A bleak outlook for first-time buyers: Can technology help? – Pender

A bleak outlook for first-time buyers: Can technology help? – Pender

First-time buyers are facing the toughest conditions seen in 70 years. Those without family help, people on single or on lower incomes, are being excluded from homeownership.   

The findings of the report, Age old problems, modern solutions: a roadmap for change, make for a shocking read. In March this year, 32% of people said that they wanted to buy their own home but thought they wouldn’t be able to. The report says that, unless first-time buyers have help from their parents, or two incomes that are higher than the average, it is more and more difficult to buy your own home.  

It comes as no surprise that the biggest challenge facing first-time buyers is affordability. The BSA Property Tracker Report shows that the recent interest rate rises have led to affordability of mortgage repayments being cited as the biggest challenge for would-be first-time buyers.

The BSA is calling on the government to conduct an independent review to set out a long-term strategy that will increase the number of first-time buyers with a commitment that the findings will be published and implemented within 12 months.  

It is also calling for regulatory changes, including increasing the availability of 95% loan to value (LTV) mortgages, and more flexibility on the cap on high loan to income (LTI) lending.  

 

Doing more to assist first-time buyers 

For those with lower incomes, less wealth and from groups with lower rates of homeownership, the BSA has recommended that lenders should be allowed to offer more diverse products to increase the diversity of people becoming first-time buyers.  

The BSA is right when it says that building societies are limited by current regulations in how much they can lend to first-time buyers.   

We very much endorse the BSA’s recommendations, some of which, in essence, demand greater flexibility.  

Currently, the sluggishness of the homebuying process adds to the woes of the would-be first-time buyer. Clearly, new technology, and its adoption by lenders, can’t fix the housing crisis on its own. But it can make lending more flexible by speeding up processes.  

This includes the integration of artificial intelligence (AI) in mortgage processes which enables quicker and more informed decision-making. Machine learning algorithms analyse vast amounts of data to assess creditworthiness, identify risks, and determine optimal loan terms.  

This results in faster approvals, reducing the time borrowers must wait for their mortgage applications to be processed. 

 

The advantages of technology in the mortgage space 

Robotics play a pivotal role in enhancing customer interactions through chatbots, virtual assistants, and automated communication systems. Borrowers can receive real-time updates on their applications, access personalised information, and receive prompt responses to queries. This results in less friction.  

First-time buyers are often looking for similar user experiences to those they access in the retail sector. They want speed and convenience, multiple channels, and products, suited to their needs and desires, available 24/7/365. Mortgage tech needs to be as easy to use as an iPhone, TikTok or Instagram.

It must place the user at the heart of the experience, with technology designed around them. 

Modern mortgage tech offers a better user experience if it is modular and integrated. Individual parts of a system can stand alone and be developed as required. Integration with other systems such as panel managers and CRM systems, product and criteria sourcing systems, and platforms, removes repetition, increases accuracy and saves time.

The BSA report makes clear that reform of regulation and the housing market cannot come quickly enough for first-time buyers.  

Unless there is significant change, the outlook for this group will be very bleak indeed. No one can put down roots and plan for a future and a family without a secure roof over their heads.   

Societal wellbeing depends on everyone having a home. Cutting-edge technology can help by driving flexibility and make the homebuying process easier for all.  

The perceived value of mortgage advice is selling brokers short – JLM

The perceived value of mortgage advice is selling brokers short – JLM

What might be the reason for this? How does it fit in with the traditional focus of advisory firms? After all, there has been an ongoing debate about drops in income based on greater levels of product transfer (PT) business, fewer purchases, and the lower income per case that might emanate from such market conditions. 

Does the rise in PT business over the course of last year especially, have a lot to do with this? Perhaps.

Advisers – certainly those dealing with repeat clients – are much less likely to charge a fee for advice to those returning customers. Plus, of course, it is much harder to introduce a fee-charging structure after you have spent many years not having one, and instead relying on the procuration fee as payment. 

Of course, each advice firm is different, and they will have to make their own minds up about whether it is wise to charge a fee for advice, its level, and of course, how they might justify this to the regulator. 

The regulator is, of course, central to this whole debate, and much of this lack of fee-charging perhaps can be traced back to the value, or otherwise, placed upon mortgage advice in general. 

 

Conflicting attitudes towards mortgage advice 

It appears to us an interesting disconnect here.  

