Lenders have adapted well but expect shifts regarding tenants on benefits – Ying Tan
While it’s not been the easiest of years for the buy-to-let market, it’s certainly been less eventful than the previous few.
The focus on policing landlords more has continued with new regulations proposed and more changes set to come into play in 2019.
The government has not reversed any of the sweeping changes it introduced in previous years, but perhaps we need to be thankful at least that it hasn’t introduced any new ones.
Lenders have adapted well to the new landscape.
There are certainly areas in which we will see change next year, however, particularly surrounding tenancies.
I predict we’ll also see a shift in the way lenders, and landlords, view tenants in receipt of benefits, given the furore surrounding Universal Credit. Time will tell.
Early Christmas presents
While we may be in the final stages of 2018 and lenders are no doubt looking ahead and planning their strategies for the new year, there are still a number which are making changes to their ranges before the year is out.
As an early Christmas present for brokers and landlords, Precise launched a range of limited edition buy-to-let products with flat fees and cashback options including a two-year fixed rate at 3.29% with 1% cashback and a product fee of £995.
Pepper Money announced it has simplified its criteria across all of its product tiers for borrowers with adverse credit.
The simplified product tiers, which range from Pepper 6 to Pepper 48, make it easier for brokers to quickly recognise the criteria that apply to their client’s circumstances.
Foundation’s three-year deals
Foundation Home Loans revealed it was launching a new range of three-year buy-to-let products for individuals and limited companies, covering standard properties, HMOs and multi-unit blocks.
Barclays had some good news when it announced some rate reductions.
Its 2.64% five-year fixed (BTL) with a £1,795 product fee, 75% loan to value (LTV), will reduce to 2.47%.
And, finally, Vida has increased the maximum buy-to-let loan that qualifies for the reduced 1% limited edition fee from £125,000 to £150,000.
The standard buy-to-let fee for loans less than £250,000 is £1,995.
Bank of Mum and Dad will continue to play vital role for first-time buyers – L&G
Family support now accounts for one out of every four UK housing market transactions.
It has become a fundamental part of the way our housing market functions and those hopeful first-time buyers who do not have help can find it significantly harder to get on the ladder.
Demand-side government schemes such as Help to Buy have tried to make mortgages more accessible for first-time buyers, but a lack of appropriate, affordable housing has meant transactions have hit some of their lowest levels in recent years.
Many of those transactions which are occurring are being underpinned by support from family.
But if parents and grandparents are helping so many of these buyers to get onto the property ladder – at what cost is that support being provided?
Feeling the pinch
It can be tough for many families, as our research found nearly one in five over-55s suffering financially as a direct result of helping family members onto the housing ladder.
As a result a fifth of parents and grandparents aged over 55 are accepting a lower standard of living in order to help their loved ones buy a home.
Thousands have either cashed in their pension pots or have used funding from annuities to help a family member buy a property.
Worryingly, one in 10 say they feel less financially secure as a result of tapping their retirement funds.
Is building more homes the answer?
Increasing the supply of housing would definitely help matters, since the gap between supply and demand is still driving house prices upwards, particularly in property hotspots.
However, 30 years of underinvestment means the UK is suffering from poor productivity, low real wage growth and several market failures – affordable housing being one of them.
With 1.3 million households currently on a waiting list, we will struggle to rapidly address the supply side of the housing crisis.
In any case, building more houses won’t feed through quickly enough to ease the pressure on family support in the immediate future.
So, where do we go from here?
Family is a vital funding source for the market and it will to continue to play a pivotal role in assisting first-time buyers on to and up the property ladder.
What then are the best options for homeowning parents looking to support their family by using their pool of assets, including property wealth?
Retirement lending is an option to consider.
Our research found that nearly 14% of the deposits provided by a family member were partly or wholly supported by equity release – nearly double the number who used annuities and over twice as many as those relying on taking out a loan.
Using housing equity to support children or grandchildren can be an appealing solution for many older homeowners, with this wealth acting as an anchor to support multiple properties and families.
Lenders must offer 95% LTVs on new build homes without Help To Buy – Phillips
Although it seemed as though there was not a huge amount in the Budget about housing, there was something hidden in the small print about Help to Buy.
It was confirmed that the Help to Buy scheme will run for another two years until 2023.
Officially, it is not an extension, but a new scheme which is actually much more restricted than the current one.
The £600,000 cap which currently stands for the whole country will be replaced with a cap of 1.5 times the current average first-time buyer price in each region, ranging from £186,100 in the North East to £437,600 in the South East, and £600,000 in London.
