprising. As a nation inspired by TV shows like Grand Designs, it’s a great option for those wishing to facilitate a particularly ‘personalised’ new-build, or enhance an existing property to create the working environment they really want. Widespread working from home, or ‘agile working’ as it’s sometimes known, rapidly became commonplace right from the beginning of the pandemic. IT teams worked around the clock to ensure that technology allowed

MORTGAGE INTRODUCER JULY 2020

the wheels of commerce to keep moving, and were largely successful in doing so. Some firms were accustomed to working like this, having already adopted the latest digital options. Statistics from the Office of Communications (OFCOM) indicate that superfast broadband coverage reached 95% of residential homes in the UK as far back as 2019 – an essential to home working during the pandemic and beyond. THE WORKPLACE GOING FORWARD

According to Office of National Statistics (ONS) figures, published in April 2020, nearly 50% of UK adults were working from home at this point during lockdown – a substantial percentage, considering many jobs have to be conducted on site. So is home working here to stay? I think so, to some degree at least. Firms up and down the country are already consulting with their staff to assess the possibility of increased home working post-COVID-19. The advantages are plain to see for both the employee and employer. The benefits to staff include the lack of a commute, fewer interruptions from colleagues, flexibility and the better use of time, to name a few. Of course, keeping away from the virus is also key. Scanning recent commentary, employers cite benefits like a reduction in office costs, as well as improved productivity rates from happier workers, and longer retention of staff. HOME OFFICE DEVELOPMENT

So, how are we making the transition? Some already have the perfect working arrangement, with a dedicated area set up using the latest tech innovations. Others are less prepared, balancing a laptop on the kitchen counter, and having never previously heard of Zoom, Slack, Trello or the like!

The mass array of digital tools available for video meetings and project management are what make home working work, but what about the working area itself? A basic office function can be easily set up if it is just a temporary measure, but for those considering a permanent option and creating a new dedicated space, finance is often needed. As previously mentioned, we’re finding that mortgage enquiries are on the rise for this type of development as a result. Indeed, a conversation with a local builder, Matt Martin, based in Harpenden where our building society is headquartered, backed our own recent experiences. He told us: “Enquiries for new work over the last few months has seen increased talk about building home offices – 20% of enquiries received relate to this, it’s certainly a popular option right now.” For mortgage brokers, this creates a significant opportunity. SELF-BUILD MORTGAGES

Some may go down a standard mortgage route to expand living space and develop a home office, but others are looking at self-build solutions and need a mortgage provider experienced in this area, like ourselves. Self-build is a growing segment of the market, with the potential to save on costs and create a more personalised living space. Although the pandemic briefly delayed planning and construction, we continue to be on hand to support customers with our expertise and solutions in this specialist area. Like all of our mortgage products, we undertake personal underwriting, taking an individual approach to assessing each application, however complex it may be. If you are looking at a self-build option for a customer, whether it’s for a home office extension or a complete new self-build housing project, reach out to Harpenden Building Society. As a specialist lender, we can guide you through the wealth of opportunities that lie ahead. Be ready for those ‘home office’ mortgage enquiries, they are coming! M I www.mortgageintroducer.com

REVIEW

ADVICE

Protecting vulnerable clients John Somerville

head of regulatory relationships, corporate and professional learning, The London Institute of Banking & Finance

t has been good to hear recently that property sales are rebounding as lockdown eases. However, many attribute this to a release in pent-up demand, and don’t expect it to continue long-term. Meanwhile, the Organisation for Economic Co-operation and Development (OECD) has reported that the UK economy is likely to suffer the worst COVID-19 damage of any country in the developed world, warning of a 14% contraction if there is a second spike. There’s still a lot of economic uncertainty about, but one thing we can all be sure of is that people will be looking to rejig their finances. The boom in equity release is here to stay. Some will want to release wealth to help struggling relatives, others to access much needed cash. DIY retailers are reporting an increase in sales of up to 23%. Perhaps staying at home has drawn our attention to the things we need to fix? For bigger projects, equity release is often the best source of funding. But when it comes to equity release, the key thing to remember is customers are usually those in later life, and so can face a number of well-documented vulnerabilities, such as cognitive decline and underlying health issues. On top of that, those who’ve been required to shield will not have left their homes, and could be struggling with loneliness and depression. Such people are not in the right frame of mind to make big financial decisions, and sadly may fall prey to family members’ demands for cash. Having been trained to look for physical clues as well as verbal ones, under usual circumstances a professional mortgage adviser will see from a client’s body language whether www.mortgageintroducer.com

they’re following or just politely nodding as you talk, and can tell when a person is becoming forgetful. They may even have known the client for years, helping them feel comfortable in admitting when they’re confused. Or you might see tell-tale signs of distress: a house-proud person’s home becoming suddenly untidy and dishevelled, for example. You’ll know if the client’s life partner is ill or has passed away, and be able to sympathise and reassure them. But we’re no longer living under usual circumstances, and a lot of our consultations are taking place online or by phone. That makes for a very different dynamic. ADVISING ONLINE

For most of the lockdown, advising online hasn’t been a problem. Takeup of technology has accelerated, and the majority of clients are happy to communicate by video call. But technology can be challenging for some older users, which places a barrier between a mortgage adviser and their client. When clients find the technology difficult, they’re unlikely to be able to resolve problems like bad audio or low screen resolution. If they have poor broadband connectivity, especially if coupled with hearing problems, they’re unlikely to follow what you’re saying. And on top of this all, without an inperson meeting you’re less likely to pick up on the tell-tale signs of vulnerability. This is a significant problem when advising someone on a big financial commitment like equity release, or any other kind of mortgage. SO WHAT CAN YOU DO TO HELP?

A good start is to try and assess how the client feels about using technology for their communications. Do they Skype their grandchildren for example? If not, do they use email? You might talk initially by phone, which will give you an opportunity to offer to send links to online explainers

and YouTube videos, to help the client negotiate Skype and Zoom. You may need to spend time talking them through the set-up, while they try to reach you on their computer or adjust their camera. It’s worth giving the client the time, and being patient and helpful. It will help build the relationship, and when you consider the time being saved on travel at the moment, you’re not losing anything in the long run. Once you’ve got them set up with the online video call, you still need to look out for subtle changes in their behaviour, in decision-making and in comprehension. That means listening more carefully than ever. Is your client asking irrelevant questions or repeating themselves? Are they keeping up with the conversation? They may not talk much and take a while to answer questions. Perhaps they are getting distressed. If the customer has been bereaved and tells you that they used to leave this sort of thing to their partner, that’s a red flag: this isn’t the time for them to be making big financial decisions. Having said that, just because someone is vulnerable doesn’t mean they’re incapable of making a decision. You just need to put safeguards in place. Ask a trusted relative or professional to join the call so that the client has the right level of support. This needs to be someone you can validate; for example, a solicitor, the designated person with lasting power of attorney, or the executor of a will. The boom in equity release is here to stay, and specialist knowledge is always going to be important. But, as the lockdown has shown, it’s never been more important to continue developing as a professional. The state of the economy and the property market will be constantly changing for the next few months, as we continue to get to grips with the pandemic and its fallout. Mortgage advisers need to stay on top of new ways of working and communicating with clients. M I JULY 2020 MORTGAGE INTRODUCER

is committed to offering our customers a great deal each year. Renewals will now be rebroked by searching and comparing premiums from our panel of leading UK insurers. If another insurer is cheaper, we will offer your clients the opportunity to switch to that insurers new business price at renewal. You can be confident your clients will always be offered a great deal alongside 5 Star Defaqto and Moneyfacts rated cover.

0344 844 3844

enquiries@uinsure.co.uk

www.uinsure.co.uk

REVIEW

LENDING

Understanding the impact Stuart Miller customer director, Newcastle Building Society

he resourcefulness, determination and unfailing resilience of the mortgage market in the UK never fails to amaze me. During the current crisis, brokers and lenders have been working together for borrowers like never before, even though the scale of the challenge is unprecedented. The government’s response to the pandemic is also like nothing we have seen in peacetime, and while everyone is coping with the demands of mortgage deferrals, furlough schemes and other initiatives to help people though these times, I am once again reminded of the exceptional resilience of the broker and lending community. It’s important not to lose sight of the colossal amount of work and thinking that goes into getting products designed, funded and distributed, and applications processed. This has always happened, but not whilst the mortgage industry is at the same time rapidly building systems and processes to administer new initiatives, such as mortgage payment deferrals. One by one, lenders and brokers are overcoming the various difficulties that the crisis has presented, with many finding innovative ways to keep business going. This makes me think, on one level at least, that not much has changed. A quick glance in the trade papers and there is plenty of good news about returning demand. The housing market is reporting a lot of activity. Buyers and sellers are registering their interest, while lenders are recalibrating product ranges and providing finance to meet the demands of these new times. Rightmove reported recently that some 40,000 new sales had been agreed since the market reopened on 13 May. Buyers were willing to pay www.mortgageintroducer.com

97.7% of the asking price on average, an improvement from 96.6% for sales completed in February. We should obviously welcome this return of demand after a market closure that could have dented appetite so much more than it has. MANTAINING TRUST

However, the return to demand does not signal that we are out of the woods; for lenders, managing their risks responsibly is as important as ever if we are to maintain the trust of policymakers, regulators and, where appropriate, broader financial markets. There is a balancing act that has to serve the market without compromising its integrity for the future. Lenders and brokers are working out what this balance is. Much like the proverbial swan, all appears calm on the surface, but lenders and brokers are thinking hard and working tirelessly to offer products that meet borrowers’ needs, while also fulfilling our collective duty to deliver responsible lending. The entire industry must consider carefully what it should and should not do in the current environment. As this balance is struck, the market will once again begin to feel ‘more normal’, but this will take time. Borrowers know this, and it is undoubtedly why many who have been furloughed or who have an interrupted financial history due to the global crisis are worried about their chance of getting a mortgage. A cursory look at the type of product demand on broker

Lending risk strategy is being reassesed

search engines shows the issue. At the time of writing in June, more than 50% of the purchase searches (excluding first-time buyers) were for products over 80% loan-to-value (LTV). Of the first-time buyer searches undertaken by brokers, more than 50% were for products above 85% LTV and in excess of half of those again sought a product with an LTV above 90%. These categories are, however, some of the most underserved by the market at the moment. This will not last forever, but we must sensibly understand the impacts of COVID-19 on people’s health, wealth and incomes. The reassessment of risk is happening in all areas of broader society. Health risks and economic risks are inextricably tied together, and are reshaping not only what is desirable, but also what is possible. Borrowers come in all shapes and sizes, and their circumstances vary more now than ever. We have, until recently, had record employment levels in the UK; however, notwithstanding the Herculean efforts of the Chancellor, we will see significant falls in employment over the coming months that cannot but affect decisions around responsible lending. The economic impact of COVID-19 is causing many to reflect on and reassess their lending risk strategy. Risk appetites have altered out of necessity, and will continue to evolve as this period of crisis and recovery goes on. Newcastle Building Society will remain relevant and responsible in our lending, to support brokers and their borrowers. That’s why we have continued to see a strong demand for our extended and enhanced remortgage products, and have relaunched interest-only products. We want borrowers to have flexibility, and we want to support them with any necessary adjustments to their mortgage repayments during these difficult times. We are working hard with our broker partners to do as much as we can for borrowers right now. M I JULY 2020

MORTGAGE INTRODUCER

REVIEW

HIGH NET WORTH

What will happen to the human touch? Peter Izard business development manager, Investec Private Bank

OVID-19 is accelerating digital transformation within the property sector to an enormous extent. Over the last few weeks, we have watched the market reopen and – as it grapples with social distancing guidelines – trial new and innovative ways to operate. I very much welcome the changes. There are many points in the home buying journey that could benefit from the flexibility, accessibility and efficiency that comes with a move towards greater digitalisation. That said, I am also of the firm belief that it continues to be crucial and incredibly valuable, at all stages of the home buying process, to offer expert advice and a human touch, particularly for brokers. This means that the role experts and brokers play will – by definition – be required to evolve. THE ROLE OF THE EXPERT

We’re seeing services at every stage of the purchase journey move into the digital world. This encompasses not just mortgage brokers, but also agents, lawyers, lenders and advisers, all of whom have a vital role to play in guiding buyers through what can, even at the best of times, be a complex and timeconsuming process. As consumers, we’ve long been used to setting up insurances, utilities and council taxes online, but the world of property and mortgages is perhaps not so straightforward. For example, a mortgage valuation report has traditionally required a physical inspection of the property –

MORTGAGE INTRODUCER JULY 2020

both inside and out – to be conducted by surveyors, in order to identify any existing or potential issues, such as damp or structural problems. Although completely unfeasible during the strictest period of lockdown, physical valuations have recently been reintroduced – but even under more ‘normal’ circumstances, they can slow the process due to the need to wait for an available time slot. COVID-19 is bringing digital options such as automated valuation models (AVMs) to the forefront, allowing lending to be possible without a full, physical inspection. Property legal risk assessment is another example of a process that is traditionally very manual. The nature of the UK’s historical property records has meant that, for most lawyers, the process involves multiple searches with registries, and time spent poring over old plans and photos to determine the property’s historical provenance. There are businesses making huge steps forward in innovating this process. For example, Orbital Witness started out with the idea of using historical satellite imagery to determine how a property had changed over time. The business has since evolved to connect itself into a number of different services, and is now able to automate significant portions of the legal search work that needs to be performed. Do these processes negate the role of the surveyor or lawyer? Absolutely not. Instead, what we will see is a reprioritisation of how they spend their valuable time. Monotonous and time-consuming tasks can be taken on by technology – as we see with AVMs and firms such as Orbital Witness – thus freeing people up to deliver expert advice where it can be most helpful. Furthermore, we should not fail to take into account the crucial factor of

emotional decision making. When it comes to assessing the needs of current and future buyers, we risk forgetting the emotional side of buying a property, by looking at it from a purely pragmatic or logistical perspective. This is applicable at every stage of finding and buying a home, but perhaps most pertinently at the search and viewings phase. Firms such as Matterport offer a 3D platform which allows agents to give virtual walkthroughs with clients, talking them through aspects of the home, and even allowing clients to do things like create measurements for furniture spacing. The ability to view a property from afar has clear applications under social distancing restrictions, as well as the potential to become a longer-term trend for buyers who may not want or be able to physically travel to view multiple properties. However, despite the clear efficiencies of this model, it’s unlikely that virtual viewings will replace faceto-face methods altogether. Buying a house isn’t an everyday investment, and for owner-occupiers, nor is it one that can be made without an element of emotional decision making. My prediction is that we will see an uptick in buyers choosing to conduct initial viewings online, in order to narrow down a shortlist of those which they might wish to view in person. MORE CHANGE TO COME

As the property market slowly reopens, we will see the industry continue to rethink almost every step of its process, adjusting and reconfiguring for a newly distanced world. I don’t expect the pace of change to slow any time soon; technology investors will continue to push the industry forward. Nevertheless, there will always be space for the right type of human interaction in the process. What will be important is for brokers to work in close collaboration with proptech businesses, to ensure the industry can deliver a seamless experience coupled with trusted guidance, at a time when reassurance has never been more needed. M I www.mortgageintroducer.com

REVIEW

BUY-TO-LET

Finding opportunities Richard Rowntree managing director of mortgages, Paragon

f the last few months have taught us anything, it’s how resilient we can be in the face of adversity. What started as a few media reports coming out of China at the start of the year quickly hit the UK like a tidal wave. We all have business continuity plans, but nothing could have prepared us for this to affect us so deeply, so quickly. As an industry, though, we’ve adapted; in stormy waters, we’ve steadied the ship. It has not been easy, and every company has had to address its own unique situation, but the signs are generally positive. In the buy-to-let market, most lenders are now operating as normal, and product availability is creeping back up to pre-coronavirus levels, although criteria are generally tighter. The question we now face is: in which direction is that ship heading? For buy-to-let, and the private rented sector in general, it’s important not to lose sight of the long-term fundamentals behind the sector’s success over the past 25 years. It can be too easy to focus on the here and now, forgetting about the bigger picture. Society has been changing, creating growing levels of demand for rented property. If anything, coronavirus will accelerate some of the societal shifts we have already seen over the past 20 to 30 years. The increase in buy-to-let lending has not been the cause of the emergence of the private rented sector; it has been the facilitator for demand that was always there. Simply put, and for myriad reasons, more people want to rent property today than they did 20 or 30 years ago. If we look at the structure of households, that demand will only continue to grow. www.mortgageintroducer.com

The latest available government figures show that there are 27.6 million households in the UK, up by 1.7 million on a decade previously. The private rented sector provides a home – in the vast majority of cases a good quality, secure one – for approximately one in five. The number of people living alone has also grown, surpassing 8 million in 2018 – 300,000 more year-on-year. Strong increases were seen in women between 45 and 64 and men aged 65 to 74 living alone, which correlates with an increase in the proportion of over 55s living in rented accommodation. The trajectory of the number of UK households is only upwards, and the make-up of those households will continue to change. Students have been another driver when it comes to the growth in private rented property. In 1980, the number of students in higher education was 19,000. The last available figures stood at 2.4 million, 485,000 of whom are from overseas. We may see variations, and there is uncertainty around how universities will cope with coronavirus, but whilst this academic year will be impacted, the long-term trend is towards more students being in higher education.

