20 minute read
Loan Introducer
Tackling the issues
Loan Introducer catches up with Robert Sinclair, chief executive of the Association of Mortgage Intermediaries and Association of Finance Brokers, to get his take on the COVID–19 crisis and what it will mean for the second charge mortgage market
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How has the second charge mortgage market
coped with the COVID-19 crisis so far?
Clearly the issue with valuations has had an impact on the market, particularly for higher loan-to-value ratio (LTV) borrowing. As the market finds new ways to deliver valuations, we hope this will improve. Product availability is always difficult when financial markets are stressed, but there has never been a time when advice is more important. Helping consumers be well advised on the options open to them, by way of support as well as product availability, is at the heart of maintaining market credibility.
What will the long-term impact of the crisis be?
With any major economic and market dislocation, there is always the risk that firms may not survive the transition to the new normal. All previous downturns have seen a loss of firms and advice capacity. It is too early to tell how significant that loss might be on this occasion; however, government is intervening in a way never seen before to help both individuals and firms survive the near-term impacts of COVID-19. The need for a vibrant and effective mortgage and housing market is at the heart of any effective forward-looking UK economy.
Will the crisis be more harmful than the 2008 credit crunch?
This is a very different circumstance. There, we had significant capital and, more importantly, liquidity issues that were long lasting. We had a very long restructuring phase that took years. I do not think
Robert Sinclair
AMI update
How has COVID-19 impacted AMI?
AMI moved to home working before lockdown in order to ensure that all the team were kept as safe as possible. We already had technology that enabled us to work fl exibly, but we have been using Teams to talk daily and Zoom to connect regularly with our board and other working groups. So, it has been business as usual, without the face-to-face activity with regulators that we usually have. We have been issuing help and guidance to fi rms at an unprecedented level.
What are your members’ main concerns?
Members main concerns are about keeping the property market going and ensuring that it is a priority for government. We want to ensure that lenders evolve out of crisis management towards working in partnership with the intermediary market to deliver the best solutions.
Are you worried about your membership numbers?
We have seen very few fi rms suspend membership so far. Those that have furloughed members of staff have cancelled with a commitment to return in better times, recognising that we are still fi ghting their corner. We are working to lobby on issues that matter most to fi rms so their voice is heard.
that governments can let this re-alignment take anywhere near as long. However, the natural fears of people perhaps not wanting to return to work remains a major issue that we need to factor into thinking.
Are the challenges the second charge market faces diff erent to the fi rst charge market?
The regulator is hardening its view that this is a unifi ed regulated mortgage market, and there are negligible diff erences between how customers should be treated. Margins in the fi rst charge market continue to be exceptionally narrow, therefore the second charge market with better margins could be attractive to investors. The main issue will be around what happens to property values, and a much more diffi cult area to asses will be unemployment.
What is your advice for second charge mortgage brokers?
Know your lenders, products and be adaptable. Listen to customers and be aware of all the solutions that might be out there, not just seconds. If you cannot help, refer to someone who can and take a share of any income. Operating on what is happening now rather than waiting for a diff erent future is essential. M I
Adapt and survive
From rate changes to lenders pulling products altogether, the last month or so has been a whirlwind for the fi nance industry, and the second charge mortgage market is no exception.
Brokers and lenders have all had to think on their feet at times, often making diffi cult and signifi cant business decisions under highly stressful circumstances.
So, Loan Introducer asks: “How has your business adapted to the coronavirus crisis?”
Rob Barnard
director of intermediaries, Masthaven
Masthaven has made a smooth transition to remote working in response to the COVID-19 crisis. All Masthaven colleagues have been set up with the devices they need to work from home, and we are making good use of digital platforms to stay connected.
We are using automated valuation models (AVMs) and drive-by valuations to replace physical valuations for as many of our products as we can. On the customer service side, we have created an online application for mortgage payment holidays and increased the number of team members taking customer calls.
Masthaven remains open for business in the second charge market. We are continuing to work with our intermediary partners to ensure our second charge customers can access the fi nance they need.
We are constantly assessing how the market is changing. At the time of writing, Masthaven has made just one set of product changes and our second charge rates have remained the same.
This is a very challenging period in which to be operating, and we know that there is some way to go yet. Nevertheless, we remain committed to our customers and our intermediaries, and will do everything we can to continue to support them.
