Holiday-let market gears up in spring product refresh – Ying Tan
InterBay Commercial launched a range of holiday let products with rates starting from 3.84 per cent.
These products are aimed at personal ownership and limited company landlords looking to let out properties on a short-term holiday-let basis to meet the recent growth in demand. Loan sizes range from £50k up to £1m, with no maximum property value.
An interest-only option is also available and minimum ICR and stress rate requirements are 140 per cent using gross rent, with rent calculations based on a letting period of 30 weeks a year at an average of the low, mid and high season rates.
Market Harborough Building Society released a range of holiday-let products for simple and complex cases. This includes variable rates of 3.49 per cent for simple applications and 4.24 per cent for complex cases, with fixed rates available on request. The range is available for cases between £200,000 and £3m, up to a maximum 75 per cent loan to value (LTV) and is suitable for expats, applications involving Airbnb rentals and unusual properties such as multi-units or large acreage.
Staying within the mutual community, the Cambridge Building Society reintroduced a number of holiday-let mortgages. Notable products include a 75 per cent LTV two-year discount at 3.39 per cent and a 75 per cent LTV five-year fix at four per cent. Both offerings include a completion fee of £1,500 and early repayment charges.
Owners will be able to stay 90 days per year in the properties. In addition, Furness Building Society added to its holiday-let range via two five-year fixed rate products at 65 per cent and 75 per cent LTV, priced at 3.89 per cent and 4.29 per cent respectively. Both products include a fee of £1,250 which can be paid upfront or added to the loan.
This isn’t the only niche area of the BTL market which has seen activity levels rise over the past month. The Mortgage Works (TMW) launched a green further advance mortgage range, designed to support landlords in making their properties more sustainable. A rate of 1.49 per cent is available for loans of between £2,500 and £15,000 up to a maximum 75 per cent LTV, all of which come with no product fees. Landlords can opt for a two- or five-year fixed product, with rates for those making green improvements to their property up to 50 per cent lower than standard further advance rates. The whole loan must be used to fund a range of sustainable home improvements, including the addition of solar panels, window upgrade/replacement, boiler upgrade, air source heat pumps and electric car charging points.
Keystone Property Finance also released a product range for landlords with energy efficient properties. This is priced at 15 basis points lower than the lender’s core products and they will be available on properties which are five years or older with an energy performance certificate (EPC) rating of A to C. The green range is available for purchase or remortgage purposes and can be secured on all properties, including houses in multiple occupation (HMOs) and multi-units. The loan size ranges from £50,000 to £1m.
I’m not ignoring the large volume of product changes and criteria tweaks made across a highly competitive mainstream BTL marketplace, but in a time when landlords are looking to diversify and assess property-related costs, these areas represent interesting opportunities and viable options for many.
Last week, Ying Tan exited Dynamo after selling the business to Connells.
Product transfers: Benefit to the customer or the lender?
Well done to them, and why shouldn‘t they, after all they are commercial enterprises and they recognise a good client when they see one…certainly for an existing borrower who has proven a good risk.
Of course, this represents a challenge for advisers to support their client, for ensuring a hasty client decision on a product transfer doesn’t exclude the adviser – with all the consequences that entails – but that it also doesn‘t end up costing the client money.
The value of a mortgage broker
I saw a recent post on LinkedIn from Malcolm Davidson at UK Moneyman, which highlighted just such an issue, and reiterated just how important the role of the adviser is within a product transfer situation.
Malcolm wrote about a recent client who was presented with a product transfer option early. Unbeknownst to that client by making just a couple more mortgage payments, they would become eligible for a lower LTV product which came with a better rate, saving that client a not insignificant amount of money. His post was followed by other advisers reporting the same or similar examples.
Now, as advisers will no doubt testify, having that product transfer option ‘in the pocket‘, so to speak, can be of benefit, but by taking it early when better options will be available in just a short few months, the client could have been significantly worse off.
In a two-year period where house prices have tended to rise, and where many people have been overpaying on their mortgage, this next product maturity could be a good opportunity to not only benefit from those outcomes, but also the highly competitive mortgage market.
