Mortgage Introducer February 2022 by mortgageintroducer

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Guy de Jersey of Lifetime Mortgage Gateway Logistics on helping those trapped with mid-term leases

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

Little shock in rate rise

e’ve just seen the latest in the Bank of England’s planned interest rate rises. If this came as a surprise to anyone, they really should have been paying more attention. The Old Lady of Threadneedle Street has been open about the fact that rate increases were imminent. Looking ahead, surging energy bills will push inflation higher than expected, most likely to more than 7% by April, which will mean further rises are on the cards. And this most recent rise could have been much bigger, as of the nine-member committee (MPC), four members voted for a more aggressive increase to 0.75%. This has led to an outpouring of some sensible, and some less so, opinion on the meaning of this increase. Some homeowners have never known a diﬀerent interest rate environment than the current historically low one.

If you told some people that interest rates stood at 17% as the UK emerged from the Winter of Discontent in 1979, or 14.88% when John Major took over as Chancellor, they would be shocked. Even the 5.75% of July 2007 would seem rich compared to the rates seen since the financial crisis. However, the mortgage market remains very competitive, and despite going up, long-term fixed rates are still at very attractive prices. According to UK Finance figures, there are around 1.1 million people on standard variable rates, and there are also 850,000 people on tracker rates. All of these will see their rates increase from their next payment. There are numerous reasons that people may be on these products, but there are opportunities for brokers to open conversations. With finance news dominating the headlines, this is a good time to get back into contact with customers and start the conversation about locking in deals. M I

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MAGAZINE

WHAT’S INSIDE

Contents 7 8 12 13 14 15 18 19 24 31 34 36 38 39 42

AMI Review Market Review Service Review Advice Review Networks Review London Review Recruitment Review Technology Review Buy-to-let Review Complex Credit Review Protection Review General Insurance Review Green Mortgage Review Equity Release Review Conveyancing Review

44 Cover: Putting leaseholders on more equal footing Mortgage Introducer caught up with Guy de Jersey to find out how his team is helping people trapped with mid-term leases 48 Interview: Saxon Trust Mortgage Introducer spoke to Andrew Gardiner and Brian West about their plans for 2022 50 The Outlaw The latest from our resident outlaw

24 19

BUY-TO-LET

TECHNOLOGY

THE OUTLAW

54 Loan Introducer The latest from the second charge market 60 Specialist Finance Introducer Development finance, bridging finance and more from the specialist market

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SPECIALIST FINANCE INTRODUCER

RECRUITMENT

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24/11/2021 12:25

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AMI

Emperor’s new clothes Robert Sinclair chief executive officer, AMI

t has taken time, but Michael Gove, the new Secretary of State, recently addressed the cladding issue – deriding the previous Jenrick approach and putting the socalled ‘wrong-uns’ on notice. Gove placed the liability firmly with residential property developers, asking them to come up with an extra £4bn by the end of March, in addition to the £2bn set to be raised by the residential property developers’ tax, and the money from the levy on tall buildings. This approach of “those who profit must pay and be held to account” was an interesting direction. Making “the owners, the freeholders the responsible people” apportions liability at a group he is significantly dependent on to help build new homes. As builders and freeholders, they are also far removed from the original developers of most flammable, cladding infested buildings. Those that had nothing to do with their construction can be forgiven for thinking they should not pay. Also, as freeholders with a small financial interest, their model is based on recovery of all costs from leaseholders. Many have no links to the construction of the buildings.

The loan system for the remediation of buildings below 18m was also wiped out, with no explanation on what should happen to the work, or the bills. The ‘wrongly interpreted’ guidance note is to go, with no new guidance. This leaves a void for buyers, lenders, insurers and surveyors, and leaves them to consider if continuing with the EWS1 form gives enough comfort. The £27m for new fire alarms got it “off the desk,” but leaves the cladding in place. This looks like another play to avoid the impossible. The tenants and leaseholders living this nightmare will have had their hopes raised with the words that they should not have to pay. However, monies spent are unlikely to be refunded. Disputes over service charges for fire wardens and remediation works look set to tie up leaseholders, freeholders and professionals in complex negotiations which have no rules. Fairness would be to open the Treasury’s coffers, as without this and the needed legislation, solutions remain a long way off. The massive failure of recent decades seems to have been buried. There are still multiple, legally distinct parties that all require their risk to be packaged, limited and then obliterated. Our system of giving planning consent to entities who have no long-term commitment to a complex construction cannot be allowed to continue. Developers need to remain liable, with contracts with appropriate

tenures controlled by legislation. Too many people bought thinking they had protection, but have been let down. There is still a disturbing lack of clarity, and this can only come from government. We cannot expect surveyors, insurers and lenders to unpick something created by planning authorities, building control, safety inspectors and constructors working at the very limits of architectural safety. We need to remediate the most dangerous using government funding, and then recover the money back from those the courts see as liable. If there is no one left to pay, then ultimately government must bear the cost. It is what we should expect from a shared liability society where we are taxed for the greater good. For the future, designs that have been approved, products that have been certified as safe, and work that has been signed off must be fully relied upon. That is clearly the responsibility of the government, even where there may be additional cost implications. However, with the limitations of a survey for an individual flat not covering everything in a building, it is time for a regularly updated single report for each building or block that can be relied on by multiple buyers. As Gove stated, we need homes that are safe, decent and sustainable. Government will not deliver those homes itself, and therefore needs to provide a reliable regulatory and planning framework. M I

Out of the woods?

ollowing the appointment of administrators at most Pure Legal entities, a number of the interest-only complaint cases have now been passed to new legal representatives. These were the result of DSARs, where cases were being constructed to show that the advice provided, usually between 2004 and 2008, was incorrect. Early indications are that the firms that

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have picked up these cases are not seeing much to pursue. AMI has been made aware that some of the potential claimants have been told they do not have a legitimate complaint. As a consequence, the firms are asking for the ‘after the event’ insurance to be invoked, and where that is not possible, for the lending funder to write off the loan. This is positive news for broker firms, and

indeed for the consumer, as they should not be out of pocket. Finally, there are unconfirmed reports that those that have reviewed the cases cannot see why they were commenced, and consider the activities as potentially vexatious. It is to be hoped that, if that is the case, then those that pursued these cases are not allowed back anywhere near claims management in the future.

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Ta k i n g o n t h e f u t u r e tog e t h e r For the use of mortgage intermediaries and other professionals only. Scottish Widows Bank is a trading name of Lloyds Bank plc. Registered Office: 25 Gresham Street, London EC2V 7HN. Registered in England and Wales, no. 2065. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority under number 119278. Information correct as of October 2021.

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04/02/2022 12:59

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The agenda for 2022 Craig Calder Xxxxxxxxxx director of mortgages, xxxxxxxxxxxxxxxx, xxxxxxxxxxxxxxxx Barclays

ach and every lender will have their own targets and areas to focus on in the coming year, but there’s also plenty of common ground, which impacts us all. As such, it was interesting to read the Intermediary Mortgage Lenders Association’s (IMLA) 2022 Mortgage Market Manifesto, which outlined the key areas it believes government and the industry should focus on in order to ensure the UK’s housing market remains both buoyant and accessible. The manifesto sets out a list of priorities for 2022, so let’s take a look at two key areas that IMLA is urging the market to prioritise. HOUSING SUPPLY AND AFFORDABILITY

The imbalance between supply and demand in the UK housing market continues to keep property prices high. The British Social Attitudes Survey of 2018 reported that 87% of those surveyed would prefer to buy than rent – a proportion which had changed little over the previous 30 years. The First Homes scheme was announced in May 2021, and Phase 1 of the pilot projects is about to go live. IMLA has expressed some concerns about how borrowers using the scheme to buy their first property would be able to trade up in the future, given the requirement to sell at a 30% discount. IMLA added that the current approach to affordability means that “borrowers are often being tested at completely unrealistic rates.” It has consistently argued that the combination of the Financial Conduct Authority’s (FCA) affordability rules and the Financial Policy Committee’s additional stress test of 3% above standard variable rate (SVR) has prevented numerous prospective www.mortgageintroducer.com

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borrowers from stepping onto or up the housing ladder. IMLA has therefore welcomed the recent news that the Bank of England is to consult on removing the 3% stress test. These represent highly relevant concerns, and the supply gap in particular is one which the government and the industry has long struggled to find an answer to. The fact remains that there is a continued shortage of new-build properties being constructed, and of existing properties coming to market.

“The mismatch between supply and demand, especially when aligned with rising house prices, is a huge concern for many ﬁrst-time buyers” This was evident in a Royal Institution of Chartered Surveyors (RICS) survey, which outlined that December saw 9% more respondents reporting a rise in the number of new buyers looking for a property, the fourth consecutive increase. Respondents also cited a decline in new listings coming onto their books. The mismatch between supply and demand, especially when aligned with rising house prices, is a huge concern for many first-time buyers and – as I feel like I’ve said dozens of times before – there are no quick fixes. It will take a strong, aligned and sustained approach by the government, homebuilders and lenders to bridge this gap, and this is an issue which needs tacking head on in 2022. THE GREEN AGENDA – DOMESTIC ENERGY EFFICIENCY

IMLA says the domestic property market must play its part in helping to achieve net zero carbon emissions by 2050, but proposals for obliging property owners to carry out improvement works must be carefully

thought through, and subject to strict quality controls if limited resources – both in terms of materials and cash – are not to be wasted. The association has warned there is a danger that “piecemeal policy will lead to confusion and a variety of unintended consequences,” adding that the “task is immense” but the government must lead in co-ordinating a strategy for planning, incentivising and funding work to improve the energy efficiency of Britain’s stock. It is also important for lenders to explore ways in which they can offer customers greener options. As the first major UK mortgage lender to enter the green mortgage market, we have since helped more than 4,000 customers complete a purchase on an A or B Energy Performance Certificate (EPC) rated new-build home, and rewarded them with a lower interest rate. Back in May 2021, we expanded the availability of our green home mortgages. As a result, this will now include any newly built property purchased directly from the builder or developer with an energy efficiency rating of 81 or higher, or an energy efficiency band of A or B. For fully built properties, mortgage applicants will need to provide a valid EPC or a valid Predicted Energy Assessment certificate if the property remains under construction. To support landlords, we have also just launched our green buy-tolet mortgage, which is available for new-build purchases that also have an energy efficiency rating of 81 or above, or which are in energy efficiency bands A or B. As a lender, we will continue to explore pioneering green products that meet the demands of our customers, help them navigate the transition to a low-carbon economy and encourage innovation in the lending sector. Again, this is a long-term mission, but one which needs to start generating momentum now if it’s to leave any lasting legacy. M I

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Loyalty and good customer service Richard Merrett head of strategic development, SimplyBiz Mortgages

emember April 2020, when we started making banana bread to such an extent there were shortages of brown sugar and internet searches for recipes went up by over 500%? If you weren’t one of the 45,000 who posted your successful bakes on Instagram, then I am certain at some point during the pandemic you will have done something completely alien – be it discovering home cocktail making, doing a Zoom quiz, or ordering a pint of beer through an app. Whether these activities were out of boredom, curiosity or necessity, as consumers, we have all done something completely new during this time. Whilst some things may not remain post-pandemic, certain actions and habits will stay with us forever. I believe the most apparent of these is going to be our shopping habits, where customer service and experience will be paramount in the buying choices we make as consumers. Online grocery shopping will certainly remain in our household – neither me nor my wife will want to trapse round the supermarket to do the ‘big shop’ on a busy weekend. Meanwhile, when booking a holiday, the refund process will be key, at least for a while yet. Just as flexibility and variety have become buzzwords for our revised working requirements, convenience and ease of engagement have become must-haves in our goods and services, and this is why companies like Amazon and Deliveroo have had such remarkable success. THE QUESTION OF MORTGAGES

So, what shifts will we see in how customers engage with mortgages? 2021 was an unprecedented year, with a plentiful market buoyed by the www.mortgageintroducer.com

stamp duty holiday, but it was also rife with challenges in capacity and pace of change, particularly regarding criteria changes. This often made delivery of a great service challenging, as lenders, valuers, conveyancers, and of course intermediaries, often struggled to cope with the sheer volume of transactions and enquiries. With what is expected to be a more normal market this year, there is greater opportunity to assess how we engage with and support our customers. It is fundamentally important that every intermediary looks at their customer journey and holds a lens up to the experience, assessing how good they are at customer service and what they can do better. CUSTOMER RETENTION AND NURTURING

GOOD ADVICE

Many people’s housing – and therefore mortgage – objectives have also changed, be it the ‘race for space’, location of property, increasing adoption of longer-term fixed rates or simply the data that suggests more people have savings or are reducing debt post-pandemic. Customer requirements have clearly evolved, and therefore challenging their thoughts and helping address an increasingly complex and confusing market is fundamental to the great work advisers do. USE OF TECHNOLOGY

Whilst the purchase market is likely to be slightly quieter, 2022 is set to be a record year for remortgage and product transfers, and it’s therefore vital that firms put existing customers at the centre of everything they do. Lenders regularly share data that suggests many product transfers are not done by the originating broker. Prioritising proactive contact with your customer base is crucial, and not just for the singular mortgage transaction, but a regular check-in and review of their needs. HOLISTIC SERVICES – PROTECTION AND BEYOND

look elsewhere. If you don’t have the capacity or capability to address these needs, work with a referral partner.

Often with increased mortgage volumes, protection sales dip. We have a duty of care to our customers to address this need. The importance of family and realisation of our mortality or mental health issues have also been central to our experience of the pandemic, which will have heightened consumer awareness. It is vital that advisers have the discussion on not only protection but also areas such as general insurance, wills, conveyancing and all the fundamental elements of the process, to ensure customers have no cause to

Aside from the obvious adoption of Teams or Zoom, technology has become crucial. Whether it’s a good customer relationship management (CRM) tool to help prioritise cases or contact existing customers, or a criteria or affordability research tool to navigate the myriad changes in the market, technology that helps achieve good customer outcomes and an efficient and accurate service will be overwhelmingly important to success. CUSTOMER ADVOCACY

Allied to nurturing our customers is utilising their feedback, putting reviews and testimonials front and centre, particularly on your website. As consumers, we increasingly look to customer advocacy – Google or Trust Pilot reviews, for example – in making many of our choices. Utilising positive feedback is an easy way to assist with lead generation. These areas will not cover every single aspect of great customer service, but by looking at your firm’s processes and ensuring that you are delivering excellence in each of them, you should certainly ensure that your customers remain satisfied and loyal, returning to you for help with their evolving requirements. M I

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SERVICE

Cost of living makes demands of us all Stuart Miller chief customer officer, Newcastle Building Society

022 is shaping up to be the year of the #costofliving crisis. It is a genuinely worrying prospect. Fuel poverty is a huge issue for many in our society, and with incomes under pressure, energy and fuel prices expected to jump again up to 50% in the next 12 months, and the cost of food, clothes, travel and the rest all steadily on the rise, the cost of living crisis is something we should all be concerned about. For those who already own their own homes, how they factor their mortgage payments into their financial planning can be the difference of hundreds, possibly thousands, of pounds a year saved or spent. More than £40bn of mortgages are set to mature and move onto standard variable rate (SVR), or preferably be refinanced or transferred, in January. In a Bank of England survey, lenders said they expect home finance to rise in the first quarter, driven by a significant uplift in demand from existing homeowners wanting to remortgage. December’s decision by the Monetary Policy Committee to raise the base rate from 0.1% to 0.25%

has triggered a wave of remortgaging already, as borrowers anticipate that rates are only heading in one direction from here on in. London & Country Mortgages published some analysis in January which put the need to prioritise refinancing into stark relief. Their client data suggests mortgage payments will typically amount to at least seven times that of the typical spend on energy bills. Analysing data over 2021 showed a typical monthly mortgage payment of just under £900 a month, compared with spending on gas and electricity of £112 a month. On the basis that energy is expected to rise by 50% this year, a person with a £150,000 mortgage on the typical SVR just south of 4% could remortgage and wipe out that added burden. MAKING A DIFFERENCE

There is no question that brokers are going to be absolutely key to helping families like these. There will be those on SVRs for whom it’s a relatively simple decision to refinance to save themselves some precious cash. Others won’t have such a clear choice. The fact is that the pandemic has not only wreaked havoc on our health, relationships and mental wellbeing – the financial damage that massive public spending, necessary though it may have been, has brought about, is also considerable.

Newcastle Building Society’s Deposit Unlock scheme helps low-deposit borrowers secure a new-build home

MORTGAGE INTRODUCER FEBRUARY 2022

Many families, couples and individuals will have seen their finances hurt over the past two years. As we edge further towards the second anniversary of the pandemic, great swathes of those who locked in for two years before lockdown will need our help. So will those who took 5-year deals in 2017. Brokers – and we – are only too aware of how many homeowners’ options have already narrowed since ‘furlough’ became a household phrase. For those whose financial circumstances have changed since they last applied for a mortgage, the prospect of remortgaging may seem daunting – frightening even – but product transfers are going to be a lifeline for these borrowers, and this is where they will need the help and support of their broker. Advisers have a real opportunity to contact those due to see their deal end over the coming months, and who could potentially avoid the hassle of refinancing to another lender for the lure of a cheap rate when in fact, staying put and transferring could be by far the better option. All brokers know that the relationship between adviser and client is far more personal than the transactional data might suggest. I’m firmly of the opinion that those relationships will be even more important for borrowers feeling utterly overwhelmed by the past two years and all it has meant. Finally, with monthly expenses expected to see significant uplifts, and with recent house price inflation requiring ever increasing deposits, first-time buyers who have scrimped and saved diligently could be facing a dwindling range of borrowing options. It’s vital that lenders don’t abandon those hoping to purchase property this year. Supporting high loan-to-value (LTV) lending remains a priority for us at Newcastle Building Society, not least through our Deposit Unlock scheme, which helps more low-deposit borrowers secure a new-build home.   Tough though the outlook for this year might be, there are small things all of us can do that have the potential to make a big difference. M I www.mortgageintroducer.com

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The cost of living and mortgage advice Gordon Reid business development Xxxxxxxxxx manager, learning and xxxxxxxxxxxxxxxx, development, LIBF xxxxxxxxxxxxxxxx

rom the financial press to the Bank of England, the consensus is that inflation is on the rise, with the bank predicting a rise to about 6% early this year. We’ve all seen the news about how that could impact UK living standards, but how will it influence the advice you need to offer as a mortgage broker to your customers? HOW WILL INFLATION AFFECT THE HOUSING MARKET AS A WHOLE?

As a mortgage adviser, you should be mindful of how consumers are likely to be hit by any price rises. Possibly the most obvious issue, because it has been in the news so much, is the expected increase in fuel costs, which are predicted to rise by 50% or more this year. That means consumers are more likely to be considering things like insulation and energy ratings, both in their own home and any properties they may be looking to buy. However, an increase in energy prices is not the only thing consumers have to contend with. Costs of building materials, which rose significantly in 2021, also continue to increase. This has a direct impact on anyone who has to decide whether to improve their home or sell it. The cost of vehicle fuel also reached its highest recorded level in 2021. Whilst this may have recently stabilised, the threat of further rises over the year can’t be ignored. Add to all this the well-documented difficulties with supply chains, and you can see why some experts have been predicting families could be as much as £2,000 worse off this year. www.mortgageintroducer.com

“Make sure you document your advice and demonstrate that you’ve included sufficient detail – particularly about a customer’s capacity to cope with changes in their circumstances”

DOES THIS MEAN THAT THE HOUSING MARKET WILL CONTRACT IN 2022?