More people want to rent today than 20 years ago

Migration has been another stimulus for the private rented sector. Net migration has jumped rapidly since the start of the millennium. Even though we’ve seen annual falls since 2015, 258,000 more people moved to live in the UK than emigrated in 2018, the latest government statistics have shown. It’s a number that we don’t expect to drop substantially, even with changes to our status within the EU. Finally, the average age of first-time buyers has increased over the past 20 years and currently stands at around 32 years of age. Government initiatives have boosted the number of first-time buyers, but not every 20-something wants to buy a property these days. Priorities have changed from previous generations; many people rent as a matter of choice, rather than jumping on the property ladder at the first opportunity. What changes can we expect as we move forward? We’ve seen from surveys of tenants that people who rent are looking at bigger houses, trying to find landlords who allow pets, and increasingly wanting outside space. The lockdown has proven that the majority of office-based employees can work from home, which liberates people from the requirement to live close to a big building in a city that they must travel to each day. New markets outside of the major commuter towns may therefore open up for landlords. Good quality of life and a decent broadband connection could trump proximity to train stations. Of course, we’re not predicting a mass exodus from the city, or companies abandoning their headquarters in droves, but coronavirus will undoubtedly prompt change in how and where we live. Landlords have a proven ability to react quickly to meet the shifting demands of tenants. I’m confident they will continue to do so. M I JULY 2020 MORTGAGE INTRODUCER

REVIEW

BUY-TO-LET

Now is the time for lender support Alan Cleary group managing director, OneSavingsBank and Precise Mortgages

e’ve all had to learn new words and phrases over the past few months. ‘Lockdown’, ‘social distancing’ and ‘self-isolation’ seemed strange to begin with, but they have quickly become part of our vocabulary Another of these new words is ‘furlough’. A quick search on the internet shows it apparently comes from a 17th century Dutch word for ‘leave of absence’, and was especially used when a solider was given permission to be absent from service for a certain period of time. The word might have been new to many of us back in April, when the government launched the scheme to try and mitigate the financial impact of COVID-19 by protecting jobs and businesses, but it’s certainly not now. Since the scheme’s introduction, more than 9.2 million employed workers have been furloughed. When you combine that with the 2.6 million self-employed people claiming through the Self-Employment Income Support Scheme (SEISS), the figure goes up to more than 11.5 million people receiving some form of support – a third of the UK’s workforce. That’s a huge number of people who’ve had to put their future plans on hold, including those hoping to apply for a mortgage. According to the Bank of England, mortgage approvals were down 90% in May compared with February, and are around a third of the number approved at the height of the financial crisis. Customers are understandably concerned about how being furloughed will affect their suitability for mortgage

MORTGAGE INTRODUCER JULY 2020

applications. As such, Precise Mortgages has been working hard to clarify our criteria to help get your customers’ cases back on track. We’re now accepting furlough income on residential mortgages to 80% of income, to a maximum of £2,500 per month, along with any evidenced employer top-up over and above this amount. For those claiming through SEISS, we’ll use current income for affordability purposes where evidenced. For buy-to-let mortgages, we will consider applications from

those landlords currently in receipt of furlough or SEISS income, although it’s worth noting that top-slicing is not currently available. I’m also delighted to announce that we’ll be honouring pipeline cases. This means that cases submitted preCOVID-19 will accepted based on the original criteria. Looking at cases on an individual basis is really important to us, and enables us to make fully informed decisions, resulting in a better journey for your customers. In these difficult times, it’s important that lenders look at what they can do to make sure they can continue to support brokers and their clients. Just because everything else seems to be on hold at the moment shouldn’t mean customers have to put their homeowning aspirations on hold as well. M I

Lenders must look at what they can do to continue supporting brokers and their clients

www.mortgageintroducer.com

REVIEW

BUY-TO-LET

A return to positivity Ying Tan founder and chief executive, Dynamo

ast month we highlighted the ‘return’ of lending to the residential and specialist mortgage markets, as a number of providers launched an array of new products, whilst tweaking criteria and loan-to-values (LTVs) so as to match market conditions. This trend has certainly continued, and you only have to look at the volume of stories on the Mortgage Introducer website to chart the raft of positive news emerging from the buyto-let (BTL) sector in recent weeks. LANDLORD DEMAND

Despite some obvious lending restrictions, lenders are emerging from this difficult period on the front foot, in a bid to help deliver a range of products to meet pent-up landlord demand. Demonstrating this demand, Paragon Bank recently announced that it had recorded a spike in BTL mortgage intermediaries visiting its online portal in the wake of the market reopening. Visits to the portal were reported to have jumped 65% in the two weeks following 13 May, signalling a strong increase in demand for BTL properties. Successfully completed applications via the intermediary portal rose by 75% over the same period, as physical property visits and valuations were allowed once again. I have spoken about this before, but the importance of the intermediary and lender relationship is vital in moving various sectors forward and overcoming issues in what remains a transitional period for the industry. It was, therefore, good to see some positive data come to light recently around the attitudes of intermediaries towards lenders. The fourth edition of the Mortgage Lender Benchmark carried out by www.mortgageintroducer.com

Smart Money People found that overall broker satisfaction levels with the lenders they do business with had risen from 81.1% in H2 2019 to 82.7% in H1 2020. Across all case types, satisfaction with product transfers soared to 86.2%, up from 83.2% in H2 2019. While banks and specialist lenders have seen the greatest increase in overall satisfaction, building societies remain the highest rated sector; four of the five highest rated buy-to-let lenders are now building societies. Of course lenders are far from perfect, but generally speaking they have provided strong levels of support for the intermediary community during this tumultuous time, and have been transparent in their communications. Over the course of this crisis, this is all we could really have asked for. Moving forward, however, we will now obviously be looking for them to provide that bit more. Thankfully, LTV levels across the buy-to-let market appear to be slowly creeping up in a responsible manner, and lenders are carefully targeting more niche areas, which will require additional flexibility. Opportunities will continue to present themselves for landlords, especially in an uncertain property market which persists in dividing opinion over its short and mediumterm future. So, where should property professionals be looking to invest? According to data from Howsy, onebed properties are proving to be the best investment when it comes to rental yields across the UK’s major cities. Previous research found that threebed properties were best for rental yields, at 4.3%; while this has since increased to 5%, the latest figures show that three-beds are no longer the best investment option. In fact, both two and one-bed properties have leapfrogged three-beds, with the average two-bed providing a yield of 5.6%, while one-beds now average a return of 6.2%.

When it comes to investing in a onebed buy-to-let, Newcastle is reported to be the best bet, with the average yield coming in at 7.9%. This is closely followed by Glasgow (7.7%), Liverpool (7.1%) and Plymouth (7%). Newcastle and Glasgow also rank along with Belfast (6.9%) as the best spots for a two-bed buy-to-let investment, with Sheffield (6.7%) and Leeds (6.4%) also proving to be highly profitable for these properties. For those investors looking to stick with the trusted three-bed, Glasgow again tops the table (6.9%). RENTAL PRICES AND REGIONAL VARIATIONS

Staying on rental prices and regional variations, figures released by the Office for National Statistics (ONS) revealed that private rental prices were unchanged between April and May 2020, and showed an increase of 1.5% year-on-year. Private rental prices also grew by 1.5% in England, 1.2% in Wales and 0.6% in Scotland in the 12 months to May 2020. Across the English regions, the largest annual increase was in the South West and the East Midlands, with both regions seeing a rise of 2.5%. The lowest was in the North East, where rental prices increased by 0.8% over the year, followed by the North West, which increased by 1.0%. ‘Location, location, location’ has always been a mantra for homebuyers, landlords and property investors. This continues to ring true, and it is interesting to see how this combines with the issue of the number of bedrooms on offer to influence rental prices and regional yields. However, this is only part of a complex investment strategy which landlords have to consider in the new BTL world. The reliance on good quality professional advice will continue to prove a fundamental component within this strategy moving forward. M I JULY 2020 MORTGAGE INTRODUCER

REVIEW

BUY-TO-LET

A softly-softly approach ahead Bob Young chief executive officer, Fleet Mortgages

t has now been over two months since the housing market was effectively reopened in England, and it is possible to see some more green shoots of recovery popping up, albeit that this should be taken with a huge degree of caution, given that we can’t possibly know if the virus is going to return in any meaningful second wave, and what future (perhaps localised) lockdowns will mean for all of us. And of course, we are still not moving at the same speed across all nations of the UK. The English market is in an advanced position, certainly when compared to Wales, and – even with those decisions about easing lockdown west of Offa’s Dyke perhaps being taken for the right public health reasons – you can sense a growing frustration particularly among property professionals as they look covetously at what is happening over the border. In that context, it was interesting to hear the Conveyancing Association (CA) calling for the Welsh government to move both ‘further and faster’ in terms of opening up the housing market, voicing a concern about prolonging the potential damage to all stakeholders, and the Welsh economy in general, by not relaxing more in line with England. As I write, essentially only unoccupied properties are able to be ‘moved’, and it seems somewhat odd that the English market appears to be functioning relatively well, and within strong safety-first guidelines, while the same is not allowable in Wales. That, I’m sure, will sort itself out over the

MORTGAGE INTRODUCER JULY 2020

coming weeks, but as a lender active in Wales, it is frustrating that we are working at a two-tier pace. I know there will be advisers, agents, conveyancers, and indeed lenders, who will be counting down the days until we see rather more than a partial reopening of the market there. A SENSE OF NORMALITY

However, overall and certainly from Fleet’s perspective, after what was undeniably a very challenging and stressful few months, we are beginning to get back some sense of normality, albeit one where staff are still unable to work out of our office, and where remote working will be the norm for some time to come. I’m sure everyone is now fully au fait with all the at-home communication methods at our disposal, and I subscribe to the view that this period will undoubtedly change the way that we all conduct business in the future. From an adviser communication standpoint, and in terms of cutting down on potential inefficiencies in the way we work with our advisory, distributor and packager partners, it seems inconceivable that more meetings and conversations won’t now take place online. That change is already embedded. As a lender which did not stop lending through the lockdown – albeit at lower levels – we have been pleased to return to the market with both 70% and 75% loan-to-value (LTV) product options, and having now worked through the backlog of physical valuations, we have also seen a positive number of enquiries, decision in principle (DIP) requests and applications coming through. Certainly, from a landlord point of view, there appears to be optimism here based upon the strong foundations of the private rented sector (PRS) and the demand that is undoubtedly going

to grow from tenants. As many have pointed out, COVID-19 doesn’t shift those foundations one bit; if anything, it may make them stronger, and we have not been surprised by the number of landlords looking to add to portfolios since the market reopened. In other positive news for specialist lenders, we have started to see a thawing within the capital markets, resulting in a small number of lenders being able to sell residential mortgagebacked securities (RMBS) to investors. It is certainly not a flood of activity, but it sets something of a precedent; the ice has now been broken, which perhaps provides others with greater confidence to fish in those same waters.

“From a landlord point of view, there appears to be an optimism here based upon the strong foundations of the private rented sector” The notion of what is acceptable within a securitisation may well be challenged by this COVID-19 lockdown period though, especially given that (up until recently) desktop and automated valuations have not been permissible. It is impossible to look into a crystal ball and perceive if this might change in the future. However, many specialist lenders were effectively hamstrung by a lack of physical valuations taking place; in order to stop this from happening again, there may need to be a new valuation approach adopted and accepted. Overall, however, and benefiting from funding relationships with institutions that actively see the value in the UK PRS and support landlords with buy-to-let finance, we are benefiting from a warming to the task over the past couple of months. That should mean a greater number of product options available; however, you’ll understand that this will still potentially need a softly-softly approach while all involved become comfortable with the much-discussed ‘new normal’. M I www.mortgageintroducer.com

REVIEW

BUY-TO-LET

All together now THE IMPORTANCE OF SPECIALIST DISTRIBUTORS

Jeff Knight director of marketing, Foundation Home Loans

he phrase ‘we’re all in this together’ has been bandied around a lot in recent times. Personally, I prefer to think of ‘all together now’, as I would rather have that great Farm song in my head. TO WHAT EXTENT ARE WE WORKING TOGETHER?

In fairness, the vast majority of the mortgage market has pulled together to overcome a barrage of individual and collective obstacles. This harmony should come as no great surprise, considering we are an industry which is fundamentally built on relationships. Inevitably, some links in the mortgage and property chain have a more robust relationship history than others, whilst others have emerged from this period stronger than before. SO, WHO IS IN THIS TOGETHER?

Thankfully – because let’s face it this has not always been the case – lenders are proving themselves to be a central component in a host of relationships. The fourth edition of the Mortgage Lender Benchmark carried out by Smart Money People found that overall lender satisfaction among brokers had risen from 81.1% in H2 2019 to 82.7% in H1 2020. Banks and specialist lenders saw the greatest increase. This is a positive trend, especially during a time when many lenders have been forced to temporarily close their doors to new business. Much of this satisfaction has stemmed from a proactive, transparent lender communication strategy. Being in constant dialogue with intermediary partners has enabled specialist lenders to respond quickly and create solutions which meet demand as and when it arises. www.mortgageintroducer.com

Packagers, or specialist distributors as many prefer it now, have long played an important role in the distribution process for specialist lenders. They provide lenders with greater control in terms of managing volume, and help ensure that the quality of applications received is high. Factors which are hugely beneficial in being able to successfully service a range of client demands. This is a relationship which has evolved over the years, and will continue to be tested in these challenging times. Within an ever-changing lending landscape, specialist distributors and intermediaries are facing constant product and criteria modifications, not to mention widespread shifts in operational procedures. These relationships also need to be evaluated on a regular basis to ensure they remain beneficial for all parties in this chain. As a specialist lender, we must also be conscious that the needs of our landlord borrowers will change over the course of 2020, and on into the future. Lenders need to listen to what the market wants, and who better to advise us on this than those specialist distributors and intermediaries operating at the coalface. Such feedback arms us with the information to be as flexible as possible regarding product ranges, criteria and in servicing these demands. This is one of the reasons why, here at Foundation Home Loans, we recently introduced a range of variable products free from early repayment charges (ERCs), which will allow landlord borrowers to potentially remortgage at a later date – should they be affected by any significant market movements – with no charges to pay. FLEXIBILITY AND OPTIONS

It’s not only the buy-to-let (BTL) market which is looking for additional flexibility and options.

According to Legal & General Mortgage Club, there has been a significant rise in advisers searching for interest-only mortgages during lockdown. The criteria search combination for ‘interest-only’, ‘maximum age for interest-only’ and ‘minimum income’ was said to be the third most popular in May, up from sixth in April. Legal & General explained that, although this increase in adviser searches would have been influenced by the reopening of the housing market in England on 13 May, weekly searches for interest-only product criteria were already starting to rise before the lockdown eased. Recent feedback from advisers also suggests that they are seeing a growing number of clients who don not fit the criteria requirements of high-street and mainstream lenders. While interest-only is a topic worthy of its own article, I’m in complete agreement that we will see more and more borrowers slip outside the more ‘mainstream’ lending requirements. This is where intermediaries, specialist distributors and specialist lenders will all rise to the fore. With that in mind, we recently increased the maximum loan-to-value (LTV) on our residential range from 75% to 80%, and launched a new offering for first-time buyers. This is aimed at those residential borrowers who have less straightforward requirements, including credit blips such as defaults and county court judgments (CCJs), and who may have been turned down by the mainstream. A growing number of BTL and residential cases are becoming more complex, and a variety of people are facing financial struggles as a result of the COVID-19 economic fallout. This only reinforces the importance of intermediary relationships with those specialist lenders that are there to support ever-shifting client needs and provide the solutions that can help secure the right product solution, first time and every time. M I JULY 2020 MORTGAGE INTRODUCER

REVIEW

BUY-TO-LET

Navigating the new normal in buy-to-let Jane Simpson managing director, TBMC

he UK housing market has opened up since the end of May, with visual inspections resuming, albeit more quickly in England than anywhere else. This means that buy-to-let mortage lenders are also returning to a more normal approach to business. However, the full recovery of the market will still take time. Improvements in the marketplace have seen many lenders launching new product ranges, offering higher loanto-values (LTVs), particularly in the 75% LTV bracket, and providing more options for landlords. However, there is still a lack of competition in the 80% LTV bracket, which could create difficulties for landlords who are more highly leveraged when looking to remortgage. RETURN TO COMPLEX LENDING

Now that physical valuations can be carried out, some lenders have returned to more complex lending, such as on houses of multiple occupancy (HMOs), multi-unit blocks and limited company applications. Foundation Home Loans recently launched a selection of packager exclusives for standard and large HMOs, available through selected partners, including TBMC. However, it was disappointing to see Barclays withdraw from both multiunit and limited company lending. There are also competitively priced buy-to-let mortgages available for standard properties from high street lenders, and some excellent product transfer rates for existing customers, including a 1% 1-year fixed rate currently being offered by TMW.

MORTGAGE INTRODUCER JULY 2020

It is likely that the marketplace will continue to develop in the coming weeks as more lenders respond to the new normal, and we may see more options in niche areas of lending, such as for holiday let properties. There has been a fair amount of concern about the impact of coronavirus on the ability of tenants to pay rent during the crisis, and the effect this could have on landlords. Given the government ban on starting the eviction process before the end of August, some pundits have predicted that there could be a surge in eviction applications post-COVID-19. However, a poll commissioned by the RNLA questioned over 2,000 tenants, and 90% had been paying their rent as usual, which suggests that a concern over a spike in evictions could be unfounded. 84% had not needed any support from their landlord, and of those that did, threequarters received a positive outcome. Even though this report paints a good picture, there are some landlords having trouble collecting rent for their properties who have applied for a mortgage holiday with their buy-tolet lender. This may provide a shortterm solution, but how might it affect a landlord’s ability to access finance post-coronavirus?

Although applying for a mortgage holiday will not affect a customer’s credit file, lenders may reasonably ask why it was needed. As they assess the risk of lending to an applicant, lenders will want reassurance that there are no existing financial issues with the property, portfolio or business in question. This may make it more complicated for those who have taken a mortgage holiday when they seek further finance, but it remains to be seen how this will play out. As the UK housing market gains momentum, landlords may be looking for the next opportunity to expand their portfolio and considering the most cost-effective way of doing this. There have been questions around whether landlords who run their property business via a limited company could use the governmentbacked Bounce Back Loan Scheme (BBLS) to fund further purchases. Throught the scheme, small businesses are able to apply for up to £50,000 with no interest to pay for the first 12 months, after which the interest rate is 2.5%. This could seem like a relatively cheap way to raise a deposit; however, lenders do not normally accept loans as a source of deposit. In addition, using the BBLS to profit from further property purchases is not the intention of the scheme. Overall, the buy-to-let mortage market is making a steady recovery and this is likely to continue in the coming weeks and months, providing more options for landlord clients. M I

Buy-to-let mortage lenders are returning to a more normal approach to business

www.mortgageintroducer.com

REVIEW

PROTECTION

Talking ‘bout my lead generation Kevin Carr chief executive, protection review, and MD, Carr Consulting & Communications

ontact State and LifeSearch have launched a joint report aimed at improving digital lead generation standards and reducing consumer detriment. The Protecting the Protectors report claims that, while thousands of people up and down the country choose insurance products to protect their families, a small number of mainly offshore lead generators have been producing fraudulent advertising, as well as mishandling and reselling consumer insurance data. Tom Baigrie, CEO of LifeSearch, said: “We are pleased to co-author this paper, which we hope begins to address many of the poor, and often fraudulent, practices being used to generate leads in the protection market. The result is often consumer detriment, which is potentially damaging for all parties across the industry in the long term.”

The report warns that unless the insurance industry changes direction, large intermediaries and insurer partners will be seriously at risk of being investigated by the Advertising Standards Authority and the Information Commissioner’s Office.

“While thousands of people up and down the country choose insurance products to protect their families, a small number of mainly offshore lead generators have been producing fraudulent advertising” Alain Desmier, managing director of Contact State, commented: “Our unambiguous mission is to remove fraudulent lead generators from the protection industry. We’re very proud to stand alongside LifeSearch and make recommendations in this paper that we believe will lead to much better customer outcomes.” M I

NEWS IN BRIEF Aviva’s claims report for 2019 shows the insurer paid £982m in protection claims last year, on 93.1% of all critical illness claims. Legal & General said 41% fewer policyholders claimed on their critical illness insurance policies during April than its typical figure of around 300 claims per month. As a result, the insurer is echoing NHS advice that people should visit GPs and check symptoms at a time when the number of people visiting hospitals during COVID-19 has dropped. Medical Solutions has partnered with PG Mutual to launch GP24, a 24/7 virtual GP service for the income protection provider’s members and their dependants. Figures from Vitality show that 96.4% of all income protection claims were paid last year, and that engagement in the Vitality Programme led to improvement an in life expectancy of 1.8 years for men and 1.1 for women, while over £100m was given back to members through rewards and benefits. Openwork has grown its adviser numbers to 4,000 during lockdown, adding more than 100 advisers to its network since late March, mostly advising on mortgage and protection.

