November 2019
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simple If you find yourself with complex cases to answer, InterBay Commercial could have the simple solutions you need. We work in partnership with our brokers, offering them: Flexible criteria Manual underwriting to assess each case individually An expert team of sales, underwriting, completions and real estate Experience in lending against a wide range of property types
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MORTGAGE November 2019 ÂŁ5.00
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Page 64 NATWEST BUY-TO-LET ROUND TABLE
Changing Snape Mark Snape on the evolution of Broker Conveyancing
ROBERT SINCLAIR For For For For For intermediary intermediary For intermediary intermediary intermediary intermediary use use use use use only only use only only only only
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HOF: EXTINCTION ROB-ELLION
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Publishing Editor Robyn Hall Robyn@mortgageintroducer.com @RobynHall Managing Editor Ryan Fowler Ryan@mortgageintroducer.com @RyanFowlerMI Deputy Editor Jessica Nangle Jessica@mortgageintroducer.com News Editor Ryan Bembridge RyanB@mortgageintroducer.com Reporter Michael Lloyd Michael@mortgageintroducer.com Editorial Director Nia Williams Nia@mortgageintroducer.com @mortgagechat Commercial Director Matt Bond Matt@mortgageintroducer.com Advertising Sales Executive Tolu Akinnugba Tolu@mortgageintroducer.com Campaign Manager Joanna Cooney joanna@mortgageintroducer.com Production Editor Felix Blakeston Felix@mortgageintroducer.com Head of Marketing Robyn Ashman RobynA@mortgageintroducer.com
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November 2019 Issue 136
MORTGAGE INTRODUCER
WeWork c/o Mortgage Introducer, 41 Corsham St, London, N1 6DR Published by CEDAC Media Limited Information carried in Mortgage Introducer is checked for accuracy but the views or opinions do not necessarily represent those of CEDAC Media Limited
Time to release the prisoners The Financial Conduct Authority (FCA) has finally decided to act to free the thousands of so-called “mortgage prisoners” that will now be allowed to move to cheaper deals under new rules. The FCA estimates that 30,000 mortgage prisoners would benefit from switching but have been stopped from doing so, despite keeping up with repayments. A significant amount of credit needs to be given to the Association of Mortgage Intermediaries (AMI) and its chief executive Robert Sinclair for getting this issue the attention which it so rightly deserved from the regulator. Inactive lenders and unregulated firms, which are not authorised for mortgage lending, will now have to contact customers and inform them that they may be able to switch to another lender. However fears have been raised that this could lead to some of the practices seen during the days of self-cert mortgages. The hope has to be that the regulator doesn’t allow this to happen and damage the market in a way that may not be so easily be forgotten the next time round. Elsewhere Brexit did not happen. Halloween passed with the UK still remaining as a member nation of the European Union. We now head to the ballot boxes on December 12 in the first since 1923. Brexit will obviously be a big flashpoint as all the major parties have much more pointed policy stances than they did during the last election in 2017. However housing needs not be forgotten by the sparring leaders. Whatever effect the Brexit deadlock has had on the property sector the upcoming election should help bring more certainty to the country’s economy. As a country, and as an industry, we need to make sure we back the right people to help resolve the issues at play. Looking to the left and Jeremy Corbyn it appears that the choices may be limited. Hopefully this election will finally draw a line under the never ending saga of Brexit and finally return the UK to a working democracy. It’s not long until we all have to make our decisions. Let’s hope this will finally be the end of it.
5 AMI Review 6 First-time Buyer Review 8 Marketing Review 10 Market Review 11 International Review 13 Adverse Review 14 Relationship Review 16 Education Review 19 Buy-to-let Review 25 Protection Review 31 General Insurance Review 34 Equity Release Review 40 Conveyancing Review 46 Technology Review 48 The Outlaw
Can Metro return?
50 The Bigger Issue
How to make home ownership a reality for the self-employed
52 Round-table – Intergenerational living
Our experts discuss the changing intergenerational mortgage market
60 Cover – Changing Snape
Jessica Nangle catches up with Mark Snape to discuss why it is evolution not revolution at Broker Conveyancing
64 Round-table – The future of buy-to-let
Our experts take a closer look at the buy-to-let market
72 Loan Introducer
The latest from the second charge market
78 Specialist Finance Introducer Development finance, bridging and FIBA
86 The Hall of Fame Run Robyn, run
Your home for specialist lending
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For Intermediary use only. The Mortgage Works (UK) plc is a wholly owned subsidiary of Nationwide Building Society, Nationwide House, Pipers Way, Swindon, Wiltshire, SN38 1NW. T1373 08/2019 V1
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Review: AMI
SM&CR is now upon us Remember, remember the 9th of December. This is, or was depending on when you read this, the magic date when we migrate from the Financial Conduct Authority’s Approved Persons regime to the new Senior Managers regime. Further changes will occur during 2020 when firms will have to complete activity to comply with the new rules covering Certification and the Directory, which replaces some aspects of the FCA Register. All firms should have had an email from the FCA alerting them to their “category” and pointing them towards the FCA website which provides resources on preparations for implementation and examples of the documents required. The FCA guide for firms explains how the new regime applies to the different firm categories, Enhanced, Core and Limited scope, providing scenarios to help translate the regime’s requirements into situations that firms can relate to in their businesses. The guides take firms through the allocation of responsibility for their Senior Managers, explaining which senior management functions must be allocated by each firm and those senior management functions that are required because
Robert Sinclair chief executive, Association of Mortgage Intermediaries
of other FCA Handbook rules i.e. money laundering reporting officer, where applicable. I have heard less noise from small to medium sized advice firms complaining about the complexity than I had expected. It makes me wonder if firms have actually engaged on the level of change. All firms should have considered the implications of the senior managers element of the new regime and put in place any required documentation by 9 December. SM&CR introduces new conduct rules for senior management and all employees of a regulated firm. There are two tiers of conduct rules, first tier - Individual Conduct Rules and second tier – Senior Manager Conduct Rules. These apply immediately to all senior managers and certified staff and firms are required to ensure that all individuals are aware of the conduct rules that they are subject to. All employees will need to understand what behaviour is required so that when something goes wrong they have acted in a reasonable way and not deliberately taken poor decisions to the detriment of customers or the market sector. The FCA are clear on their expectations of
regulated firms and to coin a cliché ‘it’s a journey not a destination’ and for those working through these changes and considering their implementation that must be the focus. SM&CR is a regime which creates clear accountability, responsibility and sets expectation for good conduct throughout the firms’ business activities whether a sole trader or firm with employees. Not just a bureaucratic or HR exercise, but one where the company establishes what it is there to do and how they do it. The new regime provides an opportunity for intermediary firms to review their culture and governance, confirming that those who make decisions take full responsibility for those decisions. It is about bringing to life the requirements to act with integrity, with due skill, care and diligence and pay due regard to customer interests, whilst observing proper standards of market conduct. The FCA is hoping that firms develop discussions which help their teams understand what these rules mean in how they each do their jobs. The Association of Mortgage Intermediaries has published a range of guides to help members of the trade body with what they should be considering and where to find resources to help. Firms now need to start now to be ready in time.
Goldilocks forgets the porridge After a process as long as Brexit, the FCA has finally coughed up its new affordability rules to deal with the trapped borrower issue. The call for inputs on its Mortgages Market Study was in October 2015, followed by the Feedback Statement in May 2016 resulted in the publication of the Terms of Reference in December 2016. After much analysis of 2015 and 2016 sales data, a range of concerns were identified. Remedies are now germinating. Apart from the voluntary industry agreement on active lender borrowers trapped on SVR, this is the first tangible to be delivered. My frustration in this is that the
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new solution will help many more consumers who want a simple remortgage or product transfer than any of the trapped borrowers. The ability for lenders to disapply affordability and stress rules provides opportunity for those who can build flexibility into their procedures, which will simplify processes significantly to allow direct deals without advice. However there are some pitfalls. The capacity for a borrower to extend the term of their loan to achieve the reduced monthly payments over any initial offer period is an accident waiting to happen. The restrictions on those suffering payment difficulty and
those on interest-only has displayed a rule maker who lacks the powers to cut through the traditional view and address the tangible consumer issues. There are also rafts of mortgage holders who have high loan-to-value ratios, impaired credit histories and incomes that apparently cannot support the loans they are servicing. This is our modern society, with broadly payments being met but our rules built on single employer, P45 foundations. So it feels like a Goldilocks fright night. Rushed out before Halloween, with the porridge neither lumpy, nor thin, just not there.
NOVEMBER 2019
MORTGAGE INTRODUCER
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Review: First-time Buyers
Maintainuing first-time buyer sector momentum In last month’s piece I focused on how important good quality professional advice is, in terms of offering access to the right levels of information and range of options throughout a borrower’s lifecycle. Within this I looked at both ends of the lending scale, but for this article I would like to continue the focus on first-time buyers (FTBs) and the factors influencing a sector which is maintaining a strong level of momentum despite the lingering political and economic uncertainty. Although it is not all plain sailing.
ladder. For many, it is a signifier of adulthood (81%) and it means they are no longer wasting money on rent (76%). Having bought, 40% said they felt a sense of pride while 37% felt they have made a step forward in life.
Craig Calder director of intermediaries, Barclays Mortgages
Happiness and associated costs
First-time buyers are reported to be overwhelmingly happy with their mortgages, as just 4% are claiming to be unhappy. However, Aldermore’s First-Time Buyer Index also revealed that the first year of home ownership can be extremely costly, often leaving new buyers struggling to make ends meet. Over half (57%) of respondents said they spent more during the purchase process than they intended. Due to this, one in four (23%) admitted ending up living in an empty house for months after moving in and around one in 10 (13%) said it took years to afford to furnish and decorate it the way they wanted. Many first-time buyers - who previously lived with parents or were in accommodation where bills were included in the rent - find the costs of regular household bills a surprise. According to the index, the average cost of council tax, ground rent, home insurance and monthly utility bills (gas, electricity, internet etc.) can total over £6,200 annually. It was reassuring to see that despite the complexity of the current system, home ownership still remains something that most people aspire to. Half (50%) of those looking to buy their first home said it is their dream to get onto the property
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MORTGAGE INTRODUCER NOVEMBER 2019
Help to Buy
Research from reallymoving outlined that first-time buyers using the Help to Buy scheme are paying 10% more on average than those who are not. The data, collected from over 40,000 first-time buyers, found that those purchasing a new build home in England with Help to Buy paid, on average, £303,450 in the 12 months to September 2019. Calculated at postcode area level to account for regional variations, the premium paid by those using the scheme was suggested to be 10.3%. This comes as Barratt Developments recently revealed that 40% of its customers were using Help to Buy. The Help to Buy premium was said to be highest in Yorkshire, the West Midlands and the North West at 21.6%, 21.5% and 19.9% respectively. The premium has remained stable in the capital and stands at 11.8%.This data highlights the importance of borrowers undertaking strong levels of research for such purchases and seeking the right levels of advice throughout this process. Not to mention clarity around the exit strategy for all those utilising this scheme.
A new national model of shared ownership on the cards?
Staying on the theme of schemes for FTBs, it’s been reported that the government is reviewing a new national model of shared ownership. This includes allowing people to buy further shares in smaller increments of 1% or more and to cut the fees being charged. For tenants in new housing association properties, there will be an automatic right to
buy a share of their home from 10% with the ability to increase that share over time, up to full ownership. The government will work with housing associations on a voluntary basis to determine what offer can be made to those in existing housing association properties. In addition to this, the government is said to be reviewing cutting the minimum initial stake from 25% to 10% for shared ownership. Any positive steps which help more people onto the housing ladder has to be a good thing but, as with any scheme, the government has to ensure that there is a well-thought out path from inception through to completion for borrowers and the industry in general.
Lending data
The number of mortgages for firsttime buyers has reached a 12-year high. There were 35,010 first-time buyer mortgages completed in August 2019, according to research from UK Finance. This was the highest monthly total since August 2007, when 35,070 first-time buyers completed mortgages. The August figure was 0.7% higher than in the same month last year. In contrast, 35,380 homemover mortgages were completed in August 2019, 5.5% fewer than in the same month a year earlier. One of the reasons behind this FTB increase could be the rising number of 40-year mortgage terms. Data from Moneyfacts outlined that some 2,782 (57%) residential mortgage products have a standard maximum mortgage term of up to 40 years – as at the time of writing. Other influences such as historically low rates, high employment levels and heightened lending competition - plus a healthy and resilient housing market - are all key factors in a booming FTB marketplace. In addition, the intermediary market should also take some credit. In difficult economic conditions its vital that people have confidence to borrow, and the advice process continues to play a huge, but sometimes underestimated role, in making this happen. And long may this continue. www.mortgageintroducer.com
F13
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Review: Marketing
Hitting housing targets This month’s head to head is a slightly unfair battle on paper as it’s the UK government vs Together. A lot has been written about the failure to hit successive new homes targets set by the government and the new target of 300,000 a year by the mid 2020’s in the 2017 Budget was generally met with a degree of mirth from industry commentators. Why? Well the average achieved between 2005/06 and 2017/18 was 177,000. Our first challenger is the UK government, to be accurate, the Ministry of Housing, Communities and Local Government (MHCLG) who reported that the number of new build dwelling starts in England has dropped by 8% year-on-year. Newsworthiness has to be marked highly and a call out to Mortgage Introducer’s Michael Lloyd who obtained three insightful quotes from well qualified individuals, great work! I’d also like to mention that personally, it was good to see a quote from an ex-Countrywide colleague Michael Stone from Stone Real Estate. Customer benefit overall is low, although from a broker perspective, it’s clear that there are still opportunities to support the developer community with development finance and that the market is far from dead or dying. As more and more mortgage brokers diversify into specialist finance areas due to the diminishing returns in the standard residential sector, comments such as those from Michael Stone indicate it’s not all doom and gloom. However, the market is on a knife edge and we are living in uncertain times. It’s a bit unfair to judge this release on innovation or being a Game Changer, but I’ve applied scores for both as the news can’t be viewed in an overly positive light. My attention now turns to Together and their recent news release about research that they have con-
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MORTGAGE INTRODUCER
Paul Hunt owner, Paul Hunt Marketing
ducted with developers and their views on the current market. As the research was conducted by the lender, the newsworthiness is high, as it’s not information available via public sources and they reported that almost two-thirds (65%) of developers plan to increase their investment activity in the North substantially over the next two years. Customers will benefit in the long term from such research as it shows there are significant hopes that more homes will be built in the North, meaning that we will hopefully see more people owning their first homes in the years to come. Obviously, a lot of that will be dependent on what replaces Help to Buy.
One
ON
The research also determined that property developers are almost unanimously supportive of the government’s Northern Powerhouse initiative with 96% describing it as having had a positive effect. Let’s hope the current and future administrations maintain and reenergise these initiatives, as it’s clear from such research that they do make a difference. Innovative or Game Changer this release isn’t, as I also judged for the UK government release. However, I’ve marked Together’s a little higher as it is an upbeat message overall and in these challenging times, we all need some positivity! Therefore, the winner this month is Together.
One
M H C L G v s To g e t h e r T U K G OV E R N M E N
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Newsworthiness Customer Benefit Supporting Brokers Innovation r Game Changer Facto
TO G E T H E R
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Newsworthiness Customer Benefit Supporting Brokers
I H H Innovation E Game Changer Facto r E
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Review: Market
All together now for the good of everyone I recently read a blog by Capital Economics’ group chief economist, Neil Shearing, arguing that globalisation has ‘peaked’. He argued that ‘there is a significant and underappreciated risk that the world will start to de-globalise over the coming years’ driven, he suggested, by a number of things. Firstly, that technology has developed to the extent that large international supply chains make less sense than they once did. Secondly, the global economy has evolved over decades and the pace of integrating developing countries into it, to maintain its growth trajectory, has slowed by virtue of it becoming more matured. And thirdly, because there is increasingly domestic political pressure to reduce international trade as part of a rise in protectionist economic policy in the, mainly, Western world – Trump and China being the most obvious example of this playing out at the moment. You may wonder what this has to do with the UK mortgage market, which is nearly wholly domestically focussed, foreign investors into UK property notwithstanding. There’s a number of implications for our sector though. Much of the funding that backs specialist lending in the UK comes via UK-based arms of international banks and other financial institutions. The physical supply of new properties into the
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MORTGAGE INTRODUCER
Stuart Miller customer director, Newcastle Building Society
NOVEMBER 2019
UK relies on flexible labour, much of which currently comes from Europe and the future of which looks uncertain. Buy-to-let has lent itself to being attractive to investors based overseas, as has commercial property for that matter. Immigration into the UK, however the further right may feel about it, has contributed to a sustained growth in demand for both residential and buy-to-let mortgages in Britain over the past 50 years. Much of the growth of the lending against property market has been supported by money and demand that originated outside the UK. Yet, even if you don’t buy Mr Shearing’s argument that globalisation is faltering, it’s undeniable that the UK is facing significant change to its trading relationships and position in the global economy as a result of Brexit, however that pans out in practice. What that means and where the opportunities are for commercial businesses remains to be seen – it’s perhaps the single most pressing question facing this country in decades. However, at Newcastle Building Society, we have an advantage in navigating this maze. We are a mutual, meaning we know – regardless of Brexit – what our objective is and how to serve our members best. At a time when international politics is so fraught with indecision, we can be wholly decisive. We operate nationally – our recent results show that our growth in both mortgage lending and retail savings deposits have not come just from the North East where our branches are mostly based. But we have a very strong sense of identity when it comes to the people we serve. Our mission, particularly on the mortgage side of our business, is to bring the strength of that identity to customers across the country, with the help of our broker partners. So who are the customers we are trying to serve? It’s pretty simple: real people who need real world, practical financial solutions to everyday challenges they face.
The first-time buyers who need help navigating Help to Buy in order to get their first step onto the property ladder – particularly those whose incomes don’t fall into the stereotypical annual salary sausage factory bracket. We not only have specialists who deal with underwriting Help to Buy applications, they’re also experienced when it comes to taking a view on affordability where one or other, or both, applicants have more complex incomes, or have lower incomes for example. We’re not just focussed on firsttime buyers though – a part of the market that is critical, but can hold greater sway than others, simply because it’s deemed a vote-winning group of people for politicians to focus policy giveaways on. We are just as concerned about helping homemovers – because, as everyone in the mortgage industry knows only too well, without homeowners being able to step up the ladder, there’s a bottleneck on supply available to those coming in at the bottom end. Often this group is the most stretched when it comes to affordability, usually because they have young families and children cost money, but increasingly also we’re seeing parents becoming a financial burden on this stretched middle as life expectancy rises and long-term care eats into housing equity for older borrowers. Last-time buyers are also of critical importance, and we’re always trying to come up with innovative ways to help support more flexible finance options to help them move. Lending into retirement is one of those, but there’s also a rise in demand for joint mortgage sole occupancy – funded by that squeezed middle – to fund downsizing for parents whose assessable income is insufficient to support a repayment mortgage. How international politics and economics plays out matters to all of us. But in the meantime, how local, regional and domestic communities support each other on a daily basis matters too. www.mortgageintroducer.com
Review: International
A closer look at international buyers Wherever there is change, there is opportunity, and there is little doubt that ongoing uncertainty around the direction of Brexit is presenting considerable opportunity to expats and foreign nationals who are looking to buy property in the UK. For those remunerated in foreign currency, the combination of a weakened pound and flat property market, particularly in London and the South East, have made investment in UK property a far more attractive prospect. Here are two examples of the impact that currency fluctuations have had on the cost of buying property for clients who are remunerated in US dollars and euros.
of a saving of nearly €270,000. These savings make property in this country more attractive to international buyers, but they are certainly not the only attraction. UK property, particularly property in London has long been a top destination for international high net worth (HNW) clients who are drawn to the education system, good communications and respected legal system as well as the prospect of long-term asset appreciation. But it’s not all positive news for international buyers. In February of this year, the government launched a consultation into the introduction of a stamp duty land tax (SDLT) surcharge on non-UK residents purchasing residential properties in England and Northern Ireland, claiming evidence that purchases of property by non-UK residents is pushing up house prices for UK residents. According to the consultation, there are proposals to introduce an additional surcharge of 1% for foreign residents who spend less than half the year resident in the UK, with a refund due for those who then spend more than half a year in the UK in the 12 months following a transaction. The consultation ran for 12 weeks until 6 May and at the time of writing, there were no further details available regarding next steps and the timeline for final proposals, or to what extent the proposed changes outlined in the consultation will be introduced. Whether or not the SDLT surcharge is implemented as proposed
Peter Izard business development manager, Investec Private Bank
US dollars
In the summer of 2016, the cost of buying a £1.5m property would have been US$2.2m. This October, the same property valued at £1.5m would cost US$1.83m. That’s a saving of nearly $370,000 based solely on the exchange rate.
Euros
Date
Exchange rate
Cost of £1.5m home in US$
22 June 2016 Day before the EU membership referendum
£1 = US$1.47
US$2.2m
1 October 2019
£1 = US$1.22
US$1.83m
Date
Exchange rate
Cost of £1.5m home in €
22 June 2016 Day before the EU membership referendum
£1 = €1.30
€1.95m
1 October 2019
£1 = €1.12
€€1.68m
www.mortgageintroducer.com
Source: xe.com
For a client buying in euros, the cost of buying a £1.5m home in June 2016 would have been €1.95m. This October, the same property valued at £1.5m would cost €1.68m – a saving
remains to be seen. If it is introduced, the additional 1% cost of purchasing a property in the UK may be a consideration for some international buyers. However, it’s worth putting this additional cost into context against the bigger picture. In just over three years, the cost of buying property in the UK has effectively fallen by nearly 17% for those remunerated in US dollars and nearly 14% for those remunerated in euros, based on currency fluctuations. Set against this backdrop, the potential for a 1% increase in taxation seems less significant. Additionally, the core foundations that underpin the demand from international investors will remain in place, with or without this SDLT surcharge and whatever the value of the pound. With this in mind, it looks like international investors will continue to take the opportunity to buy in the UK throughout this period of change and this provides opportunity for brokers. So, what are the considerations in dealing with this type of case? To begin with, following the implementation of the Mortgage Credit Directive (MCD) in 2016, few lenders offer mortgages to clients earning foreign income and so you should ensure you are working with a lender that is able to offer this type of lending right at the start of the process. Mortgages for expats and foreign nationals also often come with additional complexities and so might require a lender that is able to deliver an individual bespoke solution. For HNW clients, a private bank, such as Investec Private Bank, will be well placed to work with you to ensure that both you and your client are able to make the most of the opportunity.
NOVEMBER 2019
MORTGAGE INTRODUCER
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Review: Expats
Expats on the move Over the past five years, the UK news has focussed on the number of people coming here to live from overseas. It would be easy to forget that an increasing number have been moving in the opposite direction over the past 30 years. For mortgage providers and brokers, overseas investors in UK property can be a steady source of new business. At Saffron Building Society, we find that expat buy-to-let is one of the more common mortgage enquiries from new applicants and brokers, and the application process can certainly be more difficult than a standard buy-to-let. However, if you have a good understanding of the market, and experience in dealing with these applications, then expat buy-to-let mortgages can offer a significant opportunity.
doubled from 137,000 to 280,750.
What does the expat population look like?
Anita Arch head of mortgage sales, Saffron Building Society
The opportunities and issues
While there is a significant opportunity for brokers, the application process can sometimes be complicated. We find that a few problems crop up regularly, and being aware of these can save you significant amounts of time. You may be surprised to hear that some people start an application for
The countries Britons leave for
In July, The Telegraph published an article which examined the destinations that Brits leave for when they look for a new home across the water. The research showed that although the number of British citizens moving abroad has slowed, there were still 121,000 people choosing to up sticks in 2018. Figures from the UN show that the UK expat population has been steadily growing, with just under five million citizens residing in other countries in 2017. That’s up from 3.8 million in 1990 and demonstrates the size of the potential market.
One of the problems brokers can encounter is that they start the application before their customer has moved overseas and are unable to confirm their new address. Lenders may need evidence that applicants are already living overseas. In addition, many lenders have country restrictions so it pays to be aware of those. At Saffron Building Society we don’t have a list of specific country restrictions but applicants must be able to prove they live abroad. People living in the Middle East and in Arab countries will often use a PO Box as their address. While this is not an insurmountable problem, proof of residency can be more complicated in this region. An experienced lender will be able to advise you about how to deal with Middle Eastern applications. It’s also worth bearing in mind that proof of residency is a common cause for delay, so inform people of this requirement at the start. Lenders need some certainty that they can contact the applicant in the event of problems or default. When the customer is living overseas, communication can be more difficult. Lenders may insist on using a UK solicitor, with specific restrictions on the size of the practice, to whom they can serve notice in the event of a default. This has the potential to block the application if your customer is unable or unwilling to comply. Although the expat buy-to-let sector can be complicated, by managing expectations and getting the right information up front, applications can be relatively straightforward.
This analysis shows that Australia is the number one destination with 1.35m settling there. This means that Australia accounts for more than a quarter of Britain’s expats. America is second on the list with 748,000 while Canada is third and Spain fourth. The only continent where the UK’s expat population has declined since 1990 is Africa, while numbers in Asia have more than MORTGAGE INTRODUCER
Proof of residency
Communication
Where do expats go?
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There is no comprehensive analysis of what these expat populations look like demographically. However, using a poll of expats, The Telegraph gives an indication of their characteristics. According to the 2018 edition of the survey, at 53 the average UK expat is nearly 10 years older than that of the global average of 44. 37% of them have been living abroad for more than 10 years - much higher than the global average of 24%. A quarter of British expats are retired, which is more than double the global average of 11%. Their top three reasons for moving abroad are for a better quality of life, for love or for a job.
an expat buy-to-let mortgage but fail to disclose that this is for a residential purchase. This quickly becomes apparent when proof of overseas residency is unavailable. As obvious as this may seem, clarifying the use of the property will save you a lot of wasted effort at the start.
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www.mortgageintroducer.com
Review: Adverse
There are 1.26 million reasons to read this article The mortgage market is awash with high level data about the number of CCJs and defaults that are helping to drive the growth of the adverse credit sector – but what about the people behind these statistics? At Pepper Money, we have commissioned extensive research to shed light onto the world of adverse credit to help raise awareness of the potential of the market and increase understanding about those people who want to buy a home, but might write off their own chances to do so because of their credit history. We partnered with YouGov to carry out a survey amongst a total of 4,163 British adults to find out the truth about how many people might be considered to have adverse credit, how many of them are planning to buy a property and how their credit record influences their plans.
Sizing the opportunity
According to our research, 15% of all respondents have missed payments on credit commitments; had CCJs, defaults, secured or unsecured arrears registered on their credit file; or entered a debt management plan (DMP) in the past three years. This means we can estimate the number of people considered to have adverse credit to be 7.86 million, based on a total UK adult population of 52.4 million (ONS data). Of those 7.86 million people who have experienced a form of adverse credit in the past three years, 16% have the intentions of purchasing a property to live in or let out in the next 12 months. This equates to an estimation of 1.26 million potential mortgage customers with adverse credit who may need support from a broker in the next 12 months.
Paul Adams sales director, Pepper Money
gagors. The majority of people who have experienced adverse credit in the past three years are aged between 35-44 (45%). This compares to 35% who are aged between 18-34, and 20% who are older than 55. It’s also not just those who are less affluent who pick up adverse credit on their record. Some 61% of the adults who have experienced adverse credit in the past three years and are planning to buy a property in the next 12 months are associated with a higher income. In fact, our research shows that regardless of gender, age, or being associated with higher or lower income, anyone can find themselves with adverse credit. Missed payments are the most common form of adverse credit, with 76% of participants having had missed a payment in the past three years. Nearly a third (31%) have had defaults, and a quarter (25%) have been in a debt management plan. Just over a fifth of respondents (21%) have received one or more CCJs.