Interestingly, much of what I’ve researched and read about this suggests not! According to the Office for National Statistics (ONS), house prices rose by an average 10.2% in 2021. Although similar rises are not expected this year, demand for houses currently remains strong and comfortably outstrips supply. Yes, interest rates have risen for the first time in years, but that’s unlikely to cool demand much. Further rate rises – together with the absence of schemes such as the stamp duty holiday – may dampen the market. On the other hand, however, the supply of homes coming to the market is expected to increase. While some experts believe that all the above could result in buyers waiting for a decrease in prices, it’s clear that many consumers – particularly firsttime buyers – are still keen to buy or move whilst they can. In short, we’re less likely to see the rising demand we saw in 2021, but it’s very unlikely that the housing market will actually shrink. HOW WILL CUSTOMER ATTITUDES TO MORTGAGES CHANGE AS THE COST OF LIVING INCREASES?

The first thing that customers are likely to worry about is whether there will be further rate increases, and in the event that rates do keep rising, how those rises will affect them. Whilst advisers mustn’t jump to the conclusion that a fixed-rate mortgage is going to be right for every borrower, undoubtedly consumers will be concerned about their other costs – and how that might affect the affordability of their mortgages. The price of energy, fuel, food and most other commodities is likely to rise. Of course, we don’t know what is going

to happen to wages either, although we do know that most people will be paying higher taxes from April. That means that for many mortgage holders, it’s never been more important to have a level of certainty about how much they will pay for their mortgage. HOW DO YOU NEED TO CHANGE YOUR APPROACH TO MORTGAGE ADVICE?

To begin with, you should ask more questions about your customers’ attitude to their wider finances. You should be conscious of the client’s capacity to cope financially with increases in their other costs, as well as being aware of how they might deal with a rise in their mortgage rates. This will help you identify the right mortgage product, and it will also make a difference when assessing what they can afford to borrow. Similarly, you should pay even more careful attention to your customers’ attitudes to risk, as this is increasingly relevant in an era of rising prices and inflation. Given this ever-changing landscape, make sure you document your advice and demonstrate that you’ve included sufficient detail – particularly about a customer’s capacity to cope with changes in their circumstances. Finally, remember to consider the implications and suitability of any protection policies that your customer holds. Many borrowers will be stretching their incomes to afford their mortgage and general costs of living, which means losing any income could be a significant blow. Ensuring your customers have the right protection in place will give them – and you – peace of mind at a time of economic uncertainty. M I

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NETWORKS

Brokers can now compete directly LET’S TALK ABOUT ‘PRICE WALKING’

Shaun Almond Xxxxxxxxxx managing director, xxxxxxxxxxxxxxxx, HL Partnership xxxxxxxxxxxxxxxx

t could be said that those of us who describe ourselves as positive thinkers look at the world as characterised by challenges and opportunities, rather than seeing only problems and uncertainty. Nowhere is this philosophy more necessary than in our own industry. For many of us, working alone as one-person businesses or kept away from the office thanks to COVID-19, staying positive may have been difficult. Yet one of the advantages of network membership is the knowledge that you are part of a larger whole, where other members and staff are there to talk to, as well as to offer advice on how you can run your businesses more efficiently and compliantly. However, what I want to talk about is a topic which, when understood, can be just as valuable to a wider intermediary audience. You might be aware by now that I am a keen advocate of protection and the place it should have in every intermediary’s client conversations. I don’t want to go over old ground, because we all know that protection is something we cannot ignore, regardless of any long-held concerns over time management and financial viability. In previous articles, I have warned about the upcoming adoption of Consumer Duty, which will put greater responsibility on advisers not only to measure customer outcomes, but to have that data available for scrutiny. So, there will be further reasons why protection can no longer be ignored, sidelined or placed into the ‘client not interested’ box.

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We are all consumers and have all seen ‘price walking’, as it is known, first hand. It has been endemic in the car and home insurance sectors for some time. The process in which products are heavily discounted in year one, then increased at renewal and again in subsequent years, has been effectively outlawed by the Financial Conduct Authority (FCA) from January 2022. Insurers have benefitted – via an auto renewal process – from the apathy of many customers, who have then found themselves unknowingly paying increasingly more for their cover year on year. This allowed insurers to have the cash to offer new customers enticing first year discounts. Effectively, existing loyal customers were subsidising new ones, to their financial detriment. Of course, the other main beneficiaries were the comparison sites and aggregators, which saw increasing numbers of customers regularly swapping to the latest discounted rates year after year. HOW WILL THIS AFFECT BROKERS?

This is good news for adviser firms, because you no longer have to compete against heavily discounted deals oﬀered online. The playing field has been levelled, and it changes the emphasis from cheapest premium to best value for money. In order to comply with the new rules, insurance companies will have to ensure that the new business premium has the same terms as the renewal premium, abandoning any heavy discounting for new policyholders at the expense of existing customers paying more at renewal. Brokers will now be in a stronger position to properly advise customers. New policy and renewal premiums will

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“Brokers will now be in a stronger position to properly advise customers. New policy and renewal premiums will become more equivalent, so the adviser is again in the best position to offer real advice based on actual benefits other than price” become more equivalent, so the adviser is again in the best position to offer real advice based on actual benefits other than price. This ruling by the FCA provides a great opportunity to revisit your existing client bank and build back a reputation for general insurance (GI) advice, in addition to your other specialisms. You will now find it easier to draw more customers away from heading off to aggregators – tempted in the past by the illusion of cheap deals – and provide a policy tailored to meet their specific needs, still cost effective against the new pricing standard in the market. SUMMARY

 Large discounts on premiums for new business, followed by subsequent year increases, to be banned  Insurers will have to ensure that existing loyal customers are not paying more than new customers  Insurers will no longer be able to subsidise large introductory discounts via existing customers  Auto renewal facilities, without direct customer intervention, will only be allowed if customers elect to auto renew and insurers provide adequate warning of policy and premium changes Brokers will now be able to compete directly, as heavy discounts via price comparison sites or direct from lenders at the expense of long-term customers will be banned. The opportunity is there to increase GI business by oﬀering a tailored, personal service for every client. M I www.mortgageintroducer.com

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LONDON

Our love affair with London property Robin Johnson Xxxxxxxxxx managing director, Kinleigh, xxxxxxxxxxxxxxxx, Folkard and Hayward xxxxxxxxxxxxxxxx Professional Services

t’s February. Love is in the air. So is rain, bitter winds and COVID-19 of course. Nevertheless, in the spirit of St Valentine, the nation and the world continues to love the London housing market. Price increases in the capital over the past year may not have the percentage levels of those other areas more supported by the stamp duty holiday, but in real terms London and the South East have continued to deliver real value to homeowners. Now businesses are returning to offices, there are good reasons to assume London will keep its allure. Young people hopeful of work as the economy opens back up post-lockdown are flooding back to the city, fuelling demand for rental property. That, in turn, is adding to demand for properties suitable to let, holding prices steady across the board and supporting a rise in asking prices in some boroughs. Meanwhile, although many were worried that the withdrawal of the stamp duty holiday would see buyer demand drop off a cliff, nothing could be further from the truth. Demand has stayed exceptionally high, and sellers are well placed to play hardball when it comes to agreeing a sale price. Many of our agents, particularly those opting to price new listings at a realistic level, are seeing sales go to highest bids with agreed prices out doing expectations. It may be a cliché, but there is an enduring love affair with London property. It doesn’t matter if you’re a crown prince or an aspiring young professional, London has offered millions of homeowners a safe haven for www.mortgageintroducer.com

their capital, with many seeing its value rise significantly over the years. That’s not about to change any time soon. Demand for London property has risen sharply in the past month, leaving those hoping to purchase a pad facing strict competition. New buyer registrations have ticked up significantly in the past month, but new listings are failing to keep pace. This leaves estate agents in the enviable position of being able to deliver great value to sellers, though buyers are feeling rather frustrated. The December 2021 Royal Institution of Chartered Surveyors (RICS) UK Residential Market Survey clocked this trend across England and Wales, with the number of new listings again failing to keep up with demand over the Christmas period, leading to agreed sales dropping and underpinning house price rises. Knowing where to buy in an upand-coming area has proven very lucrative for many homeowners, such as those who piled into Hackney before the hipsters arrived, Dalston before it became dapper, and pre-trendy Tooting. The question now is whether there are any areas that still offer buyers real value and the opportunity for capital growth. Rightmove analysis suggests Hayes and Barking might be worth a second look.

London will keep its allure

New York style apartment living has also gained in popularity in London over the past few decades. Sky-high blocks of modern glassfronted flats have become a common sight in Canary Wharf and the Docklands, and 2022 will see more of these go up. There are 587 tall buildings in the pipeline in London, with 310 granted full planning permission and 127 under consideration, according to New London Architecture’s annual review. A ‘Spire’ that would be Britain’s tallest residential structure is planned for Canary Wharf, as is an apartment building with an indoor garden on its 27th floor. Inflation is the biggest economic story of the year, and it’s putting immense pressure on the Bank of England to raise interest rates in a bid to put a lid on the rising cost of living. December saw the Monetary Policy Committee lift the base rate from 0.1% to 0.25%. Following shock Consumer Price Index (CPI) figures for the month – rising over 5% – markets priced in another hike sooner rather than later. This trend will make borrowing more expensive – but still historically cheap – which should encourage demand. The capital is notorious for having some of the most expensive properties in the UK, underlining the city’s international allure. Savills research shows the number of £5m-plus luxury homes sold in London in Q4 last year hit a record high. The firm put it down to international travel returning to more normal levels and a desire among the wealthy for more space. December’s housing statistics from the Office for National Statistics showed that house prices in London were still the highest in the UK, at £520,000. Even so, prices in the South West saw the highest annual growth at 12.9%, while London saw the lowest annual growth of 5.1%. It is important to see beyond the headlines and understand returns for what they really are. The capital is proving robust, and it is likely to re-emerge as one of the strongest performing areas for homeowners over the coming year. I, for one love and welcome that. M I

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HOUSING

What 2021 can teach us about 2022 Xxxxxxxxxx Steve Goodall xxxxxxxxxxxxxxxx, managing director, xxxxxxxxxxxxxxxx e.surv

ritain’s housing market has been one of just a few success stories during the pandemic, which has torn through other sectors, such as retail, travel, leisure, and hospitality. After a three month hiatus at the start of the first lockdown when valuations were suspended, the Chancellor’s stamp duty holiday scheme lit a fire under transactions, and prices have seen incredible inflation since. While this might be unwelcome news for those still hoping to get onto the property ladder, house price inflation driven by the temporary stamp duty reprieve will also be troubling for lenders. Nearly all the forecasts suggest the rate of inflation will slow over the next year, but few are of the view the market will start to slide backwards. But as ever, one has to be wary of relying on indices and averages when it comes to assessing risk. Location, as Kirsty and Phil know only too well, is paramount. Understanding local markets is of far greater importance to mortgage lenders considering approvals. It’s for this reason that we put so much stock in being assiduous when it comes to assessing granular data and making qualitative sense of it. As detailed in our latest analysis of the market, Wales has continued to outperform other regions, and for the sixth consecutive month topped the leaderboard for regions in England and Wales, with an annual rise in prices of 9.4% recorded in December. We put this down to the so-called ‘race for space’ during the pandemic, as the growth of the second homes market in Wales was a strong driver. www.mortgageintroducer.com

Continued strong performance in areas like Wales has not been repeated across the country, where regional fortunes have been turned on their head. The North West has slipped from second place in June to eighth. This is in contrast with the south eastern parts of England. STAMP DUTY IMPACT

To understand why this has happened, we need to appreciate the impact of the withdrawal of the Stamp Duty Land Tax (SDLT) in September. The staggered reduction of the SDLT tax holiday proportionately helped those buying at the lower end of the price scale. The savings were not insignificant when buying a property

“Our recent indices illustrate how fiscal policy has served to support or distort local markets, and that the crucial thing for lenders over the coming months is to understand how an individual property fits into the regional narrative” valued at £250,000, such as in the East Midlands, where the average price is £251,604. However, this saving was of less significance in the South East, where prices average £443,778. In other words, areas of the country where house prices are lower have been hit by the withdrawal of the tax break far harder than those with high house prices. Yorkshire and the Humber suffered, with average prices dropping from third place into tenth position, and the North East from fourth place into the number nine spot. By contrast, the three regions in the south east of England have all climbed

up the table. The South East is now in third place, from eighth, the East of England is up four places from ninth to fifth, while Greater London is up from tenth to fourth place. The picture in Scotland is similar, though average prices seem less of a driver than location. Our Scottish business, Walker Fraser Steele, confirms that the national growth rate in house prices of 9.3% in November remains exceptionally high. Again, the race for space seems to be supporting demand for properties that offer the room to live and work in a pandemic environment. Consequently, there was a notable increase in top-end sales last year, with support from the Land and Buildings Transaction Tax (LBTT) holiday that was available to the end of March 2021 shoring up demand and affordability. In November, 20 local authority areas in Scotland saw rising prices, with just 12 seeing a decline. The largest increase in average prices in November was in the Shetland Islands (10.2%), followed by the Orkney Islands (7%), though it should be noted that Scotland’s island groups tend to see volatile price movements, due to the low number of sales each month. On a weight-adjusted basis, in November six local authority areas were responsible for 54% of the positive movement in Scotland’s average house price. These were, in order of influence, South Lanarkshire, Argyll and Bute, Perth and Kinross, Highlands, Falkirk and Moray. At the opposite end of the scale, three were responsible for 60% of the fall in prices in the month, being the City of Edinburgh, East Renfrewshire and East Lothian, with the overall rise in prices outweighing the falls by £484. In the end, our recent indices illustrate how fiscal policy has served to support or distort local markets, and that the crucial thing for lenders over the coming months is to understand how an individual property fits into the regional narrative now the market has changed once again. Data and human judgement will remain crucial in underwriting properties with high loan-to-value lending. It will be interesting to see how the trends of 2021 evolve in 2022. M I

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RECRUITMENT

Headroom for growth Pete Gwilliam Xxxxxxxxxx director, xxxxxxxxxxxxxxxx, xxxxxxxxxxxxxxxx Virtus Search

ndustry professionals moving from one lender to another is common practice, and there are many occasions where people follow others they worked with previously. The hiring firm is buying the chance to benefit from the knowledge and successes individuals have gained elsewhere. Naturally, hiring successful individuals is a key enabler in helping that firm disrupt the status quo and create the conditions for innovation and growth. It is certainly a very fluid jobs market right now, yet it feels like a lot of employers have been slow to realise that – whilst the high demand for skills, experience and connectivity is the driving force – the fact people are choosing to leave for pastures new requires some inward inspection. Replacing successful individuals is a costly issue for any business. The price of fully replacing an employee not only encompasses the potential recruitment fee, but more significantly, the time it takes to train a new staff member to full working capacity, and the lost productivity in between, with the move likely to have other ripple effects. When good employees leave, morale can of course suffer. If the best and brightest are constantly jumping ship, uncertainties and concerns arise amongst remaining colleagues, who may resent being faced with increased

workloads. There is no doubt that productivity can be affected, and moreover this doesn’t have great optics as far as valuable external relationships are concerned. CAREER ADVANCEMENT

It is hard to hold onto talent when the market is throwing choice and money around, but the lesson I can share is that a lack of career growth and development is a big driver for employees leaving. If a person feels their career advancement has stalled, why wouldn’t they consider taking a new challenge elsewhere for more money, especially if they are given something new to learn and be challenged by? People have to feel that there’s still something left in the current lifecycle of their existing role, otherwise they will be tempted to search elsewhere, or be susceptible to recruiters. There are genuine benefits to ensuring all individuals get the resources to evolve their roles, to take on more and different responsibilities, spearhead new projects, and fundamentally both be stretched and feel they can participate in the development of the business and their own career. This mindset by all would foster greater inclusivity. For several reasons, however, this level of engagement is often reserved for those earmarked for succession planning only. Not everyone can be promoted, but they can be valued, appreciated and encouraged to participate in other ways to the benefit of their team and business. A lack of engagement and a

Max headroom: Decisions to hire and promote individuals need to be transparent and without favour

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sense of not belonging can develop if the individual is seeing others get more focus and attention than they are, and if others seem to always have better access to advocacy. The best individual contributors are not always going to want to manage people, so there should be non-managerial career paths, which necessitates more intersectionality across the business functions. NEW NORMAL

The work-life situation has changed for everyone following the disruptions to societal norms of the pandemic. Whilst improved financial packages and loftier job titles will account for many resignation letters, there are an increased number who are focusing on the benefits of working remotely and getting a work-life balance that meets their needs, and of being sure they work for an inclusive employer. Increasingly, the core values of a business and how inclusive the culture is are a vital part of an individual’s deliberations as to where they work, and this places a great emphasis on the importance of effective line management and a healthy attitude to work-life balance. Significantly, decisions to hire and promote individuals need to be transparent and without favour. Maintaining a positive and motivated workforce – especially in a close-knit market such as intermediary lending – is not just important for employee retention, but also helps present the business as an attractive career option for people from other firms. The real challenge for employers now is to develop, inspire, and reward everyone in their team in the right way, so the grass never looks greener, and individuals don’t have to leave to find what they’re looking for. The challenge for people seeing others move – and hearing of healthy reward packages elsewhere – is to not let money blind them and prevent them from thinking about what’s really important to them. M I www.mortgageintroducer.com

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TECHNOLOGY

Tech should support future propositions Tim Hague Xxxxxxxxxx director, xxxxxxxxxxxxxxxx, xxxxxxxxxxxxxxxx Sagis

ecessity is the mother – or father – of invention, they say, and the past two years have shown us the truth of that in spades. The rapid transition from an economy based on office working to one fully up and running from homes across the country is testament to that. Some technology investments were more successful than others, but speed being of the essence for the survival of companies meant mistakes were acknowledged – for the most part – early on, and money and effort refocused on the things that worked.   The speed with which Britain’s businesses have transformed their use of technology since the onset of the pandemic and consequent lockdowns is breathtaking. But in times where necessity is not the driving force, making the right decisions as to what technology to invest in to future-proof your business is not always so straightforward.   With so much fintech out there offering to solve the mortgage market’s problems, it can be hard to know which will add real value, and which is more likely to land you with a swanky user experience that fails to improve productivity, performance or profit.   Nevertheless, feeling unsure about how to innovate, especially when your business is actually doing well, and consequently failing to act, can spell disaster. In every size of business there are always incentives not to deal with legacy technology – something which I call ‘legacy thinking’. Consider the fate of Kodak, which didn’t take the advent of digital www.mortgageintroducer.com

cameras seriously enough and failed to adapt to customers’ changing tastes. It even owned the patent for digital photography! Yet the company filed for bankruptcy in 2012. Then there was Blockbuster, which was first wounded by Love Film, which rented films by post, and latterly killed off by Netflix, Amazon Prime and even iPlayer, which blew its business model to bits. What these examples – and many others – illustrate is that companies need to consider the service customers will expect in the future, not just what will satisfy them today. GREAT EXPECTATIONS

Receiving mortgage advice by instant messenger, having centralised platforms to store home purchase or sale paperwork and progress, being able to complete a fact-find online themselves rather than submitting to a three-hour interview with a mortgage broker or lender – these are all things that customers expect now. Many estate agents are wrestling with agents and clients who are successful and of an age where they expect to communicate via encrypted Whatsapp messaging. Not much of an audit trail there. Businesses that don’t offer easy, ‘frictionless’ ways to interact with mortgage advisers or lenders will see customer demand dwindle, particularly as younger generations begin to make up more of their customer base. SOUND INVESTMENT

But how should firms invest in the services that customers will want in 10 years’ time? In all honesty, there really isn’t an answer to this, as no one can predict the future. However, there are some straightforward questions to ask before you commit tens of thousands of pounds to your technology upgrade.

