Mortgage Introducer September 2019

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NEY ER MO H T E G CE TO T FINAN IS L IA C SPE -TABLE ROUND

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On the Money Martin Stewart and Scott Thorpe on the continued growth of The Money Group

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September 2019 Issue 134

MORTGAGE INTRODUCER WeWork c/o Mortgage Introducer, 41 Corsham St, London, N1 6DR Information carried in Mortgage Introducer is checked for accuracy but the views or opinions do not necessarily represent those of Mortgage Introducer Ltd.

Testing times but not all doom and gloom So the political soap opera continues to roll on in the UK. As the the country returns to work the Brexit saga is still dominating headlines. Will we leave? Will we have a General Election? Will there be a deal? Won’t there be a deal? Who knows!

As we close this months issue the pound has hit its lowest level since the 1980s with traders ditching sterling ahead of yet another Brexit showdown in Parliament.

The sharp fall brought the pound crashing through the $1.20 barrier, hitting a low of $1.1959.

If the ‘flash crash’ outliers produced by trading errors in October 2016 are disregarded, sterling hit its weakest level against the dollar since early 1985.

To add insut to injury the construction sector’s downturn is undeniably intensifying.

The overall PMI remains consistent with construction output falling by nearly 2.0% in Q3, building on Q2’s 1.3% decline.

In addition, the new work index fell to just 40.0—its lowest reading since March 2009 — from 44.6 in July.

Builders are the least positive about the year-ahead outlook since December 2008.

Hopefully the government can draw a line under this nonsense sooner rather than later and ensure the UK does not fall into a tailspin.

On a positive it has been good to hear that HSBC has plans to expand mortgage lending to raise its market share to about 11%.

That implies an increase in its lending book of about £35bn.

The banking heavyweight has long been the sleeping giant of the mortgage market and its push into the market is long overdue.

Expect to see mortgage prices pushed further down HSBC is already at, or near, the top of the best-buy tables for 3-year and 5-year fixes - as the lender clamours for market share.

With the Brexit deadline approaching and house prices still stagnant, prospective buyers are taking advantage of the competitive mortgage deals currently on the market.

HSBC could be moving at the right time and it is clear that the UK broker market will have a role to play in supporting their lofty growth targets.

5 AMI Review 8 Market Review 10 Housing Review 12 Adverse Review 13 High Net Worth Review 14 Brexit Review 16 Buy-to-let Review 24 Protection Review 30 General Insurance Review 34 Equity Release Review 37 Conveyancing Review 42 Technology Review 52 The Outlaw

The A to Z of the Summer

54 The Bigger Issue

We ask our industry experts: How should FS businesses be preparing for Brexit

56 Round-table

Our experts look at the state of the new build market

64 Cover - On the Money

Robyn Hall speaks to Martin Stewart and Scott Thorpe of The Money Group to find out what makes the firm tick

68 Round-table

Our panel considers how the specialist finance sector is supporting the market

76 Loan Introducer

The latest from the second charge market

80 Interview

Jessica Nangle catches up with Complete FS

82 Specialist Finance Introducer Regulation, bridging and FIBA

90 The Hall of Fame Lounging around

The specialist lender you can bank on The specialist lender you can bank on

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Review: AMI

Who is SONIA? Lenders are currently heavily involved in making plans for the abolition of LIBOR, however this may come as a bit of a surprise to intermediaries. The lack of public utterances so far masks a vast raft of work going on in the background. For many they will replace this with SONIA as the alternative market rate.

The FCA believes that all firms need to plan for the cessation of LIBOR, which is scheduled for 2021. Little however is known about how this will be engineered, communicated and completed, with many existing products bridging the transition date.

Within banks and lenders, exposure to LIBOR is not only deep embedded across firms’ assets and liability structures, but also in a wide range of computer applications and used for valuation, pricing, performance evaluation and risk management. The FCA has been reviewing preparedness and is suggesting that it is prudent for firms to undertake a thorough review to identify where and how LIBOR is relevant to their business and if they also have exposure to other interbank offered rates (IBORs).

For brokers they will want to look at which lenders are still using LIBOR in their product offerings and have discussions on what their plans are on a number of fronts. Where

Robert Sinclair chief executive, Association of Mortgage Intermediaries

they have products that run past the transition date, how do they propose to replace LIBOR related products and what will be their communication plan with both brokers and customers? There are concerns that replacement rates could be more volatile or more expensive.

Many responses to the joint PRA/ FCA Dear CEO letter flagged the need for market consensus and regulatory intervention as key dependencies inhibiting transition plans.

Some firms have therefore apparently adopted a ‘wait and see approach’.

The FCA has acknowledged the dependencies but used their statement to urge firms to consider how they engage with the various initiatives to deliver a consensus and also their individual contingency plans if solutions do not materialise.

Whilst many responses showed that firms were proactively beginning to transact using alternative rates, a number of responses placed considerable reliance on market solutions to overcome barriers whilst not being clear how they themselves were working to provide a solution e.g. SONIA linked loans.

Feedback from the enquiries by our regulators has indicated that most firms had to extract their exposure information manually, requiring significant effort and highlighting risks in the robustness of

their numbers due to the manual nature of the exercise. Whilst some responses from firms indicated significant understanding of the exposure a number failed to.

Most firms identified a UK Board level senior manager to oversee the progress of their project, ensuring co-ordination across the different stakeholders and that sufficient resource was made available to support the firm’s transition activities.

The strongest responses set out the reporting lines and relevant management information received providing effective oversight for the project. Firms are focussed to avoid a ‘cliff edge’ in 2021 and some have already taken opportunities to transfer exposures to new RFRs (Risk free rates) prior to 2021. The regulator is concerned that in some responses there was no consideration or a lack of understanding of conduct risks e.g. market manipulation, conflicts of interest and mis-information or disadvantage to clients.

Overall it appears that some firms are well advanced and proactively managing the transition from LIBOR and others are not. The FCA does not say what its own actions are as a result of the information that it now holds. Whilst the FCA has not focussed on intermediary firms and their actions, there is a risk that not making proper enquiry of lenders and failure to flag with customers that LIBOR based products will be subject to change could be an increasing risk.

Fearful of FOS? The Financial Ombudsman Service is obliged to publish decisions which have been referred to an Ombudsman.

Firms should be looking at its website and searching for mortgage based decisions to update themselves on issues which might arise from the approach being taken.

We have looked at four recent decisions with three of those decided in favour of the firms and one being lost.

The reference numbers of these decisions are DRN5877521; DRN2702525; DRN9136557; and www.mortgageintroducer.com

08:37

DRN1551446. In looking at the narrative, whilst not relying fully on the rules that may have prevailed at the time. There is clear evidence that a full consideration of what was reasonable has been taken.

In the cases supported by FOS, the importance of good record keeping is highlighted, however in one case where this did not exist, what was likely on the balance of the oral evidence prevailed in favour of the broker.

In that these decisions cover interest-only, debt consolidation and

fund raising for investment purposes, all areas under scrutiny from claims management firms, these decisions are welcome.

The case lost covered tax advice which ended up being incorrect and emphasises the need for advisers to only operate within their sphere of genuine expertise. Also if passing on other parties views, to ensure that they are clearly sighted as such.

Many advisers are nervous of FOS, but these cases show that a well constructed and argued defence can gain their support.

SEPTEMBER 2019

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Review: Market

The countdown to Brexit has begun With the countdown to the Brexit deadline well underway it seems like an apt time to take a whistlestop tour of first-time buyer and homemover activity across the UK to get a better understanding of these markets on a regional basis.

These are according to recent figures from UK Finance for Q2 2019.

Northern Ireland

There were 2,810 new first-time buyer mortgages completed in Northern Ireland in the second quarter of 2019, 4.1% more than in the same quarter in 2018. Additionally, there were 1,780 new homemover mortgages completed in Northern Ireland in the second quarter of 2019, 4.7% more than in the same quarter in 2018.

quarter of 2019, 3% fewer than in the same quarter in 2018.

The profile of an average FTB

Craig Calder director of intermediaries, Barclays Mortgages

Scotland

There were 9,160 new first-time buyer mortgages completed in Scotland in the second quarter of 2019, 3.5% more than in the same quarter in 2018.

This was said to be the highest volume of first-time buyers since the second quarter of 2017, when there were also 9,160. Additionally, there were 9,290 new homemover mortgages completed in Scotland in the second quarter of 2019, 6.4% more than in the same quarter in 2018.

Wales

There were 4,080 new first-time buyer mortgages completed in Wales in the second quarter of 2019, 6.3% more than in the same quarter in 2018. Additionally, there were 3,650 new homemover mortgages completed in Wales in the second quarter of 2019, 1.7% more than in the same quarter in 2018.

London

There were 9,960 new first-time buyer mortgages completed in London in the second quarter of 2019, 1.2% more than in the same quarter in 2018. Additionally, there were 6,240 new homemover mortgages completed in London in the second

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MORTGAGE INTRODUCER SEPTEMBER 2019

When taking all these regions into account, the average first-time buyer did not differ too much region by region, with the average age for buying sitting between 31 and 33. The average loan to income ratio fluctuated between 3.02 and 3.80, with mortgage repayments accounting for between 15.3% and 17.6% of monthly income. Unsurprisingly, London was at the highest end of these scales and Northern Ireland at the lowest end.

However, first-time buyers outside the capital had substantially higher loan to value mortgages. In London, the average LTV for the second quarter of 2019 was 67.4%.

This compared to a Northern Ireland average LTV of 79.6%, while in Scotland it was 82.7% and in Wales 82.8%.

If I have got my maths correct, this means that the number of firsttime buyer mortgages taken out in the second quarter of this year has increased across all these regions when compared with last year’s figures, which makes for some positive reading and flies in the face of some naysayers.

It’s also interesting to evaluate these regional variations and highlight how important it is for intermediaries to maintain a stronger understanding regarding the performance of local markets in relation to a national overview. The capital and South East can often skew numbers when analysing data, so this is something to bear in mind when looking beyond certain sets of statistics and interpreting what is happening in and around your area of business.

Homemovers

Shifting our attention onto homemovers – but staying on a regional tack - recent analysis from Barclays Mortgages showed that the average upfront cost of moving home in the UK, including es-

tate agent, legal and surveyor fees, land registry, EPC and stamp duty, is £7,641, on top of the purchase price. Meanwhile, the average unexpected associated costs can add up to £1,690, meaning homeowners are stumping up £9,331 on average in total home moving costs.

The analysis looked at the average upfront cost of moving by city across the country and found that costs vary significantly. For example, Liverpool residents expect to pay just £2,787, compared to a whopping £22,417 spent in upfront costs for those looking to purchase a typical property in London.

For homebuyers also selling their own property, estate agent fees can play a major part in costs. Those selling a property in Oxford on average pay £5,783 in estate agents fees compared to £1,780 in Glasgow. Stamp duty can equally cause a financial headache for those looking to move.

In London, where the average house price is currently £482,200, homebuyers must typically find £14,110 in stamp duty. House hunters in Oxford and Cambridge have, on average, similarly large stamp duty bills to pay - £10,365 and £11,130 respectively. But it’s not all bad news. Those looking to buy in Liverpool, where the average house price is £123,000, would not have to pay stamp duty on a house of this value, under the current stamp duty threshold of £125,000. Buying a house is a huge financial challenge and our findings show that on top of the burden of expected costs, homebuyers are getting caught out by additional costs that aren’t included in the asking price. Whilst homebuyers need to ensure they understand all the costs involved, this also emphasises the importance of the advice process.

Good, professional holistic advice can help clients all over the UK to not only get the right mortgage deal and serve their protection needs, but also ease any additional strain on their financial and mental well-being. And the value attached to that can prove priceless. www.mortgageintroducer.com

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Review: Marketing

Battle of the start-ups As a child of the 70’s and early 80’s, Top Trumps relieved the boredom during those endless car journeys and rainy weekends and for me are reminiscent of a golden age before the advent of the ZX Spectrum, which changed childhoods for ever!

Starting from this issue, every month I will be provide an extremely subjective view of some comparable news stories that have caught my eye over the last 30 days and score them in true Top Trump style – I hope you enjoy.

First up is Tandem Bank’s news that they are launching a new mortgage product that will involve customers in the ‘design phase’. The headline is striking and hints at an extremely innovative approach from a challenger bank and we should always applaud greater engagement with customers.

However, open banking has been around for a while now and this alone doesn’t score highly for innovation or newsworthiness, whilst asking customers for their input may be a great message to underline a ‘customer centric approach’, but will it lead to groundbreaking products?

I have my doubts.

Paraphrasing Steve Jobs “figure out what customers want before they do” may have relevance here and I fear there will be no ‘game changer’ that emerges from this, plus it’s a shame that they haven’t asked brokers too, bearing in mind they write 70%+ of all mortgages in the UK currently.

I would love to be proved wrong as we need more challengers to offer more choice than the big four, let’s see what is finally developed, we are all waiting…

Our Top Trump challenger to Tandem Bank is Unmortgage and the announcement of a new scheme that allows first-time buyers to own their first home, but without a mortgage.

First of all, any new initiative to get more people onto the housing ladder must be welcomed, although I am in agreement with the industry

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MORTGAGE INTRODUCER

Paul Hunt owner, Paul Hunt Marketing

legend that is Terry Pritchard, as it’s far too complicated and will only help very few, if any at all. Therefore, it’s unlikely to be the answer to the wider problem.

The scheme is also dependent on the properties that Unmortgage have been able to acquire, which is also a major limiting factor.

I’m aware of many similar initiatives that are seeking to provide an alternative to shared ownership and I can understand why they have sought funding by investors, rather than current mortgage providers. Few lenders are willing to back such ‘small scale’ initiatives due to the issues surrounding lending policy, IT, legals and also short-term needs around achieving lending

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targets and I get it, I’ve been there.

Finally, I note that on their website that they are seeking FCA authorisation and again from my past experience I’d be interested in their policy and procedures around what happens if the ‘borrower’ gets into arrears. Also, to get a conventional mortgage, proof of affordability will be needed and rent isn’t always allowed to help provide this proof.

I hope we see more firms trying to provide solutions and there are many people in this industry that could provide guidance and counsel for such start-ups, so that eventually some can get off the ground.

Unmortgage became Wayhome on Monday 2 September

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Newsworthiness Customer Benefit Supporting Brokers Innovation r Game Changer Facto

U N M O R TG AG E

G F A G F

Newsworthiness Customer Benefit Supporting Brokers

H F A Innovation G Game Changer Facto r G

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Review: Housing

New build and self build at centre of housing the nation As I write, we are slap bang in the middle of reporting season for builders. Results have been reasonably good though the tone with which they were delivered, more subdued.

Several firms have reported a drop in the number of homes sold over the first half of the year, citing Brexitrelated uncertainty as a driver for slower customer demand.

There has also been an increased focus on customer satisfaction with the finished product, with Persimmon particularly revealing it has become the first house builder to introduce a customer retention scheme as part of a bid to distance itself from stories of unfinished homes that seem to be abounding at the moment.

There’s a lot to think about in the world of new build at the moment, as results season is highlighting. The imminent end to the Help to Buy scheme continues to hang over the sector, with early indications from Boris Johnson’s new government that nothing is ruled out. An extension on the scheme, equally, hasn’t been floated seriously either.

The question of landbanking also remains, with fewer homes sold being partially attributed to more subdued demand but also, to fewer homes completed. The latest IHS Markit/CIPS UK Construction PMI rose to 45.3 in July 2019 from the previous month’s 10-year low of 43.1, but below market expectations of 46.0. While this was largely driven by poor commercial performance, there was also a contraction in house building, though this softened from June’s three-year low.

Overall new orders dropped for the fourth consecutive month, the longest continuous period of decline since 2016, leading to cuts in employment numbers and a sharp fall in purchasing activity.

A statement from the Federation of Master Builders confirmed the sallow outlook, with its Q2 State of

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MORTGAGE INTRODUCER

Stuart Miller customer director, Newcastle Building Society

SEPTEMBER 2019

Trade Survey for Q2 2019 revealing a fall in employment levels among small construction firms for the first time in more than five years. Expectations for the future weakened slightly with 37% of small firms forecasting higher workloads over the coming three months, down from 41% in Q1 2019. It’s not all gloomy though. We’ve got another new housing minister, Esther McVey. She will have her work cut out for her and in all honesty, is unlikely really to get going while Brexit negotiations are the government’s priority.

That said, there is movement at the top, with the government announcing a new £36m investment fund destined to support collaborative R&D and demonstrator projects designed to modernise the construction industry in the UK. Anyone who works in the property industry knows only too well that it’s a cyclical market and downturns are as common as upswings. With housing supply so constrained, it’s highly unlikely we’ll see a big price correction even if volumes fall. The fact is that people are staying put rather than footing stamp duty bills, moving costs and crystallising what are really only paper losses while they don’t move.

The question is, with all this as the backdrop, can we reinvigorate the market? Our view is yes, there are areas of the new build market particularly that offer real opportunity at the moment. I recently spotted a survey carried out by BLP Insurance tapping into the increasingly varied ways that younger would-be homeowners are addressing the housing shortage and struggle to save a sufficient deposit.

According to this survey, over half of residential property owners in the UK would consider living permanently in an unconventional type of home such as a boat, tree house, converted barn or warehouse. Apparently, the desire to leave a con-

ventional house or flat is most prevalent among 35-54 year olds (61%) with the over 55s (42%) being less likely to give up their traditional bricks and mortar home.

Four of the most popular reasons for choosing a non-traditional style of home? Because it is more creative and interesting, is cheaper to run, more environmentally friendly and it allows people to ‘escape the hectic nature of urban life’.

This might seem fairly frivolous – I mean, how many people really want to live in a treehouse? However, it does highlight one of the more painful challenges facing the housing market, and the new build sector particularly. It brings me back to one of the criticisms of our largest house builders – that most people don’t really want to live on a huge housing estate of identikit homes decked out in the same colours with the same layout and often, the offer of the same furniture. Persimmon knows that build quality matters and satisfied customers are the best tool for growth in the future. If we take the BLP Insurance research as a finger in the air on customer sentiment, it’s quite clear to me that focusing our developers’ efforts more on selfbuild, allowing buyers to customise their new homes, building in individuality and allowing them choice over specs such as energy efficiency measures – it’s a no brainer.

In May this year, Victoria Prentis MP presented an adjournment debate in the House of Commons, espousing the merits of self-build.

She acknowledged the problems with planning delays, but claimed: ‘The government … is making all the right noises in policy terms, but real change has to come from creative thinking by local authorities and mortgage lenders. Without it, we will not see the revolution in self-building that I seek. This is a real way to solve our housing problems, build communities, and ensure good quality and ecologically sound architecture.’

At Newcastle, we heartily agree.

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Review: Adverse

Five steps to adverse success Your clients have more unsecured debt than they ever have in the past.

Analysis by the TUC earlier this year found that household debt rose sharply over 2018, with average unsecured debt per household rising to £15,385 – an increase of £886 on the previous year.

Unsecured debt as a share of household income is now 30.4% – the highest it’s ever been, and above the level it reached in 2008 ahead of the financial crisis, when it was 27.5%. It’s little surprise then that the number of missed payments, CCJs and defaults registered to individuals has also increased in recent years, and this means you are more likely to encounter clients who have adverse credit.

If you tend to work with clients who have a clean credit track record, then encountering clients with blips on their credit file might seem daunting, but it really doesn’t have to be. Just follow these simple tips and you will find that adverse credit mortgages can be as straightforward as your other cases.

However, it’s also worth noting that many lenders can also ignore small defaults and missed payments, particularly on accounts that relate to utilities, communications or mail order providers.

Paul Adams sales director, Pepper Money

It’s also a good idea to provide a written explanation of the events that led to your client experiencing credit problems. This will often be the result of a life event such as illness, divorce or redundancy and a lender will want to understand that, while your client may have missed payments on their commitments in the past, the new mortgage payments will be affordable. A story always helps underwriters to put an applica-

When you are working with clients who have experienced credit problems in the past, one of the first things you should do is view a copy of your client’s credit file, so that you have accurate information about the type of credit issues on their record, how much they are for and how recently they were registered. These three factors will be important in determining the most suitable product for your client.

Know the options

There are lots of options for clients with adverse credit and, as a general rule, a lender will usually want to see that a borrower is back on their financial feet after any credit difficulties.

Typically, a lender might ask that that there have been no defaults or CCJs registered to your client in the last six months, and no mortgage or rent arrears in the last 12 months MORTGAGE INTRODUCER

It’s always a good idea to speak to BDM about your client’s circumstances. It’s a BDM’s job to identify whether your case fits their lender’s criteria and they can provide you with solutions to help place the case, as well as hints and tips on how to submit an application.

Tell the story

Know the facts

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Speak to a BDM

SEPTEMBER 2019

tion and information from the credit file into context and there is often a place to add notes as part of an online application.

When it comes to submitting an application, make sure you provide all of the documents requested by a lender. Often lenders that specialise in mortgages for clients with adverse credit, will ask to see a recent bank statement from your clients.

Provide the right documents

The reason is straightforward. Lending decisions at specialist lenders are made by underwriters, based on the individual circumstances of every client application, and just as a story about credit problems can provide some context, bank statements provide the vital evidence to inform these decisions.

For clients who have experienced recent credit issues, such as CCJs or defaults, the credit report might provide information on the status of their credit, but bank statements will help underwriters to understand the client’s current financial position and whether the mortgage will be affordable and sustainable.

It’s this ability to look beyond the binary information of a credit report and interpret a client’s financial behaviour that gives specialist lenders the confidence to make positive lending decisions to people who may have adverse credit registered to their name as little as six months prior to making an application.

Some brokers wrongly assume that it can take a long time for specialist lenders to make decisions on cases, particularly those where the client has adverse credit. But if bank statements and other required documents are supplied promptly, the process of underwriters reviewing those documents doesn’t necessarily have to result in a delay and cases can often quickly proceed from application to offer.

Adverse credit needn’t be a hurdle to your clients securing a mortgage and it doesn’t need to make the research and application process any more difficult for you. Following these five simple steps is a good way to start your journey towards adverse credit success. www.mortgageintroducer.com

Review: High Net Worth

Mortgages for law firm partners Becoming a partner in a leading law firm is an aspiration for many lawyers and the move from being a salaried employee to being a salaried partner, or self-employed equity partner and having a stake in the success of the business is usually a lucrative and enticing one. But conversely, it can also make life harder for newly qualified partners to secure a mortgage.

Each partnership is different; many firms, for example, will follow a ‘lockstep’ model, with all lawyers who become partners in the same year typically earning equal compensation. But others may offer a ‘merit-based’ pay system that links remuneration to performance metrics, such as the number of hours billed or the amount of new business brought in. However the partnership is structured, it usually results in equity partners drawing a relatively low monthly income in comparison to their often lumpy profit distributions.

In the case of salaried partners, typically their guaranteed annual income is subsidised by performancerelated bonuses, which again can be complex for the high street to accommodate.

This presents the first stumbling block for many lenders. With a client who is self-employed, many high street lenders will want to see twoto three-years of accounts and will generally take an average of these figures. An increasing number of specialist lenders are able to consider a shorter track record, but if your client is a lawyer who has recently become a partner, their mortgage options already become more limited.

The next potential issue is that becoming a partner usually entails a significant capital commitment, so recent partners can frequently find that their cash resources are stretched. This means that clients in this position will often want a high loan to value (LTV) mortgage, which may not be on offer from many of the lenders that can underwrite selfemployed mortgages based on just www.mortgageintroducer.com

Peter Izard business development manager, Investec Private Bank

one- or two-years’ accounts.

Foreign currency is commonly a further barrier to getting a mortgage for new partners who work in global law firms. It’s not uncommon for equity partners at these firms to take some – or all – of their income in foreign currency, as this can be more appealing dependent on the markets.

This would again exclude a number of lenders as many lenders withdrew from foreign currency mortgages following the introduction of MCD, which imposed more stringent controls and processes.

So, if you have a client who has just made partner at a law firm, where can you turn? The good news is that private banks have the expertise to assist this type of client who has high net worth and positive prospects, but complex circumstances.

Private banks deal in bespoke mortgages, so factors such as recent self-employment, high LTV or even foreign currency needn’t be a problem as they are experienced in structuring solutions to meet the needs of the individual. This could, for example, include securing multiple properties to enable high LTV lending, or taking a more pragmatic view in assessing income.

Here’s an example of how Investec Private Bank dealt with a client who was a partner at a Magic Circle law firm and wanted to sell existing property in order to buy a family home outside London.

The client’s existing property was on the market but had not sold by the time they wanted to purchase their new home. This sale of the ex-

SEPTEMBER 2019

isting home would be partially used to pay down the mortgage, but the client was still looking at an initial 90% LTV. In addition, while the client was progressing along the partnership path, it was still early days and so their previous and current earnings certainly didn’t reflect their future potential.

We were able to examine the client’s earnings over the last three years and take the average of the three. We were also able to compare the client’s income against equivalent partners at the firm to build a picture of earnings for the financial year. This holistic and bespoke approach gave us a much stronger picture of this client’s earnings and ability to service the mortgage.

Furthermore, we structured the mortgage in two parts to better fit the particular needs of the client.

The majority of the loan facility was confirmed at a fixed rate, while the second portion was placed on a variable rate, which was to be repaid within two years - once the client’s existing property had sold. The first part of the mortgage was also set as interest-only for the first two years to reduce the client’s outgoings while they sold their current home.

Structuring this type of solution is a typical requirement when working with partners at law firms, something Investec Private Bank has experience in doing. We have a team who specifically looks after partners at law firms and are accustomed to the nuances of each firm and can therefore work with them to provide a positive outcome in the face of significant complexity.

MORTGAGE INTRODUCER

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Review: Brexit

Not even Brexit can deter property investment It’s official. Even Brexit cannot deter investors from ploughing money into the UK’s capital. A new State of the Nation report from Innovate Finance has totted venture capital and private equity money invested into UK fintech and discovered it rose to a record $3.3bn in 2018 - up 18% year-on-year. Growth private equity investment rose 57% to $1.6bn.

While there are tech hubs around the UK – Edinburgh and Cambridge have particularly lively technology development scenes – London remains the capital for tech developers and entrepreneurial firms looking to disrupt traditional sectors. London now ranks third in the world in terms of venture capital raised, behind China and the US. Within Europe, Britain leads the fintech pack, followed by Germany, which raised $716m through 48 deals, and Switzerland which raised $328m through 40 deals.

To those working in financial services, these figures will come as no surprise. Barely a day goes by without news of another start-up or even more established fintech successfully closing another round of fundraising. Landbay and LendInvest recently announced buy-to-let mortgage-related raisings, while digital banking unicorns Monzo raised in excess of $80m last year while Revolut raised a massive $250m.

Economic secretary to the Treasury, John Glen, contributed to the Innovate Finance report, saying: ‘I am proud that the UK has been recognised as the best place in the world to start and grow a fintech firm, and I am committed to ensuring that this remains the case.’

Hear, hear. What has this to do with the property market? A lot, frankly. London gets a bad press when it comes to its property market. Either it’s wildly too expensive and ‘no-one can afford to live there’, or ‘there’s a house price crash!’ There is nothing of the sort.

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Robin Johnson managing director, Kinleigh Folkard & Hayward Professional Services

Prices in the capital have been softening, but really we’re seeing frothy areas come back to more realistic levels, new build flat prices soften and super prime prices adjust, which is dragging down averages across the board. The latest figures from the Office for National Statistics showed London flat prices were 4.3% cheaper in June than the same month last year, reflecting the fact that a lot of new build apartments in central and East London have come onto the market over the past year.

Much of the appetite for these has traditionally come from international buy-to-let investors, many of whom are based in China.

Ongoing trade wars between the US and China have put pressure on stock markets globally, but has weighed on the Chinese economy, at least to some degree if not quite the extent that President Trump would have us believe. Coupled with

“London gets a bad press when it comes to its property market. Either it’s wildly too expensive and ‘no-one can afford to live there’, or ‘there’s a house price crash!’” tougher mortgage affordability rules and stricter regulation governing landlords’ management of buy-tolet, there has been a drop off in investment in this part of the market.

Overall prices in London are down 2.7% compared to a year ago, but this was largely due to the fall in flat prices, with all other property types in London falling by a marginal 0.8% or less.

According to the LCP Index, average annual prices excluding new build in prime central London remained stable in June, standing at £1,878,004. On a quarterly basis, prices rose 2.7% over the three SEPTEMBER 2019

months to the end of June.

Bringing this back to fintech investment, the Innovate Finance report shows that there remains massive demand from international investors to back London as a physical place to do business – regardless of Brexit. This is showing in visa figures too.

Tier 1 investor visas for high net worth individuals making a substantial financial investment in the UK have been under scrutiny for more than a year, with Theresa May’s government making a spectacular uturn on scrapping them in December last year.

The latest official figures show the number of high value tier one visas granted jumped 20% last year, from 5,100 in 2017 to 6,111 in 2018.

Skilled work visas also saw a significant uplift in numbers last year with granted tier 2 visas rising to 102,653 in 2018, up 9% from 2017’s number.

Continued and growing investment in London means sustained demand for somewhere to live.

Transactions on the sales side are under pressure, for all the usual reasons: stamp duty is prohibitively expensive, there’s not a lot of stock on the market, limiting choice for buyers, and political and economic certainty is weighing on confidence among those who don’t absolutely need to move.

Rental activity on the other hand is flying. The shakeout that followed a raft of tax changes for landlords has slowed considerably, but has left a supply pressure on rental stock in the city. Prices are consequently rising. A recent forecast from Capital Economics showed rising wages and low unemployment are supporting tenant demand which, combined with fresh imbalances between rental supply and demand will increasingly push up rental prices.

