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EDITORIAL
COMMENT
Ryan Fowler
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Sun shines as heads roll at RICS
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ouse prices jumped by almost £5,000 in August, representing a monthly rise of 2.1% – the second highest in 15 years, according to Nationwide. The stamp duty holiday, record low rates and increased savings for some have created perfect conditions for the property market. Over the past 18 months, the average house price has shot up by a whopping 13%. Nationwide said it expects property prices to continue rising in the shortterm, fuelled by increased consumer confidence and a limited supply of properties. However, the society also warned that outlook for the property market by the end of the year is “still clouded.” Despite this forecast, it does look like there is very little that can slow down the market in the short-term. Where things do looks gloomy, however, is over at the Royal Institution of Chartered Surveyors (RICS). Full
details of the governance scandal which has been gripping the body were finally exposed in an excoriating 418page report delivered to the Steering Committee of the Governing Council at the beginning of the month. Pressure is now mounting on RICS to release the review, which was conducted by Alison Levitt �C. So far, chief executive Sean Tompkins, the RICS president, the chair of the governing council and the chair of the management board have all stood down from their posts. Surveying is obviously an integral part of the property transaction process. Hopefully, this failure is not indicative of the wider profession which it represents. Let’s hope sense prevails and the powers that be at RICS – well, what is left of them at least – see sense and release the report. Finally, I would like to ask you all to please take the time to fill out our survey, which you can find on the site. We’d love to know your views, so please take part. M I
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MAGAZINE
WHAT’S INSIDE
Contents 7 9 14 15 16 17 18 19 20 22 26 38 39 41 49
AMI Review Market Review Networks Review London Review Holiday Let Review Education Review Recruitment Review Service Review Technology Review Regulation Charge Review Buy-to-let Review Protection Review General Insurance Review Equity Release Review Surveying Review
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THE OUTLAW BUY-TO-LET
34 Mortgageforce Conference special Looking back at the recent Mortgageforce Annual Conference 52 The Outlaw The latest from our resident outlaw 56 Cover: Remortgages and retention Our panel of experts joined us for the latest Barclays round-table looking at the state of the remortgage and retetnion space
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SPECIALIST FINANCE INTRODUCER
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BUY TO LET
62 Loan Introducer The latest from the second charge market 66 Specialist Finance Introducer Development finance, bridging finance and more from the specialist market
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EQUITY RELEASE
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REVIEW
AMI
Working to improve consumer outcomes Lucy Lewis senior policy adviser, AMI
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iversity and inclusion are terms that are becoming increasingly common in UK society as a whole, as well as in the financial services sector. But what do they mean in general and to the mortgage sector specifically, and why should they be important to you? The financial services regulators have recently published a joint discussion paper on diversity and inclusion in the financial sector, which highlights the need for diversity of thought and an inclusive culture in firms to support better decision making. They believe diversity makes business sense,
from both a financial and consumer perspective, and can lead to better outcomes for firms, support their safety and soundness, and promote financial stability. The regulators define diversity of thought as, “bringing together a range of different styles of thinking among members of a group. Factors that could lead to diverse thinking could include, but not limited to, different perspectives, abilities, knowledge, attitudes, information styles, and demographic characteristics, or any combination of these.” Some characteristics can be visible and measured, such as gender, age and ethnicity. Others, including disability, sexual orientation, education and socioeconomic background may not be. An inclusive culture is one where everyone feels involved, valued, respected and treated fairly – where
Who cares about protection? Stacy Reeve senior policy adviser, AMI
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ou may recall that last year, AMI – along with sponsors Legal & General and Royal London – launched AMI Viewpoint, ‘The New Protection Challenge’, underpinned by research involving 500 mortgage advisers and 5,000 consumers. This, to our knowledge, was the largest piece of mortgage protection research carried out to-date. The reason I say to-date is that we’d love to have even more mortgage advisers taking part in our 2021 Viewpoint survey. Ultimately, it will be firms and advisers that benefit from the views that we collect, so the more responses, the better informed the research will be. We’ll be sharing the survey link with members and on our social media pages.
www.mortgageintroducer.com
For AMI, the standout statistic from our 2020 research was that 97% of mortgage advisers mention protection as part of the mortgage process, but only 36% of consumers recall the conversation. Feedback from the industry was that the research generated much discussion, particularly around the topic of memorable protection conversations, and what it means to ‘raise’ protection. We’ll be re-asking these questions – and others – as part of this year’s research but will also delve into new areas to bring fresh insight and views. Knowing what consumers really think and understand is at the heart of successful advised sales. Protection is complex and needs intervention by advisers to engineer proper solutions. I’m excited and intrigued to see what this year’s research tells us. For those that want a refresher or missed last year’s report and event, they are still available to view on the AMI website.
people feel comfortable to be their whole, authentic self. It allows individuals to express their views, speak up and raise concerns, and should reduce the risk of ‘groupthink’. The regulators want firms to be sufficiently diverse and inclusive to be able to understand and meet the needs of their diverse customer bases, otherwise customers are at more risk of harm. They want to see firms achieving greater representation at all levels – in particular board and senior management – and are considering ways to encourage firms to achieve this which may include regular data reporting, board and senior manager accountability, guidance on ‘nonfinancial misconduct’ expressly linking to diversity and inclusion issues, and consideration of diversity and inclusion in the assessment of applications and threshold conditions. Whilst the regulators recognise that proportionality will be key in any mandated requirements, these changes will affect all, and rightly so in my opinion. An inclusive firm or sector is about everyone and needs everyone to work together to achieve it. It’s in everyone’s interest. AMI has recently undertaken a large piece of research into inclusion in the mortgage sector. A big thank you to everyone who took the time to complete the survey. The results are currently being collated, the report written, and we’re really looking forward to sharing this with the industry in October. It is our intention that the survey and report will be a launchpad – a chance for the sector to hold up a mirror and understand what it does well, highlight the areas that need improvement, and share ideas on what needs to change. Some changes might be big, while others might be small and yet make a big difference. Whatever your background or heritage, whatever makes you you, it’s a learning journey for us all. Some are just starting out, others are a lot further down the road, but by working together, we can help to make tangible change and ensure that everyone feels able to speak up, share their views and bring their authentic selves to work. M I
SEPTEMBER 2021
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REVIEW
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Education remains key Xxxxxxxxxx Craig Calder director of mortgages, xxxxxxxxxxxxxxxx, xxxxxxxxxxxxxxxx Barclays
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ere we are in H2 2021, the sun is currently beating down over much of the UK, and there is every reason to be optimistic about economic conditions in the coming months. When reflecting on this time last year, the housing and mortgage markets were really kicking back into gear after the shock of the initial lockdown, and people were being encouraged to ‘Eat Out to Help Out’. The whirlwind of property-related activity experienced over the past 12 months has really highlighted the breadth of homeownership aspirations across the UK. The value of advice in a more complex and financially insecure environment has also risen exponentially for many people over this period. When taking this into account, you might assume that the sheer volume of property transactions being completed, the number of mortgage enquiries being generated, and the wave of interest being lodged in estate agencies up and down the land would have seen people’s understanding of the mortgage journey hit new heights. However, a recent survey from Paymentshield suggested that this remains work in progress. THE MORTGAGE JOURNEY
The survey outlined that 52% of UK adults aged 18 to 34 have a fairly or very bad understanding of the whole mortgage process from beginning to end. In comparison, around a third (32%) of 35 to 44-year-olds stated the same lack of understanding, with this dropping further again to 25% among those aged 45 to 54. UK adults under 35 displayed a similar lack of understanding of the types of insurance required at different www.mortgageintroducer.com 15:27
stages in life, with 53% declaring their knowledge to be fairly or very bad. The research suggested that one of the biggest barriers to greater understanding of the insurance and mortgage processes could be financial jargon. A third (33%) of 25 to 34-yearolds say they are not very – or not at all – confident that they’d comprehend the language used to explain financial products or services.
“As a lender, we have an important role to play when it comes to better supporting our intermediary partners and consumers” A similar result was collated amongst the 18 to 24 age group (37%). This data highlights some key opportunities for the intermediary market to engage with consumers early on in the homebuying process to help build a long-term relationship. A relationship which may result in fulfilling a range of ancillary financial needs going forward. As a lender, we also have an important role to play when it comes to better supporting our intermediary partners and consumers, especially when it comes to cutting through any unnecessary financial jargon and to use plain English where possible. THE HOUSING MARKET
One of the major obstacles facing younger generations is rising house prices. While it’s tough for many to raise sufficient deposits to supplement these price hikes, better financial education and advice when it comes to alternative borrowing solutions, and access to government initiatives which support first-time buyers (FTBs) can certainly help. The challenges facing homebuyers were demonstrated in the latest Rightmove House Price Index, which showed that the busiest ever first half of a year has pushed average asking prices
to a new record high for the fourth consecutive month. Prices rose by a further 0.7% in June, meaning average house prices have now risen by 6.7% – or £21,389 – in just six months. With the first half of 2021 seeing 140,000 more sales being agreed and 85,000 fewer new listings than the long-term average, this surge in activity has revealed a shortfall of 225,000 homes for sale, which if available, could have corrected the imbalance and stabilised price growth. THE BANK OF MUM AND DAD
The financial implications of a rising housing market are not just affecting the younger generations, but also the older ones. Research from Just Group recently suggested that financial advisers are finding themselves obliged to challenge some clients’ wishes to hand cash lump sums to children, over concerns that gifting money early will leave them short in later life. Advice firms reported that around a fifth of their clients had already gifted money to children or were considering doing so. It also found that four in 10 parents aged 45-plus had gifted more than £5,000 to children aged 18-plus to help them cover major expenses, such as weddings, house deposits or to pay for education. The challenges facing a range of homebuyers are well documented. There are no quick fixes, as many challenges remain – in terms of price, quality, supply and affordability. However, whilst intergenerational lending is already playing an important role, its influence could significantly improve if increased competition and support emerges from the lending community. As throughout the mortgage chain, education remains key in ensuring that all generations are being armed with the knowledge to understand its benefits and limitations. As always, good professional specialist advice continues to sit at the heart of this process. M I
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Valuations – what flavour do you want? Martin Reynolds CEO, SimplyBiz Mortgages
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aluations seem to have hit the headlines again over the past month. What is interesting is that in most instances it only seems to be for negative reasons. The latest headline was “400,000 transactions affected by down valuations in the last year.” We never see headlines stating what percentage are valued up. I will admit an interest in the market here, in that Gateway – a valuation panel manager and surveying business – is part of the Fintel Group, as is SimplyBiz Mortgages. However, this will not be a one-sided argument against the above headline, as I have seen many cases from member firms over the years in which they have evidence to back up a valuation but a surveyor will not change their mind. So, onto the first challenge on the headline, and one of my many bugbears. Where is the substance? Reading the article, it states an estimated 390,285 have been downvalued – not quite 400,000, but I understand the rounding for headlines – but there is no explanation as to how this figure was calculated, what methodology was used, and where the data set was taken from. I can be quite cynical at times, and whilst it’s a good headline for a press release, if as an industry we are looking to improve on this, we need that next level of data to help us understand it better. It would be interesting to understand what the percentage split was between purchase and remortgage, as both can provide reasons. We have seen the house market surge over the past 12 months, and prices have increased www.mortgageintroducer.com
dramatically, and I know that it can sometimes be a challenge to keep up with comparables, as public data does not always keep up. Using an asking price as a comparable is dangerous for all concerned in the transaction. Estimated valuations from customers for remortgage purposes can again be a minefield. We all think our property is worth more than others, and looking at what similar properties are being offered at again can cause challenges. Also, unrealistic valuations can be created by the second of my bugbears – house price indices. I have never liked them, and always find them too narrow from the numbers included in the source data in most instances, to the blanket figures given by regions rather than property types. One quote from one latest release stated: “The South West is also still experiencing strong growth at 9.6%, likely reflecting the ongoing demand for rural living within the region.” Customers do not look at this as the average across a vast and varied region, but their own property, creating unrealistic expectations.
Valuations: Choices, choices
Does this move us more towards automated valuation models (AVMs) that offer the more granular data on the exact properties? It is good to see that some of the sourcing and customer relationship management (CRM) systems are beginning to integrate AVMs, which will allow advisers to provide more accurate guidance to clients. This should see less down valuing, and more appropriate valuing overall. Theo Brewer of Hometrack made a very good case for this in a recent blog. Is there, though, a middle option that allows for a more personal touch that is also more granular, quick and environmentally friendly? The Zero Contact Valuation that Gateway launched last year during the first lockdown is one product that could potentially help fill this gap, and give a more viable valuation. There are three options, which include the uploading of photographs, a video conference review of the property with the customer, and then the external-only valuation, which can include either of the former. Gateway believes this middle product allows you to pick up on property alterations and changes that an AVM may not, but does not require a full visit from the valuer. With the customer being part of the process, the interaction tends to be more natural, and more information can be gleamed that helps with the ultimate valuation. When this is linked to the same data fields that can be used in an AVM, plus cross-checking with other systems and an understanding from the Land Registry of the property size, it will be a valuable tool in the remortgage market, especially around valuation challenges. If we add to this the positive environmental impact of undertaking fewer car journeys, and the greater flexibility offered to the homeowner around valuing times, then it is a product that needs to be considered moving forward. Will we ever eradicate the down valuation? Of course not, because we are working in a subjective market. But we can reduce the numbers and make the process easier and less stressful for all those involved. M I
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Competition comes in all shapes and sizes Xxxxxxxxxx Tim Hague xxxxxxxxxxxxxxxx, director, xxxxxxxxxxxxxxxx Sagis
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ariety, they say, is the spice of life. Indeed, variety is the basis of our entire social and economic structure in the UK. Not only are we, as a nation, hugely adaptable to new cultures and ways of living, but we also actually have a regulatory body dedicated to protecting variety in all sorts of markets. The Competition and Markets Authority (CMA) steps in when variety, competition and ultimately choice looks as though it is facing compromise. In August, the CMA did just that, announcing an in-depth investigation into the proposed deal between US chip manufacturer NVIDIA and British semi-conductor chips and related product designer and provider Arm. In a statement, the regulator said: “Ultimately, the CMA is concerned this loss of competition could stifle innovation across a number of markets, including data centres, gaming, the ‘internet of things’, and self-driving cars. This could result in more expensive or lower quality products for businesses and consumers.” COMPETITION
I can’t claim to be an expert in how semi-conductor chip IP access will or won’t affect my quality of life, but I am glad that the CMA takes it so seriously. Indeed, mortgage lenders, banks and building societies are only too aware of the precarious line they must toe when mergers, acquisitions or the purchase of back-books are concerned. Ultimately though, the UK’s mortgage market is hugely competitive – the sub-0.9% rates which we’ve seen
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over the summer months are testament to that. But what is sometimes glossed over is that competition comes in all shapes and sizes. Price wars are fundamentally about taking slender margins of market share away from your most direct competitors. They work, but there’s nothing very scientific or innovative about them. In a post-pandemic market, borrowers are crying out for some clear differentiation between what lenders can offer them and what products will work for their personal circumstances. The end of the furlough scheme, stamp duty holiday and emergency business loan scheme, and the reality of payment holidays cutting across mortgages, credit cards and car finance, will all present borrowers with a complex array of challenges when they come to move or remortgage. The rise in grandparents releasing equity to pass to children and grandchildren to get them onto the property ladder presents another set of challenges. Then, there are the newly self-employed, the part-timers and those heading into retirement with considerable debts to repay. The mortgage market has options for all of these applicants, and good brokers will have established relationships with lenders that cater for certain niches. Where lenders are clear on their specialisms, the key questions for the next 12 months are likely to focus on how to capitalise on this, through tailored distribution strategies, better use of technology and improving the digitisation of processes to up efficiency and productivity. Regional societies, which have balanced a focus on local community finance with transitioning to more complex lending over a wider footprint, may be wondering how to stay competitive and relevant in the long-term. Previously left alone to serve niche and complex markets, these
MORTGAGE INTRODUCER SEPTEMBER 2021
lenders are now finding that the larger players are encroaching in their space. But smaller lenders can’t easily afford the digital technology developments or scale needed to drive efficiencies and deliver the experience customers and brokers now demand. Physical branch presence is fundamental to the community spirit and role that so many regional societies play in their environs. The support, relationships and community provided to local customers – especially older and vulnerable customers uninclined to go completely online – is what makes the brand and business of value. Regional players, like so many others, are having to increasingly turn to intermediaries, including quite a few societies which didn’t previously have a broker presence. The challenge is to deliver a proposition for local communities and secure the volume of lending they need from further afield. DIGITALISATION
Recent research published by NerdWallet, a digital contender, found that three in five Britons would now consider a bank with no physical branches. However, a significant 28% of customers said they were influenced to select a bank because of convenient access to a branch. With more than 300 UK branch closures in total already confirmed by Santander, Lloyds, Halifax, HSBC, NatWest and Barclays in 2021, filling the gaps is a strategy in itself. Nevertheless, the boards of smaller lenders and mutuals may be feeling increasing anxiety around how to maintain those things that their customers love about them, while also embracing a future already upon us. The key to success here is understanding who your customers are, what they value, and what they need from you and from all their financial services providers. Variety takes all sorts, and that applies to lenders just as much as it does to the borrowers they serve. What is needed is a clearly thought through strategy, executed effectively and decisively. M I www.mortgageintroducer.com
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MARKET
Resilience should see out the year Steve Goodall managing director, e.surv
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hat a year for the UK’s housing market so far. The latest data published by the Office for National Statistics (ONS) showed UK house prices rose 13.2% on average over the year to June 2021, up from 9.8% in May 2021 – the highest annual growth rate the UK has seen since November 2004. This means the UK average house price reached a record high of £266,000 in June 2021, some £31,000 higher than this time last year. Meanwhile, Bank of England statistics confirmed that net mortgage borrowing reached a record high of £17.9bn in June, just before the lower stamp duty rates began to taper off from July. Mortgage approvals for house purchase were 81,300 in June, down from 86,900 in April. These figures are at the same time both entirely to be expected and completely extraordinary. They reflect a market that has been high on tax cuts for a year. Heading into the autumn, we will be weaning ourselves off the stamp duty crack, and the question we must surely all be asking ourselves is this: what impact will this have on activity levels, asset values and pricing? ACTIVITY LEVELS
First things first, I suspect we won’t see an immediate drop off in transaction volumes, largely due to the overhang that will inevitably follow the race to complete before the end of the stamp duty holiday on 30 September. The pandemic and more than a year of successive lockdowns have also changed many people’s living priorities. www.mortgageintroducer.com
Outside space, home working and more time spent at home mean that huge numbers of people want to move, regardless of the stamp duty bonus on offer at the moment. Towards the year’s end, activity is likely to cool as stamp duty-driven transactions complete. Nevertheless, Q4 is always a strong one, as lenders compete through pricing to hit their targets, and I suspect this year will be no different. We are already seeing incredibly fierce competition on pricing, with rates falling below 0.9% for the first time ever. The question now is where they will go next.
the running, due to lower affordability. The bank is acutely aware of this; not only would a rate hike put the brakes on new borrowing, it would also seriously compromise a huge number of existing borrowers on variable rates unable to remortgage. Managing mass repossessions, or asking the banks to cover payment shortfalls through forbearance – perhaps permanently – doesn’t look appealing either. The very buoyant jobs market and rising wage inflation are good for economic recovery, and it’s unlikely that the Bank of England will be desperate to dent companies’ investment in that any time soon. House price inflation, meanwhile, is more likely to drop back towards the end of the year. The rush to take advantage of the stamp duty holiday lit a fire under property values as buyers vied for their offers to be accepted. SUPPLY CHAINS
THE INFLATION ELEPHANT
The Bank of England has held the base rate at 0.1% so far, even with inflation rising rapidly. UK consumer price index inflation data revealed a rise of 2.0% in the 12 months to July, compared to 2.5% in June. While this was lower than expected, the Bank of England has suggested it will hit 4% by year’s end, double the Monetary Policy Committee’s 2% target. Inflation really is the elephant in the room at the moment – second-hand car prices are going up, indicating that something is very awry in the economy. We know what that is: the impact of government’s unprecedented pandemic spending measures, alongside the Bank of England printing money like there’s no tomorrow. Unfortunately tomorrow is looming ever closer, and the tools the Bank of England has in its arsenal are limited. If inflation runs amok for too sustained a period, central bankers will have little choice but to start raising the base rate reasonably quickly. When that happens, there will be market disruption and an increase in considerably more expensive mortgage rates is likely to dampen demand, knocking a portion of borrowers out of
Estate agents report that some of the heat has already come out of the market over the summer, and through August in particular, as everyone packed the family off for a last minute beach break. September traditionally sees a bounce in new instructions, though, and that’s likely to repeat this year. In terms of the new-build market, I am mindful of reports in the papers indicating a serious lack of skilled builders, electricians, bricklayers and plumbers in the aftermath of Brexit and the pandemic double whammy. Still to be negotiated trade agreements are putting serious pressure on supply chains, and the cost of materials has shot up. The price of steel, for example, has rocketed around 57% since the end of 2020. These factors make building new homes more expensive and will slow down construction rates, leaving a mark on supply which will, in turn, knock on to values more generally. Beyond these observations, my crystal ball gazing skills fail me. It’s a mixed bag, but one I feel reasonably confident will have limited impact on the housing market’s resilience over the rest of the year. M I
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REVIEW
NETWORKS
Let customers know you have their back Shaun Almond Xxxxxxxxxx managing director, xxxxxxxxxxxxxxxx, HL Partnership xxxxxxxxxxxxxxxx
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roduct transfer business is predicted to be worth £181bn in 2021, with over £220bn predicted for 2022. Somewhere in those figures are likely to be your clients, and the question is this: are you already on top of the situation and in touch with those customers most immediately affected right now? If not, then don’t be surprised if the lender – happy to accept your business at the time – now takes advantage and effectively relieves you of your customer. As we have discussed before, customers are no longer prepared to be passive, either. They will expect their financial adviser to be on the ball and looking after their best interests. If they don’t bother to be in touch, plenty of alternatives are just a mouse click away. Existing lenders are just one of today’s threats to your client bank, and they have been hugely successful in past years at carving out product transfer business. Product transfer volumes were four times higher than remortgage transactions in the final quarter of 2020, according to UK Finance, but that figure is beginning to come down, and fortunately more business is going through the broker sector. Back in 2019, £167.4bn of product transfer business completed, 58% (£97bn) was on an advised basis and 42% (£70.4bn) via execution-only. To put it into context, here is a very rough, ‘back of an envelope’ calculation. Projected redemptions in October from some sources are reckoned to be circa £43bn.
