Mortgage Introducer December 2021 by mortgageintroducer

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We’ve been shaking up the specialist mortgage sector since 2015, winning awards and fans left, right and centre. But although we’re not exactly the new kids on the block, we may not be the first name which springs to mind when you’re trying to place a complex mortgage case. Not yet anyway! Buster Tolfree Director of Mortgages

Champion of the Mortgage Professional

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INTRODUCER www.mortgageintroducer.com

December 2021

 Robert Sinclair  The Outlaw  Loan Introducer

FINGER ON THE

PULS ULSE Jesper With-Fogstrup, CEO of ULS, discusses the digitisation of conveyancing

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EDITORIAL

COMMENT

Publishing Director Robyn Hall

Nia Williams

Publishing Editor Ryan Fowler Ryan@mortgageintroducer.com Associate Editor Jessica Bird Jessicab@sfintroducer.com Deputy News Editor Jake Carter Jake@mortgageintroducer.com Editorial Director Nia Williams Commercial Director Matt Bond Matt@mortgageintroducer.com Advertising Sales Executive Jordan Ashford Jordan@mortgageintroducer.com Advertising Sales Executive Tolu Akinnugba Tolu@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.

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Well it’s goodbye from me…

t is that time of year when we reflect on the past and think about the future. It must be said that 2020 was not a hard act to follow but 2021 had to carry the weight of expectation. This time last year saw the first vaccine given – a brief glimmer of hope in the Christmas COVID-19 lockdown. We were all so happy to see the back of 2020 with many of us predicting there may even be a glimpse of normality by the Summer of 2021. We did see some normality return. Mortgage Introducer managed to hold its annual Scottish Mortgage Awards in Edinburgh in October, followed by the Mortgage Introducer Awards in November. It was lovely catching up with so many of you after so long. Plans are already in progress for next year’s events which I’m looking forward to. Indeed the mortgage market has had an impressive year, protected by the government and boosted by the Chancellor. The halcyon age for mortgage brokers continues, with sky high demand for mortgages even after the stamp duty scheme ended. Recent months have also seen remortgages hit record levels in recognition that the base rate will likely rise in the New

Year, albeit in small increments. For now, we must look forward to 2022 with some optimism for the future. And for you, our readers, and for the magazine, I’m sure that exciting times do indeed lie ahead. As you may have read, Mortgage Introducer has recently been bought by Key Media, global specialists in mortgage publishing. It will be very odd for me going into the new year no longer involved with the magazine that I launched in 1998 and then reignited in 2008 along with Ramesh, Robyn, Marco and Andrew – they will feel it too. But, just as the past couple of years have illustrated, times change and we all move on. I just want to say thank you to all of you for your support over the years and I hope that we have helped you and your businesses too. We leave you in the safe hands of Key Media along, of course, with the usual Mortgage Introducer team – you know who they are. I’m sure you will continue to support MI just as they will continue to support you. All that remains is for me to wish you a very Merry Christmas and a Happy New Year on behalf of the MI team. Let’s all look forward to 2022, whatever it may bring! M I

Speak to your local BDM to discuss your residential cases, even if they fall outside of our standard criteria.

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DECEMBER 2021

MORTGAGE INTRODUCER

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MAGAZINE

WHAT’S INSIDE

Contents 7 9 13 14 15 16 17 18 19 20 21 22 28 30 33 35

40 The Outlaw The latest from our resident outlaw 44 Cover: Making a move Mortgage Introducer speaks to Jesper With-Fogstrup, CEO, ULS technology about his first year with the business and his future plans for the firm 48 Loan Introducer The latest opinion from the second charge market as we ask the experts what 2022 will hold in store for the second-charge market? 51 Specialist Finance Introducer Opinion and views on development finance, bridging finance and more from the specialist market with comment from the ASTL and FIBA

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AMI Review Market Review Education Review Networks Review London Review High Net Worth Review Economic Review Recruitment Review Service Review Technology Review Second Charge Review Buy-to-let Review Protection Review General Insurance Review Complex Credit Review Equity Release Review

TECHNOLOGY

24 17 18

RECRUITMENT

BUY-TO-LET

SPECIALIST FINANCE INTRODUCER

RECRUITMENT

DECEMBER 2021

MORTGAGE INTRODUCER

Time to reduce the stress on Buy to Let With our new streamlined approach to calculating customers’ Buy to Let applications, you’ll find that you’ll have more time on your hands because: • we have two new indication calculators – one for smaller landlords and one for portfolio landlords • with lower stress rates for like-for-like remortgages and 5 year products, we could lend more to customers • if the rental calculation fits, we don’t need proof of income, which reduces underwriting • eligible customers will be offered two lend options - a 2 year and 5 year fixed rate • there’s no minimum income requirement For more information go to intermediary.natwest.com or log on to LiveTALK.

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AMI

There may be justice? Robert Sinclair chief executive officer, AMI

he plague on our sector that has been Pure Legal attacking historic interest only cases has been stemmed for now. Most of the legal entities in the Pure Legal group have entered administration and the funder of the loans supporting the cases, Novitas, have said they will not be providing further financial support.

These consumers are now up “for auction” to other legal firms via the administrators. However, it should be remembered that all of the cases that have gone to court so far have been won by the brokers representatives. Many cases have been withdrawn before being heard. The six figure sum claims have usually been reduced to low four figure sums during the hearings, but judgements have usually thrown out the cases as “time barred”. The real losers in this are the hundreds of customer claimants. Sold unsecured credit funding and after the

event insurance, they still carry the costs of these cases. Only their solicitors can invoke the insurance, so they are the big losers here. Firms must not take their eye off this ball. It will be important to remain vigilant. Watch for changing claims or new solicitors acting. If the claim moves to challenging affordability, then that should be the lenders case to defend. Keep talking to your PII providers. Take their advice. We are closer to stepping out of the storm, but there will still be a few months of turbulence. M I

The roads we travel

e end 2021 still busy as mortgage intermediaries work tirelessly to continue to help customers complete on properties and source funding for even more expensive housing. We have provided support to those impacted by the pandemic and completed unprecedented transaction levels brought on by the stamp duty reductions and extension. This is on top of navigating regulatory developments spewing out of the FCA, which show no signs of calming. For firms involved in household and motor insurance, the FCA’s GI pricing rules apply from the beginning of the new year (1 January 2022). It’s positive to see the ban on price walking finally come into force. It will see existing customers charged as fairly as new customers and bring about better GI opportunities for mortgage intermediaries as they should find they are more able to compete with online aggregators. 2022 is set to be probably the most significant year ever for amended regulation. It starts with the FCA’s consultation on Consumer Duty ending in February with new rules set to be confirmed by the end of July (with anticipated implementation by end of April 2023). This is a fundamental shift aimed at raising the bar across retail financial services, setting a higher standard of care to customers beyond the current rules. It will replace principles 6 and 7 with a requirement that ‘A firm must

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act to deliver good outcomes for retail clients’. This should ensure all firms put customers at the heart of everything they do, throughout the customer lifecycle. No firm within our sector will be immune from this, even firms that feel they’ve already got this ‘spot on’ will have further work to do. Product providers and intermediaries will have to work even closer together. The FCA’s consultation on diversity and inclusion in financial services is also set to land at some point during the first half of the year. AMI is active in this space and encourages firms who have not read our recent Viewpoint report to take a look. Whilst it is a difficult read and shows the industry has a lot of work to do, we are proud to have taken the leap forward to openly acknowledge there are issues but crucially we are committed to making change happen. Elsewhere, the green agenda is set to feature heavily. government’s Future Homes Standard will ensure new homes are built without fossil fuel heating systems and with higher levels of energy efficiency compared to existing housing stock. Whilst this will apply to new homes built in England from 2025, it does mean that homes undergoing planning permission now will be affected given build lead times. New rules on upgrading properties to improve their EPC rating will also come into view. 2022 will also mark the last full year of the

Help to Buy scheme, which is set to end in March 2023. First time buyers will want to understand their alternative options onto the property ladder and advice will play a crucial role in this. We will continue to see new innovations from the private sector to help bridge the gap left behind after cessation of the government scheme, together with the expanding First Homes initiative. In 2022 we also have the opportunity to reshape the Financial Services Compensation Scheme. Making sure mortgage brokers only pay for what goes wrong in our sector is crucial. Avoiding surprise invoices and higher regulatory bills might need your support by lobbying your MP later in the year. We will let you know if we need your help. We still favour a product levy rather than a charge based on firm’s turnover. Last but not least, are the plans to change the landscape for Networks and Appointed Representatives. Both Treasury and the FCA are looking at this and we need to ensure that solutions are proportionate to the mortgage market that already works well for consumers and our product partners. As the trade body for mortgage intermediaries our core aim for 2022 and beyond is to make sure your voice is heard. Our lobbying will be critical to protect your futures. Membership of AMI has to be an essential. Please look at joining for 2022 if you are not already subscribed.

DECEMBER 2021 MORTGAGE INTRODUCER

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Reasons to be cheerful Craig Calder director of mortgages, Barclays

onfidence, equity and arrears are three very important words in the vocabulary of lenders, distributors and intermediaries as they offer a true reflection of the performance and opportunities arising across the industry. So, without further ado, let’s take a look at the data behind these words and their impact on the current lending arena. The latest research from IMLA for Q3 21 is a great place to start as this is laden with positivity. This showed that, on average, advisers processed 97 cases between July and September, 2% more than the previous historic peak to hit the highest ever recorded level in the quarter. Intermediary confidence in the business outlook for their own firms also reached a three-year high, with 63% of intermediaries ‘very confident’ and 98% confident overall. Furthermore, confidence in the outlook for the intermediary sector also edged up in Q3, with the proportion feeling ‘very confident’ now 10% higher compared to this time last year. Confidence in the outlook for the mortgage industry increased again this quarter, with the proportion feeling ‘very confident’ reaching a new record high (46%) in Q3 2021. In addition, 97% of intermediaries reported feeling confident about the outlook for the wider mortgage industry. The average number of DIPs processed by intermediaries in Q3 softened very slightly in July (26) and August (28), however, DIP volumes in September bounced back to reach the highest level seen since this time last year (35). This is in line with the lead up to the end of the government’s stamp duty holiday, with slow monthon-month increases from July to

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August, and a spike in September as buyers rushed to complete deals before the September 30 deadline. The proportion of full applications resulting in a mortgage offer increased by 3% to 89% - the highest level reported since the end of 2019. Overall conversion from offer to completion increased for the third successive quarter to 79%. These results pretty much speak for themselves. Whilst we don’t need to analyse them too much, it’s always good to see the term ‘highest ever’ being so liberally used throughout and this clearly reflects the housing and mortgage market’s strong performance in 2021. In line with rising confidence and activity levels, house prices have also increased to generate another ‘record high’ when it comes to the available equity in UK homes. New figures from Canada Life showed that over £740 billion of equity is now available for release in Q3, representing an increase of £10bn and is the first time it has exceeded this milestone. Breaking this down regionally, the average price of a property in the South East is now £360,000, creating £143bn of potential equity for the region, the largest available equity by region in the UK. This was closely followed by London which now has £136bn of potential equity. Property prices in Scotland, the East Midlands and East Anglia saw the largest growth in Q3 - 2.8%, 2.4% and 2.2% respectively. Scotland now has over £45bn of potential equity available, or almost £66,000 per household. In the East Midlands there is now over £46bn available, equating to over £76,000 per household and in East Anglia almost £85bn of available equity leads to £108,000 available to release per household. This build-up of equity and related property wealth offers homeowners an intriguing conundrum and provides intermediaries with the opportunity to support them in making the right short, medium and longer-term choices to match their circumstances. From record highs, we now go

to near historic lows and even this represents some highly encouraging news. Mortgage arrears continued to fall during Q3, with the furlough scheme and the previous mortgage payment deferral scheme supporting homeowners and even enabling some to pay down existing arrears. This was apparent in recent UK Finance data which outlined a reduction of 2,400 mortgages in arrears compared with the previous quarter, leaving a total of 74,210 homeowner mortgages in arrears of 2.5% or more of the outstanding balance. Within the total, there were 25,110 homeowner mortgages in early arrears (those between 2.5 and 5% of balance in arrears), a decrease of 5% on the previous quarter and 10% fewer than the same period in 2020. Barring an initial uptick at the end of March 2020, these early arrears figures have remained lower than the number seen before the pandemic began. With the end of COVID-specific support schemes, UK Finance predicts that lenders’ provision of tailored forbearance to customers in difficulty “will moderate, but not prevent”, increases in early arrears. Within the total, there were 27,980 homeowner mortgages with more significant arrears (representing 10% or more of the outstanding balance), 70 more cases than the previous quarter. This figure has risen - from a low base - since Q1 2020, although the rate of increase has slowed. These customers, who were already in relatively deep arrears positions prior to the pandemic, will likely have made use of the full six months of COVID-scheme payment deferrals and are equally likely to be receiving (or in need of) further support through lenders’ tailored forbearance. Again, there is not a huge amount to add but when you add up these three important influencing factors on the mortgage market then it’s clear that we are entering into 2022 in fine fettle and there are plenty of reasons to remain optimistic for the year ahead. M I

DECEMBER 2021

MORTGAGE INTRODUCER

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Power to the people Martin Reynolds CEO, SimplyBiz Mortgages

s we draw to the end of another challenging, but positive, year it is always good to review the initial predictions and plans we all pronounced and see how they have landed. I am sure there will be other articles in this edition - and the January one - that will do this more holistically that I can, so I just want to concentrate on the perennial one. The rise of technology. Technology is good, and is an enabler to our market, but it is not the only answer, it is not the golden ticket into the future. Whilst Buggles 1979 hit’ Video Killed The Radio Star’ was the flagship song on the launch of MTV, and did initially dent the power of the radio DJ, it did not finish them off but did make them adapt and utilise the new resources available to them. This is what will happen in the mortgage market as we adapt to the support there, and our clients’ needs and preferences. Whilst at Fintel we are a financial, technology and regulatory business the people in our business are still core to our ultimate success and this will

AI has a place but it is lacking in some areas

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16:47

continue to be the case. Our belief is that technology should be used to do the heavy lifting in our processes, and it should be wrapped around the advice process and not replacing it. It has been interesting during lockdown how the technology focus has moved in a different direction based on the immediate needs of the adviser and their clients. Pre-covid it felt that the main focus in the industry was on about lender integration whether at DIP, application and updates etc. Whilst this is great from a reduction in rekeying, in my view it wasn’t reducing the time spent with the client and this is important. LEAPS AND BOUNDS

Lockdown seemed to bring the certainty of criteria and affordability come to the fore as lenders chopped and changed these - on a daily basis, it felt at times. This allowed those who have these propositions to make great leaps forward. Their importance cannot be understated and how they grow over the next few years will be good to watch. As we have moved towards a more flexible work environment, we are again seeing the lender integration come back to the fore and that is good to see. What I am keen to ensure is that we do not solely focus on this. What about the core start of the journey pre criteria and affordability?

How do we attract clients to us in the first place, how do we communicate with them and how do we get them to transact with us more easily by using technology? If we can start to improve this part of the process, then by making the journey more frictionless then the ability to engage with them on multiple products and for the next remortgage/ purchase should become easier. How do we make the post offer – pre completion part of the journey better and what about ensuring we make the post completion and review process easier and slicker? There are so many parts of the mortgage journey that knowing what is available for each, and when you need them, is so important. is the matter of which modules talk to one another also adds to the complexity and time-consuming aspect of choosing the systems that are right for both your processes and your business. All of this looks great, and the yearly prediction is that this year will be the year of technology. So, was 2021 the year of technology or will it be 2022? Of course, it was not or will not be, technology is a journey; an evolution and not an epiphany. Even if we do get end-to-end processes that are easy to navigate, and make the journey seamless for the client and the adviser, it will still be people that will hold it all together. We provide the fuzzy logic – i.e., the empathy and the thought process it is not the structured next step algorithm of the computer that does this. Can AI do this? Yes, in certain circumstances but it cannot do empathy like you do, it cannot help creating and satisfy the excitement of buying a home like you do. You are the most valuable asset in this process. Get this right by working in partnership with technology and your business will flourish Embrace technology, but only as an enabler and not as a replacement as it will give you more time to provide the advice your clients deserve, or more capacity to see more clients. M I

DECEMBER 2021

MORTGAGE INTRODUCER

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Mortgage propositions must strike a balance Tim Hague director, Sagis

hey say necessity is the mother of invention and, given the past couple of years, I’d have to agree. The dreadfulness of the pandemic has been something the world would rather have avoided but even so, there have been societal changes and technological innovations that have benefitted great swathes of the global population. Not all I might add. Those living in poverty in parts of the world without comprehensive vaccination programmes and suffering the increasingly hostile effects of climate change have seen life’s conditions plummet. For those in the developed world, however, there has been scientific innovation, the speed of which has been extraordinary. Successful lockdowns have forced companies to invest in technology and adapt to flexible policies where needed. Work life balance has, for many, improved. Though there is an increasingly audible contingent suggesting the blurring of work and home boundaries is increasing stress and putting pressure on mental health. Added to the changes wrought by the pandemic, this year has brought climate change into sharp focus. Hosting the COP26 negotiations in Glasgow in November put the spotlight on the UK’s approach to tackling rising global temperatures and achieving net zero by 2050. The past 18 months have seen much development on so-called green finance, and in our sector, green mortgages. Several have launched,

each offering some slightly different incentive to decarbonise British homes and/or offset domestic emissions. Lending to those in retirement has become considerably more flexible, if not less expensive. Accessibility to mortgage finance has improved. Following a flurry of activity and innovation over the summer of 2020, we’ve recently seen another burst when it comes to new lending propositions.