Income protection sales continue to rise

ot on the heels of the recent Swiss Re report, Gen Re’s Protection Pulse shows a 21% increase in income protection sales last year, in another record-breaking year for the UK protection market. According to the report, total annual premium equivalent (APE) for the year topped out at £779m, a 6% increase on 2018. More than 2.2 million new protection policies were sold in 2019, an increase of 7% over 2018. Critical illness premium volumes rose by 2.5%. Roy McLoughlin, from adviser firm Cavendish Ware, said: “In such www.mortgageintroducer.com

uncertain times, these figures will provide a welcome boost for our industry. They show that prevalence of communication, coupled with collaboration within the industry, manifest themselves in increased levels. It may be back to obvious basics, but if we discuss these subjects increasingly and tell and re-tell the positive stories, then the restored faith and resultant increase in advice will occur. “The income protection [IP] conundrum of the policy most likely to happen being advised in smallest numbers seems to be being addressed,

and the realisation of state benefits and universal credit ‘black holes’ is undoubtedly contributing to this.” Whether or not figures for the current year continue this growth remains to be seen. While many protection advisers are optimistic that consumer demand for income insurance will be higher in the long term, figures from iPipeline suggest that IP sales were down by approximately a third in May, compared to last year. However, this is against a Q1 backdrop where IP sales were up by 30-40%, so the two may even out. M I JULY 2020 MORTGAGE INTRODUCER

REVIEW

PROTECTION

Lead generation – friend or foe? Mike Allison head of protection, Paradigm Mortgage Services

n the face of it, the life insurance industry isn’t doing too badly from a commercial perspective. According to the Swiss Re/iPipeline annual survey, there were around 2.2 million policies sold in 2019, another increase on the previous year. For intermediaries, the news is even better: for life and critical illness (CI) business, the sector is responsible for around 75% of sales – this is even higher for income protection. Recent anecdotal evidence has also shown that the general public has had a greater interest in protection in general due to the COVID-19 crisis, which can only help brokers in discussions of the various options available. Add into the mix that, of the approximately 44,000 advisers regulated to give protection advice, only around 4,000 do so, according to recent evidence – it certainly points to a healthy outlook for those who do engage with the sector. Most brokers active in the mortgage market will have a steady source of leads for protection, as will many in the wealth sector, although the latter appear not to be as active in discussing protection requirements. Many firms, however, rely on thirdparty organisations to provide them with potential clients. Much has been written recently about lead generation and the role that it plays in the protection industry. It must be said that many lead generators carry out their role in a highly efficient manner and support the industry in ensuring many people are covered for their life assurance needs.

MORTGAGE INTRODUCER JULY 2020

On the ‘dark side’, though, the expanding market is developing some negative connotations in the form of fraudulent advertising, misleading marketing and mishandled consumer data – huge causes for concern. The regulator states that when approving a financial promotion of, and communication by, an unauthorised person, it is unlikely to be appropriate to accept at face value information provided by said unauthorised person. Firms are advised to form their own view as to whether any promotion complies with financial promotion rules. In essence, a firm purchasing leads cannot distance itself from the activities of the lead generator. CHEAPENING ADVICE

Misleading adverts, apart from potentially souring the reputation of the market as a whole and in some senses ‘cheapening’ the value of advice, can have a real impact on the firm itself when it chooses a provider of leads. Our industry, in the main, can be quite rightly proud of its response to the COVID-19 outbreak. Major organisations implemented the biggest disaster recovery plan ever faced by moving all employees from an office to home working environment. In some cases that meant literally thousands of claims, underwriting and administrative staff, many consumerfacing, put ‘operationally live’ in days – a fantastic effort We are also hearing of claims being paid across the range of products. For those who have lost loved ones, the industry will have done its bit to give them the comfort of an element of financial security. So, the malpractice of rogue lead providers should not take away from the positives. However important it is to know the ins and outs of lead sources from a regulatory perspective, that is not

the only regulatory problem to be considered during the pandemic. Equal, if not greater, are the issues surrounding vulnerable clients and the policies advisers have, or should have, in dealing with them. Vulnerable client policies should be embedded into a firm’s culture, in the same way as treating customers fairly has been in the past few years. As the Financial Ombudsman Service (FOS) continues to uphold claims where clients were vulnerable, it is worth remembering that two key drivers are health and life events. Severe illness and poor mental health are clear health components, just as bereavements, income shocks and relationship breakdowns are within the life events category. Every single one of these could result from the pandemic, with issues surrounding unemployment and the loss or drop in income via the furlough scheme being the most immediate. Longer-term health issues due to bereavement of family and friends, or the sheer issue of having to live within four walls for elongated periods of time, will also have heightened stress. While all of these issues are being brought to the fore, many clients will be taking huge financial decisions, especially related to mortgages and life premiums. If for any reason they are suffering as a result of the current situation, it is the job of an adviser to spot that and act accordingly within their own vulnerable client policy. While this may seem somewhat unfair, it is still what is expected. If you have known a client for some time, it could be easy to spot changes in the way they are acting. If it is a client that is not as well known, perhaps a lead generated one, then this could be a real issue. The skill in asking questions to draw out certain answers are vital, as is the way a business offers support to its clients to support them in vulnerability. Compliance specialists such as Paradigm Consulting can help construct the policies, but it is the firm’s responsibility to carry them out during normal times – and to review them now, because these are very far from normal times. M I www.mortgageintroducer.com

REVIEW

PROTECTION

Five helpful protection changes Ben Burgess senior adviser, LifeSearch

e are all becoming more aware of the economic, logistical, and administrative limitations the pandemic has wrought upon our industry. Simply put, it has not been the greatest 10 weeks. We have had to adapt our professional and personal lives to make the best of a bad situation, and insurers have been forced to do the same. For extremely vulnerable clients with serious underlying health conditions, this means prolonged postponements. EASIER THAN EVER

However, for clients with negligible health concerns, but with higher risk jobs, or financial underwriting limitations, some insurers have made it easier than ever to get cover in place. There have been dozens of announcements and changes from providers and, up to now, these are some of the most helpful: 1. Many insurers are now encouraging customers to provide their own supporting medical information on the back of a completed application. This negates the need to automatically write out to a GP for medical evidence. Consultant letters, test results, and more readily available access to their own medical records online are ways that clients can bypass a GP report and secure cover in a few days, rather than a few months. 2. If the evidence provided by the client proves to be insufficient, only a handful of insurers are still writing out to surgeries. They are Aegon, Scottish Widows, Royal London, LV=, Legal & General, Guardian and Zurich. With most of the population avoiding their GP surgeries, the turnaround time on completed reports has dramatically improved. We are talking a matter of www.mortgageintroducer.com

weeks as opposed to months, which is extremely beneficial for both clients and advisers alike. 3. In the era of social distancing, nurse screenings for financial limits have also become nearly impossible. As a result, Royal London, Scottish Widows, LV= and Guardian have all increased their limits by 10% to allow customers to get more cover straight off the application. As of 1 June, AIG, Aviva, LV= and Canada Life have all re-implemented face-to-face screenings. The worstcase scenario is that cover can still be split between multiple insurers, which eliminates the need for a screening in the first place. 4. When it comes to frontline workers who have been exposed to individuals with a confirmed or suspected COVID-19 diagnosis, as long as the worker themself hasn’t had symptoms within the past 30 days, AIG, Royal London, and LV= will offer them cover straight off

the application. Their underwriting philosophies are commendable, especially when it comes to the matter of income protection. Frontline workers are putting themselves at risk on a daily basis, so it must be comforting to know their insurance company appreciates them and has their back. 5. For clients who have been furloughed or made redundant, insurers are also offering deferred premiums and career breaks, as well as decreased levels of cover. This allows people who were thinking about cancelling their policies to have some form of protection in place, while benefitting from a lower monthly premium. CUSTOMER FIRST

There are insurers out there who will get our customers what they need. Advisers just need to remain pragmatic in their recommendations, and stay positive. M I

Some insurers have made it easier than ever to get cover in place for your customers

JULY 2020 MORTGAGE INTRODUCER

REVIEW

PROTECTION

The story behind the statistics Andy Philo director of strategic partnerships, Vitality

he publication of protection claims statistics has become a staple in the protection calendar. Insurers have been publishing claims statistics for years; initially to improve transparency in the market. The ABI and GRiD figures published in May are proof that the majority of claims are paid, with the cross-industry figures showing a record 98.3% of claims paid in 2019. Like our contemporaries in the protection space, we have recently

published our Claims and Benefits report for 2019, which showed that we paid 99.5% of all life insurance claims. We must remember that this is real money that has gone to real people in financial difficulty. I believe that making protection claims statistics public is important to improve transparency and I believe it’s equally important to bring these figures to life and show how protection policies have helped real people across the country. So, it’s encouraging to see even more providers provide case studies as part of their annual claims statistics reports. The practice of publishing these claims statistics is undoubtedly important for demonstrating to prospective customers that the product will pay out when they need it most. However, we also know that often it

can be a tough-sell to persuade a client to take out a protection product when they don’t think they’ll ever need it, which is why we think it’s equally important to inform clients of how the product will work for them. At Vitality, we offer our members a range of rewards when they get active, so they can benefit without having to claim. Ensuring we support our members throughout the life of their policy is also a big part of why we designed our Serious Illness Cover to allow the customer to claim several times, meaning they can stay protected even after making a claim. It’s equally important to explain why claims are rejected. The two main reasons claims are denied are due to non-disclosure of medical information or not meeting the definition in the policy. The publication of claims statistics has played an essential part in building trust in the protection market. There has been slow but steady progress in publishing these statistics, and it’s positive that the public is beginning to recognise the value of insurance. M I

REVIEW

PROTECTION

Time to make a new plan, Stan Paul Yates product strategy director, iPipeline

s the UK slowly makes its way out of lockdown, the attention of many businesses has shifted from dealing with the immediate consequences of the COVID-19 crisis, to considering what comes next. But confusion reigns when trying to work out how to navigate the future protection landscape, and I don’t think I’m alone in having a number of questions swirling around in my head, such as:  How fast will the recovery be? Will we have further lockdowns?  Will mortgage business rebound quickly, or will it be 2022 before we get back to pre-pandemic levels?  Will increasing numbers of consumers want to do more of the process via digital methods in future? How many will pivot to working remotely all the time?  Does COVID-19 impact future claims or morbidity rates? These are just some of the questions interrupting my much-needed beauty sleep as I wrestle with how we should be supporting our customers in the next 12 months. For some time I have used the metaphor ‘fog of war’ to describe the uncertainty faced in risky situations – a term attributed to Carl von Clausewitz from his book On War, which materially affected military thinking. The book is not really focused on fog as such, but the frictions that occur during conflict – all those issues that prevent good decision-making and the execution of orders. For example, the Charge of the Light Brigade’s disastrous outcome in 1854 resulted from frictions in understanding the orders given. Having limited information makes it more difficult to

www.mortgageintroducer.com

make the right decisions, and make them at the right moment. When we look at the pandemic, it’s clear that we simply do not know many of the possible outcomes that may come from it. Put in war terms, we do not fully understand our ‘enemy’, which is never a good place to be. It is hard to work out how the virus will impact our business in the short, medium, and long-term. BEST FOOT FORWARD

So, how do we face this lack of certainty? How do we handle limited knowledge and the inability to exactly describe either the existing state or future outcome (or potential multiple outcomes) for our industry? There are a number of steps firms can take to put themselves in the best possible position, and here I will outline five of them: 1. Develop strategy based on what we know and what we can reasonably expect, to produce the results we need. We all have strategies, but as that great strategist and boxing legend Mike Tyson is purported to have stated: “Everyone has a plan until they get punched in the mouth.” Well, we have been well and truly hit hard. So, now is the time to make a new plan, Stan. 2. In developing this plan, talk to your customers, clients, sales teams and partners. Get good quality data and produce strategic ‘living’ plans that can react to market changes as they unfold. Your playbook needs be able to shift the way you work to respond to market conditions at a rapid pace.

3. Identify and remove the friction points, such as manual or paper processes. Introduce e-signature solutions, strengthen remote working capabilities and, where needed, ensure you have online capabilities. Make sure you have the right suppliers that can support your need for agility and flexibility as well as quality data. Critically, focus on your customers’ evolving needs. 4. Contact, contact, contact – use triggers to key into customers’ needs and provide personalised information and advice. We see firms having extraordinary success after going back to existing clients to talk to them about protection. Nurture them with campaigns that understand their concerns and offer real solutions. 5. Be where your clients are – where they are looking for help. Having a protection lead support service on your website can help support and provide options for your clients. Also, look at broadening offerings to help react to changing customer demands. It will also improve client persistency as customers see you as a fuller solution provider. Two things are certain in this ‘fog’: first, COVID-19 has accelerated consumers’ digital understanding and increased expectations; second, it has dented their financial resilience. Customers are ready for the protection conversation, but will they accept old world processes and timescales? It’s time you put a plan in place just in case they don’t. M I

What comes next for businesses easing out of lockdown?

JULY 2020 MORTGAGE INTRODUCER

REVIEW

PROTECTION

Equity release reality Steve Ellis head of risk and protection, Premier Choice Group.

t a time when funds may be stretched, income reduced and returns from investments lower individuals are looking for other sources of cash. Equity release is an obvious one linked to the home. Many people are still uncertain about the facility and view it with suspicion. So, it is helpful that Sun Life has addressed some of the myths around equity release. These are:  that the product is unregulated – when of course both providers and advisers are regulated by the Financial Conduct Authority.  that someone can’t take out equity release if they have a mortgage – when in fact one of the top five reasons why people take out equity release is to pay off their mortgage.

“What is crucial is that anyone going the equity release route takes advice and guidance from a qualified and authorised equity release broker. Only these will take the individual and their family through all the ins and outs and leave them confident that they understand fully the product and their rights and options”  that if someone takes out equity release on their home they won’t be able to leave an inheritance – when once the home is sold and the proceeds used to pay off the equity release

MORTGAGE INTRODUCER

JULY 2020

loan, any funds left over can be left to beneficiaries.  that it will leave the family in debt – when a no negative equity guarantee protects against leaving family in debt.  that people could lose their home or have to move out – when under a lifetime mortgage the individual with the mortgage is still legal owner of their home, and under a home reversions plan while all or part of the home is sold for a cash lump sum the individual lives there rent free until the home is sold, the individual dies or goes into a care home.  that once you employ equity release you can’t move house – when someone with equity release can take the plan with them.  and finally, that tax has to be paid on the cash released – when it is not

classed as income so there is no income tax to pay. ADVICE AND GUIDANCE

What is crucial of course is that anyone going the equity release route takes advice and guidance from a qualified and authorised equity release broker. Only these will take the individual and their family through all the ins and outs and leave them confident that they understand fully the product and their rights and options. Equity release used to be a bit of a last resort route. Not so now. It’s one that makes a lot of sense to many people We would of course also recommend that once the deal is done and cash released protection needs such as life and or critical illness cover or private medical insurance is reviewed and topped up. M I

Wealth gap concerns

ot surprisingly, the COVID-19 crisis has hit lower income households more than any other. Research from the Resolution Foundation more of these people are using more credit and saving less. The research reveals that a typical worker in a shut-down sector of the economy had average savings of £1,900 compared with an average of £4,700 for someone who has been able to work from home during the crisis. Lower-income households are far more likely to run down their savings and turn to high-interest credit the report finds. As brokers and intermediaries we are hard pressed to help in these circumstances – other than to present home owners options such a deferral of mortgage payments but to encourage them not to leap to cancel premiums for vital health insurances which could be life and financially invaluable. Of course, mortgage deferrals should not be taken on without regard to the inevitable build up of debt. If that is going to happen, we must ensure, as their advisers, that the amount of additional debt is monitored and the clearing of it as soon as possible is

achieved. Without doubt the deferral option has been a life line for many – 1.9 million according to UK Finance, which adds that one in six mortgages are now subject to a payment deferral and for the average mortgage holder, the payment deferral amounts to £755 per month of suspended payments. While one must assume the payment holiday has helped, the deferral period is not going on forever and many clients will be looking for advice and reassurance as to their options for getting back to full payments and addressing any diﬃculties they may have still. UK Finance says: ‘Borrowers who can aﬀord to resume payments should do so, as it will always be in their best interests in the long run.’ It accepts however that some won’t be able to or will find it hard so outlines other options such as a further full or partial payment deferral, a move to interest only payments for a period, or extending the term of the mortgage to reduce payments, depending on the borrower’s circumstances. Rarely has the support and understanding of a mortgage broker been more important.

www.mortgageintroducer.com

YOUR BUSINESS

An average 22% discount on our Home Insurance pricing for remortgage, product transfer and equity release clients* www.paymentshieldadvisers.co.uk/energised-pricing

#illuminate *Terms and conditions apply. Not available to existing Paymentshield customers. For intermediary use only. Paymentshield and the Shield logo are registered trademarks of Paymentshield Limited. Authorised and regulated by the Financial Conduct Authority. ÂŠ Paymentshield Limited 2020. 01689 07/20

REVIEW

GENERAL INSURANCE

Our duty of care to advisers Rob Evans CEO, Paymentshield

he last few months have given us all a lot more time to reflect. At Paymentshield, the big question is: ‘what are we doing to lead the market forward?’ As a business, we have given a lot of consideration to how we can best support advisers through this period of business uncertainty. The COVID-19 situation has caused us to look at what changes we can make in the long-term as well as the short-term, and has actually accelerated a lot of initiatives that were already in development. GREATER SUPPORT

I firmly believe that companies like Paymentshield have a duty to go beyond the guidance issued by regulatory bodies, to offer greater support to advisers during this period. We treated three-month payment holidays, for example, as an opportunity to go further than the measures stipulated by the Financial Conduct Authority (FCA), by offering the payment deferment to new as well as existing customers. The intention behind this decision was to make it easier for advisers to sell policies, enabling them to offer financial relief to a greater proportion of clients. Whilst this was a policy that we introduced quickly in response to COVID-19, it will now become part of our permanent proposition. This forms just one part of our wider package of direct sales support. The most recent addition is a 22% discount on our home insurance for new remortgage, product transfer and equity release clients. The discount is live now and we intend for it to run until the end of the year. This is a big investment for us, but we’re conscious that real partnership

MORTGAGE INTRODUCER JULY 2020

means we need to support advisers in these leaner times. The initiative will make it even easier for advisers to sell general insurance (GI), and provide them with the ammunition to overcome any objections on price and fees for switching mid-term. Tools within our unique Adviser Hub are also designed to help at that point of sale. Our Premium Flex tool, for example, allows advisers to adjust the percentage of commission earnings to reduce the client’s premium. This can help them achieve a sale where they might otherwise lose out, and establish a new and hopefully longstanding client relationship. It is important to use the market downturn caused by COVID-19 as an opportunity to reflect on how practices could be improved in future. Paymentshield has been committed to using this period to help advisers who need some support with their approach to general insurance. We launched a set of CPD resources in April, to help advisers develop the skills needed to facilitate more GI sales and supplement their incomes.