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If 75% of those were originally placed by intermediaries, and we estimate that the average procuration fee was 0.2%, that would be circa £64.5m in total. Divided equally between approximately 18,000 firms, £3,500 per firm could be going a-begging, unless we all take action. When we consider the duty of care that brokers owe to clients, apart from the obvious move to help service existing customers, it could also include being able to do a full review and demonstrate the advantages of remortgage over a like-for-like product transfer, if applicable. PRODUCT TRANSFER
We only have to look at the costs involved in moving home or moving mortgage to see why the popularity of product transfers is growing. However, because of the transactional nature, there is a hidden danger that alternative deals are completely ignored, with little or no time to ensure that a customer’s protection needs are reviewed as well. At a time when the adviser’s value is at risk because customers might see the product transfer process as a rough likefor-like transaction, it is important that firms offer a full advice service, which should include a proper review of customer needs, including protection. The regulator is adamant that a full insurance discussion should never
be optional for a customer entering or revisiting the mortgage process. However, product transfers, because of their very nature, are more likely to result in fewer of those protection discussions taking place. The wider point is that product transfer customers are highly prized, and broker customers are going to be fair game for lenders and internet brokers. So if you don’t want to haemorrhage customers, it is important to have a plan to make sure you are the first to contact them. Timing is everything. A placemarker email, call or text ahead of the end date – to engage customers and demonstrate that they haven’t been forgotten and that their current deal is coming to an end – is a good starting point. Diarising forward, the next stage would be to have a brief introductory conversation to gauge their situation and then a firm date for a face-to-face meeting and a full review. At HL Partnership, a key focus has been on training our members on how best to use our customer relationship management (CRM) technology, which helps to provide all of the tools which advisers need to engage existing customers. From regular workshops to the latest in keeping customers under review, we aim to reinforce the importance of constant contact. This is an opportunity rich environment, and ensuring that you are at the front of the queue to keep your customers’ attention is key. Once they know you have their backs, not only can you advise them on the best step forward, but you can begin to schedule more regular catchups in the future. M I
Call or text ahead of the end date to engage customers and demonstrate that they haven’t been forgotten
SEPTEMBER 2021
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REVIEW
LONDON
Property markets are nuanced Robin Johnson Xxxxxxxxxx managing director, Kinleigh, Folkard and Hayward xxxxxxxxxxxxxxxx, xxxxxxxxxxxxxxxx Professional Services
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nflation generally receives a negative press. It is an economic measure, but also an important political tool. Indeed, the government has changed how it calculates inflation many times since 1978. However, we easily forget that it is a welcome presence when it helps boost consumer confidence, demand and consumption and underpins economic growth. Like most things, it purely depends on where you are in life when you experience inflation as to how you might feel about it. If you have assets of any type, then it can be very helpful. What is key is that whatever measure you use to understand inflation, your real evidence remains your understanding of how it is working on the ground in the many micro-markets that make up the national overview. PAPER PROFIT
UK house prices have increased by an average rate of 13.2% over the year to June 2021. When the value of homes goes up, voters – otherwise known as homeowners – feel a warm glow at the paper profit made and feel more confident. Even in London, the Office for National Statistics (ONS) reported recently that that capital, the part of the UK hardest hit by the repeated coronavirus lockdowns of the economy, recorded an annual increase of 6.3%. Inflation, it appears, is alive and well in the UK property market – stoked by lack of supply, fiscal interventions such as the stamp duty holiday and the 95% loan-to-value (LTV) guarantee scheme. Some commentators are busy predicting that prices will fall back from October when the stamp duty holiday ends; others are predicting that www.mortgageintroducer.com
the froth of the past 12 months will continue apace, underpinned by labour shortages in the construction sector, material shortages pushing costs up, and the long-term mismatch between supply and demand. Rather than it being a question of up or down, I think the market is due for a rather more subtle shift. The pandemic provoked extreme behavioural, social and demographic change in a very short space of time. We’re all aware of the effect lockdowns have had on people’s work-life balance,
“The supercars, flown or freighted over from the oilrich Middle East, for summer in London are reappearing. The internationally wealthy are returning to London, particularly now that quarantine restrictions for vaccinated visitors to the UK have been lifted by government” the changing use of our homes, the need for space, a shift from inner city to leafy suburb or beyond. International travel bans have disrupted short-term leases on high value properties in London, with demand from the international superrich and corporates falling through the floor. Some of the changes wrought by the pandemic will stick around. Others will adapt to the world ‘AC’ (after COVID), while some will revert to the way things were ‘BC’ (Before COVID). In the capital, we are already seeing one of those things getting back to BC normal. The supercars, flown or freighted over from the oil-rich Middle East for summer in London, are reappearing. The internationally wealthy are returning, particularly now that quarantine restrictions for
vaccinated visitors to the UK have been lifted by the government. Add to this the fact that house price inflation in London hasn’t kept pace with the dizzying rises in other parts of the UK, and not only is there increasing interest in six month lets in ultra-prime areas, but London’s property looks very good value at the moment. Working in the London property market is a small world, and already I am hearing that the number of viewings by international investors have soared from August. RISING RENTS
A cooler market in London, combined with a year of being stuck at home with nothing to do, is also driving younger renters and buyers into the city. They see value in purchase prices; landlords see value in stronger yields. Prices are reasonably flat, while rents are rising. The latest analysis from Acadata provides some further insight into how nuanced the behaviour changes are. It notes that the region with the highest increase in sales in 2021 was the Southeast (+53%), where one might have thought sales would have been low, given the assumption that many were choosing to migrate to more rural locations. The analysis also observes that sales of detached properties in Q1 2021 were up by 70% compared to Q1 2020, and that similarly, sales of semi-detached and terraced homes increased by 50% and 40%, respectively. This appreciation of nuance is a timely reminder that micro-markets are important when you are trying to unpick the likely trajectory of property – especially in a city like London and its environs. Lending decisions are often broadbrush, but opportunities are very present in London and the South East if you know where to look for them. What we are experiencing in the capital’s prices today, as well as those of its regions, reflects a nascent growing confidence that good value is very real and present. M I
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SELF-BUILD
Self-build, the choice is yours Graeme Aitken business development manager, Harpenden Building Society
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or recent generations, choice has become far more commonplace. Whether it’s a small, everyday purchase or a big lifestyle acquisition, there are now numerous options. When it comes to homeownership, a self-build project takes choice to a new level, enabling customers to develop a completely bespoke property meeting their exact needs. So, what business development opportunities does this create for mortgage brokers? 21ST CENTURY CHOICE
In relation to modern day living, we’ve never had so much choice. Going back to my childhood, a trip to the supermarket was a very different experience compared. If you were lucky, there would be two options of a staple food type, a branded and own-label version – now the choice is mesmerising: original, low sugar, flavoured, economy, own-label, big brand, and on it goes! The development of choice crosses into most aspects of consumerism, not just in grocery shopping. When considering bigger ticket items, like buying a car, there has been a huge development in the alternatives offered. One of Henry Ford’s famous quotes about the Model T was: “Any customer can have a car painted any colour that he wants, so long as it is black.” A century later, there are unlimited options for model and colour, allowing us to accessorise to our hearts desire. But how has ‘choice’ progressed when it comes to acquiring a property? CREATING A FOREVER HOME
The ultimate, bespoke purchase for many is the acquisition of a dream property containing features that
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exactly meet the customer’s personal requirements. There has been a steady shift towards this way of thinking, with the pandemic noticeably accelerating this process. As people have been spending more time living, working and socialising at home, a new trend in self-build has emerged, facilitating the specific requirements customers now desire, whether it be office space, a cinema room, an extended kitchen becoming the focal point of the property, bifold doors, additional guest rooms, or maybe extra parking. Gone are the limitations associated with buying a new-build, off-plan property where you might only be allowed to choose the kitchen or bathroom fixtures and fittings. Gone, too, is the need to compromise when having to accommodate the layout of an established property. Self-build is one answer to overcome these restrictions and create the dream, forever home, just as you want it. DEMAND FOR SELF-BUILD MORTGAGES
Like ourselves, you too may have experienced an upturn in enquiries from would-be ‘self-builders’ wanting to finance and build a property development, or partner with a professional building contractor to deliver the project. Self-build mortgages, by their nature, are a lot more complicated than traditional products. We understand the complexities of self-build financing having operated in this space for many years. Whether you are a broker new to this growing opportunity, or one looking to develop your market share, we are here to help. As a specialist lender, the Harpenden team continues to be on hand to support our broker partners and their customers with expertise and solutions in this niche area. We want to say yes! As with all of our mortgage products, we undertake personal underwriting, taking an individual approach to assessing
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each mortgage application, however involved, with the aim of providing a positive outcome. To meet the increased demand for self-build mortgages, lenders are introducing new and enhanced products to market. Our latest offering includes improved rates and features, such as: 3.69% for loans £75,000 to £999,999; 4.19% for loans £1m to £2m; flexible construction types, including modern methods of construction – valuer comments dependent – and self-build retention releases not linked to stages. It’s an independent self-build product designed to meet modern day requirements. The product is early repayment charge (ERC) free. If the plot or site is already owned unencumbered, we can release an initial tranche of the funds against this towards the initial build phase. The product is available for different types of projects, including groundup builds, knock-down and rebuild, conversions and back garden builds. Up to three properties can appear on the same development, provided that the majority will be for owneroccupation, we allow property with annexes, and we offer a residential mortgage refinance option at the end of the self-build. SPECIALIST LENDERS ARE HERE TO HELP
If you are looking at a self-build option for a customer – whether it’s breathing new life into an existing property or embarking on a completely new housing project – we believe it’s important to partner with a specialist. Your customers will be journeying with you in a potentially high reward situation, but there are likely to be times of pressure in the process too. Expert financing guidance for your customers throughout the project will help them complete the build in the best and most efficient way possible. Partnering with an experienced, specialist lender will pay dividends for you and your customers. M I www.mortgageintroducer.com
REVIEW
EDUCATION
Understanding your lenders Gordon Reid Xxxxxxxxxx business development manager, learning and xxxxxxxxxxxxxxxx, development, LIBF xxxxxxxxxxxxxxxx
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arlier this week, I witnessed an exchange between one of my close friends and a local mortgage broker. The broker, who I also know well, had arranged a mortgage for my friend’s daughter with a large high street lender. The mortgaged property is a large property which has recently been converted into two smaller separate houses. Unfortunately, despite having issued a formal offer, the lender withdrew when it became aware that a suitable building guarantee had not been secured for the conversion works. Nor was the lender prepared to accept the provision of a retrospective warranty. This led to the broker making a series of urgent calls to try and secure alternative funding, which, regrettably, were unsuccessful. HOW DIFFERENT LENDERS WORK
The point of this story is not to criticise either the lender for its decision, or the broker, who worked diligently on behalf of the client. No, it is simply to highlight the point that being an effective broker is about far more than securing a great interest rate. Indeed, it shows the importance of understanding how different lenders work, and of building great relationships with them. When it comes to mortgages, a lot of recent headlines in the popular press have been about ‘interest rate wars’, and many highlight the availability of rates below 1%. There have also been regular comments about the number of deals available for specialist products, such as those which support equity release. What these rarely address is the availability of these products and headline-grabbing rates to your www.mortgageintroducer.com
‘average’ borrower. As well as being loan-to-value (LTV) dependent, these are often only available to those with a long and unbroken employment history and a clean credit record and perfect mortgage payment record, who are purchasing a property of standard construction. INDIVIDUAL NEEDS
One consequence of the pandemic is that many borrowers, who may have fitted into these categories as little as two years ago, are not viewed in the same way by all lenders now. It’s relatively easy for a borrower to find the lowest interest rates available using comparison websites. Where a broker can make a real difference is in quickly and efficiently identifying the lenders and products that are suitable to the individual borrower. This means: identifying the true overall costs of a mortgage package; understanding the evidence and proofs different lenders seek; understanding how lenders like to see their cases packaged; understanding the impact of credit history on different lenders; understanding how different lenders view non-standard properties; and highlighting and addressing their protection needs. In the current environment, it’s also important to recognise that lenders have different policies in relation to borrowers who have been on furlough. Similarly, those who’ve taken Bounce Back Loans to support their businesses may be treated differently. What does this mean in practice for brokers? How can you ensure that you can make a real difference to your clients? RELATIONSHIPS WITH BDMS
Business development managers (BDMs) are likely to be your greatest allies at a lender. It’s their job to develop business and support brokers in submitting
applications which underwriters will ultimately approve. They have a great understanding of a lender’s key criteria, policies and processes, so they can really help you in assessing the suitability of a product for your client. They can advise you how to package and present an application to the underwriter, increasing the likelihood of it being approved. BDMs are also aware of some of the more subtle changes in a lender’s position. For example, a lender may decide that it wishes to reduce the volume of 90%-plus LTV mortgages it accepts for a time. If you have a great relationship with your BDM, they will make you aware of this and help you decide which cases are still worth presenting. Direct access to underwriters is also quite rare, so the value of having that direct connection cannot be understated. DO YOUR RESEARCH
Although having great relationships with BDMs is essential, don’t forget that they represent the lender which employs them. It’s therefore imperative to do your own research too, and maintain a database of the information you gather. This database should focus on the things you can’t find in web-based searches. It will be a mix of things the BDM has told you, experiences you have had with previous clients, and stories you have heard through your network. It will be a mix of hard facts – such as a lender’s policies affecting the selfemployed or those with a poor credit history – and soft facts, such as their feelings and attitudes. Remember that – for this research to be effective – it needs to be current. An insight gained six months ago could easily be out of date. This could result in the best available product not being selected. It could also result in the processing of the case being delayed – or even declined. M I
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RECRUITMENT
Being biased is natural Pete Gwilliam director, Virtus Search
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nclusive leadership is a process of bridge-building. As an organisation develops more managerial levels, it necessitates ensuring that senior management and middle management listen, learn and benefit from people with different perspectives. The process of finding common ground is founded on mutual respect and consistently evidencing trustworthy behaviours, and ultimately by realising that – however wellintentioned – we will have unconscious biases which can create exclusion. We all need to consider how unconscious bias affects who we invite to meetings, who we speak with more easily, and whose opinions influence our decisions. Unconscious bias makes us believe we are making decisions about an individual’s capabilities, professionalism, or ability to contribute based on rational details, when in reality, these are skewed by our personal preferences. Most biased stereotypes do not come from a place of bad intent. It’s just a deep-seated, unconscious stereotype that’s been formed in our brains through years of different influences we often had no control over. To harness the full energy, enthusiasm, and potential of all in a diverse workforce, it is essential for leaders and teams to be alert to the disenfranchising nature of unconscious bias, and to recommit to the basic principles of listening, bridgebuilding, and creating common ground. Of course, you cannot create a solution that works for many while only considering the voices of a few, but conversely, the value of creating a more diverse workforce is to shape more inclusive practices and perspectives – that requires a safe and open environment. To educate yourself, you must
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No room for recruitment bias in inclusive leadership
prepare to be vulnerable and recognise that you are likely to have exhibited some underlying biases previously. I find that there can be defensiveness when discussing race and gender privilege and the concept of everyone having an equal chance with a white male, because I suspect it implies you’ve had things easier, even if things have been difficult for you personally, and moreover, that you are maybe not quite as equitable as you always believed yourself to be, which can feel a bit awkward to realise. Privilege and equality are nuanced and intricate subjects, and there’s a good chance that your hiring process isn’t as inclusive as you think. Even if appealing to a certain underrepresented group, it may in fact not intersect with another group. There’s no doubt that you can discourage certain segments of the population from applying simply through the words that you’re using or the unnecessary criteria you’re asking to be met, which can greatly advantage some while disadvantaging others. Neuroscience research has demonstrated that human beings are hardwired to prefer those who resemble us or have similar features and backgrounds. Therefore, companies need to start by understanding that unconscious bias in the workplace is normal, and be critically aware of how this bias influences our decisions and impacts others.