“Added to the changes wrought by the pandemic, this year has brought climate change into sharp focus. Hosting the COP26 negotiations in Glasgow in November put the spotlight on the UK’s approach to tackling rising global temperatures and achieving net zero by 2050” Initially, we saw some innovation in the new build sector as lenders, with developers, launched the deposit unlocked scheme. It has already helped many into their first home – filling the gap left by the revision of the Help-to-Buy introduced last year. Borrowers would otherwise have needed a 10% deposit that would, in many instances, have made their purchase unaffordable. More recently, we saw have seen established and newer news of lenders like Kensington and Perenna launching or planning to launch longer-term fixed-rate mortgage propositions. These are in their infancy and are by no means likely to be the finished proposition but they mark a departure from the conventional thinking. It is unclear for now how large the UK’s

MORTGAGE INTRODUCER DECEMBER 2021

appetite for these kind of products may be – certainly some industry luminaries are skeptical that borrowers will want to fix for so long in such an uncertain world but their appeal might yet endure. There is a balance between longevity and overall cost that borrowers and their advisors will have to understand, weigh up and embrace if they are to get on board with this kind of product. But if they do, this longer-term approach may further shape the mortgage market. Also last month was an announcement from Leeds Building Society, which has added a carbon offset benefit on all of its 95% LTV mainstream mortgages for purchase and will invest in offsetting the forecast environmental impact of each home during the initial fixed term of the mortgage. The benefit is available for all properties, regardless of their energy efficiency rating. The hope is that offsetting of the home’s carbon footprint during the mortgage fixed term gives the buyer time to consider next steps, such as saving up for improvements they need like a new boiler or replacement windows. It’s an interesting move, especially in the context of latent concerns that green mortgages which reward home improvements that cut emissions are inadvertently penalising those who cannot afford to make these changes. Finally, a word on those deeply disadvantaged in the world. Lenders have been swept up in the green finance revolution but we would all do well to remember that the environment and our climate conditions are just one element of living up to being a responsible member of civic society. The investment world is obsessing over ESG – environmental, social and governance – considerations. No doubt in response to the rising awareness and demand among the public for purpose as well as profit. Mortgage lenders might want to consider this. Social good is quite as important as environmental good. Perhaps the next stage of our market’s innovation? M I www.mortgageintroducer.com

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Effective hybrid mortgage advice Gordon Reid business development manager, learning and development, LIBF

ybrid advice is increasingly common in financial services. Within the mortgage market, however, it is spoken about far less. There are also different interpretations of what constitutes hybrid advice, and its benefits are therefore not always fully understood. This article sets out to:  clarify what hybrid advice truly means  highlight the benefits of hybrid advice to mortgage advisers and their customers  discuss how hybrid advice may develop over the next few years. WHAT IS HYBRID ADVICE?

Perhaps first we should talk about what it isn’t. It isn’t a hybrid mortgage, which typically combines a fixed interest rate period and a discounted or variable rate. Similarly, offering hybrid advice is not simply about whether you speak to your clients face to face, over the telephone or via a video link. What hybrid advice is about is using the best technology to support you in the research, packaging and administrative parts of the mortgage process. It’s about reducing duplication and paperwork. In short, it’s about streamlining the customer experience. When I was a mortgage adviser, one of the biggest frustrations for both myself and my customers was having to repeat questions and input the same information two – even three times – in the one discussion. I’d complete a factfind on one system, use another system to create the mortgage application, and then a third to record information to apply for protection. Things have undoubtedly moved on. However, having to repeat information www.mortgageintroducer.com

to support different purposes is still surprisingly prevalent in many mortgage discussions. What all firms must be aiming for is to only have to capture information once, and then for the systems they use to talk to each other and share data in a secure and effective way. In addition, the challenge of proving customer identities has also moved on significantly. As a mortgage adviser, if you’re still photocopying and manually recording details of passports and driving licences, you’re not operating as effectively as you could be. Digital identification verification is another key component in the drive to providing effective hybrid advice. How technology can support you Any advice process – including financial, medical and legal – can be broken down into three key sections:  fact-find  analysis of information  presentation of recommendations. By streamlining the process of capturing information, you can spend more time ensuring the quality of the information that’s captured. In particular, that means asking probing questions and ensuring that you understand your customer’s thoughts, feelings, opinions, aspirations and concerns. As a human, rather than a computer programme, you can also identify the things your customer may not be saying. However, technology is moving forward and can support you in several areas. For example, programmes have now been developed to help identify potentially vulnerable customers. These programmes can also be linked to lender policies, which can help you understand how to support these customers better. Once all relevant information has been captured, technology can really come to the fore. However much experience and knowledge you may have, you can’t review all of the options available

to your customer quickly without the support of a highly sophisticated analysis support tool. But even if you do use this tool, as a professional adviser you play a key role in checking that the analysis has correctly identified a product which meets all of the customer’s needs and priorities. This is also where being part of a mortgage network offers key benefits. There is a range of digital mortgage platforms available to support advisers, but access to them is cheaper and easier if you’re part of a network or club. HUMAN SKILLS STILL MATTER

The final stage of the advice process – the presentation of recommendations – continues to be an area where your skills as an adviser are paramount. Yes, technology can be used to support explanations and help customers understand products that are often complex. But you’re still the one responsible for the advice, and it’s up to you to confirm that the customer understands the terms and conditions of the products. To provide hybrid advice effectively, it’s essential to understand the areas where your expertise as an adviser remains important, such as relationship building, understanding your customers’ priorities and when presenting recommendations. Secondly, you need to identify and put in place the right technology support systems to streamline your processes, reduce duplication and improve efficiency. As technology continues to develop, there will undoubtedly be other areas of the discussion which will benefit from improved efficiencies. Your role as an adviser will also change. However, unless there are significant changes in both regulation and general consumer attitudes to advice, there will always be a role for highly skilled mortgage advisers. Those who see the opportunities technological developments offer, are likely to stay ahead of the curve. M I

DECEMBER 2021 MORTGAGE INTRODUCER

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A question of duty is setting the standards Shaun Almond Xxxxxxxxxx managing director, xxxxxxxxxxxxxxxx, HL Partnership xxxxxxxxxxxxxxxx

ollowing on from my commentary on the present state of the AR:DA debate, I finished with the words ‘… the FCA will shortly be announcing its Consumer Duty initiative, which could provide yet another challenge for regulated firms and principals.’ Hopefully, unless everyone is already clued up, at least some readers might have googled the FCA website to see the guidelines to which we should all be working to when looking at the culture of treating customers fairly. The culture of great customer outcomes is now front and centre whatever your regulatory status. For Appointed Representatives there will be change guided by their network’s review of its advice model, and for Directly Authorised Brokers I’m sure there will be conversations with compliance support providers and an in-depth analysis of how this will impact on their business model. According to a recent speech by the Director of Consumer and Retail

Policy at the FCA, ‘Consumer Duty will set the standards for firms in all retail markets including consumer credit’. Firms will need to have a greater focus on giving the customer a full view of the financial risks they run every day ensuring they can make an informed decision when making what is typically the largest borrowing commitment of their lives. The inference from the speech is that the regulator expects to implement a whole new standard for measuring customer outcomes which could make TCF seem like it was just the prelude to the main performance. The FCA also made it clear that it will expect firms to make more use of data to better manage and inform good customer outcomes. This suggests that new reporting requirements will expect regulated firms to improve as well as increase the volume and quality of the data they collect. Inevitably this will mean that those firms that haven’t invested in the technology to understand who the customers are that they are talking to, why they are talking to them and ultimately the outcome of the conversation, run the risk of falling foul of Consumer Duty. For ARs much of this technology is already in place as the regulator

Treating Customers Fairly: Best intentions will no longer be suﬃcient

MORTGAGE INTRODUCER

DECEMBER 2021

signalled some time ago that they were going to be led by the data. Data gives you an idea of the risks you run, the solutions introduced to mitigate the risk, and evidence to identify if the solutions are working. How many customers are there in client banks where there are dependents but no life insurance recommendation or what is the number is single people who simply could not survive financially if they were to lose their income through ill health? I believe that in Consumer Duty the FCA is asking us all to look at two things - the culture in which we operate and our ability to use the information we gather every day to know we are doing the right thing for our customers. Whilst we can tell the regulator we are doing a great job, the big change will be having to provide evidence to back up our claim. For example, there will have been occasions where the obligation to go back and talk about the need to protect the family or to maintain a lifestyle may have been overlooked in order to prevent another customer moving onto SVR instead of completing the remortgage on time. The burden of proof will be firmly on us and the regulator will expect to see action. Best intentions will no longer be suﬃcient. LOOKING AHEAD

Over the past year I have felt we have been living in a Marvel Universe – first it was the risk of Delta and now we have the Age of Omnicom. COVID, in whatever form to which it mutates will, no doubt, still be with us in 2022, but I am confident the financial services industry and in particular the mortgage sector will continue to adapt. The improving technology links and the lessons learnt from working from home will stand us in good stead to keep meeting the needs of our customers whatever the pandemic coughs and sneezes at us over the coming year. May I wish everyone in our wonderful industry a well deserved break over Christmas and look forward to meeting more of you in 2022. M I www.mortgageintroducer.com

REVIEW

LONDON

Levelling up will include London Robin Johnson managing director, Kinleigh, Folkard and Hayward Professional Services

ast month the Confederation of British Industry (CBI) held its annual conference at eight different locations in the UK. Why? To make a point about the government’s levelling up agenda. Just days after the government announced it was abandoning the promised Leeds leg of HS2 and the consequent fury in the north of England and midlands, the government found itself being hit hard again by the region’s businesses. Voicing its members’ concerns during a speech at the Port of Tyne in South Shields Tony Danker, the CBI director-general, warned that delivering economic growth in every place in the UK will be the ”determining factor in the success or failure of the government’s Levelling Up agenda”. As a business based in and around London, our market has always benefitted from the strong pull of the capital which has brought the best of British – and international – talent into the city, where the bulk of highly paid and skilled work has resided. The pandemic and its lockdowns cast doubt on whether a mass return to working in offices will resume; either way though, both this and the public sector commitment to levelling up stand to influence the housing market, and not just in London. It’s anyone’s guess exactly how this will play out over the next year, let alone decade. But I have strong intuition that none of it will be straightforward. It’s never as simple as create jobs and industry in Blackpool and people will flock there from London leading to weakened demand and lower house prices. For evidence we need only look at the current situation with the BBC.

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The Times newspaper recently reported that the future of the BBC World Service’s business output is “in question after an entire department refused to move to Manchester under an unpopular newsroom reorganisation”. According to the paper, between 35 and 40 people who work on BBC World Service radio’s business desk are unwilling to relocate to the corporation’s base in Salford. Before all the Mancunians and Salfordians start defending their, very great, cities I say this not as a Southern softie but merely as an observation that levelling up doesn’t necessarily mean what it might at first seem it does. In the case of the BBC, which is relocating hundreds of jobs further

“The pandemic cast doubt on whether a mass return to working in offices will resume; either way though, both this and the public sector commitment to levelling up stand to influence the housing market” north, I’d be surprised if the feelings of its World Service business team were not shared by many others working for the corporation. In practice, levelling up is about changing the location of well paid jobs to areas that have historically had fewer than London and the South East. It doesn’t necessarily follow that the people doing those jobs will also relocate. People have children in schools, friends and family and familiarity and often very strong ties to where they live. Rather, levelling up may actually take us in a much more positive direction, where local people who want to stay local and not move to the Big Smoke are given a much wider choice of career and better pay and opportunities long term.

Instead of triggering a fall in property values in the places jobs are moving away from, property values in other cities and economic hubs are likely to rise. Without advocating for upward spiralling house prices – not helpful for anyone hoping to get on the ladder or move up it – stronger economic support for rising asset prices in areas outside of the South East should be a good thing. Look at Cambridge with its science park, which has grown at pace over recent years, driving up employment in the area, prompting massive housing development in and around the university city, investment into local infrastructure and inevitably the value of homes has risen. If that can be replicated across the country it would serve to pull the economy through a bleak few years and improve many people’s standards of living. What will it mean for London, from where many of these jobs are being relocated? The thing about the property market is that transactions trump prices. We’ve already had an exceptionally busy year with the stamp duty holiday fuelling moves. Interestingly, many of those selling are abandoning the capital for an escape to the country, capitalising on the world of work for so many going online. Has it brought house prices crashing down? Er, no. The opposite in fact. London’s price growth has been less rapid than other areas of the country, but that’s about affordability levels already being near their peak in the capital. Homeowners in other areas have benefitted from the boost in demand for rural or simply not London locations. Say what you will about remote working, the death of the office, the great escape – London is about so much more than this. The theatres, the art, the music, the culture, the proximity for international travel, the buzz and the people – all this and more endures. People’s desire to live and work and play in this city is unlikely to fade any time soon. M I

DECEMBER 2021 MORTGAGE INTRODUCER

REVIEW

HIGH NET WORTH

Preparing for bonus season Peter Izard Xxxxxxxxxx business development manager, xxxxxxxxxxxxxxxx, xxxxxxxxxxxxxxxx Investec Private Bank

any high-net-worth individuals in sectors such as finance will receive bonuses between January and March. This pay structure often requires support from brokers. An investment banker’s income is often structured very differently to those in other professions. Typically, a monthly salary will make up just a fraction of their total income, which is supplemented by bonuses or profit distributions. Investment bankers may also receive some of their income in foreign currency. All this contributes to the complexity of their wealth. Therefore when bonus payments are on the horizon we often hear from finance professionals who have questions relating to how they use their bonus. This is particularly the case when it comes to purchasing a new home or investing in property, as mainstream lending is not designed to cater to variable income patterns. Financial services professionals are often time-poor, so it’s crucial they work with efficient brokers and financial partners who understand their needs and considerations. Here, I’ll share some of the common questions that we hear from our clients who want to leverage it to buy a home or refurbish a current property. CAN A BONUS BE USED TO PURCHASE A NEW HOME?

It’s sometimes the case that as little as 30% of an investment banker’s income can come from annual salary, but the affordability assessments performed by mainstream mortgage providers sometimes undervalue bonuses when calculating how much someone can borrow. In these situations, a specialist lender who can take into account income

as a whole may be able to help. For example, at Investec we may be able to consider average bonuses over the last few years when calculating how much clients can borrow. HOW MUCH CAN AN INDIVIDUAL BORROW?

The amount that can be borrowed will be tailored specifically to the individual client. But, by leveraging bonus income rather than borrowing based on salary alone, some clients may be able to borrow more than they could through a mainstream mortgage provider. While some banks typically lend up to four times an annual salary, at Investec we aim to offer a mortgage that is affordable, but that reflects the individual’s true financial circumstances. This might mean, for example, that we can offer a higher loan-to-value (LTV) mortgage than your client might have expected. While some borrowers will repay their mortgage in monthly instalments over two decades or more, investment bankers often have capital reductions built into their repayment plan that coincide with liquidity events such as bonuses. These are to reduce the overall LTV. WHAT IF SOMEONE WANTS TO BUY A NEW HOME BUT HASN’T SOLD THEIR EXISTING PROPERTY?

Selling an existing property can be time-consuming and this can be challenging for busy professionals. With this in mind, there may be times when you are working with someone who wants to buy a new home before their previous property has sold. In these cases, a specialist lender may be able to offer an element of bridge finance where the cost of the new home is loaned and can be repaid within a short-term designated time period with no penalties for early repayment. This lending may be secured against one or both of the properties for security.

MORTGAGE INTRODUCER DECEMBER 2021

CAN MONEY BE BORROWED TO REFURBISH A PROPERTY?

Just as when applying for a mortgage, a specialist lender can consider bonus income – as well as income from other sources – if a client chooses to seek finance for home improvements. Increasing the sum an individual can borrow based on expected bonuses is sometimes an option that can be considered. In cases of vesting stock or deferred bonuses, working with a lender with investment management expertise allows the risk profile of an underlying fund or stock to be assessed, so the lender can offer an appropriate solution. CAN A BONUS BE USED TO OFFSET MORTGAGE REPAYMENTS?