First, consider productivity. Customer experience is one thing, but improving the productivity of your staff is far more likely to have an immediate effect on your bottom line. Ask your employees what they find annoying and disruptive, and consider how to make processes the very best they can be. Boring, but effective. Second, unless your business has a strong consumer presence and established brand recognition, the chances are that designing a directto-consumer app is going to be a monumental diversion from the business’ key goals. The marketing spend needed to promote it is likely to wipe out any financial gains you might have stood to make. Third, technology needs to afford your business the opportunity to be agile to customer needs. If the solution you are choosing isn’t quick, easy and relatively affordable on an ongoing basis that allows you to update your capability and capacity, then your systems solution will not have the ability to flex as your business will likely require. Investing in technology needs to be appropriate to your business. Understanding your current proposition and how it is likely to evolve over the coming five years is key. Who is your customer? Who else wants to interact with them and has access to them further up the value chain? Who are the potential disruptors? How do customers like to transact? What’s most important to them? If it’s face-to-face advice but they’re worried about travel or health considerations, investing in easy video conferencing might be a better bet than integrating open banking application programming interfaces (APIs) one by one into your customer relationship management (CRM) system. Finally, consider who you want your clients to be in five or 10 years’ time, and ask those people what they would like from your services. I know from experience that it’s only when you have done this that you can apply the answers appropriately to your own proposition, and ensure the technology you choose properly serves your purposes – now and in the future. M I

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TECHNOLOGY

A tipping point for technology Steve Carruthers Xxxxxxxxxx principal mortgage xxxxxxxxxxxxxxxx, consultant, xxxxxxxxxxxxxxxx Iress

t the time of writing in mid-January, and knowing this article will be published in February, it is tempting to speculate on what awaits us in the coming year. Lending volumes are at prepandemic values, and in defiance of many predictions sales have held up, while a base rate increase in December has provided a welcome fillip to product transfers and remortgaging more generally. House price growth may be slowing in some regions, but there is still not enough stock to go around, and there are plenty of people looking for more space to accommodate new ways of working and living. All this suggests that there will be plenty of business to go around – notwithstanding the increasing number of lenders coming to market. That will keep mortgage pricing keen, even if interest rates are set to increase again this year.   Last month, I suggested that this year presents a window in which upgrades to existing systems – delayed due to the priorities of operating in the pandemic – will become more pressing. Our order book tells me I was not wrong. A successful couple of years has clearly emboldened lenders to deal with some of the technology issues that confront them. A growing need to process product transfers, remortgage, and purchase business efficiently – and frequently away from offices – has focused minds. We may have survived the past two years – we may have even thrived through them – but lenders are very

much in need of building sustainable solutions to meet these risks going forward, ones that future-proof the collective interests of the value chain and their own businesses. In many ways, the pandemic accelerated the digitisation of customer and supply chain interactions and internal operations by as much as three to four years, according to McKinsey. In its research ‘How COVID-19 has pushed companies over the technology tipping point – and transformed business forever’, carried out in late 2020, McKinsey reported that respondents expected most of the changes to be long-lasting. PRE-EMINENCE OF TECH

Many were already making the kinds of investments required to ensure these changes will stick, but the new operating environment had a profound impact upon the pre-eminence of technology in business thinking. Everyone already knew that technology was important, but the pandemic has made it integral.

“A successful couple of years has clearly emboldened lenders to deal with some of the technology issues that confront them. A growing need to process product transfers, remortgage, and purchase business efficiently – and frequently away from offices – has focused minds” When McKinsey asked executives about the impact of the crisis on a range of measures, they reported back that “the funding for digital initiatives increased more than anything else – more than increases in costs, the

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number of people in technology roles, and the number of customers.” It’s a story many of us will be familiar with, and for many lenders it remains front of mind. A new era is making technology the primary way of conducting business. We should not be surprised. Even where the changes to our daily life have been less significant, or have come in the form of Zoom meetings, in the world around us sophisticated track and trace systems – yes there were some – exemplified what could be possible with big data and sophisticated algorithms.   Technology offers that solution and enables the deployment of resources where they are really needed. The complexity of moving platforms and new system integration should not be underplayed, but in the end it only reflects the complex nature of lending businesses themselves. That’s why solutions should build in interoperability and become an enabler, rather than a drag on the bottom line.   LEARNING FOR THE FUTURE

Aside from general observations and personal experience, we are always keen to learn from our lending communities. This year’s Mortgage Efficiency Survey planning is already underway, and we are shaping the questions to better understand the impacts of the past two years on lenders’ future thoughts. Clearly, during the pandemic, financial borrowers moved dramatically toward online channels because of the need to observe social distancing and lockdown rules. Companies and industries responded. Our own survey will seek to see not only how permanent this move is, but also what it means for the next five years. Digitalisation and digitisation change the nature of business and customer relationships. How, in this environment, do lenders continue to offer that important personal touch? Customers have rapidly embraced digital channels, and it is just one more example of how the pandemic has delivered rates of adoption across all age groups that are years ahead of where they were before.   M I www.mortgageintroducer.com

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TECHNOLOGY

New tech is levelling the playing field   Jerry Mulle UK managing director, Ophen

or the many, not the few. It’s a phrase that has had its detractors in recent times, yet the technology phenomenon unfolding across the globe could be said to be exactly that. Hyper-digitalisation – a new era of cloud native solutions – is enabling mortgage lenders, banks and building societies of all shapes and sizes to reimagine their existing infrastructure, and realise their aspirations to reinvent their businesses. New cloud-based software solutions are delivering more value more quickly, and at a price that is inclusive of everyone. Indeed, according to EY’s Banking Public Cloud Adoption Index survey, just under a third of participants plan to migrate 50% or more business to the cloud in the next two years.

Digital cloud-based solutions were instrumental in supporting businesses that had to confront and recover from a myriad of supply chain and value chain issues. Some commentators are suggesting that we saw five years of progress compressed into one year. What is true is that only a fraction of what has been achieved would have been so without cloud-based innovations, which have enabled new platforms to dovetail perfectly into the ‘work from anywhere’ mantra that has shaped our workplaces over the past two years. The cloud has not only allowed for greater innovation, but also greater participation, as it has collapsed the cost of entry and aligned client investment in these solutions with business growth. It has changed business’ access to innovative solutions. The conventional wisdom has been that re-engineering has remained inconveniently out of reach of smaller business. However, this is patently no longer the case. AGILE AND COMPETITIVE

INCLUSIVE AND SUSTAINABLE

We’re all familiar with the benefits of digital technologies, of course – the potential to boost more inclusive and sustainable growth by spurring innovation, generating efficiencies and improving services. Over the past two years, not every organisation has been able to adopt these new solutions as quickly as they might have liked, and in general the focus has been on the front-end borrower interfaces rather than the more complex ‘systems of record’ that underpin mortgage lenders’ transactions. Ironically, having delayed many IT projects and redirected IT investment and focus in the immediate term, the pandemic has proven to be the poster child for cloud technology. www.mortgageintroducer.com

Cloud computing is delivering continuous innovation and differentiation – in part by negating the need for expensive upgrades accompanied by drawn out release periods. The deployment of these solutions is far more efficient too, and there is – unlike with conventional models for patches and upgrades – minimal risk of down-time. The service also means you can reduce your carbon footprint, and it protects you from the unfair advantage size has traditionally afforded the bigger brands, as you’re using the same tech.   COMPREHENSIVE AND CUSTOMISED

As cloud computing has taken root, it has moved from the front-end systems

of innovation and differentiation into the ‘systems of record’ – the typically mission critical and transactional parts of IT infrastructure that often go by the name ‘legacy’. These systems are also typically where more of the governance issues reside, in terms of reporting, security, and IT infrastructure. Whether in the form of endless variations of interest calculations or customised business rules for different sectors of borrowers, our systems are fundamentally quicker, easier, and more malleable to our clients’ needs, and do not come with excessive charges for updating or changing. APPROPRIATE AND AFFORDABLE

Cloud native solutions save money because you do not need hardware or data centres – you simply use AWS, which means you have unlimited capacity, either minimal or maximum, to manage any peaks and troughs in your business, and pay as you go. Cloud native platforms are now available that eliminate legacy issues of the past and for the future. They enable lenders to positively re-engineer their businesses from the very heart of mortgage transactions, bringing with them more resilience, superior performance, cost reduction, shorter cycle time, and increased customer satisfaction for all lenders – irrespective of size.    Tech providers like Ohpen are making it our mission to allow clients to scale their investment according to their need. We take cloud technology and build future-proof banking capabilities on it. Yes, there is a commonality that affords everyone access to the same benefits, but there is also the ability to offer endless specific configurations.   The cloud in and of itself is not an answer to anything – what it offers to software users is. It is an environment of innovation and interoperability that is enabling smarter tech for everyone. Cloud native solutions are transforming the opportunities of every business to do more, and to do it better than before.    M I

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TECHNOLOGY

Data is key in delivering change Mark Blackwell chief operating oﬃcer, CoreLogic

ou might naturally expect me to be supporter of the power of data to improve our lives – after all, technology and data have been a growing presence in our daily lives since the 1970s, when the mainframes of the 1960s gave way to the ethernet. We use data in nearly every walk of modern life today, and its power to help us make better decisions continues to grow and evolve. The Task Force on Climate Related Financial Disclosures (TCFD) is the source of nearly all the requirements of financial services with regards the management of climate risks. Born of the Financial Stability Board, it requires that financial markets possess clear, comprehensive, high-quality information on the impacts of climate change. This includes “the risks and opportunities presented by rising temperatures, climate-related policy, and emerging technologies in our changing world.” To do this, the TCFD is clear that banks should be able to show their workings in assessing the impact of climate risk on their assets and liabilities. This effectively means they need to provide the metrics or data points they use to assess the impact of these climate-related risks. In our world of mortgage lending, this amounts to understanding the ‘physical risks’ to things like originations and back books, and the ‘transitional risks’ of conducting business in a lower, or even net zero, carbon environment. There is, unsurprisingly, a huge amount involved in delivering the above. The temptation is to try and address everything at once, but the transition to becoming a more sustainable financial business is not an overnight process, and no regulator

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expects that. They do, however, expect explanations of how we propose to eventually get there. Data is crucial here, because providing metrics and staging posts to understanding and delivering a more sustainable businesses model is key. Ultimately, boardrooms know that it affects business value, as well. Ratings agencies and investors alike are keen to understand what is known and what is being done. The opportunities and risks of complying – or not – are huge. Improved data understanding and analytics may, in due course, impact the cost of capital used for lending decisions, insurance pricing or investment decisions. There is much to play for. As we know, the provenance of data is also important, because there is no doubt that using it to underpin decisions is happening already. Availability and its application are only part of the equation for users of data. The quality of the data has to be accurate, timely and complete. Robust data underpins better decisions. The rush to meet regulatory obligations may encourage some shortterm decision-making which in turn may deliver poorer outcomes for the long-term.

Without data, we cannot manage climate risk

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Climate data is complicated and changes over time. Integrating it easily into transactional systems requires huge effort and understanding – even if it is desirable. This means developing ratings and scoring based on assessment of factors is attractive. How you put that together is key. Energy Performance Certificates (EPCs) are a case in point. As a benchmark for understanding a property’s performance, EPCs are a key starting point for lenders, but they are also a work in progress. As the government continues to review the efficacy of EPCs and sharpen their effectiveness, their impact on our understanding will further evolve and complement other behavioural elements for example how a homeowner, or resident, uses energy. COLLABORATE TO SUCCEED

A modern data strategy should involve much more than the output of a transaction. It is about the collaboration of the various – and often numerous – parties using data, and whether they are performing the latest scientific risk analysis or packaging it into information tools and services. Only through collaboration can we empower all the parts of the value chain that contribute to understanding property risk today to effectively understand the impact of property climate risk tomorrow. It’s no exaggeration to say that without the right data we cannot manage climate risk on any level. Some issues are so big and complex that they require new data sets to even begin to quantify the issue, let alone drive action to resolve it. Data is key in delivering the change we need, and so is the role of those who bring it to market. Companies like ours, which source and provide vast amounts of data to underpin lending decisions, make it our business to fully understand the value and gaps in what is available. We have a duty to not only provide data, but curate it and contribute to its success in business application. M I www.mortgageintroducer.com

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BUY-TO-LET

The cost of living squeeze and the PRS Richard Rowntree Xxxxxxxxxx managing director xxxxxxxxxxxxxxxx, of mortgages, xxxxxxxxxxxxxxxx Paragon

ast month, HSBC was in the news after it was mooted to be considering a tightening of mortgage affordability criteria in response to the rising cost of living. The expectation that other mainstream residential lenders might potentially follow suit has stoked fears that some would-be buyers will be priced out of the property market. This would have significant implications for the private rented sector (PRS), and highlights how the UK’s housing tenures are interlinked. Figures published by the Office for National Statistics (ONS) revealed how, in December of last year, UK

inflation increased to 5.4%, its highest rate in 30 years. The increase in the consumer price index was attributed to the rising price of everyday items. Perhaps the most concerning of these is the spiralling cost of energy, with the price of oil recently hitting a seven-year high, and wholesale gas prices reaching record levels before Christmas. While energy is very much a market influenced by global supply and demand, UK consumers are anticipating no change in fortune, with energy regulator Ofgem scheduled to raise the cap placed on energy bills in April, leaving some to forecast up to 50% higher costs. These rising energy bills will coincide with higher National Insurance contributions, also planned to come into force in April, adding to the squeeze on household finances that is forecasted to continue throughout 2022 by Bank of England Governor Andrew Bailey.

The cost of living crisis reinforces the importance of the private rental sector

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Even with wages propped up by record high numbers of job vacancies, the increase in the cost of living will all but cancel out any growth in what people are paid. The result is that those saving will have less to put away each month after paying their bills. Sharp increases in property purchase prices have already dented deposits, making them worth less as a proportion of the total amount borrowed, and now they will be increased in smaller increments, if at all. Those looking to climb onto the property ladder could instead be utilising rented accommodation for longer, increasing demand already under pressure due to constricted supply. Hometrack’s Rental Market report, published at the end of last year, revealed that the availability of properties to let is 43% below the fiveyear average. This restricted availability is placing pressure on rents with figures from the Deposit Protection Service (DPS) showing how UK rents rose for the fifth consecutive quarter in Q4 2021. Given that landlords will be subject to the same increase in living costs as the rest of us, paying more to heat and maintain their portfolios, it is likely that this pressure on rents will increase. This highlights the fact that, while supporting those with homeownership aspirations, we should remember that privately rented homes are relied on by a broad mix of people, including those looking to buy, those who may never be able to afford to buy, and those that don’t want to. With talk of the PRS being subject to tax increases and changes to Energy Performance Certificate (EPC) regulations – which have the potential to result in substantial costs for landlords – it is this cause and effect that should be considered when we’re developing policy aimed at improving housing in the UK. The property market both impacts and is impacted by the wider economy, and any resulting changes often have an influence that is felt across all tenures. For this reason, it is vital that tenures are not pitched against each other, but instead seen as different solutions for a diverse population. M I www.mortgageintroducer.com

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BUY-TO-LET

Adapting to the new normal Xxxxxxxxxx Bob Young chief executive officer, xxxxxxxxxxxxxxxx, xxxxxxxxxxxxxxxx Fleet Mortgages

t has been something of a ‘new world’ over the past month or so, with the government lifting its most recent restrictions, meaning more freedom in terms of returning to an office if that suits, and generally feeling a little bit more like those preCOVID days, which can seem like a distant memory. This clearly has implications for all of us in a business sense, and has provided us with the opportunity for more officebased ‘normality’, as well as meaning our sales and business development manager (BDM) team have been able to get out and about a bit more, with an increase in face-to-face meetings. Of course, in a phrase we have heard repeatedly, this is very much a ‘new normal’. Indeed, it somehow beggars belief that we are effectively two years on from when the full extent of this pandemic truly hit home – it feels a lot longer than that. But the ‘new normal’ – and the way we have all worked over the past 24 months – has shifted the dynamics for us as an industry, and certainly in terms of the way we as lenders interact with advisers, and how we get the most out of this ‘new’ relationship. For instance, there is now more of a focus on online meetings, webinars, Zoom, Teams and like, and while a face-to-face interaction feels good when you’ve not been able to do this for months, I suspect the days of a fourhour drive across the country to grab a coffee and a chat, only to drive straight back again, are now gone. From an environmental perspective – something we all need to think about closely – it can’t really be justified, and when you add on top the efficiency, or lack thereof, I believe we’ll all be thinking carefully about whether this level of travel is justified, when www.mortgageintroducer.com

we know we can achieve the same outcomes sat at our desks. Of course, we’ll respond to however advisers want to be communicated with, and we’ll take advice from our partners about the best way to do this in order that they get the most out of these interactions. We know this is a people business, and for some, there is always going to be a need to meet before things can be moved forward. As someone who has spent a considerable amount of time meeting funders, investment houses, and the like, I’m aware that sometimes you need to see the whites of people’s eyes before you can progress. That said, this is still a learning game, because the environment has shifted again, but there’s no doubting that it has been a positive for us as a lender to be ‘out there’ in a physical sense. IN THE SAME ROOM

Talking of which, earlier this month we were able to get together with representatives from a large number of our key account partners, and to have everyone in the same room for the first time in a long time was quite exciting. It made me think of what we might have lost over the period when we were simply unable to do this. The fact that this was the first time since our change of ownership added something special to proceedings, as we were able to showcase the strength of Starling Bank, the ambitions it has in its own space and ours, and what that will mean for Fleet as we move forward together. The energy you get from such a gathering, and the positivity present, was something to behold. I know for a fact that it sent us all off with an increased confidence in what we are doing, and a commitment to keep on working hard to deliver what advisers, and those key partners, were looking for from a lender such as ourselves. Of course, given last year, you tend to get a lot of questions about where you plan to take the business next, what great frontiers do you plan to conquer,

“I think we’re all acutely aware that the buy-to-let and private rental sectors play an increasingly important role in UK housing strategy. The pandemic has changed much in that sense, but the reality of the situation is, as my colleague likes to point out, people need places to live and for a whole host of reasons you’ll already know, not everyone can – or even wants to – be an owner-occupier” and at what point world domination will be achieved. I hate to disappoint, but we are very much a buy-to-let specialist lender, and see great things for the sector, advisers, their landlord clients, and what we can do to help them grow their businesses and to support landlords in their purchase and refinance decisions. I think we’re all acutely aware that the buy-to-let and private rental sectors play an increasingly important role in UK housing strategy. The pandemic has changed much in that sense, but the reality of the situation is, as my colleague Steve Cox likes to point out, that people need places to live, and for a whole host of reasons you’ll already know, not everyone can – or even wants to – be an owner-occupier. 2022 is already shaping up to be a very positive year for buy-to-let, and I increasingly get the impression that landlords are not letting the grass grow under their feet in terms of utilising existing portfolios, accessing increased equity, and putting it to good use by purchasing further properties. That strong demand driver is good for all, and we anticipate this year will continue to deliver for all those active in our buy-to-let space. M I