MORTGAGE INTRODUCER SEPTEMBER 2021
OPENING DOORS
Whether we’re aware of it or not, bias affects who we select to come in for an interview, how we interview them, who we hire, and our reasons for hiring them. So, how do you keep from falling prey to the dangers of unconscious bias? The first step is simple: make the unconscious, conscious. A good place to test the inclusiveness of your business is to ask whether you have employees who do not have the same access to key stakeholders, or are not consistently engaged in strategic projects and workflows within the firm. Also consider how previous internal job openings have been handled, which individuals were encouraged and actively sponsored to apply, and in particular, what the make-up of the decision-making panel was. The most progressive organisations ensure that feedback is constructive, and importantly, they action plan mentoring and coaching to improve thereafter, in particular for those from under-represented backgrounds. Factors like how or where we’ve been brought up, our exposure to other social identities and social groups, who our friends are or were, as well as media influences, all affect how we think and feel about certain types of people. We must all agree that these should not be influencing who has doors opened and who has them closed. M I www.mortgageintroducer.com
REVIEW
SERVICE
Finance should deliver more Xxxxxxxxxx Stuart Miller customer director, xxxxxxxxxxxxxxxx, xxxxxxxxxxxxxxxx Newcastle Building Society
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urpose has always been at the heart of business for building societies. Profit is only there to be reinvested into better savings or mortgage products and services for our members. It’s all very well saying we put purpose first, but how do we actually do it in practice? At Newcastle Building Society, we have a clear goal to support people to own their own home and to save and plan their finances. At one time, that simply meant providing a safe place for savings, and access to a loan that helped countless couples and families on to the property ladder, shoring them up financially for life. Today, the market is much more complex. Not only are there many different lenders, but many different borrowers, including government assistance, insurance guarantees, interest only, later life lending, selfemployed, and adverse credit. Borrowers’ income patterns are also increasingly complex. For example, the number of self-employed individuals looking to borrow is steadily rising. According to research by The Mortgage Lender, a third of selfemployed homeowners have taken on
more debt, and a quarter have deferred mortgage payments to prop up their finances during the pandemic. These borrowers still need lenders which can understand their individual situations support them as the impact of the pandemic begins to ease. For us, being true to our purpose requires a constantly adapting attitude to product development, lending criteria and service differentiation. It’s not enough to distribute mortgages with the cheapest rate possible. Rather, we start with purpose and work back from there, thinking about what borrowers need from their mortgage in order to become a homeowner, or indeed, remain one later in their life. In practice, this means understanding where deposits are coming from, knowing what the challenges around affordability are for different borrowers, and being prepared to take a pragmatic, common-sense approach through our underwriting process. As a result, we have pushed ourselves as a lender to create innovative products that enable those who can afford to buy a home to do so in a responsible fashion. The ‘Bank of Mum and Dad’ is a feature of today’s mortgage market that gets more pronounced every day, but how this money is given to borrowers can really complicate a mortgage application. At Newcastle, we accept gifted deposits from close family, which can equate to some – or all – of
Raising a healthy deposit could be considered the biggest challenge to purchasing
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their deposit, providing much-needed support for those struggling to save enough to buy their dream home. There are also borrowers who struggle with loan affordability, meaning there is far less choice for them in the market, especially those on lower salaries at the start of their careers, and people buying on their own without the luxury of two incomes to support the mortgage payments. By ignoring the needs of these groups, lenders risk exacerbating social inequality. Understanding the implications of this is what drove our decision to offer Joint Mortgage Sole Proprietor mortgages, which allow one family member to be added to the loan to support a single occupying borrower. The ownership of the property remains solely in the name of the occupying borrower, but they can use the income of a family member to increase their borrowing capacity to acquire the mortgage. It’s ideal for those whose income will rise in the future, but who for a short time need the support of a family member to get onto the property ladder. Raising a healthy deposit through regular savings could be considered the biggest challenge to purchasing, rather than income and affordability. Our Deposit Unlock helps borrowers secure a new-build home up to a value of £330,000 with a deposit of just 5%. It’s an alternative to both the recently launched government Mortgage Guarantee Scheme and the Help to Buy scheme, which ends in 2023, and is available to both employed and selfemployed borrowers. Finally, it’s important that lenders continue to offer high loan-to-value (LTV) products which include 90% and 95% LTV options for those living in parts of the country where house prices are particularly high and even a 5% deposit can be £40,000. Putting purpose before profit isn’t always easy. In fact, it’s often quite hard. But that’s why we do it – it’s hard enough for borrowers to buy their first home, it’s our job to make it easier. M I
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TECHNOLOGY
Going digital isn’t binary Steve Carruthers head of business development - mortgages, Iress
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ver the past couple of years, through our annual Mortgage Efficiency Survey, we have maintained a robust dialogue with lenders about the technology and processing issues they face. The issues facing lenders are often common at a high level. Margins, funding, distribution and digital planning are some of the issues that crop up regularly, but what remains steadfastly the case is that we can never conclude that there is a onesize-fits-all solution. Lenders are not a homogenous bunch. They may share characteristics – mutuality being one example – or issues, such as funding constraints, but anyone who has really listened properly understands the considerable nuances that affect decision-making, and the constraints that shape the action an organisation may take. Notwithstanding the impact of the COVID-19 pandemic on operations, many lenders have revealed to us that they have enjoyed a very successful first half of 2021. Thoughts now, as the sun sets on the stamp duty holiday, are turning to pipelines for 2022. This inevitably means returning to the digitalisation of intermediated business – a strategy that more than earned its keep during the pandemic itself. Lenders relied on intermediaries to an extent not seen for many years, and the digital nature of acquiring and processing business has been crucial. One feature of the pandemic is that it changed the role of business development managers (BDMs), many of whom have been working from home – and consequently, in some cases, over-servicing brokers. They will gradually return to field work that will not afford them the same time to ‘usher’ through cases. This will again
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raise efficiency questions. It points to more investment in technology, and perhaps people, to maintain efficiency and not lose the personal touch. The challenge for lenders in terms of acquisition, therefore, is knowing what markets they want to be in and how automated their approach should be. We know vanilla lending is not what it used to be, and that deferrals and the furlough scheme will impact underwriting assessments in one shape or another for a while to come. DIGITAL ECOSYSTEMS
There is no digital ecosystem that can cater for all this, but knowing where you want to be is crucial if you are investing in big tech decisions. Your digital ecosystem must work for you
“One feature of the pandemic is that it changed the role of BDMs, many of whom have been working from home and consequently, in some cases, over-servicing brokers. They will gradually return to field work that will not afford them the same time to ‘usher’ through cases” and give you the elasticity to grow and change direction. Depending on your appetite, market and distribution, the shape of your digital ecosystem is yours to create. For those with more niche or focused aspirations, it may be that a mix of ‘plug and play’ solutions holds the answer. It is about understanding how the first key stroke of an affordability calculation interacts with and supports the final onboarding of a completion onto a core banking system. What are the objectives and interdependencies, and are they even the right ones to future-proof your business over the next five years? If you can see the entire picture, it is very easy
SEPTEMBER 2021
to see how one solution can never fit all, but also how every solution should be able to accommodate others if it is to remain relevant over any longer period. Your digital ecosystem should be agile – you may run processes overnight now, but what if growth plans mean you will need them to run in real-time in a couple of years? In our own work, even where we are supplying interfaces to sourcing engines and broker customer relationship management (CRM) platforms, we have spoken to lenders of all sizes that are integrating parts of their distribution with other third-party distributors or sourcing engines. Some are implementing robotic process automation (RPA) to deliver smaller scale solutions to previously manual processes. Application programme interfaces (APIs) remain an incredibly powerful option for those operating at scale, but RPA can help those that either want to dip their toe in the water, or have more considered ambitions. When designing your own solution, you will need platforms and technology that can integrate and play with what is right for you. Partners that resist a multi-player strategy are not, in the end, really on your side. Lenders need partners who understand what their business delivers, have enough elasticity to evolve in the future, and can deliver in short, sharp increments that add real value, rather than seismic change in one go. It begs some important questions: who do you partner with to get ‘best of breed’ that will not shackle you by making outsourcing decisions less about achieving your goals than theirs? Who really understands the business today, and where it is going tomorrow? You would expect me to say we know the answers to many of these questions, but sometimes believing you have all the answers is part of the problem. Knowing which questions to ask and listening to the answers is as important. When it comes to going digital, neither the questions nor the answers are binary. M I www.mortgageintroducer.com
Mortgage
Business Expo 2021
Evolving financial business since 2002.
14th October 2021 ALREADY CONFIRMED: • Bank of England Keynote • CPD seminars • Leading lenders and service providers in a face-to-face environment • New central London venue at the Business Design Centre • Purpose built, natural light and bespoke seminar rooms • Clarity on which products and services are still available, plus what’s new to the market
FREE REGISTRATION IS OPEN VIA THE WEBSITE
mortgagebusinessexpo.com Stands and sponsorships are available, contact mike.mikunda@clarionevents.com for more details
14th October 2021, The Business Design Centre, London
REVIEW
REGULATION
FCA raises bar with ‘new consumer duty’ Rajiv Agarwal compliance director, Equifinance
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‘new consumer duty’ proposed by the Financial Conduct Authority (FCA) in its recent consultation paper promises to be an effective weapon to help prevent consumer harm from products and services sold to retail clients. Apparently, this proposal fast-tracks the FCA’s initial thoughts from its 2018 discussion paper, which spoke of placing a ‘duty of care’ requirement on all firms, as defined in primary legislation, through a different approach within its own rule-making powers. In doing so, the FCA also acknowledged concerns about setting out a statutory duty of care, especially the difficulties of consistent application of a single duty to a range of scenarios, such as where a firm does not engage directly with clients and sells its products via regulated intermediaries. In such cases, a duty of care, arising from primary legislation, will usually fall on professional advisers rather than product developers. Subject to wider industry feedback and a further paper – to be published by the FCA towards the end of this year – the proposed framework is set to overlay the current principles and outcomes that form part of the regulatory provisions for treating customers fairly (TCF), by achieving a higher degree of consumer protection via a combination of a new consumer principle, amplification of conduct standards expected under the new principle through ‘cross-cutting’ rules, and four consumer outcomes. The FCA is yet to decide on the nature and exact wording of the new
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consumer principle, and is keen to hear from firms and consumer bodies as to whether the new principle should have ‘good outcomes’ or ‘the customer’s best interests’ as its primary focus. A decision whether the new principle should replace the current Principles 6 and 7, or be added to the 11 principles, will also be made following industry feedback. On the face of it, the four outcomes proposed under the new consumer duty mirror the six under the TCF provisions – except the ‘fair value’ outcome – which currently supplement Principles 6 and 7. As such, adding the new principle with a parallel set of outcomes which overlap with the current framework will confuse rather than clarify regulatory expectations, unless the it finally replaces these two principles, at least for retail clients. The new outcome relating to ‘fair value and price’ of products and services is a welcome addition to the requirements, though more clarity will be necessary on this for different types of firms. For example, an assessment of fair value of loan products for deposittakers and non-bank lenders will be based on totally different parameters,
New consumer duty: Fair value
MORTGAGE INTRODUCER SEPTEMBER 2021
with further differences between first and second line mortgages. A clearer regulatory steer will help define the scope of fair value that can be determined by firms within their products and services, based on different considerations, and further details from the FCA will indeed be welcome on this in the next round of consultation. The ‘fair value’ outcome appears to be the most distinguishing feature of the new principle, and it signals the FCA’s intent to clamp down on any instance of unfair pricing resulting in consumer harm in future, without the need for a more direct intervention to cap the price of products and services – as has been done in the past with high-cost short-term credit and bank overdrafts. The regulator has, however, not ruled out a broader price intervention by using the powers it has had since April 2013. Having already implemented a new set of conduct rules and the individual duty of responsibility through the Senior Managers and Certification Regime (SMCR) to ensure a culture that drives best outcomes for consumers, the new consumer duty would help the customer-focused and proactive approach to regulation that the FCA is trying to embed. However, the regulator should ensure that the new rules and guidance do not duplicate or create an additional layer of regulation, with overlapping and potentially confusing obligations placed on firms. Finally, if the FCA replaces – rather than superimposes – the current TCF principles and outcomes with a new, clearer and more direct regulatory framework that also addresses any gap in the existing provisions, the new regime will be a significant step in the FCA’s aim of becoming a more forward-looking regulator. As part of this initiative, it will be important for the regulator to provide sufficient granularity on the application of the new consumer principle and each of the proposed outcomes for firms to be able to clearly interpret and adopt, depending on the nature and complexity of the products and services offered by them. M I www.mortgageintroducer.com
A license to back your deals After a landmark summer for the business, we just announced a £150 million partnership with HSBC and Barclays to fund your bridging deals. Let’s get started.
Property finance made simple.
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BUSINESS DEVELOPMENT
A new normal for BDMs Jeremy Duncombe managing director, Accord Mortgages
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t’s been a long time coming, but I dare say we might finally be on the home straight. We’ve had our hopes raised and dashed a number of times since March 2020, but with the success of the vaccine rollout and the latest easing of restrictions, I’m hopeful we’re on the right path to return to a new form of normal. However – and I suspect it’s the same for many businesses – we won’t be turning our back on everything this period in time has shown us. There’s no doubt that it has been relentless – a housing market coming to a standstill followed by one of the busiest times in the industry’s history has challenged us all – but we’ve all had to adapt efficiently, effectively and collaboratively to get to where we are today. We’ve accelerated change in areas that could well have been years off pre-COVID. We’ve learnt what we’re capable of, where our strengths lie and what we preferred before, and that leaves us in a really strong position to look to the future. Take the role of business development managers (BDMs), for example. Although externally it may look to have changed dramatically, their fundamental purpose has not. In fact, given the amount of uncertainty created during the pandemic, the need for someone to support and add value with in-depth knowledge of lenders’ products, criteria and processes couldn’t be stronger. Thanks to remote working, that’s exactly what lenders have – an incredibly knowledgeable team of BDMs, supporting brokers when they
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have needed it most, over the phone or by webchat. Diaries previously filled with broker visits, car journeys and lunch on-thego were swapped for back-to-back virtual meetings and interactions so as to ensure questions were answered and solutions found. At some of Accord’s busiest times – when we were one of the only lenders offering 90% loan-to-value (LTV), or the first back in at 95% LTV, for example – our BDMs and business development advisers were dealing with thousands of webchats, emails and calls a week, and helping more brokers at once than we’ve ever been able to before, but we still managed an average satisfaction score of nine or higher out of 10. We had some difficult decisions to make along the way, including switching our inbound broker phone line off, but we continued to serve brokers to the high standards they have come to expect. With significant recruitment and investment in our
BDMs: Finally able to look forward
SEPTEMBER 2021
team, we’re in a position now to switch the phones back on, and have also launched a new dedicated variations team line to help improve the variations journey for brokers. Like many businesses, we’ll be striking a balance when it comes to ways of working in the future. We cannot ignore the efficiencies brought about by using more – and better – technology, and we’ll embrace it alongside our teams returning to the face-to-face contact we’ve all missed, and which we know is so valuable in our industry. Proactivity and face-to-face meetings create an opportunity to add value and work in partnership with brokers. Understanding your business and then helping you to support even more clients is a key benefit that a good BDM will add. It’s therefore important that we create the capacity for brokers to be proactive, by encouraging use of technology such as webchat, online case updates, and self-service – where appropriate. Helping us to help you is an important step to returning to that new form of normal. The intermediary market is fuelled by relationships on all levels, many of which either have been benefitting or will benefit from being built in person. That won’t change. I’m sure many brokers can resonate with that, too. We know nothing can replicate a face-to-face meeting with a client, and the rapport and potentially long-term relationship that can yield, but there’s been a shift in client expectations, too. Remote consultations have been the norm for some time now, and it would be remiss to not expect those to continue in the future, complemented by the option of having physical meetings as well. It’s been a colossal 18 months for all, and it takes a special type of resilience to overcome the hurdles we’ve all faced, but we are finally able to look forward, and that’s testament to our industry’s strength. However you and your business respond to the easing of restrictions, I wish you well. Stay safe – we can’t wait to see you all again soon. M I www.mortgageintroducer.com
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REVIEW
BUY-TO-LET
Back buy-to-let Bob Young chief executive officer, Fleet Mortgages
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y the time you read this it will be mid-September, and we will just be a couple of weeks away from embarking on the last quarter of the year, and moving back towards the previous stamp duty ‘normality’. Q4 in any year is an important period, but this one is perhaps more important than others, because there is a great deal of interest and speculation around how the housing market might react to that immediate post-stamp duty holiday period, even if the past three months has just been a period of partial holiday. OPTIMISTIC OUTLOOK
From our perspective, the future looks very bright indeed. Clearly, the activity levels we’re seeing now are unrelated to any sort of stamp duty-inspired momentum. Landlords seeking to purchase will be fully aware that they’ll be back to paying the same surcharge as pre-July last year, and while we anticipate a slight slowdown as a result, it’s obvious that there is a large amount of remortgage business on the cards. Our optimism for the future seems to be shared by those in the know – not least our new parent company, Starling Bank, which has acquired a buy-to-let (BTL) specialist lender, anticipating that we can grow our market share. It’s also seemingly shared by those stakeholders who are weighing up what might be next for the overall industry. The Intermediary Mortgage Lenders Association (IMLA) recently looked at how the mortgage market had moved on after a year of restrictions, stamp duty incentives and the like, and as a result of that analysis, inched up its prediction for overall gross mortgage lending from £283bn in January this year to £285bn now.
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It anticipates that £42bn of that will be for BTL lending, of which £13bn is for purchase loans. Its prediction for 2022 has corresponding figures of £40bn and £10bn, no doubt underpinned by a belief that many landlords will have brought forward their purchase activity to take advantage of the full and partial stamp duty holidays.
“Landlords, both existing and new, are keen to either make their initial mark or add to their portfolios, because they see the tenant demand that is underpinning the sector” UNDERLYING STRENGTH
There may be some who see a £2bn drop in predicted lending by IMLA for buy-to-let as a signal that the sector is falling back from recent highs. I hate to disappoint those who are continually looking for a stick with which to beat the sector, but my belief is that this is in fact further proofpositive of its underlying strength. For instance, lets look at our last pre-COVID full year of activity. The figures reveal that in 2019 BTL gross lending was £43.5bn, of which £10.9bn was for purchase activity. You’ll be able to see that we are not a million miles away from what is anticipated for this year, and predicted for 2022. The major difference is, of course, purchase activity, which you would anticipate to be higher throughout 2021 because of those stamp duty incentives which are soon to end. Last year, the corresponding figures for buy-to-let were £38.1bn for gross lending, of which £10bn was for house purchase activity. That was with a two to three month lockdown period, which effectively closed down the housing market, plus the time it took to get back up to speed, albeit supported by the
MORTGAGE INTRODUCER SEPTEMBER 2021
catalyst provided by the stamp duty announcement made in July last year. This is not a sector, therefore, that is on a roller-coaster ride of activity. In fact, quite the opposite. Even with the impact of the pandemic, gross mortgage lending has remained very solid and stable, plus the amount of purchasing within that has also stayed on a very similar course. For a start, £40bn of gross lending each year doesn’t strike me as a sector in its last death throes – as some commentators appear to be touting – and the continued level of purchasing shows that landlords, both existing and new, are keen to either make their initial mark or add to their portfolios, because they see the tenant demand that is underpinning the sector. RENTAL DEMAND
If you want an understanding of that demand, simply look at where we are in the academic year. Through the course of September and October, millions of students will be going to higher education institutions right across the country, hopefully returning to in-person lectures and seminars for the first time in a while, and moving back to a more normal experience. Thousands upon thousands of overseas students will eventually return to take up their places as well. The housing requirement just for this cohort is significant, and for the most part, it is the private rental sector (PRS) that will be called to meet it. That will only increase in the years ahead, as will the growth in the number of single-person households, the want and need to live in certain areas of the country which may be out of budget to buy, and the anticipated increase in returning EU nationals who have the ability to live and work in the UK. All these, and many more, require PRS housing. The fundamentals for buy-to-let investment therefore remain incredibly strong, and it will be advisers who are required to come up with the finance solutions to support that. M I www.mortgageintroducer.com
REVIEW
BUY-TO-LET
Specialists hold the key George Gee commercial director, Foundation Home Loans
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or what seems like an age, we’ve been talking about the potential, actual and future influencing factors on people’s financial situations, and the impact on their borrowing needs. Thankfully, the constant state of flux which dominated large periods of 2020 and early 2021 now appears to be heading towards a far more stable trajectory for a growing number of individuals and businesses. GROWING ECONOMY
This stems from increasingly robust economic conditions. Recent data from the Office for National Statistics even went as far as suggesting that the UK economy surged forward in Q2 2021, growing 4.8% as consumers eagerly spent money following the easing of coronavirus restrictions and the progress of the country’s vaccination programme. This activity was said to be underpinned by resurgent consumer spending, rising 7.3%, with outlays at restaurants, hotels and transport reported to make up a large proportion of this. A drop in government capital expenditure led to a quarterly dip of 0.5% in total investment, but companies responded to the easing of restrictions by raising business investment by 2.4%. Along with the quarterly national accounts, the Office for National Statistics also published the first estimates for growth in June, which it estimated at 1% in the month, raising the pace of recovery from a rate of 0.6% in May. There is a debate around how much the emergence of the Delta variant may have slowed this pace in July and early August, but sustained activity www.mortgageintroducer.com
in the hospitality industry should help maintain momentum. Although it’s a huge positive to see that we appear to be heading in the right direction, the path to a full economic recovery may well have a few twists and turns left in it. Conditions remain far from perfect, and financial obstacles do remain in place for many households. LINGERING PRESSURES
From a borrowing perspective, the sheer volume of purchase activity across the residential arena over the past 12 months certainly demonstrates a housing market in rude health. However, certain dynamics remain in place, many revolving around lingering financial pressures being placed on individuals as a direct result of the pandemic. Others are challenging scenarios for the more traditional lenders to overcome. Recent analysis from Legal & General Mortgage Club’s
“Although it’s a huge positive to see that we appear to be heading in the right direction, the path to a full economic recovery may well have a few twists and turns left in it. Conditions are far from perfect, and financial obstacles do remain” SmartrCriteria tool serves to highlight some of the many mortgage-related scenarios that borrowers and intermediaries continue to face. This found that adviser searches for furlough-friendly mortgage criteria continued to fall between June and July; however, many borrowers continue to need mortgage options suitable for borrowers with contract or irregular income. Criteria for borrowers employed via a fixed-term contracts increased by 17%
in July, while general contract worker criteria requests rose by 14%. Demand for criteria relating to satisfied County Court Judgments (CCJs) also remained broadly consistent month-on-month. The SmartrCriteria data also reveals that shared ownership products appear in the top 20 most searched terms. Following an increase in demand for capital raising mortgages in May, July also saw searches for these products increase by 9%, the fourth most searched for criteria. COMPLEX MARKET
This string of scenarios really highlights just how complex the current residential mortgage market is, and how reliant the intermediary market has become on a variety of specialist lending propositions to support their clients’ ever-changing property-related requirements. Looking forward, a greater number of people will likely embark on portfolio careers, which often create a mix of employment, freelancing, and consultancy work – therefore generating multiple streams of income – and this trend will surely shape lending attitudes and appetites in the near future. SPECIALIST RELATIONSHIPS
In a similar way to the more traditional lending options, specialist lenders will not be able to address all of the aforementioned scenarios. We each have our own individual lending boundaries, attitudes to risk and underwriting processes. We also have different criteria and lending policies, which are constantly shifting in line with market dynamics. This underlines how important it is for intermediaries to build strong relationships with specialist lenders, in order to really get to know what type of scenarios they can lend on, and – just as importantly – which they can’t. Here at Foundation Home Loans, this is a conversation which we are always keen to have. M I
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BUY-TO-LET
Positive momentum set to continue Cat Armstrong mortgage club director, Dynamo for Intermediaries
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he private rental sector (PRS) has experienced its fair share of ups and downs over the years, but the ups continue to far outweigh the downs. This says as much about the people and firms operating within this sector as it does about the ongoing housing needs of the UK population. In recent times, the pandemic has obviously impacted people in many different ways, and from a financial perspective, has placed additional pressure on a variety of businesses and personal incomes. As such, it’s important for the whole mortgage market to chart these personal journeys and get to grips with how homeowners, landlords and tenants are all coping with their housing demands. This month saw some interesting data emerge from lenders operating in the buy-to-let (BTL) space, highlighting some of the lingering issues facing landlords and tenants, whilst also demonstrating that there is certainly light at the end of the tunnel for the vast majority. Research from Shawbrook Bank outlined that almost half (46%) of landlords reduced monthly rent payments for their tenants because of the pandemic. In total, Shawbrook found that 28% of landlords gave their tenants a full rent payment holiday and 18% offered a rent reduction. On average, rental payment holidays lasted for three months, compared to rent reductions, which lasted four months. Those landlords that gave their tenants a payment holiday are estimated to have lost £7,500 on
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average, while rent holidays cost landlords an average of £6,500. More than a third of landlords who gave a form of rent reduction said that they proactively offered it to their tenant, while a further 45% said it was a mutual decision. Concerns around furlough, job security and redundancy were all common reasons why a rent reduction or payment holiday was suggested.