A standard monthly repayment schedule is not always the most suitable option for some clients’ needs. Brokers should work with a lender who can provide repayment terms that align with their clients’ circumstances and liquidity events. For example, some clients will take out interest-only mortgages with a high LTV and repay the balance through regular capital reductions. Others have repayment mortgages with the flexibility to make overpayments throughout the year. In some situations, the lender might offer a revolving mortgage, which provides the freedom to access more funds whenever required. For instance, Investec’s revolving mortgage clients can make multiple withdrawals (up to an agreed limit) and then make unlimited repayments. Conclusion: work with a lender that understands complex income profiles A change in income or bonus often prompts individuals to make changes to their home and they may wish to buy a new property. Bonus season typically runs from January-March and it’s important that brokers start conversations with clients early in order to help them leverage their full income. At Investec, we stand ready to assist. M I www.mortgageintroducer.com

REVIEW

ECONOMY

Uncertainty demands a prudent response Steve Goodall managing director, e.surv

hen we use the four-letter word ‘risk’, what do you think of? For some of us, risk is the thrill of a flutter on the horses, or protecting our children. But for others, it’s all about taking a calculated risk on the purchase or sale of a stock. Risk is one of those words that gets a bad rep. In some contexts it deserves it: risking one’s life by running across a busy motorway for example is very definitely bad risk. So is gambling – unless of course you win. Careful investment risk, even high risk investment over a long enough period of time and with sufficient diversification, could be construed as good risk. Given the business I’m in, risk comes in all shapes and sizes. How do you assess the risk on a property asset? Our surveyors are required to adhere to all kinds of checklists and standards and comparable data, not least those set out by the Royal Institution of Chartered Surveyors. But the value of something is about more than this. There is intrinsic net asset value and then there’s the premium or discount that someone is willing to pay for it. Ask any investment trust manager. This latter element of value is especially important for lenders in the current market while demand is so high and prices are rising at extraordinary rates. The latest Office for National Statistics house price index figures show UK average house prices increased by 11.8% over the year to September 2021, up from 10.2% in August. www.mortgageintroducer.com

While this was the final month before the stamp duty reprieve finally ended, inflation looks set to continue with activity barely slowing down since the start of October. This said, the outlook for the economy next year is uncertain. November’s monetary policy committee meeting saw markets in a rage that the base rate stayed at 0.1% after they’d priced in a rise following comments from the Bank of England governor Andrew Bailey which they interpreted as hawkish. Mr Bailey faced voluble criticism from industry figures and a grilling by Treasury select committee members about why, in the face of inflation over 4%, the committee had voted to hold for another six weeks. Uncertainty in the labour market was his answer. Without sufficient data on how firms would respond to the end of the furlough scheme as October drew to a close, it was unwise to pull any monetary levers simply because markets expected it. Whether Mr Bailey and his team opt to bend to the will of public opinion at their next meeting I can’t foresee, but his concerns about unemployment and inflation, which he later admitted he felt deeply “uneasy” about, resonate with me. If they come to fruition, the former of these would have huge implications for the housing market. Unemployment will take time to feed through to the economy, with redundancy packages and notice periods delaying the financial hardship that so often results from the loss of a job. Spiralling inflation would place increasing pressure on borrowers’ affordability, and where that was maxed out with the purchase of a home earlier this year financed by a fixed rate mortgage over five years, well, you get the picture. If re-employment leads to higher wages, all to the good as far as mortgage lenders and brokers are

concerned, but it’s a patchy labour market. Vacancies are at a record high but so is unemployment – for the moment. Sectors such as social care, hospitality and leisure are struggling to fill open roles. All of this adds up to rather a large question mark when it comes to assessing a home’s worth. Pressure to continue to lend at 95% loan-to-value remains, and with house prices rising so rapidly, the real term value of hopeful buyers’ deposits is being cannibalised by the double whammy of this and rampant consumer price inflation. But what of the risk of a bumpy year next year? Lenders must balance the need to keep lending accessible to firsttime buyers with the plausible prospect that property values have the potential to soften if employment falters.

“Unemployment will take time to feed through to the economy, with redundancy packages and notice periods delaying the financial hardship that so often results from the loss of a job. Spiralling inflation would place increasing pressure on borrowers’ affordability, and where that was maxed out with the purchase of a home earlier this year, well, you get the picture” How to navigate that balance? Knowledge is power. The slightly unpredictable nature of the premium or discount to net asset value is, well, slightly unpredictable. The net asset value though? This is where lenders and brokers can have confidence. Not only is this valuation critical for lenders’ risk exposure, it’s also vitally important for borrowers taking on debt to finance a home purchase. Negative equity is in no-one’s interest, and to ensure that assets are given the most accurate valuation, there is no substitute for boots on the ground. M I

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REVIEW

RECRUITMENT

How to move on with no regrets or recourse Pete Gwilliam director, Virtus Search

e are now in sight of the time when many companies pay employees their annual bonuses and there is no coincidence that the beginning of the year is also the most common time for people to change jobs. If you are planning to move jobs ensure you understand your company’s policies around bonus and commission payments before saying anything about your intention to leave. I have known people realise only after giving notice of their resignation, that they are no longer eligible to receive the performance bonus that they waited for. In particular some believed that because they worked through December 31, and the bonus was a reward for last year’s work, the company legally has to pay them. I have also known people who had planned their last day to be after the

payment date for bonuses so that they can ‘bank’ the payment before they go. They believed that if they were employed by the company on the date that bonuses are paid, then the company was obliged to pay them. So if you are planning on leaving your job and counting on getting ‘your bonus’ make sure you know the bonus rules. First, know what type of bonus you have. Most people have a “discretionary” bonus plan. This means what it sounds like - it is at management’s discretion to pay you. Most discretionary plans, in addition to saying that management can use whatever criteria they want, will specifically say that the employee a) needs to be employed on the date that bonuses are paid (not earned), and b) that if the employee gives notice of resignation, they are not eligible to receive any discretionary bonuses even if employed on the date the bonus is paid. Typically to qualify, on the date of bonus payment the employee must not be under notice or have given notice to resign.

There are some vital elements to planning an exit

MORTGAGE INTRODUCER DECEMBER 2021

You may also have stock and/ or current or future option rights as part of your long-term incentive plan/remuneration package/bonus award with complicated contractual documentation. Remind yourself of the departure provisions and relevant dates. Of course a new employer may consider covering all or part of the bonus, so that they can get you on board earlier. Or the new employer may choose to reflect the bonus being left behind in an increased compensation package. Pay and bonuses have always been an important way to incentivise staff whilst in many ways also aiming to prevent ‘poaching’ from rivals. There are I’m sure plenty of Firms who pay annual bonuses who find their attrition rate spikes in the one to three month period after their bonus payment date. The other vital element of planning any exit is to understand the ‘post terminations restrictions’ (restrictive covenants). Such restrictions will only be enforceable where an employer can demonstrate that it has a legitimate business interest to protect. Whilst, the courts have traditionally been reluctant to enforce non-compete clauses in particular, because of the general principle that covenants are a restraint of trade, there is no room for flippancy here. It is essential an individual knows their post termination restrictions and realises that in cases of breach, employers can either apply to the Court for an injunction to prevent or stop the individual from what they are doing (if damages would not be an adequate remedy) and/or pursue a claim for breach of contract against the individual for damages and/or account of profits. Even if the prospective employer confirms they would give financial support to the employee with legal costs involved in defending, these are costs of the employee and therefore they will be taxable – as a benefit in kind. Whether leaving or joining a firm knowing the terms of your employment contract is key if you are to avoid an unwelcome surprise. M I www.mortgageintroducer.com

REVIEW

SERVICE

A year of two halves Xxxxxxxxxx Stuart Miller chief customer officer, xxxxxxxxxxxxxxxx, xxxxxxxxxxxxxxxx Newcastle Building Society

f we had to characterise the first half of 2021, we would of course be talking about the record lending volumes and impact of the stamp duty holiday, furlough scheme (remember that?) and perhaps the return of 95% LTV lending. For the second half of this year in economic terms, the headline would be about concerns around inflation. It began as a creeping rise over the summer but when September hit, a cocktail of factors sent it spiralling up. In October it leapt from 3.1% to 4.2%, more than double the Bank of England’s target. The biggest factor in the mix is the cost of energy, which has risen sharply over the past few months and even with the price cap imposed by Ofgem, households are seeing their monthly bills jump significantly. Add to that global supply chain problems with containers and ships in the wrong place following pandemic-related lockdowns, and the cost of goods has been pushed up as shelves emptied. The Office for National Statistics’ breakdown of overall CPIH inflation showed housing and household services made the largest upward contribution to the change in the 12-month inflation rate between September and October 2021, with further large upward contributions from

sectors, including transport, restaurants and hotels, education, furniture and household goods, and food and nonalcoholic beverages. The question now is whether the Bank of England choose to act at the next monetary policy committee meeting in December and raise the base rate from its record low of 0.1%. The furore over November’s decision to hold rates where they were, particularly given apparent hints from the Bank Governor Andrew Bailey prompting markets to price in a rise, indicates just how tricky a decision this will be for the committee economists. On the one hand, inflation is forecast to average 4% throughout 2022 with some economists suggesting it could even get as high as 6%. But on the other, hitting the British economy and public with yet more financial pain at a time when they’re already suffering financially and are facing a rise in taxes from April next year could be very damaging indeed. At the time of writing, the cost of living, as measured by the Office for National Statistics’ Consumer Price Index, rose at its quickest rate since November 2011 last month to 4.2%. What does all this mean for the mortgage and housing markets? I won’t pretend to have the answer to this but broadly, it seems likely that a number of hikes in the base rate will come in the next 12 months. Mortgage rates were already creeping up ahead of the November MPC meeting and it’s probable that the prevalence of sub-1% fixed rate

Record lending volumes and inflation concerns mean the need for brokers is a strong as ever

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deals will wane. We are not yet into December as I write this but there is often a little flurry of rate cuts that mark the dash to get the last of Q4’s lending targets out of the door. Something we are all wondering is how a rise in the base rate will affect those on lenders’ standard variable rates. Not all are there by choice or apathy. Many are trapped, and it’s plausible that more could fall into that situation depending on how companies deal with their workforces next year. This unknown is likely what stayed the Bank of England’s hand on rates last month, and in spite of October’s labour market data proving the jobs market’s resilience in the month following the end of the furlough scheme, there’s far to go on that front still. Businesses around the country are rethinking the way they work and reassessing whether their model is fit for a post-pandemic world. There were 1,248 Creditors’ Voluntary Liquidations (CVLs) in England and Wales in October 2021, according to the Insolvency Service’s latest monthly insolvency statistics, the result of the withdrawal of pandemic support. Rising inflation puts pressure on businesses as well as individuals and it is not an unreasonable concern that 2022 could see growth in unemployment. This would put added pressure on mortgage lenders to bear the cost of forbearance and stave off the aftershock of home repossessions and the chaos that would bring to the housing market and home values. The Bank of England will not want to trigger a house price crash that leaves many people in negative equity. In the end, the Bank of England has its hand on the tiller in what are inevitably becoming choppier waters. One thing is for sure, the need for brokers will stay as strong as ever as the demand for refinancing will remain and with all this uncertainty to navigate, clients will continue to need quality advice. M I

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REVIEW

TECHNOLOGY

Efficiency, productivity and technology Steve Carruthers Xxxxxxxxxx principal mortgage consultant, xxxxxxxxxxxxxxxx, xxxxxxxxxxxxxxxx Iress

uch of the last month’s headlines have been dominated by the expected rise in interest rates – so much so that many lenders are pricing in such a rise already. The reasons for the rise are apparent enough. Even as I write inflation is running at 4.2% – higher than the Bank of England’s prediction and high enough to move the dial I suspect from the margin of votes to hold that accompanied last month’s decision. Will it be enough to send the shockwave of rate hike through just before Christmas is hard to tell? There will be plenty of political pressure not to do so. The tax rise in April will make itself felt in due course and retail spending figures for Christmas and New Year pay rises are as yet unknown. Whatever the outcome of all that, rise they will. The industry is already expecting a remortgage explosion in January of some £35-£40bn. What is unknow is how much will be genuine remortgaging and how much will wash through on product transfers. One

thing we do know is that this may well ask questions of the processes lenders have in place as they struggle to service non-vanilla applications. Product transfers might well be a case of better the devil you know but whether they are ultimately the best choice for the borrower or lender (whose light touch underwriting for PTs has yet to be tested in an economic downturn) remains to be seen. One thing the pandemic did grant brokers was access to BDMs who, for all the right reasons, often baby-sat applications through the system. With these same people now back, even in part on the road, that element of over-servicing will dissipate but new expectations will need to be set and this will put more strain on other parts of and people in the mortgage process. It was something we came across more than once during our discussions during this year’s Mortgage Efficiency Survey and at the time, several lenders asked us to look into these challenges next year to see what had happened. Efficiency of process and automation suddenly become more important when humans are removed from the value chain. Many work-from-home workarounds have functioned very well when people have been ‘at home’. We’ve all heard tales of better productivity while working at

A blend of people and technology is vital

MORTGAGE INTRODUCER DECEMBER 2021

home but it is clear this only happens when people have the right tools and infrastructure to be more productive at home. According to research conducted by The Economist Intelligence Unit, 64% of employees that fully support using digital tools have seen an increase in productivity when working remotely. This alone underlines the point that right blend of people and technology, wherever they work, is vital if they are to work from home effectively. The same research revealed that 61% of financial services executives have reported higher productivity under remote working, but this figure is just 33% for manufacturing respondents and 26% for those in the transport sector. Clearly, we all have our own stories as to our experience of lockdown working. They may resonate but they are rarely identical but what is clear from the lack of consensus on what is likely to happen is that no-one has any experience of how to emerge from this environment. There will be bumps on the road as we learn to work together again in a hybrid way. This will offer opportunity as well as challenges for everyone. Some will prefer the balance of one model to another. Others will want more something more akin to past ways of working. Learning to process volumes in a new part office part home hybrid environment will pose new challenges. If this sounds familiar I suspect it is because the challenge of delivering the best service is always evolving. Flexibility, both in imagination and execution, is absolutely paramount and legacy approaches can hamstring the need for commercial agility. The coming months will be important to lenders, brokers and borrowers alike. The value of advice in navigating this market has never been more important. But service may well remain a point of differentiation. How lenders adapt to the hybrid model of writing the business they choose to underwrite will mean building bespoke solutions that suit their businesses and using technology to deliver it. MI

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REVIEW

SECOND CHARGE

Is easy credit too easy?

Tony Marshall managing director, Equifinance

pparently, there are now over 17 million people who have bought goods using what is known as ‘buy now, pay later’(BNPL) finance, which allows individuals to buy with a defined period where they can make no payments before repayments start or full repayment is made. Worries over affordability and long term debt issues, particularly with Christmas coming up, will inevitably mean that as soon as the tinsel comes down, the press will be reporting about people in financial hardship. Along with overreaching on credit cards, unsustainable debt repayments will mean that there will be an even stronger need for debt counselling in 2022. No doubt the tabloids will provide sensational reporting on the increasing debt crisis. However, when we move past the inflammatory reporting about ‘rapacious’ lenders dragging people into debt, there will be a role for financial intermediaries to offer consolidation solutions to relieve the immediate payment pressure via longer term finance - but many won’t qualify. Of course, homeowners with sufficient equity and who meet affordability criteria can opt for a second charge loan or a remortgage. But what about those in debt who have no such vehicle to help them turn round their debt problems? Entering bankruptcy or an IVA might seem a viable alternative when desperate, but it really requires specialist guidance that most mortgage advisers are not qualified to offer. Many of the debt problems stem from the fundamental differences in the application and underwriting process for a first or second mortgage as against the same for a credit card, www.mortgageintroducer.com

Changing habits behind second charge surge

Instant credit can be accessed easily

car loan, store card or BNPL schemes. How many customers would qualify for any of the immediate finance above, if providers were expected to administer and agree funding under the same process as mortgage lenders? Of course, credit limits or loan amounts offered are small in comparison with a mortgage, but the timeframes for repayment create a significant monthly burden or offer a minimum monthly repayment scenario, which tempts users to go on to max out the available credit left. Interest rates are also, in the main, eye wateringly high, reflecting the high risk inherent in this type of lending. Maybe it is well overdue that the regulator looks seriously at the ease with which instant credit can be accessed. If those providers had to demonstrate even a fraction of the due diligence which financial advisers and mortgage lenders must, there would be less for the tabloids to froth about and perhaps a not insignificant reduction in next New Year’s debt bubble. M I

t is good to see the year finishing on a high note for the second charge market with the publication of the latest figures from the Secured Loan Index showing that October’s figure was the highest under FCA regulation, beating the record of £118m reached in 2019. It now looks almost certain that the sector will have recorded over one billion by the time the December figures are published. This is something to be celebrated across the lending industry, not just for the result but for the way in which new business has seen an expansion from the more traditional purposes, such as consolidation. COVID ushered in a considerable change in the way that we live. Enforced home time meant that many more of us felt restricted enough to want a complete change of scenery which, when added to the incentive of the Stamp Duty holiday, brought on the purchase frenzy with which we became so familiar during the spring and summer of this year. However, of more interest to second charge lenders has been the increase in the number of applications to fund home improvement projects. The rise in the number of cases looking at anything from expanding into a loft space, building an extension to wanting new kitchens or just money to redecorate, defined those who had rejected moving home in favour of making their existing properties a better place to live. As we look forward to 2022, it will be interesting to see whether this trend for home improvement will be as consistent as it was this year. Regardless of how it works out, for lenders like us the real win this year has been that brokers are not just more aware of what second charge lending can do but have demonstrated that they are now seriously weighing up the funding options available to their customers and deciding, when appropriate, that a secured loan is the best advice. M I

DECEMBER 2021 MORTGAGE INTRODUCER

REVIEW

BUY-TO-LET

A limited company could be the best way Roger Morris group distribution director, Precise Mortgages

’ve been a landlord for more than 20 years now and am fortunate enough to have built up a portfolio of properties over that time, but I’ll never forget the thrill of picking up the set of keys for my first rental, doing the work needed to bring it up to a decent standard and letting it out to my first tenant. Purchasing a buy-to-let has long been seen as a tempting investment opportunity. As well as owning a property that should appreciate in value over the years, you also stand to earn a regular income from monthly rental payments. And with rents currently rising at the

fastest pace since 2008, you may soon be approached by investors keen to take their first foray into the world of buy-to-let, including those who have never owned a property before, either a residential house where they live or a rental home. These first-time buyer landlords need to think very carefully before taking the plunge. As well as choosing a suitable rental home to purchase, they’ll also need to make an important decision about the best type of ownership structure to hold their property under, a decision which could have consequences when they come to buy their own home to live in in the future. For many years, the most popular way to run a buy-to-let business was as a private landlord. However, increasing numbers of landlords are now choosing to run their buy-to-let businesses in a limited company structure. It’s