Jeff rey List
director, Specialist Money
Like most, if not all brokers, we quickly moved to close the offi ce and allow for social distancing, with the team working remotely from their homes.
When setting up our systems and deciding on which technology partners we would adopt, we had factored the need for the team to be able to work remotely and securely.
The move to working from home hasn’t had a huge impact on the way we work, other than the fact that the team are not immediately available to bounce ideas off one another, although the use of Zoom and other apps has defi nitely helped.
Seeing lenders remove products and change criteria has of course had an impact on both new and pipeline business; however, as a business we completely understand why these measures must be taken.
The good news is that we are slowly seeing the number of restrictions being relaxed; the key for the team has been to manage client expectation and to keep all involved parties up to date as situations change.
Anna Bennett
marketing director, Positive Lending
a section of our staff , whilst being mindful of maintaining service levels in the various teams across the business.
Since our initial furlough, we have subsequently brought back some members of the team, as we have experienced more enquiries and cases than anticipated. At this point, we are working hard to support both brokers and their clients in what is a particularly tricky specialist lending landscape.
This necessitates more calls with lenders on their criteria and appetite to lend, and more understanding of changes across the legal and valuation environment.
Most importantly, we need to ensure good communication with all. We are helping brokers, and we are closing loans.
Over the next few weeks, the lending landscape will no doubt change again. We have tentatively begun planning for a new way of working, which will no doubt include social distancing for the foreseeable future. It’s incredibly important for us to remain fl exible in the face of change.
As they say, everything changes but everything stays the same. We will continue to adapt while making sure we provide brokers with the best specialist loan outcomes available for their clients.
Buster Tolfree
commercial director – mortgages, United Trust Bank
Like the rest of the fi nance market, Positive had to react and adapt quickly in response to COVID-19. The fi rst steps we took were to protect our staff , and this meant enabling them to work eff ectively from their homes. Luckily, many of our systems were cloudbased and tested through our Disaster Recovery Plan.
At the onset, with business levels predicted to decrease, we took the decision to furlough United Trust Bank (UTB) has had to adapt like most businesses as a result of COVID-19. Around 90% of the bank’s staff are working remotely on any given working day, and we are continuing to lend across all divisions.
From my own perspective on the changes within the mortgages and bridging division, there are a few which have been extremely signifi cant. For example, we have
Adapt and survive
expanded the use of the UTB Nivo App to include security checks alongside the Biometric ID that we launched at the back end of 2019.
Being able to use our secure chat app to exchange information with brokers and customers has been very valuable, and the mortgage journey is now entirely paperless. Increased use of automated valuation models (AVMs) has enabled us to progress and complete cases when physical inspections are unavailable or don’t suit the customer’s timescale.
One recent bridging case progressed from Decision In Principle to completion in six working days, and that wouldn’t have been possible without the introduction of the Fintech the bank is now using all the time.
Social distancing has of course driven us to adapt the level and style of interaction we’re having with our introducers. I am very mindful of the huge change in the lender and product landscape, and we have worked very hard on keeping our communication transparent and regular.
Our sales and underwriting team are using Zoom like it’s going out of fashion, but the feedback we’re getting from our broker partners has been extremely positive, so we must be doing something right.
Alistair Ewing
owner, The Lending Channel
I think we have adapted well to the home working environment – but that’s not the same as enjoying it.
We have taken advantage of as much government help as is available, including furloughing two-thirds of my team. With one person manning the office and everyone else working from home, we do have all the technology we need, but while we can function very well, it’s just not the same as having the whole team in one office. Business levels have dropped considerably, and with the various restrictions in place just now, it has become much more difficult to place many clients.
This is due to a variety of factors: mortgage payment holidays, furloughed clients, lack of physical valuations causing issues at higher loan-to-value ratios (LTVs), and lenders exiting the market. But we are still getting lending offers out and deals are still being funded, so we must thank the banks that have adapted and remained in play.
Paul McGerrigan
chief executive officer, Loan.co.uk
Our capability to service our clients is exactly the same as it was before lockdown. Once lockdown appeared likely we mobilised, and our teams were working from home a week before the restrictions were imposed.
On The Money’s platform Signature allowed for us to do this. It’s cloud-based and has a number of features, such as a fully built-in telephone system, full online fact find, a fully automated decision engine linked to the credit reference agencies and land registry, auto-document production, a compliance module, finance module, workflow management system, email and SMS system. Essentially, it runs the business for us.
