Mortgage Introducer – April 2022 by mortgageintroducer

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April 2022

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Finding a balance in the new age of ethical lending

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EDITORIAL

COMMENT

Editor Jessica Bird Jessicab@sfintroducer.com Deputy News Editor Jake Carter Jake@mortgageintroducer.com Commercial Director Matt Bond Matt@mortgageintroducer.com Advertising Sales Executive Jordan Ashford Jordan@mortgageintroducer.com Campaign Manager Esha Gossain Esha@mortgageintroducer.com Production Editor Felix Blakeston Felix@mortgageintroducer.com Head of Marketing Robyn Ashman RobynA@mortgageintroducer.com CEDAC Media Ltd Signature Tower 42, 25 Old Broad Street London EC2N 1HN Information carried in Mortgage Introducer is checked for accuracy but the views or opinions do not necessarily represent those of CEDAC Media Ltd.

Short but sweet

he Bank of England’s Money and Credit statistics show that net mortgage borrowing by individuals decreased to £4.7bn in February, from £5.9bn the month before. Does this mean we are seeing an end to the frenzied pace that has typified the market, seemingly since the end of that gut-wrenching but temporary hiatus around this time in 2020? The picture looks very diﬀerent, albeit similarly bleak now, as we consider a future of rising interest rates, cost-of-living increases, and a growing unease about something happening beyond our shores. All this will see people tightening their belts, and although there is still a chance to secure a good deal now before rates rise further, we may well see a tapering oﬀ

of activity as the year progresses. If so, how fitting to slip back into a normal pace around the two-year anniversary of the onset of the pandemic. Also fittingly, April 2020 was my first issue as part of the Mortgage Introducer team, and this will be my last. Having spent the bulk of my time in the roles of associate editor and editor largely locked in my own flat, I have met far fewer of you in person than I would have liked, even having to wait until October 2021 to meet my own team members. It has been strange, and all too short, but ultimately sweet, and I have thoroughly enjoyed my time with the CEDAC team. Jessica Bird Jess_JBird

Precise. precisemortgages.co.uk FOR INTERMEDIARIES ONLY

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APRIL 2022

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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. Landbay.co.uk

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24/03/2022 15:53

MAGAZINE

WHAT’S INSIDE

Contents 42 7 18 19 21 24 30 34 36 38

Market Review London Review Recruitment Review Technology Review Buy-to-let Review Protection Review General Insurance Review Conveyancing Review Equity Release Review

42 Interview: Simply blue-sky thinking Jessica Bird and Richard Merrett discuss how SimplyBiz Mortgages is adapting to the new normal 46 Loan Introducer The latest from the second charge market 50 Specialist Finance Introducer Feature: Profit with purpose Jessica Bird asks whether property finance has entered a new, more ethical stage in its evolution 55 Specialist Finance Review Development finance, bridging finance and more from the specialist market

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INTERVIEW

LONDON

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APRIL 2022

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High LTVs and versatile criteria needed for FTBs Tom Molloy intermediary sales manager, Mansfield Building Society

e have heard from plenty of brokers and networks about seeing a swell of interest from first-time buyers (FTBs) of late. The reasoning is pretty understandable – we have seen two base rate rises in three months, with more potentially on the way, and first-time buyers will be carefully considering their options. As a result, moving now and securing a deal at a lower rate makes a lot of sense. But are lenders really doing enough to provide the funding these borrowers require? WHAT DO FTBS NEED?

The demand is obviously there, which puts the ball in the court of lenders. What do these wannabe homeowners need from us, and what sort of products can help them take that initial step onto the housing ladder? The first – and perhaps most crucial – element of delivering products for this borrower cohort is to recognise just how difficult it is for them to get together a sizeable deposit. Even the most dedicated FTB, squirrelling cash away each and every month, is faced with huge difficulties in getting much of a return on the money they save, particularly if they haven’t made use of innovations like the Lifetime ISA. This is coupled with the rapid rate at which house prices have grown since the start of the pandemic. The latest figures from the Office for National Statistics (ONS) suggest that in the 12 months to November 2021, house prices jumped by 10 per cent to a new www.mortgageintroducer.com

record average of £271,000 – £25,000 higher than 12 months earlier. As homes increase in value, that savings pot that would have been enough for a 10 per cent deposit suddenly shrinks and is no longer enough for many lenders.

“Financial assistance from a loved one is essential for vast numbers of hopeful homebuyers” Clearly, if lenders are truly committed to supporting first-time buyers, then delivering products at high loan-to-values (LTV) is essential. It’s something we take very seriously at Mansfield, which is why we have a range of competitively priced mortgages at 95 per cent LTV, including two- and five-year fixed-rate deals. GETTING A HELPING HAND

There is more to meeting the needs of first-time buyers than simply oﬀering products at high LTVs, though. There is also a need for some flexibility in the way we assess those applications, including support which may be in place from family members.

Brokers can provide plenty of hope to first-time buyers

After all, financial assistance from a loved one is essential for vast numbers of hopeful homebuyers. Previous studies from Legal & General have found that the ‘Bank of Mum and Dad’ is involved in around half of housing transactions involving buyers under the age of 35; a significant proportion of the market simply would not exist without additional support. This financial help takes a range of diﬀerent forms, too, from gifting the deposit to acting as a guarantor or even as a joint buyer. Lenders who want to support these buyers need to be similarly adaptable in providing the funding buyers need, based on a variety of diﬀerent forms of family help. At Mansfield, for example, we provide both joint borrower sole proprietor mortgages and our Family Assist range, in which a family member provides security equity to 20 per cent of the value of the property, whether through savings or a charge on the equity held in their own home. VERSATILITY GOES A LONG WAY

Lenders also need to incorporate some flexibility into their lending criteria in areas like gifted deposits and guarantors. It’s all too easy for lenders to fall back on rigid scorecards, which simply erect barriers that firsttime buyers have little prospect of surmounting. Yet by giving underwriters the ability to get to grips with the real details of a case, to truly understand the borrower as an individual, lenders can avoid this issue. We hear from brokers all the time who have been frustrated with the approach of some big lenders, who have stuck so closely to their criteria that a perfectly good borrower has been denied funding. A little versatility can go a long way and ensure that the supposedly ‘complex’ aspects of a case, which put oﬀ closed-minded lenders, do not act as a hindrance to an application with a more flexible lender. By developing strong relationships with flexible lenders through their BDMs brokers can provide plenty of hope to first-time buyers amongst inflation and interest rate rises. M I APRIL 2022

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The importance of mortgage reviews Gordon Reid business development manager, learning and development, LIBF

s we enter new financial year, many borrowers are faced with dramatic increases in their living costs. As well as a hike in domestic and vehicle fuel costs, food prices continue to rise, and National Insurance contributions have risen by 1.25 per cent this month. Inflation is at its highest level in over 30 years, and the new energy price cap, which also came into force this month, will see annual fuel bills rise to an average £2,000 per household. To add to this, the Bank of England (BoE) base rate has risen significantly and is likely to continue to rise over the coming months. WHAT DOES THIS MEAN FOR MORTGAGE BORROWERS?

First, the rise in the base rate means that the interest rate at which they will be able to secure their mortgage is likely to be higher. In addition, as lenders tighten their lending criteria, the range of low-cost deals available to borrowers will be reduced. For many new borrowers, this might mean they can borrow less, or they will have a more limited choice of provider. WHAT ABOUT SOMEONE WHO ALREADY HAS A MORTGAGE?

For those who already have a mortgage, the immediate impact depends on their loan-to-value (LTV), the type of product they have, and how long it has to run. Those tied into a low fixed rate, with several years before it’s due to be renewed, will probably be happy to sit tight. However, by doing so, they’re

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taking a risk that when they come to review their deal, interest rates may have risen so high it’s difficult to find an affordable new deal. Those with a variable rate mortgage have probably already seen their rate increase and may wish to reduce the risk of further rises by fixing their rate now. Similarly, many of those whose fixed rate is coming to an end soon are likely to see an increase in their payments. The days of low two-to-five-year fixed rates are probably over, for now at least. So, whether they’re taking out a mortgage for the first time or seeking to remortgage, borrowers have some difficult decisions to make. HOW CAN BORROWERS LIMIT THE IMPACT?

Despite the fact that roughly 60 per cent of all new home loans are arranged by mortgage brokers, 70 per cent of interest rate renewals are managed by the existing lender. This may mean that borrowers pay less to secure their new rate, but they could also be missing out on better rates available elsewhere on the market. In addition, and perhaps more important, when conversations focus purely on the interest rate, other considerations are often missed, and other needs may not be catered for. OPPORTUNITIES FOR MORTGAGE ADVISERS

It’s often said that the time to review a mortgage is when there are significant changes in circumstances. These changes are usually life events like marriage, having children, divorce, and death or serious illness, which all have a huge impact on finances. However, in 2022, you should probably add changes in the general cost of living to this list. That means that most of your clients – if not all – could probably benefit from a review of

their mortgage and protection products. As a mortgage adviser, you should be making the most of the relationships you built up with your clients when you initially arranged their mortgage. A review will help you and them assess whether they still have the right mortgage deal in an economy with rising inflation.

“The days of low two-to-fiveyear fixed rates are probably over, for now at least. So, whether they’re taking out a mortgage for the first time or seeking to remortgage, borrowers have some difficult decisions to make” It’s also just as much about ensuring that other needs, including those arising from increased living costs, are adequately met. Some incomes may be rising, but in most cases not at a rate that keeps up with rising costs. Many people are also spending a greater proportion of their earnings on everyday living costs rather than saving extra cash. With pursestrings tightened, if your customers suffer a loss of or reduction in income, they’re less likely to have savings to fall back on. Now is also a good time to review whether they have sufficient or the right sort of financial protection. Spending money on protection when other costs are increasing will be counter-intuitive to many borrowers. Some may feel they can’t afford the additional cost and will be reluctant to take out protection products unless they have an adviser they trust guiding them through the process. Yet they may now be more vulnerable because of uncertainties in the economy. Even if they can’t afford to spend any more on protection, changes to their circumstances might mean they have different needs and priorities. Can you risk assuming that what you advised them to do two, three, or even five years ago is still the right thing for them now? M I www.mortgageintroducer.com

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Only way is up for advice Xxxxxxxxxx Craig Calder director of mortgages, xxxxxxxxxxxxxxxx, xxxxxxxxxxxxxxxx Barclays

t’s been said many times since the housing market ‘reopened’ after a slight pause due to the first lockdown that we can all count ourselves fortunate to be working within an industry that has not only survived this tough period, but on the whole prospered. As it stands, we currently face some wider economic turbulence that is already hitting consumers in the pocket, and on the back of the recent increase in the Bank of England base rate to 0.75 per cent from 0.50 per cent, there is further uncertainty as to where this might end up before the year end. However, on a more positive note, we are operating from a solid lending platform with a highly robust housing market firmly in place. This is a combination that allows us to better absorb a host of influencing factors, and we are now returning to strong and stable pre-pandemic levels after one of the most hectic, and frankly unsustainable, periods of homebuying activity ever experienced. MORTGAGE APPROVALS

According to the latest Money and Credit statistics from the Bank of England, net mortgage borrowing by individuals increased to £5.9bn in January 2022 from £4bn in December. This was said to be above the prepandemic average of £4.3bn in the 12 months up to February 2020, and the highest since September 2021 (£9.4bn). In terms of gross lending, this rose to £23.8bn in January, up from £22bn in December. Approvals for house purchases rose to 74,000 in January, above the 12-month average of 66,700 – up to February 2020 – to hit the highest levels experienced since July 2021 (75,900). www.mortgageintroducer.com

Approvals for remortgaging with a different lender also rose to 46,200 in January. REMORTGAGE

Staying with the remortgage market, LMS recorded a 41 per cent rise in remortgage completions during January 2022, after December saw a “barrage of activity” due to an early repayment charge (ERC) date. In contrast, new remortgage instructions dipped by 21 per cent in January, with pipeline cases decreasing by six per cent month-onmonth. Breaking this down, 43 per cent of borrowers increased their loan size in January and 64 per cent were suggested to have taken out a five-year fixedrate product. In addition, 29 per cent

“The volume of mortgage products took its first dip in February, as adjustments were being made by lenders to ‘new’ market conditions, although these levels did recover to end February higher than January” of remortgagers’ primary aim when remortgaging was to lower monthly payments, with the average monthly payment decreasing by £231. As highlighted in the data, the next major ERC date is 1 April, so all remortgage eyes will be on that, while the pipelines in transactional teams also remain swollen, creating capacity challenges for conveyancers. With activity levels expected to remain high from both a remortgage and purchase perspective, it will remain a busy time for all links in the mortgage chain. MORTGAGE SEARCHES

These burgeoning activity levels were demonstrated in Twenty7Tec data, which outlined that more than 1.43 million mortgage searches were conducted by advisers in February

2022, with three of the four busiest days ever recorded on the platform occurring during that month. February was also the busiest month ever for buy-to-let (BTL) mortgage searches since Twenty7Tec began reporting. The volume of mortgage products took its first dip in February, as adjustments were being made by lenders to ‘new’ market conditions, although these levels did recover to end February higher than January. At the time of the report, 87.6 per cent of the total volume of prepandemic mortgage products was available, with roughly 18 per cent of all products in the 90 per cent to 100 per cent loan-to-value (LTV) range – the highest figure recorded by the tech provider. MORTGAGE AVAILABILITY

When it comes to servicing this demand, mortgage availability has reduced notably as lenders have condensed and revised their ranges over the past month, seeing both the overall average two- and five-year fixed rates rise again, according to the latest Moneyfacts data. The March figures showed that product availability declined for a second consecutive month. There were a reported 518 fewer products for borrowers to choose from than at the start of February, which represented the largest monthly fall in choice since May 2020 (626) during the initial stages of the pandemic. Despite average two- and five-year fixed rates for all LTVs rising for the fifth consecutive month – 0.21 per cent and 0.17 per cent respectively – these remain highly competitive, and there are still a healthy number of available options out there to meet a range of borrowing needs. This product and rate swing also highlights the importance of the advice process in accessing the right product at the right price for the right borrower. We know for certain that the value of this advice will continue to trend in only one direction: up. M I APRIL 2022 MORTGAGE INTRODUCER

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Relaxing aﬀordability – a good move? Shaun Almond managing director, HL Partnership

he announcement from the Bank of England’s (BoE) Financial Policy Committee that it is minded to withdraw affordability tests by lenders, pending a consultation, can be viewed in two ways. Introduced in 2014, stress testing was designed to support lenders’ own credit policies, the relaxation of which in the years leading up to 2008 was a small but contributory factor to the Credit Crunch. Many of us still remember the many thousands struggling to pay a mortgage at that time that they clearly wouldn’t have been able to afford under today’s guidance. Interest rates are rising for the first time in 10 years or so, on top of which cost of living increases, particularly energy costs, are having

Aﬀordability: the great unknowns

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a negative effect on inflation, which has led to rises in the base rate. It is perhaps understandable that, just when household bills are on the rise and interest rates are likely to increase further, some might wonder why the BoE would remove the umbrella just before the rain starts to fall. Isn’t this an unusual move to make, particularly now? Why wasn’t it reviewed when interest rates were stable and at their lowest levels, rather than when the name of the game is volatility and uncertainty, both economic and politic? On the other hand, it can also be argued that the move gives lenders more flexibility in their own decisionmaking and credit policies, potentially allowing more people to get on the housing ladder. The great unknown is whether the other checks and balances – including the wider assessment of affordability required by the Financial Conduct Authority’s (FCA) Mortgage Conduct of Business (MCOB) framework – will be enough to ensure that borrowing will not get out of hand. However, with lenders’ criteria becoming more complex, mortgage terms being extended, and more targeted product ranges, it is easy to see that the traditional 4.5-times income multiple will come under the spotlight. Certainly, the current situation in which someone is turned down for a mortgage but has a positive track record in paying rent over several years is an anomaly. Where renting is 1.5-times or more as expensive as the mortgage payment for which they have just been turned down, the removal of the stress test might usher in a more sensible assessment of how much a person might reasonably be expected to be able to repay. Of course, this might be a simplistic view of affordability, but advisers with clients with perfectly acceptable rental

payment records, turned down for a mortgage which would have cost less per month, can see that the current system does not necessarily deliver a good outcome. For mortgage lenders, though, there are other considerations. A 25-year mortgage – or now up to 40 years – is obviously a greater risk for both lender and borrower than an Assured Shorthold Tenancy (AST) rental agreement, regardless of the letting track record. Back in the day, before credit scoring and computer algorithms, underwriters used to be taught these three simple questions: Does the property valuation match the purchase price? Does the applicant have the income to make the mortgage repayments every month? What is the customer’s track record – will they repay the mortgage or is there past history that would suggest otherwise? It is good to see that these principles are still alive and kicking, although in the wake of the affordability tests and the advances in technology, today’s vanilla lending has become predictable because of its reliance more on electronic assistance than on the human touch. Any applicant who does not fit neatly into the right box as predicated by the system that ‘assists’ underwriting teams in making the right lending decisions is unlikely to be acceptable. Perhaps that is why now is the time to change what the BoE euphemistically calls its ‘recommendations’ to lenders and remove the affordability stress tests, because it believes that the industry has earned the right to manage its lending without undue oversight, due to improved underwriting checks and balances and MCOB requirements. Alternatively – and taking a more world-weary view – whilst it is not a little dangerous to be reviewing the stress checks at a time of rising inflationary pressures, could the real reason be that there is a serious concern that the housing market, and the lending that sustains it, will stall as incomes become less able to meet what, on the face of it, are constantly rising house prices? M I www.mortgageintroducer.com