The client mentioned above – by making those two mortgage payments – became eligible for an 85 per cent LTV mortgage, when the initial product transfer option was at a higher LTV, and therefore higher price.
Incoming wall of mortgage business
IMLA recently suggested that there are 700,000 mortgages set to mature this year, and if the above doesn’t highlight the importance of continued advice for existing borrowers, I’m not sure what does.
As Malcolm highlighted, the client was completely unaware of what could be achieved and any early decision to product transfer would have probably rendered them unable to secure that better deal.
It seems highly unlikely that lenders are going to make their existing borrowers aware of such options directly, so without adviser intervention, they would have paid more for the next couple of years than they needed to.
Much is made about the smooth process, the quickness of transfers, and the fact that, for example, the client doesn’t need to pay for conveyancing, etc, but advisers must still hammer home the benefits of advice in this and any other market interaction. Ongoing communication especially in the build up to maturity has to focus on clients not taking the first product option on offer and giving the adviser the opportunity to look at what can be achieved.
Product transfers continue to take a bigger share. As an industry we, and the borrowers involved, need to ensure that as many as possible are only taken with advice that shouldn‘t be undervalued.
Rising Star: Rebecca Hayes, Family Building Society
What does your role entail and how long have you been doing it?
My team and I look after the IT operations for the Family and support for the technology and systems. We deliver all technical change across the business, too.
What attracted you to working in the mortgage sector?
The Family caught my eye because of its innovative products. In a market that is typically very traditional and a little old fashioned, the Family offers products that allow parents to help their adult children to buy a home with a small deposit and lend to those coming up to and in retirement.
When I did my homework, and going through the interview process, I found that the Family truly does things differently — in a world in which “computer says no,” is considered the norm.
I was surprised to find that our underwriting is done manually, which means we are able to help people whose circumstances don’t fit the usual lending criteria. All of our customer service teams are based in our office in Epsom. In a context where many businesses have outsourced to overseas as much as possible, to cut costs, this is refreshing.
What were you doing in the five years before starting here?
I worked for an insurtech and then joined a property insurance company, as its’ first chief technical officer, where I looked after the full spectrum of IT functions, helped to re-structure the operating model and developed IT strategy.
What personal talent/skill is most valuable in doing your job?
Supporting and coaching my team. Any business is only as good as its people.
I am very fortunate to be working for an organisation that really values its staff. Many colleagues have been with us for decades.
What personal talent/skill would you most like to improve on?
Not laughing at inappropriate moments and not rolling my eyes.
I am trying to get up to speed on the financial accounting side of our business. Our chief financial officer is patiently teaching me the intricacies of capital and liquidity, while I ask endless questions and he tries not to roll his eyes.
How has the pandemic changed the way you approach your job?
Like a lot of people, it’s made me re-evaluate my work life balance. I still enjoy being in the office and seeing my team, but I also enjoy the flexibility of working from home.
Where do you see yourself in five years’ time?
Our CEO asked me the same question in one of my interviews and I said: “in his job”. This is rather ambitious, but I certainly hope to stay at the Family for the long term.
If you could go back in time and tell yourself something five years ago, what would it be?
Don’t forget to take people with you. When you implement any sort of change in a business you must engage people. They need to have a say and feel part of the change, rather than feeling like change is being dictated to them. I learned this the hard way.
What’s been your lockdown coping strategy?
My Peloton exercise bike. It’s probably the best thing I have ever bought.
What’s the biggest challenge you’ve tackled so far in your career?
I have never taken a role that wasn’t challenging. That is where you can make the biggest difference and affect real change. It gets me out of bed in the morning.
If you could have one superpower, what would it be?
A conversation I have had many times with my two boys.
Being able to travel through time would be pretty cool, but then I wonder if I went back in time and tried to undo mistakes that I have made would I still be the same person? Probably not, so I’ll go with my boys and say Hulk strength.
And finally, what’s the strangest question you’ve ever been asked?
I was once asked in an interview how I would manage a male misogynistic pig. To which I replied: “Why do you employ someone you consider to be a male misogynistic pig?”
I didn’t get the job.
Lenders that cull BDMs do so at their peril – JLM
What has the last 12 months taught us in terms of the services we provide, particularly to our appointed representative (AR) firms?
