Mortgage Introducer – May 2022

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MORTGAGE

INTRODUCER www.mortgageintroducer.com

May 2022

A gathering storm New national statistics point to challenges for home buyers and owners as rates, costs rise

£5

EDITORIAL

COMMENT Managing Editor Paul Lucas paul.lucas@keymedia.com Deputy News Editor Jake Carter jake.carter@keymedia.com News Editor Richard Torne richard.torne@keymedia.com Content Editor Kel Pero Commercial Director Matt Bond matt.bond@keymedia.com Advertising Sales Executive Jordan Ashford jordan.ashford@keymedia.com Campaign Manager Amie Suttie amie.suttie@keymedia.com Production Editor Felix Blakeston Production Coordinator Loiza Razon Head of Marketing Robyn Ashman robyn.ashman@keymedia.com Mortgage Introducer is part of an international family of B2B publications, websites and events for the mortgage industry CANADIAN MORTGAGE PROFESSIONAL cmpadvertise@keymedia.com MORTGAGE PROFESSIONAL AMERICA mpaadvertise@keymedia.com MORTGAGE PROFESSIONAL AUSTRALIA claire.tan@keymedia.com AUSTRALIAN BROKER simon.kerslake@keymedia.com NZ ADVISER alex.rumble@keymedia.com CEDAC Media Ltd Signature Tower 42, 25 Old Broad Street London EC2N 1HN

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Mortgage’s tale of two cities

“I

was the best of times, it was the worst of times.” Charles Dickens may not top the recommended reading list for mortgage brokers, but that famous quote seems fitting in the present environment.

Inflation is rising, and the energy price cap has increased by an eyewatering 54 per cent, with no signs of relief on the horizon, particularly amidst the ongoing conflict between Russia and Ukraine. To curb inflation, the Bank of England has been hiking the base rate – this month to one per cent – despite issuing a warning about a potential recession ahead. All of this has prompted a cost-of-living crisis. Let’s hope this is as bad as it gets, and that these are the worst of times indeed….

Yet, amid this volatility, the best of times continues for the UK housing market. The average UK house price rose again in April, up by 1.1 per cent, hitting a new record high of £286,079, according to the latest Halifax House

Price Index. As Jeremy Leaf, north London real estate agent and a former RICS residential chairman, put it, “The concerns of many buyers and sellers about economic uncertainty are still outweighed by their determination to find a suitable property.” Despite everything that’s going on in the world, lenders and brokers continue to thrive.

But despite this, both would be wise to remember the next line of that famous Dickens quote: “It was the age of wisdom, it was the age of foolishness.”

Budgets are tightening and priorities will shift – and as households reorder their finances, mortgage professionals would be wise to do the same. For now, the housing market remains remarkably immune to all around it – but only the foolish wouldn’t predict a “tale of two cities.” Prepare now, so a spring of hope isn’t followed by a winter of despair.

Paul Lucas

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MAY 2022

MORTGAGE INTRODUCER

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MAGAZINE

WHAT’S INSIDE

Contents 34

INTERVIEW

4 Reviews 26 BoE rate hike 27 Cover: ONS data The true extent of the cost-ofliving crisis was laid bare this month following the release of new figures by the Office for National Statistics (ONS) 30 Interviews MI talks with Colin Bell of Perenna, Nick Chadbourne of LMS, Alison Pallett of LiveMore, and Eddie Goldsmith of YouConvey 37 Loan Introducer The latest from the second charge market 41 Specialist Finance Review Development finance, bridging finance and more from the specialist market

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LONDON

17 36 MARKET

MAY 2022

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RECRUITMENT BUY-TO-LET

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REVIEW

BUY-TO-LET

Busiest month points to BTL popularity continue to apply for mortgages for BTL properties.

Paul Fryers

SMALL TO LARGER PORTFOLIOS

managing director, Zephyr Homeloans

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n February this year, Zephyr Homeloans approved six times the number of decisions-in-principle for buy-to-let mortgages than it had during February 2021.

During the past year we’ve also seen a fourfold increase in full mortgage applications.

Overall, activity has risen considerably since the UK went into its first coronavirus pandemic lockdown on 23 March 2020.

ENDURANCE OF BUY-TO-LET

In 2015 the announcement of a new additional three per cent stamp duty rate for anyone buying a second home led to gloomy forecasts for the BTL industry.

There were similar predictions two years later, in 2017, when the government stopped allowing landlords to deduct the interest they paid on mortgages before paying tax.

The old system effectively provided higher-rate taxpayers with 40 per cent relief on their BTL mortgage payments.

Its replacement meant landlords instead received a flat-rate tax credit based on 20 per cent of their mortgage interest.

During the pandemic, some industry voices predicted that emergency legislation temporarily banning evictions and introducing rent holidays would result in private landlords exiting the sector.

Some commentators are now warning that the government’s proposal to introduce an Energy Performance Certificate (EPC) C rating by 2025 on all new properties will lead to an exodus.

Despite these concerns, people

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The high demand we’re seeing very much reflects trends in the private rental sector.

Some landlords, particularly those with a modest number of properties, are selling up. However, ‘professional’ investors, typically those with larger portfolios who have set up limited companies, are buying a stake in the market. Reasons for the shift are complex, but include people choosing to invest in rental property to support lifestyle changes such as working parttime or perhaps leaving the workforce altogether.

These new landlords are no doubt also aware of the increases in capital

appreciation in the property market, including in rental properties, over recent years.

They are also probably conscious that tenant demand for the UK’s five million private rental properties remains high.

OUT WITH THE OLD

Some landlords are considering disposing of older properties that do not meet the government’s new EPC requirements, but at the same time, some are investing in more modern properties that meet the new criteria.

There also appears to be a geographical shift in the locations where landlords are buying, with many looking outside of London to the regions.

Recent data have shown that around 20 per cent of all Zephyr deals relate to property in the North West and Yorkshire.

All the signs so far during 2022 underline the fact that, despite the increasing complexity of owning BTL property, bricks and mortar remain an attractive and popular investment. M I

It’s both an exciting and a challenging time for BTL

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351_

BUY TO LET’S GO GREEN Reduced rates for energy efficient properties with our green buy-to-let product range.

Applies to properties with an EPC rating of C or above.

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REVIEW

BUY-TO-LET

Rents rising in red-hot market Cat Armstrong mortgage club director, Dynamo for Intermediaries

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ngoing demand for all property types has been evident across the mainstream, specialist, and BTL markets over the course of Q1 2022, despite some lingering effects of the pandemic and amidst some economic uncertainty.

Focusing on the BTL sector, Rightmove’s Quarterly Rental Trends Tracker for Q1 2022 revealed that asking rents in Great Britain had increased at the fastest rate ever recorded. Average asking rents hit annual growth of 9.9 per cent to reach £1,068 per calendar month outside of London, the highest annual jump on record, recovering from the slowdown in rental growth in the months immediately after the pandemic started.

THE SQUEEZE ON AVAILABLE RENTAL HOMES

This rapid growth in average asking rents, driven by high tenant demand and scarcity of rental properties, means that rising rents are outpacing house price increases in all but three regions (East Midlands, South West, and South East). The imbalance between high tenant demand and low rental stock is supporting asking rent rises and has led to competition between tenants for available rental properties nearly doubling (+94 per cent) compared to the same period last year.

The Tracker also showed that total rental demand had risen by 32 per cent compared to Q1 2021, while the number of available rental properties was reported to be 51 per cent lower.

This led to available rental properties

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being snapped up by tenants in just over two weeks (17 days) on average. However, the number of available rental properties was seven per cent higher than the same period in December, a sign of availability improving at the start of the year. Flats saw the highest increase in competition compared to last year (+132 per cent), followed by terraced houses (+40 per cent) and semi-detached homes (+30 per cent).

LANDLORD YIELDS

Additional data from Rightmove highlighted that the average yield across Great Britain was 5.5 per cent, the highest since 2016 (5.6 per cent).

The North East and Wales registered record yields, while yields in London, South West, and Yorkshire were all said to be at their highest since 2015. Yields in the East of England and South East were at their highest since 2016.

This outlines how we are operating in, arguably, the most competitive rental market ever recorded.

When looking at rents and yield, the market often focuses on the entire property, but with a growing student population and more young professionals heading back to their offices and an urban life, a sizeable proportion of these are living as sharers in an HMO. ROOM RENTS

As outlined in the latest market analysis from SpareRoom, this area is also hitting new heights, with 41 out of the 50 largest towns and cities in the country seeing room rents reach a record-breaking high in Q1 2022.

This included cities such as London, Manchester, and Liverpool, with rents of £794, £531, and £415 respectively.

In addition to record-breaking rents, the cost of living continues to be on the up, and energy prices are set to increase again in the autumn.

As a substantial proportion of flatsharers have bills included in their rents, this could well be just the start.

When considering the cheapest areas to rent in the UK, Darlington came in at £380, followed by Bootle (£383) and Bradford (£384).

Conversely, the most expensive rents outside the capital were found in Twickenham (£714), Kingston upon Thames (£712) and Barnet (£681).

Looking at the UK’s top 50 towns and cities, Sunderland saw the biggest increase in room rents, up 19 per cent, followed by Belfast (16 per cent) and Glasgow (14 per cent).

HMO

The HMO arena is an interesting, if somewhat more complex and initially more expensive, proposition for landlords. It is certainly a property type that is creating a strong level of demand at a time when landlords are looking to maximise yields and diversify elements within their portfolios. These costs were highlighted in figures from Octane Capital, which showed that the average HMO across Britain is valued at £364,508, some 32 per cent more than the wider market value of properties.

In the North East, HMO market values were suggested to be as much as 109 per cent higher than wider market properties, with London (72 per cent), the West Midlands (55 per cent), and Scotland (41 per cent) also seeing some of the largest HMO price premiums.

Even in the East Midlands, where this premium is at its lowest, HMO properties still come in two per cent above the value of wider market properties in the region.

Yields do tend to be much higher for HMOs, and there are a number of additional considerations that landlords must take into account for this property type – both positive and negative.

When it comes to financing, this also tends to be a little more complex, but competitively priced options continue to emerge.

Many of these are only available through intermediary channels, a factor which adds even further value to the intermediary advice process. M I www.mortgageintroducer.com

REVIEW

TECHNOLOGY

Don’t let tech become your albatross Tim Hague director, Sagis

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emember the days – precredit crunch, obviously – when new mortgage lenders were launching left, right, and centre, each offering to outdo the others based on speed, ease, and slap-up customer service?

Rooftop, Amber, edeus, Beacon – these were just a few of the lenders looking to capitalise on a buoyant mortgage market and rising property values back in the mid-2000s. While each offered a slightly different approach to rallying business, technology and their use of it was among the most effective USPs the new boys and girls on the block boasted.

Risk management has moved on a lot since then, and the technology and data that support our decision-making have evolved substantially.

The reason I bring up memories many would, I suspect, rather leave in the long grass is to remind us that the industry’s addiction to the lure of technology is nothing new. It dates back much farther than the aforementioned lenders ultimately selling the sparkle of an automated valuation model.

But this example is a good one when one is thinking about the challenges facing businesses today. When it comes to investing in technology to help evaluate risk effectively and efficiently, where do you start?

Many of the specialist lenders that adopted the best and newest technology in the heady days of the mortgage market were able to do it because they launched with a blank page. A new business can assess its

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needs and those of its customers, review the available tech out there, and decide what approach to take in order to best serve its customers.

The same can be said of today’s new banks and fintechs – Monzo, Starling, Habito, Smartr, Dashly, etc, etc. Given a clean slate and wedge of investment, it’s often less complicated to address the tech attributes of your business than it may be for long-established financial services organisations with archaic IT. It’s nothing new – we’ve all been banging on forever about the challenges of improving customer experience and service delivery while also having to manage legacy technology systems that would overwhelm even the most die-

“It’s worth considering some things that can and do apply no matter where you sit in the market. Legacy tech, in many instances, is no longer being updated, is already costly, and will only get costlier to maintain the older it is. When does your foundation become an albatross?” hard technology enthusiast.

Nightmarish experiences suffered by the likes of TSB when it migrated customer data from its system on to owner Sabadell’s system are a lesson to us all. Untangling legacy technology while protecting customers, their data, and, frankly, business as usual is unspeakably difficult. It’s the reason so many retail banks and building societies still have systems written in computer code developed in the 1960s.

Yes, really.

All that acknowledged, the stark reality is that banks and building societies must adapt or die out.

Competition from upstart start-ups is fierce, specifically when it comes to customer experience and journey.

But let’s put this into perspective.

Banks and building societies that have been providing savings and current accounts, loans, and mortgages for hundreds of years have several advantages over newer tech-focused competitors. Scale, margin, reputation, and loyalty are but four of those advantages.

But these count for nothing if lenders cannot respond to changing market needs, or struggle to be relevant to customers today. Technology is the engine room of banking – you simply cannot operate in overcrowded markets if you have insufficient operational capability. How, then, can lenders saddled with legacy technology find a path through this maze?

Every business has a different set of challenges and objectives, so there is no easy answer to that question. But it’s worth considering some things that can and do apply no matter where you sit in the market. Legacy tech, in many instances, is no longer being updated, is already costly, and will only get costlier to maintain the older it is. When does your foundation become an albatross?

There’s an investment case right there.

But don’t conflate various things into one knotty problem. Improving technology doesn’t have to mean completely replacing your entire system. Break it down. Do one thing at a time and make the first thing the one that will have the biggest value impact on your bottom line, revenue, or business performance. Test, try, review; ditch if it doesn’t work and adapt if it does. Run the business case – investing in technology that gives you the ability to be agile in future isn’t simply a cost, but not investing in it is an opportunity cost. Learn from the people who are doing it already.

From engaging with the right partners to making the right decisions to support your business proposition, the technology decisions you make today need to allow you to pivot and scale as your market may demand in the future. Sage advice and the benefit of experience can eliminate a substantial part of the risk. M I MAY 2022 MORTGAGE INTRODUCER

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REVIEW

HOLIDAY LETS

What’s happening with holiday lets?