For example, the numbers clearly tell us that consumers want advice, they feel confident in taking advice, they like the protections it affords them, and even if they are mortgage-savvy, they still want to hear from professional advisers to give them peace of mind in terms of the recommendation and the choice made. 

With 85-90% of all mortgage sales being intermediated, you would think this would be a message that the regulator would be happy to push. Signposting more and more borrowers to advice because they want it, it produces excellent outcomes and it provides them with firms who are responsible for this advice, that they can pursue if the outcomes are not what they should be. 

And yet, it appears the regulator has chosen to go a different route, spending a considerable amount of time and effort, signposting consumers to non-advised routes.  

It is incredibly supportive of consumers having the choice of going direct and being very clear about the non-advised distribution channels available to consumers, even when most of them don’t want to do this and are not entirely sure of the protections they lose by going down this route. 

 

Mortgage brokers covering all bases

But, then we have Consumer Duty, which appears to, on the other hand, be a recognition of the importance of advice, so much so, that it actively wants advisers not just to cover off the mortgage advice they are authorised to give, but to also signpost clients to all manner of products and services, which they are not.  

Or options they have historically not been that interested, or confident, in covering. 

Hence, we have a huge focus on mortgage advisers talking to clients about protection and general insurance. Not that there’s anything wrong with this, but let’s hark back to the Financial Conduct Authority’s previous focus – on ensuring non-advised routes are readily available and signposted. 

Consumer Duty appears to ask advisers to cover off a range of other potential client needs, such as wealth, legal, wills, etc. At the very least, discussing this with them and introducing them to other specialists, or referring them on.  

Why might this be the case? Well, we can surmise that the regulator is concerned that a consumer might only ever see one adviser in their life, and the numbers tell us that it is much more likely to be a mortgage adviser.  

That being the case, it wants to try to ensure the adviser that is seen is somehow able to cover off as many other areas, because the likelihood is that consumer won’t be seeing any IFA or wealth manager or other specialist. 

Now, logically that might be the right approach.  

It might drive greater incomes to the mortgage advice channel as they are able to cover other areas, and even if they’re not able to provide the advice themselves, they can refer and receive referral or introducer fees. 

But, for this to work, the regulator can’t really pursue a line of thinking which, on the other hand, doesn’t appear to value advice.

That effectively puts non-advised routes on the same level as advised; that suggests it’s okay for consumers to go down those non-advised routes, even if we know this is a riskier approach.  

Plus, they lose all the protections of the Financial Ombudsman Service (FOS) or the Financial Services Compensation Scheme (FSCS) by doing so.  

There appears to be satisfaction with a non-advised, tick-box approach to securing a mortgage when we know it has a higher chance of not being the most suitable option for the client. 

In other words, the FCA should re-engineer its approach to advice in light of the Consumer Duty. Advice should be deemed the go-to option and all the risks of non-advised should be clearly addressed.  

If the regulator wants advisers to cover off as many clients’ needs as possible, it needs to start by outwardly valuing advice and making sure consumers know exactly what they are missing out on if they go non-advised. 

Enjoy your working life and embrace your inner Diego – Flavin

Enjoy your working life and embrace your inner Diego – Flavin

I recently travelled back from Milan on a Ryanair flight, which initially followed the standard flow of events, a bulk of which being me moaning about how large the carry-on luggage currently being forced into the space above my head has become, followed by installing the headphones, sparking up a downloaded film and ignoring everyone and everything around me. 

Just after the door shuts, my wife starts nudging me. “Listen to this guy, he’s great,” she says, pointing towards Diego, our lead cabin steward. 

“You guys are incredible, boarding and getting seated so quickly. I wanted to say thank you in a special way, so I’ve had a word with the captain, who agrees with me. As a thank you, he’s agreed to get us to Stanstead at least 15 minutes ahead of schedule”. 

This engagement continued throughout the journey, from offering me a special non-slip mat for my coffee, which was actually a napkin he placed under the cup, to asking everyone who passed him if they were enjoying the flight and whether he could do anything to make it better. 

His infectious enthusiasm reflected on the rest of the cabin crew who seemed to be feeding off his energy. 

 

Spreading good vibes through customer service 

The reason I know Diego’s name is that my wife asked him for it, telling him he was an asset to Ryanair and that she was going to write to Ryanair Customer Care to relay her feelings. 

