‘In some ways it has never been easier to get on the housing ladder’ – Phillips
According to calculations by Moneywise, on average, first-time buyers need to find a deposit of £33,000 to buy their first home.
Meanwhile research from Apropos by DJ Alexander revealed that first-time buyers are paying up to 60 per cent more to get on the housing ladder than they were just five years ago.
Overall prices for people buying their first house have gone up 40.6% in England, but in London, they’ve risen 52.5%, Manchester 53.7% and in Bristol, prices are up 58.9% in just five years.
The average first-time buyer home in the South West now costs £207,329 while in London, it is an eye-watering £419,608.
But, despite the huge increases in house prices and deposits, first-time buyers are still propping up the market.
Incentives have never been better
The latest UK Finance Trends in Lending report revealed that the number of new first-time buyer mortgages completed in 2018 was the highest since 2006, while according to the Halifax first-time buyers account for more than half of all mortgages.
That is the first time the mortgage market has been so first-time buyer dominated since 1995.
So why, when buying a house has never been so expensive, are we seeing more first-time buyers than we’ve seen in decades?
First, rent is so high – £932 a month on average – that young people are determined to get on the housing ladder rather than pay more out in rent than they would on a mortgage.
Second, incentives for first-time buyers have never been better.
Not only do we have stamp duty relief for first-time buyers on the first £300,000, but we also have the help to buy scheme, which since it launched in April 2013 has helped 158,013 first time buyers get onto the housing ladder.
In fact, it has been so successful that it has now been extended from its original deadline of 2020 until March 2023.
Specific products launched
We are also seeing the bank of mum and dad playing a bigger part. The current crop of first-time buyers have parents and grandparents who have, in the main, seen the value of their homes increase significantly in their lifetimes.
Many are now choosing to gift this equity to their kids for deposits, either by downsizing or via equity release, which has seen huge growth recently, both in terms of the products available and the value of the market.
Others are able to use savings and investments, including lump sums from pensions – enabled by the pension freedoms – to help their kids get onto the housing ladder.
And in fact, many lenders have even launched products specifically to cater for this type of gifting.
Lloyds recently launched its 100% ‘Lend a Hand’ mortgage where a parent or family member acts as guarantor by putting an equivalent 10% deposit into a savings account for the term of the mortgage.
So, despite rising house process, I think the first-time buyer is here to stay because while it has never been harder to get onto the housing ladder, in some ways, it has never been easier either.
How to maximise your word of mouth marketing – Knight
Word of mouth marketing is one successful tactic that firms might think they have little control over – after all, how can you influence or shape what people say about you and your business?
It is not simply about clients telling their friends and family to use your advice services, although that can obviously be a significant source of business.
This is about using all those stakeholders that you come into contact with and providing persuasive reasons for them to recommend you.
It is also about, for example, your staff – a happy workforce is much more likely to talk about you and develop a positive narrative about the work you carry out and what you can achieve for potential clients.
Use professional relationships
What about the suppliers you use?
There will be any number that you deal with and could potentially provide word of mouth marketing to their clientele.
Perhaps it is your accountant, your solicitor, your tax adviser or your compliance provider, your sourcing system, the BDMs that you deal with every single day.
If you treat them with care and professionalism, show the difference you make to your clients’ lives and that the quality of service is second to none, why would not they be willing to present you to their friends, colleagues, and other clients?
Word of mouth marketing can also, perhaps bizarrely, come from other advisers. After all, you might have a significant adviser peer group in your area which does not offer the products you do.
Plus there are going to be plenty of other business people in the region.
If you regularly attend networking groups or business breakfasts, this gives you an opportunity not only to pick up clients but forge alliances that might be willing to help spread your marketing message to their employees or others within their circle.
Accentuate the positive
And what about social media or review sites?
Word of mouth marketing is not simply a physical activity as technology now provides you with plenty of opportunities to tune into your client’s testimonials.
Encourage them to share them online, and then use those to push your products and services across your own platforms.
Again, this is all about knowing what is being said about you online, accentuating the positive, dealing quickly with any potential negatives, and highlighting the difference you have made to client’s lives.