The potential for brokers
Awareness of mortgage brokers is relatively good, as four in 10 people with adverse credit who are looking to buy a property in the next 12 months say they would speak to a broker. However, more people (44%) say they would go directly to their bank and even more (58%)
would seek advice from family and friends. But the research suggests that potential borrowers are not even getting to the stage of seeking advice. A quarter (25%) of those who have experienced adverse credit in the past three years believe they have to wait more than five years after being registered with a CCJ before applying for a mortgage. And overall, a staggering 93% of people don’t know that it is possible to get a mortgage with a CCJ registered as recent as recently as six months ago. There is also little understanding amongst consumers about the events that can lead to experiencing adverse credit on their record. Most people believe that they can only get a CCJ if they miss more than one payment, with 93% of respondents unaware that just one missed credit payment could lead to a CCJ. Two thirds (66%) also don’t know that there is no minimum amount of debt required to be issued with a CCJ.
It’s time to take action
Our research suggests that there is exceptional potential for brokers to grow their client base amongst people who have recently experienced adverse credit. But the reality is that many people in this group still don’t know about the options they have available to them or the benefits of talking to a mortgage broker. So, it’s time that we all take action to help raise understanding and awareness about the adverse credit mortgage market amongst the 1.26 million people who need our help.
Understanding adverse credit borrowers
Adverse credit is most common amongst people who are the prime age to be homebuyers and remortwww.mortgageintroducer.com
NOVEMBER 2019
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Review: Client Relationships
Why the sum of the parts matter to customers In a property market that presents as many opportunities and challenges as the current one, I am constantly being reminded that the breadth of knowledge, experience and expertise should not be undervalued if you really want to understand the up and downside of a particular situation. It is not enough to understand one element of a property or client anymore. The news is replete with issues that cut across property and mortgage disciplines. Whether these are about property prices, property values, landlords’ obligations to tenants, first-time buyers’ affordability challenges or the future of some mortgage products, the interconnectivity of these issues is felt across the entire industry. Not only are property owners changing their behaviour but property itself is being repurposed and reinvented to meet new demands. Furthermore, government policy and regulatory scrutiny in one area frequently impact another. It follows then that understanding the opportunities and the pitfalls has never been more important and, as with all debates about opportunity and risk, there are elements of probability and elements of impact. Being part of a business that can offer value beyond the sum of its individual parts means we can take a broader view of these opportunities. The effectiveness of a group of divisions interacting with one another is greater than their effectiveness when acting in isolation from one another – and in any business where this happens the clients and customers benefit as a result. But just because we understand this is an important way of optimising our offer to markets does not mean it comes easily. The history of property means it has long been a transactional business - largely a result of our property law much of which, along with the vast sums of money involved, has
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Robin Johnson managing director, Kinleigh Folkard & Hayward Professional Services
NOVEMBER 2019
encouraged the development of a fragmented value chain. This does not always serve the end purchaser well. When you consider that a home is the only purchase you make which you cannot return if it turns out to be not what you expected then you can see my point. No consumer rights allow you to return your keys if your newly purchased bricks and mortar (or anything else your dream house may turn out to have been made of) is less than you expected. The most notorious recent example would be the well reported banning of leasehold new build homes and how a lack of appropriate advice at the right time has disadvantaged buyers. Caveat emptor indeed. Whatever line of business you are in, looking beyond the deal in front of your nose is increasingly important. Housing transactions may be resilient, particularly so given our current political landscape, but much more could be done to improve them and in doing so the longer-term prognosis for your business. It’s in this context that looking after customers and clients over the lifetime of their property needs ac-
tually has real value. By understanding that every property asset has a lifespan, we can accompany tenants, landlords and buyers and sellers throughout their lives in the capital. There is no reason why today’s tenant might not become tomorrow’s buyer and why that buyer might not become a landlord in the future. Equally a new-build rental home may well become a freehold for a buyer in the future. Its condition will change and it may require management at some time. Many rental properties may become Houses of Multiple Occupation as landlords seek to improve yields. All these issues affect value at that particular point in time. Many businesses, including ours, use predictive models to look at very specific risk issues - but we can also assess the likely customer lifetime value based on current behaviour and demographics. But this is only one part of the equation because even if you do not have access to these kinds of tools, we can still develop relationships. Brokers have long known instinctively how to develop client relationships. People and their experience is arguably just as important as any analytical insight if you want to deliver exceptional service and results. It’s by employing both and leveraging who and what we know that we can go further for customers. As an industry, the home-buying and mortgage professions have excelled at selling our own distinct disciplines to customers but the time is rapidly approaching where a linear view of our markets will not suffice. Technology is disrupting our value chain and scrutiny upon conduct towards our clients and customers has never been greater. We can all respond by developing our businesses to be less of a commodity play and more about judgement and our intellectual property. By taking a broader view and stringing together our customers and clients aspirations, we are embracing a more holistic view of what it means to be a property group. www.mortgageintroducer.com
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Review: Education
Preparing for regulatory changes from the FCA The FCA Consultation on mortgage advice and selling standards (CP19/17) has just closed, after May’s report highlighting some key aspects of the current mortgage market. Among its pages, the FCA’s headline findings include the suggestion that its own regulations from 2014 may be preventing the development of innovation, and that some consumers are overpaying for mortgage advice. But perhaps most significant to mortgage advisers is the suggestion that a significant percentage of customers who are looking for an execution-only mortgage, are diverted to advice. Why? Because execution-only sales channels are not always easy to use. Regardless of speculation that the FCA may be trying to accommodate online mortgage providers, the most striking thing about the new proposals is the drive to increase take-up of execution-only mortgages. The question is – whatever the outcome of the consultation – how can mortgage professionals prepare for changes in the FCA’s regulations and future-proof their businesses?
Michael Nicholls relationship director, LIBF
This is obviously something to raise with your IT specialists, but it’s worth keeping your knowledge of digital banking and finance up to date, so you know what to ask and have the right checks and balances to put in place.
Don’t undervalue the human side of your business
The average time for a house sale or purchase in the UK is 16 weeks. It’s a very stressful process and even millennials still need some human contact at some stage of the process. In other words, digital has its limits. Last year, the estate agent Savills reported that the over-50s hold 75% of the UK’s housing wealth – a total
of £2.8tn. These people value getting to know a broker, talking through options and, for the most part, they are not going to feel so comfortable carrying out their big financial decisions online. Recent research from Ipswich Building Society found that 37% of people expect to have a mortgage after 50, but not because they haven’t paid it off. Older borrowers are freeing up funds for all sorts of reasons – everything from extending existing properties to topping up pensions. In fact, figures from the Centre for Economics and Business Research (Cebr) show the market for later life lending is expected to almost double over the next 10 years – and reach £397bn by 2024. Whatever the FCA concludes following its consultation period, we can be sure that both later life lending and digitisation will play key roles in the future of the market.
Get tech savvy
One of the big issues is the digitisation of the mortgage process, which perhaps caters for millennials who don’t have pre-existing brand loyalty, and tend to be more demanding in terms of time, opening hours, availability and accessibility. As reported in last month’s Mortgage Introducer, more than half of mortgage brokers expect to invest at least £10,000 in technology over the next 12 months. But that technology needs to complement your service rather than try to revolutionise it. And security is fundamental. Nothing is going to kill your business faster than a client getting hacked or losing money because your systems aren’t secure.
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NOVEMBER 2019
www.mortgageintroducer.com
Review: Advice
Mortgage advice needs fresh faces As a profession we also need to look to the future. Where are the experienced brokers of tomorrow going to come from if we don’t bring younger people into the industry and give them the opportunity to get that experience? We need to think about how we manage the pipeline so that we can continue to give clients the best possible service. You hear a fair bit of doom and gloom among some old hands – mortgage advice is a dying trade, we’ll all be replaced by AI before long anyway so what’s the point starting out as a broker now, and so on. But increasingly people are coming to the view that while some jobs are better automated, for others, rather than replacing jobs entirely, technology can help people do them better and more efficiently. I think mortgage advice is very much in
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John Phillips national operations director, Just Mortgages and Spicerhaart
that category. One way or another, I firmly believe there will continue to be opportunities for good brokers for many years to come yet. The way I look at it, there’s a high probability people will still want to buy houses in 10, 20, 30 years’ time, and that they’ll still need to borrow money to do it. Taking out a mortgage is the most important financial decision most people will take in their lives. Mortgage payments and interest are a big chunk out of most households’ income – with interest rates so low, the average is around 30% at the moment, but it’s much higher in some parts of the country, and could go higher. Of course for most homeowners, their home will be their biggest single financial asset. For first-time buyers especially, it can also be an enormously emo-
tive experience. No matter how tech-savvy people get, I think there will always be space for the human touch. This is especially the case when it comes to getting the right sort of protection in place. A real, flesh-and-blood broker can develop a much better sense of people’s individual circumstances and needs than a dispassionate algorithm. In any case, the argument that we’ll all be replaced by robots so there’s no point in young people coming into the profession, sounds like a self-fulfilling prophecy to me. If there aren’t enough brokers then people will have no choice but to fall back on robo-advice. And if we fail to bring younger people into the profession – so-called ‘digital natives’, who grew up with the internet and social media – then we certainly risk being overtaken by technology.
NOVEMBER 2019
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Review: Buy-to-Let
A brighter future for buy-to-let After what feels like many months of negative press on the buy-to-let market, the most recent lending figures from UK Finance demonstrate that lending on house purchases has stabilised within the past 12 months and buy-to-let remortgages, whilst fluctuating slightly, remains the greater share of transactions in this sector, suggesting landlords are not changing behaviour too dramatically. Whilst our political world gets even more uncertain, it seems like landlords are pushing ahead with growing their businesses. So, why the shift? One reason could be the wealth of new products now available. A raft of innovation from lenders means there are now more options, so landlords can take advantage of reduced rates, longer term fixes and improved benefits. Given the changes in the buy-tolet market over the past few years, lenders providing additional support for landlords is a welcome relief. Higher LTV products offer landlords greater choice when looking to purchase or remortgage. We’ve had a positive response to the Accord Buy to Let 80% LTV product range which launched in May this year and have recently extended the range with 28 new products across two, three and 5-year fixed terms. This includes a selection of no-fee products to meet demand for shorter term products with no upfront cost. We’ve also been able to differentiate our affordability criteria based on the applicant’s income and tax banding with a new income cover ratio (ICR) which will reduce the level of rent required by a landlord to meet the affordability requirements. Criteria changes such as the broadening of age brackets supports both new landlords entering the buy-to-let sector and those who want to use their property or portfolio to provide an income into retirement. Accord Buy-to-Let has recentwww.mortgageintroducer.com
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Chris Maggs senior commercial manager, Accord Buy To Let
ly reduced its minimum age from 25 years old to 18 years old and increased maximum application age from 70 years old to 75 years old. And it’s not just enhancing the product range. Ensuring the application process is dealt with in a timely manner and the customer journey is positive is crucial to both the landlord and their broker. Since January Accord Buy to Let has made a number of significant changes including updating our online rental calculator and making improvements to the broker portal to enhance the user experience. We’ve also simplified our processes, such as replacing signed declarations with a tick box, to help brokers submit successful applications and reduced our offer turnaround from 23 days to 13 days. Clearly, the intermediary world has a huge part to play in supporting landlords, both in terms of directing clients to the right products, but also in encouraging landlords to instigate a regular review of their portfolio borrowing. This not only supports client retention, but ensures they can secure the best interest rates, either by remortgaging or through a product transfer from their existing lender
NOVEMBER 2019
and safeguard maximum rental surplus to cover property running costs and ideally achieve an income. Having a more holistic approach to client retention means you can keep in touch on an ongoing basis, sharing valuable market insight through newsletters for example. Clients value support with regulatory changes, so being first to send through the latest information and any implications on their portfolio can be a sure way to build a lasting client relationship. The Accord Growth Series has a number of ready-made guides which can be shared directly with clients on topics such as tax as well as more general advice on how to attract more customers through SEO, social media and marketing. What changes will be made in Parliament over the next few months is anyone’s guess, but whilst I don’t anticipate Boris Johnson reversing any changes to landlord’s personal taxation, there is hope that stamp duty rules could change and some landlords may wait to see if that benefits them and reduces the cost of acquiring property. As a lender, we will continue to review and improve our own proposition to ensure we offer the best value and service to brokers and their clients. The changes we’ve made in the last year are a good start and our Net Promoter Score (NPS) has gone from 38 to 76 in just 12 months which shows that we are on the right track. But there’s still more to come as we adapt to the competitive and increasingly complex market. Changes need to be made to improve affordability for landlords which could include the use of earned income in lenders’ affordability calculations. Buy-to-let plays a hugely important role within the housing sector and we will continue to develop the types of products and services that landlords, and brokers, need to nurture and grow their businesses MORTGAGE INTRODUCER
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Review: Buy-to-Let
The buy-to-let market is a mixed bag for now We’re all acutely aware of the uncertainty that exists within political circles and the UK economy. This means that buy-to-let lenders are having to work that bit harder to provide landlord clients with additional choice, certainty and flexibility where possible. One growing trend which we – alongside many other specialist lenders - have certainly been focusing a great deal of our attention on is limited company lending. As such, it was little surprise to see the recently released BVA BDRC Landlords Panel Report for Q3 2019 outlines that 63% of landlords intend to purchase their next buy-tolet (BTL) property within a limited company structure, a significant rise from Q2’s figure of 55%. As so many of our mortgage products are available to both limited companies as well as individuals, our borrower behaviour data also supports that trend: our top-selling feeassisted BTL product has attracted more applications as a limited company than as an individual applicant this month. The BVA BDRC report suggested that the appeal of a limited company proposition is now equally strong between smaller and larger portfolio landlords. Landlords with 20+ properties tend to have a more diverse portfolio ownership structure, with over one in four having a mix of individually owned and limited company status properties, and one in seven operating all properties within a limited company structure. The question of whether to borrow via a limited company vehicle continues to be one of the most common themes within the current BTL area. There are many benefits, but considerations must be taken over the landlord’s number of properties, future plans, financial circumstances and exit strategies.
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Jeff Knight director of marketing, Foundation Home Loans
However, with competition amongst lenders intensifying - and rates decreasing as a result - it’s little wonder that greater numbers of landlords are utilising this facility within a robust BTL marketplace which continues to defy the critics. Figures recently published by UK Finance showed that the number of purchases using buy-to-let mortgages had risen every month, except for one anomaly in June, for the past seven months. In August, 5,900 borrowers purchased a rental property with a buyto-let mortgage, almost a quarter (23%) more than the 4,800 who did the same in February. These represent some positive results. Focusing back on the Q3 Landlords Panel Report, let’s take a look at how landlords are coping in the current economic climate, their confidence levels, activity, financing and yields. Below are some of the main takeouts from this report.
The typical landlord has been letting property for 18 years, and intends to continue letting for a further 12 years - On average, landlords with fewer properties in their portfolio tend to have been operating for a shorter amount of time than their larger peers (1 – 4 properties = 13 years, 11+ properties = 24 years), although both intend to continue letting for a relatively similar duration (11 years vs. 15 years). Profitability remained largely unchanged in Q3, with 84% of landlords currently making a profit However, just 4% of landlords have seen an increase in their profits since the 2015 Budget announcements and 51% have seen profits reduce. The average rental yield achieved edged up to 5.6%, a marginal rise from the nine year low recorded in Q2 2019. There was a 1% differential between the highest yield generating regions, the East Midlands and Yorks & Humber (6.1%), and the lowest, Central London at 5.1%. It remains the case that over one in four landlords don’t know what the average rental yield they achieve is. Two thirds of landlords carry BTL borrowing across their portfolio. Just over eight in 10 leveraged landlords have solely interest only mortgages, a further 10% have a mix of interest only and capital repayment mortgages. 12% have only capital repayment mortgages, with this more common amongst landlords with only a single BTL property. The proportion of landlords looking to reduce their portfolio size in the next year remains high at 24%. However, this figure has edged down slightly from the record high of 26% recorded in Q2. Those with larger portfolios are the most likely to be looking to divest, with close to four in 10 intending to reduce the size of their portfolio in the next year. These results represent something of a mixed bag, which is not entirely surprising. It’s fair to say that challenges remain for lenders, intermediaries and landlords but for every challenge there is also opportunity, and the advice process remains at the heart of successfully maximising any opportunity.
NOVEMBER 2019
www.mortgageintroducer.com
Review: Buy-to-Let
Lies, damn lies and statistics I always tend to take stories which contain statistics with a big pinch of salt. I’ve been around long enough to know that it can depend on who’s putting them together, what their motivations are and what the point they’re trying to prove is. Take Help to Buy, for example. With the government’s Help to Buy ISA scheme due to close to new savers at the end of November, there’s been a recent flurry of articles in the media, each using a different set of figures to illustrate a different point. At the start of October I read an article which looked at the purchase of 41,500 new build properties across England and concluded that first-time buyers have been paying a premium – 10.3% in the 12 months to September – on their homes as a consequence of Help to Buy. However, just a few days later I saw another story which claimed there was no evidence Help to Buy had pushed up prices for first-time buyers and that any increase was actually in line with the regular housing market. I guess your opinion of the scheme depends on whether you think it’s been a good or bad thing for the UK economy and the thousands of aspiring homeowners looking to take
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Alan Cleary group managing director, Precise Mortgages
their first step on the property ladder. So where do I sit in all of this? Well, I believe that any scheme that helps people achieve their home owning dreams is something to be applauded. As director of Precise Mortgages, I care about helping those borrowers who want to take advantage of a scheme that can help them realise those dreams. As a lender, we’re committed to serving the needs of borrowers in today’s market, and with more than 220,000 properties purchased since the equity loan scheme was launched in 2013, there are many, many borrowers who need or will need help when it comes time to remortgage. Intermediaries are acutely aware of how complex the needs of these borrowers are. Many of the borrowers who took Help to Buy equity loans are coming to the end of the five-year interest-free period on those loans. The impact that interest charges have on their affordability when they come to remortgage is hitting home now. Yet we know that there have been few options available to borrowers in this position when it comes time to remortgage.
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Staircasing out of their equity loan is not as easy in practice as many predicted should have been the case. Brokers have been saying for many months that borrowers need to be offered more flexibility in their remortgage options. I have tended to agree, which is why we have developed our own Help to Buy remortgage offering to offer just that flexibility. Not only are we one of the few lenders in the market that will consider a remortgage where borrowers retain the equity loan, now, we will actively allow them to capital raise in order to reduce their equity loan liability. While the Help to Buy scheme has been extended further, out to 2023 with some amended criteria, there are going to be more borrowers who opt to use it. The very need for its extension points to a mortgage market that is still not fully recovered from the aftermath of the financial crisis more than 10 years ago. If we are to move to a market that is healthy and does not rely on government support such as this, then we as lenders have an obligation to support choice for borrowers in the private sector.
MORTGAGE INTRODUCER
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Review: Buy-to-Let
There is more to a decision than rates In our market there can be a tendency to put the cart before the horse, especially when it comes to analysing and making comment on what is perceived to be industry ‘normality’, or what the trend for the buy-to-let sector might be over any given time period. Take, for instance, the recent figures put out by UK Finance on buyto-let lending and activity, and couple that together with the perception that the market is ultra-competitive – which it is by the way – when it comes to product pricing right across the board. So, those UK Finance figures appear to show some noticeable growth in buy-to-let lending activity over the past six months in particular when it comes to purchasing, and that remortgage activity has stayed pretty consistent. All well and good and, certainly from our perspective, we’ve seen an upturn in activity, especially when it comes to portfolio and professional landlords seeking to grow the number of properties they have, and the methods by which they are doing this, most prominently through limited company vehicles. Plus, of course, there’s been a slight shift in the types of properties being bought, with some landlords looking to add higher-yielding HMOs to their portfolios. But what is the underlying reason for this pick-up in purchase activity? According to a recent article I read in the Daily Telegraph, it is predominantly the fact that buy-to-let mortgage rates are at very low levels. To which my answer is that, if seasoned professional landlords are making purchases based on mortgage costing alone, then I would check their sanity and suggest they’re not really cut out for this landlord lark. Don’t get me wrong, mortgage costs are always going to play a significant part in the overall decision,
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Bob Young chief executive officer, Fleet Mortgages
but to somehow suggest that landlords are basing a purchase decision on the cost of the mortgage alone is quite wrong. Clearly, if the cost of the mortgage is lower than anticipated that would be welcome, but it’s firstly not going to have a bearing on the initial decision to purchase, neither I must say is it going to have a huge bearing on the lending decision, because this will be incorporating other important factors such as the property, prospective rental income, and everything else that would be a part of our underwriting process, into it. So, let’s get back to reality. Lower buy-to-let mortgage costs are not acting as a huge incentive to landlords increasing their portfolios. What is happening is that landlords recognise the strength of the private rental sector, they recognise that there are few short-term solutions to the housing gap in the UK, and they therefore recognise the strong tenant demand that exists. They also recognise the power of the property asset in terms of its ability to deliver decent income and (over time) increased capital values. At the same time, we have a landlord community which – after three years of change – is now much more comfortable with its position, and perhaps has the financials to be able to refinance existing assets and/or utilise their rental inflows to purchase more properties. Again, to stress, it’s at this point
that they’re going to feel the advantages of the current competitive marketplace, and by utilising the skills and services of quality advisers they’re also going to be able to benefit from their ability to search the whole of the market and recommend the right product. Coupled with this, advisers and clients have a very supportive specialist lending community who not only want this business from professional landlords but can offer them a flexibility and understanding of their needs, their background portfolios, their business sense, and their ambitions for the future. Given that ability, while lowpricing is nice to have, as long as we are confident that the purchase can work for all, there shouldn’t be any mortgage-cost barrier in place to stop landlords from moving ahead. My point is that the reasons why landlords are increasing their portfolio sizes clearly isn’t based on the low rates currently on offer. If that was the case, then no one would have bought when rates were a lot higher. As always, landlords are looking at their purchase opportunities in the round – they are not looking at mortgage best buy tables, thinking, ‘Well, rates are great, let’s go out and buy another property.” That really would be putting the cart before the horse. So, from an advice perspective, while you might wish to contact existing and prospective clients with headline rates, remember to point out that there is much more to the purchase decision than this alone, and that you can help take them through the whole process, not just one part of it.
Review: Buy-to-Let
Tracking the trends for buy-to-let Last month I looked at how the value attached to the advice process should never be underestimated. This was alongside the importance of intermediaries getting to grips with the varying challenges facing landlords and the potential raft of buy-to-let solutions on offer. A strong component within this is maintaining a wider knowledge base and keeping track of trends along the way. Of course, this isn’t always easy, and it remains the responsibility of landlord clients to undertake their own research and due diligence before entering into any purchase or remortgage. However, good advice and adding value – even if it’s simply pointing them in the direction of relevant articles, news stories or reports in the trade press – can often be the difference between a one-off customer and a long-term client. So, for this month’s piece I’m compiling a brief round-up of the many research papers, data and other random statistics which have emerged from the buy-to-let sector over the past few weeks. Hopefully some of which will be useful for building up your knowledge bank and also worth passing onto relevant existing, or potential new, landlord clients.
Accidental landlords
The proportion of homes let by accidental landlords has fallen according to the Hamptons International Monthly Lettings Index. The number of homes let by accidental landlords fell to 7.1% in 2019 which was said to be the lowest level in five years. Every region recorded a fall in the proportion of homes being let by accidental landlords, with London seeing the biggest drop despite being the ‘accidental landlord capital’ of the country. Meanwhile Scotland (-0.4%) and Wales (-0.3%) saw the smallest changes.
Tougher taxation and criteria
Newly released data from secured property lender, Fitzrovia Finance, showed that 54% of buy-to-let landwww.mortgageintroducer.com
Ying Tan founder and chief executive, Dynamo
lords have been affected by recent tougher tax treatments and tighter bank lending criteria, with many selling and reducing their property holdings. One in five of those interviewed had reduced the number of buy-tolet properties in their portfolios, and 15% said they had been deterred from buying more properties. Of those interviewed that have sold buy-to-let properties over the past two years, the average cash released from the sale was £129,746.
Location, location, location
Despite house price growth cooling in some areas – due in no small part to Brexit-related conditions – research from property management platform Howsy has found that there are still pockets of the UK which are enjoying notable price growth. North Devon leads the way having reported 15% growth year-onyear, followed by Merthyr Tydfil and Blaenau Gwent in Wales, both at 13%, along with Caerphilly, up 11%. Camden was said to be the best bet in London with house prices up 10% in the last year, with West Devon, Forest Heath, Rochdale and Monmouthshire all up 9%, and Trafford seeing annual growth of 8%. On the buy-to-let front the best yields were recorded in Glasgow with a return of 7.5%. Scotland also accounted for the next best three in Midlothian (6.8%), East Ayrshire (6.8%) and West Dunbartonshire (6.7%). Burnley and Belfast stood at 6.5%, while Inverclyde (6.4%), Falkirk (6.3%), the Western Isles (6.2%) and Clackmannanshire (6.1%) completed the top 10. According to property portal Zoopla, the lettings market in East Hampshire is also said to be experiencing a significant spike in activity. East Hampshire was reported to have seen the highest percentage increase (46%) in lettings instructions of all UK markets over the last 12 months. This meets the uptake in demand with 73% more enquiries from tenants to agents in this part of NOVEMBER 2019
the country over the same period.
Fall in property listings but tenant demand rises
The RICS Residential Market Survey has found that the number of home listings has fallen, with Brexit suggested to be putting people off selling. The new instructions net balance fell to -37% in September, the weakest reading since June 2016. As such average stock levels on estate agents’ books remained near record lows. In the lettings market, demand from prospective tenants has risen for an eighth month in a row. However, landlord instructions continued to drop with demand still outstripping supply. On a more positive note, rent expectations for the coming three months remained positive with a net balance of 24%.
Property maintenance keeping landlords awake at night
Property maintenance tops the list of issues that keep landlords awake at night, according to a specialist report from The Mortgage Lender. The report, entitled ‘Buy to Let: The Landlord Experience’, found that three in 10 landlords listed property maintenance as their main concern. Tenant behaviour, care of the property and finding tenants also made the top 10 worries of property owners. One in four landlords said they were not experiencing any issues, whilst one in 50 were concerned about enhanced underwriting for portfolio landlords. This raft of data helps to demonstrate the wealth of considerations that landlords and intermediaries need to take into account. What we must also remember is the underlying fact that the UK housing and rental markets remain, by and large, stable, resilient and robust, even in the wake of one of the most turbulent economic and political times in recent memory. A fact which should enable all those in the BTL chain to look forward with some degree of confidence. MORTGAGE INTRODUCER
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Review: Buy-to-Let
Buy-to-let innovations The buy-to-let mortgage market has come under pressure in recent years due to the multitude of tax and regulatory changes aimed at the sector. However, lenders are demonstrating their willingness to support landlords with a strong appetite for business and a renewed sense of innovation from some providers. There are more lenders and products available now than there has been in the past 10 years and a healthy competition is playing out among them, which means that there are some excellent deals for buy-to-let clients. Lenders are not just competing on price though. Some are looking at ways to meet more specific requirements that result from the varying demands of landlords. For example, there is a good choice of lenders who offer top-slicing, or rental top-up, facilities to support applicants who may fall short of the more stringent rent stress tests in the current marketplace, but who can comfortably afford the monthly payments with surplus earned income. There are now more than 10
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Jane Simpson managing director, TBMC
NOVEMBER 2019
lenders on the TBMC panel who offer a top slicing facility, including the likes of Hinckley & Rugby Building Society, Axis Bank and Precise Mortgages. These schemes are targeted at clients with surplus earned incomes to support their affordability assessment, however our most popular lenders are still those without any minimum income requirement such as Vida Homeloans, Foundation Home Loans and Zephyr Homeloans. We are also seeing lenders launching special offers with unique schemes that sit outside of their normal product ranges. For example, Foundation Home Loans have recently released an early remortgage special for landlords looking to refinance within six months of purchase which is proving popular. There are 2-year and 5-year fixed options which are now available to portfolio and non-portfolio clients. Foundation also have some “ERC 3” products which are 5-year fixed rates that only have early repayment charges for three years and could be
an attractive option for landlords who may need to refinance before the fixed term is up. It is worth being aware of these schemes as they will not necessarily source as the cheapest rate but could be a better choice in certain circumstances.