Being obsessed with customer service, Diego’s attitude fascinated me.

Many employees turn up for work with the attitude that the coming hours are a challenge to be endured under duress, rather than an opportunity to enjoy that time and pass some of that enjoyment on to others.

Every now and then, you come across a Diego, and your day is left better for it. 

Most of us have to work to fund the lifestyle we desire – it’s not an option. The option we do have is the attitude we take to work. As Henry Ford famously said: “If you think you can or you think you can’t, you’re right.” 

 

A positive mindset at work

Turning up with the attitude of “it’s another day of drudgery” will set your brain’s reticular activating system (RAS) to focus on all the negative things that happen during your working day, thus justifying how miserable you are at work.

Is this Diego’s public attitude and he’s just got really good at blagging it, or does he truly arrive at work with a positive attitude? 

My guess is Diego’s brain is set to: “Brilliant, I’m being given another opportunity to add enjoyment to the lives of my passengers”. 

Diego’s RAS is now set to picking up on all the positive interactions during the trip. His brain will even focus on the positives in a negative interaction, meaning he’s getting to the end of each day filled with positive experiences. 

 

Shifting your attitude 

So, how can we install a positive attitude in ourselves and our employees? How would our working day improve if all our interactions were focused on a great outcome? What would our clients’ purchasing experience be like if any involvement they have with our company had a little ‘polish’ added to every engagement? 

Apologies that you’ve got to the end of this article looking for the golden answer, because it’s not here. If I did have the answer, this article would have been written from my own private Caribbean island. All I can offer as advice is to embrace your inner Diego and spread the love.

If you are the company owner, then this positive, enthusiastic attitude needs to start with you.

I know owning and operating a business is no bed of roses, but you chose it. Don’t let negative situations reflect off you to dull the lives of your staff. Stay positive no matter what and brighten the lives of your employees, who’ll follow your “no matter what, we can beat this, and we can do it with style” attitude. 

Even if you are not the company owner, you can still be the leader of this positive revolution. Remember, a leader is not a job title you’re given, but a position earned through the way you act and interact with those around you. 

You have to work, there is no choice. To enjoy your work is 100% in your control.

Become the leader of the positive revolution in your company. Time will pass quicker, great people will gravitate towards you and, as a result, your company’s growth will be exponential. 

Come on, enjoy your working life by embracing your inner Diego. 

Understanding dementia and its impact on families – Askham

Understanding dementia and its impact on families – Askham

There have even been high-profile movies made in recent years with dementia as the key theme – Anthony Hopkins in The Father and Julianne Moore in Still Alice both heartbreakingly portray the impact this distressing syndrome can have on individuals and their families. But what exactly is it? 

Dementia is the umbrella term for a number of diseases that affect memory, thinking and, subsequently, the ability to carry out daily activities. Symptoms tend to manifest in people aged 65 and over, although more than 40,000 people under 65 are thought to have dementia in the UK. The most common of the range of diseases is Alzheimer’s, which affects around 70% of people with dementia.

While there is a lot of research going on in this area, seeking early testing methods and medical treatments, at the moment there is no ‘cure’ for dementia – those affected and their families must live with the effects as best they can. 

Around 944,000 people in the UK are believed to have dementia, and, short of a miracle cure, that figure is set to rise to over one million by 2030 – and to keep rising as our population ages. Caring responsibilities for those living with dementia tend to fall on partners, often elderly themselves, and/or working-age offspring.

Helping to care for a parent or relative with dementia while holding down a demanding job can be a real challenge in terms of time, energy, emotional load, stress and plain old logistics. Having a supportive employer is incredibly helpful, as I have experienced. 

 

My family’s experience with dementia 

My mum is 85 and has been suffering from dementia for around six years. The condition manifests in many ways.

Her short-term memory is very poor. She calls me many times every day and we have the same conversation, because she forgets she has already called. She doesn’t sleep much and can’t be persuaded to eat much, takes no interest in anything – so sad as she was a keen gardener – and won’t leave the house unless strictly necessary for a medical appointment.

She is aware that she is not well, but puts on a brave face – whenever I ask how she is, Mum says the same thing: “I’m okay, but I just can’t shake this off”. She does not realise that she is never going to shake this off. 