FEBRUARY 2022 MORTGAGE INTRODUCER

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REVIEW

BUY-TO-LET

Promoting ﬂexible contact Grant Hendry head of sales, Foundation Home Loans

he importance attached to improving the client journey remains paramount for any lender, distributor or intermediary firm. Historically, from a regional account manager (RAM) perspective, this engagement process has tended to revolve around face-to-face meetings and networking events. We did this largely because it was the ‘norm’. However, this norm has been challenged many times over the course of the pandemic and we, as individuals and businesses, have had to adapt accordingly. Looking back now, it’s easy to see how inefficient the ‘standard’ RAM approach was at times. For example, it meant spending hours in cars between meetings, often sat in traffic jams and cursing the fact that the phone signal kept dropping out when trying to solve a range of broker enquiries – hands-free of course. That’s not to say there’s no place for face-to-face interactions or events, far from it in fact. However, with the technology, data and systems that we now have access to, we are able to work smarter and more cost effectively, as well as reducing our carbon footprint, all whilst offering greater access and availability to our sales team for our intermediary partners. Within this transitional period, feedback from brokers suggested that their preferred channel of communication with their Foundation regional account manager is via the telephone, closely followed by Teams or Zoom calls to help extend some degree of facial recognition, which some appreciate more than others. These findings were also reflected in Smart Money People’s H2 2021 Mortgage Lender Benchmark research. A section within this asked www.mortgageintroducer.com

the question: how do brokers want to speak to relationship managers (RM), and who’s getting the right balance of contact? Telephone was by far brokers’ preferred channel of contact with their relationship manager (59%), with virtual channels – such as Zoom – being their second choice (41%). Face-to-face was not deemed essential by brokers, but it’s clear that they prefer ‘voice communication’ to nonpersonal channels, with email being the least preferred option. Brokers also responded that they are happy to use email in combination with telephony. Being able to choose how they contact a RAM was the most common theme mentioned by brokers when discussing those lenders they rate highly for RAM contact.

the norm in our daily lives, and clients now expect quick advice delivery from advisers, and likewise, advisers are expecting the same from lenders. That means we have to support our intermediary partners and our borrowers more efficiently and effectively without a reliance on faceto-face interactions. CHANGING THE FOUNDATIONS

“It’s clear that speed, knowledge, accuracy and ability to help when needed is the key to a successful formula” Brokers also want to manage the level of contact, know that their RAM is there to help when required, and appreciate timely, appropriate updates but not being hassled or spammed with emails. Speed of response was the third key theme highlighted by brokers in the research. They want to know that they can rely on the RM to come back to them in an appropriate timescale to resolve the query or provide the necessary information. As outlined in this research, the pandemic has fundamentally changed the interaction model, and it’s clear that speed, knowledge, accuracy and ability to help when needed is the key to a successful formula. Of course, speed has long been evident in the pre- or post-application process when servicing client and intermediary demands, but there are now far fewer excuses not to get this right. Remote servicing has fast become

Which leads to the question – what has Foundation Home Loans done to implement these behavioural changes, and how do our RAM and telephone BDM teams now operate? Essentially, we have changed our weekly approach to one day on the road and four days working from home. As a result of this shift, we find our RAMs are building better relationships with their brokers because they are able to carry out more meetings in a day and are supported by a much larger telephony BDM team to help with case updates. They can also respond to emails more quickly as they don’t have hours of driving in their day. We have embraced the virtual world. For example, I can have one-to-one meetings with brokers in Manchester, Leeds, London and Southampton, all in one day, having not left my house. Yes, we could have done this before over the phone, but video calling with the ability to share screens has made a significant difference for many people. From a managerial standpoint, it’s also important to be aware of how these changes to working practices have impacted our people, and to be extremely conscious of their wellbeing. Many people move into sales roles because they are social beings who enjoy the human contact and enjoy being out and about. So, our big focus for the year ahead is to be flexible in our engagement process with individual brokers where possible, as well as facilitating constant, specific dialogue with our own sales team, centred around their wellbeing. This is a balance we have to keep getting right. M I

FEBRUARY 2022

MORTGAGE INTRODUCER

REVIEW

BUY-TO-LET

Talking tax offers opportunities Xxxxxxxxxx Jane Simpson xxxxxxxxxxxxxxxx, managing director, xxxxxxxxxxxxxxxx TBMC

s I write, the 31 January deadline for completing an Income Tax Self-Assessment (ITSA) tax return is nearly

upon us. This self-assessment, covering the 2020/21 financial year, is the first in which mortgage interest tax relief changes are fully applied. Announced in the 2015 Summer Budget, and phased in from April 2017, the most recent and final changes mean that landlords can no longer deduct 25% of mortgage interest payments from their income, with the remaining 75% given as a basic rate tax reduction. Instead, once the income tax on property profits and any other income sources has been assessed, income tax liability will be reduced by a basic rate ‘tax reduction’. The government stated that the policy objective is to ensure that landlords with higher incomes no longer receive the most generous tax treatment, adding that all residential landlords with finance costs will be affected, but that only some will pay more tax. It is important to note that companies are exempt from this, so the changes have presented a great opportunity for advisers to discuss incorporation with their clients. While individualised tax advice should only be provided by qualified professionals, brokers can provide information on incorporation to help the landlord decide whether it is something they would like an accountant to provide advice on. In this case, it could be informing clients how limited companies are charged corporation tax on profits – set

at 19% for the 2021/22 financial year – instead of being subject to personal income tax rates. Another important change to tax that has come into effect, and which may impact landlords, is the extension from 30 to 60 days in which to report and pay capital gains tax (CGT) on the profits of additional properties. Ahead of the Autumn Budget, there was speculation that investors would face an increase in the amount of tax that they would be required to pay when reducing the size of their portfolios, but the extension was the only amendment to CGT made by the Chancellor. With property prices forecasted to remain at the elevated levels we’ve seen of late, in addition to the potentially costly and disruptive changes on the horizon in the form of new Energy Performance Certificate (EPC) requirements, some investors may be tempted to offload at least some of their portfolios, so will be grateful for any information on their tax liabilities.

Brokers can provide information on incorporation

MORTGAGE INTRODUCER FEBRUARY 2022

Another area of tax where brokers have an opportunity to demonstrate their industry knowledge, provide a great customer service for their clients, and show that they understand the issues faced by landlords, is Making Tax Digital (MTD). Like the changes to mortgage interest relief, MTD was announced by the Chancellor in a 2015 Budget, and implemented using a phased approach. The government says MTD is the first phase of the move towards a modern, digital tax service – one that is more resilient and effective, boosting business productivity and better supporting taxpayers. From their first VAT period starting on or after 1 April 2022, VAT registered businesses, including landlords, that are not already required to operate MTD under the requirements applying from 1 April 2019, will have to keep their records digitally – for VAT purposes only – and provide their VAT return information to HMRC through Making Tax Digital compatible software. Acknowledging the challenges brought about by the COVID-19 pandemic, the government has agreed to push back the introduction of the MTD ITSA by one year, meaning the new deadline is April 2024 instead of April 2023. Despite this change, the government says that an encouraging number of people have already adopted a digital approach to recording and paying their tax, although I’m sure that there is a substantial number of landlords who still do things as they have for many years, so could benefit from any information brokers can provide. Changes of this type can feel like more hoops to jump through, costing landlords time and money along the way, so brokers can be valuable sources of advice for clients to turn to as they navigate their way through. Although the return on the invested time spent providing information on things such as tax is less obvious, this type of work can deliver real benefits to those that consider building relationships and generating repeat business as important to their own and their firm’s success. M I www.mortgageintroducer.com

REVIEW

BUY-TO-LET

A brisk year ahead for buy-to-let Xxxxxxxxxx Cat Armstrong xxxxxxxxxxxxxxxx, mortgage club director, xxxxxxxxxxxxxxxx Dynamo for Intermediaries

t’s not always easy to immediately get back into the swing of things from a work perspective after some time away from the desk. However, we are now back in force, and it certainly didn’t take long for the enquiries to roll in, especially from landlords looking to hit the ground running in 2022. LIMITED COMPANY LENDING

The majority of these enquiries are for limited company lending, an area which dominated the buy-to-let (BTL) market in 2021. A trend which evident in recent analysis of Company House data from Hamptons, showing that there were a total of 47,400 new BTL companies incorporated in 2021 across the UK. This is reported to be almost double the number set up in 2017, when it was announced that investors with properties in their personal names would no longer be able to claim mortgage interest as an expense. While the number of buy-to-let companies up and running in the UK passed the 200,000 mark as the country emerged from the first lockdown, by 2021 this figure had risen to a new total of 269,300. When evaluating limited company activity from a product perspective, 50% of new buy-to-let mortgages were taken out by a company rather than someone buying in their own personal name in 2021. This means that around half of all new landlord purchases over the past 12 months used a company to hold their buy-to-let. 40% of these new purchases went into a company which was less than a year old, suggesting www.mortgageintroducer.com

newer landlords still account for a sizable proportion of growth. The data also highlighted that the average BTL company has been operating for 9.2 years, a figure which has fallen amid the rising number of new incorporations over the last five years. At the other end of the scale, 7,900 (3%) have been running for more than 50 years, while 440 have been going for more than a century.

The average holiday let property mortgaged by Hodge has also increased year-on-year by £50,000, and now sits at £404,000. Coastal locations were still said to be the most popular areas to buy a holiday let, with Devon and Cornwall postcodes topping Hodge’s list for the most applications. Holiday lets will remain a hot topic for landlords in 2022, and as increased competition emerges throughout this sector, we will once again see more professional landlords turning to brokers for advice on how to finance such additions to their portfolios, and also from amateur landlords looking for ways to maximise the returns on any second home. BUSINESS VOLUMES

“It’s great to see a specialist like Fleet reporting such strong figures, and I’m sure that we’ll see more lenders within the specialist market reporting similar results, reflecting how busy a period this was for the lending community as a whole” As outlined in this analysis, the way buy-to-let investors hold property has changed, with the impact of the tax changes made five years ago still shaping landlord buying behaviour in the current market. The number of limited company offerings is rising, and the pricing gap continues to close, but there are many differing criteria requirements, and many products are only available through intermediary channels. This is a combination which means that seeking expert advice can really pay dividends for such landlords. HOLIDAY LETS

Another area which rose to prominence in the BTL market throughout 2021 was holiday lets, and this was reflected in figures from Hodge, which reported a 173% increase in the number of holiday let mortgage applications in 2021 compared with 2020.

The sheer volume of BTL business experienced across all areas of the market in 2021 was reflected in Fleet Mortgages’ reporting a 96% rise in mortgage origination, which represents a very significant uplift. It was also interesting to see that Fleet’s 2021 lending mix reflects its focus on professional buy-to-let borrowers, with a quarter of its business coming from portfolio landlords, and 50% originating from limited company borrower applicants. Purchase business was said to have increased from 28% in 2020 to 42% in 2021, with Fleet suggesting that this was the result of an acquisitive landlord community, supported by the growth in tenant demand and access to the stamp duty holiday. Regionally, the lender saw an increase in business outside Greater London – in particular, across regions in the Midlands and the North. It’s great to see a specialist like Fleet reporting such strong figures, and I’m sure that we’ll see some more lenders within the specialist market reporting similar results, reflecting just how busy a period this was for the lending community as a whole. Whilst 2022 figures may not quite reach the same heady heights from a pure purchase standpoint, we can be sure that business will remain brisk and a variety of opportunities will present themselves to landlords and intermediaries throughout the year. M I

FEBRUARY 2022 MORTGAGE INTRODUCER

REVIEW

COMPLEX CREDIT

Clarifying complex mortgage applications Jean Errington business development manager, Harpenden Building Society

s it me, or is life getting more complicated? The complexity of life is impacting the mortgage industry and presenting new and different opportunities to mortgage brokers, but what do these opportunities look like? With mainstream lenders focused on standard, straightforward mortgage requests, partnering with a specialist lender, particularly one capable of handling more involved applications, can tap into a whole new range of opportunities for brokers and their customers. Here are some of the most common circumstances where a specialist lender can help: DIVORCE

In a little more than a generation, divorce has gone from something experienced by the minority to a widely accepted circumstance today. The first working Monday of the year is now referred to as ‘divorce day’, a date when family lawyers reportedly see an increase in enquiries, after the stresses of a family Christmas and a resolve to makes changes due to the start of a new year. One of the common fallouts from divorce is the off-loading of the family home, and for mortgages to be secured on separate dwellings. Different lending is often needed, with additional scrutiny required by the lender with regard to affordability, changes to who is paying the mortgage, plus higher repayments to cover the cost M I of two properties. As a broker, you’ll recognise this scenario and recall the complexities

involved in getting new mortgage arrangements approved in this circumstance. BLENDED FAMILIES, MULTIGENERATIONAL LIVING AND SHARED OWNERSHIP

As well as divorce, there are a range of wider situations that lead to a complex mortgage application. Blended families can produce a more complicated mortgage scenario, as do properties bought and shared by multiple generations, or groups of individuals who all contribute to the monthly mortgage payments. Households containing multiple families have been the fastest growing type of household over the last two decades, according to the Office of National Statistics (ONS). A mortgage application in any of these scenarios has an added level of complexity. Choosing a lender that can work with these multifaceted situations is key to maximising this business development opportunity for brokers. DOWNSIZING

Another common example of a complex mortgage application relates to downsizing, when a homeowner wishes to sell a family home once the kids have flown the nest for example. This can involve moving to a smaller mortgaged property and releasing capital to help fund a retirees lifestyle. In our experience, customers in this situation often receive income from a wide variety of sources presenting brokers with a complex mortgage application to manage. Expert guidance from a lender specialising in this scenario is therefore beneficial. CHOOSING THE RIGHT LENDER

If all property buying circumstances were the same, the world would be a far less interesting place. Everybody has different mortgage requirements

MORTGAGE INTRODUCER FEBRUARY 2022

depending on their life stage or particular need. Many mortgage lenders say they make the complex more simple, but this isn’t always the case. It’s therefore important to partner with a lender with the appropriate expertise to genuinely manage complex mortgage applications. Mortgages from specialists like Harpenden are individually underwritten, unlike many mainstream lenders. This allows flexibility and the ability to accommodate the changing nature of each household’s income, even if it may have been modified

“Everybody has different mortgage requirements depending on their life stage or particular need” by circumstance. We consider a wide range of income sources when determining mortgage affordability. These include salary, bonus and commission, self-employed income, pension and investment or trust income. We actively encourage brokers and their customers to speak with our underwriters – so a focused, personalised decision can be made on the mortgage application, however complex it may be. This approach pays dividends for all involved, helping to get the mortgage approved and over the line. Finding a specialist lender who will take a flexible view on the merits of each case is important, particularly when the case has multiple moving parts. Going to a specialist lender first can save time, money and even make the difference between the application failing or succeeding. This individual, personal underwriting process, which gets to the heart of the situation, may not be for all lenders, but to a specialist lender it’s part of the everyday, helping brokers to increase business and their customers to acquire their desired property. When you are considering your next complex mortgage enquiry, keep it simple. Reach out to a specialist lender. M I www.mortgageintroducer.com

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REVIEW

PROTECTION

Can simple products really be simple? Kevin Carr Xxxxxxxxxx chief executive, Protection

xxxxxxxxxxxxxxxx, Review; MD, Carr Consulting xxxxxxxxxxxxxxxx & Communications

ometimes it’s about having fewer benefits covered, sometimes it’s about quicker underwriting or easier financial limits, or about having fewer added value benefits – simple protection products can be quite difficult to define. According to some experts, they can even make the advice process more complicated. “It’s a bit of a minefield really,” says Alan Knowles, managing director of Cura Financial Services. “But I think you could define simple products as any policy which has been designed to make the traditional policy simpler to understand or apply for.” CIExpert director Alan Lakey says: “Critical illness products are by their nature complex, and insurers are often their own worst enemies, in that they duplicate information, which adds pages to product literature and reduces the prospect of the brochures being read by advisers and clients.” Adam Higgs at Protection Guru adds that there are two types of simple products, in his opinion: “One is where the insurer strips out benefits to cut the price, the other is where the process is simplified – for example, less underwriting questions – which increases the risk, so insurers remove parts of the cover. Perhaps a riskier pool of clients, for example.” POLICIES AND PROCESS

One of the main benefits is typically a quicker application process, although this shouldn’t really matter to most advisers, as the focus should be on the best product and customer outcome, rather than saving time.

Simple life cover policies generally have a reduced number of broader underwriting questions to make the application journey as simple and quick as possible. They are predominantly designed for those with pre-existing medical conditions, with those that have more than minor conditions usually being rated or declined. Typically, these plans will have lower sum assured limits, lower maximum age at entry or expiry, and a maximum

“The critical illness cover market is already a bit of a minefield for advisers to fully understand, and unless you are a tied adviser or limited to a small panel, the existence of simple policies may only add to the confusion. For example, whether to choose core or enhanced critical illness cover for the life assured, or whether to include children’s cover or not” term. They will also not include most of the non-core benefits – such as guaranteed insurability options, waiver of premium and the wider support services – offered within the full plans. Simple income protection plans can often look to address issues around fluctuating incomes and may have no financial assessment of income. Such policies will typically be limited in terms of the maximum benefit and claim duration. However, they are considered a simple solution to the problem, because at point of claim the agreed benefit is paid without any financial assessment if the client is working.