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Thinking ahead is a habit we need to adopt Xxxxxxxxxx Steve Goodall managing director, xxxxxxxxxxxxxxxx, xxxxxxxxxxxxxxxx e.surv

he world has changed, but we often forget to ensure that we change with it. It’s that classic thing – you see someone every day and don’t notice changes, where you would if you only saw them once a year. How the world changes has a real influence on other people’s choices. Regulation, lending policy, how we understand risk – these things have changed out of all proportion over the past 50 years. It was almost seven years ago that the Building Societies Association (BSA) launched a progressive housing report entitled ‘Laying the foundations for Modern Methods of Construction’. It explored the addition of this form of housebuilding, particularly offsite construction, into the mainstream repertoire of the UK housing industry. Helping housebuilders, mortgage lenders, surveyors, and general insurers understand and embrace new types of

Spotting these trends early is critical

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building was at the heart of the BSA’s agenda. At the trade body’s annual lunch in 2016, then-chairman Dick Jenkins said, “The UK has consistently underbuilt for many years and the current contribution falls short of the government target of 200,000 new homes a year. “Utilising offsite construction methods offers a way of providing well-designed, high-quality, affordable homes at a faster rate than is currently possible. If the UK doesn’t diversify its housing supply, the imbalance between supply and demand cannot practically be broken.” Despite everyone in the industry heartily applauding this message, and even the resounding endorsement given by then-Housing Minster Gavin Barwell – who can keep track? – we are still nowhere near where we could have been. PLAYING CATCH-UP

Mortgage lenders are naturally – and some would argue quite rightly – risk averse. If they haven’t done something before, it’s safer all-’round not to do it now, especially with the regulator breathing down their backs. But in avoiding new risk and sitting back safe in the assumption that you haven’t opened yourself up to potential disaster, you expose yourself to risk you hadn’t even thought of. The growth in equity release lending is a good example of this. Equity release has been around for a long time, so why is it now becoming so popular? Those involved in the sector would no doubt argue the product quality has improved considerably, rates are more affordable, and contracts far more flexible. They’re right, but it’s not just that. Those things have facilitated market growth because of a much larger socioeconomic shift that has been taking place for decades. Our lives have shifted. It’s no longer

the default position to leave school or university, get married, buy a house, work for the same company all your life, and retire on a final salary pension. Far from it. Add into the mix an ageing population and a workforce paying National Insurance to support a growing number of pensioners for far longer retirements, and you begin to see why surviving on the state pension alone is becoming less and less realistic. Add unprecedented house price growth since the 1990s – made possible by removing housing costs from the basket of goods used by the Office for National Statistics (ONS) to measure inflation – and a major onslaught of regulation, and equity release has found its sweet spot. These macroeconomic trends that take years and years to become obvious are all too often considered important but not urgent – until everyone is forced to play catch-up in a mad scramble to fix a problem which we all knew was going to be a problem 20 years ago. KEEP PACE

From a valuer’s perspective, spotting these trends early is critical because failing to consider them leaves our clients exposed. And in the mortgage market, with mortgage terms now regularly extended to 40 years, longterm trends really matter. But this is precisely why lending policies have to do more to keep pace with risks that are vitally important but don’t seem urgent right now. Net zero target risk is one; climate risk another; the desperate need for new construction methods given the climate context and political position is a third. It is not right that many traditional builds that perform poorly in energy terms can be financed through equity release mortgages when others that will fulfil our net zero commitments through more modern construction types do not. Not lending on homes that are the future, like it or not, will leave balance sheets more open to risk in years to come than taking the time to understand new risk and get lending policy right today. M I APRIL 2022 MORTGAGE INTRODUCER

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Not getting in a ﬁx about long-term ﬁxes Xxxxxxxxxx Tim Hague xxxxxxxxxxxxxxxx, director, xxxxxxxxxxxxxxxx Sagis

he stars may just be starting to align, as investors are looking for less-volatile asset classes, consumers are looking for financial certainty, and lenders are looking for ways to improve affordability whilst limiting the impact on risk. Are long-term fixes of 10 years and more due a comeback? Currently, the very notion of recommending a client sign up to anything fixed over 10 years is almost unthinkable to most mortgage brokers in the UK. In fact, justifying the oldschool breed of long-term fixed rates – longer-term fixes with longer-term lock ins – to the Financial Conduct Authority (FCA) when it shows up for a supervisory visit would be difficult in the vast majority of cases. This is why, in the UK, fixed-rate mortgage terms tend to be mostly two years or five years. In a small minority, borrowers might fix for seven or 10 years, but it’s still rare. Successive governments have suggested that longer-term fixes might be beneficial for homeowners – especially now that rock-bottom rates are fast evaporating amid a series of

base rate rises. Yes, sign me up to two per cent fixed until 2062. The way the economy is heading, anything to grab a bit of certainty, please! The problem, of course, is that fixed rates invariably come with the caveat of early repayment charges (ERCs), ergo a large financial penalty should a borrower need any flexibility during the fixed-rate period. Heaven forbid life should get in the way of your mortgage! Yet the traditional funding model dictates it. The way banks and building societies access funding in the UK is the reason we don’t have a thriving long-term fixed-rate market. Pricing mortgages based on the cost of a 40-year swap would completely wipe out the possibility of anyone taking the deal. Nobody locks up their retail savings into a 40-year bond – that would be nuts. Private equity, hedge funds, and banks all want their money back in a maximum of five years. Even with a blend of terms to allow for five years as an average, there’s very little flexibility. For at least a decade, the British market has been attempting to work out a way to match fund propertybacked asset debt with pension fund investment. It works for the equity release market, where pricing is calculated based on actuarial assessments, longevity forecasts, and projected

Are long-term ﬁxes of 10 years and more due a comeback?

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house price inflation – among other things. There is no fixed term on a lifetime mortgage, just a fixed rate made possible because of the way it is funded. Insurers and pension funds have the timeframe to justify it. Banks relying on capital markets and retail deposits have much shorter and more rigid funding timeframes. Putting aside the totally fair question of procuration fees – what broker in their right mind would recommend a 10-plus year fix only to do themselves out of several separate proc fees? – I think the shape of the market is due a change where long-term fixes are concerned. Having ascertained that the barrier in the UK is the prohibitive cost of funding a long-term fixed rate, how, then, do you break that barrier? A survey carried out recently by Aeon Investments showed pension funds in Europe and the US have been selling off gilts and corporate bonds over the past 18 months in favour of less-traditional fixed-income assets such as infrastructure and real estate. With inflation comes renewed interest in bricks and mortar! One in four fund managers told the group they had reduced their allocation to traditional fixed income over the past 18 months. Half said they have cut bond exposure, and a further 14 per cent have sold out of fixed income more aggressively still. Just 12 per cent have been buying bonds. Replacing that capital protection and stable income element of their portfolios is critical for trustees, and it’s opening up a brave new world for the British mortgage market – one that promises greater certainty for borrowers. Exactly what longer-term fixed rates will look like remains to be seen, but one of the benefits of pension-funded lending over a much longer fixed term is the lack of need for an ERC. Much like the theorised ‘pot follows member’ ideal pension system, this is ‘mortgage follows homeowner’ in place of ‘borrower stuck in property’. There, just maybe, lies the missing ingredient that can transform sales of longer-term fixed rates in the UK mortgage market. M I APRIL 2022

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First Homes scheme already changing lives Xxxxxxxxxx Stuart Miller chief customer officer, xxxxxxxxxxxxxxxx, xxxxxxxxxxxxxxxx Newcastle Building Society

ack in July last year, we launched our inaugural range of 95 per cent loan-to-value (LTV) mortgages, available under the government’s First Homes scheme. Our mortgages were among the first under the initiative and were an important addition, in the demise of Help to Buy, to our range of support to first-time buyers. The scheme offers residential properties at a discount of at least 30 per cent compared to the market price, with a goal of building 1,500 new homes across 100 locations in the next two years. Innovation with purpose is a guiding principle for us as a society, and we are committed to supporting the people in our communities to achieve their dream of home ownership. Many of you will already know that we have many products to support first homeownership, including our award-winning Deposit Unlock, Joint Mortgage Sole Proprietor, and now First Homes. CHANGING LIVES

First Homes is the new flagship government scheme and, of course, when you undertake to launch any new product range, you take risks as well as create opportunities. But I am really encouraged by the early signs of success with First Homes. Not only does the scheme give people an innovative way to buy a home in their local area, it’s also a great example of industry collaboration giving home buyers more options. Our first completions are now a reality, and the loans are demonstrably changing lives. We are so pleased

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with the success to date that we are widening the availability of our mortgages under the scheme across all sites following a successful pilot development in County Durham. Since August, when the group of two-to-four-bedroom homes at Elder Gardens first came on the market, we have issued offers on three-quarters of the First Homes plots. So what am I so pleased about, really? Well, for one thing, First Homes mortgages are transforming what many young buyers are able to afford. Some of our buyers in the northeast are in their twenties, something I would have thought impossible not so long ago. Without the scheme, for some, such a purchase would be unaffordable. It has the potential to create a new generation of first-time buyers. But over and above enabling new buyers to make their first step onto the property ladder, the scheme requires the many parties involved in the transaction to work well together. That demands good communication and commitment to the cause. It is worth noting that in the early days, perseverance and pragmatism are key to getting borrowers into their new homes. In many instances, the broker, developer, and public bodies involved – as well as ourselves – have had to put in a lot of additional time and effort, and I would like to thank them

Encouraging signs from government scheme

publicly for this. The developer in the County Durham pilot development, Keepmoat, was instrumental in getting and assisting buyers with the documentation required by the council, ourselves, the broker, and Homes England. The scheme, at least in one instance, has also thrown up more familiar issues for us that have required the pragmatic underwriting approach we have been so assiduously developing over the past years.

“Over and above enabling new buyers to make their first step onto the property ladder, the scheme requires the many parties involved in the transaction to work well together” Borrowers, particularly early in their working lives, are often very new to their jobs and do not have the track records we might ordinarily expect. But good communication and a common-sense approach to underwriting meant we were able to get beyond normal policy and make a very sensible exception to the rule – meaning one couple made a reasonable saving on our deal compared to a competitor’s, a saving that made the difference in affording income protection cover and facing the oncoming rise in household bills with confidence. With First Homes, the discount applied will remain for the ‘life’ of the property, to support future generations of first-time buyers and key workers onto the property ladder. There is currently a lack of new-build property, which can mean they demand higher prices, but in the round, the scheme enables young people to make a start in life and live in places and communities they might otherwise be unable to afford. We have a commercial and moral duty to not only offer new schemes to help more people onto the property ladder, but also put in the hard yards to make these schemes a success. M I www.mortgageintroducer.com

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MARKET

Self-build: maximise the opportunities Jean Errington business development manager, Harpenden Building Society

or years we’ve heard that property values could fall. They still may in time, but the predicted downturn hasn’t materialised. UK house prices have been rising at their fastest rate since 2007 in recent months, with the typical property reaching its biggest annual cash gain in nearly 40 years. The market will need to be monitored carefully in the year ahead, but I predict brokers will have an

“Would-be self-builders who also consider doing the work themselves can lower costs by up to 40%, a significant saving and an opportunity to boost equity” ongoing opportunity to ride this wave. So which areas of lending will be particularly buoyant? One standout option is self-build. Those overseeing the development of a new home can increase returns, as selfbuilds often prove cheaper to construct compared to buying an existing property. Would-be self-builders who also consider doing the work themselves can lower costs by up to 40 per cent, a significant saving and an opportunity to boost equity. A self-build project will also save on stamp duty, as owners are taxed on the value of the land, not the completed property. As well as maximising cost savings, a self-build project is the perfect www.mortgageintroducer.com

opportunity for customers to create their dream home. So what does your typical selfbuilder – and potential mortgage customer – look like? The National Custom & Self-Build Association (NaCSBA) reported that three to eight per cent of self-builders do the work themselves, with most people using a combination of builders and contractors. The NaCSBA also outlined that most self-builders are older, but that the largest group aspiring to self-build is actually 18 to 24 year olds. WHAT TO LOOK OUT FOR

As a specialist self-build lender, our own experience concurs with these statistics. To meet this demographic’s needs, we review our products on a regular basis, observing the market and adjusting our offering accordingly. Harpenden-based builder Matt Martin gives some useful insights: “Self-build is big right now. Most builders and small construction firms I speak with regularly work in this type of property development, contracted by self-build customers. “A few years back these same firms would have been involved in their own development projects, but buying the right land in the right location and at the right price is becoming increasingly difficult. In contrast, self-builders often have access to an existing plot where they can build a standout property to fit their exact needs. “They are also more likely to pay more for any available land, too, as the self-builder is in it for the long game and doesn’t need to make an immediate return.” He adds, “Self-build projects are complicated on many levels, but the returns can be significant, hence their popularity. Getting the right financing in place is one of the key factors determining success. Partnering with

a specialist lender, experienced in the complexities of a self-build project, is a must in my opinion for anyone borrowing money to fund the project.” MORTGAGE OPTIONS

At Harpenden we manage complex cases, offer bespoke solutions, and provide flexible underwriting. Our team has a wealth of knowledge when it comes to self-builds, and an established record of facilitating finance options in this area. Here is what we offer for self-builds, including unique features within the market, which can act as a benchmark when you are considering which lender to work with:  3.69% for loans of £75,000 to £999,999  4.19% for loans of £1m to £2m  standard self-build at 65% loan-tovalue (LTV)  premium self-build at 75% LTV  knock-downs, rebuilds, and refurbishments – residential developments  no early repayment charges (ERCs)  flexible construction types – valuer comments dependent  self-build retention releases not linked to stages  independent self-build product  most UK-based incomes considered  flexible drawdown options  up to a maximum of three properties being built, one to be subsequent main residence  up to three units accepted within one title  we fully explain the self-build process and steps We’ll be with you and your customers during every step of the financing journey. We understand that this process can be daunting due to the intricacies of a self-build project, and it might not be familiar to some brokers. We also recognise that much rides on the success of the self-build, so we work hard with all parties to maximise the opportunity. All the signs point to a healthy year for the self-build mortgage market. If you are looking to secure financing, we will be pleased to outline the opportunities available to you. M I APRIL 2022 MORTGAGE INTRODUCER

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MARKET

Remote working and buyers’ aspirations Jamie Johnson CEO, FJP Investment

he UK property market has been on a wild ride since the summer of 2020, when relaxed social restrictions and the stamp duty holiday converged to create an enduring boom in house prices and activity. It is only now, nearly two years on, that we are beginning to see the dust settle on this frenetic period. Of course, this is not to say the market is underperforming today – indeed, it continues to surpass expectations. Recent figures from Nationwide indicate annual house price growth in the UK hit 12.6 per cent last month, the highest rise since June last year. While the pandemic failed to dampen buyers’ appetites, it has undoubtedly catalysed marked societal changes, such as the widespread adoption of remote working, which continues to influence homebuying aspirations. Remote working patterns started during the pandemic out of necessity, and were viewed at the time as a temporary measure. The majority of working Britons (60 per cent) worked remotely during the first lockdown. Over time, as companies adjusted to the transition, increasing numbers became prepared to embrace hybrid and flexible work. Two-fifths of the UK workforce now say they never intend to return to office working. Naturally, this will continue to have knock-on effects for the real estate market. Indeed, the return to greater normality marks the ideal opportunity for property stakeholders to assess how remote working has already influenced www.mortgageintroducer.com

the shape of the market, and how the industry can best adapt to radical shifts in demand. EVOLVING PROPERTY PREFERENCES

A lesson many learned the hard way during the early days of the pandemic is that not all homes are suitable workspaces. The so-called ‘race for space’ indicates the extent to which our relationship with homes and workspaces has evolved. FJP Investment recently commissioned an independent study, in which 23 per cent of homebuyers said their priorities for future property changes had shifted as a result of working from home – among the youngest cohort surveyed, this rose to a remarkable 44 per cent. This suggests that younger buyers have been particularly open to reassessing what they require from residential property, with longer careers still ahead of them and the future of work looking increasingly flexible. The research also showed that 27 per cent of homeowners place great value on having a dedicated home office or homeworking area. Having a garden or outdoor area has risen up the priority list for 44 per cent of respondents, while 26 per cent believe the property’s square footage has risen in importance. These are interesting trends that will no doubt have ramifications in the coming months and years. NEW-BUILD PRIORITIES

The shifting demand patterns on the buyer side may give way to interesting opportunities for developers and investors to explore in the new-build market. Recent data shows there’s no let-up in buyer appetite. This strong demand, coupled with the low levels of supply, is fuelling relentless price growth in the market. Rightmove’s House Price

Index found that last month, the number of potential buyers rose 16 per cent, while new listings increased by just 11 per cent. Naturally, buyers’ demand for housing also extends to new builds. FJP Investment’s latest research found that while only 39 per cent of homebuyers had viewed new-build developments in their last property search, 50 per cent would consider purchasing a new build for their next home. A quarter (26 per cent) said they are more likely to factor new-build properties into their considerations than before the pandemic.