Fortunately, my mum lives in her own home and is looked after by both my dad and my brother, who lives with them and has taken a year out of work to care for Mum. Unfortunately, but inevitably, the situation is impacting my dad’s health – he’s 87 – and my brother’s income and, potentially, future job prospects. I visit all the time and help as much as I can, but can’t help feeling both horribly guilty that I’m not there all the time and sometimes jealous that my brother gets those special moments like tucking Mum up in bed at night.

The situation is practically challenging and emotionally difficult for the whole family.

There are positives – we do still manage to laugh with Mum, and I now have a puppy, Brody, whose presence she really enjoys. 

My employer, Buckinghamshire Building Society, has been very understanding about my situation, and my colleagues and management have been super supportive. My role allows me to work from home, or even from Mum and Dad’s house when necessary, and work has been very flexible when it comes to me taking time out to accompany Mum to appointments. Having compassionate co-workers who are willing to listen when I need to talk about the situation is incredibly helpful and I really appreciate their support. 

 

How employers can help 

As an employer, you may not even be aware that some of your staff are caring for family members with dementia, so opening up a conversation can be a good starting point. In fact, one in 10 people in the UK is a carer of some kind. It can be very helpful if employers set up a face-to-face or virtual carers’ forum or support group, and give colleagues time to attend for mutual support and information sharing.

This kind of support can relieve some of the stress felt by carers, and from a practical viewpoint, it can boost productivity and improve employees’ commitment to their organisation. 

When it comes to dementia, demographics dictate that the number of people and their families affected will only grow. Our working communities need to recognise this trend, understand the issues and help one another through the challenges of caring for loved ones impacted by this distressing condition. 

 

For more information and ideas, visit: 

What is dementia? – Dementia UK 

Help & Info – Employers Support for Carers | Carers Trust 

Added-value services: bridging the awareness gap – Bryan

Added-value services: bridging the awareness gap – Bryan

Today, policyholders can access a wide range of holistic services, from private GP helplines and physiotherapy to mental health support, helping them to manage their health and wellbeing and, with some policies, their families’ too. 

The Exeter’s added-value service offering, HealthWise, is a testament to the growing popularity of these benefits. Last year, we saw the largest annual increase in service usage among our members since the start of the pandemic. 

However, recent research from The Exeter suggests that a significant chunk of policyholders – 48% – remain either unaware of these services or are simply not using them, as said by 26% of people. As primary care services in the UK face significant challenges, including record waiting lists, we believe there is an important role added-value services can play to help alleviate pressures on the healthcare system. 

So, what steps can we take to better raise awareness of added-value services and encourage more policyholders to use these support systems? 

 

Building better awareness 

Policyholders will only start to recognise the value these additional benefits bring when they understand exactly what is available to them. For insurers and advisers alike, every interaction is an opportunity to discuss this.

Today’s health and protection insurance policies come with a whole host of different benefits, which can make it complex for advisers to navigate. One way they can enhance their advice conversations and help their clients understand what is available is by using product feature comparisons to demonstrate exactly what is covered by each service and the quality of support offered.

Education in the form of webinars and videos, such as those provided through The Exeter’s partnership with Square Health, can also help to build an understanding among advisers, so they can better explain the options available to their clients. 

Data has a role to play, too.

Usage statistics and case studies can be particularly helpful in showing the ‘real-world’ impact of added-value services, for example, but there is an onus on both providers and advisers to collaborate further. Providers must ensure they are making any tangible insights and data available to advisers, and where existing assets are not working, we must work together to identify what more we need to do to help build customer understanding. 

Raising awareness does not stop when a customer takes out a policy, either. Annual statements of benefits from insurers, and annual reviews from advisers, are key opportunities to again highlight the services on offer. 

 

Proactively using services 

Bridging the gap between awareness of added-value services and increasing usage is a broader challenge, but recent statistics from The Exeter’s app, HealthWise, provide cause for optimism. Our findings show a 131% increase in usage of our added-value services in 2023, indicating a rising demand for readily accessible health solutions with insurance customers. 

Clear and tailored communications from providers are needed to continue to show how services can benefit policyholders and, where applicable, their wider families. However, delving deeper into data and statistics can also help to further increase usage by customers. 

For example, The Exeter’s research also suggests that younger consumers – those aged 18-24 – have more awareness of added-value services and are most likely to use the benefits. Almost two-thirds – 64% – of policyholders in this age group are aware of added-value services, while 36% have used such benefits. This, however, declines as clients get older, with awareness falling for consumers after age 45 and just 21% of those aged 65 and over knowing about these services. 