“We are seeing lenders launching special offers with unique schemes that sit outside of their normal product ranges” It is well known that 5- year fixed rates are often the preferred option in the current marketplace, accounting for over 50% of new business at TBMC each month. However, in this period of economic uncertainty some buy-to-let clients may be interested in even longer fixed rates, especially as interest rates are still relatively low. For this reason, it may be useful for brokers to be familiar with the 7-year fixed rates available with Zephyr Homeloans starting at 3.30% and the 10-year fixed rates from Leeds Building Society starting at 2.49%. There is also a 3.24% 10-year fixed rate from TMW which only has ERCs for five years and comes with a free valuation and £250 cashback. Again, these rates may not stand out on the industry sourcing systems, but they could be a great option for someone who wants security in their monthly payments as the economic forecast remains uncertain. It is apparent that lenders are starting to think outside of the box in terms of product design and looking for ways to provide financial solutions for landlords in this ever-changing marketplace. So, for brokers with buy-to-let clients there are now options beyond the mainstream that could help them to place the more complex cases. www.mortgageintroducer.com
Review: Protection
Getting in early With mental health underwriting becoming ever more topical it’s great to see insurers announcing new or improved cover for those with mental health (MH) conditions. At the same time, the ABI is paving the way for a framework of core and measurable MH standards for insurers to help improve underwriting for anyone impacted. A full announcement is expected in early 2020. More than two thirds in the life and protection sector think the industry is better at underwriting physical health than mental health, while 64% want greater flexibility around decisions than just ‘accept’ or ‘decline’, according to the results of a recent MH study unveiled at the recent Protection Review conference. Income protection mutual Holloway Friendly said at a recent industry event that it would help improve access to insurance for those with a
Kevin Carr chief executive, Protection Review and managing director of Carr Consulting & Communications
history of mental ill-health – including existing mild depression or anxiety – even if they are on medication when applying for income protection (IP). The mutual society is designing a set of underwriting questions, due to be in place later this year, to help it better understand the nature of applicants’ MH situations and the ways in which they are managing their symptoms. Additionally, Royal London has this year been piloting a new MH underwriting philosophy using a panel of adviser firms. Designed to assign cover to those with severe MH conditions who would traditionally be declined, the insurer said it has offered cover to 75% of applicants who would typically be uninsurable: 10% were postponed with the possibility of being offered cover at a later date; while 15% were declined due to the condition being too severe or unstable.
Acting on advice Protection provider Guardian is introducing a new type of cover requested by its mortgage partners, which aims to help more advisers meet their clients’ family and mortgage protection needs in a cost-effective way. It will now offer combined life and critical illness (CI) cover, allowing advisers to apply for mortgage and family protection in one application. A claim can be made in the event of the policyholder’s death or diagnosis of a critical or terminal illness, whichever comes first, and can serve to protect a mortgage. It also offers access to the protection with a single payout. Guardian says that because it pays out just once, the provider is able to offer it more competitively than standalone options which have the possibility of multiple payouts. Adam Higgs, head of research – adviser services at Financial Technology Research Centre, said: “This proposition
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provides for the first time a joint life with accelerated CI option. “This not only will slightly reduce the cost of the Guardian plan but also enable brokers to put cover in place for the mortgage without the risk of overinsuring the client.”
NOVEMBER 2019
News in brief • Legal & General has developed a selection of protection products specifically for the private rental sector, following a four-month pilot through the Mortgage Advice Bureau. The range includes income protection, life and life with critical illness. • Separately, a new report entitled ‘Protecting Generation Rent’ finds there’s a potential market of eight in 10 renters without cover: 18% believe they have some form of income protection in place, leaving an annual protection gap of £30bn. • Mortgage brokers have outperformed IFAs for levels of new protection business, according to technology provider iPipeline. Volumes from mortgage brokers showed a 90.5% year-on-year increase, compared with 32.4% from IFAs. • Only 27% of parents say they could cope financially if their child fell ill and could not support themselves, according to a survey by Old Mutual Wealth. Almost half (43%) said it would put strain on their finances, while the rest said they would struggle to cope or fail to cope at all. • VitalityLife has launched a new set of personalised plan provisions, which halve the policy paperwork, making it clearer and easier for customers and advisers. • The ABI has called on the Department of Work & Pensions (DWP) to provide insurers with a better understanding of the potential interaction between IP and Universal Credit (UC). At present, 36% of individual IP customers would have UC entitlement removed because of their policy, according to an ABI commissioned report by the New Policy Institute.
MORTGAGE INTRODUCER
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Review: Protection
From the mediaeval reformation to protection Like most history graduates I knew straightaway that insurance was the only industry I wanted to work in. It was a no brainer to take the small step from studying the mediaeval reformation to advising on home insurance and then on to protection technology. It’s obvious, right? Since graduating eight years ago and becoming fully embedded in the world of insurance I have worked at four different companies and have made a sideways move into product management all in a relatively short space of time. To some, four companies in eight years may seem like quite a few different jobs and my career path may even seem a little random, but for me it is the standard process amongst my friends and family. I’m surprised when someone my age is already on track for getting their longevity of service award. It’s increasingly rare, after all job hopping can be a great way to a) get more experience and career progression and b) get more money quickly. And if I’m being honest, that second factor can be really appealing. This job-hopping mentality is frequently seen in the under-35s with recent data showing that nearly half of those under-30 in 2018 planned to move jobs within two years and most didn’t see themselves staying at a company beyond five years. There doesn’t seem to be an indication of this trend changing anytime soon with careers becoming increasingly varied and flexible. But before we all merrily skip along to our next job in an exciting new company (the grass is always greener on the other side after all) there are a few things we perhaps forget to consider, a key one being income security. Yes, that new company offers a dazzling salary increase, but what are your new employer’s benefits? Do you get the same level of sick pay? Is there a death in service ben-
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Charlotte Harrison product manager, iPipeline
NOVEMBER 2019
efit? How does the pension scheme compare? By moving companies are you making yourself more financially vulnerable without even realising it? From experience I know when I was starting out it very rarely occurred to me to look beyond the headline salary. There are obvious benefits to dedicating time to a company and building up that familiar safety net: accruing more annual leave, making your two-year redundancy threshold (just in case) and ensuring you are past the three to six month probation point so you can apply for a mortgage and gain that additional security. However, nice and safe as this sounds it is no longer the reality for those about to enter the workforce. The new reality is something that should be particularly relevant to those working in the protection industry. Recent research shows that millennials are already thinking about protection, with 12% of consumers taking out a policy following a pay increase and the 18 – 34-year-old bracket now being the most likely to
purchase a protection product. iPipeline has seen this reflected in our figures with the under-30s now accounting for 18% of policies sold (up from 14% in 2015). The protection figures are moving in the right direction but considering the vulnerability of this age group there’s still plenty more we could and should be doing. The increase in career diversity means there are plenty of opportunities for advisers to start or continue that all important protection conversation. Most people may only get married once or twice in their lifetime, women are having an average of 1.9 children and people are moving to a new house less than ever (once every 23 years according to Zoopla). This means there are a maximum of five standout protection opportunities in a typical customer’s journey. That’s not much time for an adviser to build up a relationship and good level of trust with a client. In contrast to this it’s estimated that people can now expect to have 12 – 15 jobs across their career. That’s a lot of potential protection conversations. Each job change means a different salary, a different amount the consumer needs to protect and probably a different set of company benefits. With each job change the conversation about income protection becomes relevant to the client again to ensure that they don’t have a shortfall in cover. So, while starting a family and buying a house are still the top reasons for purchasing protection, advisers should keep looking at the broader picture and start ensuring they are able to hook into the aspects of life that will keep the protection conversation relevant to their client. Don’t just wait for someone having kids being the catalyst for them seeing the importance of protection, consider what other lifestyle choices are keeping protection consistently relevant and important to address. We need to make sure we can both understand and accommodate the needs and drivers of those who are choosing a pick ‘n’ mix career rather than the traditional route of longevity in service. www.mortgageintroducer.com
Review: Protection
Now’s the time to discuss IP It’s still assumed that term life insurance comes top in the hierarchy of protection needs. While a homeowner’s life insurance pay out can, of course, reduce financial pressures on their family by paying off the mortgage, the truth is they’re far more likely to go on long term sick than die during their working lives. Income protection (IP) provides a vital safety net for people to keep up with their mortgage repayments and pay the bills if they’re unable to work for an extended period of time. That’s why IP should be first on the list for advisers in any discussion about protection. Traditionally the poor cousin in the protection family, the message seems to finally be getting through about the value of IP. According to this year’s Swiss Re Group Watch Report, IP sales have risen for the fifth year in a row, with policies growing by 22.6%.
Andy Philo director strategic partnerships and employee distribution, Vitality
These sales have been boosted by the sterling work of mortgage brokers who, according to technology provider iPipeline’s Q3 results, have boosted overall protection sales by 90.5% year-on-year. All of this is obviously great news, but with Brexit uncertainty still weighing heavily on the mortgage market and the typical slowdown before Christmas, brokers should take the opportunity to review their client files to see if IP was mentioned during any of the conversations they’ve had this year – and if not, bring it up. Lucy Brown, head of protection at L&C Mortgages, believes that although buying a home is often the trigger for borrowers to consider their protection needs, they may be more receptive at a later stage. “Customers who may have turned down the chance to protect themselves in the past may well have had a change
of circumstance and be grateful for the chance to rethink their requirements,” she says. Brokers should also ensure clients have the right information at the right time, adds Dean Mason, director at Masons Financial Planning: “Almost all clients view life cover as priority with critical or serious illness next and IP down below unemployment cover. With a set budget this rarely changes unless the protection fact find is thorough and presentation happens at a time when getting the mortgage is not the only thing the client thinks about.” Who knows, now that they’re happily ensconced in their lovely new home and the whirlwind of offers, deposits, surveys and all the rest are over, your client may have the headspace to think about the best ways to protect their and their family’s future. Just remember the old sales maxim - you don’t ask, you don’t get.
Appreciating where advisers add value Over recent months we’ve been undertaking a large-scale insight project to gauge our understanding of the protection market from different viewpoints. This work has included a research study with hundreds of advisers, along with detailed conversations with product providers, who in turn shared observations collected from customers. I’d like to share some of the key take-aways from the study, starting with the customer’s point of view. Our study clearly highlighted the need for greater consumer education and awareness of protection. Furthermore, the reasons why consumers don’t currently seek out protection insurance provides a focus for this work. Consumers continue to underestimate the risks of serious ill-health, whilst overestimating the cost of insuring against that risk. Lack of confidence in a claim being paid is a www.mortgageintroducer.com
third important factor. Taking each one in turn, it’s frustrating to see the continuing disconnect between the type of insurance customers purchase compared to what most people are most likely to actually need. In opting for life insurance people understandably want to protect their families against the worst, but this doesn’t reflect the true risks when each year one million people in the UK find themselves unable to work for an extended period due to a serious illness or injury. This brings us to the second big issue. Whilst we’re fortunate in the UK to have the NHS and benefits such as Statutory Sick Pay and Universal Credit, this can lull people into a false sense of security. It can make some people feel like protection insurance isn’t required, which definitely isn’t the perception in other countries such as the USA and Australia.
Jeff Woods campaigns and propositions director, Sesame Bankhall Group
NOVEMBER 2019
In reality, the amounts available from UK benefits are very sobering for people to discover. In most cases it would leave them living on the breadline, which can have an adverse effect on health and recovery. Furthermore, benefits are a notoriously difficult system to navigate, with payments often being either delayed or refused altogether. This situation isn’t helped by the fact that most people who attempt to take action often bail out of the process. Which brings us to certainty of claim. There seems to be a mythology around the difficulty of gaining pay outs in the protection industry. For many customers, discovering that the vast majority of claims are paid out is a big turning point for them in deciding to purchase. This all goes to highlight and reinforce the value that advisers add to the protection process, and provides much food for thought. MORTGAGE INTRODUCER
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Review: Protection
All in our debt We are all in the business of debt – mortgage brokers, healthcare intermediaries, IFAs. Hopefully by selling protection, household or building insurance we are not putting people in debt – but ensuring they can avoid it should they hit the circumstances that would lead to a claim. But when any of us take on a mortgage there’s one big debt issue right there. Ideally it is a manageable debt and if the lender has done the right job it will be. And if the broker or their insurance intermediary contact has done their job right then the debt will not only be manageable but the mortgagee protected against it becoming unmanageable. A reminder of why our jobs are important – and particularly our making sure we sell responsibly – comes from new statistics regarding debt from the StepChange Debt Charity; 29% of Brits expect their finances to get worse in the next year, while only 14% believe their financial situation will improve. Of those expecting to be worse off, 38% cited uncertainty in the wider economy as the cause. Of course, this is expectation and not reality – yet. But the charity cites 331,337 people contacting it for help with their debts in just the first six months of 2019, a record number. The charity is ‘encouraging people who may be suffering in silence with their finances to get help by contacting them – it has a free and confidential online debt advice service. Being open about debt is one of the key hurdles to getting advice; 38% of people said they would want to deal with financial difficulties privately and only 52% would talk to their partner or family about them. Some 42% of men prefer to deal with debt problems privately, compared to 34% of women and worryingly 45% ‘never’ or ‘rarely’ broach the subject of debt to family or a partner. The point is if people won’t talk to family – will they talk to someone outside of the family? Especially
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Steve Ellis head of risk and protection, Premier Choice Group
when they are desperate to get a loan, get a mortgage, possible insurance will not be as high on the list, although ironically it should be – although only before debt problems arise. If we do our jobs right – by selling insurance and by arranging mortgages we may well be putting debt in place and calling on income for premiums. But if we do it responsibly – ensuring the debt and the protection is manageable – we are ultimately ensuring against debt not just in the short-term but in the long-term. A mortgage paid off – or being paid off – by degrees becomes an asset that can be utilised if needs be. Ideally, we want to ensure that whatever financial problems hit with the right protection in place a mortgage can be paid off, a lump sum provided in the case of a serious illness, an income provided in case the individual can’t work. We should not really see our homes as investments or pensions but if they need to be they can be. If we have done our jobs responsibly we are giving our clients those options and that security. It’s all a bit over and above just selling a mortgage or a bit of insurance. I’m sure any debt counsellors would be quite happy if we could make their jobs redundant.
Little things we can do
None of us are likely to make fortunes out of this bit of good news for those struggling to get on the housing ladder: that the government is introducing a new national model for shared ownership designed to help lower earners to buy their own homes – or a proportion of them. Given that this means some people can get on the housing ladder with deposits as low as £2,000 none of us are going to retire on the back of it. But we should all welcome the investment into home ownership becoming achievable for more people. Individuals with an ownership NOVEMBER 2019
stake in bricks and mortar are in a position to build on that stake – and perhaps at some point to build on it. Housing Associations will be at the helm of much of these opportunities. There may be clients – or children, friends or relations of clients – for whom these schemes are entirely appropriate and welcome. And us guiding them towards those schemes will not necessarily mean those individuals will never be a client.
Shared ownership
The scheme works in that whereas now a housing association tenant renting a £200,000 property cannot buy a share of that property. Under the new right to shared ownership, the tenant could buy an initial 10% stake worth £20,000, while paying subsidised rent on the remaining 90% of the property. The tenant could make up this 10% stake through a £2,000 deposit and a £18,000 mortgage. The idea is that people will be able to buy small chunks of their home and that fees such as for valuations will be ‘fairer and proportional’. It is the case that ‘the smaller share purchases will make it easier for people to save the money required to buy additional shares, removing the need to secure mortgage finance or pay fees to the lender.’ For individuals who do need a mortgage the government says it wants to make it easier to get one and will be introducing a preferred national model for shared ownership and encouraging more widely available mortgage finance. If someone wants to move out of their home before they and achieved 100% ownership, the new scheme is also set to help simplify the re-sales process. There will be equity – there will likely be a need or desire to make buy another property. At any stage we can contribute our expertise – in smaller mortgages initially (all will need to be clearer) perhaps to remortgaging and at any level to some form of appropriate protection to protect whatever stake there is, what income there is, whatever lifestyle there is. www.mortgageintroducer.com
Review: Protection
SM&CR – why smaller DA firms need compliance support Quality brokers lead busy lives and have a raft of product information to evaluate on a constant basis. Whether it’s mortgage, protection or general insurance (GI), there is rarely a day goes by where lenders or insurers aren’t changing their offerings to the market to remain sharp in an increasingly competitive market. It’s not just the core product areas either. Some of the additional benefits surrounding core products, especially in the protection space, are in themselves worthy of a huge amount of analysis to help evaluate what is best for the client (Best Doctors, Helping Hand, etc). Throw into the mix IT systems and back-office and CRMs and it soon becomes clear that the task of a broker is probably at its most difficult and time-consuming ever. At a time when profit margins could be said to be under pressure due to an increase in product transfer business, potentially affecting gross revenues, and the continued reduction in life assurance rates affecting commission levels (some analysis shows these to be down 15% in the past five years) it might be increasingly hard to balance the books. If that was all we had to contend with it would still be a challenging space to be in. However, possibly the greatest challenge of all working in financial services is that of meeting the requirements of the regulator and the constant change that brings to business structure and process. This article is not designed to portray these changes as a negative; it is to merely state a fact that constant change is upon us and, in reality, this leads to an element of disruption within a firm and possibly a diversion of resource. In some cases, it means employing additional resource to carry out the necessary tasks to ensure businesses stay on the right side of the regulator. The introduction of the Senior
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Mike Allison head of protection, Paradigm Mortgage Services
NOVEMBER 2019
Manager Certification Regime (SM&CR) is an example of such change and will fundamentally alter the accountability structure of businesses – including mortgage and protection businesses – moving forwards. Many will be way down the line in formalising the first requirement by 9 December but recent press comments and anecdotal evidence would suggest that many brokers are some way away from meeting the regulatory requirements, including the Statement of Responsibility to all designated Senior Managers within a firm. While the broad aims of the scheme are designed to reduce harm to consumers and increase market integrity by creating a system which enables firms and regulators to hold people to account, (all very laudable principles, supported by the majority of practicing brokers I am sure), the reality is that the practical steps a firm must take to these ends takes a huge amount of time. Filtering through the various consultation papers and policy statements are not easy, and then designing an acceptable plan is almost an
impossibility for those not used to teasing out the practical requirements. The reality is that sometimes such regulatory changes do not always apply to those operating in the mortgage and protection space and are often therefore passed over as a task. However, this is a fundamental change to the way the FCA work across all sectors and as such mortgage and protection firms are definitely ‘in the arm wrestle’ - to use a much-utilised phrase from the recent Rugby World Cup Unless a firm has a highly-experienced compliance officer able to drive out the requirements in a timely manner (identifying what needs to be done before December 9 and what needs to be done within 12 months of that date), it is probably wise to call upon the support of an external firm such as Paradigm. External compliance support means a vast amount of compliance experience can help with the process, leaving the broker to carry out the day-to-day tasks that are clearly difficult, as mentioned earlier, but more in keeping with how he or she looks after the immediate financial wellbeing of a client and therefore of the firm in which they operate. There is not a great deal of time left so now would be the time to use it wisely and secure the support you need.
www.mortgageintroducer.com
Review: General Insurance
The exciting benefits of being better connected On the surface, APIs don’t offer too much to get excited about. Their sole purpose is to make it easier to connect existing technology platforms, so that data can be shared between them. But it is in this sharing of data that exciting things can happen, as connecting people with the information they need when they need it can lead to better customer experiences. To demonstrate how this can work, here are three examples of connected data enhancing customer experiences in other industries, and some ideas about how this approach can impact on the world of advisers and GI.
Disney MagicBands
Guests at a Disney Resort Hotel in Disney World are issued with a MagicBand, which is worn like a watch. They can then use this band to enter the park, get priority access to rides, buy their refreshments without cash or a card, unlock their hotel room without a key and even get an impromptu from one of the cast of characters. The MagicBand talks to the park’s systems using APIs. The hotdog vendor knows the guest is a resident and can put the cost on their room bill, Aladdin gets the customer’s details as they approach and can welcome them by name. This simple data transfer technology means Disney can create customised experiences for each guest and make their stay much more personalised and convenient.
McGraw-Hill Education
McGraw-Hill is a large educational publisher in the US, but rather than sticking to traditional publishing, it has started to provide educational material and texts in a digital format. It shares real time information with teachers about how far students have progressed, how quickly they are getting through the information, where they are getting stuck as well www.mortgageintroducer.com
Rob Evans CEO, Paymentshield
as test results. This gives the teacher powerful information they would never have previously had access to. They can intervene much earlier with a student who is struggling or give the high-flying student more challenging work. Either way, information sharing enables the teacher to help every student as an individual and create more personal learning experiences.
Nike
Nike is a company that sells trainers and sportswear, right? Well, yes but nowadays it is also a personal trainer, motivational coach and much more. Previously, Nike sold you a pair of trainers and that was it. Now it can sell you trainers with chips embedded in them, which you may pair with a heart rate monitor or smart watch and link to the Nike app. Nike can then monitor what activity you are undertaking, as well as your fitness levels, and create tailored coaching programmes, set fitness goals, provide warm-up/ warm-down sessions and even give you a nudge if you haven’t been for that run today. Simply through sharing some of your information, Nike have gone from being a brand that you may chose when you need new running gear to a brand that communicates with you every day and forms a deeper, more meaningful connection. These are three examples where the simple sharing of data and use of existing technology can create real benefits for both customers and the companies that embrace this way of interacting. Harvard Business Review says: “A seismic shift is under way. Thanks to new technologies that enable frequent, low-friction, customized digital interactions, companies today are building much deeper ties with customers than ever before. NOVEMBER 2019
Instead of waiting for customers to come to them, firms are addressing customers’ needs the moment they arise—and sometimes even earlier. It’s a win-win: Through what we call connected strategies, customers get a dramatically improved experience, and companies boost operational efficiencies and lower costs.” Research in Forbes says that 50% of consumers say they are likely to switch brands if a company doesn’t anticipate their needs. Yet most businesses are still continuing to just interact with their customers periodically and often it is the customer having to make the contact rather that the other way around. You will be familiar with this dynamic as a mortgage adviser. If you were to wait for your client to reach the end of their current mortgage deal before talking to them, there’s a good chance that they would have already had a conversation direct with the lender or another broker and that you could lose them as a client. This is why good advisers anticipate their client’s needs and contact them month’s in advance of them needing a remortgage, to let them know that you are there to help. Creating frequent touchpoints with your clients is important for any adviser, and this is an area where both GI, and more connected data, can help. In future, I believe there will be a huge difference between a truly connected GI platform that will enhance your client’s experience throughout the life of a policy – from sale to service to claim – and those platforms that only really focus on point of sale. Creating multiple connections throughout the life of the policy will change the nature of the relationship between home insurance customers and their providers. APIs may not be that exciting, but connected data is because of all the possibilities it can open up. Take a moment to think about how your business could benefit from being more connected, and how this could influence the future relationships you build with providers and partners. MORTGAGE INTRODUCER
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Review: General Insurance
Beyond big software lies real innovation A vast percentage of the intermediary market rests in the hands of just a few large software houses. It’s my belief that there’s a danger in being wedded to a large software house, and that danger is lack of differentiation. There’s much innovation happening amongst the more agile independent product providers. There are many opportunities intermediaries can jump on by embracing technology and digitisation - rapid quotations, slick application processes, and easy administration to name but a few - the problem is that if intermediaries are all embracing the same technologies from the same software houses they risk being an ‘also ran’. Where’s the advantage? Typically to gain access to better premium or commission rates on a software house an intermediary will
Paul Thompson founder and CEO, Cavere Intermediary
need to put a lot of volume through one particular insurer, hard to do when business is spread across a panel of insurers without any conflicts of interest. Factor in software house licence fees and margin per policy and it all adds up to a much less competitive proposition. For example; say a broker has a high value, high net worth client, one they’ve built up a strong relationship with over many years, and one they want to keep happy. This client refers friends/family all of which have standard requirements. Providing these standard customers with the same level of personal service as a high net worth client is prohibitive, and potentially risks a perception that the broker isn’t very competitive in general.
Looking towards independent product providers offers improved flexibility. Not only can we compete on price with the big players, but we can also provide improvements in quotation speed and slicker processes, equating to a much more appropriate, less time intensive solution. Where we really differentiate however, is flexibility. We can let intermediaries focus on their high value clients, by looking after their standard/lower premium policies, mid-term and at renewal, to deliver both value and price. By having such a tight hold over the market the big software houses are undermining the real value that investment in technology can deliver. Perhaps it’s time for intermediaries to loosen the stranglehold and think differently for bigger gains.