“The vast majority of landlords have acted pragmatically in recognising the additional financial strain being placed on some tenants. Thankfully, conditions appear to be improving” Portfolio landlords – those owning four or more properties – were more likely to have agreed a rent reduction with their tenants, compared to single property landlords. Some 17% of portfolio landlords admitted to missing out on income, compared to just 12% of single property landlords. The majority (59%) of landlords who gave rent reductions did this for more than one of their properties. As outlined in this research, the vast majority of landlords have acted pragmatically in recognising the additional financial strain being placed on some tenants. Thankfully, conditions appear to be improving. In Q2 2021, landlords were suggested to have an average of 1.3 tenants with outstanding rent payments, the lowest number since Q1 2011. The survey, which was carried out by Paragon Bank and BVA BDRC, showed that, following a decline from 1.6 tenants per landlord since Q1 2021, the numbers of tenants in arrears fell
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consistently, after climbing to 2.1 in Q2 2020. In addition, the average amount of outstanding rent reached a four-year low, falling from £2,376 in Q1 2021 to £1,781 in Q2, a reduction of £595. The average amount of rental payments owed to landlords is now said to be at its lowest point since the end of 2017, when it sat at £1,584. This pronounced fall in rental arrears provides a real shot in the arm for the industry, and can be taken as an encouraging sign for the economy as a whole. This also offers more encouragement to an array of landlords who are already benefiting from growing confidence levels. This was illustrated in further BVA BDRC research, this time with BM Solutions – in partnership with the National Residential Landlords Association (NRLA) – which showed that the proportion of landlords anticipating that their letting business will be negatively impacted by COVID-19 has fallen to 55% in Q2 2021, down from 81% at the start of the pandemic. The proportion of landlords who anticipate that the pandemic will negatively impact their portfolio has also fallen, to a new low of 31%. Confidence among landlords was found to have increased regarding the private rental sector more broadly, up 18 percentage points to 46%. Some of this confidence could be reflected in the fact that recent void periods fell to their lowest level since the start of the pandemic (12%). The typical void duration has also declined significantly, down from the Q1 2021 peak of 64 days, to an average 40 days in Q2 2021. In addition, 29% of landlords reported increasing tenant demand over the past three months. It’s great to see so many encouraging trends emerging on the back of what has been a tough time for many landlords and tenants. With confidence rising, a growing number of highly competitive rates being readily available, and a range of specialist solutions rising to the fore, I’m sure this positive momentum will continue over the latter part of the year and beyond. M I www.mortgageintroducer.com
REVIEW
BUY-TO-LET
BTL remortgages on the rise Jane Simpson managing director, TBMC
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t has been expected that intermediaries working in the buy-to-let (BTL) sector may see a slowdown in the purchase of residential rental property as the stamp duty holiday comes to an end. If this does prove to be the case, there should still be plenty of remortgage business to write in the meantime. According to a recent survey by Foundation Home Loans, many landlords are expecting to remortgage their buy-to-let properties within the next 12 months. The survey was taken by more than 750 BTL investors, and it showed that 30% are planning to remortgage in the next year.
The proportion of portfolio landlords looking to remortgage is most impressive, with 43% aiming to do this during the next 12 months. So, this is a great time to contact existing buy-to-let clients, especially those who have a sizeable number of properties in their portfolio. The survey also showed that 30% of those looking to refinance their properties want to release equity. This is clearly an opportune time for landlords to consider capital raising, as property prices have been on the increase, giving buy-to-let investors more confidence in the sector. With property prices on the rise, landlord clients may be able to access lower loan-to-value (LTV) mortgages at better rates and allow them to release more equity. Landlords may release equity from their portfolios for a variety of reasons, and providing a deposit for further property purchases is still a
The buy-to-let remortgage market has a healthy outlook for the year ahead
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common plan for those looking to grow their investment property business, despite stamp duty reverting to preCOVID-19 rates. Another reason to be alert to the BTL remortgaging opportunity is that many 5-year fixed rates will be maturing in the next 12 months, contributing to the upward trend for refinance cases. Some landlord clients may also be in a better position to obtain shorter-term fixed rates, as rents have reportedly been rising in most areas of the UK, allowing applicants to meet lender stress tests more easily. Releasing equity in order to carry out home improvements is also a common theme. With more people now working from home due to COVID-19, projects such as a loft extension, self-contained annex or garden office can add value to a property and also increase the amount of space available for more flexible home working arrangements. Landlords may also be using any void periods to make improvements to their rental properties or carry out essential repairs. There is also an incentive to raise capital for making energy efficiency improvements to rental properties, and achieve a better Energy Performance Certificate (EPC) rating. Currently all rental properties must have an EPC rating of at least E, but there are government ambitions for the minimum standard to reach a rating of C or above by 2028. Buy-to-let investors with an eye on the future are starting to carry out improvements, such as installing insultation, upgrading boilers or replacing windows, in order to achieve a higher rating. There has also been the emergence of ‘green mortgages’ for landlords, with lenders offering incentives or discounts for more energy-efficient rental properties. For buy-to-let brokers, the remortgage market has a healthy outlook for the year ahead, and there are plenty of competitive product options available for their clients to choose from. M I
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BUY-TO-LET
Looking at the bigger picture Richard Rowntree managing director of mortgages, Paragon
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ast month A-level results made the headlines, after 44.8% of students were awarded A* or A grades, the second record high in as many years, in a trend that is being labelled ‘grade inflation’. The result was the most in-demand courses becoming oversubscribed, and in some cases, students being offered incentives to switch to other universities. This meant that there was potential for a change in the numbers of students looking for accommodation at any one university. The experience of the daughter of a family friend has revealed how this also had implications for university affiliated accommodation. After securing the grades required to study medicine, Ruth – who would die of embarrassment if I used her real name – looked forward to moving into the halls she had applied for. She was told that they were full to capacity, and was offered an alternative that was of a much lower standard and didn’t benefit from its own bathroom or any cooking facilities – two things Ruth felt were pretty important with it being her first time away from home. This is relevant to buy-to-let (BTL), because it was privately rented
accommodation that Ruth turned to after she was forced to rethink her original plans. Unfortunately, she found that she was not the first person to do this, so all of the student lets in the area were already occupied. While this increase in demand was great for the landlords serving the most highly regarded institutions, what was the impact on those with properties in proximity to universities sitting lower down the league tables? This episode made me think about the other events that had impacted demand for student lets, and question whether this subsection of the BTL market was particularly sensitive to outside influence. Dispelling fears that some students would put their plans on hold until the extent of the pandemic on learning became clearer, UCAS figures revealed that a record 435,430 students secured a university place this year, up 5% on results day 2020. This is the continuation of a trend seen since the 1990s. In the period March to May 1992, 984,000 people aged 18 to 24 were recorded as being in full-time education. The latest Labour Force Survey estimates that this has grown to just under 1.9 million. But it hasn’t always been plain sailing. During this time, there have been other events that have caused student numbers to dip. In 2006, the introduction of tuition fees of up to £3,000 resulted in a 4.1%
Market volatility is in the eye of the beholder
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fall in enrolments. Student numbers then continued to grow in the years following, until 2012 when a 7.6% drop was attributed to the introduction of fees of up to £9,000 for some. A similar contraction of 7% in university application numbers was recorded in 2016, the year of the Brexit vote. Two years later, coinciding with the signing of the Brexit withdrawal agreement, significantly higher incidences of voids were reported by landlords letting to students. Despite these examples of the impact government policy can have on university applications, the student letting market is one that has proved relatively stable and profitable – looking at data going back to 2015, we see that those that include student lets in their portfolios have consistently generated higher yields compared to those that don’t. This is because – despite fluctuations in total student numbers – there are figures to suggest the market is large enough to sustain healthy demand. Higher Education Statistics Agency data highlights that of the almost 1.9 million students recorded in 2018-19, 61% lived away from home during their study. Add to this the fact that universities are also often among the largest local employers – with thousands of people occupying a wide range of positions – and we start to see that, even with the growth of purpose-built student accommodation, investment in this subsection of the private rented sector will continue to be a shrewd choice for some time. While I’d be very surprised if this latest example of fluctuations in demand resulted in hordes of landlords rushing to sell properties catering to less well-regarded universities, it is a reminder of the ever-changing landscape that landlords have to consider when investing, and the importance of looking at the bigger picture to be reassured that markets may not be as volatile as they may seem at first glance. M I www.mortgageintroducer.com
REVIEW
REMORTGAGING
Positive signs for remortgage market Nick Chadbourne chief executive, LMS
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e can all be guilty of choosing the easy option every now and again, when it comes to both our lives and our finances. But mortgage borrowers could be short-changing themselves by opting for product transfers with their existing lender, rather than searching the market. While the number of people choosing to remortgage rather than use a product transfer is growing, huge numbers of borrowers could be missing out on potential savings. For example, the average borrower who remortgaged in July saw a £124 decrease in their monthly payments. New mortgage rates have dropped even further since then, with rates now as low as 0.83%. Average rates have also fallen, with the typical 2-year fix dropping from 2.55% in July to 2.52% in August, according to financial analyst Moneyfacts. The average 5-year fixed rate loan also fell over the same period,
moving from 2.78% down to 2.75%. Falling rates could lure buyers into taking a product transfer, even though a full remortgage would save them even more. Often this happens as lenders will write to customers a few months before their deals expire with a product transfer offer. While remortgaging is typically more time-consuming, and can often have higher fees, product transfers can still be more expensive in the long run, as remortgaging offers borrowers the opportunity to shop around for lower rates. Just like lenders, mortgage brokers should be proactively contacting borrowers to ensure they are receiving the best advice about if and where they should move their loan. FREEING UP EQUITY
A key driver for remortgaging remains the desire to release equity, and in July 49% of borrowers increased their loan size. Many would have been taking advantage of house prices that have risen significantly in the last year. According to the Office for National Statistics (ONS), UK average house prices increased by 13.2% in the year to June 2021. This was the fastest annual growth rate the UK has seen since 2004.
The average house price hit £266,000 in cash terms, which is £31,000 higher than at the same stage in 2020. Borrowers who released equity typically withdrew about half that rise from their homes, with an average loan increase of £16,389. However, 35% saw no change in their total loan size and 16% reduced the size of their loan. Those who lowered their loans did so by an average of £8,144. 5-year fixes remained the most popular product choice for remortgage customers in July, with 45% of those who remortgaged choosing to lock their interest rate for half a decade. As ever, conditions for borrowers can vary dramatically depending on where in the country they are based. The average remortgage loan amount in London and the South East was £295,505 in July, compared to £145,950 for the rest of the UK. CASHING IN
July was the first month after the stamp duty holiday taper was introduced at the end of June, and this perhaps moved the mortgage market’s focus back towards remortgaging rather than purchase loans. Borrowers were split between those who felt comfortable increasing their mortgage repayments and those who took the chance to cut their monthly outgoings. In total, 43% of customers increased their monthly remortgage repayments, versus 41% who reduced their outgoings. Those who saw payments increase did so by an average of £261, while those cutting their mortgage bills saw a decrease of £124 from their housing costs each month. OVERALL MARKET HEALTH
5-year fixes remained the most popular product choice for remortgage customers in July
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July proved to be an encouraging month for the remortgage market, with the number of borrowers choosing to move their loans on the rise. Confidence in the housing market remains strong, despite the withdrawal of some stamp duty tax savings at the end of June. Low mortgage rates have encouraged many borrowers to switch to a cheaper deal and that should continue for the months to come. M I www.mortgageintroducer.com
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SPECIAL
MORTGAGEFORCE CONFERENCE
Pandemic... what p A look back on this year’s Mortgageforce Annual Conference which saw
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othing appeared to deter the 200 attendees of the Mortgageforce Annual Conference last month at the Ned Club in London. Amid sampling fine wines and much rooftop bonhomie, the firm confirmed record lending volumes of £1.4bn for the past year, and with it some exceptional recruitment and growth plans going into 2022 and beyond. Kevin Duffy, managing director of Mortgageforce, (pictured in the company of some British Ballroom dancing champions on P36), says: “Despite the COVID backdrop, it’s been an illustrious year for Mortgageforce and the signs are that H2 of 2021 and indeed 2022 will not feature the rebounding subduedness that some doom-mongers were forecasting when the [stamp duty] holiday ended. “Our generous thanks go to all those lenders who bravely joined us and who stood tall with us against the [work from home] brigade. “For those of you that missed it, here are some of the highlights of the day.”
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MORTGAGEFORCE CONFERENCE
pandemic? the industry turn out in force
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MORTGAGEFORCE CONFERENCE
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REVIEW
PROTECTION
Protection under the spotlight Mike Allison head of protection, Paradigm Mortgage Services
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here is often a debate as to whether having something is better than having nothing at all. This is clearly an acknowledgment that sometimes having a particular thing – even if it is not ideal – is preferable to nothing. Usually, this applies to something tangible. A simple but good example is eating something that perhaps you may not like, but doing so because it is better than remaining hungry. But what if the thing in question is costing you money, and you may not ever use it or receive the benefit? Even worse, what if someone sold it to you and didn’t point out the pitfalls? This is a conundrum that has faced both manufacturers and distributors of insurance products for a long time. There has been an inherent trust by manufacturers that distributors are, in the main, doing a good job – which by the way they are. Increasingly, though, those manufacturers have become involved in examining broker practices in more depth to see if their reputation is at risk if they allow a broker to continue selling their products, or if they are open to a financial risk in the case of mis-selling. Building up public trust in anything is a tough job, and we have seen examples in many sectors of business where the government has stepped in to regulate prices, and in effect try to give customers a fair deal – utilities being a prime example. Lack of trust in insurance companies when it comes to paying out is often cited in surveys as to why people don’t take out certain types of insurance. We know within the life insurance sector that this is clearly not true, but convincing the public is a different matter. The industry needs to work to continue to build trust and bust myths.
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We are just about to see an example of the Financial Conduct Authority (FCA) bearing its teeth in the general insurance (GI) indusry – not forgetting that pure protection products are included in this new ruling, too. In a recent clarification letter to CEOs on the new practices, the FCA said it had identified a lack of customer centricity in many firms’ approaches to product governance. This included inadequate consideration by firms of the value customers receive from their products or services. It talked of insufficient steps by manufacturers of products to meet their existing rules when developing products. It also stated that some distributors – intermediaries – may be receiving remuneration which bears no reasonable relationship to the cost or workload of distributing the products. The new regulatory changes – as many will know by now – will stop price walking and close down the practice of increasing prices to renewing customers. It doesn’t stop at that, and goes on to explain that both manufacturers and distributors must consider whether products represent fair value. In the recent Consumer Duty Consultation Paper, pricing was one of the key areas for discussion.