In the past two months we’ve also dedicated time specifically to helping those advisers who haven’t quoted on or sold a Paymentshield GI policy in the past 18 months, but now want to take advantage of the opportunity. EMBEDDED GI SALES

This has involved being proactive in offering training and support on how to approach a GI sale with a client and embed it within their sales process. So far, 450 firms which had not quoted with us prior to mid-April have now done so. That’s a previously untapped income stream that we’ve helped those advisers to capture. It’s not enough to speculate about when the market might return to normality – we need to help it along the way, and we all have a part to play in speeding up that recovery. Using this time to think carefully about what initiatives we can introduce to support advisers, how to deliver those quickly, and what longer-term benefits we can help to facilitate is something we all should be doing. By supporting this critical link in the chain, we all stand to benefit. M I

Advisers are a critical link in the chain and must be supported

www.mortgageintroducer.com

REVIEW

GENERAL INSURANCE

Getting personal with changing needs Geoff Hall chairman, Berkeley Alexander

ustomer-centric rather than policy-centric insurance is widely spoken about as being relatively new in our industry. Using data to personalise policies has become increasingly sophisticated, with third-party application programming interfaces (APIs) being implemented on many software platforms now. However, the idea that policies should be built around the customer and their bespoke or changing needs is nothing new. For as long as anyone can remember, insurance products have been ‘tailored’ to the individual. I recall specific home insurance policies that took occupancy into account, discounting in line with risk – with someone at home instead of out at work, the risk of theft and other types of damage was significantly reduced. There was also ‘dog-watch’ – essentially if you had a dog on the premises it reduced the premium. Nowadays, rather than having a specific product designed for each niche, the questions asked at the outside drive the rating to take account of the client demographic. This might mean one or two more questions, but the result is a more tailored, often cheaper policy. Some may argue that the new big data ‘no questions asked’ policies do this without advisers having to probe, but how will the big data know whether the homeowner has locks on their windows? And more importantly, whether they lock them when they leave the house? There is still a need to understand the individual client and their behaviour to ensure you offer the best possible advice.

www.mortgageintroducer.com

The comparison to our current situation is striking. During COVID, the industry has witnessed how consumers have needed policies to be flexible and tailored. In the main, insurers have acted quickly. With people at home more, there have been fewer thefts and fewer expensive claims for escape of water damage being recorded by some insurers. On the flipside, working from home means additional equipment to be covered, which many insurers are covering without needing notification. Some car insurers, most notably Admiral, have also reimbursed customers a portion of their premium, as claims frequency has been so low during this period when fewer people are using their car. Whether through digital means or more manual underwriting, tailored, niche policies are back in fashion and it will be interesting to see the longlasting impact COVID-19 will have on general insurance (GI) innovation. TACKLING A HARD MARKET

Another impact from the pandemic has been an acceleration of the hardening market – the first hard market the industry has seen in many years. Independent financial advisers (IFAs) and mortgage brokers may well have been aware of a hardening in rates in the professional indemnity (PI) market for a while, due to the claims experience in this sector. We are now seeing rates harden in many more lines. Whilst this means that many premiums will go up, for brokers it does create a window of opportunity. Clients will be shopping around for alternatives, and brokers have an opportunity to take a proactive stance. In a time of uncertainty, professional advice will be appreciated and will grow customer loyalty. Equally, if you have clients with specialist insurance needs, a hardening

market is the time to work on developing that specialism. There are thousands of bespoke insurance schemes, such as for niche occupations like mobile hairdressers, Zumba instructors, or hobbies like fishing, paragliding or cycling (a big growth area right now). Bespoke niche policies will often give a better premium and include enhanced covers that the buyer will value, so it provides a strong sales opportunity that illustrates your expertise and value. If you have a niche and need a scheme, speak to your GI provider – if they don’t currently have a facility for that niche, they should be able to source one. BACK TO WORK RISK

Those responsible for any premisis which has been either partially or fully empty during the lockdown should carry out a risk assessment before the business returns to work, and implement any actions needed to protect the welfare of their employees and the general public. Public Health England guidance says there should be regular flushing of the water system to stop bacterial growth, such as Legionella. This includes undertaking a detailed review of all aspects of the water management system before reopening. Legionella is naturally present in water systems and causes Legionnaires disease. It is not contagious, but is transmitted via drinking or inhaling droplets of water, mist or vapour containing the bacteria. Taps, showers and air conditioning are common sources. Although rare, the disease can be fatal. Because many hot and cold-water systems have not be running during the lockdown, the chances of the bacteria forming will increase if no action is taken, particularly during summer. Health and safety and risk management should play a vital part of every GI provider and adviser’s role, and there are many things businesses need to think about as they return. There is some really useful further information, along with guides, available on the Health and Safety Executive’s website. M I JULY 2020 MORTGAGE INTRODUCER

REVIEW

GENERAL INSURANCE

Accelerating trends Kevin Paterson director of sales & marketing, Ceta Insurance

think we are all getting a little tired of the prophetic statements that every commentator has been regurgitating during this crisis – the ‘new normal’, ‘workplace will never be the same’ insights, much of which we already know, because if history has taught us anything it is that humans are great at adapting. However, there are some tech trends emerging from this crisis which we should all be aware of. Baillie Gifford, the Scottish fund manager, recently issued a report stating that in their view COVID-19 was accelerating the pace of change in new technology to the point where emerging tech expected to take 10 years or more to become mainstream is now expected to be adopted within a couple of years. As an early and significant investor in Tesla and Amazon, they are probably worth listening to. FLYING CARS?

Having said that, they are also a significant investor in Lilium, a German electric aviation business aiming to bring a flying taxi to the market by 2025, as well as its Toyota-backed rival Joby, which raised almost $600m in January for development of its own flying taxi – off the wall, or maybe they know something we don’t. Indeed, Microsoft CEO Satya Nadella said in April that “we have seen two years’ worth of digital transformation in two months.” It seems coronavirus has swept away many of the barriers to adoption far quicker than normal. The market is reinforcing this view with the so-called FAANG stocks (Facebook, Amazon, Apple, Netflix and Google plus Microsoft) increasing their market dominance throughout the lockdown, rallying between 40% and

MORTGAGE INTRODUCER JULY 2020

60% from their March lows, and all posting record highs as a result. NIMBLE DISRUPTORS

This is accelerating the emergence of nimble disruptors, with investors scrambling to find the next FAANG, and businesses in the UK shifting the way they invest in their own technology and embracing change more readily as we emerge from this challenging period. It seems we have been softened up during the extraordinary events of the last few months to accept leaps forward in the way we work. Never has the quote by Heraclitus (often attributed to Benjamin Franklin) been more relevant: “the only real MI constant is change.”

COVID-19 is accelerating the pace of change

Insurance trends during lockdown

here has been some interesting data coming out of the insurance industry during lockdown – some obvious, some more curious, and then others more confusing or disappointing. Early data shows that there has been a 45% to 55% reduction in personal home insurance claims; unsurprising, given the lockdown and the fact that most of us have been unable to go anywhere. Alongside this is a 27% decrease in claims for theft, but conversely fraud is up 30%, likely driven by loss of earnings, something insurers tend to see in a recession. In the wider market there are winners and losers. Motor insurers are under pressure to issue refunds as many people feel the inability to drive anywhere should translate into lower premiums. Although this was widely resisted, Admiral took the lead and issued refunds of approximately £25 per policyholder, costing the company around £10m. Interestingly, Admiral cited a reduction in claims as their reasoning for issuing the refund, because of course the fact the policyholder is covering less mileage does not mean the vehicle is somehow a lower risk by simply being parked up outside their property rather than on the road.

Then there is the issue of business interruption cover, usually part of a commercial insurance policy. Here perhaps, the industry has not exactly covered itself in glory. Business interruption insurance was designed to protect policyholders against financial loss arising from damage to physical properties. Over time, this has evolved to also include limited areas of non-physical damage. In the UK, most insurers do provide cover for a set of specified, listed diseases, but ambiguity has arisen when the extent of the cover or diseases are not clearly stated. Consequently, declined business interruption claims have come under fire, with a number of insurers facing lawsuits with further litigation on the horizon, arguing that the reasonable view would be that if the policy covers loss or damage to a business caused by a disease or outbreak not of the policyholder’s making, then the policy should pay out now. The Financial Conduct Authority (FCA) has been dragged into this row and is seeking clarity and trying to take a lead, but this is being aggressively contested by some of the worlds biggest insurers. I doubt any will come out of this untarnished as a result.

www.mortgageintroducer.com

REVIEW

TECHNOLOGY

Technology and the case for AR networks Shaun Almond managing director, HL Partnership

ny wistful debate over whether things will get back to the way they were before COVID-19 is probably a complete waste of time. This is not the time to look back through rose-tinted glasses and say how wonderful it all was. The pre-COVID mortgage market was already dynamic and evolving, but the pandemic, along with all of its other effects, has given the property and finance markets a turbo-charged shock that has led to more change in the three months since lockdown than we would normally see in the space of years. To name a few: video client meetings, remote working, webinars, distance learning and online data capture. All of these rely on the adoption of technology solutions, something many of us in the past have been resistant to. STEPPING UP

Yet, apart from those advisers that the current crisis has hastened into early retirement, we have all had to step up, adapt and embrace everything that helps us to continue to deliver the service customers expect. With lenders now returning to the market and reports that mortgage illustrations are close to pre-COVID levels, none of this would have been possible without technology, even a few years ago. As an example, at HL Partnership, while producing an emailed newsletter to prospects may be relatively low tech, the fact that almost 80,000 customers received it was only made possible by members’ adoption of a high-end www.mortgageintroducer.com

customer relationship management (CRM) system with which to run their client bases. LOW TECH TO HIGH TECH

Coming out of lockdown, our members have needed to start generating new leads. In this case, the take-up of centrally conceived marketing initiatives to existing customers, powered by our members’ data via their CRM systems, has enabled a marked increase in potential enquiries for advisers. By being able to find customers due for a remortgage, or track those that were looking to move house prior to lockdown, firms could remain active during lockdown and now have a healthy pipeline of business. Data really is key. ONLINE FACT FINDS

Technology had the answer to client meetings with video conferencing, but how could we get the data we need to give us a complete picture of the customer, without spending hours on zoom calls? The answer came in the adoption of online fact finds. Our experience has been interesting. The number of online fact finds sent to clients by members to complete in their own homes has increased by almost 200% since the start of lockdown. Allowing clients to fill out their own fact find started out as a very alien concept for many advisers, with so many used to face-to-face form filling. But now we see those using the system adapting their business models to capture client data by sending an online link via email and a text to a mobile phone which, when combined, gives access to a secure, cloud-based online fact find. For more years than I can remember, the industry has striven to find ways of simplifying the mortgage process, from interview to completion.

The advance of efficient online connectivity has hastened the arrival of the ability to send documents instantly, receive decisions in principle and send applications. We are finally within reach of an end-to-end online process. Our aim at HLP has always been to give our members the most up to date technology suite in the industry. They already have access to a state of the art CRM system, and our vision is to continue strengthening the connection to real-time mortgage sourcing and protection engines, which in turn link to tools that thoroughly interrogate mortgage criteria, decreasing the number of time-wasting ‘false positive’ results and requiring no re-keying of data to send the application to the lender. When all this is added to a strong general insurance proposition, advisers will not only be running a streamlined process, but also reducing their exposure to potential compliance risk.

“The advance of eﬃcient online connectivity means we are finally within reach of an end-to-end online process” If there is anything that the past three months has taught us, it is to stay ahead of the tech curve and continue to invest in the future of the firms we work with, and their customers. In finishing, it is of course vital that any technology powered solution should enhance and not detract from the business of ‘doing business’. As networks, it is our role in the distribution chain to make the interaction between customer, adviser and lender as efficient and effective as possible, whilst using integrations to reduce risk. By adopting technology built specifically around mortgage and protection advisers’ needs, not only are firms happy, but we can also clearly demonstrate to the regulator that the customer experience is enhanced, and to professional indemnity insurers that the channel can be low-risk and is worthy of support. M I JULY 2020

MORTGAGE INTRODUCER

REVIEW

EQUITY RELEASE

Time to get prepared Stuart Wilson CEO, Air Group

ince statutory regulation was brought in to cover equity release products, the regulator has always appeared to keep a keen eye on the sector. Now that the number of later life lending options has grown, the increased complexity of the market has meant that scrutiny of the sector has gone up a level. This is perhaps not surprising, given that equity release is still viewed as high risk – although considering the range of extra requirements and the necessity for such things as independent legal advice, you might well argue that no other financial services sector has as many safeguards to prevent poor customer outcomes. FCA BELIEFS

While it did contain more positive language than we have heard in the past, the recent publication of The Equity Release Sales and Advice Process: Key Findings adds another layer to the Financial Conduct Authority’s (FCA) ‘belief system’ when it comes to equity release and what it now expects of advisers. I would urge all advisory firms to take a very close look at the recommendations, especially in some key areas which we have been highlighting for a number of years, namely: ensuring holistic advice across all later life lending options not just equity release; dealing with potentially vulnerable customers; personalising advice to the individual and not simply relying on generic processes and standardised text to explain ‘reasons why’; and ensuring the case file tells the full story around why a certain product was recommended. It might seem like common advisory sense for most, but the review highlights that the FCA has seen a

MORTGAGE INTRODUCER JULY 2020

number of cases where these factors were not overly evident, and therefore there are some firms that will need to get their houses in order. There has been some speculation about why the FCA chose this moment to produce a review on the subject of equity release advice. We had previously been told that, given the extraordinary circumstances we are all living through, the regulator’s work would specifically focus on issues related to COVID-19. Reading the review, it does talk about “anecdotal evidence of more interest in equity release” as a result of financial pressures people are facing due to the pandemic. That is perhaps understandable – the home tends to be the biggest asset, and those in later life might be looking at ways to access cash in order to help them through this period. That said, we share the FCA’s concern that individuals could be using equity release – a long-term solution – in order to fund a short-term problem, and it’s clearly important that advisers take this into account when looking at the reasons why a customer might (or might not) be suitable for an equity release product. If there are other available options which could be utilised in the shortterm, then one might suggest that these should be explored first. However, the FCA says that the potential COVID-related reasons for seeing an uptick in equity release do not change its conclusion or findings. It goes on to say that the results, findings and recommendations from this review “…reinforces the importance of advice reflecting the needs and circumstances of the individual.” This is something that we would wholeheartedly agree with, but it doesn’t stop us speculating further about why the regulator has chosen this time to publish the results. I’m a great believer in quality not quantity, but this document runs to a mere five pages, whereas historically

reviews of our sector have tended to be much more involved. Perhaps the FCA feels it can say everything it wants to in a short document, but again we are told that it “…will be undertaking further work to review the suitability of advice in the lifetime mortgage market.” What shape this work will take remains to be seen, but I might suggest that we need to digest and understand what they have said before getting our houses in order, as there may well be more positive news on the horizon than first imagined. SOCIAL CARE

Let me explain. These last few months have seen an even greater level of interest and scrutiny in the UK’s social care situation than before, and there have been much larger calls for this government to look at a tangible solution to an issue that has been kicked into the long grass over the last couple of decades. I’ve lost count of the number of reviews, and subsequent recommendations, that have been published and then not been followed through on. Perhaps this government will be the one that draws the line in the sand, and perhaps it will also be the one that does not shy away from how an individual’s property might be used to fund those social and long-term care needs. It is pure speculation on my part, but if you were to give a bigger role to equity release within any new social care funding strategy, then wouldn’t you want to know that the equity release advisory sector was working at its optimum compliance level, before you embarked upon such a journey and potentially gave it a much bigger part to play within it? I know I would. We await what comes next, but I would hazard a guess that equity release is going to play a much bigger role in the lives of homeowners in the future than it has ever done before. Advisers need to be ready for this. M I www.mortgageintroducer.com

REVIEW

EQUITY RELEASE

Solving the care conundrum Alice Watson head of marketing and communications, Canada Life

y 2030, it’s predicted that one in five people in the UK will be aged 65 or over, representing significant social and economic challenges for our society. And not only are people now living longer than ever before, but they may be working well into their retirement too. With this phase of life now lasting anywhere between 20-30 years, paying for care - whether that be for ourselves or loved ones - is a reality the majority of us will face. The current global pandemic has shined a spotlight on the need for care in later life. Not only has it changed the way we’re thinking about our futures, but also how we want to spend them. In fact, research we conducted found that more than one million over-60s are rethinking their care plans as a result of COVID-19 - a trend potentially being driven by growing concerns from their children. Nearly a fifth (19%) of those who were previously open to care homes as an option for their family members before the crisis hit, now wouldn’t consider it. Instead, over-60s are looking to either move into assisted living (19%), or smaller, more manageable properties (19%). Moving in with family members is also a popular option, with nearly one in 10 (9%) looking to move into a spare room, and 6% hoping to move into a granny annex. But, despite the growing need for care in later-life and the average cost estimated at between £600 and £800 per week, the majority of over-60s www.mortgageintroducer.com

(55%) still haven’t considered or don’t know how they will fund it, which could leave them facing a significant shortfall in retirement. And, of those who have considered it, a fifth (21%) expect to use their state pension of just £175.20 per week; and 15% expect the government to pay for it. The good news, however, is that the later-life lending sector has evolved over time to meet these new social and economic realities. With property wealth in Great Britain estimated to be worth over £5trn, equity release is allowing those both in and approaching retirement to tap into the wealth stored in their homes to help with care costs. But, the research highlighted that there’s still a significant knowledge gap when it comes to later-life lending products, with just 5% of over-60s planning on using equity release to cover care costs and a further 8% unsure of what equity release is and how it can be used to meet their care needs. Accessing property wealth enables

retirees to age in place, while accessing the cash they need to fund care options. Similarly, it allows customers to fund any home improvements or adaptations to suit their evolving needs throughout retirement, such as converting the bathroom into a wetroom, or installing a stair lift, which may well be the difference between staying in their own home or moving into a care home. THE VALUE OF ADVICE

As an industry, we need to get people to think about their wants and needs in the different stages of retirement and kick start these conversations early on no matter how difficult they might be. Advisers have a significant role to play in this, and many have used lockdown as an opportunity to engage with clients approaching retirement. It’s important that as an industry, we highlight how equity release can be used to meet the needs of an ageing population, by allowing people to age in their homes and providing them with access to the cash they need to fund residential care solutions. Ultimately, there are a growing number of flexible solutions available to help customers who are looking to unlock equity from their homes. Advisers are well placed to help them find the best-suited product for their unique circumstances and demonstrate the role that equity release can play as part of a blended retirement solution. M I

Paying for care - whether that be for ourselves or loved ones - is a reality the majority of us will face