‘Assuming the disruption of a nodeal Brexit is avoided, we expect to see a surge in London rents across our forecast, with a cumulative 10% rise in the three years to 2021,’ they said.

As ever, it’s a mixed picture in Britain’s capital, but Brexit woes aside, there remain plenty of reasons to be positive on its prospects. www.mortgageintroducer.com

Review: Help to buy

Does Help to buy help Paul the wrong people?

understands

Paul Delmonte 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

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SEPTEMBER 2019

that didn’t need it, 37% The National Audit Office simply could not have recently released its reafforded to buy their port into the government’s own home without it.

Help to Buy scheme. It reAnd that is a considervealed that 211,000 equity able number. But, while loans were made to buyers I am pleased that it has in England between April helped so many to get 2013 (when the scheme John Phillips onto the property ladlaunched) and Decem- national der, I have warned on ber 2018. In that time, operations numerous occasions £11.7bn was loaned and director, Just Mortgages and that the property market the scheme resulted in a Spicerhaart will really struggle when 14.5% increase in newbuild housing supply. According the scheme ends.The worry now, to the report, almost two in five of course, is how do we ‘wean’ the (38%) of new builds sold between property market off the scheme?

April 2013 and September 2018 It is due to be restricted from were sold through the Help to Buy April 2021 (it will only be availScheme – this represents 4% of all able to first-time buyers and will have regional property price caps) properties sold.

This all sounds very positive, and finish in 2023, so, what is gobut the statistic that was jumped ing to replace it?

First time buyer numbers have upon by the national press was the this one: 37% of buyers who been at record highs over the past used Help to Buy to purchase two years, and much of this uplift their homes said they could have can be attributed to Help to Buy. bought the property without the Incentives therefore, clearly work, and to avoid a crash, the governsupport of the scheme.

This statistic has caused a con- ment either needs to extend the siderable about of controversy, scheme further or come up with with critics of the scheme – and an alternative.

My suggestion would be lookthere are many – saying that this proves what they have been say- ing at what I think is one of the ing all along. That Help to Buy is biggest barriers to the entire mara waste of money, it has benefited ket – stamp duty. There are argudevelopers and more affluent buy- ments that it is the stamp duty ers and pushed up house prices. freeze, whereby first-time buyers All this, they argue, has made do not have to pay on the first things even more difficult for the £300,000 – that has actually has a group it was designed to help – bigger impact on first time buyer numbers than Help to Buy. first-time buyers.

And this would make sense The other major criticism is that, because house prices have when you consider the fact that been ‘artificially inflated’ by the the only region where first time scheme, once it ends the bubble buyer numbers have fallen in will burst, leaving the government London, where the average home exposed to significant financial costs more than £400k.

The House of Lords think there risk.

Now, while I have mixed views should be an overhaul of stamp about the scheme, overall, I have duty and I think it is stifling been a supporter because, yes, the market. Let’s just hope the while there may have been people government listens and does who bought using the scheme something about it. www.mortgageintroducer.com

Review: Buy-to-let

Confidence breeds confidence By the time you read this, we will be a little over a month away from the 31 October – the next cab off the rank in terms of the UK’s official date for leaving the EU. Whether we actually leave on that date is perhaps a moot point, and whether we actually leave with any sort of deal appears to be even more up in the air.

In this environment it is not surprising that business is crying out for some clarity and consistency.

We have, of course, been here before back in March when the UK was given an extension but, at present, this next deadline appears to have more finality about it, especially given the protestations from the new PM that we will leave ‘with or without a deal’.

Whether this actually turns out to be the case is another matter entirely, and one can’t help but feel there is plenty of political water to flow under the bridge between now and then, that could scupper such a ‘commitment’.

What this whole sorry saga however has brought home to me is the importance of confidence when it comes to running a business and indeed, from a personal point of view, having confidence in order to make significant decisions, particularly when it comes to the biggest financial ones you are likely to make during a lifetime, namely purchasing/ selling/remortgaging homes.

Without that confidence we can all end up treading water, in a sort of stasis unable to commit to decisions, and unable to give the green light to projects that could greatly enhance both our businesses and personal lives. Even with all the ongoing uncertainty around Brexit, I’m of the opinion that to hold back on such decisions is not always the best way forward, and indeed by taking the bull by the horns you can provide confidence to those who work with you.

As a specialist lender, in a market where the rumour mill can work overtime, I think such an attitude might be doubly important. Distributors, advisers, clients, packagers, www.mortgageintroducer.com

Bob Young chief executive, Fleet Mortgages

investors – the list goes on – all want to feel confident in your business, the way it is run, its financial foundations, its focus on the future, the products it offers, the lending decisions it makes, the criteria it offers, etc., in order to make the necessary commitment to you.

Ours is a business that, at the start of the year, generated its own level of uncertainty by having to pull out of the market for a short space of time.

Even now, we tend to get lumped into a group of lenders that have exited the market and not returned, even though we have been back and actively lending since April. I understand that inclination but it’s certainly not appropriate for our business, however I also recognise that as a business we need to show that this was a temporary blip and we’re back for good.

Since April that’s certainly been our aim however behind the scenes it’s always been important to ensure we are not just reliant on a single funder for instance. We’ve had a number of ongoing relationships and we’ll soon be able to make another announcement which will provide a considerable boost to the availability of lending funds we have, allowing us to significantly up our activity levels across our three core buy-to-let product areas.

This is an important step forward because it shows the confidence in-

SEPTEMBER 2019

vestors have not just in our business, but also the entire UK buy-to-let market. A sector which can be much maligned and subject to endless questioning about its longevity and its place within the mortgage and housing markets. Establishing these new relationships is a shot in the arm for us, but also a vote of confidence in the wider market because it shows that buy-to-let remains a vitally important part of the UK housing landscape.

In that sense, we hope that confidence filters across to all other market stakeholders, particularly the advisers/distributors/packagers we deal with, and from there it flows into supporting their activity levels with landlords, particularly the professional/portfolio ones. Advisers should feel confident in the competitive nature of the buy-to-let mortgage market at present, they should also feel confident to market their services aggressively to landlords who need advice more than ever before, whether that be in terms of adding to portfolios or refinancing existing properties.

There are clearly opportunities out there in this sector, but sometimes it needs a confidence boost in order to go out and pick them off. Having a business with a strong foundation allows you to do this, and it’s certainly been our aim to make our foundations as strong as possible, and to ensure the market knows there is nothing to worry about in terms of our focus on buy-to-let, and our ability to keep delivering for all those who rely on us.

Confidence really does breed confidence. That certainty has (politically at least) been in short supply and there’s no guarantee it will return quickly, however if we have confidence in our own services, products and proposition, then this allows us to make our next moves and to develop our businesses further. I have confidence that our sector is still in a strong position to do this and reap the benefits for all those working within it.

MORTGAGE INTRODUCER

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Review: Buy-to-let

Looking beyond the trends In the past few weeks we’ve seen lots of talk around the growth of limited company lending across the buy-tolet market.

This is an increasingly prominent area within the sector and many lenders are, justifiably, making some real noise about both the purchase and the remortgage potential attached to this kind of investment vehicle. Whilst it’s vital to identify such trends, it’s equally important to look beyond them to maintain a wider understanding of the overall housing market and the factors influencing tenant demand.

Research by Ipsos MORI for the Chartered Institute of Housing highlighted some underlying housing concerns currently being felt by the UK population which could be filtering through to the private rented sector.

The survey showed that 73% believe there is a housing crisis in Britain (it was 74% in 2017), and a similarly strong rejection of the notion that the government can’t do anything about it.

It found a downbeat mood among renters in particular:  44% (45% of private renters and 43% of social renters) are either very or fairly concerned about their ability to pay rent at present (29% of mortgage holders are concerned about repayment).  52% report being very or fairly concerned about the impact of housing costs on their mental health (‘stress levels, worries or anxiety’); 57% of private renters and 46% of social renters.  38% think they might have to leave their local area in the future because the cost of housing is too high.  61% of renters or those living at home with their parents think they will never be able to afford to buy a home.

Ying Tan founder and chief executive, Dynamo

“Unless there are some radical government BTL U-turns, or the many issues surrounding the housing supply gap are solved, tenant demand will continue to increase and BTL activity will largely centre around professional and portfolio landlords for the foreseeable future” Whilst this may be a little late in the day for some homeowners, it is certainly a step in the right direction and there is a growing swell for widespread reform as evidenced by a recent large-scale demonstration of leasehold house owners who arrived at Westminster demanding an end to these exploitative practices.

The housing crises and lack of affordable housing continues to affect more and more potential homeowners and it’s safe to say that there are no quick fixes on the horizon.

In terms of house prices, the market remains relatively stable, but Brexit concerns are making more people sit tight for longer and that includes renters. On a positive note, additional housing is being built, but

The final bullet point is also reflected in data from the HomeOwners Alliance which recently reported that almost six out of 10 (59%) renters who want to own their home are

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convinced that this remains a mere pipe dream.

Its Homeowner Survey 2019, now in its seventh year and polled by YouGov, revealed that 87% of adults and 91% of aspiring first-time buyers said the ability to get on the housing ladder is a serious problem.

This data also outlined that concerns with the leasehold/freehold system has reached a five year high.

Some 60% of respondents suggested that the leasehold system is a serious problem, up 18% from 42% five years ago. Cost of works and management fees topped the list of leaseholder problems.

The leasehold issue is being taken seriously by the government and it has pledged to end leasehold houses and set new ground rents as zero.

SEPTEMBER 2019

sadly not enough to meet the demands of a growing population.

Concerns are also being raised over the quality of some new build developments, which could lead to further issues down the line.

All of which underlines just how important a role the government must play in the housing market and the private rented sector.

A factor further underlined in research by Foundation Home Loans revealed that the majority of landlords believe future government Uturns on the increase in stamp duty and cuts to mortgage interest tax relief could provide a “significant stimulus” to the buy-to-let and private rental sectors.

Over half (51%) of landlords argued that both measures need to be addressed in order to help build greater confidence in the sector.

Meanwhile almost a quarter (22%) suggested that remaining in the EU would give the biggest boost, whilst 14% said securing the UK’s withdrawal from the EU would be the most helpful.

And this final set of data takes us nicely back to where we began. It’s little wonder that two major BTL shifts over the past five years – stamp duty increases and cuts to mortgage interest tax relief – are still seen as the biggest factors holding back this sector.

These have had a huge impact, especially for ‘amateur’ landlords – many of whom have been forced to sell or at least reconsider adding to their property investment portfolio.

Unless there are some radical government BTL U-turns, or the many issues surrounding the housing supply gap are solved, tenant demand will continue to increase and BTL activity will largely centre around professional and portfolio landlords for the foreseeable future.

Although we can’t and shouldn’t ignore the needs of first-time landlords who will slowly but surely return to the market if and when there is a greater level of political and economic stability. www.mortgageintroducer.com

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Registered address: Ascot House, Maidenhead Office Park, Maidenhead SL6 3QQ. Kensington Mortgage Company Limited is authorised and regulated by the Financial Conduct Authority (Firm Reference No. 310336). Some investment mortgage contracts are not regulated by the FCA.

Review: Buy-to-let

How landlords view the buy-to-let market Last month I focussed on how we, as a sector, need to keep our eyes and ears open on what is happening outside our mortgage bubble and adapt accordingly. Having said this, we can’t ignore what is going in within our sector.

Especially when it comes to keeping track with the latest landlord trends and how they are reacting to current market conditions, social demographics and the underlying demand drivers within the private rental sector. Not to mention the influence of regulatory, economic and political factors which could be affecting the decision-making process for landlords and their portfolios.

Jeff Knight director of marketing, Foundation Home Loans

“Even though activity levels are subdued – on a historic basis – the BTL purchase market remains robust, especially amongst larger portfolio landlords” As a lender, we are seeing a continued appetite from landlords throughout the buy-to-let marketplace and strong tenant demand for quality properties. That being the case, and with a perhaps more sympathetic government ear, there is a train of thought amongst many specialist lenders that demand for mortgage advice and buy-to-let mortgages will continue to grow. Although it’s inevitable that some concerns remain around the current economic uncertainty and what might happen in a post-Brexit world.

But how do landlords view the current buy-to-let market?

The BTL purchase market

It’s increasingly evident that more and more landlords who are looking to purchase a buy-to-let property intend to do so via a limited company vehicle. The research outlined that over half of those (55%) who were looking to purchase property over the next 12 months would do so via a limited company, up from 53% in the Q1 iteration of the research. 24% of those who said they would be purchasing would do so as an individual – down from 26% three months ago, while 13% said it would depend on their circumstances at the time.

Even though activity levels are subdued – on a historic basis - the BTL purchase market remains robust, especially amongst larger portfolio landlords. It has certainly stood the test of time better than many in-

The government impact

Well, the latest landlord research from Foundation Home Loans – in conjunction with BVA BDRC – highlighted that the majority of landlords believe future government U-turns on an increase in stamp duty payable on additional property, and on the phased-in cuts to mortgage interest

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tax relief, could provide a significant stimulus to the buy-to-let and private rented sectors. It remains to be seen if any positive changes are in the pipeline, especially when taking into consideration that the government does have its hand full at the moment, but there is still hope that some favourable outcomes will emerge for landlords.

Respondents were also asked whether, in the current market conditions, they would choose to make their first investment in property.

In response to this, four in 10 said they would still be willing to invest, saying buy-to-let remained a good long-term investment.

The main reasons being that it provided better returns than other types of investments and they still believed property could deliver capital growth. However, exactly half of those polled said that due to government intervention, regulatory changes, economic uncertainty, and a lack of returns, that they would probably choose not to make a first investment decision at the present time.

Which leads to the question – in what form are property investments currently being made?

SEPTEMBER 2019

dustry commentators suggested, but the real opportunities for intermediaries appear to be presenting themselves within the current remortgage space.

The BTL remortgage market

In a section focusing on the BTL remortgage market, the research revealed that a third of all landlords intend to remortgage over the course of the next 12 months, with larger, portfolio landlords much more likely to do so within a limited company.

Respondents were also asked how they intended to remortgage. In response to this, 53% said they would do so as an individual, 19% said they would do so within a limited company, while 17% said it would depend on their circumstances at the time. However, those landlords with larger portfolios – 11-plus properties – were much more likely to remortgage within a limited company structure, with over a quarter (26%) saying they would do so within the next year.

When it comes to the remortgage process, understandably, there is a continued shift towards the use of limited company vehicles particularly as we are experiencing an increased presence of portfolio and professional landlords who understand the advantages of holding their properties within such corporate structures.

The ability to secure full mortgage interest tax relief, which is not available when holding properties as an individual, is a clear incentive for the move towards limited company borrowing. When you also add into the mix the growth in landlord numbers who currently hold properties in their individual names but will look to move them into a corporate vehicle at some point in the future, then you can appreciate the full potential of the BTL remortgage market. Not to mention the value attached to to specialist BTL advice as a variety of landlords look to maximise existing and future BTL portfolios. www.mortgageintroducer.com

Review: Buy-to-let

Strong growth and demand in the rental sector It’s been more than four years since George Osborne announced that landlords would see a reduction in tax relief on their mortgage interest, and almost as long since the stamp duty surcharge on second properties was brought in. Changes to the way lenders underwrite buy-to-let have now been running for more two years or more.

Yes, volumes have dropped since buy-to-let’s peak, but volumes have dropped across the market, with wider economic pressures, high stamp duty bills and Brexit-related uncertainty contributing to a more subdued housing market overall.

Let’s not forget, the peak of the buyto-let market was reached in the middle of a lending boom that preceded the credit crunch.

In the industry – and outside of it, to be honest – we are still totally focused on these changes. Some, such as the tax relief reductions, are still in progress and landlords are still working to rebalance portfolios to account for it. It’s right that we consider the effect of changing rules and regulations on the health and performance of the market.

But I’m beginning to be tired of hearing that it’s all doom and gloom.

I don’t think it’s true.

What these rule changes have achieved is a resetting of the market.

The shape of the market is changing, yes, but I’d argue it’s improving overall. We’re now dealing far more often with professional landlords who are adapting to tighter income calculations well and who have embraced the portfolio rules as an opportunity to rebalance and stabilise their portfolios – for the better.

Done responsibly, buy-to-let is still profitable. Yields on HMOs are particularly strong, as are lets in the Midlands and the North of England.

Scotland is also performing well.

Property has always been, and should continue to be, seen as a longterm investment. A lot has changed www.mortgageintroducer.com

Alan Cleary managing director, Precise Mortgages

for landlords in recent years, fiscally and financially, and even more has changed in the broader UK economy.

My point is that things change constantly. And things today are pretty good given the rollercoaster decade we’ve just experienced. It’s sometimes easy to forget that when we’re in the eye of the storm, trying to deal with the crises we face today.

Landlords have had a rough few years, it’s true. But they’ve also been co-opted into creating businesses that are much more sustainable long-term. That’s good for their own financial stability and it’s positive for the broader UK economy. Renters have also benefitted from improvements in the basic standards landlords have to meet if they decide to let their property for commercial returns.

In businesses, there are standards that boards must adhere to, rules that listed companies must obey and consequences if the service provided

SEPTEMBER 2019

to customers and shareholders is not up to scratch. Running buy-to-let investments is a business endeavour and tenants are landlords’ customers. It’s right that they should be held to account for the service they provide.

The fact is that the vast majority of landlords do provide quality accommodation at affordable prices.

They look after their tenants and offer millions of people in the UK a comfortable home on a more flexible basis than homeownership affords.

That the recent rule changes have encouraged more of this type of landlord and discouraged those with too little capital to afford sufficient maintenance, management or who simply cannot be bothered with the so-called headache of admin is, in my book, a good thing.

Far from these changes making it harder for us as a lender, we’ve continued to see strong growth and demand. We’re working with landlords who want to succeed the right way in today’s market and developing flexible solutions such as our portfolio ICR assessment deal to help them do it. After a bumpy readjustment, the future is looking bright and healthy for buy-to-let. Let’s start talking about that.

MORTGAGE INTRODUCER

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Review: Buy-to-let

Looking at the options outside the mainstream As a buy-to-let and commercial specialist, TBMC deals with a wide range of different cases from landlords, from straightforward ‘vanilla’ buy-to-let applications through to fully commercial property transactions, with a whole host of scenarios that fall somewhere in between.

The buy-to-let sector in particular has been subject to a significant amount of change over the last year, including tax and regulatory changes that have affected the profitability of many property investment businesses.

This has resulted in landlords looking at alternative ways of making their enterprises successful.

Jane Simpson managing director, TBMC

Semi-commercial investments

Since the stamp duty hike in 2015, introducing a 3% surcharge on second homes, we have seen a growing interest from landlords in semicommercial properties.

Typically, this would mean a commercial unit such as a shop with a residential component above it, which wouldn’t be subject to the stamp duty increases and could present a good investment opportunity.

Factors for brokers to consider include: lenders often prefer the residential element to make up over 50% of the building; separate access to the residential unit is normally part of standard underwriting criteria; minimum square footage of residential flats above commercial

Complex buy-to-let

At TBMC we have seen an increase in what we think of as ‘complex’ buy-to-let cases involving, for example, limited company applications, Houses in Multiple Occupation (HMOs) or Multi-Unit Blocks (MUBs).

These can present opportunities for landlords to avoid the recent changes to personal buy-to-let tax relief or to generate more rental income for their properties.

HMOs and MUBs have always been popular with professional landlords due to the potential for greater rental yields from multiple tenants and there is a healthy appetite from lenders for this type of business – TBMC currently has around 25 different HMO/MUB lenders on its panel.

There were new HMO licencing rules introduced in October last year and a number of other factors that intermediaries should keep in mind when dealing with this type of case.

These include: the number of ASTs in place for the property; any shared facilities such as kitchen and living room; the type of tenant e.g. students or DSS tenants; the number of rooms in the property and minimum room sizes – new regulations

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stipulate a minimum of 6.51 square metres for an adult bedroom. All of these factors can affect the number of lender options available to a client.

Similarly, for Multi-Unit Blocks, the number of individual units, unit size and the amount of letting experience a landlord has (often a minimum of two years is required) can all affect the number of lenders and products available.

SEPTEMBER 2019

units needs to be met; and applicants should ideally have prior letting experience.

TBMC has a number of specialist lenders on its main buy-to-let panel who have an appetite for semi-commercial finance, such as Interbay and Shawbrook, and an extensive list of lenders via our TBMC Commercial proposition. This type of business seems to be more common now and can be relatively straightforward to place.

Buy-to-let bridging

Buy-to-let bridging also provides a great opportunity for intermediaries to supplement their income and is currently a buoyant market in the UK. The reputation of bridging finance being punitively expensive seems to be waning with bridge-to-let, light/ heavy refurbishment and auction finance all providing useful resources for landlords looking for bargains or ways of improving the value and attractiveness of their property portfolio.

Bridging can be an excellent revenue stream for brokers and also provides the opportunity to arrange the exit finance once any works have been completed.

There are lenders exploring the option of a guaranteed exit onto a standard buy-to-let mortgage – a so-called bridge-to-let product – for example Precise Mortgages currently offers a bridge-to-let scheme for light refurbishment projects. This is proving popular with landlords purchasing cheaper properties in need of a bit of attention before being let out.

Despite the recent contraction of the buy-to-let mortgage market for property purchases, there is still plenty of business to be written in this sector and intermediaries with the right knowledge can help their landlords to develop profitable property portfolios.

Complex buy-to-let, semi-commercial properties and bridging finance are all good examples of how intermediaries willing to explore solutions beyond mainstream buy-tolet lending can offer a wider range of services to their buy-to-let clients. www.mortgageintroducer.com

Review: Protection

Cheapest isn’t always best When we think of results tables (education, Formula 1, Premier League etc) we typically consider the top of the table to be the ‘best’ position.

In the protection industry, while the struggle for first place is equally fierce, competitive position is all about being the cheapest, not necessarily the best.

And let’s face it, we rarely associate a cheap product with a quality one do we? I for one would much prefer a Mulberry tote bag hanging off my shoulder than a Sainsbury’s bag for life, for example. But that’s by the by. We all know that generally we have to pay a bit more to get a bit more.

While I can understand that defaulting to cheapest first is historically just the way it is, what I do struggle with is the fact that, according to iPipeline data, over 50% of protection business is being placed with the top ranked provider, aka the cheapest.

So how many advisers are actually venturing past the starting point?

And how easy is it to do so? The answers are unfortunately not many and not very.

In addition to standard cover, most insurers now offer a whole range of value-added services such as second medical opinions, counselling and children’s cover.

Naturally these services come at an additional cost and this cost bumps them further down the table.

So the more comprehensive a product, the further it moves away from the ‘top spot’.

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Alisa Wallington senior product manager, iPipeline

SEPTEMBER 2019

In my opinion, this is a problem.

It’s a problem for the insurers, because while they want to maintain a competitive advantage from a cost perspective, a better quality product also needs to be made available if they want to maximise their results coverage.

This creates a challenge for the adviser because in addition to there now being more products to compare, they also need to be able to justify why they are choosing to recommend a more expensive product over a potentially cheaper alternative. In order to do this effectively, it is essential for the adviser to have access to all the key information.

This begs another question: how accessible is this information?

Aside from visiting each insurer’s website to access the information directly (not ideal), comprehensive product information is available from a number of different comparison tools such as Defaqto, CIExpert and FTRC. While having this type of information in one place is advantageous, it comes at an additional cost to the adviser and sits outside the current process, i.e. it’s not integrated with CRMs or sourcing systems.

From an adviser’s perspective this could be viewed as yet another disjointed process they have to follow if they are choosing to take a holistic approach to protection advice.

Getting the customer to understand the value of protection in the first place is arguably one of the hardest challenges we face as an in-

dustry, but there is more opportunity than ever before.

According to the Swiss Re Term and Health Watch 2019: Residential lending reached £267.5bn in 2018 – 3.8% higher than 2017.

Remortgaging activity is also at the highest level in a decade, with more than 1.6 million borrowers and one in five mortgages.” These moments create the perfect opportunity to open up a conversation with the customer.

Valuable information is collected just by doing the mortgage application: is the applicant married? Do they have children? Are they employed or self-employed? What is important to them? Building rapport is essential in making the protection conversation easier.

If we go back to the starting point, it is probably fair to say that in many circumstances the customer will only be interested in the cheapest option, and this is no bad thing.

Acknowledging that they need some form of cover, even if it ends up being the bare minimum, is half the battle. But there is always room for improvement (like a trillion pound gap type improvement).

Price will inevitably always play an important part in the decision making process - life is expensive and budgets are tight.

However, advisers should at the very least understand the detail of the value-added services included within the products they are recommending and be able to effectively communicate them.

With an increased focus on these services and a growing awareness of their importance, technology providers are being forced to look at how they can create a more joined up process.

Simplicity and speed are two key factors which must be considered in order to make this happen and to ensure advisers are open to adopting it.

Knowledge is power and arming advisers with access to the right information at the right time is essential if we are to help them understand which services will be most applicable to their customers now and in the years to come. www.mortgageintroducer.com

Review: Protection

The evolution of claims statistics British Friendly published its first claims report last month and it contained some fascinating insight.

One statistic which particularly stood out was that more than one in 10 of the friendly society’s claimants are under 30, demonstrating the importance of income protection for millennials in what can be a particularly challenging economic climate for them.

The average age of claimants was 46 and the average age of those who claim for cancer, heart attack or stroke is early to mid-50s.

The report also analysed the timing of claims, with 525 days being the average length between a policy starting and a claim coming in – less than two years.

Aviva and Vitality have also published comprehensive claim reports that look into why people are claiming, the number of claims paid and, importantly, why claims are declined.

Although insurers have been publishing claims statistics for years, usually in the form of a press release, it’s only relatively recently that some insurers have begun providing detailed and engaging

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

analysis in a glossy, customer focused brochure.

This is a positive move for the industry, and it is of real value to clients and customers alike.

The report from VitalityLife provided an analysis of the rewards and benefits it gives back to members for leading healthy lives. In 2018, more than £81m had been given back to members through rewards like discounted gym memberships and Starbucks coffees.

Healthy living

Interestingly, the company also linked engagement in its healthy living programme with a lower number of claims.

While these are all great steps forward, even more can be done to provide further detail and transparency for advisers and customers. For example, on top of the length of time to pay claims, providers could reveal how many people are accepted for cover and on what terms.

Publishing the numbers around the use of added-value services, such as private GP access, counselling and second opinion services, could be very worthwhile.

Protection insurance and dementia It was startling to see recent figures from the Office for National Statistics which showed dementia is now the cause of one in 10 deaths in the UK and the top cause of mortality in women.

According to the Alzheimer’s Society there are 850,000 people now living with the disease and this is set to rise further.

More than a million people will have dementia by 2025, rising to two million by 2051.

As a result, it’s predicted to cost the UK an astonishing £66bn by the same date - over half the entire current NHS budget.

There has been much discussion in government about ways to deal with this impending crisis, but as yet no firm decisions have been made.

www.mortgageintroducer.com

The protection industry is particularly well placed to play an important role in helping mitigate the societal impact of this debilitating disease by providing cover – and financial security – for sufferers and their families.

However, so far AIG Life with its care cover with Whole of Life Insurance and VitalityLife with its dementia & frailCare cover are the only insurers moving forward in this area.

Research carried out by Vitality shows that two in five Brits expect to, or currently are, financially supporting parents with a later life illness, while 30% believe the total cost of supporting elderly parents will be between £1– 5k, when the reality could be closer to £100k.

SEPTEMBER 2019

News in brief • HSBC Life has launched two critical illness products - critical illness and critical illness plus both only accessible to advisers via UnderwriteMe. Each are available as a standalone plan or with integrated life insurance.

• Legal & General has launched a simplified list of conditions aimed at making its critical illness products easier for advisers and consumers to understand.

• The Office for National Statistics said survival rates for breast, colon and prostate cancer are not improving. In addition, the five-year survival rate for bladder cancer appears to be getting worse.

• Legal & General’s State of the Nation’s SMEs report revealed that more than a quarter of SMEs would need to close immediately if a key person died or became seriously ill.

• The Chartered Institute of Insurers says advisers should advocate the use of digital medical records to improve access to insurance.

• VitalityLife launched a new online solution aimed at making it quicker and easier for advisers to place protection plans in trust.

• Aviva’s interim results showed life insurance operating profits had declined “due to challenging market conditions”.

• LV= has added a 12-month claim period to its ‘budget income protection’ offering.

Smartr365 has launched • ‘SmartrSuitability’, a platform feature which reduces the time required to produce both mortgage and protection suitability letters.

• One Mortgage System has fully integrated with iPipeline’s SolutionBuilder to allow users to compare protection needs without the need to rekey data.

MORTGAGE INTRODUCER

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Review: Protection

Unlocking your protection potential Summer means a chance for a holiday and hopefully a quieter time not only to find the space to reflect on the year so far - but also to recharge our batteries ready to pick up that gauntlet again.

For me that gauntlet is the drive to change habits, attitudes and perceptions within the advisory community about protection.

We know that products such as family income benefit and income protection are massively undersold by advisers.

Meanwhile customers are overestimating the perceived cost of protection, whilst at the same time underestimating the risks, with customers far more likely to lose income due to illness than they are to die.

This year we’ve been exploring ideas to help change these perceptions.

Much of this discussion is focussed on the approach to the conversation at the point of advice. I

Jeff Woods campaigns and propositions director, Sesame Bankhall Group

believe that this is absolutely the best point in time to introduce protection. You’re already in the position of trusted adviser and the customer deserves to hear about all aspects and products surrounding their future financial plans.

Broaching the subject of protection can be built into the template of the advice. As an example, many advisers introduce a risk calculator as a formal tool in addition to the first stages of information gathering.