MORTGAGE INTRODUCER FEBRUARY 2022

The critical illness cover market is already a bit of a minefield for advisers to fully understand, and unless you are a tied adviser or limited to a small panel, the existence of simple policies may only add to the confusion. For example, questions might arise around whether to choose core or enhanced critical illness cover for the life assured, whether to include children’s cover or not, and if so, whether that should be enhanced or core children’s cover. Lakey adds: “Ideally, I would completely redesign the brochures to reduce technical language, avoid unnecessary duplication and make the reading experience interesting as opposed to boring and drawn out. “Most of the advisers who subscribe to CIExpert tell us that they use the ‘simpler’ and cheaper plans as the base from which they can explain the value of the more comprehensive options.” THE BIGGER PICTURE

Naomi Greatorex at Heath Protection Solutions says: “This is a very relevant area right now, as I get so many questions asking my opinion on simple products and whether or not they make the advice process even more confusing. “In my opinion, the layers of different products make the advice process and clients more confused. “It is useful to encourage a conversation with clients on cost versus more comprehensive benefits, however it is complicated. “I also think that, as we get more and more complex choices and more ‘with or without’ options, this could be a turn off for advisers who do not give protection advice regularly.” To summarise, simple products might be more attractive, and can help some people obtain cover who maybe wouldn’t have been interested otherwise, which is great. However, every time an insurer adds a new product or new option, the overall landscape becomes a little more complex for whole of market advisers – and a little bit more off-putting for those who dabble. The big question is which one has the bigger net impact. M I www.mortgageintroducer.com

REVIEW

PROTECTION

Vulnerable customer policy at the centre Xxxxxxxxxx Mike Allison xxxxxxxxxxxxxxxx, head of protection, xxxxxxxxxxxxxxxx Paradigm Mortgage Services

e have all seen a lot of material in the press in recent weeks around the new Consumer Duty rules the Financial Conduct Authority (FCA) is keen to get on and implement by the end of April 2023. As mentioned by many, this is not a ‘tinkering around the edges’ piece of work – we can see this by the anticipated cost of implementation, a potential £2.4bn at the top of the estimate scale with an ongoing £160m per annum. Interestingly, there was not too much in addition to the current rules on vulnerable customers, but I am sure the FCA would say its approach is robust enough at present. Nevertheless, the words ‘vulnerable customer’ were used in the Consumer Duty paper in abundance, as the FCA no doubt thinks identifying and working with these customers should be at the heart of any business where money and or assets play a part. According to the FCA’s own definition: “A vulnerable person is someone who due to their personal circumstances is especially susceptible to detriment particularly when a firm is not acting with appropriate levels of care.” It also estimates that as many as 50% of customers could be vulnerable at some stage. It is crucial to acknowledge that vulnerability – whether actual or potential – can affect anyone at any time, and customers can be vulnerable at various stages in life. It is also important to say that sometimes this vulnerability can be hidden, even when it is right in front of us. Indeed, customers themselves can www.mortgageintroducer.com

be in denial about their vulnerability, or could find themselves with a complex layering of vulnerabilities. They may also see vulnerability as a weakness and choose not to ‘admit’ to it. A customer’s vulnerability could also be temporary, making it imperative not to permanently identify them as vulnerable within your advice process. While the FCA plans to implement its Consumer Duty next year, one of the cross-cutting rules refers to firms needing to “avoid foreseeable harm to retail customers.” It could be said that implementation of a full policy for vulnerable customers would be crucial in establishing the culture of a business and go some way at least to helping avoid foreseeable harm. Previously, the FCA has set out four key drivers for vulnerability: health, financial resilience, health events, and financial capability of individuals. All are pretty self-explanatory, but we mustn’t forget that COVID-19 may have caused or exacerbated some elements, including mental health problems, bereavement, loneliness or financial hardship. Each adviser reading this article will have known some of their clients for many years, and ordinarily would perhaps have been able to spot signs of vulnerability over that time. COVID-19, however, has impacted all of us, and spotting it may not be as easy now. If it is difficult for the adviser, think how difficult it is for staff who may rarely see or speak to the client. The FCA sees it as important to understand the needs of vulnerable consumers, develop the skills and capabilities of staff, and take practical action to work with vulnerable customers. KEY INDICATORS

In respect of training of staff, I recently picked up some information from Aviva, which has trained its staff

in certain aspects, highlighting in particular where clients may be: 1. Making unusual or unexpected decisions – for example wanting to withdraw all of their money or cancel their insurance policy mid-term. 2. Stating they had assistance from somebody else in making basic decisions – admitting a family member told them what to do. 3. Telling you they are confused or don’t understand – confused about information you have provided them with, or don’t understand what will happen with their pension or insurance due to COVID-19. 4. Unable to recall information that has been previously provided – you may have sent the requested information to them recently, and they have asked for it again. 5. Repeating things – this could be in the same e-mail or letter, or they could be sending you the same thing over and over again. 6. Informing you of stress or worries – they may be stressed or worried about current circumstances. 7. Telling you they need the money urgently – urgency usually means there is some form of vulnerability, this could be triggered due to COVID-19. 8. Exhibiting a change in writing style or a letter that is disjointed – either within the same letter, or compared to letters previously sent by the same customer. 9. Wanting to put pension, premium payments or direct debits on hold – the customer may have been furloughed and is looking to cut back on any outgoings. These are just a few indicators that could be helpful in pulling together a full vulnerable client policy. We at Paradigm have developed a free ebook for firms wanting to consider this in more detail, and can see from downloads that it is a topic advisers want to know more about. We are also working with firms to help them develop and implement their own policies via our consulting arm. There is little doubt that working with temporarily or fully vulnerable customers is a tricky area, but we will all be tasked with making sure we do so in greater ways moving forwards. M I

FEBRUARY 2022 MORTGAGE INTRODUCER

REVIEW

GENERAL INSURANCE

A remortgage resolution for 2022 Rob Evans CEO, Paymentshield

f there’s ever been a time for advisers to focus on reviewing general insurance (GI) needs with remortgage clients, it’s 2022. The scale of opportunity is huge, with many experts predicting it’s going to be a record year for remortgages. Admittedly, base interest rates are not as low as last year. We saw a sharp rise in remortgages at the end of 2021 as people sought to lock in low rates – according to the Intermediary Mortgage Lenders Association (IMLA), remortgaging accounted for 42.3% of the mortgage market in December 2021. But despite the Bank of England increasing the base rate, and the subsequent increase in mortgage rates, most industry commentators expect 2022 to surpass last year for remortgage activity. So, what’s driving this boom? The house purchasing market is expected to be quieter in 2022, after many buyers took advantage of the stamp duty holiday last year. It’s predicted that lenders will be focusing more heavily on remortgaging as a result, with IMLA forecasting an increase in remortgage lending from £82bn in 2021, to £89bn in 2022. We also know that many people will be coming to the end of their existing products. Industry data shows a high number of 5-year fixed rate mortgages were written between December 2016 and January 2018 and will now be reaching maturity, giving ample opportunity for remortgage business. OVERLOOKED OPPORTUNITY

With the scale of the remortgage opportunity this year, weaving GI into conversations with clients is a no brainer, and could generate significant revenue. Nevertheless, remortgages have often been an overlooked area for

advisers when it comes to selling GI. In a YouGov survey we conducted in October 2021 with 4,927 UK adults, we found that of those who had remortgaged in the previous two years via an adviser, 41% said they were not offered a home insurance quote or review as part of that process. We know that many advisers have typically been of the view that it’s not worth offering a quote to clients due to the chance of the customer being able to find a cheaper policy online. However, all that has changed this year, with the introduction of the

“Industry data shows a high number of 5-year fixed rate mortgages were written between December 2016 and January 2018 and will now be reaching maturity” Finacial Conduct Authority’s (FCA) Pricing Reform rules in January, which banned the practice of price-walking – where products are discounted in the first year but then increased at renewal and subsequent years. This has levelled the playing field and eroded the ‘race to the bottom’ pricing war, in turn opening the door for advisers to feel confident having more GI conversations with clients, without price as an immediate obstacle. NEW YEAR’S RESOLUTIONS

So, if advisers are going to adopt any resolutions for 2022, making a habit out of incorporating GI into the remortgage process should be in there. It’s not just earnings potential that’s there for the taking, though. Offering to review a client’s GI needs during the remortgage process is also a great opportunity to add value and increase client loyalty. Let’s say their 5-year fixed rate mortgage is coming to an end – in those five years they could have had children, their income might have changed

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significantly, and they’ve lived through a pandemic which could have had huge financial implications. The point is, it’s unlikely their financial situation has remained exactly the same. 2022 is going to be a tough year financially for many consumers too, even being touted the ‘year of the squeeze’ by economic think-tank the Resolution Foundation, with many families facing up to a £1,200 a year income loss. With higher energy costs, an increase in National Insurance contributions and rising interest rates all set to feature this year, people might be more in need of financial advice and help navigating what products might be appropriate for them. People are always tempted to make cutbacks when they’re feeling pinched – advisers are well placed to help them make healthy financial choices that will benefit them in the long run, not leave them financially exposed, and ensure they aren’t wasting money on products that aren’t fit for purpose. It seems that financial health for 2022 is high on the priority list for consumers, too. A recent survey looking into common resolutions, commissioned by investment company abrdn and conducted with 2,000 UK adults, found that 44% said sorting their finances was their highest goal for 2022. Almost 70% think that investing in their financial health will directly impact their happiness and wellbeing. With remortgages set to be the biggest housing market trend of 2022, advisers need to make the most of that by using it as an opportunity to review their clients’ GI needs – especially when we also consider that the FCA’s price-walking ban has given them the ability to compete with comparison sites on a more even footing when it comes to price. Those clients’ needs may have changed since the last transaction, and in what is set to be a difficult year for many of us financially, clients will undoubtedly appreciate the additional support in helping them assess what financial products are best for them. M I www.mortgageintroducer.com

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GENERAL INSURANCE

Cladding woes continue Xxxxxxxxxx Geoff Hall chairman, xxxxxxxxxxxxxxxx, xxxxxxxxxxxxxxxx Berkeley Alexander

n a long overdue intervention by the government, Secretary Michael Gove has vowed to to “expose and pursue” firms responsible for safety problems caused by dangerous cladding on apartment blocks following the Grenfell Fire. Pledging to ease the “unfair burden” on leaseholders, Gove plans to force developers to pay for cladding removal. SKYROCKETING

According to Which?, residents of flats with cladding and other unsafe building materials are facing skyrocketing insurance bills, paying an average of over 500% more for buildings insurance than they were one year ago, adding thousands to their annual service charges. Will this burden ease now that Gove has threatened legal action and told developers “we are coming for you”? Unfortunately not! At least not in the short to medium-term. While the move to protect leaseholders from cladding costs is definitely a very welcome step in the right direction, the insurance problems will not go away until cladding is entirely removed. HIGH RISK

Interventions such as a scheme that would see the government underwriting insurance in high risk buildings until remediation work is completed has been mooted, but until then leaseholders will continue to foot the bill for higher premiums while they wait for cladding to be removed. Multi-storey blocks of flats have always required bespoke broking, so linking in with a general insurance (GI) provider who has the right knowledge and access to the right markets is key.

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Talking about legal expenses cover for landlords A recent insurance industry roundtable event highlighted that ‘broad’ terms and conditions are causing property disrepair claims to be a target for fraudsters and claims management companies in 2022. Whilst relatively low value, these types of claims are typically difficult to challenge and relate to any property damage or any adverse effect on tenants’ health and wellbeing. For example, a tenant might claim for injury due to a trip caused by poorly fitted carpets. We’ve also heard of tenants claiming that draughty windows have pushed up energy costs – a sore issue in the current environment. Whether these are real or perceived maintenance issues, it once again reinforces the need for landlords to have the right legal expenses and public liability cover in place.

It’s also worth reaching out with a little added value advice on the importance of regular maintenance checks and risk management prevention. Not only does this protect landlords against fraudsters, but it also ensures that maintenance problems aren’t left to build up over time, potentially triggering the ‘gradually operating’ exclusion clause, and the risk that an insurance claim will therefore be repudiated. CLAIM DECLINED

We have recently seen a claim brought by a landlord because of subsidence that was declined on the grounds of poor maintenance. A leak in the roof had been left so long that it had allowed water penetration for so long it contributed to the subsidence. Don’t leave landlord protection to chance. Speak to you insurance provider about the range of landlord protections you can offer clients. Landlords will certainly thank you for reaching out to protect them against an emerging fraud risk, and you’ll offer an all-important point of differentiation. M I

Protection for landlords put at financial risk during the eviction ban

s the COVID-19 pandemic took hold in 2020, too many people saw their incomes fall or disappear altogether. As part of a package of interventions aimed at protecting those left financially vulnerable, the government stepped in to protect renters by introducing a complete ban on evictions. Whilst the eviction ban protected tenants, it plunged many landlords into a financial crisis, due to tenants building up significant rent arrears. Some even found themselves at risk of losing their own homes when their rental income dried up. An unintended consequence, but a consequence nonetheless. The eviction ban came to an end in the summer of 2021, but many landlords are still vulnerable, and some remain unaware that legal expenses and rental protection policies

that were withdrawn from the market during the ban are now back in play. This is an opportunity for brokers. Landlord legal expenses and rent guarantee products deliver a valuable point of differentiation and provide your clients with surety in uncertain times. Provided the matter is reported to the insurer at the outset of the default on the rent, products typically cover the policyholder for legal disputes in relation to the tenancy agreement, including handling the eviction process and the unpaid rent – although policies won’t reimburse historic rent arrears built up prior to the claim being reported. Speak to your insurance provider to see if they are once again offering this protection, and then reach out to your landlord clients.

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GREEN MORTGAGES

Time for valuers and lenders to talk green David Hughes valuation audit director, VAS Group

he month of January is named after the Roman god Janus, the protector of gates and doorways, which symbolises beginnings, transitions, and endings. With two faces, one looking into the past, the other seeing into the future, Janus causes actions to start and presides over new beginnings. It is therefore fitting that at the end of January two important documents which govern and provide guidance to valuers come into effect from the Royal Institution of Chartered Surveyors (RICS): Valuation Standards (the Red Book), and the new, concisely named Sustainability and ESG in Commercial Property Valuations and Strategic Advice. Let’s start with the Red Book. The latest version is more of an update than brand new, and aims to reflect the changes to the International Valuation Standards (IVS) which comes into effect on the same day, 31 January 2022. It’s not just a straightforward replication of the changes to the IVS though, as RICS has taken the opportunity to makes some “other changes and refinements.” There is little which impacts valuers reporting loan security valuations, so lenders are unlikely to see much – if any – change to valuation reports. Indeed, if valuers are compliant with the current version of the Red Book, no change is needed. Valuers who provide advice for financial reporting, however, will probably need to read in more detail. For lenders, other than making sure the name of the updated Red Book is correctly referenced – RICS Red Book

Global Standards – there’s one aspect which is worthy of further discussion. As sustainability and environmental, social and corporate governance (ESG) are increasingly at the top of every firm’s strategic agenda, it’s encouraging to see such matters playing a more prominent part in the updated Red Book. That leads nicely to Sustainability and ESG in Commercial Property Valuations and Strategic Advice. SUSTAINABILITY AND ESG

This document seeks to set out good practice for firms valuing commercial property – or providing strategic advice – and consider how sustainability and ESG can impact value. Real estate is widely accepted as a significant contributor to global carbon emissions, with the built environment contributing circa 40% of the UK’s greenhouse gas emissions. Thankfully, we should see some improvement over the next few years, as building owners and occupiers adopt more energy efficient measures. However, as always with real estate, the pace of change is slow at best.

Lenders need best-in-class advice on sustainability

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It’s heartening to see RICS urging valuers to have a working knowledge of the various ways sustainability and ESG can impact value, but in reality do valuers have the necessary knowledge and skills to analyse, opine and draw conclusions on such matters? Valuers are risk savvy individuals, taking care not to stray into areas their knowledge and expertise do not cover. Therefore, it’s unlikely that valuers will start to analyse energy consumption data, current carbon emissions, interrogate building management systems and so on, unless they have a specific expertise and background. CHANGE AND ADAPT

One thing is certain: as the real estate market continues to evolve and adapt to an ever-changing world, the needs of lenders will continue to change in terms of sophistication and the demands placed on valuers. Lenders need to increasingly look at the resilience of a property over the term of the loan, and the speed of obsolescence and depreciation. In turn, valuers need to continue to upskill themselves to be able to provide that advice. It is therefore imperative and more important than ever that lenders ask the right questions of valuers, that valuers are able to provide the advice requested, and most important of all, that the right valuer is appointed at the outset. At VAS Panel, we have more than 180 panel valuers across the UK. Where our lender clients need particular advice on energy consumption, carbon efficiency improvements, capital expenditure or general resilience of a property, we can help ensure the best-in-class valuer with the right skills is always appointed. We work with lenders to ensure that the right questions are asked at the instruction stage, enabling credit decisions based on rigorous advice. We adopt a partnership approach with our lenders, so when updates are made to the Red Book, or more specific matters such as the guidance on sustainability and ESG, our lenders are assured of a collaborative and forwardthinking relationship. M I www.mortgageintroducer.com

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EQUITY RELEASE

PI at the right price Xxxxxxxxxx Stuart Wilson CEO, xxxxxxxxxxxxxxxx, xxxxxxxxxxxxxxxx Air Group

iven the ongoing debate around the increased cost of living in the UK, and what forthcoming hikes in energy prices later in the year will mean for older consumers on fixed incomes, it would be a very easy article to write about how later life lending might be able to help those people who are struggling with bills but own their own homes. Indeed, it’s one I’ve written before and it’s as relevant now as it has been for the past decade. People who own their own properties should not be suffering in silence, too scared to put the heating on for fear of the bills they will receive. Of course, there are other things the government perhaps could – and should – be doing, but certainly equity release might also be a solution for some facing that predicament. However, this piece isn’t about consumer inflation, but business inflation, particularly advisory firms and how they marry up their costs with their income. Of course, after what I hope has been a very good year for later life advice firms, there might be a temptation not to look at the underlying costs associated with working in this space. That, I’m afraid, would be a mistake. Indeed, when it comes to certain costs they don’t wait for you to review them, they simply turn up on your doorstep or in your e-mail inbox, and demand you take them seriously. RISING COSTS

One cost which is of particular concern right now is professional indemnity (PI) insurance – something no firm can continue trading without, yet often a source of consternation in terms of both accessibility and price. www.mortgageintroducer.com

At last month’s ‘Breakfast with Stu’ event, this issue was raised by one of the adviser attendees who had just received their PI renewal quote, and had seen it “increase massively.” They had two simple questions: why this might be the case and what, if anything, could they do about it? INCREASINGLY SUCCESSFUL

When faced with an increased PI bill – and this is really aimed at directly authorised (DA) firms, though appointed representative (AR) firms might see networks looking to recoup bigger PI costs – in the equity release or later life market, it is difficult to present this as something of a positive, but there is a kernel of truth here. Essentially, PI costs for later life advice are rising partly because the sector is increasingly successful, more business is being written, and it is helping more customers; therefore, it is now on the radar of the regulator and the media, perhaps more than it has ever been. My conservative estimation just for equity release lending in 2022 is over £5bn, and if you look at the growing demographic of those who might be suitable for later life lending, this is substantial to say the least. There are lots of new customers, many new loans being taken, and advisers are at the very heart of this, responsible for the vast amount of business being written. When a PI insurer looks at our market, their first reaction is probably that they don’t truly understand it, and therefore the easiest way they can shore up the potential risk is to increase premiums until they learn more. It’s why the Equity Release Council (ERC) and Air Group are talking to insurers who have asked for education and training in this area – a good sign – so they can understand it more. Hopefully as a result, they realise that it is a very low risk business with few complaints making it to the Financial Ombudsman Service (FOS), and those that do rarely being upheld.