Because it is set up to service mortgages, seconds, bridging and unsecured lending, there is no impact on the products we are able to service.
Also, as it is structured in a hierarchical fashion, our advisers can only see their own cases, managers can see all their teams’ cases and senior managers can see the whole business, as can our compliance team.
The finance and compliance teams can access all of the information they need
to manage the business compliantly and commercially from home, so everyone can work as normal.
Alongside Signature we use Teams to communicate via instant messaging, as well as calls and video calls to keep everyone in touch and feeling part of the team. Our active advisers are diligently working from home providing our brokers and their clients with the same excellent service.
Gavin Seaholme
head of sales at Shawbrook Bank
We moved into a remote environment practically overnight, with access to all relevant systems, platforms and communications tools. Given Shawbrook’s size, this is really quite something.
As far as problems go we’ve had relatively few, and consequently our brokers have felt no real adverse effects in terms of the process of dealing with Shawbrook.
Clearly, there have been some challenges outside of our control that have had an impact, such as those presented by the inability to carry out physical valuation inspections, but we have successfully worked with our brokers to find quick and sensible solutions to get us through the short-term. M I
Looking at the long- term
Natalie Thomas looks beyond the COVID-19 crisis and asks what impact it will have on the seconds market
It is hard to believe that just a few months ago the second charge industry was celebrating the best 12 months it had experienced since 2008.
No sooner had the Finance & Leasing Association (FLA) released its fi gures for 2019 than disaster struck.
Like the rest of the world, the sector has been catapulted into chaos due to the COVID-19 pandemic.
Almost overnight and with little warning, fi rms have come to face the overwhelming task of having to furlough staff and implement emergency measures to ensure not only the survival of their businesses, but of staff members also.
Just when the sector seemed to be coming into its own, no one could have foreseen the events of the last few months, or indeed guarded against them.
So, what impact will the pandemic have on the long-term health of the market?
ENTERING THE UNKNOWN
Unlike previous downturns, there is nothing to compare or judge the current crisis against.
No number of economic forecasts or indices can accurately predict how long this downturn will last or how hard it will be, because the market has never known anything like it.
Buster Tolfree, commercial director of mortgages at United Trust Bank (UTB), says: “The impacts are likely to be signifi cant and longstanding for the fi nancial services industry, the economy, the property market and society as a whole.
“I suspect that we are yet to fully understand these impacts given we’re only a month into the lockdown and there’s no one on the planet with prior experience of this scale or seriousness of a pandemic and the resulting economic disruption it is causing.
“In terms of second charges specifi cally, we have already seen non-retail bank lenders eff ectively exit the market and many brokers place staff on furlough.
“The recovery time should hopefully be quicker than the credit crunch in 2008, but it will not be overnight.”
As Tolfree highlights, one of the main problems the second charge market faces is the nature of some of the main lending institutions.
Alistair Ewing, managing director of The Lending Channel, says: “While the banks are much better capitalised and regulated now than they ever were before, many second charge lenders don’t have the luxury of being balance sheet lenders.
“A number of these lenders have to depend on the wholesale funded markets and it is already proving diffi cult for some to access capital, hence they have temporarily withdrawn from new business.”
According to Paul McGerrigan, chief executive offi cer at Loan.co.uk, even those lenders which have supported the second charge mortgage industry for decades have had no option but to close their doors to new business.
“Other lenders have found controlled and responsible ways to reduce their lending volumes, but are off ering a vastly reduced range of options,” he says.
“It’s an important time for the industry to pull together and get through.”
The FLA is calling on the government and the Bank of England to take urgent action to support the non-bank lending market.
Non-bank lenders rely heavily on the capital markets and bank funding, but these have essentially been closed to them, says the trade body.
As well as the lack of funding, lenders are also having to tackle the huge cashflow drain from forbearance measures.
“It has certainly been a challenging time for lenders,” says Fiona Hoyle, head of consumer and mortgage fi nance at the FLA.
“Forbearance requests across all of our markets were very high in mid-March, but had levelled off by the end of that month as lenders quickly responded with measures to help their customers.
“However, we anticipate more customers may be seeking assistance over the next few weeks as their circumstances change.