A natural question like ‘have you thought about how you will cover your outgoings if you’re unable to work’ can be enough to get the ball rolling. Another suggestion is to change the order in which insurance is listed, since the customer is more likely to need income protection above the other types of cover.

We’ve talked recently about advisers maintaining periodic contact with their customers, particularly given current trends in longer fixed

rate mortgages. This gives an opportunity to introduce or revisit the subject of protection, knowing that the lives and circumstances of customers are everchanging.

Also consider using pre-appointment reminders as a chance to warm up the customer to the prospect of loss of income, delivering an expectation of a protection conversation when you meet. And let’s remember to check provider offerings regularly as they continue to offer innovative new products and solutions.

All this being said, I was recently asked if there’s just one change I could have, what would it be?

Adapting our routine, so we always include a short introduction to protection with every customer is what is needed regardless of how and when we think that should be. The reality is that change doesn’t happen overnight, but over time a new habit will form, and everyone will be better off for it.

Protection advice in changing times It’s easy for us insurers to fall into the trap of coming across as a bit patronising when trying to persuade mortgage brokers to sell protection.

Sometimes we can go a bit too heavy on the moral reasons, such as how life insurance helps loved ones keep the family home if the worst should happen to the policy holder, or how income protection can help pay the bills if you can’t work.

We think we’re right of course, but we also understand that it’s not always easy – and sometimes it’s not even your job. But, while the moral aspects will always remain relevant, the reasons to discuss protection products are evolving beyond just the potential client need.

The legacy of PPI casts a long shadow over the much-maligned figure of protection, and it’s true that some products have been mis-sold or oversold in the past. But, as Bob

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Dylan often sang: “The times they are a-changin’”, and many of the legal challenges and compliance issues of the future will be based on what hasn’t been sold as much as what has.

Some of the networks have grasped this point and they don’t want to give customers the opportunity to complain about something they say they never had the opportunity to buy. And while not all mortgage brokers have the expertise or desire to sell protection, if you don’t want to do it yourself these days there are many adviser firms happily willing to partner with you.

And should you ever want to sell your business or client book in the future the chances are it will be more valuable if it includes ongoing revenue from protection insurance as part of the deal. As for us providers, we like to think we’re making it quicker and simpler to arrange SEPTEMBER 2019

Andy Philo director strategic partnerships and employed distribution, Vitality

mortgage protection than ever before. As part of our mortgage plan, for example, we have made the underwriting process quicker by reducing the number of questions from 24 to five, improving the experience for customers and making it easier for brokers to make that first protection sale, which can be developed as the months and years go on.

Now is the perfect time for mortgage brokers to start speaking to clients about protection, and if the moral aspects, the increasing focus on compliance and the growing ease of making the sale aren’t enough, there’s always a useful old-fashioned sales analogy they can use as well. If everyone had a machine installed at home which legally printed money, would you insure it against breaking down? Yes, you probably would. So why don’t we all insure our incomes?

After all, we are that machine. www.mortgageintroducer.com

Review: Protection

Opportunity knocks for PRS IP sales While there may be an element of uncertainty in the housing market at present, the fact remains that quality brokers are still quite rightly benefitting from the ‘swing’ to intermediated business that has occurred in the past few years.

As the first-time buyer market continues to move in the right direction and product transfers are helping clients save from the SVR trap, one area of lending that has continued to prosper is the private buy-tolet sector.

It is estimated that there are some five million households benefitting from the provision of property from private landlords; those tenants however are by no means immune to the same issues of serious illness or short-term disabilities – or even worse.

Tenant security

The reality is that these tenants may not always have the same level of access to independent advice on insurance products that could help them keep a roof over their heads.

We know that average first-time buyers have now gone over the 30 years of age mark – even later in the South East.

We also know that in reality it will only be as a potential purchaser that the individual has the opportunity to get advice on life assurance from a qualified broker.

In the rental sector, advice on financial services hasn’t necessarily been at the top of the list for tenants.

Their average savings balances are possibly going to be lower and so those renting may have a more difficult time persuading a landlord to let them remain in the property should illness strike.

As it is, most estate agents have often been happy to earn their income from the letting of the properties and charging additional fees for other services as opposed to offering financial advice to renters.

However, as of June 1 this year things changed. Before that date tenants could be charged administrawww.mortgageintroducer.com

Mike Allison head of protection, Paradigm Mortgage Services

tion fees – such as tenancy renewal fees, referencing fees and credit check fees – by landlords and letting agents.

According to Citizens Advice, the average amount paid was around £400. From 1 June, there is a strict set of rules around what can be charged for namely:  Rent.  Utilities and council tax if included within the tenancy.  A refundable deposit capped at a maximum of six week’s rent.  A refundable holding deposit to reserve the property, capped at one week’s rent.  Changes to the tenancy requested by the tenant, capped at £50 (or ‘reasonable costs’).  Early termination of the tenancy requested by the tenant.  Defaults by the tenant, such as fines for late rent payments or lost keys. These must be “reasonable costs”, with evidence given in writing by the landlord or agent.

Any other fees will be banned, and landlords or agents found charging the fees could be fined £5,000 for a first offence. If they break the rules again within five years, they could be given an unlimited fine.

We now have a substantial number of renters needing advice, and an industry which has had incomeearning opportunities curtailed in the past few weeks.

It would seem logical to assume therefore that brokers have an opportunity to develop relationships with those estate agents who now need another way of earning revenue. A classic ‘win-win’ scenario one may say.

Showing rental clients what the State is likely to provide if they cannot work illustrates why income protection is so important.

Brokers need to be wary though and fully understand how protection policies interact with state benefits.

For homeowners, until fairly recently, it was possible to claim benefits to cover mortgage interest paySEPTEMBER 2019

ments. However, in April 2018 the format changed.

There is now a loan which is repayable with interest whenever the title of the property is transferred, for example, on death or divorce, or if it is sold on the back of the change to support for mortgage interest.

The Building Resilient Households Group (BRHG) sought clarification from the DWP about whether income protection pay-outs that are used to pay a mortgage would be taken into account when assessing eligibility for means-tested State benefits.

They received no clarification. In theory, for policies where claimants have a choice in how to spend the proceeds, the disregard will apply only to the part of the policy that can be shown to be intended for and used to cover a mortgage – this may be difficult to prove or disprove.

Recommendations

Most policies state they are for a mortgage and if bought via an adviser the fact finds and recommendations would help. More income protection providers are considering a process of paying lenders direct, but that doesn’t help the rental sector.

The BRHG therefore is looking at how to help people who rent in the private sector as the way the universal credit housing allowance is calculated means it is often not enough to pay claimants’ rent in full.

The opportunities that exist in the private rental sector are huge and this is perhaps one of the reasons that Legal & General has recently piloted a rental protection plan with a couple of firms.

Now it has been through the test phase, Paradigm Protect members will have access to this product in the coming weeks. The product has been designed to be specifically relevant to people who rent and although the benefit rules should not stop the client thinking of taking out income protection to cover rent, it is the job of a quality adviser to point out the possible pitfalls.

MORTGAGE INTRODUCER

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Review: Protection

The importance of protection should be taught to the young In its report Generational Income: the effects of taxes and benefits the Office for National Statistics highlights that the evolution of household income over the life course can be split into three distinct periods.

The report says: ‘The first is during a person’s early working life, where median household income increases most steeply; it is almost 1.9 times greater for households with heads at age 30 years compared with age 20 years. Earnings progression is much faster in earlier years, particularly between ages 16 to 24 years.’

Then, it continues: ‘between age 30 to about 50 years, average household income is relatively flat, likely reflecting slower earnings growth over this period. In addition, with increasing age, households are more likely to contain children, which means household income is shared between more household members.

The presence of children may also lower overall household income as one or both parents may change their working patterns to provide childcare.’

Steve Ellis head of risk and protection, Premier Choice Group

Diminishing returns

Rental concerns

Finally, the report concludes: ‘after a small increase among people in their early 50s, average household income starts to decrease with age, as an increasing proportion of household members move from the workforce into retirement. The lower average incomes among older retired people also reflect cohort effects, with older generations less likely to have private pensions and those that do also receiving, on average, lower amounts.’

One trend if one can call it that, today is more young people are living at home - their childhood home with their parents – largely because they can’t afford to get on the housing ladder and buy their own place.

If this is their object, no doubt they will be saving hard to get a deposit together.

But it does suggest that at the

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point at which they are still living with Mum and Dad and assuming Mum and Dad aren’t charging them high rental fees they will have income to spare.

It is never too early to ask the question: how are they securing that income? What if they suffered an illness or accident that necessitated them packing up working or needing care? Income protection would secure that income.

A critical illness payout could actually provide them with the means to secure accommodation of their own to suit any changing needs or adapt the parental home. If they were lucky (relatively) and had a critical illness they recovered from they could find they had a lump sum which got them on the housing ladder.

The, ‘I’m too young, I’ll get insurance when I need it’ doesn’t wash – as their broker or adviser you need to remove that argument from their thinking. You are never too young to get a debilitating illness or suffer an accident that incapacitates you.

If your young clients or potential clients are renting rather than living at home, while their rental costs could leave them with little change at the end of the month you still need to have the conversation with them about protection.

Only 26% of renters are likely to have life insurance or critical illness cover compared with 41% of homeowners and they are more likely to worry than do anything about it according to research from Sainsbury’s bank.

The rental market is one we as healthcare intermediaries and you as brokers (if they have anything by way of useful deposit chances are you can get them a better mortgage deal than the rental one, they have!) cannot afford to ignore.

In the past 10 years, the number

SEPTEMBER 2019

of households renting privately with children has risen by almost 800,000 to nearly 1.6 million according to Ministry of Housing, Communities & Local Government’s: English Housing Survey, 2017/18 as highlighted by the bank.

A good proportion of renters apparently think they don’t have enough money to have life insurance and yes, they think they are too young or are immune to illness.

They might be right about whether they can afford it, but do they have a realistic notion of what life insurance or any other protection insurance would cost? You may be able to pleasantly surprise them.

Thankfully when renters become homeowners, they are more likely to take out insurance – although according to Sainsbury’s only 34% do. Life stages such as having a child prompt 17% to do so or getting married prompts 11% to – and of course renters can be parents and can get married, so we are always reminded or should be of the need to ask the question at the significant times.

Of course, if they have insurance or a protection policy of whatever we should still review how much they are covered for and if that needs adjusting as circumstances change.

A salutary statistic is that 9% of people are prompted to take out cover having had an illness. Let us hope it wasn’t one after which a lump sum payment would have made all the difference to their financial wellbeing.

Second time around

More people are taking out second charge mortgages. There were 25,958 new agreements in the year to June which is 17% up on the previous year. There were new business volumes of more than 13,300 agreements in the first six months of 2019, the strongest first half-year performance in more than a decade, according to the Finance and Leasing Association.

This I would suggest is another of those life events that should nudge a review of the cover clients have in place in terms of life, income protection and critical illness policies. www.mortgageintroducer.com

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Review: General Insurance

Wally in Whaley... or just wrong?

Unless you’ve been living under a rock for the last few weeks, you’ll be aware of the flooding at Whaley Bridge and the failing dam.

Some 1500 people were evacuated amid fears that the dam would give way. During all the chaos and fear a lone local estate agent seized on what they felt was an opportunity, writing letters to all local residents offering to arrange or review their contents insurance cover.

They came under fire from one local resident whose social media post claimed it was ‘an attempt to make money… insulting and insensitive’.

A media storm has ensued with opinion split over whether the agent was in the wrong or simply doing their job and attempting to help people.

When I first read this story, I was

Geoff Hall chairman, Berkeley Alexander

amazed: no one seemed to take account of the fact that no household insurer would cover flood (if the dam were to burst), or theft or malicious damage (if the property were unattended due to evacuation) in these circumstances anyway.

Whilst arguments rage over the agent’s ethics, my concern is that none of their customers would have been able to claim on a policy they sold at the time even if they tried.

Whether you question the agent’s motives or the potential lack of cover, either way this sorry tale serves only to exacerbate the poor perception the public has of general insurance.

New card payment rules The new Payment Services Directive 2 (“PSD2”), is due to come into effect from the 14 September 2019, although at the time of writing this the Payment Service Providers are lobbying for an extension. It applies to card payments where the card holder isn’t present, although there are some permitted exceptions, and irrespective of the type of purchase.

It includes all goods and services, including insurance and financial services where a card is used over the phone, for online payments or where the broker is passed the card details to pay for services.

Under the new rules, payment providers have to undertake strong customer authentication, typically using a new two-stage authentication process that involves the payee’s bank texting the mobile number held by the bank for that client with a second stage authentication number that the client then has to provide for the payment to be made. Payments won’t go through without this second

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stage authentication.

This impacts IFAs, mortgage brokers and other intermediaries who may currently use a client’s card to pay for something online with the provider, for example insurance, surveys, admin fees on a mortgage application, etc.

This means that going forward, agents processing card payments will also have to have the client present or on a call, to provide the adviser with the second stage authentication number.

It’s another administrative step in the process, but it has been introduced with the best of intentions to reduce fraud on online card payments. Some providers may change their process to either not accept card details online or may ask the adviser to get the client to go online themselves to enter their card details.

Expect to see before 14 September whether an extension is granted, but even if it is, this isn’t going to go away; it will be implemented as it provides added protection for customers.

SEPTEMBER 2019

The rise of non-standard The nation has embraced loft conversions, flat roof extensions, lodgers, home working and Airbnb guests like they are going out of fashion.

What was once the preserve of non-standard and ‘niche’ has changed.

The reality is that many houses now have some ‘non-standard’ characteristic.

The current state of the housing market suggests that renovating will remain at least as popular as buying and that the rate of second (and thus frequently empty) home ownership will grow.

According to the Resolution Foundation thinktank, around one in 10 people in the UK own a second home.

Almost two million people own rental properties in 2019, up from about 1.2 million in 2008. On the flip side, the proportion of young families owning their own home has halved since 1990.

For the mortgage broker arranging GI for clients this has caused a dilemma…. as ‘standard’ policies simply will no longer do for a growing minority of the clients they see.

Non-standard might be the new ‘norm’, but it is still non-standard: these cases need a different, more bespoke, approach to underwriting.

For most insurers who still offer, in the main, ‘standard’ cover, this means they only have a limited underwriting footprint, potentially meaning they wouldn’t even consider insuring 30-40% of the homes you arrange mortgages on.

Only last week, we had a call from an agent asking whether we could arrange cover on a property his client was looking to purchase as it had a steel frame with insulation panels.

To us, that is our bread and butter – to others its beyond their underwriting footprint.

Providers that specialise in nonstandard GI are not surprisingly witnessing growth – it’s basic market economics. www.mortgageintroducer.com

Review: General Insurance

Application Programming Interface talk Over the coming months, you will see Paymentshield talking a lot about APIs and the benefits for advisers when providers take a more connected approach. But what is an API and how could it make a difference to your life?

What is an API?

API is short for Application Programming Interface and the acronym is increasingly used at industry round table events and trade press columns about technology. An API basically makes it easier to connect one programme or platform to another, so that information can be shared more easily between the two.

An API makes a platform more accessible to link to other platforms, without making public all of its source code. It does this by providing the building blocks of the platform to developers, which reduces the amount of code they need to create, and also helps create more consistency across apps for the same platforms. APIs help different platform to connect more quickly and easily.

You may never actually see an API working in the forefront of what you are doing, but there are APIs working all the time, on nearly every app you use or website you visit and it’s this sharing of information that adds real value.

Everyday APIs

If you wear a Fitbit or Nike FuelBand, have ever used the Instagram or Twitter app or have ever bought anything online, then you have taken advantage of APIs. So, for example, when was the last time that you searched for a hotel room from an online travel booking site? Whether you need a place to stay after an industry event or you’re just daydreaming about your next holiday, you would use the site’s online form to select the city you want to stay in, check-in and checkout dates, number of guests, and number of rooms. You then click on the search button. www.mortgageintroducer.com

Rob Evans CEO, Paymentshield

This is when the APIs kick in.

When you click ‘search’ the site you are using will interact with APIs for each of the hotels to access information about their room availability and pricing and then deliver results for available rooms that meet your criteria. It can all happen within seconds because of an API, which acts like a messenger that runs back and forth between applications, databases, and devices.

Or, have you ever picked up your phone to see that Google Maps has provided you with a traffic update and information on how long it might take to drive home?

This is the result of an API between Google’s mapping service and the GPS-based traffic information service Waze.

The API integrates the traffic data into Google Maps which then provides you with real-time incident reports and information that are relevant to your location.

Information is important, but it is so much more powerful when it can be combined to provide real insights or simply make life easier. So, how will APIs help you in your professional life?

Let’s use Paymentshield as an example. We are not the only provider using APIs to make adviser’s lives easier, but I know more about how we do it than other providers!

We have launched API capability onto our Adviser Hub platform, which means that it is now ready to integrate seamlessly into the systems and dashboards of networks and large adviser firms. And this means that information collected in mortgage fact finds can be transferred effortlessly into the platform.

As part of the development of Adviser Hub, we held a research group amongst advisers. We found that you want to ask questions up front and build rapport with your clients first rather than make assumptions and validate them afterwards. So, in order to do this more effectively, we needed to find a way of providing one integrated journey that covers the mortgage, protection and GI. And this is where the APIs come in. By making it easy for information to be shared across different platforms, they empower advisers to introduce a conversation about GI earlier on into their processes and reduce the amount of time they need to spend completing forms, so that they can spend more time advising clients.

Technical term for a simple idea

API is a technical term for a simple idea. By making it easy to share information in a way that is secure and robust, we can all benefit. We are already doing this in our daily lives through apps and websites that we take for granted. So why shouldn’t we take this approach for granted when it comes to advising clients?

A more connected approach empowers advisers to work more effectively so they spend less time form-filling and more time providing advice. With APIs, advisers can integrate a conversation about protection into early interactions with clients, making it easier for every adviser to provide a holistic advice service.

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Review: General Insurance

Lessons from Whaley Bridge Last month hundreds of Whaley Bridge residents were forced to spend a week away from their homes and businesses after heavy rain damaged the dam at Toddbrook Reservoir.

Likewise, many residents in towns and villages across the UK, particularly the North West, were also caught up in flash flooding following periods of prolonged heavy rain. As a result many claims are expected from areas originating outside of known flood risk zones (coastal areas, water courses such as streams and rivers, or low-lying flood plains).

The recent spate of flash flooding highlights the risks associated with the surface water flooding typically caused by storms, and ground water

Paul Thompson founder and CEO, Cavere Intermediary

flooding which occurs when water tables rise. Whilst most properties in the UK are not considered at risk of flooding, millions are, even in areas that are not immediately in flood zones.

Indeed the Environment Agency has calculated that around one in six properties in the UK is at some flooding risk.

An estate agent came under fire for offering contents insurance to tenants living in Whaley Bridge. An act that was seen by some as profiteering and insensitive.

Nevertheless it does raise a valid point – more does need to be done to raise awareness of the importance of flood cover in the UK. The recent flash flooding and close shave at Whaley Bridge is

a wake-up call to the fact that flood cover should no longer be considered a non-standard purchase, it must and can be written as standard.

Don’t let your clients leave it to chance, check if they have flood cover in place, check that they have made the correct disclosures about how close their property is to a flood plain or water course, and speak to them about the importance of flood cover even if not living in known flood zones in order to account for flash flooding risks.

Finally, make sure you work with a GI provider with the experience and relationships with insurers that back into FloodRe in order to get your clients the cover they need.

Talking about standard and non-standard risks….

I read recently of a rise on non-standard household insurance sales. Apparently the non-standard category saw yearon-year growth of 9.3% from 2018 to 2019, compared to the 2.7% growth seen in the standard market.

Non-standard insurance is typically required for risks excluded from standard household policies such as underpinned properties, listed buildings, or risks associated with the policyholder themselves such as those with criminal convictions or a less than ideal financial history.

However, there are some ‘non-standard’ risks that surprise me considering how we live our lives today. The nonstandard risk list also includes holiday homes, homes undergoing renovation, properties used for business and those with flood risk. Are these really nonstandard? Surely not! Customers themselves are often surprised to discover their non-standard status when they apply for home insurance.

As mentioned above flood cover should no longer be considered a nonstandard purchase thanks to Flood Re. Cover is available and for intermediaries it’s no different to selling buildings and

www.mortgageintroducer.com

contents. But did you know that one in 10 adults in the UK owns a second home (that’s 5.5 million people), or that the number of homeowners carrying out renovations rather than moving has increased five-fold in the last 6 years, or finally that according to the ONS 1.58 million people in the UK work from home?

Non-standard risks? I think not.

Our homes and our relationship to them are very different today than they were 50 or 100 years ago, perhaps even 10 years ago. Should we still consider a kitchen extension, a

holiday property or working at home as abnormal? Standard price and risk modelling is not keeping pace with the changing needs of customers and the new normal of their lives in 2019. A more complex set of underwriting rules is required for standard policies, rather than just simply offering non-standard add-ons or standalone additional policies. Just as Cavere has already done with flood, we’re certainly speaking to insurers to clear the path for other nonstandard risks. I believe as a GI provider not restricted by software house shared question sets we’re perhaps best placed to be the incubators that drive this change.

Rather than just adding more nonstandard offerings to panels GI providers should start leveraging our relationships with insurers to champion more creative ideas and underwriting, build more innovative home insurance products, and deliver the more personalised, precise and cost-effective policies that not only do homeowners require, but that also enable our brokers and advisors to build lasting value driven relationships with their customers and differentiate their proposition.

SEPTEMBER 2019

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Review: Equity Release

More women using lifetime mortgages for retirement For various economic and social reasons, women are often left with insufficient income to support their retirement. Consequently, women are having to look for other ways to support themselves in retirement.

Positively, the industry is seeing growing demand for lifetime mortgages from women aged 55 and over.

These home finance options enable women to unlock the wealth stored in their home, helping to relieve some of their financial pressures and offer them comfort and security in retirement.

Alice Watson head of marketing and communications, Canada Life Home Finance

“Women are aware of how wealth stored in their property can help improve their financial wellbeing in retirement.

And with the growth in solo living amongst those aged 65 and over, there is likely to be more people relying on just one income to live on during retirement”

average British woman will outlive her savings by 12 years . That is a number that should make all of us sit up and take notice. And unfortunately, research by Canada Life and analysis of Department of Work and Pensions (DWP) data also illustrates a bleak financial future for many UK women. While Canada Life’s Retirement Sentiment Index shows that women think they will need £1,421 per month after tax to live comfortably in retirement, DWP figures reveal a difference of over £500 between women’s expected income in retirement and what they would like to earn in retirement.

The silver lining is that women are dealing with this shortfall resource-

fully. Research from the Equity Release Council’s Spring 2019 report shows more than twice as many single lifetime mortgage plans were taken out by women than men in 2018.

This finding clearly shows that women are aware of how wealth stored in their property can help improve their financial wellbeing in retirement. And with the growth in solo living amongst those aged 65 and over , there is likely to be more people relying on just one income to live on during retirement.

By viewing their wealth holistically, factoring in property wealth as well as other income and savings they may have, more women are affording themselves a better chance at securing the retirement they want.

But there’s still more to be done.

As an industry, we should consider how we can tailor support and advice to give women peace of mind in retirement.

One persistent barrier to women’s ability to grow their pension savings stems from the ‘invisible’ nature of some of their work, especially at home. Raising families and looking after loved ones have not yet been fully factored into women’s economic and social contribution. And while a range of policymakers and industry experts are rather belatedly looking to redress this situation, this reality has left many women with pensions that won’t provide sufficient income in retirement.

Recent research by the World Economic Forum suggests that the

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SEPTEMBER 2019

www.mortgageintroducer.com

Review: Equity Release

Exciting times ahead for equity release The later life lending sector has consistently shown unprecedented levels of growth in recent years, and this year has been no different. 2019’s Q1 proved to be the busiest on record highlighted by a 10% year-on-year increase in total customer numbers, and despite the market being affected by ongoing political instability (as with the rest of the financial services sector) Q2 nonetheless saw a rise of 2% compared to the same period in 2018.

The natural question is what’s driving this ongoing growth, and what recent developments have been taking place within the later life lending sector to ensure that customers’ needs are continuing to be met as the market grows?

It’s important to note the changing face of the market’s core audience, with the pipe, slippers and rocking chair retiree unequivocally becoming a thing of the past. Those aged 65+ are now the fastest-growing demographic on social media (especially Twitter) and with many now leading increasingly adventurous and active lifestyles - walking football is currently the fastest-growing sport in the UK – there’s been a definite frameshift when it comes to retirement and the opportunities it provides.

Perhaps as a result, in contrast to a time when equity release would have been seen as a last resort born out of necessity many now view it as a tool in which to achieve their retirement aspirations, and as a vehicle which affords them the chance to enjoy their later years.

While assisting with everyday living expenses and repaying existing debts remain key reasons for taking out a lifetime mortgage increasing numbers are using released funds to finance home improvements and holidays, and with marked increase in interest being shown from those sitting at the higher end of the property market there’s a clear shift from those solely taking out plans out of necessity to a market that also encompasses those who www.mortgageintroducer.com

Hattie Tales business development manager, Pure Retirement

retire into plans out of desire.

But while the later life lending sector has seen a shift in its customer profile, it’s also seen major developments in the products it offers to end-point consumers as it continues to evolve and meet the changing needs of its widening customer base.

There’s been an exponential rise in the number of plans available to consumers, increasing choice and the likelihood of those evaluating a lifetime mortgage being able to find a product that best suits their needs, with research released in April showing that a total 233 different plans are now available (a rise of 310% from the 73 offered in 2016, and a 62% increase between Q1 2019 and the 144 available in Q3 2018).

Aside from the increased variety available within the market at present, the products themselves have evolved to feature unprecedented levels of flexibility, making them ever-more attractive to those exploring lending options in their later years.

Increasing number of ranges now include features such as inheritance protection and options for downsizing and porting options, allowing consumers the peace of mind that their plan would continue to meet their needs even if their circumstances change.

More recently there’s been a rise in the number of plans offering ERCfree partial repayment options, giv-

ing consumers greater control of their affairs when it comes to managing the rolling up of interest over the duration of the lifetime mortgage.

It’s a facility that’s been a cornerstone of our recently-launched Heritage range alongside giving clients three years to pay off the loan without ERC’s if the product was taken in joint names and one party was to

“While assisting with living expenses and repaying debts remain key reasons for taking out a lifetime mortgage increasing numbers are using funds to finance home improvements and holidays”

SEPTEMBER 2019

go into long-term care or pass away (a feature which has also been built into our Sovereign range).

The more competitive market has not only resulted in more featureladen plan options, but also a significant drop in interest rates, with regular changes throughout the sector and the market average dropping below 5% for the first time earlier this year.

With a wider range of properties now being accepted by many lenders (including buy-to-let, commercial properties and 100% flat roofs), and with greater safeguards than ever thanks to Equity Release Council guidelines (no negativity guarantee, the need for a face-to-face meeting with a solicitor to show they fully understand proceedings etc) maybe it’s no surprise that the market is as popular is it continues to prove to be.

This can only be sustained through continued development, but looking at how far the market has come already, the market’s next chapter can only be an exciting prospect.

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Review: Equity Release

State pension age debate shows need for equity release If you’re a think tank and you’re looking to secure coverage and, no doubt, profile for your organisation then what better way can there be than taking an extremely emotive subject and recommending a policy that is sure to stir up a hornet’s nest?

That’s exactly what the Centre for Social Justice (CSJ) – a think tank founded by Iain Duncan Smith I might add – did last month when it published its views on the state pension age and what the government might consider doing with it. The CSJ’s recommendation was to push the age up to 70 by 2028 and then on again to 75 for both men and women by 2035.

Understandably there was plenty of push-back from this, especially as Duncan Smith himself appeared to suggest that such a move would give ‘pensioners’ more flexibility and freedom in terms of carrying on working later in life.

Many pointed out that such ‘flexibility and freedom’ might actually not be required or wanted, especially those who were unable to work and would have to wait many years later in order to secure their state pension.

Those recommendations have already been pooh-poohed by the Secretary for State for Work & Pensions, Amber Rudd, and they have been met by a strong push-back by others.

Baroness Ros Altmann called the recommendations “immoral” and given the weight of her words I’m not wholly surprised that Rudd was quick to say the government had no plans to change its current policy which is a state pension age of 68.

Whatever your views on this, it’s clear and obvious that we’ve already seen State pension age ‘creep’ in the last decade and, if we are to have governments of a more right-wing nature in the years ahead, then I suspect such policies and recommendations will be raised again and again.

Do any of us believe that the age of 68 is set in stone? I doubt it, espe-

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Stuart Wilson group chief executive, Answers in Retirement

SEPTEMBER 2019

cially if we see a significant hit to the government finances following a ‘no deal’ Brexit.

Indeed, governments of all colours are likely to cut their cloth accordingly should the need arise, and it has often been ‘benefits’ like the state pension which have been first up against the wall when it comes to attempts to ‘balance the books’.

There are no guarantees that the state pension age won’t be pushed out further again, and in that sense, this could fundamentally alter the way that individuals plan and prepare for their retirement.

Now, don’t get me wrong, there are plenty of people in work beyond state pension age and there are clearly demographics – longevity and the like – which mean that as a nation we’re getting older and there are therefore more people seeking to work later in life.

However, without other alternatives – such as equity release for example, - there could be large numbers of people who are looking at a life in work without any potential for a retirement. It’s at this point that later life advisers could have a significant role to play.

I’ve talked in the past about the number of older homeowners who

die each Winter due to what they perceive to be their inability to pay for higher energy bills.

They sit in freezing homes because they feel they can’t afford to put the heating on, when those very same homes could be utilised via equity release to pay for all their requirements, not just heating but other ways in which they can increase their standard of living.