However, at the moment insurers are in that learning phase, and until we improve their confidence around the sector, the advice given, and the quality of the advisers active here, we are likely to see the picture repeating itself whereby premiums rise. This might not help those firms getting their renewal quotes now – indeed, I’ve heard some talk about the difficulty of getting PI cover from insurers unwilling to go there – so we are asking firms to tell us of their issues so we can feed back to the insurers we’re talking to, in order to reverse the increases and ensure firms have the cover they need. In the meantime, firms can also help themselves here by being prepared. At our meeting, the ERC pointed out that insurers are asking equity release advice firms in particular for much more information about what they do. One insurer, for example, has a specific ‘Equity Release Questionnaire’ to answer as standard, and there is a request for information around areas such as client vulnerability, rebroking, reviewing client activity in the future, and indeed whether the firm is a member of the ERC. DE-RISKING THE SECTOR

The insurers are trying to secure greater levels of information here so they can ascertain both existing and future risk, and it’s certainly going to help those individual firms now, and the rest of the sector in the future, if we can provide them with as much data as they require, so we are able to de-risk the sector from a PI point of view. As mentioned, this can be seen as a positive in that it’s happening because we are a growing sector, but at the same time, no one wants to be paying hugely inflated sums for their PI cover, or indeed any other service. Helping the insurers understand us and what we do will help greatly, and we are also intent on being there to ensure there are few bumps in the road, and that all firms can get the cover they need at a sensible price. M I

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REVIEW

EQUITY RELEASE

Building on the market’s hard work Claire Barker managing director, Equilaw

ith the new year now upon us, the need to push forward and build on the advances of 2021 remains of paramount importance. A recent survey of advisers by Air Mortgage Club (AMC) highlighted the need for better educational standards in order to tackle consumer suspicions of equity release (ER). While this remains a top priority in the months ahead, perhaps the most alarming aspect of the research relates to the ability of advisers to provide the expertise and knowledge needed to reassure or inform clients at a frontline level. While 76% of respondents felt that customers had a limited understanding of the ER market, 43% said the same was also true of advisers, with 23% suggesting that greater education and training at an advisory level represented the most significant area for innovation in the sector – a genuinely shocking conclusion that could have serious implications for our ability to meet the expectations of clients, or to tackle their misgivings effectively. Recent research by Boon Brokers found that almost 60% of homeowners aged 55 or over would never consider taking an equity release product out on their home, despite 67% admitting that they aren’t really clear what it is or what it entails. The survey of 1,000 respondents identified a number of depressingly familiar misconceptions and misunderstandings, with the fear of negative equity or losing ownership of a property accounting for 9% and 22% of objections, respectively, while the worry of burdening family members

with debts or other obligations accounted for 9%. Meanwhile, 12% had been deterred as a result of family disapproval, while the impact of media horror stories and other disruptive news items were cited by a further 18%. This rollcall of issues merely serves to reinforce the need for better awareness and knowledge at all levels. PROTECTING THE VULNERABLE

While the need to tackle myths and promote a better understanding of ER remains crucial, so too does our ability to protect vulnerable customers by ensuring that all recommendations are compatible with individual needs and circumstances, and that a clear weight of supporting evidence is provided. Under current Equity Release Council (ERC) regulations, qualified advisers are obliged to base each recommendation on both short and long-term requirements, with projected spending costs and the viability of pension plans being considered, alongside other factors, such as existing income, investments, tax, care needs, inheritance, the impact of loans on benefit eligibility, or the possibility that an alternative financial plan may represent a better option. However, as the number of ER products and service options continue to grow, so too does the possibility that some recommendations may be limited or compromised by a failure to keep pace, thereby engendering the kind of unwanted publicity that reenforces negative stereotypes. Moreover, failure to offer sufficiently personalised advice or to challenge client assumptions could lead to a resumption of multi-firm reviews by the Financial Conduct Authority (FCA). So, the way forward is clear, even if the necessary solutions are less apparent. Better training can help of course, with the launch of the ERC’s

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competency framework aiming to improve understanding of the industry, as well as of markets, clients, soft skills, processes and products amongst advisers. The six educational modules, developed and trialled alongside specialists from across the sector, are designed to reflect each adviser’s level of experience and to offer mentored advice on every aspect of the application process, supporting individual development and ensuring that those new to the industry – or whose core business lies elsewhere – are conversant with all obligations and requirements. Moreover, the ERC’s Advisers Guide – relaunched in July – offers a valuable resource, reflective of feedback from the FCA and wider sector, as well as of emerging product innovations and market trends. While both of these initiatives represent a clear and necessary step in the right direction, there is also little doubt that their effectiveness could be raised further by a renewed emphasis on industry sponsored materials and platforms, such as webinars, complementary training programs, resource packs from lenders and developers, focus groups, or – as in the case of a recent development from Air Club – online support modules. The role of advisers is central to our business, and I am convinced that many of the issues highlighted by the AMC have resulted from the sector’s success in innovating new products and approaches over the past few years. It might be taking longer for some to absorb these developments, but recent research from Key shows that the majority of customers rate their experience of advisers positively, with 92% saying their adviser had explained the product and process well. So, we do have a solid platform to build on, and we certainly don’t want to isolate or alienate advisers by apportioning unwarranted blame. But we can’t hope to make the advances in customer education that we all aspire to if elements in our frontline are lacking, so instigating an industrywide campaign to provide support and encouragement for advisers should be of critical importance in 2022. M I www.mortgageintroducer.com

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EQUITY RELEASE

The customer behind the policy Alice Watson head Xxxxxxxxxx of marketing and communications, xxxxxxxxxxxxxxxx, Canada Life xxxxxxxxxxxxxxxx

eople have incredible emotional attachments to their homes, so the decision to release equity is personal and often emotionally driven. By fully understanding the reasons behind a customer’s decision, advisers can provide the most accurate guidance. Customers tend to approach the product with a financial goal or milestone in mind, such as paying oﬀ the last of the mortgage, clearing other debts for a financially secure retirement, making home improvements, or helping family.

Canada Life’s customer data across the past year creates snapshots of these dreams and ambitions. The desire to be free from monthly mortgage payments accounts for almost half (45%) of applications received – the fourth year running it has held the top spot. We saw a rise in people using equity release to help with daily living costs – the first time this has entered the top three. With inflation at its highest for more than a decade, these costs are only going to increase, leading more people to release equity for this reason. A third (34%) used the money to bring additional value or enjoyment to their property through home improvements. Perhaps unsurprising, given the amount of time we’ve all spent at home recently. These changes sit against a backdrop of nationwide house price growth,

with recent analysis finding there’s a total of £766bn in equity available to release across the country. Londoners have the most, with £183,000 available on average per household, in stark contrast to the North East (£55,800). Meanwhile, property prices in Wales saw the greatest growth in Q4, rising by 5.8% when compared to Q3. The variety of reasons for releasing equity highlight the flexibility and accessibility of modern products, giving households the freedom to enjoy their retirements comfortably and in a way that suits them. As an industry, we need to ensure we don’t lose sight of the end customer. Equity release is a lifelong financial decision, so it’s essential that people can continue to access quality advice and talk the decision through with loved ones before proceeding. M I

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FEBRUARY 2022

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CONVEYANCING

Exodus, what exodus? Mark Snape Xxxxxxxxxx managing director, xxxxxxxxxxxxxxxx, xxxxxxxxxxxxxxxx Broker Conveyancing

“H

eadlines give me headaches when I read them…” sang the Bard of Barking, Billy Bragg, and while he was apparently referring to a nuclear submarine sinking off the coast of Sweden, I can certainly appreciate the sentiment, especially in this pandemic world we live in. It’s hard to think of a time when the headlines wouldn’t give you a headache of sorts, such is the news agenda at present, and we are not immune to that feeling closer to home in our mortgage and property market press. CONCERNING STATISTICS

Just recently, I read a piece with a headline suggesting that unprecedented numbers of conveyancers had left the sector over the past year. This is an assessment which – I’m sure – would have raised concerns from all housing market stakeholders, and not least for a business which relies on there being a good supply of conveyancers to carry out the work passed to them by advisers. Delving a little deeper into the article, it became clear that this assertion didn’t actually come with any facts or statistics to back up the headline, and that the commentator was essentially providing an opinion rather than any sort of fact. That is frustrating in itself, because the last thing we want to do is have advisers, agents and the like believing there is a shortage of supply when it comes to conveyancing, and that they should perhaps leave it up to their client to find their own conveyancing services rather than take control of that process themselves. Of course, conveyancers leave the sector all the time, and I would agree with the sentiment that firms in this

part of the market have been under a lot of pressure over the course of the past couple of years. This is especially true when you add in the stamp duty holiday, the demand that brought, the fact that staff were on the whole working remotely, and the deadlines that have needed to be met. HIGH VOLUME

I think it’s fair to say that conveyancers have been under a severe amount of stress because of the high volume of activity they dealt with during 2020 and 2021. I’m absolutely supportive of the initiatives which are ongoing to help employees cope with their workplaces, the stresses and strains, the mental health concerns, and the like. However, have we truly seen a mass exodus? The conveyancing firms we work with are on a regular cycle of recruitment, but that has been the case for some time, and sometimes there does have to be a shifting of resources in order to deal with work flows. But again, this is a natural part of the business. Indeed, one of the ways we can help advisers and their clients with their conveyancing needs, when presenting our panel firms to them, is being mindful of those firms’ current work levels. To this end, we are in constant contact with those firms in order to ensure they are not inundated with work when they are fulfilling pipelines, and this ensures that our adviser users are aware of where they might be better off placing their client during those busy times. Also, let’s be clear here, the actual data around conveyancing firm activity and numbers does not show an exodus, let alone a mass one. Recent statistics from Search Acumen for Q3 last year, show that the number of conveyancing firms active during those three months was, once again, more than 4,000 for the second quarter in a row. Indeed, it was actually prior to – and during the early stages of – the

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pandemic that this number seemed to be on a steady downward trend, with the number of firms registering completed transactions in Q2 2020 being barely above 2,400. Of course, this was during the first lockdown, but you can clearly evidence the steady climb back to ‘normality’. In Q3 last year, the top 20 conveyancing firms saw their activity rise 4% from the previous quarter, and while we have to understand this was just prior to the end of England’s stamp duty holiday, that is still a healthy increase, and shows firms were able to cope with the activity levels they were seeing and completing. SECURING RECRUITMENT

Overall, you would say that an active firm number of more than 4,000 shows this to be a sector which isn’t necessarily on its bare bones in terms of conveyancer numbers. There will be vacancies in the sector, of course, but there are in pretty much every single part of the economy at present. In that regard, conveyancing firms might have to fight a little harder to secure the recruitment levels they ultimately need, but that is not an insurmountable task by any stretch of the imagination. So, advisers and their clients should not be worried about there being a shortage of firms or staff, or a wider inability to complete their conveyancing needs. In fact, you might well truthfully say that if – as an adviser – you are active in the conveyancing process, using a distribution platform like Broker Conveyancing, and choosing from a wide panel of firms which are actively available to take on these cases, then you are doing everything you can to ensure your client’s conveyancing is completed by specialists who are ultracommitted to the sector and are here for you every single day. That is a headline worth shouting about, and one that is totally true and certainly not going to give you a headache. M I www.mortgageintroducer.com

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COVER

Putting leaseholders on a more equal footing Mortgage Introducer caught up with Guy de Jersey, managing director of Lifetime Mortgage Gateway Logistics, to find out how he and his team are trying to help an estimated 500,000 people trapped with mid-term leases

ampaigners have made significant progress fighting for leasehold reform over the past few years. The noise lobbyists have been making has caught the attention of the government, which is now moving towards making these contracts fairer for leaseholders. However, the fact remains that freeholders continue to have many advantages over leaseholders, particularly those with mid-term leases with less than 80 years to run. Typically, these people find themselves hard pressed to access finance, and stuck with a depreciating asset that is nigh on impossible to sell, for a fair price anyway. Guy de Jersey, managing director of Lifetime Mortgage Gateway Logistics (LMGL), tells Mortgage Introducer how his firm is trying to help the estimated half a million people trapped with mid-term leases. You recently launched LMGL – what issue are you trying to solve?

However, there is one issue that has largely flown under the radar: the plight of those with mid-term leases. Or in other words, homeowners with 80 years or less left to run on their lease. If you’re a homeowner with a mid-term lease, unfortunately you face a number of problems that are not easy or cheap to fix. Once a lease falls below 80 years, its value starts to decrease annually, and the cost of extending it increases exponentially. This has two negative impacts. First, it means you will find it increasingly difficult to sell your home for a decent price. Second, once your lease falls below 75 years, you will not be able to find an equity release lender willing to lend to you. That’s a particular problem if you were hoping to use your home to boost your finances in retirement. The only way to solve the problem is to extend your lease – otherwise known as enfranchisement. However, extending a lease is expensive, often costing tens of thousands of pounds – the sort of money most people don’t have lying around, but which they may well have locked up in their property. Our data shows that there are roughly 500,000 people with mid-term leases in England and Wales, and many of these will be short on options. Too many older homeowners end up caught in this ‘mid-term lease trap’ and are left with little option but to sell their home or sit on an asset losing value. That is ultimately why – with my colleagues Christopher Stainforth and Justin Jones – I set up LMGL, to help these people. How are you helping these people?

The UK’s 1,000-year-old leasehold system has – understandably – come under a huge amount of fire over the past few years. Critics quite reasonably argue that the terms of many leasehold contracts are unfair, particularly the clauses around escalating ground rents.

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Put simply, we’ve created a one-of-a-kind process – the Lifetime Mortgage Gateway, as we call it – which not only helps older homeowners extend their mid-term leases, but also helps them access finance to help fund their retirement. www.mortgageintroducer.com

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COVER

Guy de Jersey

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JANUARY 2022 MORTGAGE INTRODUCER

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COVER To make this process work, we have partnered with some of the UK’s most respected lenders, equity release specialists and enfranchisement experts. Our role at LMGL is to manage the process from start to finish, ensuring that each stage is completed smoothly, on time and to the highest possible standard.

activities, requiring the sort of expertise which is very hard to bring together. It has taken us some time to find the right partners to work with. A leaseholder attempting this themselves would also need significant amounts of cash. Do you work with intermediaries?

How does the process work exactly? There are three main parts to the process: the lease extension, funding the costs of the lease extension, and the lifetime mortgage. With the help of our highly respected and trusted partners, LMGL arranges a short-term loan to pay for the process of extending the lease. After that, a lifetime mortgage is put in place to repay the short-term loan and settle the premium payable to the freeholder. While the lifetime mortgage provided is designed mainly to cover the cost of the lease extension, the leaseholder can release additional cash to pay off debts, pass on an inheritance, carry out home improvements or simply to boost their retirement savings. What are the benefits to leaseholders of using your service? The benefits are threefold. Firstly, our process has been designed to remove the main barrier stopping people from extending their lease in the first place – cost. If you were to extend your lease yourself, you would have to pay tens of thousands of pounds up front out of your own savings. However, our process means leaseholders have almost no outlay up front, because the initial cost of extending the lease is covered by a short-term loan. A lifetime mortgage is then secured to pay off that loan. Secondly, we currently offer the only route to a lifetime mortgage for those leaseholders who cannot afford the up front cost of extending their lease. Thirdly, by extending their lease, the leaseholder will stop surrendering value to the freeholder, and therefore stop their property depreciating in value. This surrender in value is, in effect, a cost they suffer every year. With LMG, the leaseholder substitutes this cost with the cost of interest on a lifetime mortgage loan, at a fixed interest rate, used to pay the costs and the premium for enfranchisement. The cost of the interest is often less than the ongoing, accelerating surrender in value to the freeholder. Then they can leave a real asset to their loved ones, or sell at a full market value. If I’m a leaseholder, can I just do this myself? Technically speaking, you could. However, it would be very difficult. Corralling and controlling the various processes involved is a highly specialised series of

MORTGAGE INTRODUCER FEBRUARY 2022

Absolutely. In fact, we insist that all leaseholders first speak with an independent financial adviser (IFA) because of how complicated the process can be. While we have assembled what we believe to be the best team of professionals to carry out our unique process, the leaseholder must first decide whether it is right for them. We feel that good financial advice is vital in order to arrive at this decision. If you are a broker, financial adviser, accountant or managing agent who has a client in this situation, we would love to talk to you. You can find out more at lmglogistics.co.uk. Who are the partners that help you in the process and why did you choose them? As I have said before, it took us years to find the right mix of expertise to help us make the LMG process work. However, we are glad we took our time, because we are sure we have now assembled the best in the business. Our partners come from very different backgrounds and are made up of regulated lenders and enfranchisement professionals. They include bridging loan providers via Vantage Finance, lifetime mortgage providers via Key, leasehold enfranchisement practitioners Egerton and enfranchisement solicitors Ince. The government is currently consulting on making the enfranchisement process easier and cheaper for leaseholders. Wouldn’t it be better for those people to wait until the new rules come into force in a few years’ time? There are three things we consider here. Firstly, if you are a mid-term leaseholder who needs access to finance, then there is a good chance that you cannot afford to wait three or four years for the government’s legislation to kick in. Secondly, as attractive as some of the proposed amendments may look from a leaseholder’s point of view, will they really become law? Recent votes in the House of Commons would suggest it is going to be tricky. Thirdly, the longer you leave it to extend a mid-term lease, the more your property depreciates in value and the more it costs to extend. While the government has pledged to make the process cheaper, leaseholders will almost certainly be better off acting sooner rather than later. M I www.mortgageintroducer.com

SPOTLIGHT

SAXON TRUST

Trust in Saxon Mortgage Introducer talks to Andrew Gardiner and Brian West at Saxon Trust to find out what differentiates it from other lenders, and learn more about their plans for 2022 and beyond

t may surprise some to learn that the team at Saxon Trust has been lending successfully without fanfare since 2006, albeit for much of this time under their original trading style of Calmez. With a broadening suite of loan products designed to help and support borrowers throughout their project lifecycle, the team decided in 2020 that the time was right for a rebrand. Consequently, Saxon Trust was born. Andrew Gardiner, director and co-founder of Saxon Trust, explains: “The business is privately owned and has been built by property professionals who originally focused on a combination of development and mezzanine lending. It’s this hands-on development experience that now allows us to fully support our borrowers across their range of needs and make assessments specific to each individual deal.” With newly expanded institutional funding lines now secured, and several senior hires in recent months, this flexibility has been further enhanced. A combination of strategic owner backing and institutional capital has enabled the growing Saxon Trust team to considerably accelerate product development so that they now offer a diverse range of product solutions designed to fit a project lifecycle. Brian West, head of sales and marketing, adds: “It’s rare to find genuine USPs in a market that’s awash with liquidity and lenders. Many claim them, but few can actually deliver. “Our background, structure and experience has always seen us creating products to fill gaps in the market, a process that we are now accelerating with genuinely unique stretch development, stepped bridging, development exit and other new products. We are excited by these products so now is an obvious time to gear up and grow the business.” EMERGING TRENDS Having rebranded early in 2020, Saxon Trust is delighted to see light finally emerging at the end of a very long pandemic tunnel. The team has always been proud of the long-term relationships built with intermediaries, borrowers and

MORTGAGE INTRODUCER

FEBRUARY 2022

Andrew Gardiner

Brian West

professional partners, and believes that the challenges of the past two years now puts it in a position to drive growth through transparent, innovative products that have always been their hallmark. Gardiner says: “When the COVID storm first broke we focused our attention primarily on looking after and assisting our existing borrowers. We have all faced unprecedented challenges in the last two years, not least of all some of our longstanding developer clients who have endured material and labour shortages, rapidly rising costs, lockdowns and much more besides. “By working more closely than ever with these borrowers, we have gained unique insights into how we can best serve their needs going forwards. “It’s this understanding that has informed and driven our new products.” Among a suite of products, the lender’s newly launched ‘finish and sell’ and ‘market and sell’ products are proving particularly popular, alongside core products such as ground-up development. Key to this popularity is the fact that borrowers can transition from ground-up to the finish and sell product www.mortgageintroducer.com

