‘Lenders have not got to grips with how the pandemic impacted borrowers’ – Hunt
This is the new reality for large numbers of borrowers who either spent time during 2020 being furloughed, or are still part of a furlough scheme which isn’t due to finish until the end of September.
A year ago how many had even heard of furloughing?
And yet here we are with a large number of homeowners or those seeking to purchase, needing advisory support in order to help them through what is increasingly becoming a very complex and convoluted mortgage maze.
There is, of course, some positive news in terms of borrowers in such a situation actively going to advisers for support and a large cohort who are not dissuaded from continuing their purchase ambitions even when the last 12 months may not have been a pleasant experience.
Unsettled mortgage environment
However, there will also be a large number of existing borrowers who are attempting to refinance after being furloughed, and their advisers will be having to deal with a very unsettled mortgage environment.
An environment where there is little standardisation and where lenders have very different ways of assessing these borrowers, the information they require, the timeline they will use, and just how stuck to their old ways they will be in that assessment.
This is where advisers and their clients need clarity.
As yet many lenders have not got to grips with how the pandemic impacted borrowers and they are still far too wedded to a traditional way of assessing income and affordability which is only likely to lead to rejection.
The last 12 months have not been normal, and this is why many advisers have been calling for a much more flexible approach to borrower finances.
It may be in sectors like mortgages for the self-employed where the bigger problems are, but also those who would in any other period be a normal, mainstream borrower, now find themselves firmly marked as specialist by lenders who would previously have marked them as vanilla.
Borrower financial assessments can’t just be focused on short-term hits to income, or on three-month periods which look completely different to the rest of their entire historical situation.
They have to cover everything in the round, what happened during furlough, and how that has recovered.
And if the borrower is still on furlough, they need to be based on any number of considerations including job prospects, the industry they work in, the financial history, and their ability to keep on making those mortgage payments.
Advanced technology combined with artificial intelligence (AI) and much richer consumer data is set to help here, with new reports, insights and understanding being developed as I write.
This will help all – including mainstream lenders – in understanding and accepting what are undoubtedly good borrowers caught out by temporary pandemic circumstances.
However, in the meantime an individual and fairer approach most certainly is required.
Greater focus on protection needs of first-timer buyers and landlords in 2021 – Woollon
The average UK house price rose by 8.5 per cent to £251,500 during 2020, according to the Office for National Statistics.
And while the pandemic has undoubtedly affected the mortgage market, it was not all bad news in 2020, with first-time buyers (FTB) accounting for half of all mortgages for home purchase.
Overall there are around 11m UK households with a mortgage, but research suggests at least 42 per cent of them have no life insurance, and 81 per cent have no form of income protection.
With the outstanding value of all residential mortgages at £1,527bn, that is a lot of risk borrowers are taking.
Many reasons are cited for this, in particular cost, which always amazes me, because if borrowers cannot afford life insurance as a minimum, how are they going to afford a mortgage on death or if they are off work with a prolonged illness?
Throughout these difficult times financial advice has been paramount, with more than 80 per cent of FTBs and 90 per cent of buy-to-let (BTL) business relying on intermediary advice.
So given the high percentage of borrowers taking advice and the public’s raised awareness for protection, there is a great opportunity to review their protection needs.
Typically, FTBs have a greater risk of prolonged illness than death so need income protection as well as life insurance.
Based on the average FTB being age 31 with a mortgage of £198,779, a 25-year joint-life decreasing term plan using a default eight per cent interest rate only costs £10.28pm.
If we add income protection of £2,055pm and £1,149pm for salaries of £40,000 and £20,000 with a 13-week deferred period and payable for up to two years, this would increase the total cost to £31.44pm.
To put this into perspective, a five-year fix at 2.51 per cent with no fees on that mortgage would cost around £890pm, so for 3.5 per cent of total mortgage costs, the borrowers would have cover that ensures they and their family could stay in the home if anything happened.
With many BTL five-year fixed rate mortgages arranged in the run-up to the three per cent stamp duty surcharge in April 2016 expiring, this year provides a good opportunity to review these arrangements.
Most landlords only need life insurance to avoid the property being sold on their death to repay interest-only mortgages.