High cost of new business acquisition is damaging value, service and quality It’s a sad state of affairs that despite the high cost of acquisition insurers believe that they can only attract new business if their products are listed on aggregator sites. Simply relying on aggregator leads means that they’re differentiating on nothing other than price. What about service, quality and value? Aggregators have driven down prices at the expense of quality, and introductory offers have created unrealistic price expectations. In October 2018, the FCA announced it was considering banning dual pricing, however their approach has been somewhat cautious so far. After 12 months they’re still seeking further consultation. This is somewhat frustrating, and has left commentators debating just how tough the eventual proposals will be. I recently saw a comment from one source saying that “Time is running out for the regulator to make meaningful change and save the industry from itself”. I agree with this statement, but I’m not sure the remedies being consulted on are directly related to the cause or solution of the dual pricing issue? Everything seems to be focussed towards forcing customers to shop around every year in the belief that price and competition are the be all and end all. I’m not sure all customers subscribe to this view, for many the last thing they want is to shop around every year. Granted most would like a lower price, but what about those providers who already reward loyalty, where does service, trusted advice and value for money come into the
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thinking? Right price, first time. Let’s deal with cynical pricing practices and dual pricing, yes, but stop the race for the bottom on price. Forcing customers in the direction of aggregators isn’t the solution. Let’s encourage customers to choose insurance based on quality of cover that meets their needs, at a fair price, with service that provides peace of mind, from providers that reward loyalty. Whatever the final remedies, the result is likely to be a reduction in the availability of cheap introductory offers. Customers currently overpaying will be looking for trusted counsel to find new cover that meets their needs. The insurance industry isn’t immune from the experience economy. Customers no longer base their loyalty on price or product alone. Aggregators are disconnected from their customers, and they sacrifice sustainability in favour of convenience. If you’re an enlightened intermediary you can pick up the slack, use a tech driven GI provider to deliver on speed and convenience and getting the right product, at the right price at the outset. Build an experience, build a relationship based on service, value and quality and you’ll build new business. Whilst we wait for the final proposals, intermediaries have a valuable window of opportunity. Leave those firms who can only attract customers by selling on price to it, and instead focus on differentiated experience in readiness for the new level playing field that is coming…
NOVEMBER 2019
MORTGAGE INTRODUCER
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Review: Equity Release
There are opportunities in this £383bn market With the rain beginning to fall in earnest and the UK’s future relationship with the EU still unclear, you could be forgiven for wanting to stay in bed and watch Christmas films (it’s never too early). But it would be remiss of advisers to ignore the significant amount of property wealth that some people can currently draw on. For advisers to best help homeowners aged 55 and over to see their wealth in a holistic manner – including the role that their property wealth can play – they need the support of the industry, as well as an understanding of what customers want and the political and economic reality they face. At the end of Q3 2019, we found that there’s £383bn worth of equity contained within UK homes. This is a trove of wealth that is currently sitting passively in people’s homes. However, from our customer data and our understanding of the issues facing people in, or approaching, retirement, we have a handle on the ways that people are using lifetime mortgages – both now and in the future. One of the foremost reasons customers use lifetime mortgages is to improve their lifestyle. This can take on a number of forms, such as the two-fifths of customers who tap into the wealth stored in their homes to make improvements to their home, and the fifth of customers who use lifetime mortgages to pay for a dream holiday. Qualifying homeowners are also releasing equity from their property to support their finances; almost half of Canada Life customers are using equity release products to pay off residual mortgage debt, and close to a quarter of customers take out a lifetime mortgage to consolidate unsecured debts. But the increase in the number of customers using equity release to improve their lifestyles is particu-
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Alice Watson head of marketing and communications, Canada Life Home Finance
NOVEMBER 2019
larly noteworthy, albeit perhaps not that surprising. A number of wider socio-economic factors in the last decade have likely contributed to this development. Chief among them is the lacklustre growth in real earnings, which are lower than before the 2008 to 2009 recession according to the ONS. Another significant issue is that of long-term care. Stark data from the World Economic Forum finds that the average retiree in the UK will outlive their savings by about 11 years. The financial gap between finishing work and retiring – a pressing concern for many aged 55 and over – has become especially pronounced. And with more people expected to live longer, and the associated rise in the number of people who will suffer from an age-related illness, this will have serious financial and nonfinancial consequences for many. Positively for the industry, recent research by Canada Life finds that a
quarter of people in the UK expect they will opt to release equity from their property rather than use their pension to pay for care costs in later life. This is an increase compared to three years ago, and is a good sign that more consumers are seeing their wealth holistically and perceive the role their property can play in their financial plans. This is also a reminder that it pays for advisers to keep up with current affairs. But in order to meet customer demands and realise this potential expansion in the equity release market, advisers need industry-wide support. Earlier this year, we found advisers ranked getting more support as the number one thing needed to make equity release more attractive and accessible in 2019. Canada Life recognises the role it can play in supporting advisers. That is why we have put on a series of workshops that aim to give advisers the support they are looking for. We are proud that these have been so well received by industry practitioners. But advisers should also be asking themselves whether they can do more to help customers realise their financial goals. And with equity release in their toolkit, advisers have a potent solution that they shouldn’t overlook.
www.mortgageintroducer.com
Review: Equity Release
It’s time to improve the availability of advice Research conducted by the Liverpool Victoria insurance group has revealed that a jaw-dropping 70% of advisers currently feel uncomfortable about advising clients on equity release products. This is despite 61% (six out of 10 respondents) acknowledging that they expect equity release (ER) to become part of the financial mainstream over the next five to 10 years. The study found that 26% of the 206 advisers who were surveyed found it challenging to establish whether equity release was appropriate for their client’s needs, while 21% admitted that the complex nature of products inhibited their ability to explain products properly to customers. In addition, 18% said that they felt there was a lack of personal knowledge about ER products, while 16% said they were uncomfortable about explaining the costs involved, leaving a mere 25% of advisers who described themselves as sufficiently confident to advise on these options. Which, given the remarkable rates of demand and growth experienced across the equity release sector in the past few years, is a deeply troubling conclusion and one which raises some fundamental issues. Firstly, the research highlights what can only be described as an unfortunate lack of product knowledge amongst brokers, whilst also raising the distinct possibility that this deficit could deter customers from achieving satisfactory or suitable financial outcomes as a result; the very definition of compromised advice. Indeed, the managing director of ER provider Fluent Lifetime, Aaron Conlon, has already warned that an inability to advise on equity release could “come back to haunt” advisers in the future by helping to “create a bubble of questionable recommendations which might well lead to regulatory issues and Financial Ombudsman Service claims, (especially) if advisers are proved not to be giving equal consideration to all the possibilities for a customer”. www.mortgageintroducer.com
Claire Barker managing director, Equilaw
This is hard to argue against. Moreover, as the need to improve standards of knowledge and confidence throughout the industry become more pressing, research conducted by Canada Life Home Finance has found that 40% of independent financial advisers feel that greater support is needed in order to help raise the number of IFA’s who are qualified to advise on equity release. The research found that around 12.5% (or one in eight) independent advisers found to lack the relevant qualifications at present. This could be viewed as disappointing, especially when one considers the short amount of time and cost required to obtain one of the two industry recognised ER qualifications. In addition, research conducted by equity release specialists, Pure Retirement, has discovered that only around 9,000 (or approximately one quarter) of overall advisers are qualified to offer ER in the UK, with just 500 to 1,000 found to be doing so on a monthly basis. Yet, with approximately 700,000 people reaching retirement age each year in the UK and only around 35,000 advisers currently registered with the Financial Conduct Authority, this research also highlights a worrying disparity between the growing numbers of potential clients and the relative paucity of advisers. This is a shortfall which could ultimately de-rail the distribution of ER products and undermine standards of advice. So why, after seven consecutive years of market growth within the sector, has this situation been allowed to develop? One possible explanation could be attributed to what some critics have described as a culture of conservatism within parts of the broker/ adviser sector and of an unwillingness to embrace options which fall outside of core business models, especially specialist products. Indeed, research conducted by Alliance & Leicester Intermediary Mortgages way back in 2006 reNOVEMBER 2019
vealed that 45% of intermediaries would not consider selling equity release under any circumstances, with a lack of confidence or a feeling that it simply wasn’t worth their while being cited as the primary reasons. This, of course, is very old news; opinions and the sheer profitability of the equity release market have shifted considerably since that research was concluded. Yet, many within the ER sector feel that some of the arguments that were used at this time still hold true today. For example, regulatory constraints and the time-consuming support of day-to-day business are frequently cited by brokers as being incompatible with the demands of complex new markets and the effort which is needed to familiarise themselves with product options. Yet, with 75% of ER qualified advisers reporting that they use their qualifications on a weekly basis (according to the Canada Life research) and demand for products growing demonstrably by the year, there can be little reason to believe that a refusal to engage with ER could be based on commercial decisions. Or that an integration of equity release services into core business models would be anything other than entirely beneficial to both practices and clients, especially for those brokers who wish to offer a more holistic or better balanced standard of advice to their customer bases. So, the key to improving the availability of advice isn’t just about raising confidence levels or even updating the equity release adviser exam which underpins the whole process (although an overhaul of mortgage advice qualifications is on the cards). It’s also about confronting and challenging some of the pre-conceived prejudices or notions of wasted effort that have permeated some within the advisory sector. Put simply, a failure to do so represents a betrayal of client needs and an abandonment of their best interests. MORTGAGE INTRODUCER
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Review: Equity Release
Options bring opportunity ‘The best laid plans of mice and men often go awry.’ It was the Scottish poet, Robbie Burns, who came up with that one, and I’ve always felt it was particularly relevant in the context of providing later life advice and understanding the ambitions and inclinations of those who are near, or are in, retirement. For instance, we might all sit here right now and feel we have a firm idea of what we plan to do in retirement. Indeed, we might have a date in mind, we might have a clear idea of how much money is required, and we also might understand how we’re going to use the assets we have to give us the retirement we want. However, those plans can change very quickly. Did we plan for helping our children onto the property ladder and the money that was going to be required for that? Did we plan for a period out of work between now and retirement? Did we plan for the health issues of a partner and the long-term care costs required by that?
Stuart Wilson group chief executive, Answers in Retirement
Paying for retirement
Life happens and the plans that we thought were set in stone can crumble to dust very quickly. It’s why I’m somewhat suspicious when I read surveys about what people in retirement are willing (or not willing) to do, when it comes to paying for their retirement. There has often, for instance, been a perception in the industry that large swathes of retired property owners are more than willing to downsize out of their current property in order to free up large amounts of equity. I dare say there are those who are willing to do this, but when push comes to shove, how many individuals who have lived in the same house for many years would be willing to bite the bullet and put their house on the market? Questions abound here – where do they move to? What type of property do they want? The ‘retirement dream’ is often purported to be a
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bungalow by the sea – how many of these properties actually exist and how much do they cost? I might suggest that many of these homes cost significantly more than people first realised – it’s hardly downsizing. Downsizing is also seen as something of a ‘saviour’ for the UK’s housing supply problems. Many commentators seem to be believe there are hundreds of thousands of property owners who, if they can be convinced, are wanting to downsize and thus free up the large number of ‘family homes’ that are required by the next generation of owner-occupiers. I’m yet to be convinced of this, which is why I question whether a significant cut in stamp duty costs for ‘downsizers’ would actually bring about the increase in transactions that many think is possible. It may help but would it make the difference to those who weren’t already planning to downsize – as is often the case with such changes, they tend to help those who were going to make the move anyway. So, while downsizing is clearly one option for those in retirement in order to meet financial goals, I would question – certainly in this current environment – whether it is going to be an option for the huge numbers that some commentators expect to take it up. There are rather more deep-seated issues within the UK housing market which might work against this, not least the ability of next-generation homebuyers to afford these bigger homes if they do come onto the market, and the supply of relevant property for those retirees who do want to move. I’ve not even touched on the emotional attachment that older people have to their properties even if they do feel they are too big to manage. Which brings us back to the point around whether stamp duty cuts for ‘downsizers’ or ‘last-time buyers’ would bring about the generational handover of properties that some think could be possible?
Look, I’m all for measures that increase the number of purchase transactions in the UK market – we need to ensure that those who want to move are not put off by the significant costs that come with buying a home, and it may well be that exempting downsizers from stamp duty would help in this regard. But, let’s be clear, this is not a catch-all solution and it needs to be taken in the context of a range of issues that might be raised, for example, how might you define a downsizer? What about a divorced couple both moving to smaller properties after the sale of the family home? How might we define ‘last-time buyer’ and how might that be policed? Should the individual move again after the ‘last buy’ would they have to pay the stamp duty back?
Layer of complication
Stamp duty is, at the moment, very complicated and this would complicate it much further. I suspect the government would not wish to put a further layer of complication into the system, but it may well be that this – along with a number of further ‘actions’ - could help generate a more transactions. What I do accept is that we need to give those moving into retirement, and existing retirees’, options and that we need to educate and inform them around the range of options that are available to them. This is where advice is so critical, as it can explain that equity release or other later life lending, for example, might be more appropriate than going for a sale. It can outline the existing needs of the individual, how they might change in the future, and the changes that may need to result from this. It can keep on top of all wants and needs and produce the right solution at every step of the way. One solution is unlikely to be the answer and it is advisers who are best placed to deliver on the plethora of options available. Why not make sure that adviser is you? www.mortgageintroducer.com
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Interview
Teamwork makes the (homeownership)
dream work
Dan Hickey, managing director of PLS Solicitors, explains how brokers can help with the conveyanicing process Why does conveyancing hold up sales?
Why does conveyancing take so long?
Progress has been made to speed up conveyancing, but this is frustrated by two significant issues. The first is that the legal process has not changed in decades and the second is that neither have many lawyers. Adoption of technology has also been patchy. Buyers and sellers sometimes appear to have been led to believe, maybe by some careless estate agents, that the conveyancing process happens quickly, that it is but a formality. As a result, we find that we often need to recalibrate the client’s understanding, re-setting their expectations.
Some cases can be completed in days, but most only progress as fast as the slowest party in the transaction. There are many individual components, often moving independently of each other: money laundering processes, gifts from the Bank of Mum and Dad, searches, title aspects etc. Solicitors working in silos and having their own processes doesn’t help with two law firms handling one transaction and potentially many more in a chain. This is compounded by the fact that search providers, local authorities and the Lang Registry all have their own ways of doing things. The lack of commerciality by some conveyancing firms can also add time. Conveyancing firms that are consolidating might be better at helping the parties make commercial decisions about how to proceed in a transaction.
What do clients want? Communication, transparency and speed. To be kept abreast of how their case is progressing with information available 24/7 and be in a format that not only explains the current status but also the next actions and any issues arising. For most, this must be both online and at the end of the phone. Personal contact is important as many people won’t go through a conveyancing process very often and, even in this day and age, just need the reassurance of an expert at the end of the line.
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Is fraud a problem? Property transactions are a target for fraudsters. Key preventative measures include technology, good antimalware and applications such as ONDMARC. More rigorous AML and KYC checks to prevent
client impersonation too. The introduction of new checks and protocol enquiries will help avoid someone selling a house that they don’t own. The 2018 seller fraud Dreamvar case brought about some changes.
Has technology helped speed up the process? Yes. Good solicitors have invested in technology as have many local authority and central services providers. For example, the digitisation of the Land Registry via its online portal and better digital checks for ID and so on, has cut the time taken to carry out searches.
Where has technology yet to help? Technology is only as good as the data that it can process so problems may occur with older properties that may not be recorded electronically or where the information is inaccurate, for instance with incorrect boundaries being recorded. That all parties tend to work in silos is still a challenge. Maybe blockchain will help us overcome that.
How is conveyancing changing? The industry is polarising. The perception that local knowledge
Interview
helps is disappearing. For many legal firms conveyancing is a small part of what they do, so technology investment is a low priority. For some, paper is still their preferred communication channel. But when you consider that a decent scanner costs £3,000 plus OCR software setting you back tens of thousands, it is easy to see why small firms don’t invest. Robotic process automation is also being adopted, but this costs thousands in developer time and expertise to make it become useful. As a result, in the last five years, firms handling fewer than 25 cases a month fell by 10%, whilst those handling over 50 rose by 31%. This will continue as more solicitor firms cease conveyancing. Clients’ expectations have evolved, and they expect real time access to their case with intelligent information on its progress. Client facing portals are expected and many firms also provide Apps.
What advances can we expect to see? Hopefully improved connectivity between brokers, lenders, conveyancers, search providers and the Land Registry. For example, KYC and AML checks are duplicated. In the future we could connect this process in a legally acceptable way. AI and robotics Artificial Intelligence and Robotic Process Automation is already enabling data to be extracted from conveyancers’ case management systems to be dropped into broker portals and vice versa. Good case management systems can then automatically process that data using workflow. Electronic signatures - These will become accepted across all stakeholders, from brokers and lenders to solicitors and the public departments. The
www.mortgageintroducer.com
Dan Hickey
New Transparency rules These may lead to a possible ban on referral fees. A new entrant disrupting the market The home buying process has not really seen yet a clear leading market disrupter that delivers a technology solution to everything from sourcing finance to conveyancing. Whether a total solution to what are distinct silos could be achieved is another issue, but there will be organisations looking at it.
How can brokers help with conveyancing?
Land Registry is already using electronically signed documents with a number of lenders, and many conveyancers accept electronic signatures for their own documents. A return of HIPs? HIPs were perhaps a good idea but introduced before the technology and the market were ready. If reintroduced as optional, many sellers could look at their benefits in realising a faster sale. A broad introduction of Reservation Agreements? Gazumping may achieve a higher price but can cost potential buyers thousands and cause chains to collapse. The benefits of Reservation Agreements might be given serious debate for all of the UK. HM Land Registry’s Local Land Charges programme A national local land charges service might introduce efficiencies if it is combined with EDRS and becomes a one stop place to go. Blockchain The Land Registry’s exploration of block chain could have a big impact, in the same way that digital mortgage deeds have become a reality. NOVEMBER 2019
By helping their clients understand that conveyancing can take some time and by managing their client’s expectations. I would also encourage brokers to persuade their clients to shop around and where they need direction to help them assess the pros and cons of the various options available in conveyancing firms.
What criteria should be used to assess a potential conveyancer? We act with many brokers and intermediaries and our experience shows service, not cost is the primary consideration. Key criteria include capacity within the law firm, KPIs, technology investment including online case tracking and client functionality, but, currently, also a personal touch, and with expertise. Broker CMS integration can also be important. This can be done in three ways: by manually updating broker’s portal; integrating the conveyancer CMS with the broker’s portal using APIs to sync systems; or by using RPA to input the data from one system to the other. Finally, whilst local knowledge can help, the larger, national, consolidated firms may already have far more “local” knowledge. MORTGAGE INTRODUCER
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Review: Conveyancing
Embracing the specialist market Figures published by the Intermediary Mortgage Lenders Association (IMLA) have revealed that levels of gross annual lending within the specialist sector have risen by 19% for every year since 2009. As such the specialist residential and buy-to-let mortgage sectors accounted for a whopping £26bn and £37bn (or 10% and 14% respectively) of gross lending figures during 2018 alone (according to figures from the Bank of England). Tightened criteria and the automated underwriting policies adopted by mainstream lenders in the wake of the financial crash have effectively marginalised borrowers who fall outside of ‘conventional’ parameters (such as the self-employed, older borrowers, clients with complex incomes, credit impaired customers and buy-to-let investors etc) and denied their access to funding options, irrespective of individual circumstances or an ability to re-pay loans. Which means that as ‘standardised’ high street terms continue to reduce the number of qualifying borrowers and turbulent socio-economic conditions continue to fuel ever greater levels of demand amongst (so-called) ‘niche’ or ‘undeserved’ customers. So too have specialist lenders found themselves catering to a ‘captive’ and rapidly expanding market of clients; hence the growth in lending.
David Gilman partner in charge, Blacks Connect
Regulatory requirements
Moreover, their ability to do so has been underscored by a combination of advantageous factors; namely, the regulatory requirements which govern the market and the way in which loans are funded. For example, specialist lenders (such as challenger banks, P2P/marketplace platforms and other nonbank lenders) are unconstrained by the same level of prudential regulation as their high street counterparts and this means that borrowers are usually afforded a ‘wider margin for error’ than those who pursue a ‘con-
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ventional’ funding route. Furthermore, despite the higher capital requirements that specialist providers are subject to, the growing use of flow agreements within the industry with which to fund mortgage lending and the diminishing use of securitisation markets has undoubtedly afforded the industry a degree of stability and control over pricing which was previously absent. Moreover, once we factor in the rise in mortgages that are being sourced via intermediaries using a whole of market approach and the emphasis which this is placing on price and suitability of products (as opposed to brand or panel restrictions), we can see that the outlook for specialist lenders looks extremely bright, especially given the entrenched conservatism of the high street. But, how does this growth impact on the conveyancing process? Well, inevitably, the higher degree of complexity and risk which many specialist cases carry means that conveyancers are having to adopt a more ‘bespoke’ approach to their work while also by-passing conventional notions of procedure. For example, the purchase of properties via a limited company is infamously fraught with added difficulties and involves a veritable shopping list of requirements for conveyancers to attend to. These include ensuring that all directors and significant investment shareholders have provided full ID and taken legal advice from a third party solicitor, checking that none of them have any adverse entries or pre-existing charges against them and completing Personal Guarantees for each named individual. In addition, solicitors will need to establish whether a company is empowered to borrow money and hold property, to register each charge with Companies House and HM Land Registry, apply any capital gains tax or stamp duty exemptions and make sure that each property conforms to licensing requirements and planning permissions as well as
any special lending conditions. Which, even in its abbreviated form is enough to induce a migraine. However, it’s also worth bearing in mind that lenders will sometimes require separate legal representation, with the borrower employing the services of one conveyancer and the lender using another.
Emerging trends
Which can, understandably, complicate matters even further. And, this means that as specialist transactions become more complex or timeconsuming, we are also beginning to witness three emerging trends within the conveyancing sector. Firstly, that conveyancers are having to develop increasing levels of knowledge, expertise and market experience with which to meet the demands of these cases and to ensure that the work is performed to a high standard. Secondly, that as the range of requirements and duties become more widespread or arduous, completion times are becoming subject to hold-ups and delays. And thirdly (and perhaps most importantly from the perspective of clients), that as added documentation and paperwork requirements continue to pile-up and the number of potential risks begin to multiply, so too are fees beginning to experience a knock-on, inflationary effect. Moreover, as borrowing requirements become more complex and the need for appropriate levels of knowledge, guidance and advice continues to grow proportionately, the completion journey will inevitably begin to shift from an automated or ‘standardised’ process to one which emphasises greater ‘human’ intervention and oversight. Because, ultimately, knowledge, expertise and experience will always make for better borrower outcomes than a system which is predicated on narrow definitions of procedural ‘acceptability’, irrespective of whether it’s applied to taxation, mortgages or the suitability of products and lending options. www.mortgageintroducer.com
Review: Conveyancing
Don’t wait to take back control I am extremely hesitant to suggest how the political situation in the UK might look by the time you read this. Needless to say that – at the time of writing – it’s a moveable feast, the outcome of which looks decidedly uncertain and that may not have changed by the time Mortgage Introducer lands on your doorstep or finds its way into your inbox. Predicting what might come next is downright impossible but one has to be hopeful that any future government would look at the work that is currently being done by the Ministry for Housing, Communities & Local Government (MHCLG) on the home-buying process and believe it is worthwhile continuing this project. The problems with the process are, after all, not of a political nature but as a result of the system we have, and the problems inherent within that government action can certainly improve it. From what I gather the MHCLG work is focusing on ways to speed up the process which – and some industry stakeholders might find this surprising – are not always the fault of conveyancers. Just recently, I read of a recent event where a panel of experts talked about the faults of the process and seemed to lay the blame for them firmly at the door of the conveyancers. That, I’m afraid, is not the case, and we have to go much further back into the process, to see why purchase cases can take so long to complete. And that’s just freehold, because you can probably add another 3-6 weeks for leasehold cases. However much it might seem like the delay is the fault of the conveyancer, that does not tell the truth of the matter in any way. What about the time it takes for both parties to respond to conveyancer questions and queries? What about the time it takes for the valuation and searches to be completed and reviewed? What about the number of post-offer queries that are www.mortgageintroducer.com
Mark Snape managing director, Broker Conveyancing
made to the lender? What about the poor provision of upfront information, which means that clients are often only made aware of certain aspects of the property situation by the conveyancer? What about the length of time it takes to answer requests for documentation and ID, or details of the lease and the charges, or indeed to even find out who is the lease administrator/manager? Don’t get me wrong, there are a minority of solicitor/conveyancer firms who work at a snail’s pace and who don’t see conveyancing as a core part of their business – thankfully
“Change is required and it needs to happen soon” we do not have any on our panel. There are firms who take on the conveyancing work but do not have the expertise or resource, or indeed appetite, to carry out this casework in a timely manner. There are firms who take on too much work, and can’t cope, or have to send the cases back because they are unable to deliver on them. All of these issues are encountered – and indeed you can add many more besides – but for those who are on top of their game, know exactly what they doing, and have the expertise to deliver on it, even they (time and again) come up against a process which is tricky to work through. So, while it might be easy to lay that blame at the conveyancer’s door, we should all understand that these firms are working within certain parameters which often lead to the delays that many advisers, and their clients, will regularly have to cope with. In that regard, there does appear to be an acceptance from all parts of the political spectrum that change is required and it needs to happen soon. I don’t suspect that this mindset NOVEMBER 2019
will shift regardless of which party is in power next and hopefully we can get to a more efficient process across many areas, hopefully utilising all the technology that is available and helping potential purchasers/homeowners have all the upfront information and facts they need to progress cases in a much quicker timescale. However, we are not there yet and therefore advisers – it would seem – have to put their clients in the best possible conveyancing position, within the system/processes we have now. Which means, in my view, not taking them into a ‘free legals’ route which could exacerbate all of the problems mentioned above, and knowing that the conveyancer is working on the behalf of the lender not the client. Which means, not allowing the client to go off and chose a firm wholly unsuited to the work, with limited resources and understanding of what is required in an increasingly complex system. Which means making a conveyancing recommendation of a specialist firm that does this every single day and can best secure completion of the case within the desired timescale. This is not a difficult ask – indeed with conveyancing platforms like our own it is incredibly simple, plus it gives your client great value, it gives advisers another string to their service bow, and it means you retain a far greater element of control throughout the process. Lest we forget that, while we pay our adviser users on exchange, you are not getting the procuration fee until that case completes, therefore it’s clearly in your best interest to have your client with a conveyancing firm who can get you to that point in an efficient and effective timeframe. Those changes to the process will undoubtedly improve it, but let’s not wait to take back a little of the control and to ensure that clients get the right conveyancing right now. MORTGAGE INTRODUCER
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Review: Surveying
Equity release is a challenge for all For a long time, the equity release market hovered around the £1bn mark, but over the past four or five years that picture has changed significantly. The Equity Release Council’s Autumn 2019 Market Report showed a total of £1.85bn in housing wealth was unlocked in H1 2019 by homeowners aged 55+ to support their later life financial planning. Annualised, that figure means the equity release market is likely to hit £3.7bn in 2019. This is huge growth for any market in such a short space of time, and reflects both the rising demand from older homeowners for finance later in life and also an augmented supply of funding for these type of assets – full disclosure, not least from Legal & General Home Finance. The flexibility of lifetime mortgage products has also improved with ERC analysis suggesting there are now around 300 different products available. A statement from the trade body noted: ‘Energised by strong competition in the market and consumer demand, there has been continued growth across all product features – underpinned by Equity Release Council standards guaranteeing three levels of protection including product safeguards, regulated financial advice and independent legal advice.’ The top growth areas over the last year include options for sheltered or age-restricted accommodation, interest-serviced (regular interest payments) options, downsizing protection, inheritance guarantees and drawdown facilities. A lot is written about the implications equity release has on borrowers’ finances, particularly through the effects of compounding. Less is said explicitly on the effect that long-term finance at the end of a borrower’s life has on the quality standards of their homes. Glossy newspaper pull outs extol the virtues of taking a lumpsum to fund the home improvewww.mortgageintroducer.com
Kevin Webb managing director, Legal & General Surveying Services
ments ‘they’ve always dreamt of ’ but the reality for many borrowers who take equity release, the idea of embarking on extensive building work to a home they have probably lived in for many years already is just too much to consider in their mid-70s. There are real and serious implications for their living standards as a result, but also there is a layer of risk associated with the asset when lending to much older borrowers than is likely with borrowers in their middle years. This risk has not escaped the notice of the Prudential Regulation Authority, particularly given the context of the ERC’s ‘product safeguards’ mentioned in its statement – more commonly referred to as the no negative equity guarantee. This is particularly tricky when it comes to assessing asset value, now and into the future. There are three types of risk to consider:
Primary data
By this, I’m referring to the physical condition of the property. How was it made? Is there presence of modern methods of construction or cladding issues? What is its location, what sort of home is it – a flat, a new build, a terrace etc? All these factors affect the property’s current market value, in just the same way as any other. There is another consideration for equity release valuations however: what is the dilapidation risk? This affects the property’s value at both the beginning and the end of term, with those two figures potentially differing markedly. The age and physical condition of the borrower has to play into this risk as well – not an easy thing to predict or quantify.
Secondary information
By this, I mean things we have to understand outside of the property, for example the tenure type – whether it’s a freehold or leasehold and if there are any onerous ground rent NOVEMBER 2019
clauses. Flood risk, mundic risk, proximity to major planned infrastructure such as HS2 all fall into this type of risk consideration, as does plot exposure.