“Having a garden or outdoor area has risen up the priority list for 44% of respondents, while 26% believe the property’s square footage has risen in importance” With home working on the rise, the new-build sector may be well placed to capitalise on buyers’ changing property needs. Indeed, 74 per cent of potential buyers are attracted to the greater energy efficiency of new-build properties – an issue of heightened importance as energy price hikes create a larger financial burden. More than two-thirds (68 per cent) said they were drawn to the modern facilities that new-builds afford. The prospect of a buying market that is increasingly influenced by the need to combine efficient living and working space will provide key opportunities, which could be harnessed to tackle the under-supply of housing. Off-plan investments may well play a bigger role as demand increases. Looking ahead, as professionals become increasingly untethered from the need to commute to nearby offices, it will be crucial that property stakeholders pay close attention to how buyer preferences are changing. The increasing likelihood of this trend becoming the norm will undoubtedly shape future market dynamics, as the sector adapts to homebuyers’ altered living and working landscapes. M I APRIL 2022 MORTGAGE INTRODUCER

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LONDON

Life and property markets are complex Robin Johnson Xxxxxxxxxx managing director, Kinleigh, xxxxxxxxxxxxxxxx, Folkard and Hayward xxxxxxxxxxxxxxxx Professional Services

s I write this, the situation in Ukraine is deteriorating. The human tragedy is well documented. Sanctions have been imposed, freezing Russian assets in the UK. Speculation about how Putin’s invasion of Ukraine will affect not only the lives of millions of innocent people, but also the global economy, has been rife. Markets are yo-yoing wildly, international trade sanctions have sent gas, oil, and commodity prices soaring, and there is no obvious conclusion to Russia’s brutal assault on the Ukrainian people. Closer to home, there is a lot of speculation about super prime property. It is natural and prudent to consider how events elsewhere in the world might affect one of the world’s truly global cities.

greater transparency when it comes to ownership – will have an impact on the international ownership of some of London’s most expensive homes. The proposed legislation changes would force companies registered overseas, as well as foreign individuals, to declare the beneficial owners of all property purchased in England and Wales since 2002. Undoubtedly, the capital’s super prime property market will change. But it is important to remember that the internationally owned London property market is completely separate, even from the prime London market. London is the sum of many micro markets at many levels. As tempting as it is to assume London is one market, I know from many years’ experience this is not the case. Billionaires spending £250m on a Mayfair mansion are in a different league from bankers spending £5m on a Hampstead house. Also, this view assumes everyone will want to leave, when in reality many have families here and will be keen to remain – another reason why we should not

PRIME PROPERTIES

From a property point of view, and the one on which I am best qualified to speculate, the campaign group Transparency International estimates £1.1bn worth of London property is owned by Russians accused of corruption or links to the Kremlin. Across the UK, the value is £1.5bn. The capital has long been considered a safe haven for foreign money. The need for a home that protects capital value in a jurisdiction as politically stable as Britain has driven billions of pounds into super prime property in London from the Middle East, China, Hong Kong, and Russia for decades. The government’s decision in March to freeze Russian assets and fast-track its economic crime bill – proposing

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London is the sum of many micro markets

expect a mass dumping of property onto the market. The super prime market will feel some of the effects of the sanctions imposed on Russia by the UK, but I wouldn’t overestimate the impact on London house prices. The world of international buyers goes beyond Russia. There are many cash buyers from other parts of the globe who will happily take up the vacated seats. As stock markets and other asset groups take a beating, bricks and mortar are once again attracting the attention of investors, new lenders, and borrowers. CHANGING DEMAND

The other thing here is that the kind of homes sold, valued, and bought by the vast majority of Brits have nothing to do with that world. Far more fundamental to the value of London’s real homes, in which people live and from which they commute to work and school, is demand to be in the city. Yes, lockdowns and the pandemic have made people reassess what’s important to them. There is definitely something in the ‘escape to the country’ thesis. But there is also demonstrable appetite to move to London from elsewhere. People are returning to the office in their droves and demand for commutable living space is higher than it has been in two years. The latest Halifax data put the annual rate of growth at 10.8 per cent, the strongest level since June 2007 – just weeks before the Credit Crunch blew up the economy. In London, house price inflation is far less extreme, though still strong at 5.4 per cent annually, its strongest level since the end of 2020. Partly that is down to higher average prices and more stretched affordability, but nevertheless, it demonstrates the persistent demand for homes in the capital. Putin’s invasion of Ukraine is horrifying. The tragedy it has already wrought is unthinkable. Even so, I do not believe we are about to see a collapse in London’s housing market as a result. London, like life, is complex, and it has a habit of welcoming and dealing with everything we throw at it. M I www.mortgageintroducer.com

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RECRUITMENT

Ripping up the rule book Matthew Cumber managing director, Countrywide Surveying Services

he recruitment process continues to be a challenge for many firms across many different sectors. Speaking from a surveying perspective, it sometimes feels like we are simply papering over the cracks and constantly filling gaps left by people who are leaving the industry or retiring, rather than adding new blood into the mix to bolster the sector. This is not just an issue facing our sector; it’s industrywide. We are facing a real skills shortage and a dearth of good, young talent being attracted into the sector. To demonstrate this, a report published last summer by the Professional & Business Services Council and the Financial Services Skills Commission found that 32 per cent of UK firms are experiencing shortages in financial, professional, and business services skills. So what can we, as an industry, be doing to help fill this gap – and is it time to look beyond standard recruitment methods?

more residential surveyors certified and into the industry. Recent trainees have come from different professional backgrounds, including estate agency, DEA, and building surveying, bringing a diverse range of knowledge and expertise to the business – but is this reach wide enough? FIXING THE BROKEN

On the back of International Women’s Day, it was interesting to read some comments from Dominie Moss, founder of The Return Hub, who claimed that traditional recruitment models are “broken” and that they still put up too many barriers that stop women from making a return to financial services. She outlined that career gaps often get screened out by recruiters, which can affect talented women who may have taken a two-to-three-year career break and may not be able even to get their CVs in front of the right people as a result. Apprenticeship schemes are also more appropriate than ever for firms to explore, due to the numerous reforms that have taken place over the past four to five years, including the introduction

of the apprenticeship levy. Under this levy, funds are now available that firms can spend only on apprenticeship training, and this has played a key role in the further development of apprenticeship programs. This is a key recruitment avenue that has sometimes been overlooked in recent years, and it is time to refresh our views on such schemes, in addition to other approaches. NO EASY FIX

Successful recruitment continues to be an issue for many firms. It is a challenge that has been with us for years, and whilst it’s not going to be fixed overnight, we have to find innovative new ways to attract people into the industry. So maybe it’s time to start ripping up the rule book and looking beyond the more traditional methods to identify, attract, and train a more inclusive and diverse next generation of the UK workforce. Otherwise, the long-term employment problem we are experiencing throughout the industry will only get worse, and capacity problems will intensify further. M I

ATTRACT AND INVEST

As one of the largest players in our field, we feel it is our corporate responsibility to attract and invest in new talent rather than cherry-pick from other firms when they have done all the hard work. With this in mind, our Training Academy has delivered 200-plus surveyors to the industry over the past six years. Despite ongoing restrictions as a result of the pandemic, we continued our recruitment drive in 2021, with 41 trainees graduating over the course of year. In 2022, we are doubling the number of AssocRICS assessment qualification windows in a bid to get www.mortgageintroducer.com

Successful recruitment continues to be an issue for many firms

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REVIEW

RECRUITMENT

Breaking the bias Pete Gwilliam director, Virtus Search

he Viewpoint report from the Association of Mortgage Intermediaries (AMI) revealed in October 2021 that only 36 per cent of female respondees agreed that everyone had the same opportunity to progress and be rewarded fairly in the sector, irrespective of gender. Where recent promotions seem to have favoured men, and when opportunities for development and feedback are not equal, more women are determining these as reasons to move employers and find a greater sense of belonging and career trajectory, especially if there are few female role models in the senior management team.

“Any true meritocratic business where the senior levels of an organisation are populated by men must ask, are men really better equipped to operate at that level, or do they just have more things loaded in their favour?” This year, the theme for International Women’s Day was #breakthebias. To do so, all firms need to look at their hiring and career-development processes, since it doesn’t matter how fair or objective you believe yourself to be, unconscious bias is simply a part of being human – so developing policies and processes to counteract bias is essential. There are more discussions now about the diversity of recruitment shortlists, but focus on the ‘speed of hire’ and emphasis on hiring someone

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who has done a similar role previously all leads to ‘fishing in the same pool’, and familiar competencies are assessed, benefitting certain lived experiences and those with an immediately ‘interesting’ network of contacts. PROGRESSING UP THE PIPELINE

An issue yet to be debated openly is why, between middle and senior management levels, the numbers of women fall significantly relative to men. Firms maintain they hire and promote on merit, but the numbers of men at senior levels suggests there is a gap between perception and reality. Any true meritocratic business where the senior levels of an organisation are populated by men must ask, are men really better equipped to operate at that level, or do they just have more things loaded in their favour? Also, does the selection criteria fully consider how bias leads to the tendency to promote people who can be most easily related to? Data shows that women do not have the same access to sponsorship and influential networks as men do. Accessing these creates such an advantage that underrepresented groups are promoted specifically on attainment, whereas men can be given opportunities based on potential, given they have advocacy and are closer to the decision-making quorums in a business. Organisations need to examine how they create a level playing field, within which all employees can thrive and advance. I hear many first-hand accounts that suggest more men than women regularly understand how the talent pipelines work within their organisation. There is evidence that there are barriers – real and imagined – to how women feel they can access the next level in their career. Often the biggest gap is how strategic networks and sponsorship help shape personal brands in preparation for making an impact at more senior levels within the organisation, ultimately giving a competitive advantage when it

comes to knowing what it takes to be promoted. Undoubtedly, there needs to be a marked difference in the numbers of women in the talent pipeline if the gender balance from middle management and above is to be changed. Yes, there needs to be an equal chance to access the advantages enjoyed by male counterparts, but there is also a big need to consider promotion criteria and the type of selection processes adopted, and indeed the make-up of the interview panel and those assessing the candidates. Without a diverse set of assessors and a skill-based assessment, bias will be allowed to surface, because often men and women do not have an equal chance of accessing people who have progressed and been promoted, given that will be male-dominated. There must be more access to and visibility for senior female leaders to help colleagues at all grades learn the various routes that leaders have taken to get into leadership roles, and learn the significance of developmental feedback in helping women prepare for the next role. Diversity, equity, and inclusion (DEI) best practice talent strategies focus on measuring the gender balance of candidates applying for positions and the gender of employees applying for and gaining upward promotions, and the positive steps being taken to improve numbers, as well as shouting about the value of effective sponsorship. A gender-inclusive senior leadership board offers different perspectives, which in turn creates innovation, new opportunities, and in many cases a boost in productivity. By embedding openness and inclusion into business strategy, firms will ensure there is no shortage of talented women progressing toward senior roles, which in turn creates alliances for aspiring women who are earlier in their careers. This must have a positive impact on a business’s talent acquisition, career development pathways, and talent retention. M I www.mortgageintroducer.com

REVIEW

TECHNOLOGY

Having the means to deliver good growth Jerry Mulle UK managing director, Ohpen

f the stock markets are telling us anything, it is that equities are under attack. The cost-of-living squeeze and lack of returns on other asset groups mean bricks and mortar are as attractive as they have ever been. The number of new entrants queuing up to enter the UK mortgage market is more evidence that the cycle is changing and property, though less liquid, is enjoying investor interest. You only need look at any of the multitude of house price indices to see that the lack of supply of suitable stock is supporting house price growth. In e.surv’s recent index, the South East topped the regional table of house price growth for the first time in a decade. The property market in the UK is never static. This raises an important question for lenders and their boardrooms. As more entrants arrive over the next 12 months, they will do so with new propositions but without the scale and funding to attack the bigger high street lenders. So, whose lunch will they be stealing, and what does this mean for lenders’ growth strategies? DELIVERY IS KEY

There are clearly two games in town, and one is very much dependent on the other. Strategically you must serve new markets and possibly new customers in different niches, but to achieve this you need to have not only the right understanding and strategy, but also the ability to deliver. This means having the ability to create operational efficiencies to better scale for growth quickly. The right technical infrastructure is www.mortgageintroducer.com

key in delivering this, because not only will there be new entrants this year, but we are also at the beginning of a cycle that might last up to three or five years. That is a long time to go without any proposition innovation if you are on the back foot over pricing and criteria in your current markets. Lenders need to be nimble, with the right tools and partners to deliver quick changes to market and product strategies. A solid foundation for growth needs operational efficiency from the first point of contact right through to the back office and transactional systems. Transactional systems – or systems of record – need to punch above their weight. Changes to policies and interest rate calculations need to happen quickly and seamlessly. With cloud-native solutions, lenders not only enjoy scalability and robustness from origination to completion and beyond, but also the opportunity to innovate and take advantage of the speed to market and low cost of entry of upgrades. This way, agile lenders can really derive value from going beyond ‘lift and shift’ approaches to operational transition of core transactional and front-end systems to a SaaS environment, and can align their new business strategies and operations and use the cloud’s potential to transform operations. ENSURING INTEROPERABILITY

New transformative technology platforms and thinking promise so much, but how do you know if it’s working? To maximise operational efficiency, you must measure it. You should not only look at the inputs and financial numbers, but also create procedures to measure your outputs, performance, quality, effectiveness, and client satisfaction. After all, a new environment enables many things – not least interoperability,

which is a pipedream for many saddled with a lack of real connectivity, and only the prospect of seismic bills and long waits to achieve it. Yet interoperability provides access to third-party ecosystems to leverage the real opportunities of data collation, aggregation, and interpretation to support lending decisions.

“When traditional lending attributes such as trust, brand recognition, and a customer base do not provide the speed and ease borrowers want, new technology can enable nimble lenders” The ability to offer vast interoperability and connectivity means modernising can be securely undertaken with less risk of outages and swiftly targeted across specific parts of the organisation. Cloud-native companies like ourselves automate the release of new code into production, so that it benefits all users but does not forego customised solutions. Lenders simply get the best standard of what everyone else has, but with specific and customised configurations to support lending strategies. There are plenty of examples of financial services organisations that have found themselves under attack from fastergrowing, more technology-centric small entrants. Often, the landscape is further complicated by regulatory changes and market evolutions that put pressure on margins and erode the traditional advantages of existing players. When traditional lending attributes such as trust, brand recognition, and a customer base do not provide the speed and ease borrowers want, new technology can enable nimble lenders to pivot to the centre of an ecosystem of services and a better customer journey. Passion and good preparation aren’t enough for sustainable, scalable business growth. By implementing efficient operations, you will have the pieces in place to drive flexible, sustainable growth. M I APRIL 2022 MORTGAGE INTRODUCER

REVIEW

TECHNOLOGY

He who pays the piper… Mark Blackwell Xxxxxxxxxx chief operating officer, xxxxxxxxxxxxxxxx, xxxxxxxxxxxxxxxx Core Logic

e who pays the piper calls the tune, or so the old saying goes. Those paying for a service can choose where, what, and how that service performs and delivers. But this ignores one important element – often the curse of many a CTO’s existence. When you can only listen to one piper, you are saddled with what you’ve got, and getting them to play anything different – not to mention a new instrument – is impossible without having to wait aeons and endure a hefty bill for the pleasure.

“There are very understandable economic reasons for the continued use of legacy systems, but they do not serve anyone well in the longer term. Generations of IT providers have aged, but the users of commercial services are younger, and with this generational change has come changing expectations of service delivery” This is seemingly where we are with legacy infrastructure in UK lending. So much that is available in terms of data opportunities is hamstrung by a mode of delivery that has outlived its usefulness. Now, the legacy issues of lenders are one set of problems, but the legacy means of data distribution that many still use remain another. It was recently reported that the average transaction for UK homebuyers took 83 days from instruction to

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completion back in 2007. Now, the average sits at 122 days – an increase of nearly 47 per cent. We are, of course, in different times. Self-certification is no longer part of the mortgage approval process, and the pandemic, sheer lack of new and existing stock, furlough, deferral schemes, and more mean it was bound to creep up. But archaic infrastructure will not be helping. THINKING DIFFERENTLY

Thinking differently about delivering technology solutions comes with the territory of working at a company that has spent a lot of time connecting distinct parts of the mortgage value chain. Lenders now not only connect to their surveyors via a suite of applications, but also to data providers through our application programme interfaces (APIs). Services exist now that are designed and delivered to streamline mortgage operations and improve efficiencies while reducing risk. Better turnaround times and greater transparency in the homebuying and selling process – the use of realtime data, for example, to triage a property’s need for physical or digital inspection – mean quicker decisions, a reduction in hold-ups, greater property risk-assessment accuracy, and fewer post-valuation queries. Of course, many of these types of products offer granular assistance to lenders’ decision-making and processing, but today’s data opportunities go further. Our services include higher-level views of markets and risk exposures by providing comprehensive sets of aggregated property market statistics that allow lenders to analyse various segments of the residential market – identifying value, minimising risk, and informing better decisions. It remains a fact that the data and processes available today that add real value to lenders are somewhat restricted in their availability by historic infrastructure that was built for another time. Interoperability,

something that is a cornerstone of internet and cloud development, is left at the doorway when these forwardlooking discussions take place. Slow, painstaking, and expensive upgrades often mean newer software solutions remain tantalisingly out of reach. It doesn’t have to be like this. We are the evidence that better ways of doing things are in play right now. Proprietary data products including automated valuation models (AVMs) and tools to manage mortgage acquisition and retention are part of the property risk-management furniture for those who have moved on. AGEING SYSTEMS

There are very understandable economic reasons for the continued use of legacy systems, but they do not serve anyone well in the longer term. Generations of IT providers have aged, but the users of commercial services are younger, and with this generational change has come changing expectations of service delivery. Ageing systems are an issue that has been growing for decades – one that is willingly ignored when the systems kind of work, developers are still around, and the users, for whom the systems were designed, are still working. But time mandates that this changes. Waiting does not reduce the risk. Layer upon layer of fixes mean that, like people, much of this infrastructure is weighed down and tired. A simple lift and shift into a new environment, like the cloud, promises much, but is not the answer either. Like the SixMillion-Dollar Man, these systems need rebuilding and repurposing, because when IT becomes a burden, process decay is usually not far behind. There are solutions, of course, but they require vision and an admission that doing nothing is no longer an option if falling farther behind is the price. If you do pay the piper and feel like you deserve a better performance, now is the time to start the process. M I www.mortgageintroducer.com

REVIEW

TECHNOLOGY

Mortgage efficiency Steve Carruthers Xxxxxxxxxx principal mortgage consultant, xxxxxxxxxxxxxxxx, xxxxxxxxxxxxxxxx Iress

s we prepare to embark on this year’s Iress Mortgage Efficiency Survey, it’s an appropriate time to reflect on what we actually mean by ‘mortgage efficiency’. Most of us have an instinctive grasp, but in truth there are many different phases to the process of originating a loan to the point of passing it on to core banking platforms, and each of these commands a varying amount of thought and attention, depending on issues such as market share, borrower and broker experience, or cost savings. Inevitably, perhaps, the front end of the lending experience – by that I mean calculators, decisions in principle (DiPs), and applications – tends to dominate lenders’ thoughts. In fact, everything up to offer matters, as often not everything post-offer is in anyone’s specific gift. Then, the job is to complete at speed when the transaction is ready to proceed. The reason that the user experience up to the point of offer is important is that until that point, deals can be lost and market share forfeited. What I mean when I talk about mortgage efficiency is taking a holistic view of the stages of mortgage processing. Efficiency, in an operational capacity for me, refers to the ability of an organisation to deliver quality services with fewer resources.