This will undoubtedly chime with those who might feel they’re in a similar position.
Think about messages
So, word of mouth marketing can work, and work incredibly well, but it also needs you to engage with it in order to get the most out of it.
That means thinking about the messages you want it to deliver, managing it, measuring it, and being proactive in order to make it work in your favour.
It also means engaging with all those that you deal with and knowing what they think about you and what they are likely to tell others.
In that sense, it does not really matter who they are, you should treat them well – treat others as you would like to be treated yourself and your chances of securing positive word of mouth marketing and generating considerable referrals from it are likely to be greatly increased.
Buy-to-let misuse: ‘It’s tantamount to fraud and lenders should police it more’ – Foundation Home Loans Manchester Supper Club
The discussion turned to UK Finance’s data showing a drop of around 25 per cent in remortgage and product transfers in 2020 due to the large number of five-year fixed-rate products being taken up.
But there was little concern about this from the brokers gathered; they were focused on making hay while the sun is shining.
“I’m not bothered because I’m so busy, it’s absolutely manic. There was no quiet time at Christmas, January was non-stop, it’s good days,” said one.
Another added: “We’d say the same. We had an 18% uplift last year which we weren’t expecting because of all the Brexit talk, but it happened and it looks the same for this year.”
Landlords going into areas they shouldn’t
Much of that business is coming from an apparent migration of landlords and investors from the south east up the M6 – hunting yield and cheaper properties.
One broker reported that around 30 per cent of their business came from within the M25 while another agreed, suggesting some were getting carried away.
“I think there’s almost panic buying. For most of my clients from the south it used to be a joy to get a remortgage in Canary Wharf; now the same people are buying in Oldham for £60,000,” the attendee said.
“So I think what’s happening in the market is everybody is coming up here, prices are going up, yields aren’t really changing that much, and the stock is reducing. And people are going into areas where they shouldn’t be going into.”
Added another broker: “People are just piling in, which is an unintended consequence of the stress test changes and everything else.
“Instead of someone saying ‘In London I can’t get 75% LTV on one property worth £1m, they’re buying three in Manchester for less than £1m and getting 75% LTV.
“In my experience there are a lot of people popping up and almost using Brexit and the uncertainty to find themselves deals, to find themselves business, and to get things at the right price.”
‘Tantamount to fraud’
One of the trends as part of this new world order is for landlords to buy semi-detached terraced properties and break them into two or three units.
However, it has also brought about a rather ugly trend, with some landlords buying using buy-to-let mortgages and then converting the property, rather than buying with cash or a bridging loan.
“It’s tantamount to fraud and yes, I think it’s down to the lenders to police it more and I think they are starting to do that because they’re seeing mortgages being reviewed up to six months in, which they shouldn’t really be doing,” one attendee noted.
It was noted that this action is partly being provoked by a lack of products to meet the demand, but the main culprits were highlighted as those brokers who willingly complete these deals.
“I lost two clients in January by refusing to do it and I know they’ve gone to the broker down the road and they’ve put them through,” said one broker.
But another put the onus on lenders: “They’re fully aware of it, they understand the issues; occasionally a broker will get removed from their panel, which is good, but [lenders] should be more consistent.”
The specialist badge
And all this is part of the growing complexity and speciality of the mortgage market.
As one broker noted: “Specialist is becoming the new norm, if you’re doing things right.”
This is true of the residential and buy-to-let markets, where complex incomes, complex applicants, unusual properties and different ownership structures can all combine, sometimes in the same case.
But this can also be daunting – for client and broker alike.
For those advisers who have barely dipped a toe in this market previously it is becoming essential, if only for compliance reasons, that they are at least familiar with it.
“I think there’s a lot of less experienced brokers that just walk away from it, for example limited company structures and things like that,” said one attendee.
“A customer comes to them with one or two buy-to-lets, then yes they’ll look at it. But if they start going to portfolio or limited company, they say ‘I’m not doing it’.”
And this can have potentially serious consequences for the client who can end up getting the wrong advice, the wrong product and end up with a hefty and unexpected tax bill.