Landlords need to make a decision about the best type of ownership structure to hold their property

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something your first-time buyer landlords may want to consider too. There’s a very good reason for this. By purchasing a buy-to-let property as a private landlord means they’ll only have to pay basic rate Stamp Duty and will be exempt from the second home Stamp Duty charge (currently 3% in England and 4% in Scotland and Wales) as it’s their first purchase. However, when they do finally come to buy their own home, in effect they’ll be buying their second property and won’t qualify for first-time buyer Stamp Duty relief, which means they won’t be exempt from paying Stamp Duty on the first £300,000 of the purchase price. On top of that, they’ll also have to pay the second home Stamp Duty charge. By purchasing a buy-to-let property as a limited company, they won’t get any exemptions and will have to pay the second home Stamp Duty charge, but they will be eligible for first-time Stamp Duty relief when they do come to buy their own home to live as, more importantly, this property won’t be classed as a second home. I should stress that running a buyto-let business in a limited company structure may not be suitable for everyone. Customers should always speak with a suitably qualified tax advisor and take legal advice before making any decisions. They also need to take into account new costs and extra paperwork when setting up a limited company, such as the preparation of annual accounts, Corporation Tax, annual auditing (if applicable) and potential legal fees. If you’re approached by a first-time buyer landlord who’s in it for the long-term and intends to keep their buy-to-let property for a significant length of time, then purchasing it via a limited company structure could be the best way for them to run their rental business. By making them aware of the importance of choosing the right ownership structure for them, and the consequences it could have for them in the future, you’ll help to ensure their first experience as a landlord is one they’ll always remember. M I www.mortgageintroducer.com

REVIEW

BUY-TO-LET

Northern buy-to-let comes to the fore Richard Rowntree managing director of mortgages, Paragon

ecently analysing industry buy-to-let house purchase data for the UK regions during the Stamp Duty holiday period, two things stood out for me. The first was how buying activity in markets with higher than average house prices – London, the South East and South West – has swung as a result of Stamp Duty changes. The second was the growing strength of regions in the north of England, a trend I expect to see continue in the coming years as the Levelling Up agenda accelerates. I was looking at the full 3% holiday discount period – July 2020 to end of June 2021 - with the equivalent period, before we’d even heard of COVID-19, in 2018 to 2019. I then looked at how buying activity during the Stamp Duty holiday compared to 2015, the last full year before the surcharge for buy-to-let was introduced. On the first point, the data showed

that London, the South East and the South West led the jump in buy-tolet house purchases during the Stamp Duty holiday. The number of buyto-let purchases increased by 52% in London, 49% in the South East, whilst the South West was up 41%. However, despite these impressive increases, the number of buy-to-let house purchases in London was still 30% lower than in 2015, with the South East 29% below those levels. Northern markets, on the other hand, are generally up on 2015 levels. The North East, for example, was up 29% during the Stamp Duty holiday, but this period was also 5.7% higher than 2015 levels. Buy-to-let purchase in Yorkshire & the Humber was 17% higher during the Stamp Duty holiday than 2018/19 numbers, but also up 7.5% on 2015 levels. Of course, the impact of changes to Stamp Duty is less pronounced in northern regions due to house prices being generally lower than the south of England, but I’d suggest there are three main reasons for the growing strength of areas such as the North East and Yorkshire & Humber. The first is yield. Landlords can typically achieve better yields in areas where house prices are below average

Landlords are reacting to increased levels of investment in the north of England

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and our recent PRS Trends survey showed that landlords in the North East generated average yields of 6.2% during the third quarter, the second highest in the country. Whilst we don’t necessarily see landlords from London or the South East buying in these northern markets, local activity has accelerated. The second reason is that landlords are reacting to increased levels of investment in the north of England, particularly towards Yorkshire and the North East. Investment such as Channel 4 moving its HQ to Leeds, the government creating an economic campus in Darlington or the new UK infrastructure bank opening in Yorkshire, creates jobs and therefore new housing requirements. The private rented sector is vital in facilitating economic mobility and providing the homes needed as a result of this economic investment and landlords have been responding by acquiring homes to meet increased demand in these regions. Confidence in the Levelling Up programme may have taken a knock as a result of the government abandoning plans to extend HS2 to Leeds, but there are still a number of exciting infrastructure projects in the pipeline that will bring growth and jobs to the north. The third reason is simply an extension of what we have seen in other markets during the pandemic. People want more space, more greenery and regions such as Yorkshire and the North East offer that in abundance. I suspect people will have relocated to these regions from other areas of the UK, helping to fuel tenant demand and landlord buying activity. Of course, we must also factor in the staycation boom and demands for holiday lets has been strong in areas such as the North Yorkshire coast. What will be interesting is how these regions perform now the 3% Stamp Duty Holiday has been removed. I suspect we may see some softening of buying activity, but the intense demand for housing – rented or owner occupied – shows no sign of slowing, which will help sustain activity for some time to come. M I

DECEMBER 2021 MORTGAGE INTRODUCER

REVIEW

BUY-TO-LET

A little perspective Bob Young Xxxxxxxxxx chief executive officer, xxxxxxxxxxxxxxxx, xxxxxxxxxxxxxxxx Fleet Mortgages

o, that – give our take a couple of weeks – was 2021. How was it for you? From our perspective it was certainly eventful and has set us up on a journey with Fleet that we might not have thought possible 12 months ago. It has been an incredibly challenging, but hugely gratifying, year and undoubtedly one for which the word ‘turbulent’ or ‘rollercoaster’ doesn’t really do justice. Narrowing 2021 down to a market perspective is, of course, difficult. There will be few people reading this who haven’t been impacted by the pandemic – what am I saying? We all have but for many among us the challenges from a personal point of view far outweigh anything we have had to deal with work-wise. That said, 2021 was something of a business frenzy, and advisers will know as well as anyone what that has meant in terms of beating stamp duty deadlines and helping as many clients as possible, whether they were purchasing or remortgaging. The good news has been that you are unlikely to have been short of products to choose from and that competition within the lending space shows no sign of falling back. If anything it is growing with recent new entrants. It’s customary to look back in these end of year articles, but I actually want to look forward because, like many, I believe our best industry days are ahead of us, even if we perhaps won’t be dealing with the level of purchase activity we saw between July 2020 and the end of September 2021. In the buy-to-let space, what will 2022 bring? Well, what I know it won’t bring – although this was apparently on the Treasury’s table till the very last minute – is an increase in stamp

duty for the purchasers of additional properties, such as landlords. It’s been talked about already but apparently we did dodge a bullet in the Budget with a proposal to put stamp duty up to 4% for landlords. Thankfully, sense was seen, not least because the figures showed such a decision would actually impact negatively on the tax take for the government because it would have dampened purchases. However, just how much of a stay of execution this is, we don’t know as yet. Certainly, we can surmise that if it was on the table once, it might well return again, particularly if there are those within Government who misguidedly think this is a zero-sum game between first-timer buyers and landlords, in which bashing the latter is the only way

“The demand for mortgage advice remains strong and the appetite to both invest and lend in the private rental sector also remains high” to support the former. It’s not and it never should be. So, while we await any hint of this potential measure playing out again, what else might define the buy-to-let market in 2022? Well, for one, I think we will see a continued focus on energy efficiency within our homes and landlords having to make decisions about the levels their existing property stock are at and what will be required to get them up to standards. We are already at EPC level E and above, and that is due to rise to C in the next couple of years. Clearly, for many properties that means work being required, and this type of work costs money, especially when it appears the notion of getting a Government grant to help seems unlikely and somewhat fanciful. This money will need to be found somewhere and landlords might add it onto mortgages or they might seek

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to recoup it via rent increases, or a combination of both. Of course, there will be some who decide to sell rather than moving through this process although I suspect that number will be minimal. Advisers and lenders are likely to be called upon a lot to help in this EPC endeavour and I think therefore it’s going to be defining issue over the next 12 months. Whether we need specific ‘Green’ buy-to-let mortgages to do this and incentivise landlords to act is a moot point, but finance will be required and, as lenders, we also have to take a view on the stock we’re lending on and its ability to continue being lettable in the future. A trend tied up in this, especially if landlords feel their costs for such energy efficiencies are rising, is the quest for yield and what type of properties in what areas are going to be able to deliver the yield that is required to keep the property profitable and to be able to cover any extra EPC or nonEPC-related costs. Again, I’m anticipating that areas in the North of the country will remain popular because of the yields achievable although we have seen some signs of life in London and the South East. Certainly, HMOs and MUBs will continue to be sought because of the greater yield they can demand, although again landlords will need to think about their responsibilities in this area. Overall, the year ahead does appear bright. Of course it will have its own challenges – the pandemic is certainly not done with us yet and, as I write, numbers are rising again across Europe which might mean further action needs to be taken. However, taking a long-term view, the demand for mortgage advice remains strong and the appetite to both invest and lend in the private rental sector also remains high. There are opportunities to be grasped for all of us. On that note, as this is my last article of the year, may I wish you all a very Merry Christmas, a restful (or perhaps not) New Year, and a prosperous 2022. M I www.mortgageintroducer.com

REVIEW

BUY-TO-LET

Specialists set for key role in innovation Xxxxxxxxxx George Gee commercial director, xxxxxxxxxxxxxxxx, xxxxxxxxxxxxxxxx Foundation Home Loans

t’s fair to say that the Stamp Duty holiday dominated the purchase market in 2020 and 2021. This encouraged huge swathes of business from first-time buyers, second steppers and landlords across many regions of the UK, serving its purpose of injecting life into a housing market which was momentary halted and to help keep the economy moving when it needed it most. However, it’s now been almost two months since the final deadline elapsed and whilst we are seeing an inevitable year-on-year lull, the housing market remains in a remarkably healthy position given the various challenges we have all faced over the past 18 months. When considering the areas of market opportunity next year, as is often the case, it is the lack of supply to meet demand which really drives up housing and rental prices, and this will continue on a much longer-term basis. In the buy-to-let marketplace, a sustained affordable housing supply gap, lingering affordability issues, an increased number of students seeking

accommodation and a ‘return’ to urban living are all factors generating strong rental demand from an array of tenants. The strength of this was highlighted in Zoopla’s Q3 Rental Index which outlined that rental growth had been pushed to its highest level in 13 years. Average UK rents were reported to be up 4.6% on the year at the end of September, after climbing 3% in Q3 as demand rebounded in city centres and strengthened around the country. Average UK rents - excluding London - rose by 6%, the highest level in 14 years. This data is reflective of a buoyant rental market and should come as no surprise to anyone operating in and around this sector. This only adds more fuel to the fire for sustained activity levels in 2022 and good reason to expect that landlords are looking ahead with optimism. The Zoopla report goes on to demonstrate total stock levels some 43% below the five-year average, putting upward pressure on rents. On a regional basis, rents in the South West of England climbed 3.3% between June and September, and are now up 9% on the year, making it the region registering the fastest rental growth in Q3. Rental growth is another indicator of a strong market – this was suggested to be close to, or at 10-year highs in most regions across the UK, except

Landlords are reacting to increased levels of investment in the north of England

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London and Scotland, as rental demand continues to outstrip supply, as has been the case for more than a year. There is also a correlation between the regions which have the highest rental growth and their relative affordability. Even in London, where the decline experienced over the last 15 months means that average rents are still 5% lower than they were at the start of the pandemic, activity in the London rental market also rose markedly during Q3, with tenancies agreed running 50% above the five-year average, underlining the bounce back in the market. For those landlords looking to add to or refinance portfolios now, we are in the midst of a highly competitive lending environment. An increasing number of attractive, flexible and cost-effective options will continue to emerge for those looking to diversify and explore property types such as HMOs, MUBs and/or shortterm lets. All of this offers a great deal of opportunity for intermediaries in 2022. There is a likelihood that rental demand will ease slightly over the course of Q4 as Q3 tends to be the busiest time in the highly seasonal rental market. However, levels of demand are widely expected to remain higher than usual, especially in city centres where there is an element of pent-up demand being released. On the supply side, rental stock will remain tight and there is more leeway for stronger rental growth in areas of the country where rents are relatively more affordable, suggesting that rents could rise above earnings outside the south of England. From our point of view, the wheels of the mortgage market continue to turn with sustained activity levels being experienced across the buy-to-let sector. The specialist lending market will play a key role in supplying innovative solutions, offering the ability to underwrite a wide-range of property-related transactions and expertly service an array of client needs, meaning that the future remains bright for landlords and the intermediary market. M I

DECEMBER 2021 MORTGAGE INTRODUCER

REVIEW

BUY-TO-LET

Opportunities exist in going green Jane Simpson managing director, TBMC

ackling climate change has been an issue of increasing importance for some time and has been placed at the centre of the political agenda recently by the COP26 UN Climate Conference. Referred to as the Glasgow Climate Pact, world leaders attending the 26th ‘Conference of the Parties’ agreed on a number of different measures deemed necessary to stop the earth’s temperature rising above catastrophic levels. This isn’t the first time the UK has pledged to address our impact on the environment. Back in 2008, the Climate Change Act was passed, making law the UK’s commitment to reducing all greenhouse gas emissions to net zero by 2050. As part of their Clean Growth Strategy, a framework for achieving net zero, the Government has proposed that by 2025 all properties let under new tenancy agreements will require an Energy Performance Certificate (EPC) rating of at least ‘C’. This rule will apply to existing tenancies by 2028. While media coverage of COP26 has

undoubtably helped to further raise the profile of environmental issues amongst the general public recently, awareness of these proposed EPC changes seems relatively low. A Paragon survey carried out earlier in the year found that 42% of landlords had no awareness of the changes, with a further 28% indicating that they are aware but don’t understand the details. The lack of awareness increased to 56% amongst non-portfolio landlords and with respondents of this survey made up of Paragon’s largely professional landlord customer base, it is likely that awareness is on the higher side amongst landlords operating across the entire market. Despite the English Housing Survey highlighting how significant improvements have been made to the overall energy efficiency of PRS stock primarily through newer, more energy efficient homes being brought into the sector and diluting the number of those that achieve lower EPCs – just under half of PRS property was built in the pre-war era before many of today’s sustainability measures were utilised. This gives an indication of the scale of the issue and with so many properties requiring significant retrofitting of updated heating and insulation, potentially exacerbated by the current shortage of materials and availability of skilled labour, the 2025 deadline looks alarmingly close.

94% of brokers are yet to sell a green mortgage product

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Currently unaware of the changes, if landlords don’t commence the necessary works in time, the sector may be left with properties that don’t meet the standards required for them to be let. We also know that a substantial number of 5-year fixed rate mortgages were taken out in 2016 and 2017 as a result of tax and regulatory changes. As these mature and landlords look to fix again, likely over a longer term due to the current low but rising interest rates, there is a danger that when they next come to borrow on their properties, they will find it difficult if assessed below EPC rating C. While still only proposals, this shows the potential impact on the sector if the Government’s changes to EPC requirements are brought into effect. And, while the challenge is clearly sizable, responding to it presents opportunities for the sector. With 94% of brokers yet to sell a green mortgage product, according to a poll by Countrywide Surveying Services, there is clearly scope for lots of this type of business to be placed, and as well as helping to educate landlords on the proposals, asking customers how they would raise the necessary funds could be an effective sales tool. And it isn’t just brokers, lenders can help here too. The number of green mortgages on offer has definitely increased over the past year but refurbishment products, historically quite common, are now relatively scarce. It would be great to see the launch of more innovative products, such as those that allow for refurbishment with a switch to a financially incentivised green mortgage product once the works have been carried out. TBMC have access to a number of green mortgages for those landlords with properties already assessed at EPC rating C or above. We can also help you to find bridging lenders for those landlords looking to fund any required sustainability modifications, with the ability to switch onto a buy-to-let mortgage, potentially an incentivised green product, once the work is carried out. M I www.mortgageintroducer.com

REVIEW

BUY-TO-LET

Assessing the impact Cat Armstrong mortgage club director, Dynamo for Intermediaries

he buy-to-let sector never stands still. There are always challenges, opportunities and policy changes for landlords, lenders and intermediaries to overcome along the way. Some of these present themselves at a moment’s notice, whilst others are afforded more time for plans and strategies to be formed. One such topic on the horizon is energy efficiency. This is especially apparent for landlords as the rules state they will be unable to rent properties without an EPC rating of C or above. This is currently due to take effect from 2025 and has already prompted some buy-to-let landlords to undertake some degree of refurbishment activity over the last 12 months. According to research from Shawbrook Bank, 17% of landlords have made efforts to improve the energy efficiency of their property, rising to 22% of portfolio landlords. PROPERTY IMPROVEMENTS

For example, of all the landlords that have undertaken a refurbishment, 22% replaced the boiler and heating system in their property, a further 23% changed the windows and 18% installed new white goods. All actions which could have an impact on a property’s EPC rating and help landlords move closer to achieving a rating of C or above. Making properties more energyefficient can boost demand from tenants too. Indeed, one in ten private renters said that they would stay in their current property longer if their landlord made changes to the property which benefit the environment. Tenants were also happy to pay more in rent should landlords make certain changes to their property. 18% of tenants said they’d pay more if www.mortgageintroducer.com

windows were replaced, 15% would pay more for a new boiler and heating system, and 10% suggested that installing solar panels would justify paying more rent. The target set by the government is an understandable one. We all need to be doing our bit to support environmental change and be as energy efficient as possible. Whilst it’s great to see landlords reacting so early in this process, it’s also clear that a decent proportion will need government and, to a lesser degree, lender support to meet these targets as many older properties will prove themselves to be larger, and more expensive challenges. If not, as highlighted in commentary around the data, there is a fear that many homes across the private rental sector may become unrentable, unmortgageable and/or unsellable in 2025. And this deadline could have a significant impact on the housing and mortgage markets as a whole. CONTINUED RESILIENCE