So for example a 20-year level term plan for £150,000 for a landlord aged 50, would cost £31.62pm.
Given the average five-year fix in Q1 2016 for individual landlords was 3.84 per cent, they would have been paying around £480pm on that £150,000 mortgage.
Using the same five-year 2.51 per cent deal, even with life insurance, an adviser can still save them £135pm. The same approach should be used for remortgages and product transfers.
So, as well as reviewing customers’ mortgage needs, 2021 could be the year to better protect your clients, their families and your business.
AVMs provide more accurate valuations than surveyors – JLM
We’re thinking specifically of lenders’ use and acceptance of automated valuation models (AVMs), particularly through the first lockdown last year, which appears in sharp contrast to the recent almost total return of physical inspections in some cases.
AVMs are a somewhat controversial subject in this space, although a large part of that controversy is bewildering.
Of course, a number of specialist lenders were unable to use AVMs because of issues relating to how they are funded and how they securitise their assets.
We would hope this has been rectified for the future, because in our view, the accuracy of the AVM should not be in doubt.
Indeed, we would go as far as to say we enjoyed the move to AVMs last year, with valuations coming in at highly accurate levels, and the models used working efficiently throughout the period. More of that please.
More accurate valuations
Can we say the same since physical valuations have become the norm again?
We’re not sure we can; indeed, the self-styled pre-eminence placed on the work of certain surveyors as somehow being more accurate than AVMs seems utterly misplaced.
A more cynical observer might think surveyors are trying to prove their worth to lenders, before their role is made defunct by technology.
The number of ‘down valuations’ – a concept some surveyors seem to believe does not exist but is a very real part of our market – is up, with some surveyors appearing to think they have a duty to ‘protect’ the lender against accurate valuations.
This concept no doubt being predicated on a belief that house prices are going to drop dramatically at a point in the future – with no-one being able to accurately say when.
Valuations based on last year
We wonder whether some surveyors have those 20-plus per cent drops in house price predictions still in their heads from last year, and are basing their values on those, rather than the current market, property supply, local comparables, and such.
It’s got to a point where we’ve had cases where the surveyor has down-valued the property by approximately three per cent on purchases, and been unable to provide accurate comparables for that decision.
This has led lenders to overturn these purchase valuations once they’ve been reviewed by their own staff surveyors.
And even after this type of result, we’ve still had to deal with a number of arrogant surveyors who dispute the black and white data they’re presented with and are still trying to flex their perceived muscles in order to get the lender to accept their flawed valuation.
If surveyors are taking this approach because they are fearful of greater use of AVMs, then they are going about it the wrong way.
Being inaccurate is likely to make AVMs more popular not less and placing a value on a property based on predictions last year, or a future drop which is not assured by any means, is only going to cause more work for all involved, and less trust placed in physical valuations.
In that sense, surveyors have been warned – the machines are on the march.
‘Bold and innovative moves’ leading busy buy-to-let market – Ying Tan
When I say mixed bag, I don’t mean a combination of bad and good — it has been overwhelmingly positive. What I mean is, it’s been great to see so many bold and innovative moves being made by an array of lenders.
Let’s start with the innovative launch of Foundation Home Loans’ Green Reward remortgage for landlords.
The five-year fixed-rate mortgage for landlords is available for remortgage only on private rental properties with an Energy Performance Certificate (EPC) rating of C or above, dated within the last 12 months, except for listed properties which are not eligible.
For those that qualify, Foundation is offering a 3.75 per cent rate up to 75 per cent LTV, with £750 cashback on completion plus a reduced fee of 0.75 per cent.
Staying with products, LendInvest has released a range of special edition buy-to-let products.
The lender has introduced a 70 per cent LTV five-year fix at 3.39 per cent with a maximum loan size of £1m, and a 75 per cent LTV five-year fix at 3.49 per cent with the same maximum loan size.
In addition, LendInvest has reduced rates across its five-year fixed rate BTL range, with its 65 per cent LTV product now available from 3.29 per cent with a maximum loan of £1.5m.
It is also offering cashback towards legal fees of 0.25 per cent of the loan amount up to £1,000 on qualifying five-year fixed rate products.