One attendee noted that the whole specialist label could become intimidating for new brokers.
“I think they get a little bit scared and they don’t know what to do and they veer away from it. I always tell them to speak to business development managers or speak to someone to get a lot more comfortable and then when they do the first case they realise it is like a normal one,” the broker said.
Or as another broker surmised: “The specialist industry needs to stop badging itself ‘the specialist industry’.”
Simon Allen, Searchlight Finance
Amanda Cunliffe, Beneficial Life
Janet Frame, 3mc
Abi Greenhalgh, Nest Financial Services
Matt Hardman, The Buy to Let Broker
Richard Ignatowicz, Mortgage Savers
Neil Mellor, Neil Mellor Financial Services
Carrie Smith, Beneficial Life
Ian Williams, New Start Mortgages
Foundation Home Loans:
Offset mortgages could be ideal for today’s fluid workforce – Calder
Flexibility is not always associated with high-street lenders and is sometimes regarded as the domain of specialist lenders. Although it should not be forgotten that larger institutional lenders also have a flexible trick or two of their own.
The first variable mortgage was introduced in 1994 to allow borrowers better control over their finances. The beginning of this flexible approach to finance and mortgages was enhanced by the introduction of the current mortgage account (CAM) in 1997.
The drawback attached to CAMs is that all the accounts are pooled into one account which can leave some borrowers feeling uneasy about having a giant overdraft facility and being so far in the red.
This unease led to the next generation of flexible mortgages, the offset, which was pioneered in Australia in the early 1990s. In 2000, Woolwich – now part of Barclays – became the first high-street lender to bring it to the UK.
How far has it come?
Offset has come a long way over the last couple of decades. But has it come far enough?
Yes and no. First, let’s look at the positives.
In the past, offset was considered only suitable for those with larger balances to deposit – specifically those with irregular incomes or tax bills to pay where saving levels could be substantial.
Pricing therefore reflected the type of customer the product was targeting, making rates unappealing to more typical borrowers.
However, through increased competition and innovation, premiums have been dramatically lowered to help push rates far closer to mainstream borrowing levels.
The numbers of contractors, small business owners and the self-employed – all long-time advocates of offset – have grown substantially in recent years.
This growing proportion of the UK workforce continue to benefit from offset but many employed first-time buyers, remortgagers and homemovers have also embraced the offset as savings rates plummeted.
Not an easy sell
But has this product reached the lending levels it demands or deserves? Sadly not.
Offset is not an easy sell, in part because it requires a certain level of financial understanding from clients.
For intermediaries, this means additional time and a more educational advice process and although its features are increasingly relevant to the modern mortgage market, it’s still not a product for everyone.
Do we need more intermediary support to bolster offset business? Yes.
Any lender operating within this space would welcome a higher offset profile in the intermediary community, especially within such a low interest rate environment, as offset is tax efficient. Perception and understanding remain obstacles offset has yet to successfully overcome.
Why should intermediaries be looking at the offset facility for their clients?
We are operating within a world with a far more fluid workforce than ever before. Self-employed, freelance, contractor and SME numbers are likely to keep growing, so a greater proportion of your client bank could benefit from the offset facility.
Greater understanding of the product may also open the door to new clients.
Offset is a product on which you can frequently review a client’s financial standing and any changes in their circumstances, providing multiple opportunities to boost existing income streams as well as generating new ones.
With a new financial year approaching, this is the perfect time to introduce offset to clients who require a flexible and tax efficient financial planning tool.
Focus on customer care and adviser training will make equity release mainstream – Rozario
Yes, we have had some hard times in the not so recent past that many of us would like to forget (although we never should) but today’s market is robust, growing and bursting with talent.
Ever since smashing the £1bn annual lending barrier a few years back, we have gone from strength to strength and last year was our seventh straight year of growing annual lending.
In fact, in the last three months of 2018, £1.08bn of property wealth was released by customers throughout the land – nearly matching the annual lending for the whole of 2014.
But how far can we go and, more importantly, how much does this really matter?
Do customers care?