Xxxxxxxxxx Jane Simpson xxxxxxxxxxxxxxxx, managing director, xxxxxxxxxxxxxxxx TBMC

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espite the UK’s widespread lifting of restrictions on overseas travel, factors such as airport disruption and the cost-of-living squeeze mean many will holiday on home soil again this year.

This looks set to sustain demand for the holiday lets invested in as the pandemic gave rise to last year’s staycation boom.

With spring now in full swing, our thoughts turn to breaks away, and this is reflected in the growing number of enquiries we’ve seen for holidays lets.

With COVID travel restrictions now largely lifted, will Britons turn their backs on the domestic holidays that peaked in popularity last year, lured by the warm weather that is much more of a certainty abroad?

The Easter period is traditionally the start of holiday season, so last month’s break gave us a good gauge of the state of the staycation market.

Large numbers headed for foreign shores, taking advantage of deals aimed at tempting back travellers to the heavily affected sector. But the surge in demand was met with flight cancellations, leading to severe delays.

This has acted as a reminder that issues remain with staffing levels and processes in a travel industry that has had to react to frequently changing regulations.

Travel experts have warned that, unless addressed, these holiday headaches could have an impact on demand for overseas summer breaks, with holidaymakers instead opting for staycations that are deemed to run a lower risk of disruption.

In addition, with the cost of essential everyday items rapidly increasing,

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leading to inflation growth at a pace not seen for 30 years, some households may look for cheaper UK alternatives to holidays abroad.

Research published by Mintel suggests that a rise in people choosing to vacation closer to home this year may translate to demand for holiday lets. As well, a growing number of people are open to the idea of staying in a cottage or villa rather than a hotel during their holiday. Responding to a survey, a quarter of families said they have experienced a holiday in a shortterm let in the past three years, and just under half – 47 per cent – indicated that they would consider this type of accommodation for future trips.

“Responding to a survey, a quarter of families said they have experienced a holiday in a short-term let in the past three years, and just under half – 47% – indicated that they would consider this type of accommodation for future trips” And it isn’t just coastal and countryside properties – evidence of holiday let demand can also be seen in the Central London lettings market.

The first lockdown greatly reduced demand for the many Airbnb-type short-term lets servicing the large numbers of tourists who visit the capital each year. Landlords were forced to relist them as ASTs at a time when some people were moving out of the capital in search of more space and access to greenery, resulting in an oversupply.

Research carried out on behalf of Paragon revealed how just 16 per cent of landlords operating in Central London reported increasing tenant

demand in Q1 2020. The same research covering Q1 2022 found that 84 per cent of Central London landlords now report increasing tenant demand – the highest region alongside the South West and Wales.

Of course, a primary driver of this demand will be the return of those who are again drawn to the capital as the buzz of urban living roars back, but the sheer size of the London holiday let market, which attracts over 20 million tourists annually, means that will also have some impact.

So, with a number of different indicators suggesting that demand for holiday lets could continue, we may see more landlords looking to broaden their stock profile, especially as other, more conventional housing types, particularly family homes, are in such short supply. Holiday lets are closely linked to the issue of constrained supply, becoming the subject of significant criticism after reports emerged of people in holiday hotspots being unable to find and afford homes in their local area because those homes had been let to tourists.

To minimise any negative impact, Airbnb has proposed tourism taxes that would benefit local residents. Any investment would need to take these potential costs into account, along with the additional overheads associated with short-term letting, such as regular cleaning. The current high house prices and the premium paid on holiday let properties in the most desirable locations will also deter some, but, with furnished short-term lets able to generate comparatively higher yields, they remain an attractive proposition for others.

With landlords more likely to buy holiday lets in areas they are unfamiliar with, brokers should ensure their customers have carried out plenty of research, checking for any restrictive covenants that could affect the ability to mortgage or to switch to a standard let if needed. Lenders have varying criteria on holiday lets, too, with rentals being assessed in a number of ways, so brokers who have knowledge of lenders’ criteria will do well in what is a niche but potentially profitable sector of the market. M I www.mortgageintroducer.com

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HOLIDAY LETS

Holiday lets – the best is yet to come Emily Smith head of intermediary sales & distribution, Harpenden Building Society

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ith demand for holidaying closer to home reaching new heights during the pandemic, staycations remain popular despite overseas options opening up again post-COVID-19. As a result, UK bookings remain high, making holiday let investment an attractive proposition.

So what opportunities does this present for brokers?

ONGOING DEMAND

Have Brits fallen out of love with holidaying overseas? Maybe to some extent. The Easter break was perhaps an indication. The RAC predicted an estimated 21.5 million leisure trips would be made over Easter, with large numbers making their way by road to UK holiday destinations. If news reports were anything to go by, this was certainly the case.

In contrast, the same news channels were covering multiple overseas flight cancellations due to COVID-related staff shortages, and when flights did run, many travellers were reportedly caught up in security and passport queues.

Some overseas destinations also remain under tighter COVID restrictions, dampening enthusiasm for travelling abroad. These points alone are making staycations attractive.

The recently launched holiday letting outlook report from Sykes Holiday Cottages outlines that the staycation sector continues to go from strength to strength, with bookings for their UK holiday lets currently up 35 per cent in 2022 compared to pre-pandemic levels. The same report

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indicated that 84 per cent of holiday homeowners say bookings are stronger than ever and expect this trend to continue over the next five years.

Jane Penrose, a would-be holiday let investor from Hertfordshire, where our society is based, comments, “My husband and I had always set our hearts on acquiring a holiday let property overseas, somewhere like Spain, but since the pandemic arrived, our views have changed.

We want to use the property for our own holidays as well as renting out.

The hassle of going overseas each time just doesn’t appeal with COVID still around and the added complications created by Britain leaving the EU.” Jane adds, “We’ve had some fantastic UK breaks as the pandemic restrictions have eased which changed our thinking.

We’ve reconnected with favourite holiday destinations like Dorset and Pembrokeshire and want to host our families, taking them to places we fondly remember. A UK destination is far more accessible and cheaper to reach – aspects also relevant to those renting the property.”

The income available to UK holiday let investors can be attractive, particularly in the current financial environment where traditional investments are limited by longstanding low interest rates. The average annual revenue for holiday let accommodation, according to Sykes Holiday Cottages, ranges from:  1 bedroom: £14,000  2 bedroom: £17,000  3 bedroom: £20,500  4 bedroom: £28,000  5+ bedroom £65,000 Such returns explain in part the high levels of enquiries we receive from brokers looking to secure the best allround holiday let mortgages for their customers.

PARTNERING WITH A SPECIALIST LENDER

As a long-established lender in the holiday let sector, we have observed that investors are becoming increasingly savvy. They don’t just want a mortgage deal based on price; they are also looking for a product that meets their exact financing needs.

As such, it’s important for those looking for a holiday let mortgage to partner with a lender that can best accommodate these requirements.

Here are some key features relating to Harpenden’s holiday let product to provide a benchmark for when you are considering future opportunities with your customers.

Key features:  loans up to £2m available  90 days’ personal usage allowance per annum  Airbnb acceptable  city break lets acceptable  personal income used if required to support the loan (top slicing)  minimum income of £30,000 required  up to three properties on one title considered  properties above commercial considered  75 per cent LTV available on IO and 80 per cent available on repayment Harpenden has expertise and many years’ experience in managing complex cases, delivering specialist options – something to which other lenders and algorithms may not be able to adapt. Every policy considered by our team is underwritten manually by experts, which enables them to create highly flexible mortgage solutions.

Harpenden’s business development managers have a wealth of knowledge when it comes to holiday lets and a great track record of securing finance in this niche area.

With overseas travel continuing to have limitations, I’m in no doubt that the boom in UK staycations and the demand for quality holiday lets is set to continue. If you want to secure the best outcome for your holiday let customers, I believe it’s in the best interest of brokers and customers to consider a specialist lender like Harpenden. M I www.mortgageintroducer.com

REVIEW

BASPI

Coming full circle?

Shaun Almond Xxxxxxxxxx managing director, xxxxxxxxxxxxxxxx, HL Partnership xxxxxxxxxxxxxxxx

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here is a growing sense of déjà vu in the market as the ghost of Home Information Packs (HIPs) makes a comeback in the form of the BASPI or Buyer’s and Seller’s Property Information form.

HIPs were almost universally disliked by the industry for slowing rather than speeding up the home buying process and were consigned to history in 2010.

Since then, while the lending process has been immeasurably improved by the application of new technology, not a year has gone by without the familiar cries from all parts of the industry, especially customers, bemoaning the length of time it takes to reach a successful outcome. Hence the re-examination of gathering as much property information as possible upfront in a digital format to help potential buyers and save time further down the line for lenders, valuers, and conveyancers – and therefore improve and speed up the process.

We can surely all agree that, when the government of the day

How can thoroughness and timeliness work together?

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introducedHIPs, the concept of having full property information available at the outset should have had universal approval. However, the reality of the level of resources required, its execution, and the red tape involved helped to ensure HIPs’ eventual demise in 2010.

Here in 2022, we seem to have come full circle and are seeing a re-evaluation taking place. At the end of March, representatives from estate agencies, surveyors, and conveyancers signed up to the BASPI, a new buyers’ and sellers’ property information form that bears a passing resemblance to the old HIP. It is worth mentioning that HIPs were a part of the 2004 Housing Act as a well-meaning attempt to improve the information available to buyers and encourage a faster process. Although the concept was put out to the industry for consultation, unfortunately, as history shows, the finished article was doomed even as it was launched.

The argument for ways to simplify and speed up the house-buying process is really no different today than it was in 2004. The difference now is that instead of being imposed externally, this initiative is being generated inside the industry – and should be the better for it. Its primary aim is to streamline the sale-and-purchase legal process and avoid many of the roadblocks that occur because information that could

have been made available at the outset requires further intervention, slowing everything down. The intention is to make the property in question both market ready and sale ready.

There are two parts to the BASPI – referred to stylishly as Part A and Part B. Part A effectively is about the disclosure of material facts regarding disputes and complaints, alterations and changes, notices, specialist issues, fixtures and fittings, utilities and services, insurance, boundaries, rights and informal arrangements, and any other issues affecting the property.

Part B covers legal ownership, legal boundaries, services crossing other property, energy, guarantees, warranties and indemnity insurances, occupiers, and completion and moving.

Part B will form the basis of the process used by both the seller’s and the purchaser’s conveyancer and valuer.

It remains to be seen whether estate agents nationally will adopt the new BASPI, as there are as yet no immediate plans to make it mandatory.

No doubt there will be pushback from some agencies that will see this as a return to the bad old days; however, it needs to be acknowledged that the stop/start nature of many of today’s transactions could be avoided if there were greater disclosure of relevant information before a property is listed.

Whether the BASPI route is successful will come down to the ease with which it can be applied and whether or not it places more of a burden on sellers and estate agencies in terms of cumbersome paperwork.

This was one of the stumbling blocks on which HIPs came to grief. I have no doubt that technology, unavailable to the HIP generation, will play a part in helping to make it easier to comply, but the hope must be that BASPIs, after thorough trials, will become a default part of the homebuying and -selling process. After all, a governmentimposed option did not work the last time, so it is up to the whole industry to help make this work now. M I MAY 2022

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ENVIRONMENT

Walking the talk of greener business Jerry Mulle MD, Ohpen

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ust recently, the news has been replete with lenders’ stellar results from 2021. Balance sheets are being repaired, and there is a window for looking ahead.

But the challenges facing lenders go well beyond merely meeting, excelling in, and delivering to a market that is constantly evolving – as if that weren’t enough!

One such dynamic is the pressure from investors and regulators to up organisations’ environmental performance. Lenders who securitise will already be acutely aware of the pressure from investors for ‘greener’ assets. This is a reference to the quality of the physical assets on offer. You might reasonably wonder how SaaS systems can help businesses with the physical risks they face. Well, there are some elements of interoperability in which assessing these kinds of risk will be much more easily achieved with cloud-native solutions that facilitate data interchange and understanding of physical risk through other external data sources.

However, as lenders contemplate the window for investment that 2021 results offer, we should not overlook the benefits that systems and platforms like our own bring in terms of managing and reducing emissions – part of what is referred to as lenders’ transitional risk.

The transition plan is an aspect of overall business strategy that lays out how a lender aims to reduce or even eliminate climate-related risks in its operations and increase opportunities as we transition to a low-carbon economy, including by reducing emissions of its own balance sheet and that of its value

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chain. Banks, insurance companies, asset managers, and asset owners will need better disclosure of emissions to understand their own financed emissions and evaluate how their loan, underwriting, and investment activities may expose them.

Business decisions taken today will clearly affect both their own and the country’s ability to transition to net zero and address the risks from climate change. However, definitive action remains stubbornly behind awareness, according to the Climate Change Committee. A recent study undertaken as part of the Climate Change Risk Assessment (CCRA3) project showed that, for many

“Business decisions taken today will clearly affect both their own and the country’s ability to transition to net zero and address the risks from climate change.

However, definitive action remains stubbornly behind awareness, according to the Climate Change Committee” corporates, addressing climate risks is still at an early stage. The London School of Economics reported that even those who have assessed them struggle to quantify their impact and cannot demonstrate how their actions are reducing the risks. Many financial services businesses are putting in place targets to reduce emissions, but concerns about greenwashing persist, and it will be important for everyone to demonstrate they can ‘walk the talk.’

New greener systems and new smarter processes walk that talk.

While features such as agility, scalability, robustness, and lower costs

are key motivations for many lenders now implementing cloud solutions, a leaner IT operation and infrastructure can also deliver some very visible benefits when it comes to sustainability.

For lenders there is the fact that they enjoy lower energy consumption per unit due to the operational efficiency of hyper-scale data centres. Effectively, the ability to share resourcing means it is used across businesses more responsively. It guarantees availability, but also reduces waste and usage when they are not needed, which has a beneficial impact on the environment and the operating economy. Ondemand capacity means resources are allocated to respond efficiently.