Efficiency comes in different shapes and sizes

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The more output an organisation can produce from a given amount of input, the more efficient those operations will be. Automation, reallocation of resources, and new processes are all part of that equation. NO ONE-SIZE-FITS-ALL

With the volume of technology and automation, improving operations is more like business as usual – an ongoing work in progress rather than a project. Technology – and the efficiency gains it offers – requires COOs and CTOs to optimise processes, people, financials, and technology. There’s no one-size-fits-all remedy that can make up for a scalable business model and turn the lender into a well-oiled machine overnight. Our annual survey always reminds us that, while the issues facing lenders are often familiar to them all, the solutions are very specific. The viability of investment in efficiency gains requires a balance of all elements, and is the result of continuous improvement. Efficiency, then, comes in different shapes and sizes and is relative to the problem it is addressing. Process refinement is common to every improvement, however. Whether rewiring or undertaking something more profound, processes are at the core of operations. We have found in previous surveys that, often, process improvements are recreating offline processes online. This has a value if it injects pace into the overall operation, but some lenders have been quick to make redundant old processes as they embrace new technology.

Beyond our research are numerous studies illustrating how the real enemy of efficiency in financial services is repetitive, unbillable work, often undertaken due to a lack of structure and organic development over time. This amounts to time in a process that cannot be recovered and gets in the way of improvements. MUST-DO AUTOMATION

One ‘must-do’ is, of course, automation. Cloud technology is improving the ability of organisations small and large to scale and automate. Our industry is still bogged down by processes that are repeated ad nauseum without producing any real value. New technologies offer the opportunity not only to increase interoperability – and therefore the opportunity for all lenders to take advantage of innovations – but also to automate more quickly and in more nuanced ways. However, automation does not deliver efficiency if it simply moves an oil slick around. Automation needs to enable people to do the parts of the process that machines simply cannot. When we talk to lenders, some readily admit that their underwriters spend too much time chasing endless pieces of supporting evidence. They would rather build processes that free up underwriters use their expertise to make better lending decisions. These processes must support people – the primary asset of any financial services business – and the tasks they address. Managing that balance of heavy lifting and heavy thinking time wisely, and facilitating inter-company collaboration, improve efficiency and the business culture overall. The need for efficiency never goes away, because the market and regulator continue to surprise and confound us. I cannot wait to see how objectives and priorities for efficiency have changed from this point last year, and where lenders are looking for their next forward move. M I APRIL 2022 MORTGAGE INTRODUCER

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BTL affordability is anything but simple… Philip Daffern senior key account manager, SimplyBiz Mortgages

“I

want to borrow the maximum amount possible, at the best rate, with the minimum deposit.” How many times have you had that question, particularly from buy-to-let (BTL) investors? Property has proven time and again to be a very stable asset class, with investors and opportunists turning to the private rental sector (PRS) for a solution in diversifying portfolios. With current global economic and political uncertainty causing instability in all markets, the focus on property is more intense than ever. However, with the looming challenges landlords will face from a green and Energy Performance Certificate (EPC) agenda, cost of living increases, and a rising rate environment, one of the major difficulties in the market is borrowing power – how much can landlords churn, or how much deposit are investors going to need to find? “Five-year fixed-rate BTL products will always provide more liberal affordability than other product types.” This is the sort of sweeping generalisation that gets referenced repeatedly – and with headline calculations of 125 per cent rental coverage at product payrate, this has got be correct, hasn’t it? To make affordability even more complicated, following the changes to the Prudential Regulation Authority (PRA) introduced in 2017, advisers also need to consider personal tax status, overall property ownership, Limited Company lending, portfolio landlord definition, and a host of other nuances.

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To help navigate, digest, and interpret the BTL affordability landscape, I enlisted the help of Mortgage Broker Tools (MBT), an affordability platform perfectly placed to support simplifying the BTL affordability conundrum. Utilising MBT Analytics, I endeavoured to answer a very simple question: Are five-year fixed rates more liberal for affordability, and has this changed? Using an average rental income of between £1,000 and £1,200, MBT Analytics provided some interesting reading, starting with a direct comparison between two-year and fiveyear lending over the past 14 months.

“There is a lot to grasp, and I would encourage advisers to keep their education as upto-date as possible, because things change so rapidly in the marketplace. Enlist help from lenders, BDMs, events, technology, peers – there is plenty of support available to advisers to help” It came as a surprise to find that there was not a huge difference in affordability across the two product ranges, with the five-year option providing slightly over £20,000 more lending capacity in February 2022. The likely reason behind them being so close is seen in several niche lenders offering more generous terms for twoyear deals. This sparked the inner data geek in me, and I was prompted into a deeper dive. In terms of affordability for five-year fixed lending across the market, there is a stark disparity between the highest and lowest loan sizes – over £220,000 in January 2022. At this point I realised

how complicated justification and suitability must be when comparing products from an affordability research point of view. Additionally, and incredibly, there are numerous examples of five-year fixed rates yielding much less lending power than some of their two-year fixed counterparts. The data also points toward the gap narrowing between the product demographics. Taking the extremes in lending, the gap has diminished from £81,000 in 2021 to £21,000 in 2022. We can attribute this change to several factors, including bespoke and more liberal interest coverage ratio (ICR) calculations and top slicing. It is also clear that the wider outlook for affordability has changed in the past 12 months, with both product types becoming more liberal in lending capacity, an increase of £40,000 in 2022 for five-year lending and, staggeringly, £100,000 for two-year. If maximum lending capacity in isolation is the most important preference in the advice journey, after digesting the research and detail, it is almost certain that a five-year fixed product will generate the largest loan size. However, the devil is in the details, and advisers will need to understand the finer points of criteria to get the best outcome. There is a lot to grasp, and I would encourage advisers to keep their education as up-to-date as possible, because things change so rapidly in the marketplace. Enlist help from lenders, BDMs, events, technology, peers – there is plenty of support available to advisers to help. One thing is certainly clear: BTL has a number of complexities, affordability among them, with advisers having to consider five-year, two-year, and differing tax statuses. It’s a confusing segment of the market. This is one of the reasons why SimplyBiz Mortgages created BTL+, primarily launched to help and support advisers, whether experienced veterans or newer entrants, to diversify into BTL, promote understanding, and help simplify the complexities, whilst ensuring profitability and security in this key area of the market. M I www.mortgageintroducer.com

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Tired clichés around private renting Xxxxxxxxxx Cat Armstrong mortgage club director, xxxxxxxxxxxxxxxx, xxxxxxxxxxxxxxxx Dynamo for Intermediaries

here are many different perceptions attached to the private rented sector (PRS). In some quarters, renting will forever be viewed as ‘dead money’. Renting is also often seen as a waiting room for potential homeowners. I’ve even heard antiquated opinions that renters are second-class citizens, and don’t even get me started on the attitudes toward landlords from certain elements of society. I hope that some of these views and opinions will go the way of the dodo, but I think I’m living more in hope than expectation. However, it’s important to cast aside assumptions when and where we can. For example, many people choose to rent. Many tenants are very satisfied with their homes. Many have a good relationship with their landlords, and a growing number are staying in their chosen rental accommodation for longer. This was evident in an independent report by the Social Market Foundation (SMF), commissioned by Paragon Bank, which highlighted that – contrary to some narratives suggesting that renting is an inherently unhappy experience – the majority of people who rent from a private landlord are content with what they get for their money. WHERE NEXT FOR THE PRS?

The SMF report, ‘Where next for the private rented sector?’ found that 81 per cent of renters are happy with their current property, and 85 per cent are satisfied with their landlord. The greatest source of dissatisfaction among tenants is with “being a renter,” though only a minority (34 per cent) said they are dissatisfied with this status. The SMF suggests that where people are unhappy in the PRS, it is not about www.mortgageintroducer.com

their living circumstances but around the fact they are having to rent rather than own a home. The SMF added that despite tenants’ current views on renting, major trends in housing over the coming years mean that several policy changes are needed to ensure the rented sector will continue to work well for tenants. Only half of renters expect to leave the private rented sector in the next 15 years, suggesting that significant numbers will remain renters for long periods. I wholeheartedly agree with the sentiments of Richard Rowntree, Paragon Bank’s managing director of mortgages, who suggested that outdated and tired clichés around privately renting need to be challenged and significant investment by landlords has helped drive up standards over the past 15 years. After all, today’s rental properties are generally newer, larger, and more energy efficient than ever before. ENERGY EFFICIENCY IN THE PRS

Energy efficiency is a key issue inside and outside the industry, and this is certainly an area that will affect the buy-to-let sector now and in the future. It’s clear that landlords need to strike an important balance when making such improvements to their properties, whilst considering how these might be funded and the impact on rent and yields. These are areas that were evaluated in a recent report by Shawbrook Bank. This found that more than half of landlords said that they will pass at least some of the costs it will take to improve their properties’ energy efficiency rating on to their tenants. When asked how much they believe they would need to spend on making the necessary improvements, landlords estimated that it would cost an average of £5,900 per property. However, this figure could be significantly underestimated, as landlords who have already made energy-efficient improvements to

“Whether landlords put up rents initially or not, many expect them to rise as a natural consequence of the new regulations, with 18% expecting this. However, tenants living in energyefficient properties can expect lower energy bills as a result of more energy-efficient features within the property, such as better insulation, energy-saving appliances, heating controls, and energyefficient windows” their properties are suggested to have spent an average of £8,900 to date. Wider market issues such as labour and material shortages could also cause landlords’ final bills to rise. Whether landlords put up rents initially or not, many expect them to rise as a natural consequence of the new regulations, with 18 per cent expecting this. However, tenants living in energyefficient properties can expect lower energy bills as a result of more energyefficient features within the property, such as better insulation, energy-saving appliances, heating controls, and energy-efficient windows. A growing number of landlords are focused on increasing energy efficiency levels within their properties to comply with the proposed 2025 deadline, help the environment and keep running costs down for their tenants. These improvements are also likely to increase their value, rental potential, and yield, and this is a topic that will continue to generate many talking points as more lenders, landlords, tenants, and homeowners evaluate the role they can play in creating a greener future. M I APRIL 2022 MORTGAGE INTRODUCER

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Creating a PRS fit for the future Richard Rowntree managing director Xxxxxxxxxx of mortgages, xxxxxxxxxxxxxxxx, Paragon xxxxxxxxxxxxxxxx

y acknowledging the important place of the private rented sector (PRS) in the UK’s housing provision, we can work toward ensuring that it meets the varied needs of tenants today and in future. The PRS has grown substantially since the turn of the millennium, and in more recent years we have seen strong demand for rented homes. While it remains to be seen whether this demand will translate to further growth in the sector, history shows us that many people will willingly call the PRS home at some point. We commissioned the Social Market Foundation (SMF) to produce a report looking at the future of the PRS, including projections for the trajectory of the sector to the year 2035. The modelling is based on historical English Housing Survey data and looks at three scenarios – high, medium, and low home ownership – providing outcomes for the proportions of both socially and privately rented tenures, as well as for home

ownership. The projections place the PRS as accounting for 16 per cent of households in the high ownership model, 22 per cent in the medium, and 30 per cent where home ownership is low. When we consider that today’s PRS accounts for around 20 per cent, approximately 4.5 million, we can see how even in a high home ownership scenario, there will still be a sizable population of tenants. KEY PRIORITIES

As part of the SMF report, almost 1,400 tenants were asked what they look for in a home currently, and what they expect to consider important in the future. Monthly rental cost is among the top three current priorities for 55 per cent. Looking forward, 45 per cent anticipate budget being a priority, but it still remains top. Property size was recorded as the second priority both now and in future. Key future priorities also include outdoor space and permission for pets. This highlights that, alongside the more practical considerations of budget and size, tenants look at how their home will fit their lifestyle. This should be seen as a positive, because it is an example of how landlords have the power to make decisions that will improve the service they offer customers. Unfortunately, with so many factors influencing the housing market, ensuring that privately rented homes of the future will be affordable is not a simple issue. What is clear, however, is that the implications of regulation and tax for the sector should be part of the discussion. SUPPLY AND DEMAND

Landlords face financing costly EPC retrofitting

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The National Residential Landlords Association (NRLA) commissioned research by Capital Economics, which found that 540,000 fewer properties could exist within the PRS in the next 10 years as tax burdens lead landlords to exit the sector.

Simple supply and demand dynamics dictate that reduced supply would place upward pressure on rents, which are already rising due to increased overheads as properties become more expensive to maintain and power. In addition, landlords face financing costly retrofitting to ensure properties meet proposed Energy Performance Certificate (EPC) requirements. Rising inflation will affect us all, and it is likely that some first-time buyers will be forced to put their home-buying aspirations on hold, adding to demand for rented homes. Ultimately, supply must increase to ensure that people across all tenures have access to good quality, affordable homes. Build-to-rent (BTR) has been seen as a solution, but despite encouraging growth in recent years, the sector is a long way off having capacity to make significant contributions to the UK’s supply of homes. In addition, we see that the current BTR offering doesn’t always meet the needs of all tenant groups. While central locations and facilities such as on-site gyms and roof terraces may make developments appealling to cohorts like young professionals, they may be less suitable for families with children, the largest tenant group. Despite this, the emergence of the sector does highlight a shift in attitudes, with developers recognising that while some will rely on privately rented homes because they cannot afford to buy, many others will consciously choose to rent, enjoying benefits like lower maintenance responsibilities and increased mobility. Either way, the PRS will continue to be crucial to meeting UK housing demand for many years to come. Privately rented property must be viewed equally alongside other tenures and acknowledged as an option that suits many people for varied reasons. The industry can be active in realising this, working together and with policymakers to deliver homes that meet the needs of tenants now and in future. M I www.mortgageintroducer.com

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Spring optimism Steve Cox chief commercial officer, Fleet Mortgages

pring has now sprung, and in a traditionally very busy time for the UK housing market, the anticipation is we’ll start to see activity levels pushing on as the weather gets warmer. Of course, there are a lot of influences on our market, some global in nature, and we’ve yet to see how our economy might respond, for example, to the horrific situation in Ukraine.

“We’re likely to see more green-related mortgage products coming to market, designed to support the work landlords might have to carry out, and I know the market wants to see lenders coming up with solutions. At the moment it’s a little difficult to say just what will be required, but surveyors are likely to play a major role” What we can do, however, particularly in the buy-to-let (BTL) and private rental sector (PRS) spaces, is be aware of those influences and issues which are slightly closer to home and support landlords and their tenants in being prepared.

very different results in terms of landlords’ awareness and plans to ensure their portfolios meet these standards. Certainly, as lenders and advisers, we need to keep pushing the message around what is required and what they might need to do to ensure they comply. To that end, we’re likely to see more green-related mortgage products coming to market, designed to support the work landlords might have to carry out, and I know the market wants to see lenders coming up with solutions. At the moment it’s a little difficult to say just what will be required, but surveyors are likely to play a major role, and again, we all need to ensure landlords can see a clear path to compliance. BILLS, BILLS, BILLS

None of us is immune to what is happening to the cost of living, and it will not take a genius to work out that with inflation rising significantly, both landlords and their tenants need to be mindful of this. Utility bills are a huge cause for concern, given they are likely to double over the year. Of course, this is a cost for tenants in the majority of properties, but many landlords who run houses in multiple occupation (HMOs) and the like include the cost of bills in their weekly rental charges. Add everything together and we are looking at a squeeze on incomes as bills increase. It’s going to pay to be flexible, and landlords might want to pay heed when setting their rental levels, given that tenants’ outgoings are increasing in many other areas. RENTAL FREEZES

EPC TARGETS

Rental properties and their Energy Performance Certificate (EPC) levels are high on the agenda because of the related deadlines, which mean new tenanted properties have to be C or above by 2025, and existing ones have to be the same by 2028. Research and surveys have revealed www.mortgageintroducer.com

Mayor of London Sadiq Khan has asked the government to give him the power to freeze rents in the capital for the next two years. My view is it would be disastrous for the PRS, especially because part of the requirement of being a landlord is to be flexible and respond to market changes quickly.