Tertiary risk
These are risks that exist and will have an effect on a property’s value over time, but that are outside the parameters of control for either the borrower or the lender. They include housing market price movements, the impact of interest rate movements as well as any other monetary policy, and the potential for future regulatory impact.
People risk
The three levels of risk don’t just apply to the property; the person living in it is also supremely relevant when it comes to risk assessment by lenders providing equity release. Primary risk considerations when it comes to the borrower include whether they are a vulnerable customer, their affordability, the quality of sale process, and the demographic of borrower. Secondary risk assesses their morbidity and mortality risk, while tertiary risk assessments take into consideration the often very complex issues of joint life, sole survivor as well as early prepayment risk. Worryingly, we are hearing tales of redevelopment finance being sold to get properties up to scratch ahead of borrowers taking their equity release loans. This is a very expensive form of finance and has a questionable impact on protecting borrowers or lenders facing the array of risks I’ve just outlined. What is the upshot of this? Those operating solely in the equity release market consider the demographic shifts we face in Britain over the next few decades as a golden goose for their product. But the truth is, there is no silver bullet for the silver surfers. Equity release is getting a lot of regulatory scrutiny at the moment for a reason. MORTGAGE INTRODUCER
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Review: Leasehold
Lease be careful It is estimated that there are 4.3 million leasehold properties in the UK, according to the government. A relatively small (yet not insignificant) number of properties, so why is it that leasehold tenure properties have had such criticism centred at them in recent years? In early 2017, the government published its long-awaited white paper on housing which highlighted leasehold as an area where ‘practically feudal practices persist’ - to the cost and detriment of homeowners. Later that year, they followed up with a consultation, in a bid to tackle these ‘unfair practices’. Let’s take a moment to consider the bigger picture, though, before completely rubbishing the entire concept of leasehold. Leasehold as a tenure has a place in today’s housing market for good reason. The system of leasehold property ownership in use today is a relic of English property law dating back to the 11th century. The first leasehold estates appeared a few decades later in the Middle Ages and were designed to allow feudal landowners to create a contract with surfs who worked their land in exchange for the right to live of its proceeds. Fast forward to the 1920s and many landlords started to sell long leases - typically 99 or 125 years - on their properties as a means of bringing in more money without losing ownership of their land and property. The increase in post-war construction of flats from the 1950s onwards caused leasehold ownership to increase significantly, especially as in that period, leasehold was the only means available to subdivide and sell properties in a multi-occupancy building. Freehold ownership couldn’t be applied to flats, as the relevant freehold property law requires a separate land boundary visible on a map - not possible for a tower block of flats which share the same plot of land. It is not the existence of this type of contract that is inherently unfair. www.mortgageintroducer.com
Rather, the misuse of the terms and conditions that it allows freeholders to apply to leaseholders. Over the past 10 to 15 years, developers cottoned on to the fact that leaseholds could be created for new houses as well as flats and onerous, Steve Goodall escalating ground rents were apchief executive, plied. ULS Technology This provided a rising income for investors buying up block freeholds from developers, secured against ground ownership – a no brainer, in other words, if you happen to be an investor or developer. These bundled freehold assets release huge amounts of ready cash to developers as well, allowing them to plough that money into their next projects. As the reams of case study profiles in the consumer press eventually exposed, however, it was the homeowner who suffered in this equation. Having bought their dream home and probably having stretched their affordability to the absolute maximum, they found their annual expenses unexpectedly rising. Often, it has left them unable to meet higher ground rent bills, pushing them into arrears, while simultaneously making their property unsaleable in the secondary market because of those leasehold terms. A damning new report from the National Leasehold Campaign claimed earlier this month that tens of thousands of leaseholders may not have been properly advised. It suggests 90% of leaseholders did
not have the difference between freehold and leasehold clearly explained to them by their conveyancing solicitor whilst buying their home. On top of this, 96% of the 1,486 respondents to the NLC’s survey said they were not informed of the long-term financial implications of buying a leasehold property.
“Yes, it has been abused, and yes, those abuses should be acknowledged and corrected”
NOVEMBER 2019
In March this year, the Housing Select Committee published its report on leasehold reform, recommending that government ‘ensure that commonhold becomes the primary model of ownership of flats in England and Wales, as it is in many other countries’. By June, they had announced that leasehold would be banned for all new houses, while ground rents on new leases would be restricted to a peppercorn, leaving the tenure’s future hanging in the balance. Work is now ongoing with the Law Commission to look at ways to reinvigorate commonhold and improve the process for buying a freehold or extending a lease, or exercising leaseholders’ Right to Manage. This is by no means an easy feat. Government has identified that leasehold reform is highly complex and the current enfranchisement regime alone is the product of 50 Acts of Parliament totalling over 450 pages of legislation. But the fact remains, leasehold is by far and away the most common tenure for existing flats. It is also an entirely legitimate tenure in some markets. Yes, it has been abused, and yes, those abuses should be acknowledged and corrected. The challenge now facing the market is to address its shortcomings without damaging the value that exists for those homeowners still dealing with it. MORTGAGE INTRODUCER
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Review: Technology
The race to the bottom There seems to be a trend in general insurance this year to try and achieve a household insurance policy in as few questions as possible which from an intermediary perspective sounds really attractive but that old adage of “if it sounds too good to be true, it probably is”, should be ringing in your ears. Legal & General brought out ‘SmartQuote’ earlier this year aimed at intermediaries, claiming they can produce a household quote in as little as one question with the caveat being that this is only possible if they know the customer, although they do not make it clear exactly what needs to be known in order for this to qualify. The reality, I suspect will be closer to five to six questions but even then this is fraught with potential problems. L & G are in a better position that brokers because they are insuring the risk and can therefore take a more speculative approach but this is a calculated risk because they hold a significant property database along with extensive experience in underwriting and is therefore in a good position to make certain key assumptions when underwriting property risk. Intermediaries, however, are not as well placed and should approach this with some caution. In order to accurately assess and price the risk it is essential to have a clear understanding of the property and the policyholder, although there is a fair amount of data available to integrate into the process these packets or cubes of data which are not complete nor are they error free and as such certain additional assumptions will have to be made. This is an acceptable risk but not if you are the intermediary giving advice to your client as any quote platform will seek confirmation from the intermediary that they have answered all the questions accurately and completely as well as having checked all assumptions to be accurate, even then the platform will not be taking any responsibility for the
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Kevin Paterson consultant
NOVEMBER 2019
sale as this liability remains with the intermediary. The broker therefore, must ensure that they are comfortable with the risk they are assuming in return for a quicker quote journey. This is further compounded by the shift in responsibility brought about by the Consumer Insurance Act 2015, which meant that insurers could no longer rely on non-disclosure as a defence when refusing to honour a claim but must instead ensure that they have asked every relevant question and in a way that is clear and not misleading. This, it seems is at odds with a limited question set driven in part by assumptions. It is also worth remembering that with the increase in the amount of data available to insurers with regard to property, policyholders and risk, ironically, a larger percentage of property now falls into the non-standard category. No longer a definition limited to thatched roofs or high flood risk areas, non-standard now extends to include a whole host of additional areas of risk that insurers are not prepared to underwrite. Flat roofs, property which is undergoing minor or major improvement, type of construction, location of the property or indeed the oc-
cupation or financial history of the policyholder are just a few of the areas that now attract the non-standard moniker. And this adds a further level of complexity to the limited question set approach. I do think that the increasing availability of big data will make underwriting property easier but it should be taken in steps, driving too fast for the least amount of questions is dangerous for brokers who are taking responsibility for the advice they give irrespective of where they get the quote from. We all want to reduce the complexity of writing property insurance but not if it exposes the broker to potential risk. Equally this race to the bottom is not being driven by the broker but a perception that if writing GI is really simple then brokers are likely to write more, I think there is some truth in this but I think it is disingenuous to assume this is a silver bullet.
“We all want to reduce the complexity of writing property insurance but not if it exposes the broker to potential risk”
www.mortgageintroducer.com
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Review: Technology
Mortgage fraud is on the rise However, there has According to Cifas, the UK’s never been a fraudulent leading fraud prevention case linked to electronic service, first-party mortverification. gage application fraud is one That is because elecof the most common types tronic identification ofof fraud filed to their datafers the most efficient and base. Their latest stats reveal Martin Cheek reliable way to check if someone is who they say that mortgage fraud by MD, they are. production of a false SmartSearch Unlike manual checks, document has increased by which are open to errors, 14% in the first six months electronic platforms can of 2019 compared to the previous six months, while fraud cross-check multiple sources in a by submitting altered documents matter of seconds to verify if a person is who they say they are and if has risen by 32%. And while mortgage applica- the documents they have provided tions may not traditionally be the are real. Therefore, banks and other area you’d associate with fraud; this significant increase shows that it is lenders that want to protect thema particularly vulnerable sector of selves from mortgage fraud should be looking to switch to electronic the market. And while lenders will never verification as soon as possible. stop people trying to commit Not only is electronic verificamortgage fraud – especially when tion the most accurate way to onyou consider that 13% of Brits board customers, but it also saves think it is ’reasonable’ to exaggerate a significant amount of time and income when applying for a mort- money. Plus, with the 5th Money-Laungage – they can stop them succeeding, by ensuring their Know Your dering Directive (5MLD) coming Customer (KYC) processes are fit into force in January mandating for purpose. And the only way to identification checks are done do that is to use an electronic veri- electronically wherever possible, fication platform. To date, all mort- there has never been a better time gage fraud – whether it is to exag- to make the switch. SmartSearch is one of the gerate income to get a better deal, or for more sinister reasons such world’s leading AML platforms. as money laundering - has been Its advanced technology enables perpetrated on the back of forged clients to meet all their AML, documents. Customer Due Diligence (CDD) and Know Your Customer (KYC) compliance obligations all in one place. It can be used as a standalone AML solution or can be integrated into existing CRMs, allowing clients to do everything from one place. www.mortgageintroducer.com
Paul understands
Paul Mansell understands that you are looking to work with an approachable, adaptable and dependable partner who will look for reasons to say 'Yes' to your proposals. That’s why in uncertain times our book stays open. • Responsive decisions at attractive rates • Flexible funding tailored to individual needs • Loans from the everyday to the extraordinary Paul is one of UTB's Business Development Managers just one of our growing team of Bridging specialists working closely with broker partners across the UK to help them deliver flexible short term loans. T: 020 3862 1002 E: bridging@utbank.co.uk
we understand specialist banking
NOVEMBER 2019
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Review: The Month That Was
Each month The Outlaw draws some tongue-in-cheek parallels between society at large and a mortgage market in flux
The Good, the Bad, the Boring & the Vulgar
Trapped borrowers: Free the prisoners
This month’s inane ramblings are being penned having just watched England’s rugby team validate Oscar Wilde’s sagacious observation... “Experience is simply the name we give our mistakes”. So true. Regardless of how talented, enthusiastic or adept a person might actually be at brokering mortgage solutions, framing regulatory legislation, or clearing out offside bodies at a ruck, it is the nous and savviness to react to a changing and challenging environment which ultimately determines an outcome. Reacting to events adroitly and providing incisive leadership. Owen Farrell and Eddie Jones couldn’t quite do it last week. But neither seemingly can many lenders right now nor even the FCA’s legislators. I refer explicitly to the condition of trapped borrowers (in this snowflakey and sensitive world we Metro: Return of the bank?
can no longer call them ‘mortgage prisoners’ for fear of upsetting somebody!). The rugby ball that represents this country-wide borrower affliction has now been box-kicked into the clouds so many times, it’s come down with icicles on it. Whether the affected population here is 130,000 or 200,000 (reliable estimates vary), you have to feel special pathos for all the nurses, teachers, coppers and dustbin men up and down the country who have valiantly serviced their loans at rates as high as 6% but are being denied the right to a like-for-like remortgage on to rates of 2%. We’re back to those essential governing virtues of experience and dare I suggest it, a sense of urgency. And alas, because the FCA is ridden with A) predominantly London based staffers, B) folk who’ve rarely lived on a breadline themselves and C) young professionals who’ve never even had a mortgage, the pace of progress is snail-like. In fact, it’s only thanks to AMI and Bob Sinclair that we’ve managed to get this far (and hats off btw to both the Co-op and NatWest who were the only lenders to get behind the ‘prisoners’ crusade). My final plea here goes to the lenders - who are now ‘considering’ their options, especially amid ‘the necessary structural and IT orientated changes’ required to support such borrowers. Please either get on it with it and do it or if you aren’t terribly interested, then just bloody tell us so! The whole unsatisfactory saga is the industry’s equivalent to Brexit. Thankfully there is some good news out there. First up, the number of first-time buyers (FTBs) is a real boon with applicants back at pre-2007 levels. I know many re-moaning brokers in the South East (used to servicing the pampered needs of M25 residents!) who haven’t stopped bitching about how the London market has been in a three year trough. Some of these lilly livered brats need to get over themselves, and spend a week traveling down the M4, up the M1, around the M42, or better still along the M62. These are the heartlands of this still great (manufacturing) country where folk have just got on with it.
Where with a Brexit solution (albeit fudged) now in sight, people are cracking on with their lives. These are also the provinces where Corbyn and his Marxist cronies will shortly discover that the price of their blatant manipulation of parliamentary protocols will cost them dozens of seats in places like Stoke, Doncaster, Walsall, and Barnsley. In fact, of Labour’s 232 seats, did you know that a staggering 148 voted Leave! Anyhow. Enough on that till next month. You get my drift! Back in our lender world, it was a month where we had our own disconnect between an established leader and his team responsible for arithmetical competence. Metro founder and CEO Vernon Hill has finally gone following institutional pressure over what was a pretty calamitous asset misclassification episode. To be fair to Metro, they were a breath of fresh air when they opened, and hopefully, they’ll rediscover their compass. But otherwise, good news still abounds and if you don’t believe me then just take a few minutes to catch up on industry spokesperson Lea Karasavvas’s recent and humorous account of 2019. The forward steps taken by mainstream behemoths such as HSBC, TSB, and the Bank of Ireland in recent quarters has been noteworthy. But equally, lesser lenders such as Furness, Newcastle, and Shawbrook are very much on the front foot again. This month’s snore-fest on planet Earth was provided by an eclectic group of individuals and companies. Stuck in this scrum and in no particular order were; The grim and frightening faces of my Halloween TV viewing... Jo Swinson and Nicola Sturgeon (droning on yet again about the need for more referendums); The BBC’s Strictly cast (full of publicity-seeking D list celebrities with two left fee ; Jurgen Klopp (moaning about “Liverpool Fuuutball Club’s Xmas fixtures congestion) and of course the ever-soporific Duchess Of Sussex who seemingly still isn’t getting enough love from the British public. Diddums. Which brings us penultimately to this month’s vulgarity. Neil Woodford was arguably the most celebrated fund selection guru of the last decade. Nowadays his funds are as toxic as the relationship between
Ian Blackford: Election-rigging wargaming
Milk float: comeback
Jeremy Corbyn: Marxist loser
Arsenal fans and that lazy fake, Granit Xhaka. One earns over £100k a week for bottling out of tackles whilst the other still managed to pay himself a half-year dividend of over £10m. Keeping these two company is the SNP’s Ian Blackford. A pal of disgraced leader Alex Salmond, and now suggesting that we grant the vote to school kids as part of his election-rigging wargaming. All of the above just makes me want to leave the country for a month. And perhaps Japan might take some beating as a destination. How that whole country staged and cherished the Rugby World Cup really was awe-inspiring. Totally devoid of hubris and pomposity. And so to the year’s final month before we all take the one truly seasonal break that we get any more. The year-end lending figures may appear as ‘flat’. But you know, all things considered, 2019 has been a respectable year. It feels like not much happened. But as any broker of substance will tell you (and perhaps England’s rugby players can’t!) sometimes success is measured in the duller metrics such as sustainability, survival, and a mistake-free existence. Because the odds suggest that if you just stick at it during the tough times, then when the sunnier climes return, your fortitude and patience get handsomely rewarded. So many informed surveys now confirm it... that there is a huge wall of money waiting to be invested in and across the UK. What odds a 12-month long Brexit bounce for all of us starting next Spring...? Here’s hoping. I’ll be seeing you. NOVEMBER 2019
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The Bigger Issue
Our experts look at the current state of the market and ask...
How to make home ownership a r There are those amongst the selfemployed community who still think they are able to have their cake and eat it. I’m sorry, but if you want to keep your tax liability down to a bare minimum then the consequence is often that you can’t always borrow Malcolm the amount of money that you need Davidson to! director, Whilst I have no patience for UK Moneyman applicants who game the system or try and dodge tax, I actually feel that they are in the minority. What probably happens more often than not is there is an annual conversation with their accountant and ideas are discussed about how to (legally) minimise the tax bill. After all, that is a legitimate part of the accountant’s role and whilst we know the country doesn’t run on fresh air, no-one is keen to pay more than their fair share of tax either. I feel accountants should take a more holistic approach to these conversations and check that their client has no intentions of taking out a new mortgage anytime soon. As a broker, it is about education and ensuring “As a broker, the clients understand how lenders look at accounts. it is about The clients may not agree education with lending criteria, but armed with the information, and ensuring they can plan forward for the clients future sets of accounts to ensure they maximise understand their chances of getting a how lenders mortgage. Whilst we as brokers look at certainly have our part to accounts” play in bringing the selfemployed up to speed in terms of their knowledge, I think lenders could take a big leap forward by employing self-employed specialist underwriters who understand how businesses operate in the real world and can take a more mature stance than just “send us the SA302’s”.
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NOVEMBER 2019
As we all know, when mortgage providers lend funds they calculate the associated risks of the investment which can be a tricky hurdle for the self-employed to navigate. On paper, their earnings can look unstable, as their income is not guaranteed like salaried Will Hale employees and can fluctuate in chief executive, terms of regularity. Key While much more needs to be done to help people in this situation, there are already some options that people may not immediately think of. According to the latest ONS figures the over-55s are the most common age demographic to be self-employed (44%) so if one of your older clients is struggling to move or upsize or downsize, a “There are lifetime mortgage may be already some the right option. Traditional lenders options that underwrite based on the borrower, lifetime providers people may not underwrite predominantly immediately on the property so an older self-employed person think of” could theoretically make ongoing interest repayments as well as one-off capital repayments and find this works for them. For younger generations, assistance from the Bank of Mum and Dad may be able to help by putting down a larger deposit making the self-employed more attractive to lenders. Almost half (47%) of firsttime buyers receive a gift from either their parents or grandparents to help them get onto the property ladder so why not help those self-employed members of the family too? This leads me on to an interesting question – how long before we see a product which is designed specifically to help first-time buyers, the self-employed and others who struggle to get onto the property ladder by using their parents’ equity? Not a guarantor mortgage as it would be a gift but something similar? An interesting idea in a country when being self-employed is becoming more common.
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a reality for the self-employed Buying a home is tough. Even more so for the self-employed. A lack of PAYE, limited trading history, and sporadic or multiple incomes are some of the reasons why a rejection may happen. It’s well known that high-street lenders Craig McKinlay favour vanilla borrowers, yet the self-employed are growing. Earlier new business this year, their numbers reached director, a record high of 4.93 million – Kensington equivalent to 15% of the UK Mortgages workforce. For us, however, they represent an even more significant portion – over half of our business. In an ideal world there would be no exception, and the onus is on the industry to introduce greater reforms to help these individuals. Firstly, mainstream criteria restrictions could be more lenient. They could consider only one year, or even less, of trading history, compared to the traditional two or more. “It would be For those with less than helpful to a year, a ‘guarantor’ type mortgage product could be implement a introduced specifically for more flexible self-employed borrowers, like current available system” products on market. Alternatively, lenders could take into account other sources of income, like dividends. Lastly, and possibly the most important, attitudes towards self-employed borrowers need to change. A lack of confidence in their employment status, largely inflicted by high-street lenders, means many are put off applying again. It’s probably why, according to our research, over a million self-employed individuals believe they will never be able to own a home. However, data from Kensington’s Affordability Tracker (KAT) has shown that self-employed mortgage borrowers are a safer bet to lend to than first-time buyers – the average self-employed mortgage customer in the UK could have taken out a mortgage 29% larger than the original loan borrowed. Ultimately, the industry needs to help re-assure the self-employed that there are alternative lending solutions available.
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When it comes to enabling more people who are self-employed to get a mortgage, I’d suggest that the solutions start with better education – both for borrowers and their accountants. In terms of borrowers, many Rachel Geddes don’t realise the complexity of the paperwork which is required to business support a self-employed earnings principle, claim, and how long this can take Mortgage Advice to prepare. Bureau As far as accountants are concerned, whilst many will try to maximise tax efficient measures so that their client’s liabilities are reduced as best possible, where lenders are concerned this doesn’t help to evidence maximum levels of income. The net result is that this approach can and often does impact on a borrower’s affordability. However, by educating accountants to ask their self-employed clients if they are planning on applying for a mortgage within the next “Many don’t two years is good practice. realise the That way they can then engage in some forward complexity planning to ensure that they are evidencing the of paperwork maximum income to assist required to in the application process at a later date. support a Another factor that self-employed adds to consumers’ confusion is the lack of earnings claim” consistency from lenders in terms of what documentation they require in these circumstances. If we could spread the message to those who are self-employed that, by starting the process early, perhaps even six to 12 months before they need a mortgage, working with an experienced broker who is able to liaise with their accountant to get all of their accounting paperwork. As brokers we can take a lot of the stress out of the process for them and find the lender who will assess their income in a way to get the best outcome for the client’s needs. NOVEMBER 2019
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Helping the next generation Our panel discusses the intergenerational mortgage market Jessica Nangle: A House of Lords committee on international fairness and provision said that younger generations need more support from older generations to afford a property than ever before. What can be done to support these younger people? Kate Davies: I read that report with interest and it largely prompted the report we then commissioned and published on much the same subject. It identified the unfairness between generations and said that more needed to be done. There’s a big assumption in the mortgage world that the Bank of Mum and Dad will help the next generation. Be that by helping young people fund their deposits or inheritance. I read it as also saying more needs to be done on a general societal basis, whether that is through tax, government schemes or a general acknowledgement that a lot of the older generation aren’t doing very well at the moment and more needs to be done to help younger borrowers and younger people. JN: Help to Buy ends in 2023. What can first-time buyers do about that once it’s gone? Is there any replacement schemes in the offing? Ray Boulger: Some of the comment I’ve seen from politicians about the cost of Help to Buy are completely ridiculous. Especially considering that
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the government can borrow money at 1%. The only way the government is likely to lose money from Help to Buy is where other government policies have caused a problem, such as the current issue on cladding. If I was in government and in charge of the Help to Buy policy at that stage when that first became apparent I would’ve said to builders ‘unless you sort this out and compensate everybody within six months you won’t have access to Help to Buy’. That’s the sort of thing that would’ve made builders do something rather than keep talking and not doing anything. Jane Benjamin: The objective of the scheme was to get first-time borrowers onto the property ladder. RB: And encourage new building. JB: And 81% of Help to Buy mortgages being taken are for first-time buyers so it’s achieved its objective in doing that. It’s also raised public awareness of the options available. At Sesame and PMS we work with more than 100 lender partners. High loan-tovalues are just one of the tools abailable. There’s also shared equity and ownership. I think something will follow the Help to Buy scheme in 2023. RB: In terms of the replacement to Help to Buy I think the government has got it completely wrong. They
needed to make changes, but they have made the wrong ones. By cutting out the non-first-time buyers, that removes people who in many cases also have reason to use that scheme. It’s not just first-time buyers who have that problem. An even bigger problem is these regional price gaps. What I would’ve done is reduce the Help to Buy amount from 20% to 10% because there are plenty of lenders who have decent rates up to 85% LTV. If they had restricted the Help to Buy element to 10% there wouldn’t have been a need for regional price caps and you wouldn’t have the distortion. KD: In a way we’re in a good position to lobby quite hard for what we want. There is so much uncertainty with the election having been called. In the interim there is still scope for other schemes coming in, but we need to shout about it now and make it clear what we want. Helping those who don’t have the Bank of Mum and Dad to call on is something which is required. Mark Lofthouse: The other conversation that is needed is about affordability. It’s about more than the deposit. There are so many people renting who could buy a property and pay less on a mortgage. Rachel Geddes: There’s a
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(From L to R) Charlie Blagbrough, Building Societies Association; Matt Bond, Barclays; Rachel Geddes, Mortgage Advice Bureau; Mark Lofthouse, Mortgage Brain; Jane Benjamin, Sesame Bankhall Group; Kate Davies, IMLA; Ray Boulger, John Charcol
perception gap. People think property ownership is unachievable. That’s an area we can focus on as an industry. We need to work out how we speak to our next cadre of first-time buyers. KD: Can the industry do something about this question of not taking rent into account? I haven’t got my head around why this is so difficult. I’m told credit reference agencies can’t take rent into account because they can’t talk to all the landlords. I understand that. What else can we do? ML: They are effectively rental prisoners. RB: I could answer that - the FCA. Kent Reliance had a mortgage prior to the crisis which did exactly that. As an additional criteria if you couldn’t meet the normal affordability criteria, but could prove rental payments for at least a year they’d give you a 30-year term 5-year fix as long as it did not exceed your rental payments. I thought that was a really sensible strategy, but regulation has now made that difficult. Now the FCA has
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said it will be focussing on outcomes and not rules, this would be an ideal time to suggest they look at this. ML: I was being quite flippant at calling people rental prisoners but maybe like mortgage prisoners, if you put a label on it, it will get the focus and attention of the FCA. KD: We recently put out a report on intergenerational differences which really looked hard at the difference of long-term wealth and the ability to accumulate wealth. The difference between having a property, albeit it on a mortgage, and paying rental is massive. We asked the FCA to look at this. We need to find some other way of helping those people who can afford a mortgage . RB: We have schemes like the Barclays Family Springboard and more and more lenders are doing joint borrower sole proprietor which Barclays had been doing for years. So, there’s a bit of innovation there. NOVEMBER 2019
JB: The smaller building societies are better at product innovation and bespoke underwriting, looking outside the box. I think things will come but it’s just how quickly. We have a new generation trying to get onto the property ladder and if you take London out of the equation its quite affordable to buy a house. We need to start talking the market down and start talking the opportunity up. Start talking with education at school and financial awareness. When I was at school, we learned about home economics and now it’s Pythagoras. JN: I think it’s true. We talk about the Fairer Finance initiative in the market, which works to demystify some of the language used in the wider financial services to make it slightly easier for consumers. What can be done to demystify vocabulary and deliver clearer customer information for first-time buyers? JB: If you say to anyone, ‘what is MORTGAGE INTRODUCER
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the Bank of Mum and Dad, what is loan-to-value, you need X deposit’, there are so many terms it’s confusing. Thank goodness for advisers, it’s great for the intermediary market because it shows the benefit of advice. Matt Bond: It’s awareness and education more than anything. Too often we focus on the schemes that are going without appreciating the limited awareness of some of the schemes out there at the moment that people can take advantage on, whether that’s lender innovation or Barclays Family Springboard. There are an awful lot of local schemes like shared equity, ownership which I don’t really feel that first-time buyers are aware of. When you start to peel away some of the shared ownership rules and covenants and restrictions, they’re so individual and being able to come out with a blanket we’ll lend on this is a very difficult position for a lender. Is there consideration around should we have broad guidelines or principles around what these schemes should look like to put lenders back in a position where they will lend on these schemes and support them? They seem to be popping up all the time. Even weekly there’s a different brand or version of a scheme for first-time buyers. JN: Are parents educated enough on how they can help their children?