“Our priority at this point is making the case to government that non-bank lenders are an important part of the fi nancial services landscape and should have the access to funding that will allow them to continue to provide forbearance, but also to continue lending to help the UK’s economic recovery.”
STILL OPEN FOR BUSINESS
Once the market does start to recover, there is a strong likelihood that demand for second charges and other forms of fi nance will increase, given the
Looking at the long- term
fi nancial strain the COVID-19 crisis will put on many borrowers’ fi nances.
“There are still plenty of people looking to borrow money,” says McGerrigan. “The current situation has given lots of people more time to look at their fi nances and more time to consider their options.
“For others, there has been a stark realisation that they are servicing too much unsecured debt that they are never going to be in a position to pay back.
“And then there are peoples’ homes – having now been forced to spend more time in them, everyone has realised there is lots of work that needs done.”
Gavin Seaholme, head of sales at Shawbrook Bank, is already seeing a greater demand for debt consolidation, as people look to reduce outgoings and make monthly payments more manageable.
“The seconds space will perhaps be one that will feel a bounce more than other markets in the coming months as borrowers’ circumstances change,” he says.
However, what looked like a good candidate for a second charge mortgage at the beginning of the year understandably might not now, given the uncertainty over many borrowers’ jobs.
“Lenders are trying to assess borrowers’ creditworthiness with unknowns they have not experienced before,” McGerrigan warns.
Anna Bennett, marketing director at Positive Lending, says lenders are understandably more cautious than before the outbreak.
“Currently, we are arranging loans for borrowers up to 80% [loan-to-value (LTV)], while some lenders are off ering automated valuation models [AVMs] up to 70% LTV,” she says.
“There is less product choice, but loans are being arranged; typically for debt consolidation, home improvements, gifted deposits, buy-to-let purchase and the payment of tax bills.”
Even though a number of lenders have withdrawn, the market is still open for business.
“The good news is that lenders have continued to fund during the pandemic, albeit at greatly reduced levels,” says Jeff rey List, director of Specialist Money.
“I believe it will take at least six to 12 months before we see any form of normality resumed. While business volume may be down for some time, in the main this will be due to the way lenders access funds and the fact that it will take a while for product criteria restrictions to be lifted.”
The market could also be hindered by falling house prices – something which could impact how much clients can borrow. Indeed, Savills projects that house prices could fall between 5% and 10% in the short-term.
“We will defi nitely need to keep an eye on property values and how this could impact the levels to which clients are looking to borrow,” says List.
A NEW NORMAL
So what will ‘business as usual’ look like when the market does return to some kind of normality?
“My best guess is that it will be next year before origination volumes get back to pre-COVID-19 levels, and it’s likely there will be some fi rms which exit the sector entirely or change their models signifi cantly upon re-entry,” says Tolfree.
“UTB’s investment in technology, our incredibly resilient staff and our desire to keep serving our broker partners will see us through this crisis and come out even stronger on the other side,” he adds.
Indeed, aside from funding, investment in technology may well prove to be the make or break factor for many fi rms.
Technology has been the key to survival for many during the crisis, allowing them to continue trading. There can now surely be no argument as to the vital role it can play in aiding fi rms.
With so many staff working from home, some companies may also start to question the merits of having a large workforce fi lling up expensive offi ce space when they can evidently work eff ectively on a remote basis.
For others, the switch to home working will have highlighted any gaps or fl aws they may have in their online or technical capabilities, forcing them to revaluate their strategy.
M I ON A STRONG FOOTING
The COVID-19 crisis is still unfolding, and the full repercussions may not be evident for some time. There will no doubt be some hard and heartbreaking decisions for fi rms to make in the coming months.
As the market enters into these uncertain times, however, it does so on a strong footing. The sector showed its resilience during the 2008 credit crisis, and has built itself into a robust regulated entity.
Business volumes were confi dently growing just a few months ago, and there is no reason to think this cannot happen again in the not too distant future.
While the crisis has highlighted the importance of technology, it has also brought to the forefront the need for human contact and personal advice.
Over the coming months, clients will be looking for reassurance, a friendly adviser at the end of a telephone line, and someone to help with their fi nancial concerns.
Advice and advisers are needed now more than ever – as are fl exible fi nance solutions.
Although a cloud of uncertainty might currently hover over the specialist lending space, demand for second charges will remain, if not increase, and the sector will prosper once more.
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