JULY 2020

MORTGAGE INTRODUCER

REVIEW

EQUITY RELEASE

A cornerstone of postpandemic landscape Claire Barker managing director, Equilaw

igures published by the Equity Release Council (ERC) have revealed that borrowing within the equity release sector reached a colossal £1.06bn for the first three months of 2020, as the growing availability of products and choice of feature options pushed rates to a record breaking average of 4.48% (as of January). The figures also show that the number of plans charging 4% or less grew substantially over the previous year; rising from one in ten at the beginning of 2019 to two in five by the end of the year- an incredible sea change. Overall figures marked an impressive 14% upturn on comparative lending for the first quarter of the previous year, with the number of plans taken out by homeowners representing the largest total for any Q1 period since records began - a true measure of growth. However, if there was ever a scenario in which novelist L P Hartley’s famous assertion that “the past is a different country” (“they do things differently there”- the opening lines of ‘The Go Between’) may be applied as a matter of incontrovertible fact, it is the events surrounding the coronavirus pandemic. Barely three months have elapsed since the introduction of the government’s lockdown measures in the UK, yet both the social and economic landscapes of this country have changed immeasurably within that short period. For example, figures published by the Office for National Statistics have revealed that the number of people claiming state benefits has risen by a jaw-dropping

MORTGAGE INTRODUCER JULY 2020

856,000 since March (to a total of 2.1 million), while the number of workers covered by the government’s furlough scheme is currently estimated at around 7.5 million. PENSIONS PLEDGE

Yet, with government spending projected to exceed a £300bn deficit by the end of the financial year (or more than 15% of GDP), the need to mitigate this debt by raising levels of taxation or by slashing spending budgets is likely to become an omnipresent feature of public life for many years to come, not least for those living on pensions. For example, despite assurances from Boris Johnson and the Pensions Secretary, Guy Opperman, that the government will continue to honour its commitment to the triple lock guarantee on pensions, many analysts believe that the costs of this pledge could rise significantly if wages rise in the near future, particularly given that the OBR is currently forecasting an 18% growth in earnings by the end of 2021. By contrast however, scrapping the guarantee could save the Treasury an estimated £20bn over the next five years. So, in other words, don’t rule out the possibility of a government U-turn. Meanwhile, with supermarket chains facing rising costs from an implementation of social distancing precautions and other inflationary concerns, the likelihood of an uptick in food prices could also impact adversely on incomes amongst retirees, particularly if (as seems probable) the value of sterling continues to contract. And lastly, as the number of people losing their jobs or facing economic shortfalls continues to rise in the UK, the need for parents or grandparents to offer financial assistance could also accelerate accordingly, with more than half of those aged 55 or over currently saying they are concerned about the

finances of loved ones (according to research by Legal and General). Nevertheless, with interest rates on savings and pension amounts continuing to offer negligible returns and incidences of debt amongst the over 55’s continuing to grow by the year, the ability of retirees to service these obligations or to provide for dayto-day expenditure could be stretched to new limits going forward. However, by accessing the wealth that is tied up in their homes, customers can look to service these debts or financial responsibilities safely, effectively and tax free, while also availing themselves of a competitive range of rates and flexible choice of product features. Indeed, recent analysis by the provider, Key, has established that ‘need rather than aspiration’ continues to drive the lion share of lending scenarios within the sector and, given the enormity of our current economic problems, there is every probability that this trend will continue to grow exponentially over the next few months and beyond (to put it mildly). In fact, it seems increasingly likely that equity release will form a major cornerstone of the post-pandemic economic landscape. Of course, that’s not to say that the ER sector will be necessarily immune from the economic fallout of the pandemic and there is every chance that some kind of reverse will be felt in Q’s 2 and 3. Nevertheless, with remote access to brokers, valuations and legal advice being upheld throughout the lockdown period and rates, product features and safeguards continuing to undergo a process of consolidation, there can be little doubt that the sector is perfectly placed (and poised) to respond to any upturn in demand. So, the important thing is for industry members to maintain their focus, hold their nerve and keep their eyes on the prize. Because, a new day is coming and equity release will inevitably play a vital role in addressing the economic consequences of our current crisis. It’s a position of huge responsibility to be sure, but I believe that our sector is more than equal to the task. M I www.mortgageintroducer.com

REVIEW

CONVEYANCING

Conveyancers and the pandemic CONVEYANCING DURING A GLOBAL PANDEMIC

Peter Joseph CEO, The Moving Hub

s the pandemic continues to change the world in more ways we could ever have realised, conveyancers have been forced to adapt. The property market has seen a surprising boom as lockdown begins to ease, with many comparing it to the ‘Boris Bounce’ that occurred earlier in the year. While it still remains to be seen exactly how the lockdown will affect the property market in the long-term, one thing is certain: the coronavirus pandemic has shown us just how important it is to be willing to adapt to meet major global changes.

The economy as a whole has been forced to adapt in many ways. Remote work is on a rapid rise, more businesses are turning towards smarter ways of doing things, contactless services are coming to the fore, and consumers are making decisions that are greatly impacted by the pandemic. Long periods in lockdown have caused both consumers and property professionals to look at other ways to navigate the sale and purchase process, leading to more challenges, but also more opportunities for the market. Some of the primary ways that conveyancing has adapted to meet the needs of buyers and sellers during the pandemic include the following: INCREASED FOCUS ON DIGITAL

Although artifical intelligence (AI) is certainly not a new concept, it is fast

Online tools offer the ability to connect property professionals in a way that streamlines transactions

www.mortgageintroducer.com

gaining popularity across the property industry, specifically. Virtual walkthroughs are becoming par for the course, offering buyers the chance to view properties without leaving the safety of home. Machine learning is also making it easier for brokers to use algorithms to quickly and easily find information across various documents while processing data, allowing risk profiles to be created in no time. This is simplifying credit checks significantly, allowing conveyancers to assist buyers and work with brokers more efficiently. The pandemic has given rise to a far more competitive approach, largely due to the increased move towards digital processes. All parties within the property purchase and sale process need to be able to fully embrace the tools, which are themselves becoming more readily available, to provide buyers and sellers with a seamless experience. REMOTE COLLABORATION

With the growth of digitalisation within the property space comes collaboration tools that allow for a more seamless way for brokers to work with estate agents and conveyancers. This goes hand-in-hand with conveyancing panels, maximising the benefits and allowing for a simplified way to handle all aspects of property transactions remotely. Online conveyancing tools already offer the ability to connect property professionals in a way that streamlines the transactions. As remote operations continue to gain traction, in the UK and the rest of the world, collaboration will become even more important for those who are not already making use of remote digital platforms. We at The Moving Hub continue to look forward rather than backwards during this challenging time. By embracing new ways of moving forward, we hope to see a continued growth within the industry, as conveyancers, agents and financial advisers continue to work together throughout the course of the pandemic, and beyond. M I JULY 2020 MORTGAGE INTRODUCER

REVIEW

CONVEYANCING

The time to embrace technology is here Mark Snape managing director, Broker Conveyancing

s I write this, I suspect many advisory firms, and indeed other property market stakeholders, are preparing for a continuation in their remote working arrangements, probably until the start of September at the earliest. While some firms will be able to get certain numbers of staff back into an office environment during the rest of the summer, there may well be an attitude of ‘if it ain’t broke, don’t fix it’, given how well firms have been able to cope with the move away from a fullyfunctioning office environment. SECOND WAVE

I’ve heard of firms suggesting that they will return to offices when schools go back. That seems to make sense, as long as we are sure of our ability to provide a safe environment for staff, and if there are no signs of that dreaded second wave. Lenders, distributors, packagers, and conveyancers are all in the same boat, and there is a lot to be said for the relatively smooth way in which the entire property industry has coped with the move away from the office during the pandemic. This was not something that the sector had weeks to prepare for, and there will have been some very stressed IT departments during this period which have nevertheless excelled in the delivery of ‘business as usual’ away from the office. That said, despite all the Zoom and Teams meetings, and the greater use of technology in general, there is still a lot to be said for the delivery of face-toface advice.

MORTGAGE INTRODUCER JULY 2020

Indeed, while we have been fortunate as a sector not to have been closed down completely, there was bound to be an element of the adviser-client relationship lost because of the inability to meet in person. I read some research into this from FundsNetwork recently which, although ostensibly focusing on independent financial advisers (IFAs), was also pertinent to advisers in any financial sector. It asked advisers what had been their biggest challenge through lockdown and 51% replied ‘working remotely with clients’. Three in 10 said they had struggled because of their ‘reliance on paperbased documents’, but it was also informative to hear that many now feel they are on top of this, and that moving forward, they anticipate that many of the newfound ways of working are likely here to stay. For instance, face-to-face factfinding is expected to drop by over half, from 87% to 47%, while 34% of respondents expect to carry out online factfinding, up from just 7% pre-pandemic. In that sense, it appears to me that a balance will need to be struck. In what is essentially a relationship business, advisers are going to need to work out which clients are willing and able to function more on a remote level, and which still want the traditional face-toface means of communication. The important point here is about accepting that all clients (and advisers) are different. Some of the latter may, prior to COVID-19, have believed they could only function with the client right there in front of them, but no doubt this will have been dispelled over the course of the last few months. And, of course, while clients may have been more than prepared to communicate online with their adviser, now that we are getting back towards a more traditional working environment,

some may want to see the whites of their adviser’s eyes. The big question, of course, is to what extent are you willing to go back to these traditional methods? How efficient, economic and income-generating is it for you as an adviser to spend the best part of the day in a car, driving to a client who lives half-way across the country? You may well like the face-to-face aspect, but you might have to set limits on what you are willing to do, perhaps even turning the client down if they live a long way away and won’t (or can’t) connect with you online. That is also likely to be a decision employers will have to make about their employees. You may have an adviser you don’t want to lose, but who spends all their life commuting into the office and is at the mercy of the daily traffic situation in terms of what time they get to you. BROADER REACH

Perhaps it will be a much better situation for all if they work remotely and keep visits to the office to a monthly minimum. I think most employers who have never embraced home working and the tech available before COVID-19 are now likely to have had their eyes opened to the possibilities it presents. These possibilities are not just in terms of employee working arrangements, but perhaps the potential broader reach for products and services. If you’ve only ever been a traditional, locally-focused business, that can all change now – your customer base can be anywhere in the country and you should have all the tools at your disposal to be able to service them. In that sense, your ambitions could be broadened, not just in the range of customers you open yourselves up to, but also the products and services you provide, and the way you access them. Conveyancing advice, for example, is available on a plate via distributor platforms like our own, and the system is simplicity itself. Technology has been shown to be such an enabler that it seems a shame not to utilise it all to secure the very fullest of benefits. M I www.mortgageintroducer.com

REVIEW

CONVEYANCING

The market needs a rapid remortgage Steve Goodall CEO, ULS Technology

he shift from office-based working to laptops on the kitchen table as a result of the coronavirus pandemic has been dramatic. Social distancing has forced the kind of technological change in the housing market that under normal circumstances would have taken years. In times of struggle, people often rise to meet challenges and during this period – for as I write we are still in the throes of lockdown – the whole industry’s willingness to adapt has been life affirming. That is not to say that the market is without its pressures – purchase transactions were on hold under the order of government that people must not move home. Remortgages and product transfers have been vital to maintaining broker and lender income streams. Though there are now signs that the purchase market is picking up as quickly as it halted, remortgaging is still going to be vital for us all for the rest of the year. So while I cannot pretend to have predicted this, it is nonetheless welcome that our first broker technological investment this year has been on the remortgage side. Last month we launched our Rapid Remortgage service through our platform DigitalMove, the first feature in our new DigitalMove Plus tier. Its timing is apt, offering digital conveyancing that meets the needs of those transacting post-coronavirus. Remortgages and product transfers are currently the lifeblood for most mortgage advisers, given the reduced www.mortgageintroducer.com

levels of purchase business, so we believe our Rapid Remortgage proposition is very timely. It works by stripping out all of the things that typically cause dragging delays to processing a conveyancing instruction. The system does an initial triage assessment and, where risk is standard, clients are sent a digital Rapid Remortgage Starter Pack through our platform. Once complete and returned, the case is made ready for completion by the end of the following working day. More complex cases, such as short leases and second charges, are filtered out by the system so they can be given further attention. HUGE IMPROVEMENT

The difference it makes is huge. The first 200 instructions we received on general roll-out across the market saw a substantial improvement in turnaround times. Several cases were completionready in less than three hours. By mid-June, the average completion was taking as little as 10 working days. This is certainly the right solution for its time – digital handling removes the need for physical contact and the movement of documents.

No more dragging delays...

Digital storage and exchange also makes it fast and secure, and the speed it delivers is a big attraction for those of us who know that the number of cases you can process drives income. I speak to network heads regularly who admit that the number of advisers is restricting their growth – more advisers means more cases processed, which means money through the doors of the business. The current situation has reminded us all, rather sharply, that cash flow is still king. The fact that our tool is also available for cashback and fixed-fee cases, as well as standard remortgages, is a real plus, providing advisers with the opportunity to earn income and delight a wide spectrum of clients. While I pride myself on our ability to turn cases around quickly, even without the Rapid Remortgage service being used, I’m also realistic about the fact that, more often than not, it’s delays to conveyancing that hold up a transaction. I can just see readers rolling their eyes. Well, yes, conveyancing does often hold up transactions. Sometimes, it’s for a very good reason. Our job is to provide assurance that the risk in a deal is what it portends to be, and that gives both lenders and homeowners the knowledge they need to make an informed decision on whether to lend and whether to borrow. But while that may be the case for conveyancing on more complex properties, there remains a real problem in the broader market, in that some firms are just not delivering simple conveyancing needs fast enough. Our Rapid Remortgage, however, is supported by some of the most respected names in the conveyancing business, such as O’Neill Patient, PLS, Gorvins and LPL. With these partners as an integral part of the service, we are confident we can build on this great start at a time when processing cases is critical for all businesses in the property and mortgage markets. We’re pleased that we’ve been able to provide our own technological boost to getting the market back to full health. M I JULY 2020 MORTGAGE INTRODUCER

SPOTLIGHT

IPSWICH BUILDING SOCIETY

A helping hand Mortgage Introducer catches up with Richard Norrington, chief executive of Ipswich Building Society, to find out how the society can help brokers through the COVID crisis and beyond The market has seen a great deal of change

our residential products. I should also point out we’re not just restricted to Suffolk or East Anglia – we’ll lend on properties across England and Wales.

The evolving pandemic saw many operational challenges for the society, as has been the case for all organisations. Firstly, we worked to ensure the safety of our employees, members and suppliers, and to equip staff to work from home where possible. We had to adapt to new working practices and I am sure we are not uncommon in now viewing video conferencing a regular part of our daily routine. Some may question why we did not utilise this sooner! It has certainly cut down on travel and downtime. On the mortgage lending side, there was a lot of uncertainty around house purchases and remortgages. Consumers have been understandably nervous around completing property purchases, unsure of what the market will do. One of the biggest barriers to lending was, of course, the ability of our valuers to conduct physical valuations, which led to restrictions on the type of mortgages we could offer. When the lockdown started to ease, and valuers resumed activity, I am delighted that we were able to return to lending and be one of the few lenders back in the market with a 90% loan-to-value (LTV) offer, which included new-build houses. This has not been without its challenges, however; due to overwhelming demand, we have recently had to withdraw from this market to enable us to process a high volume of applications.

How important are brokers to the Ipswich?

during the COVID-19 crisis. How has the society worked through the changes?

For brokers who are not familiar with the Ipswich, what are your main areas of activity? As we offer expert, manual underwriting, we are able to assist with cases which need an individual view. We consider ‘complex’ cases such as self-build, expat and self-employed to be business as usual. There’s no maximum age limit either, and up to a 40-year term on

MORTGAGE INTRODUCER JULY 2020

Brokers are incredibly important, not just to us but to the mortgage market as a whole. The increased regulation brought about by The Mortgage Market Review (MMR) and Mortgage Credit Directive (MCD) has meant that navigating the mortgage market can be a complex, confusing experience. Intermediaries bring much-needed guidance, clarity and expert assistance to consumers. Over the past few years it has become increasingly evident that there is no one-size-fits-all approach when it comes to placing, or underwriting, a mortgage. Our lending has encompassed a wide range of circumstances and sources of income, where it takes real skill for a broker to fit the right deal and find the right lender for their client. What advice would you give to brokers when introducing business to the Ipswich, about how to work best with the society? For anyone who hasn’t worked with us before, we’d love to get to know you and explain how our lending criteria may assist your clients. We have a fantastic broker support team who will be happy to chat through this, and of course a wealth of information on our website. I think my next piece of advice is industry-wide and doesn’t just relate to the Ipswich: at the start of any enquiry, applicants must ensure they are upfront with you about anything which may be ‘discovered’ later on in the underwriting journey. Lenders would far rather have all the facts to hand at the beginning, to enable them to make an informed decision in principle. Unearthing hidden information later on does not give the best basis for judging the risk involved in lending to that applicant. www.mortgageintroducer.com

SPOTLIGHT

IPSWICH BUILDING SOCIETY

Richard Norrington

What is your take on the property market at present? How do you see the future of the market? There’s plenty of commentators in the property market. without throwing my opinion into the mix! I will say that we have seen a healthy level of interest in both purchase and remortgage cases, which indicates that market confidence is returning, at least in the short-term. I do think we will see a change in what people consider to be essential, with the culture shift to working from home, and also the impact of lockdown for those who have been unable to access a garden or outside space. We are expecting to see more interest in the self-build arena, as people start to look at creative means of achieving their dream house. This is not just limited to brand new projects, but also encompasses renovations, conversations and even knock-down and rebuilds. What is unique about the Ipswich? There’s a combination of things which make us ‘uniquely Ipswich’. Firstly, it’s manual underwriting which makes a real difference to placing a case. Secondly, it’s our ability to look at the complex cases – I have mentioned self-build, expat and self employed, for instance. www.mortgageintroducer.com

Thirdly, it’s how we are able to react and evolve in the face of market change, such as re-entering the 90% LTV space and being able to take furloughed applicants into consideration. One thing which has always proved popular is our widely-offered 50% fee-free overpayments on the majority of deals, which is useful for those applicants who may be expecting bonus payments, inheritance windfalls, or are just wanting added flexibility to reduce their mortgage balance. What plans do you have for the future? What more can we expect to see from the society? I have already hinted at self-build being an area in which we expect to see increased interest, so we are certainly looking at how we can extend our offering there. We’ll also be continuing to keep a keen eye on the market to see where we can improve our products and criteria, working to help intermediaries place cases. Finally, do you have a key message for brokers wanting to use the Ipswich? Get to know us – we offer more than you may think. Our offering spans a wide range of products and our lending criteria is designed to utilise our manual underwriters, who have several years of experience; there’s not much they haven’t seen before! M I JULY 2020 MORTGAGE INTRODUCER

THE OUTLAW

THE MONTH THAT WAS

THE

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

THE THE

AND THE

n existential question to start with this month, folks: are we all just living in some kind of surreal Netflix drama right now? On which point, does anyone remember the TIMELESS Jason and the Argonauts movie featuring the brilliant Peter Ustinov and Honor Blackman as Greek gods who moved humans around on some kind of earthly chessboard purely for their own delectation? Our emergence from lockdown feels like that, doesn’t it? Good news one day (stamp duty concessions) but then we wake up the next day and some fiendish skeletal warriors are trying to knock seven bells out of us, and if we kill them they just sprout up again from the dust. This part of the analogy usually comprises an unhelpful Financial Conduct Authority (FCA) diktat, or HSBC timing you out of 59 minutes’ worth of waiting at 8.59am. In fairness to HSBC, it has been a huge COVID-19 beneficiary and benefactor. Its performance has been particularly impressive, given that it derives 85% of its profits from Asian countries, while its UK mortgage revenues are essentially a global rounding error!