Last month’s announcement was a popular one, given so many had called for it to carry on, and it also brought a bit of finality too.
The government has said that 2023 is definitely the end of the scheme, putting a stop to any speculation about it carrying on further.
Too reliant on Help To Buy
I for one am a huge fan of the scheme.
There is no dismissing the fact that it has helped more than 170,000 young people get onto the housing ladder who either never would have been able to without it, or would have had to wait years before they could afford to.
But that does not mean I think the scheme is perfect, and I am concerned that we have become too reliant on it.
Yes, it is great that it has been extended to 2023, and we may be close to half a million people benefitting from the scheme when it finally does come to an end, but it will potentially leave the housing market in a bit of a pickle.
As a result of the scheme, many first-time buyers have bought bigger properties than they can really afford because the loan gives them that extra helping hand.
Plus, the scheme has encouraged lenders to offer higher loan to value (LTV) ratios, with the number of products available at 95% LTV more than doubling since the scheme began.
But once the scheme ends, lenders are unlikely to accept deposits as low as five per cent on new builds because of the risk.
I think lenders need to start to offer higher LTVs on new builds not on the scheme now in preparation for its ending.
If they don’t, there is a very real risk that the new build sector will grind to a halt when Help to Buy is pulled.
The mortgage industry’s wish list for 2019 – Bamford
In the spirit of it being near to Christmas, I’m going to pick our three areas where I think mortgage stakeholders might like to see some progress made during 2019.
First up, would be around both political and regulatory interference in the sector.
For the most part there has been very little of the latter and plenty of the former over the course of 2018.
That looks likely to change in 2019 because the Financial Conduct Authority (FCA) is due to publish its final report on its Mortgages Market Study sometime in the spring.
Let’s be honest, the interim report seemed to unite the entire industry in something close to condemnation around its fixation on price.
As well as the suggestion that certain customers have no need for advice, and the attempt to put together both eligibility and adviser comparison tools.
A united voice in our market has traditionally been rare but the FCA can surely be in no doubt about the depth of feeling, particularly from the advisory sector, about what it thinks of the report.
Whether that translates into a stay of execution for some of the measures proposed is another thing entirely.
After all, regulators regulate, and we already know there are a number of working parties attempting to square various circles when it comes to those adviser/eligibility tools.
Regulatory-wise, we have benefited from a period of relative stability recently – my wish is for more of the same, but my head suggests we’ll get anything but this during 2019. Brace yourself.
Mortgage prisoner progress
Another area where there appears to have been some progress, but might benefit from more next year, is with regard to mortgage prisoners.
Ordinarily, you might baulk at the regulator asking for more powers but in this area they might well be justified.
As we know, many ‘mortgage prisoners’ are stuck in the unauthorised space and calls from the FCA to broaden its ‘regulatory perimeter’ to help those borrowers who are stuck, and yet can afford to move to different lenders on far more competitive rates, should be granted.
Affordability, of course, should remain at the heart of the mortgage decision but for these ‘borrowers that the market forgot’ there is absolutely no need for them to be in the position they are.
The regulations have, up until this point, worked against them; it’s time this was addressed.
First-time buyer focus
Finally, we move back to a favoured topic – first-time buyers and helping those who can only muster smaller deposits.
There has been much to be positive about in the FTB market in 2018 – more new buyers are getting on the housing ladder, rates have become more competitive across all loan to value (LTV) bands, access to lending up, and the extension of Help to Buy.
But the differential in terms of rates and cost between those with bigger and smaller deposits is still too high, and the numbers of products in the high LTV space, whilst rising, is still too low.
In a very true sense, we should view high LTV lending as a ‘specialist’ area and it has been positive to see more specialists and challengers treating it as such, and making their move into it.
I expect numbers of first-time buyers could grow even further if more lenders took advantage of mortgage insurance options, and coupled with ongoing government support, we could push new purchases up further.
At the same time, it’s quite obvious that the whole housing market could do with some further incentives and impetus in order to allow people to move up the ladder and to ensure purchase activity levels improve.
Changes to stamp duty might be welcome in this area but, at present, the government clearly feels it’s only a political imperative to help first-timers – that is a shame.
Such changes could make for some strong activity levels for advisers in 2019, although at the back of all our minds will be March 29th and how the UK economy ‘lands’ after then.
Let’s hope that particular ‘sleigh’ gets home safely.