The insights this data provides can be used to tailor advice conversations, such as offering clients aged over 45 a gentle reminder of the available benefits, especially as their health priorities change. For instance, HealthWise statistics show that services like remote GP appointments and physiotherapy treatment are commonly used by the 41-50-year-old group, offering a key touchpoint for advisers when looking to discuss added-value services. 

Added-value services are growing in popularity, with many policyholders today helping them to proactively manage health issues. But there is still a sizeable gap in those who know about or use these benefits.

By collaborating, communicating, and better leveraging the vast amount of data we have in the industry, we can help narrow this gap and demonstrate the powerful role added-value services can play even before the point of claim.

Rent reforms on the horizon: comparing home and abroad – Stanton

Rent reforms on the horizon: comparing home and abroad – Stanton

Despite the common assumption that more people rent in Europe than the UK, the opposite is now true. In the UK, in 2022, 35.7% of the population rented, according to Statista Research Department. In the EU, in the same year, according to the EU, 31% lived in rented housing.

In all member states, except Germany, owning has become more common.

Rental controls may have something to do with this turnaround. There is some evidence that the tougher controls have had a negative impact on rental housing supply in some European countries, both for new construction and existing rented housing.

The British Property Federation’s report The Impact of Rent Control on the Private Rented Sector points out that many European countries have abolished rent controls on new-build housing in an attempt to reverse this trend.

 

France 

France is trialling a new rent control system. This is for urban areas with a population of over 50,000 where there is a marked imbalance between housing supply and demand, and certain conditions have to be met, including a big gap between the average rent in the private sector and the average rent in the social sector.

Unsurprisingly, rent control areas include Paris and other big cities such as Bordeaux and Lille. 

Tenancies are always fixed term.

If the landlord is an individual, the duration is three years. But if the landlord is a company, the contract’s length is six years. For furnished student accommodation, the length is either one year or nine months.

No one can be evicted during the winter months. Landlords can make a tenant move out if they need the home for themselves or for a relative, if they are selling the home or if the tenant has not paid the rent and committed certain other faults.

But groups such as over-65-year-olds on low incomes are protected. 

 

Germany 

Rent overcharging is banned in Germany, and landlords commit an offence if they charge over the standard local rent by 20% or more. 

In areas with a tight housing market, landlords are restricted from re-letting properties at more than 10% above the local comparable rent. Each federal state independently determines what qualifies as a tight housing market. 

Rents can be increased either by agreement, or by law. Through an individual agreement between the parties to the tenancy agreement, rent can be increased during the current tenancy.

By law, it can be increased up to the standard local comparative rent, following modernisation, due to changes in operating costs. 

Letting for a fixed term is only permitted if there is a reason within the law. 

 

Spain 

In Spain, if the landlord makes improvements to the property, they can increase the rent. However, the rent must meet certain standards and can’t be more than 20% higher than the current rent. 

Tenants can sign a contract verbally or in writing. There are two types of rental agreements: short term or long term.

A short-term rental agreement is for a period of up to a year and is not extendable. A rental contract is long term when the rental period is at least a year and can be extended. 

After the first year of the tenancy agreement, the landlord can claim the accommodation for themselves or family but must give the tenant two months’ notice. This must be in the tenancy agreement. 

For a long-term tenancy, if a landlord doesn’t terminate a tenancy four months before the end of the five years, the tenancy is automatically extended annually for a maximum of three more years.

 

Denmark 

In Denmark, the value of rented properties built before 1991 is determined on a comparable price to similar properties in the area. The rent for the comparable property must be cost-related (relatively low rent vs market rent).

If a tenant complains about the rent, this can be considered by a housing tribunal.

If the property was built after December 1991, the landlord can determine the level of rent, but it must not be unreasonable. 

The landlord can only force a tenant to move out if they’ve done something wrong or if the property needs major work. If the landlord chooses to evict, they need to provide the tenant with three months’ notice. If the landlord wants the property for themselves, they need to provide a year’s notice. 

The landlord always has 12 months’ notice of tenancy. Properties can only be rented out on a fixed-term basis if there is a plausible reason such as wishing to sell the home. Without a plausible reason, landlords have to rent out on an indefinite basis.

Ahead of the Renters Reform Bill passing into law, landlords can look to Europe to see how rental restrictions work in practice. 