This sort of policy is likely to do more harm than good. I can almost guarantee that rents will increase in the immediate period prior to implementation, and we are likely to see landlords leaving the sector because they have lost the ability to set rents at market levels. It will not help tenants, existing or prospective, and given the growing demand for properties, it is likely to mean a further fall in supply just at the time when we need more PRS homes, not fewer. DEMAND ON THE UP

This leads me to end on a positive: the demand we are seeing within the PRS for property. The recent RICS Residential Market Survey shows that a net +55 per cent of respondents had seen demand from tenants increase during February. RICS agents say they anticipate rents will increase by an average of five per cent a year over the next five years. This might be even greater given the supply of quality properties in the PRS is nowhere near what is required. For advisers and their landlord clients, this represents an opportunity in terms of meeting that tenant demand, and potentially growing portfolios as a result. There is further good news in terms of access to funding and BTL mortgage availability, which remains strong and competitive due to ongoing competition. We are seeing increases in pricing from those lenders who must respond to what is happening in the capital markets, but this is not uniform across the sector, as different lenders fund products in different ways. Fleet will continue to review the market and look to maintain our competitive pricing, while at the same time ensuring our services levels remain high. Overall, there is plenty to keep an eye on, and advisers who can keep their landlord clients fully informed are likely to take repeat business for many years to come. M I APRIL 2022 MORTGAGE INTRODUCER

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Asking the right questions for expats Grant Hendry head of sales, Foundation Home Loans

he long-term stability and resilience shown by the UK housing market over the years continues to attract strong interest among a range of borrowers, from first-time buyers and landlords through to overseas investors and expats. Double-digit growth – as outlined in the latest Halifax House Price Index, which recorded an annual growth rate of +10.8 per cent in February 2022, the strongest level since June 2007 – and rising rental demand contribute heavily to this interest. This forms an attractive combination, and the historical virtues of the UK property market ensure that it continues to be viewed as a good place to invest by those who appreciate its merits and longevity. This remains apparent even for those living beyond its borders.

“Lending to expats remains a complex transaction with a host of relevant documentation required to satisfy a range of lending demands” This group ranges from older generations of expats who have built up savings pots or cashed in on other investments through to the younger generations currently working abroad but looking to establish or maintain a foothold in the UK housing market, as well as anyone in between with an eye to taking advantage of any favourable

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conditions and laying solid long-term foundations. For those borrowers, specialist properties often offer appealing features. For example, newer properties can offer greater energy-efficient benefits and can often be easier to manage from afar. Other landlords may focus more on yield, whether it’s through a short-term let or a house in multiple occupation (HMO). As an industry, we can now support them in pursuing these portfolio ambitions whilst still acknowledging green credentials. LENDING TO EXPATS

As in any marketplace, access to viable investment options remains crucial for a host of borrowers. Here at Foundation Home Loans, we have recently broadened our expat buy-tolet (BTL) proposition, in terms of both the landlord borrowers we accept and the specific options available to them, including those who are looking to purchase or remortgage green shortterm lets and HMO properties. This is often a complex lending arena, and criteria and underwriting changes have been made by many lenders operating in the specialist market in recent times to remove most of the administrative burdens for advisers and their expat clients, which means this is opening up more avenues for this investment type. As always, the key for advisers is to understand fully the requirements of individual lenders to ensure that they can serve the needs of such clients. In the past, many people living outside the UK would have deemed this type of borrowing unachievable due to affordability constraints and major lenders’ strict lending policies. Fortunately, some lenders did remain active in this area, and others have emerged to drive further competition and options, although it remains fair to say that this is largely the domain of

specialist lenders who have the manual underwriting capabilities to service this area of the BTL market. There are also several key factors borrowers and advisers need to understand that can affect eligibility and help speed up the application process. Eligibility: As outlined in the launch of our recent product range, lenders will often only accept applicants who live in certain countries. At the time of writing, we will lend to applicants residing in a country ranked in the top 60 of the Corruption Perception Index, which can be checked on the Transparency International website. Applicants who are residing in a country ranked outside the top 60 may be considered, but it will be subject to referral. Proof of income: This is selfexplanatory, although lenders may need different types of income-related documentation, and this can also differ for employed and self-employed borrowers. We also consider retirees, but this may not be the case for all lenders, so it is certainly worth checking. Credit footprint and UK bank account: All lenders will need the borrower to have some type of financial association with the UK, pay tax, or have declared income for UK tax purposes. But the exact requirements may vary from lender to lender. Lending to expats remains a complex transaction with a host of relevant documentation required to satisfy a range of lending demands. This is also not an area that all mortgage intermediaries may be familiar with. If this is the case, they could refer this to a specialist who will be able to thoroughly package the case and ensure that they tick all the right boxes for their chosen lending partner. Whatever the approach, solutions are out there when it comes to meeting a range of expat lending requirements. Advisers simply need to ensure that they are asking the right questions and know where they can source the right answers. M I www.mortgageintroducer.com

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Addressing an exodus Xxxxxxxxxx Jane Simpson xxxxxxxxxxxxxxxx, managing director, xxxxxxxxxxxxxxxx TBMC

he latest Propertymark Private Rented Sector Report revealed some trends currently being seen in the Welsh buy-to-let (BTL) market. While TBMC’s UK-wide coverage means that my work doesn’t particularly focus on Wales, being located there, I am naturally interested in this. The membership body highlighted how those operating lettings businesses in Wales are exiting the sector at twice the rate of their counterparts across the rest of the UK. This was evidenced with figures revealing that five landlords per Propertymark branch were listed as selling their properties, compared to an average of two elsewhere. Without knowing whether other landlords are buying these properties, the resulting impact on available stock for rent is unclear, but the imbalance between supply and demand that has been widely reported for some time

Buy-to-let: changes are afoot in Wales

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now does appear to be particularly acute in Wales. While I’m not sure whether all of these landlords are exiting the sector altogether – I imagine that some could also be modifying their portfolios – this does appear to be something that we should be discussing and seeking to address. This is because the report also revealed that, compounded by this apparent sell-off, demand is high, with an average of 318 new prospective tenants per Propertymark branch in Wales, compared to 118 across the board. TOUGH REGULATIONS

I feel that one influence could be the stricter regulation that buy-to-let landlords operating in Wales face. Commenting on an article on the shortage of available private rental sector (PRS) properties, one landlord asked whether it was fair that in Wales it now takes a year to gain possession of a property, whilst the tenant must only provide the landlord with four weeks’ notice, before rhetorically questioning who would invest in a property in Wales. From July this year, changes will come into force as part of the Renting Homes (Wales) Act update. Landlords will need to ensure that properties are fit for human habitation, which will include things like electrical safety testing and ensuring working smoke alarms and carbon monoxide detectors are fitted. The majority are responsible and already ensure that their properties are safe and maintained to a high standard. Other changes covered by the Act are to documentation, so the change of law, in practice, shouldn’t have too much of an impact on landlords. I feel that perception is important, however, and I can see how landlords could perceive the lettings industry as offering diminishing returns on time and money invested as a result of growing tax and regulatory requirements.

THE BIGGER PICTURE

There is plenty to counter this, though, and using Wales as an example, we see how a brokers’ knowledge of current market conditions can help to give landlords a more complete picture and assist in their decision-making. We have seen some changes to work life and tenant behaviour over lockdown, and whilst some of that might be returning to more pre-COVID times, I think the desire to live closer to the country or coast will remain to a degree for those whose work will remain flexible. Wales excels here; the West Coast has miles of beautiful coastline and holiday villages, which for anyone considering holiday lets or coastal rentals is an excellent consideration, whilst Mid and North Wales offer the opportunity to purchase in the country and get the added value of rural property and more space. Despite this, I feel that the view of Welsh property in the rest of the UK is potentially a little outdated, with images of industrial areas and mining towns. However, regeneration in the last couple of decades has transformed many of these areas, and some of the more rural areas are now far more accessible. Property prices are still low relative to other parts of the UK, meaning that strong yields can be achieved. With a number of indices highlighting how these are growing at pace, however, there is potential for capital appreciation over the longer term, something smaller landlords are often looking for. This shows that, in addition to brokers benefitting from a good grasp of prevailing market influences, it is also valuable to have regional knowledge, understanding the nuances of the areas in which they operate. We are living through a time of extraordinary economic uncertainty, so the advice industry professionals can provide is as important now as it has ever been. M I APRIL 2022 MORTGAGE INTRODUCER

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PROTECTION

The fair-value pricing message Xxxxxxxxxx Mike Allison xxxxxxxxxxxxxxxx, head of protection, xxxxxxxxxxxxxxxx Paradigm Mortgage Services

he regulator has been looking at the general insurance (GI) market for some time now, and has recently implemented a new set of rules for providers and distributors to ‘clean up’ some practices. In essence, this is a requirement to offer home and motor insurance renewal premiums at a price that is no higher than would be offered to an equivalent new business customer, referred to as the equivalent new business price (ENBP). It has been designed to ensure an insurance provider or manufacturer can no longer discriminate against a customer on the grounds of how many years they have held their policy. This has been in force since the beginning of the year, but there is still some confusion among intermediaries in this market as to how it affects them. Those manufacturers that never engaged in the practice of differential pricing will not, in theory, have had to increase their unit pricing, but in practice – given growing rebuilding costs due to shortages of materials and rising labour costs – some will be using that as a rationale for increases. We may be no nearer to finding a true and stable comparison among insurers. We are therefore still not sure of the impact on overall pricing for consumers, but it is likely this still favours the adviser market, as opposed to previously when it was felt that internet-based aggregators were operating ‘price walking’ practices. The question for most advisers will be: Will the new pricing rules apply to my firm? If you write GI business or

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earn commission from renewals, the simple answer is yes. If you transact with any of the main firms and select a standard price for the consumer, you need to look at the commission levels. After all, it is for the distributor to demonstrate it is adding value. If the distributor accepts it is not providing any value to customers after a period of, say, 10 years, it will struggle to claim it is doing so with another. Taking an inconsistent approach across a panel has implications for all manufactures, their definition of fair value, and the commission they can pay distributors. All of the GI providers should have contacted you by now with details on how they are applying the rules. However, to clarify the position, the Financial Conduct Authority (FCA) requires insurance intermediaries to ensure they do not adversely affect the value of products they are offering. A key part of this is ensuring their commission has a reasonable relationship to the benefits their services provide and the costs they

Pricing must offer fair value to the customer

incur. Where commission is based on a percentage of the premium, higher premiums may lead to increases in the amount of commission that are not justified. An example of this was recently set out by the FCA regarding buildings with cladding issues. These may attract higher premiums and therefore higher commissions, and advisers must refer to the principle of what is reasonable. Even if an adviser rebates commission, firms should ensure that, where a rebate discount is given, it reflects the equivalent discount that renewing customers would be eligible for if they were new business customers, and that the firm’s approach does not discriminate against customers of longer tenure. If advisers have any input or influence on the price-setting of home or motor insurance premiums, even rebating commission, they must consider their pricing models in conjunction with the specific manufacturers to ensure future pricing offers fair value to the end consumer. These rules apply at every annual renewal of the premium. The simplest way is to ensure the advice you are giving on policies is appropriate to the customer need at renewal. This is done by ascertaining that the policy sold still meets the need. The FCA has asked insurance providers to make it clear to customers that they can opt out of auto-renewal, and what this will mean for them. It is not clear that all distributors are doing this; make sure whoever you are recommending is. Given the confusion this may cause, Paradigm is offering some simple advice via the Paradigm Protect website, and has developed some suggested templates to help you match the correct product, both at renewal and when engaging with new clients. Now that more people are working from home, GI premiums must reflect any equipment they have, for example. Hopefully this will support you in your quest to get things right from a compliance and commission perspective, and put the customer in the best place to ensure the full value of claims are paid when warranted. M I www.mortgageintroducer.com

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Click your heels and think of home Ben Burgess adviser, LifeSearch

or the past five years I’ve sat on one end of the telephone, advising clients to set up robust and cost-effective protection to secure their homes and families. I’m married with two small children, so I’ve long been all-in on the family discussion, but until recently mortgage speak didn’t come as easy. I moved from small-town Pennsylvania to the UK – to London, in fact. The cost of a three-bed, east-end terrace would buy a Kardashian mansion where I’m from. Still, after years of dragging my Scrooge-like feet, my family is finally in the process of purchasing our – my wife’s – dream house. Just like that moment in The Wizard of Oz when Dorothy pulls back the curtain, I know now exactly what’s there. The answer? Stress. Finding a decent, affordable house in a good school catchment is tough. Once you find one, you’ve then got to bid ‘way over the asking to be in with a shot. Cue the waiting game. Then comes the application, solicitors, surveyor fees, stamp duty, handing over a massive deposit, and on and on, to the detriment of your bank balance, sleep, and nerve endings. Buying a house is arduous, expensive, tiring. And that’s before you get to the insurance bit.

to shine. It’s up to us to consider the client’s savings, investments, and free work benefits and couple them with personal cover to minimise monthly premium costs. REAL RECOMMENDATIONS

Instead of covering the entire outstanding mortgage balance with a critical illness policy, look to base your recommendation on a year’s salary, or a year’s worth of bills or mortgage payments. Use one- and two-year claim cap budget income protection policies. If illness cover is too expensive, add fracture cover onto a life insurance policy for a low-cost, quasi-illness cover substitute. We have to think in the customer’s

shoes. Not only is this the most spendcrazy time of their lives, but utility and food costs are also rising and geopolitical security hasn’t looked this precarious in a lifetime. We’ve just lived through two years of COVID-19, and its repercussions will last several more. The least we can do for our clients is to provide them with cost-effective protection options that deliver the peace of mind required at this unique junction in history. I likened my recent mortgage experience to Dorothy peeling back the curtain. So, to bow clumsily out in the same spirit, it’s up to us advisers to close our eyes, click our heels three times and think of home … from the buyer’s vantage point. M I

UP TO THE ADVISER

With all that weighing on them, it’s no surprise buyers aren’t in the mood to dig deep on life and illness cover. I don’t blame them – today I am them. But promoting cheap for cheap’s sake does customers a tremendous disservice. It’s up to us advisers to take the lead – to think strategically and implement the maximum amount of life and illness cover into an affordable budget. It’s a moment for advisers www.mortgageintroducer.com

We have to think in the customer’s shoes

APRIL 2022 MORTGAGE INTRODUCER

REVIEW

PROTECTION

Did I mis-sell myself? Kevin Carr chief executive, Protection Review, and MD, Carr Consulting & Communications

y protection career began as an adviser at LifeSearch in February 2000. I was employee number 10. Previously, I had been a successful mortgage adviser at Nationwide, and, for those who remember the pre-Aviva days, I also had a rather dull spell at CGU for a couple of years. By comparison, LifeSearch was uber exciting – a small start-up that liked to rock the boat, and still does. I like to think I was a good adviser – often taking first or second place in whatever competitions were going on, with very good retention and conversion rates and so on. While it was important, the job was never about being the cheapest, and I soon realised that the trick was to find something important to each individual customer for which I knew something very clever about protection insurance that was specifically relevant. I bought my first house while working at LifeSearch, a nice little new-build in Loughton, Essex that was instantly desirable for the raised decking ‘stage’ it had in the small garden. A few bands played on that stage over the years, and if you google Tinchy Stryder and the Chuckle Brothers, you can see the house in the background. I didn’t need any protection insurance when I took on that mortgage, though – because I already had it. When you spend all day giving protection advice, you can’t help but think about your own circumstances, and I thought, Well, I’m young and healthy now, I will very probably buy a house and maybe get married one day. It seemed – and still does – a good idea to get cover.

MORTGAGE INTRODUCER APRIL 2022

The key point here is that I did not need any cover at the time I bought it. But I thought I would need it in the future. I got life cover, critical illness (CI), and income protection (IP), and 20 years on, thankfully I’ve never had to claim on any of those policies, which are still in place. There’s a serious debate in the protection industry, though, about whether or not the Ombudsman would consider this to be good advice. Why spend money on something you don’t yet need? To me the answer is fairly obvious: because if I wait until I need it, I might not be able to get it. If my health had changed, the prices could have become unaffordable, or cover may have had exclusions. Or if it was really bad, applications for cover could have been declined completely. The important issue here is that the reasons for recommending protection cover must be clearly evidenced, to the extent that a stranger who doesn’t know the market could understand it quickly and simply in 10 or 20 years’ time. This includes not only the reasons for cover, but also the amounts. If the mortgage is £237,500 and the life cover is £250,000 – often perfectly sensible, all things considered – the gap needs to be evidenced so no-one will consider this unnecessary over-insurance in the future. M I

NEWS IN BRIEF Holloway Friendly has launched a new income protection plan called My Sick Pay. The Protection Distributor’s Group has announced three new members and a new chair. Vita, The Right Mortgage, and Radcliffe & Co Independent Financial Advisers have joined the group, while Neil McCarthy has taken over as acting chair. Your Mortgage Decisions has appointed lead certification specialist Contact State to certify all its mortgage leads and provide a real-time audit trail of financial promotions. Legal & General says it expects the UK protection market to fall this year, after it reported record retail sales in 2021 driven by the busy housing market. The insurer completed £200m worth of new retail protection sales last year – a record figure, up 14% from £175m in 2020 – but warned the UK retail market may decline this year as rising inflation hits family budgets. Protection Adviser LifeSearch has published a report that criticises broker firms operating non-advised and tele-sales guidance processes, while challenging insurers who support those firms to do better. The report includes independently conducted mystery shopping research and reinsurer data, which LifeSearch says shows poor customer outcomes and wider long-term damage to the protection market.