Fleet Mortgages has announced a range of price cuts on two and five-year fixed rates across its three ranges – standard, limited company and houses in multiple occupation (HMOs).
As part of its product changes, Fleet has moved all 60 per cent LTV products up to 65 per cent LTV and has also specifically cut rates on those five-year fixes – standard and limited company products – where its rental calculation is based on the payrate.
Habito has reduced its buy-to-let mortgage rates. The lender’s BTL fixed rates now start from 3.04 per cent, which is a 0.10 per cent reduction.
For individuals and limited company products at 75 per cent LTV, rates now start from 3.29 per cent which is down by 15 basis points.
Looking to fee-assist BTL fixes, products now start from 3.16 per cent for individuals and 3.12 per cent for limited companies. These products come with £750 cashback, and free conveyancing for customers buying in their own name.
Paragon Bank has introduced two remortgage-only products, which both include £500 cashback and a free mortgage valuation. In addition, the offerings are available to landlords remortgaging in their personal names or through their limited company.
Lending policy and criteria
Focusing our attention on lending policy and criteria, Coventry for Intermediaries has improved its affordability calculations for buy-to-let lending.
The lender will now apply a reference rate of 4.5 per cent for all five-year and above fixed rate calculations, down from a previous rate of five per cent.
Accord Buy To Let has increased its maximum borrowing limit and overall portfolio size for non-first-time landlords.
In addition, it has reduced its standard valuation and homebuyers’ fees, with the intention to offer greater support to landlords. For established landlords the buy-to-let aggregate lending limits have now been increased from £1m to £3m.
Furthermore, the total number of BTL mortgages a borrower can have with the lender has risen from three to five and the total maximum portfolio size has increased from 15 to no limit.
Finally, West One Loans’ buy-to-let division has extended its borrower exposure limit to £5m for those who meet W1 credit criteria requirements.
In addition, it will now consider licensed HMO properties with up to 10 bedrooms.
City living will not go out of fashion – Young
There seems little doubt that, as with owner-occupation, the private rental sector will be changed by what has happened.
One of the interesting considerations is around city living and how sustainable that might now be.
There is some anecdotal evidence to suggest a growing number of people are looking for properties outside cities, but arguments that city living will become a thing of the past still seem wide of the mark.
Rather than potentially dismissing city living in the future as being somehow on its last legs, this situation gives us the chance to reimagine what is going to be in demand right across the board. Whether it is for owner-occupiers or landlords looking to purchase property.
Consider potentially old retail stores like Debenhams reimagined with apartments, cafes and restaurants, and smaller retail units – private equity is already looking into how it might deliver this type of development.
My fundamental belief is that city living will not go out of fashion. All the benefits of living in a city will remain, but where landlords and the private rental sector might be ahead of the game is that we’ll see the evolving trends in what tenants might now want from their rental properties far sooner than in the owner-occupier space.
That should give us a greater opportunity to respond and, it might hopefully, put pressure on housebuilders and developers to reshape their city development plans to incorporate what is going to be required.
Whether that is a refocus away from high-rise buildings with no outside space to designing more green spaces, or communal living, or including office-type space in properties.
For most people, it will be out of the question from both a personal and work situation to move out of the city.
All of that may well help landlords in what properties they can offer to tenants because regardless of whether a minority move out of city dwellings into the country, the supply available to do that is limited.
As we know, large numbers of key workers in cities cannot work from home, many people will still need to live within a commutable distance.
Demographics like students will still want and need to live in cities where their universities are.
As a housing industry we must respond and evolve.
I tend to look for the positives and this situation does give us a chance to relook at the types of properties we have in cities and whether they are now what we require.
If we can do that, then city living will continue to not only to be required but actively sought.
Turning to equity release in a Covid financial pinch – Rozario
According to a recent survey from the Financial Conduct Authority (FCA), Covid-19 has resulted in a huge financial pinch for a majority of Brits.
The Financial Lives Survey, which took a deep dive into the financial security of the nation, revealed that some 52 per cent of UK residents could be considered financially vulnerable – which equates to over 27 million people.
What’s more, in the month of October 2020 alone around a third of people, nearly 16 million, said they expected their household income to fall. More worryingly still, some 13.2 million people were concerned they would not be able to make ends meet.