But let’s not get too downbeat. As has been said many times before, landlords and the BTL sector have constantly overcome a multitude of hurdles in the past and will continue to do so; their resilience is not in question. Take the pandemic, for example. The housing and mortgage markets have been fortunate to emerge from some tough times relatively unscathed, although it’s evident that some homeowners, landlords and tenants have suffered to some degree. And we can’t, and mustn’t, ignore the financial strain being placed on such people. Thankfully, if a recent study from Foundation Home Loans is anything to go by, the robust nature of the BTL sector and the long-term planning of landlords continues to provide a solid base for the future. The research suggested that two in three (64%) landlords do not think that the pandemic will have an impact on their business. This represents a 3% increase from

the 61% reported in Q2, with little differentiation by portfolio size. The Q3 research undertaken by BVA BDRC, also showed that despite self-employed landlords being hardest hit by the pandemic, only 1% expect to lose their business as a result of COVID-19. In addition, the proportion expecting to suffer financial hardship has declined marginally to 9% from 11% but did increase slightly among landlords with

“The housing and mortgage markets have been fortunate to emerge from some tough times relatively unscathed, although it’s evident that some homeowners, landlords and tenants have suffered to some degree. And we can’t, and mustn’t, ignore the financial strain being placed on such people” 20-plus properties. Only one in three landlords report that they have actually seen their lettings income reduce as a result of the pandemic. The research found that it was the self-employed landlords who are most likely to feel they have been negatively impacted by the pandemic (62%), compared to landlords who are retired (39%) or employed part-time (45%). All landlords have had to look long and hard at the individual performance of properties over this period and it really is testament to the long-term profitability and strength of portfolios across the UK that such an overwhelming number of landlords have successfully navigated their way through one of the most challenging periods in recent history. And they remain better prepared than ever to overcome and even prosper from any future obstacles. M I

DECEMBER 2021 MORTGAGE INTRODUCER

REVIEW

PROTECTION

Protection is back on the mortgage agenda Kevin Carr Xxxxxxxxxx chief executive, Protection xxxxxxxxxxxxxxxx, Review, and MD, Carr xxxxxxxxxxxxxxxx Communications

arlier this month, the Association of Mortgage Introducers released Protection: Moving forward its second annual report into the protection market. By asking 5,000 consumers and more than 250 mortgage and protection advisers a range of detailed questions, AMI has produced a hugely informative report, which gives the industry as a whole unique insight into how protection is viewed and valued. From an industry point of view, there were some real positives to be taken from the results, for example, more than half of advisers said they had seen protection discussions with their clients increase, almost half said their clients are more open to discussing protection than they were a year ago, while one in four are now referring to a protection specialist, up from one in seven last year. While this is certainly encouraging, the report also discovered a widening

gap between the messages advisers think they are conveying about protection and what is actually being heard. When asked if they raise the subject of protection with their clients, 99% of the advisers surveyed said yes, yet almost two thirds of consumers say they don’t remember discussing it at all. This is perhaps why only a quarter of mortgage customers who used a broker have ever bought any protection products from them. LACK OF COMMUNICATION

The most common reason why respondents say they haven’t bought protection from their broker is not cost - it is because they didn’t think they needed the products, while two in five think brokers only raise protection to increase their commission. However, the data suggests this scepticism is more about a lack of communication than distrust of brokers motivations, as half (47%) say they would change this view if their adviser was to take more time to talk about protection, why they think it is important and explain how protection products could help them and their families. And this theme of better communication is one that runs through this report, with much of

Facts and figures  1 in 4 (25%) advisers are now passing protection business to a specialist, up from 1 in 7 (14%) last year  57% of advisers say protection discussions with clients have increased in the past 12 months and 42% say their clients are now more open to discussing protection  18% would consider Income Protection as a result of Covid-19 when they wouldn’t have before, rising to 40% of 18-34s  99% of mortgage advisers say they raise

protection with their clients, but 64% of consumers don’t remember discussing it  42% of consumers think advisers only bring up protection to increase their commission but half (47%) would change their view if:  their adviser took more time to talk about it (14%)  explained why they felt a protection discussion was important (20%)  or put more emphasis on how protection products could help them (19%)

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the data pointing to how explaining protection products in context can lead to more meaningful discussions. The pandemic, more than any other event in recent years, has highlighted the fact that anyone can get ill at any time – not just those who are old or unfit. People are realising more than ever that sickness is not something that just happens to other people - it could happen to them, and that is making them feel much more vulnerable. According to AMI’s report, one in five people that currently do not hold IP say they are more likely to consider it as a result of the pandemic, but this doubles for those aged 18-34 and those with pre-school aged children. In fact, under 34s think Income Protection is just as important as buildings insurance, and there has been a 27% annual rise in the number of under 35s taking out IP. These numbers suggest that the events of the last 18 months or so have made younger people in particular start to see protecting the home and protecting the income that keeps that home as equally important. So, it is pretty clear that protection is firmly back on the agenda, but there is still some way to go, particularly when it comes to messaging and understanding, which is why I am so pleased to see AMI delivering tools that can help every adviser and every retailer in the country to have better protection conversations with their clients. The launch of their 4-page ‘What should I know?’ consumer guide, in association with the Protection Distributor’s Group and Protection Review, is a great – and most importantly – very short and simple guide that covers products, how to buy and what customers need to know in a few short pages. This compact yet comprehensive factsheet provides a great prompt for brokers and a handy resource for consumers, helping to bridge that gap between the messages advisers think they are conveying about protection and what is actually being heard, enabling them to have more meaningful protection discussions to improve consumer awareness and ultimately, protect more people. M I www.mortgageintroducer.com

REVIEW

PROTECTION

‘The public get what the public wants’ Mike Allison head of protection, Paradigm Mortgage Services

or those of you who remember the early 1980’s, or have been fortunate enough to hear the song, ‘Going Underground, from The Jam first released in 1980, they sang that ‘the public gets what the public wants’. Typical of their lyrics, they were largely right. Markets are mostly good at satisfying our wants or desires. In our industry, the issue that many of us have is actually working out what the public do want, especially in a fast-changing world and especially when, like most quality mortgage advisers, things are particularly busy as they have been over the last eighteen months. Small businesses tend to rely on their instincts to gauge markets and how they may react to them. When the ‘hamster wheel’ is in full flow it is therefore not surprising to see there is good evidence that we make systematic errors when we predict how things will affect us in the future, and how markets are changing. It is easy to see why we miss opportunities as and when they arise because we are focused on the here and now. Fortunately, we have pointers or prompts along the way to help us at least try to understand public perceptions and how we as an industry can react to situations. One such ‘nudge’ in our direction came from the recent survey conducted by AMI – ‘Viewpoint’ - which was the second such survey it has carried out in two years. The sample of 5,000 consumers gave insight and feedback into a number of key areas, especially linked to the purchase of protection policies alongside a mortgage. www.mortgageintroducer.com

Some responses were similar to those last year for those who managed to review the 2020 Research, but some showed quite concerning trends when it came to customers wanting to discuss life assurance and seemingly did not have the chance to do so during the mortgage conversation.

“Small businesses tend to rely on their instincts to gauge markets and how they may react to them” There seemed to be, according to the research, a perception gap as to whether protection was discussed at the mortgage interview. If we look at the questions regarding income protection in particular, when asked about conversations around the subject only 30% of respondents said conversations came from the adviser with 64% saying it did not happen or they could not recall it. Interestingly, a very high proportion of advisers in the survey (86%) said they ask their clients about income protection in conversations. We know that in reality both of these cannot be correct but it is a good indicator of perhaps what we must do to reinforce the value of that particular product at the beginning of the mortgage conversation, especially now the majority of the General Public are at least familiar with the workings of the furlough scheme which supported so many when it was in operation. Another area to highlight was the ages at which customers were happy to have protection conversations with their adviser, especially when saving them money which is a real boost for those focused on remortgaging/product transfers, which will form a significant percentage of lending in 2022. A staggering 73% of consumers aged

between 18 and 34 said they would be open to protection conversations if an adviser saved them money on a mortgage, yet over a third of that age group actually purchased protection elsewhere rather than from their adviser. In this instance the public got what the public wanted but perhaps not from the ideal source. We know that acquiring a new customer can cost five times more than retaining an existing customer, and that increasing customer retention by 5% can increase profits from 25-95%. In addition, the success rate of selling to a customer you already have is 60-70%, while the success rate of selling to a new customer is 5-20%. All manner of data shows us that retaining customers is just as important as, if not more important than, acquiring new ones. So, it is clearly important not just from a commercial point of view but from a customer care perception that clear conversations take place. The AMI Research appears to show us there’s an opportunity to focus more on existing customers, rather than chasing down new ones. Switching strategy will help you get more value from your marketing activities and budget, and help to focus on where commercially benefits may arise. AMI are to be commended in commissioning the research supported by both Legal & General and Royal London as these types of in-depth analysis on consumer behaviour do not come along that often and are definitely out of the reach of most SMEs when trying to assess consumer behaviour. AMI have, as a result of the work it has done, produced a factsheet entitled: ‘Protection Insurance – What should I know’, which provides an independent view for advisers to use as part of their engagement process with clients. Hopefully this will be a tool to ensure more of the public gets what the public wants and, let’s face it, what they need in the majority of situations linked to the mortgage purchase. On that final note, may I take this opportunity to wish all readers of Mortgage Introducer a Happy Christmas and a Healthy and Prosperous New Year. See you in 2022. M I

DECEMBER 2021 MORTGAGE INTRODUCER

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GENERAL INSURANCE

The lost voice of the customer Rob Evans CEO, Paymentshield

3%, that’s more than 1 in 2 UK adults that the Financial Conduct Authority (FCA) found to display one or more vulnerability as of October 2020. This means that just seven months after COVID-19 was first declared a pandemic, characteristics of vulnerability were identified among 3.7 million more UK adults, bringing the total to a substantial 27.7 million. Low financial resilience is perhaps the characteristic most widely associated with vulnerability, but the “spectrum of risk” is broad and ranging,. The FCA defines a vulnerable consumer as somebody who, due to their personal circumstances, is especially susceptible to harm. It’s important to recognise here that the term vulnerability has its limitations – no-one is immune to becoming vulnerable: we all sit somewhere on the “spectrum of risk”. If COVID-19 has shown us anything, it’s how the course of peoples’ lives can change virtually overnight. As I use it then, vulnerable is not meant as something negative, but rather a way to discuss a wellbeing approach for customers who need extra support. And it’s exactly because vulnerability is so diverse and far-reaching, that it’s critical that customer vulnerability strategies are multi-faceted. Currently in financial services, the onus is often on customers to declare themselves vulnerable to call agents or advisers. This presents several issues – not least requiring customers to have the confidence, capability or willingness to do so. And even then, 76% of adults who demonstrate characteristics of vulnerability do not consider themselves vulnerable. It’s clear that the dialogue around vulnerability must change. Paymentshield has built on the

legacy of its 2020 approach, which saw us secure immediate financial relief to customers who were struggling financially due to having been furloughed or laid off unexpectedly. This year, we’ve adopted a more holistic approach that encompasses vulnerability in all its manifestations. SUPPORTING THE VULNERABLE

We’ve introduced compulsory training for customer-facing staff to learn how to spot vulnerabilities and thereafter offer support to these customers. There are various indicators for various vulnerabilities – for example, a caller who asks multiple times for the same information may display a “capability” vulnerability, while someone who removes a client from their policy may have experienced a bereavement or a similarly disruptive life event. Hand-in-hand with this are the range of tailored support measures we now offer, varying from offering alternative avenues of communication to reducing the policy price. But we as an industry can go beyond this – and we aim to. Currently, Paymentshield is updating its customer strategy to expand the practical support we are able to offer customers and make our interactions with customers even more proactive. Because we know that proactiveness is always the key to a successful business. We have consistently encouraged advisers to approach client conversations with initiative and a willingness to ask questions, because this gives them true insight into their requirements and potential opportunities associated with these. A client’s taking out a product transfer? Have they considered reviewing their home insurance needs? Is the client a first-time buyer? Are they confident they have all their GI needs covered? Why then, should it be any different when it comes to vulnerability? Data is a powerful asset and potentially the insurance industry’s best friend when it comes to customers who do not make contact but may be at risk of detriment. Data builds a picture of customer

MORTGAGE INTRODUCER DECEMBER 2021

profile, and once armed with these insights, businesses can tailor their decision-making. Advisers can, and should, apply this approach to their relationships with clients. For instance, when a bounced payment pops up on the dashboard, suggesting that a customer could be financially vulnerable, advisers should reach out to clarify their customer’s circumstances, understand what has changed, and review whether their policy still suits their needs. Equally, three missed payments within six months should solicit advisers to check in with a customer, as should any changes to a customer’s regular direct debit date or payment method – for example, if they choose to pay by cheque. Even approaching customers when they do not necessarily or explicitly present as vulnerable is worthwhile. Take first-time buyers: while they’re not by virtue vulnerable, their age and relative inexperience means they may have a greater need for support. By anticipating this and reaching out with educational resources like our guide to buying home insurance, advisers can quickly establish trust and become someone who these customers can rely on and recommend for the rest of their life. It sounds obvious, but with such seismic changes to business, society and culture as COVID-19, there comes significant changes to circumstances. Advisers can ensure their customers are protected by monitoring a policy as it goes on, taking the initiative to question shifting behaviours, and offering a supportive hand throughout. Alongside the upcoming FCA Consumer Duty paper, focused and continuous monitoring of customer information will help to close the gap between customers with recorded and assumed vulnerabilities, and therefore ensure that no customer is left behind. It’s by taking this more proactive approach to customer care that we will be able as an industry to protect those at risk of detriment and to recover the lost voice of the customer. M I www.mortgageintroducer.com

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GENERAL INSURANCE

John Lewis pull misleading advert Geoff Hall chairman, Berkeley Alexander

t’s an annual TV moment and one of the staples of Christmas that I for one always look forward to. But this year’s John Lewis Christmas Advert may not be quite so well received following its recent misleading home insurance commercial. The ‘Let Life Happen’ campaign for its home contents insurance policy

was recently pulled, not because it offended sensibilities, but because the FCA were concerned that it could mislead consumers into thinking that the insurance policy being advertised would cover a child smashing up the house. In the advert a young boy dances around his home smearing paint up the walls, kicking shoes at lamps, throwing an umbrella at a vase, spilling a glass, and throwing glitter. But the advert had to be withdrawn shortly after first appearing on air, with the retail giant being forced to apologise for misleading consumers,

clarify that its accidental damage cover was available as an add-on to John Lewis’s new home contents insurance product, and that it only covered accidental, not deliberate, damage. Now I don’t believe that John Lewis intentionally sought to mislead, but it shows that even the big guys can get it wrong from time to time. Take note, falling into the trap (intentionally or not) of misleading customers, whether you’re a huge brand like John Lewis, a small broker, or an IFA, can cause significant reputational damage and loss of trust. M I

Bank of Mum and Dad – The pitfalls Commercial of becoming a parent landlord premiums

recent piece of research by Trussle has found that 66% of parents would consider purchasing a buy-to-let (BTL) property near their offspring’s university to assist them with living costs. By becoming a ‘parent landlord’ they’re able to provide financial support and security for their child as they study and take their first steps towards independence, whilst also investing in a reliable way of generating extra income for themselves. You may very well have clients considering this option on your books already. If they’re buying

“You may have clients considering this option, But in truth student property investment can be a risky business, especially if they’re thinking of letting rooms to fellow students at the university or college. The tenancy and legality issues involved can be very complicated” www.mortgageintroducer.com

a one-bedroom flat for their child then no problem, but in truth student property investment can be a risky business, especially if they’re thinking of letting rooms to fellow students at the university or college. The tenancy and legality issues involved can be very complicated. SPECIALIST INSURANCE

They will need to bear in mind that the property is likely to be categorised as a house of multiple occupation (HMO) which will require them to not only apply for a license but invest in specialist HMO landlord insurance - which is not the same as standard building and content insurance, nor standard landlord insurance. If you have clients considering purchasing a property for their child and renting out other rooms to multiple students to make their bank of mum and dad investment pay off, then my advice is counsel them on the potential pitfalls of this type of investment, and when it comes to insurance, if in doubt refer them to your GI provider who will be able to source the specialist cover they need, even in the current hard market conditions. M I

emand for insurance is exceeding supply for the first time in 20 years. Capacity is tougher to come by and competition is limited, premium rates are increasing, coverage is contracting, and insurers are being more selective with risks (especially commercial property, financial lines, and professional risk exposures). Similarly, underwriting standards have tightened significantly. There were signs of market hardening pre-COVID – the implications of Brexit, increasing claims costs generally and a spate of flooding all contributing. On the property side, rising rebuild cost inflation and increased property valuations are making life tough for policyholders. But it’s not all doom and gloom there is an opportunity here for brokers. Trust and credibility are king during hard market conditions. Clients want a trusted advisor, so capitalise on the status you’ve worked so hard to achieve. You know your commercial clients better than anyone else; take a consultative approach to helping them navigate the impact of market conditions and their risk exposures, and work with your GI provider to deliver them the best solution at the best price. M I

DECEMBER 2021 MORTGAGE INTRODUCER

Part of the Mortgage Introducer family

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SPECIALIST FINANCE SUPPLEMENT - OUT JUNE 2022

Showcase your specialist finance expertise by featuring your business in the next Specialist Finance supplement - out with the June 2022 issue of Mortgage Introducer.