Looking toward customers’ future protection requirements is essential

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REVIEW

GENERAL INSURANCE

Has the FCA scored an own goal? Xxxxxxxxxx Geoff Hall xxxxxxxxxxxxxxxx, chairman, xxxxxxxxxxxxxxxx Berkeley Alexander

he Financial Conduct Authority’s (FCA) new personal lines pricing rules came into force in January. They aim to tackle ‘price walking’ practices, and instead deliver an insurance market built on a foundation of fair value. The rule changes are twofold. First, insurers can no longer differentiate the price charged to policyholders based on whether they’re a new customer or a renewal. Second, they ramp up the momentum to build an insurance market that consistently offers fair value to customers, in which competition is based on product value, not just price. Inevitably this instigated the biggest one-month jump in home insurance premiums in more than eight years, according to data analytics firm Consumer Intelligence. The survey – covering aggregated new business premiums across the big four price

comparison sites and a number of direct insurers – showed the average premium for home insurance jumped 9.1 per cent in January, causing naysayers to suggest that the FCA has scored an own goal. Of course, the price rises could be viewed as short-term pain for long-term gain, but more important, the changes are an opportunity for intermediaries to shine. Insurance products shouldn’t be viewed as commodities bought simply on price, but rather a protection service based on value and fit for each customer’s individual risk profile. TRUSTED ADVISERS

Whilst the industry plays catch-up with this new proposition, as trusted advisers, you are on the front foot. You can take the lead in a market that will be less price-driven and more product and service led. With access to a broad range of products that meet a broad set of client needs, have the value discussion, and provide the information and advice homeowners need to guide them toward products that deliver the best possible cover for their individual needs at a price that makes sense. M I

Keep loyal customers happy

ccording to Which? we’re likely to see fewer homes coming to market in 2022, and a drop in the number of transactions. Which? points to the stamp duty cut as a possible cause, as many people moved sooner than they would have done post-lockdown. Other reports suggest that with raw building materials costing more, new-build sales may also plateau, as fewer new homes come to the market and higher build prices are passed on to buyers. According to government figures, the number of completed new-builds fell by 11 per cent in Q4 2021 compared to Q4 2020. This means it’s never been more important to keep loyal customers happy. Now’s the time to take a look through your book and identify opportunities to expand your income from existing housing stock in niche areas such as equity release, later life lending, buy-to-let, or specialist residential. Of course, all of these have protection upsell opportunities, too. Generating income from your existing book is also far easier if you have a strong GI provider in your corner, and even better, one with niche specialist expertise.

Weather the storm

he insurer response to storms Dudley, Eunice, and Franklin demonstrated a significant improvement in surge preparedness, even though many are still suffering service issues related to prolonged home working. From improved communications and first notification of loss (FNOL) procedures, to making emergency payments and arranging temporary emergency accommodation, I’ve been impressed by the response to the latest storms from all the

insurers Berkeley Alexander deals with. Your clients buy protection from you because of these events. However, prevention remains better than cure, and as our climate changes, homeowners must do more to prepare and adapt. Here are three simple but valuable quick tips you can pass on to your clients:  Secure loose items such as ladders, garden furniture, and outdoor equipment to prevent damage if they are blown around.

 Make sure garages, gates, sheds, and other outbuildings are locked and secured to protect belongings.  Keep on top of regular maintenance issues, such as clearing moss or leaves from guttering and drains or re-pointing loose mortar to avoid long-term water penetration We are likely to see more extreme weather events in the years to come; you can help your clients strengthen their resilience with better protection and a little sound advice. MI

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REVIEW

GENERAL INSURANCE

No buts, just bots A NEW APPROACH

Jon Bowen customer director, Paymentshield

necdotally, we know that business is booming for many financial advisers. The economic impact of the pandemic has, unsurprisingly, resulted in high demand for professional advice. On top of that, March is always a busy month for advisers, with the tax year drawing to a close and the usual remortgage peak. All of this means time is precious. We know that time, or lack of it, is one of the biggest reasons why advisers don’t sell general insurance (GI). When we asked over 230 individual advisers last year what causes them to miss opportunities to sell GI, 52 per cent said “not enough time.” Add on the extra time taken to address any queries about a policy or process before selling to a customer, and it could be a deal breaker. With an average hourly rate of £150, advisers naturally don’t want to waste time trying to get the answers they need before they can make a sale.

Chatbot technology can save everyone time

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However, that doesn’t have to be the case. One year ago, we launched chatbot technology to help eradicate this very problem for our network of advisers, following the successful implementation of our customer chatbot in 2020. Available through our Adviser Hub and adviser-facing website, the chatbot provides instant answers to enquiries about products and policies, quotes, claims, and commission. We know that when it comes to communication, most advisers tend to default to other options rather than turn to technology immediately. Our research tells us that face-to-face and over-the-phone contact typically trumps digital channels by quite a margin in terms of adviser preferences. In our 2021 Adviser Survey, 46 per cent of advisers said face-to-face meetings were their preferred method of communication, and 25 per cent preferred communicating over the phone. By contrast, messaging services, social media and other digital options were all below one per cent. Nevertheless, the statistics since launching our chatbot show that is has been particularly well received by

advisers. In 2021, we serviced more than 6,000 enquiries from advisers using the webchat function. Of these, more than half were fully self-serviced, meaning there was no interaction needed with one of our agents at all. The stats show that advisers regularly engage with it, too. Of the advisers who have used the webchat service on our Adviser Hub in the past six months, more than half have done so more than once, and approximately one in 10 has used it more than 10 times. NOT JUST ABOUT TIME

Embracing instant technology services not only makes selling GI less timeconsuming, it also enhances customer experience. Advisers can access answers to any queries immediately, meaning customers don’t have to wait for clarification and can use their time to focus on more complex issues. This ability to plug any gaps in advisers’ knowledge on a particular product or policy also addresses something that we know can be a deterrent in having GI conversations with clients. In our Adviser Survey, 14 per cent of advisers said that lack of product knowledge causes them to miss opportunities to sell GI. Of that same cohort of advisers, more than one in 10 said they had seen the largest year-on-year growth in sales in GI. So why let something as simple as product queries inhibit that growth, when the answers are at one’s fingertips? We’ll be conducting our 2022 Adviser Survey in the coming weeks, and I’ll be interested to see how advisers respond when it comes to the list of reasons causing them to miss out on GI sales. As using chatbot technology becomes more commonplace for advisers in their everyday practice, hopefully we’ll see the “But I don’t have time” or the “But I don’t know enough about the product” mentality decline. M I APRIL 2022 MORTGAGE INTRODUCER

REVIEW

CONVEYANCING

Buoyant market offers opportunities Karen Rodrigues sales director, eConveyancer

If there is one word to describe the housing market currently, it would likely be ‘buoyant’. Some within the market had expected purchase activity to drop sharply once the stamp duty holiday came to an end. After all, the potential to avoid a sizeable tax bill is a powerful incentive to get on with a move, and if that tax is once again a consideration, then it would be understandable for buyers to be more reticent. The reality has been somewhat different, however. Property portals have reported their busiest ever starts to the year, with asking prices pushing ever higher. Even with the supply of housing stock increasing, the number of interested buyers is growing at an even faster rate. For example, recent figures from Propertymark show that the average branch now has 100 wouldbe buyers on its books, but just 19 available properties to buy – a record low. This imbalance is supporting house price growth to an eye-catching degree. The latest house price index from Halifax found that in February, the rate of annual house price growth hit 10.8 per cent, the fastest pace since 2007. In cash terms, the typical home is worth almost £39,000 more than back in February 2020, all the more astonishing given the challenges of the pandemic. THE RUSH TO REMORTGAGE

However, the health of the purchase market has not dampened the remortgage market. January was a

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bumper month for remortgages, with CACI data showing that loans worth £6.7bn were maturing, but there has not been much of a drop off since then. While some of those remortgaging are looking to get their debts under control – particularly understandable given the difficulties of the past few years – we have also seen plenty of homeowners taking the opportunity to

“The fact that lenders are evidently so keen for new business is a good demonstration of their confidence in the underlying health of the market, and the likelihood that there are further positive times ahead, despite the obvious worries of rising inflation” raise funds for home improvements. Whether it’s to put together a dedicated working space at home, an extra bedroom for a growing family, or simply kitting out a new kitchen, an awful lot of people are opting to devote money to raising the standard of their property. Clearly, there is significant demand for mortgage finance, whether to purchase a new home or to revamp the existing one. OPEN FOR BUSINESS

Thankfully, this is being matched by the attitude of lenders, too. While there have been some rate corrections following the changes to the base rate, the rates being charged remain pretty enticing by historical standards. What’s more, the level of choice on offer is encouraging. While Moneyfacts reported a small drop in product

numbers at the start of the month, there were still more than 5,300 different mortgage products available, ensuring that brokers have options open to them even for more complex clients. The fact that lenders are evidently so keen for new business is a good demonstration of their confidence in the underlying health of the market, and the likelihood that there are further positive times ahead, despite the obvious worries of rising inflation. LOCKING DOWN CLIENTS

With so much interest in borrowing against property, whether for purchase purposes or to get a financial position into better shape, it’s no wonder that the brokers we speak to are so busy. Thankfully, borrowers of all kinds understand the value a quality broker can provide, which is why so much business goes through brokers rather than direct. However, it’s important for brokers to take a long-term view with their client relationships and put processes in place to ensure that they retain clients for life. FADING MEMORIES

With so many borrowers opting for longer fixed rates now – just look at the growth in the 10-year fixed rate market, for example – it’s all too easy for the memories of your service to fade by the time the client gets to remortgage time. Thinking carefully about additional services that you can provide for your clients and ways to maintain your communication with them is therefore crucial. This doesn’t all have to fall to you, either; by forming partnerships with other businesses in the industry, you can ensure that you cater to all of your clients’ needs in the future, from pensions and investments to digital wills. Anyone who has been around the housing market for a decent length of time will know that things are not always as buoyant as they are currently, but there are ways to futureproof your advice business for if – and when – the market slows down in the future. M I www.mortgageintroducer.com

REVIEW

CONVEYANCING

A fighting chance for faster completions KarenSnape Mark Rodrigues managing sales director, director, eConveyancer Broker Conveyancing

ooking at the general house purchase landscape, far too many cases are taking longer than we might all want and expect to move through the process and get to completion. There are a number of reasons, not least the process itself and the hurdles all stakeholders have to get over. For advisers, though, there is a choice to be made on conveyancing that should be able to help clients get to their goals far more quickly. Recent Landmark data suggested it now takes 157 days for an average purchase to complete. This might not be the reality for you – I sincerely believe it won’t be if you are using one of the conveyancing firms on our panel – but bear that figure in mind. That’s over five months to secure your commission from the mortgage lender, and if you’re not using us – given that we pay on exchange – to secure your fees, etcetera, if you’ve provided conveyancing advice. This is to say nothing of what it could take out of your client relationship if you have to take clients through five months of ongoing delays. Of course, that’s also just for one case. Multiply this across all the purchase cases you are dealing with, and you would have some hefty baggage to carry around in terms of stress, frustration, and anxiety. BENEFITS OF A SPECIALIST

Now, of course, no one is going to say that by using a specialist from our panel you are going to take away all of that, or that every case is going to move smoothly through within a handful of www.mortgageintroducer.com

weeks. Each case can be so different, and the individuals involved are also going to react and respond differently. Plus, the process often works against speed of completion. However, where you will undoubtedly benefit is in ongoing support for both you and your client, and the experience of those who work on the case, particularly if it is more complex. Place your case through us and you will immediately be using a solicitor firm that is within the top 20 as determined by Land Registry transaction volumes, with greater resources and expertise, and that carries out conveyancing services every day. It will also mean your case goes

“For those who don’t choose to be involved, you are effectively leaving your client in the lap of the conveyancing gods. Would you do this elsewhere? For example, would you allow your client to choose the packager? Would you opt for a packager that had no experience in your sector? Would you go for a packager that has one expert individual, but who only worked two days a week on those cases?” to a dedicated team, with a specific conveyancer and an assistant who act on your client’s behalf from the point of instruction, through exchange, completion, and beyond. We have unique teams within each

firm, which means not only do you know exactly who is working on the case, but our own staff can support you and access the relationships they have at those individual law firms to help a case progress. Choosing to do this undoubtedly gives both you and your client a far better chance of a faster processing time. Those clients left to their own conveyancing devices will get none of the above, and even if you choose not to be involved here, what are the chances that your clients will call upon you to help should their case get stuck? Far better to be involved from the start, know which firms to steer away from if they have capacity issues, communicate effectively with them, and be confident that the firm is a specialist. For those who don’t choose to be involved, you are effectively leaving your client in the lap of the conveyancing gods. Would you do this elsewhere? For example, would you allow your clients to choose the packager? Would you opt for a packager that had no experience in your sector? Would you go for a packager that has one expert individual, but who only worked two days a week on those cases? Of course you wouldn’t – but when it comes to conveyancing, some advisers will allow their clients to go down such routes. No one is perhaps more aware than conveyancers that cases can take too long. Moves are afoot to try to change the process for the better and cut down on the number of aborted transactions. All our panel firms are members of the Conveyancing Association (CA), and are therefore supporting that trade body in securing these changes. However, while we await positive outcomes in this area, make sure you give your clients the very best chance of completing in far less than 157 days. You can do this by using a specialist conveyancer through a platform like ours. The alternative might seem like the easy option, but I guarantee it will make the whole process harder for all. M I APRIL 2022 MORTGAGE INTRODUCER

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EQUITY RELEASE

The role of property wealth Alice Watson head of marketing and communications, Canada Life

etirement journeys are evolving and becoming more complex. Fewer are retiring with final salary pensions, more are working into their retirement, saving later in life, or renting for longer periods. The pandemic has also been a period of financial reflection for many, making people rethink their hopes and aspirations. As a result, we can expect to see a growing number of customers think about how they will fund their retirement, and this is where we see

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APRIL 2022

property wealth playing an ever-greater role. Our research reveals that only 58 per cent of those not yet fully retired are confident they will have saved enough to retire comfortably. The impact is that pension savers will need to look at other sources of income to top up their pension pots, with a growing number turning to their property. FUNDING RETIREMENT

The research also found that 30 per cent of over-55s with private pension savings are planning to release equity from their main home, a trend that we expect will increase, given the changing shape of retirement. Over-55s with higher-value pensions are more likely to release equity from their home as part of their retirement plans (42 per cent) than those with lower-value pension

pots (27 per cent). We need to encourage people to think about their wants and needs at the different stages of retirement, and to kickstart these conversations early. VALUE OF ADVICE

As an industry, we must continue to demonstrate the role property wealth can play as part of a holistic retirement plan. The market continues to evolve, and there is a growing number of options that offer the flexibility and accessibility homeowners are seeking to enjoy the retirement they’ve worked hard for. As retirement journeys continue to evolve, financial advisers have a valuable role to play. It’s important for advisers and their clients to discuss their evolving needs – and now is as good a time as any. M I

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REVIEW

EQUITY RELEASE

Navigating a sludgy system Xxxxxxxxxx Stuart xxxxxxxxxxxxxxxx, Wilson CEO, xxxxxxxxxxxxxxxx Air Group

e talk a lot about the positives in the laterlife lending market, not least the very real demographic trends that are fuelling the increase in demand, plus the fact we benefit from a much more competitive lender and product space with every month. All music to the ears of advisers either active in this space or looking to be, but it’s also imperative that we acknowledge the difference between securing clients and getting that business completed, because there’s something of a disparity, and the length of time it can take to get a case through is far too long in most situations. At a recent Breakfast with Stu meeting, a question was raised about lenders in the later-life space being able – or not – to extend offers, with the underlying reasoning focused on the fact that, for the most part, the initial timescale attributed to offers invariably passes, making them somewhat redundant. Recent history tells us that this hasn’t proved too much of a problem, given that rates were on a downward trajectory and the client may well

Try to get ahead of the potential bottlenecks

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have found the product landscape had shifted and they could secure a better rate. But we’re not in that environment anymore, and the opposite is now the case. I mentioned a few months back that the days of sub-three-per cent deals were over, and that has come to pass, so advisers and clients are going to be less than happy to find an initial offer running out. Now, of course, I know that many lenders will extend their initial offer for a period beyond the original three months or 14 weeks, but this doesn’t happen automatically, nor is it set in stone. Neither will a completion necessarily take place within that extension period. The situation is such that when it comes to purchases, for example, there appears to not be a blind hope in hell that an initial offer is going to be the one that the client ends up completing on because of all manner of delays and issues that appear to be baked into the current process. That, of course, presents real issues for advisers, not least that you’re essentially going to have to use that initial offer for illustrative purposes. When it comes to the rate, you’re often going to have to ask your client to ignore it. Show me a client who doesn’t want to know the exact rate, the exact costs, etcetera, and I’ll show you one who isn’t that interested in going ahead with the product.