I feel the same way about those homeowners who might feel they can’t afford to retire and again are sitting in homes valued at hundreds of thousands of pounds. Pushing the state pension age out further may well be inevitable – despite the government’s protestations – and we could have a further group of later life individuals who don’t understand the options they have which could allow them to have the retirement they deserve.

Plenty of people want to work in retirement but they also tend to want to pick and choose when they do it, not feel like they have no choice but to keep on working.

We, as an industry, need to get the message across to those faced with such a predicament that there are always options available to them if they own their own home. Indeed, this is likely to be a necessary education programme for all those who might consider any sort of retirement to be pie in the sky, or those who want to drop back their work commitments at some point in the future.

The traditional notion of what equity release can be used for is changing – indeed, we might argue that it’s never been just about paying off debts or (at the other end of the extreme) going on a cruise.

Instead, it can help make crucial decisions about the nature of choosing to retire and the type of retirement the individual can afford to have.

Coupled with all the other requirements later life clients have, there is clearly a full advice service just waiting to be delivered – it’s up to us to get that message out there and to ensure we have the answers to whatever the world, or the government, throws at them. www.mortgageintroducer.com

Review: Conveyancing

Conveyancing sales are worth the effort All mortgage market stakeholders – whatever their role within the process – will tend to have a universal concern. That would be the level of transactions we have, particularly purchasing, which ultimately will decide just how much business we can write over any given year.

In that sense, conveyancers are no different to lenders, advisers no different to estate agents – at the end of the day we all want to see significant activity across the housing and mortgage markets and we want our clients to feel like the obstacles in their way are few and far between.

Unfortunately, how often have we been able to say that, particularly in recent years? We all know our market is a political football at the best of times, and it seems that governments of all hues have wanted to have their cake and eat it at times. On the one hand, they want to subdue demand and activity, for example, in the buyto-let sector, whilst also trying to improve the lot of the first-time buyer.

All within a high house price environment, a taxation system which makes purchasing costly to say the least, and a house-building sector which hasn’t been able to hit its target for new homes for many a year.

Every intervention has its own particular impact, desired or otherwise, and those unforeseen circumstances of taxation or regulatory change, of changes to planning or licensing of various stakeholders, keep on coming, because the fact of the matter is that until they move from the theoretical to the practical, no-one can be quite certain how they’re going to land.

Hence, we have our current situation, exacerbated by the UK’s ongoing negotiations to leave the EU and the next set of ‘unforeseen circumstances’ that will arise from that.

How might the economy fare? How might it impact on jobs? What about house price levels and access to credit? What about the cost of living, of food, of bills, of energy? How will this all play out, especially if we leave the EU with no deal? www.mortgageintroducer.com

Mark Snape managing director, Broker Conveyancing

It will probably not take a genius to work out that such uncertainty weighs heavily on housing transactions, and the system that has been built up over the past decade has also not truly helped our market in terms of making it easier to move home. The costs that come with such a move are incredibly high, whether that be getting onto the ladder for the first time, moving to a bigger property, or indeed attempting to downsize. Many people feel they have to stay where they are or feel that the ‘wasted money’ of stamp duty might be better put to use, for example, in house renovation.

Two recent sets of figures show the stark nature of today’s market.

“More advisers and clients are opting for specialists in this sector rather than pinning their hopes on a high street firm that only completes a handful of conveyancing cases each year” Residential stamp duty receipts – from the latest statistics via HMRC – have fallen 6% year-on-year. Indeed, the face-saver might have been the money recouped from the sale of ‘additional properties’ which was up 9% in the three months to June, over the previous quarter.

But even that was down 4% yearon-year. All the stamp duty changes, which were designed to subdue such activity might well be judged to have gone too far and worked too well.

This drop in overall stamp duty take is mirrored by the level of conveyancing activity.

Recent statistics from Search Acumen show a quarterly decrease of 10%; the top 1,000 conveyancing firms completed 20,000 fewer transactions in Q2 this year, compared to Q1. That tells its own story and we can see just how activity has been impacted throughout 2019 – we might also suspect that Q3 will see a SEPTEMBER 2019

similar decline, but let’s wait for the results before we do that.

What we can see though is the number of conveyancing firms active across the UK dropping below 4,000 for the first time earlier this year, and that’s not a bad thing, perhaps showing that more advisers/clients are opting for specialists in this sector rather than pinning their hopes on a high street firm that only completes a handful of conveyancing cases each year. And the fact that the top 200 conveyancing firms control more of the market than ever before, again highlights the way this sector is going.

The level of overall activity in the housing market could however be given a much-needed boost. The recent talk around stamp duty changes by Boris Johnson could be what’s needed, and there is no stakeholder who wouldn’t like to conduct more business if more buyers can be encouraged to make their way through the process.

What we can do however is increase activity at a micro level; that is securing the existing business that might previously have been overlooked – our own activity levels have increased considerably in the past few months, and we put that down to advisers ensuring they get the conveyancing business of each and every client, and they utilise an easyto-use platform that can ensure they have access to the most competitively-priced and quality conveyancing firms in the country.

Overall activity may never be where we truly want it to be, but that doesn’t mean we can’t improve the business levels of our own firm.

Holding that peerless advice position means you get to the client first – don’t waste that opportunity, and don’t make the mistake of thinking ancillary sales, such as conveyancing, are not worth the effort. They certainly are and should overall transaction levels continue to bump along the bottom, they will be more important than ever.

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Review: Conveyancing

United we stand, divided we’re lumbered As pressure mounts on service providers within the UK property chain to speed up their completion rates and to establish a level of performance which corresponds with 21st century consumer expectations, recent research by the property website, TheAdvisory, has revealed that the average time between the acceptance of an offer and the legal completion of sale is around 79 days (or 11 weeks) - a figure that seems to accord with previous estimates.

However, as the range and complexity of post-acceptance issues also continues to rise, the report has revealed that some transactions are taking up to 280 days (or 40 weeks) to reach completion - a reminder of the increasing uncertainty of the post-offer ‘journey’ and of the growing need to assuage or to ‘moderate’ the sometimes unrealistic expectations that consumers can have of this process. But, where does the responsibility for such an initiative lie?

Of course, the post-offer journey is naturally regarded, by both consumers and professionals alike, as the most important part of a transaction; a process designed to satisfy the needs and requirements of each component within the chain.

The borrower achieves the purchase of their dream home and the lender a new paying loan, the broker receives payment for their advice and the introduction of a client to the lender and the solicitor receives payment for the confirmation of good and marketable title, the transfer of the property into the borrowers names and the creation of a legal mortgage.

Which is all well and good. However, as many solicitors will attest, a failure to inform buyers at the initial stages of a chain as to the time-consuming realities of their work can mean that conveyancers are often criticised or blamed for hold-ups and delays which are beyond their control.

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David Gilman partner in charge, Blacks Connect

SEPTEMBER 2019

Which can be hugely frustrating, especially given that the solicitor is the one who ‘glues’ the disparate pieces of the puzzle together and creates the underlying basis for each sale. Moreover, with fall-throughs and other delays often (wrongly) ascribed to slow conveyancing services, many solicitors have come to bemoan the disproportionate focus that some elements can place on application to offer times (as opposed to offer to completion times), arguing that an undue emphasis on the former can present a picture which is both misleading and (potentially) damaging.

Indeed, according to a recent report by the comparison website, GetAgent. co.uk, average property sales in England and Wales are currently taking around 162 days to complete, with 109 days spent finding a buyer and accepting an offer and just 53 days (or around 8 weeks) for the property to go from offer to completion - a figure which admittedly contradicts the findings of TheAdvisory research outlined above, but which nevertheless seems to confirm that the length of time taken to complete the legal process is being far outweighed by the time taken to find a buyer.

Moreover, with the influx of increasingly complex market factors (such as Help to Buy and shared ownership cases, as well as the rise in gifted deposits) continuing to place a strain on the conveyancing process, there is a growing sense that solicitors are often vulnerable to a full brunt of consumer criticisms because of their position as the last party in a transaction.

Consequently, some solicitors have suggested that a fairer and more efficient system could be created by adopting a ‘collective’ approach to the education and support of clients and for each component within a sale to ‘manage’ the expectations of buyers by drawing their

attention to the likelihood of future delays or problems.

Indeed, this is a model which could quite plausibly lead to a smoother, quicker and (dare we say it) more ‘pleasurable’ process.

Of course, digitising some (if not all) of the more manual elements within the conveyancing process could obviously help to speed things up, although given the historically underwhelming levels of technological investment within the sector and the baffling reliance amongst many high street practices on slow or outmoded forms of communication, this is an area that could take some time to come to fruition.

Nevertheless, with the number of law firms handling more than 50 cases a month beginning to rise by the year and the growth of consolidation within our sector appearing to signal a shift towards greater sophistication, there is certainly something to be said for incentivising brokers to speed up the overall process by referring their clients to companies with a more ‘streamlined’ technological capacity.

However, we also need to avoid an assumption that the responsibility for improvements within the process lies with solicitors alone.

Which means that we should encourage every party within a chain to assume a greater role and responsibility for their clients and to emphasise a better provision of service, timeliness and ‘experience’ by highlighting three fundamental concepts: namely, by ensuring that clients are kept informed of all developments and potential problems via better communications; secondly, that each requirement is delivered on time and that any slippage is alleviated by a move towards greater pro-activity; and lastly, that clients are left empowered by the adoption of a more bespoke, engaging and relevant form of personalised service.

Because, conveyancing is merely one part of the overall transaction process and not a terminus for unwarranted criticisms or concerns that could be dealt with or addressed earlier in the chain. In other words, united we stand, divided we’re lumbered. www.mortgageintroducer.com

Review: Conveyancing

Rise of the specialist products Now we’re firmly into Q3 I’m having more and more conversations with brokers who are frustrated with solicitors that don’t understand specialist lending.

It ranges from a lack of expertise in complex conveyancing to a lack of understanding as to what are often strict time constraints.

More often than not price is always the number one factor when it comes to clients in choosing their solicitor.

All of us are always on the hunt for what we think is the best deal or bargain to be had – for our supermarket shop that could be in Lidl, Aldi, Morrisons, Sainsburys, Tesco and even Waitrose. And many more.

But getting the best price shouldn’t be the number one reason to go to either shop.

How long are those queues in Lidl and Aldi just to save a few quid?

If you are paying bargain basement prices, and so process, how can you expect to receive a quality service? Look at this from a legal point of view when it comes to the house buying process.

Expert solicitors can give your clients the transaction the time it deserves. Simple as.

You only have to look at recent twitter conversations from some of the mortgage industry’s most high-profile players regarding legals to realise this is a growing problem.

Cheap is not always best

I’m not having a go at the likes of Lidl and Aldi. Far from it. And I am not looking to belittle your average high street solicitor. Indeed, they might be the company that sorted out your client’s parents, grandad or grandma’s will and original house sales.

All I’m suggesting is that you need to ensure that the solicitor that you and your clients work with has a proven track record for the legal work needed.

Take just three areas of specialist lending; Limited Company buyto-let, bridging and commercial finance. www.mortgageintroducer.com

Emma Hall business development manager, Movin’ Legal

Many solicitors come unstuck when dealing with the additional paperwork and checks that are required on behalf of the lender with Limited Company buy-to-let. This often leads to excessive time when the client is asked for information on a piecemeal basis that only leads to confusion for all involved.

Once the transaction has completed both client and broker go away hopefully happy but what they may not realise is that the solicitor in question has to deal with the registration of the lender charge and Limited Company post completion.

Mistakes by dabblers in this area are commonplace, putting both the borrower’s deal going through and the lender charge at risk.

Bridge too far

Why even bother if your client isn’t using a reputable company like JMW, Wilford Smith Solicitors or others like ourselves who can direct you to the solicitor right for your client’s needs? Solicitors need to know what they are doing to make the process as smooth as it can possibly be. Often there will be a face-to-face visit required.

“If your client has chosen their own solicitor then perhaps offer to speak to them” As the introducer you will need to ensure that the solicitor chosen by you or your client understands the necessity for speed and service.

Whilst not always the case, slow movement in this area can lead to costly delays, potentially lost deals and lost money. It’s simply not worth it – for you or your client.

Commercially sound

This can be particularly tricky but not if you’re clients have instructed a specialist solicitor – something that can make the difference between ordering an espresso and getting SEPTEMBER 2019

a latte. The key is to find a solicitor that regularly deals with commercial conveyancing and not just dabbles.

Clients are likely to have chosen their own solicitor not knowing the work involved before the broker can recommend one with the expertise that will be required. As I mentioned earlier, it’s great that they might have helped out granny and grandad but it’s not going to be great when the property purchase falls through.

Frustrations

The work that goes into submitting a specialist case to a lender to produce an offer only to have this expire due to inexperience is something that happens when it could have been avoided. This creates more work for the broker and the client; again time and money on potentially new valuations and application fees.

It’s highly likely that if the wrong solicitor is chosen your client may end up with the ‘put to the sort next week pile’ which really doesn’t help anyone.

Trust

By asking the right question a fair price can be quoted for the work involved to provide the service that is required.

So as brokers what a can you do?

Speak to your peers to who they can recommend. Build a relationship with a panel manager like ourselves or a solicitor firm to grow a relationship so you can work together as a team.

If your client has chosen their own solicitor then perhaps offer to speak to them to ensure that they are up to the task. I’m sure your client wouldn’t mind if you can help them get a deal through faster.

And I’d also recommend looking at all social media to search any firm – whether you are unsure about them or not. So the likes of twitter, Facebook and Instagram.

I tried that myself today and it didn’t take long to see which firms came up quickly.

Be vigilant.

MORTGAGE INTRODUCER

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Review: Self-employed

The continued rise of the self-employed The Office for National Statistics (ONS) regularly conducts analysis of the UK labour market statistics and long-term trends. Given all the news about Brexit and leadership elections, most of the press did not pick up on the ONS release in May which focussed on self-employment.

The latest data revealed that the number of people who were selfemployed in the first quarter of 2019 (January to March) increased by 90,000. Over the same period, the number of UK nationals aged 16 years and over who were in employment increased by 190,000. There are now a record number of people working for themselves at just over 4.9 million and more and more are classified as self-employed.

“Manual underwriting is very important when it comes to self-employment, and knowing the applicant’s employment experience and the detail of the sector is even more important” The rise of people in self-employment seems to be an unstoppable trend and this can present both an opportunity and a problem for lenders and brokers.

However, self-employment is a broad term and digging into the detail can reveal more information about what this means.

A breakdown of self-employment

The classification of ‘self-employed’ includes the conventional situation of people who work for themselves or independent contractors, for example, builders and plumbers.

It also includes those who work through online platforms or what is increasingly known as the “gig” www.mortgageintroducer.com

Anita Arch head of mortgage sales, Saffron Building Society

economy. The gig economy has what is known as a ‘task-based’ demand for labour.

The ONS reports that self-employment increased significantly between 1980 and 1995, and again from 2000 onwards. This recent increase has been driven by the rise of the gig economy, which itself has been growing due to the technological platforms which make it easier for people to become self-employed.

The technology has decoupled jobs from physical location and people can now work from anywhere at any time.

Part-time or full-time?

A larger proportion of self-employed people worked on a full-time basis (71%) than part-time (29%). Of the self-employed that worked full-time, 78% were men and 22% women. Of those that worked part-time, 60% were women and 40% men. These statistics show that women who were self-employed tended to work on a part-time basis, while men tended to work on a full-time basis.

Given that more women than men are involved in providing childcare, which requires flexibility, it’s no great surprise. In general, fewer men than women engage in caring activities in the home.

Industry sectors

Self-employment in the construction sector dominated other areas of the economy. In the report, construction was the largest employer of self-employed workers (20.3%), followed by the professional, scientific and technical activities sector (12.8%), distribution (7.9%), administration and support services (7.3%), and transport and storage and health and social work (each at 6.5%).

What this means for homebuying

The accepted wisdom in the mortgage industry is that those working for themselves present a higher risk.

However, is a doctor working in private practice more at risk than a SEPTEMBER 2019

middle manager in retail?

There are two things required to make a success of lending in the self-employed sector. One is having experience and a clear understanding of the needs of self-employed homeowners.

This leads to the development of products built around the applicant’s specific requirement. The other is the ability to provide high quality advice and identify the right mortgage for the circumstances.

Research produced recently show that 98% of borrowers who used an adviser said they found them valuable and 95% would recommend using one to family or friends.

Additional data shows that there are almost 12,000 mortgages available through advisers, compared to only 2,000 directly. I think that those predicting that technology will replace advisers could find themselves slightly wide of the mark.

Self-employment will continue to be a growing sector. Professional services, science, technical services and construction are going to drive this boom and account for the lion’s share of the customer base. What’s required is that brokers and lenders work together to build up a detailed picture of the person looking for a loan. We have been analysing these sectors for many years and know the importance of providing bespoke products. Some lenders have specific red lines, but we think flexibility is more important than fixed criteria.

It’s why we only ask for one year’s accounts as we know that most of the analysis goes beyond what a document describing the previous 24 months of activity can provide.

Manual underwriting is very important when it comes to dealing with self-employment, and knowing the applicant’s employment experience and the detail of the sector is even more important.

If the right products are coupled with excellent advice then those working for themselves will no longer face barriers to home ownership.

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Review: New-build

One year of being a new build lender This month we celebrate 12 months of our new build and help to buy propositions. It’s been an incredible year, with the two combined currently accounting for just over 10% of our total lending.

The milestone resonates with me on a more personal level as it coincides with my own one year anniversary with Accord.

Having supported the launch activity, ensuring the proposition is continually developed and futureproofed has been a key focus for me over the last year. When we started offering new build and Help to Buy, we had one objective; to be a new build lender, not a lender who did new build. This meant having the resources to deliver an end-to-end, first-class service to brokers.

Nicola Alvarez corporate account manager – proposition development, Accord Mortgages

The value of brokers

Building partnerships

A major part of my role has been building a relationship with Homes England. Initially this enabled us to keep abreast of policy changes and improving processes, but over the past year, we’ve helped the team understand the intermediary market better, demonstrating the value advisers bring to the customer journey, especially when trying to navigate complex policies, and highlighting the need for them to engage more with brokers.

There’s now a concerted effort being made to gather broker feedback which will help ensure the best outcomes for first-time buyers struggling to get on the property ladder.

We worked with key figures in the industry, seeking as much knowledge as possible to understand the market, the different stakeholders and ultimately what brokers and the end customer needed from the buyer journey. As I’ve previously written about in this magazine, Accord places huge emphasis on building successful two-way partnerships.

With that in mind huge thanks has to go to people like James Chidgey and Andy Frankish from MAB and Craig Hall at L&G (amongst many others!) for all their guidance and input into developing a series of new initiatives, improved criteria and helping build an informed and passionate team of BDMs and underwriters.

There are many complexities involved in new build lending and relationships with developers like Barratt Homes have also given us greater insight into the market, identifying opportunities for us to improve and provide the best customer outcomes.

After an initial pilot, the scheme was launched and we had to prove ourselves.

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Brokers dealing with new-build cases need to have confidence in the lender, reassurance that the 28 day exchange period can be met and if someone says they will do something, they do it. We’ve worked incredibly hard to earn this trust and have seen the amount of business more than double in such a short period, testament to the great relationships we have built and the processes we’ve put in place, such as a dedicated contacts for brokers and giving them direct access to the specialist underwriting team enabling us to successfully meet deadlines.

But, whilst the numbers and feedback from brokers indicate our first year has been a success, we need to keep evolving.

Building your business

The importance of the broker role in both new build and Help to Buy purchases cannot be underestimated. And with continued demand for new build housing and Help to Buy available in some form until 2023, there’s a wealth of opportunity for brokers to build this area of their business and provide unrivalled support to home buyers.

As part of our growth series, we’ve SEPTEMBER 2019

created a number of useful resources to help brokers generate more business in these areas. Podcasts with industry figures such as the most recent episode with Andy Nelson, Head of Relationship Management for Help to Buy at Homes England, downloadable guides and ‘cheat sheets’ which can be branded with your own company logos and given to customers, such as the ‘things to do in your new building the first year’ and ‘moving house checklist’ and of course our welcome box initiative continues to generate positive feedback from brokers who have received great reviews and referrals from happy customers.

The year ahead

New build remains a thriving market and we will continue to update our criteria, review lending policies and invest in our teams to ensure we can support even more brokers.

The pending changes to help to buy mean in April 2021 an estimated 20% of buyers will be locked out of the scheme when it is only available to first-time buyers and in addition to the potential homeowners who will be impacted by the regional caps.

Through our ongoing relationships, we’re working in partnership to ensure all parties - brokers, their customers and lenders - are considered when the changes come into effect. We need to ensure the transition is as smooth as possible and that the scheme, which has helped more than 200,000 people buy the home they wouldn’t have been able to otherwise, continues to support the next generation of buyers.

The next 12 months will inevitably see more innovation from lenders as a competitive market continues to squeeze margins and the change in customer behaviours and needs will encourage adaptation from brokers.

However, whatever my second year brings, the role of the broker will remain crucial.

Advice will always be needed, in uncertain times more than ever, and protecting clients’ best interests should continue to be at the heart of the mortgage journey, for both intermediaries and lenders.

Review: Technology

Making fraud a thing of the past The issue of fraud and consumer finance scams has been around for as long as consumer finance itself, but for a long time, it has been treated as a taboo subject. Indeed, I remember a time when mortgage fraud was considered one of the great unspoken menaces of our industry; the huge elephant in the room that everyone knew about, but few discussed. Admitting the existence of fraud was okay. Admitting you’d been a victim yourself, was not.

In recent years, however, this attitude has shifted. As scams become more sophisticated, data hacks become front page news and more and more consumers experience the loss of hundreds and often thousands of pounds, the industry is getting better at talking about fraud.

Our industry regulators have also done their part, launching and maintaining their ScamSmart campaign which, although focused on pension fraud, has nonetheless raised awareness among consumers of the growing threat that fraud poses to their welfare.

Earlier this year Financial Fraud Action UK, part of UK Finance, published data showing that unauthorised financial fraud losses across payment cards, remote banking and cheques totalled £844.8m in 2018, an increase of 16% compared to 2017.

The theft of personal and financial data through social engineering and data breaches was a major contributor to these losses in 2018, with stolen data used to commit fraud both directly and indirectly.

For example, compromised card details are used to make unauthorised purchases online and personal details are used to take over an account or apply for a credit card in someone else’s name. Criminals also use personal and financial data to defraud customers, using information gained about an individual to add apparent authenticity to a scam.

Solicitors involved in the house purchase process are only too aware of these risks, with conveyancing fraud now considered the area of law www 42.mortgageintroducer.com

Steve Goodall CEO, ULS Technology

most susceptible to cyberattack. It’s also hugely lucrative for fraudsters who can make tens of thousands of pounds at a time, as unsuspecting first-time buyers with little experience of the mortgage process transfer their deposit, stamp duty and legal fees in one transaction to an account set up by scammers.

We recently surveyed firms and asked what the biggest concern facing their business was. The resounding majority – some 45% - said fraud, followed by 27% who said the cost of conducting business and 21% who highlighted business volumes as their most pressing concern.

These results are, sadly, no surprise. By far and away the most common way for buyers to communicate with their solicitor is by email – it’s convenient and quick but not always secure.

It isn’t hard for fraudsters to hijack solicitors’ email accounts, either by gaining access or simply cloning an email address.

All it takes from this point is to request a change of bank details and in one click, the money is gone. There’s sometimes little that banks can do as this type of scam is categorised as authorised push payment fraud, leaving limited room for funds to be recovered.

According to our research, one in three solicitors conducts 80 per cent of their day-to-day communications via email. A further 25% of firms are conducting up to 90% of their comms by this method. Meanwhile, 27% of firms we surveyed admitted they

SEPTEMBER 2019

had personally suffered a cyberattack in the past 12 months, while just 60% of firms had actively put cyber insurance in place.

These figures highlight just how vulnerable our sector is to this sort of fraud, and it’s already having a significant impact on the cost of doing business – the second biggest concern facing firms.

There is a material impact on professional indemnity costs across the industry, not to mention the time cost and reputational damage that this type of fraud can result in at firm level.

It’s not all bad news, though – solutions exist that can help mitigate these risks. Digital Move, our own online portal, is one of a number of platforms looking to improve the security of communications during the conveyancing process. Ultimately, we’ve designed the app with improving the customer experience in mind, but security, compliance and risk mitigation for solicitors and lenders is paramount.

Digital Move prompts the customer when it’s time to take action and keeps them updated on their case. It speeds up the home move, reduces the mistakes AND keeps them safe from fraudsters by offering a secure and encrypted communication exchange platform that only clients and vetted professionals can access.

Fraud is an unfortunate reality in our industry, but there are simple ways to mitigate the risks whilst also saving time and money.

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Chris Brown

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Call Chris today on 07803 406 817 or email chris.brown@onefamily.com

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 onefamilyadviser.com/contact-us 24965 001 09.2019

Review: Technology

Digital should transform the entire mortgage process The inexorable march towards digitalisation continues with yet another deadline approaching for banks. The 14 September 2019 marks another step in the move towards Britain’s increasingly open banking architecture, with all retail banks in Europe expected to have implemented dedicated APIs for third-party providers by this date.

It’s highly unlikely that they will all meet this deadline however; even some of the largest banks with millions to invest in the development of APIs missed their initial open banking deadlines under the Payment and Services Directive II regulations. Nevertheless, regulators are demanding progress across financial services, even from the most un-digitised players. Small building societies that still deal with their customers by post are not exempt, in theory.

In practice, it will take a lot longer than the rules demand to move the whole industry into the digital age. But while fully automated interaction on the front-end of banking services for customers wishing to connect their retail financial services accounts seamlessly is a work in progress, there’s a lot going on behind the scenes that could do much to protect consumers and improve the service they receive regardless of open banking.

In the housing market, brokers know that mortgage rates are important to customers, but so is the certainty that transactions will go through. Nothing is more costly when it comes to buying than the legal and valuation fees that are wasted when a purchase collapses. There are countless reasons this happens, often very valid ones. But delays as a result of valuation instructions are a particular frustration for brokers and their clients – and a justified one. Anecdotally, we hear that where lenders are suffering acute delays in their valuation instructions, there

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Kevin Webb managing director, Legal & General Surveying Services

is a real justification for brokers to recommend their client applies to a lender with a much slicker service.

Just as open banking aims to improve the customer’s experience when interacting with and managing their own personal finances, the service offered to the intermediary market clearly matters just as much.

More, when you consider that the vast majority of existing banking customers are still conflicted about allowing banks to share their data with third parties in order to access this improved service. The cost saved by individuals managing their money through a dashboard app is also still fairly limited at the moment. The money a customer saves by experiencing a drama-free house purchase process can be well into the thousands.

“While the cogs that move this process along may not prove the sexiest piece of tech in the fintech world today, they are nevertheless fundamentally important to lenders, brokers and finally, customers” Big banks recognise this and are investing millions into improving the processes that underpin progressing a mortgage application from decision in principle to advancing the funds for purchase. A big cog in that machine is the valuation.

The valuations process is going through its own digital evolution at the moment, and it is going a long way to improving things. We hear a lot about the value that automated valuation models can bring to a transaction, and it’s true that increasingly sophisticated algorithms both in lenders’ underwriting departments and in valuation businesses are improving the accuracy SEPTEMBER 2019

of AVM valuations. More and more, the valuation can be done without the input of a physical inspection of the property, saving time and money while improving compliance and a paper trail for risk assessment.

That said, there is very much still a role for physical valuations. Currently, the process we use allows for a cascade approach to allocating an appropriate valuation to each case.

Where the property has lots of comparables and is located in a low risk location, where loan-to-values are low and the borrower has plenty of equity in the deal, AVMs are often a good option.

Even in these circumstances though, most lenders will also apply an algorithmic assessment of the property that cross-checks this information with external databases that track factors such as exposure to HS2 development, flood or mundic risk. Should the results of this assessment – known as an assisted AVM - result in flags, a desktop valuation is typically then instructed to look into the potential risks posed by a particular property in more detail.

Crucially, escalating a valuation from automated to desktop doesn’t mean the mortgage valuation will fail; it’s simply a case of applying the appropriate level of oversight to a property’s risk profile.

Less often desktop valuations will need to be supplemented by a physical inspection, which necessarily takes time to instruct and carry out. In an ideal world, from start to finish this process shouldn’t take weeks, it should be a maximum of days. Where delays do occur, tempers can fray but in a market with an ageing property stock, it’s especially important to build up a comprehensive picture of the security risk in a property transaction; often, not only for the lender’s benefit but also for the buyers.

While the cogs that move this process along may not prove the sexiest piece of tech in the fintech world today, they are nevertheless fundamentally important to lenders, brokers and finally, customers. After all, as anyone who has bought a property themselves will tell you, getting the deal done is what really matters. www.mortgageintroducer.com

Review: Technology

Being cyber-smart Insurance remains, for many people, a necessary evil forced upon them rather than a valued commodity when it comes protecting their homes, their possessions and indeed their very livelihood. Despite the efforts made by the industry to improve the public’s perception of its services, the truth is that a significant percentage of people simply don’t believe that their insurer will pay out if they have to make a claim against their policy.

It wasn’t surprising then that there was a sharp intake of breath at news issued last month by the Association of British Insurers. It revealed that 99% of claims made on ABI member cyber insurance policies in 2018 were paid. This is one of the highest claims acceptance rates across all insurance products.

Yet despite this, take-up of cyber insurance by businesses in the UK is still worryingly low. Just 11% of businesses are thought to have a specific cyber insurance policy in place, meaning millions of small businesses could be at risk.

Stats from leading cyber insurers confirm that cyber claims volumes are up significantly on last year and the threat from cyber criminals is growing as they become ever-more sophisticated in their attacks.