It is time to loosen lending policies and truly help buyers – Bamford

It is time to loosen lending policies and truly help buyers – Bamford

However, you might well argue that for certain borrower demographics – perhaps first-time buyers – this feels a little like tinkering around the edges, although who wouldn’t want to see more affordable housing built, particularly in the house price, wage and rental environment we currently have?

Clearly, there remain some – often insurmountable – hurdles for would-be first-time buyers, not least in terms of their ability to get on the ladder, especially if they don’t have the support of parents or grandparents, or if they want to own a home in fewer than five years. 

 

Rethinking restrictive lending policies 

In that context, it was very interesting to read the Building Societies Association’s (BSA’s) recent report on first-time buyers, which specifically included the suggestion that the mutual sector is being hampered by regulation, designed quite rightly in the aftermath of the financial crisis, but perhaps now not fit for purpose. 

The BSA suggests the 15% cap on lending above four-and-a-half times income needs reviewing, as it “limited the use of higher-loan-to-value (LTV) mortgages in more expensive housing markets”. 

It wants the Financial Policy Committee (FPC) to look at this policy, with regards to first-time buyers, suggesting the cap may be “less relevant today given higher mortgage rates”. The BSA appears to want the limit adjusted for first-time buyers, and it also highlights that, while the number of first-time buyer mortgages has improved, those using higher LTVs had not really recovered to pre-financial crisis numbers. 

There were other suggestions firmly aimed at first-timers, not least increasing the number of affordable homes, and aiding lenders so they could offer more products to a more diverse range of potential borrowers. It wants to see an independent review and a long-term strategy developed in order to increase the number of first-timers. 

Crucially, this strategy would work best in a non-partisan context. We all would surely agree that this must work over decades, rather than one Parliament, if we are to get the housing supply and finance products we need, as well as ensure that those who can’t rely on a parent still have the same opportunity to purchase.

 

Innovation from building societies 

What makes this perhaps more pertinent is the building society sector has not exactly shied away from at least attempting to support more first-time buyers into their first homes.

Indeed, you might strongly argue that mutuals have done more than most in order to try and square the first-time buyer circle. For example, taking rental payments into account, not requiring a deposit, offering higher-LTV mortgages, using private mortgage insurance in order to mitigate the risk, being willing to offer guarantor mortgages, offering joint borrower sole proprietor (JBSP) products, and the like. 

However, via the BSA, these lenders clearly think they could do more if the regulations were reviewed and if some of the obstacles they believe are present were removed. 

It’s hard not to agree with such a stance.

After all, we are now almost 15 years on from the financial crisis, and while such regulations were obviously needed in the wake of that period, we are perhaps now in danger of holding onto a system that is too strict, particularly in the context of buying a first home, which is now as difficult and as expensive as it perhaps has ever been.

15 years of house price gains, bolstered by an inability to hit new building targets, mean that while the demand to buy is still there, being in a position to do so is another thing entirely, hindered specifically in terms of meeting deposit requirements, meeting affordability criteria in a higher rate environment, finding a home in the first place, and periods where high-LTV mortgages dropped in number. 

Anything that could therefore be done to provide mutuals, and other lenders, with the opportunity to work their mortgage book a little more in favour of first-timers should be welcomed, especially when they can marry this perceived greater risk with a mitigant such as mortgage insurance. 

Overall, after a long period of time when the strictness of these rules was warranted, we are now likely to be in a position where they could, at the least, be loosened for certain borrower types. First-time buyers would be the obvious one to begin with, and by doing so, we should hopefully be able to support more people into their first home.

Addressing the UK housing crisis with long-term mortgage solutions – Reader

Addressing the UK housing crisis with long-term mortgage solutions – Reader

While these products effectively serve large segments of the market, they also leave certain groups underserved. Notably, first-time buyers facing challenges due to rising house prices and a lack of suitable retirement-focused mortgage options.

Rather than advocating for a complete overhaul of the UK system, the focus should be on integrating new methods to address these gaps. 

 

Funding restrictions on lending

At the heart of this issue lies the funding model. The largest mortgage lenders in the UK primarily fund their lending through current accounts and short-term fixed rate deposits.

However, this reliance on short-term funding sources can lead to liquidity stresses, as we have seen. Potential deposit withdrawals necessitate costly swaps, limiting covered bond funding volumes and ultimately hindering product innovation.