SPOTLIGHT

SAXON TRUST once units become wind and watertight. This transition does not incur any additional fees on the transfer, but can see borrower’s rates dropping by over 0.20%. As West says: “The rationale behind fee-free product transfers is very clear. We want to ensure that as developments near completion and our risk reduces, our developers start to see the fruits of their labour reflected in pricing. In addition, by allowing them adequate time to market and maximise on their sales, we can minimise their downside risk whilst placing them in the strongest possible position moving onto future developments. “Most of our developers are already repeat borrowers, and with these new products we expect this longstanding trend to become even more pronounced.” Added to this, Saxon Trust offers competitive bridging rates starting from just 0.55% on its new stepped rate product, and stretch funding to a maximum 75% loanto-gross-development-value (LTGDV) and 90% loanto-cost (LTC), and even more with additional security. Regarding the stretch product, Gardiner states: “Our hands-on experience of development funding allows us to look further up the risk curve than most lenders and, although we now do less mezzanine funding, our stretch loans can present a very viable alternative and indeed a better overall proposition. “Two lenders, senior and mezzanine, on a single deal can lead to issues including legal complexity, a duplication of costs and more complicated day-to-day management, all of which can be negated by a single stretch loan.” EXPERIENCE IS KEY Gardiner and West share a great enthusiasm for the specialist lending market, and this passion drives their desire to deliver innovative products and solutions. Both believe that while greater choice is good for the market, a seemingly endless influx of new lenders is not necessarily providing this. West says: “There seems no end to the number of new entrants, many of whom seem to be making the same claims about speed, flexibility and access to decision makers allied with the use of cutting-edge technology. “For me, the first three should be a minimum requirement for any short-term lender, and whilst embracing technology is a must it should never be done at the expense of regular contact from experienced underwriters.” Gardiner is quick to agree: “Whilst we use third-party software and have built our own internal tools, you are unlikely to see us using chatbots and bespoke mobile apps anytime soon. “Since November, we have recruited four senior department heads; hugely experienced individuals who will drive our use of new cutting-edge property technology, but who crucially possess the experience to interpret and understand the insights provided.” He adds: “They will also ensure that from project start to finish borrowers will, if they so desire, have www.mortgageintroducer.com

a single point of contact, even if they transition to another type of loan.” THE FUTURE It is clear that Gardiner and West are extremely confident about Saxon Trust’s prospects for the coming year, despite a somewhat uncertain economic backdrop. Bank rates would appear to be heading in one direction only, and as the impact of recent super low mortgage rates and the prolonged stamp duty moratorium begin to fade, there are still some headwinds, including of course rapidly rising tax and energy prices. Tailwinds remain, however, not least of all due to the chronic imbalance that remains between the supply and demand for housing. West believes, in times of uncertainty such as the past two years, that: “Investors will always look to real estate as a reliable asset class for both long term capital growth and regular rental returns. Consequently, bridging loans have become a vital component part of the wider UK property market. They have helped to fuel a boom in investors buying at auction, in DIY refurbishments and in the acquisition, conversion and refurbishment of properties that are often considered unmortgageable by more traditional lenders. “Furthermore, by offering cost-effective funding for a wide variety of purposes, including business loans to consolidate debts and reduce costings, or conversely cash injections to drive growth, bridging loans are a key driver of the economy.” With their new funding enabling the provision of tailored, competitive bridging products, the Saxon Trust team is keen to build its bridging portfolio. Equally it is optimistic for the prospects of strong continued growth in the development market with Gardiner stating: “From where we stand sentiment remains upbeat. “Our developer clients generally have strong pipelines, and government initiatives such as build to rent and the affordable homes program will be complimented by relaxed Permitted Development Rights for commercial to residential conversions, a greater focus on sustainability and increased use of airspace development.” He adds: “Hopefully the pace of material cost rises and labour shortages, which were so significant last year, will continue to ease as the pandemic outlook improves.” With a range of innovative products, a strong and approachable team and a unique mix of funding, Gardiner concludes: “It’s testament to the inherent strength of the specialist finance market that whatever shocks it faces it bounces back stronger than ever. “At Saxon Trust, we are extremely proud to be a part of the industry, and determined to add real value with solutions that maximise opportunity for our borrowers.” M I FEBRUARY 2022 MORTGAGE INTRODUCER

THE OUTLAW

THE MONTH THAT WAS

Whitehall – A (bad) lesson in WFH

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 FEBRUARY 2022

hat bloke Duffy was warned last month about his pronouncements. Alas, to no avail. For this month, the top man at Virgin – who perhaps understandably declined to bid for troubled rival TSB – was sermonising us on the benefits of the Bank’s very accommodating work from home policy. “...We value staff’s output, not its presenteeism”. Hhhm... basically it’s Duffy and his executive cohorts who most want to keep working from home, getting on their Pelotons www.mortgageintroducer.com

and walking their pooches? This is a level of ‘output ’which City analysts last week described as disappointing. Get a grip, Duff. WFH has some occasional efficiencies – half days on Mondays and Fridays, at a stretch – but by and large it is being chronically abused across the UK on a near industrial scale. If you want any further proof, then just check out our indolent and grossly overpaid Whitehall civil servants – and specifically those ‘working’ for the still-on-thesofa FCA. Which is billing us £700m quid for the privilege. As if an average salary at the regulator of almost £60,000 wasn’t insulting enough to brokers, we now hear that – in protest at some long overdue levelling up from their thankfully ballsy new CEO – 87% of its staff are readying to down tools and to slope off home. Hang on... isn’t that what they did two years ago when COVID struck? I despair. Never mind, there’s still plenty for readers to cheer, not least the defiantly rude health of the housing and mortgage sectors. December – yes, the Xmas month! – saw an astonishing 71,000 mortgage approvals, 5% up on November... I mean hey, when has THAT ever happened before?! The market also had its strongest January in 17 years, and paradoxically the base rate increase will actually add further adrenaline as the four million UK borrowers who are still unbelievably on standard variable rates (SVRs) shortly get a disturbing letter from their notifying lenders. Curiously, however, some firms still can’t avoid stonking losses amid the most benign trading conditions in living memory. Take Purple Bricks, for example. Still a noisy upstart in its self promotion, yet losing £11m in the six months to October alone, in a year when countless housing market records were broken and we had the greatest stamp duty gift horse in living memory. Noise also continues to reverberate from the anti-Brexit bed wetters who – via Maggie Thatcher’s traitorous nemesis Michael Heseltine – claim that ‘Boris out’ somehow equals ‘Brexit out’. Give me a break. It was timely, therefore, to read last week that of 40 senior executives in the City polled by the respected EY Club, an astonishing 87% planned to expand their operations in the UK. Not to run off to Strasbourg, Brussels or Frankfurt as we were all led to believe amid the fearmongering of 2018. But hang on a minute folks...wasn’t Europe also meant to be a safer place these past 60 years because we had the

Boris: Brexit doesn’t go with him…

mighty EU keeping the peace? Ahem... a penny for the thoughts of brave Ukrainian housewives and kids taking up arms right now as the Ruskie gas dependent Germans pander to Putin the bully. Ironic isn’t it, that only the EU-exited Britain has genuinely stood up for democratic rule. Prepare yourself for more tosh from the cappuccino-sipping faux-Europhiles, many of whom can’t even be bothered to actually learn any European languages or even be respectful to the thousands of eastern European baristas and waitresses now working in the UK. Back to our world, where we continue to see bankers behaving badly. First up, our old mucker from Santander and Lloyds, Antonio Horta Osario – known affectionately by brokers as simply Tony Ho. Tony was sacked last month by Credit Suisse for his flagrant breaches of COVID-19 restrictions and travel expense largesse. Then we had the comatosed Andrew Bailey at the Bank of England. This was the dullard → FEBRUARY 2022 MORTGAGE INTRODUCER

THE OUTLAW

THE MONTH THAT WAS FCA: Still on the sofa

who was flagrantly over-promoted into the job after a scandal hit tenure as boss of, you guessed it... the FCA. Get this one reader… for amid some shocking cost of living increases for much of the country, this £575,000 per annum earning berk has asked the nation’s workers not to seek a pay rise! Fish – and government institutions – truly do rot from the head down, don’t they? Thankfully, the consequences all of this hypocrisy is coming for Boris in due course. The arrogant moron simply has no idea what Mondeo Man is thinking right now, and if Susie Gray’s final report doesn’t nail him, then a combination of Cummings’ revenge and the voters’ vengeance in May will see the lying buffoon gone by the time we’re having street parties to acknowledge our true national leader on June 5. Anyhow, that’s enough opprobrium for this month. But next month we ‘ll be asking three more pertinent questions, notably... Given the connection between Christian Ronaldo and Mason Greenwood – check out the recent light aircraft banners flying over Old Trafford! – why or why didn’t the latter listen to the former’s advice on living a clean life? In the intermediary space, we will be asking why procuration fees have hardly moved over a 10-year period during which the broker now not only delivers far more than he ever did, but also pre-screens and packages each case far more comprehensively than ever before?

MORTGAGE INTRODUCER

FEBRUARY 2022

Queen Elizabeth II: The real leader of the country

And we will be responding to suggestions this week from some vile misogynists that if there was a Champions League Final for lazy and manipulative gold-diggers then it might be contested between Carrie ‘Antionette’ Symonds and Meghan Markle? I don’t know how anybody could think such a thought. M I

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SPOTLIGHT

Business owners and second charges Loan Introducer asks the experts for their thoughts on a potential increase of interest in second charge mortgages among businesses

hen it comes to the uses of second charge mortgages, debt consolidation and home improvements might be some of the first thoughts that spring to mind. However, Knowledge Bank found that business owners are turning to second charge mortgages to raise capital in the wake of the disruption caused by COVID-19. Its criteria tracker found that a popular search among intermediaries in December was ‘capital raising for business purposes’. Matthew Corker, operations director at Knowledge Bank, believes that while some of these searches may be connected to the disruption caused by staff having to isolate, there will be others using second charge mortgages for positive reasons, such as to make improvements or renovations to offices and other business costs. So, Loan Introducer asks: “Are you seeing more demand for second charges from business owners?”

Given that it is business-related, we find that lenders tend to operate much more flexibly in this area; for example, with one product – providing 50% and above of the loan is used for business purposes – the lender has a unique criteria in that they will ignore all unsecured credit, school fees, maintenance payments, etcetera, and assess affordability based on the first charge mortgage payment and the cost of the second charge. There is a restriction on only being able to use 50% of the provable income, but if they have a small mortgage and lots of equity, it can be a great product for the right client. As mentioned, in addition to the above, the majority of our lenders are far more flexible with business purposes so long as the loan is to enhance the business. For example, that could cover training new staff, a move to larger premises, the purchase of stock, or anything that’s going to improve the income of that business. That being the case, we are anticipating this will be a part of the second charge space that is likely to see demand growth in the months ahead.

Sarah Stroud director, Pink Pig Loans

Utilising second charge mortgages for business purposes is definitely an area where we are seeing demand growing, with some lenders offering specific products for this purpose, and the likelihood is that others might well follow.

Alistair Ewing owner, The Lending Channel

Using a second charge loan to raise capital for business purposes can be a great use of funds for clients, as typically, mortgage lenders are not keen to offer a remortgage

MORTGAGE INTRODUCER FEBRUARY 2022

or further advance where the purpose of the loan is for business. As the second charge market continues to flourish, we have seen increased demand from business owners looking to access funding to assist with the growth of their own businesses. While lenders won’t support a failing business, raising capital for the following reasons is proving popular: a tax bill, a deposit for commercial property purchase or buy-tolet investment, and for stock acquisition to fuel sales and growth.

Marie Grundy sales director, West One Loans Second charges can be used for a variety of loan purposes, including business purposes in the right circumstances. We will consider lending to established businesses on a referral basis for self-employed borrowers who have a proven business track record. They may want to invest in their existing business – for example, to buy new machinery or premises. Other scenarios we see are where professional self-employed applicants such as lawyers, dentists or doctors, have the opportunity to become a partner in their business. We will not, however, consider loans for start-up businesses or investment speculation. In addition to our normal underwriting requirements, we will take into account the www.mortgageintroducer.com

SECOND OPINION

BRIDGING FINANCE? We’re the Experts.

current and previous business performance and how our loan will contribute to the ongoing success of the business. We will also take into consideration the level of experience of our borrower in their particular field, and assess whether the new borrowing is likely to adversely impact on future earnings, which could affect the long-term affordability of the second charge mortgage. The security for our loan is the borrower’s residential home or buy-to-let property, as we do not participate in commercial second charges where the security is the business premises. We always recommend independent legal advice. This is important for business loans, particularly where there is a joint application but only one borrower has an interest in the business.

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Steve Walker managing director, Promise Solutions

We have always seen decent demand for loans for business purposes, and this has continued, especially as more innovative products – flexible or drawdown types – are now on the market. We are also seeing more demand from landlords and property investors, as these products are cheaper and faster than getting a bridging loan each time they are short of a deposit or want to refurbish before selling or remortgaging. With more of these types of loans coming to the market right now, hopefully awareness and demand will increase further.

James Bloom director, Alternative Bridging Corporation We’ve seen an increase in demand for finance from businesses right across our range, and there is certainly appetite for second charges. An overdraft style loan can be used as a second charge and provide a source of funds for capital investment and for dealing with fluctuations in cashflow. Such a facility can provide businesses with multiple drawdowns on demand, which can be repaid or reduced and redrawn again and again. It’s there when the business needs it and avoids expensive, repetitive setting up costs. M I www.mortgageintroducer.com

For short-term, swift ﬁnance, choose Expertise You Can Trust Get in touch today Marie Grundy

01709 321 665 sales director, West One Loans www.nortonbrokerservices.co.uk

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

FEBRUARY 2022 MORTGAGE INTRODUCER

LOAN INTRODUCER

SECOND CHARGE

Embarking on a digital journey Matt Meecham chief digital officer, Evolution Money

hen it comes to technology and embarking on a digital journey, it’s absolutely true that you need to know what your destination is, and you have to accept that it will take time to get there. That said, there are a number of clear benefits for all, particularly in an industry which has historically relied upon a considerable paper trail to get things done, and within a second charge sector which has, let’s be frank, not always felt the need to buy into the technological advantages other parts of the market were grabbing hold of. The good news is that the latter attitude is changing, and indeed Evolution as a business is committed to digital improvement and digital-based gains for ourselves as a lender, but also perhaps more importantly, advisers and their clients, like never before. Looking at what we have been doing, and what we will continue to, from all three of those perspectives, it’s clear that a more defined digital focus, with a tighter technological system and application, allows us to bring in and deal with a greater volume of business, without necessarily needing vast amounts of human resource in order to do this.

A major part of the work we do in providing second charge mortgages is around the collation and verification of the data we receive, and it therefore makes perfect sense for us as a business to look into the way technology can help us do that in a quicker timescale, and without the administration resource it has formerly required. For advisers too, I suspect, it is the collation and verification of data and information from clients that takes up a considerable amount of time. Add on the administration elements required to get a case in front of an underwriter, and you can understand why many advisers feel they are already behind the eight ball when it comes to processing time. What we want to provide advisers with, as a lender, is the opportunity to reclaim that time back – to be able to spend that time advising clients rather than going through the administration process. We want to ensure rekeying of data, once it is provided once, is not required at all, and as a result to ensure that when they secure the data they need from clients it doesn’t become an exercise in who wants to hang up the phone first. So, the adviser is able to ‘drag in’ a lot of the data they need to process a case from outside sources such as Open Banking and other organisations, which in turn makes that data more reliable, so they can search the market and find

Prudent use of technology will lead to a better second charge market

MORTGAGE INTRODUCER FEBRUARY 2022

the most suitable product, first time, every time. It will mean they don’t have to keep going back to clients to try and secure accurate and up-to-date information which they may not have readily to hand, and ultimately might still not be what the adviser or lender requires. For us, having that focus and access to a client’s information undoubtedly enhances the advice journey. It cuts down on the time, energy, investment and resources they have to expend to get to the right result, and as a lender it allows us to carry out our work in a much shorter timeframe. It also becomes something of a ‘virtuous circle’, particularly within the seconds market and for us as a lender specifically. Having more accurate data from clients means we can understand customer demand, situation, want and need much better. It means we can segment our customer base to a greater degree, helping us design specific products for specific client types; it will allow us to drill down into the spending data of specific customers, for example, and from that we will have better credit information to allow us to make better credit decisions. We can become much more tailored in our lending and product offering, because we will have a much wider view of risk based on a much more informed view of the marketplace. From there, we can create the next generation of products, pricing them accordingly based on that determined risk, and ensuring advisers have more options for clients that fit them in a far better way. The good news is that we are getting there across a number of digital and technology workstreams, and 2022 is likely to be transformative as we bring these elements all together and make them available. The benefits will be considerable for all stakeholders, and if we can continue to improve the proposition in this way, we’ll have a much better second charge market for all concerned. M I www.mortgageintroducer.com

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LOAN INTRODUCER

SECOND CHARGE

Time to be positive about seconds Tony Marshall

MD, Equiﬁnance

t is easy to believe that the world will never return to a sense of preCOVID normality. The overall feeling of negativity isn’t helped by domestic energy concerns and uncertainty over Russian intentions in the Ukraine, among other worries. Perhaps it needs to be remembered that the ‘normality’ we all crave in our desire to go back in time is because we can look back on certainty. In general, the past is always seen as a ‘better’ time, while the present and future are more daunting because we don’t know what is going to happen. Therefore, my take on the prospects for the second charge market in 2022 is based on looking at the trends that are at work already this year, and a natural optimism that stems from running a successful leading lender in a space which has had its share of ups and downs in the past few years.

The conditions for a good year in the second charge space have been given a not inconsiderable boost by the strong finish to 2021 in terms of completions, and the pipeline carrying forward into 2022. In anybody’s language, it certainly provides a strong base from which to progress. But what will be the key areas driving new business for the rest of the year? The upcoming cost of living squeeze due to increasing energy costs is likely to consolidate the current move towards property improvement rather than next stage property purchase. Let’s not forget that, whilst would-be first-time buyers are finding it hard to afford a first home, the same can also be said for those wishing to move up the ladder. Property prices have continued to grow. Across the UK house prices increased by circa 10% in the year to November 2021, according to Gov.uk, as demand for properties for sale continues to outstrip supply. Many pundits are predicting a remortgage boom because, while purchase business might be down on

There are many reasons to be positive about the second charge market this year

MORTGAGE INTRODUCER

FEBRUARY 2022

2021 levels, every year the number of clients coming to the end of a fixed rate period grows. For many that is not a problem, but for those whose credit history has been compromised during the past two years, replacing like for like by product transfer might be problematic. A new fixed rate mortgage, which also needs to include a request to raise capital for home improvements, could be even more diﬃcult. It stands to reason that brokers will not only be facing calls to help clients transition to a new fixed rate when their existing one is finishing, but also whether for many, sums can be added to raise more capital to extend property or renovate kitchens and bathrooms. Mortgage lenders are going to be especially careful of extending extra funds, given the cost of living increases as well as any changes to credit status. If first charge lenders are prepared to allow a like for like product transfer at the end of a fixed rate deal, but not extra funds for home improvement, then the interest in second charge mortgages is going to come under greater consideration as a popular way to fill the funding gap. In the wider capital raising sector, advisers are already telling us that they are taking account of concerns that remortgaging can no longer simply be a default choice for clients seeking to raise capital. As I have stated before, recognition is growing, and I believe that the new Consumer Duty framework from the Financial Conduct Authority (FCA) will help to accelerate the consideration given to clients in assessing the best funding vehicle for capital raising. 2022 will be a strong year for the sector. Demand from homeowners seeking to expand or revamp their existing properties, rather than purchasing new ones, will increase the need for alternative funding. Second charge lending, which is faster to arrange and more flexible than its first charge stablemate, will win a lot more fans this year. M I www.mortgageintroducer.com

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SPECIALIST FINANCE INTRODUCER

BRIDGING

Looking beyond vanilla to innovation Brian Rubins executive chairman, Alternative Bridging Corporation Limited

ur market has expanded way beyond simple bridging loans for chain breaks, but are brokers aware how far this journey has travelled? Residential bridging morphed to include commercial properties some way back, but it has continued to develop into a far more interesting product, albeit in the hands of a limited number of lenders.   KEY CHANGES

First, the ability to service the debt. Retained or accrued interest limits the capital that can be released for a purchase or refinance, but commercial borrowers cannot always prove their ability to service interest. Some lenders can use judgement, and if they are reasonably comfortable, agree to interest being serviced, subject to a small retention – say three months – to be applied in case of need. Loan-to-value (LTV) is another common hurdle in satisfying clients’ requirements. Turn the clock back and there were no lenders that exceeded 60%. This progressed to 65%, 70% and now even 75%. However, there are some types of commercial loan that attract higher limits. At the bottom are development sites, where 60% may still be considered generous, but this can be exceeded where the land loan is combined with development facility and both are contained within 65% of gross development value (GDV) or 75% for stretched senior debt. Stretched senior debt is not readily available for projects with GDV under £5m, but Alternative Bridging

Corporation’s Development 90 loan covers 90% of cost and 75% of GDV with loans from £2m to £5m. LTVs will differ dependent upon a number of factors, including the quality of the borrower’s covenant, the type of property, and if it is owner-occupied or a single or multi-let investment. LTV is also regulated by the exit strategy. If it is a sale, the maximum can be applied, but where the loan is to be refinanced, the lender will consider if a long-term loan can be obtained at a similar or slightly higher LTV. Owner-occupied shops are the simplest of commercial assets to review, and subject to the borrower having a good set of accounts, 75% is possible. That same asset with one strong tenant will be supported at 70%, or even 75%. Office building, warehouse and industrial premises will probably not achieve more than 70%. All of this compares with 60% not so long ago. FLEXIBILITY

Lenders and brokers talk about flexibility in underwriting, but what about after the loan has been made? Alternative Bridging Corporation offers an overdraft, whereby an agreed limit is established and the borrower can drawn down all or part on demand, and repeatedly repay and draw again. It is best secured against under-utilised commercial and resi properties and ideally suits the property industry and business community, to satisfy on-demand funds for working capital, auction and other purchases, to fund construction or just to provide deposits. Another innovative facility is funding the VAT on property purchases. VAT does not apply to every property purchase, but when it does it will reduce the capital available for the purchase by 20%. There are now specialist lenders that will fund this payment in isolation until it is reclaimed by the new owner, and

MORTGAGE INTRODUCER FEBRUARY 2022

with careful structuring, it can also be provided as an extension to the bridging loan or development facility. The need for resi development finance for owner-occupiers is increasing, with very few lenders able to satisfy it, exacerbated by the requirement for the lender to be regulated. Many only offer restricted terms at increased interest rates and fees. In fact, from a lender’s point of view, it is a very good opportunity. In the main, borrowers have become knowledgeable of the development process and surround themselves with good professional advisers. They are also able to offer a first or second charge on their existing property as well as that to be constructed, enabling the lender to provide 100% of development cost at relatively low LTVs. Certainly, there is no reason to apply penal terms. The terms for refurbishment loans have considerably improved over the past year, with lenders combining a facility for improvements with a purchase loan. Some will also include a term loan for the exit, providing continuity of funding and avoiding additional setting-up fees. However, the immediate benefit to the borrower remains the ability to revalue following completion of the works, and to borrow up to 75% of the enhanced value. Refurbishment loans fall into two categories – light and heavy – and not all lenders can consider the more demanding heavy projects. This is usually provided by lenders that are able to include it as part of their development finance offer.   WHAT IS NEXT?