Funds transfer fraud is a particular and increasingly common problem that professional firms like financial advisers, solicitors and insurance brokers face. This is where fraudsters dupe innocent businesses and individuals into transferring what they believe are legitimate payments to fraudulent bank accounts.

It can happen all too easily. The scam can begin when a member of staff receives an email from what appears to be a trusted contact.

The email will probably direct the employee to click on to a link to a document sharing platform where the supposed trusted contact has uploaded a document for them to view. Clicking the link takes the employee to a seemingly legitimate landing page where they have to use www.mortgageintroducer.com

Kevin Paterson

their email address to login in order to view the document. In doing this, the employee has unwittingly handed over their email login credentials to a fraudster.

With these credentials now at their disposal, the fraudster can browse the employee’s inbox and identify any opportunities to intercept payments. Once they’ve spotted an opening, these fraudsters have a number of simple tricks up their sleeve that help reduce the risk of the scam being uncovered.

For example, they can set up a rule on the compromised email account so that any incoming email from an account with a domain name that matches the business or individual they’ve identified as a potential victim is automatically marked as read, and sent to a pre-existing but largely neglected folder. The fraudsters can then log into the employee’s email account and send seemingly plausible requests for payments. With the forwarding rule in place, the fraudster can continue to impersonate the legitimate employee.

Generally these scams don’t come to light for some weeks when the employee may send a request for the payment they don’t think they’ve received... by which time the fraudster has more than likely emptied the account that they set up for the particular scam and is long gone.

So who should foot the bill for any monies lost by the business or individual if they willingly made the payment to the fraudster?

Fortunately the crime element of a cyber insurance policy that in-

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cludes customer payment fraud cover would allow the hacked business to recoup this loss, allowing them to refund their client without suffering any loss themselves. And as these scams can run into the thousands, that’s a valuable safety line for a small financial or professional services firm.

You might think these fraudulent emails are easy to identify – but criminals have moved on a long way from asking for bank account details in return for a bogus cash prize giveaway. These so-called social engineering scams have evolved dramatically and it has become increasingly difficult for employees to tell the difference between real and fake emails. And for businesses that make frequent transfer of funds electronically, business email compromise is a serious risk.

You might think that your business has great IT security in place and you may well have undertaken some training to educate your people about threats from cyber criminals, but as criminals become ever more sophisticated, unfortunately your people are often your weakest link in your IT security chain. IBM estimates that 95% of successful cyber attacks and incidents are the result of human error.

You might think you don’t need cyber insurance but I’d urge you to think again. Having this protection in place for your business could make the difference between being able to survive a cyber event and protecting your reputation with your customers or not.

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Review: Technology

How mortgage brokers can defend against tech with tech Technology is transforming the mortgage market, and robo-advice is playing a growing role in changing the industry. Advisers worried about their survival can take some comfort, though – the robots are worried, too.

Despite the hype and regular launches in the last couple of years, experience in the investment advice sector, where robo-advice began, shows it’s a challenging market. In May, asset manager Investec pulled the plug on its robo-advisory service, with £32 million of losses. This followed the decision by Swiss financial services group UBS last August to do the same. Among the start-ups, the latest accounts show that, even for the early pioneers, losses continue.

There is a growing band of roboadvisers in the mortgage market, but research by Legal and General Mortgage Club reveals the proportion of advisers identifying robo-advice as the biggest challenge to their businesses has actually declined, from almost half (49%) in 2017 to just a fifth (21%) in 2018.

Conor Murphy chief executive, Smartr 365

ground – playing a greater or lesser role in monitoring advice, answering queries, holding hands, and stepping in to solve problems or to deal with more complex cases.

Quite simply, there is still no substitute for traditional, personal advice – and particularly for the self-employed, credit impaired, and specialist lending markets where margins are greater.

Protecting the role of advice

All of this is not to say that traditional brokers have nothing to learn from robo-advisers – in fact, by adopting similar technology, they can augment the advice they currently give and strengthen the position of the traditional broker model.

Technology should be use as an aid, not a replacement.

Patience with the paperwork and hassle of mortgage processes that drag on for weeks will grow ever thinner when the 15-minute mortgage is a reality rather than a marketing gimmick. Brokers should therefore be looking to technological solutions which can deliver:

Robot wars

 Automatic, simple and seamless ID and address verification, credit checks and property valuations  Fast and painless income verification and affordability assessments powered by open banking  Cloud-based services to quickly download and upload documents at customers’ convenience  Real-time visibly of the process and their application.

As the technology and processes improve and mature, they will also expand into more markets. Traditional advisers need to enhance their offerings to compete not just in terms of convenience and service, but also on cost; the human-touch adds little value when it’s just rekeying data or posting documents that could be completed online.

In truth, mortgage brokers can no more do without technology than the robo-advisers can do without people.

As a result, over time, the distinction between robo-advice and traditional brokerage is likely to look increasingly artificial. There will simply be successful advisers applying technology intelligently to create a smooth, efficient service suitable to their customer base, on the one hand; and those facing a very uncertain and much less promising future, on the other.

The fact that fewer intermediaries see robo-advice as a threat shows the difficulties the new market entrants face.

There continues to be significant public distrust of robo-advice.

HSBC’s survey for its Trust in Technology report in 2017 found the public more willing to trust robots to open their parachute (20%) or conduct open heart surgery (14%) than give mortgage advice (11%).

This suggests that there’s a mountain to climb for robo-advice platforms looking to replace traditional mortgage advisers.

Moreover, add this to regulatory challenges, and the consequence is that the “robots” are often not robots at all: many robo-advice services have human advisers in the background – and often in the fore-

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www.mortgageintroducer.com

Review: Technology

How APIs are helping brokers manage workflow API is an acronym that has been bandied around a lot recently, but what exactly are APIs and how can they benefit brokers?

Well, put simply, application program interfaces (APIs) allow applications to talk to one another. APIs provide a method of pulling data from one information source into your own application in a way that is quicker, more secure, more accurate and more efficient.

APIs have actually been around since the 1960s, and while you may not have been aware of them all this time, you have certainly been using them, because they’re responsible for nearly everything we do online.

They enable us to book a hotel, order a pizza, download an app – in short, they are working quietly in the background, to make all the things we expect to happen, happen.

Taking the booking a hotel example. Let’s say you are searching on a well-known hotel booking site - you use the sites’ online form to plugin where you want to go, how many of you are going and when and then click ‘search’. And lo and behold, you are greeted with a list of available hotels in your chosen city, on the dates you want to go.

For this list to be possible, when you hit that search button, the site you are using ‘talks’ to each hotel’s API to get the results you want Sounds simple enough - so how can APIs work for brokers or lenders looking to conduct anti-money laundering checks more efficiently?

Well, traditionally if a broker or lender wanted to conduct an AML check to ensure there was no money laundering reason why their client shouldn’t take out a mortgage, they would have to go into the SmartSearch website, input name, address and date of birth and run the check.

They would then download the information and save it on their own system.

Now, thanks to APIs, if a broker www.mortgageintroducer.com

Fraser Mitchell technical director, SmartSearch

has a client’s name address and date of birth in their client file already, they can click a button on their own system which will talk to our system and run a SmartSearch. Any results will appear directly into the client’s file in a PDF format.

This makes the searches more secure, quicker and less prone to error as the broker does not have to reinput the details.

It also helps with workflow as if the search does not come back clear it can be automatically forwarded on to a compliance department for further checks.

APIs are also providing lenders and brokers with access to the client’s income and expenditure through Open Banking. About forty banks are now registered to provide Open Banking and this means that clients no longer need to provide all their passwords and security details.

If they have a banking app on their device, they can provide the broker or lender with access to view their banking transactions incredibly quickly without breaching any security.

In all, APIs enable brokers to pull information from different banks into one app.

It saves time with no re-keying of information or waiting for results, as they happen instantaneously; there are fewer errors; it is more secure, the data can be used more efficiently and it helps with workflow.

“APIs enable brokers to pull information from different banks into one app”

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Interview

Tackling the protection gap Mortgage Introducer spoke to David Vanek, CEO and co-founder of Anorak, about automating the protection process and how it can help to monetise your back book Why is there a protection gap?

The mass market is facing a huge protection gap because most consumers don’t frequently engage with financial advisers and the situation has worsened since banks walked away from selling protection. Until now, few solutions have been proposed – let alone delivered – offering to support existing distribution channels with regulated protection advice and whole-ofmarket solutions.

Why should brokers offer protection advice?

I’d argue that not having the protection conversation is a failure to treat customers fairly, as a mortgage is usually someone’s biggest debt. And, most households have little in savings, so most repossessions are due to loss income due to unemployment or health issues.

Despite this, protection is not mandatory and lenders only require building’s insurance to cover their own financial risks.

How many clients have protection?

We estimate that brokers sell protection in just 15% of cases. Best-in-class it’s still just 35%-50%.

In their role as trusted advisers, at least having the protection conversation is the right thing to do – but on top of that, it’s a missed commercial opportunity, as commissions range from 150% to 200% of the first year’s premiums.

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What are the challenges to more people having protection?

The main challenges are that protection is not mandatory, products are complicated, and the protection conversation can be tricky. Also, people need advice in order to understand their protection needs. This is why mortgage advisers are great at delivering protection advice to the mass market – especially as they’re likely to be the only financial professional most consumers deal with in their lifetime.

And what are the challenges that advisers face?

The client’s focus is the mortgage, so an additional protection sale at the end of that process can feel disconnected and unwanted.

Another challenge is compliance, especially for advisers wanting to offer whole-of-market solutions, due to the frequency of insurers product updates.

What is Anorak’s intermediary solution?

Anorak’s solution allows simultaneous mortgage and

www.mortgageintroducer.com

Interview

protection advice by using the information scraped from the fact find in a visual and personalised way – all with automated compliance monitoring.

It’s the world’s first fullyautomated and FCA-compliant protection advice platform. It advises on an individual’s risk exposure and protection needs, then matches them with the most suitable product. It can be used face to face or client self-service or retrospectively for backbooks, and builds personalised protection recommendations simply and efficiently. It can also be plugged into an advisers existing client-facing platform.

Can a broker retrospectively provide FCA-compliant recommendations to clients?

Brokers can and should do this.

The process is relatively simple – plus it’s a good way to re-engage and demonstrate ongoing advice.

The platform can connect to a mortgage broker’s CRM or client database, so all the broker needs to do is identify former clients who were not offered or did not purchase protection. Using existing client data – including name, address, date of birth, marital status, size of mortgage, income and expenditure, and so on – the platform assesses the client’s need for protection and makes personalised protection recommendations to protect the whole household in case of death or illness.

What’s the advice based on and how does it work?

It’s partly based on existing data from the original fact find; but also on Anorak’s complex cash flow forecast model and risk exposure computation. The platform calculates the household risk in case someone dies or becomes too ill to work, detailing what kind of cover is needed, how much, and for how long – and explaining why in a way that’s easy to understand.

www.mortgageintroducer.com

What products will a client be offered?

branding and personalisation before rolling out the platform.

Term life, income protection and critical illness cover. Products are recommended either singularly or in combination, depending on the client’s needs. And brokers can choose between whole-ofmarket, restricted or tied product selection.

How is the advice regulated?

How is the advice communicated?

The platform automatically generates a needs report, which can be printed, emailed as a PDF, or even posted. Better still, brokers can offer their clients a dedicated online portal, giving them access to their needs report and cover recommendations.

The portal also means clients can make changes to their own profile, revise their options, and apply online.

What happens if a client has questions?

This is where Anorak’s adviser platform comes in. The client’s protection advice can be viewed in the same visually engaging way by advisers, making it easy for them to understand what’s been proposed, to answer any questions the client may have, or make any required changes to the client’s profile.

How long does the advice take?

The technology provides real-time advice, so when used face-toface it runs in parallel with the mortgage fact find process.

This means that at the point of a mortgage recommendation, a protection recommendation is simultaneously available. If a broker wants to review a back-book it really depends on how quickly they want to be up and running. The process could be completed in days, but typically takes a few weeks, as most brokers want a degree of SEPTEMBER 2019

Brokers have two options. Those who are already regulated to provide protection advice can use the platform under their regulated status.

Alternatively, Anorak can be the regulated entity.

This also can also provide other opportunities for advisers who have business relationships with third parties, such as estate agents who also run rental subsidiaries.

How much do I earn and on what basis?

Protection commission typically ranges from 150% to 200% of the first year’s premiums. This can lead to commission of between £500 and £1,000 per mortgage case. An adviser running a retrospective exercise could expect to earn several thousands of pounds in commission – and possibly much more – making it highly worthwhile, regardless of the size of their client portfolio.

What happens if a client’s circumstances have changed?

Retrospectively, this is very likely to be the case. The good news is that clients can update their personal details themselves, and refresh their advice based on the changes, using the online portal – or they can contact a broker to do so on their behalf.

How much does access to the Anorak advice platform cost?

Can it be white-labeled?

There’s a small monthly fee to access the platform, plus a success fee based on policies sold.

The ROI is high as the cost is typically covered by one monthly sale. The end-to-end platform can also be white-labeled and branded.

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Review: The Month That Was

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

The Good, the Bad, the Boring & the Vulgar With insincere apologies to all readers who either A) voted Remoann, B) are royalist fans of Andrew Windsor or Meghan Markle or C) just can’t see the funny side to life’s tribulations… I’m BACK! And after a much-needed summer recess I’ve mixed things up for you via an A to Z piece which charts the totally whacky Summer of 2019, mortgages and otherwise…

D

is for doomonger. Specifically Sir Mark Sedwill whom you might recall predicted an apocalyptic economic meltdown back in June 2016. Thankfully, the country’s top mandarin is now suggesting that preparations for a no deal Brexit are “the most impressive pieces of cross government work” he had seen.

E

is for eligibility. A survey found that that only 3% of mortgage seekers actually qualify for all the products on sourcing systems. Proof if it were ever needed that certain lenders’ rampant digitalisation of their B2C processes and kidnapping of your clients can only go so far. Each client is now effectively its own fingerprint, needing a broker’s forensic care.

F

is for first-time buyers and for fillip (not Hammond! I will deal with that berk below). A staggering 50% of deals are now for FTBs... so much for Project Fear and the outrageous attempt to scare our under-30’s into Remainer-submission.

G

is for Glastonbury. The summer setting for fake celebrity virtue-signallers, arriving in their megacarbon emitting choppers from Battersea. We hear a lot from, and about, the planet-saving ‘Youuff’ of today. It took three whole days to clear up their sh*te including 130,000 plastic bottles...

H

is for hypocrisy. Take for instance LBG. On the one hand it gives brokers a harder time on compliance than any other lender, whilst on the other its commercial bankers in Reading, under the Bank of Scotland brand, are being fined £45m by the FCA for their appalling standards.

I

is for inexplicable. The only word now attributable to Rotherham Council for its atrocious role in not dealing with Asian sex gangs found guilty of abusing thousands of young girls - and once again to the BBC who deliberately under-reported the story.

J

A

is for July when we saw record figures for mortgage approvals. J is disgracefully also for Juncker, the deranged and unelected head of the Brussels EU mafia who is now about to retire with a pension payment of £450,000... much of this being YOUR money!

is for August and two of the most glorious Ashes Tests ever. It’s September and there’s still two to go! A is also for Autumn Statement.

Come on “The Saj” give homebuyers some stamp duty relief please and maybe a new HTB fillip?

B C

is for Barclays and a quite shocking performance on the weekly payments of proc fees. Never again, please! B is also for Barbados, birthplace of World Cup hero, Joffra Archer. is for cartel. A story neatly buried in the summer headlines, featuring four estate agents (Michael Hardy, Prospect, Richard Worth and Romans) who allegedly colluded on rigging their local market with agreed minimum fees.

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K

is for Knight Frank, which has creditably created a later life finance team. Did you know that the number of folk scheduled to reach age 90 by 2027 is set to increase by a third to not far short of a million! That’s a lot of slippers, sleeveless puffer jackets and Werther’s Originals (see also letter O below).

L

is for Leo Varadkar, the myopic and Eurosycophantic Irish PM. The backstop is a disgracefully manipulated red herring issue.

www.mortgageintroducer.com

The far more heroic summer L is Leach, Ing-er-lun’s number 11 batsman. He may look like Alan from accounts downstairs, but a 73 ball shut-out of the Aussie cheats was the stuff of Rorke’s Drift.

M

is for monopoly. Last month’s figures from UK Finance confirmed that the big six STILL control 70% of the mortgage market - despite the challenger banks and the everappreciated Building Society sector. Too much.

N

is for networks. My Devon sunbed reading included seeing that Paradigm’s Bob Hunt had suggested that networks were basically for “handholding smaller firms and teaching people”. Ouch.

has worked both sides of the lender/broker divide (and can compute what a £2.4bn wallet size both costs and produces), I can only suggest that somebody’s calculator has got a broken zero button!

U

is for UKAR, the government receptacle that holds old Northern Rock and Bradford & Bingley mortgages. 10 years on, it’s making great money, whilst selling off mortgage parcels to inactive lenders who are still not obligated to assist the mortgage prisoners within these books. Just how long will it take the FCA to sort out this injustice?

V

is for Vogue, the magazine which was “guestedited” by our lovely Duchess of Sussex. It might take a few years, but I just can’t be having her. Too much noise and virtue-signalling.

O

W

is for orthodox and ordinary, and the new ordinary now sees 40-year terms for mortgage seekers in their 50’s being rightfully Photo: Rwendland acceptable.

P

is of course for the Summer’s new buzzword - prorogue - and also for pricing. Despite the three years of fear-mongering we somehow still have average 2-year rates at 2.46% and record levels of employment.

Q

is for quotation. Amid all the political hyperbole, my personal favourite was this one of cutting clarity from Noel Gallagher who grew up in a northern Labour stronghold: “Corbyn, a f****n student debater, f****n captain fish craggy”, and further on Diane Abbott: “The face of buffoonery… if you don’t like the democratic outcome, go to f****** North Korea”.

R S

is for repossessions. Down 10% and yet another bellwether trend to defy the ever flaky Mark Carney.

is for snowflake and Santander. The former remains the greatest scourge on modern society. The latter continues to develop its non-broker-friendly work with comparison websites etc whilst reporting a drop in revenues and profits, as did virtually all of the big six except for the resurgent HSBC. Barclays was the only lender to report an increase in net profits… but only because of a reduction in misconduct charges!!!

T

is for tech, or more pointedly fintech.

Habito has reportedly completed £2.4bn in applications to date. As somebody who is relatively numerate and

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is for Women’s football and Women sports pundits; Ok, we get it! SOME ladies are good at footie, including my own daughter. But PLEEAASSE… why does every sporting event on TV now have to feature a 50% gender and 50% ethnicity balance? Diversity targeting has become an industrially sized crusade.

X

is for X-ecution only (sort of). After the Mortgage Market Study, our regulator now appears to have gone volte-face.

Thankfully, AMI’s Bob Sinclair shot down one piece of their bunkum theory… that 30% of borrowers could have got a cheaper product! Nonsense. But that wasn’t enough, we then had this gem from the FCA: “consumers were being unnecessarily channelled into advice”. Yep, that’s right up there with the British Medical Association suggesting that if you’re health is deteriorating, there’s no need to consult a doctor!

Y

is for yellowhammer and also yellow Hammond.

One was a leaked Project Fear document which was actually two years old. The other is now thankfully not the Tory candidate for Weybridge and Runnymede. Diddums... from Chancellor to chump in six weeks.

Z

is for zombies… surely the only word which now encapsulates our members of parliament.

So, Summer’s sadly gone and Autumn appears to have come early again. I guess that harking back to May (as both the summer-onset and the appalling PM that got us into this mess) doesn’t achieve much.

But thankfully, our industry is defying much of the gloom, and there can be no doubt that a cross section of 650 of you readers surely couldn’t do a worse job than the 650 buffoons that in the inimitable words of Noel Gallagher, talk utter sh*te all day and night .

I’ll be seein’ you…

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The Bigger Issue

With the prospect of a no deal brexit looming we ask the experts...

What should FS firms be doing to p It’s impossible to know what might happen in the result of a no deal Brexit – nobody knows. But even if the market is adversely affected, there will opportunities for businesses. I started Arnold & Baldwin in 2007, less than a year before the Lehman Brothers crisis, Joe Arnold and so we didn’t have long as a managing start-up business before the market director, descended into chaos. Lenders Arnold & stopped lending and people stopped Baldwin buying property, but this presented Chartered an opportunity. Whereas we might Surveyors have otherwise been caught up in day-to-day activity, the environment forced us to take a step back and try to “Use this time open up new opportunities. of potential Whereas other businesses focussed internally, we adversity focussed our efforts exterto build nally, on developing new relationships and identifying relationships” new clients. In doing this, we started conversations with people we would never have met before and it’s these relationships that have formed the foundations for the success of the business. So, my advice to brokers in particular would be to use this time of potential adversity to build relationships that will bear you in good stead for the future. Think, for example about partnering with a surveyor who you trust and want to work with. A referral relationship with a surveyor could provide you with additional income.

On top of this, partnering with a surveyor could also improve your conversions by ensuring that inaccurate valuations do not stand the way of your cases proceeding. At Arnold & Baldwin, for example, I might receive a call from a broker who is considering an application to a particular lender on a property in a high-rise block to ask whether it’s the sort of property they would be happy lending on. And we are open to establishing more of these strong working relationships with brokers so that we can have open lines of communication throughout the process. Look for the opportunity to develop new relationships that can strengthen your business and build stronger foundations for the future.

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A no deal Brexit, if it happens, will clearly cause a bit of turmoil. It is likely that some people will feel nervous about larger transactions like buying a house until they see what happens next, things settle down and they realise that the world is not about to fall in on us.

John Phillips To weather this there needs to be group two approaches: For companies operations and people running their own busidirector, nesses it is important to make sure Just Mortgages that you are well capitalised and and have money in the bank you can SpicerHaart call on if there is less business for a period of time. Then there is the proactive approach.

It is good to remind ourselves that people will continue to need to buy and move house and there will be a lot of people for whom it is still sensible to remortgage; purchasers may just be fewer in number for a period of time. What each mortgage broker needs to proactively focus on is marketing their business and getting in touch with every client, to offer a financial review.

While we advocate this is done every year anyway, it is times such as these which help to focus the mind. By increasing awareness of “Brexit, hard your business, if anyone is or soft, will be thinking of buying, moving or remortgaging, you are a bump in the putting yourself in the posiroad” tion where it is you they will use when they do so.

It is also worth remembering to put a focus on products outside of the mortgage such as protection and GI. While I hope every broker looks to protect their client at every meeting, for the client’s sake, it is when there is less demand for mortgages that some brokers really focus on these valuable sources of additional income.

Ultimately Brexit, hard or soft, will be a bump in the road. It is likely to cause an amount of pent-up demand, where some people put off making bigger decisions for a period of time until they feel more certain, but I feel confident this will be released once Brexit is behind us. If Brexit does happen on 31 October, I expect to start seeing this by the second quarter of next year.

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o prepare for a no deal Brexit?

The current political and economic uncertainty provides a lot to think about for businesses in any industry. Working through every potential eventuality and the impact that might have can be very confusing and, in situations like this, it’s often not that producLewis tive as the future is so unclear, it’s Lenssen really impossible to predict exactly managing what might happen. In my view, it director, is better to focus on those things Mortgage that you can control than to unduly Broker worry Tools about those that you cannot. So, “It is better to for example, if there is a chance that there may be focus on those some turbulence in the things that you near future, now is the time to ensure that your busican control ness is a strong position than to unduly to face whatever might be thrown at it and that you worry” are working as efficiently as possible. It’s good practice to regularly review your processes and where there might be room for improvement to save you time and potentially result in better customer outcomes. This doesn’t necessarily have to significant investments overhauling your entire IT system – sometimes simple steps and behavioural changes can reap massive rewards. For example, take a look at the tools that are now available to help you in your daily role in researching the best solutions for your clients – could these help you to work more efficiently and more effectively? Often these tools will offer a free initial period or commitment-free pricing structure, which means that you can trial the tool to see how it benefits your business with very little outlay. Our MBT affordability platform for example, runs affordability searches for all mainstream lenders from just one calculator. It doesn’t take a lot to see whether tools like this are right for you, and if you do find a platform the improves your process, you could potentially write more cases and put your business in a stronger position to deal with the future. So, when it comes to preparing for a no deal Brexit, focus on what you can control, not what you can’t.

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With Brexit finally less than two months away and our current Prime Minister ever more set on a hard Brexit we all need to be prepared for whichever scenario may come. Realistically businesses should have been planning for some time, so to start preparing Jonathan now is leaving it a little late, but it Sealey is still better than not preparing CEO, at all. Firstly, for bridging lenders Hope Capital ‘preparing’ means ensuring they have solid funding lines in place. This includes either a lender’s own funds, or funds from investors that are happy to keep those funding lines in place. We have already seen lenders go under in the past few years because their backers got jittery about the UK market and pulled their funding. Brokers and borrowers need to know that if they are placing business with a lender that they are here for the long-term, so now, more than ever, it is worth researching a lender to find out how they are financed and how secure this is. Secondly bridging lenders need to understand the exit route of any loan they grant.

“Brexit creates Increasingly a bridge is taken out for a developer a growing to refurbish a property or need to know change its use, often into units to be let or sold. your customer” Bridging lenders therefore need to be aware of the likelihood of a borrower either being able to sell a property at a set price, or to obtain a buy-to-let mortgage for example. This means bridging lenders need to be aware of both the property market and criteria and lending in the mortgage market. The more chance of a borrower achieving a sale or refinance, the more solid the ‘exit route’ for the bridging loan. Brexit creates a growing need to know your customer; lending on commercial premises with a business model reliant on exporting to Europe may not provide the guarantees that a careful lender wants right now. Finally, lenders need to be prudent on the loan-to-value (LTV) they lend at. Clearly there is more risk at higher LTVs. Prudent lending and solid business practices really are the name of the game, not only in the run up to Brexit but to help ensure ongoing success.

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Round-table

The market at-a-glance Our panel look at the current state of the industry, discussing everything from new builds to regulation Jessica Nangle: Should the FCA’s proposals to help mortgage prisoners be extended to others, or should any change in the rules apply to everyone at the same time?

Kate Davies: The idea of helping trapped prisoners is a hard one to argue against. There are people who have found themselves in a difficult position but the FCA’s design was to help trapped prisoners, it wasn’t initially to expand the scope. We didn’t think this expansion is at all helpful. There is a distinct lack of information on who is a trapped prisoner and therefore how easily they can be helped. We are at an early stage at trying to work out what solution can be found for them and it seems to be mudding the waters expanding that scope. It is particularly unhelpful because if lenders are going to have to change their systems, for example with new products or underwriting processes, this a big upheaval. This is maybe manageable on a small scale or for a small cohort of trapped people, but broadening it out to a larger cohort would take longer to put in place. It seems counter intuitive.

Craig Calder: I agree. I think the full scope needs to be looked at. Some customers will be trapped because they have a very high loan-to-value

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(LTV) which is different to someone caught by affordability rules. It is probably easier to help someone with affordability rules rather than someone sitting at 100% LTV because what lender will want to take that as a risk when you can take that risk with a lower income?

I think we need to define what those cohorts of customers are and work across the industry to see how we can define the best processes to help those people in a timely manner. Expanding too quickly, too soon will mean no-one gets help because people will be overwhelmed by how you handle it.

Rachel Geddes: It goes back to what is classed as a prisoner.

Making it for the ones who are really struggling and were the original prisoners is where to start because the big lenders will not be able to incorporate it in a quick manner. It will be a slow fixer. The people who need the assistance will be waiting even longer for it.

Marion Ellis: It is a terrible term, ‘mortgage prisoners’. These are people that are vulnerable.

Payam Azadi: I think affordability is key. I think that is the first place they should start. A lot of people are becoming older, are trapped in their schemes and should not be

on standard variable rate; they should be helped to move out of it and given the opportunity to extend their mortgages somehow.

That is to do with risk and whether the lenders want to give them that opportunity. I think we’ll see a lot more people in their later years become trapped because of the affordability rules.

CC: I think selling books to closed lenders that have no obligation to offer anything different needs to be looked at as well. These are people trapped within that lender that could easily offer a different rate should they choose to. With customer who is not deemed a mortgage prisoner, most lenders won’t do any affordability assessment for and instead will just offer a new rate or a straightforward product transfer.

There is no reason why some of the closed books couldn’t be offered that as well.

JN: What more can be done to address this and help those customers?

KD: Trying to help trapped borrowers by moving them to a new lender that can offer them a new product is one end of the tunnel. But you need to look at it from the other side too, how can

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Round-table

(From L to R) Marion Ellis, BlueBox Partners; Craig Calder, Barclays; Adam Kasamun, LDN Finance; Rachel Geddes, MAB; Greg Cunnington, Alexander Hall; Stacey Wood, Sesame Bankhall Group; Dale Jannels, Impact Specialist Finance; Kate Davies, IMLA; Mark Lofthouse, Mortgage Brain; Robert Sinclair, AMI; Payam Azadi, Niche Advice; Ray Boulger, John Charcol

you protect people who are in that situation? The FCA has acknowledged that new lenders cannot help some because they’re too toxic in terms of affordability or credit history, but you can do more to protect them once they are in that situation.

There was draft legislation to do so years ago but that was abandoned in 2013 because at the time it was concluded the degree of detriment was not high enough to justify intervention. If the FCA is now saying detriment is high enough now why reinvent the wheel? Why not go back to that draft legislation, dust it off and introduce it? That would effectively put more onus on the owner of the mortgage, regulated or not, to do the right thing and treat people fairly. That would make more sense, to expand the regulated scope and look at it that end. If you don’t do that, you’re just going to repeat the same problem in the future. You might rescue this generation of trapped borrowers but the next time there is another securitisation with books out you have the same problem.