MORTGAGE INTRODUCER JULY 2020

Though its tacit and condoned support for the Chinese authorities (versus the Hong Kong people) might be less of a footnote in the turbulent months to come. Whether we like it or not, China is the fault line along which the business and political worlds are being split. You would think that the ever-prevaricating US presidential candidate Jo Biden would turf out the boorish incompetent that is Trump in November. But I sadly see Trump winning, simply because he’ll frame his entire campaign on the need to downsize China’s global footprint. Perhaps rightly so, whether you like the man or not. I’ll get back to politics (and our avuncular and fairweather PM!) in a moment. In our world, lenders continue to both frustrate and impress, from what I’m hearing. Most critically, several are making far too much of a pig’s ear of it on self-employed applications. Some additional questions are perfectly understandable in this environment, but there seems to be a prevailing assumption in some quarters that the applicant will be significantly worse off come the autumn. Note to lenders: folk who are self-employed are such because they are generally ambitious, resourceful and fleet-footed; they find a way, and unlike the ranks of the employed, they’re often not at the mercy of just a singular employer. Anyhow. Let’s equally dispense some love where it’s due. First, to Mark Lofthouse and his team at Mortgage Brain. These guys have been providing excellent market intelligence and activity trends every week. Their data compilations are first class (as is their customer relationship management system (CRM), The Key) and very helpful for brokers seeking to allay buyers’ fears about where the market is headed. Second, a huge shout-out to Accord, Saffron, and Principality. You may only have entered the 90% loan-to-value (LTV) fray briefly, but your attendance there shames some of the so-called behemoths. Talking of lazy, stubborn titans brings us neatly to the BBC. Some long-overdue change is finally afoot with the appointment of Tim Davie as the director general. The BBC has supposedly had a “good COVID.” In the words of Ricky Tomlinson: “my *ss” it has! For one, it still has that know-all dullard Alan Shearer on its MOTD coverage, but more to the point it continues to patronise us with woke-ist virtue signaling at every juncture. www.mortgageintroducer.com

I’ll address (sensibly and adroitly!) the BLM matter at the bottom. But wasn’t it pathetically predictable that the morning after three people were brutally killed in a park in Reading by an illegal immigrant, the BBC gave that news story three minutes of air time... and Liverpool’s Premiership win 11 minutes. It just doesn’t fit their agenda, does it? One hopes that because Davie was formerly a Treasury bond at the Fulham and Hammersmith council, he’ll finally bring some impartiality and commercial acumen to an organisation that is both bloated and woefully under-accountable to you, the license-payer. Which itself is a seductive segway into our everconsistent entity for being beyond reproach in this monthly diatribe, the FCA. With Andrew Bailey having moved across town to the Bank of England, Christopher Woolard got the role of chief executive on an interim basis. This is the equivalent of Tony Barton getting the Aston Villa job three months before they won the cup with the big ears in 1982. A classic “right time, right place, he’ll do...” appointment. It remains to be seen what soon-to-be permanent boss Nikhil Rathi can bring to the table. Further, the recent ‘reductions’ in the fees paid by mortgage brokers are a mere sideshow, and slightly disingenuous in its format. The Financial Services Compensation Scheme (FSCS) is not, after all, our

Jason and the Argonauts: godly interference

Stamp duty: wite old result, my son

www.mortgageintroducer.com

over-funded regulator. Whilst much (but still bloody not enough!) of the country is back at work, we are all still paying full whack for the FCA’s staff to be sat at home watching Loose Women or 1970s re-runs of Crown Court. You’d love to actually put them in the dock, wouldn’t you! The gods have, however, thrown we Argonauts some potentially good news. Stamp duty is to be temporarily annulled up to half a bar (£500,000 for those of you unfamiliar with Arthur Daley lingo). Now this would be a “wite old result, my son” in the words of Terence the Minder. This article is always written with a 10-day lead time, so I’ll probably have the answer by the time you read it, but one wonders how this speculation will play out with folk presently looking at properties. Will vendors drop the asking prices by the stamp duty equivalent before autumn? Or might the ‘forward guidance’ on this result in prices rising as of today? My own view is that tweaks of this kind should always happen overnight and without any notice. Just get it done. But well done Rishi – another nail in the coffin of Boris (see below) and a feather in your own ultimate leadership cap. In the world of TV and celebrities, the gods wrote us some unique storylines, such as “people who menstruate are called women.” Not my words, but those of esteemed author JK Rowling, who finally made a stand against the countless snowflakes who doubtless sobbed into their fairtrade peace smoothies about such a blatant case of transgenderism. Hey... the Outlaw gets it. We exist today in a “live and let live” world. Quite right too. America’s and our own first amendment equivalent make this monthly piece possible. → JULY 2020 MORTGAGE INTRODUCER

THE OUTLAW

THE MONTH THAT WAS But while in no way chastising such genderwarriors, perhaps their message has gone too far. I mean come on... transgender toilets for primary school children who “don’t want to be one gender or another”? Four authors represented by Ms Rowling’s PR agency have walked out. Choosing which side to take was obviously a close call for the agency as Rowling has sold around 500 million books and the combined sales for the four other over-sensitive authors might be, eeerrrrr, roughly 37. Well done JK... a nice case of expelliarmus snowﬂakes. Expulsions are also overdue in our housing industry. Starting with that numpty (and three-time lockdownbreacher, lest we forget) Robert Jenrick, our alleged Housing Minister. Is it any wonder that young people are protesting so passionately (and admittedly, about ANYTHING!!) when the bloke responsible for making the housing ladder more scalable for first-time buyers is wrapped up in gaudy cash-for-favours scandals. Which brings us ultimately to Boris, and the BLM protests – the two are kind of related. It’s pretty clear that whilst some of our millennials today are too self-entitled, many have legitimate claims of having been disenfranchised by both the government and housing market. For sure, there are inherent prejudices existent in most walks of life, be it on the grounds of race, gender, or religion. But the UK is now arguably the most diverse and tolerant nation in Europe (if you don’t believe me, visit footie matches and certain districts in Madrid, Paris or Rome sometime soon and make your own comparisons… it’s not even close). What doesn’t help is pampered and rent-a-quote brats such as Lewis Hamilton moaning he’ll never “be British enough.” This from a man who spends most of his taxpaying time in Monaco and recently trashed-talked his own hometown of Stevenage for being dull. 2020 will be a year defined by COVID-19. But it will also surely be framed as the century’s Year of Protest. Our young people are angry at the world. But so much of it is by default or proxy, or in some cases just represents a vogue behavior that actually suffocates the worthwhile efforts of those genuinely discriminated against. An example being the nonsense around the rugby anthem Sweet Chariots… which two iconic black rugby players (Martin Offiah and Maggie Alphonso) have suggested needs explaining, but absolutely not scrapping. Boris obviously isn’t wholly at fault for this disorder. But I am now of the opinion that he is a dithering and fairweather operator. An unstatesmanlike cheerleader and basically an after-dinner speaker posing as a politician. The incompetent response by his government to the virus shows that, even in a crisis, the public sector and its command-and-control

MORTGAGE INTRODUCER

JULY 2020

Liverpool: “football means more”?

dogma doesn’t necessarily work well. We need less Big Government, not more. Anyways, rant over... before Peter Ustinov and the gods on Olympus strike me down. Next month we’ll be able to see if the stamp duty concession has indeed impacted on estate agents’ KPIs, as well as taking Prince Andrew’s temperature as his denials come under renewed scrutiny. And hey, July also heralds a product transfer feeding frenzy, with over £26bn due for renewal. It could be a real double-bubble month on both purchases and refinances. And hopefully, UEFA will have grown a pair and will dismiss Manchester City’s ludicrous appeal over financial fair play abuses. And just maybe, the scousers will have stopped growing? For, whilst a crowded beach at Bournemouth came to symbolise a societal meltdown, the setting alight of the Liver building was greeted purely with pathetic tummy-tickling and a nauseous cod romanticism. Then again, despite being a club that had won virtually nothing before the mid-1960s, we are all invited to accept that football “means more to them.” Hhhmmm… responses on a postcard please, from supporters of the other 91 league clubs, and indeed the thousands who trek to Whitehaven or Kidderminster to watch their local team. I’ll be seeing you. M I

YOU’LL NEVER WALK ALONE hear the end of it! www.mortgageintroducer.com

WEâ&#x20AC;&#x2122;RE MOVING UP IN THE WORLD

NOMIN ATIONS ARE NOW OPEN!

NOMINATE YOURSELF TODAY TO GUARANTEE YOUR PLACE ON THE LONG LIST! W W W. S F I AWA R D S . C O . U K

I N A S S O C I AT I O N W I T H

PANEL

COVER

THE FUTURE OF SPECIALIST LENDING Jessica Bird covers the key points raised at Mortgage Introducer’s recent round table, sponsored by Foundation Home Loans, which looked at the future of the specialist lending market

hether providing borrowers with mortgage payment holidays, businesses with government-backed loans, or brokers and advisers with guidance and support, specialist lenders have been at the centre of the eﬀorts for survival and recovery during the COVID-19 crisis. In turn, the crisis has reshaped and complicated the prospects and history of the average borrower, leaving few unaﬀected. Will these developments pull specialist lending into the fore, in the place of high street banks? And what is the future of the specialist sector when the market emerges into a ‘new normal’? Mortgage Introducer’s Robyn Hall sat down with Foundation Home Loans, Sesame Bankhall Group, The Buy To Let Broker, Dynamo, Movin Legal, The Lending Channel and the Association of Mortgage Intermediaries (AMI) to find out. THE PROBLEM WITH PAYMENT HOLIDAYS Few would suggest that mortgage payment holidays should not have been implemented; they have been

Need a home for your specialist mortgage cases? Solution Found. 44

MORTGAGE INTRODUCER

JULY 2020

widely received as a necessary step to curb some of the financial impacts of the current crisis, and recent research by the Building Societies Association (BSA) shows that 90% of beneficiaries have found them to be useful. However, bodies such as Citizens Advice have voiced concerns about the financial cliff-edge that will likely follow the eventual end of the deferral period. Research by Money.co.uk and Koodoo found that the average cost of a three-month mortgage holiday is £665.08, rising to £1,331.95 for six-month deferrals. Other commentators have warned that early mishandling of the optics, not least the use of the term ‘holiday’, started many borrowers off on the wrong foot. Ying Tan, founder and chief executive at Dynamo, says: “It’s well recorded that the government encouraged mortgage payment holidays. A lot of people jumped on that bandwagon and a lot of people took [holidays] that didn’t need to. “That in itself will pose a problem; whilst the government has said it won’t affect the credit profile of the customer, lenders have to take it into consideration.

foundationforintermediaries.co.uk

www.mortgageintroducer.com

PANEL

COVER “If you’re going to lend money to somebody, you have to be sure they can keep their payments up.” In addition, Robert Sinclair, chief executive at the AMI, highlights recent guidance by the Prudential Regulation Authority (PRA) on the subject of the selfcertified payment deferrals, which advised lenders not to probe into borrowers’ circumstances, and instead to make general assumptions. Hans Geberbauer, chief executive at Foundation Home Loans, is critical of this guidance: “As an industry 10 years into [the Mortgages and Home Finance: Conduct of Business Sourcebook (MCOB)], to be told to just not look too hard goes against all of our instincts. “We can all complain about the regulations, [but] MCOB successfully addressed the criteria race to the bottom. We won’t take that cue [from the PRA].” Geberbauer adds that the introduction of payment deferrals was an unprecedented move in ways that could reach far beyond the direct impact on consumers and lenders. He says: “It was quite a dramatic action for the government to go out there and tell people not to bother fulfilling their contracts for a while. “I was quite concerned that there might be a longerterm damage here to the credibility of the UK in terms of the legal framework it provides, which historically of course is incredibly highly regarded, but it looks like so far people have taken a benign view, which is great.” THE WORST IS STILL TO COME Just as there is likely to be fallout when consumers are no longer able to rely on mortgage payment deferrals and have to face additional cost ramifications they might not have entirely understood when taking what looked to be an appealing option, the cushion created by the government’s furlough scheme will likely leave a lot wanting when it ends.

“It’s important to have this range of players, because even the regulated non-bank lenders have a diﬀerent capital regime from the FCA than the deposittakers have from the PRA” HANS GEBERBAUER

The home of flexibility for Portfolio Landlord cases www.mortgageintroducer.com

“Whilst there’s lots of cautious optimism, we mustn’t lose sight of the fact that there’s going to be tough times ahead and that will have further impact on the specialist lending market” YING TAN “The biggest challenge for the industry, and indeed the wider market as a whole, is what’s going to happen in autumn,” says Tan. “The world stood still for three months; whilst there’s lots of cautious optimism, we mustn’t lose sight of the fact that there’s going to be tough times ahead, and that will have further impact on the specialist lending market.” Stephanie Charman, specialist lending relationship manager at Sesame Bankhall Group, adds: “We just don’t know what consumers will need and want, in whatever a post-COVID future looks like. Wants and needs might look very diﬀerent in 24 months.” The silver lining is that the complications following the end of these schemes could create further opportunities for the specialist sector to rise in prominence. Matthew Rowne, director of The Buy To Let Broker, says: “Specialist advice is becoming more and more important. Specialist lenders have the advantage of having the experienced underwriters that can take a view on a case-by-case scenario, whereas computer system generated lenders will struggle in that area.” This will bode well as the ramifications of the current crisis continue to unfold, he adds: “Brokers will just have to become better than before, and lenders will have to become more agile; and it’s specialist lenders that have the means to do that, really.” MOVING OFF THE HIGH STREET By 19 June, 1.9 million mortgage payment deferrals had been granted in the UK, according to UK Finance, while lenders such as The West Brom have provided more than 5,000 to their own customers alone. It is therefore likely to become the norm, rather than the exception, for prospective borrowers to have periods of furlough, redundancy, or payment deferrals on their docket. →

foundationforintermediaries.co.uk

JULY 2020

MORTGAGE INTRODUCER

PANEL

COVER

“The opportunity just now for innovation and creativity is there. As brokers and lenders, we need to be geared up and ready to catch it as it lands” ALISTAIR EWING Rowne says: “What you’ll probably find in something like this is that people’s behavioural patterns change as the economics change – that what was considered specialist will actually become mainstream.” However, this shift towards a greater need for complex case-by-case analysis does not mean a direct change where specialist lending supplants the mainstream banks. It is, ultimately, a matter of funding, says Geberbauer: “We may see some of the deposit-taking specialist lenders, depending on what schemes are made available, occasionally dip into the very prime residential market … but generally speaking that won’t really be an option because banks will have plenty of liquidity, in fact a lot of liquidity they’ll need to put to work in the UK.” Nevertheless, there will likely be more fluid movement of borrowers between the mainstream and specialist markets. As with many issues during a crisis, it is a case of waiting to see how the various factors play out. “It’s a little too early to say. Criteria are changing rapidly, and lenders are having to adapt on a daily basis,” says Charman. “Also, lenders are still working through [the] pipeline, so that’s having some impact.” On the subject of whether mainstream lenders will have to turn increasing numbers of prospective borrowers away, she asks: “[They are] not so much today, but what does that look like as we start to move through, and as some of those unemployment figures really start to come to the fore?” THE HUMAN TOUCH Regardless of whether specialist lending might in theory replace the traditional high street model, the fact remains that having a human underwriting process sets this sector apart, especially now. Charman says: “[It is] about the ability to have a common-sense and plausible approach to how you

The home of no limits on portfolio size 46

MORTGAGE INTRODUCER

JULY 2020

underwrite, and that’s what we’re going to need to be able to see. “The ability of a broker and advisers just to talk to the underwriter and talk that case through, explain the customer’s situation will be key and vital going forward.” Geberbauer adds: “Whichever way this plays out, there will be a lot more people in constrained circumstances, and a lot more people with issues, however they are expressed precisely, on their credit files. “[These people] will still be capable in principle of servicing a mortgage loan safely, but will not fit the criteria of the high street banks. Specialist lenders will be more in demand than they have been even in the last 10 years.” Having a human rather than computer-generated approach to each borrower’s circumstances may well be what allows businesses within the specialist market to emerge strong on the other side of the pandemic. “The important thing in every business in every crisis is this: it’s never the fittest that survive, it’s those that are most able to adapt, the most agile,” Rowne explains. “Those experienced underwriters who have a commercial mind-set will be those that thrive.” Where computer-reliant banks might be forced to take a black and white approach to, say, the subject of payment deferrals, specialist lenders have the advantage of being able to take context, including the borrower’s industry, into account.

“People’s behavioural patterns change as the economics change – what was considered specialist will actually become mainstream” MATTHEW ROWNE For Alistair Ewing, managing director of The Lending Channel, this agility and adaptability has already served the specialist market well in the past. “As an industry, we are really good at reinventing ourselves. The credit crunch proved that back in 2008,” he says. “The causes of this crisis are very diﬀerent, it’s not liquidity issues by any stretch, but we are very good at reinventing ourselves, and the opportunity just

foundationforintermediaries.co.uk

www.mortgageintroducer.com

PANEL

COVER now for innovation and creativity is there. “As brokers and lenders, we need to be geared up and ready to catch it as it lands.” SPECIALIST SUPPORT Specialist lenders have risen to meet the challenges of catering to an increasingly diverse and complex set of borrowers, and will likely have an integral role to play in helping the UK see the other side of the current and future economic downturn. But many in the market have found themselves disappointed with the level of support made available by the government, finding it to have omitted the nonbank sector in its plans for economic recovery, despite the rise in demand. Geberbauer says: “The government is not really doing anything to take the pressure off the specialist lender sector and the non-bank specialists, which are actually quite a sizeable chunk of the lending provision. “The reality is that it’s important to have this range of players, because even the regulated non-bank lenders have a different capital regime from the [Financial Conduct Authority (FCA)] than the deposit-takers have from the PRA. “So, there are elements where we, as only FCAregulated lenders, can be more capital efficient, and therefore service part of the market more efficiently than our bank colleagues, even though we always have higher costs for funds.” THE LANDSCAPE FOR LANDLORDS Despite the restrictions on moving during lockdown, the rental market appears to have remained relatively buoyant throughout this crisis, not least due to pentup demand. Add to this the fact that Halifax found that average house prices fell for three consecutive months, albeit relatively marginally, from £240,461 in February to £237,808 in May, and this could be an ideal time for landlords to expand their portfolios. John Ahmed, chief executive of Movin Legal, says: “I think the small-time accidental landlords are being forced out of the market, but the long-term professional landlords will remain and they will hopefully soak up the opportunities. There will be a lot of opportunities to come, that’s for sure.” Ahmed continues: “It’s probably too early to say, what with people coming back from furlough, what will happen to employment, and how that will play out

The home of no business plans or asset and liability statements www.mortgageintroducer.com

[with lending]. But at the minute in the interim bubble, things do really appear to be reasonable enough.” Tan adds: “There are going be some misfortunes out there, which is clearly very sad, and landlords will look at buying properties on the cheap. “Let’s face it, in the current environment, with the stock market volatile, with interest rates at an all-time low, you’re not going to get much from sticking the money in the bank, so buy-to-let [BTL] still is attractive.”