Generational gap in home ownership is one of the most pressing issues of our time – Burrowes
In 1991, 67% of those aged 25 to 34 were homeowners, yet by 2014 this had declined to 36%, according to figures from the Office of National Statistics (ONS).
Buying your own home in 1997 would have cost 3.6 times a person’s average annual earnings.
However, fast forward 20 years and this figure has doubled to 7.8.
It’s no surprise at all that many younger people feel priced out of the property market.
At the same time, older homeowners are seeking to use housing wealth, in growing numbers, to meet a range of pressing needs, including the provision of financial support for younger family members to bridge this divide.
The Bank of Mum and Dad – and even Gran and Grandad – is increasingly busy: the latest ONS figures on intergenerational transfers found that gifts and loans are most commonly received by those aged under 45.
This is particularly the case among 25 to 34-year-olds, among whom 11% have received a gift or loan above £500 in the last two years.
It is no coincidence that this is the age group who are most likely to be embarking on buying their first home – the average first time buyer is currently 30 – and understandably seeking help to navigate one of life’s most expensive milestones.
Indeed, English Housing Survey data has shown that the number of households in England purchased using a gift or loan from family or friends recently reached a post-2007/8 high of 1.1m, highlighting the importance of transferring wealth from one generation to the next.
Housing wealth’s role in intergenerational lending
Equity release has entered the mainstream of financial services and it is increasingly being used to help reduce the inequality between generations, as well as helping meet later life financial needs.
According to figures from Key, the percentage of customers using property wealth for gifting family a ‘living inheritance’ increased to 28% in the first six months of 2018, up from 23% the previous year.
The potential for housing wealth to provide intergenerational support has been helped by product innovations and flexibilities.
For example, ringfencing some equity as a guaranteed minimum inheritance is offered by four in 10 equity release products, enabling customers to provide both a ‘living’ bequest and a traditional one.
Innovative thinking has transformed the equity release market while maintaining the standards and protections which ensure products are future-proofed to provide good outcomes for consumers.
Property is many people’s largest asset and equity release can play a central role in bridging the generational wealth gap.
However, it is imperative that older consumers factor in their own financial needs in retirement to decide whether releasing equity for the next generation is the best option for them.
Need for advice across all asset classes
The Equity Release Council is the trade body for the UK equity release sector and aims to ensure consumer protection and safeguards.
It believes there is a need for a wider debate on the essence of appropriate advice and distribution across all asset classes, which will be important factors for anyone with multiple financial planning needs for themselves and their families.
A rounded approach to retirement planning and access to good quality guidance is fundamental to helping older people make informed, planned and timely choices through specialist advice.
While the option to release equity is available to over-55 homeowners, it is clear that the potential benefits are far broader.
By playing a prominent role in facilitating intergenerational transfers of wealth, it can help address the socio-economic issue of housing inequality.
Home-improvers provide broker opportunities for the foreseeable future – Calder
It allows us to keep on top of current market activity, review past performance and assess what individual customers, intermediary partners and strategic alliances might be looking for in the future.
Much of the information we gather remains for internal use only but collating important statistics from a variety of sources also helps us to inform, educate and raise awareness on a wider scale.
And issuing selected data to relevant media outlets also helps with our marketing, PR and branding – with relevant being an important word within this sentence.
Regular home updates
One of the main take-outs from our 2018 Barclays Home Improvement Report being that the average Briton now stays in their property for 19 years before moving, and regularly updates their home in this time.
It also included the UK’s top 10 list of worst DIY home improvements, which helped generate interest across a different set of media and social media outlets.
So, what can intermediaries glean from such data which may, on the surface at least, not directly affect their business?
For market specialists the devil is usually in the detail.
Included within the data were some regional breakdowns.
For example, it showed those in Wales are the least likely to move property regularly, with the average homeowner staying put for nearly 23 years.
However, those in Scotland are the quickest movers, upping sticks after an average of almost 15 years.
It also found that social media is influencing more people, especially when it comes to updating their property and particularly in the younger age groups.
Four in ten 23-34-year olds surveyed stated that they had been inspired to improve their home from what they have seen on social media. While 15% admitted to improving a room specifically to post on their social channels.
But what does this really mean for you?
Homeowners need funds to improve their home
No matter what the motivation, the report emphasised just how many committed homeowners are doing up their homes.
In fact, a huge 79% of homeowners have made home improvements over the past two years, and 73% want to make improvements in the next 12 months.
With so many homeowners looking to take on home improvement projects, the question is – how are they going to raise the necessary funds to do so?