Do they now need everything we thought they did pre-pandemic? How has the environmental shift changed their requirements?
Other businesses, perhaps most notably lenders, have clearly been doing the same.
There appears to be a focus specifically on the role of the lender business development manager (BDM) in a world in which. firstly, face-to-face adviser visits have not been able to happen, and secondly, where going forward large numbers of advisers might not wish them to happen.
Replaced by remote functions
On the face of it, the latter point might be taken by some lenders to mean BDMs are surplus to requirements.
Indeed, we’ve already seen personnel cuts across a variety of operations – some advisers will no longer have a BDM contact at all, instead having to rely on ‘Live Chat’ systems or their calls and emails going into a central pool where it may, or may not, be answered.
We believe this to be incredibly short-sighted for any number of reasons, not least the fact that it fails to understand the real value of BDMs (at least the good ones,) and what they can deliver, particularly in a complicated, competitive, nuanced marketplace.
Lenders that have already cut BDM roles appear to think of these individuals as nothing more than travelling salesmen who, without the offices to travel to anymore, are now defunct.
Think David Brent in his ‘Life on the Road’ phase – what happens when the roads are closed?
Service more invaluable than ever
When, in effect, good quality BDMs are worth their weight in gold. And lo, the better the BDM you work with, the more likely you are to place greater amounts of business with that lender.
Advisers need exceptional BDMs more than ever and having that direct communication with a lender representative who knows their stuff, who gets the broker market, who can respond quickly, move cases forward or give a definitive answer, is without doubt a huge advantage for adviser and lender alike.
As mentioned, our market is now incredibly nuanced. The introduction of furlough income, self-employed changes, payment holidays, more complex requirements and needs, can all warrant the need for exchanges with BDMs.
We’re not talking about the bread and butter information that can be found within the criteria pages, but those cases where a simple delve into criteria isn’t enough.
There are more and more of these nowadays. Hence the need for that lender point of contact who is willing and able to get you to where you want to be.
The days of BDMs nipping in for a coffee and a chat may well be over. In fact, you might argue that pre-pandemic they were already on their way out. But the days of BDMs who can add value, respond quickly and communicate effectively, are definitely not.
Lenders who cull their BDMs do so at their peril.
Talk to existing customers to protect long-term business – McDonald
This has become more difficult, with brokers so busy with new business enquiries and simply not having the time to dedicate to existing customers.
This is completely understandable and in a lot of cases, those existing customers would automatically come back to their current broker for the obvious reasons: they have a relationship with that broker, trust the broker, and know the broker will do whatever they can to find the best deal.
However, a light-touch approach to managing your existing customer base could bear fruit over the long-term, particularly in periods when you may be quieter – appreciating that these times are rare.
So why is it beneficial to have a loyal customer base, when you have a regular flow of new business coming in the front door?
Well, it goes back to trust. Should the application hit any problems for whatever reason, it is more likely that an existing customer will understand due to their long-standing relationship with you, and understand that you are doing your best for them to process their application.
Furthermore, it allows you to understand your customer’s needs — not just through the life of their mortgage term, but through the life of the customer. Over the course of their potential relationship with you, they may be moving from being a first-time buyer to homemover, to remortgage customer, and their requirements will change at each stage of the process.
Moreover, they will have requirements for other products through this period, protection and insurance being the obvious ones.
There are clearly very clever, complete customer-centric marketing tools on the market, which will allow you to manage your existing customer base in an effective and efficient manner.
Indeed, such a customer-centric solution would allow you to manage all of your customer’s financial requirements in one place, from the mortgage itself through to protection and insurance as highlighted above.
Although it’s fair to say that these can be quite costly, and also time-consuming if not managed properly.
So let’s be clear, managing your existing customers doesn’t necessarily have to lead to complex databases that you have to maintain. It also doesn’t need to be a costly exercise involving sending regular mailings to your existing customer base.
Indeed, it can involve a cheap email solution using one of the major email suppliers which can automate a contact with your existing customers. Maybe just a regular update on yourselves, the current mortgage market – whatever you feel comfortable with – or just send a manual email at renewal.