General insurance: The FCA is baring its teeth
MORTGAGE INTRODUCER SEPTEMBER 2021
To quote: “We are not proposing to set the levels at which firms should price their products or services. “Nor do we intend to use the proposed rule itself to introduce market interventions, such as price caps or other price interventions, as we have done for example in the rent to own and overdrafts markets. “In future we may need to use our regulatory tools to make such interventions where markets are failing to deliver fair value. But the aim of our proposal is to require firms to give greater consideration to the price and the role it plays in relation to the fair value of products and services. “This should reduce the need for us to make any such future marketwide inventions.” We do not know yet what specifically will come from the results of the feedback, and as yet it would seem foolish to over-speculate or start any scare mongering – it would feel like the presenters on Sky Sports news talking about transfers, saying this might happen, that might happen, etcetera. Paradigm is currently pulling together our thoughts in print and via a series of videos as to what we know – and what we will know early next year – about the impact of the changes. The reality is, we do know that the regulator wants fairness and value to be at the forefront of distribution, and has even cited the example of selling all products and services to customers as if you were selling to your family. The majority of advisers do this anyway, but it is the poor ones who give the bad reputation to the industry. This could be the turning point of the regulators working with the manufacturers and the distributors using heightened product oversight and governance (PROD) rules, and the Senior Managers and Certification Regime (SMCR) to rid the industry of the worst culprits and clear the way for the public to trust in an industry that has served so many for so long – not least when many needed it the most over the past 18 months. M I www.mortgageintroducer.com
REVIEW
GENERAL INSURANCE
Eyeing the treble: Broker opportunities Rob Evans CEO, Paymentshield
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hether or not the stamp duty holiday can be considered a success, there is no excuse for our industry to stand around saying ‘what now?’ Certainly, the definitive data from MIAC Property Analytics proves that any removal of stamp duty was wiped out by price increases across most of the market, so there were few bargains to be had – but all this meant was a continuously lively market for lenders and intermediaries. Now that the incentive has come to an end, regardless of your opinion on what uncertainties may lie next, certain areas of opportunity have already begun to present themselves. From our perspective in the insurance industry, we have always fought to support advisers and help them to sustain business through any and all turbulent periods. At this point in time, we believe that three clear openings exist: remortgage, first-time buyers (FTBs) and buy-tolet (BTL) – and these will be the main themes of our September conference. REMORTGAGE
Now is the time – roughly four years since the tax regulation changes – that the wave of landlords who signed up to 5-year fixed mortgages will be remortgaging their properties. But these won’t be the only ones; the number one theme of our research and marketing activity over the past year has been British people’s changing relationships with their home. The past 18 months have seen a skyrocketing number of people www.mortgageintroducer.com
choosing to improve rather than move. Our own research proved that more than a quarter of all homeowners have invested – or intend to – in substantial renovations to their indoor and outdoor spaces, rather than to move home. That same study also showed that home insurance policyholders would be receptive to a financial review when remortgaging, and yet the opportunity
“Regardless of your opinion on what uncertainties may lie next, certain areas of opportunity have already begun to present themselves” continues to be overlooked by advisers. On the last occasion that homeowners remortgaged or did a product transfer, 32% did not review their home insurance, but 34% expressed that they’d be happy for an adviser to do so, even if they didn’t expect them to. This means that intermediaries could be missing out on about a third of their general insurance (GI) revenue stream! FIRST-TIME BUYERS
Of course, stamp duty – or the relief of it – is less relevant to all but the most fortunate first-time buyers – so this market has remained relatively stable throughout. In fact, the current FTB market is around pre-pandemic levels. Despite some commentators’ fears that a generation would be priced out by price rises across the market, this has been balanced out by a competitive mortgage market keeping affordability relatively normal. First-time buyers will always be a golden opportunity to advisers, because they represent the very beginning of a client relationship with potential to grow. Not only will these clients be in the relative infancy of their financial services lifecycle, they may also be
completely new consumers of insurance if they previously lived with parents or were covered by a family policy. This combination of inexperience and family support makes the need for advice all the more urgent, as these customers are all the more vulnerable to the ‘you can get it cheaper than that’ argument from well-intentioned but illinformed friends and relatives. Some of our most recent market research shows there is a knowledge gap regarding insurance among young adults, with as many as one-third admitting they do not understand the need for contents insurance. A good adviser can be the key to bridging this gap, and the rewards are there for provider and customer alike if proper advice and fit-for-purpose products are offered. BUY-TO-LET
We have recently observed a gradual change in the profile of the average buy-to-let landlord. The generation of ‘accidental’ landlords – who may have found themselves letting a single property following 2008 – have been exiting the market in large numbers in the past couple of years, deterred by tightening regulatory and tax changes. These have been replaced by a more ‘intentional’ cohort of landlords, who have brought with them a more professional approach to their investments, perhaps even running properties or small portfolios as limited companies. With these changes, we have seen a parallel change in requirements for insurance – with demand both for our 5-Star Landlords’ Insurance and for tenant contents insurance alike. We have often stated that this market can be a significant contributor to both the UK’s economic rebound and also adviser income – indeed, every conversation with clients who are thinking of becoming landlords, or who already have rental properties, is an opportunity to reinforce the benefits and necessities of insurance. All of this points to a very optimistic conclusion: that the current market looks highly favourable for the resourceful adviser. M I
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GENERAL INSURANCE
When high-tech meets high-touch Geoff Hall chairman, Berkeley Alexander
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he high net worth (HNW) market has not been immune from the impact of COVID-19. Like all other insurance products, it has been suffering hard market conditions, such as reduced capacity and rate increases, ever-evolving – and demanding – customer expectations, and the pressure to digitise. INSURANCE CHALLENGES
HNW clients with significant assets have complex needs and face unique insurance challenges, making theirs a highly bespoke – and therefore hightouch – insurance purchase. It should be no surprise then that good HNW policies often take longer to arrange than standard policies. I guess the question I would ask is this: in an effort to automate and speed things up, can high-touch meet high-tech successfully, or could hightech compromise the personal touch required with such nuanced purchases?
HNW individuals can be anyone, from old money to aspiring millennial entrepreneurs, celebrities and sports stars to successful people moving up the ladder, or even retired people with accumulated wealth – it is a much broader profile than typically springs to mind. It is also important for advisors to realise that HNW is not just about protecting assets, but also protecting lifestyles. Don’t get me wrong, I am not attacking the InsurTechs here. They have many fantastic applications across many aspects of insurance provision, and powerful uses when it comes to improving the customer experience. The technology of sci-fi dreams is one that thinks about things and understands them as humans do – but we are nowhere near creating a machine capable of understanding the human experience yet. We are not yet in the age of the automated adviser, and when it comes to HNW, I am not sure we ever should be. This market is – first and foremost – about personal relationships. Only a trusted adviser can dig down to the granular level of detail needed, to ensure that these clients’ assets and lifestyles are protected. M I
Subsidence: Are your clients covered?
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ccording to LV, subsidence claims have increased by 49% in the past year. This trend is expected to continue, with the climate crisis very likely to put millions of homes at increased risk of subsidence, according to new data from the British Geological Society. Extremes of weather such as heat and rain are causing this increase. Advisers need to help their clients spot the early warning signs – such as diagonal cracks appearing, or doors and windows sticking – because subsidence not only
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affects a property’s potential structural safety, but also its market value. LV also commented that a high proportion of homeowners don’t even know if their building insurance covers subsidence. But, as their trusted adviser, you really should. For those with cover, it is also worth taking the time to review their rebuild costs – the cost of building materials and labour have both increased in the past 12 months due to COVID-19 and Brexit – and make any necessary adjustments to their policies, to prevent underinsurance.
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Is a claims assessor service a USP when it comes to HNW? I’m not talking about the claims service offered by the insurer, I’m referring to where the client pays extra every year to have a loss assessor working for them in the event of a claim. In short, my answer is: no, not really. In an age where differentiation is key, I know it’s not surprising that high net worth insurance offers a perfect environment to focus on refining the customer experience to
“An experienced broker will make administering claims as easy and stress-free as possible” achieve competitive advantage. But sometimes, additional bells and whistles are nothing but a waste of money for clients. Charging a client to provide – in the event of a claim – their own claims assessor service as part of a policy, is definitely an example of this. Just choose a quality insurance broker. An experienced broker will make administering claims as easy and stress-free as possible, because they understand the needs and expectations of their clients, particularly when it comes to HNW claims. They know their clients intimately, along with the policy wordings, and they will ensure that claims are resolved as quickly as possible, without the need for additional assessment. As with all things, there are exceptions; complex commercial claims requiring forensic accountancy support – on a large business interruption claim, for example – would benefit from specialist knowledge of some claims assessor services, and we do indeed offer these to clients. On the whole, though, the brokers’ support and advice is all that most of your clients should need to guide them every step of the way. www.mortgageintroducer.com
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EQUITY RELEASE
How can people afford to retire early? Andrea Rozario chief corporate officer, Bower
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his endless pandemic has turned the world upside down. Who could imagine that working from home would become the norm for millions, or that going out to restaurants and bars would be a rare luxury? These past 18 months – or is it even longer now? – have been truly bizarre and a struggle for most of us. For retirees, whose plans have surely been uprooted as much as any other cohort, the pandemic came at the worst possible time. Planning for post-work life is stressful enough, but adding in COVID-19 has meant a huge number of retirees have had to go back to the drawing board. According to a recent study from employee benefit company Wealth at Work, the coronavirus crisis has caused mass shifting of attitudes throughout the over-55s community. Some 22% are looking to bring their retirement date forward as a result of the pandemic, while 13% are now looking to delay. So, more than a third of the retiree population is looking at drastically changing retirement plans. Those of us within the industry of retirement finance and equity release need to keep an eye on this. Retirement – as a concept – is shifting, and the pre-pandemic norms are gone. We need to be aware and reactive to these changes, regardless of whether people are looking to accelerate or delay their retirement. Having said that, I do think that the number of people looking to bring their retirement date forward is the area that should interest us most. With more than a fifth of retirees interested www.mortgageintroducer.com
in retiring earlier than planned, the impact on the equity release industry could be significant. For example, for a very long time the average lifetime mortgage customer age has hovered around 70. But what if 22% of over-55s decide to move their retirement forward a good few years? This average age could well decrease, and we could see equity release working for a much broader range of clients – both younger and older. This would change the way the industry and other customers look at equity release forever. If we can simultaneously help older clients, as well as those in the early days of retirement, then equity release will cement itself as a retirement finance option for all sorts of people for years to come. For those younger people looking to retire earlier, equity release could become a much more serious consideration, as the pandemic has impacted so many people’s finances. Retiring earlier when your savings have been pillaged and your employment has been insecure is a big ask. A study from Comparethemarket back in January found that more than half (52%) of people surveyed were spending their savings thanks to COVID-19, and a similar number (53%) were actually worried that they would run their savings dry.
For people who have seen their hard-earned savings dwindle during the pandemic, but still feel like they want to retire earlier, where should they look? Property is the obvious answer, as regardless of the pandemic, house prices have remained more than solid – record-breaking, in some areas – and may be the only way people can enter retirement with financial comfort. This comfort could be delivered by downsizing, and for those that want to move, I often think this is the best idea. For those that don’t want to move, or indeed cannot, the lifetime mortgage is well placed to help. The most important thing for our industry is to be ready to deliver the fairest and most accurate advice to a new clutch of potentially younger and significantly different clients. Ultimately, the pandemic has changed everything. Obviously there have been horrendous health impacts throughout the world, but the financial stress will be hammering more people in a slower but still serious way. As we’ve seen, more than half of people have been dipping into their savings to keep their heads above water, and a similar number are scared of running out of cash completely. Alternative financial vehicles will be vital for so many people going forward, and this need is compounded by the fact that more people are looking at retiring earlier. With the right advice and the best products possible, equity release could be the solution younger retirees need – and, after the year we’ve had, one they certainly deserve. M I
Equity release could be the solution younger retirees need
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EQUITY RELEASE
Approaching a new status quo Claire Barker managing director, Equilaw
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s lockdown restrictions give way to a new and heady climate of social interaction, and popular opinion shifts towards an acceptance of COVID-19 as an omnipresent yet increasingly manageable fact of life, so too has a cautious groundswell of optimism begun to emerge. This is encouraging people to reclaim the lives that were put on hold at the start of the first lockdown and embrace the possibilities of a new status quo – a view that has found increasing reflection in the growth of consumer confidence over the past few months. Indeed, figures published by the Equity Release Council (ERC) reveal that activity for Q2 marked a near return to pre-pandemic conditions, with the £1.2bn worth of property wealth unlocked during this period, representing a 2% increase on the previous quarter, and substantial 67% rise on the same period of 2020, when uncertainties surrounding COVID-19 conspired to stifle demand. In addition, the number of new or returning customers also made a return to pre-pandemic norms, with 20,352 clients accessing property wealth – as opposed to 13,617 for Q2 2020 and 16,527 for Q1 2021 – and return drawdown activity almost doubling on figures for Q1, at 9,382 clients versus 5,566. Good news to be sure. The report ascribed these figures to a combination of factors; namely, the return of existing customers who put withdrawals on hold at the height of the pandemic, the growth in accessible equity sums as a consequence of house price gains, and the impact of the stamp duty holiday on parents helping children to fund property purchases. Nevertheless, as market conditions continue to stabilise and consumer
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behaviour begins to respond accordingly, so too have increasing deviations in client demand prompted a need to rethink existing service models and product options in order to keep pace with the often topsy-turvy realities of a post-COVID climate. For example, a recent survey of advisers by more2life has found that confidence in the equity release (ER) market remains gratifyingly high, with 94% of respondents expecting it to flourish over the next 12 months. BROADER FOCUS
However, the research also found that more than half believe that a broader focus on product development and innovation will be key to stimulating growth in the future, with 35% favouring a mortgage option that allows clients to transition to an ER product at their own request, and 21% suggesting products that allow holders to cover daily living expenses by making small, regular drawdowns. Moreover, 20% felt that a holistic approach to later life advice – that incorporates pension and property issues alongside ER options – would be beneficial to clients, while 22% said that ER providers should offer greater support to borrowers. In other words, sensible, practical, and above all relevant ideas that reflect the impact of COVID on grassroots attitudes, while also addressing bottom line needs and circumstances. Of course, that’s not to say that the sector hasn’t worked exceptionally hard to diversify its range of product choices over the past few years, or to bring service standards into line with regulatory requirements and the expectations of 21st Century consumers – quite the reverse. Indeed, Moneyfacts has found that the number of current market options stands at a record high of 700, while the introduction of the ERC’s membership endorsement mark and best practice guide have been instrumental in establishing an increasingly professional and accountable working environment.
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Nevertheless, it is important to remember that true market confidence stems from an industry’s ability to identify and accommodate emerging demands in a manner which is prompt, proportionate and flexible. This is particularly true in an era where the gulf between those who have prospered as a result of COVID-19 and those who have struggled continues to widen. So, this is not a time to rest on our laurels or fall prey to a false sense of security, but rather to keep one step ahead of trends by pioneering new approaches to products and services. For example, Foundation Home Loans has revealed a significant upturn in the number of landlords intending to release equity from portfolio properties, with 30% of those planning to remortgage in the next 12 months saying they will do so in order to profit from the substantial equity increases experienced over the past year – a golden opportunity to expand the small range of landlord-specific products currently available and take advantage of the resurgent lettings market. Moreover, Key has found that 42% of ER clients believe that adviser support should be maintained for the full duration of loans, in order to help navigate the upsurge in demand for drawdown or remortgaging options, and more. This represents another perfect example of the kind of steps that can be taken to improve existing services and engender popular support on a wider scale. If any industry is capable of making the kind of improvements that are needed to address the often bewildering realities of a world in transition, it is our own. While the sheer weight and variety of demand may seem daunting, careful, scrupulous handling of these issues will ensure that the industry continues to experience success for many years to come. Let’s keep listening, moving and working together to define a status quo that offers hope and opportunity to clients of all needs and circumstances, at a time when they need it most. M I www.mortgageintroducer.com
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EQUITY RELEASE
House prices add comfort for borrowers Stuart Wilson Xxxxxxxxxx CEO, xxxxxxxxxxxxxxxx, xxxxxxxxxxxxxxxx Air Group
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ccording to the latest Halifax House Price Index, the price of an average UK property – and I fully accept that no such ‘average’ house exists, but needs must – rose by 7.6% between July last year and July 2021. That’s an £18,500 increase in house prices over the course of the past 12 months, and while we might anticipate that prices will stabilise somewhat in the months ahead – particularly after the end of this latest partial stamp duty holiday – the long-term picture for remains one of positive growth. Being a housing and mortgage market stakeholder, it won’t need me to tell you the underlying foundations and factors involved in this, and while some might continue to suggest it is government intervention in areas like stamp duty that is responsible for these increases, the fact of the matter lies in the age-old supply versus demand. Historically, and for the foreseeable future, the number of new homes required in the UK is lagging behind the demand to purchase them, and when you add in such factors as an increase in the number of new households, migration, private rental sector (PRS) requirements, and the fact that we remain a society which has a deep-seated urge to own our own homes, then you can see where that demand stems from. We are constantly told that we need 250,000 new homes being built in the UK every year to even stand still. The fact that we’ve pretty much got nowhere near that figure over the past two decades tells its own story, and means that – apart from some notable www.mortgageintroducer.com
and exceptional periods such as the Credit Crunch – houses continue to rise in value. Back at the end of 2008, the average house price – according to the Halifax – was £159,900. In July this year it was £261,220, a 63% increase. Admittedly, the Credit Crunch had knocked approximately 16% off values over that year, but the relatively steady rise since then tells you that in this country we still lack the supply required to meet demand. So, what does this mean for later life activity? Well, it means a lot, because when you have an appreciating asset – and I’m fully aware that this asset might go through periods when it is not appreciating, that every house is different, etcetera – you tend to be more willing, and able, to access that appreciation. ACCESSING THE RISE IN EQUITY
We see it all the time when borrowers remortgage or seek further advances. The house is now worth more, so let’s use the mortgage finance options available to access that rise in equity. There should be no real difference for later life borrowers, and slowly but surely, we are starting to see some real changes in mindset from those who have property assets and are not afraid to use them. Especially if they are confident about the asset continuing to go up in value over time, even if they are not going to see double-digit inflation every single year. Indeed, you might argue that such rises on a regular basis are not good for the wider market and are more likely to result in steep crashes. My point is that we have a culmination of many different factors and underlying shifts in points of view, which mean utilising the property as an asset to be accessed is no longer seen as something to be avoided. Quite the opposite.
We’ve recently heard from James Bond himself, Daniel Craig, talking about not giving his children a huge inheritance when he dies. Although this might not be in the same realm, we are undoubtedly seeing older parents and grandparents either choosing to use their home right now to help their offspring, or indeed for their own needs. And why not? It won’t need me to point out that the requirements and financial responsibilities for those moving into retirement are perhaps greater than they have ever been. Helping children or grandchildren could be one aspect, but it is just as likely to mean topping up the pension, funding long-term care, paying for home improvements, or simply having the money available to actively enjoy retirement while you can. The list goes on. From that demand, and the acceptance that a home doesn’t necessarily have to be a passive asset to be handed onto beneficiaries after death, we see a positive response from providers and lenders who are also more willing to offer products which help access the asset value. If you need proof, then just look at the equity release market. At the start of August, equity release product numbers were deemed to be just shy of 700, up from under 500 in January, so it’s possible to see growth in provider activity within the sector and a continued rise in product options to suit all types of later life borrowers. Add in more traditional later life mortgages and products such as retirement interest-only (RIO) and you can see an upsurge in the products available to those who require these types of products. I have no doubt that more will follow. Rising house prices allow owners to feel more comfortable in a decision to access the equity, and providers and lenders will keep on responding to that. One thing they will need is advice, and this presents a real opportunity for the advice profession to make its mark in later life lending and secure the growing levels of business that will undoubtedly come. You should definitely price that in to your advice offering. M I
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EQUITY RELEASE
Home values Alice Watson Xxxxxxxxxx head of marketing and communications, xxxxxxxxxxxxxxxx, Canada Life xxxxxxxxxxxxxxxx
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wning a property is incredibly valuable. Not only the safety and security it can provide, but also when it comes to planning for retirement. For those lucky enough to own a home, there is a significant advantage to be gained. For example, the Equity Release Council’s (ERC) latest research finds that, when compared to renters, homeowners are £326,000 better off over a 30-year period. A substantial sum, without even accounting for a likely growth in house prices.
However, the ‘traditional’ retirement journeys followed by previous generations are becoming less common. In fact, more people will now be entering retirement either as a longterm renter or with mortgage debt. The ERC’s research supports this, revealing that 40% of homeowners believe having a mortgage in later life is becoming more acceptable. More than half (57%) are also open to the idea of accessing money from their property as they get older. The findings say that 32% of homeowners see their mortgage as being an investment in their future. Nearly half (48%) of those with an existing loan also say they can save more because their payments are cheaper than renting. However, 54% of people no longer see homeownership as realistic.
Driving this change in opinion could be the growing numbers of ‘late financial bloomers’ – more likely to hit financial milestones such as homeownership and retirement later, and less likely to benefit from generous final salary pension arrangements. People will inevitably start to look at other ways of driving retirement income, such as equity release or downsizing. Other life events such as the death of a spouse or later life inheritances will take on increased importance in retirement planning. Canada Life’s own data shows that the most common uses of equity release are clearing an existing mortgage (46%), making home improvements (34%) and debt consolidation (20%). With attitudes changing, advisers must be ready to support existing and future clients through their later years. M I
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MORTGAGE INTRODUCER
SEPTEMBER 2021
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INTERVIEW
VAS GROUP
Verified value Ryan Fowler speaks to Stephen Todd and Graham Moore of VAS Group about balancing quality control with a streamlined approach, and helping mitigate risks across the lending market
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AS Panel is a valuation panel
management and project monitoring business, facilitating valuations undertaken by a panel of third-party firms across the country. The business is based in the North East, comprising 27 staff and 10 consultants. Stephen Todd, chief commercial officer and cofounder of VAS Group, says: “The business has grown quite rapidly over the last four years. We fully encompass every sector around the country, with 200 valuation firms on our panel, ranging from national firms to regional and locally established companies.” The work on VAS Panel’s books is made up of 50% bridging, 40% term loans, and 10% development finance, with approximately half of the assets in question being residential, and the rest made up of commercial, development and specialist projects. Todd continues: “We have a dedicated team who are fully trained in every part of the valuation process, including very experienced senior leadership, some having extensive valuation and lender backgrounds.” This includes people dedicated to sourcing quotes and picking the right valuer via the group’s own bespoke technology, as well as collecting fees and instructing valuations, collectively managing the panel itself, and strict quality control. “This is all to get the valuation out the door to the lender in line with the [service level agreements (SLAs)], and we are delivering a very high percentage of these reports back to these lenders on time, or in many instances, ahead of time” Todd says. “Some people might ask, do you want a quality panel or a large panel? My view is, if someone wants a valuation in an area where there aren’t many valuers, they still need a valuation – so we need a large panel, but our quality control process at the end helps us to maintain the quality of our panel and what’s going out of our business. “We’ve managed to create efficiencies, getting things out in time – which is obviously critical in a lending market and in the bridge space – with quality and robust reports.”