It would be disingenuous to say that the climate fight is driving companies to consider the cloud as an integral part of their IT infrastructure. But, as those who must increasingly demonstrate to shareholders, rating agencies, and investors know, this is an increasingly important element of core business models and associated tender documents.

The movement from the traditional model of local data centres to a longterm-oriented cloud-native platform is underway, and a world with fewer servers means that many of the usual IT infrastructure overheads of operating in financial markets will be removed.

You effectively use the precise amount of usage you need for the workload you have. Scalability works both ways.

You can grow quickly, but you can also deploy much more efficiently.

Sustainability is now becoming embedded in the way we will do business – not just as an output of what we do. While the main cloud players are on the front lines and work with sustainable energy and with the recirculation of waste, heat, and similar initiatives at their data centres, the platforms themselves will enable lenders to deliver much more efficiently and understand their physical risks more comprehensively.

Climate data is complicated, and so scoring is attractive because integrating it easily into transactional systems requires massive change. New data and computational power will help build adaptive capacity. M I www.mortgageintroducer.com

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Our online GI academy is open to everyone who’d like to have all the answers no matter what questions are thrown at them. What’s more, our core modules are now fully CPD certified. That’s just one of the ways we’re helping you to have quality conversations with your clients this National Conversation Week.

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REVIEW

EQUITY RELEASE

Equity release bridges generational gap Xxxxxxxxxx Andrea Rozario xxxxxxxxxxxxxxxx, chief corporate officer, xxxxxxxxxxxxxxxx Bower

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ouse price inflation shows no sign of slowing down.

Up and down the country, but especially in the south, property prices are continuing to climb to record levels, and it seems that, regardless of any predictions saying otherwise, they are continuing to head higher and higher.

Many people, myself included, expected a little dip following the end of the stamp duty freeze last summer – but nope; up they go. Average prices for UK properties hit an unprecedented £282,753 in March 2022, which represented an enormous 11 per cent hike from the previous year, the biggest increase since the financial crisis of 2007–2008.

Now, this is obviously good news for homeowners, and with everything from pints to petrol suddenly more expensive, I’m sure many people will want this to continue. It’s also good news for people who have tapped into their equity via products like the lifetime mortgage. House price inflation at the levels we are currently

Younger people often need help to get on the ladder

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seeing goes some way to shielding homeowners’ equity against the impact of compound interest. It’s not good news for everyone, however.

For first-time buyers, watching these ever-increasing property prices must be tough, and I can imagine that many feel that home ownership may well always be out of reach. However, all is not lost – the solution could be with the older demographic, and not the young. But more on that later.

“Releasing equity to help the young gain property of their own is somewhat poetic, and restores a natural balance that government after government has failed to achieve” The historic rises in property prices are pulling the ladder out of the reach of many young, and sometimes notso-young, potential buyers. My own son – a London-based professional in the advertising industry – turns 30 in a few weeks and has only just bought his first flat. How many of us bought our first homes earlier than that? Many, I would imagine. In 1989, of those in the 25 to 34 age group, over half (51 per cent) already owned their own homes, whereas by 2019 this had crashed to just 28 per cent.

Now, you may say that he shouldn’t live in London, swilling expensive pints and inhaling avocado on toast, as I’m reliably informed is the prerequisite for any big city hipster. “Why doesn’t he move somewhere cheaper?” you may ask. Well, I’m not sure the Soho advertising scene stretches too far beyond W1, and it would be quite some commute from his native Scarborough. So a one-bed flat in Walthamstow for an eye-watering

price is where he has landed – but not without a considerable withdrawal from the bank of Mum & Dad. Unfortunately, for most first-time buyers in today’s market, I think help from parents is not just a privilege, but a necessity. By March 2021, the average UK property cost 65 times the average property bought at the start of 1970. And yet average wages have only increased by 35.8 times in the same period.3 Essentially, the reality in 2022 is that people need a helping hand.

So it is heartening to see older homeowners finding ways to lower the ladder once more and help their kids and grandkids make that first step.

Within my industry – equity release – products are now being used to bridge this property wealth gap. The lifetime mortgage is nicely placed to allow customers to remain in the homes they love, while also helping loved ones find their own.

Releasing equity to help the young gain property of their own is somewhat poetic, and restores a natural balance that government after government has failed to achieve. In truth, I think more should be made of the altruism of customers who make this choice.

How often do you hear stories of people unlocking their equity to bridge this generational gap, and how often do you hear the tedious horror stories of gran and grandad blowing the family inheritance? I think we all know the latter outstrips the former when equity release comes up.

For first-time buyers, the value of the bank of mum & dad is often as significant as the high street bank itself.

Yes, the real bank may be putting up 80 per cent or even 90 per cent of the capital, but thousands if not millions of young people still cannot even get an initial deposit together without family help.

All over the UK, parents and grandparents are helping their younger loved ones make that first step onto the property ladder, and often products within equity release are acting as the facilitator. For our industry, making more of this and showing the naysayers that products like the lifetime mortgage can help the young just as much as the old will help us all move forward. M I www.mortgageintroducer.com

REVIEW

MARKET

Analysis reveals impact of rising rates Xxxxxxxxxx Craig Calder director of mortgages, xxxxxxxxxxxxxxxx, xxxxxxxxxxxxxxxx Barclays

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t the time of writing, we are hurtling headlong into the Easter period following a busy Q1 across many sectors of the mortgage market that continue to experience their own unique set of challenges and opportunities.

chosen deal, as product shelf-life has plummeted to equal to the joint lowest on record at 21 days.

None of this product-related data should come as any real surprise in light of current market conditions. On a positive note, we are still operating in a highly competitive lending landscape that includes a plethora of attractive deals for a range of borrowers – although I do expect additional rate pressure to continue during some uncertain economic times.

ACTIVITY

PRODUCTS AND RATES

From a residential product perspective, following three back-to-back base rate increases from the Bank of England, the Moneyfacts UK Mortgage Trends Treasury Report for April highlighted that average fixed rate mortgages have risen to their highest level in more than five years.

The report found that the average rate on a two-year fixed-rate mortgage hit 2.86 per cent, the highest level seen since 2015, compared to 2.58 per cent in April 2021. Meanwhile, at 3.01 per cent, the five-year equivalent was said to have risen to its highest level since 2016. This was the sixth consecutive month that these two fixed-rate deals have seen their average rates increase. Although there is a significant difference in the length of each deal, they are separated by the slimmest of margins in terms of their respective interest rates – at just 0.15 per cent, the narrowest spread seen since 2013.

When evaluating the rates available on tracker mortgages in April, the average two-year tracker rate for all LTV rose by 0.18 per cent monthon-month to 2.21 per cent. This was an increase of 0.63 per cent since December, almost in line with the rise in the base rate over that time. In addition, prospective borrowers may find they have little time to secure their www.mortgageintroducer.com

In terms of activity from a broker standpoint, March saw the highest-ever monthly total for mortgage searches on the Twenty7Tec platform – surpassing even the stamp duty rush in March 2021 by 60,000 searches. March 2022 also saw five of the ten busiest-ever days for mortgage searches on the platform.

This data outlined that mortgage search volumes were growing fastest (14.64 per cent month-on-month) in the £250,000–£500,000 valuation range, while the market softened in the 95 per cent LTV range. Properties listing at £1m+ were now said to form a larger percentage of the market for searches than ever before at 4.29 per cent, with searches for properties valued at over £1m rising by 12.95 per cent in March.

This data demonstrates a couple of important facets. Demand remains strong across the purchase and remortgage markets, but it’s also prudent to point out that a major factor in the rising volume of searches is swap rate volatility and hikes in the base rate which – as already outlined – have driven a substantial number of rate changes from lenders across the market. These are changes that lenders need to communicate effectively to intermediary partners, who should also expect some further pricing

adjustments in the coming weeks.

REMORTGAGE

Staying with searches and the remortgage market, according to research from Legal & General Mortgage Club’s SmartrCriteria tool, February saw a spike in remortgaging activity as borrowers sought to beat interest rate rises.

Searches for homeowners wanting to remortgage after just six months climbed by 30 per cent, suggesting that rises in the Bank of England’s base rate to curb inflation could be prompting borrowers to lock into low fixed-rate deals. The data also showed that strong demand from buyers remained evident, particularly in the buy-to-let sector, with searches for first-time landlords climbing by 23 per cent, and searches for those with corporate lets increasing by 28 per cent in February.

GIFTED DEPOSITS AND INTERGENERATIONAL LENDING

Borrowers are becoming increasingly reliant on financial support from their loved ones to complete their purchase plans. To reflect this, the SmartrCriteria data also highlighted that searches for those with gifted equity jumped by 119 per cent, and searches from landlords with gifted equity followed this trend, climbing by 15 per cent in February. Searches by advisers for borrowers with gifted deposits similarly increased by six per cent, perhaps suggesting that the costof-living squeeze has resulted in firsttime buyers needing a bigger deposit for completion.

This final area of gifted equity is an intersting one, and reflects recent analysis from Hodge that outlined that, between 2019 and 2021, there was a 30 per cent increase in the number of mortgage customers aged 50 and over who spent their loan funds on financial family gifts.

The ever-increasing reliance and focus on gifted equity is only likely to continue as house prices increase, and highlights the need for lenders to continue innovating to provide alternative borrowing solutions to support a variety of borrowers in achieving their homebuying goals. M I MAY 2022 MORTGAGE INTRODUCER

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PROFESSIONAL DEVELOPMENT

Professional development and you Gordon Reid business development manager, learning and development, LIBF

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oubtless you’re committed to your continuous professional development – and you wouldn’t be reading this magazine if you weren’t the sort of professional who keeps up to date with what’s happening in the industry.

That said, it can be challenging to pin down which skills – or which area of mortgage advice – you should focus on next. I hope these tips will help you.

Find out about different sources of continuing professional development (CPD) Many people don’t make the most of development opportunities because they don’t know about them. When you lead a busy life, you may not get round to finding out about the vast range of learning resources that are out there. It’s easy to stick to internal training courses and compulsory basic training packages.

But there’s so much more out there that could make a huge difference to your career, including: networking events and groups opportunities to join a project attending conferences or seminars getting a mentor, or mentoring someone else job shadowing informational interviews delivering presentations undertaking professional or higher education qualifications sideways career moves This is by no means an exhaustive list, but it does highlight how varied development opportunities are. You’ll also notice that many of these openings are experiential rather than theoretical.

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Mixing up types of development is often more enjoyable, too.

Make sure it’s up to date Another challenge we all face is finding something current, because a lot has changed very rapidly over the last two years.

For example, if you’re looking to develop your networking skills, you need to consider how we network now, after two years of the pandemic. Yes, you’ll find lots of reading materials to support you with this, but are they up to date? And is this really the best way in which you could develop this skill?

Wouldn’t it be better to go out and network?

Similarly, if you were looking to develop your people management skills, consider how this has changed over the last couple years. While many of these skills are generic, does reading something, even through an advanced e-learning package, guarantee it will be current? You could think about doing something more hands-on, such as mentoring.

Find a topic that’s relevant to what you do The key is to think about the skills, knowledge, and behaviours that make you more effective in your current role or will help you reach your career goals. That means also considering your customers’ current needs. Useful questions to ask include: Are you getting an increasing number of questions and enquiries about a particular area of mortgage work?

Are there impending regulatory changes that will affect many of your customers?

Are there new products, services, or delivery channels that might benefit your customer base?

Find something that interests you Don’t commit to development you’re not interested in, because you probably won’t finish it.

Even if something is innovative,

topical, relevant, and current, if you’re not really interested in it, you won’t learn much about it. You need to be honest with yourself and with anyone managing or supporting your development.

How many times have you started to do something and never completed it?

Ask yourself why this happened. Was it really because you didn’t have time?

Or was it because you weren’t that interested in it?

There are so many topics and development tools available, you should be able to find something that interests you that you can commit to and will complete.

Consider how and when you prefer to learn According to scientific research, learning is most effective when the brain is in ‘acquisition mode,’ typically between 10 a.m. and 2 p.m. and then again from 4 p.m. to 10 p.m. But this is a generalisation. Only you really know what works best for you.

There is also a distinction to be made between learning and studying.

Although the two words are often used interchangeably, when it comes to development you should consider them separately.

Learning is about being able to put something into practice – for example, learning to drive. Studying, on the other hand, tends to focus on knowledge, such as that needed to pass an exam.

Both constitute development, but the way you approach them, and the best time of day to tackle them, may be very different.

Obviously you have less flexibility about time when the development is experiential. But, if you’re going to shadow someone, it’s important to consider the best time for you both to make this work effectively.

You might also want to consider opportunities for putting your new learning into practice. So, if you’re going to work on a new skill over the next few weeks, remember to factor in the opportunity to consolidate this, too.

Continuing your professional development will benefit you both personally and professionally. Make time for it, and you’ll reap the rewards. M I www.mortgageintroducer.com

REVIEW

PROTECTION

Insurance coverage must reflect inflation Geoff Hall chairman, Berkeley Alexander

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hould the worst happen and some of your clients need to make a claim on their buildings and contents policies, the last thing they will want to find out is that they are underinsured.

Many policyholders unwittingly end up underinsured. In fact, recent research has found that 80 per cent of UK properties fall into this category – that’s approximately 587,000 high net worth homes. If any of your clients falls into this underinsured bracket, should they make a claim, the amount they would receive could be less than they expect – leaving them considerably out of pocket. As inflation rises and the insurance cost of valuables, including antiques, art, and jewellery, increases significantly, it is good practice to check in with your clients and confirm their sums insured are still appropriate.

Clients who bought items 10 to 15 years ago might not be aware of their

current value. Watches are a good case in point. Rolex watches are one of the few investment pieces that can be worn and still bring big returns. Since 2011 their value has appreciated faster than other high-value commodities, including gold.

It’s also worth noting that clients with one high-value item are likely to have others and could potentially have moved up into either a mid-net worth or high net worth insurance bracket. It has been estimated that one in six high net worth individuals has insurance based on a valuation from more than 20 years ago. The more people own, the more they may need advice in selecting the right protection.