It might even be as simple as phone call to your customer to remind them that their mortgage product is up for renewal, and to arrange a follow up meeting, albeit this is likely to be via Zoom or Teams in the current environment. Or even arrange over the telephone.
In summary, the solution you arrive at will be completely dependent on your own business requirements including size and budget, but your existing customers are your most valuable customers.
Communicating with them in a simple and effective way will allow you to protect your business in the long run.
Regulators creating interest rate uncertainty – a Treating Customers Fairly issue?
One of these is the London Interbank Offered Rate (Libor) scandal of 2008 when it became evident that individuals in the market had been rigging and price fixing Libor for gain. Since that time Libor has had its cards marked and by the end of 2021 it will have been phased out for sterling transactions.
Libor is the rate at which prime banks lend to other prime banks for a set period of time. So you can have overnight Libor, one-week Libor, three-months Libor, and so on. It has been a flexible pricing mechanism that can cater for bespoke pricing and periods. And, because it is for a period looking forward, the rate reflects the market expectations for rates in the future.
This rate has existed since the 1970s and since 1986 was adopted and overseen (not strictly enough as it happens) by the British Bankers’ Association.
So what went wrong? After growing unease, on 27 July 2012, the Financial Times published an article by a former trader which stated that Libor manipulation had been common since at least 1991. In late September 2012, Barclays was fined £290m because of its attempts to manipulate the rate, and other banks were under investigation for having acted similarly. The British Bankers’ Association said on 25 September 2012 that it would transfer oversight of Libor to UK regulators. And this is what happened. Job done you might think?
Sadly, no: The decision was made to phase out Libor and this is what we are trying to implement right now.
The chosen successor rate is the Sterling Overnight Index Average (Sonia). This is set daily and is a single-day rate. So, if I’m a corporate setting my interest rate for the next three months, I won’t know what the interest rate was until the end of the period. Effectively, Sonia would be calculated for every day in the period and averaged for the period. Hardly helpful when trying to plan and hedge.
Sonia is not the same as Libor at all. One is a rate looking forward for period of time and takes into account expectation of interest rates during that period and the other is simply the daily average of rates during that period. Not the same thing at all.
The mortgage angle
But now we come to mortgages: there are a number of mortgages where interest rates are set relative to three-month Libor and lenders need to re-price these loans and communicate this clearly to borrowers.
Some lenders will be looking at their mortgage conditions and finding that there will be no legal option to change the rate without customer consent. So, what to set the rate to? And how best to advise the borrower in a clear and transparent way? Not easy.
It seems to me that what we have done is create a massive opportunity for consultants and advisers who are now advising the mortgage community how to square the circle between Sonia, Libor and Bank Rate. They will be analysing significant amounts of historic data to find core relationships between these rates that they can justify to themselves and to borrowers.
As a Fellow of the Association of Corporate Treasurers and a market practitioner of many years standing I can tell you it just can’t be done. We are comparing fundamentally different rates. And because lenders have been tasked to get on with it without guidance from Treasury or the regulator we are likely to see lenders arriving at different rates aimed at achieving the same thing. Confusing!
It would have been helpful if Treasury had foreseen this; it could have then declared a standard new system. For example, where Libor ceases for consumer priced loans, that Base Rate, either with or without a basis point adjustment, could be substituted instead. This would have saved a lot of unnecessary cost and confusion.
It will be interesting to see how a lender will be able to share data to justify any substitute rate with its borrowers, in a way that makes sense, when lenders are having difficulty enough understanding it themselves.
Maybe what we need is a true substitute of Libor, which Sonia clearly isn’t. How about synthetic Libor?
Unwittingly perhaps, but the regulators have created a confusing situation for borrowers and are at risk of breaking one of their core principles – not treating customers fairly.
Equity release growth must match ageing, changing population – Rozario
Populations, for example, are always evolving and growing in interesting ways. Most interestingly to the later life lending industry, is the steady ‘greying’ of society and the significance this will have for our market and our customers.
According to the always interesting and consistently insightful equity release market report – distributed quarterly by the Equity Release Council and required reading for anyone dealing with the lifetime mortgage – the ‘over 55s account for 75 per cent of UK population growth in recent years and are projected to increase in number by 3.7m by 2030’.
