Lockdown has made us reconsider everything we took for granted – Murphy
We have moved quickly to develop and adopt sophisticated technology to continue business as usual, as much as possible; but, of course, it has not all been plain sailing.
An immediate challenge was finding a way for brokers to access, store and send client data securely from home.
This would not have been possible without the option to digitise data and host it via the cloud, making it immediately accessible and distributable from anywhere with an internet connection.
This not only saves hours for all parties by reducing waiting and admin times, but without it, the continuation of business of any kind would not have been possible.
Sophisticated technology can also be used to verify identity online, allowing a crucial stage of the mortgage process to continue remotely and safely.
The software underpinning this can be integrated into tech platforms and then tailored with lenders to ensure it meets their requirements. This is an innovation which we need to take forwards beyond Covid-19.
Use technology to maintain strong relationships
A further challenge the industry currently faces is the broker’s old enemy – product transfers (PTs).
The current market environment has made PTs an important way to keep activity moving, but this is not a trend which we should be comfortable with in the long term.
The complications of conducting home valuations and a dearth of attractive products has caused the number of PTs to rocket.
This has made it essential that brokers are finding ways to maintain strong client relationships so they can step back in as lockdown eases.
While they will never replace the real thing, video conferencing is the best way to do this – apps such as Microsoft Teams and Zoom have successfully bridged the gap.
Video conferencing is likely to continue when ‘normality’ returns, as both brokers and clients recognise the advantages of cutting back on travel time and transport costs.
Keeping a workforce motivated
It is equally as important that managers and business leaders look after their employees, ensuring they have a motivated workforce which can continue to perform.
Studies have found that an employee’s motivation increases if tasks are engaging and rewarding.
It’s not rocket science, but minimising admin and repetitive tasks can boost engagement and create a more productive team over lockdown. Once again, intelligent tech is the answer.
As a by-product of coping with the challenges of remote work, our industry has found ways to eliminate the time spent waiting for the post or travelling between meetings.
We’ve created a more streamlined mortgage process for client, lender and broker alike.
What we took for granted
The changes enforced by Covid lockdown have led us to review and reconsider everything we previously took for granted or accepted as ‘the way things are done’.
There was nothing fundamentally wrong with many of these methods per se – from requiring paper copy documents for ID verification through to meeting clients face-to-face.
But we can all agree the innovative solutions embraced by the industry to help us navigate lockdown’s block on business as usual, have made us fundamentally better businesses.
The technology that is supporting us now is what will help us thrive moving forward.
Technology adoption is no longer an option for getting ahead of your competitors, it is a requirement to ensure you aren’t left behind.
Learn from the best to build a sustainable legacy for your business – Knight
As a southern Liverpool fan, I grew up accustomed to success on the football pitch and my team winning the league on a regular basis.
However, 30 years was a big chunk of time to wait for the next league title and far longer than I’m sure many of us anticipated.
There were many reasons for this but what we have to appreciate is that the success of the current team has to largely fall on the shoulders of the manager.
In a similar fashion to Southgate, Klopp has the ability to get the best out of the players at his disposal.
But what has this got to do with mortgage brokers?
Well, in the current market and economic environment, it’s crucial that we adapt to get the most out of our staff and suppliers by operating in a way which allows them to excel.
This can often prove the difference between winning and being a runner up.
So, here are a few things I see Klopp doing on a regular basis which we could all learn from.
Unlike other managers who use the word “I” or “me”, Klopp talks about the team. Not about the star players, it is all about the team.
This is an approach which generates greater trust within his players and trust is vital for any team.
In the current environment, building trust with those around you requires a greater emphasis on “us” and a renewed focus on building strong relationships.
Get to know your staff better. Learn more about their lives, their strengths and their weaknesses. Focus on the team ethos to build this trust.
Klopp also focuses on progress. He constantly refers to the team being in a state of development.
It’s about growing, learning and developing as a team. He likes to learn about his players rather than dictate to them.
He also understands that he does not know everything and that he needs to surround himself with experts to help create a winning team.
Anyone who follows football knows Klopp exudes passion.