If you have clients who are unsure about the value of their possessions, then encourage them to undertake a valuation, and help them find a reputable service to assist them with this task. Review their current policy; standard insurance products are unlikely to provide adequate cover for the property and possessions of high and mid-net worth individuals, so speak to your GI provider about what specialist insurance options they can offer.

New survey highlights the value and increasing need for D&O insurance Fines totalling nearly half a billion pounds were handed out to UK companies in 2021. The findings, from law firm BLM, include fines from four major UK regulators, including the Financial Conduct Authority (FCA).

The largest fine, of more than £264m, was handed to a banking group that was convicted of failing to comply with money laundering obligations. But these fines can affect firms of any size – big or small.

According to BLM, the figure highlights the importance of having appropriate directors’ and officers’ (D&O) insurance in place to protect businesses and their senior personnel.

D&O policies provide professional liability cover for company managers of all levels (not covered by a normal public/employers’ liability policy or standard professional indemnity insurance), which protects them from claims and a range of specified legal costs and awards following decisions and actions taken within the scope of their duties. It is no longer a niceto-have option but essential cover to ensure individuals and companies are protected in today’s risk-laden postCOVID operating environment. M I

Protecting your clients participating in Homes for Ukraine Do you have clients intending to participate in the Homes for Ukraine scheme? Launched by the UK government on 14 March 2022, this scheme allows UK individuals, charities, community groups, and businesses to house Ukrainian refugees fleeing the war. In support of this, many insurers have clarified wordings on their products to help support customers.

Most insurers are following the guidance of the ABI on this issue, but the wordings differ among insurers,

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and some are being more flexible than others.

In the first instance, we would encourage you to review your clients’ cover and consider any appropriate changes – they may wish to include accidental damage cover or may need to increase contents cover to incorporate the refugees’ contents into the policy. Then check the specific insurer’s website for updates they may have made. Your GI provider can help you with this – Berkeley Alexander

has put together a list of our panel insurer responses, including the current positions of many insurers.

Where the insurer is granting cover, if after 12 months refugees are still living with your clients, you’ll need to inform your GI provider as and when the policies are next due for renewal.

We’re delighted that our insurers are offering terms and granting cover under the scheme so that clients will continue to be covered during this challenging time.

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RETIREMENT

Make sure you’re ‘sale fit’ for retirement

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stock is limited, many advisers earn their living by dealing in remortgages and product transfers, and of course in some instances advise on protection and GI – but not always the last two.

That, however, is a totally different discussion and opportunity – so back to what to do with a practice as you approach retirement.

There are, predominantly, three options:  Close it.  Sell it to an external party who does not know you.  Sell it to existing employees via some sort of management buyout (assuming there are those within the business wanting to purchase).

“Whichever way you choose to dispose of your business, management information on what you have will be a key factor, so the sooner you begin to digitise the data ... the better chance you will have of maximising sale price

As ever, there will be pros and cons with each.

Clearly, one of the key areas with the closure option is working with the regulator to ensure it is done in the correct way. Failure to produce the required information may result in an application not being accepted. In practice, you should have:  told your clients and approved persons you are going to cancel your permission;  paid all your outstanding regulatory fees;  filed any regulatory returns that are due;  resolved any complaints against you;  made suitable arrangements to deal with any complaints and liabilities that might arise.

Mike Allison Xxxxxxxxxx head of protection, xxxxxxxxxxxxxxxx, Paradigm Mortgage Services xxxxxxxxxxxxxxxx

ecently a news article quoted one of the largest wealth firms in the UK saying a fifth of its clients were paperless – meaning, of course, four-fifths were not.

In an organisation where Assets Under Management (AUM) is the key factor to valuation, this may not be so much of an issue.

However, as a mortgage adviser, I know that one needs to give a totally different set of data to a potential purchaser who is deciding whether or not to go ahead with a purchase. This

information includes specific details on what each mortgage amount is, the average and range of LTVs, what a customer’s average income is – as well as their ages, of course.

All of this, if not digitised in some way, would be a real issue to extract from paper records and Factfind data.

In reality, the value of a non-AUMbased client bank could rely on these key factors, as it could point to future sales and revenue opportunities for a business purchaser.

In today’s climate, in which housing

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The process for a closure application should start several months before you wish to close.

If you wish to sell the business you will need to decide on a value and a period of time over which you are prepared to accept that value. Potential purchasers will want a significant amount of data, similar to that outlined

above, as a minimum to even start to assess valuations, and will be well within their rights to offer lower prices based on data quality.

If life products have been sold, for instance, they will want to know the persistence of business written (if written on indemnity) and how much unearned indemnity commission is outstanding with insurers, as they may have to accept the liability for this – or at least ensure you do – within any contract of sale.

Management buyouts or internal purchases are a great way for business owners to ensure the legacy of their company continues, but these must be done in the right way.

When it comes to succession planning and selecting the most appropriate exit strategy, the majority of owners ultimately look for the same three ideals: commercial value, trusted business continuity, and a retention of key company values. In the current market, achieving all three is a hard task.

The good thing about this method is that beyond the owners, there is no one who understands the business better or cares for it more than its very own management team.

Whichever way you choose to dispose of your business, management information on what you have will be a key factor, so the sooner you begin to digitise the data the better – and the better chance you will have of maximising sale price.

There are tools – such as one offered to Paradigm members, called Dashly – that help you begin the journey to digitising mortgage data, and that ultimately, over a decent period of time, will give access to a host of information, including the value you extract from that data in terms of income.

In addition, there are a number of checks that can be done to give an overview of how ‘sale fit’ your mortgage business is.

Getting the business ‘sale fit’ is no different from getting yourself on track for fitness – it may take considerable time and planning, and there will be no short cuts to doing so, but with hard work and dedication to the cause, you can get in the best shape possible. M I www.mortgageintroducer.com

REVIEW

LONDON

Understanding leasehold critical Robin Johnson managing director, Kinleigh, Folkard and Hayward Professional Services

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easehold has always been complicated and complex – the ownership type poses all sorts of quirks for valuers to consider, with conveyancers far more likely to become exercised when it comes to the terms of the lease than is common for the purchase of a freehold.

Government data shows that at a regional level, London and the North West have the highest proportion of leasehold dwellings, at 34 per cent and 31 per cent respectively, and it is far more common for flats to be owned on a leasehold basis. It is vital to understand the differences between the two, whether you’re a buyer, broker, or lender.

London’s flats are sought after by owner-occupiers and buy-to-let investors, and whilst the UK’s market has been challenging since 2018, it is now seeing renewed growth in demand as buyers and investors return.

Just recently, a flat in Hampstead Garden went on the market for just under an unbelievable £20,000 – less than four per cent of the average price of property in the area. It is only when you look into the details that the reason for this becomes clear. There were just eight years remaining on its 99-year lease. Renewing the lease will likely

cost the new owner more than the price of the house – if it’s possible at all.

Because the term of the lease is fixed, it diminishes each year, affecting the value of the property.

Leasehold extensions are therefore becoming a necessity for many buyers.

The freeholder is obliged to sell the leaseholder a longer lease for an agreed sum – determined by a third party and agreed (or contested) by the freeholder and leaseholder if the property is to be mortgageable.

For context, the vast majority of England’s 24.7 million household dwellings are freehold, but official statistics show there were an estimated 4.6 million leasehold dwellings in England at the end of Q1 2020. This equates to 19 per cent of English housing stock.

This year sees the first fundamental change to our leasehold law for a generation. The Leasehold Reform (Ground Rent) Act 2022 will finally come into force for all new leasehold properties in England and Wales on 30 June 2022, excepting retirement properties, which have until 1 April 2023 to comply.

The Act restricts the ground rent on all new leases of residential property to a ‘peppercorn’ rent. For those already stuck with ground rents written into their leasehold, the restriction will only apply to any extension of the lease.

Lease lengths are also key for lenders to understand. Whether a buyer can afford the mortgage is one consideration, but the impact of it

Owning a flat comes with a unique set of complexities and challenges

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shortening on the value of the property and therefore the amount needed to extend the lease are material in assessing the asset risk.

We may well witness further changes in the future regarding existing lease arrangements. Time will tell.

Implementing legislation to address new builds and new contracts is far easier than trying to unravel current unduly onerous arrangements.

But aside from any contractual iniquity, leasehold requires an understanding of property condition – from facilities to common or shared areas. Property condition over the long term imposes another question for lenders. Freeholders may choose maintenance, or forgo it if they’re unable to afford it; leaseholders, on the other hand, may be able to pay for repairs and be willing to do so, but be unable to agree with fellow leaseholders, resulting in limbo. Both need to be taken into consideration.

The issue of remedial obligations highlights another complicating factor when it comes to leaseholds. When a freeholder’s roof leaks, the freeholder has to pay to fix it, or leave it to leak.

When the same thing occurs in a leasehold, it triggers a negotiation among all leaseholders in the building, along with the freeholder, and often a managing agent. Agreement must be reached before any common works are instructed and carried out.

For lenders, making sure they understand the nuances of leaseholds on their books is really important.

Not all leaseholds exist with the same terms and conditions – a Victorian terrace conversion’s lease will have been written over a century ago, while the new build on the corner will have something more modern in place. Each comes with different risk. Leasehold is an area of residential tenure that continues to demand an eye for detail, and is also an area about to experience a great deal of change.

Nuance and a keen understanding of the details really matter when it comes to assessing their value. M I MAY 2022 MORTGAGE INTRODUCER

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PRIVATE RENTED SECTOR

PRS vital as home ownership gets harder Moray Hulme mortgage sales director, Paragon Bank

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ata published by the Office for National Statistics revealed that in the 12 months to March 2022, inflation increased by seven per cent, the highest rate since 1992.

The ONS said that the cost-of-living crisis is primarily being driven by sharp increases in the cost of fuel and energy – but, with many goods, ranging from clothing to cars, all becoming more expensive, many people are feeling the squeeze on household finances.

This is putting pressure on people’s ability to buy homes. Not only is property scare, fuelling price inflation, but lenders are also taking into account the recent National Insurance rise and other costs when considering affordability. Mortgage costs have also risen.

PRS SQUEEZED

Although the Social Market Foundation’s “Where next for the private rented sector?” report found that a significant proportion of tenants actually like many aspects of renting and enjoy a good relationship with their landlords, we recognise that ultimately most people want to own their own homes. However, given the impact that the current economic environment has had on people’s ability to get on the property ladder, ensuring that there is sufficient stock of properties to rent is vital.

Despite RICS’ most recent residential market survey revealing an increase in the number of new homes listed for sale for the first time in 12 months, the imbalance between supply and demand has been a prevailing

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feature of the market for some time.

Rightmove highlights how there are in excess of three prospective tenants for every home available to rent and cite this as a driving force behind record increases in rents – when compared to around this time two years ago, average rents are now 15 per cent higher.

“Fatigue could be driving [some landlords] to cease letting. In addition to the day-to-day running of their lettings business and managing the issues that inevitably arise with tenants or properties, landlords have to comply with a dizzying number – 168 at the last count – of pieces of legislation, some of which date back to the eighteenth century” The shortage of homes available to rent can be attributed to a number of factors. One that is particularly worrying is the trend in landlords exiting the sector, evidenced by Zoopla data showing that 9.2 per cent of property for sale has been listed for rent in the past three years.

To find out how to reverse this and sustain the healthy private rented sector (PRS) that we so clearly need, we need to understand the profile of these sales – are landlords selling to each other, trimming their portfolios, or selling up and exiting the sector entirely, perhaps in anticipation of proposed changes to EPC regulations? We suspect it’s a mix of the three, and that smaller landlords who hold one or two properties are more likely to be selling.

Last year the value of gross advances for buy-to-let mortgages was higher than any other year on record, showing that landlords will plough muchneeded investment into the sector when market conditions are right.

This is because the buy-to-let market is underpinned by fundamental principles; as one broker rightly said recently, regardless of whether we’re in times of boom or bust, there will always be movement in the mortgage market – we simply don’t have enough homes to meet demand.

LANDLORDS NEED HELP

It has been suggested that adding to the supply issue is an increase in the number of landlords taking advantage of current record house prices and selling up.

While I imagine that capital appreciation is attractive to some, fatigue could be driving others to cease letting.

In addition to the day-to-day running of their lettings business and managing the issues that inevitably arise with tenants or properties, landlords have to comply with a dizzying number – 168 at the last count – of pieces of legislation, some of which date back to the eighteenth century.

The government’s delayed Renter’s Reform Bill is expected to usher in more when it is introduced later this year, and the sector eagerly awaits an update on the proposed changes to EPC regulations that will also require adherence from landlords.

While few would argue against policy that improves the sector, particularly concerning the safety of dwellings, it is easy to see why managing a lettings business is less attractive than it once was.

Landlords tell us that they receive little recognition and support from government, whose policies, adopted over the past five years, are now resulting in stock shortages and rising rents.

Policies designed to benefit landlords are not going to win any votes, but unless a more considered and holistic approach to housing is adopted in future, things will only get worse. M I www.mortgageintroducer.com

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PRIVATE RENTED SECTOR

Every tenure counts Stuart Miller Xxxxxxxxxx board member and chief customer officer, xxxxxxxxxxxxxxxx, xxxxxxxxxxxxxxxx Newcastle Building Society

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ou would be right to expect us, as a building society, to be passionate about home ownership. A key part of our purpose, after all, is to help people own their own homes.

It would be fair to say we are focused on helping first-time buyers in particular to realise their homeownership dreams. First-time buyers face many difficulties, but in many ways are key to the well-oiled functioning of the housing market.

Imagination and commitment are key to helping them navigate a challenging market. Our Deposit Unlock and the government’s long-promised first homes scheme are not just mortgages; they are cornerstones of what we stand for. But in championing homeownership, we should not forget the pivotal role of the private rented sector in the property ecosystem.

According to recent research by Octane Capital, when it comes to the total volume of privately rented properties, the UK ranks fourth globally, with only the United States, Germany, and Japan home to more renters.

They estimate that across the UK there are nearly 30 million homes within the current property market and 30 per cent of these are thought to be privately rented. This means that across the UK, the nation’s collective buy-tolet stock totals over 8.7 million homes.