The significance of this change for equity release is two-fold.
Firstly, these numbers prove our little corner of the mortgage industry is here to stay.
With a swell of millions more people eligible for a lifetime mortgage coming in the next few years, our offering will reach more customers than ever before.
But secondly, and most importantly, the increase in numbers within the over 55s population will also turn up the heat on everyone involved with our industry to deliver the best products and advice available.
With so many more over 55s in the country, we must redouble our efforts and make sure this is the opportunity we take to make equity release the mainstream stalwart I believe it can and should be.
Growing with the population
Product launches, for example, have been a huge area of success for equity release as there are more lifetime mortgages available today than ever before.
In 2020, customers had access to over 500 different products and a new lifetime mortgage was launched, on average, nearly every single day.
But this should only be the start. With population growth speeding onward as it is, new products and more choice is key to making sure we keep up.
Beyond this, we need to continue to foster modern training and expertise within our adviser pool.
The pandemic has allowed advisers to become more adept with technology and other 21st century solutions, but we need to make sure these improvements remain in the advice arsenal of our advisers way beyond the end of the pandemic.
The new over 55s coming in the next 15 years will be more familiar with tech than any other cohort previous, and we need to make sure we are on top of any and all modern developments.
And finally, with this growing over 55s population coming round the bend, I would love the entire industry to realise that equity release can be a solution for all sorts of people at many different times in their life.
Yes, the average customer age still sits at a shade over 70, but I would really like to see some more innovative and flexible products aimed at the 55 to 60 market.
This population is going to grow and grow, so coming up with options for them will be so important to our future success.
Mortgage guarantee may be ‘underwhelming’ but its importance can’t be ignored – Bamford
I fully understand why Intermediary Mortgage Lenders Association’s (IMLA) Kate Davies referred to it in such a way – and to be fair she has a point – as it is based on the previous Help to Buy iteration of the scheme.
That was none too flexible and somewhat costly, but in a sense I’m not sure that really matters too much.
Of course, it will matter to those lenders who have already committed to being part of the scheme. because they will have to pay the fee to take part and will be judged on the pricing and quality of the products they bring to market.
There were also conflicting reports around what those products might look like. Some suggested they would not be able to compete with what has already been launched by other lenders, while differing opinions anticipated market-leading rates and criteria.
Certainly, from a PR perspective it made sense for the larger high street operators to tie their flags to the Budget announcement pole, so to speak.
And they would have done so based on the knowledge that the scheme would almost be a mirror-image of what the previous government guarantee looked like.
However, the market has undoubtedly moved on in the last eight years when that was launched, and it will therefore be interesting to see what the level of commitment is from the mainstream lenders going forward.
They have to offer a five-year fix – what will they be able, or want, to offer beyond that?
But, as mentioned, I’m not so sure the ‘devil in the detail’ argument around this ‘new’ scheme is very relevant, because it undoubtedly brought a level of confidence back to the 95 per cent LTV market.
It has pricked up the ears of lenders who – let’s be honest – would have taken much more time to get back into this sector, without any government intervention.
This is as relevant for those using the scheme and those who are not.
As the provider of private mortgage insurance in this sector, we’ve certainly seen an increase in appetite and interest in our offering from both existing clients and those looking to use a different guarantee alternative.
Coupled with those lenders who now appear willing to take the risk on their balance sheet, this has had an immediate impact with a steady stream of lenders announcing new 95 per cent LTV products.
At the time of writing, according to Moneyfacts we’ve seen an increase from five products – which all required some sort of parental support or guarantor – to 34.
That has grown through April and the anticipation has to be that it will continue to in May too.
So, while the government’s scheme might be ‘underwhelming’, we can’t underestimate its importance, its ability to get lenders signed up, and its impact in terms of creating confidence and appetite to lend.
Where once there was none, now there is growth.
And we should I suppose be grateful for the government intervention, the results it has already created and the increasing number of products that will benefit those aspirational homeowners.
Vendor disclosure will speed up housing transactions and increase broker income – Rudolf
There is another option – perhaps you look at change as “a necessary evil”?