Charlie Blagbrough: I think that’s an important point. When we talk about the Bank of Mum and Dad a lot of it is down to cash gifts and is that going to come out of the pension pot or what they’ve put away for old age or ill health? I think with Barclays Family Springboard and a number of products from building societies, it doesn’t have to be about gifting cash. You can put money into an account, it can be a charge on the property, any number of these different products out there. I wonder how many first-time buyers are just put off and don’t speak to anyone because they think they need to get money from their parents or save up £20,000, £30,000 and don’t go in and talk about these products.
KD: Lots has been said about parents being quite worried about giving deposits when kids move in with partners. They are concerned about what happens if they break up and half the house goes to someone else. How do they safeguard that money? It can get very complicated.
MB: It’s when you start that education as well. From a Barclays perspective we do quite a lot in terms of social responsibility and going into schools providing support and education for children. Arguably it needs to be a more blanket approach. When you’re being asked to stump up £20,000,
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£30,000 in cash the Barclays Family Springboard gives you the assurance that you’ll get it back. Having that confidence takes a lot of strain but it’s not for everybody. There will be some circumstances where it’s not the right choice. That’s where advisers come to the fore. ML: They are all schemes to get around rules. We’ve made it so complicated you need an adviser and that puts everybody off. When I was younger you did it yourself and it wasn’t hard. We’ve just made it too hard. The Bank of Mum and Dad is there because of the deposit. It goes back to affordability. Young people can afford to pay back the mortgage, they just can’t afford the deposit. And if you take away the deposit requirement we wouldn’t be where we are. JN: What role can technology play in improving underwriting to increase high LTV lending? Can open banking play a part? ML: We have a phrase ‘true to
is when your clients make their own house rules
Clients can leap onto the property ladder with a 0% deposit
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source’. You just want to know the real solution, so instead of getting payslips and bank statements go to HMRC and get the information there. You can get credit checks. If you get all the true to source right, you get better underwriting. For example, if you go all the way through and find something like a client might have generally or deliberately forgotten about a missed credit card payment 13 months ago. KD: That’s interesting. I’m skeptical about open banking. For people straightforward with their finances and have nothing to hide and happy to let a lender have access to their bank accounts, that’s fine. If I had a gambling habit or paying an ex off for something, I suspect I’d have several bank accounts and wouldn’t let people have access to that. There might be quite a lot that would stay hidden from an underwriter. A human underwriter would see something that doesn’t add up while a computer might find it difficult.
more personalsied view of affordability. Different people lead their lives very differently and that’s probably not really catered for in the current approach and needs to be more manually underwritten. KD: A computer system might be very clever in crunching the different criteria and measuring different levels of risk according to who has what kind of circumstances. But I don’t see at the moment how it can gaze into someone’s eyes and discuss with them what their intentions are for the next few years. MB: You’re basing it on what historically and how recent that is depending on the view? KD: They might be on their third job, second marriage, a dependent parent or something but where do they think they’ll be and how hard are they trying to? RB: That’s particularly relevant to first-time buyers. I used to often
see first-time buyers, who after looking at their expenditure it would become clear they couldn’t afford the mortgage and they say we’re going to cut back on all the things we’re spending on which we can now afford’. So that’s where looking at the historical information falls down on and doesn’t reflect that. MB: But for some looking at credit card bills, from the Barclaycard perspective, you can see everything like how much people spend on coffees every month. There is a way of utilising that data but I agree you’re only making that decision based on what the current status is and a lot of people are entering into a housing transaction because their circumstances have or are about to change and their spending habits will disintegrate. JB: Tech will make it simple for advisers and lenders who can link in quite easily and make it quicker. It’ll give underwriters and advisers
MB: I guess that’s the piece. Would it make it more accurate? Arguably yes, arguably no. The current manual approach to underwriting in those complex situations is accurate because you need to take a view in a lot of instances. It may mean in more instances we get to that same answer a lot quicker, with greater convenience for the broker, adviser and customer but the restrictions what we’re trying to circumvent, and the rules are set in such a way they’re pretty hard and fast. There’s no real grey area around that assessment of affordability to be able to pull in your rental income and other stuff. That would need to move to allow technology to give a For intermediary use only
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more time to look at complex cases rather than product transfers and the things that go through automated valuations. Talking about brokers’ risk models and LTVs could it be the start of packager slotting as in bespoke pricing, pricing for risk for some lenders? We talk about 100% LTV and if lenders should be offering that, for some customers yes but not for all, so will tech bring that as a solution to the market? If you have a clean top rated credit score should you still pay the same amount at 75% LTV?
amount that’s where you get a huge cost. That’s where marginal pricing at the top end would be useful. CB: Going back to the intergenerational point, it’s not just first-time buyers it can help, it’s also the Bank of Mum and Dad understanding ‘I have this pension pot and investments, how much can I give to my children, how much will I have left and long will that last?’ I think there is some interesting stuff happening with pension dashboard and robo advisers in the pension world.
ML: You see that in the seconds market, bespoke pricing.
JN: What opportunities does later life lending offer for unlocking wealth?
JB: I think tech may deliver that quite quickly.
RB: I think that sector has in many ways been more innovative than the mainstream market. The cheapest rate starts at about 2%, 2.7%. If I have enough equity in the property to achieve the LTV I need and get that sort of rate, I can borrow money fixed for life and
RB: Where that’s a particular issue is if you click over from a 90% to a 91% because of the marginal cost of a 95% mortgage, that top 5% is about 20%. If you end up getting a downvaluation and aren’t properly advised and still borrow the original For intermediary use only
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have the option to make no payments or pay up to 10% primum and don’t have to do affordability because I don’t have to make any payments. The only thing not to like is on some cases the early repayment charges (ERCs) can be quite onerous. The one thing that would make that an even more compelling proposition would be to reduce the ERCs where they’re quite high. If you’re only paying 2% or 3% the risk of people remortgaging is pretty small. A lender that was prepared to make a virtue out of necessity and have really low ERCs or only incur and pay an ERC if you’re remortgaging and not paying if you are moving home, that type of product for people with plenty of equity is really good. That’s one of the key reasons RIOs haven’t taken off. The interest rates on RIOs are higher than that of lifetime mortgages. The only reason you’d take a RIO is because the LTV you need is higher than the LTV you can get on a lifetime mortgage. If you can get the LTV you need with a lifetime mortgage unless the ERCs are a problem, you’ll probably go for the lifetime mortgage. JB: In the later life market there are two fundamental problems. I’d incentivise people to move out of that house they probably don’t need anymore. There aren’t enough second type properties because no one is moving out of them and that’s why first-time buyers generally go to new builds. There has to be an incentive to get older people to move. It’s type of properties and getting the market moving. The second thing is terminology and stigma. The stigma around equity release has gone because now the market is
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talking about later life and solutions. Some 30% of later life mortgages are to help for gifting a deposit to a family or friend. That shows there’s a requirement to help. The vulnerability part around later life could also apply to first-time buyers who are naïve and have no education around mortgages. If a customer over 50 can afford to make interest payments there should be solutions for that. For a professional adviser sitting with a customer there should be a solution for every customer, whether themselves, or through a referral to an expert. There are thousands of financial advisers who can help and it’s just the awareness that is there. KD: We talk about first-time buyers not understanding because it’s their first-time taking out their mortgage. There will be plenty of 70, 75-year olds who paid off their mortgage 20 years ago and now want to release some cash and it’s a completely new ball game for them and whether some of those customers are capable of seeing the implications of some of the products that might start evolving. The lifetime mortgage has evolved carefully and slowly and the Equity Release Council has done a lot of work to ensure it stays safe and safeguards people against making the wrong decision. When I worked for them, I saw many complaints from people who just didn’t understand. They had it explained to them and had signed bits of paper saying they did but them and their families didn’t have a clue. It caused some difficulty. So much depends on their own individual circumstances, how much wealth and equity there is and what they’re releasing money For intermediary use only
for. In a lot of the cases it was to pay off debts and sometimes to enhance their own lifestyle. Someone was trying to tell me it would make a lot of sense to take out a lifetime mortgage on their property and invest it on the stock market because the returns would be so much greater. I was thinking there’s a flaw in there somewhere and it’s not the best advice. Things can go wrong and if it does it’s too late. The importance of the industry safeguarding what it does and future proofing it is ever more important. MB: You raise the point about the family not being aware as well. Whether we focus on intergenerational lending or what it should be ‘intergenerational advice’ where you are required to incorporate it on a family basis. I’m not just looking at later life lending but with Barclays Family Springboard there’s a requirement for independent legal advice and a consideration in terms of the advice given, for the person
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generating the deposit as well as the mortgage recipient. KD: It goes to the heart of whether people have expectations about inheritance and whether people have a right to expect to inherit things from their parents. MB: It goes down to communication and I think that sometimes lacks and is on a different level depending on the family. RG: There is not enough housing for the younger generation and trying to make it more appeasing for the older generation to potentially downsize but at the same time we’re offering later life lending. I think there needs to be a solution that appeases everybody. We’re offering the older generation the ability to release equity whether to help with deposits or lifestyles, so we’re not giving as much inheritance down while the younger generation want the option to buy
for your clients is an empty nest
Contact your Barclays support team or visit barclays.co.uk/ intermediaries for more details
Your client’s home may be repossessed if mortgage repayments are missed. Savings returned with interest after 5 years if repayments maintained, if not, savings at risk. Min. savings amount apply. Subject to application, financial circumstances & borrowing history, (Barclays Bank UK PLC is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority (Financial Services Register No. 759576). Registered in England. Registered No. 9740322. Registered Office: 1 Churchill Place, London E14 5HP.
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more homes, not just new builds. We’re not offering the later generation the ability to buy that home they want where they’re not paying over the odd potentially for new builds. We haven’t found that end goal. When you speak to the older generation they’ve been in their house for 30, 40 plus years and have no intention of leaving and the thought of an apartment terrifies them, because when they bought a house, buying a house was the thing to do, not an apartment. Apartments with lease issues and ground rents, are a completely new world to them which terrifies them. In America they’ve made full communities where there is lovely housing, no service charge or ground rent, a community, and you buy the property and the market is controlled a little bit on how much it increases but therefor the pricing stays relative. But they’re still owning a house and if they want to engage in the community they can.
of OAPs, I want young people around me.’ So, people’s opinions on that will be very different. We put something out a year ago which said that to help incentivise people to move the government should look at stamp duty for last time movers. I don’t know how you would enforce that but it is certainly something which might help. To downsize in London from a house to an apartment, you might be paying the same kind of price but getting clobbered with stamp duty. Why would you do it? Stay in the same place and get a stairlift. RB: It would be difficult to introduce that and police it, but I think there’s a simple solution. Now we’re seeing stamp duty revenues being hit by the level of stamp duty, if the government were to increase the starting point for everybody to perhaps half a million, then outside of London you would achieve what you were suggesting, without favouring any sector of the population. I would suspect with the extra economic activity that would be generated from more people moving which would generate more VAT from solicitors and estate agents and more people buying properties,
KD: I used to think retirement developments were a good idea, really nice high quality places but a colleague was saying ‘that’s the last thing I want, living with a load
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you’d probably find that even if stamp duty went down slightly, the overall economic benefit would be greater. That’s how I would approach that. We talked about 100% mortgages but not that the bigger problem than the FCA is the PRA and because of the capped affordability rules. The increase in capital requirements are so exponential, probably the only realistic way of doing 100% mortgages would be some kind of top up scheme and that’s where Help to Buy comes in. There are some private sector organisations looking to replicate that. None are quite there yet. KD: Lots of lenders have restrictions on the proportion of your loans which you have to have on an administered rate so you can’t have them all on fixed rate. Some have to be on discounted rates, but you can move the rate if you need to. MB: It’s the restrictions that people have to find new and innovative ways of working their way around it when it would be easier to just move the lines if an appropriate movement could be identified.
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Our Family Springboard mortgage enables your client’s family or friends to help them buy their home with as little as 0% deposit. And in return, they will get their money back with interest after five years if all mortgage payments are made. Find out more at barclays.co.uk/intermediaries
All offers are subject to application, financial circumstances and borrowing history. Terms and Conditions apply.
Your client’s home may be repossessed if mortgage repayments are missed. Savings returned with interest after 5 yrs if repayments maintained, if not, savings at risk. Min. savings amount apply. Subject to application, financial circumstances & borrowing history, (excluding those in Channel Islands and Isle of Man). T&Cs and exclusions apply. Barclays Bank UK PLC is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority (Financial Services Register No. 759576). Registered in England. Registered No. 9740322. Registered Office: 1 Churchill Place, London E14 5HP. IBIM9539 November 2019
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Cautious optimism Jessica Nangle speaks to Mark Snape, managing director at Broker Conveyancing about the past, present and future Mark Snape has had an interesting and varied career. Following a background at large operations and being on the board of businesses which need last minute interventions in order to survive, Snape has finally found his place at Broker Conveyancing, where he fully took the reigns as managing director in January. The 14-strong team continue to go from strength to strength, experiencing double-digit growth in the past 24 months with plans to do so again in 2020. It’s clearly a successful venture and Snape expresses his delight at working with both a team and enterprise he claims is the most ‘total proposition’ he has ever worked with.
A strong foundation
Broker Conveyancing has offered conveyancing services from a panel of leading law firms for over 10 years, with Snape’s predecessor, Harpal Singh, previously holding the post until retiring formally in April along with co-founder John Phillips. The firm has gone through a fair amount of change in the past few years, with ULS purchasing Broker Conveyancing in a multi-million pound deal back in 2016, however Singh and Phillips continue to be involved with the business on a non-executive basis as the
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business continues to thrive. At the time of Snape’s succession being announced, Singh said that he and Phillips “exit stage left knowing that this is a business that is in highly capable hands… Mark and the team will drive it forward, offer plenty more to both new and existing users and continue to offer an incredible quality of service”. This is exactly what is on Snape’s agenda as the proposition seeks to meet the needs of more advisers.
An interesting journey
Starting in Money Shop at the age of 18, Snape explains how this initial experience set him up for a successful career. “Starting in Money Shop was a great experience. It taught me to stand on my own two feet and showed me the importance of quality and customer service.” From there, Snape held various roles at companies such as Beneficial – where he worked on taking the business through the millennium – First Plus, Citi Group and GE. Following a seven-year stint at the latter, Snape describes how he got “tempted” into Magellan, an experience he labels as “unique”. “We had six weeks to save the business, which I didn’t realise,” he explains. “We put a plan in place and managed to do so.” The constant trips along the
M25 eventually led Snape to look at different opportunities, and fast forward a couple of years he had a chance meeting with Ben Thompson, chief executive of ULS. “I met Thompson whilst playing golf and we got on really well,” Snape says. “He wanted me to work at the business but said I would need to take some time out beforehand which I was happy to do at the time.” After an eight month break – which Snape describes as being far too long as he was “itching” to get back into work – Snape began at Broker Conveyancing and learnt the ropes before Singh and Phillips’ retirement. “Harpal is a joy to work with,” says Snape. “I quickly learnt what the business was about, its challenges, what we needed to do to grow the business and have since put this into play since I joined.” Despite this being a smaller business, Snape exudes confidence about its future. “Even though it is small, the business is perfectly rounded. This is why I am confident about its future.”
The past
The past 12 months have been successful at Broker Conveyancing, with Snape identifying that there is a direct correlation in its model between resource and results. “Over the
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past 12 months, I have hired a new account manager, a new area director for the Midlands and have made a series of internal promotions.” These new hires, Snape claims, are all part of his message of empowerment and raising expectations. Investment into IT infrastructure has also been a priority since Snape took the reins, in order to increase the functionality of processes to complement the team of which Snape is proud. “Despite this progress, there continues to be massive opportunities,” he explains. “We are one of the biggest in the broker space but have perhaps less than 1% of the market share! I like pushing businesses forward.”
that Snape takes recruitment seriously. “I am looking for a new recruit currently who I will not actually need for some time, but I know that it takes time to find the right people.” However despite the search, Snape believes their model is an attractive one for future recruits. “We have a compelling story to tell, one of future growth and investment, which I believe attracts the right talent.” It is not all about industry experience either according to Snape, who for some roles looks more at personality than previous work experience. “For our sales operation in Woking, I want someone who has the right attitude, can be a team player and provide a high quality of service.” In terms of managing the IT side of the business, Snape relies on the experience of a member of staff originally placed in the sales team. “I have a member of
The present
Considering people are at the heart of Broker Conveyancer’s business model, it is no surprise
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staff who was part of the sales team originally, however I quickly identified that the role was not his bag,” he explains. “This staff member was hugely talented systems and operations-wise. This is the area he now looks after, which Harpal formerly did, and he is doing an excellent job.” Despite the need for fresh talent, it appears Snape values the team he already has to diversify and drive the business. “We have a very open and transparent culture, it’s about the team,” he says. “It is about everyone feeling ownership from the results which are extraordinary.”
The future
Despite the success, Snape has found growth a key challenge since he joined Broker Conveyancing. “It is a fine balance,” he explains. “You can go too quick up the growth curve
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and break what you have or you can identify where it is you want to go in 2020 and do so without breaking the business. "The challenge has been to protect and grow at the same time." Following this philosophy Snape plans to grow at a steady place, continuing to emphasise the importance of growing the business through people to continue providing brokers with the most compelling proposition possible. Snape plans to hire around three or four members of staff in the next year. Continuing to work with their leading panel of law firms is also at the forefront. “We work with 16 high quality law firms which resonates with brokers,” Snape says. “We don’t change their volume because the service is down, if we are going to give you x, we will give you x.
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If we can give you more we will.” The next six to 12 months is set to be an interesting time thanks to political uncertainties, including the never-ending Brexit deadline and an upcoming General Election. Despite this, Snape remains unphased. “If you get distracted by externals, you don’t do anything,” he explains. “We must focus on what we can control – the housing market will always be there, and we currently have less than 1% market share – the world is our oyster. It’s up to us to make that happen.”
Cautious optimism
Snape shows optimism when discussing how the industry is currently, expressing surprise at the amount of brokers who are selling conveyancing. “You have the very best brokers
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operating in the conveyancing advice sector,” he says. “They have the experience, the cash, and the strategic knowledge. "At the height of the mortgage market, brokers wouldn’t have thought about conveyancing but that is different now. Hence why I see the market as a huge opportunity.” There are no signs of slowing at Broker Conveyancing which, led by Snape, has exciting plans for the future and an impressive past record. With the aim of another year of double-digit growth and more hires on the horizon, a mixture of optimism and caution are the main messages from Snape as the end of the year approaches. Asked how to describe Broker Conveyancing in three words, Snape smiled. “Simply the best!”
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The status of the buy-to-let market Our panel takes a closer look at the evolution of the buy-to-let market Jessica Nangle: We have seen a fall in the volume of buy-to-let transactions from its previous high points. Where do we see the size of the market and buy-to-let going in the next few years? Paul Kane: Volume is relatively static. The one sector of the buy-to-let market doing relatively well is remortgage. We’ve seen more landlords taking 5-year fixes, so what does that part of the market look like in the next few years? The bulk of the market is landlords with one to three-buy-to-lets. Are they looking to dispose of their portfolio or keep on that remortgage journey? Are landlords adding more properties to the guys with bigger portfolios? The way the market is now I’d expect remortgages to remain strong. I’m still not sure what remortgage volumes will be like in the next two years because if it changes due to the 2 and 5-year product selection, where the market will sit? There is real uncertainty at the moment. Andy Ingham: I was reading recent reports from IMLA, UK Finance and the Bank of England. They’re predicting a slight fall, but I think that links it to two things. This year the volume is around £36bn and next year perhaps £35bn overall, but because of the stretch of the 5-year deals, that will have a knock-on effect in terms of a slightly shrinking
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market because there will be more people signing a longer-term product. But in a few years from now, we’ll see that potentially rise back up again at the same time. Peter Matthews: I think there will be a massive shrink in new lending across the board. There has been the double whammy of taxation changes and criteria changes. There has to be a change in criteria to change attitudes. We’re starting to see a rental generation who are not looking to buy. You need the ability for investment properties to come to the market because otherwise you’ll have a generation of renters who cannot find anywhere to rent because no-one is buying. There has to be changes. Makayla Everitt: I think that’s where education comes into play because of how the market has changed so we need to look at re-educating. There are untapped areas such as letting agents where mortgage advisers would not have historically gone into. That offers a huge opportunity for them for protection. Just because someone is renting does not mean they do not want to protect their income, home and family. There is a huge protection opportunity and a piece on educating well-established landlords on how to get back to auctions and increase their portfolio
with the right support from taxation advice and accountants and advisers who specialise in that area. Re-educating on where they diversify their business is pretty huge. JN: Does there need to be more education in the marketplace? David Hollingworth: Landlords are still getting to grips with the tax changes. Unless we are going to see a great increase in the supply of more affordable housing it’s hard to see how there won’t be a demand for rental. But you do not know if there will be more intervention from the government. Education for landlords who will stay in the market is going to be pretty important, I think. Greg Cunnington: We hosted an event two months ago with ourselves, an estate agent, solicitors and a tax advice firm for landlords. It was so oversubscribed. The main feedback we got was there have been so many changes but not all landlords are that familiar because there is not one point of call to go and get that information. I think that is a huge opportunity for advisers because that is somewhere landlords really need intermediaries. With the main landlord space of 2 and 5-year products, the specialised buy-to-let market is potentially increasing. We are seeing clients who would buy a one or two-bed flat, wanting to buy a six-bed HMO in Hull. I think that side of the market will increase as
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(From L to R) Howard Levy, SPF Private Clients; Andy Ingham, Natwest; Paul Kane, Natwest; Makayla Everitt, SimplyBiz Mortgages; Nick Morrey, John Charcol; David Hollingworth; L&C Mortgages; Peter Matthews, Charles Derby Mortgage Bureau; Greg Cunnington, Alexander Hall
there is more demand for people looking to rent. That side of the market is an opportunity. PK: It presents a risk as well. Lots of investors think HMOs are the way forward. Do places like Hull become saturated with all of these properties which have been turned into HMOs where there is not the rental demand for them? GC: That is where education comes in again. Sometimes we just think of yield when it comes to HMOs, but you have to make sure the landlord understands what they are investing into. It is about the professionalisation of the whole landlord space. DH: Local authorities have intervened and must be aware of that. Howard Levy: It is interesting with HMOs understanding what you have to do to get it licensed. Landlords with larger portfolios tend to have a lot of HMOs without knowing it. And there will be thousands of HMOs which had normal buy-to-let
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mortgages, but now it’s all changed. They think HMOs will give a great return but there is much more to do with them that they are unaware of. With larger portfolios I see they are doing that in the background and have stopped purchasing; they are just remortgaging and sitting on their hands waiting to see what will happen. I am seeing a lot more switching large portfolios into limited company because the tax changes are starting to hit them more. It is starting to take effect and landlords are talking to their accountants more to get them into limited companies. It is purchasing the properties they already own. I’m seeing lots more of that. PK: That is for the broker with a decent sized portfolio. The average buy-to-let investor probably has an average of between one and three properties. They are not converting to limited company presumably. HL: I do not see many doing the let-to-buy because of the massive NOVEMBER 2019
stamp duty issues. I’m seeing a lot less of that. The result will be those affected will come out of the market and there will be less rental properties causing rents to rise. The whole cycle then starts again because they will think ‘hang on, there’s quite good returns from rentals’ and they will return into the market. Nick Morrey: But they won’t do it via normal buy-to-lets, they’ll set up limited companies. As the tax returns get filed and they get their tax bills come in as they go from 25% to 50% to 75% to the full amount, they are slowly becoming educated via HMRC bills and then deciding whether or not they want to stay in the market or pull out. Accidental landlords are staying static or reducing and the serious landlords are seeing there are profits being made so have their limited companies set up and got their heads around the changes; now they can proceed and grow a little. One might cancel the other out in the short-term and in the MORTGAGE INTRODUCER
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longer-term the accidental landlords who are new to the market in two, three, four years’ time will come in, think of how they do it, grow and carry on. With HMOs there is a disconnect between what the lender and local council defines as an HMO. When the changes came in, I contacted TMW to ask them what they’d do if one of their borrowers on a buy-to-let basis then discovered they had an HMO but had the mortgage on a standard basis. They said they wouldn’t do anything as it’s either an HMO by their definition or not. A lot of councils are getting their claws stuck in for all the right reasons to ensure people have appropriate conditions to live in, but the lenders have their own definitions. More education is still required.
wanting to buy an investment because you think it is a good idea for a pension alternative you don’t want to buy an HMO, you want to buy a one-bed down the road which you can manage yourself. That is a huge barrier and is why over a third of our buy-to-let business is on top slicing. Purchases will be a lot higher than that. It’s all down to LTV and deposit.
experienced in London and the South East diversify and understand which areas up north suit them best and trade properties for some there, which makes their portfolio overall a lot safer. There seems to be a lot more availability up north for smaller properties and I think a lack of building smaller properties within the new build sector is causing a problem.
PM: After bringing in legislation changes creating HMOs, local authorities have not been efficient enough getting the licenses out. I have a case where the borrower has been waiting about two years. There is a backlog of at least another year to 18 months. The borrower cannot remortgage because he has not got a license. They’ve created it but haven’t thought of the next stage. It’s probably not a national issue. I’ve seen it mainly in East London, but I imagine where you have areas such as Hull and Sheffield with lots of student accommodation, there will be exactly the same situation where they’ve created more and more HMOs but they can’t license them.
JN: In terms of lending criteria what are the biggest hurdles for a new buy-to-let borrower entering the market? GC: The easy answer for our clients is loan-to-value (LTV). I know that is not necessarily lending criteria but four or five years ago everybody would save up 25% and know they could get a buy-to-let. It was really straightforward. Now if you’re buying a one-bed in zone one in London you could need a 50% deposit on vanilla criteria which is difficult for first-time landlords and the biggest restriction. Also, people like to buy what they know. If you are a couple
ME: I think regional trends play a key part. It is built into the education and experience of the landlord. We will potentially see some of the guys who are very
NM: Part of the problem is this issue is regionalised to London and there are seven million people living in London, which means roughly 63 million living outside of London. It is a huge problem for the largest market in the UK but not really a problem for the rest of the UK. I can understand the powers that be saying ‘it only affects 10% of the population so why should we change the rules to accommodate the 10%?’. But the problem is, it’s that 10% that’s drives an awful lot else. People filter out. If people can’t buy and sell their properties in London, then they don’t tend to move out of London and wealth doesn’t distribute across the UK. PM: London is probably a higher rental population than owned because you have more of a transient population, so you need the product to be available. It’s not so much LTV, it’s yield, and you don’t get the yield in London. More and more landlords are saying with the tax changes, ‘I need the yield to make my money go further’. I think it’s moving further afield. We could find that there is very little available in London because it just doesn’t work. DH: It’s good that lenders have been quick to try to move away from the one-size-fits-all approach
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and come up with lots of different ideas to be more flexible. GC: In the past 12 months lenders have really evolved their buy-to-let policy. There was a point where the changes and lenders following the changes did not go hand-in-hand, so we had 12 months of stagnation and difficult buy-to-let lending options. A couple of lenders played that very well and gained quite significant market share, but I think we’ve seen everybody evolving. Even the changes from Santander on the like-for-like remortgage that came in recently where you’re evolving from a transitional to a like-for-like remortgage opens up much better lender options for many clients and just 12 months ago didn’t exist. Big players have come back into the mix which has been very positive and client friendly. Just 18 months ago, a client could take 3% but can now take 1.5% just because of the lender criteria changes, not the rate options behind it. It’s been good in the past 12 months. JN: There is much discussion about the move from personal ownership to limited company buy-to-let. Are you seeing your customers make these changes? PM: I think it’s transitional. I’ve seen more creating LLPs rather than moving forward doing a three year deal and hoping tax regulation doesn’t change and catch them up. I haven’t had a single client that’s paid the stamp duty and moved over. I have one who has got 17 properties and his accountants have told him not to. HL: I’m seeing a lot of that, where they are just going straight to
limited company because of the worry about the LLP. There is not a set timescale you can have the LLP and then switch it onto the limited company that anyone will put their name to it. Doing it that way they are still leaving themselves open. Some of these landlords have hundreds of properties and would rather take the hit and have the tax benefits now. They are paying the stamp duty and deferring the capital gains tax with a business rollover. It’s biting the bullet now for a longer-term solution. I’m seeing more of that with the larger portfolios and anyone buying now is pretty much all limited company anyway. PM: I’ve seen limited company for purchases but not much for existing properties. It’s probably down to the accountants they are dealing with having the confidence to make that call because we only have guidelines. There is nothing based on current legislation saying that’s the right way to go. Guidelines are interpreted.