This further highlights the ongoing need for good, professional holistic advice when it comes to any potential remortgage or second charge needs.
And how these markets will continue to provide opportunities for the foreseeable future within the intermediary marketplace.
Being aware of regional demographics and behavioural changes can also help establish a stronger profile of your existing clients as well as potential new ones.
As the influence of social media grows, think about how useful it could also prove when attracting, educating and updating a variety of people on their mortgage needs and financial wellbeing – Financial Conduct Authority financial promotions regulations permitting of course.
Reading beyond the headlines and digging a little deeper to extract the right information is something which mortgage intermediaries are well-versed at.
While you certainly won’t have time to read all types of research papers, reports or indexes in depth, they can prove useful in better understanding your client’s requirements, and help you reach out to those who need your advice the most.
Lenders’ commercial decisions should not affect proc fee levels – JLM
This continues to be the case and questions are constantly raised.
These include around whether they are appropriate, whether they’re at the right level, how they are portrayed to the consumer, should they be banned, are we too reliant on them – the list goes on.
The fact they have done a job in the mortgage market throughout all that time and no-one has really come up with a better alternative that recognises most customers do not wish to pay for advice, is sometimes overlooked.
In that sense, it’s the debate that keeps on giving.
Proc fees plateau
Hence, we have recent comments from L&G Mortgage Club director Kevin Roberts.
He suggested proc fees may have plateaued, lenders are feeling a squeeze, and that they might look at the cost of acquisition of business from the broker channel and “look at other acquisition channels for their business”.
That all seems eminently sensible to us as does the comment: “I don’t think we can rely on lenders to bail us out and to keep our businesses’ turnover increasing”.
This appears to have caused a slight storm in a teacup among the broker Twitterati.
Onus on advisers
Knowing how well L&G Mortgage Club value and represent the interest of brokers, we can’t help feel that Kevin’s comments may have been taken slightly out of context.
Advisers, of course, will have a certain reliance on procuration fee payments.
But we think Kevin is saying that were you to do exactly the same amount of business each year, you can’t rely on lenders continually upping proc fees to increase your profitability.
Advisers themselves have to grow business activity.
Be that advising more mortgage clients, offering more ancillary services, increasing introducer arrangements, and preferably increasing all manner of business activity that will deliver more income.
Outside forces hitting fees
We also believe that, when it comes to outside forces that might impact on the level of proc fee paid, the commercial decisions that a lender makes when setting rate margins, for example, shouldn’t be correlated with the level of fee paid to the adviser.
If a lender chooses to slash margins, to attract greater market share, so be it. That is their commercial decision.
If, for example, a supermarket chooses to sell its goods at a loss in order to increase market share or to disrupt the competition, then that is their commercial choice.
However, you cannot imagine they would use this to justify a wage freeze for their staff and suppliers.
We hope lenders would not make such a link and that they recognise the value of advisers’ work, quality of business, that using intermediary distribution delivers across a number of areas, and of course leaves the risk with the adviser.
Brokers doing more work
We also believe that more lenders are recognising that brokers are doing a far bigger job than they were even a few years ago.
This is particularly in terms of customer due diligence and lender protection, so they should be paid the right amount that reflects this greater workload.
Arguably, this is not currently the case with product transfers but we hope the direction of travel many lenders have adopted continues and that they are willing to continually assess whether the proc fees they pay are commensurate with the work involved.
Other commercial matters should perhaps be set aside when doing this.
Update: The Halo effect of large brands – Andrea Rozario
Yesterday, an article I had written regarding the new SAGA branded product was published after the launch of another product from Legal and General Home Finance, The Income Lifetime Mortgage. It is this increase in competition, flexibility and choice for customers that is helping to drive this market and clearly this is positive news.
Legal and General have had a massive impact on the equity release market, bringing a well-known and respected name to this industry coupled with flexible and innovative products has clearly been beneficial for customers and advisers alike. I have mentioned in previous articles the need for increasing choice for the customer but also the need for household names to help build confidence and reassurance across the board.
It’s very easy for those of us entrenched in the equity release industry to lose sight of what it’s like as a layperson. Understanding the features of various products and which is the best option for the client, is the adviser’s job. However what the customer wants is to feel confident in making the right choice and the halo effect of well-known names linked with equity release has an overall benefit for the image of the industry.
Clearly not all products are the right fit for all customers and in some cases equity release is not the right option in any event, but this is not the point. After years of fighting miss perceptions and inaccurate views held by many who do not really appreciate the safeguards and flexibility that these products can offer, the benefit of having increasing numbers of household names linked with equity release will only help to dismiss the myths, increase confidence and drive competition. Both the SAGA and Legal and General Product launches are testament to the growth, innovation and development of this market, all of which is good news for the customer.