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JN: Do you believe the proposals to change the affordability rules for remortgages are about right and if not what changes would they suggest?

Robert Sinclair: It is interesting to take these changes in isolation but it is a series of changes. It is changes to the affordability and advice rules meaning some firms could operate in a different environment. The changes mean at a limited time it might be possible to set up another set of affordability calculations which as a skilled lender, you could only use in a static or falling interest rate market.

This is a regulatory solution. It leaves us a situation where lenders consider whether they move to the amended affordability model or stay on the existing more aggressive one. That appears from the way the consultation is drafted to be a period decision. You are either doing your remortgage business on that new simpler structure or on the MMR structure. That’s quite an SEPTEMBER 2019

aggressive move and gives the intermediary world an interesting challenge of knowing which lenders are playing on what landscape. That is unreasonable to impose that on an industry at this point in the curve. By combining this with the ability to do executiononly and change the term in order to reduce the affordability, the risk to consumer detriment is increased. It would need a very aggressive lender to take place, but some wanting to look for volume very quickly might.

CC: When the transitional rules were created, very few lenders took them on. It was so complicated to work out, what lenders were you going to accept transitional arrangements from?

How would you process it, source it and how would an intermediary know what lender accepts them? It was just too hard and because this is open to interpretation rather than clear guidelines, as a lender you have to air on the side of caution to be on the right side of compliance.  MORTGAGE INTRODUCER

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Ray Boulger: People’s circumstances change over time.

Something underwritten pre-credit crunch is likely to have gilt circumstances, but all the signs are we’ll have quite low interest rates for some time.

I think the current PRA and MPC guidelines of no lending above 15% four and a half times income are creating unintended consequences. If one was to make the rules more flexible, most lenders are up against the 15% limit so that shouldn’t be a problem. But in buy-to-let, quite a lot of lenders have made use of the fact that for fixed rates of five years or more they can choose what affordability they use. In the residential market very few lenders are making use of that flexibility.

A couple of lenders have launched 15-year fixes, so there is clearly some logic in trying to offer some longer-term fixed rates and if you were offering long-term fixed rate mortgages you do not need to stress it all.

That is where there could be interesting dynamics in the future.

But they’ll have to sort out the ERC problem. Excessive ERCs won’t sell.

lenders understand if someone’s paying their rent on time.

The biggest thing is if they’re paying £750 a month and we are saying no, rather than an app that can tell if someone’s paid their rent on time for the past two years.

That is irrelevant – it is in the credit score if they have an issue.

risk appetite of how much business they will take. It is a very hard and fast rule of 4.5, no more than 4.49 times and 15% of it. We set ours at 4.49%.

RB: Also if you do affordability assessments on four and a half times income, stick in some extra financial commitments and it doesn’t change.

Greg Cunnington: I think affordability is a massive problem at the moment particularly in London and the South East markets. If interest rates were higher it would make more sense, but I think we are in a long-term low rate environment, so affordability has changed. It is a difficult conversation with first-time buyers.

I think lenders would like to get into that space and it would be quite a quick move if something were to be done.

KD: If you relax the restrictions on four and a half times salary is there not a danger of inflating house prices because you can pay more than prices can go up?

RB: That is a challenge. You are going to create more demand if you increase supply.

CC: I guess that’s one of the reasons they introduced the rules in the first place, to try and help house prices. I’m not sure if it has helped prices slow down. You can relax it but a lender will still have a

CC: I was at a home finance forum where the chair said they are giving money to fintech firms to help

Refreshing remortgage criteria

JN: The FCA believes that 30% of borrowers did not get the cheapest mortgage and, by definition, have not had the best deal. Where would the panel recommend sending relevant FCA members to improve their knowledge of the mortgage market before writing future CPs and rules?

CC: I think it is about the PRA and FCA working together to further understand the dynamics of the market. I am not sure the two quite marry up sometimes. Given the amount of effort that went into the market study, I am not quite sure we as an industry landed the message very well or whether the FCA took out the parts where they perceive to be consumer detriment. The study does not need re-doing but where is the next phase that brings the industry together to seek the points of clarification and difference where lenders, brokers or customers disagree?

RS: I still believe they manipulated data to get the outcome they wanted. They only extracted certain data pools and ignored others. A paper by the London Business School around the same time showed intermediation is a vast benefit. That 30% is broken down to 10% off-panel and another third were excluded by

Let’s go forward

For intermediary use only

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Round-table

limited distribution - so it’s 10% not 30%. If this opened up to every broker working with every lender, that would be carnage and would not work due to the number of applications suddenly coming in.

There is a package of measures the industry has to suck up and deal with. They are facilitating change allowing more fintech and development.

Mark Lofthouse: Boiling this down to just money is absolutely wrong. Over the past five years the number of products have trebled.

You don’t go shopping for a mortgage, you get it for a house.

That is where criteria comes in.

There are lots of criteria, you can’t just boil it down to price. Criteria sourcing in the last six months is up 70% from the six months before. Looking at criteria and price is the way to do it.

GC: It all comes down to the best client outcome. I think if we fixated on price too much we stifle innovation. We do not want small building societies going ‘we can’t play in that world anymore because we have to operate to the whole of the market’. In the current market intermediaries know where the criteria and price mixes for the best option and this makes lenders more comfortable to go up the risk curve with criteria. Increased interaction gets the best client outcomes. If we just go down to price I don’t think anybody wins because criteria would stifle and I don’t think lenders would like it as there is enough margin pressure as there is. At the moment there are over 100 lenders and in that scenario, we would see many disappear and we would go back to the very black and white mortgage market. This is great for

some but there should always be those options. We need to make sure the options are there for all clients.

Craig Calder: We don’t just want a vanilla outcome.

KD: The FCA did acknowledge in the consultation paper and feedback that price wasn’t everything; that there were other factors too. Inevitably it got picked up as the thing they focussed on. I have said to the FCA lots of times when they come up with proposals: ‘Why are you asuming this is what consumers want, where is the consumer research? Do consumers really want to search for a broker? No they just a mortgage because they want a house’.

If I were to send them in a direction, I’d be interested in them doing qualitative research on not what the best mortgage is on the day they take it out but what it looks like in 12, 24 months’ time.

Products may change, you will never get perfection where everyone gets the perfect product

at point of sale. In 12, 24 months’ time, if you looked at complaints or people mortgaging away it would give an indication of how unhappy people are with what they have.

But people don’t know what they don’t know. With people remortgaging so frequently the chances of someone sitting on a deal they don’t like for ages is quite slim.

Dale Jannels: When it is not solved, it is not solved until the offer has exchanged. You could have a few buyers talking to the estate agent and it is who gets the offer in first. A rate for six weeks’ time might be cheaper, but you might need something quicker.

Adam Kasamun: You build up a relationship with the client so your advice starts from day one when you meet them. You may find at the end of it the product that is most suitable may not be the cheapest or have the best rate because these may not necessarily be the most suitable. I think this is what needs to be understood from the regulator.

CC: I’ve yet to meet a broker who doesn’t have to say in their factfind why they’re recommending someone fifth on the list, not first.

It is around service or criteria.

PA: With lending criteria there are also grey areas. I can’t see lenders that publish their debt to income ratios. A lender could have a very good rate but debt to income ratios is a criteria to look at.

RB: More and more people do non-advised product transfers and don’t consider remortgages.

Whilst for many a PT might be the 

Day 1 remortgage applications available on residential cases

Let’s go forward

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Round-table

right solution, there’s more risk that you will end up with the wrong product.

2.5% that wasn’t released until someone checked the snagging.

That would involve more paperwork and legals but could be treated as a further advance by lenders, and would be a real incentive for builders to get their money upfront and give adequate time when the building is ready to allow a surveyor to check. The sooner they get the snagging done, the sooner they get their money. I also wonder if it’s time to revisit commonhold. Not many lenders offer commonhold but it seems to offer more protection to flat owners than leasehold and could be an opportunity we explore further.

JN: In June, former secretary of state for housing, communities and local government James Brokenshire said that all new build houses must be sold as freehold to tackle unfair practices and prevent future homeowners from being trapped in exploitative agreements. A new homes ombudsman will reportedly protect the rights of homebuyers and hold developers to account. What are your thoughts on this?

KD: The Select Committee’s report on leasehold was pretty savage with what it said. I’ve had a number of conversations with MHCLG in regards to what could be done.

The question is whether there is a will in the current economic and political environment. The homebuying and selling platform has valuers, lenders, brokers, lawyers, civil servants and others and has more chance of getting

ME: I think it’s great having a new ombudsman. It will tidy up the fall out and mess at the end but it’s all about being upfront and stopping these practices from the beginning.

It is a sweeping exercise that has its merits but doesn’t stop developers. In terms of changes in leasehold practice, there is potential to shift the problem. We are seeing private roads being brought in and they have escalating maintenance charges. It is a shift of the problem. Unless we have real transparency, are we really going any further forward?

And the danger for a valuer going to a property in order to get things through quickly is we make assumptions that everything is reasonable. If it is not, you just generate a lot of post-valuation enquiries that come through. If you are going to bring in these changes, do it properly with clear transparency.

something off the ground.

Customers don’t understand the difference between leasehold and freehold, and where is the blame for that? The solicitor, estate agent, broker or lender? We are all passing the parcel a bit and the borrower ends up suffering.

RS: What is not adequately explained is the rate at the end.

KD: With the solicitor on some of the new build estates, the information is not there so they don’t know what the rate charges will be nor what the contract will look like.

I think with estate fee charges there is some movement from lenders to resist lending on those properties unless it is really clear and controlled.

CC: We published guidelines on all of that to say here is what we think is acceptance and what is unfair to customers - some were doubling every five years. That doesn’t sound great.

KD: We are still waiting on MCHLG to respond to that Select Committee report.

Stacey Woods: I look after new build from a distributor point of view and work with all the lender partners. With the retention scheme, there are a lot of lenders who are adverse to participate with that. We have one lender who has agreed to take part. If there were something like 2.5%, is that what they would be worried about? You should be looking for that quality the customer expects when buying from the outset and protect the consumers; holding the developers to account for the quality of the build from the outset. You will need

RB: One thing I think that would be really helpful would be as it is with commercial properties - to introduce a retention fee such as

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a conveyancer to agree for the retention and a lender to take part in that. The lender that has agreed to the scheme has nothing to do with the application of that retention taking part. The scheme is available for customers but only if the broker places that case with a lender in agreement and a conveyancer who can follow that through.

ME: Does a snagging survey pick up on everything? I think it comes back to good intentions and it has to be from the front.

If you know, as a lender, that new build housing have a high chance of being poor and shoddy, why are you lending on it? Where are the ethics?

RS: There are some discussions around commonhold to be had.

The local authority probably cannot give any commitment to the builder to adopt roads due to their financial position in some parts of the country, so builders have protected themselves by outsourcing that to somebody for a period. They will not just adopt roads, but common spaces. The way property is built in the UK is not talked about.

JN: If help to buy is not extended beyond 2023 and the private sector does not provide a viable alternative soon, how much will new build sales suffer?

CC: It’s clearly helping but the money still has to be paid back. A lot of it will be an education piece on what you can and cannot do.

Some people take help to buy because they can, not because they need it. A lot are just taking advantage of the scheme. You would be foolish not to take it if you

Whilst there are products there, it filters down to a small number very quickly.

PA: Also with different LTVs affordability changes, for example with anything over 90% it reduces.

That is also an issue, if you change the LTVs you have to change the affordability issues. And you also have to look at what happens five years down the road.

qualify for it. By making the scheme more targeted hopefully will make it last longer. There is work still to do.

GC: I think a lot of it will come down to where lenders’ criteria is. I think there will be private schemes and there is a good chance help to buy will be extended. People using it that don’t need to is why it’s changing in 2021, but in London I think that is not the case with a large deposit and stamp duty.

Most lenders require a 15% deposit for a new build flat. With help to buy, most people can get 5% so it has been like a stepping-stone.

If a lenders’ policy is still a 15% deposit that is a big problem, but if more offered 95% LTV with mainstream products that would bridge that gap.

Mark Lofthouse: Without help to buy, according to the sourcing system there are 451 products at 95% LTV. When you add in the new home filter it went down to 292.

Quite a few mainstream lenders were not in that second group.

RB: There is a perception in the media that you have to repay the help to buy second charge loan after five years because you start paying interest, but interest rates are low and going up slowly. If property prices continue to rise slowly I think for most people it makes more sense to keep the equity loan rather than to try and repay it.

SW: We need to see more lenders offering help to buy remortgage where they can keep the loan. We need them to be able to do partial staircasing or keep the equity loan in place and remortgage to another lender. I think post help to buy, we will definitely see private schemes.

I lobby for different options with lenders, such as offering private shared equity or shared ownership.

Lenders need to offer higher LTVs on new build. Out of 100 lenders, we have 10 that allow 95% on houses, five that allow 95% on flats, 25 that allow 90% on houses and 13 that allow 90% on flats.

They are small numbers of specialist lenders and niche building societies.

We need larger mainstream lenders moving to higher LTVs. AK: There are a couple of private initiatives in replacement of help to buy but the problem is a lot of 

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lenders don’t like that. The market has to evolve so everyone is aware of it and can use it. By 2023 if this is successful I think more will come on board and provide an alternative to help to buy.

CC: The important thing for a lender is whoever backs something new that the lender can get capital relief from the PRA, otherwise you have to treat it like a 95% or 100% loan. With help to buy, you don’t.

DJ: New lenders have complete restrictions by the FCA for a couple of years, so they absolutely need to be there now. We are dealing with half a dozen of them and they are all struggling with their FCA applications at the moment.

JN: Will most lenders whose maximum LTV is 95% continue to have a lower maximum for new build properties, even when help to buy ends?

RB: The big problem is getting the funding. It needs an institutional funder on board. That is where I think the biggest problem is. As there are some lenders that will accept that, once the scheme starts and the funding is there, you will see other lenders join in.

RB: If lenders perceive there is a higher risk with new build, which clearly they do, one solution might be to say they should consider lending 95% on new build but charge a higher rate to reflect the perceived higher risk.

SW: I think we might see developers change the type of properties built as well. Back in 2008, there were a lots of apartments and two bed terraces being built and now the main property type is detached with three and four bedrooms and semi-detached properties. There are no small properties within that. I think with the help to buy rules changing in 2021 and with the price caps coming in, we will start to perhaps change the build type.

By 2023 if it’s not extended, I think we will see smaller properties being built too. I do not think it will be the demise of new build but people may be buying that three bed instead of four.

CC: It is not just that risk at that point in time. It is 95%, the customer cannot afford the mortgage and the property doesn’t have a premium to get it to 95% so you have to sell it at 85 - 90% LTV and you start to lose money.

I sat with a builder earlier this year who said when the customer can’t make the exchange they might just add £10,000 to the purchase price and see where the market takes it.

That horrified me as a lender - how do I know what a true 95% value is on that property?

No disrespect to valuers who do a great job, but what comparison

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do they have when someone adds £5,000 - 8,000 to a house?

There is a realism that needs to come from developers on what they are selling the properties for.

Some new builds are released too early. I was with a broker in Scotland whose customer had a house that wasn’t ready for another 15 months.

I told the broker to tell the customer to walk away from that building as they are just trapping them into a sale. There is a duty of care developers need to have. If someone has to build a house and it is not going to be ready for another 15 months that is not acceptable. Are they predicting the value today or in 15 months’ time?

ME: There is a high risk that you go back and the fittings and quality are not what they said it would be.

It is just lining the developers’ pockets. We have to be narrowing that gap and for valuers to go out and see something on the site to give us more certainty.

SW: A lot of our calls are on new build, and the main question is how long offers are valid for particularly those over 12 months.

Depending on the lenders’ product type it might mean they go to an end date rather than amount of years, so it is eating into that product.

CC: We do six months and we ask an internal adviser to do a piece asking if there has been a material change. It is the person who says I’ve got my house now so I want a new car for example, which means a bunch of extra credit coming in. For borderline customers the change is too much but they would have exchanged by then. 

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On the Money In for a penny and in for a pound. Robyn Hall talks to Martin Stewart and Scott Thorpe about plans for The Money Group and the creation of a new way of doing business

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Scott Thorpe and Martin Stewart are quite possibly the most unlikely pairing that you’ll get in this industry. Scott, who still thinks he’s 33 (he’s 34), and Martin, 50, pushing on 60, have created a brand that hopefully, they think, will become one of the UK’s top 10 places to go for mortgage advice.

“He’s old enough to be my dad,” jokes Thorpe. “Obviously he’s not. Growing up I wanted to do the same as most young kids – I wanted to be a footballer.

But then I got fatter and slower and I knew that was not going to happen.”

Thorpe started (and will undoubtedly finish) his career in financial services in Rotherham.

“In Rotherham you really only have three options when you are growing up… you work for the Council or Norton or Lombard,” he says. “So, I went to Lombard and moved on to Norton and then I set up on my own – Access 4 Finance at the back end of the 2000’s.”

A bold move for someone who was just 26 at the time but Thorpe says that the gap in the market was just too large.

“Everything was done the same way constantly, high broker fees in the second charge industry and brokers didn’t want to change, they wanted to offer their client second charges but did not want them paying high fees. There was a gap and there was synergy were I could jump in.”

It wasn’t too much of a dissimilar story for Stewart either.

“I’ve really still got not an idea about what I want to do – never mind what I wanted to do when I was younger! But that is what this industry is about,” he says.

“I had a careers adviser who suggested I should be a landscape gardener. Maybe I should have followed his advice!

“There are a lot of people out there who really don’t know what they want to do. I think if you ask that question to everyone in our industry they would say that they didn’t set out to be in financial

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services, it’s kind of something you fall into. I never went to university, I left home at 18 and wanted to move from Morecambe (Lancashire) down to London. I wanted to be a success but I did not quite know what that looked like. I couldn’t define it.”

As did many at the time, Stewart answered an advert asking something along the lines of ‘do you want to drive a Porsche’?

And of course he did. So six months later he was working in financial services.

“People can’t quite relate to that now but back in 1991 it was a completely different industry,” he says.

“And yes, five years after that he was driving a Nissan Micra,” Thorpe pipes in.

Stewart shrugs off the jibe with a cutting glint.

“Back then it was all backed by direct sales forces, with the likes of Allied Dunbar,” says Stewart. “It was full of 21-year old testosterone kids running around with a clipboard trying to find and generate business. That was the industry I entered into. In some respects there are still elements we use from those days that are very relevant today, not from a regulatory perspective or advice point of view but from a personal development point of view and an attitude point of view, there were some good lessons learnt.”

Stewart had started out working for General Portfolio which became GAN which then became Millfield Partnership and he spent 10 years working the market as an IFA. “Then the exams came along and those just put me to sleep! I set up London Money up in 2011 at the back end of the recession.

It’s pretty much the best time to start a business when you have absolutely nothing to lose. I realised if I wasn’t going to do it then I was never going to do it.”

Has the focus of London Money and now The Money Group always been about mortgages?

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“Yes and no,” says Stewart. “As an IFA I learnt the importance of always being able to help a client in different areas. So, if a client comes to you for a mortgage, that’s an emotional attachment. If you ask them if there is any other work you can do for them they are going to say yes. So, we kept the IFA licence within London Money so that I had some clients that needed servicing, which have generated lots of business from having that IFA in house.”

What was London Money transformed into what is now The Money Group – a UK-wide network of brands.

“We need to try and make people realise that there is another way to do this job and that is on a collaborative basis,” says Thorpe. “It’s bringing people together, working together and not being scared to share best practice; not being scared to share clients; not being scared to share revenue.”

Client first

“What being is best for the client is paramount,” adds Stewart.

“And what’s best for the business is secondary but also just as important. So what we have done is created this network of brands and they all operate under our model but they are all directly authorised as well.”

“All of our brands are DA or are in the process of going DA,” says Thorpe. “The FCA gives us quite a lot of leg room where we can do different things. If we want to bring a brand quickly to market we will put them as an appointed representative of one of the other brands. We also have the other option that is we want the brand to have a trading style, so for example South Yorkshire Money could have a logo and a trading style underneath.

“They still have to go through all the compliance checks internally with us, make sure they are fit and proper and following the senior management regime which is coming out but there is an easier way to get up and running  MORTGAGE INTRODUCER

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if you want to do it quickly.”

In The Money Group every brand has its own cost base – every brand is its own business and autonomous but linked by the ethos of the brand and the collaborative nature of what it does.

building a business is difficult, if you have someone around you helping you do that it becomes a lot easier.

“For example, what we would say is Liverpool Money is a fantastic brand, why don’t we give you that brand and you can run that as your own business with all the support that we can offer you in the background.

“We can get you directly authorised and get you up and running. We can support you financially if we have to. We give you access to everything we’ve got but you are still your own business; you’re autonomous without the loneliness – the downside to being directly authorised. Being DA you can be a one-man band and you might not ever get out of your dressing gown or out of the shed at the bottom of the garden or the loft or the spare bedroom you use as an office.”

“Look at it this way,” he says.

“The industry says you can either have a red pill or a blue pill, you can either be part of a network or directly authorised and that’s not a lot of choice.

“What we’ve done is come up with a purple pill that sits in the middle. Take the best bits of being part of a network; visibility to a lender, economies of scale and such. Networks

Brand scaling

“All the revenue that is generated within each brand stays within each brand,” says Stewart.

“Some people think it is like a franchise and it’s quite an easy way to understand it. But it’s not a franchise model you would recognise for, say, like McDonalds. It’s not that sort of franchise. What we don’t so is take anyone’s income from them.

We support them with brand and we support them with protocol.

We support them with process and we support them with money – if we have too. But we don’t then reverse that and take money back off them. This is about building scale on a nationwide basis.”

Stewart is adamant that most people really don’t realise how easy it can be to create a business.

“They watch Dragon’s Den and think, ‘phew I can’t do that’. But in reality a business is easy and not expensive to set up.”

Although Stewart concedes

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are very good at supporting and collaborating and compliance.”

Then take a look at the DA option. “What’s good about that,” he asks?

“Control. Being in charge of your own business. It’s being able to say yes when someone else may have told you to say no. It’s being able to use things like social media and the likes of twitter.

“Most may take this for granted but some networks don’t allow it. Our model comprises all the good aspects of both sides in the same place – all the positives in the same place.”

And so how big can The Money Group get?

“We have created a mission statement with what we want the business to be,” says Stewart.

“Whether that looks like MAB or St James’ Place doesn’t really matter to us but that is what we believe The Money Group deserves to be. What it’s not going to be is a one trick pony.”

The Money Group wants to build a nationwide, diversified financial services business. One that offers its partners, clients and investors distribution, scale and profit under a recognised and respected brand.

“I am a firm believer in thinking big,” says Stewart. “Starting small but growing wisely. That is our ethos. I don’t think there is a cap or a ceiling to what you can achieve. We want to be a top 10 player – we want to have many and varied revenue streams, we want to de-risk the model at every opportunity. There is no word that you can’t attach the word ‘Money’ to without giving it some immediate credibility with our brand. Currently we have 13 brands active, we have seven in the pipeline so we will be up to 20 by Spring next year and growing up to 30 by the end of 2020.”

So how diverse will The Money Group be?

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have forgotten about those bad days and are harking about when we will get back to 2007 again. It is never going to happen.

“What people also need to realise is that if you’re a mortgage broker and that is all you are doing then you’re going to be in trouble. In order to survive a potential downturn that may come, that might come from Brexit, the economy, could be the regulator, could be something out of nowhere, you have to scale up or you will get squashed.”

“You have to diversify or die,” adds Thorpe. “People have got to move away from this cottage industry mentality that we have in the industry whereby you can work in your pants and socks and earn £100K a year. We want to see the broker front and centre of the industry. The IFA world have stolen a march on us in terms of professionalism – we need to follow where they have gone and close the gap.

“Really we want to manufacture our own product and we want to create a funding line,” he adds.

“Once we have the scale and the distribution, all of our brokers, all of our advisers who see clients everyday, why can’t we lend them our own money?

“There are a lot of funders out there not going to be able to get into this space and lending the money out. We have the knowledge and the scale and the distribution. It would be another string to our bow.”

“Look at what Habito has done,” says Stewart. “The industry is going to be massively different in five years’ time.

Technology is going to drive that, regulation may drive that but lenders will probably drive it quick than anybody. If you would have knocked on my door in 2010 and asked me to do a bridging loan or a pension I would have said no. If you knock on my door now we say yes and that is the ethos of what we are trying to build so when that consumer comes to you the client is the most valuable asset you will ever have so never

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lose that asset. It’s a bit allencompassing and a bit cheesy but for all intent and purposes it’s a one stop shop. If you come to me and say “can The Money Group do this?” then the answer will be yes. And who’s to say that a lender might come to us in two years’ time and ask whether we can offload £100m. Well the answer would be yes. We want to be able to say yes to everybody, yes to the opportunity.”

Future opportunities

It’s a bold statement but times are certainly changing. And whether mortgage brokers remain on the front foot is a moot point. So what does the future hold? Will the likes of execution only and the rise of product transfers be a threat or an opportunity?

“Both,” says Stewart firmly. “I think it will be kill or cure for the industry especially if you rely too much on it. It’s the low hanging fruit that the lenders will come back and say ” you’ve have had a good run, we’re having that back and taking it in house.”

Stewart reckons brokers need to stop looking down and start looking up a bit more.

“If you go on Twitter you’ll soon find that it’s an echo chamber – you will find brokers arguing all day long over a 2-year rate being better than a 5-year fixed rate.

“That’s like dinosaurs chatting millions of years ago about whether it’s better to be a herbivore or a carnivore. The reality is they all got wiped out by a meteorite while they were busy chatting.

“Brokers needs to understand, stop doing the small talk, start looking up, start thinking “what’s going to come down that road and what do I have to do to be ready for it.”

It’s clear that The Money Group has big ambitions and a clear determination to succeed in what is increasingly becoming a cluttered market. Indeed, it may well be a long and winding road ahead. Time will tell if The Money Group can cut straight through it and reach the dizzy heights of mortgage advice fame. 

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Adapting to a changing customer Our experts consider how the specialist finance market is continuing to support the wider market Jessica Nangle: People’s finances are changing, with more people working into retirement and having more than one source of income. How do you think this affects the specialist market and do you see any further shifts in the next 12 months?

Jonathan Samuels: Because lenders tend to look at the property for income in the specialist market, it doesn’t necessarily translate to any changes. That said, it will have an impact on the specialist market if other term lenders start to increase their maximum age they lend to 75 or 80. The specialist short-term market can then start looking at lending to people who are a bit older because then we’d potentially have an exit. People earning later on in life and those earning income from multiple sources have made it more complicated for banks to understand how to lend. The specialist market is more adept to looking at that, trying to understand it and come up with products; for example top slicing might be one of those areas. It’s not

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something that’ll massively shift the dial for specialist finance unless it has an effect on the industry.

that’ and that you need separate advice for this. They’ve made it clear what you need to do.

Terry Pritchard: There is a lot of regulation on lending to people who are older. I can’t see there being massive changes to it. In regards to FCA regulation, talking about lending to people into retirement and those still working, they will still have the same cautions. They spent so much time and effort coming up with a set of rules covering equity release which is a specialist market. Unless that changes and more institutional lenders look at it slightly differently moving forward, I don’t think we’ll find any major changes.

RT: Our maximum age at the end of term is 85 and we will look at streams of income. Also bridging is shorter terms.

Richard Tugwell: I think as lenders start to move away from the high street by necessity and margins become squeezed by some very low rates, they have to start looking at other areas.

Kris Corns: I think on the longer side some of the lenders like Together, Bluestone and Pepper are looking at the edges a bit more; self-employed sources for example, instead of just a day paycheck. It’s not necessarily a whole sea change in what they do but being a bit more flexible. If

TP: But the FCA have already said ‘you can’t do this and you can’t do

TP: But you’re very strict at that level.

RT: As people get older their retirement income needs to be looked at more carefully. It’s different to a 35-year old with one income. The difference between the high street and specialist lenders is the specialist lenders will have a look.

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(From L to R) Kris Corns, Crystal; Jonathan Samuels, Octane Capital; Terry Pritchard, Charter HCP; Phil Mabb, Bridge Development; Brian West, Central Bridging; Richard Tugwell, Together

you’re more certain on exits you can push the boundaries a bit more on what you can do on short-terms.

Phil Mabb: Isn’t there already a community service in the bridging sector with downsizers who might want to buy and downsize? There is a market there in a way.

TP: You have to be very specific around what you do. They should have independent legal advice. They talk to the family straight away. I noticed in the equity release market there is a lot of dated complaints, such as a family member complaining about a policy sold to their parents 10 years ago. That’s why the rules changed and institutional funders who used to be in all those markets stepped away from it because it became too different. I don’t think that’s changed and will do either.

RT: The regulator gives slightly different information, for example saying equity release isn’t the only product. There is interest-only, however if you’re still earning income

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you should be judged as an affordability case rather than an elderly case. The rules around elderly borrowers is quite stringent.

TP: That goes hand-in-hand with other changes. On one hand, the FCA are trying to promote remortgaging on self-cert if you do like-for-like, and the other side of the FCA is saying ‘we don’t like you doing that’. There is no cohesion in that.

RT: I wonder if bigger, high street lenders move slightly into the edges of the specialist market because they are struggling to get the rates at the lower levels. This will make that representation because they will have a narrower voice; presumably because of volume and history with the regulator.

KC: The specialist finance sector is still a small element. The Charter Court/OSB merger will make it the 16th biggest lender, however in our space, they are both seen as big lenders.