GC: That goes back to education. We found it very confusing as to why a lack of our purchase business was going down limited company two years ago and we realised clients were just speaking with accountants they’ve had for years who were too worried to give full-on advice. We set up with some specialist property tax firms and make every client speak to them. The percentage going down limited company and purchase is going through the roof. That is worrying because if clients are doing this on their own or intermediaries are not setting them up with a tax adviser, they possibly aren’t getting the correct tax in what is a bit of a minefield at the moment. AI: That comes back to the point of education. We do education sessions around buy-to-let and it’s not just the landlords, but the smaller brokerages that are just touching buy-to-let and are a little bit uncertain. That’s why lenders are doing what they can and educating around those processes. ME: That’s where education comes in huge for us. We run a training programme called ‘Don’t Forget the Tenant’ to make sure that from a compliance perspective, you are keeping your business safe. It is all around making sure if you are a smaller one-man broker with a smaller firm you give your clients options. This means not necessarily tagging in with one specialist tax adviser but setting up a process where the client can make a choice between a few firms and are getting the tax advice, so they are still in control and choosing where they get the advice from. It is about making
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sure you have all the security around you with regards to agreements and compliance to make sure that if you’re diversifying your business in this way, you are doing so in a structured and controlled way which helps to keep you safer, rather than your buy-to-let specialists doing it on volumes.
the LTV on a normal buy-to-let mortgage now, you have to go down the 5-year fixed route, for a lot of cases unfortunately, because that’s the only time lenders can relax their affordability calculations. The biggest fear I have is so many people are now automatically going down that route and aren’t looking at future considerations of the mortgage and property as well. This is in the residential market too. Clients ask what the most they can borrow is so I reply with a 5-year fix so the client says that they want that. I ask about circumstances, including whether they plan on selling or moving into the property in the next few years, and the client responds with: ‘I don’t care about that, I just want the money now’. It is worrying that an awful lot of advice is given on the basis of affordability and not suitability of product. I’m sure that is not happening with some companies but I have no doubt that is happening in the wider marketplace. The education of some landlords has increased and they’ll come in and want a 5-year
GC: It goes back to product choice with mortgages as well. It’s the confidence of the adviser to go ‘here’s your option at 1.4% with a £2,000 fee, here’s 3% with a 1% fee. I’m not telling you which works out better, I’m saying take these both to your tax adviser and then let me know which one we are proceeding with’. It is making sure intermediaries are confident enough to have that conversation and not going down the advice route with tax advice, but just outlining the options. PM: That is the dangerous thing; advisers getting caught up. A little knowledge is dangerous and suddenly you are giving tax advice. It will come back and bite you. AI: I think it is key that clients use a tax adviser who specialise and understand the buy-to-let market, rather than using the tax adviser they’ve used for the past 15 years for other parts of their business. PM: Your accountant has dealt with your income not property which is a different market altogether. JN: The market has seen a shift towards more 5-year products. Have you seen this trend and what factors are influencing it?
fix, and when I ask what their future plans for the property are they will tell me they intend to do it up and flip it in two years’ time, in which case a 5-year fix won’t work. They respond with the fact that they can’t get it unless they do a 5-year fix so they will take a hit on the penalty. It never used to be like that, but a situation has been created where that is the position. It is a bit of a worry but I can’t see the regulators changing the rules for that. The only halfway point could come with lenders offering 5-year fixes at a slightly higher rate but with no ERCs to allow people to change their decisions and plans. Lenders could perhaps add another £500 to the fee and put another 2% on the rate; overall making it worthwhile. So long as they hold onto it for two out of the five years, they will be okay. But that’d require some serious innovation from the Treasury department. HL: With the larger portfolios they all want 5-year fixes to put away the property for five years and not think about it. They are not finance people, they are property people. They want more flexibility so they can put some properties in if they want to sell some. The ability to switch in and out with properties or use a 10% overpayment facility is a big thing and it becomes about what the rate can do for them and having that amount of loan rather than thinking of it as individual buy-to-lets per property. Landlords are asking a lot more questions to help them use that money. It has changed the way a lot of them are thinking. GC: Portfolio landlords are here to stay so a 5-year fix is no real problem, but the one to three
NM: The problem is to maximise
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property landlords are primarily doing remortgages and might sell in a few years’ time. The tax changes haven’t fully come into effect yet, so there will be some tax bills coming in the next couple of years that will raise some eyebrows. It worries me that you have a mortgage market which is enforcing some of those people to go down that 5-year route. The best option for them might be to sell in two or three years but they won’t have the flexibility. Everybody likes a 5-year fix and its price but buy-to-let landlords want some flexibility to sell if needs must. No ERCs are perfect but even if a lender brought in a 0.5% ERC this is better than a 2% or 3% and is the kind of innovation that would be well received. NM: It is all well and good doing a 5-year fix when rates are so low. If interest rates were to rise to 4.5% or 5%, which I don’t think they will, would people want 5-year fixes? I’m not entirely convinced. The demand will grow for the thought of a portfolio mortgage product when assessing the business and all we need is to get the solicitor to place a charge for us within the company. HL: There are lenders which are trying to balance their books where they have a lot of residential business but not a lot of buy-to-let. They just want to lend money on buy-to-let. There is a lot of money to be made there. The more lenders we can get doing that the better. NM: To have the high street lenders come back into the market serving landlords with a portfolio of 30 or more properties at 50% LTV who want to buy more would be a
picture. In London, every case needs top slicing or a huge deposit. GC: A lot of it is the remortgage business of which a large proportion was let-to-buys at 75% LTV and it’s still 75% LTV. They need top slicing just to get a good option. It’s key and from lenders perspective I think it’s brilliant. It sounds risky but if you look at the fact finds, profiles and incomes of the clients they are taking on, they are the clients you’d take on. If it is on a like-for-like basis, what is the alternative?
fantastic position to drive the buy-to-let market forward and provide rental stock. DH: We see the small landlords use 5-year deals because they just want to see what happens. Rates are so low. I think it is a concern if people are choosing these for the right reasons. There are a good proportion who would easily qualify on affordability, which is comforting. I think amateur landlords are waiting to see what’ll happen. JN: How important is it to have the ability to top slice from income to help with the underwriting of buy-to-lets? NM: It’s central. PK: There is a regional picture as well. We are doing more lending in other parts of the UK to London because you look at where the criteria is and whether rental fits. We are predominantly in that one to three landlord space where we do top slicing and can do up to 10 properties. It is a very regional
HL: I find the top slicing using rental income really useful. A lot of the specialist lenders will look not just at income but the rental surplus from properties. This is useful for landlords as they are making all this money; it makes sense if they’re a bit short to use that. JN: We’ve seen a number of lenders moving their maximum ages for buy-to-lets. Are lenders looking for a point of difference or is it an important criteria change? NM: I think it’s an important criteria change. The buy-to-let landlords who got into the market in the late 1990s or early 2000s are now older. They don’t want to diverse themselves with their portfolio especially if it’s within London and the South East. They might want to hold onto it. They are thinking about succession, so increasing the age is a logical thing to do. They can keep the facilities going and carry on earning money. As the buy-to-let mortgages are paid for by the rent it doesn’t matter if they are pensioners or not. It is the
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way things are going with the state pension age increasing so I’m not surprised lenders are increasing their maximum age.
5-year fix with a 2% or 2.5% early repayment penalty. It ties in then with when you can get the stamp duty returned. There are opportunities there if lenders look to where the client is, not just the black and white side of things.
HL: As long as they have succession planning. I have one client whose grandchildren are all in property, so you know what will happen. She has set it up like that and she knows what she’s doing more than some first-time landlords without experience so why would you not lend to her?
JN: Are you looking to increase the number of workshops you offer? GC: I think landlords definitely want to see more of them. Buy-to-let is an area of the market where the need for advice and intermediaries is getting higher and higher by the month.
GC: It ties into the whole generational and later-life lending piece. People have seen their grandchildren struggle to get onto the lender. They think ‘I’ve got this buy-to-let, they may not be ready for it yet, but may be ready to transfer it over in five years’ time’. A lot of people are keeping hold of the asset to potentially transfer the property over. It is a good criterion change.
JN: What do you see as the biggest opportunity in the buy-to-let market over the next few years? PM: If you can create a first-time buyer first-time landlord vehicle where people don’t want to buy to live in but to invest in the market, it could be a good area to look at. If someone in the South East wants to buy a property in the North East as an investment, facilitating that is a good way to go.
DH: With interest rates so low and not looking like they are going anywhere quickly, you can see why people are looking to add buy-tolet as an income producer. PM: That’s part of our HT planning as well. If you can borrow and reduce your taxable amount, why wouldn’t you? More are using equity release on their residential and keep on borrowing on their buy-to-let portfolio just for that reason.
HL: I think a specific product where you can switch to a limited company from your own name, would be useful. GC: Paragon do that. They don’t charge ERC when you transfer to a limited company. Landlords love that. I think let-to-buy might return in some way. I am not sure the products on the mortgage side are in line with where they were three or four years ago when that was a core part of the business. The big one for me would be a simple
NM: Canada Life brought in an equity release product for buy-tolet properties. They would only produce that if there was demand for it so I think there will be a couple more equity release providers who will follow in the next few years.
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DH: The specialist areas are where opportunities arise. There is a huge opportunity for the more mainstream lenders, looking at the one or two-bed properties, to move into limited company lending. JN: Is new-build still being seen as an opportunity in buy-to-let? HL: I’ve seen loads of it with people buying blocks of new-build flats, taking on the freehold sometimes as well. It’s an interesting market. GC: Definitely. The only issue is that sometimes it’s too much. Once developers realise investors are keen on the blocks, they start marketing to investors. You then have lenders saying ‘why does that say 6% yield and have a big circle on the website? We’re not lending on that development anymore’. That’s in places like Liverpool where the website says 8% yield is guaranteed. It’s a nightmare and you don’t see that in London really. It’s more of an issue in cities up north with the larger portfolio landlords.
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Glittery penis fools Twitter Tim Wheeldon, says the stiff competition from robo-advice is a long way from being a threat Just about everybody uses Netflix these days, and I’ve become a devotee. When I’m not watching Stranger Things or Narcos, I’m scrolling through the wealth of content served up by the subscription giant. Netflix cleverly takes note of what you’ve watched and offers content relevant to your viewing history. The 1984 James Cameron masterpiece showcased a dystopian future where the rise of the self-aware world-spanning Skynet led to the battle for survival between the nearly extinct human race and the machine based military capability of the Artificial Intelligence, when it perceived humanity as a “security threat”. In the same way that Jaws influenced a lot of people’s opinions on sharks in a way that didn’t line up with scientific reality, sci-fi apocalyptic movies such as Terminator can generate misplaced fears of uncontrollable, all-powerful AI, according to research scientist Edward Grefenstette, at Facebook AI in London: “The reality is, that’s not going to happen.” While human cyborgs ran riot in Terminator, today’s AI systems are just about capable of playing board games such as Go or recognising people’s faces in a photo. And while they can do those tasks better than humans, they are a long way off being able to do anything mildly more complex. So, my message to mortgage advisers cowering in fear of being made redundant by clever AI algorithms (or, for the more paranoid, being wiped out by Arnie), you can breathe a sigh of relief. Today’s AI is simply software that learns from data, sometimes
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known as machine learning. One of Google’s early stabs at this in 2012 learned how to recognise cat faces in the videos, but also picked out spatulas oriented at a jaunty and cat-like 30-degree angle! Inspired by receiving an unsolicited photograph of a naked man, Twitter developer Kelsey Bressler started a project with a friend to refine an AI system which can detect offensive pictures of male genitalia and delete them before being posted on the social media network. There has been mixed success so far. Ms Bressler claims that although the system was tricked by a man wearing a cage over his genitals and photo of a penis covered in glitter was also missed by the software, overall it had been a ‘huge success’ with ‘ordinary vanilla penis photos’ and nudes. Quite! The most non-technical of us will have heard of IBM’s flagship AI programme, Watson. IBM has been exploring Watson’s AI capabilities across a swathe of applications, including healthcare. In 2013 IBM developed Watson’s first commercial application for cancer treatment recommendation, and the company has secured several key partnerships with research centres and hospitals over the past six years. But Watson AI Health has not impressed doctors. Some complained it gave wrong recommendations on cancer treatments that could cause severe and even fatal consequences: “This product is a piece of s**t” wrote a doctor at Florida’s Jupiter Hospital. So, what does this tell us? AI is still a work in progress. Thirty years ago, it was inconceivable
that a chess program could ever beat a professional chess player, let alone a world champion. Yet, DeepMind has done it. For certain, highly specialised tasks, it’s had notable successes. However, when programmed to solve arithmetic, algebra and probability problems, its success rate on a maths exam taken at GCSE level revealed that the best it could do was an E grade. Obviously, AI is a growing fact of life but is it the really the nemesis of intermediary advice that it is being billed as? Should advisers be worried? No - AI, in the case of robo-advice, is still a long way from providing an end to end service. For all the hype, current players in this sector are creating more heat than light in claiming that they are offering a true robo-controlled environment: some user-friendly data capture definitely, but if the enquiry is anything more than strictly vanilla, then human intervention is still required. If the current surveys are a true indication of the public’s relationship with mortgage advice, while people are happy to buy products and some services online, they currently draw the line at being advised exclusively by a computer. The overwhelming evidence is that people still want a human expert to guide them. Therefore, future proofing advice has to ensure that we blend the best that technology can give us with that human experience, knowledge and personal contact which roboadvice can never replicate. So, AI mortgage domination is not around the corner. However, as Arnie said “I’ll be back.”
Loan Introducer
Fast but not furious Natalie Thomas catches up with Darren Perry, head of second charge mortgages at Brightstar, to discuss his need for speed Who do you see demand for second charges from? There are many reasons why a second charge mortgage can provide borrowers with a more suitable way of raising capital than refinancing their entire balance. The top reasons for clients taking a second charge mortgage are debt consolidation, home improvements and raising funds to buy another property. We also see a lot of demand where the borrower is on a low legacy rate or has an interestonly mortgage that they would lose with a remortgage. You recently completed a second charge in nine days with Shawbrook Bank, how is technology in the seconds market speeding up completion times? Technology and product innovation are definitely making the process faster. In this particular case the clients were able to sign the document using an e-signature, there was no mortgage reference needed because the details were available on the credit report and the case fitted on an AVM. These were all different elements of technology that all contributed to making the process faster. In addition, the lender didn’t need consent for a second charge, which also helped. What’s your biggest bugbear about the market? Most definitely the number of brokers who still do not consider a second charge alongside a remortgage for clients who want to capital raise. In many circumstances, a second charge is the better option for the client and
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so brokers who don’t consider the product are failing their clients. It can be frustrating that people don’t see the opportunity for their clients, or themselves, in the second charge market. At the right time and in the right circumstances a second charge mortgage can be used to improve a client’s property or position, with a view to refinancing at a better rate for the longer term in the future. We’ve just seen the merger of One Savings Bank and Charter Court, do you think this will be a positive for the second charge industry? Yes, absolutely. Both businesses have been a very positive influence on the market, and I expect them to continue their roles of raising standards and raising awareness. They are two powerful brands, that can take the market forward in leaps and bounds. Do you think the sector is still attractive to new entrants? The market is competitive, but there is still opportunity for new entrants as I think we will see demand for second charge mortgages continuing to grow. However, new entrants shouldn’t just expect to take a slice of the market. We are seeing downward pressure on rates and so margins are thin for those that just compete on rate. Instead, lenders should look at what value they can add and how they can provide something different to the customer. There is always room to do something new. NOVEMBER 2019
MAKING IT PERSONAL Is there something about yourself that people would be surprised to hear? I don’t look old enough, but I have been working in the second charge sector for 21 years. When you were young, what job did you aspire to as an adult? I actually wanted to join the RAF. I passed my exams to become an officer, with a view to becoming a pilot, but I failed the medical on a hearing test. It turned out that I actually had an ear infection at the time and so I may have passed it on another day. What is the best bit of advice you have ever been given? Keep your mouth closed and listen before responding. What is your most prized possession (aside from family)? My motorbike, which is a Yamaha Tracer. I have always loved riding superbikes.
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Seconds and the credit impaired Our experts consider just how entwined the second charge and credit impared markets are Second charge mortgages are often mentioned in the same breath as subprime mortgages but do the two really go hand in hand? The market has undergone a dramatic shift in recent years, not just in regulatory terms but also through the range of products and low rates on offer. Whilst historically the second charge mortgage market might have provided a much-needed home for credit impaired borrowers, is this still the case? The sector recently recorded its 12th consecutive month of double-digit new business growth, according to the Finance & Leasing Association, with new business volumes 21% higher in the first eight months of the year than in the same period in 2018. But just how much of this was to heavily credit impaired borrowers? The sector has undoubtably expanded its reach over the years but has it also moved away from its sub-prime roots? Loan Introducer asks: “How much of your second-charge mortgage business is sub or near-prime?” Darrell Walker, head of sales, second charge and commercial lending, Prestige Finance Underwriters will from time to time find a couple of common mistakes when they look at applications and these can cause delays. These mistakes can be avoided in the first place by following a simple checklist, making sure all relevant documents are included and ensuring
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that they are within the correct date ranges. Also giving a detailed explanation of any discrepancies can make a huge difference in the speed of the application. Alan Cleary, managing director, Precise Mortgages No, the vast majority of customers are honest. However, it is a regular occurrence that a minority of customers provide false information on mortgage applications. This is not a new phenomenon but the technology we deploy in combating this crime is rapidly evolving and becoming exponentially more sophisticated. We also have a financial crime team who are experts in their field and work with the industry to stay ahead of those people that choose to be dishonest. Alistair Ewing, managing director, The Lending Channel False information should be differentiated from inaccurate detail. We don’t have an issue with clients making fraudulent statements, but there are certain components of an application form that are continually mis-stated. Income, property valuation and credit profile for example are often wrong but properly trained advisers know this and can undertake certain plausibility checks while processing the early stages of an application.
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John Webb, second charge mortgages director, Paragon It’s very rare for customers to provide false information intentionally. What’s more common is for customers to underestimate their expenses at the outset and then find their application is delayed because they need to provide additional information. This is where experienced brokers can really add value, taking time to build a realistic financial picture with the customer up front before they submit their application. Damian Cain, director, Complete FS Most of our applications come in from introducers, the majority of whom we have done business with for some time. So, the incidences of intentional efforts to deceive are non- existent. However, we have to recognise that advisers are not mind readers and there are instances of misunderstanding or where unintentionally wrong information is submitted to them by customers, which consequently turns out to be contradicted by evidence. We are lucky that our introducers recognise the importance of getting information that is accurate at the outset. However, if it were to happen then we would ask for clarification, but if it happened more than once, we would
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Loan Introducer
suggest that the introducer becomes stricter with their fact-find process or find another packager/distributor to whom they can send their applications. Anna Bennett, marketing director, Positive Lending It can be quite hard to say if customers are deliberately falsifying information on their applications. Quite often, customers simply underestimate their expenditure. We train our people on how best to ask the right questions and, if needed, we sensitively challenge customers – reminding them and prompting them to consider things they may have left out. A good example of this is groceries. If you asked me, I would say I spend approximately £150 on my weekly shopping delivery but I could quite easily forget the times I pop to the supermarket to pick up extra things, which could quite easily add another £30 per week. As a business, we do not rely on Office for National Statistics for our customer spending profile, we rely on our customers as we recognise people are individuals with very different spending patterns and priorities and it’s important for us to understand their situations and needs. Our advisers spend time assessing the applications and that’s before they are passed to our internal underwriting team for checking. In short, on the whole we do not think customers are intentionally providing false information. Scott Thorpe, director, London Money Loans When we expanded nationally we were expecting to see hot spots where information was inaccurate but thankfully this wasn’t the case. We are lucky in the sense that the majority of our brokers are very experienced and there are often more than one set of eyes checking the information. Obviously there is always information that can unintentionally be miscommunicated from day one. This could be monthly outgoings such as utility bills, school fees, or the exact amount of income for self-employed or High Net Worth clients - whose bonus income can be sporadic. The key to getting round it is good underwriting, taking what the customer says with a pinch of salt and reviewing everything with bank statements, payslips and P60/SA302. Mike Walters, head of sales – mortgages and bridging, United Trust Bank We have a series of underwriting and anti-fraud checks within our process. These start with a strict due diligence process before we commence any broker relationship to ensure we know and understand the firm introducing business to us. During the underwriting of full mortgage applications, we then have a series of systems and controls which validate the information provided to us through independent sources, before completing security checks with every applicant before a loan completes. Historically, attempts at impersonation fraud were probably the most frequent. Very recently we have launched biometric ID verification which not only reduces friction in our process, but also strengthens our ability to spot attempts and prevent financial crime.
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Building for the future Natalie Thomas takes a look back at the PPI scandal and considers its impact on the future market Second charge lending volumes continue to rise but are there enough new lender and broker firms being added to the sector’s conveyor belt to ensure it keeps moving at a steady pace? New entrants into the second charge mortgage space have been few and far between in recent years compared to its first-charge counterpart. Many of those firms which do operate in the sector are familiar faces, having endured the credit crunch and the subsequent regulatory upheaval but what of the next generation of second charge recruits? Will they be there to carry the baton? The regulatory transformation the sector has undergone in recent years and the implied added cost has arguably made running a second charge mortgage business more challenging. So, what can be done to ensure the sector’s continued growth and appeal to not just mortgage brokers but lending and advising firms?
Supply versus demand
The more demand there is for second charges, the more appealing the sector will inevitably be to any new lender and master broker firm looking to join the market and make a name for themselves. According to the Finance & Leasing Association (FLA), new second charge business volumes were 21% higher in the first eight months of the year than in the same period in 2018. So is the sector’s growth spurt set to continue? “Many people expect the sector to grow at a greater rate next year as more borrowers who are tied into a fixed term mortgage choose a second charge,” says Steve Walker, managing director of Promise Solutions. “However, at the moment seconds are fairly flat in the business to business sector and it’s easy to blame Brexit for consumer indecision. Firms’ costs remain high, with a high percentage of complex cases, resulting in higher compliance and
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abortive costs,” he explains. Harry Landy, managing director of Enterprise Finance, also believes that a driving factor in the growth of the sector will be a rise in the number of borrowers taking out longer-term fixed rates in firstcharge market. “Those products will have early repayment charges, making it more expensive to switch to a new provider for additional funds. Second charge mortgages would avoid this,” he says. “As the rates have fallen, they have become more accessible to clients and a viable alternative to a further advance or re-mortgage, so this will again fuel growth. As the market grows, naturally we will see new entrants as interest in the sector rises. Over the lpst 18 months we’ve seen both new entrants and consolidation in the market,” he says. Another vital ingredient in the growth of the market will be mortgage brokers, who are on the front foot when it comes to ensuring clients are given the option of a second. Jeff List, director at Specialist Money, believes the market is still misunderstood by many mortgage brokers and once mind-sets change it will give the market a boost. “I see no reason why there wouldn’t be longevity as the products on offer really stand out and are a great tool for a mortgage intermediary to find the best outcomes for their clients,” he says. Depending on who you ask, regulation of the sector by the Financial Conduct Authority (FCA) can be seen as a positive or negative in terms of the market’s growth. Jo Breeden, managing director of Crystal Specialist Finance, believes it is the former. “Since FCA regulation was introduced, the market has adapted through lower interest rates and product innovation which means it has become a real option to address people’s financial
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requirements, this naturally means more brokers see it as a real option and are entering the space. “Regulation has brought things in-line with first charges, so it is a process that a broker is already familiar with. Regulation has also brought in much more transparency and fairness, so the days of old with high broker fees are gone. Second charges give us a further option when looking for the right solutions for a client, therefore more business continues to be underwritten,” he says. Robert Sinclair, chief executive of the Association of Mortgage Intermediaries and Finance Brokers, expects technology and in particular sourcing systems to aid the sector’s growth but does not believe the sector will match lending volumes seen in the early 2000s. “It’s currently a £1bn market, it’s not going back to £6bn,” he says. “It might get to £2bn and the existing lenders probably have the capacity to do that if they want to,” he says. “The debate is always around whether sourcing systems will encourage more people to go to seconds if they get the data in there better? To which I think the answer is yes,” he adds. Paul McGerrigan, CEO of Loan.co.uk, also believes that as the second charge sector aligns itself with the first charge sector it will evolve around technology. “The mortgage and loan sector as a whole and the process of how a client gets to the right solution will definitely change,” he says. He believes technology will result in lenders being able to fund and process cases more quickly and efficiently.
New lenders and brokers
So, with the potential for increased demand could we see a new wave of master brokers on the horizon? Sinclair thinks not. “The master brokers that are in the
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market at the moment are doing a pretty good job in terms of tying up distribution, they have been there a while and know it quite well,” he says. “I don’t see someone coming in and shaking that all up,” he remarks. “Somebody might retire and sell their business on and I think that is more how the landscape might change – whilst there is more of a margin with second charges, there is also more risk,” he says. List believes that once the demand from mortgage brokers edges upwards, so will the appetite from potential new entrants. He also expects this to come from lenders, not master brokers. “New lenders or lenders not currently in the second charge space will come to market and this can only benefit the sector, especially if new criteria niches and alternative views are introduced - this always helps to fulfil more client needs,” he says. He continues: “In terms of master brokers, I would be surprised if the sector grows beyond those already involved, due to the relationships already formed with lenders.” So, what of new lenders? The market recently saw the merger of One Savings Bank and Charter Court – encompassing both the Prestige Finance and Precise Mortgages brands. Sinclair believes such consolidations may have more of an impact on the market than any new entrants. “As a result of the merger they will have a look at that proposition and might decide to reenergise it to something different. That might be the one thing that could shake the market up – them deciding to become more dynamic,” he says. “They are going to have to make a decision about all of their brands and what they mean and how they work together, so I think there will be something that comes out of that,” he adds.
Too expensive?