“The ability of a broker and advisers just to talk to the underwriter and talk that case through, explain the customer’s situation, will be key and vital going forward” STEPHANIE CHARMAN However, Sinclair notes that this bubble may burst, especially when considering the proportion of the tenant population working in industries, such as hospitality and travel, that will feel the eﬀects of COVID-19 the most, and for the longest time to come. The Buy To Let Broker has certainly seen high demand over the weeks following the easing of lockdown, with Rowne reporting upwards of 50 enquiries per day on both new business and remortgages. In this push to find opportunities in a time of crisis, anecdotal evidence has shown some portfolio landlords to be taking advantage of government support to raise capital for new purchases. Geberbauer points out that some quick calculations might make this option seem appealing. For example, a landlord who puts their portfolio on payment deferrals might raise £50,000 to £60,000, or even approaching £80,000 over the full six months. Depending on location, this could finance anywhere between one and eight additional properties. Meanwhile, Ewing cites a recent public statement by a Glasgow-based property seller who outlined plans to take Bounce Back Loans out on 12 of his 17 limited companies, amassing £600,000 to use as leverage to buy commercial property. Across the board of panellists, the sense is that, while not necessarily against the letter of the law, →

foundationforintermediaries.co.uk

JULY 2020

MORTGAGE INTRODUCER

PANEL

COVER

“People who manufacture the product and those who distribute it are much closer partners, business partners and longer-term commercial partners now” ROBERT SINCLAIR these outlier cases should be actively discouraged by the industry. Tan says: “It’s clearly not intended for that purpose, and if you speak to a good broker they will veer away from that kind of mentality.” Rowne adds: “We feel very strongly that it’s unethical. It’s certainly out of the spirit of the thing, and in terms of what you’re declaring to get that government assistance, it completely contradicts the picture you’re then trying to paint to the lender in terms of obtaining funds. “It’s not the sort of clients we want long-term, and not the sort of clients we want to be introducing to our lending partners. As brokers, we need to be calling that out, and as lenders we need to be calling that out as well.” Although it is yet to be seen whether legal provisions will be put in place to stop this kind of behaviour, Charman points out that some lenders are already leading the charge in weeding it out. She says: “As advisers, as networks, and as distributors, you have got that moral compass piece. It’s just not ethical. “Either [lenders] won’t accept [the case], or we will quite rightly see lenders asking more questions to landlords who have taken payment deferrals, asking ‘you want to borrow more, where is that coming from, what does your portfolio look like?’ So there will be a couple of extra checks and balances in there.” As a portfolio landlord himself, Ahmed confirms that these questions are already being asked by a number of lenders. THE MORAL IMPERATIVE The need to take an ethical stance is one that has been clearly highlighted during the COVID-19 crisis as a key tenet of the specialist market.

The home of flexible stress testing on background portfolio 48

MORTGAGE INTRODUCER

JULY 2020

Geberbauer says: “One of the positives I take away from this whole very unfortunate situation caused by the pandemic is the astonishing contrast to what we experienced, and indeed what caused the financial crisis, 10 years ago.” Whereas in 2008 lenders and brokers had a role in creating the over-leveraged borrowers that fed into the damage felt by the economy, in this instance the mortgage and specialist lending markets are firmly on the side of the borrower, working constructively towards economic recovery. Geberbauer continues: “It is not just strictly adhering to the rules, but frankly going beyond that and drawing moral lines in the sand. “The way the industry lenders and advisers are acting this time round is in phenomenal contrast with last time, and shows as an industry we’ve learned a lesson here and we’re applying it.” Sinclair adds that the eﬀects of the last crash led to a series of fundamental changes in the industry, which are in turn influencing its performance in the face of present challenges. “Over the last 12 or 13 years, this sector grew an awful lot,” he says. “It became much more professional, by way of much stronger compliance and risk functions in the intermediary sector, never mind the lender sector. “Another part is that we’ve actually become much more of a partnership. People who manufacture the product and those who distribute it are much closer partners, business partners and longer-term commercial partners now.” It remains to be seen how this crisis will aﬀect the ongoing evolution of the market, but it seems safe to say that specialist lending has a core role to play in the welfare of the UK, that is not going to diminish any time soon. M I

“I think the small-time accidental landlords are being forced out of the market, but the long-term professional landlords will remain and they will hopefully soak up the opportunities” JOHN AHMED MI

foundationforintermediaries.co.uk

www.mortgageintroducer.com

Need a home for your specialist mortgage cases? Solution Found.

Just call us on 0344 770 8032 foundationforintermediaries.co.uk

For intermediaries only

LOAN INTRODUCER

SPOTLIGHT

Knowledge is power Loan Introducer talks to Nicola Firth, chief executive of Knowledge Bank, to find out the value of criteria systems

earch engines are often at the forefront when it comes to spotting the latest trends and needs of mortgage brokers and their clients. Loan Introducer catches up with Nicola Firth, chief executive officer of Knowledge Bank, to discover what has been on brokers’ minds during the COVID-19 crisis.

Nicola Firth

What search changes have you seen as a result of the coronavirus? There have been some dramatic changes. In the residential market, searches for COVID-related payment holidays were the most frequent for the whole of March. As the crisis continued, attention shifted to how lenders would handle furloughed workers and the absence of physical valuations. With most lenders reducing maximum loan-to-values (LTVs), this also became a focus. How about the second charge market? In the second charge market, maximum LTV is pretty much always top of broker searches – but even there, we saw searches specifically for COVID-related LTV restrictions take top spot in April. Interestingly in May, we also saw parental leave come into the top five for the first time. Less than three months into lockdown, I don’t think we can attribute this to COVID-19, but if it means couples are spending more time together, who knows? What are some of the trends in the second charge market over the last six months? Debt consolidation is often a source of demand, but people’s changing financial circumstances has perhaps

MORTGAGE INTRODUCER JULY 2020

www.mortgageintroducer.com

Making it personal When you were young, what job did you aspire to as an adult? For many years, I wanted to be a primary school teacher – but doing voluntary work in a primary school put me off completely. I’m used to being able to control the environment to a certain extent and certainly control my workspace, but with primary school children it’s more like managing a box of frogs. Is there something about yourself that people would be surprised to hear? I love to roller-skate. In my spare time I’m happiest on eight wheels. Wherever I go I always take my skates and there’s nothing like the feeling of exploring new places on them. What is the best bit of advice you have ever been given? Someone once said to me, “take the stone out of your shoe” in relation to a business matter and I use that philosophy now in every area of my life. If you have something that is causing you a problem or even just annoying you, you’re far better off stopping to deal with it, then you can carry on without it bothering you. What is your most prized possession (aside from family)? Leaving aside my two black Labradors, who are really family too, then I’d have to say my music collection. There’s never a day goes by that I don’t have music on. I’d struggle to pick my favourite type or era – it depends on my mood – but I do love a bit of eighties.

pushed this higher up in terms of the reasons borrowers are looking to take out a second charge. Going into the crisis, we were seeing a lot of searches relating to county court judgments (CCJs), arrears and defaults, and debt management plans. Perhaps because of the freeze on possessions activity, these have tailed off somewhat; when payment holidays come to an end, this is likely to change. What kind of business do you feel mortgage and second charge brokers are struggling to place at the moment? Borrowers with less equity in their property are always going to struggle in a market where there is such pressure on the top end of the LTV range. Obviously, where one or more members of the household are experiencing disruption to their regular income because of COVID-19, lenders need to establish whether this is temporary or likely to lead to a more permanent reduction. M I www.mortgageintroducer.com

JULY 2020 MORTGAGE INTRODUCER

LOAN INTRODUCER

SECOND OPINION

A downward spiral? Natalie Thomas asks whether the impact of COVID-19 on house prices

hey may not be the ideal solution for homebuyers, but remote valuations and automated valuation models (AVMs) have prevented the mortgage market from grinding to a halt during lockdown. Now that lenders have resumed physical valuations, all eyes are on what impact COVID-19 will have on house prices and subsequent valuations. The Royal Institution of Chartered Surveyors (RICS) has already warned that a recovery in house prices could take around 11 months. Downturns in the mortgage market also usually bring talk of down valuations, with the increased worry that lenders will take an over-cautious approach. While down valuations are never good news for anybody, they can be especially detrimental to those looking to obtain a second charge, as lenders often need a sizeable amount of equity in a property in order to lend.

So, Loan Introducer asks: Are you worried about down valuations? Robert Sinclair chief executive, Association of Mortgage Intermediaries The valuations issue is an interesting one. For properties coming to market now, we are actually seeing higher asking prices than we were prior to lockdown, due to demand still being strong and there being a shortage of properties. Speaking to brokers in the first charge market, we are not hearing a lot of noise about down valuations. In terms of the valuations that have been completed for properties in the pipeline,

MORTGAGE INTRODUCER JULY 2020

we are also not seeing significant down valuations. There are some isolated areas where we have seen some 5% drops, and there has been a little bit of price chipping here and there, but no more than 3-4% in most cases – not a significant fall. We are, however, seeing some issues where valuers are saying they can’t value a property. This could be for a property such as a newly built flat where there has been no comparable in the last six months. In some of these instances, valuations are coming back at £0. This is an issue we are trying to address with valuers. There has always been the odd case where the customer comes in and says the property is worth X and the valuer says no, it’s worth Y – that is not a down valuation, though, rather someone looking at a property realistically. The homeowner might be saying it is worth £500,000 for example, when it is only worth £400,000, but they are trying to get it to £450,000 in order to make the deal work.

Paul McGerrigan chief executive officer, Loan.co.uk While it is obviously a concern, we have yet to experience any significant drop in property valuations. The UK economy has experienced a shockwave like never before. Prior to COVID-19, a single month GDP drop of 20.4% could barely have been conceived – it might have been modelled somewhere based on an alien invasion. While May is expected to show slightly better results, it will still be the second worst month on record for UK economic output. As a result, it will take a monumental effort to restart the economy, and some incredibly

decisive and innovative action from the UK government over the next six to nine months following the Coronavirus Job Retention Scheme (CJRS). As a result, property prices are not going to be increasing in the short-term, that’s for sure. I expect that we will see a degree of caution being exercised by valuers for a period of time, and as a result will experience some level of down valuations. For how long and to what degree this will happen is very hard to say at this point. The more financial stimulus the government undertakes, the quicker the economic recovery will begin, which will in turn ensure that we see healthy and stable property valuations.

Darren Perry head of second charge lending, Brightstar

We are seeing a lot of enquiries for second charge mortgages at the moment, but there are some cases, particularly at higher loan-tovalues (LTVs), which are proving hard to place. Lenders are being more conservative on LTVs and, where valuations are lower than a customer’s expectation, equity can prove a challenge. There is also a pressure on income, as clearly many people have suffered a drop in wages; this may be prolonged, especially in certain sectors like hospitality. The good news is that there are lenders which will take a hands-on approach to understanding a client’s circumstances, and that are still making positive lending decisions where it makes sense to do so. The choice of lender, and the way in which a case is presented, are therefore particularly important in the current environment, and this www.mortgageintroducer.com

LOAN INTRODUCER

SECOND OPINION

and subsequent vaulations is cause for concern

puts even more emphasis on brokers working with partners that have specialist experience and expertise in the second charge sector.

Jason Berry group sales director, Crystal Specialist Finance There is always some concern that down valuations will prevent us delivering the customer outcome we strive for. We have always tried to mitigate this risk by utilising in-house tools which equip us so that indicative valuation amounts are understood before we instruct and incur unnecessary costs for our customers. This internal process is tried and tested, but has certainly been hampered during the recent crisis. I am, however, extremely pleased to say that since 1 June, the physical valuations being returned to us are matching the parameters we have set, and are therefore not affecting the borrower’s ability to take out a second charge mortgage. The current environment does mean that our process is subject to more frequent review.

Tim Wheeldon chief operating officer, Fluent Money We are starting to see some small decreases in expected valuation figures, but nothing dramatic at the moment. Clearly a large fall in house prices would have a significant knock-on effect in the second charge market, but it may be too early to be able to predict the direction of travel of house prices. www.mortgageintroducer.com

Jeﬀrey List director, Specialist Money The matter of down valuations is of course a concern for all brokers and clients. So far, we have been lucky and haven’t seen a large number of down valuations; however, this could of course change moving forward and once updated sales data is reviewed. When first looking at options, it is definitely worth completing due diligence around property values and reviewing the market in the area of the security property; this will help to manage expectations around potential down valuations. The good news is that there are second charge lenders that will potentially look to lend to 100% LTV on a second charge basis, depending on the client’s circumstances, and therefore there are options. However, we would of course make sure this is best advice for the client and that the product works for them.

Steve Walker managing director, Promise Solutions Down valuations are a concern, and one that undoubtedly could lead to borrowers not getting the loan or rate they wanted, or indeed deserve. Valuers are bound to be cautious, but being too cautious will lead to customer detriment if, for example, they have to borrow on a higher LTV plan to get the loan or mortgage that they want. The whole COVID-19 scenario creates a dilemma for brokers, and the best advice

“Valuers are bound to be cautious, but being too cautious will lead to customer detriment if, for example, they have to borrow on a higher LTV plan to get the loan or mortgage they want” Steve Walker

is often to wait until the market improves. However, some borrowers wish to proceed now and over-cautious valuations could result in them getting a poorer deal.

Alistair Ewing owner, The Lending Channel It seems quite early to be talking about down valuations, as since the housing market reopened the pent-up demand that we all expected to come post lockdown is actually happening. So, apart from house purchasers chancing their arm to bag a bargain, I think valuations will stay strong until we have worked through the backlog. By then, the reality of increased job losses as the furlough scheme comes to an end, combined with mortgage and other credit payment holidays, may well have a negative impact on the demand for mortgage finance, which in turn will not help valuations. Therefore, assuming this scenario does drive a drop in valuations, this would have an unwelcome impact on the second charge market. M I JULY 2020

MORTGAGE INTRODUCER

LOAN INTRODUCER

FIRST CHARGE LENDER CONSENT

The need for speed Natalie Thomas considers what can be done to speed up the task of getting first charge lender consent

ne of the things the second charge sector prides itself on is the speed at which it can complete a transaction. Yet there is one clog in the system which often prevents lenders and brokers from moving their cases forward as quickly as they would like, and that is the time it takes to gain consent from the first charge lender for the loan to be added to the mortgage. This delay has been a cause of frustration for lenders and brokers for many years, but has been particularly exacerbated during lockdown – so what can be done to speed it up? WHY SO SLOW? Some of the delays to lenders granting consent can understandably be attributed to staff shortages over the last three months, and first charge lenders shifting focus towards their core business and those borrowers needing payment holidays. Even before lockdown, though, the way in which consent is given was causing brokers headaches. Paul McGerrigan, chief executive officer at Loan. co.uk, says: “Many of the banks and building societies still operate very old fashioned, paper-based processes to instruct and obtain second charge consent. “In the current environment of remote working and a slower than normal postal system, this elongates an already slow and laborious task. “As always, it is the faithful borrower who suffers, having to wait an unacceptable amount of time for their mortgage lender to provide information in a timely fashion.” Jeffrey List, director at Specialist Money, adds that while it is understandable that the process is taking longer in the current climate, it was in fact a problem long before the crisis struck. “The process of obtaining second charge consent from most first charge lenders is archaic and time consuming,” he says. “Many lenders still require the request to be sent by post or fax, with payment being made by cheque. “The process could be made much simpler by either utilising email or creating systems for the request with the fees being paid by debit card, funds transfer or on a system.

MORTGAGE INTRODUCER

JULY 2020

“Lenders, brokers and clients should work together to create a process where all parties are communicating to make the consent process as simple as possible. As a business, we would relish the opportunity to work with lenders to create a slick process.” Jason Berry, group sales director at Crystal Specialist Finance, is another broker frustrated by the process. “There have certainly been increased delays during the crisis,” he says. “The reliance on post and paper contributes to this, but ultimately the even longer turnaround times are caused by bank or lender staff either being furloughed, or simply diverted to other duties. Our team continues to chase second charge consents tenaciously. “When a normal market resumes, the consent process has to be better technologically enabled.” Fiona Hoyle, head of consumer and mortgage finance at the Finance & Leasing Association (FLA), says while first charge lenders do need time to complete their checks, the process is nevertheless still a slow one. “If it was speeded up, this would certainly smooth the process for everyone concerned,” she adds. THE NEED FOR SPEED The speed at which a second charge can be completed is one of its unique selling points, which is why it is important for the sector to have a process which runs smoothly. Mat Elliott, chief development officer at Nivo, says his company’s research shows that speed of application is a critical factor in second charge conversions. Earlier this year, Nivo formed a Technology Steering Committee for lenders in the second charge market. Its aim is to research and discuss ways in which technology can make things easier for consumers and brokers, and to drive up conversion in the second charge sector. “Social distancing has forced organisations to use technology to be more creative in order to get deals done,” says Elliott. “We’ve worked with lenders and brokers to implement things like the digitisation of security checks, passporting of IDs from lenders to conveyancers, and e-signing; all aimed at speeding www.mortgageintroducer.com

LOAN INTRODUCER

FIRST CHARGE LENDER CONSENT things up, removing the need for staff to be in the office, and providing an alternative to physical couriers. “While the pandemic has forced an accelerated adoption of these technology changes, there’s a clear feeling that this more innovative mindset may be here to stay.” McGerrigan feels that the inability to digitally instruct, pay for and receive second mortgage consent is an example of a failure to embrace technology by the mortgage market. “Hundreds of small tasks like this exist within the market that need to be systematically removed and replaced with enhanced, technology-driven solutions,” he says. “A small number of first charge lenders have enhanced their processes and are leading the way toward a much slicker process, but there is still a lot of room for improvement.” Buster Tolfree, commercial director of mortgages at United Trust Bank (UTB), questions why more lenders in the first charge market cannot yet accept electronic payments. He says: “We have seen greater delays in receiving consents back, mainly because many first charge lenders are still using the post for these requests and only accepting cheque payments. “It would be fantastic for these lenders to offer an online solution to their business-to-business peers for this type of communication, and to take payments electronically. At UTB, we embrace fintech and we accept electronic requests and card payments for similar requests across our own mortgage portfolio.” RELUCTANCE TO CHANGE There is no denying that a speedier consent process would make life easier for all involved – so what is stopping lenders? Robert Sinclair, chief executive of the Association of Mortgage Intermediaries (AMI) and Association of Finance Brokers (AFB), suggests that many first charge lenders do not have a desire to speed the service up due to the amount of second charge business they are doing. “Second charge mortgage volumes are such a tiny portion of what first charge lenders do that they are never going to invest any money into the IT to speed things up and make it simpler,” he explains. “Some first charge mortgage processing is still done via fax machines and some are still trying to get connectivity to the sourcing systems, never mind making consent for a second charge simpler. “There are about 100 mortgage lenders out there and I don’t believe digitalising the stuff they are only seeing a handful of transactions on a month is something they are going to prioritise. “Even if you are a big lender, the number of requests you are going to get to do a permission for a second charge is going to be relatively few and far between.” www.mortgageintroducer.com

Nationwide – which has not been singled out by any brokers – is one of the UK’s largest lenders, operating both its Nationwide for Intermediaries brand and its buy-to-let business The Mortgage Works (TMW). A spokesperson for Nationwide says: “Strictly speaking (for Nationwide clients) we do not need to give our consent for second charges as we do not have a restriction registered on the title. “The vast majority of consent requests come from third parties (second charge lenders) via post with the member’s authority attached; these are replied to via white mail. “Requests can come in directly from members via white mail and we reply in the same way.” In terms of the TMW business, the spokesperson adds: “Unlike Nationwide, TMW [does] have a restriction registered on the title, so consent will always be required for any subsequent charge to be registered. The consent process is also paper-based. “At the current time, we do not accept email, but we always keep processes under review.” It is not just first charge lenders, but also the Land Registry that would have a part to play in updating these processes. A spokesperson for the HM Land Registry tells Loan Introducer: “Some second charges require the consent of the first lender before they can be registered, because that lender has placed a restriction on the register. “We understand that this can sometimes be quite a lengthy process negotiated between the first lender and the borrower, or their conveyancer. “We are working with a cross-section of our customers and stakeholders to better understand the challenges they are facing and adjustments we can make to enable the property market to be as effective as possible. “This includes exploring how we can introduce the wider use of electronic signatures and a form to simplify the process of giving consent. We hope these changes may help customers get the consents they need more quickly. “Customers can apply to register a second charge online using the HM Land Registry Business e-services portal, and we will soon be enhancing the registration process with our Digital Registration Service.” The first and second charge sectors have made vast improvements to their digital capabilities over the last few years, but it would seem that still more needs to be done. While first charge lenders continue to prioritise the digitalisation of their core businesses, the second charge market will continue to take a back seat. Positive steps such as Nivo’s steering committee and hopefully an increase in demand for seconds should push the issue closer to the top of lenders’ agendas. But as things stand, it will need an almighty push from the seconds industry to get there. M I JULY 2020

MORTGAGE INTRODUCER

JOIN THE THOUSANDS OF INTERMEDIARIES STREAMING WEBINARS EVERY WEEK!