Mortgage Solutions group editor’s note with apology: Andrea Rozario’s original piece was published three weeks after submission, putting her piece at a disadvantage given the subsequent L&G Home Finance product launch. That’s a publishing error.
Thanks to our readers and Andrea for their understanding.
Why mortgage clubs remain essential in the broker market
At its heart, that’s down to two key facts: the first is that there are still a lot of brokers in the UK – 5,210 DA firms, according to the Financial Conduct Authority.
The second is that most of them are small. Previous research found more than two thirds of firms employed only one or two mortgage advisers, with almost nine in ten having no more than five.
For lenders that’s an unwieldy market and much of the continued popularity of clubs is down to the demand for their services from lenders. For them, mortgage clubs make distribution more efficient and manageable.
That’s invaluable for those lenders without the resources to research and conduct due diligence on these firms themselves.
It’s also essential for new lenders, who need to build scale quickly and would otherwise be wholly reliant on the few big brokers in the market.
Mortgage clubs greatly simplify payment of procurement fees, for instance, removing what would otherwise be a huge administrative burden for lenders dealing with large numbers of brokers.
The cost of paying firms individually can otherwise be substantial – over £100,000 per year for a large lender.
Benefits to brokers
The benefits a mortgage club delivers to lenders are reflected in those enjoyed by its brokers.
Some of these are direct and explicit for members when they join such as compliance support, educational events and exclusive rates.
Even when it comes to just keeping up to date with products, mortgage clubs are a significant support to the market.
Finally, many of the benefits brokers receive from clubs are less direct, but no less important, and they are understood precisely because of a lender’s attraction to mortgage clubs.
Smaller fee to direct brokers
The reduction in admin that clubs bring to lenders, for example, leaves a greater margin for them to pay procurement fees to brokers.
That’s why some lenders won’t pay a procurement fee direct or will pay a much smaller fee for a case submitted direct by a broker.
Likewise, by providing a route to market for new lenders outside the big brokers, clubs also get these products to brokers more quickly, and give them access to a greater range of products.
Mortgage clubs’ are not just a valuable tool for brokers or lenders – they play an essential role in the industry, bringing the two parties together and making the market work for both.
However, there is a need for mortgage clubs to evolve, as lenders and brokers do, and embrace the benefits technology can bring.
Swap rates and Bank of England waiting for Brexit clarity – Maddox
At the last Monetary Policy Committee (MPC) meeting, governor Mark Carney reiterated the ‘gradual pace’ and ‘limited extent’ of tightening monetary policy.
However, with Consumer Price Index inflation still wavering above the 2% mark, markets expect rates to increase within the next few years. The exact timing, though, is unclear.
As ever, it’s until there is more certainty around a deal being agreed with the European Union and approve by parliament ahead of Brexit.
Brexit, Brexit, Brexit
Should the UK fail to negotiate a smooth transition with the EU, we may expect extraordinary measures from the Bank of England to protect the UK from a negative economic shock.
Again, it remains unclear what exact measures would be introduced, but Carney has emphasised that there is ‘little monetary policy can do’ to offset the impact of a no deal.
If a smooth transition is agreed, the Bank of England will likely tighten monetary policy faster than currently expected.
For now, the MPC has revised its GDP forecasts for the year and next downwards by 0.1% – from 1.4% to 1.3% in 2018 and 1.8% to 1.7% in 2019.
In terms of inflation, the Bank of England lowered its 2019 forecast from 2.2% to 2.1%, but current inflation for 2018 was revised upwards to 2.5%.
Despite record low unemployment at 4% and wage growth rising above 3% in August, markets remain gripped by Brexit.
In light of these considerations, the markets forecast the Bank of England base rate to hold at 0.75% for the next 12 months.
They then predict an increase of 0.25% to 1%, remaining there, before rising to 1.25% after three years.
The three-month London Interbank Offered Rate (LIBOR) is expected to rise sooner than the base rate, moving from 0.75% to 1% in the next month.
In the swap markets, current predictions for two-year rates are that they will stay at 1.25% for the next year, rising to 1.5% around the two-year mark.
Similarly, five-year swap rates will remain at 1.25%, rising to 1.5% in two years.
Lastly, 10-year swap rates are expected to remain at 1.5% for the next two years, before rising to 1.75% in three years’ time.