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MORTGAGE INTRODUCER SEPTEMBER 2021
Graham Moore
Stephen Todd
PEOPLE WITH TECHNOLOGY In order to create this quality-controlled approach, VAS has made a considerable investment into the technology it uses, albeit with the caveat that this remains a people-led business, with tech acting as a facilitator rather than a solution. Graham Moore, managing director of VAS Panel, part of the VAS Group, explains: “This is a ‘people with technology’ business, not ‘technology with people’. “It’s a subtle but massive difference, because technology can’t pick up a phone call at 5pm on a Friday to deal with an urgent query, or have the ability to find a resolution to queries, and so on. “Technology is there to help with efficiencies, but not to take away from the skills the team has got.” Moore, who hails from a purely lending background, and who in fact used VAS prior to joining the business, adds that this approach comes through when dealing with the business from the other side. “In terms of speeding up our client’s journey to lend money and reducing risk – the way that VAS does that is by having competent people, agreed SLAs with our valuers, chasing down if necessary, so that access is booked and they get reports back on time,” he explains. “The other thing that’s important is that every valuation company on the panel goes through a www.mortgageintroducer.com
INTERVIEW
VAS GROUP very rigorous onboarding process and knows what’s expected of them, and that’s a continual process.” VAS has created a dashboard for lenders and brokers. This generates quotes, allows instant instructions, provides communication channels and creates visibility across the whole process, plus access to the all-important valuation report. Earlier this year, VAS also designed and implemented a payment link, helping people pay at a more convenient time – out of hours, in the evenings, over weekends – and streamlining the process further. Part of the business’ technology roadmap for the near future is the implementation of application programme interfaces (APIs). Todd says: “Most lenders we speak to now are talking about APIs and bringing data and information into their systems – we are actively working on that, looking at how a lender can actively use our API to push and pull information from their system through to us, which helps with efficiencies, reducing mistakes and rekeying.” Using its bespoke technology, one of VAS’ strengths is that it collects detailed information on each case. Todd says: “We’ve got a quote form we ask lenders or brokers to fill out, we collect everything we need so we know if it’s on the fee scale or not, and by collecting accurate information we get a better chance of getting it right first time. It’s a really thorough process.” Moore adds: “The lenders have got to do a hell of a lot of work before even instructing the valuation – if the valuation comes back lower than expected, the lender, broker and customer have had to go all the way through that journey, and then it dies at the end. “So, if we can help lenders, brokers and customers get to a point where they can pre-qualify a valuation before all that work, that’s what we’ll aim to do. It is part of our future business plans, adding even more value to our clients.” VAS AUDIT In addition to VAS Panel, the business also provides auditing services through a separate company, VAS Audit. This can be used – for example – to review a valuation directly for a client before a loan is provided, retrospective auditing to help clients manage their own valuation panels, desktop valuations, loan book reviews, when deciding to readdress a valuation report, and as a third-party review. Valuers also use the audit services for appraisals and keeping their own standards high. This side of the business has been growing steadily recently, working with lenders and valuers. “It helps lenders manage risk and their own valuation panels – we’ve got a really good audit template that we’ve developed over time,” says Todd. “It also helps them monitor their back book to help demonstrate to a regulator that they know where their lending is and they’re comfortable that the valuations are accurate and they have the right amount of capital.” www.mortgageintroducer.com
REACHING OUT TO BROKERS While there may be occasions where cheaper fees are found elsewhere, Todd explains that the process implemented by VAS Panel means that the right valuer – with the correct expertise – is assigned, whereas cheaper fees could reflect the strength of the service and the reliability of the valuation. He adds: “In a broker’s mind we might be more expensive. But the reality is we have gone to the firm that we believe can do the best job, and not get the end of the process and find that there’s an error.” An important element of the service is reducing turnaround times and committing to SLAs that cut down the length of the end-to-end customer journey. “On short-form residential, vanilla properties, we work off two to three days from inspection,” Todd explains. “And then on long-form commercial developments, anywhere between six to 10 days. “A high percentage come back within those timescales, and if something is a day late it’s generally because of our quality control process, making sure the lender is provided with everything they have asked for at the outset – and 90% are back within a day of that.” This is a vast reduction on a potential turnaround time of weeks elsewhere in the market. “From a lender’s point of view, when they get a report back that they know has gone through us, there’s an element of confidence,” adds Moore. “It’s not only come through a competent valuer, but been through a rigorous process and a separate pair of hands.” The process does not end once the valuation has been made, either. VAS also aims to provide guidance around any issues that might arise. Moore explains that this is a “cradle to grave service for everything valuation.” FUTURE JOURNEY Looking to the future, VAS Panel is set to value £3bn-worth of property in 2021, according to Todd. The business is also close to the Royal Institution of Chartered Surveyors (RICS) and looking at forming various partnerships, through which to add more value and education for clients. “We’ve got an all-encompassing offer here to the whole market,” Todd says. Rounding off this wide-reaching proposition, VAS is looking to enhance its share of the term space. “Traditional lenders will employ large teams of RICS qualified people within their business to assess valuation reports and manage their own panels, we can add value to this and help manage risk, and take some direct costs off their balance sheets, or simply add value to their existing process,” says Moore. “A valuation is a valuation,” Todd concludes. “Bridging or term, we’ve got an amazing panel, the best in the country, and we have a lot to offer to [term] lenders in terms of service and delivering a product. We’ve invested so much into our team and systems that we can cope with serious volume.” M I SEPTEMBER 2021 MORTGAGE INTRODUCER
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CONVEYANCING
Don’t miss the sweet spot Mark Snape managing director, Broker Conveyancing
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f the past year has been dominated by the purchase market, then I suspect the next could be one in which remortgaging reasserts its prominence, especially as lenders are clearly competing incredibly hard with each in order to secure remortgage business, particularly of the low loanto-value (LTV) variety. By the time you read this, I’m not sure just what level headline rates will be at, but as I write we appear to be on a startlingly fast downward trajectory, particularly as the very large mainstream lenders don’t look like they want to let the grass grow under their feet, or let their competitors get too far ahead of them. ‘Headline rates’ would appear to be a very apt phrase at the moment, because with each and every cut to – and I quote – “the best rate ever,” we are inching lower and lower below 1% for 60% LTV borrowers. I am reminded of a time in the immediate period post-Credit Crunch, when some fortunate borrowers had mortgages based on Bank Base Rate (BBR), and not just that, their rates were tracking below BBR. When BBR was repeatedly cut over a very short period of time down to 0.5% in March 2009, you might recall that some borrowers who had opted for a 1.01% below BBR product from Cheltenham & Gloucester were paying no interest at all on their mortgage. Of course, we are not at that stage yet – and looking at the inflation prediction of 4% for this year, the Bank of England’s Monetary Policy Committee might already be thinking that it needs to up rates – but when it comes to attractive rates, I suspect that many lucky enough to be able to remortgage at the moment won’t want to let the opportunity pass. www.mortgageintroducer.com
Perhaps this was always likely following the full stamp duty holiday coming to an end in June, because purchasing would naturally tail off from those highs – although the speed and depth of this ‘price war’ has probably surprised many. Again, as I write, in the space of the last week we’ve had HSBC undercutting Halifax, which in turn had undercut Nationwide. These below-1% rates are not simply confined to 2-year fixed-rate options, but are also available for five years – although again, depending on the fees levelled, it may be better for borrowers to go a little bit higher on the rate and not pay such a hefty fee.
“I am reminded of a time in the immediate period postCredit Crunch when some fortunate borrowers had mortgages tracking below the Bank Base Rate” By the time this article is printed, perhaps 5-year fixes will be the new 2-year products in terms of price? After all, they’re already at the 2-year levels we saw just a couple of months back, and at present it seems that when it comes to 60% LTV levels, the big lenders in particular are willing to go all guns blazing in order to attract this type of business. The remortgage market is now an interesting one to view in light of who is leading who. At the end of June we were told that £29bn work of residential mortgages were due to mature in October alone, which would be the biggest peak of the year, and therefore it is not surprising to see these ultra-low rates being offered now, as those coming to the end of their terms – and their advisers – will be looking for the next deal. The offering of these rates may well deliver far more remortgage activity than just those borrowers who have deals maturing through the rest of
2021. With rates this low, and being offered over 5, 7 and 10-year terms, there may be a growing band of borrowers for whom it is now worth taking an early repayment charge (ERC) hit in order to secure these products, or who might think now is the time to apply for that further advance they believe they need. Certainly, our own statistics appear to show that after the end of the June stamp duty holiday, the market almost immediately began to move in the direction of remortgaging. Now of course, much of this will be because people were always going to try and complete their purchases before the deadline, but it is also indicative of the way the market is going. We saw a 5% increase in remortgage instructions during July, and expect our purchaseremortgage split to work its way towards parity over the months ahead. It won’t need me to tell advisers that remortgage clients present a raft of opportunities. Getting in front of the client – even if it’s not in a physical one-to-one sense – is the key moment in the adviser-client relationship. It gives the adviser the chance to explore any changing needs and circumstances – and given the pandemic, how many people are unlikely to have experienced those? It gives the adviser the chance to conduct the remortgage, to ensure they have proper conveyancing representation – perhaps using the cashback on offer with a large number of mortgages – and allows them to look at key cover such as protection and general insurance, to make sure they hit all the requirements. The key point is to make sure all clients are aware of the mortgage products and rates on offer, even if they are not due to mature yet. Booking in products now – well in advance of the end of deals – is possible, as is running the numbers for those for whom it may still be worthwhile shifting to another deal. This is a sweet spot period for remortgaging – let’s not miss out. M I
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CONVEYANCING
Speeding up remortgage deals Karen Rodrigues sales director, eConveyancer
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ecent years have seen product transfers take on a much more significant role within the UK mortgage market. There are all sorts of different factors influencing this, from that of lenders recognising the value of retaining existing customers, to the welcome introduction of procuration fees for brokers when dealing with product transfer cases.
“One of the selling points for product transfers is that, by sticking with the same lender, there is no need for a full underwrite. The lender already knows the client and so doesn’t need to conduct the same affordability tests all over again” Some industry figures have suggested that product transfers are likely to account for an even more significant portion of business in 2021, in large part due to COVID-19. However, while product transfers have their place, there will be some clients who are far better served by making use of a remortgage instead. FINDING THE BEST RATE
One of the selling points for product transfers is that, by sticking with the same lender, there is no need for a full underwrite. The lender already knows the client and doesn’t need to conduct
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the affordability tests all over again, even if circumstances have changed. That can be a powerful draw given the past year and a half, with all too many borrowers having had their finances impacted in some way. It isn’t the case for everyone, though. There will be plenty of borrowers who will sail through those affordability tests today, just as they did years ago when you found them their current mortgage. For those clients, it’s crucial that brokers consider more than simply the ease of getting a ‘yes’ from the lender. After all, in many cases the biggest driver towards a deal for a client is what it will cost them. We know from our conversations with brokers that lenders can take a radically different approach to the rates they charge on product transfers. While some provide similar rates for new and existing customers alike, with others the interest rates on offer for product transfers are less attractive than could be attained by remortgaging elsewhere. A BUSY MARKET
The levels of activity seen within the purchase market this year have also served as a boon for product transfer business. The stamp duty holiday has understandably led to plenty of potential buyers accelerating their plans, and the battle to beat the deadline meant that some conveyancers were swamped with business. Inevitably, in some cases this caused service levels to slip, and the experience of those delays has spooked advisers who are concerned that their remortgage customers may suffer similarly lengthy waits for legal work. The reality is rather different, however. In practice, a lot of legal firms have divided their teams, with dedicated members of staff focusing solely on the remortgage market rather than purchase deals.
MORTGAGE INTRODUCER SEPTEMBER 2021
Far from your remortgage client heading straight to the back of a large queue, by working with the right legal partners you’ll instead ensure that they enjoy the expertise of an experienced team of specialists who don’t have any purchase deals to worry about. I NEED TO MOVE QUICKLY!
In some cases, the appeal of the product transfer lies in its speed. If you have a client who needs to move swiftly in order to avoid the unpleasant payment shock that comes from dropping onto their lender’s standard variable rate (SVR), then a product transfer can look like a great option. The lack of underwriting work required means that product transfers can provide a swift escape from that bill rise on the horizon. While it’s true that remortgages may take longer than product transfers, the actual time difference can be minimal. This is an area we’ve really focused on at eConveyancer, through the launch of our Rapid Remortgage service. We’ve seen some incredible turnarounds through the service. Once qualifying buyers complete and return their starter pack, the case is made ready for completion – subject to a mortgage offer – within 24 hours. As a result, some clients have seen their case move to full completion inside four days – even some product transfers take longer than that. By speeding up the legal processes taking place behind a remortgage, it means that even in those cases when the client is facing a short deadline they do not have to simply accept a product transfer onto a mediocre rate, and instead can enjoy the full benefits of a remortgage. Brokers take their role seriously, and always want to deliver the best possible service to their clients, securing the cheapest rate available for them. As a result, a remortgage will always need to at least be part of the conversation. By thinking carefully about the businesses they partner with, brokers can ensure that remortgage timescales are comparable to those of product transfers, so that no matter what sort of deadline they face, the client enjoys the full range of options to choose from. M I www.mortgageintroducer.com
THE OUTLAW
THE MONTH THAT WAS
THE
THE THE
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Raab: Get your freak on
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eptember...what an eventful month thus far. An incredible Solheim Cup win for Europe’s female golfers, Arsenal’s arrogant Arteta finally wins a football match, and Dominic Raab is thankfully exposed as the not very bright control freak that we all sensed he might be. January’s Cabinet reshuffle by the incompetent PM should be interesting! We also saw more deals being made in the mortgage world, so this article’s themes surely have to be (p*ss poor) performance, and the moaning and grunting that sometimes succeeds a lack of success. Emma Raducanu. A name we are rightly going to hear a lot more of in the years ahead. There’s no more appropriate place to start, and her astonishing achievement thankfully eclipsed the return of an ever-posturing peacock to the European Premier League. More on Raducanu shortly, but firstly to our own sector’s ‘good news’ stories.
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Every month, The Outlaw draws some tongue-in-cheek parallels between society at large and a mortgage market in flux
You, the brokers, are the primary one! In hitting a five-year high for activity metrics, you have surfed an 18-month wave of pandemic through to prosperity. A perfect storm of climatic conditions clearly helped, such as huge buyer demand, a price war, and government stimulus, to name but three favourable fronts. But notwithstanding this, the recent figures are an unquestionable endorsement as to why Joe Public still prefers www.mortgageintroducer.com
a fast-acting broker on his case as opposed to sleepy and one-dimensional high street advisers, many of whom are still seemingly working from home. What an utter nonsense and monumental government own-goal home working has become. Unsurprisingly, almost 85% of civil servants – including the blessed Financial Conduct Authority (FCA) – are still ensconced on their sofas. The regulator’s recent ‘business plan’ was indeed clearly constructed across a multitude of cosy Zoom calls, instead of being an incisive new strategy, frameworked via concerted and selfchallenging face-toface dialogues at its headquarters, the appropriately named Endeavour Square. Or not. As ever, we got lots of woolly sermons and mission statements, but no forensic detail,
Trussle: Back Better?
Raducanu: Distinct lack of moaning
granulated targets measuring its own performance, or – God forbid – any accountability for the oversights of the past or commitment to minimising those inevitably soon to come. Outwith our sector, it has also been a nearrecord year for mergers and acquisition activity – be it supermarkets, food groups or airlines. Even in our own world there have been some curious deals. Starling buying Fleet was one of the standouts plays, as was the sale of Foundation Home Loans to a Bermuda-based retirement firm! These augur well for us all. Of less surprise, perhaps, were the announcements featuring two businesses which The Outlaw has never considered to be adequate performers. The first saw the US-backed entity RVU buying Mojo Mortgages – I know! Me neither! Then we saw another US-based digital entity – quite ironically called Better – buying noisy UK upstart Trussle. I would imagine that it won’t take too much to make Trussle a better – or relevant! – business. The price tag on a purchase tells all, and if it indeed was the rumoured £6.5m then this deal reveals a lot more about what Trussle’s originally bold and grandstanding business plan didn’t achieve, than what it did. A penny for Habito’s thoughts on that lowly sale price! Between them, these two ‘disruptor’ businesses have had in excess of £30m invested in them to-date! Hopefully we will now have to suffer far fewer meaningless customer survey revelations → SEPTEMBER 2021
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THE OUTLAW
THE MONTH THAT WAS appearing in the trade press, which are of course, pure and simple, click-bait on an irritating scale. I guess that (non) performance will always scream louder than packaging or padding ever can. Poor performance was, of course, what a firm of advisers in Rickmansworth cited in the sacking of a female staffer who, in their opinion, was a ‘moaner’. From what I saw and heard of our smiley Raducanu last week, I didn’t hear too many on-court moans or grunts from her – though the same cannot be said of her whinging and timewasting Canadian opponent. But several tennis players on the ATP tours – both men and women – will be relieved that guttural moaning in the workplace is thankfully not a P60-inducing event in their sport! Though the condoning of 10-minute toilet breaks should be. Are they all incontinent? Next month, we will be even more weary from four more weeks of the tabloid press covering Surreychester United and the prancing peacock that is Ronaldo.
Our Ronnie seems to love the headlines and a banner or two. So, it’ll be interesting to see how he responds to yet more light aircraft flying over Old Trafford, citing a matter which he’d doubtless rather could become dead and buried. Not so fast, Ronnie…. We’ll also be able to see if the end of furlough and the stamp duty concession combine to dampen the market mood in any way. It’s been a profitable 18 months for many brokers, but that doesn’t mean that it hasn’t been an exhausting one for them, too. I know that many are already looking forward to their Christmas parties like never before, and as one ballsy mortgage aggregator demonstrated last month, the time is now right for folk to get back to some form of social normality, and not one where hard-working folk feel persecuted or admonished by the countless wokes and gender-police in our midst. This is a sociable sector of the economy, and it should be celebrated as such. I’ll be seeing you… M I
Ronaldo: Not so fast
MI
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REMORTGAGE
REMORTGAGE AND RETENTION Jake Carter outlines the discussion at Mortgage Introducer’s recent round-table, which looked at current remortgage trends, the impact of coronavirus, and how this market might shift in the future
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ccording to the latest LMS snapshot, remortgage completions rose by 31% in July, and instruction volumes increased by 27%. However, the analysis points out that these figures should perhaps be higher, given the July peak in early repayment charge (ERC) expiry. So, while the increase in completions and instructions is encouraging, the fact remains that many borrowers are still opting for product transfers, rather than taking advantage of the opportunity to shop around for a cheaper deal within a low-rate environment. Meanwhile, Paymentshield recently estimated that brokers are currently losing out on £16m in commission fees per year by failing to quote clients on remortgages or product transfers. In this round-table discussion, Mortgage Introducer asks representatives from Barclays, Niche Advice Limited, Connect for Intermediaries, John Charcol, LDNfinance, Wilton Property Finance and SimplyBiz Mortgages to provide their views on the remortgage and retention market. RISING COMPLETIONS Discussing the LMS data, and the perhaps low increase compared with market expectations, Martin Reynolds, chief executive of SimplyBiz Mortgages, says: “These figures do surprise me, although they will be coming from a low number of respondents.