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If you specialise in Bridging Finance, Buy-to-Let, Commercial Finance, Development Finance, Asset & Invoice Finance or Secured Loans, contact us today to secure your spot in the guide. Jordan Ashford | jordan@mortgageintroducer.com | 07539 529 739

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COMPLEX CREDIT

2022: Challenge or opportunity? Steve Seal chief executive, Bluestone Mortgages

he mortgage market has remained resilient during yet another year of uncertainty. Not only have we seen rising living costs, further house price growth, but also looming interest rate rises, all of which have had huge ramifications for borrowers, but for lenders too. The ongoing implications of COVID-19, such as furlough and redundancy have meant that thousands, if not millions of customers, are now in a more difficult financial situation than they were before the pandemic. At the same time, the crisis forced a number of lenders to withdraw products from the market due to the impact the enforced lockdown had on servicing levels. However, I, personally, have been extremely impressed with how the industry has reacted to help a growing cohort of customers, with evolving borrowing needs, step onto or up the property ladder. And, as we look ahead to 2022, which will undoubtedly present its own challenges, it is clear that there will be opportunities for lenders and brokers alike, to support people’s homeownership dreams. In recent times, inflation has become the buzzword, and perhaps one of the biggest concerns affecting borrowers. And, with inflation predicted to surpass 5% as soon as early next year, it is likely the Bank of England will act to increase interest rates to curb this. But after a year of the base rate being held at a record low of 0.1%, any future rises will undoubtedly cause concern among households, many of whom won’t have seen interest rates above 1% for more than 10 years. Not only will consumers have to deal with the rising cost of living, with www.mortgageintroducer.com

family spending expected to increase by £1,700 a year, but also rising borrowing costs for mortgages, credit cards and loans. As these pressures continue, we’re likely to see more customers locked out of the mainstream mortgage market, and the challenge will be how we, as an industry, can best support them. This is where brokers have a crucial role to play, in hand-holding their customers and pointing them towards the best options available for their circumstances, such as a fixed-rate product.

“We, as an industry, should be asking ourselves how we can support these customers moving forward and offer them greater choice” The pandemic has undoubtedly put a financial strain on many, if not all individuals at some point over the last 18 months. While for some, keeping up with regular payments has been a struggle, with Citizens Advice reporting that this has been the case for about six million people during the pandemic, for others, the pressure has been even greater. Between October and December last year, 194,203 new County Court Judgements (CCJs) were issued in England and Wales, compared with 112,261 the previous quarter. Selfemployment has also been on the rise, with the number of self-employed now standing just shy of 4.3 million. Add to this, the fact that several government support measures have come to an end, we’re likely to see a larger cohort of consumers with more complex borrowing needs. Many of whom will be unable to achieve their homeownership dreams because they have been turned away from high-street banks and may think they have nowhere else to turn to. As a result, the demand for specialist lending is only set to grow. Over the

coming year, lenders will need to innovate to provide a range of solutions for customers with a range of complex financial profiles. This is where the specialist lending market is leading the charge, with a growing number of lenders tailoring their credit policies to support this disenfranchised group. Getting onto the property ladder is becoming increasingly out of reach for many would-be first-time buyers. While the Help to Buy scheme has undoubtedly supported many looking to take their first steps over the years, with just 15 months left until the end of the Help-to-Buy scheme, the clock is ticking for the industry to come up with alternatives. Not only will the scheme’s cliffedge have a significant impact on first-time buyers, but will also have wider ramifications for the market, such as builders’ ability to sell homes, housing stock growth rate, but also the government’s house building agenda. As such, we, as an industry, should be asking ourselves how we can best support these customers moving forward and offer them greater choice, whether that be through schemes such as shared ownership or Deposit Unlock. Looking ahead, the specialist lending market will continue to have an important role to play in facilitating a step-change in people’s financial positions. No matter whether someone has a blip in their credit history, no credit history or is a contractor or selfemployed, we, as an industry, have a duty of care to support these customers, as these cohorts are only likely to grow. My message to brokers is to fully embrace the opportunities that the new year will bring. While it may seem like market challenges continue to evolve, the specialist market is only set to grow given the ongoing economic uncertainty. There is a clear opportunity for brokers to retain existing clients as well as supporting new ones in making their homeownership dreams a reality. M I

DECEMBER 2021 MORTGAGE INTRODUCER

BELONGING

together

CMY

MERRY Adviser Hub was designed to put a smile on your face with its unique functionality. Our series of jolly videos will give you a taste of how quickly you can gift a Home Insurance quote to your clients, calculate your potential earnings from general insurance (GI) and effortlessly submit pending policies (even while eating mince pies!). You can also ﬁnd out more about the power of the information at your ﬁngertips so nothing will get in the way of seeing how your GI business is performing.

paymentshieldadvisers.co.uk/be-merry For intermediary use only. Paymentshield and the Shield logo are registered trademarks of Paymentshield Limited. Authorised and regulated by the Financial Conduct Authority. © Paymentshield Limited 12/21 02199

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EQUITY RELEASE

It’s time to recharge the batteries Stuart Wilson CEO, Air Group

s the year end comes into view, I have great sympathy for those who are perhaps slightly de-mob happy already and are thinking of the rest and family/friends time they are hopefully about to have. There’s no doubting 2021 has been a year which few of us will ever forget and, certainly from a later life lending perspective, the figures coming out of the industry appear to show it will be a record-breaking one. Just recently, Key’s market monitor revealed that more than £1bn of equity was released from the homes of the over-55s in quarter three this year. This was purely equity release business setting 2021 up to be one where, once again, £4bn-plus should be released via these products. Of course, it doesn’t include the wider later life lending options available, including both RIO and mainstream mortgages for older borrowers, which from my perspective, also continue to grow in terms of activity levels showing that lending into retirement is perhaps not the niche it once was. Which isn’t to say that our sector isn’t still ‘small but perfectly formed’. For example, while equity release lending volumes has increased year-onyear, the number of plans taken out has actually dropped. It suggests that, at least within equity release, we are not servicing the needs of more customers but simply lending more to those customers who do complete. It perhaps tells us that we are not necessarily reaching a wider breadth of customer but instead that the customer taking out an equity release product is now more likely to be releasing more cash from the property than they would have done previously. www.mortgageintroducer.com

Again, according to the Key figures, the average amount released by a customer during Q3 was over £101k, that’s almost a quarter up on the figure posted in Q3 2020. The need to release more money is shown by the top two reasons why customers have opted for equity release – either they are predominantly paying off debts or they are giving the money to family members as an early inheritance where it is mostly being used for house deposits. Now, of course, these are completely acceptable reasons for releasing equity from a home, particularly as they are likely to be coming off the back of house price/valuation increases in

“Some might suggest that the sector has reached its ‘natural demand’ level, that this amount of lending is the best we can hope for. I tend to disagree, quite vociferously” many parts of the country. When you have a need for money and you’ve seen, what is likely to be your major asset, increasing by value in the region of 8-10% over the course of the last year, then why shouldn’t you perhaps consider whether a larger amount of equity can ‘do the job’ for you. However, is this truly a sign of the market accessing all the demand that could be out there? Some might suggest that the sector has reached its ‘natural demand’ level, that this amount of lending to these numbers of customers is the best we can hope for. I tend to disagree, quite vociferously it has to be said, because it appears to me that we still have a very large job to do in terms of ‘revealing’ the equity release/later life lending solution that is available to large numbers of homeowners who require money, but are still unsure about how they might access it, particularly from their home. A big focus for us over the last few

months has been the census survey we ran amongst advisers – those who are already active in the sector, and those who are not. Three key themes emerged but one of the most fundamental was the need to reeducate all stakeholders about the later life lending options – not just equity release – which are available and how both advisers and consumers access them. Along with a rebranding away from equity release to later life, and a re-engagement with all, education on what can be achievable and the ways and means that can be accessed to find a solution for the customer need, appear to me to be just as important as they have perhaps always been. You might argue that the sector has spent the best part of three decades running an education campaign, and I would agree, but this is a task without end. Every year a new set of consumers with the same needs effectively ‘comes of age’ for the later life lending sector and so this education piece should not, and cannot, stop if we want to see ongoing growth and more customers accessing the products available to them. Without this education we will lose those new generations and the push to grow our sector, to grow the advice footprint, to grow the number of advisers active in this sector, and to grow the number of customers we can provide solutions for, will begin to stumble. This is a job that never ends and it’s one we have to continue to find new ways to complete and to get our messaging across. On that note, it is time for all of us to take a much-needed rest over the Christmas and New Year period. To recharge the batteries and perhaps put work worries and issues to one side for at least a couple of weeks. That being the case, and this being my last article of the year in Mortgage Introducer, may I wish the entire readership a very Merry Christmas and a Happy New Year. See you all again in 2022. M I

DECEMBER 2021

MORTGAGE INTRODUCER

REVIEW

EQUITY RELEASE

Certainty and flexibility Alice Watson Xxxxxxxxxx head of marketing and communications, xxxxxxxxxxxxxxxx, Canada Life xxxxxxxxxxxxxxxx

he home finance market has had a significant revamp over the last few years with greater product choice and lower rates than ever before. In fact, the Equity Release Council believes the available product range has more than doubled since 2018. This proliferation of new products has brought with it greater flexibility for clients, which along with a greater competitiveness on pricing and house price growth has made equity release an increasingly valid option for your client’s retirement planning.

MORTGAGE INTRODUCER

The Council agrees, revealing in its latest market update that homeowners were on track to access more than £4bn of property wealth this year. With this surge in products available it is essential that advisers and homeowners understand the features and benefits on offer and how it could support their own long-term financial goals. Of course, the cost of a product is still important, but clients should not let themselves be side-tracked into a choice where cost is the only deciding factor. For those seeking flexibility from their lifetime mortgage there are a number of options available. This will become increasingly important as ‘traditional’ retirement journeys continue to decline and people work for longer and start saving later in life.

DECEMBER 2021

Family networks are also becoming more complex as people getting married later in life or are more likely to divorce. We’ve explored these emerging demographics at Canada Life and expect them to outnumber those following the traditional routes to retirement in the next 15 years. Significant house price growth also means that consumers have more available equity in their property than ever before. Equity release has shown it has a valuable role to play in today’s retirement journeys, helping people to unlock the wealth stored in their property in a flexible and safe way. Nevertheless, it remains a long-term decision that should be approached carefully with the help of a financial MI adviser.

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EQUITY RELEASE

What post-pandemic slump? Xxxxxxxxxx Claire Barker managing director, xxxxxxxxxxxxxxxx, xxxxxxxxxxxxxxxx Equilaw

ome financial experts had suggested that the equity release sector would experience a significant post-pandemic slump, yet recent figures have confirmed that activity within the sector is continuing to outstrip even the most optimistic expectations of 12 months previously, with a further £1.15bn worth of property wealth being accessed by homeowners between July and September. This represents the first time that the sector has experienced four consecutive quarters in which lending has exceeded £1bn - a remarkable achievement. The report has found that drawdown mortgage options remain the most popular product choice amongst new customers, with 57% of clients opting for these plans in Q3 while the number of new plans also rose. Average lump sum amounts remained at their highest level for any quarter prior to 2021 while the number of customers choosing advances on existing plans rose to a yearly high. The ERC has ascribed these increases to the strong performance of property markets over recent months and the desire of clients to capitalise on equity tied up in buoyant house prices. It has also identified the sharp increases in product options over the last two years, as well as of pent-up consumer demand and the impact of the SDLT holiday for the rises, with the number of clients choosing ER to gift home deposits showing no sign of abatement. Nevertheless, while it is an obvious and necessary function of any industry to pin-point the trends that drive and sustain consumer demand, it is also important to acknowledge the crucial role that the sector has played in broadening popular appeal over the last 18 months; overhauling existing

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infrastructures and innovating new approaches to products and services at a time of unprecedented uncertainty. SPECTACULAR FRUITION

Indeed, there is a compelling argument to suggest that many of the reforms that were initiated during last year’s lockdown periods have come to spectacular fruition in 2021, with the dramatic rise in products, portals and other remote resources proving particularly beneficial to clients. Moreover, the introduction of the ERC’s membership endorsement scheme has proven instrumental in establishing a governing code of practice for the sector which also provides a recognisable hallmark of quality for clients, with a flurry of training initiatives and other platforms being launched in order to enforce professional standards of service care and legal protection at every stage of a transaction- a rebrand exercise which is certain to reap rich dividends. However, while there is much to admire in the gains and achievements of the past year, the ER industry has never been content with resting on its laurels and as the year draws to its close there are a number of emerging ideas and product innovations that could serve as comparative game changers in the coming years. For example, Saga Equity Release have just unveiled a new lifetime mortgage option which allows customers to change their minds within six months of an initial completion and to repay loans without any early repayment or interest fees being charged. The product has been designed to challenge the fears and reservations that continue to persist amongst some financial customers and to offer a level of reassurance which is currently lacking in other products. Moreover, it offers a radical new approach to later life marketing which could prove extremely influential in eradicating (or at least tempering) the misconceptions and misunderstandings which abound at a grassroots level.

Indeed, a recent survey of advisers by Air Mortgage Club has found that 71% of respondents feel that consumers continue to attach a negative image to ER, despite recognising its qualities, while 56% say that offering reassurance and managing misconceptions remains the most challenging aspect of the application process. The survey has concluded that better client education and a more transparent approach to the risks associated with ER could be key to removing growth-barriers or instilling wider confidence at a consumer level and while the introduction of the Saga mortgage is unlikely to achieve these goals single-handedly, there can be little doubt that it represent a significant step in the right direction. Likewise, recent efforts by Responsible Life and Age Partnership to highlight the substantial savings that mortgage holders can make by switching to lower-rate deals could also prove significant in terms of allaying concerns surrounding compound costs, with the financial benefits of remortgaging often outweighing the losses from ERC’s. Indeed, recent analysis by Responsible Life has found that average rates on lifetime mortgages have fallen by a whopping 41% over the past five years, with customers making savings of up to £10bn in that time. So, encouraging a shift towards greater awareness and uptake of these options could help to boost incomes even further for older borrowers while adding greater incentives for younger mortgage holders. And herein lies the point. That by focusing on greater innovation and the improvement of existing frameworks, the sector has continued to shape and define its own destiny in 2021; working tirelessly to find market solutions that appeal to the broadest number of financial customers while also reflecting the dominant economic trends in a manner which is responsive and progressive. More of the same will be required in 2022, but for now I wish you a very Merry Christmas and Happy New Year! M I

DECEMBER 2021 MORTGAGE INTRODUCER

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CONVEYANCING

That can’t be the end of the year already? Mark Snape managing director, Broker Conveyancing

y the time you open this copy of the final magazine of 2021 we will have just a couple of weeks left of this year and I suspect you might be thinking about a little rest and recuperation over the holiday period. It has been a challenging 12 months of that there is no doubt. I seriously hope that there are no further lockdowns on the horizon and we do not enter 2022 as we entered this year with a nationwide shutdown again. I’m hopeful but I think we’ve all learnt to never say never when it comes to the pandemic. From a work perspective there’s no doubting this has been one of the busiest years I can ever remember, particularly from an advice, lending, conveyancing point of view. The demand for purchases never really stopped and I’m still of the opinion that this hasn’t truly ‘washed through the system’ even now. We continue to see a lot of purchase activity although nowhere near the pre-stamp duty deadline peaks we witnessed and there is much more of a parity between purchase and remortgage business as the latter starts to reassert itself specifically in an environment where (again by the time you read this) we could have seen the first Bank Base Rise by the Bank of England MPC for a long time. I tend to concentrate a lot on the opportunities that exist for advisers, not least the ability to offer conveyancing advice to clients which – even from my somewhat biased perspective – seems like an absolute no-brainer for the sector, and action from the MPC on

rates is undoubtedly an opportunity to reassert the benefits of advice and the cost-savings that can be made. If, as I suspect, BBR has been raised this month – I’m writing this before the MPC meeting so can’t know for sure – then we have to ask ourselves why that is the case. Clearly, inflation is running at levels more than double the 2% target the Bank has been set by Government and one of the ways it can act to try and curb this is through interest rate rises.