Hopefully we are reaching the final furlong of this pandemic, but the financial impact of Covid-19 will have a particularly long tail.
Thriving housing market
However, despite the struggles there are some investments and areas that have remained stable – even growing –throughout the pandemic.
The most vital of these is property. Something millions of people across the land have wisely invested in, and one of the few areas of the economy that has remained secure despite the pandemic.
In fact house prices, on average at least, have even grown in value during Covid despite a large number of analysts and commentators expecting it to go the other way.
Looking back to October 2020 in a different light, average values soared at a faster rate than in any time in the past four years.
House price analysis from Halifax also showed that the month saw the national average hit £250,000 for the first time in history.
Now, much of this increase may be down to the stamp duty holiday and Halifax does indicate that growth may be slowing down, but 2020 still saw a six per cent increase in average house prices while many other parts of the economy and society were more than struggling.
What this shows is that housing is becoming ever more important in the landscape of personal finance. While pensions, savings, and now even employment have been hammered by the pandemic, property remains a healthy and secure investment.
The key challenge, therefore, is helping those people who need, or want to use their home to support their needs.
Meeting needs with equity release
Products like equity release or options like downsizing will both become more popular in years to come.
All the evidence is pointing in this direction as other financial avenues shrink while house prices climb, so we need to continue our fight for mainstream recognition and continue to launch intelligent products within the later life lending sector.
Of course, equity release won’t be perfect for everyone, but when other viable financial options have dwindled at such a rate, having another route to explore is essential.
The bricks and mortar of homeowner’s properties across the UK will become – and in fact already are – integral to later life planning for millions.
While having so many awful and immediate effects, the pandemic has highlighted what appears to be, the solidity of property wealth.
For the future of retirement planning and the finances of homeowners throughout the country, supporting free choice and spreading knowledge of how they can use this critical equity helps to empower people to make informed decisions and help them to understand the potential role equity release may play in their financial security.
We need to ‘step forwards into an unpredictable world’ – Spence at Cambridge BS
Spence began his new role at the mutual on 1 November last year and hasn’t met any of his colleagues yet in person, but brings a big CV to an increasingly demanding role.
“The Cambridge truly holds [its] members at the heart of what it does and has a wonderfully rich history of helping people have a home. I’m honoured to join the team and look forward to helping guide and shape the next chapter of its history,” Spence said.
After a 32-year career in banking at Lloyds, rising to director of retail distribution and director of policy co-ordination and risk, Spence also continues as chairman of Spicerhaart, finance chairman of the Church of England’s Archbishop’s Council and in his role as an Essex county councillor.
A rare accolade, John has received an MBE, OBE and CBE for his services to the community, charity and business respectively. He is also blind and has held chairmanships of Action for Blind People, Vitalise, Blind in Business and Essex Community Foundation.
I ask Spence about what he predicts will be the long-term impact of the pandemic.
“If there’s one thing I’ve learnt to predict about the Covid virus, is that it’s unpredictable. In terms of strategy as a building society, we need to step forwards into an unpredictable world. It is only months since the predictions were for a significant fall in house prices and in the early days of 2021 there’s no sign of that at this stage,” he added.
He said he suspected that as furlough is unwound and the economy unlocked we may see a much more divisive economic performance with some sectors flourishing and others not, which particularly in the light of Brexit, could lead to major inflation.
“How do you get the right balance of ambition and caution in an unpredictable world?,” he asked.
Following a question on the pandemic, Spence said we are unlikely to ever go back to normal, adding we are likely to go forwards into a ‘new normal’ instead.
“We have learnt that hybrid working works. I think the days when we drag people large distances into a room for a meeting will be mixed now with a Zoom or a Teams on a digital basis. Time can be reinvested for a better purpose as long as you’re getting the right mix of face to face and digital. I think office space will be used for individual working, particularly for those with less conducive home arrangements, but much more for team gatherings, you can reinvest that time for better purpose.”
He added: “All those brokers have learnt to do things in new ways – they won’t go back. They’ve learned how to build relationships without being in the same room and they’ve learned how to glean the info – we need to see that progress into the legal sector. We can all see that’s a sector that has struggled and needs to join us on this journey of discovery of doing traditional things in a myriad of new ways.”