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“I believe a lot of consumers are hesitant about being turned down, and therefore do not even try to apply for a remortgage” CRAIG CALDER
“Rates are at the lowest they have ever been, so why would you not look to remortgage and take advantage of this low-rate market we are experiencing? “What will be interesting is to see whether people are remortgaging who are sat in early redemption charges [ERCs].” Nevertheless, the figures do show an improvement, and Liz Syms, chief executive at Connect for Intermediaries, believes this may be in part due to media coverage of the mortgage industry. “The low-rate market has been in the news a lot recently, which has resulted in many consumers choosing to remortgage to capitalise on lowered rates,” she says. Syms adds that the technology for brokers to remain in contact with their clients has also improved considerably, making it easier to advise consumers to remortgage, rather than revert onto a lender’s standard variable rate (SVR) once they reach the end of their term. Ray Boulger, senior mortgage technical manager at John Charcol, feels the increase is simply a matter of timing. He says: “Brokers will have been heavily focusing on purchase business in the run up to the June stamp duty holiday deadline. So since passing that, this will have freed up a lot of brokers time to focus on remortgages, which I believe is partly what has led to the increase in remortgage activity in July.” Fahim Antoniades, director at Wilton Property Finance, does not believe that the ongoing low-rate environment is necessarily a reason to remortgage. He explains: “As rates are cut, the difference between products narrows, which means there is less reason for an individual to choose to refinance. There are many people still within the term of their mortgages, so the ERCs they’ll face to conclude their term does not equal the savings on a slightly lower mortgage product.”
Boulger agrees that the likelihood is that paying ERCs may only be beneficial for those who are nearing the end of their fixed rate term. He adds: “Once you factor in all the costs, and especially for people with quite modest mortgages, I do not believe it will be worthwhile for them to look to pay early repayment charges.” Anthony Rose, director at LDNfinance, says some activity can be attributed to post-pandemic trends, adding: “A lot of people have decided to move or to renovate their properties over the last year, so as a result we are seeing a lot of remortgages at the moment in order to capital raise.” However, he also points out that rising remortgage numbers are often less to do with the current market as they are to do with that of previous years. As this is the fifth anniversary of widespread changes in the buy-to-let (BTL) market, many landlords have been remortgaging this year. He says: “As to whether remortgages are going to spike, it is not always based on the rates but actually the end dates of products that people are coming off.” When considering how current mortgage activity might change the future remortgage landscape, Rose says rates are particularly low for 5-year term deals, which will result in a five-year cycle, rather than the usual two years. PRODUCT TRANSFER TRENDS While there may be more people looking to remortgage, Reynolds also questions whether their ability to do so might be affected by ongoing disruptions caused by COVID-19. For example, where individuals have been furloughed, or became self-employed since they took out their mortgage. Indeed, at the very least this is a perceived issue among consumers, causing them to approach →
“The low-rate market has been in the news a lot recently, which has resulted in many consumers choosing to remortgage to capitalise on lowered rates” LIZ SYMS
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REMORTGAGE remortgaging with caution due to fears about not meeting lenders’ criteria. Craig Calder, director of mortgage products at Barclays, says: “I believe a lot of consumers are hesitant about being turned down, and therefore do not even try to apply for a remortgage. “This is due to the financial hardships they have found themselves in as a result of the coronavirus pandemic.” Payam Azadi, director of Niche Advice Limited, notes that until relatively recently, it was not possible for valuers to conduct in-person valuations. Indeed, with COVID-19 continuing to be a concern, many may still be uncomfortable with the process. This has meant that in many instances it might have been simply the safest option to rely on a product transfer rather than going through the process of remortgaging. Azadi also points to other concerns, such as the widely publicised cladding crisis, saying: “Anyone having issues with cladding, which is quite of a lot of people, will be looking to complete a product transfer as there are many difficulties with remortgaging for them at the moment.” UNDERSTANDING THE OPTIONS The ramifications of the COVID-19 pandemic, which are likely to be felt for some time, have created an increasingly complex environment across the property finance market. Within this, borrowers must understand whether a product transfer or remortgage is more suitable for their own situation, which has likely changed over the past year. The numerous products and flashy rates offered across the market might seem appealing, but also adds potential confusion and complexity, which Syms notes may lead to some seeing product transfer as the easy option, foregoing brokers’ services entirely.
“Since passing [the stamp duty deadline], this will have freed up a lot of brokers to focus on remortgages, which I believe is partly what has led to the increase in remortgage activity” RAY BOULGER
“Currently I believe green mortgages are a marketing gimmick; there needs to be evidence that they work effectively” PAYAM AZADI
She says: “If this becomes the case then a lot of people will miss out on good deals, and it will also impact the intermediary business, as consumers will just go direct to their lenders for product transfers. “While I think it is important consumers look to all their potential options and solutions, they should not discredit product transfers, as sometimes that is the best route for the individual.” Boulger adds: “People really need to consider whether to choose a 2 or 5-year fixed rate deal. Many will simply go with the cheapest option, but they can make things far easier for themselves later down the road if they pick correctly for their future circumstances.” Calder says the responsibility falls on the broker to properly advise clients and make them aware of all their potential options available to them. He says: “As a lender, I can inform a consumer about our rates and what we are offering; however, it is up to the broker to make their customers aware of all their options across multiple lenders and product types.” Reynolds and Syms agree that it is important for brokers to view the whole market and recommend to their clients what they feel is best, rather than lenders encouraging clients based purely on their own ranges. Rose says: “It is important brokers do not cut corners and properly explore all options for a customer so the end result is a good one.” Syms points to the importance of timing, saying: “Customers must be aware of the time it takes to switch to a new product. They need to start the process several months before the expiry date of their current deal or risk reverting onto their lender’s standard variable rate.” Boulger adds: “It is worth noting that as clients get older, and with the increasing choice of options for those aged over 55, those who complete deals and product transfers at 50 will be unaware of the increased options had they waited a few extra years.”
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REMORTGAGE However, brokers can only advise those clients they speak to, and the concern is that many do not take that initial step to receive advice. “Many realise the value of advice too late,” says Antoniades. “It occurs often that an individual has taken out a 5-year fixed rate because it worked out cheaper in the long run, but they decide to sell within the term period and therefore now have to pay early repayment charges, resulting in it being more expensive than if they had gone with a 2-year fixed option in the first place.” GREEN REMORTGAGES Emerging from the immediate concerns of the COVID-19 pandemic and into something resembling normality has brought back to the fore longer-term issues, such as climate change. The UK property market is a key factor in reaching government targets to slash emissions. Green finance is also becoming more of a focus for borrowers, and so a mixture of necessity and popularity is causing the market to turn its thoughts to how mortgages – and remortgaging – can help the drive towards a more environmentally friendly approach. When looking to the role of remortgaging in encouraging green practices and energy efficiency within the market, Boulger says: “The market has seen an increase in green mortgages; however, there is an ulterior motive behind lenders doing so. “The increase in the number of green products by lenders did not properly begin until after the government released a paper outlining that a certain percentage of a lender’s loan book should be green offerings.” Calder believes there should be more incentives such as this, to encourage people to make their properties greener, and that this should be complemented by support to assist them in doing so.
“A lot of people have decided to move or to renovate their properties over the last year, so as a result we are seeing a lot of remortgages at the moment in order to capital raise” ANTHONY ROSE
“The improvement to systems is a real benefit for the industry, but creating a relationship on a one-on-one level with a client is far better than any operating system” FAHIM ANTONIADES From a broker perspective, Azadi says: “Green mortgages are a pain, because most people do not know what they are going to buy. So, when you start a dialogue with them and you begin talking about rates, lender choice and criteria, there are added complications with product switching and rates.” He explains that green mortgages, while a good thing in theory, cause added complications when it comes to the practical realities, which should be addressed. This is perhaps due to this being a relatively new area of the market, with legislation and demand growing apace, and institutions working to keep up. Azadi says that more work needs to be done in order to cement green options as a viable part of the ecosystem, explaining: “Sourcing systems need to be updated to include more information about green mortgages. Currently, I believe green mortgages are a marketing gimmick; there needs to be evidence that they work effectively.” Syms adds: “What we need in this area of the marketplace is more innovation. It is all very well putting out slightly cheaper interest rates to attract people to green mortgages, but we need something more innovative. “What needs to happen is properties that do not currently meet the standard to be classed as ‘green’ need to have work done so that they reach that, rather than just move the properties about that do meet the standard to different lenders.” For Reynolds, the question of becoming a more environmentally-focused market is about more than just the deals themselves. “It is not just about how to make the house more carbon neutral, but how do you make the entire process more carbon neutral,” he explains. “For example, can you do remote valuations? This would reduce the number of car journeys, and therefore reduce emissions. →
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“Rates are at the lowest they have ever been, so why would you not look to remortgage and take advantage of this low-rate market we are experiencing” MARTIN REYNOLDS
“It is also about making sure the customer understands what they are doing and how they are doing it.” Reynolds also notes that it is important for people to understand how to improve older buildings, rather than purely focusing on new-builds. He adds: “It is about informing people and providing information, rather than simply reducing rates and offering them as low as possible.” Boulger says: “One of the things I think the government needs to focus on is the actual calculation of the [Energy Performance Certificate (EPC)] rating. There is currently quite a bit of differentiation between valuers on this topic; one might deem a property a C and another a D. There is not enough regulation, so this is something that needs to be addressed at government level.” With constant messages being put out to borrowers around how to improve their home’s energy efficiency, Calder warns that there also needs to be a more decisive sense of the priorities. He says: “The structure of the house is the most important, followed by the boiler and whether you have aircon – changing a light bulb is not going to save the world.” IMPROVING RETENTION While attracting new customers is integral to any business – broker, lender or otherwise – the importance of retention cannot be underestimated. Demonstrating the role of technology in this, Rightrate has launched a built-in remortgage facility into its app, with the aim of helping brokers compare deals, while Smartr365 has boosted its SmartrRetain tool with new features such as a voice assistant. Looking at the role of technology within the remortgage market, Azadi says: “It has gotten a lot
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better – lenders have gotten better at communicating to both the clients and brokers. “The [customer relationship management (CRM)] systems have also become more advanced over time, which has brought them to the levels of the wider market, not just the mortgage side. “There has been huge change – systems such as Salesforce, which are not industry-driven, were way ahead of the competition in this space, and what has happened is that providers are now beginning to catch up to these levels.” Azadi goes on to say that the gap between broker, client and lender is becoming smaller with the advancements in this area, which benefits all parties involved in the process. He adds: “Lenders have been nurturing the broker side of the business a lot more over the last year and a half, and the change is really beginning to show positive improvements for the industry.” Syms agrees with Azadi, and says: “There are an increasing number of systems out there for brokers but also for consumers as well. “These systems for consumers allow them to get their own prompts on their mortgage and see what their options are, after which they can decide when they want to engage with an adviser.” Antoniades explains that the new systems automatically do what brokers had to do for themselves in the past, making the more nuanced elements of retention easier in the absence of manual administration. He says: “Before, brokers had to make a note in their diary as to when each of their clients’ terms was set to expire and make sure to contact them several months prior; however, now an operating system is able to do this for you which drastically improves the service offered. “Continuing a relationship with a client will improve your chances of retention – if you do nothing at all, even with all the new systems in place, it massively reduces the chances that they use your services again.” Ultimately, though, while the importance of technology cannot be understated, the panellists agree that it cannot replace the personal touch created by building relationships. Antoniades says: “The improvement to systems is a real benefit for the industry, but brokers must be careful to bear in mind that creating a relationship on a one-on-one level with a client is far better than any operating system.” M I
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SECOND OPINION
Is there appetite for ‘green’ second charges? A second charge has all manner of uses. Loan Introducer asks the experts how buy-to-let investors might utilise a green second charge
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ortgage lenders in both the residential and buyto-let (BTL) markets are increasingly tuning in to the needs of eco-conscious borrowers with the launch of green mortgages. Such mortgages are designed to offer borrowers with energy efficient homes – usually those with an Energy Performance Certificate (EPC) rating of C or above – a discounted rate or cashback incentive. These products are designed to encourage borrowers and homeowners to be more ecofriendly, helping the government reach its target of net-zero carbon emissions by 2050. However, ‘green’ products do not currently exist in the second charge mortgage market. With increasing demand in the sector for home improvement loans, could some form of green second charge encourage borrowers to make their properties more energy efficient? Loan Introducer asks: Do you think a ‘green second charge mortgage’ would be popular?
Buster Tolfree director of mortgages, United Trust Bank
I think the question we should really be asking ourselves is: are any green financial services products popular? Many lenders are making noise about green products, but a lot of this seems to be smoke and mirrors, and at best these are more qualification criteria than genuine rate enhancements. What the majority of borrowers care about is how much the loan will cost them per month, and this is what drives customer
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choice. Nobody wants to deal with a firm which is actively damaging the environment, whether that’s your mortgage lender or the company you buy your trainers from, but there is a difference between this and proactively saving the planet, in my view. The only time a green mortgage product will be popular to the masses is when it becomes cheaper than other mortgages. So, the real question that needs asking is: how can lenders raise cheaper green funding, to finance cheaper green products? Solve that conundrum and we will be on to something.
Alistair Ewing owner, The Lending Channel
Green mortgages have been rolled out to both the residential and BTL markets, giving better options for those clients who have more energy efficient properties. I see no reason why this couldn’t be extended to the second charge market too, particularly where lenders tend to be more nimble and often able to quickly react to market conditions with new and innovative products.
Marie Grundy sales director, West One Loans
There is growing momentum across the mortgage market to introduce products which offer incentives to borrowers to make their homes more environmentally friendly. Currently, there are no green second charge mortgage products available, but it is highly
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likely that this initiative will be woven into product design and delivery in the near future. This could take the form of preferential terms for more energy efficient properties; or, given that home improvements are the second most popular reason for taking out a second charge, there is also potential for products to be specifically tailored to green home improvements. For people who are environmentally conscientious, a green second charge mortgage could be an attractive option.
Barney Drake chief executive officer, Specialist Mortgage Group
From an environmental perspective, this would certainly appeal to customers who are wanting to raise money with a green purpose. But I doubt a discounted rate for a green product would increase the amount of business written by the industry, as the act of identifying a borrowing need precludes that of raising money. The only precedent I can think of is where a customer has solar panels, which surely would class as a ‘green purpose’; however, most lenders will not lend if the applicant has solar panels on their property. From a commercial perspective, I can’t see how providing further discount for green purposes would advantage the lender. Why they would want to compromise financial return with nothing in return, apart from endorsing movements towards a green planet? I’m all for saving the planet, but the practical application of offering a discounted rate at a time when the cost of borrowing is at its lowest is somewhat clutching at straws if the intention is to write more business. www.mortgageintroducer.com
SECOND OPINION
Secured Loans? We’re the Experts
?
Rates from 2.99% Up to 140% LTV But-to-Let rate from 5.99% Adverse ignored after 12 months Lenders with no LTI cap
Simon Mules
MI
commercial director, Optimum Credit
Whatever the situation,
we’ve got a solution. 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.
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SECOND CHARGE
Drawing on experience Barney Drake chief executive officer, Specialist Mortgage Group
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usiness anniversaries can often seem like odd events, especially when they are significant ones which might lead you to analyse where you’ve come from, where you’ve been and where you’re heading. A 20th anniversary certainly does this, and as a business which has just passed this particular landmark, it’s perhaps unsurprising that it’s led me to look back over the past two decades and conduct a fair degree of navalgazing about the ‘journey’. Back in September 2001 there were obviously plenty of other worries to contend with, and the world was going to change in a significant way after the terrorist attacks which took place in the US. That being the case, we can’t get away from the fact that we chose September 2001 to set up a new business, and were incredibly excited about going out on our own and securing the opportunities that we believed were available to us as a master broking firm. A lot of water has gone under the bridge since then, but still some similarities exist. World events have suddenly thrust Afghanistan back into the limelight just as they were about to back in September 2001, and while
time moves on, sometimes we are destined to repeat past mistakes. From a business point of view, mistakes are part and parcel of working life. However, I hope that we have learned from them over the years – learning at each stage, changing and developing our offering as the market shifted and borrower needs developed. There have been some particularly large obstacles to overcome in that time, not least the Credit Crunch and post-2008 recession, plus of course the more recent pandemic and the sense of unknown about what might happen in the immediate aftermath of each, which of course we are still living through now with COVID-19. One thing that working in this sector has taught me is to be flexible and adaptable, to not be reliant on one particular area of the market, and to always seek out excellent employees and work with quality partners and stakeholders, who understand what you’re about, how you work, and what you can both get out of the experience. SPECIALIST GROWTH
Back in 2001, the market was already shifting in a more specialist direction. Mortgage availability had undoubtedly begun to become more accessible to those whose needs and circumstances were outside the ‘norm’, and apart from that Credit Crunch period – when the industry retreated to its more mainstream past – the progression of the specialist field has continued apace. That’s effectively why businesses like ours continue to thrive and grow,
Time in the market gives the experience and insight to recognise what works
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because it’s pretty much impossible for all advisers and introducers to be specialists in every single sector of the mortgage market. Whether it’s seconds, adverse, buy-to-let, products for the self-employed, bridging, commercial, you name it, I defy any individual adviser to be fully informed across all of these, as well as the more traditional mortgage sectors. EXPERT CONFIDENCE
Part of becoming a good business is also recognising what you are good at, and in what areas you’re better off leaving it to the experts. When you set up your own firm, you don’t look at the accounts requirements and decide to become an accountant in order to sort them out yourself, and neither – when dealing with clients whose needs are outside your own specialities – should you think you have to become an expert in those sectors, or worse, pretend that you are and fudge an outcome for the client. Far better to work with those who do this day-in, day-out, allowing you to get on with your own job at hand, confident that the client is going to get the solution they require for their own unique needs and circumstances. Currently, we are fortunate to have access to a large number of product solutions, some of which could do the job required, but some of which are unsuitable and could lead to the client’s detriment. As mentioned, you don’t want to be guessing at whether the option you’ve advised on and recommended is the right one. You want to be confident that those giving the advice are experts, fully versed in the sector, and can take the responsibility for that advice. 20 years is a long time in any one market, but being around for this length of time does undoubtedly give you the experience and insight to recognise what works, what doesn’t, and what we can offer that is better for both the adviser and the client. For those that don’t have those years under their belt, it makes sense to use those that do. M I www.mortgageintroducer.com
LOAN INTRODUCER
SECOND CHARGE
Opportunities in seconds Steve Brilus chief executive officer,, Evolution Money
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iven that we as a nation are seemingly perpetually obsessed with house price values, it is perhaps not surprising that the most recent indices covering these topics have garnered significant interest and headlines. To say that values have come a long way since the start of the pandemic and the first lockdown in 2020 would be an understatement, with annual price increases hovering around the doubledigit mark in recent months. It is early days, but it’s my view – and the numbers are beginning to bear this out – that June and July this year may well be seen as the high water mark for prices through the course of 2021, and that we are already beginning to see it plateau. That would be no bad thing for the housing market in general. Let’s be frank, monthly rises of 4.5% – as was recently announced by the Land Registry between May and June this year – are simply not sustainable. Those figures moved the average house price up from £254,624 to £265,668 in one month, and while we’re all acutely aware that this was down to the number of transactions being completed before the end of the stamp duty holiday, this was a huge increase. That Land Registry figure puts it more in line with the latest Halifax house price index for July, which has prices still inching up on a monthly basis (by 0.4%) to an average of £261,221, but sees the annual rise dipping from 8.7% in June to 7.6%. Nationwide has suggested a similar trend, although its monthly house price figure for July was below the level registered in June – £244,229 compared to £245,432 – and the annual increase dropped from 13.4% to 10.5%.
www.mortgageintroducer.com
I fully anticipate that, as we move through the rest of the year, we’ll see those annual figures continuing to dip, and we’re likely to see some months where the monthly change is negative as well. This might cause some commentators to suggest that house prices are falling, when the reality of the situation is that house prices are unlikely to return to the levels they were 18 months ago anytime soon. Perhaps never again. In other words, those rises are baked in, and house price trajectory will continue to be upward because of the continued disconnect between buyer demand and housing supply.
