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The Accord Supper Club – ‘Non-advised product transfers may come back to haunt lenders at some point’

by: Mortgage Solutions
  • 04/04/2018
  • 0
It was a lively night at the Happenstance in the heart of the City of London, where Accord held its first Supper Club of the year.

 

Accord’s regional manager for the south Chris Hill welcomed the guests and highlighted the mutual’s significant investment in its intermediary mortgage platform at the end of last year alongside its 2017 results which saw 30% more lending.

Debate chair and Mortgage Solutions group editor Victoria Hartley asked the guests how they expected the London and home counties property markets to play out over 2018.

All agreed the flat purchase market is likely to remain that way, with a subdued outlook for higher-end property and activity driven by first-time buyers, remortgage and product transfers, like much of the UK.

However, one broker suggested let to buy is making a strong return in the London market, with big high street lenders such as Santander or Halifax changing loan to income ratios and lenders in general making policy changes to loosen affordability.

“If you can make the maths work, I’ve seen a big uplift in people who don’t want to sell right away,” the broker said.

“People have been making more sensible purchases as the ‘land grab’ London market fades, and for borrowers looking to upsize the market is facilitating that as people have a lot of equity and with increasing incomes people can afford to leave a bit of equity in the first property.”

The broker added that with the cash to make let to buy work there is no doubt waiting will pay off and get the 3% stamp duty back paid out on the second home. For equity and income rich borrowers, selling the let property back to yourself through a limited company with the right tax advice might also make sense.

 

Product transfers

UK Finance, the new trade body encompassing the Council of Mortgage Lenders, is expected to publish its product transfer data later this year, which it has been collecting for some time as part of its lending trends outreach to lenders.

It will be interesting to see concrete figures confirming the anecdotal changes reported by brokers at the coalface, with our guests welcoming product transfer fees with open arms.

One broker observed though that a product transfer is still not an easy sell against a five-minute paperless online direct to lender alternative. Others felt vehemently that the disparity between the full proc fees on a remortgage and the smaller fee on a product transfer remains a problem with one adding the danger that some brokers might take “the easy option with of a two-page application process” is something else “to be wary of.”

Another guest said non-advised product transfers are dangerous, risky for consumers and could present a future mis-selling risk for the lender.

“Far too many times, I have had to advise clients who have already done something that made no sense, so had to invoke early repayment charges (ERCs) despite knowing they would have to move within a year or were on maternity leave or need to allow for childcare costs.

“People are having to pay £5,000 to get £15,000 and that may come back to haunt lenders at some point,” the broker warned.

Advisers take a legal and ethical responsibility for their client by sending a Key Facts Illustration and a product confirmation letter. There will be a time when consumers will feel they were not adequately advised of the risks of a product transfer.

 

Appetite for longer-term fixes

Consumers are increasingly interested in longer-term fixes, even from a very low base. One of our more senior guests suggested lenders ought to consider looking at higher income multiples and lower stress rates for 10-year or longer fixed-rate mortgage borrowers.

Another guest said: “The cynic would say long-term fixes deprive the broker of a remortgage opportunity and historically the popularity of two-year fixes only served to reinforce this. There are occasions, however, that borrowers are put off long term fixed rates with heavy early repayment charges being the main reason. So the industry needs more innovation in and around fixed rates.”

ERC free windows and upfront fees in exchange for ERC-free long term fixed-rate would be popular features when designing the products, suggested the broker, highlighting TSB’s ten-year fix, which only has ERCs for five years in exchange for a slightly higher rate.

Another broker said the recommendation will always depend on circumstances but made the case that two, two-year fixes might be cheaper than a five year, unless you’re chasing affordability in the buy-to-let market.

“With more lenders offering retention products, this is less of an issue. But some borrowers just don’t want faff and want to be able to budget. This is where the soft fact-find is critical, for example, asking someone in a studio flat, do you see yourself here in five years’ time?” said the broker.

 

First-time buyers

The last couple of months has seen plenty of mortgage rate cutting at 85% to 95% loan-to-values (LTV) as lenders target the first-time buyer market. Chair Victoria Hartley asked the brokers where they placed their high LTV business and why?

All seemed to agree that big hitters Santander, Halifax, Barclays and Nationwide and a lot of the building societies have been offering decent rates for some time and got the lions’ share of their business. Another broker said Accord’s flexibility was helpful but property type dictated the lender to a great extent, with ex-council houses going to Halifax or NatWest, or loans over £750,000 going to Clydesdale or Kent Reliance.

Another broker, with access to HSBC, said the lender was topping the table in the two-, three- and five-year tiers and that it was in the mix for first-time buyer loans, with Bank of Ireland and the Post Office at two years and TSB and Atom Bank at the five-year tier (at time of writing).

Another broker suggested lenders overall could do better on lending at a high LTV for flats, with the notable exceptions of a ‘biggy’ like NatWest and mutual Leek Building Society.

 

Outlook for buy to let

As rental yields have plummeted in London and the South East it has turned into much more of a numbers game for buy-to-let, observed one broker.

Another said the increasing specialisation of buy-to-let meant many were simply outsourcing the business as the drain on time was significant, especially if brokers were not well-versed in the rental calculations at different fixed-term lengths.

Some of the expert tips offered around the table included knowledge of the lenders with the best product transfer service and also the ones which completed affordability stress test calculations using the product pay rate and not a nominal rate.

One broker added: “Identify which lenders will look at an entire portfolio. Maybe get a relationship with a specialist property tax accountant to support clients who have no-one to help as they have always done their own accounts and returns.”

The same broker said a second charge further advance can be really helpful if first charge lenders cannot help.

Finally, another guest said the opportunities are huge for the brokers that know their market.

“Landlords struggling to meet lending criteria need to either downscale their expectations and buy at a cheaper level, unless they are buying for capital appreciation only – or look for rental yield elsewhere in University cities like Leicester or Hull,” the broker said.

 

A huge thank you to our sponsors Accord and all the guests on the night. (see below)

 

Our attendees:

Max Adams, Max Adams London

Walter Avrili, John Charcol

Oliver Barker, Trinity Financial

Shaun Church, Private Finance

Lee Francis, Francis Stone

Dave Jones, Francis Stone

Nick Morrey, John Charcol

Vanessa Nicholson, Alexander Hall Associates

Natasha Saunders, Mortgage Quest

Kala Sreedharan, Habito

Neil Stephens, The Penny Group

Aaron Strutt, Trinity Financial

 

Accord Mortgages – sponsors

Christopher Hill, Accord Mortgages
Iain Cunningham, Accord Mortgages
Kelly Stowell, Accord Mortgages

 

Mortgage Solutions – hosts

Lisa Jayne Frankel, Mortgage Solutions
Victoria Hartley, Mortgage Solutions – chairperson
Oonagh Sheehan, Mortgage Solutions

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