For decades, short-term fixed rate mortgages have been the norm in the UK, with the two-year fixed rate being the most common option. Borrowers often start with a “teaser” rate before transitioning to a higher contractual reversion rate. Approximately two million fixed rate mortgages are due to mature before the end of 2024. 

The continuous upward pressure on house prices, which now exceed 10 times the average income, has made homeownership increasingly challenging. First-time buyers typically require high loan-to-value (LTV) and loan-to-income ratios, but affordability stress tests introduced in 2014 have compounded this issue. Millions of potential first-time buyers find themselves unable to afford a home. Existing lenders often stress affordability at rates as high as the standard variable rate (SVR) plus 3%, severely limiting borrowing capacity.

Consequently, the dream of homeownership remains elusive for a growing segment of the population. 

Adding to the complexity is the impending maturity of interest-only mortgages. Approximately 40,000 such products are due to mature each year until 2032. For homeowners older than 65, this poses a precarious situation; with no follow-on products available, selling their homes may become the only viable option. This scenario underscores the gaps in the current mortgage ecosystem and highlights the urgent need for innovative, long-term mortgage solutions. 

 

The stability of the long-term mortgage

To break this impasse, the UK banking system must integrate new methods.

Other European countries, including Spain and Belgium, have successfully developed efficient long-term fixed rate mortgage markets. These markets are typically funded by institutional capital from pension funds and insurance companies. Long-term fixed rate mortgages provide stability and predictability for borrowers while reducing risks associated with short-term rate fluctuations. By diversifying funding structures and embracing innovative distribution networks, lenders can expand their offerings to better serve the needs of aspiring homeowners and address the challenges posed by the housing crisis. 

Brokers play a crucial role in this transformation. They must recognise that long-term mortgages aren’t merely a last resort for first-time buyers or older borrowers. Instead, they represent a viable alternative that offers a different solution for customers. In this context, the lowest interest rate shouldn’t be the sole differentiating factor. Brokers should consider innovative solutions that benefit customers beyond just rates.

Adjusting commission incentives to support long-term products is essential for sustainable change. 

The journey towards resolving the UK’s housing crisis necessitates new and innovative products to address the gaps. Current issues will only continue to exacerbate, unless banks can pivot their funding models and offer flexible mortgage solutions that meet the requirements of the public. 

Later life mortgages could provide an income buffer for advisers – Wilson

Later life mortgages could provide an income buffer for advisers – Wilson

It’s an oft-used statistic around our industry to reflect the strength of the intermediary sector and is clearly positive, but I can’t help thinking that – even if this is a prediction that comes true – it doesn’t consider the real issues for advisers of income levels, profitability and their ability to continue servicing clients. Indeed, their ability to keep advising.

 

A fragmented picture

I read a recent story in this very publication from Primis that suggested two-thirds of appointed representatives (ARs) polled believed there would be fewer mortgage advisers in the sector by 2025.

When asked why, it seems there was – unsurprisingly – a geographical split, with customers more exposed to higher rates and therefore affordability constraints in certain regions impacting product choices and therefore income that can be earned from these clients, while other advisers deal in a market where purchase and remortgage values are rising, and as a result are earning greater levels of income.

Advisers will be deeply cognisant of the impact falling income will have on profitability and might, one presumes, call it a day if this became an even more acute problem.

There is a lot to unpick there, and much like average UK house prices, I’m tempted not to take much out of this in overly general terms because the ‘average’ advisory firm tends not to exist. All will be impacted by various factors that differ depending on the area they work in, the types of clients they see, the sectors they might specialise in, the networks/clubs they are members of, and so forth.

 

A temperamental residential market

However, certainly the notion of maintaining income – particularly for those who only deal with residential mortgages – is clearly an issue for all firms, specifically in a market environment where we have seen considerable increases in product transfer (PT) business, while purchase and remortgage activity has been considerably dampened, to say the least.

Last year’s lending figures for 2023 show the stark reality of this: lending for house purchases is down 23% year-on-year and external remortgaging is down 21%, while internal PT lending was up 11%, not forgetting a 53% drop in new buy-to-let (BTL) purchase lending.

And, of course, with the vast majority of lenders paying a vastly inferior procuration fee for PT business, that is going to have an impact, and will continue to do so if PT lending continues (as predicted) to stay around such high levels.

How can mortgage advisers weather the storm?