“Homeowners are not ignorant when it comes to what is happening with the value of their own home, and for many more people nowadays, it’s an asset that can be utilised on an ongoing basis” So, what might that mean? Well, homeowners are not ignorant when it comes to what is happening with the value of their own home, and for many more people nowadays, it’s an asset that can be utilised on an ongoing basis. People will know what their house should be valued at, what it might take to move it into a different valuation band, and what they might also wish to do in order to add more value to it. There’s been a lot of talk about the so-called ‘race for space’ in a housing context, but this has generally meant people moving out of smaller properties to larger ones, perhaps moving locations, or moving out of cities to the country, and the like. What if moving isn’t an option? Or you don’t wish to move and yet you still need that extra space? How many houses have office space to access?
How many people have ended up working on their kitchen tables during the pandemic, and now want to make a permanent space because they know they’ll be spending less time in the company office? Also, if you’re spending more time at home, how does it work as a space for working and living? Could you reconfigure your home to work better? Could you add an extension? Or make further home improvements? We’re all acutely aware that one of the main reasons for taking out a second charge mortgage is for home improvements, and that reason has grown in importance for large numbers of homeowners as they’ve spent more time at home. At the same time, over the past 12 months, the value of a house is likely to have risen. How do you access that increased equity, especially if you are unable to remortgage because of the charges that come with your current deal? You might opt for a second charge, allowing you to tap into that increase house value without needing to cut off your nose to spite your face by paying large early repayment charges (ERCs) to do this via a traditional remortgage? Rising prices may well give existing homeowners more confidence to look at how they can utilise their home’s value to make improvements. Advisers who are active in the seconds sector, or who simply want to introduce clients on to businesses like ours, should therefore find plenty of opportunity to explore these options with a growing number of clients, especially those who are mid-deal. Making the space work for the homeowner perhaps makes more sense than ever before, and now might well be the time to harness the improvement in value to do just that. Seconds are undoubtedly one of the more obvious product solutions to be able to help clients do this – for that reason, they should not be ignored. Otherwise advisers might well pay the price in lost clients. M I
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SPOTLIGHT
A united vision Jessica Bird speaks with Barney Drake, CEO of SMG, about how the business has maintained cohesive values during two decades of growth, and the bright future ahead for the specialist industry as a whole
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pecialist Mortgage Group (SMG), which includes Y3S Loans, Y3S Bridging & Commercial, Y3S Private Clients, Chaseblue Loans and B2B Financial, originally launched 20 years ago, in September 2001. This period was dominated by other events happening on the world stage, but for Barney Drake, CEO of Specialist Mortgage Group, this was still a time to be celebrated. “We were embarking on a new journey, but it was clearly a tragic time,” he says. “That said, it was still an exciting time for us as we had so many ideas, plans, aspirations and our new business was the perfect canvass for us to express ourselves. “This remains true to this very day, where my team and I constantly look to review, critique and enhance our offering.” AMBITIOUS GROWTH Y3S Group, which rebranded to Specialist Mortgage Group in 2017, started out with just three people in a small office. Since then, the business has grown its footprint and market share considerably. For example, 10 years in the group invested in a start-up, Y3S Bridging & Commercial, employing two founding directors to look after it. The decade since has seen its growth from a two-person outfit to just under 30 members of staff. However, the businesses operated from two site locations, so in order to facilitate further growth, in March 2021, SMG acquired the full share of capital from its founding directors, bringing the Y3S brand team under one roof, and under one management team. This has led to a considerable level of additional growth and cohesion between both Y3S brands. Over the years, SMG has continued to undertake a steady campaign of acquisitions and partnerships in order to strengthen its proposition and grow its market share. Drake says: “The strength of a partnership is forged by a united vision and the enjoyment of working together. We have been fortunate over the years to have made a
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Barney Drake
number of such partnerships, all of which have added value to each business we have acquired. But it starts with being able to work with that person and their team. Without this, the partnership won’t work.” For the future, although there are no immediate plans for further acquisitions, the business is continuing to focus on growing its strength in other ways. “SMG has rapidly recovered over the last 12 months, since the first lockdown hit, and our immediate focus is on recruiting new, fresh talent to enable our continued growth,” Drake explains. COMPANY CULTURE One concern that might arise when a business comprises diverse brands and looks to grow and evolve, is that of maintaining a strong and cohesive culture across all arms. For Drake, tackling this is about understanding the different value that each branch brings to the table, both in terms of internal culture and external branding. “A business’ culture is one of its most important ingredients, and the last thing we would want to do is disturb that,” he says. “Our plan has only ever been to nurture this culture and therefore respect that each business has its own characteristics and personality. Following acquisition, we have never rebranded a business, for this very purpose. “Each brand delivers a different aspect and offering to the market, to therefore provide an overall wider range of value.” In looking to grow and build its market presence, SMG has not just focused on rapid expansion, but also investing in its people as a way of future-proofing the business. Drake explains: “We have always believed that longterm, consistent growth is achieved by onboarding new, inexperienced staff who have the right attributes, to become craftspeople in mortgage advice provision. “Nothing else in work provides me with greater pride than seeing this. This then gives birth to the next generation of SMG advisers, who in turn – and once they are self-sufficient – train the next generation, and so on. www.mortgageintroducer.com
SPECIALIST FINANCE INTRODUCER
SPOTLIGHT “Over our 20-year history, this model has built an army of loyal and committed staff who share our longterm vision, consistently strengthening our business.” This sense of cohesion is something that should extend out to the wider market, he continues, as the specialist finance industry is small, with enough business to go around, and a culture in which everyone knows everyone. Drake explains: “These elements make it easier for us to all support one another, by sharing ideas, debating issues, and thinking of new ways that we as a collective force can catalyse the growth of our sector. This in turn will only benefit us all.” CORE VALUES With such a range of businesses, brands and expertise under one roof, it might be difficult to quantify and streamline just what core values underpin SMG’s activities. Early in 2021, however, the group went through an exercise in which everyone in the business was asked to contribute to the discussion around what characteristics best described its success. This conversation helped SMG pin down the values it expects all staff to maintain – known as the ‘DRESS code’. “Dynamic, responsible, efficient, strong and supportive,” Drake explains. “[This] stabilises our organisation’s culture and is used from initial assessment when we interview, through to when we train, review and appraise staff. “We reward everyone based on how well they have adopted our DRESS code, and therefore it is stitched into the very fabric of our culture, in turn having a direct impact on the service offering we provide to our introducers and customers alike.” On a practical level, SMG employs a quality control team that listens to calls and reviews advisers based on this code on an ongoing basis. This team supports the rest of the business by providing timely, tailored feedback to staff to help them continuously enhance their service offering. THE ROLE OF TECH Over the years, while SMG has proven successful in pulling together – and growing – diverse businesses and areas of expertise, one particular challenge has been the merging and streamlining of underlying IT structures and processes. “These now run like clockwork, thanks to the incredible management team we thankfully have on board,” Drake adds. During the past year and a half, businesses in every industry – not least specialist finance – have had the importance of reliable systems drilled home. However, technology is only part of the equation, used to facilitate the business, rather than run it. “First and foremost, tech will never replace the essential need for human interaction,” Drake explains. www.mortgageintroducer.com
“By the very nature of offering specialist mortgage advice, the role of empathy, understanding and providing confidence to our customer base at a muchneeded time simply cannot be provided by even the most comprehensive system.” Instead, the role of technology within SMG’s proposition is to assist the adviser in sourcing the best product, simplifying complex scenarios and opening up channels of communication among all parties involved in a transaction, as well as allowing for instantaneous information sharing. It is also about being able to map trends, Drake adds: “[Technology provides] my management team and I with all we need to review our businesses’ trends, whether on an overall perspective, or whether down to the most granular level needed. “Without reliable tech, we would be blind, and our advice provision would be significantly impeded, but it will never replace the vital role that our adviser community provides.” MARKET TRENDS Bridging, commercial and development finance are all growing areas for this expanding business, and ones where competition among lenders is growing on a strong trajectory. “This, of course, is a great position for us, as we carefully select the right lending partners to provide not only the most competitive rates and criteria, but deliver a consistently high service level,” says Drake. Due to the time-sensitive nature of many deals in these markets, SMG looks for flexibility, reliability and efficiency as key attributes from the lenders with which it partners. Drake also emphasises the importance of technology as an enabling force here. “Having the technology to therefore access all these products, while knowing which lenders possess such attributes, remains a key component,” he explains. “With the rapidly developing nature of this industry, technology plays an increasingly important role and is therefore one of the most important investments we make. Without it we would be lost.” Overall, Drake has seen the specialist market go from strength to strength in recent years, particularly in the past 12 months, as many people’s circumstances have changed, deterring traditional lenders and increasing the need for specialist products to cater to changing borrower needs. “The role of the adviser to the millions of people affected has never been more important, and our constant challenge is to ensure that advisers are aware of the range of product options available to assist,” he concludes. “Add to this the cost of borrowing having never been cheaper, and it results in a star-aligning event that I believe will further catapult the growth of the specialist mortgage sector.” M I SEPTEMBER 2021 MORTGAGE INTRODUCER
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FIBA
Mortgage clubs: A new way forward Adam Tyler executive chairman, FIBA
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ow many of us have tapped into a mortgage club in order to get access to ‘exclusive’ products which are not available to the individual adviser sourcing in the normal way? This may be familiar to the reader, or it might be something they have only heard about in the residential mortgage market. After nearly six months of trialling an addition to the SimplyBiz Mortgage Club with our commercial partners from FIBA, we are preparing to expand our offering. VITAL RESOURCE
For the uninitiated, mortgage clubs definitely fulfil a need, because of the collective nature of their structures. The more advisers using them, the more their buying power is increased, and they become more valuable to lenders as a tangible business source. For independent brokers, clubs have been a vital resource because they allow the smallest adviser to access
lenders and service providers which they would normally have little chance of partnering with on their own. As we enter our old world again, there will be a growing need for lenders and advisers to find more efficient ways to interact. Small brokers make up the majority of the market for specialist finance, and will need to be able to demonstrate their ‘whole of market’ credentials to clients. One of the only ways to do that is to show they have full access to that market. With lenders fighting to attract business in an uncertain but highly competitive sector, mortgage clubs are going to become an increasingly important resource in turbulent times. If you combine the capability of a finance platform or sourcing tool, you can begin to see the advantages that technology can start to bring to the specialist finance sector. These resources are designed to help the intermediary, allow the broker greater choice on their customer’s behalf, whilst at the same time creating a timestamped trail of lenders that have been considered for the customer. The club that provides those specialist property finance deals – whether across commercial mortgages, bridging finance, buy-to-let (BTL)
Unique knowledge of the specialist market is a prerequisite when building a specialist property finance club
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or development – can help enhance that firm’s offering to its clients, both existing and new. Unique knowledge of the specialist market is a prerequisite when building a specialist property finance club, along with the ability to bolt onto an existing very successful club structure, but the end user – the broker or adviser – then has the ability to select the right lender for the right client. STRENGTHENING PROPOSITION
Many firms have taken the opportunity to diversify over the past 18 momentous months, and having the ability to access a number of lenders specialising in this highly defined area is an important factor in adding an extra dimension to their business. An intermediary who can offer a variety of solutions for their client’s requirements will add another strength to their proposition. Whilst some of the lenders who were part of the launch were familiar with how a mortgage club operates, there are others who are new to this type of interaction, and therefore offer different and innovative solutions for client requirements. If we can add in the combination of a specialist property finance sourcing tool to a specialist club environment with enhanced offerings to the customer, this can only be a benefit to all parties involved in a commercial transaction. With the number of technological advances that we have witnessed over recent years, this is just an example of how innovation is going to be a major part of the interaction between all groups involved in commercial finance over the upcoming years. We have seen the wide range of new lenders come to the market since 2009, and how they have benefited UK small to medium enterprises (SMEs). There are a number of new SME banks, both already with licences granted and also those already with applications in with the Prudential Regulation Authority (PRA). Therefore, any help we can give to the customer in sourcing our broker and funder community equates to greater help we can give to a recovering economy. M I www.mortgageintroducer.com
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TECHNOLOGY
Tech bandwidth has transformed the market Paul Watson head of lending, Blend Network
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rom land sourcing to valuations, and from buying to renting, many segments of the real estate market have been dramatically overhauled by a new wave of technological innovation. Nowhere is this transformation more dramatic and visible than in real estate lending. Technology bandwidth has brought a breath of fresh air to the market. DISRUPTING TRADITION
Real estate is not known as an industry which really embraces change. The nature of the asset class, which comprises large mixed assets traded in a largely private market, is perhaps a good reason for this. Homes may be too important a part of a private portfolio to take any risks with the process whereby they are traded, held, or valued. It may also be the case that there is an agency problem: the professional
advisers that dominate the transaction process clearly have an interest in protecting their income sources, so chartered surveyors, brokers, and lawyers might all be expected to resist tech-driven innovations designed to ‘disrupt’ their work. Nevertheless, we are witnessing a battle for market share between traditional players, and a discernible new explosive wave of technology innovation, investment, and entrepreneurial activity in the real estate sector. Nowhere is this trend more noticeable than in the lending market, where a new wave of tech-powered, customer-driven, quality-focused regulated lenders have quickly filled the gap left by traditional lenders in a constantly evolving market. NEW GENERATION
With sleek customer interfaces, efficient processes, transparent lending terms and competitive pricing, this generation is powered by tech bandwidth hitherto unimaginable, serving borrowers practically, with experienced lending assessment staff to thoroughly understand their projects.
We are witnessing a new explosive wave of technology in the real estate sector
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Having spoken with many property developers, the general feeling is that most just want to get on with the job of building houses, and don’t want to deal with the finance side of getting all the funding in place. One developer we recently spoke with said: “We just want to work with a lender who understands the property development process and doesn’t waste time asking the irrelevant questions.” To me, this summed up the feeling of many developers in the market I regularly speak to, whose deals have been delayed or even frustrated by inefficiencies caused by non-specialist lenders which were unable to get their head around the ins and outs of the property deal. It is no surprise that so many developers and brokers have embraced this new generation of lenders like a breath of fresh air, and are excited to work with lenders that at last are able to use their own experience as developers to understand borrowers’ financial needs. Another developer we worked with on a deal in Scotland said: “As a developer, we are experienced in a variety of investment strategies in a number of cities across the UK. As such, there is not a shortage of opportunities available. “However, many opportunities have been delayed, frustrated, or lost due to the constrained nature of most lenders we have worked with in the past. “In my mind, this is caused by a limited understanding from most lenders – choosing to create a finance package that is ignorant of the true requirements of the development process. This, however, was not the case with Blend Network. “It was very refreshing to work with a company that understood the process well, so could recognize the opportunities available and thus was able to finance accordingly.” In summary, many players in the property market – developers, brokers, and professionals such as lawyers, accountants, and architects – have embraced the new wave of technological innovation in the lending market, like a breath of much-needed fresh air. M I
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THE LAST WORD
LOUISE WILSON
Online reviews Louise Wilson, head of finance sector at Moneypenny, shares how mortgage companies can make online reviews work harder
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o protect and grow their client revenues and cater for the shifting demands of financial consumers, mortgage businesses find themselves needing to put greater focus on the client experience. In a world where ‘shared experiences’ fill the internet, advisers must acknowledge the power of the customer and their feedback. A driver for this is almost certainly the shift in the way consumers expect to source a mortgage professional. The prevalence of digital channels is in part responsible – helped by COVID driving us all online – and we now expect the same level of experience, accessibility and choice from our professional partners, as we do the big brands we buy from. WHY ARE ONLINE REVIEWS IMPORTANT? Whether it’s Trustpilot, Google, Yelp or social media, clients leave reviews, and these have the power to deliver more work to mortgage businesses. Reviews provide transparency of quality, capability, price and staff. Reviews take some of the unknowns out of purchasing decisions and make us feel informed – as if we have the inside track. They help us to compare, make an educated choice, and put our trust in that decision. In fact, 91% of 18 to 34-year-olds trust online reviews as much as personal recommendations, 93% of consumers say that online reviews influence their buying decisions, and 64% of consumers check online reviews on Google before visiting a business — more than any other review site. During 2020, 31% of people said they read and referred to more reviews. There are four steps to harness the power of reviews. ANTICIPATE It is particularly useful to anticipate the sort of feedback you might receive – good and bad – so that you can make proactive changes to your approach to client care. For example, if your company has felt the effects of being understaffed or a new mortgage network partnership is allowing you deliver advice more efficiently, you might expect to see this referenced in reviews. Giving regular attention to how clients are onboarded, the proactivity of communications, the nature of service level agreements (SLAs),
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response times and accessibility will all help. It also provides an opportunity to think about an online review policy, so that it’s clear who should respond internally, and how they should do so. RESPOND All reviews require responses. Research suggests that online reviewers expect a response within seven days. As 97% of those who read online reviews also read responses, it’s important to act. Negative reviews are what all businesses fear, but when handled properly and proactively they needn’t be so damaging. Engaging with the review, responding in a friendly tone, and showing the desire Louise Wilson to make restitution and improvements can bring balance to poor reviews. It also provides an opportunity to thank reviewers for their feedback and to reiterate important key messages about your approach to client care. BE READY Consider what happens when a prospective client acts on a positive review and reaches out – perhaps via email, a live chat function or Google click to call. They should be met with a first impression to match. For 56% of businesses, the phone remains the most popular way for customers to get in touch. Ensuring calls are answered promptly and efficiently, that call backs, quotes and queries are handled quickly, and that websites are rich in information and interactivity, are all vital to maximise the power of good reviews. Anything less could see a new client opportunity missed. INVITE With the earlier steps in place, mortgage professionals will start to feel more confident and willing to ask for reviews on external sites. Inviting people to give feedback and share their experiences proactively shows confidence in service levels and standards and will help to ensure positive reviews are prevalent. Online reviews present an opportunity for mortgage businesses to interrogate their service levels and look at the client experience as a whole. In doing so, they will equip themselves with all the components for glowing endorsements – and plenty of those will improve business development, revenue growth and brand reputation. M I www.mortgageintroducer.com
FOR
Why we’re on the case for brokers As a leading specialist mortgage lender, we focus on delivering clear solutions for buy to let and residential mortgages, bridging finance and second charge loan cases. By offering straightforward criteria and clear decision making, brokers know exactly what they’re getting when they come to us, and they can rely on the dedicated support of our sales team and awardwinning underwriting to get the answers they need.
Our service to our brokers
90.3% of intermediaries rated us 8 or above for ease of obtaining a decision in principle*
We understand the challenges you face, and we’re committed to working closely with you to find the most appropriate solution possible.
90.5%
Instant decisions… any time of day
of intermediaries rated us 8 or above for ease of finding and selecting a relevant product*
In specialist lending, time is everything. Our online tools are available 24/7, giving you the answers you need, even out of hours! And we’ll give you a decision in principle in minutes on the applications you submit, leaving only a soft footprint.
83.0% of intermediaries rated us 8 or above for ease of establishing whether we could assist with a case*
Focused on providing answers Our priority is supporting brokers whenever they need us, offering the answers you need as quickly and efficiently as possible. Whether it’s a face-to-face visit or a quick phone call, our aim is to always ensure you get the information you need, when you need it. So if you’ve got a case in mind, visit precisemortgages.co.uk or contact your local business development manager to see how we could help with your next case.
Adrian Moloney Group Sales Director
Precise. Contact your local BDM precisemortgages.co.uk
FOR INTERMEDIARIES ONLY *Research conducted directly with intermediaries using Precise Mortgages in Q2 2021. Scores given out of 10.
01b-B-01 MKT000416-024 (2)
Diverse mortgage solutions across:
Buy to let mortgages
Residential mortgages
Bridging finance
Second charge loans
Top slicing available from 110% ICR across the range 5 year fixed assessed at pay rate Limited companies and portfolio landlords accepted
Options for customers with CCJs, defaults and unsecured/ secured arrears Options for self-employed with 1 year’s trading Refund of valuation on all products
Regulated and non-regulated loans available Standard and light refurbishment accepted Quick decisions to meet tight transaction deadlines
No early repayment charges 2 and 5 year fixed terms available Capital and repayment options
Precise. Contact your local BDM precisemortgages.co.uk
FOR INTERMEDIARIES ONLY Product and criteria information correct at time of print (13/09/2021)
FOR