“I suspect it would make my head hurt to know just how many people are paying way over their odds for a mortgage” But, what does that inflation mean at a borrower level? Well, it means everyone is paying more for the everyday basket of goods and services that we need to use every single month. It will not take a genius to work out that in some core areas – products and services we tend not to be able to do without – such as utility bills, petrol, foodstuffs, and the rest – the cost has gone up significantly. That puts pressure on many households and therefore any opportunity to make savings in other areas is unlikely to be baulked at. Where better to make those savings than in what is likely to be the biggest monthly commitment for those households? The mortgage costs. I’m often left wondering just how many people are currently on their lender’s SVR rather than on a more competitive offering. I suspect it would make my head hurt to know just how many people are paying way over their odds for a mortgage, especially at a time when arguably we’ve not had such a

MORTGAGE INTRODUCER DECEMBER 2021

competitive market to choose from. BBR rising is unlikely to have a massive impact on that. For example, if you have a client currently paying 3/4/5% interest on their mortgage then a BBR rise from 0.1% to 0.25% won’t make a difference, because if they are eligible then they are most probably going to be able to remortgage to a deal far below their current rate, which will mean they can pay significantly less each month. I’m back to that no-brainer situation again but this time it’s a no-brainer for borrowers. And, that being the case, I’m going to ask advisers to keep pushing that message out to their existing clients and those who may not even realise they have options. It’s not so much the fear of missing out but the fear of not even knowing they are missing out. Or perhaps the ‘unknown knowns’ as it might be called. Whatever it is, there are clearly business opportunities here, and from a remortgage client can come so much more, not least as previously mentioned, the conveyancing advice opportunity, especially pertinent for deals with cashback. The ability to use a specialist conveyancer representing your client not the lender, with all the efficiencies and protections that provides, is still as clear as ever. Don’t miss out here or anywhere else when it comes to those clients. And on that note, it just leaves me to wish all readers of Mortgage Introducer a very Merry Christmas and a very prosperous New Year. There’s no doubt that the last two years in particular have been some of the most tumultuous – not just in our marketplace but in society as a whole. It would be nice to think that 2022 will bring with it a much calmer environment for us all to work within, albeit one that has plenty of demand in the housing/mortgage markets and a continuation of the levels of transactions we have seen certainly since the end of the first lockdown. I don’t want much, do I? Have a restive holiday period and I look forward to catching up with you again next year. M I www.mortgageintroducer.com

THE OUTLAW

THE MONTH THAT WAS

Bank of England: Relaxation of rules (proof in the Xmas pudding)

THE Every month, The Outlaw draws some tongue-in-cheek parallels between society at large and a mortgage market in flux

THE THE

AND THE

MORTGAGE INTRODUCER DECEMBER 2021

o, there we have it folks. There was categorically NO PARTY! And all of the COVID rules were followed. Unsurprisingly, 9 in 10 voters are now convinced that this fudged and clumsy denial is a complete crock of sh*t and hopefully last week’s events (and those still to come?) will mark the beginning of the end for our lazy and arrogant excuse for a Prime Minister. But more on that buffoon later. In our own industry, sadly we continue to www.mortgageintroducer.com

remain afflicted by the inefficiencies of the present government and it’s dysfunctional departmental instrumentation, foremost amongst which remains the FCA whose various car crash announcements and edicts this year also appeared to come from the hand of their own version of Allegra Stratton. The latest one revolved around a patronising sermon on working from home (WFH). Though I will grant them this... nobody is more expert on that than the regulator’s own 4000 highly paid employees who have been sat on their backsides at home now for nigh on two years. Little wonder that a recent piece of independent investigation found them falling short of the standards that they themselves set firms. It’s clearly the same at The Foreign Office where three-week holiday sign-offs for staff and a gross commitment to a WFH policy will have needlessly cost British citizens their lives in Kabul back in August. Not unlike Johnson (I refuse now to use his christian name as it’s led to this forgivable notion of it being “priced in that cuddly Boris is an utter moron) and his sycophantic cronies, this is all an outrageous FCA case of “Do As I Say, Not As I Do”. Anyhow. One shan’t let these weekly sh*t shows detract from the continued good vibes in our own industry where there were plenty of positive stories this last month. Firstly, most lenders are definitely on the front foot going in to 2022 and if the value of Product Transfers (PT) are added to the gross lending expectations, then brokers are set for a £500m market next year. January and April alone are each scheduled to offer up £40bn worth of PT opportunities (alas, far too many indolent and inefficient brokers still populate the landscape but these laggards will ultimately get what they deserve...) We also had the slightly surprising news that the Bank of England may be poised to announce a relaxation of the somewhat reactive lending rules it imposed in the wake of the last financial crisis, though the cost/benefit analysis on that is still awaited. It is little wonder therefore that last week we saw the first acquisition deal struck by the recently launched aggregator by the name of Phoenix (a brand name which is rather ironic don’t you think, given what some brokers do with their businesses as soon as they mismanage and pillage them and then run them in to the ground before popping up elsewhere with a parallel brand!!). Phoenix seemingly has £200m to splurge on

The Foreign Office: Working from home

acquisitions which makes for an interesting calculation. It will possibly be buying brokerages via a depressed EBITDA multiple (Google the acronym it if you need to!) of five times earnings before then flogging the conjoined piece of Meccano on again in five years time at a multiple closer to TEN times the aggregated earnings. Hardly nuclear physics is it? To spend £200m therefore, it needs to identify and seduce brokerages which have a cumulative annual profit of £40m. Given that a) many of the larger brokerages in that sphere have recently been bought or sold anyway, and that b) the ones remaining will be working off somewhat skinny net profit margins of between just 5% and 7%, this is tantamount to Amanda Stavely at Newcastle united wondering why no world class players want to join her beleaguered club in January. It will be interesting to see what Phoenix’s 2022 activity amounts to.... Still on the subject of murders and inquisitions, the sale of online mortgage broker Mojo last month brought a further smile to mine and many others’ faces. This is a business which has been around all of five minutes, and not → DECEMBER 2021 MORTGAGE INTRODUCER

THE OUTLAW

THE MONTH THAT WAS unlike the likes of Perrena, Habito, and Trussle appears to have a PR department which is gratuitously more ubiquitous and noisy than it’s actual lending volumes? Yet that didn’t stop its new owners (RVU, specialists in car insurance and energy switches) suggesting that the firm has “best In sector expertise”. I know. Go figure!!! One news item which also involved some arithmetical sophistry was the one pertaining to Kensington’s 30 year fixed rate at 3.77%. It permits the borrowing of up to six times earnings, and whilst I am normally sceptical of superannuated rates, this one may have a chance of flying especially as there are reasonable ERC’s and it allows a 95% LTV. I will end 2021 with Best Wishes to all readers (even my woke-warrior detractors!!). This monthly column treads the pantomime boards between seriousness, comedy, and parody. Not everybody ‘ gets it ‘ but many readers do and i’d like to thank them for their bright ideas and opinions which usually come my way with full graphics by the discreet security of WhatsApp messages on the 12th day of each month! Here’s to another prosperous year in 2022 when hopefully we ‘ll be hearing and see far less of our morally bankrupt PM, and along with him, far less too of the vainglorious peacocks that are Lewis Hamilton, Jurgen Klopp, Prince Charles, Meghan Markle and Harry, Joey Barton, Naga Munchetty, Gemma

Kensington: 30-year winner?

Cheese and wine: NOT A PARTY

Collins, Mark Zuckerberg, Raheem Sterling, Justin Bieber, Elon Musk, Madonna, Carragher & Neville, and Victoria Beckham...... but more on that motley lot in my January A to Z guide to 2022! Have a good one. The O. M I

MORTGAGE INTRODUCER DECEMBER 2021

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Commercial Director matt@mortgageintroducer.com 07525 456 869

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INTERVIEW

ULS TECHNOLOGY

Finger on the

pULSe

Mortgage Introducer speaks to Jesper With-Fogstrup, CEO, ULS technology about his first year with the business and his future plans for the firm Since joining ULS technology, you’ve talked a

lot about revolutionising the conveyancing market. How has that been received? And do you feel you’re making progress? I have now been in the business for almost a year and I’m even more certain that there is a huge opportunity to make the home moving process better for everyone involved. But I can’t deny that there was some apprehension about how my thoughts on this would be received, both internally and across the industry. So, it’s been incredibly encouraging to see how widely that desire to improve the experience for our clients and partners is shared among colleagues and externally. Across the board, there’s a clear drive to view things from a more customer-focused perspective and find ways to ensure that moving home or refinancing is more transparent and less stressful. In the last year we have set out ambitious plans to make the home moving and ownership experience better for everyone. Customers tell us the process is not simple – it’s frustrating, stressful and moves at a snail like pace. I’m really pleased with the significant progress we have made, developing a strategy and roadmap that centres on increased investment in technology and people. Focusing on developing our technology and bringing new talent into the business means we will be able to deliver a customer-centric, data driven experience that brings real value across to all our industry stakeholders.

MORTGAGE INTRODUCER DECEMBER 2021

Are digital options making a difference to the current conveyancing experience? If you speak to homebuyers and sellers, very often they have little idea of what conveyancing even is, or why it’s important to their transaction. All they know is that a legal process is going on, which they are distanced from and often have little idea of how it’s actually progressing. Given that, it’s little wonder that they feel the process is less than transparent. Yet digital solutions offer a great way to ensure that clients are ‘in the loop’ on what’s happening, as well as ensuring the process is frictionless and more efficient. Encouraging the industry to embrace the technological advancements that are being developed is the only way that we will be able to remove the frustration felt by many. We obviously have a strong digital brand in eConveyancer which is widely used by brokers and it is reassuring to see the number of partners now →

“Focusing on developing our technology and bringing new talent into the business means we will be able to deliver a customer-centric, data driven experience that brings real value across to all our industry stakeholders” www.mortgageintroducer.com

INTERVIEW

ULS TECHNOLOGY

Jesper With-Fogstrup

www.mortgageintroducer.com

NOVEMBER 2021 MORTGAGE INTRODUCER

INTERVIEW

ULS TECHNOLOGY

“We want to find ways to help make the conveyancing experience more open and transparent for brokers as well as their clients. It’s why it’s so welcome to hear from advisers about the benefits they are already seeing from digital experiences” using our home moving platform DigitalMove. It has been a real success, with over 60,000 cases handled through the platform to date. DigitalMove provides a secure digital platform that has dramatically reduced the time taken to get things moving on the legal side. For example, we have found that house purchase cases instructed through DigitalMove removes two weeks of administration for the consumer which makes for happier broker customers. At the same time as we adopt new technology and digital products, it is important that we don’t lose sight of the importance of ensuring we are building secure operations and putting in place cyber security processes to protect our customers assets and information while giving them confidence in our systems. Speeding up the legal side of a move doesn’t just leave the clients in a better position, it also means that brokers receive their mortgage origination quicker, so everyone wins. Has the pandemic impacted the way you view those digital options? In my view, the difficulties of moving home over the last year and a half due to the pandemic have only further highlighted the role digital solutions can play. COVID-19 brought additional complications to moving home especially as it limited interactions that would normally have taken place in person. However, by moving things online and making use of the technology available through DigitalMove, homebuyers and sellers were able to complete those sales. Inevitably, there have been some who viewed technology with suspicion, no matter where it was being used in the property market. I’d like to think that the last year and a half has made clear that digital options have not only enabled the market to keep moving during unprecedented challenges, but have probably fast forwarded the adoption of technology by a number of years as the industry returns to a degree of normality. We can’t rest on our laurels though. The current model of DigitalMove is just the start, there’s far more that we can do. We are investing in developing more products and greater functionality, and have set up an

MORTGAGE INTRODUCER DECEMBER 2021

innovation hub which will allow us to build, pilot and evolve new digital products in live environments, which will provide valuable insight to shape future services and experiences and will allow us to refine them prior to broader roll out How important are mortgage brokers to your plans for ULS? Most people who buy a home make use of a mortgage broker, and with good reason. If you want to secure the best possible home loan, then why wouldn’t you want to tap into the expertise of a professional who can identify the lenders who are most likely to look favourably on your application? Similarly, if you want to work with homebuyers and sellers then you have to recognise the importance of the broker in that move. From our perspective, we want to find ways to help make the conveyancing experience more open and transparent for brokers as well as their clients. It’s why it’s so welcome to hear from advisers about the benefits they are already seeing from digital experiences like DigitalMove. The improved transparency offered by the platform means brokers are spending far less time having to speak to stressed out clients who don’t know what’s going on with their cases. Brokers will know that their clients are becoming more conscious of how businesses operate too, from both an environmental and societal perspective, and that will have an impact on the firms that brokers partner with. DigitalMove is already having a notable environmental impact - we calculate around 20 million sheets of paper to date have been saved thanks to customers not having to print out and fill in physical forms. Across the business we take our impact seriously and are always looking to operate in a more responsible way, so brokers with clients who are socially conscious can rest assured that they are working with a like-minded firm. We are determined to offer more value to our broker partners too, by continuing to identify further partner firms to work with who can boost the service brokers provide to their clients. Our panel mix is also very important to ensure we have the right balance of legal professionals for brokers to access across the country. I’m really pleased that we have seen a 14% increase in the number of conveyancing firms joining eConveyancer recently which means we are in an even better place to meet everyone’s needs. Brokers using eConveyancer can already help their clients with digital wills and tap into the Just Move In home moving service, but this is just the start. We want brokers to know that by working with eConveyancer they and their clients not only benefit from a top-class conveyancing experience and robust security, but a host of additional services and revenue streams. M I www.mortgageintroducer.com

LOAN INTRODUCER

SPOTLIGHT

What will 2022 bring for the second-charge market? The second charge mortgage market continues to rebuild itself following a substantial drop-off in business in 2020. Loan Introducer asks the experts for their thoughts on the outlook for 2022

Robert Sinclair chief executive, Association of Mortgage Intermediaries

The seconds market, like the rest of the mortgage market, residential, lifetime, commercial and bridging has had a great 2021. The industry has proved its ability to innovate, be resilient and adapt quickly to change by operating with safe and new methods. I expect 2022 to be more of the same. All the signs are that lenders are well funded, have now got established systems and we have got valuation processes that are effective. With prime residential interest rates rising this will be good for the seconds market as those needing funding will not want to disturb existing facilities. Lenders risk appetite continues to broaden and this will bring more product and attractive offers.

been used to consolidate debts. This hasn’t changed but I think we are now much more likely to be dealing with borrowers who may have some debts they want to pay off but are also looking to use the money for other means, most notably home renovations. House price increases between 2020 and 2021 have also opened up the seconds market to a certain extent and that has produced a positive in terms of more advisers being active in the seconds space. There is however already some evidence to suggest a plateauing of prices and that will clearly have an impact on the seconds market; indeed we’re already starting to see something of a squeeze in terms of LTV levels. As always, I am positive about the sector, in particular the benefits we can deliver to both customer and adviser with technology advancements, in particular, digitisation of the process, which will drive service levels higher and bring a new edge to the competition.

professional obligations or brand promises. Secondly, new lenders will enter the market with streamlined technology led propositions. Innovation drives growth and change which always benefits the end client. And thirdly, radical automation will continue to replace manual, expensive tasks with technology driven solutions.

Fiona Hoyle head of consumer and mortgage finance, FLA

The second charge mortgage market reported its sixth consecutive month of growth in September 2021, with new business returning to pre-pandemic levels. We expect that trend to continue during the remainder of 2021, and we hope for the same in 2022.

Marie Grundy sales director, West One Loans

Steve Brilus

Paul McGerrigan

chief executive officer,, Evolution Money

chief executive officer, Loan.co.uk

2021 has been an incredibly strong year for the second-charge market with numerous demand drivers coming to the fore, resulting in strong business volumes. Traditionally, seconds have been a product which – for the majority of the time – have

There are three things I believe will happen in 2022; Firstly, clients will be charged significantly less fees due to industry advisors and branded websites realising that sending people to high fee charging brokers is in opposition to their

MORTGAGE INTRODUCER DECEMBER 2021

With £1.3bn of second charge completions in 2019 prior to the onset of the pandemic, next year could see new second charge originations surpass this number. This is significant as it means 2022 has the potential for the highest level of second charge completions since second charges were brought under the same regulatory framework as first charge mortgages in 2016. www.mortgageintroducer.com

SECOND OPINION

Second Charges with Common Sense. Rates from 7% Range of properties accepted Flexible on income type “2022 has the potential for the highest level of second charge completions since second charges were brought under the same regulatory framework as first charge mortgages in 2016” I would like to see more mortgage intermediaries embracing the opportunities that second charges can offer to deliver good customer outcomes. Next year billions of pounds of mortgage products will expire with almost £40bn in January alone. This is expected to fuel record product transfer levels with refinance on a like for like basis, something which is often arranged on an execution only basis. If borrowers require additional funding after the product transfer has completed a second charge should be considered as part of the suitability and advice process. We also still await further action from the Financial Conduct Authority during 2022 – something which should not prevent the market from building on a positive 2021. The only shadow on the horizon is the increasing cost of Professional Indemnity Insurance. All broker firms need to make sure they have early discussion with their insurer and explain fully the controls they have over their business, low levels of complaints and consumer satisfaction measures in place. M I www.mortgageintroducer.com

CCJs & defaults ignored after 12 months Simon Mules commercial director, Optimum Credit

Tired of tick boxes?

Come work with us. 01709 441926 Marie Grundy

sales director, www.nortonhomeloans.co.uk West One Loans

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

DECEMBER 2021 MORTGAGE INTRODUCER

LOAN INTRODUCER

SECOND CHARGE

A vital product for advisers Steve Brilus chief executive officer,, Evolution Money

s we are now in December, and with just a couple of weeks left of 2021, we have the opportunity to look back over the course of the last 12 months and review where we’ve come from, where we’ve been and where perhaps we’re heading. At the start of the year, we wanted to try to begin publicly measuring our activity within the second-charge market and to put some flesh on the bone of the transactions we complete. There were a number of reasons for that, not least the fact we felt already that the type of customer taking out a second-charge was beginning to shift slightly, the reasons why they wanted the money were also moving away from the traditional, and we also wanted to reveal the true narrative which perhaps shows advisers there are more opportunities within the sector, and more demand, than they might have previously appreciated. Thus, our Second-Charge Mortgage Tracker was born, in which every quarter we dissect the data our activity produces. As I write, we are just about to begin running the next set of quarterly data and it will be interesting to see how that plays out against what we’ve already seen this year. However, even without that data set, our 2021 research shows a number of interesting themes that we think could become even more prominent in the sector over the course of the next year. Perhaps, most notably for us, is the shift we are seeing towards what we describe as ‘prime borrowers’ using second-charge mortgages. These are, as the name suggests, ‘prime’ customers who may well be using the money

released via a second-charge to pay off debt, but who themselves do not come with any credit blips or historical credit issues which would see them be deemed ‘debt consolidation’ borrowers. Over the year, the volume of secondcharge mortgages being taken out by prime borrowers has effectively moved from a quarter of our activity to a third, which says to us that more borrowers are willing to look at the second-charge option, and that the environment they are borrowers within is shifting towards that demand.