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Brian West: There does seem to be an announcement every week about a bridging specialist moving into 5-year medium terms. It is as if three to 24 months is insufficient these days.

TP: Also, the funding lines want longer-term deals.

JS: This diversification of income isn’t just about people retiring, it’s becoming an issue for young people finishing university too. It’s about inconsistent income, working from home. Lenders have to get their heads around this. With bridging we’re mostly looking at the property rather than the individual for the income. Then with challenger banks and larger lenders, income starts to come into play. It’s a challenge that all lenders, banks included, have to get their heads around.

RT: Temporary workers in the gig economy aren’t getting that consideration from the high street lender. It’s dressed up as  MORTGAGE INTRODUCER

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income overseas and expats.

TP: They are flexible and have the benefit of having funds to ensure what they are doing. Some building societies are taking the skillsets from lending that we have done. I think there has been more ambition for societies to survive and not be swallowed up. I think they want to stand alone. I know The Ecology Building Society is built on safeness and is a fairly commercial society that does a fair amount of lending for something of its size.

They are quite aggressive in the market and are borrowing money to re-lend. ‘affordability’ nowadays. Many fall out of the buying or remortgage process because they couldn’t get what they need, however they could have from a specialist lender.

JN: Apart from changing financial needs, what do you believe is responsible for increasing specialist finance’s appeal?

KC: Specialist finance is a solution to customer requirements. For example with older borrowers, specialist finance is quicker and probably better positioned to adapt to change.

It can move a lot quicker than traditional institutional lenders can.

JN: Do you think the changing needs of the consumer is playing a big part in increasing its popularity?

JS: It’s increasing popularity and has become more mainstream because the funding costs have decreased and the products have become so much closer to the mainstream in terms of price. It is also far more flexible. If there are elements that fall

We’re for the 5 to 9ers.

Lending for the new normal.

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outside the norm and you want a human being to look at it, you have to go to a specialist. The banks withdrew from relationship lending a long time ago in favour of a more tick box, vanilla style lending, and speed approach. Ultimately, it’s price and flexibility that has won over the specialist market.

RT: High street lenders have got tighter over the last seven to eight years, precluding some come over 2 and 5-year fixes to find their existing lender doesn’t want them anymore and there are people with different needs and streams of incomes. All together this adds up to specialist needs that specialist lenders can satisfy. Also, it is worth asking what the specialist market is because that’s also becoming broader? Some lending the high street does is probably specialist and not included in the specialist figures, so I think the market is bigger than what we give it credit for.

KC: A lot of smaller building societies have become very agile with what they do, like complex

PM: Some building societies such as Saffron that used to fund self-build mortgages, moved into the development. They have the skill and it gets them a better return than self-build mortgages which is ultimately a stepping stone to a term loan when it is finished.

TP: I’ve noticed a few have small bridging products with competitive pricing. I don’t know if they have the skillsets for that though. Some have come from mortgages and tried to get into bridging. You have to understand it.

RT: They are looking for margin.

They are having to pay more to savers because that is getting competitive. They can’t fight with the HSBCs with their money and rates, so they have to seek margin.

JN: What are the main differences between the public’s views of the specialist market now compared to five years ago?

TP: We are much more sophisticated as a group.

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JS: Five years ago isn’t that long ago and a lot of the transition we made as an industry, in terms of becoming more professional and transparent, happened more than five years ago. In 2014 and 2015 a lot of lenders entered the market and some became a lot bigger. We [Octane] launched in 2017. The push for growth had also led to going down a rate route, with more vanilla and there was room for lenders that can deal with more complexity. I remember sitting at roundtables with lenders saying there are plenty of deals to go around but now there isn’t.

RT: Five years ago I was sat at a high street lender. I think BDMs back in the day would ask ‘what have you thrown away that I can look at?’ Now they look at client need and how that can be satisfied. I think a new raft of brokers, packagers and people that sit within those organisations see it as a different market that is not murky. Hopefully that reputation has all but gone. The P2P market doesn’t do it favours every now and then. Overall, it’s brightened itself up.

KC: I did an event a few weeks back with some PI insurers. Their views of the industry were very much of 2007 – 2008, mentioning lenders that went bust then and practices from that time. I think outside of the core market there’s still a lot of work to be done on what people think being specialist is, the role of brokers and of specialist lenders. I think networks, clubs and distributors are doing a really good job in helping to promote that. It is no longer Halifax or Virgin every time brokers get a case, it’s what they can do for the customer to find a solution.

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BW: You could argue the industry was perhaps in a better place five years ago. I know it’s considerably increased in size, but the glut of liquidity has promoted a rate war in the last few years with a relaxation of criteria and a skills shortage in the industry. Certain times I look at the market now, and it reminds me of how it was in 2006.

RT: That’s where the transparency around what lender you deal with becomes important. New lenders that come in could be great or not.

There is not a lot of track record to look at especially in this market, which is one of the easier entry points.

BW: It’s seen as an easy entry point, but I don’t think it is anymore. In 2006, you had entrants coming in with high LTVs and adverts, trying to grab market share. The danger is we have people coming in desperately looking for market share and perhaps taking unwanted risks.

RT: It’s easy getting in but I’m not sure how easy it is to maintain

good business once you get in. If you’re a broker looking purely at rate not at how customers are treated, what happens on exit and what reversion rates are like, then you’ll be attracted to those guys.

JS: It’s a good point. I think fees charged that are misleading and default interest rates are a big issue. Even though we have more transparency I don’t think we have enough. There are some lenders who charge hefty default interest and that is a problem.

RT: I think that is a potential problem. It comes down to transparency from the outset and how a broker’s advice needs to advise on taking a deal to lenders.

If it’s on rate alone then I think we have issues because lenders reduce rates to low levels by increasing something else in the documentation to provide it.

JS: What are Together’s default interest rates?

RT: We’d normally work with the client to stay on the rate they’re on if it’s an extended exit. If not, it’ll go up to around 3.5% but that’s an annual rate, dependent on the deal and situation. We talk to them leading up to the exit and beyond to decide what we can do. We extend not as a matter of cost but as a negotiation. We wouldn’t charge a fee for extension. It depends how long it is. If it is a completely different deal at that stage then its individual circumstances but if someone says ‘it’s not happening in March but will in May’, we’ll work with that client.

JS: We had a whole conversation  fees at a previous on extension

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roundtable and correct me if I’m wrong, but I was under the impression that Together charges a 5% extension fee.

concerns of lenders charging 1% per month which at the time was a pretty reasonable rate, but kicking up to a 5% per month default rate.

The ASTL were on record saying that disparity is completely unacceptable.

RT: Not as a matter of course.

Individual deals may be different.

TP: It is in the contract though.

JS: I think its incumbent on our industry bodies to call out these practices because the bodies don’t have the teeth to enforce change, but they can call it out when they see it. It’s also down to the broker community to at least tell their customers what they are in for and let them know there is a risk they can go into default. They then explain the reasons for it and that the consequences are more severe with some lenders than what borrowers may think.

RT: It would be negotiated at the time of the exit.

JS: The issue within our industry is about dual pricing where some lenders charge one price but if you’re in a default position it goes to a different price. Some charge the higher rate from the beginning of the process. That’s an old, unacceptable practice. FIBA is taking a close look at it and trying to get lenders to confess to it and say how they’re charging it.

Hopefully the ASTL will as well. We have one interest rate and our default rate is 2% over per annum because it is fair and legal. A lot of what is going on is neither fair nor legal. These are the issues which hold our industry back. We took an opinion when forming Octane that we only want things in our documentation that are fully enforceable in court. If a charge is deemed too excessive, the court will strike it out. They are not legally enforceable and if a borrower would take the challenge to court those clauses would be struck out.

RT: It’s a skills gap with brokers not that used to dealing with the bridging market and lenders new to the market. The necessity of understanding that when advising clients isn’t as high as for those that are more experienced.

Transparency is one thing and

BW: The ASTL built it into the charter two years ago in terms of transparency and the requirement to present borrowers with complete transparency in terms of fees, standard rates, discounted rates and being clear at all stages.

That was legislated and built into the ASTL’s charter two or three years ago. At the time there were

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BW: There are a lot of significant lenders who choose not to be a member of the ASTL. It would significantly help in this ongoing drive for standards if we were to have greater volume from these lenders. For example if Octane and Together joined, it would strengthen the ASTL. JN: What products are you seeing a higher and lower demand for respectively?

PM: Developer’s exit. With Brexit I can see it continuing. People can’t and won’t sell.

JS: For us, it is developer exits and refurbs. Both are popular because sales are tough. That’s why developer exits are popular.

Refurbs are because property professionals are not necessarily going out to acquire anymore properties. It is more expensive to acquire and hold them. They’re improving their properties. You can’t get away with poor quality accommodation anymore and landlords are realising that and needing to refurb. And we’re not seeing as many purchases. Where we might have been 50:50 a few years ago in terms of refinance to purchases, we are more like 80:20 now. I think that’s a function of Brexit uncertainty and sellers not wanting to sell.

TP: Some of the auction prices have gone up because there’s less around. The amateur, semiprofessional is getting pushed out of the market a bit, pushing the prices up on the individual dwellings.

We’re for the downsizers and the high risers.

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unfairness is another. Once you have that transparency you can then make a fair choice.

SEPTEMBER 2019

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Round-table

BW: I think that’s been going on for quite a while. People are struggling to get the properties they want at auction. They’re going massively above book price. In Croydon, a property listed at around £300,000 was sold for £520,000.

JS: Values have gone up over the last two quarters in prime London.

The picture for the year is down still. Interestingly its prime central that’s had a good couple of quarters, less so the further out you go. The reason its been hit so hard is with the pound being so weak, which helps foreign money, it’s coming off a relatively low basis.

If you’re only looking at it over a short time period, it looks like it’s doing well. From a lender’s perspective it may actually be more attractive to lend on.

RT: The currency exchange has really got to resonate. If you were a European investor trying to buy a £10m house three years ago, you’ve just saved £3m. We’re seeing a big increase in first charge specialists, that’s been our growth area for the last six to nine months. I think a lot of that is on the back of P2P transfer balances and existing lenders not being able to borrow more, deciding to get out. We haven’t seen an increase in seconds however the market is still bumping along, it is just not taking off the way we thought it would.

The regulator said if you’re thinking of remortgages you have to also think of seconds. Perhaps they’re focussed on product transfers at the moment and seconds just aren’t on their radar. We’re seeing a move around risk - less than 15% credit impaired. It’s where the high street sees affordability as an issue and some areas where it doesn’t serve.

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BW: I don’t think the lenders that offer very low rates like 0.44% and 0.29% generally write that much. I would suggest it’s a strategy in order to hook clients in and then they’d say ‘after doing some due diligence on you, we regret to inform you that you don’t qualify’.

TP: Some brokers use them, knowing full well it probably won’t fit.

RT: The difference between that and the first charge market is sourcing systems. These rates are not the same because they’re not sold in the same way.

KC: We’ve seen buy-to-let professional landlords doing refurbs but wanting to retain the stock after doing work on it.

JN: A rate of 0.44% has recently been unveiled. Do you think rates have gone as far as they can and will other lenders follow or will this reduce proc fees at a rate value?

JS: There are tiers of bridging lenders that can go as low as 0.44%. I guess people putting deals to them are struggling in other areas. Some lenders have had low rates and have quietly pushed their rates back up. I understand that their volumes haven’t massively changed from that increase. There is price sensitivity but unless you’re dropping well into the 0.44% it won’t really change demand that much. I don’t think we’ll see lots of people chasing this. In order to hit that level, you need a certain funding structure behind you.

BW: When someone needs funding quickly, for example having two weeks to secure funding or risk losing an £80,000 deposit, what’s important is saving that deposit by using a specialist lender who will get everything done in a fast, transparent fashion rather than being attracted to a lender that has rates five basis points lower.

KC: Brokers don’t ring us up and say ‘we need the lowest rate in the market’, they say ‘I’ve got a problem with this case, can you help?’ They need a solution.

PM: The reality is getting a property on a bridge and out in three months means you have to be starting on the takeout on day one. With balancing and measuring it, it’s probably not worth the bother. You may as well go on an ordinary rate and stick it out.

You can’t control someone taking you out.

BW: Take the longer term and have the unused free interest refunded.Use a reputable lender

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and if you redeem after six months, then you get three months of interest refunded.

PM: The lender needs to deploy money, but they want it back to put on the normal market rate later.

I don’t think rates should be too cheap anyway. We all want to earn a living. The clients have to pay something for it because there’s a risk and reward system.

BW: While you have a glut of liquidity and new lenders looking to enter the market and grab market share, you’ll always have that downward pressure on rates and a greater pressure on the quality of underwriting. It is lenders saying for anything below 60%, 70%, they won’t do a full valuation.

JN: Should non-regulated lenders begin to operate in the same way as those that are regulated and what are the main ways in which they can take example?

arm. The practice will be different between the two.

On the regulated arm they won’t charge these excessive fees for extension and default interest, while on the non-regulated arm they might.

BW: The implication there is they don’t and are of a lower standard. I think there are some exceptionally good lenders in the unregulated sector that choose to be unregulated and apply the highest standards of due diligence. They work closely with compliance representatives and choose to work in a certain way.

TP: Some have stuck to unregulated for a particular reason, to do with the charges. But most of the people who operate there do so with best practice, operating on a regulated manner and follow a process.

KC: It’s professionalism, transparency, suitability and integrity. As long as lenders operate with that it doesn’t matter if they’re regulated or not.

BW: There are so many areas of crossover between the unregulated and regulated sectors. You can’t simply say ‘I’m unregulated’.

We operate in the unregulated sector, but we have a retained compliance adviser who keeps us up to speed with everything.

For many years we’ve operated

JS: Some lenders do their regulated lending through their regulated arm and non-regulated lending through their non-regulated

We’re for big timers, part timers and old timers.

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under the FSA and FCA as a fully regulated entity with internal compliance. Just because you sit outside of it doesn’t mean you’re not completely aware of what’s going on. It’s just a business decision which absolutely does not deter from the standards we operate to - under any circumstances.

PM: IAs an individual ’m FCA regulated but I only do unregulated mortgage business. I don’t have CeMAP and have no desire to go out there and do it. It is good practice to have. I generally only deal with those lenders who behave that way. They don’t need to have that badge, for them it could be the cost and administrative burden they don’t want. It’s survival of the fittest and we know we’ll get pushed that way so get on board with it. 

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Semi-retired snapper eyeing a semi-detached with his pension?

Normal.

54% of all rejected mortgage applicants were turned down for not being “normal�.* But we can often accept a variety of unusual circumstances when others can’t, such as no minimum income requirements, allowing a combination of up to 100% pension, dividends, or rental.

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Lending for the new normal. *All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 2003 adults. Fieldwork was undertaken between 31st May - 25th June 2018.

The survey was carried out online.

Subject to lending criteria and affordability assessment.

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Mortgages from

3.99%

Loan Introducer

Protection and execution-only Tim Wheeldon, COO, Fluent Money, on extending executiononly and the MMR advice-based customer protection The regulator has mistakenly concluded that the role of advice has made little or no difference to the likelihood of clients overpaying for products and that current rules are acting as a barrier to the development of online tools which could be used by consumers to search and filter potentially cheaper options. It has also rasised concerns that customers are being “unnecessarily channelled” into broker led advice that could prejudice their ability to access more cost efficient choices. Yet, many disagree.

Current perimeter guidance rules dictate that any generic information which is offered to customers may be construed as regulated advice if it is seen as steering clients towards a specific group of products or if it influences their choice in any way. However, under the FCA’s latest proposals, customers would be allowed to search and filter objective factors (such as interest rates, term lengths, LTV’s and accumulative costs etc) without the information which is received being regarded as advice, with a further possible extension allowing for platforms which offer information and those which allow for transactions.

This could mean, in effect, that lenders would offer different price points for online business and that the reach of online aggregators and brokers would be dramatically increased. In short, it would hand an unfair advantage to lenders who sell directly to consumers and undercut the involvement of brokers. Of course, as things stand, the overwhelming percentage of UK mortgage business is brokered by intermediaries on the basis of whole of market advice, yet

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the FCA’s consultation paper has stated that existing advice perimeters were written long before the online sale of financial products began to gather pace and that any changes to guidance rules should reflect this transformation. However, many brokers have argued that an extension of the use of execution-only represents a reversal of former priorities and a potential threat to the best interests of consumers. However, with recent proposals seeming to herald a shift towards headline rates and cost efficiency, many within the mortgage industry have argued that this focus could lead to a rise in unsuitable product decisions amongst consumers looking for ‘bargains’, as well as higher incidences of misselling. Furthermore, given the increasingly complex nature of borrowing requirements and the sheer diversity of products to choose from, they also point to the fact that customers are more likely to need advice.

Moreover, many observers question whether a focus on cheaper mortgage deals necessarily represents the best possible value for customers, especially given the numerous checks and balances which are required to ascertain whether a given rate represents the best option in real terms. In other words, just because a market leading fixed rate happens to be the cheapest one available, it doesn’t mean to say that those savings won’t be wiped out by an associated range of fees.

Tarrifs

By comparison, just look at the upsurge in so called unlimited

energy deals that providers such as British Gas, Eon and Greenstar Energy have launched over recent months, with research revealing that the tariffs associated with these deals are invariably more expensive than for ‘standard’ package rates and often involve a cap on usage. Is this really the type of route that we want the mortgage industry to go down?

Doesn’t it represent just another ‘race to the bottom’?

Is there a happy medium that encompasses the technology tools to enable consumers to find a suitable lending solution without interfering with existing advice rules? The right professional advice offers a safety blanket ensuring that the customer is provided with a recommendation which is one step removed from the decision making process and where responsibility vests with the adviser. Execution only puts the onus directly on to the customer and while personal decision making in many areas is to be encouraged, the internet does not discriminate between the well informed and those less able to make a reasoned assessment of the options presented.

The regulator needs to consider how it can still protect the more vulnerable from making the wrong decisions if they choose to seek an execution only route and providing suitable ‘health’ warnings as well as ensuring that there are links to a more traditional advice option. This might provide a working solution that the new technology adopters can live with, at the same time as offering a critical backstop for those whose decision making might leave them at a fiscal disadvantage down the road.

Loan Introducer

No signs of slowing Natalie Thomas caught up with Craig Collins, wholesale director at Optimum Credit to discuss its recent acquisition You recently launched a 100% LTV second charge, what inspired you to do this?

We saw that we were forcing some of our customers to restrict the size of their loans simply because they didn’t have enough equity in their property. These were often high-quality borrowers with great credit scores and it didn’t seem fair or sensible for us to turn them away.

Have you seen many enquiries for the product?

Our first 100% mortgage completed about a week after we launched – a great result that demonstrates how quickly our customers can achieve their aspirations. It’s still early days but we already have a strong pipeline of applications and sales are in line with our expectations.

Do you expect to see a lot of enquiries?

This will always be a specialist product but it occupies an important niche. We have repeatedly seen other lenders fighting over market share without bringing any real innovation to the second charge sector and we are delighted instead to be able to allow our brokers to offer solutions to borrowers who would otherwise have been turned away.

quality of our customers than in the value of their property We lend only to borrowers who have demonstrated a good track record in manging their finances and we always employ rigorous affordability checks, so we have very low arrears. In fact, it would be both risky and socially irresponsible for us to take on low quality borrowers simply because they have a low LTV. What type of client might benefit from the product?

A great example would be someone whose mortgage is already at a high LTV but wants to undertake significant home improvement work instead of incurring the cost and upheaval of moving to a new house. We see the product as being particularly useful in parts of the country that haven’t fully shared the increase in property prices seen over the past few years.

Do you feel the second charge market needs more innovation?

Definitely, and we will continue to lead innovation to both product and in process. I have a definite sense that some of our competitors are complacent and resistant to change – and that attitude is bad for customers and bad for intermediaries.

Some in the industry have called it a ‘risky’ move, what would you say to this?

You were acquired by Pepper Money last year, how has this benefitted your business?

Anyone who regards this as a risky move doesn’t have a good understanding of credit risk. We are more interested in the credit

Pepper Money is a fantastic supporter of our business and committed to increasing our presence in the second charge

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sector. One sign of that long-term commitment is our recent move to fantastic new offices that are more than twice the size of our old premises.

SEPTEMBER 2019

Is there something about yourself that people would be surprised to hear?

I used to be a window cleaner… and loved it!

When you were young, what job did you aspire to as an adult?

Like most young boys I wanted to play sport for a living, always rugby. I’m a terrible footballer!

What is the best bit of advice you have ever been given?

When we were in the early phases of launching Nemo. An industry stalwart, John McMullen, told me ‘it’s always darkest before the dawn’. Things were particularly tough at the time and that saying has always stayed with me. You must keep pushing on.

What is your most prized possession?

My barbeque. I love the summer and there is nothing better than having family and friends around for food and drinks in the sun.

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Jargon busting Natalie Thomas questions the best terminology for the market You say secured, I say second charge but let’s not call the whole thing off!

It’s been over three years since the Financial Conduct Authority (FCA) took charge of the second charge mortgage market but the industry is still undecided when it comes to the best terminology to describe the products on offer.

The phrase ‘secured loan’ was correlated with the old regulator - the Office for Fair Trading, whilst ‘secondcharge mortgage’ is the FCA’s wording of choice.

Latterly however a newer take on the phrase has come into play, with some firms referring to the product simply as a ‘second mortgage’.

Loan Introducer asks: Second charge vs secured loan, which term should be used?

Harry Landy, managing director, Enterprise Finance We prefer second charge, as we feel it makes it clearer for the end user in terms of what the product represents and the fact it will be a charge registered.

We actually use the full term ‘second charge mortgage’ for even greater clarity, so it’s absolutely clear to the end user that the lender is raising a mortgage against their property.

decision to use both phrases simply to ensure we were understood by our target markets and we are still doing the same today.

Brokers who have a misconception of modern secured loans are not going to be fooled by a name change.

Consumers were our main concern however, as they had not been subjected to FCA updates.

Second charges meant nothing to them and if they wanted to raise a separate loan secured on their home, a secured loan is what they would look for.

This remains the case today evidenced by the number or Google searches for secured loans outnumbering second charges by 50 to one.

Not only is the phrase ‘secured loan’ more familiar to consumers, it describes accurately what the product does, draws a distinction between unsecured loans and is therefore more clearly understood.

Joseph Aston, national sales manager, Vantage Finance Personally, I prefer the phrase ‘second charge’ as I think to those consumers who have less knowledge of the property sector, it is a clearer description of the product. Anything that helps create better understanding for the client is positive in my book.

Steve Walker, managing director, Promise Solutions When the Mortgage Credit Directive came along in 2016 there was considerable industry buzz around rebranding secured loans as second charge loans. This was pushed by some lenders probably to fall in line with FCA parlance and also an attempt to change broker perceptions of secured loans.

At the time we made a conscious

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Marie Grundy, sales director, West One Loans The terms of reference should be redefined now that this type of lending is subject to the same set of regulatory rules as first charge mortgages.

My preference is actually for the term ‘second mortgage’ to reflect that borrowers are taking out a mortgage.

The only key difference is whether this is a first or a second mortgage.

SEPTEMBER 2019

Robert Sinclair, chief executive, Association of Mortgage Intermediaries A ‘second charge mortgage’ is technically the correct definition and how it is defined under MCOB rules. The borrower is taking a charge on a property, so it should be classed as a mortgage.

Buster Tolfree, commercial director – mortgages, United Trust Bank At UTB we refer to the product as a ‘second charge loan’ although I don’t think it really matters what we as lenders call it as the mortgage adviser community understands that homeowner loan, secured loan or second mortgage all mean the same thing. The question becomes more interesting when you consider it through the eyes of the general public, most of whom don’t understand what any of these phrases mean until presented with one for the first time and have it fully explained by a mortgage adviser.

From a regulatory point of view, it’s a mortgage and comes under the same MCOB rules as a standard purchase or remortgage. However, the term ‘loan’ tends to creep in as a result of the pre-2016 historic regulatory framework under the Consumer Credit Act and more consumer-lending based loan purposes common with a second charge, such as home improvements or debt consolidation.

Fiona Hoyle, head of consumer and mortgage finance, Finance & Leasing Association We have started to use the phrase ‘second mortgage’ – as it

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seems overly complicated to use the word ‘charge’ – especially for consumers. Using the term mortgage also makes it clear that we are aligned with the overall regulatory regime for mortgages.

Alistair Ewing, managing director, the Lending Channel I now prefer second charge as it’s become the familiar term used to describe the product since FCA regulation in March 2016. I don’t think the term really matters as clients that have never had one typically don’t know very much about the products.

Dale Jannels, managing director, Impact Specialist Finance Second charge – simply put if we asked nine out of 10 customers on the high street, a secured loan would have many responses, but they would all feature around a first charge on the property, loan/ finance on the property, etc. Customers don’t understand that it’s second charge and is in addition to the first charge, so I would say keep it simple, define it as a second charge.

Darren Perry, head of second charge mortgages, Brightstar Financial At Brightstar, we choose to use the term second charge mortgage and we make sure that we maintain a consistent approach to doing this. Both the FCA and the FLA refer to the product as second charge mortgages and so this approach helps to keep things consistent.

Referring to the market as second charge mortgages rather than secured loans also helps to reposition the sector, dispel some of the misconceptions about the product and open it up to consideration by more brokers and clients.

Jo Breeden, managing director, Crystal Finance We took the same line as the regulator when FCA regulation came in and refer to it as a ‘second charge mortgage’. We feel this is the most descriptive term and clients appear to understand this terminology. If someone is talking about a secured loan, in theory that could be a first charge loan for me.

Anna Bennett, marketing manager, Positive Lending We use the term ‘second charge mortgage’ across all our communications. In fact, our business is structured with a dedicated team of ‘second charge mortgage experts’ and it’s been quite some time since they’ve referred to this as a ‘secured loan’.

We tend to find most of the lenders on our second charge panel use the same terminology as we do.

Coming from a communication standpoint, I think the actual term used is less important, as long as it has clear meaning; it’s more important to have consistency of use within the mortgage market so that there’s a common phrase easily recognised by all.

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Second charge mortgage Natalie Thomas investigates recent figures suggesting that second charge mortgage repossessions have reached an all-time low Second charge mortgage repossessions have reached an all-time low but is the market experiencing the calm before the storm?

Robert Sinclair, chief executive of the Association of Mortgage Intermediaries, recently warned mortgage lenders that they may need to ready themselves for rising arrears, whilst elsewhere it has been reported that a no-deal Brexit could lead to a 30% spike in arrears over the next three years – so should the second charge market be worried?

Repossession figures in the second charge market currently make for positive reading: There were just 24 repossessions in Q2 2019 - down 38.5% on Q2 2018, with the repossession rate a mere 0.07% in the 12 months to June 2019, according to the Finance & Leasing Association (FLA). Do these figures paint the whole picture though? Loan Introducer finds out.

Behind the figures

Fiona Hoyle, head of consumer and mortgage finance at the FLA attributes the record low repossession rate to lenders’ successful forbearance measures.

MORTGAGE INTRODUCER

“Lenders are committed to helping customers in financial difficulty and will explore all reasonable options before seeking repossession,” she says. So, does this mean the figures could be masking a long-term arrears issue? Not so, according to Hoyle.

“Although we do not publish arrears data, we know the levels are low,” she reveals.

She expects the low repossession rate to continue for the rest of the year – with its current forecasts suggesting a record low total for 2019 as a whole.

Tim Waterlow, development director of lifetime mortgage provider Responsible Lending, is less enthralled by the figures however. “The second charge market is tiny in comparison to the first charge market — only around £1.2bn a year,” he says. “Therefore, a fall in second charge repossessions doesn’t necessarily spell good news for borrowers as, statistically, it’s not that significant.”

He says the small size of the sector means the number of repossessions can fluctuate quite wildly.

“If we peer back to the beginning of 2018, the figure for Q1 (46 repossessions) was higher by an even

AUGUST 2019

greater margin on the same quarter the previous year – a 76.9% increase,” he says.

“Looking at what is driving second charge repossessions more broadly, the industry is seeing increased distress within the interest-only lending market, with borrowers struggling to repay these mortgages upon maturity and this is one area where you might expect repossessions to be rising,” he adds.

Economic risks

In AMI’s Q2 2019 Quarterly Economic Bulletin, Sinclair warns that: “mortgage arrears present a significant downside risk over the coming years, based on changing employment dynamics, an ageing society increasingly reliant on work and debt and a steadily rising bank rate.”

He highlights that the incidents of arrears on short-term finance loans funded by peer-to-peer and other bridging lenders has already risen. “The number of borrowers falling behind on loan repayments, albeit in unregulated markets, is steadily climbing,” he says.

He goes on to say; “Anecdotal evidence indicates that short-term lenders are beefing up collections departments in anticipation of further arrears; it may be that the longer term regulated market should consider its own readiness for rising arrears, particularly as the shortterm sector usually leads the residential market where arrears and possessions are concerned.”

Sinclair says the same reasoning applies to the second charge market as it does the first.

“We are seeing escalating debt and defaults in the unsecured market and that has to bleed over at some point into other parts of the market,” he warns.

“People cling on longer to pay for secured debt but it’s not always the right thing to do.”

He says he is always wary of short-

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Loan Introducer

repossessions term data. Numbers fly around but there are lots of reasons why things might not show in data when you are comparing one quarter to the next.”

Sinclair says it will be interesting to see what observations about the secondcharge market the Financial Conduct Authority makes when it finishes its probe into the sector.

In December 2018 the FCA revealed it had found examples of some mortgage lenders causing customers in long-term mortgage arrears more harm by letting their debt escalate, with borrowers in the second charge sector vulnerable to this, due to the often higher rates of interest charged in the sector.

It went on to reveal in April of this year that it was concerned that the business models of some second charge mortgage providers were designed to benefit from consumers not repaying their debts.