But what about change as “a necessary good?” Because I suspect there will be no housing or mortgage market stakeholder who wouldn’t think change is required in the home buying and selling process in order to make it more efficient and to greatly speed it up.
That momentum for change, and for the acceptance of it, appears to be growing right across the board.
The last 12 months has presented a unique set of challenges to overcome but no-one in their right mind would think that 22 weeks to complete a housing transaction was anything but overly long.
And I take on board the extreme nature of the environment in which we’ve all been working, but even before the pandemic, the number of weeks to complete wasn’t very much less.
We have a unique opportunity to bring together a variety of changes which will ultimately help us all, because the quicker we complete, the more efficient we are, the quicker we get paid, and the more clients we can work with.
You don’t need to be purely altruistic about buying into this change – it fundamentally should mean increased income for your business.
The foundation of this change has to be much better upfront information at the point of marketing. In other legal jurisdictions they already do this, which means when the buyer makes their offer, they’ve already checked the legal suitability and their financial position as they’ve been able to check the lender’s acceptance of the property.
Which means that an offer to buy can be binding with a short cooling-off period.
In those jurisdictions where they have upfront information and binding offers, chains – in the sense of a chain of transactions synchronising around exchange of contracts – effectively disappear.
Instead, there is a synchronisation on the completion dates so people can still move from one property into the next.
This is achievable because as soon as they get an offer on their property, they can check they can get a loan on the property they want to move into, and that it meets their intended use and enjoyment, as required.
Then they can accept the offer on their sale and make the offer on their purchase with the completion date agreed through the transactions.
Support vendor disclosure
The Law Commission is currently consulting on its 14th Programme of Law Reform and has included the home moving process and vendor disclosure within that consultation.
If enough of the industry supports vendor disclosure then the delivery of the current obligation on the estate agent to provide the material facts becomes a whole lot easier because the seller will be liable to provide the information at the point of marketing.
That would save weeks in delay immediately – instead of various stakeholders coming to this late, and everyone having to wait while they secured the necessary documents, it would all be ready from the get-go.
As you can see, this is not change for change’s sake but to deliver a better customer and industry experience, to speed up the whole process, and get us where we need to be.
It is also likely to put more money in your pocket. What’s not to like?
We can expect more advisers to investigate becoming all-in-one lenders – Roberts
However, looking beyond some of the initial headlines, maybe the most interesting point is that Habito has come to market with a product it is distributing and manufacturing — broadening this model beyond buy to let where it already has a product and proposition live.
Could this be the start of a bigger shift in the way mortgages are underwritten and sold in the future?
It is not altogether uncommon to see distributors moving up the value chain. In general insurance, Managing General Agents (MGAs) are estimated to control about 10 per cent of the UK insurance market.
MGAs are essential distribution organisations or insurance brokers, acting as wholesale insurance intermediaries who have the authority to underwrite, accept placements, bind cover and in certain instances even manage claims on behalf of insurers.
In some ways this has revolutionised the sector by ensuring those closest to customers can match them with the best financial products.
There are parallels between the two sectors and there is certainly the potential for the mortgage sector to implement a similar model where intermediaries play a much more involved role in underwriting and placing business.
Involving distributors in lender processes
In the past there have been predictions of the demise or possible disintermediation of mortgages and advisers.
However, in my view, consumer demand for advice and advisers remains strong and recent events may have only increased this need.
For instance, Legal & General Mortgage Club’s SmartrCriteria and SmartrFit tools have recorded a significant uptick in the numbers of searches for products suited to furloughed borrowers and those who have missed repayments.
Maybe then, it is not advisers who are at risk?
Some have argued that product innovation simply has not gone far enough to reflect the needs of borrowers and there may be an opportunity for those closest to customers to drive the change many feel is needed.
And if others follow in Habito’s footsteps then we could see a shift in not only the types of products on offer, but also who is funding them.
All-in-one distributors could transform the way our market operates, potentially ushering in a new wave of ‘lenders’, the likes of which are populated with pension and insurance funds eager to invest in the UKs booming housing market.
An example has now been set and we can expect others to be having conversations about developing their own all-in-one propositions. This could be a space to watch closely.