Given the pandemic and the shifting nature of of the outlook and economy, is more being asked I asked of board members than ever before I ask?
“You need more than ever now to have your eyes open to the full spectrum of possibility. Too often our thinking is confined between three and seven – now is the time to be thinking from nought to ten.”
However, Spence was very clear that face to face meetings and networking still offered huge value.
“Networking will remain critical. We’re human animals and thrive from being with other people. How often have we learnt things from being at a table at an event? How often have people said things that would never have occurred to you? That’s how you expand your mind,” he said.
The Cambridge has always lent nationally on its buy-to-let range but extended its lending area across England and Wales for all products in March 2020.
How one first-time buyer completed a mortgage through live chat alone – Wilson
We deal with banks, retailers, utilities companies and service providers online and the popularity of instant messaging has rocketed since the pandemic.
Consumers appreciate the opportunity to ask quick questions while browsing online and have come to expect to see a chat box pop up when visiting a website.
But should the method be reserved for customer service alone or does live chat have a place in more complex interactions?
For Ela Bayraktar (pictured), 26 from Wrexham, who recently arranged her whole mortgage without any meetings or phone calls – the answer is yes.
She explains how the process went for her: “I’m a first-time buyer, so I didn’t have any previous experience in dealing with brokers.
“I’d saved up my deposit, found the property I wanted and naturally, the first thing I did was search on Google for help with securing my mortgage.
“The options are endless and if I’m honest, it was quite overwhelming but after some searching, I found a broker who advertised no fees for first-time buyers and filled in a contact form to request a call-back.
“After a couple of weeks, I still hadn’t heard anything so rather than chase up my enquiry – I searched online again and found another provider.
“This one didn’t advertise any reduction in fees, but the website was simple to navigate and wasn’t jargon-heavy like some of the others I’d come across. I filled in a quick questionnaire and straight away, I was connected to an instant chat with an adviser.
“After a few more questions, the broker said they had everything they needed and within a few hours, I received an email with a list of suggested offers.”
Service must meet expectations
This experience is the perfect example of the evolving nature of communications, both in the sense of technological advancements and customer expectations.
And not only that, Ela’s decision to opt for another broker in the face of substandard service – despite the fact it may cost more – was extremely telling.
This was not a surprising story to hear. Service comes first nowadays – that’s simply the way it is.
People are time-poor and will almost always lean towards a business that can offer the support they need quickly and efficiently – even if it means paying a little extra.
According to Moneypenny data, 78 per cent of consumers will purchase from the first company that gets back to them following a contact request.
Furthermore, businesses that respond to new enquiries within five minutes are 21 times more likely to convert the lead than those who keep an enquirer waiting for 30 minutes or longer.
It really does pay to be available and attentive.
More open conversations
Live chat isn’t just favoured for its speed. Our research has shown that enquirers using the technology tend to offer more personal information than through any channel.
They discuss their circumstances openly and share their concerns, fears and challenges with ease.
It seems that the act of typing rather than talking helps prospects to be themselves and share the truth of their concerns, which presents a significant opportunity for mortgage professionals.
And it’s not just their individual circumstances that consumers are comfortable discussing online.
Ela not only sourced offers for her mortgage via live chat but also uploaded all bank statements, evidence of deposit and proof of identity via a secure online platform.
“I felt extremely confident from start to finish,” Ela continues.
“Perhaps the fact I work for a communications technology provider helped to allay any fears around cyber security and boost my confidence in the whole process, but it really was seamless.
“From my initial search to application and final arrangement, there was never an issue. No difficulty juggling diaries for a meeting or annoying hold music. I’ve moved into my flat now and couldn’t be happier.”
People like dealing with people, that will never change, but the ability to do so in a way that suits their busy lifestyle is priceless.
Housing market will remain beyond many until lenders return to higher LTVs – Bamford
There are currently five 95 per cent LTV products available but these all come with criteria caveats and are what we would safely now deem to be specialist mortgages requiring either parental or guarantor support to access.
However, 90 per cent LTV product numbers have risen, and according to Moneyfacts in January product numbers were up by 88 to 248 products, which in itself is a 386 per cent increase since October last year.