According to research from Canada Life Home Finance, most advisers believe 2019 will be yet another record year.
Of those surveyed, 40% believe that a whopping £6bn is possible by the end of 2019.
That’s a 50% jump from 2018 – not too shabby – but what does this really tell us?
For me, it shows that equity release may be breaking records, but there’s still tons of room for even more growth.
Eight straight years of growing equity release lending is of course fantastic, but does the average customer care?
The main goal should always be creating products that our customers truly desire and giving them the advice they need. Everything else is secondary.
As we look forward to the rest of 2019, and indeed a new decade on the horizon, let’s start focusing on the things that will take us to a whole new level.
Focus on customer care
Record-breaking years should be celebrated, but what that means for the customer is more important.
New lenders, new products, new opportunities to cure the crises many people are staring at in their retirement.
Any figure could be possible in the future, and I wouldn’t be surprised if the next decade is a truly ‘Roaring Twenties’ for equity release, with sums like £10bn often released in a 12-month period.
But if we are going to deliver what our customers truly care about, the bottom line must only form a part of the broader target.
Focusing on things like product innovation, adviser training and customer care is what will make equity release a truly mainstream retirement finance option.
Breaking records should just be a happy coincidence.
Lenders must tackle changing retirement and support brokers in later-life market – Ellis
For us as advisers and lenders, the task is to understand these plans and deliver options that can help customers meet their needs for retirement.
The changes which the Financial Conduct Authority (FCA) made to Retirement Interest-Only (RIO) mortgages were a welcome move that has been followed by a wave of RIO product launches.
Separately, lenders have also looked to the lifetime mortgage market to launch more flexible solutions that allow customers to make regular, monthly interest repayments.
So the last year has seen the market step up to give more support to more retirees, but we’re still far from mission accomplished.
Falling pension wealth
Whether it’s the end of final salary pension schemes or longevity, many more people are approaching retirement with smaller pension pots that they now need to make last longer.
In fact, the FCA previously found that nearly a third of UK adults have no private pension and even plan to rely solely on their State Pension.
These shifts in retirement have undoubtedly helped to grow the retirement lending market, with more and more consumers looking to their housing wealth to help pay for the retirement they want.
However, the near £4bn market we saw in 2018 remains just a drop in the ocean compared to the £1trn of housing wealth in the hands of the over-55s.
There are older homeowners who haven’t yet been switched on to the idea of unlocking their housing wealth.
Challenge retirement perceptions
I think there are two core reasons for this.
First, we must do more to challenge the perceptions about retirement.
The way we reach out to our customers and talk about retirement lending needs to recognise how different each experience of later life can be for every customer.
Whether it’s by phone, face to face or even through our advertising, our market needs to recognise the facts of modern retirement.
Research we conducted found there is a group of homeowners who want to use their housing equity in later life, but don’t want to access that wealth in large chunks.
They want to unlock equity as a regular income alongside annuities, investments and their state entitlements, as part of a tailored retirement plan to help them maintain their standard of living.
Improve distribution support
Second, it remains about distribution.
I believe there are thousands of potential customers who either haven’t heard about lifetime mortgages, or who continue to base their views about equity release on the market of the past.
The challenge over the next year will therefore be to boost distribution.
That means supporting more mortgage advisers to enter this growing market, with education, tools and a helping hand to encourage them to talk to their clients about later life borrowing.
Retirement lending has the potential to be a much larger market in the future.
But to maximise this opportunity, we all need to work together on supporting more mortgage intermediaries to raise awareness with their clients about lifetime mortgages, RIO and other retirement lending options.
Offering a free financial health check can help vulnerable clients – Adams
You might not be aware that the government offers all adults between 40-74 a free health-check every five years.
It may not sound like much but it could be the difference between spotting the early signs of a potentially dangerous illness, or leaving it too late.
My advice would be to take up this opportunity if you’re within the right age demographic.
A number of firm owners reading this might also have a regular health check as part of, for example, their key man/key woman insurance or their private healthcare policies.
Writing this into the company offering can be a good perk and shows that the firm is a place which values its employees’ health.