“Perhaps, most notably for us, is the shift we are seeing towards what we describe as ‘prime borrowers’ using second-charge mortgages” The reasons for this are well-worn but they are relevant – borrowers not wanting to touch a first-charge mortgage because they may have to pay a large ERC, borrowers wanting to access the increased value in their home because of house price rises in the last 18 months, a need brought about by the pandemic to shift and reconfigure the home to make it a better fit for working from home, and the like. All those options, and of course the number one reason for taking a second-charge – to pay off costlier debts – mean that prime borrowers appear much more relaxed about a second-charge, and the advisers they are working with, are also far more willing to present a second solution to them, because it’s the right one for their circumstances. Now, as mentioned, it’s still the case that borrowers – whether prime or otherwise – are still more than likely to be using at least some of the money released to pay down the debts they have, but it doesn’t mean all that

MORTGAGE INTRODUCER DECEMBER 2021

money is used in such ways. Many of our borrower customers have paid off debt and used money to make home improvements over the course of the last year, and we would expect this to continue to be a theme over the course of 2022. In a way, we are still getting used to the pandemic environment and what it will mean for working practices and how that works into what people want (and need) from their homes. I have hesitated to use the words postpandemic here because it doesn’t really feel like we’re there at all. The number of cases are rising right across Europe and that requires some hard decisions to be made. That being the case, it’s difficult to get to grips with what it will continue to mean for borrower demand when it comes to seconds. I suspect that the financial commitments many people will have taken during the various lockdowns, furlough, job changes, etc, will still be around for many months to come, and combine that with a shift in working practices, etc, and the need for money to pay off debts and reshape housing arrangements will continue to be strong. Which of course means that seconds should remain a very real and vital product solution for advisers, particularly as lenders like ourselves reshape our own propositions and product offerings in response to the changing borrower need. Having them as part of the adviser toolkit is going to be more important than ever. I have one final thing to say, and that is simply to wish the entire adviser community a very Merry Christmas and a Happy New Year. When we look back at 2021 I think it could be viewed as a real game-changer for the seconds market; a year perhaps when it came of age and where the opportunity it presents to both advisers and their clients started to be truly seen in many different non-traditional areas. However, there’s also a lot to be said about stepping away from work over the holiday period, enjoying that time, and coming back refreshed to take on a new year. Certainly that’s what I intend to do and I hope you do too. See you in 2022. M I www.mortgageintroducer.com

SPECIALIST FINANCE INTRODUCER

FIBA

Education for specialist finance Adam Tyler executive chairman, FIBA

or many years I have been involved in education for this sector and I am pleased to announce that we have launched a proposal for a commercial property finance education programme that is suitable for the current climate of learning and compliance. There has been collaboration across the industry to produce the framework for an ongoing programme of education for the commercial property finance industry, which includes bridging, short-term finance, development finance and specialist buy-to-let (BTL). The discussions from FIBA have successfully built upon the previous groundwork started a number of years ago. We are working in conjunction with the Association of Short Term Lenders (ASTL) and the London Institute of Banking and Finance (LIBF), and have now developed the essential framework to complete the building of an education programme that will suit all elements of our industry. The early indications are that we have plenty of support to progress and this now means it is up to all of us to work together to reach the right

outcome to suit everyone. Through working with LIBF we have the ability to create a series of optional e-learning modules that will be recognized through the award of an LIBF digital badge and accredited for CPD purposes. There has to be an aim for any education programme, and we want to provide a programme of learning to people who may be new to the specialist property finance industry and who could be either joining a lender or diversifying into the sector as a broker. It will cover the basics on specialist property finance and the structure of different types of businesses that might require it, with specific information on bridging and short-term finance, development finance, commercial mortgages and specialist buy to let. For each area, there will be insights into how they work and how they are underwritten and the differences within each sector. It will also look at the essentials of how commercial lenders and brokers operate to help broaden understanding across the industry and some of the key planning considerations needed in commercial property finance, including permitted developments. However, this programme has to cover a wide range of individuals – including brokers – with more knowledge of, and experience in, commercial finance, possibly through

“We want to provide a programme of learning to people who may be new to the specialist property finance industry and who could be either joining a lender or diversifying into the sector as a broker”

Education is vital to the growth of the industry

www.mortgageintroducer.com

working in mainstream lenders, but with no experience of brokering or those wishing to have that accreditation. The final module of the programme will be a series of case studies, where the learner will be given different scenarios and will need to identify key information, such as how the lending will be categorised, what key additional information the broker will need to package the case, how it will be underwritten and the likelihood of it being agreed. This is going to be a subject that will have very polarised views across the industry. There are many in recent conversations and at recent events that see increased learning and education as always a positive thing. We must remember that at the heart of the whole borrowing experience are the consumers, our customers. For them, the best outcome will always be through advisers who know their subject and lenders who have a more holistic understanding of the whole process. We want to encourage engagement across the industry, not just as a one-off participation, but as part of an ongoing environment of continuing learning, which of course opens up the debate on mandatory requirements for an exam or a programme of learning to make it essential to trade. The current plans are that there will be no pass/fail of the programme, the case study ‘scores’ will be used to evaluate the effectiveness of the learning. For this to be effective, each of the modules included in the programme will need to have clear learning objectives and the case studies will need to test the attainment of these. The content of these modules will be aimed at a similar Level 3 qualification in commercial finance which the LIBF previously offered. I look forward to all the ongoing discussions and welcome comments, because we need this to get the final programme exactly right for every stakeholder. M I

DECEMBER 2021 MORTGAGE INTRODUCER

SPECIALIST FINANCE INTRODUCER

DEVELOPMENT

Sustainability: Green is good Roxana MohammadianMolina chief strategy officer, Blend Network

ollowing the success of COP26 last month, the markets are embracing sustainability with renewed force and enthusiasm. While the building and construction industry is no stranger to green initiatives and sustainability, the sector as a whole needs to up its game to ensure it is not left behind. Lenders have a particularly acute responsibility to support sustainability by ensuring that they are able to magnify and amplify developer’s success and provide appropriate financial packages. GREEN WORKS

In his address to the Global Investment Summit ahead of COP26 a month ago, Prime Minister Boris Johnson announced nearly £10bn of private investment in green projects. “The market is going green,” he said, while predicting that one day we’ll be able to bring down the prices of green tech like heat pumps and solar panels. From green and self-sufficient

buildings to harnessing solar energy, from vertical gardens and farms to energy generation from waves. “Green is good, green is right, green works,” said Johnson, while also warning that urgent action was needed in order to mobilize the markets and bring in the private sector onboard. However, while we are not short on examples of green technology and sustainable initiatives, the lending market is still lagging behind when it comes to providing debt to support such green initiatives, especially in the building and construction sector. SELF-SUFFICIENT

The reality is that self-sufficient buildings and regenerative developments often have a very specific set of requirements that need to be taken into consideration when seeking debt finance. This requires understanding of eco-friendly construction design, buildings designed to be operated independently from infrastructural support services such as electric power and gas grids and municipal water systems – selfsufficient buildings – or construction materials that minimize environmental impact. All these require a very specific set of skills and understanding from the part of lenders who need to up their

The lending market is lagging behind when it comes to providing debt to support such green initiatives

MORTGAGE INTRODUCER DECEMBER 2021

game to be able to not only service borrowers better but also help them advance in the journey to Net Zero. At Blend Network, we have grasped the strategic importance and potential of this sector, and therefore have a dedicated lending team with extensive knowledge and experience in providing debt funding to sustainable building and regenerative development schemes. From residential development schemes that regenerate wildlife habitat, to eco-dwellings that make use of sustainable construction materials which produce less CO2 during their manufacturing process, from housing schemes where flats and houses come with dedicated electric car-charging points, to housing schemes that come with extra cycle parking and encourage a healthier lifestyle for its residents, our team regularly review and issue terms on environmentally-friendly schemes that are designed to prioritize sustainability, embrace regeneration and empower its residents to live a fulfilling healthy and sustainable lifestyle. ESG CREDENTIALS

From a property developer’s perspective, environmental performance and environmental, social and governance (ESG) credentials can help them improve sales or attract better tenants who are increasingly seeking efficient, healthy, and green certified buildings to live and work in. Incorporating ESG factors can lead to increased profitability through higher property values, attracting more and better tenants, and improved returns on investment. Aside from making decisions that are socially responsible or morally right, the growing trend of ESG integration across companies and investors makes the need to address sustainability within the construction industry increasingly more important. In summary, the drive to create a green economy has accelerated, powered by a confluence of environmental and societal forces. In this context, the time is ripe for lenders to chip in and support the road to net zero. It is no longer enough to talk the talk, we must walk the walk. M I www.mortgageintroducer.com

SPECIALIST FINANCE INTRODUCER

DEVELOPMENT

2022: The year of creativity Dave Pinnington CEO, Finance 4 Business

he last couple of years has shaken up many an industry, the financial arena included. Helping those looking for finance to navigate this challenging period and maximise the opportunities arising in property development has been the main task at hand for brokers. Keeping the wheels oiled and turning through difficulties – including material supply shortages, property price hikes and a variety of COVID-induced process delays – has been vital to the economy. It’s been one of the most tumultuous periods for many of us operating in this market – but as we hurtle towards 2022, we must all up our game to meet the demands of an everevolving landscape. GETTING CREATIVE

The pandemic has caused developers and investors to think outside of the box and get more creative when it comes to how and where they develop. Repurposing of existing buildings – perhaps once destined to be office or retail/leisure space – has been a big growth area. Development on greenbelt land has grown, and there has been a real surge in industrial developments – many on brownfield sites – all highlighting that those operating in this space are willing to diversify to keep revenue streams flowing. So as their approach evolves, so must our solutions to securing finance. The days of simply offering traditional lending solutions are gone. Brokerages need to be creative and leverage other sources and relationships. While the emergence of tech platforms has enabled automation and efficiency, facilitating speed of certain tasks, there is no substitute for the human approach that is required to help developers in the current climate. www.mortgageintroducer.com

The task has moved to much more of an advisory piece – not just facilitating transactions but going on a journey with the client to understand the DNA of their project and being involved endto-end. Exploring funding sources such as from private investors and family office investment has certainly enabled us to help some of our clients. Now is not the time to take a black and white approach. We need to provide clients

“Repurposing of existing buildings – perhaps once destined to be office or retail/ leisure space – has been a big growth area. Development on greenbelt land has grown, and there has been a real surge in industrial developments”

Barclays for £2.1m at 76% loan-tovalue (LTV). Finance 4 Business also took the lead in respect of the VAT funding requirement, and arranged with a VAT specialist lender a solution as a fall-back position. However, after continued discussions with Barclays, we were able to secure a more favourable VAT loan through them to cover the £550,000 requirement. As businesses face increasing challenges when seeking high street lending, it’s important brokers explore all avenues to help intermediaries and clients with solutions that will enable these businesses to grow. The importance of going on the journey with the client is best illustrated in this case, as it was through our factfinding and due diligence process that we discovered the client had additional financial requirements that other companies within the ARMCO group could help with.

with multiple solutions and use our relationships, expertise and experience to best effect. This was the case recently when Finance 4 Business was approached by a new introducer who required assistance in arranging a commercial mortgage for a long-established client. The client in question was looking to purchase commercial premises as part of their company expansion, to make the leap from a business trading from home. They identified a property in Westminster, London, and agreed a purchase price of £2.75m, subject to VAT of £550,000. We learned through our investigations with the client that she had already approached her own high street bank, which had shown little interest in funding the purchase. Our commercial mortgage team reviewed the proposal and were confident that the transaction could be funded by a high street lender. We ultimately arranged a mortgage via

These included identifying £367,000 of capital allowances that could be offset against the corporation tax liability for the client’s business, resulting in reduced tax liabilities for her company for the next seven years. The client was also able to access £50,000 liquidity via another of our group partners to address an immediate cashflow shortfall as a result of an unpaid invoice. It is seamless transaction journeys such as this that clients will need in a fast-paced landscape where access to finance via traditional lending is more difficult, and speed is needed to capitalise on opportunities. If 2021 has highlighted anything, it’s that resilience is a key business survival element. As long as we’re in a position to help firms build that resilience through better financial solutions, we should grab the opportunity with both hands and continually expand our approach beyond what we’ve always done. M I

TRANSACTION JOURNEYS

DECEMBER 2021 MORTGAGE INTRODUCER

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SPECIALIST FINANCE INTRODUCER

ASTL

Sustainable growth and greater understanding Vic Jannels CEO, ASTL

he bridging market approaches the end of 2021 in a strong position. Our latest lending data, compiled by auditors from data provided by members of the ASTL, shows that the sector continued to deliver strong, sustainable growth in Q3 2021, with applications and loan books both higher than in Q2, while the value of loans in default also fell for the third consecutive quarter. The figures show that bridging loan books now stand at more than £5bn for the first time, representing an increase of 6.8% on the previous quarter and a jump of 11.1% on the same quarter last year. At the same time, applications in Q3 reached a record high of £7.72bn, an increase of 4.9% on the previous quarter and, despite falling slightly, the value of completions still totalled £1.0bn in the quarter. More good news came with the average loan-to-value (LTV) of lending, which remains at 59.8%, and the value of loans in default fell for the third consecutive quarter in Q2, showing a decrease of 4.1% over Q1 and a fall of 3.6% on the same quarter last year. This shows that lenders have been able to deliver significant growth throughout this difficult period, whilst also taking a considered and sensible approach to lending. However, ‘considered’ should not mean ‘slow’. One of the great advantages of bridging finance is that it has always been able to deliver customers with flexibility when required and speed when needed, and the same remains true today. We are aware that application times continue

MORTGAGE INTRODUCER

to be protracted across much of the mortgage market, often as a result of a log jam which can arise with valuation and legal issues. At our recent members general meeting at the ASTL, we spoke with a representative of a panel manager for a group of surveying firms and they were quite candid about the capacity issues that bestow that part of the process at the moment as surveyors battle with rising professional indemnity insurance costs and an ageing workforce – the average age of a surveyor is over 60! This is not their fault as an industry, of course. We know that steps are being taken to improve capacity and, for our part we recommend that any broker takes an understanding and communicative approach. EXPEDITING THE PROCESS

In the meantime, however, it is imperative that lenders look to find a way of expediting the process and I know that many of our members at the ASTL are taking just this approach. Where appropriate, we are seeing greater use of automated valuation models (AVMs) and at higher LTVs, and lenders are working behind the scenes to ensure the reputation for speed, for which bridging is so readily known, remains true throughout this period. So, where certainty and speed of delivery are of the essence, I would suggest that bridging is a more pertinent solution than it has ever been. We think it offers a genuinely different choice for customers and nowadays at rates that are not too far off the specialist term market on lower LTV cases. As such, we are confident that in 2022, we will be welcoming more brokers to engage in this sector. To give those brokers greater confidence when working in the market, we recently launched our plans to collaborate with the Financial

DECEMBER 2021

Intermediary & Broker Association (FIBA) an ongoing programme of education for the commercial property finance industry, including bridging, short-term finance, development finance and specialist buy-to-let (BTL). We have been working with FIBA and The London Institute of Banking & Finance (LIBF) on the creation of a series of optional e-learning modules that will be recognised through the award of an LIBF digital badge and accredited for continued professional development (CPD) purposes. The aim of the education programme is to provide a programme of learning to cover the basics on specialist property finance and the structure of different types of businesses that might require it, with specific information on bridging and short-term finance, development finance, commercial mortgages and specialist BTL. For each area, there will be insights into how they work and how they are underwritten and the differences within each sector. It will also look at the essentials of how commercial lenders and brokers operate to help broaden understanding across the industry and some of the key planning considerations needed in commercial property finance, including permitted developments. The final module of the programme will be a series of case studies, where the learner will be given different scenarios and will need to identify key information, such as how the lending will be categorised, what key additional information the broker will need to package the case, how it will be underwritten and the likelihood of it being agreed. The programme will be reviewed and refined by key stakeholders on an ongoing basis to ensure it is promoting the most appropriate behaviours and results. Increased learning and education is always a positive thing and we hope that the announcement of these proposals will help to stimulate even greater confidence in our sector as we all work towards making the whole borrowing experience more comfortable, and less mysterious. M I www.mortgageintroducer.com

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Embracing the latest technology has certainly played a big part in enabling our broker partners to do more. But it is the dedicated support provided by our Broker Relationship Managers and wider Mortgages Team that helps make the Tech Tick and delivers brokers and their customers the best experience. Mike Walters Sales Director Mortgages

Find your BDM here

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UTB mortgages for intermediaries A smarter place for your case • 24/7 Online DIP with Auto-Underwrite • Facial Recognition ID Verification • Integrated AVMs & Credit Searches • Portal and SmartApp-based Document upload • Dedicated secure chat messaging

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T: 020 7031 1551 E: mortgages.enquiries@utbank.co.uk This information is strictly for the use of professional intermediaries only.

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