And what will lenders focus on next? Probably larger loans, from £5m to £20m, as this is an under-provided sector in the bridging and development finance market. We are part of an industry that continuously evolves. Sometimes it is ground-breaking, but more often it involves small changes to existing terms. Either way, it is essential for introducers to stay in touch with their lenders and vice versa, to remain in the front line and to ensure borrowers are offered the best arrangement. If you don’t, someone else will! M I www.mortgageintroducer.com

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MARKET

Prospering in 2022 Donna Wells, director, F4B

’m writing this as the first month of 2022 is coming to a close, and the year has started off in a similar fashion to how 2021 ended. In a word: busy. Another word which has proven popular among a variety of industry commentators when looking ahead to the next 12 months is ‘remortgaging’. CAPITAL RAISING

Refinancing certainly appears to be on the agenda for many property professionals, as a host of deals mature and opportunities to reinvest present themselves.

“The ongoing need for new housing has never been in question, but questionmarks do remain over how and where this supply of affordable homes will come from. The construction industry has faced, and continues to face, a huge number of challenges in recent times. However, it’s good to see some positive news emerge” This was evident towards the end of the year when, according to Knowledge Bank’s criteria tracker, ‘capital raising for business purposes’, was the most searched for term by brokers in December 2021. In terms of other eye-catching searches, ‘maximum age at end of term’ and ‘income multiple used for affordability assessment’ were both popular in the residential market. December also marked the first month ever in which www.mortgageintroducer.com

‘maximum age at end of term’ featured in the most-searched terms in the buyto-let market. ‘Regulated bridging’ remained a popular search in the bridging market, with December marking the seventh time in the previous eight months that it occupied the top spot. This data indicates a number of interesting trends to highlight the importance attached to specialist lending in the modern age. It’s little wonder that packagers are so busy, as a growing number of intermediaries rely on these partnerships to service the increasingly complex borrowing needs of clients. EPC UPGRADES AND LANDLORDS

Capital raising may also be something which landlords need to take into consideration in 2022 and in the coming years. New Energy Performance Certificate (EPC) rules – which are due to be implemented in 2025 and require all newly rented properties to have a certification rating of C or above, with existing tenancies needing to comply by 2028 – are estimated to cost landlords an average of £10,400 per property to get them up to standard. This is according to new research from Aldermore Bank, which suggested that 71% will dip into their savings to pay for upgrades, 25% will do so through government funding, 23% by putting up rent, and 11% by seeking a further advance from their mortgage lender. In addition, landlords appear split on how they will manage properties that are currently non-compliant. More than a third (35%) say they would carry out works at the minimum cost required to comply, whereas 32% foresee spending what is needed to maximise the long-term value of the property, even if it exceeds minimum requirements. One in seven (15%) say they will not carry out the necessary improvements, and will either seek to sell or not re-let,

and 2% will carry out the works to bring it up to standard and then sell it. The question of how landlords view the energy efficiency of their properties over the longer-term is a relevant one, and how they fund any upgrades will obviously differ from landlord to landlord, and depend on a number of factors involving their individual properties and extent of their portfolios. Good, professional, specialist advice is vital when it comes to embarking upon any form of financing or refinancing to address these issues in a cost-effective manner, and this is an area which intermediaries need to keep a close eye on going forward. DEVELOPMENT FINANCE

The ongoing need for new housing has never been in question, but questionmarks do remain over how and where this supply of affordable homes will come from. The construction industry has faced, and continues to face, a huge number of challenges in recent times. However, it’s good to see some positive news emerge. According to the Office for National Statistics (ONS), in volume terms, monthly construction output increased by 3.5% in November 2021, the largest monthly rise since March 2021. The increase came solely from a rise in new work (5.7%) as repair and maintenance saw a slight decline of 0.2% on the month. There was another encouraging announcement within the industry in recent weeks, with Roma Finance securing a £15m funding line from British Business Investments to help smaller housebuilders in the construction of new residential homes. Access to funding for small to medium (SME) builders has been subject to restrictions in recent years, and it’s encouraging to see collaborations such as this offer access to the type of funding these firms need to grow and prosper. Long may this continue. M I

FEBRUARY 2022 MORTGAGE INTRODUCER

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DEVELOPMENT

2022 predictions for development ﬁnance Roxana MohammadianMolina chief strategy oﬃcer, Blend Network

021 was a mixed bag for the housing sector. Demand for new and existing homes soared during the pandemic, and few see signs of it slowing soon. While house prices continued their relentless, often double-digit growth, small to medium (SME) property developers continued to face major challenges, with sites stalling for financial reasons. 2022 looks set to be another year of many known and unknown challenges, including opportunities for property developers and for the entire development finance industry alike. Here are the high-level trends I see happening in the development finance market in the next few months. LENDERS WILL PLAY A KEY ROLE IN THE GREEN TRANSITION

The next decade will be crucial for protecting the planet for future generations. I have been very vocal in arguing that financial services, particularly specialist digital non-bank development finance lenders, have a critical role to play by helping deploy finance for the changes required. I believe that specialist lenders will need to up their game to be able to help developers advance in the journey to net zero. A SHIFT TO GREATER REGULATION IN THE INDUSTRY

The non-bank development finance market is notorious for its fragmentation, something that has traditionally been problematic for the industry, most importantly for borrowers who have faced a lack of transparency and poor borrowing

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experiences. However, borrowers have grown increasingly sophisticated in recent years, demanding value and added transparency. So, my second top prediction is for the development finance market to see a shift towards greater regulation and more transparency in 2022, particularly around financial promotions and treating customers fairly. LENDERS WILL TRY TO ADAPT TO BORROWERS’ CHANGING NEEDS

One of the most important shifts we have seen in borrower demand in recent years is their need for more customised products and services. This trend will continue into 2022, forcing lenders to adapt to borrowers’ changing needs and increasing demand for personalisation. For lenders, it is no longer enough to offer the highest gearing or the lowest rates in order to win a deal. It is about much more than that, it is about empowering property developers by helping them make informed decisions and giving them access to data and services that were previously only available to public limited companies (PLCs). NEW TOOLS WILL EMERGE FOR NEW CUSTOMERS

With the advent of digital banking and digital lending platforms, the property lending sector – a sector not known for readily embracing change – is embracing innovation, and I expect the development finance market to gravitate towards more technology and smart tools in 2022. Not offering such innovations is becoming increasingly less viable in the digital age, and lenders are increasingly becoming aware of this. Therefore, development finance lenders need to up their game and support SME property developers

FEBRUARY 2022

by providing an all-round service and giving them access to data and resources that were previously only available to PLCs and large corporates. RELATIONSHIPS WILL CONTINUE TO CHANGE

The relationship between the borrower and lender has always been known to be an integral factor in the loan approval process. However, tech-enabled disruptions have enabled specialist development finance lenders to gather data on borrowers via online applications, thus adding more transparency to the loan approval process, while also increasing the distance between the lender and the prospective borrower. My fifth top prediction is for this trend to continue in 2022, but also for lenders to find innovative ways to keep the interaction. One such way is online interaction, and the idea that in today’s digital world, every business has to be a media business. SME DEVELOPERS WILL CONTINUE TO FACE A LACK OF FUNDING

Lack of funding is one of the key challenges faced by SME property developers, and I expect this to continue to be the case in 2022. A year on from the 2020 FMB House Builders’ survey, where 33% said that lending options had deteriorated, and a staggering 42% stated that they were involved in sites that were stalled for financial reasons, we can see that this situation deteriorated throughout 2021. THE RISING COST OF MATERIALS WILL BE AN ISSUE

Lack of funding is far from being the only challenge SME property developers will face in 2022. My last top prediction is for property developers, especially the smaller ones, to continue to face the challenges of rising cost of materials and supply shortages. Yet SME developers will be disproportionately impacted by the rising cost of materials. M I www.mortgageintroducer.com

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COMPLEX BTL

A ﬂight to quality in specialist BTL Rob Oliver, sales director, Castle Trust Bank

t’s a buoyant time to be a landlord. The latest Zoopla UK Rental Market Report says that in Q3 2021 strong rental demand pushed rental growth to its highest level in 13 years, as the resumption of a more ‘normal’ way of life – with offices, restaurants and bars, cinemas and theatres and other amenities reopening, as well as students looking for accommodation – led to strong rebound in rental demand. In meeting this demand, investors have rarely

had as much choice when it comes to mortgages. Moneyfacts says that at the start of 2022, the number of buyto-let (BTL) mortgage products on the market hit the highest level since September 2007. One area of particularly strong growth has been specialist BTL, on investments such as houses in multiple occupation (HMOs), multi-unit freehold blocks (MUFBs) and holiday lets, as existing lenders have expanded their proposition into these areas and new entrants have targeted this more niche sector of the market. There are certainly opportunities within specialist BTL, and investors that get it right often find that they can make returns that are far superior to a more standard BTL investment.

Make sure you work with a lender that has experience and expertise

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FEBRUARY 2022

GROWING COMPETITION

However, despite the growing demand, as more investors are tempted into this sector by the growing availability of mortgage finance, competition amongst landlords is going to increase. Riding the wave of the market is one thing, but if the landscape changes, it’s important that investors are able to maintain a proposition that still stands out against the competition in a more crowded environment. Consequently, at Castle Trust Bank we have seen a flight to quality when it comes to specialist BTL. Since the beginning of the year there has been a significant uplift in the number of applications for larger loans, often over £1m, on HMOs, MUFBs and holiday lets. Sometimes these larger loan sizes are to fund the purchase of larger properties, but often it’s the case that they are desirable, or high-spec properties in more salubrious areas. This is a sensible approach. If the market were to turn, it is the most in-demand properties that will continue to attract attention, particularly if they have standout qualities when set against the stock of that type. At the same time, even in the current buoyant environment, the best properties will always command a premium, and that potentially means better returns for investors. It’s good news for brokers as well, as high-end properties can mean larger loan sizes. The current positive outlook for property investors may encourage many to expand their portfolios, particularly when it comes to more specialist type of investment that could deliver better returns. It’s worth thinking about what steps they can take to make their investment more resilient in the future and a flight to quality – choosing to invest in top-end property may help to do just that. If this is a path that your clients choose to go down, make sure you work with a lender that has the experience and expertise in this part of the market to help ensure that they set out on that investment from the best possible footing. M I www.mortgageintroducer.com

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ASTL

Bridging a funding gap for clients Vic Jannels chief executive, ASTL

t the ASTL we publish regular data about bridging lending volumes, and our figures show a trend of consistent growth throughout the past decade. There are many reasons for this growth. Increased lender competition has made pricing more competitive, which in turn has encouraged more people to consider short-term finance as a solution for their funding requirements. As the market has evolved, a growing number of customers and intermediaries have identified the many ways that bridging can be used to tackle a variety of scenarios. We often talk about the different options and reasons to use bridging finance, but for those brokers less experienced in this part of the market it is worth dwelling a little on why bridging can prove such an effective tool, and how to identify the customer needs for which it could prove useful. WHAT IS BRIDGING?

Bridging is a short-term mortgage secured against property or land and is used primarily to ‘bridge’ a gap until longer term finance can be arranged, or the underlying security is sold. It can be available secured on a first, second or even third charge basis on residential, commercial and semicommercial property as well as land. Traditionally, it has been known as a solution to help clients who need to complete on a purchase before their existing property, or another property in a chain, has been sold. In this instance it is straightforward to see how the loan can be used. A homeowner needs the proceeds from the sale of their property in order to purchase their new home, and if the www.mortgageintroducer.com

timeframes don’t align, a bridging loan can provide those funds and bridge the gap between the purchase and the sale, then being paid off when the property sale is eventually completed, hopefully within a few months. In this case, the exit from the bridging finance – the funds used to redeem the loan – is provided by the sale of the property, and it’s this exit route that plays an important role in whether this type of short time finance might be suitable. The key to success is to ensure that a viable exit strategy is firmly in place upon application. With this in mind, bridging could also be used for clients purchasing a property under market value who require a quick completion, or clients who want to downsize and release equity in their property, enabling them to complete the new property purchase prior to the sale of their existing property.

“Bridging finance can provide the solution to a multitude of problems” This use is possible because arranging a bridging loan is usually a much faster process than arranging a more traditional term mortgage. For this reason, bridging is commonly used to finance the purchase of property at auction, where completion is normally required within 28 days, with the exit route typically being a refinance onto a longer-term mortgage or sale. Developers also frequently make use of bridging to improve their cashflow whilst they market their completed development. INVENTIVE USES

Bridging finance can also be used by clients looking to release equity for cashflow, often for business use, but sometimes for scenarios such as paying a tax bill, a divorce settlement or settling the probate of an inheritance. As long as there is a sensible and robust

exit plan, bridging finance can provide the solution to a multitude of problems. Short-term mortgages are frequently used to purchase properties that might otherwise be considered unacceptable by term mortgage lenders. For example, where a property is run down and does not meet the criteria of a term lender, such as a functioning bathroom and kitchen, bridging can be used to purchase and carry out the renovations before refinance or sale of the refurbished property. Property refurbishment is an increasingly popular use, often by investors who spot an opportunity to increase their returns by carrying out the necessary work on a previously unsuitable property. Sometimes bridging can be used for both auction and refurbishment uses – buying a property at auction in order to renovate it for sale, to let out or live in. Bridging could also be used in this way to finance the conversion of a property – say from commercial to residential use. A note of caution here, in that if the conversion involves structural alterations or the addition of an extension, for example, the project may actually fall under the heading of development finance. BEST ROUTE FORWARD

If you have clients who fit into any of these categories, then bridging could be the best route forward, and when it comes to working with a bridging lender, or a development lender, you want to be sure you choose one that you can trust. This is why, at the ASTL, our shortterm lenders all commit to adhering to our strict rules of membership and Code of Conduct, which require high standards of transparency, fairness and customer focus. So, if you recognise a need to bridge a funding gap for your clients, think about how short-term lending could help and speak to any ASTL member to ensure you can proceed in confidence. M I

FEBRUARY 2022 MORTGAGE INTRODUCER

SPECIALIST FINANCE INTRODUCER

FIBA

Getting back together again Adam Tyler executive chairman, FIBA

s I commented last month, we have not done so badly over the past two years if we focus solely within specialist property finance. Most bridging and development lenders have reported record months at some point during that period, and whilst we have a shortage of commercial term providers, there are a real array of specialist buyto-let (BTL) lenders in the market. Therefore, choice for the intermediary and broker community and for their clients has never been so plentiful, and whilst there is a creep in the base rate, property investors are still very keen to be in the market. This is true for not only those in residential investment, but commercial investment and also commercial owner occupiers, who want to invest in their future by owning their own premises. ANNUAL CONFERENCE

With all this in mind, we wanted to showcase this potential early in the year, so we have announced The Financial Intermediary & Broker Association’s 2022 Annual Conference at the Mortgage Business Expo

(MBE) in Manchester. Scheduled for 22 March 2022, the conference will be a full day event comprising of keynote speeches and panel discussions focussed on bridging and development finance, BTL and commercial mortgages, with a full range of FIBA lender partners exhibiting as part of the enhanced MBE. There are a number of key areas to be considered, as specialist property finance has a real role in supporting the future growth of the overall economy, so how do we make the most of this over the next few years? Commercial finance has progressed tremendously in recent times, and this includes the real growth of various lenders and funders, so how can we ensure they interact with the broker community in the future? We know there is still not enough recognition within the industry for the role played by the broker in getting the deal over the line, so how do we change this to get wider knowledge of the intermediary for specialist finance into the public domain? This is particularly important as we will see more regulation within commercial finance, and this could impact on our ability to help property investors find the funding they need. All of these questions are common across the various participants in specialist property finance, and this is a forum to discuss and form solutions

It’s time to get back to real industry events

MORTGAGE INTRODUCER FEBRUARY 2022

for the future. There are many fantastic industry events for all sectors of the financial landscape throughout the year, so this welcome addition to the calendar is a conference to complement these early in the new year with a focus on specialist property finance. The event is open to all professionals and businesses from across the country involved in the specialist property finance sector. It will also be an opportunity for the wider industry to reflect on the experiences of 2021, the key lessons learned, and what 2022 is likely to have in store for lenders, brokers, solicitors, valuers and property investors. GROWING COMMUNITY

Over the past four years, and going back to the anniversary when the specialist property finance trade body was launched, there has been a growing number of new entrants to this market. We all know about the growth in the lender community, but the move of brokers from the regulated mortgage sector and individual financial advisers (IFAs) into the sector has fuelled growth across all markets, and so there will be announcements on the enhancement of the specialist property finance club, as mortgage clubs such as SimplyBiz Mortgages offer greater access to the commercial lenders. Getting back to a real industry event is one of the best ways for those lenders to collaborate with the broker community within the specialist finance sector. We all have witnessed the remarkable growth of specialist property finance over the past decade – there is great innovation across the industry, providing endless opportunities for brokers to support their clients. It is this coming together that will ensure the specialist property finance space will continue to grow and after such a great start to 2022, and that the broker community can build on this positivity to set the standard for the year ahead. M I www.mortgageintroducer.com

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