Stream every webinar on demand + register for upcoming sessions all on our NEW hub. www.mortgageintroducer.com

SPECIALIST FINANCE INTRODUCER INTERVIEW

DEVELOPMENT FINANCE

Look to the past to move forward Ashley Ilsen CEO, Magnet Capital

ne thing I often discuss with colleagues is the use of the term ‘old school’. I like it. I take it as a compliment. I see it as a nod to having learnt and taken heed from past experiences. Most of my colleagues at Magnet Capital, like me, were trained at a previous lender that had been successfully lending for several decades. Our schooling was in the fundamentals of lending: being measured, being considered and being the tortoise and not the hare. If you can balance this with an unparalleled service and a commitment to lend whether the sun is shining or not, then you have the makings of a very successful business. However, over the last decade I’ve admired the transition of the specialist finance industry from ‘old school’ to ‘new school’. There have been many changes in how things are done, and don’t get me wrong, I’m a huge advocate of innovation and finding new ways of doing things. Innovation is one of the key areas that will determine which business will be successful in the coming years, but perhaps as we move into testing times, with undoubtedly choppy waters ahead, we can navigate our way through as an industry by looking to the past. Lending fundamentals are now going to be more important than ever. Cutting corners and taking unwarranted punts on the asset in question is probably the most common fools’ folly I’ve seen in recent years. As lenders, we are all keen to grow our loan books and beat the competition. However, I’ve seen many recent cases where we’ve been asked to push our normal lending parameters to win a deal.

www.mortgageintroducer.com

Whilst we’re undoubtedly committed to servicing our broker partners, it’s the need to ‘chase the market’ that can really hurt lenders. Looking back at the 2008 financial crisis, the worst hit finance businesses were the ones that were happy to take on too much risk and cut too many corners when the sun was shining. This is even more true in the development finance sector, which is inherently a higher-risk style of loan. UNDER PRESSURE

There’s also the factor of top-down pressure, which can lead to errors. Some lenders have large instances of non-utilisation fees. This, coupled with high business overheads, can put the lender under pressure to make risk-based decisions that they wouldn’t normally make. Turning down business because it’s perceived as too high-risk, or has an unflattering return for the business, is always a hard decision to make. My fear at the moment is that there are still lenders which are lending

money on behalf of private investors or institutions making decisions that are not feasible in the current economic climate. One of the only ways to judge the future is by looking to the past. Property markets are intrinsically linked to the economy. The economy, as we know, moves in cycles, and we’re undoubtedly entering a period of great uncertainty and potentially huge economic difficulty. Unfortunately, even the so-called experts are unable to make accurate predictions at the moment. So, as lenders, we need to continue to back our brokers and the consumer. If this means giving up business and taking less risk, then so be it, but as I’ve said before now more than ever is it important to be consistent. There’s a great saying I learnt during my time living in China, which is: ‘crossing the river by feeling the stones’. This idiom about moving forward whilst still being cautious couldn’t be more pertinent to the specialist finance industry today. M I

One of the only ways to judge the future is by looking to the past

JULY 2020 MORTGAGE INTRODUCER

SPECIALIST FINANCE INTRODUCER

MARKET

Opportunity to combat negativity Alex Hammond director, Mortgage Market Alliance

ne of the most challenging things about a culture where we are exposed to so much information and constant rolling news is that it is very difficult for a nuanced message to cut through the noise. People don’t have time to absorb the detail, so information is condensed into digestible soundbites and headlines that never really tell the whole story. And, of course, the more dramatic the headline, the more likely it is to capture attention. Superlatives reign, and so we live in a world where things are declared to be either awesome or awful, while the reality usually lies somewhere in between.

This is a dynamic that we all need to be very conscious of at the moment in the reporting of mortgage market in the consumer press. In the current environment, lenders are taking a more cautious approach to high loan-to-value (LTV) lending, and may be more considered in the way they underwrite self-employed applicants or employees working in particular sectors. This does not mean that every small business owner or employee working in hospitality will have their application rejected, but there is a good chance that people believe this to be the case if they read the headlines. A similar dynamic happened during the recovery from the global financial crisis and following the implementation of the Mortgage Market Review. People read and heard so much about mortgage prisoners that they assumed their circumstances would write

off their chances of securing a new mortgage, or perhaps tried and failed with their high street bank and cut short their search as a result. As was the case then, the one pervading truth is that there are mortgage options for many customers, and the best way for someone to give themselves the best chance of securing one for their circumstances is by talking to an independent professional adviser. As an industry, we were not particularly successful at communicating this message outside of our industry as we emerged from previous crises. We have an opportunity to set that right today. In the coming months, customers will be bombarded with negative headlines. We need to counteract this by communicating clear, positive, but realistic messages about the opportunities that are available, and the power of good advice. M I

BRIDGING

Why are we where we are? Brian Rubins executive chairman, Alternative Bridging

ecent announcements by some short-term lenders confirm there are problems in the marketplace, but new hires and aggressive marketing campaigns indicate the opposite. These messages separate the haves and the have-nots; well-funded lenders continue to lend, while others cannot. Lending is just the distribution of other people’s wealth. The conduits are banks and pension funds, and then those institutions lending to property investors and developers, either directly or through specialised channels. This flow of money for bridging loans would have continued to grow,

MORTGAGE INTRODUCER JULY 2020

but with COVID-19 some of the taps began to be shut off. There are a number of reasons for this. First, fear that the economy and property values would freefall, although so far this has not happened. Second, major lending institutions have their hands full managing existing loan portfolios while reacting to the tsunami of applications for loans by the business community. Meanwhile, existing loans are slow to be repaid and the cash is not circulating as quickly as before. So, what are the solutions? Lessening dependence on the high street banks. Well-funded bridging lenders can fill in until, and after, normality returns. Borrowers can no longer easily organise their own loans, and need assistance. As lenders have become more selective, presentation of the case needs to be more professional. This is

where diligent and experienced brokers succeed and amateurs flounder. Lenders, too, need to more carefully interpret each opportunity. For too long, they have been provided with too little information, and due to time constraints have been unable to request more, so it has been necessary to say no. Now borrowers, brokers and lenders know this approach will not get the loan completed. Lenders need detailed information about the borrower, the property offered as security, the reason for the loan and the exit strategy. This attention to detail will keep brokers’ enquiries on the top of the pile, leading to more acceptances and faster completions. When COVID-19 is just a distant memory, this will still be the best way to do more business. M I www.mortgageintroducer.com

SPECIALIST FINANCE INTRODUCER INTERVIEW

BRIDGING

What does the shape of recovery look like? Michael Dean principal, Avamore Capital

his year is unlikely to be a clear-cut year of two halves; it is more plausible that we will see four different periods. We got off to a relatively good start, following political certainty at the end of 2019 and a long-awaited Brexit agreement almost a month later. There was a short-term uplift in positivity before COVID-19 and the lockdown hit – that was the second phase. We are starting to see signs of a recovery period emerging, and whilst we are quite far off of a completely COVID-free era, we will see a pickup in activity in the months ahead as developers face increasing pressure to complete their sites. Nevertheless, once the market begins to navigate the new normal, we will probably be well into the second half of the year. At this point, a Brexit deadline will be on the horizon and there will be an increasing chance that Britain will end up with a ‘no deal’ agreement at the end of the transition period. Furthermore, the furlough scheme will be coming to an end, and if the result is a notable increase in redundancy, Q4 2020 will bring about a new set of challenges. WHAT ARE THE BIG CHALLENGES OR OPPORTUNITIES?

At the moment, institutional lenders that fund the specialist finance space have much less of a risk appetite. Therefore, as we head into Q3 2020, there will be big opportunities for those willing and able to be involved in the value-add space in specialist finance. Whilst there has been an easing off in terms of the volume of transactions, we www.mortgageintroducer.com

are still seeing relatively strong funding demand for ground-up development projects, those that can step in and support this will prosper this year. In addition, there will be an increasing number of people stuck with unfinished schemes, as development finance providers look to be repaid or have their funding lines scaled back, and so there is a huge opportunity for a lender that supports developers specifically in their 2020 challenges. WHAT SHAPE IS THE RECOVERY GOING TO BE?

The recovery is unlikely to be V-shaped, because of the slow phaseout period and the expected refocus on Brexit towards the end of 2020. Those that are optimistic will predict a U shape, and pessimists will expect it to be L-shaped. Most likely, we’ll see a slow and gradual recovery period as the industry gets to grips with the ‘new normal’. Social distancing measures (even at one metre) are likely to be in place for the foreseeable future, which will further impact development schedules that have already been delayed. There will be difficulties around supply chains and cash flows for everyone, and so it is likely that the market will need to take some time to adjust and scale up on activity. WHICH SECTORS WILL BE HIT HARDEST, AND WHICH WILL RECOVER QUICKEST?

The COVID-19 crisis has accelerated some of the themes that we were already seeing. Retail was on a steady decline and the recent restrictions mean that we may soon consider most A1 retail to be a thing of the past. An interesting space to watch will be restaurant property, which has normally been relatively resilient to economic changes.

Chain companies that can no longer service their debt are likely to go into administration, restaurants within retail property will suffer because of the changes around them and, even in the best locations, restaurants will face challenges if the public do not feel comfortable sitting in a crowded environment once again. Additionally, offices are undergoing a structural change similar to that which we saw with retail around 10 years ago. It is difficult to predict what the longterm impact will be – offices will always be necessary, but the primary function will change from being a place where people work, to a base at which teams will congregate. Office configurations could change, with businesses prioritising private meeting rooms and more break-out space instead of more desks, or we could see a rise in demand for serviced office space on the outskirts of the city, with people preferring to work away from home but not being prepared to return to long train commutes. Finally, the hotel industry may bounce back relatively quickly. Travel, whether within the UK or opened up abroad, is something that many people missed during the lockdown period. A change of scene could be welcomed by most, and there is potential that people may quickly forget about the impacts of COVID-19 from this perspective. WHICH ARE BEST PLACED TO RIDE OUT THE STORM?

Looking at a direct real estate perspective, if home working takes hold it will increase the value of residential real estate further. As ever, location will be key, city centre properties close to amenities will continue to have strong demand, and those in more rural areas with good transport links are likely to become increasingly attractive as fewer people are obliged to always work from their offices. Flats in neighbourhoods which fall outside of these brackets (for example London tube zones 3-5) are the ones which may struggle, being far from the city without the benefit of rural surrounds is not likely to provide the most attractive combination. M I JULY 2020 MORTGAGE INTRODUCER

SPECIALIST FINANCE INTRODUCER

FIBA

Lack of PI options proves a challenge Adam Tyler executive chairman, FIBA

here are many things we wouldn’t think of leaving uninsured; these include our houses, cars, pets and that hopefully not too distant luxury – our foreign travel. It is equally essential that, as brokers, we protect our own business against the an unexpected claim. No one sets out to create a situation that results in this level of dissatisfaction, but there can be factors that are beyond our control. The specialist finance sector covers many types of finance, and regardless of how well we run our businesses and the lack of notifiable events and claims over the years, the appetite among professional indemnity (PI) insurers for our type of risk is falling. Of course it is the same for our residential broker cousins, but the fact remains that a crucial component allowing us to complete business for our clients is getting harder to come by, or being repriced at eye-watering levels. PI covers legal costs and expenses in defence, as well as damages or costs that could be awarded against your firm should the resulting assessment suggest that inadequate advice or service has resulted in a detrimental situation for the client. Are you having difficulty securing PI? Like many others, you may have been faced with the scenario that your incumbent provider is no longer wanting to offer you cover. This has been the case in some of the conversations I have had in recent weeks, and not having access to cover is not only stressful, but also increasingly business limiting. Add into that the fact that whilst holding a business together throughout

MORTGAGE INTRODUCER JULY 2020

the COVID-19 pandemic and subsequent lockdown, the sourcing of a new specialist provider for muchneeded PI cover at the drop of a hat is a step that none of us wants to face at this stage. PI PROVISION

Many principals have already taken the opportunity to assess their provision. Having a wide range of contacts, built up over many years, one of my persistent topics of conversation recently has been around the PI issue. Of course, I have reminded these contacts that membership of the Financial Intermediary and Broker Association (FIBA) offers exceptional value, with dedicated access to the FIBA Block PI, for which we have had plenty of member reports about the positive benefits. These include service excellence, competitive pricing, detailed cover and plain and simple ease of application. We took the time a few years ago to properly assess PI provisions across the industry; it became clear that we

would need to find a partner we could trust, and then design insurance cover from the ground up to ensure it was specifically suitable for commercial and specialist finance brokers. Our partner, The PI Desk, has an impressive track record, with over 20 years’ experience, (during most of which I have known the principal and all of the staff) in the broker insurance markets. It fully understands the requirements and risks at hand. As part of our discussions, we were clear that in order to provide a marketleading PI service, there needed to be exclusive features, such as the ability to take the option of monthly payments, if required, where the premium remains unloaded, as well as the forthcoming ability to apply online with ease. Since its launch early last year, I have received many complimentary comments from large and small brokers alike, who have taken opportunity of the FIBA Block PI Scheme, particularly recently as the PI market has hardened. Members are continuing to feed back that they are pleased to have access to this dedicated service. It more than meets their needs, bringing with it additional benefits that ensure their firms are secure and best placed to come out of the COVID-19 pandemic in a strong and highly competitive position. M I

Getting more from your mortgage club H ow many of us have tapped into a mortgage club in order to get access to ‘exclusive’ products that are not available to the individual adviser sourcing in the normal way? They certainly fulfil a need, because of the collective nature of their structures. The more advisers using clubs increases their buying power, which makes them more valuable to lenders as a tangible business source. For independent brokers, clubs have been a vital resource; they allow the smallest adviser to access lenders and service providers which they would normally have little chance of partnering on their own.

As we enter what we hope is a post-COVID world, there will be a growing need for lenders and advisers to find more efficient ways to interact. Small brokers make up the majority of the market for specialist finance, and will need to demonstrate their ‘whole of market’ credentials to clients. One of the only ways to do that is to show they have full access to that market. With lenders fighting to attract business in an uncertain but still highly competitive sector, mortgage clubs are going to become an increasingly important resource in turbulent times.

www.mortgageintroducer.com

COUNTRY IN CRISIS

FRONTLINE

From the frontline

Iquam nocum amqua pripimpl. Deconsit; ia moveheb atius, escritam nonsu conderf ercesenis vit, qui pro vividem ovehenatam a publii The stories impacting the industry during the coronavirus crisis

Mabby gets on his bike to support the vulnerable

pecialist finance broker Phil Mabb has been ramping up the lockdown miles delivering PPE, visors, food parcels, COVID-19 test kits and oximeter kits to those most in

need. Mabb is part of Bikeshed Community Response - some 1,400 volunteer bikers delivering emergency supplies to those in need during lockdown. The avid biker – an advanced driver with a first aid qualification – covered 1,900 miles in Southern England over 20 days as he carried 25 assignments to do his bit to help support the vulnerable and key workers. Mabb said: “I have never felt so honoured to be able to do my very tiny bit for the benefit of others. “When lockdown began I, like many others, was frustrated being cooped up at home, and with the motorbike riding season upon us, it only exacerbated matters. “Then I came across Bikeshed Community Response and the rest is history. “My longest assignment was 350 miles whilst the best assignment was taking two COVID-19 kits to a couple of people whose results were what they wanted – negative!” Well done Mabby – keep up the good work!

Phoebus raises £2,415 for charity

n the three months since the lockdown started, staff at Solihull tech business Phoebus Software have raised over £2,415 for charity,. The majority of the money raised will go to PSL’s nominated charity Acorn Children’s Hospice based in Selly Oak, Worcester and Walsall. Their fundraising initiatives have involved an online ‘Disco Bingo’, a virtual Grand National sweepstake and a charity raffle. While a brave member of staff also did a fire walk for the charity.

MORTGAGE INTRODUCER

JULY 2020

Poker winnings for the NHS

vid readers will recall that the team at Brilliant Solutions had prepared an online poker tournament for the mortgage industry in support of the NHS. The tournament required no gambling account, no money to be bet or gambled in any way and ran on a smartphone. The tournament is purely for the honour of winning a trophy as well as for industry pride and donations were accepted through the company’s Just Giving site which was set up in aid of NHS Charities Together. The poker raised over £1,500 for the NHS with Matthew Arena, managing director of Brilliant Solutions, confirming that it was a huge success. He said: “So many enjoyed it they have asked for a return next year which we have agreed to do so it’s certainly the start of a new fund raising event.” Well done to everyone involved. www.mortgageintroducer.com

Who is ďŹ ghting your corner? Join your trade body and enjoy the beneďŹ ts... Representation and the voice for your industry Regular information, insight and analysis Factsheets and guides on industry issues Technical helpdesk for support and advice Events, networking and professional development

Find out more www.a-m-i.org.uk 01908 847021 info@a-m-i.org.uk