Demand is high, and supply, as with all types of property in the UK, challenged. Nevertheless, we know people want and need to rent. In fact, the demand for good rental property has never been greater. In February of this year, Zoopla reported that renters around the UK are now paying £62 more each month than before the pandemic, taking the average monthly

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rent to £969. They also reported that the average cost of renting a home in the UK is approaching £1,000 a month after demand drove prices up 8.3 per cent in the final three months of last year, marking the fastest increase in more than a decade.

There are pressures on landlords and tenants alike. There are fears that energy efficiency changes could result in landlords selling off tens of thousands of rural rented homes, spurring on rent increases and exacerbating the already acute housing crisis. In truth, and like the residential market, there is simply not enough of the right kind of property around. The pandemic has changed what everyone – tenants and owners – wants from a home.

The media narrative on house prices has effectively meant many of us have assumed the race for space was confined to the homeowning market, but it is informing the expectations and requirements of renters, too. Working from home has drastically changed what we all want from property – not just in terms of garden space but also in terms of the way we use and configure indoor space to support home working.

The lack of the right housing stock means that house price inflation has prevented some first-time buyers from getting on the ladder in the first place. True, as I alluded to above, we have products and schemes designed to alleviate some of that – but some first-time buyers are still being priced out of the market due to these house price rises and are being forced back

into the rental market. The level of indebtedness that comes with a mortgage has also meant for some that owning is not the right thing for them.

Renting has its time and its place in people’s lives, and their attitudes to renting are changing.

Though the renting versus buying debate is one that remained largely one-sided until recent times, with house prices at record highs, owning a home has never been more expensive.

Property in the UK, for political and economic reasons, remains expensive in many parts of the country, and the onesided debate about homeownership is not right. It is why we need a thriving buy-to-let market that allows people to live on their own terms. Buying a home requires a long-term commitment, and not one that anyone should undertake lightly or because they feel pressured into it.

We continue to support the buy-tolet market because we realise it is of growing importance in this country.

While other assets decline in value, bricks and mortar retain their appeal.

Yes, the issues for landlords have made returns harder, but property is still needed, and renting remains an important part of our housing ecosystem. We support the market because we see the good it does. Many current renters are the next generation of first-time buyers, and maintaining a healthy sector is one way of ensuring they will be able to afford to rent, and ultimately own, when the time is right for them. M I

We need a thriving buy-to-let market that allows people to live on their own terms

MAY 2022 MORTGAGE INTRODUCER

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FEATURE

MT FINANCE

Adding Value Raphael Benggio head of regulated underwriting, MT Finance

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t’s safe to say that the UK property market is defying expectations.

While many thought there would be something of a cooling-off period after the end of the second stamp duty holiday, that has not been the case. In fact, the opposite is true.

According to figures from Halifax, the average cost of a UK home reached a record high of £282,753 in March. As a result, many prospective sellers are looking to renovate existing properties to achieve maximum sale price on the open market.

bought with a good loan-to-value and have enough equity to use.

While remortgaging is seen as a traditional way of releasing this equity, a second charge bridging loan has the benefit of not interrupting current mortgage rates. This is a definite plus for borrowers amid the threat of further interest rate rises.

This ability to leverage equity can be used by homeowners who have a high-value property but not enough capital to renovate it. We recently saw this with clients who owned two apartments in a highly desirable area and were looking to quickly modernise both before putting them on the market. With the clients keen to sell their properties as soon as possible, time was really of the essence. To facilitate this, we immediately got to

work on the case and collaborated closely with the broker, valuer, and solicitor to issue a first charge regulated bridging loan at 65 per cent LTV over a twelve-month term.

This gave the clients the funds they needed to renovate both apartments, which will then be listed at their increased value. Once both are sold, the clients will use the proceeds to exit our regulated bridging loan.

What’s next for the property market is hard to predict. While there is an expectation that spiralling living costs and potential interest rates may cool prices slightly, sellers will always be looking to command the highest possible prices. This makes regulated bridging a powerful tool for homeowners looking to unlock equity quickly to finance renovations. M I

MAXIMISE SQUARE FOOTAGE FOR MAXIMUM PRICE

While renovating a home can certainly help to increase its value, it does require homeowners to have the necessary funds in place. For those looking to renovate quickly, a regulated bridging loan could be the ideal solution because of how fast funds can be released. Our regulated team has certainly seen an increase in borrowers coming to us for refurbishment purposes with a view to selling once the works are complete.

The types of works borrowers are undertaking vary, from modernisation to remodelling or even adding an extension to fully maximise square footage. The popularity of hybrid working has only exacerbated this need for additional space, something sellers are acutely aware of.

UNLOCK EQUITY WITHOUT DISTURBING MORTGAGE RATES

Not only does a regulated bridging loan allow homeowners to move quickly, but it also allows them to unlock equity in their homes to fund these projects, by way of either a first or second charge. This makes regulated bridging loans particularly useful for borrowers who have repaid their mortgage or

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MAY 2022

Bridging can help maximise the homeowning experience

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UPDATE

MARKET

Lenders respond to highest rate in decade BoE governor justifies increase as inflation soars – despite looming recession

by Richard Torne

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ortgage professionals have given their first response to the Bank of England’s (BoE’s) decision to raise rates by a quarter percentage point to one per cent amid warnings inflation could hit 10.25 per cent later this year.

It’s the fourth time in a row borrowing costs have been increased, meaning rates are at their highest level in 13 years.

The BoE’s governor, Andrew Bailey, also admitted that a recession was becoming increasingly likely following a “sharp slowdown” in economic activity.

The rise will also result in higher payments for more than two million homeowners on variable rate mortgages, although the majority – about 80 per cent – will not be directly affected as they are on a fixed rate.

Paul Johnson, director of the Institute for Fiscal Studies, warned that mortgage interest payments might even double in the coming months.

Speaking on the BBC, he said, “We are still at historically staggeringly low levels of interest rates. So you look at it that way and think one quarter of a per cent, half a per cent, still a very low level, that doesn’t look very dramatic.

“On the other hand, of course, if you’ve got a mortgage and it goes up by half a per cent or one per cent, proportionally that’s a very big increase. That could be doubling your mortgage interest payments over a period of time, so even small changes now, at least down the line once people’s fixed rates run through, could have really big effects on people who have got significant mortgages.”

In a statement, James Andrews, senior personal finance editor at money.co.uk, said, “The Bank’s decision will prove to be either incredibly damaging or wonderfully

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foresighted, depending on what happens over the next few months.

“One thing we can say for certain is that it will do almost nothing to bring down the cost of living for households across the UK – which is being driven by global energy prices and supply-chain issues.

“It will [also] make borrowing more expensive at a time when more and more people are being forced into debt to meet rising bills.”

He added that the rise “will put downward pressure on house prices” and that mortgages will become more expensive “at a time when rising essential bills make them less affordable.”

He said the interest rise would stop wage rises turning this year’s high inflation into a permanent feature of the economy. However, he warned that if the bank has miscalculated, it could accelerate the UK’s path into recession and a possible house price crash.

Simon McCulloch, chief commercial and growth officer at Smoove, said the rate hike could turn the present rush to remortgage into “a stampede.”

He said, “We are already seeing a surge in remortgaging. In the last quarter, legal instructions via our platform have risen by 67 per cent versus the same time last year and are up 15 per cent on the previous quarter.

“As the rate-hiking cycle continues, expect frenzied refinancing and a very busy time for lawyers and mortgage brokers.”

Simon Webb, managing director of capital markets and finance at LiveMore, commented, “With the steep rise in inflation, we can expect further base-rate increases this year, so new borrowers and those remortgaging will find themselves with higher mortgage payments.

“With this in mind, there has never been a better time for borrowers to take out a longerterm fixed rate mortgage. This will give them peace of mind that their monthly payments

will remain the same for the long-term fixed period they choose.”

Richard Pike, sales director at Phoebus Software, said, “Another base-rate rise will mean lenders having to update their systems again and send out letters to borrowers who are on variable rate mortgages. This will apply to around one in five borrowers, as most people have fixed rate deals, but that still represents around 800,000 mortgages.”

He advised brokers to approach their clients earlier and advise them to apply for a new fixed rate, valid for three to six months, depending on the lender.

“By locking into a lower rate now rather than waiting to apply when their current deal comes to an end, borrowers should end up with a better deal,” he said.

Vikki Jefferies, proposition director at PRIMIS, said the continued rise in interest rates posed “major questions for the millions of homeowners who have bought at rockbottom rates in recent years.”

She said borrowers on a two-year fixed “could be in for a shock in the coming months” and advised brokers “to be more proactive than ever” to secure the best outcomes for their customers.

“This is particularly the case for those who have complex financial situations, and brokers should act quickly to help these customers to find the most appropriate and affordable products that fit their current circumstances,” she said.

Brian Murphy, head of lending at Mortgage Advice Bureau, added, “The Bank of England is on a hiking path, something many homeowners have not had to face for 13 years.

Coupled with the soaring cost of living, raised energy bills, and low consumer confidence, for many new buyers the prospect of housing affordability is sprinting away from them.”

He urged homeowners to consult mortgage brokers on the best option for them. M I www.mortgageintroducer.com

COVER STORY

ECONOMIC CLIMATE

RISING HOUSEHOLD COSTS FORMING A CLOUD OVER MORTGAGE MARKET The true extent of the cost-of-living crisis was laid bare this month following the release of new figures by the Office for National Statistics (ONS)

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n stark terms, almost a quarter of Britons – 23 per cent – struggled to pay their household bills in March compared to a year ago, while roughly nine in 10 adults reported an increase in their cost-ofliving in March over the previous month.

This is effectively the net result of spiralling inflation, which has now risen to seven per cent, the highest level in 30 years, and the added pressures on energy suppliers, who have also been rocked by the war in Ukraine. →

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MORTGAGE INTRODUCER

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COVER STORY

ECONOMIC CLIMATE

“43% of adults reported that they would not be able to save money in the next 12 months”

The report, which polled a total of 4,471 households from March 16 to 27, also found that the proportion of adults living in the most deprived areas of England and who reported difficulties in paying their usual household bills was nine percentage points higher than in November 2021.

More worryingly from the standpoint of the mortgage industry is the ONS data showing that 30 per cent of adults currently paying off a mortgage reported difficulties following the recent rise in housing costs, while three per cent claimed to be in arrears with their mortgage or rent payments in March.

“43% of adults reported that they would not be able to save money in the next 12 months” In addition, 43 per cent of adults reported that they would not be able to save money in the next 12 months, making it that much harder for them to apply for a mortgage. This was the highest percentage since the question was first asked in March 2020.

Debt levels are also increasing, with 17 per cent of adults saying they have borrowed more money or used more credit than they had a year ago.

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The overall data is significant because it was compiled before the increase in the domestic energy tariff cap on April 1.

And if the steep increase in the cost-of-living weren’t enough, much worse could follow in October, when some analysts expect the energy price cap to rise by as much as 32 per cent, meaning households could face an additional £629 a year on their bills.

Mortgage experts consulted by Mortgage Introducer gave their views on how all this could affect the housing market.

Melanie Spencer, the head of Finova Payment and Mortgage Services, described the ONS data as “particularly worrying,” as nearly one in three people were struggling to keep up with their mortgage payments.

She, however, said brokers were “uniquely equipped to help concerned customers confront these challenges head-on” by providing qualified advice to keep borrowers from falling into difficulty, as well as implementing affordable repayment plans where required.

“The current environment may also be putting www.mortgageintroducer.com

COVER STORY

ECONOMIC CLIMATE a strain on brokers who are feeling the pressure to support the growing number of clients facing financial difficulty. Mortgage clubs are available to support here, by offering market-leading tech to help brokers stay on top of busy workloads, providing access to a wide range of products to suit each client’s requirements and regulatory advice on customer requirements to ensure everyone has access to the right information for them,” added Spencer, who has 20 years’ experience in the financial services industry.

David Hannah, the group chairman of Cornerstone Tax, expressed grave concern over the figures, recognizing that wages were struggling to keep up with rising inflation.

“It’s deeply concerning that 30 per cent of people are finding it hard to service their mortgage or rent amid the cost-of-living crisis. We’ve all got used to low interest rates and, while these haven’t risen dramatically compared to the 1980s and 1990s, they have undergone a proportional increase,” he said.

“This is as an unwelcome surprise at a time when food and fuel costs are rising and wages are struggling to keep pace with inflation. Families prioritise their day-to-day living – food, heat, and light – over longterm commitments such as mortgages and rent. This is probably why families are struggling – because of the increase in basic staples, their disposable incomes are reducing, and they must spend their money in this area first.”

He also urged the government to become directly involved to mitigate the effects of the crisis on the housing sector. He said, “I do think the government also needs to do more to try and curb the increases in rent and mortgage payments. There is a very clear issue in the UK property market at the moment – demand is far outstripping supply. This is causing prices to soar, and it remains to be seen how quickly they will settle.”

“A scary 30 per cent of people are finding it hard to service their mortgage” Rosie Hooper, chartered financial planner at leading wealth management business Quilter, said, “With many settling into a post-pandemic life with the worst of the restrictions behind them, this period should have been a positive time. However, with the cost-of-living crisis stretching people’s finances like never before it may, for some, prove to be even more challenging.

“A scary 30 per cent of people are finding it hard to service their mortgage and/or loan, or rent, or shared ownership payments. If finances are stretched even further and this difficulty becomes an impossibility, we could have a significant problem on our hands, with thousands of people defaulting on their payments and potentially losing their homes.”

She advised households that were struggling to pay their mortgage to talk to their lenders “as soon as possible,” urging them not to bury their heads in the sand, as that was “the worst course of action.”

She said, “There are a variety of ways lenders can www.mortgageintroducer.com

help, and they will work with their customers to create payment plans that may be able to help ease the financial burden.”

She went on to say that potential homebuyers will be put off trying to get a mortgage, as they will be unable to save during the coming year.

She said, “Generation Rent, who have already had to suffer ever-increasing house prices, are now going to struggle even more to save for that elusive deposit to get on the housing ladder.