That’s clearly a positive but it is still nowhere near the levels we saw pre-pandemic and specifically during 2019, when in many months there were over 700 products available at this level, plus there was a much healthier market at 95 per cent LTV.
Many priced out
Product numbers do not make a market, and while it helps to have more options at high LTV levels, there is still a mountain to climb for many people in securing a 10 per cent deposit and meeting the affordability criteria to get a mortgage.
Research from Benham and Reeves suggests affordability is at its worst level in a decade.
It gets to this figure by looking at the average house price to income ratio; currently the average house price in the UK is £250,000, and the average net salary is just over £25,000, which means house price to income affordability is 9.94.
In other words, the average house costs nearly 10 times the average salary, and it would take an entire year saving every single penny of that salary to make the 10 per cent deposit required to even think of getting a mortgage.
Given this will be impossible for almost everyone, realistically individuals would need to put away 20 per cent of their salary every year to have the deposit required in five years.
And who knows what house prices might be in five years’ time.
Lenders remain cautious
It is perhaps understandable why many potential homeowners are crying out for more options at 95 per cent LTV and why we need far more products which do not require help from families.
And you often wonder why we need to make five per cent jumps, given there is nothing to stop lenders inching up the LTV curve?
Understandably, after the year that has passed, there will be an air of caution from lenders however there is clearly a competitive market to be accessed here.
By utilising private insurance to de-risk, this can give an opportunity to offer products at the higher range, with rates not beyond the pale, and the ability to secure a healthy margin.
Even with the recent slight drops in house prices, the market is beyond the range of many – particularly first-timers.
This will not change in any real way unless lenders can see a way to returning to higher LTV product options.
The opportunity is there for quality high LTV business; it’s been done for a generation and it’s badly needed by this new one to get on the ladder.
Realities and challenges of the later life lending market – Wilson
Adopting a remote-only framework allowed the industry to remain open while lenders and service providers overcame the various difficulties posed by historic systems dealing with a modern pandemic.
However, challenges remain for later life lenders as the UK continues to navigate its way out of the crisis.
Launching a remote valuation process last year we saw first-hand the work needed to adapt to the restrictions in place, while ensuring the advice journey continued to offer the same levels of care and guidance.
The crisis is incredibly fast-changing, meaning an agile approach is critical in ensuring we’re able to progress cases efficiently.
This means reallocating resources and implementing technology to make internal processes quicker and more accurate.
How long this approach will last very much depends on how the pandemic progresses but when we do return to normal, I hope we will take the lessons learnt and only return to former practices when they offer the best consumer outcomes.
With the crisis impacting everyone to some degree, we’ve also had to look more closely at our lending criteria.
For example, if a home hasn’t been sold or purchased in the last fifty years, it is harder to gain the digital details needed for an accurate remote valuation to ensure that the homeowner receives a fair deal.
Physical valuations are now possible and lending criteria has largely returned to pre-Covid norms across the market, but when remote valuations were the only option the need to keep advisers informed at every stage was key.
The switch to remote advice has naturally also created challenges for later life advisers.
We found a dramatic uplift in the numbers offering remote advice for the first time: around one in four had started offering advice via the phone for the first time and 43 per cent launched video advice where they previously did not offer the option.
Many lenders have also since introduced education and resource centres for later life advisers, to help empower them to discuss later life lending remotely.
The crisis also presents challenges relating to the wellbeing of customers.
With unemployment rising steadily and many people having experienced mental, physical and financial difficulty, vulnerability is a growing focus.
Equipping advisers with the tools and knowledge they need to successfully identify vulnerability is now firmly lodged at the top of later life lenders’ to do lists.
Our latest research uncovered that 81 per cent of later life advisers say they need more practical guidance on how to spot the signs and deal with vulnerable customers.
We therefore welcome the Financial Conduct Authority’s (FCA) next review into the issue, which is expected over the coming months and should be aimed at helping the industry overcome this challenge.
Although we have come a considerable way since the first national lockdown, the crisis continues to generate new challenges for equity release lenders.
Technological innovation helped us return to some form of normal but continued support for customers and advisers now presents its own challenge and remains a key focus for lenders.
That being said, the lessons learned from 2020 mean we are now in a much better position to adapt and overcome these difficulties.