For example, firms making profits from consumers who do not or cannot repay in full and on time. Sinclair says; “The issue of arrears and repossessions is one area the FCA is looking at and the second charge market is one they are concerned about, so it will be interesting to see what its conclusions are at the end of its work.”

Second opinion

Figures from the FLA might paint a rosy picture but those from UK Finance less so, showing that repossessions in the first-charge mortgage market have started to edge upwards.

Some 1,270 homeowner mortgaged properties were taken into possession in Q2 of 2019, according to the trade body - 15% more than in Q2 2018.

The trade body emphasised however that the increase in possessions has been driven in part by a backlog of historic cases which are being processed in line with the latest regulatory requirements.

In 2017, the FCA introduced new guidance on the treatment of customers with mortgage payment shortfalls, including the way firms calculate these customers’ monthly mortgage instalments. It says lenders have been

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reviewing a large number of cases on an individual basis in line with this guidance.

In terms of arrears, there were 75,890 homeowner mortgages (0.84% of all residential mortgages outstanding) in arrears of 2.5% or more of the outstanding balance in Q2 2019 – 3% fewer than in the same quarter of 2018.

While there were 4,660 BTL mortgages (0.24% of all BTL mortgages outstanding) in arrears of 2.5% or more of the outstanding balance in the second quarter of 2019 – 5% more than in Q2 2018.

Delving deeper still, figures from the Ministry of Justice – which cover the entire mortgage market – provides a further breakdown of not just repossessions but possessions claims, mortgage orders and warrants.

Figures from the MoJ show compared to the same quarter last year, mortgage possession claims (6,179) increased by 39% between April and June 2019, after a large increase between Oct-Dec 2018.

These rises followed a three-year period of stability.

Mortgage orders for possession (4,007) have increased by 40% between April and June 2019 and warrants (4,692) 34%. Interestingly, its report says: “The recent increase in possession actions has been driven by one large mortgage provider.” It does not name which lender however or the reason why.

Second charge lenders are often second in line behind the first-charge lender when it comes to taking possession.“A second charge lender can take a warrant or possession order but can’t take possession without the first mortgagee’s permission,” says Sinclair.

The B-word

Whichever way it goes, Brexit will undoubtably bring its fair share of challenges for borrowers and the industry.

In March this year Kensington Mortgages warned that mortgage arrears would soar by 30% over the next three years in the event of a no-deal Brexit.

Working on the assumption of a no-deal Brexit, with no government intervention, it forecasts that by Spring

2022 there would be 70,296 Britons more than three months behind on mortgage repayments, compared to 52,755 if Britain were to remain in the EU. Its projections show repossessions would also rise by about 10%.

Hoyle however is less convinced and says: “The main reasons why customers get into arrears are life events such as loss of income, loss of part of their income or relationship breakdown, rather than the impact of broadly political events.”

Only time will tell however what offshoots Brexit causes in terms of rising interest rates or rising unemployment.

Worst case scenario

Even if the market were to experience a worst-case scenario situation, Sinclair believes it would be very different to the one experienced post the financial crash, due in part to the introduction of the Mortgage Pre-Action Protocol in 2014.

“The market now has established protocols from the FCA in terms of how lenders should conduct themselves in terms of helping borrowers in arrears,” he says. “Court rules around repossession are much more established and formalised, so I’m fairly confident when we get into the middle of all of this, lenders will follow the agreed processes that everybody has laid out.”

While Hoyle says: “The Mortgage Conduct of Business rules provides a comprehensive framework for how lenders should assist customers with repayment problems, but lenders have always treated repossessions as a last resort and remain committed to helping borrowers remain in their homes.

“Lenders will continue to adhere to the forbearance rules set out in MCOB, which require that repossession is a last resort. Customers have a role to play here too – the sooner they get in touch with their lender if they are having repayment problems, the easier it is to find a solution.”

Without a crystal ball, it is impossible to preempt what the future holds for repossessions.

There is strong evidence to suggest however that a rise in arrears and repossessions is not out of the question, which whilst not good news for the industry would be even worse for borrowers and once again shine the spotlight on the sector.

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MORTGAGE INTRODUCER

81

Interview

A Complete success

Jessica Nangle speaks to Complete FS directors Damian Cain, Tony Salentino and Phil Jay about their renowned Expo and the past 12 months at the packager Can you tell me a bit more about the Complete FS expo?

these are the biggest numbers that we have had which shows how valuable our Expo is to our introducers and lenders alike.

TS: This year we decided to go with a music festival theme. We have tried over the years to have a bit of fun with these events, but we did it slightly differently this year where we have the performers actually performing as well as featuring in pictures.

The whole purpose of this event is to get the industry together - both lenders and their on-site underwriters getting to meet the intermediaries who support us.

From an intermediary point of view, they listen to bespoke presentations that are not just about the lender but also about how Complete can add value to their businesses. We are really pleased that our on-site underwriters are in attendance as they can meet the decision makers; a unique feature at these types of events. Our expos are about having a bit of fun, not taking ourselves too seriously but relaying a relatively serious message, which this year is all about working together. We recently announced our seventh on-site underwriter with The Mortgage Lender, so watch this space!

DC: Our number of attendees has increased year-on-year, and

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How have the 12 months been at Complete FS? DC: One of our real focuses has been asking for reviews of our performance from lenders.

We want to know how our performance is, and we like to know how we are performing against our competitors. Because we are a packager, it often gets lost as to what the primary role of a packager is. We have managed to get lenders to analyse the business they get from us, some of whom say we are the best packager in the industry which is great. This has been a major achievement in the past 12 months.

DC: One of our major focuses has been asking our lenders for statistical reviews of our performance. We really want to know how lenders view the quality of our business and ideally how we fair against the other major packagers in the industry.

The results have been eyeopening and encouraging and we intend to continue on our path of delivering quality business to our lending partners. The support SEPTEMBER 2019

we have had from our primary lenders has been superb with the provision of on-site underwriters and excellent BDM support helping us to achieve our goals.

By focussing on quality through expertise we are able to deliver real tangible benefits to our lenders and our introducers.

TS: The testimonials we receive tend to go to the individuals involved which is lovely.

PJ: One of our priorities internally has been our BORIS system which is certainly ironic in today’s times! It stands for ‘Broker Online Remote Information Service’.

It effectively helps to compete and add value to what our brokers need when going direct to lenders? and the systems they use. Packagers traditionally have been quite manual where you send in an enquiry and application form and it is all paper-based.

BORIS is our internal system which allows brokers to send us business online. It is GDPRfriendly and speeds up the process. It allows us to connect our system to lenders with the APIs, making it a seamless process from the broker giving us an enquiry to getting an online decision from one of our specialist lenders.

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Interview

TS: BORIS is able to complete our generic DIP form, and once that data is in the system there is no need to re-key the information.

We start using at the BORIS system as soon as the enquiry goes onto the system and stop using when the commission is received and gone out to the broker. In the next six months we hope to be completely paperless, so everything will be online and the same for the broker as well.

We can pre-populate the data for around 26 different lenders with 26 different application forms.

API’s are the next phase of testing for us and we hope to have some working by the end of the year.

What trends have you been observing in the market?

PJ: In terms of bridging and commercial, we are seeing a lot of new lenders coming into the unregulated bridging world in particular. This has made the space very competitive, with rates continuously coming down and a view to look at the underwriting

more generously. Bridging has always been a marmite business, you either love it or hate it.

It still has an odd marr? to it unfortunately, but you still have some great professional lenders out there. We tend to deal with more regulated lenders and make sure that the business we give them is sustainable.

it comes to the self-employed and contractors; we are seeing lenders becoming more sensible about the adverse client. They are thoroughly checking affordability and the circumstances behind the adverse which has led to more consistent and appropriate decisioning, good news for everyone.

TS: In terms of residential and buy-to-let, the BTL industry has seen its challenges but if anything it has proved how resilient the market is and how much demand remains out there. The market is heading in a more professional landlord direction, but we are also seeing people who have properties in their own name wanting to incorporate into a limited company so there has been some good movement there. It is still going to be a £30-40bn market this year which people would not have believed even two years ago. The residential market is seeing more lenders being more innovative when

DC: In regards to secured loans, they are traditionally the smallest area of our business.

In the past 12 months, we have taken on a dedicated head of secured loans and we have been promoting, training and talking to our brokers. We will have our record month on secured loans this month which is good. It is currently a mixture of education and promotion.

From L to R: Tony Salentino, Phil Jay, Damian Cain

TS: On our bespoke sourcing system, powered by Twenty7Tec, once you enter an enquiry such as a ‘remortgage’, it will concurrently source a secured loan. This helps brokers with when giving advice and provides evidence of research so that thecustomer get the best outcome.

What is coming up in the next 12 months?

PJ: We will work on BORIS and educating brokers on how to use it. Behind BORIS is a system called OMS in which are shareholders. We have been able to tailor the system to our business thanks to that status.

The system is available to brokers in their own right so we will be working on that.

TS: On-site mandated underwriters are a growing part of our proposition.

We have worked hard to demonstrate the value of packagers to both lenders and brokers and this hard work is paying off with lenders being confident in our ability by extending their staff into our offices.

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MORTGAGE INTRODUCER

83



SFI: Specialist Lending

What is today’s mortgage adviser for?

In today’s mortgage market, customers have access to a range of tools that can help them find a mortgage deal.

Those tools are inevitably online and provided by a variety of sites. Let’s not forget that lenders are also making it very easy to interest existing customers with easy step-by-step online processes and the new breed of online brokers are advertising extensively to show that a mortgage can be handled online quickly with the minimum of fuss.

So, faced with the number of different outlets clamouring for your customer’s favour, what possible need is there for a good old fashioned mortgage broker?

Well, quite a lot actually. However, if you as an adviser who still thinks in terms of standard vanilla mort-

Clayton Shipton managing director, CLS Money

gages for customers who meet the template which the main high street lenders have imposed in respect of their ideal customers, then it is time to think again. The days of the vanilla mortgage sourced through a human adviser are definitely declining. For the reasons I have given above, the standard enquiries that have historically provided the mortgage broker’s bread and butter are heading towards the internet and the promises of speed and efficiency from evolving technologies to source a first or next mortgage.

But what if the applicant does not fit the boxes in the online form and explanations need to be provided, but there is no room to do so? These are the customers of today’s mortgage professionals.

For those of a certain vintage, the prospect of dealing with customers with prior credit issues or been knocked back by a lender for their employment status among other reasons, has caused advisers to consider their longer-term viability as customers. ‘If high street lenders don’t want to lend then they can’t be worth helping’ tended to be the thinking.

Fortunately, the need for advice and expertise has never been more necessary and with the growth of the specialist lending sector, the opportunities for all mortgage brokers to help those who do not qualify for a fully mainstream mortgage are huge. Getting over the association with the bad old days of sub-prime, which is sometimes still levelled, has been a stumbling block. Now, with a significant number of those seeking mortgages not able to get the easy answers they thought they would get online, today’s mortgage broker is in the best place to provide the necessary expertise.

‘Best value’ should be regulator’s mantra Defining cheapest in the context of a mortgage should be a fairly easy task. Certainly, the regulator thinks so and it is hardly surprising that the default position on any sourcing system is set to bring up the deals usually based on an eye-catching headline rate.

Most experienced advisers tend not to put any faith in the first cut appearing on their screens, seeing it as just the opening sort through of potential lending sources for a customer. However, the ‘cheapest option’ ideal is based on very little substantive criteria and this is where the issues tend to crop up.

The assumption that advisers are going to recommend a more expensive option to customers if there is an obviously more suitable lower cost alternative, suggests that in some circumstances the regulator is concerned that advisers today are either gaining some pecuniary advantage or are not looking hard enough to ensure customer value.

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With the rise of specialist lending and the growing number of applicants whose profiles do not fit the ‘high street’ template, many mortgages with low rates are out of the question, regardless of the desire to secure them. In addition, let’s also take into account the issue that what looks attractive at the outset, might not be the most cost effective over the longer term. For example, does the ‘cheapest’ scenario include the fees being charged to the borrower on the mortgage? Also, a fixed or discounted rate might look to be cheaper during its duration but what difference does that make to the overall cost when the mortgage reverts to an SVR? The evidence, such as it is, suggests that in most transactions, advisers are doing their jobs correctly despite the lack of a definition of ‘cheapest’, because real advice does take into account all the variables that come up in the initial assessment and is then applied to the most SEPTEMBER 2019

Shaun Almond managing director, HLPartnership

appropriate solution.

Does that mean that the mortgage with the lowest initial rate is the one chosen? In today’s market, the answer to that is probably ‘no’ if all we are prepared to look at is the headline rate and nothing else.

Given the tendency for retrospective action from the regulator, a topic like this requires greater clarification now to agree a wider definition and dispel concerns over action taken years in the future, when justifying today’s recommendations are more difficult to prove.

I would replace the word ‘cheapest’ with ‘value’ to the customer.

That value should not be limited to the headline pay rate, but take into account fees charged at outset, the current SVR charged over the mortgage’s initial stated term and assume for the purpose of illustration the mortgage ran to term. This would create a more accurate and level playing field and better illustrate true value to adviser and customer. www.mortgageintroducer.com

SFI: Bridging

Identifying opportunities in bridging Bridging is classed by many as a specialist mortgage type. As such, for some advisers, they may not be making the most of the opportunity due to a lack of understanding of the product.

There are key uses for the product, that could be spotted by the adviser, with the right education. For example, buy-to-let properties now need an Energy Performance Certificate (EPC) rating of E or above, and if the property does not have this, it is not legally allowed to be let out. In these circumstances a bridge loan can be used to purchase the property, then once the condition of the property is improved, the loan can be refinanced on to a term buy-tolet product.

Networks have a part to play in helping advisers to have the right level of knowledge, to identify opportunities as above but also to help advisers understand the potential risks.

Liz Syms owner, Connect IFA and Connect for Intermediaries

For example, the planned ‘exit route’ of a bridge loan is very important to ensure that enough consideration is given as to how the client will repay the bridge at the end of the term. How long the bridge loan is taken out for can affect the client’s options. If the client has taken a bridge loan to fix and EPC issue on a property, but while completing the work, the client loses their job, will they still be able to refinance onto a term buy-to-let?

Bridge loans that go into default can be costly for a client and in some circumstances result in repossession.

There are a considerable number of bridge lenders in the market, some large and some very small, offering loans from private money.

A network is in a position to consider only adding bridge lenders on its panel that it deems to offer fair terms for clients.

The network can also look to

“Networks have a part to play in helping advisers to have the right level of knowledge and identify opportunities but also to help them understand the potential risks” educate brokers on bridge loans that have ‘guaranteed’ exit routes.

For example, refurbishment buyto-let and even bridge to live products are available from lenders like Precise Mortgages and Clydesdale, which guarantee the exit onto the term product, reducing risk. These lenders are also on most networks’ mainstream panels, making it easier to facilitate training to help advisers to help more clients.

Survey says solicitors are inefficient Most (82%) of respondents to the first Apex Bridging broker survey believed that, the speed of client’s solicitors in progressing a case to completion was the single major cause of delays in the bridging process.

I don’t want to have a go at solicitors, but the survey response does pose the question “What can all stakeholders do to improve the solicitor’s performance?”

I believe that more time should be taken in educating all potential solicitor panel members to the SLA’s a lender is seeking acceptance of ahead of any appointment.

At this time of the year I am continually frustrated that so many cases are stalling because the solicitor acting, either for lender or client, is on holiday. This situation will arise, but what I ask is, please let us know well in advance so the positive communication process can be put in www.mortgageintroducer.com

place for everybody’s benefit.

I have long been an advocate of lenders collaborating with brokers in establishing a master solicitor list from which brokers could suggest to clients that this should be their first port of call when selecting their solicitor, as they are experienced and are aware of the way the lenders model works, thus ensuring a smoother route to completion.

It is not all the solicitors fault, we all need to get better at collaborating, communicating and educating, but the solicitor fraternity has been subject to this criticism for so long now that it is time for them to review their internal practices so all stakeholders can benefit from any improvement.

Brokers have their role to play as well. After all whilst they are criticising the clients solicitors via the

Sonia Shortland director, Apex Bridging

survey they have to accept that it is their client and as such they should be questioning the solicitors experience in the sector before the client instructs, to determine if they are likely to be an obstacle in the completion process.

There is still a great deal of ignorance amongst stakeholders of what the other parties must do to comply with their own professional codes of practice and what internal processes they must comply with to satisfy those standards. Apex Bridging, like other lenders, is collaborating more with all their stakeholder partners in developing the likes of flow charts, so all parties understand better what the other party needs to do to get a case over the line in the most efficient way.

Collaborate, communicate, educate and let’s help each other for all our benefits especially the clients.

SEPTEMBER 2019 MORTGAGE INTRODUCER

85

SFI: FIBA Bridging

The contribution of brokers and their trade body As the demand for commercial finance in the UK continues to grow, the need for the still increasing number of new or emerging lenders to be visible to the intermediary market, has become ever more vital to their success.

The growth in the number of new finance lenders over the past decade has followed a similar journey to those within the residential market. In the wake of the 2008 credit crunch, major lenders chose to withdraw or curtail their activities, particularly in areas of the market that were perceived as offering higher risks. By the end of 2009 the number of lenders focused on the commercial sector had fallen from over 100 two years previously, to around 40.

In the intervening period, we witnessed a reluctance by larger lenders to step beyond a self-imposed template of the kind of customer and level of risk they are prepared to entertain. However, volumes for UK commercial funding have revived, and the demand for SME finance of all types has increased dramatically in recent years. The vacuum created by the withdrawal of traditional sources of finance has been increasingly filled by the growing number of new lenders. In fact, there are now over 400 lenders competing for finance business across the UK, offering a truly inspiring range of lending options and products.

But, how can they begin to compete effectively when the market is becoming so subscribed?

One of the most effective ways for lenders to grow their business and boost revenue streams is to affiliate themselves with a trade body like FIBA. They act as a focus point for lenders, providing access to adviser firms which the lender knows are potential business providers from the outset. Similarly, membership of FIBA ensures that brokers can get access to lenders who might not allow access to individual firms.

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Adam Tyler executive chairman, FIBA

FIBA offers lenders and other providers the potential for increasing distribution by utilising the value of its membership to give both lenders and suppliers access to a concentrated source that might otherwise be beyond their reach without extensive individual marketing, negating the need to ‘cold call’ for prospective introducers. This, in turn, means that the savings in general marketing can be channelled instead to build greater volumes and to target resources more efficiently a win/win scenario.

Lenders might prefer to deal directly with customers in a perfect world, but the value of the intermediated sector provides a stronger opportunity to generate business.

Broker sourced business converts better because of experience and

“Trade bodies offer lenders a tailormade resource of brokers with an interest in the commercial sector, who have themselves subscribed to a code of conduct governing the treatment of customers, among other considerations” market know-how. When a lender is able to access a dedicated trade body membership, not only can the lender reach a knowledgeable group, but also one that is looking for the kind of lending solutions that the lender can fulfil.

FIBA has a robust vetting procedure before lenders are allowed to join the lending panel and each business is subject to the centralised provision of an ethics code, so that members can be confident that the providers that they use will be of the highest possible quality and standing.

Inevitably the question of techSEPTEMBER 2019

nology is always present in this debate and how this is already influencing the way in which SME’s source finance and what part this is going to play in the future.

We cannot ignore the growing sophistication of technology and modern communication which has made market entry increasingly more simple and cheaper for lenders than even ten years ago.

When we add in the moves to simplify processing via AVMs for example, or online applications and assessment of the credit worthiness of a business by analysing current data pertaining to sales and expenditure being pioneered by a growing number of start-ups, technology is showing us that we all need to adapt to benefit from these advances.

Can advisers feel that they could be left behind? For me, the importance of the professional adviser lies in the perception of customers who recognise the value they bring to the table in a market where the number of funding choices has increased exponentially.

Managing customer expectations and being able to offer a service that demonstrates an ability to recommend from a broad range of lending options that best suit that customer’s needs in the right timeframe are the key attributes which separate man from machine. Fintech will continue to provide the commercial sector with innovation but nothing can replace the knowledge and experience of a professional adviser with access to the best solutions and this remains the first choice for our members customers.

In short, trade bodies offer lenders a tailormade resource of brokers with an interest in the commercial sector, who have themselves subscribed to a code of conduct governing the treatment of customers, among other considerations.

A trade body relationship for a lender, properly managed, offers new lenders a tailor-made audience on which to build a strong reputation, benefitting the lender looking to expand its reach and benefit from the quality of the business generated with the subsequent saving in processing costs. www.mortgageintroducer.com

in association with the Irish Medical Socie

An interview with…

Deirdre McManus, former Head of Sales at Bristol & West, the founder and principal organiser of the Broomstick Ball.

What is the Broomstick Ball?

The Broomstick Ball is an annual black-tie evening held in aid of Cancer Research UK. I think we are all aware of the great work CRUK do and the great strides they are making. This year will be the Broomstick Ball’s 20th anniversary. Over that time it has become recognised as one, if not the biggest, charity events in the property/ financial services calendar.

The ‘Broomstick Ball’, I’m guessing it’s on 31st October - Halloween?

That was the original idea. We identified it as a date when there were the least industry awards evenings and it reflected the fun we set out to have, while raising funds for a great cause. As the years have gone by however, ‘Halloween’ has grown in popularity beyond all recognition and sadly it no longer makes financial sense for the charity to hold it on or near Halloween.

What day will the Broomstick Ball be this year?

This year it will be held on Thursday 21st November, the latest day in the year that we have held it. It’s really important that we get the best venue at the best price to ensure that we raise as much money as possible for CRUK. The Broomstick Ball has become so well-known throughout the industry that we are reluctant to change its name even though it is not held in October.

Where will the Broomstick Ball be held?

We are very excited that for the 5th year it will be held at the Leonardo Royal Hotel London St Paul’s, next to St Paul’s Cathedral on Godliman Street, previously known as the Grange Hotel.

Is the Broomstick Ball well attended?

On average we attract around 400 guests, from a wide range of lenders, solicitors, valuers, brokers, introducers and intermediaries.

It is a great opportunity for people to network, as well as say thank you to those who have been loyal customers over the previous 12 months; and all in the name of a great cause. If I’ve done my maths correctly that is over 8,000 guests over 20 years.

How much money have you raised over that time?

We have raised in excess of a fantastic £1.2m since we began. An amazing testament to the property/financial services industry which has a reputation for looking out for themselves, however this just goes to show how charitable an industry we can be.

So how much does it cost for a ticket?

It is essentially £195 per ticket. We think this is a great price for a three-course meal in a top London hotel with wine and a champagne reception. A company will take a table which seats 10 or 12 guests. This year however, conscious of our ever evolving landscape, we have introduced shared tables for 6 guests, for those smaller and newer businesses who want to be a part of the evening but their budget doesn’t quite stretch to a full table. We think these shared tables will also be a great networking opportunity for those businesses joining us for the first time.

Who attends the Broomstick Ball?

There is something for everyone at the Broomstick Ball – a great auction; heads & tails; a dance floor and casino. As a result, we attract a really diverse group of people from leaders of the industry through to the executives being rewarded for their hard work. In addition to industry professionals, friends and associates of the table sponsors are regularly spotted in attendance, supporting this worthy cause.

Media partner

More information can be found at:

broomstickball.co.uk

MORTGAGE

INTRODUCER

SFI: In myBridging opinion

Pension or property ladder Ray Boulger, senior mortgage technical manager at John Charcol, ponders whether FTBs should be able to borrow from their pension fund to fund their deposit In early June James Brokenshire, then Housing Minister, suggested FTBs should be allowed to access part of their pension fund for a deposit to allow them to become homeowners. He made it clear this was a personal view and the DWP said it did not support the idea because it claimed “the evidence shows it will be risky and does not help the people it intends to help.”

As tax and other rules relating to pensions are changed so frequently by government it is impossible to be confident decisions which appear sensible today will still look sensible in five years, let alone 40 or 50, when some employees just starting into auto enrolment with their first employer will retire.

The current lifetime allowance rules are plain stupid because the better one’s pension fund performs the greater the risk of being penalised, a risk obviously enhanced if contributions start when young, as they will for most employees because of auto-enrolment.

Once the pension fund value exceeds £1,055,000, based on 2019/20 rules, a very onerous tax regime kicks in.

Even though the government claims this amount will be index linked, past actions of Chancellors provide nil confidence this promise will be kept.

One way of reducing the risk of being clobbered in the future with an extremely onerous tax charge on one’s pension would be to defer starting pension contributions until older and save through a different tax efficient vehicle when young.

However, the problem is that opting out of auto enrolment would normally mean missing out on the employer’s contribution.

For basic rate tax payers under 40 a Lifetime ISA offers a similarly tax efficient savings vehicle to a pension and can be used to fund either a FTB

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deposit or an income in retirement.

Therefore, what James Brokenshire is suggesting can effectively already be achieved using a lifetime ISA instead of a pension. But for employees this is only a realistic option for whatever additional savings may be available in excess of the minimum auto enrolment employee contribution, to avoid losing their employer’s contribution.

Enterprising employers could give employees the option of having the money they would have had to pay into their pension paid instead into a lifetime ISA, subject of course to the £4,000 p.a. limit. This would admittedly involve a small increase in admin for the employer but could be promoted as an employee benefit for younger staff who are not yet homeowners.

The employer would have to avoid falling foul of the rules preventing an employer encouraging employees to opt out of auto enrolment, but this could be achieved by the company’s IFA providing generic information to all staff comparing the pros and cons of a lifetime ISA to a pension.

Reverting to the suggestion of using part of one’s pension fund to provide some or all of the deposit to purchase a home, this could be done in a way which not only does not negatively impact on the pension fund but may

SEPTEMBER 2019

enhance its value. Any such rule change shouldn’t be limited to FTBs. It might be equally helpful to someone who recently divorced and has to start again in the property market.

Loan backs of up to 50% are already allowed from a SIPP and a SSAS, albeit not to purchase residential property, and so some of the basic legislation to allow loan backs is already in place; this could be built on to extend the facility to personal pensions.

Such a facility already exists for 401K loans in the US and the government does not set guidelines or restrictions on the uses for such loans, although many employers specify a minimum loan size in order to reduce administration costs. Generally employees can borrow up to 50% of the fund value up to $50,000.

One problem with current FCA regulations, and hence the way most brokers work, is the silo mentality.

However, if one looks holistically at the financial situation of an individual (or a couple) saving for a deposit, being able to access part of their pension will either allow them to become a homeowner sooner and/or will allow them to put down a bigger deposit, perhaps avoiding incurring the marginal cost of about 20% on the top 5% of a 95% LTV mortgage. Either is likely to enhance their financial position in retirement.

The funds borrowed from the pension fund could be lent on an equity share basis (similar to the Help to Buy scheme), giving the pension fund an equity investment in residential property without normal BTL costs and diversifying the fund’s investments, or lent at an agreed interest rate. There would of course be some admin hurdles to overcome, which would have to be factored in the charges for accessing one’s pension fund. www.mortgageintroducer.com

Mortgage Business Expo 2019 Where business happens

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For one day only Mortgage Business Expo London provides the perfect environment to engage with your industry Access key suppliers delivering essential revenue opportunities Find solutions for your hard to place cases Learn what’s happening in your ever-changing and fast paced finance industry Find out from the experts how to steer your business through the post Brexit maze Network with like minded people from your industry Earn valuable CPD hours and it’s free to attend

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Established 2002

The Hall of Fame

What a Mogg Who’d have thunk it, a Tory minister has been caught lying in parliament!

However not in the way that first comes to mind.

The walking Blur song (take your pick from Charmless Man or In The Country) that is Jacob Rees Mogg was caught out catching forty winks on the government’s front benches.

If you’ve missed this peach it’s time to come out from the rock you have been living under.

This one has more mileage than Ed Miliband eating a bacon sandwich and the memes have been plentiful.

But whilst the Twittersphere was a-light with Ress-Mogg memes the HoF couldn’t help but be struck by the resemblance to someone more well known to these hallowed pages.

Former MI employee Ryan Bembridge.

Bembridge, who is now dodging the grizzlies in Canada, was renowned for his layabout style in the shared foyer of MI Towers.

Many-a-time the HoF clocked the James Franco doppelganger loafing around in sloth-like fashion – much to the annoyance of certain members of the MI team (well one at least).

With Bembo now inflicting his louche poses on the Canadians the HoF will have to get its fix watching ReesMogg. Oh, the joys!

And the winner is...

Red Carpet Treatment…

So long, farewell The HoF was sad to see the MI sales manager Francesca Ramsey leave the firm after three successful years.

Fran was known for adding a bit of glamour and organisation to a MI team which, let’s be frank, is pretty bloody lacking in both.

MI commercial director Matt Bond told the HoF: “Fran will be missed at MI towers as she was such a pawsitive influence here. Unfortunately, it looks like MI sales will be a lipstick free zone moving forward.

I wish her the best.”

In tribute, here is avid animal lover Fran, with MI marketing manager Robyn Ashman’s pet pooch Hector – who is clearly enjoying the attention – in happier days.

So long Fran – you will be missed.

This month’s caption competition Damien Druce, formerly of Assetz Capital, holding two as yet unidentified edible objects

Beam me up, Homer!

This month’s winner is: Mark Bell-Berry, Chalfont Investment Consultants

90

MORTGAGE INTRODUCER

SEPTEMBER 2019

Win a Pimms Summer Pack, courtesy of the kind people over at Brightstar Financial!

Simply email your witty caption to Ryan@mortgageintroducer.com with the subject line CAPTION. Every month the best will be published

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From our BDMs to our mortgage processing, we’ve got you and your mortgage customers at the heart of everything we do year in, year out.

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