While headlines have centred on precipitous house price drops of up to 20 per cent in London over the past two years, they haven’t been telling the whole story. Brokers are upping their game.
“We’ve got two different markets. There’s the prime market which has definitely slowed because of stamp duty mainly. Brexit has also affected foreign nationals coming in — although that’s starting to turn round the other way now, with Sterling so weak,” said one attendee.
“But the reasons why people buy houses are still there. That underlying demand is still there, and that’s been pent-up; loads of people have put their properties and lives on hold because of Brexit.”
“Brexit is affecting absolutely everything, especially in London. That was proved when they moved it to October, all the MPs went on holiday and the phones went ballistic. The moment they came back and started talking about European elections, everything died again.”
Return of first-timers
Brokers noted that first-time buyers were starting to return to the market this year, especially on the outer edges of the capital.
But the cost of renting is significantly impacting on the demographic of buyers and their future moving plans.
“People have rented for four or five years, so when they buy a property, it’s not in their psyche to say we’ll move in two years,” continued another adviser.
It was noted that first-time buyers are no longer in their early twenties and so this has affected their homeowning journey.
“The demographics have slipped a generation so these people are generally in their 30s. So it doesn’t necessarily pay to go to that one-bedroom flat. You go for the family home straight away.”
Protecting the inheritance
This took the discussion onto the growth in family support for first-time buyers and in particular using equity release to help fund deposits, which as a result has “gone bang” in London.
“Clients in their 70s that are mortgage free and are living in houses that they couldn’t ever imagine being worth £1m, are saying ‘I’ll take £100,000 or £200,000 out to give to the kids now, because I’ve got to get rid of them somehow’,” said one broker.
Another added that with the ability to make overpayments in many cases the children benefitting were making the interest payments.
“The kids don’t want to ruin their inheritance so they make the interest payments and then the debt will remain pretty much stable,” they added.
And it seems the boom in equity release is also feeding further business relationships for brokers, as the one transaction can then lead to three or four others from relatives or friends.
Execution-only goes wrong
The debate turned to the regulator’s proposals on increasing availability of execution-only for mortgage borrowers.
This has hit a nerve with much of the adviser community.
While some advice firms want to explore the potential for offering their own execution-only service, one said they “would not entertain it,” with the likely impact of professional indemnity insurance a key concern.
Another broker noted that the whole issue had come about as a result of lobbying by certain lenders and fintech companies. The regulator was “absolutely clueless” about how the industry works, they said.
Brokers’ big fear was that ordinary customers will lose out as a result.
“They have no idea what they’re doing. They don’t know who they’re protecting, they don’t even know what the problem is and they’re going to cause so many issues,” the broker said.
Another attendee agreed and recounted the experience of a client who had decided to complete their remortgage themselves instead of taking advice.
The client believed they had taken a tracker with no early repayment penalties, however they discovered this was not the case when after three months their circumstances changed significantly.
Instead, the client had actually agreed to a five-year fix with extensive repayment charges through an unadvised transaction direct with the lender.
“This was an educated person on their third mortgage who thought they were taking one thing and has ended up with another,” the broker added.
‘Never see those clients again’
This led on to the development of product transfers within the broker market and warnings that while it may seem like a viable strategy now, this was unlikely to continue.
“If you add into that technology, execution-only and that the Financial Conduct Authority (FCA) has basically given them permission to dual price, then look at the business in two-to-five years’ time,” another attendee continued.
“There are a lot of brokers out there who are now quite rightly recommending five-year fixes on product transfer, but because they think it’s easy. They’re not going to get those clients back.
“They’re never going to see those clients again.”
One broker noted that firms needed to begin their retention strategy the moment a client completes, including sending useful information and other regular contact throughout the mortgage term.
“We know if we have an offering that is compelling enough, we’re not going to lose that client,” they said.
Brokers must do better
Finally, the discussion moved on to lender service levels and how quickly underwriting and cases were completing.
The focus was on brokers doing a better job of packaging cases correctly.
“Lenders are putting more onus on us. They’re coming in and showing us adviser by adviser who is fully packaging within 24 hours,” the broker said.
“The issue we’re hearing from lenders is a lot of brokers are still keying it in even though they only have half the documentation, and then when the offer comes out a month later, they’re blaming the lender.
“What I’m seeing is a lot more lenders saying, ‘here’s our service level agreement, if you give us X you get your offer in Y’.”
This was echoed by another adviser who said they had analysed their consultants’ performance with similar results.
“We do application to offer times to lender and then we do it per consultant. It’s really interesting to see, the same consultants who are good, the same consultants who are bad, it’s all down to packaging.”
Ann Brown, Charles Cameron
Greg Cunnington, Alexander Hall Associates
Jane King, Ash Ridge
Phil Leivesley, Monica Bradley Associates
Gareth Lowman, SPF Private Clients
Andrew Montlake, Coreco
Kelvin Redwood, Redwood Financial Consultants
Martin Stewart, London Money Financial Services
John Stonestreet, London Money Financial Services
Stacy Wells, FundU