QUICK WINS

So there’s a range of issues here, and it’s unfortunately not the case that the problems stem from one part of our process, either. There is no easy fix. For example, whether you’re an adviser, a lender, a solicitor, a valuer, or a surveyor, the likelihood is that you’ll be short of resources for all manner of reasons. COVID-19 is still with us, and while people can work remotely, it is still having an impact in terms of staff absences. There’s also a considerable number of job vacancies right across the industry. Many stakeholders I speak to are struggling to fill roles, and this is the same in local government, councils, and Land Registry, which we all rely upon to provide the right documentation in a timely manner. So what can be done? Well, that’s the million-dollar question, and of course in some areas of the process our reliance on others is all-encompassing. What I would say is try to get ahead of the potential bottlenecks – for example, get the deeds up front. You can order these yourself for £3, and you can check the address and tenure for free. You might also want to secure some pre-application legal advice. A quick word with a specialist later-life solicitor can reveal a lot that ordinarily might not be revealed until many weeks into the process, saving you and your client a lot of time. It may also give you a real heads-up to ascertain those lenders that are not going to be suitable, or that won’t lend on certain properties. Again, this will save you and the client time in not going down a route that is only going to end in disappointment. Those are just a couple of quick wins for you that may allow you to have a much better chance of ensuring the validity of an offer, even if it is within an extension period. We know the system and process is rather ‘sludgy’ at the moment, so let’s do all we can before we come up against it. M I APRIL 2022 MORTGAGE INTRODUCER

Lifetime Mortgage Specialists

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INTERVIEW

EQUITY RELEASE

Future-proofing lifetime mortgages Mortgage Introducer catches up with Dr Darrel Welch, managing director of modelling and analytics at MIAC, about innovation in the lifetime mortgage arena

ith the recently reported dizzying growth in the equity release sector, and the Bank of England taking a longer-term focus with its stress-testing activities, the lifetime mortgage sector is currently in the spotlight as fascinating, complex and innovative. All these factors have also made it the centre of attention for firms like MIAC, which has been analysing the challenges, risks, and future technological gaps faced by this market. Mortgage Introducer spoke with Dr Darrel Welch, managing director of modelling and analytics at MIAC, who has recently worked with a major organisation with a significant presence in this market to tackle these challenges. WHY EQUITY RELEASE? By definition, the equity release and lifetime mortgage (LTM) markets require analysts and underwriters to look farther into the future. This level of insight has historically been achieved using multiple spreadsheet models, with diﬀerent departments modelling all the current and potential factors, such as cash flow, house prices, and interest rates. WHAT ARE THE LIMITATIONS OF THE CURRENT SYSTEMS? As originations and back books grow, lenders are finding that the spreadsheet models are not scalable. It is already challenging to run simulations, modelling, and stress testing, or analyse the scenarios needed for pricing or regulatory approvals; this will only intensify. Most spreadsheet models will use the established Black-Scholes methodology to evaluate the No Negative Equity Guarantee (NNEG), due to its simplicity. This approach, however, is limited by normality assumptions www.mortgageintroducer.com

and its probabilistic nature. When you then factor in the complexity and longer-term nature of this asset class, you need to simulate the seemingly infinite permutations of potential future factors as well – such as mortality, drawdown, prepayment, and house prices. The spreadsheet models make it timeconsuming to calculate loan-level cash-flow projections, or the NNEG, and are more susceptible to human error. Moreover, they do not support the ability to audit the models and assumptions or track amendments effectively. HOW CAN TECH FIX THIS? Systems already exist that are vastly more auditable, scalable, and efficient compared to the old way of doing things. Our MIAC Vision technology is used by many lenders as their staple platform for different asset classes, and our mission most recently has been to bring accuracy and efficiency to meet the needs of the LTM sector. Having deployed it in the market in partnership with one major organisation, we have now proven that it significantly improves insight and understanding of risk. Vision is a database application, and therefore does not suffer from many of the restrictions posed by spreadsheet models. It also offers both the probabilistic and simulation approach to LTM, so the user is not restricted by implicit assumptions, and provides a view of the full distribution of outcomes. Equity release lenders have been asking for an end-to-end solution to enable data aggregation, normalisation, audit, encryption, automation, and reporting. In other words, users want to be able to input data in any format, from multiple sources, apply a set of rules, transformations, and aggregation, run

Dr Darrel Welch

all required analytics, and get output in the form of configurable reports for consumption by the various areas of the business. Spreadsheets can, of course, be used to produce probabilistic cash flows at the loan level, and technology that can do this more efficiently and with less room for human error will always be sought after. But technology also allows us to report on many more scenarios and factors, such as cash-flow analysis, NNEG calculation, pricing, expected credit-loss measurement for IFRS9 and CECL, agency replication grades, sensitivity analysis, and Value at Risk calculations. WHAT’S COMING NEXT? This market isn’t going to stand still. If the Equity Release Council’s (ERC) recently reported 24 per cent market growth is anything to go by, our approach to data and analytics is going to have to evolve at pace. There are two major critical factors that we have built into our system to anticipate imminent demand. First is the ability to analyse, and in the near future also to predict, distributions of house prices and movements in the market that fall outside the normality assumption. The second is the increasing need to understand environmental factors, which is especially important with longerterm asset classes. In the case of LTM books, lenders require a much clearer analysis of the effects of flood risk, construction type, and subsidence risk on the sustainable value of their assets. With flood risk, for example, we have already produced our first analysis that proves the effects of flood risk on house prices, and have prepared some graphics which we are very excited to release to the market in the very near future. M I APRIL 2022

MORTGAGE INTRODUCER

INTERVIEW

SIMPLYBIZ MORTGAGES

Simply bluesky thinking Jessica Bird and Richard Merrett discuss SimplyBiz Mortgages’ experience during the pandemic, how the business and the market are adapting to the new normal, and predictions for the year ahead

ichard Merrett, head of strategic development at SimplyBiz Mortgages, has been with the business since December 2019, when he joined to guide its future direction. Of course, a matter of months later, the pandemic hit UK shores. While this might be a daunting time to have changed jobs, Merrett says, “The global pandemic changed everything, but it’s been great because it’s a fantastic business, very much with people at the heart of its culture. “There are many businesses that are not quite so people-focused, and their staff might have had a much tougher pandemic.” This is partly due to the nature of the industry, which, after a short period of “desperate paranoia” right at the start, has continued to transact, ultimately at “record levels” in many cases, Merrett adds. Other industries, of course, were not so lucky and faced heavy blows. For SimplyBiz Mortgages, navigating the pandemic was about highlighting what additional support was needed both for employees and club members. For example, it introduced a payment holiday for those firms that have a compliance relationship with the club and therefore pay monthly. The club also set up a solutions hub, a one-stop shop to which people could go to understand what was happening in the market, and the “long-term, sustainable solutions” available to them. For example, Merrett explains, it looked in detail at the idea of customer retention and nurturing during lockdown. He says, “During the first lockdown, that was all it was about, because you weren’t getting any new

MORTGAGE INTRODUCER APRIL 2022

Richard Merrett

customers buying houses, and so you had to prioritise looking after existing customers, which is something that we’ve advocated since long before I joined.” Merrett notes that this will continue to be a pertinent issue moving further into 2022, which will have a greater focus on remortgage and retention than last year as the frenzy dies down somewhat. Through all of this, SimplyBiz Mortgages continues to hold fast to its five key pledges to members: to save them time, create opportunities, increase their turnover, keep them safe from a compliance perspective, and provide market-leading support and education. Merrett also notes that the changes seen during the pandemic have given a “shot in the arm” to the www.mortgageintroducer.com

INTERVIEW

SIMPLYBIZ MORTGAGES intermediary sector, as sweeping criteria changes and a lack of accessibility among lenders have reminded consumers of the importance of intermediated advice. The pandemic has created change across all areas of work, life, and finance. This might be on the negative side, with credit blips and periods of furlough, or more positive, where people have saved more or spent time developing a business during lockdown, for example. “There are still plenty of vanilla, cookie-cutter cases out there,” says Merrett. “But there are also a lot of customers who are either not being served or can’t get quite what they want – and it’s not all negative scenarios: it might be someone who is self-employed and had to take a Bounce Back Loan, or people who have been furloughed.” Whatever the cause, the events of the past two years have pushed into overdrive an ongoing shift toward greater complexity, which has only cemented the importance of advice. EXPANDING THE OFFERING In May 2021, SimplyBiz Mortgages launched its Simply Later Life proposition, in partnership with Key Group, and Merrett points out that this is a part of the market that looks set for continued growth. “The demographic that the pandemic has really shone a spotlight on is the elderly,” he explains. “They’re the ones who’ve been most at risk, less able to go out and engage. They have also had to learn to do things like shop online, adopting modern technology. I think that has all really changed their attitudes toward things, and has changed people’s priorities, whether that be helping family – leaving a living legacy – moving home, redecorating to make the home more enjoyable, or funding lifestyle changes. “There will be people who are approaching retirement who want to find a means of making this stuff happen. For many, the equity locked up in their property can be that thing that makes them able to take that step. We know pensions are underfunded – they’ve suffered off the back of the pandemic as well.” While there are still many who might steer away from equity release, such as those who are concerned about passing on their homes as inheritance, Merrett says more should view this as part of a wider financial landscape for retirement, much the same as they would view a pension or an investment portfolio. Time spent away from family might also have led older potential borrowers to change their priorities, and to look to invest in properties or holiday homes closer to loved ones, or in family trips, for example. Rather than keeping that investment tucked away, people are finding greater value in borrowing to spend now on the things that really matter. Speaking of the partnership with Key Group, Merrett says, “It was very clear there were a lot of synergies between the ethos of both businesses, which was to encourage more advisers into the later-life sector, raise www.mortgageintroducer.com

advice standards, and deliver better customer outcomes. “We’ve got the largest specialist equity release distributor partnering with one of the largest mainstream distributors, one that has compliance and an IFA footprint within its core. If you’re going to attract quality advisers and raise standards, compliance and support are going to be crucial to firms entering this market and doing so in the right fashion.” Simply Later Life also goes beyond just equity release, covering the full gamut of products in this field, including retirement interest-only (RIO), and specialist mortgages for older borrowers. Merrett points out that as customer needs grow and change, it is important to get a message across about all the features and functions that might be helpful to a diverse set of potential borrowers, as well as pushing for progress in terms of the products that are, and could be, available. He adds, “Our role as a distributor is to look at that changing consumer requirement and work with lenders to address that need. “What we’ve also really tried to do – through the support that we’re providing to firms – is educate them around how to engage with both consumers and professional introducers, so that people are going to the right people for advice. People are going to get the best advice from someone who is able to advise on all three products and has support in that triage process of what’s appropriate. For some, it will be equity release, for others it definitely won’t.” To this end, the sector as a whole is looking to pull away from the equity release label toward the more holistic idea of later-life lending. Merrett adds, “People are looking at this market with a slightly more unified approach, which is particularly good because the historical perception of equity release has been relatively negative. How do you make this a more aspirational product?” Another area in which SimplyBiz has expanded recently is buy-to-let (BTL), where it recently introduced Buy to Let+, a hub designed to bolster and streamline the support available to those advisers currently in, or looking to join, this market. This includes market updates and news, as well as access to a panel of lenders ranging from vanilla to more complex cases. It also covers guidance on topics such as protection. Merrett says, “It’s about providing as much support and education to advisers engaging in the sector as possible. Most advisers we found are probably engaging in the sector already, but it’s about helping them improve their offering. “For example, if you’re talking to an HMO landlord, there’s education on the regulatory requirements around that. If you’re talking to a portfolio landlord, you can help them prepare, or look at setting up a limited company. “It’s all about making sure that advisers are equipped, basically taking the ethos that I’ve touched on for later → APRIL 2022 MORTGAGE INTRODUCER

INTERVIEW

SIMPLYBIZ MORTGAGES life and applying it to BTL in terms of our education and support.” The BTL market is another one that is looking ahead to considerable change, due to shifting consumer demand, such as for HMOs or holiday lets, as well as incoming regulation around Energy Performance Certificates (EPCs), among numerous other factors. DIVERSITY, INCLUSION, AND ESG In order to bring new advisers into both the later life and the wider mortgage advice market, Merrett says the industry needs to continue making this an appealing space. Part of that process is opening up opportunities to a diverse range of candidates. “The mortgage market on the whole has had a diversity problem,” he continues. “The recent AMI study is testament to that. “There’s a lot a hell of a lot of good being done to address that, but you just need to go to events and see the make-up of the room.” In appealing to a broader set of advisers, the market is more likely to be able to understand and support a wider range of customers. “The market is positioned to help with those core things that people care about, and that can actually make it a more aspirational place for people to get into,” Merrett explains. “People are seeing this as an attractive opportunity to be able to help others, as well as furthering their own development and knowledge, and adding value to business. “It really does represent an opportunity for a new breed of advisors to come in and actually excel, because there is a gap.” This can also only be a good thing in terms of the market keeping pace and continuing to innovate. “New people come in and have a fresh set of eyes,” Merret adds. “They talk about things differently and can make a really good success of engagement in the market. There’s no downside to having new blood, new inputs into the market, particularly one that is trying to grow, such as the equity release sector. It can help improve things, provided it’s done right and with the right intentions and the right support.” This fits within a wider framework of environmental, social, and governance (ESG) factors that are emerging as top of mind for many in the market. For SimplyBiz Mortgages, this includes being a committed supporter of the Diversity & Inclusivity in Finance Forum, supporting the Mental Health Charter, and having sustainability high on its agenda. LOOKING TO THE FUTURE In addition to its continued commitment to those five key pledges, Merrett wants 2022 to be the year that SimplyBiz Mortgages focuses on “refreshing the areas other mortgage clubs don’t reach,” in terms of its event proposition.

MORTGAGE INTRODUCER APRIL 2022

Well known for both its compliance proposition and its educational events around the country, the club had to pivot quickly to an online approach during the pandemic. “It’s often just about trying new things, such as adopting technology,” Merrett says. “When it comes to tech, you’ve got to be curious, you’ve got to go and look and engage with these things.” He adds that the adoption of new technology will continue to be an important force in the market moving forward. “What we want to do is help make the mortgage process more seamless, more frictionless. This seems to have gathered a bit more momentum recently, and there seems to be more collaboration among providers or technology firms. What is now really needed to kick that on is adviser adoption, so our narrative around that will be, go try it, be curious, look at these systems, work with them, and give feedback, because that’s the way that they will improve.” Being agile and willing to adopt new methods of doing things is also important when it comes to coping with changing expectations among consumers. Merrett cites recent trends such as the ‘race for space’ and changes to the way the population works and lives, adding, “Long-term, I think we’ll look back at the pandemic as a tipping point, in terms of forcing people’s hands in the need to act differently. You almost have to have an ‘always on’ strategy.” This is all well and good if it means catering for increased demand and changing customer needs, but Merrett highlights that this market needs to remember to focus on wellbeing and mental health, and that working all hours is not a sustainable approach. The pandemic perhaps saw people take less care of themselves, simply counting themselves lucky to be in a market that was still trading and wanting to shore up any potential future uncertainty. In terms of other future trends, Merrett says he expects lenders to continue to adapt: “What lenders will need to do is recognise this fundamental shift in people’s lives, and actually look at the post-COVID consumer – whether that’s a self-employed individual, someone buying a holiday home, an older borrower, a first-time buyer, – and actually develop products that are consumer-driven. “We need propositions that are consumer-driven as opposed to product-driven – placing the consumer’s needs at the heart of what you do, and using it to develop a proposition that’s fit for purpose in order to service that evolving consumer need. We need bluesky thinking.” This approach has fed into SimplyBiz Mortgages’ educational offerings, which Merrett says have become increasingly discussion-based, with attendees “bouncing off each other,” even when they might be from competing lenders, as well as engaging with advisers and getting their feedback. M I www.mortgageintroducer.com

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SPOTLIGHT

A positive

outlook

Loan Introducer speaks to Marie Grundy, director, second charge division at West One Loans, about the rise and rise of second charges Is the second charge market going to see a significant rise in the next year or so? What factors might drive this? The outlook for the market is extremely positive, and I fully expect 2022 to be the best year for second charge lending. Not only post-Credit Crunch, but, more significantly, post-Mortgage and Credit Directive (MCD) when it became a level regulatory playing field between first and second charges. At West One, demand for second charge lending is at its highest since our launch in 2017, and we are on course to deliver record levels of enquiries and completions by the end of Q1. There are a number of factors driving growth in this sector. UK households are facing the tightest squeeze on disposable income for a generation as a result of higher living costs. Rising energy prices are set to cost millions of households on average an extra £693 this year, alongside rising oil and food prices. The Monetary Policy Committee (MPC) has increased interest rates for the third month in a row, and increasing numbers of borrowers are looking to reassess their finances to identify savings. Debt consolidation could offset the cost-of-living increase by maximising available income which, in the right circumstances, can be supported by a second charge mortgage. The take up of five-year fixed rates has increased by more than 50 per cent in the past four years, with just under half of UK borrowers now benefiting, according to UK Finance, compared to three in 10 in 2017. Borrowers looking to raise additional finance during the term could be faced with hefty early repayment charges (ERCs), so an increasing number are turning to second charges so they don’t disturb their first charge mortgage. Now that the cost of fixed-rate borrowing is increasing, we expect to see this drive further demand for second charges, as remortgaging could mean sacrificing an

MORTGAGE INTRODUCER APRIL 2022

Marie Grundy

existing deal for a higher rate of interest. Product transfers are growing in popularity, and in some instances are outstripping mortgage activity. The ease of process and levelling of pricing for new and existing borrowers means that these are an attractive option, particularly for borrowers whose circumstances may have changed since they took out their mortgage. It is significant that product transfers are switched on a like-for-like basis, often as an execution-only transaction, which means that additional borrowing needs are not catered for. Second charges lend themselves well to this scenario and can provide a cost-effective solution for borrowers who are looking to raise capital during the mortgage term. Home improvements are always very popular for second charge borrowing, and the lockdowns have led to a new wave of homeowners looking to improve their property and increase living space. This is further fuelled by the shortage of housing stock, which may mean some potential purchasers are opting to make improvements rather than move. Second charges can often offer speedier completions without the requirement for conveyancing as part of the completion process, which takes away the lengthy delays often experienced when dealing with panel conveyancers. We are also seeing increased demand for the purchase of second homes to use either as holiday homes or as investment properties. Second charges can be used to raise a deposit or raise the funds toward an outright purchase. Do we need greater education around the value of these products and when they can be used? There is still plenty of work to be done to encourage more intermediaries to consider second charges alongside www.mortgageintroducer.com