For our clients, financial matters can be a major source of stress and frustration, and particularly when it comes to poor mental health.
I’m sure we’re all aware of family, friends or clients who have suffered with money worries.
Part of the job of an adviser is to – like the health check itself – head off potential concerns at the pass, so to speak.
There is often a solution to be found but the important point is for clients not to keep concerns to themselves, and to seek help as soon as possible.
Health and wealth MOT
I write this as the Department for Work & Pensions (DWP) has launched a website aimed at getting people to take a ‘mid-life MOT’ which focuses on both health and wealth.
That’s a positive sentiment but I’m not sure clients need to be in mid-life to benefit from a review of their finances – and that’s clearly where advisers can be of great benefit.
Having a financial health-check from a trusted adviser could help provide someone with peace of mind about their current situation.
It could also save them money on their mortgage, allow them to increase their protection, secure better insurance cover, and essentially solidify their financials for a period of time to allow them to cope with whatever might be coming over the horizon.
Offering such a service, free of charge, could not just result in the opportunity to help existing clients, but could also be used as a marketing tool in order to draw in new business.
Deliver peace of mind
Piggy-backing off the DWP’s push on taking a ‘mid-life MOT’ is no bad thing, and given that people are much more likely to be thinking about their financial future at the moment, it could unlock a significant number of potential clients.
Wellbeing does not just come from one area – financial situation can clearly weigh heavily on an individual if they feel they are not just in a bad place, but there is no-one to help them.
Advisers have the opportunity to provide their services and to deliver that peace of mind which seems all the more relevant given the current outlook.
It’s time for brokers to expand their horizons – Steve Seal
But it is not just new borrowers who need help and support during these turbulent times. Brokers provide valuable guidance to buyers and remortgagers across the whole market. Increasingly, it’s those with more complex circumstances who have been turning to advisers for help.
Having more than tripled in under ten years, the specialist lending market was worth £17bn in 2017, according to the Intermediary Mortgage Lenders Association (IMLA). This is largely made up of buy-to-let property, whilst residential lending is estimated to be around £3bn.
Brokers, though, still see substantial opportunities in this area – something that was highlighted in our recent Specialist Lending Tracker.
Over half the brokers (52 per cent) surveyed expected to see growth of at least £1bn in the specialist market over the next 12 months. Of these, more than a third (37 per cent) believed it would increase between £1bn to £5bn and on top of this, almost a quarter (23 per cent) believed the market will grow by £5bn or more.
Changes in society are helping to support that growth – self-employed workers now account for over 15% of the UK workforce. The number has increased from 3.3 million in 2001 to 4.8 million in 2017 and is expected to rise even further. Within our survey, brokers cited irregular or multiple income streams as among the most common reasons to refer a client to a specialist lender.
Spread the word
However, despite the growth of specialist business, brokers see relatively little appetite from mainstream lenders to move into this space. Only 9 per cent believed major banks have become more understanding towards non-standard borrowers in recent years. It is no wonder many borrowers still find it difficult, or impossible, to access finance on the high street – especially those who may have experienced a bump in the road and have a low credit score.
Usually, these types of customers are rejected by high-street lenders. It’s perhaps why only 23 per cent of brokers would refer a client with a CCJ, Bankruptcy or IVA to a specialist lender, as these borrowers may be reluctant to look for funding having been rejected once already. But the good news for brokers is that this represents an opportunity for them to better support this segment of the market, and ultimately grow their business.
As the number of complex borrowers increases, brokers can tap into a growing pool of customers who need proper advice and support. In these cases, the importance of brokers cannot be understated, as consumer awareness of specialist providers remains very low. Many potential borrowers simply do not know that there is a specialist mortgage lender out there willing to take them on as a customer.
Here is where we need to spread the word and where brokers can really add value. By helping a client achieve their housing dreams – whether that is buying their first property or moving away from a product which isn’t right for their circumstances – they can gain a customer for life.
Buy-to-let lenders increasingly seeking ex-pats and foreign nationals – Ying Tan
In recent times we’ve seen a rise in the number of lenders offering expat buy-to-let mortgages or extending their offerings to foreign nationals. This trend is showing no sign of slowing down anytime soon.