With increased costs from regulation and abortive cases, is there still money to be made by second charges firms? “For a lender, if they position their product correctly then of course there is profit within the products,” says List. “However, some lenders do seem to be having a race to the bottom mentality to get a market share and aren’t making money from the lending. It’s great that lenders are having BDM’s on the road
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and attending seminars promoting the second charge products. It certainly raises awareness and knowledge of the second charge market but I wonder how long it can all last in the current format before a lender pulls away from the market due to costs. He continues: “If you factor in the prime end of the market lender fees are £300-£595 yet the lender is paying for office costs, staff costs, regulator costs, etc. this could lead to the product becoming unappealing to the lender. Unless of course the lender doesn’t just offer seconds, if the lender deals in all specialist sectors it may make sense to offer something that doesn’t have the profit within a given product, but does enable the lender to be first port of call for all specialist needs. “From a broker’s point of view, when the average advance is £65,000 the broker is earning £1,300 plus, say, a broker fee of £495, so there is a profit margin for the broker.” Anna Bennett, marketing director at Positive Lending believes the increasing average loan size of a second will keep the products profitable, meaning there is margin to be made if the product is designed to remain competitive. “Our 5-year fixes, with no ERCs and low product fees, are extremely compelling for our clients,” she says. “It’s more likely that any new firms (lenders) entering the market will have a banking structure, as the cost of funding for specialist lenders is higher which makes it hard for them to compete with today’s low rates. Existing and established specialist lenders have created an attractive and competitive proposition,” she says. Lucy Barrett, managing director of Vantage Finance, agrees that there is still money to be made. “The reduction in rates is positive news for the consumer as it allows them more choice, which in turn makes the product more viable. “I think the changes to this sector have only helped cement its longevity. Clearly awareness has risen for the product and that will naturally mean more people and firms will turn their hand to it - but in my opinion that’s only a positive for the market.” Alistair Ewing, managing director of The Lending Channel, says although the increased regulation and oversight
has definitely added significant cost for lenders and brokers, well organised businesses who have managed to upskill are still flourishing in this market. “The second charge sector is in great shape, with volumes continuing to grow and rates remaining low. Some of the lenders like Optimum, UTB and others are investing heavily in areas like larger premises and fintech which clearly demonstrate appetite to remain in the market long-term.”
New blood
The market may currently be serviced effectively by those firms in it but what of its future? The master broker community seems an unlikely candidate for any new entrants, with new lender interest more likely. So, what happens once those master brokers currently operating hang up their caps, will there be someone there to take the reins? “We get applications across all our offices each month, from advisers currently in the sector looking for a fresh challenge,” says McGerrigan. “We also get hundreds of applications from people outside the industry. The second charge industry, like the mortgage industry, is still a long way behind in terms of tech, automation and artificial intelligence, so hiring a complete novice, even one with the correct attitude, intelligence level and drive requires a lot of time and effort before they add value to our clients,” he explains. “That said, the industry needs new blood. We try to find a happy medium by bringing in a percentage of people from similar industries (e.g. insurance) and training them on our technology, processes and advice approach all of which means an adviser can get up to speed much quicker.”
Looking to the future
Lender appetite appears strong and there is no reason to believe the sector’s current growth cannot continue – at least for the foreseeable future. With a high probability the number of master brokers operating in the sector will remain static, any imminent or future growth spurt may prove challenging for the fairly modest number currently operating. This makes it vital those existing firms keep pace when it comes to new recruits and are prepared to meet any future demand effectively.
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Interview
Building on potential Tony Bunting discusses why he launched The Commercial & Bridging Club and how he aims to take it to the next level You started The Commercial & Bridging Club back in May. What is the concept behind the club?
experienced professionals who have the interest of the client at the core of their proposition and not just their own short-term financial gain. There is no room in the sector for what I call ghost brokers, those who present a case with no exit facility and then just go A.W.O.L. because they have no interest in their client, just lining their own pocket, for this reason the club will be validating exit strategies to ensure that they are realistic, whether the property is being sold or refinanced.
When I became seriously involved in the short-term lending sector in 2016, I was convinced the bridging sector had become established and was successfully shaking off its reputation for being the last resort with sky-high interest rates. That said, as an experienced broker with an honest reputation I remained sceptical about the ethics of some providers. I started thinking about how I could get together a valued panel of lenders who had the right ethical approach and had become trusted by a broker fraternity that was willing, but often not quite able, to understand the challenges, of what can often be, a complicated market. It was important to me that club members should be honest,
How have things started for the business? Having traded for less than a year have things gone as well/better than you were expecting? It was not long after the soft launch in May that I decided we needed to go back to the drawing board as our belief that the network AR’s would be our initial targets would not be the case. Whilst the great majority of network brokers are not tempted by the short-term sector those who do are channeled to specialist brokers in their network and after several very open and informative discussions with some of those specialist brokers the model as we had designed it would not be compatible with their relationship model. Collaboration, communication and education are a major part of the broker member club concept. How important is this for The Commercial & Bridging Club? Tony Bunting
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It is pivotal. Over the 23 years
I have been a broker I have never stopped hearing the promises from lenders and other stakeholders, in whatever funding sector I have been involved in, promising they will fulfill all of those elements and most of the time they have fallen short of delivering on all three. How important is it for businesses in the sector to be actively involved and communicating with their stakeholders? i.e. lenders, values, solicitors and end clients? Successful businesses have at the heart of their model, sound internal communications and springing from that they establish a reputation for developing longterm relationships with partners of a similar persuasion who are willing to exchange the detail that makes their model a success. The club has a mission statement that was designed together with lenders, valuers and solicitors and brokers that highlights the fact that success comes from understanding better what all the professionals involved in the process have to do to ensure the end result is a satisfied client every time. This is not easily achieved but this is what the club is all about. I must admit that over the years there have been times when my own knowledge of what the other stakeholders need to do to fulfill their professional requirements has been lacking. The club will be requiring all stakeholders to design educational flow-charts that
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Interview
will reinforce the educational programme that the club will promote. How do you view the bridging market at present? Steady but with potential that remains untapped. A little concerned that rate wars could undo some of the work that is being done by such as the trade bodies on improving the reputation of the sector over the past five years or so and due to ignorance the damage that new entrants could do to that growing reputation. The Commercial & Bridging Club has been born to build on the potential of this sector and the benefits which brokers can get when all the stakeholders act in a creditable way and can be trusting of each other and collaborate together for the benefit of the client. It is an exciting market What areas of growth do you see? All areas of funding in the shortterm sector have potential for growth but one thing that needs to get better is the data capture software that is essential if the growth areas are to be identified and then explored. It would be good to see the software developers embraced as essential stakeholders in the sector and so this is an area the club will be giving a great deal of attention to. The spread of opportunity outside the South East has been a feature of the growth of the market but the club believes the potential for many other parts of the UK to offer opportunities for brokers wishing to diversify into the sector will be more likely realised through an education programme supported by data that will pinpoint the most likely areas for penetration. The club will use that information to support the plans of all stakeholders and drive their own growth plans.
How confident are you in the sector? I would not be launching the club unless I was confident of the growth potential of the market. There are issues such as the challenge to lenders to recruit the high quality of underwriters that the sector demands and the doubts that exist about the consistency of valuers and how that fuels a risk averse culture that helps nobody. Again, however when you trust a valuer and he is part of a stakeholder model comprised of liked minded professions who talk to each other and fully understand what each is basing their opinions on, a valuation is much easier to accept. Ignorance is not bliss. What stumbling blocks, if any, do you see? The big one is usually confidence that expectations can be realised. Brexit is a cloud that continues to linger but I am confident that any stumbling blocks can be negotiated. With a housing deficit in the UK how important is the role of specialist finance? The housing shortage is years away from being remedied so any funding that gets more people housed in good accommodation has to be vital to the governments housing policy. I would like to see closer relationships between shortterm lenders and local authority planning departments for the lenders to learn better how the authorities apply their acceptance criteria and how that knowledge will give the lender greater confidence that outlined planning will progress to full permissions. One of the clubs longer term aims is to support members in their own locality to forge such relationships with the right developers who understand the local approach and through NOVEMBER 2019
their experience the broker is in a better place to support their requirements. How important is technology in this sector? Data is knowledge, so all business strategies and the plans that fall out of the strategy must be founded on information. Determining where potential exists and what rewards that potential can deliver needs to be supported by sound statistics. In my experience over the years there has not been as much collaboration between software developers and the endusers before launch and so the launched product has often fallen short in satisfying the demands of many but in recent years there has been a growing number of systems that have been well trialed and are fit for purpose, but still some way to go, in my opinion. How important is technology in your business and do you plan on introducing any new tech anytime soon? Indeed yes. We are in development stage but a club of the nature of The Commercial & Bridging Club would not be fit for purpose if it did not offer a system that supported the growth of its members and provided a process that delivers outstanding customer service. Have you got any specific aims for next year that you want to share? Same objective every year, to grow my business on the back of brokers who buy in to a model that is designed to give them competitive advantage and thus stimulate their growth. If The Commercial & Bridging Club is to be a success it will be because its members are growing and reaping the benefits which club membership delivers to their businesses. MORTGAGE INTRODUCER
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SFI: Packagers
Not all packagers are the same One of the main gripes I encounter when I give a presentation about the services Complete FS offers to brokers, is the one about packagers just getting in the way of a happy relationship directly between themselves and lenders. Packagers fulfil a role which has been proven over the past twenty years to provide, when executed properly, a service for advisers and lenders which has not been bettered. They provide an essential conduit between advisers and lenders and in my experience issues only surface when that conduit fails to work to the benefit of all parties. There are three basic tests that a good packager needs to pass. Firstly, here is a process that requires plenty of moving parts in putting a case together to present to a lender and the more hands that are involved, the greater the potential for delay. That is why packagers must ensure that the staff working for them are trained to know as much about the lenders they deal with as the lenders’ staff do themselves. Unfortunately, not all can make that claim. How many of their staff are CeMap qualified? Secondly, packagers need to be able to demonstrate that the technology they use is, as far as possible, advanced enough to facilitate the two way transfer of information and supporting documentation to lender partners. Lastly, packagers should be able to demonstrate the strength of their lender relationships by how many allocate a specific underwriter to attend their offices and look at and pre-underwrite cases. At Complete FS, we have adopted an internal process built around reducing the chances of error by standardising a process that is repeatable and organised with a continual focus on measurability and evaluating progress. We continuously compare our results against what our introducers and their customers expect, and we www.mortgageintroducer.com
Phil Jay director, Complete FS
continue to innovate new or better ways to deliver great outcomes. In real terms, a packager is only as good as the ability to produce results and those results can be measured in three main areas. The percentage of: Enquiries to DIPS Applications to offers Offers to completions However, picking a packaging partner can be a bit of a lottery. It is well-nigh impossible to know whether a packager is good, bad or indifferent until a broker sends in a case or makes an enquiry. There are no league tables to check because there are no published criteria of how well or otherwise they interface with the lenders they have on their panels. Lenders are naturally coy about wanting to put in writing anything which might favour one packaging partner over another, so it has tended to come down to trial and error or, if lucky, by recommendation. There is an old saying that says that a bad workman blames his tools. As a broker, how many times do you get the excuse from a packager that every delay in getting a DIP or Offer, is down to the lender? How do you know that is actually the truth? In many cases, the lender
is not to blame and the issue lies with the packager because it has failed to provide what the lender requires and resorts to blustering at the underwriter and telling you how bad the lender is. Of course, we all know that lenders have service issues from time to time. The more popular the lender, the greater the business volume and the possibility of service issues. However, a good packager should always tell an introducer if a lender has service problems. We always do and suggest alternative funding sources if speed is an imperative. The best packagers simply don’t keep on sending business to lenders who are having service issues without warning their introducer about delays. That should be packaging 101! If your packager just blames the lender every time there is a perceived hold up, it is probably time to realise that you need a different partner. The truth is that if a case is properly presented at DIP stage to a lender and then backed up with a complete application, supported by the requested documentation, then, subject to valuation, it should go through. Talking to lenders, it is clear that many of the problems they encounter stem from being given incomplete information at the DIP or application stage, or information that is not backed up by suitable documented proof. Brokers should not be told that the lender is at fault if, in reality, the delay is being caused because the lender is waiting for information that has not been supplied. As I said, it is not easy to find evidence of how effective a packager really is until an adviser uses them, but next time you want to use a packager you may want to ask them for their percentage success rates of enquiry to DIPs, application to offer and offer to completion. It will tell you what you need to know.
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SFI: Networks Bridging
AR status has significant advantages Choosing between an AR or DA future has become a clearer choice with the need to invest in technology driving more mortgage firms to look seriously at AR status. Of course, the decision is not limited to the need to look to the impact of digital on the advice process, there is also choice for the customer. With new lenders looking to harness the customer reach of known distribution volume, and a few existing lenders still restricting access, being able to promote a whole of market proposition is a significant advantage when defending against lender direct models. Add to this higher levels of income, compliance support and guidance, and the investment firms will have to make to be Senior Managers & Certification Regime ready, you can see the gap widening between directly authorised and appointed
Shaun Almond managing director, HLPartnership
SFI: Development Finance
representative status. Finding the right path is a difficult one and adviser firms should always be reviewing the best route for them. Firms have to juggle so many balls in the air these days that they aren’t necessarily able to concentrate on their business as they would like. The increasing competition for new business along with the challenge posed by robo-advisers and product providers making use of new technology to tempt borrowers to go direct, are threats to existing client bases. To counter this, many firms need to make considerable investment in their own infrastructure and CRM systems to ensure they work in partnership with their undoubted human expertise and experience. However, not everyone can afford to be at the cutting edge nor do they have the time to convert their ideas into reality. Taking that pressure away from firms is one of the significant reasons we are seeing more en-
quiries, with the technology support HLPartnership provides to all members at the heart of the conversation. Allowing the firm to concentrate on customers rather than computers is a key driver of engagement. Being a DA firm can also be a risky place to be, particularly with the regulatory world changing as fast as it does. The upcoming Senior Managers & Certification Regime has been another factor in bringing DA firms to talk to us. Networks like HLP free firms to focus on new business with the guarantee that all aspects of the new regime are taken care of. Network members also have access to a much wider representative panel of lenders, the support that brings and regular opportunities to meet with fellow members as well as full access to the senior management team. AR status has become a very attractive proposition in 2019 and I strongly believe will be the status of choice in 2020 and beyond.”
Housing and the climate crisis Walking past the Extinction Rebellion protest in Bishopsgate, a few weeks back, whether you agree with their tactics or not, brought the reality into focus, that our planet is in serious trouble. The onus is on every single one of us to do more and it will require a concerted effort. Given that Magnet Capital’s focus is to support our SME developer clients in building the right new build houses in the right places, it is pertinent to shine the spotlight on what new homes can do to help the country meet its target of reducing greenhouse emissions. The new and existing housing stock currently accounts for circa 20% of emissions. Somewhat under the radar, the government in its 2019 Spring Statement has turned its attention to residential housing emissions by including a commitment that, by 2025, they would introduce
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a Future Homes Standard for new build homes. This would include low carbon heating and world-leading levels of energy efficiency. The government has now published a new consultation, setting out these plans, which is open to responses until 10 January 2020. This consultation marks the first step towards implementation of the 2025 Future Homes Standard, proposing to tighten the standards on energy efficiency and ventilation in new homes as of late 2020. It includes two options:- the first is a 20% improvement on carbon dioxide emissions by ensuring new build houses have triple glazing and a waste water heat recovery system. The second would result in a 31% improvement which require only double glazing but crucially lowcarbon heating and/or renewables such as photovoltaic (solar) panels. NOVEMBER 2019
Sam Howard managing director, Magnet Capital
The government’s aim is for the housing industry to develop the necessary supply chains, skills and construction practices to deliver low-carbon heat, and highly energy efficient new homes by 2025. Crucially, it has been rumoured to include banning the installation of fossil fuelled heating systems in homes built from 2025. Whether this means gas boilers will be banned for new builds is a matter for debate, given there are genuine concerns over whether alternatives such as air source heat pumps are viable. However, what is not in doubt is that new build house builders cannot bury their head in the sand, as the first raft of changes of increased efficiency standards will apply by the end of next year. These will have cost implications for house builders and SME developers need to be aware. www.mortgageintroducer.com
SFI: Bridging
In a disrupted market… We have become comfortable in our world of “instant coffee” – Uber when we need a ride, Amazon for same day deliveries, Netflix and Prime on demand and Pimlico Plumbers for emergency repairs - to name just a few. But what happens when we want a property loan in less than three months or even longer? Brexit has caused mainstream and even challenger banks to dot i’s and cross t’s as never before, to make sure loans tick every box and to review and review again before making a decision, and sometimes the decision is unexpectedly “no”. Add to this, the drawdown period just gets longer and longer. As a result, excellent opportunities falter or are unacceptably delayed, or in the extreme abort. Why not benefit from this disruption? These delays and the lack of certainty does not only affect would be borrowers; the vendors, the agents, solicitors and accoun-
Brian Rubins executive chairman, Alternative Bridging Corporation
tants who are advising, are all in danger of transactions aborting and so it is in their interest to facilitate their transactions and to introduce alternative lending sources. Liaising closely with them provides an additional source of introduction. Whereas many of the new, alternative lenders started with just simple bridging loans for chain breaking and satisfying domestic needs, some have morphed into both residential and commercial bridging loans, development finance, term loans and even an alternative overdraft. The use of these facilities has grown from a few hundreds of millions of pounds each year to a multibillion pound business. It is no longer just a quick fix but a different place to find easily accessible capital under easier conditions. Property finance in the mainstream is a challenge but alongside every challenge there is an opportunity. However, it is essential not to
fall out of the frying pan into the fire as so many promises of non-status, 80% loans in 24 hours prove to be no more than promises. To replace the mainstream, alternative lenders must deliver certainty of delivery and super-efficiency. When starting a new loan negotiation, certainty of completion is paramount. Recently problems have occurred with some peer-to-peer lenders who have delayed or failed to fund stage advances for residential developments. Acting as an agent for the borrower and not having their own funds they are reliant on selling loans to their investors who have become nervous of both market conditions and the promoter’s management skills. When selecting a short-term lender, it is essential to interrogate the lender’s back office ability, internal funding and to review their past history. Further, after the loan has been completed responding promptly to borrower’s needs should remain a priority for the lender and not a chore. Proceed with caution and benefit from the disruption.
Short-term is a very refreshing market Refreshing as an adjective means: “bringing new energy and strength in a pleasant and often unexpected way” that is certainly the definition that I think epitomises the bridging sector. Too often in the past it has been a market often filled with false promises and below average service, but things have changed and more brokers are finding that it is a refreshing change to experience lenders like Apex Bridging who are bringing a new energy that is making the move into our specialist market well worth their time. Speed, service and flexibility are often seen as the most fundamental components of a bridging transaction and it is refreshing to witness the growing number of lenders and their stakeholder partners meeting the expectations of brokers who are experienced in the market and those new to the opportunity. www.mortgageintroducer.com
Apex Bridging and other ASTL members are investing in staff training that supports a very focussed recruitment programme to ensure the right people with the right qualities are doing the right job to ensure more clients are giving high marks for service. Some may find it strange that I am promoting the merits of some of my competitors but I hope the majority response would be it is refreshing and reflects the growing confidence in the growth potential of the bridging sector at a time when the larger banks continue to frustrate many lending opportunities. Something else I find refreshing is that many lenders are seeking to grow through relationships and not be tempted into offering unsustainable low rates that just trigger a rate war that over time does nothing to enhance the reputation of the in-
Sonia Shortland director, Apex Bridging
dustry. Greater trust and dependability are perhaps the most pleasant aspects I have experienced since we launched Apex Bridging back in 2014. They are the essential qualities any group of professionals need to demonstrate if they are to attract clients who in turn will give testimony to those valued qualities. Going into 2020 it is refreshing to know that there are a growing number of long-term relationships being established amongst lenders, brokers, solicitors and valuers that reflects the new energy and strength of a sector that still has some way to go to attract more brokers to its opportunities, but I am confident that after the Christmas break more lenders than ever before will return refreshed and determined to show brokers what they are missing if they have not been tempted to see what the short-term sector has to offer.
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SFI: FIBA
Creating a stronger, more customer focussed sector Having spent regular time in Westminster over the last few months lobbying on behalf of FIBA members and pushing the cause of SME finance and the wider concerns of the specialist finance industry, I could not help but comment on the continued need to raise the profile of the many different components that make up the specialist property finance sector. Whether you are a broker, a lender, a legal representative of a valuer uniting behind a common cause of working more effectively together can only be for the betterment of the whole industry. While I would hesitate to draw any direct parallel between the Brexit negotiations and uniting the finance industry, the three year struggle since the referendum to leave the EU on the best of terms, demonstrates how competing points of view, individual goals and agendas can create a situation where finding a path to which everyone can sign up look impossible. The fact remains that the sector to which I have devoted a lot of my working life has, over the past 10
Adam Tyler executive chairman, FIBA
years, become a great deal healthier in respect of the size of the market and funding choice for customers. We are now very well established and now is the time to solidify that growth, establish ourselves and become ready, if need be, for potentially a more regulatory environment. While it is in everyone’s interests to want to grow the sector, what is still needed is a coming together of all the major stakeholders to work out how a mutually agreed strategy can create greater benefit for everyone including brokers, lenders, advisers, solicitors, surveyors, government, regulatory and trade bodies. Clearly at the heart of this is the end customer and what business owners want when they are seeking finance. However, it is not just a simple case of providing specialist property finance. It must include the ways all types of finance can be accessed and how it is delivered. It requires a fully joined up approach which gives business owners not only the knowledge of how and where finance can be raised, but also real confidence in the sector.
A sensible investment in the future As we enter the final months of the year and thoughts start to turn towards planning for 2020, it seems an appropriate time to remind readers how FIBA can help every broker in the commercial sector. Our primary function is supporting the broker, lender and professional community engaged in specialist property finance, which includes development finance, short-term/bridging finance, commercial mortgages, specialist BTL and second charge finance for business purposes. Secondly, we provide our members and partners with unique and exclusive arrangements that they would not be able to achieve on their own -
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including an extensive lender panel, a professional partners panel giving access to suitably qualified legal and surveying firms, compliance support and an exclusive PI package. Thirdly, we represent and provide the voice of the specialist property finance industry by taking our members’ message to Westminster, HM Treasury, British Business Bank, UK Finance and the FCA. Finally but equally important to us, we are helping to raise standards within the industry thus providing customers with the peace of mind that FIBA members are committed to placing customer needs at the centre of everything they do.
NOVEMBER 2019
So that when they are looking, there is a clear path to good advice, easier access to a whole of market approach and total transparency in relation to terms and conditions surrounding the finance itself and the way those borrowers are treated throughout the funding term. One of FIBA’s main goals is to represent our members and their needs, which of course, is what a trade body is designed to do. However, as an organisation we have always tried to be inclusive in the way we represent our members. However, what we have always believed is that we need to work with as many parties within the sector as possible, in order to achieve a better outcome for everyone. For example, our professional partners panel for solicitors and surveyors, provides our members with access to professionals who have first-hand experience of working with commercial property and completely understand the nuances and different issues that can occur in surveying or conveyancing commercial property. However, it also acts as a forum for discussion with partners to enable us to better understand their challenges and aspirations and what they are looking to achieve. They represent a key part of the whole process. Our lender panel shares the same relationship with FIBA. A willingness to subscribe to fully transparent methodology in respect of lending terms and conditions, which goes towards a serious undertaking to potential borrowers in terms of building trust. Since we launched in January 2018, I have maintained an open door invitation to all interested parties to join us in helping to come together to a mutually agreeable path to working more closely together for the good of the industry and that will remain one of our major goals. Cooperation is the key to a stronger and more responsive industry, which can only improve the way the sector is perceived by both businesses and policymakers, this is clearly demonstrated in the constant over subscription to our Specialist Property Finance Industry Forums. www.mortgageintroducer.com
The Hall of Fame
Rebel, rebel
Red Carpet Treatment…
It’s not rebels that make trouble, but trouble that makes rebels... or so they say. And the old adage was proved to be right as last month’s Extinction Rebellion gained the most unlikely of participants. Step forward super Tory boy Robyn Hall. Whilst out encouraging the police to kettle the great unwashed in Trafalgar Square the HoF was shocked to see the MI supremo mingling with the thronging masses. Hall denied he was part of the protest but as the HoFs exclusive picture shows you can see he was very much in the mix. Hall told the HoF: “I was supporting a counter protester, er, I was just passing through. It’s a stitch up.” Of course you were Mr Hall. The HoF believes you even if thousands wouldn’t. Here’s to the crazy ones...
Run Robyn, run And it’s a second appearance of the month for Robyn Hall. The boss man has signed up for the Cancer Research Winter Run, his second 10k, after one of Mrs H’s Tweets gained a life of its own. The innocent tweet from his darling wife Emma caught the attention of Russell Martin, head honcho at Finance 4 Business, who kindly donated £500 straight away if the would-be Scouser agreed to run. This was then followed hot on the heels by another kind donation from Brightstar boss Rob Jupp – on the proviso that his co-director Will Lloyd join the fun! The £500 added by Juppy took the total donated to a cool £1k before the Hall even had his running shoes on! Karen Rodrigues of Vida Homeloans fame will also be joining on the day and now due to peer pressure and strong-arming so will the Buster Tolfree from UTB. And the mighty Damien Druce (specialist lending consultant) will be looking to beat his PB of 1 hour 45 minutes! Rumours also abound that Peter Charge of Zephyr fame might also be rising to the challenge, as will Metro Bank’s legendary “The Horse” David Horseman. Organiser Mrs H told the HoF: “For years I’ve been trying to encourage him to run more. The only time I’ve ever clocked it was when he was trying to escape a round. “In all serious this is a great opportunity to give something back. If you want to join us, or lend your support, please give me a shout.” Emma can be contacted via Emma.hall@movinlegal.co.uk and you can sponsor by scanning the QR code.
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NOVEMBER 2019
Propertymark organises homeless charity Sleep Out We’ve had the Mortgage Sleep Out, now Propertymark are getting involved and organising agents to take part in a giant Sleep Out event at Queen Elizabeth Olympic Park on 21 November. They are aiming to have over 100 agents participate and raise £400,000 for charity Centrepoint which supports homeless young people. Lauren Scott, president at NAEA Propertymark who will be participating, told the HoF: “I have learned a lot about the work that Centrepoint does and there are so many reasons that people find themselves without the basic stability and comfort that the rest of us take for granted. “This is a fantastic opportunity for estate agents to come together and I encourage as many of our members as possible to take this step to change the lives of individual young people who are desperately in need of help and guidance.” Fellow participant Phil Keddie, president at ARLA Propertymark, added: “In these uncertain times, it can be very easy to overlook the homeless and take the basic amenities we have for granted. “Centrepoint is working to change this by helping the young and vulnerable and giving them the protection and help they need to have another chance. “This Sleep Out is an opportunity for the industry to give something back, to a part of society that has become lost and desperately needs our help.” CAPTION CONTEST
And the winner is...
With a happy Hope, I’m singing in the rain This month’s winner is: Barbara Prada, Prada Financial Services (UK)
www.mortgageintroducer.com
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Helping you place more business At InterBay Commercial, we’re used to dealing with complex cases. We offer a range of flexible criteria so you have the solutions you need to place more cases, and help more clients.
Take a closer look at our criteria Commercial and semi-commercial loans
Unregulated bridging loans
Complex buy to let loans
Up to 75% LTV
Up to 75% LTV gross
Up to 85% LTV
Terms from 2-30 years
Terms from 1-18 months
Lending to expats acceptable – minimum loan of £200k
Light, medium and heavy refurbishment loans available
Single facility available for large portfolios
Large portfolios welcomed
Developer exit and auction purchase loans available
Interest-only options available
Dedicated bridging team providing AIP within four hours
Experience with complex proposals and ownership structures Investment value considered on HMOs
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Together,
we got this We aim to support our brokers and their clients, providing the answers they need and helping them reach their business goals.
Looking to find out more? Get in touch today by calling 01634 835006 For professional intermediaries only
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