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the options of remortgaging and further advances. Often a stereotypical view of second mortgages exists – that it is only appropriate for borrowers with an impaired credit history – but this simply isn’t the case. The majority of loans we now originate at West One follow a high street lender with good to excellent credit scores, so our experience is that borrowers are coming to us because it is the most appropriate advice option, and not because it is their only option. Most major clubs and networks have arrangements in place for their members to access second charge products by either outsourcing the advice to a specialist broker or advising themselves, meaning most intermediaries have the ability to widen their product reach and offer an extended range of services to their clients, which is an important part of any client retention strategy. Second charge lenders are very focused on increasing intermediaries’ awareness of the benefits of this type of borrowing, with a number of initiatives being developed by various industry representatives. I would love to see key mortgage distributors really promote the benefits of second charges to their members, which would endorse the work we are doing as an industry. A bigger gap is consumer awareness, now that regular TV campaigns and newspaper advertisements are no longer a feature of second charge lending. As an industry, we have to try to find a way to highlight to borrowers directly the benefits of considering a second charge mortgage. What is the role of seconds in the buy-to-let market? We offer a range of buy-to-let second charge products to cater for the borrowing needs of both part-time and professional landlords. Typically, landlords come to us to raise capital to improve their property portfolio to maximise rental yield, or use the funds to extend their property portfolio by raising either the deposit or the total funds required toward a new purchase. Buy-to-let second charges can also be used for most legal purposes, including personal use. As an example, we recently had a case that was used to raise funds on a buy-to-let security to extend the lease on a main residence. The opportunities really exist for landlords who have taken out a longer-term fixed-rate buy-to-let mortgage or where they are benefitting from a low tracker product with an inactive lender. There is also reduced availability of further advances within the buy-to-let mortgage market, so second mortgages do offer valuable options for landlords looking to raise additional funds. M I www.mortgageintroducer.com

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No matter how complex, we’ll consider the case. We’re Expertise You Can Trust. Marie Grundy 01709 321 665 sales director, West One Loans www.nortonbrokerservices.co.uk

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APRIL 2022

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SECOND CHARGE

A strong start for seconds Kerri Pender operations director, Evolution Money

ith the first quarter of 2022 now over, it should be possible to take a solid view of how this year has kicked off, and perhaps secure some clues about how the next nine months might turn out. Every year is unique and often extraordinary in its own right, but I suspect few of us would have been able to predict just what has occured in these first few months. 2022 is shaping up to be a year few of us will forget in a hurry. Closer to home in our own second charge world, we are fortunate to be seeing a sector that is continuing to develop and grow, with more options available to advisers and their clients, and a growth in understanding around the solutions it can offer to homeowners seeking to access the equity in their homes for a variety of reasons. Our most recent Second Charge Tracker research showed this ongoing development, particularly in the prime borrower space, for those clients who are not taking out a second charge mortgage purely for debt consolidation purposes. During the three-month period between December 2021 and February this year, we saw growth in both the volume and value of second charge products taken up by our prime borrowers. This trend began in the first half and middle of last year, although toward the end of 2021 it shifted back toward debt consolidation. Now, however, it’s clear that more prime borrowers are accessing our products as they seek to find solutions that mean they do not have to move their first charge mortgage. That is becoming even more important in a rising interest rate environment – existing borrowers who have secured competitive first charge

MORTGAGE INTRODUCER APRIL 2022

Quick out of the blocks: the outlook for second charge activity during the rest of the year appears positive

mortgages are going to be loath to remortgage if they need to free up equity, especially given that the rates are likely now more expensive and they might be pushed into a higher loan-tovalue (LTV). Instead, homeowners – who are likely to have seen the equity in their homes increase as a result of the rise in house prices – are looking for other alternatives, and that means seconds are on the agenda perhaps more than ever before. EXPENSIVE DEBTS

Now, we have to be upfront here: when it comes to the reasons why seconds are an option, the majority of prime borrowers are still looking to use the products as a means to pay off their more expensive debts. Increasingly, however, this is not the sole reason; instead, they are marrying the ability to pay debts with the potential to use some of the money for home improvements. Again, in our Tracker we can see that while prime borrowers are typically taking out second charges for debt consolidation (57 per cent, up from 55 per cent), home improvement and some consolidation has also increased (24 per cent, up from 23 per cent) while purely home improvement was down to 15 per cent from 18 per cent. This remains a very interesting time for the UK property market, mainly due to the severe shortage of available supply. Existing homeowners who might ideally like to move to get extra space are having to contend with a market in which their ability to secure

those types of properties at a price they can afford is curtailed. It means that they are literally having to look closer to home to try to get the space they want in their existing homes. Since the pandemic we have seen a significant increase in the building of extensions, loft and garage conversions, garden offices, etcetera. This requires funding, and a second charge might be the obvious option, rather than disturbing a first charge or using costlier options such as credit cards. The latest figures from the Finance & Leasing Association (FLA) show how the second charge market has developed recently. It shows a 57 per cent volume uplift in lending in January compared to the previous 12 months, while the value of lending over that period increased by 62 per cent to £1.14bn. In January 2022 alone, the value of new lending rose by 56 per cent to £91m, and given this apparent run-rate, it would not be surprising to see this figure regularly over the £100m mark for the rest of the year. This figure could be outstripped further if we continue to see interest rates rise and first charge products become more expensive to remortgage to. Overall, therefore, if we are to judge 2022 on its first quarter, the outlook for second charge activity during the rest of the year appears positive. Advisers who are in tune with these opportunities and aware of where they can introduce clients who might be suitable are likely to see a growing need and a growing number of product options that fit the bill. M I www.mortgageintroducer.com

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SECOND CHARGE

Lender efficiency first and foremost Tony Marshall MD, Equifinance

had to read the headline twice, but a recent survey of brokers says that more than 70 per cent of respondents who had never recommended a second charge mortgage before are likely to recommend one this year. Having carried the flag for the sector for so long, I would be, you would think, ecstatic. On one level, I am. If these findings were extrapolated and encompassed the whole mortgage broker and financial adviser base, it would certainly be a cause for celebration. As I have often said in this column, the perception of second charge has been changing positively for some time. However, no matter how welcome this snapshot of the likely actions of brokers is in a poll, the reality will only really be known at the end of the year – or by next March, if we are talking about a full year. If these findings are really representative of the adviser base, then second charge lenders are going to be

very busy this year. But it would be a real shame if, because of the sudden influx of new business, those lenders – us at Equifinance included – were unprepared for the deluge of new business. I have seen too many false dawns around the overall acceptance of second charge mortgages, and although I am encouraged by the positivity, I don’t think many of our peers in the lending community will be rushing out to hire significant numbers of new staff or take on expanded premises just yet. INTERESTING TIMES

We are living in ‘interesting’ times, and while it is prudent to have a plan in place to be able to accept greater capacity, should it be needed, wholesale scaling up is unlikely to be an immediate priority among lenders. Most lenders will be seeking to increase efficiency first and foremost, looking at systems and improvements in case handling and staff training. Technology will also play a big part in the development of the second charge market, and especially its ability to allow a business to streamline its processes and increase direct customer and intermediary contact. However, while the adoption of technology brings many benefits, it

Wholesale scaling up is unlikely to be an immediate priority among lenders

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only works if the human side is also working well. Having the right people in the right positions, with the skills and ability to underwrite, communicate, and process, is one side of the equation. The other is making the workplace an environment that is supportive, dynamic, and, frankly, a place where people enjoy coming to work. It has been well documented that the happier a workplace is, the more successful and productive it can be. Estimates vary, but a 12 per cent increase in productivity, along with a drop in staff absences and lower staff turnover, strongly suggest that any business can benefit from creating the right environment for their staff. FLEXIBILITY CRACKS THE NUT

It has been said that in many circumstances a remortgage for capital-raising purposes is like using a sledgehammer to crack a nut. While a remortgage gets the job done, a second charge mortgage should then be regarded as a scalpel, by way of contrast. Not only is the first charge mortgage left in place – usually a benefit – but in most cases, interest usually accrues over a far shorter time, there are fewer charges and costs, and early redemption charges are limited to one month’s interest. INNOVATION

Leading on from flexibility, it is refreshing to see some innovation coming to the UK market. Popular in the US, a Home Equity Line of Credit (HELOC) is basically a second charge loan facility agreed in advance with a set end date, which can then be drawn down in part or whole when required. Monthly interest payments are paid on outstanding borrowing, not the whole facility, but money borrowed can be repaid without penalty at any time and borrowed again when needed. I reserve judgement here, but I am in favour of seeing new thinking applied to the second charge sector, and have no doubt that existing second charge lenders will be working to see how or whether this new facility or a variation can work for them, their introducers, and their clients. M I APRIL 2022 MORTGAGE INTRODUCER

SPECIALIST FINANCE INTRODUCER

FEATURE

Profit with purpo F

rom saving the planet to improving the lives of others, it is hard to ignore the dialogue around social impact and ethical consumption. Whether buying the right kind of coffee beans or reporting on pay gaps, there are myriad ways in which our actions – as individuals, businesses, and a society – can be increasingly ethical. In a world of constant and instantaneous scrutiny, it is becoming a business necessity to focus on environmental, social, and governance (ESG) factors, and the property market is no exception. With pressure mounting on all sides from the government, investors, and consumers, lenders need to consider their own approach to ethical finance. GREEN REVOLUTION No discussion of an ethically driven housing market would be complete without the burning topic of climate change. Housing accounts for 22 per cent of carbon emissions in the UK, according to the Royal Institution of Chartered Surveyors (RICS). Making the shift to greener housing stock is a key component of the government’s push toward a net zero target, with incoming regulation around the Energy Performance Certificate (EPC) ratings of rental properties just one prong of the attack. Rather than just waiting for more regulation and legislation to hit, lenders should be considering their environmental impact, in terms of both their back books and their own businesses. However, Stuart Law, CEO of Assetz Group, warns that this must not be seen as “greenwashing,” and must instead have a clear intent and a strong impact. Assetz has funded 16,000 new houses over the past 20 years, with a rapid escalation over the past few years, according to Law. By Q4 of 2022, the business is on target to have 95 per cent of its newly funded houses hit an EPC rating of B or higher. However, many working within the private rented sector may struggle, considering the amount of housing stock that sits far below this level. EDUCATION AND AWARENESS When it comes to making positive change, a big part of the puzzle is education and awareness. Nevertheless, there is already a lot for advisers to fit into their discussions with clients, and this might feel overwhelming. Richard Merrett, head of strategic development at

MORTGAGE INTRODUCER APRIL 2022

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SPECIALIST FINANCE INTRODUCER

FEATURE

pose

Jessica Bird asks whether property finance has entered a new, more ethical stage in its evolution, and what this might mean for lenders

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MARCH 2022 MORTGAGE INTRODUCER

SPECIALIST FINANCE INTRODUCER

FEATURE SimplyBiz Mortgages, says, “Our role as a distributor is to be the conduit – we want to increase the education, and help increase the breadth of the available options, while also simplifying them.” He adds that one way lenders could reinforce the importance of EPCs and energy efficiency is by adding these factors to their questions at the outset of a deal, making this a required field in the online forms. Another suggestion might be using incentives that promote green deals, such as helping with the cost of heat pumps, or providing discounts on sustainable products if a borrower is able to improve their rating. Most importantly, lenders need to start providing products that incentivise borrowers to improve the energy efficiency of their properties if they can, rather than encouraging increased competition for the small percentage of housing that already fits the bill. Whatever strategies are put in place, this is not something that is going to change overnight, says Vic Jannels, CEO of the Association of Short Term Lenders (ASTL). When building from the ground up, he says that “the funders, lenders, consumers, buyers, and sellers should all take account of the need for an ethical view across the whole piece,” but warns that this is not so easy with existing properties. BUILDING THE HOUSING PYRAMID The UK is facing a housing crisis, with demand outstripping supply at an alarming rate. From the start, Blend Network has focused on providing affordable housing within the deals it finances, according to chief strategy officer Roxana Mohammadian-Molina. Law, meanwhile, explains that tackling this is also part of Assetz Group’s approach. To this end, he describes focusing on “the base of the housing pyramid,” which for Assetz Group in particular means non-family residential housing – key worker accommodation, student housing, and perhaps most important, the care industry. “Care, in the broadest sense, is the really big one we’re escalating at present,” he explains. “Quite a lot of people think it’s retirement homes, but it’s much wider. “For example, it could be ex-prisoners going back into society. If they don’t have stable housing, they could end up back in prison – there are charities that provide housing while they get back into society and get a job, and we fund that type of housing. “That’s just one of many sectors of the supported living industry, and we are big supporters for development funding and commercial mortgages there.” While it is important to drive for more housing stock, Law warns that this must not come at the expense of it being liveable, which is a danger with high-density housing. For example, changes to permitted development rules (PDR) that facilitate the conversion of commercial spaces into residential might seem like a panacea, but

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can produce questionable accommodation, such as micro-apartments, or homes without natural light or access to outdoor spaces. The loopholes provided by PDR mean that it was not originally subject to the same restrictions as other residential housing. An ethical approach to property finance means not taking advantage of this. COMMUNITIES AND ENVIRONMENTS “It created a bit of a field day,” Law explains. “There was no need to build micro-apartments; it was just that the legislation didn’t fully join up. It was all about the money, and nothing else mattered, never mind being sustainable – for the environment or as a business.” Ludo Mackenzie, head of commercial property at Octopus Real Estate, says that when addressing the housing shortage, it is also important to consider the impact on local communities and environments, and consider local views on a project, so as not to have a negative impact. The lesson, then, is not just to grasp at the first solution, but to have a deeper consideration of all investments and their impact on the world and the population. This is a difficult balance to strike while still focusing on returns, but an important one. ETHICAL INVESTMENTS Some lenders choose to take an ethical stance on what their finance goes toward, beyond the all-important anti-money laundering (AML) checks. This might include not funding the acquisitions of factories for arms manufacturers or tobacco companies. Octopus Real Estate, for example, has established policies against lending related to gambling or adult industries, as part of an ethical approach that Mackenzie says “runs through the business.” Law cites a particular recent example in which Assetz turned down a commercial loan for similar reasons: “We wouldn’t be directly funding the activity, and it’s a big, well-established company, but we decided it didn’t sit well with us. “You have to have a position and know what feels right and wrong – it isn’t just about money, it’s about knowing whether something doesn’t feel right and ensuring that on the whole things are being done well.” This is rocky ground, considering the subjective nature of morality, but there seems to be a groundswell of support, particularly among younger generations, for the concept of working with businesses that garner respect and are not linked to negative social impact. Law notes that this is all information that should be part of the normal lending process; it is just about what the credit team and business leaders decide to do with that information. Mohammadian-Molina says even if this is not already a business focus, investors will start driving forward the issue of ethical lending. “Increasingly, investors are really focused not only www.mortgageintroducer.com

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FEATURE on returns, but also on the ethical values of the deal,” she explains. “They are increasingly paying attention to what they are investing in.” Mohammadian-Molina adds that this scrutiny goes both ways, and that lenders should take care regarding where their finances come from. This is coming more to the fore as the invasion of Ukraine leads many to question businesses’ ties to Russian money.

“A big part of this journey has been the focus on lending sustainably and with the consumer at the core, led by trade bodies such as the ASTL, which has a well-publicised Code of Conduct for its lender members. If borrowers are looking for ethical lenders, Jannels explains, membership might be seen as a reliable seal of quality” “Everyone has got to be really careful these days about where they take their money from,” says Jannels. “It’s difficult to cut off a supplier suddenly because that could equally cut off your business potential, but everyone should be graduating to making sure the funding supplies they get are ethically sourced in the first place.” He explains that this will be easier for newer lenders than those with longer-term, legacy relationships. Jannels continues, “I would suspect that the majority of lenders have been looking at this area over a long period of time. Very few, if any, these days, will be receiving funds from ‘unethical’ sources. “This is not a new subject, but it is one that is gathering pace because of all the things that are happening in the world at the moment – this has thrown a spotlight on funds sourced from Eastern Europe, for example. Most lenders have taken this on board.” LENDING IN THE RIGHT WAY One of the key trends over the years, for short-term finance in particular, has been the shift from a pure focus on profits to getting the right customer outcomes instead. For bridging, this has meant an evolution from a negative perception of price gouging and ‘cowboy finance’ to an understanding that this is a useful tool and a viable market. While it might not have the fanfare of addressing climate change, taking a scrupulous approach to day-to-day lending practices has to be the other side of the ESG coin. www.mortgageintroducer.com

Jannels says, however, that issues may persist beyond the main bridging finance lenders, and that it is difficult to monitor the ethical credentials of smaller, lesserknown businesses, which need to “come into the fold.” A big part of this journey has been the focus on lending sustainably and with the consumer at the core, led by trade bodies such as the ASTL, which has a well-publicised Code of Conduct for its lender members. If borrowers are looking for ethical lenders, Jannels explains, membership might be seen as a reliable seal of quality. “Our lenders are highly responsible, highly ethical, and do their work in such a way as to ensure that the journey is good for the customer,” he adds. A MATTER OF CULTURE In order to make sure a business is comfortable making lending decisions that factor in ESG, Law says it is a matter of having a “common approach” that runs through the business. If credit teams, for example, are well versed in leaders’ approaches to certain factors, they can flag when something is wrong during due diligence with little additional work. This issue of culture also comes into play when making truly effective any effort to be ethical or ESGfocused. A business cannot claim to have a positive social impact without first addressing its own internal approach. Merrett says, “It’s more than just coming out with products. What really needs to happen now to drive ESG forward is that businesses must realise it’s not just about the product, it’s about you. We need to create a culture of appropriate behaviours, and adoption, education, and training.” Law says that an influx of younger people both into employment in the sector and as borrowers will prompt a sea change, leading to a greater focus on ‘profit with purpose’ and an end to the ‘not my problem’ mentality that still lingers in some quarters. “We’re seeing more and more CVs from people who want to make a difference,” Law says. “You didn’t see that in the commercial world a few years ago. They want a business with a set of values they agree with. When you hire people with the same sort of values, you attract the right kind of talent. “Many people in finance are getting tired of the ‘corporate’ mentality and want to do something that feels right. For a lot of people, the Global Financial Crisis was the final straw.” Having a strong internal approach means more than everyone singing from the same hymn sheet on values. A business must walk the walk, from endeavouring to ‘go green’ all the way through to having a serious and committed approach to diversity and inclusion and employee wellbeing in order, as Mohammadian-Molina concludes, to then “replicate outside what’s going on inside.” M I APRIL 2022 MORTGAGE INTRODUCER

Michael Lawlor Mortgage Advice Bureau, London

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