“The ONS analysis found that 43 per cent of respondents reported that they would not be able to save money in the next 12 months, which will mean any house purchasing plans will need to be put on hold until deposit pots can start to be funded again.

This may further take the wind out of the sails of the housing market, as fewer potential buyers reduces demand and house prices with it. We are in for a tough few months, or even years, but it is always best to seek help if you are struggling with your finances to avoid spiralling into debt.”

The ONS data confirmed that since December 2021, “the most common reported action following an increase in the cost-of-living was spending less on non-essentials,” with more than half (54 per cent) spending less on non-essential goods and services.

Around one in three of those who reported an increase in their cost-of-living also spent less on food shopping, or shopping generally, highlighting affordability concerns, which the ONS noted “may explain some of the falls in food store sales volumes in recent months.”

However, Paul Broadhead, the head of mortgage and housing policy at the Building Societies Association (BSA), was more optimistic.

While the cost-of-living increases were affecting some household budgets “more than others,” he said the BSA’s own findings painted a different picture.

He said, “Our latest data is more positive on people’s ability to pay their mortgage than the ONS figures, with 90 per cent saying that they are confident that they can pay – for the next five months at least.

“This is because over 80 per cent of mortgages are fixed-rate. As fixed-rate loans run-off and are refinanced, it is possible that things may deteriorate.

Lenders continue to encourage those who are in or can foresee financial issues to get in touch early.”

He nonetheless acknowledged that it would be a challenging year for households, much as the BSA had predicted. He said, “We have already forecast that the market for new housing transactions will be less active as the year progresses, with remortgage business taking up the slack. Around 30 per cent of those hoping to buy for the first time are considering either increasing their working hours or seeking a new, higher-paying job in the next few months to increase their buying power, but this clearly won’t be possible for all. It will be a bumpy year.” M I MAY 2022 MORTGAGE INTRODUCER

29

INTERVIEW

LOANS

Time for a new mortgage product?

CEO of new lender thinks so

by Richard Torne

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he UK finance industry should rethink how it funds mortgages, the CEO of a newly formed company has said ahead of the launch of a 30-year fixed rate loan he hopes will revolutionise the housing market.

Colin Bell’s firm, Perenna, intends to launch the long-term mortgage product later this year, offering up to 95 per cent LTV and flexibility to change without penalties after five years.

Bell (pictured), who is also the co-founder of the new lender, cited countries such as the US and Germany, where long-term fixes are the dominant product. By contrast, 30-year fixed rate mortgage loans are less common in the UK. Speaking to Mortgage Introducer, he said, “We’ve got to rethink how we fund mortgages across the board. It will take time for other people to be able to switch to this longterm product, but you can see how, in those countries where it does exist, it’s the product of choice.

“The big difference with the UK, and this is where it is unusual, is that it funds its mortgages with deposits, so you have a one-year or five-year fix on your deposit, but essentially they’re short-term products.”

In a statement, Perenna said it will use “an innovative funding model,” financing mortgages by issuing covered bonds on the London Stock Exchange instead of deposits.

Explaining the process, Bell claimed covered bonds posed a low risk to investors. He said, “We will be an issuer of covered bonds and we will match the bond to the mortgage. So if you want to do a 30-year fixed rate mortgage, we’ll do a 30-year fixed rate bond, so that funding will never change in price. It’s always there until it either matures and prepays, or prepays early.”

Bell, who has 26 years’ experience in the mortgage industry, claimed Perenna’s product will mark “a turning point” in the UK’s banking system, although he conceded there were challenges ahead.

“It does involve a big change. It’s not so easy

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for existing banks to do it because they have depositors and there’s rankings in terms of protection for particular banks.

Bell revealed that the firm was currently undergoing the last stages of regulatory approval to obtain a banking licence, but said he hoped to launch the product before the end of the year, or early 2023 at the latest.

Critics of long-term mortgage loans claim the products are not portable and that borrowers cannot transfer their mortgage, which can cause problems if they decide to move.

Additionally, if they wish to repay the loan, they are hit with early repayment charges (ERCs).

Bell, however, stressed that Perenna’s product offering would avoid all of the typical pitfalls, as it will be portable and involve no penalty charges after five years.

“You can take it with you; it will be transferable, which is a new concept in the UK,” he added.

He said the product will prove popular with many groups, including first-time buyers, people borrowing later in life, borrowers on a standard variable rate, and individuals wanting to release equity from their property.

He said: “First-time buyers will benefit because there’s no interest rate stress. It gets them on the property ladder earlier and gets them off renting as long as they’ve got a deposit of up to five per cent.

“We’ll give them a 30-year mortgage, whatever the age. We understand that people may or may not outlive their mortgage. That’s fine. There’s nothing wrong with that as long as the mortgage is affordable.”

The senior banking executive dismissed suggestions that launching such a product would be risky at a time when rates and inflation are soaring, and when house price rises are breaking new records.

Colin Bell

Recent research from the Office for National Statistics showed that up 30 per cent of people were finding it hard to service their mortgage because of the cost-ofliving crisis, while 43 per cent of respondents admitted they would not be able to save money in the next 12 months to buy a home.

Bell said, “I think this product helps from a consumer angle – it’s designed around consumers. The government worries about interest rates rising on national debt, and yet it’s fine for consumers to take out a £200,000 loan and ride that interest rate. We don’t think it is.

“In the cost-of-living crisis, what would be better than to know your mortgage is never going to change while your electricity bills are bouncing all over the place? I think in terms of instability, long-term fixes are definitely the answer.

“It is a great time to launch because we are seeing interest rate rises, we’re seeing inflationary pressures, we’re seeing cost-of-living prices that are hurting everyone.

The more instability there is, the more reason there is to fix your mortgage for the longer term.” M I www.mortgageintroducer.com

INTERVIEW

CONVEYANCING

How do you speed up conveyancing times?

CEO of leading UK firm identifies pain points while offering solutions

by Richard Torne

A

he vast majority of borrowers want certainty and an element of control when buying a home, which they are invariably denied due to “incredibly slow” conveyancing transactions, Nick Chadbourne (pictured), CEO of one the UK’s leading providers of conveyancing services, has said.

The head of LMS spoke at length to Mortgage Introducer about the most common problems affecting conveyancers.

It normally takes between eight and 12 weeks to carry out a conveyancing transaction, but, due to increased regulation, such as environment and local authority searches, the process often takes almost twice as long.

Delays can also be caused by the number of stakeholders involved, which can extend the process even further, much to a buyer’s frustration.

To add to the problem is a crisis in the conveyancing sector, which has seen more than 1,000 active conveyancing firms in England and Wales disappear since 2011, according to figures from legal property data and technology provider Search Acumen.

Chadbourne, who joined LMS as COO in 2016 prior to becoming CEO, offered several plausible solutions that could help streamline transactions.

He said, “As a buyer, what do I need to do between now and then to make sure that [the moving] date is it? What’s within my control and what’s not within my control?

That, for me, is the real crux of it. I think the vast majority of borrowers really want certainty and an element of control.”

To explain the complex nature of the operation – and why delays were often inevitable – Chadbourne compared conveyancing to a finely tuned car production line.

He said, “If you look at a car manufacturer from one end to the other, they utilise better

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drills, better technology, and better methods ... but actually waiting for the bits to come along the conveyor belt is the bit that elongates [the process] for a variety of reasons.

“I don’t think there’s one individual item [of which] you can say, ‘It’s the conveyancer’s fault,’ or ‘the bank’s fault.’ It’s a myriad of individual things, but a chain is only as fast as its slowest component – and that’s the real challenge. If a local authority search is going to take 20 weeks and you’ve got a chain that’s waiting for that part of the process to go through, that’s how long that it will take.”

He nonetheless acknowledged that the transaction was often “incredibly slow” and took “’way too long.”

A way forward would be to provide a roadmap that would inform the buyer of which steps they needed to take in order to guarantee a move on a set date.

“Some of these factors will be beyond your control, but there are steps you can take as a buyer or seller to speed the process up,” he said.

“Sellers should do more in providing upfront information at the point of listing a property.

Speaking from a conveyancer’s mindset, their responsibility is to check that the buyers’ [are] buying what they think they’re buying.

“You could standardise the data that is needed at the front end, or, ideally, legislate what’s going to happen at the front end and what needs to be provided. If there’s a standard set of information, then it would make it a lot easier, and certainly I would have confidence as a buyer to be able to know what I’m walking into.”

He suggested storing “certain amounts of data” at the land registry, which would add transparency and “de-risk” the transaction for the buyer.

“It’s ultimately the borrowers that we need to worry about,” he explained. “They’re not necessarily always clued up on what they should be looking out for, so they have to rely on third parties.”

Nick Chadbourne

The adoption of technology has been moving forward and helping mortgage conveyancing transactions, but it is not a solution on its own.

“The solution will be collaboration and/or legislation, and those two things will certainly help [because] the lack of centralised data and the sharing of that data is a real challenge,” he said.

“There are things that take ‘way too long that can be supported by technology. But certainly, it takes the whole industry and all the people involved collaborating to be able to actually move on significantly.”

In his view, LMS has a unique vantage point, as the firm uses its own technology and data while working with up to 15 other companies across the UK to streamline the operation.

“The second part for us is we focus quite a lot on the brokers, because they can be sometimes forgotten by other lenders or conveyancers in that direct relationship, so we make sure that the brokers know what’s happening at all times to keep the borrower updated,” he said. M I www.mortgageintroducer.com

FEATURE

CONVEYANCING

A revolution in conveyancing?

New firm’s founder thinks so after launching UK’s first collaborative conveyancing venture

by Richard Torne

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hen Eddie Goldsmith (pictured), a former partner at conveyancing firm Goldsmith Williams, decided to come out of retirement last year, it was after a realization that he wasn’t quite done with the business.

“Nothing has really changed in conveyancing in the last 40 years,” he told Mortgage Introducer. “Technology has progressed and everybody has emails and most people use case management systems, but in terms of the service to the ultimate customer, it’s probably got worse.”

If that sounds like a damning indictment of his profession, he was quick to clarify what he meant. “I don’t want to be blasting any myths here, but conveyancing is not that difficult – and I’ll be a heretic saying that.

Up to 90 per cent of cases go through nice and smoothly. The issue is all the different stakeholders involved in the process.”

According to the industry veteran, it’s the large number of stakeholders, including lenders, mortgage brokers, estate agents, and the other conveyancers, who hold up the process.

“Even in a typical, straightforward transaction, there could be five or six different stakeholders involved. That’s what takes the time getting all the ducks in a row. So you could have a really good conveyancer, but they’re slowed down because other stakeholders aren’t doing what they’re supposed to do.”

When he first started in the business in the mid-1980s, the transaction used to take around 12 weeks. But due to increased regulation, which now includes anti-money laundering rules, as well as environment and flood searches, the process can take almost twice as long.

In his estimation, conveyancers also charge too little and have consequently not been able to maintain proper staffing levels to deal with the level of customer care that clients expect www.mortgageintroducer.com

today. To add to the problem, he pointed to a nineteenth-century mindset in the industry – a caveat emptor attitude – that places the onus on the buyer to spot any errors in the contract.

“That’s a process that has been with us for too long, and it creates a huge amount of stress and anxiety. If you speak to somebody who’s been through the conveyancing process, you are unlikely to hear that they’ve had a great experience. And the issue that we’re facing is the fact that the government is not interested in the root-and-branch review of the actual process itself, which is not fit for twentyfirst century customers,” said Goldsmith, who was also chairman of the conveyancing association for more than a decade.

There is no denying that the profession has been in crisis since 2011, with more than 1,000 active conveyancing firms in England and Wales disappearing in the last 10 or so years, according to figures from legal property data and technology provider Search Acumen.

The reduction is partly due to challenging trading conditions in the conveyancing market over the last decade, but Goldsmith believes he has found a solution to streamline the entire process by placing himself directly between the customer and the conveyancer.

With that in mind, last month he launched YouConvey – the country’s first ‘collaborative conveyancing’ firm aimed at reducing the process by up to eight weeks.

Typically, customers have to wait for conveyancers to send out reams of property information forms, which they then have to complete with a wet signature and send back.

According to Goldsmith, his firm will save time by providing customers with all the property information forms they need at their fingertips, “so they can complete those in a day if that’s what they want to do.”

YouConvey will also fast-track the process by onboarding customers and getting all the electronic identification done. “That empowers them to start with, because they feel as if they’re in control more,” he said.

Goldsmith identified five crucial touchpoints

during the transaction, including opening the file before the exchange and answering queries on the title before completion.

The company was co-founded with tech start-up company Nova, which has helped raise investment for development and launch, although Goldsmith admitted that since then, the launch of an app had been delayed in an effort to fine-tune the service.

It’s all a far cry from when he started in the business back in 1984, when he co-founded Goldsmith Williams and eventually turned it into one of the largest conveyancers in the country.

“Back then, there were very few firms of solicitors going out marketing, and most solicitors would sit in their office and wait for work to come in – and by and large it did,” he said.

“In those days, most solicitors didn’t actually understand what mortgage brokers did. When you went for a mortgage in those days, you would generally go to your local building society. When I bought my first house, lenders wouldn’t lend on a property pre-1919, and they wouldn’t lend if you had a basement or an attic.”

Goldsmith is now hoping his new firm will revolutionize the home moving process to a similar level. M I Eddie Goldsmith

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INTERVIEW

LENDING

“Trust your instincts” – MD on bold move It’s one she doesn’t regret

by Richard Torne

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ome things just run in the blood.

While a large proportion of people admit to having stumbled into the world of broking, there are a few who’ve unhesitatingly followed in their parents’ footsteps in the finance industry.

Alison Pallett (pictured), LiveMore Capital’s managing director of sales, didn’t exactly make a point of saying that banking ran through her veins, but finance is all she knows after starting as a branch trainee at the now-defunct Leicester Building Society straight after leaving school.

“My mother was a branch teller at the National Westminster Bank until she got married, and then she had to give up work.