So, the question is, what do advisers do to confront this threat – if not existential, then it certainly is one that is going to make life more difficult for them?

 

Branching out

The answer could, at least partly, lie in a broadening of the advice proposition, which – given the shifting demographics of our market – would seem to make perfect sense and herald the opportunity at least for greater income to be generated.

What are these demographics? Well, how about an increase in the average age of the first-time buyer? How about people working longer? How about a move in the state retirement age? How about people more comfortable with mortgage debt and much more likely to be taking this into, and past, traditional retirement age? How about the greater use of, and need for, the Bank of Mum and Dad?

I could go on.

Added to this is, of course, Consumer Duty and its requirements to look much more holistically at consumer outcomes for clients, regardless of which sector you predominantly work in.

In fact, while some might tell me directly, “I don’t do later life advice”, unless you have a client demographic where every single one is under the age of 50, then you most definitely do – at the very least – swim in later life lending waters, and you should definitely know what is out there.

In my view, any adviser working with the over-50s is a later life adviser, simply because there are now options available to this age group that might be more suitable to them. Rather than simply suggesting they PT again, they may have other wants and needs that could be serviced by, for example, a retirement interest-only (RIO) mortgage, or a lifetime mortgage, or a product that is an interest-only product that allows them to pay the interest now and move into a lifetime mortgage in the future.

These are active alternatives, and their number will continue to rise, and therefore only by taking these options seriously will advisers be not just able to provide over-50 clients with the right solution, but also take advantage of the greater income-generating opportunities that exist here.

You might not know it now, but skilfully shifting your business into an area where you can deliver what these clients actually now have access to might be the game-changer it requires to build greater income, and from this, increased profitability that ultimately means you don’t just survive, but thrive.

Switching networks isn’t difficult, yet many make it so – Rees

Switching networks isn’t difficult, yet many make it so – Rees

Months of research and effort go into choosing a network, and the prospect of making the wrong move will weigh heavily on the minds of many brokers.

The reasons for switching will also vary widely and ultimately depend on the individual aims and objectives of each broker. For some, the desire for change will be due to the need for greater support with regulatory compliance and professional development, such as training and marketing opportunities.

For others, it will be the chance to help the growing number of clients seeking some form of specialist finance by tapping into new areas of the mortgage market, such as second charge mortgages, bridging finance loans or commercial mortgages.

Yet despite these clear objectives, many brokers making the switch to Beneficial say moving networks can be costly and cumbersome, with the pipeline freeze period of at least 3-6 months imposed by many networks causing cash flow problems, therefore making it difficult to leave.

 

Challenges with switching networks

Confusion over network costs is also cited as a key reason why both directly authorised (DA) and appointed representatives (ARs) hesitate to make the switch.

In many cases, these financial arrangements can be quite complicated, with the network charging a fee based on a percentage of the broker’s income, with additional fees also charged for other services like support or technology systems.

Given the challenges of the last few years, certainty over outgoings and earning potential is likely to be extremely important for brokers, particularly in the current and uncertain economic environment, and transparency around fees is an important part of that.

At Beneficial, we believe our clear-cut flat fee structure makes switching networks easier for brokers, as the transparency around the cost of joining the network helps us foster an environment conducive to growth.

 

A costly decision

Aside from the freeze on pipeline business, one of the most significant barriers to switching networks is cost. This can be extremely off-putting in cases where the fees escalate substantially as the broker expands their client base.

This is especially true for those brokers choosing to switch networks because of the opportunities available to grow their business, either by gaining greater access to training and personal development plans or by being able to tap into the network’s extensive panel of mortgage, protection and general insurance providers.

We offer a referral service for those brokers that don’t have the time or the inclination to advise on certain mortgages themselves.

This may be because it is an area of the market they are not yet up to speed with, or simply because they are focusing on a more complex case and would prefer to outsource the more “vanilla” clients.

Either way, having the option to refer and still get paid half the commission is rewarding and means brokers don’t need to turn clients away.

Networks should encourage their members to grow and thrive, not penalise them with higher fees for taking on more business. Understanding what each network offers and the type of support, values and culture they foster will be an important consideration for any broker looking to switch their mortgage network.

Obviously, there will be many brokers who are happy with their network, and that is great too, but for those looking to make the switch, choosing a network that offers greater transparency, puts the broker at the heart of every decision and fosters an environment for growth will certainly place them in good stead for the future.