Vida Homeloans has increased the loan to value (LTV) on its buy-to-let expat range.
This is now available up to 75 per cent LTV worldwide, with Australia restricted to 70 per cent. Overseas directors are accepted on a special purpose vehicle (SPV), providing the company is UK registered.
Skipton International is also now offering UK buy-to-let mortgages to foreign nationals with immediate effect. Previously applicants were required to hold a British passport.
To qualify, prospective clients will need to have a UK bank account in place to service the mortgage repayments and collect rental income.
This move will allow Skipton to offer lending to those who live outside of the UK but have an established credit footprint.
In other news, we have launched some new buy-to-let exclusives with Together.
These products are available as first or second-charge and offer repayment and interest-only options.
The Mortgage Lender has made improvements to its affordability assessment.
It will now accept child benefit for children up the age of 13 and some form of benefits income provided its employment criteria is met.
Kent Reliance has also undertaken a number of criteria changes, incorporating a reduction in its minimum loan size for specialist buy-to-let cases to £50,000, including limited loans and houses in multiple occupation (HMO).
However, multiple units on a single freehold will still have a £75,000 minimum loan.
It also added that large loans are now available from £750,000.
And, last but not least, Foundation Home Loans announced the launch of its Fix to Flex five-year, buy-to-let deal.
Foundation says cases can be underwritten as a five-year fixed-rate product, assessed on pay rate, but also provide landlord borrowers with shorter-term (three-year) flexibility to exit the deal should they wish to do so.
The Fix to Flex product is suitable for individual, limited company, first-time and portfolio landlords.
It’s good to see innovative options being brought to the market, especially for landlords looking for a combination of certainty and an element of flexibility in what remains a clouded economic environment.
Prepare for change with reservation agreements on the horizon – Conveyancing Association
Clearly this chimes with the work of the CA and we spend a great deal of time and effort feeding into this matter.
There are a number of strands to this but the crux of the matter is making the whole process more transparent, delivering greater certainty, and cutting the significant number of transactions which are aborted every year.
These waste considerable sums of money, time and resource.
Leaving aside leasehold, what are the ‘quick wins’ which could be achieved that might make the process tighter and less stressful in the short-term?
Mortgage brokers will know only too well how painful the process can be.
Let’s be frank, we can move from the sublime to the ridiculous depending on the case, and often there can be no rhyme or reason why one transaction takes four to five months, while others go through much quicker.
One of the potential solutions which the government appears to be actively pursuing is the introduction of reservation agreements.
Advisers, and their clients who have purchased new-build properties, will be most familiar with these as they are a key part of this type of transaction.
I must say that the CA takes something of a neutral stance when it comes to reservation agreements and, for transparency, there are a number of conveyancing firms who are not supportive of them and do not believe they add much to the process.
However, the government does appear to see some benefit in an agreement which binds both seller and purchaser, and which provides financial recompense to one party should the other pull out for no good reason.
Having such an agreement might well bring down the number that fall through.
Prepare for change
To understand the potential uses of reservation agreements and whether consumer behaviour might change, or need changing, the MHCLG is commissioning behavioural insight research, which will include a trial – due to take place before the end of the year.
As part of the Home Buying & Selling Group, the CA will be working with the researchers to help them understand the issues around these agreements, what they might be able to achieve and how they might be introduced.
The CA and MHCLG recognise that reservation agreements will not be the silver bullet, although they may encourage greater uptake of upfront information.
And I do not believe anyone could sensibly argue that having all information required for the conveyance available at the point of sale would not speed up the process, create greater certainty and reduce fall throughs.
In that sense, the notion of a ‘quick win’ for cutting down on failed transactions by use of reservation agreements might seem a misnomer, because it’s unlikely that we’ll see any legislative changes until 2020.
However, the market should prepare itself for change in this area because there does appear to be cross-party support for action.
Regardless of the government, there is political will to deliver a better house purchase process for all, and as long as the industry’s voice is heard and heeded, that can only be a good thing.