Me and my sister came along quite quickly, so she was probably quite glad of that!

“I guess it’s one of those things … I didn’t get career advice on it. I knew I didn’t want to go to university,” she told Mortgage Introducer.

Pallett pointed out that when she started at the Leicester, it was “almost impossible for a woman to get a mortgage” and “absolutely impossible” when her mother was at the NatWest.

“For me, one of the best things that I’ve seen is that women are so much more in control of their own finances. They’ve still got a long way to go with pensions, but that’s been one of the best things.”

Pallett spent most of her career at the Bank of Ireland – roughly 25 years – leading its reentry into the UK’s intermediary mortgage market in 2014 and setting up the bank’s UK Direct operation, where she was managing director of consumer lending.

She joined LiveMore Capital early on in its development.

So why did she leave the security of an established financial institution to help set up a potentially risky and relatively new venture?

“I loved my time at the Bank of Ireland, [as] I did so many different jobs and worked with

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so many amazing people,” she said. “It just The thought of a business-savvy CEO in felt as if the time was right to try something his mid-40s being given a tech lesson by a different, and I had an opportunity to start 92-year-old customer is not only an amusing with LiveMore as a start-up. anecdote but also a reminder about general “I’m the longest-serving member of staff preconceptions and prejudices about age. there other than our CEO Leon [Diamond], Brokers take note. who set the firm up. It was a chance to start Some of LiveMore’s customers were something from the ground upwards.” borrowers who became trapped in a standard LiveMore’s approach to affordability is variable rate because they failed affordability different from that of most lenders, as its assessments. client base is the over-50s and it considers “A lot of that is to do with the fact that all income, including pensions, investments, affordability is often modelled using a capital assets, savings, and buy-to-let income. Its and interest-only method, and we model ours normal LTV is 75 per cent – “that’s market on just the interest-only payments because leading, as it’s on a retirement-interest only that’s what this product is all about. We mortgage” – although its average loan-to- can get them on to a long-term fixed rate, value would be significantly lower than that which means they don’t have to worry about – 62 per cent. resolving this again.”

It’s a niche in the market that LiveMore is She pointed out that when customers reach confidently exploiting, according to Pallett, as a certain age, they’re not always chasing the the over-50s are underserved borrowers. “We cheapest, two-year deal. “Once you get into find that there’s a disconnect in the mortgage the realms of pension income, there’s nothing market in terms of consumer demand and more stable than that – once it’s fixed, it’s only fulfilment,” she said, adding that there’s huge going up – and this is why in many respects it demand from people who are over 55 looking is a little bit baffling that mainstream lenders for interest-only mortgages. are slightly obsessed with employed and self“When they actually feel that their income is employed income,” she added. most stable, many of the mainstream According to data from the Office of National Statistics, by mid-2028, all high street banks actually don’t want them,” she revealed. regions in England will have a greater For Pallett one of the most proportion of people aged 65 years satisfying experiences was to and over than they do now. With help a woman of 92 – no, that’s people living longer, the strategy of not a typo – find the right lenders such as LiveMore could well mortgage for her so that she become mainstream. could purchase the flat of her Pallett’s instinct to join the dreams. start-up a mere three years “She was an amazing lady, ago start to make more actually,” she explained. sense in that context.

“Leon had done lots of “Trust your instincts and your judgments,” interviews with lots of our she said. “When you customers and she told him off for using Zoom, really think you’re right saying that he needed to about something, don’t get Teams because it was let other people convince Alison Pallett just so much better!” you otherwise.” M I

FEATURE

RESIDENTIAL

Housing crisis needs long-term solution A better strategy is needed to fix undersupply of housing

by Jake Carter

T

he UK housing crisis is a long-term structural problem that requires a long-term solution, according to Karen Rodrigues (pictured), director of sales at eConveyancer.

She believes that in order to address the underlying issue of an undersupply of affordable housing, a better strategy is needed that stretches beyond the term of one or two governments, to 20 to 30 years into the future.

Stuart Andrew was named housing minister in a February government reshuffle, replacing Christopher Pincher. Andrew is the fifth housing minister in four years, and the eleventh since 2010. The number of housing ministers in such a short period is part of the problem, Rodrigues believes, as long-term strategies do not have time to materialise. However, the problems do not end there.

WHAT ARE THE ISSUES? According to Rodrigues, a major issue is the number of new homes being built.

New housing supply is currently lower than the government’s target of 300,000 new homes per year, with 216,000 new homes supplied in 2020/21. This is fewer than the 243,000 new homes supplied in the previous year, in part because of the disruption to housebuilding caused by COVID-19 in early 2020.

“We are not building enough, and that must be addressed, but now is also the opportunity to build different styles of homes that are more energy efficient and sustainable and make best use of the land that is available,” Rodrigues says.

In terms of more tactical changes, Rodrigues says she has seen the provision of local authority housing diminish significantly as a result of right-to-buy. She believes this risks disenfranchising those on lower incomes, and said stock needs to be built back up. The right-to-buy scheme is a policy that gives secure tenants of councils and some housing associations the legal right to buy, at a major discount, the council house in which they are living. www.mortgageintroducer.com

She went on to add that it is also important to consider conditions within right-to-buy – such as the local authority, in future, taking a percentage of the sale price when a property is sold to help fund the building of more social housing.

Additionally, there is the right to acquire for assured tenants of housing association dwellings built with public subsidy after 1997, which provides a smaller discount.

“The house buying and selling process also needs review, and we need to look at ways of putting more certainty into transactions at an early stage,” she adds.

For example, she believes gazumping could be stopped if additional offers were disallowed after a vendor accepts an offer.

WHAT ARE THE SOLUTIONS? Looking farther ahead, Rodrigues pointed to the better use of available technology to streamline processes like the verification of IDs. “However, we have also seen a recent uptick in fraud, so new measures must strike a balance between being robust and being convenient,” she added.

COVID has accelerated the use of technology in all areas of life, with one of its essential uses at the height of the pandemic having been to conduct virtual valuations and viewings.

During the pandemic, anti-money laundering (AML) software provider SmartSearch added a facial recognition feature to its digital AML platform to help clients requiring visual confirmation of a customer ID. This was designed to tackle the issue of travel and social distancing restrictions which meant prospective customers were unable to present ID documents and proof of address in person.

The increased switch to people choosing to utilise technology has sped up many processes, as security measures and the progression of a mortgage application can all be furthered online.

“There is a huge amount that can be done in this area and the government needs to engage with industry experts to ensure we put the right measures in place to create a better housing Karen Rodrigues landscape, rather than just paying lip service to the issue,” Rodrigues concluded. M I MAY 2022 MORTGAGE INTRODUCER

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FEATURE

MARKET

Cost-of-living crisis vs net zero targets – which will win?

The energy price cap has risen 54%

by Jake Carter

“T

he cost-of-living crisis really clashes with our net zero target because making the switch to greener energy is expensive.”

Those were the words of Bradley Brandon-Cross, director of Bettersafe Insurance, speaking after a record increase in global gas prices that has seen the energy price cap rise 54 per cent.

The energy price cap increased from April 1 for approximately 22 million customers. Those on default tariffs paying by direct debit saw an increase of £693, from £1,277 to £1,971 per year, and prepayment customers saw an increase of £708, from £1,309 to £2,017.

Energy bills are expected to increase 14 times faster than wages over the course of 2022.

As a result of this, there will be additional constraints put on how much people can spend to improve the energy efficiency of their homes.

As retirees are unable to increase their earnings in the same way as employed borrowers, such as by upping their contracted hours, switching careers, or working to secure a pay rise, they are particularly vulnerable following the cost-of-living increase. Waving VAT for the next five years on energy-saving options, as announced

by Chancellor Rishi Sunak in the spring statement, is a pragmatic move, but it is not a game-changer by any means, Brandon-Cross believes.

“We have not figured out how to help people heat their homes in a green and affordable way yet,” he said.

WHAT IMPACT WILL THIS HAVE ON MORTGAGES? It is expected that the rising cost of energy bills will have an impact on mortgage affordability, too.

Lenders may not choose to track individual price plans, but they will likely assess their risk position and draw on average price data from the Office for National Statistics.

Brandon-Cross went on to say that there is also a huge variation in suitability in terms of the buildings people are living and working in.

While Prime Minister Boris Johnson has removed all COVID restrictions in England, many companies

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continue to instruct their employees to work from home.

Because of this, there has been a rise in commercialto-residential conversions, with many offices and retail spaces repurposed into residential flats.

The benefit of this is that additional housing can thus be quickly provided to meet the ever-growing demand for homes.

ELECTRIC-CAR READY Nevertheless, there are stumbling blocks that relate back to the green theme – such as the government announcing that all new-build housing must be fitted with electric vehicle charging ports from 2022. In addition to this, buildings making major renovations will also be forced to install the ports, which are used to top up the batteries of electric vehicles.

The government has said the move will see up to 145,000 charging points installed across the country each year.

While this will benefit net zero targets, BrandonCross explained that the vehicles are too expensive to become truly widespread.

“Furthermore, the charging infrastructure is not ready, which means people have ‘range anxiety’ about not being able to reach their destination due to the lack of charging points,” he said.

Buying and installing an electric car-charging point will typically cost the consumer between £800 and £1,100.

While this is expensive, with ever-rising gas prices, it is likely to provide a cheaper longer-term solution.

“The problem is we can make excuses and say that it is not the right time to focus on net zero, but there will never be a perfect time; we have to find a way to help people make these changes,” Brandon-Cross concluded. M I www.mortgageintroducer.com

LOAN INTRODUCER

DIVERSITY AND INCLUSION

Neurodiversity needed

SECOND OPINION

Norton Home Loans helps Right-to-Buy customers with real life backgrounds.

Marie Grundy Society of Mortgage Professionals board member and managing director, Second Charge Mortgages

T

he spotlight is growing on diversity and inclusion within our industry. Last July the Bank of England, the PRA, and the FCA joined forces to produce a paper on diversity and inclusion within the financial sector, setting out that it is a critical aspect of their work on culture and governance within firms, particularly for boards and senior management.

When we think about the issues around diversity and inclusion, we often tend to talk about inequalities related to gender, race, sexuality, and disabilities, but I wanted to take the opportunity to highlight the issues faced in the workplace by employees who are neurodiverse, which is sometimes referred to as a hidden disability and is often overlooked as part of a firm’s diversity and inclusion policy.

As of December 2020, 20 to 21 per cent of adults in the UK reported having a disability (14 million people). Leeds university estimates that approximately 70 per cent of these disabilities are invisible.

WHAT IS NEURODIVERSITY?

According to Harvard Medical School, neurodiversity is a term used to describe the idea that people interact with the world around them in very different ways, and it supports the idea that there is no one “right” way of thinking, learning, or behaving, taking the view that these differences should be embraced and not seen as “deficits.”

Neurodiversity encompasses a wide range of neurological differences, and in the UK it is estimated that around one in seven people are neurodivergent, which represents around 15 per cent of the population. Autism, ADHD, dyslexia, dysgraphia, and Tourette’s syndrome are all neurodiverse conditions and affect everyone differently.

Some of the challenges brought about by being neurodiverse might affect a person’s ability to concentrate, have an impact on short-term memory, concentration, and handwriting, or make time management more difficult.

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THE BENEFITS FOR EMPLOYERS OF A NEURODIVERSE WORKFORCE

There are many benefits to having a neurodiverse workforce, with some analysts seeing this as a competitive advantage.

High-profile employers such as Google, Microsoft, Ford, and Ernst & Young all have programmes in place to attract → www.mortgageintroducer.com

THIS INFORMATION IS FOR INTERMEDIARIES ONLY AND SHOULD NOT BE DISTRIBUTED TO POTENTIAL BORROWERS.

MAY 2022 MORTGAGE INTRODUCER

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LOAN INTRODUCER

DIVERSITY AND INCLUSION a neurodiverse workforce. High achievers in the business world who are neurodiverse include Richard Branson, who has both dyslexia and ADHD, as well as Bill Gates, Lord Sugar, and Theo Paphitis, who are all reported to have dyslexia. So what are the benefits of a neurodiverse workforce?

Neurodiverse employees are known for their creativity. The ability to think outside the box can bring enormous benefits to potential employers and is often associated with higher productivity levels and thought of as driving efficiency.

Autistic employees often have superior intellectual capabilities, and by adopting a well-defined approach emerge unafraid to challenge the status quo.

They often pay strong attention to detail and pattern recognition, which

helps highlight solutions neurotypical employees may miss. Neurodiverse adults also offer other qualities such as tenacity and empathy, and often have superior long-term memories.

HOW TO SUPPORT NEURODIVERGENT EMPLOYEES

Creating a supportive working environment for neurodiverse employees will help attract an untapped talent pool, but it will go farther than work placement – it will look at the development of a work setting that is focused on helping all employees reach their full potential.

can be accommodated by making small adjustments: Consider providing interview questions in advance to reduce anxiety levels. Try not to interrupt candidates, as it may then take longer for them to answer questions. Break down questions into shorter sections rather than asking one longer question. If testing is part of the interview process, consider whether this is appropriate or whether extra time can be allowed.

OFFICE ENVIRONMENT

RECRUITMENT PROCESS

The start of any employee journey begins with the hiring process. For neurodiverse jobseekers, this can present some additional challenges that

Noisy, open-plan offices can be distracting for many employees, but this is heightened for neurodivergent adults – so consider creating quiet working spaces that will offer fewer distractions.

TIME MANAGEMENT AND ORGANISATION

People affected by a neurodiverse condition will often develop their own strategies to compensate for challenges with time management and organisation of workload, but employers can help by being aware of the need to provide additional time to complete tasks and can help develop effective time-management tools or increase the use of checklists.

CREATIVE A SUPPORTIVE WORKING ENVIRONMENT

Neurodiverse employees can enrich your workplace

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Employers should create a supportive culture – one in which employees feel they can ask questions without feeling stupid. Employers can also develop mentoring systems, and raise awareness of neurodiversity amongst the entire workforce.

There is still much to be done to address the stigma associated with employees with hidden disabilities, and this in turn can lead to potential workers being reluctant to disclose their diagnoses. As an industry, we are doing great work to embrace diversity and inclusion in the workplace – so let’s take the lead in ensuring that neurodiverse employees are very much part of the change we are all working so hard to bring about. M I www.mortgageintroducer.com

LOAN INTRODUCER

UNDERWRITING

Underwriting is a job for humans Tony Marshall MD, Equifinance

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mong first charge lenders, we have seen how an overreliance on a credit score can end up in a great many borrowing refugees looking for help beyond the high street. The thriving specialist lending market has shown that the vacuum did not take long to fill. Those lenders that have recognised the rigidity of the technology-led template for mortgage customer assessment have made sure that they place greater reliance on developing the skills and experience of their human underwriters.

www.mortgageintroducer.com

The proliferation of sourcing technology not just in first charge but also second charge, commercial, and even bridging brings about a different set of challenges for today’s broker.

With many lenders committed to their underwriting by algorithm, it is perhaps unfair to expect sourcing engines to reach the level of sophistication required to ensure that a deal will be acceptable.

In the second charge market, the situation is the same. Because of the nature of individual client circumstances, sourcing engines represent, at best, a way of filtering out the least appropriate alternatives.

However, rather than relying on technology in second charge lending, lenders like Equifinance still rely on well-trained human underwriters because we believe that the computer-

heavy approach leads to a box-ticking exercise that fails to recognise that customers are not a homogenous group and that their circumstances are rarely identical.

Technology, of course, is unquestionably a valuable tool – but is not a substitute for a human underwriter. Unless the lender in question has set up an underwriting factory in which volumes require a production-line approach guided by a template of their ideal customer, give me a human interface to provide the necessary oversight and understanding vital for final decisions.

Until we can properly fuse the best of technology and a human being into an underwriting cyborg, we will continue to favour flesh and blood underwriters over credit-scored, algorithm-led technology. M I

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REVIEW

LOAN INTRODUCER

Open banking could be a game-changer Matt Meecham chief digital officer, Evolution Money

T

he recent hike in the cost of living has led to questions about how this will affect mortgage lenders’ affordability tests.

Climbing fuel prices alongside energy, tax, and food increases have sparked fears lenders will take a stricter view of borrowers’ affordability, potentially meaning applicants will have to borrow less.

Understandably, for lenders there is always an underlying concern whether those who may already be financially squeezed will be able to meet their monthly mortgage or loan commitments in light of their increased outgoings.

When assessing a borrower’s affordability, some lenders will take their household spending figures predominantly from the Office for National Statistics (ONS) when judging how much a borrower spends.

When it comes to assessing a borrower’s expenditure accurately, at Evolution Money we have been harnessing the power of open banking to help us undertake a more valid analysis of a borrower’s affordability.

It may be a cliche, but open banking really does have the capability to revolutionise financial services – and we are already witnessing this within our own second-charge mortgage business.

As an early adopter of open banking, we are starting to see how using an applicant’s data – with their consent – can result in a more efficient and informed second-charge journey.

So how does it work? Well, open banking is all about obtaining insight

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into borrowers’ financial worlds by allowing providers and advisers to view their bank accounts and analyse income and expenditure as well as spending habits. Open banking leaves no stone unturned when it comes to an applicant’s finances, and that can be invaluable when it comes to producing a credit risk assessment.

We believe the sooner we can access this information, the better, which is why we invite all borrowers to sign

“While open banking allows us to look retrospectively at applicants’ finances, it also shows us how they are managing their finances today – something that can work in a borrower’s favour” up as early as possible during their application. Due to the nature of our business, we speak directly to 100 per cent of our customers, which perhaps makes it easier to convey the benefits of open banking to them than it would be, say, via an e-mail or text message.

Once borrowers are on board, we can then start to use their data to help make better informed credit risk decisions – leading to better outcomes for us and clients.

Not only does open banking reduce fraud risks significantly by verifying borrowers’ credentials, it also allows us to predict more accurately the likelihood that they will meet their mortgage or loan repayments. Our database, for example, has over 1,000 transaction categories and subcategories, all of which can assist us in analysing a borrower’s income and expenditure.

Open banking allows us to take a real-time look at borrowers’ financial make-up and pinpoint any recent

changes to their circumstances that could affect their ability to repay or their eligibility for a second-charge mortgage.

Open banking also has the potential to open up product options to the borrower that may not be evident through a conventional approach to affordability. It could also help highlight the affordability of a secondcharge to first-charge focused advisers who may not have considered it for their clients.

While open banking allows us to look retrospectively at applicants’ finances, it also shows us how they are managing their finances today – something that can work in a borrower’s favour.

A key theme for us at Evolution Money is financial inclusion and, as a business, we find open banking can help us achieve this. To reach our objective, we first need to gain as clear a picture as possible of what is affordable for an individual, and open banking gives us this – a bit like viewing a borrower’s finances in highdefinition.

The self-employed are another borrower demographic that could benefit from sharing their data.

Providing access to their bank statements allows lenders to analyse their business income and expenses accurately and reliably.

In recent weeks we have seen the disruption increased demand in the first-charge market can bring to lender service levels – a cause of frustration to both advisers and lenders. While open banking is not the only remedy for these delays, the speedier and more efficient application process that it enables could potentially help.

We have already seen the effect Covid-19 has had on many borrowers’ finances – in some instances making their incomings and outgoings more complex and inconsistent. As the increased cost of living also takes hold, lenders may be looking to scrutinise applicants’ expenditure even more closely.

The need for clear and accurate understanding of an applicant’s finances has never been greater – for borrower, adviser, and lender – and this is where open banking can help. M I www.mortgageintroducer.com

SPECIALIST FINANCE INTRODUCER REVIEW

PRS

PRS property shortage a real worry Steve Cox chief commercial officer, Fleet Mortgages

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upply-side issues in the UK property market are not solely the preserve of the owneroccupier market, and the sooner that is recognised – particularly in government circles – the better equipped we will be to start doing something to fill the housing gap, specifically within the private rented sector (PRS).

I recently read a piece that suggested the PRS is at a breaking point, and while I don’t agree with that sentiment, it is clear that after many years in which the government promoted home ownership over the PRS, the sector is undoubtedly facing a shortage of available properties.

That is sending rental prices upward for the stock that is on the market.

The very latest figures from the ONS suggest private rents increased by 2.4 per cent in the 12 months to March 2021, which is the biggest annual growth since July 2016.

Good news for existing landlords, you might surmise – and, of course, securing strong rental yield is a prerequisite for them, especially considering that the cost of everything to do with renting out a property has increased significantly in recent years, and that is not likely to change any time soon.

However, there will be many within the sector who also recognise that record increases in rents aren’t sustainable for the medium-to-longterm, especially in an environment where tenants – as much as anyone – are having to deal with a vastly increased cost of living.

All of this adds up to an

www.mortgageintroducer.com

overwhelming need to increase the supply of properties coming into the PRS, with many existing (and new) landlords wanting to add to (or start) portfolios but recognising they are some way down the pecking order when it comes to buyer access.

Here is the big conundrum for the current government, because it has followed in the path of its predecessors by making it more difficult and costly for landlords to bring supply to market.

SUPPLY, SUPPLY, SUPPLY

My view is that it is completely understandable why various governments, particularly in the early days post-credit crunch, were intent on clipping the wings of the buy-to-let market and landlords. The excesses leading up to that period are well known, and our sector clearly needed tighter regulation and a focus on ensuring landlords had skin in the game when it came to the finances they were using to fund their purchases.

All well and good. However, what followed has ultimately taken its toll on the private rented sector, particularly in terms of supply provision – an issue for UK housing right across the board, we should remember – as more and more landlords have left the sector, unable to ensure the profitability of their investments.

Of course a greater professionalisation of buy-to-let was required and indeed was desirable – but there is a marked difference between ridding the sector of get rich-quick merchants and losing those amateur landlords who were investing for the long term, who provided significant property supply to tenants and were a considerable force within the PRS. What the various measures did was make it far less palatable for that latter group to be involved in the PRS on an ongoing basis. Add in the general lack of housing in this country – particularly

in terms of new builds – and we come to a point where there is not enough supply coming to market, full stop.

And, as we have seen, demand is not being stemmed at all; in fact, it has increased significantly, especially during the pandemic and as we have moved out of the various lockdowns, with people looking into moving to different areas/regions as their work/ life balance changes.

Again, we might say, well, this is all good news for existing landlords and their existing properties, isn’t it? Our own most recent Rental Barometer research shows rental yield across England and Wales increased from 6.2 per cent in the last quarter of 2021 to 6.3 per cent in the first quarter of 2022.

The yearly increase is even greater, having moved from 5.7 per cent to 6.3 per cent over the course of the year.

However, the point has to be made that, while rental yield figures are strong, as is clearly necessary for property investment, there is also a desire to add to portfolios and to bring that much-needed supply into the PRS. ACTION IS NEEDED

Landlords remain hamstrung, though – not just by the lack of property coming to market but also by the hoops they have to jump through in terms of extra charges for stamp duty, cuts to mortgage interest tax relief, the fact that many new property developments are not accessible at all, the greater regulations they have to meet, etc.

The days of wishing for a governmental level playing field for landlords alongside owner-occupiers are probably gone, but at some point an administration will have to acknowledge that the PRS plays an absolutely vital role in our housing landscape, and that those who can’t (or don’t want to) purchase still need places to live.

Social housing doesn’t meet those needs, so where do these people go?

The answer is the PRS, and the sooner this is accepted, the sooner we might have a move to an environment that helps landlords deliver the supply of rental stock that current (and future) demand requires. M I MAY 2022 MORTGAGE INTRODUCER

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LATER LIFE LENDING

Later life sector needs more hands Xxxxxxxxxx Stuart Wilson xxxxxxxxxxxxxxxx, xxxxxxxxxxxxxxxx CEO, Air Group

W

hen it comes to future market opportunities for advisers, the later life sector is often referred to as one to watch despite the fact that – in the grand scheme of things – the level of lending volume and activity is a relatively small, if growing, part of the overall mortgage landscape.

And yet that market opportunity is very real, and one that all advisers should be acutely aware of, especially when there is a great need for advice amongst older consumers, and especially when property sits very squarely centre stage in a play called How I Fund My Later Life/Retirement and Meet the Needs of My Family.

A cursory glance across the news media reveals why that reliance on the family home is growing, as shown in some recent trade articles. How about “Concerns surrounding inheritance tax fuelling demand for equity release,” or “Average deposit for FTBs soars by over 50% throughout the last decade”; then there’s “Almost a third of women have not thought about saving for retirement,” or “State pension increase of 3.1% will feel like a cut for millions of retirees due to cost of living.”

I could go on. That last one is clearly pertinent given what we, as a nation, are seeing in terms of inflation this year, particularly around energy costs, but also right across the board.

I won’t go into my well-worn argument that it seems downright disturbing that older homeowners are sitting in unencumbered (or even mortgaged) homes worth hundreds of thousands of pounds, yet are in a position where they can’t afford to heat their own homes, but … well, you’ll have caught my drift many times over by now on that one.

The point is there are any number of

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reasons why the homeowning public might feel they need money right here, right now, and yet we are currently in an equity release market of £4.8 billion (according to recent Equity Release Council figures for 2021) while the total value of unmortgaged housing in the UK currently stands at £5.2 trillion.

Now, of course, a lot of that is owned by customers who are not eligible to use lifetime mortgages, or RIO or mortgages for older customers. But a lot of it is. And that equity has certainly grown significantly over the last couple of years in particular.

The most recent house price indices have revealed double-digit growth over the last year alone, and therefore those homeowners who might need money are likely to be able to release from an increased equity pot, which, in the main, will be far greater than any mortgage debt still outstanding on the property.

TIME TO LOOK AHEAD

In that sense, it feels like a very good time to push the message about the myriad of opportunities that later life lending can offer consumers at this time.

Whether it’s simply providing a helping hand for those on fixed incomes who have seen their cost of living rise, or to supplement pension provision now or in the future, or to help younger family members out as they attempt to get on the housing ladder, or to pay inheritance tax bills, or to spoil or treat oneself, or whether it’s all of the above and then some, there are any number of wants, needs, problems, and issues that could potentially be solved by accessing the equity in a property.

In January this year, Legal & General Home Finance conducted some research about retirement plans among current workers.

Less than a quarter of those 4,000 people polled (22 per cent) said they plan to use the value of their home to pay for their retirement; of those that do, 10 per cent expect to downsize, nine per cent expect to sell, and six per

cent expect to use a lifetime mortgage.

Now, admittedly, if you are still working, then a lot is likely to change between now and your anticipated retirement date. However, it’s clear that many lean toward downsizing or selling as a way to ‘access equity’ later in life. Of course, by the time a person reaches that stage, being able to do that will to depend on many factors, and as advisers you’ll be acutely aware that these options are not as open-ended as many homeowners believe them to be.

If they are intent on moving, so be it, but many are not – they just think they have to sell in order to access the value that has been accrued. We know better, and as an industry and an adviser collective we need to keep letting those reaching, or in, retirement know that is the case.

Overall, however, it should be possible to see that the home is going to play an increasingly central and pivotal part in the future finances of older property owners. Inheritance tax is not changing; neither is the difficulty in younger people securing a deposit.

The cost of living won’t be going down any time soon, and people’s pensions are not suddenly going to meet their retirement needs if they didn’t start saving soon enough.

And, of course, while we can’t anticipate that house price values will continue to rise by 10 per cent-plus, the reality is that, because of supply-side issues and ongoing demand, prices will probably continue to inch upwards.

This means homes will continue to be the single biggest asset that many people own in their retirement – and one that, if required, can be drawn upon to help in so many ways.

We, of course, need advisers to tell this tale, and we need more advisers to be active in this sector in order to do that. This is a relatively small market, but it is an essential one that requires advice perhaps like no other, and it is only going in one direction. With more advisers involved, that journey will be significantly quicker – so it’s time to get on board. M I www.mortgageintroducer.com

Lucy Louden Mortgage Advice Bureau, Sittingbourne

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