I don’t think brokers need to be hugging everyone, not least because they can’t, but the more passionate we are about our roles the better. Passion is contagious – to staff and clients.
As Klopp said: “The only thing I can do is to put all I have – my knowledge, passion, heart, experience, everything – into this club.”
Klopp has labelled himself the normal one, or should that be new normal one now I guess, which is in sharp contrast to the ‘special’ one AKA Jose Mourinho.
Demonstrations of humility and empathy are vital in challenging times.
We often don’t realise the full effect that lockdown may have had on people from a mental, physical and emotional perspective.
So, take a bit of extra time to understand the needs of the people around you – from both a work and personal standpoint – and use this information to from better connections and establish a stronger support network.
Lead by example – Simply do your best. Give 100 per cent. As Klopp says: “It’s not really a philosophy, it’s just my way of life.”
Pats on the back
After each game, you see Klopp congratulating his players, win or lose.
Take time out to say thanks to staff and give them a big pat on the back. They will appreciate it more than ever right now.
And this combination of factors will hopefully build a legacy of success for both Liverpool and your business.
Chancellor should have axed stamp duty surcharge to help boost rental supply – Rowntree
I appreciate there is little political capital to be gained by supporting buy-to-let investors and, of course, the government does not want landlords competing head-on with first-time buyers for the same property.
However, including this group fully in the holiday would have achieved two important goals: oiling the cogs of the housing market by attracting more participants; and boosting the supply of rental property in areas where it is much needed.
Our analysis has shown that the stamp duty surcharge for buy-to-let introduced in 2016 disproportionately impacted new purchases by landlords in areas with above average property prices, predominantly in southern regions and more acutely in London and the South East.
Removing stamp duty for properties below £500,000 will not necessarily help those who live in these regions and aspire to move onto the property ladder.
The average property price in these regions takes home ownership out of the reach of many people and first-time buyers were already exempt up to £300,000.
Increased demand for renting
Southern regions have the widest average earnings to house price ratios, meaning more people rely on rented property.
Even with government support packages, the average property price in London remains 12 times average earnings and it is 10 times in the South East. The picture is not much better in the South West or East of England.
With the availability of higher loan-to-value mortgage deals reducing for first time buyers – making it harder to buy a home – we expect increased demand for rented property.
People are also likely to delay house purchase decisions until they have a clearer understanding of the state of the economy and job security.
We have started to see rent price inflation creep up in certain regions as the undersupply of new rental homes bites – Zoopla reported at the turn of the year that new supply of property for let in London was at a two-year low.
The stamp duty surcharge introduced in 2016 had a material impact on landlords’ appetite and ability to purchase new property, but more so in the South where it is more expensive to buy property.
A landlord buying a property in the North West at the Office for National Statistics December 2019 average property price of £164,893 would pay £5,744 in stamp duty before this reduction.
In contrast, a landlord in London buying a property at the average price of £478,576 would pay £28,286.
Today, the North West landlord would see their cost reduce to £4,946, whereas the London landlord’s tax bill would halve to £14,357.
This clearly makes new acquisition a more attractive proposition but removing the stamp duty surcharge altogether for a temporary period would have provided a stimulus for buy-to-let landlords to invest further in these regions and provide the good quality homes the private rented sector needs.
Constraining private rented supply at a time when it is more difficult for people to get on the housing ladder risks certain groups being priced out of both home ownership and rented property.
The UK will lead the way on AML post-Brexit – Cheek
Given the apparent lack of progress in the talks, this raises the prospect that this will happen without a full agreement in place across the wide range of issues currently under discussion.
One of these is the future of co-operation on financial crime, including the enforcement of money-laundering regulations currently determined at an EU level.
On the EU side, there have been a number of announcements recently indicating that Anti-Money Laundering (AML) rules will be tightened still further.
Most recently, in May, the EU announced a six-point action plan to step up the fight against money-laundering, including plans for a single EU rulebook and EU-wide supervision.
In the UK, the government transposed the fifth EU Money Laundering Directive (5MLD) into law in January of this year, but has opted out of implementing a sixth directive (6MLD) which is due to come into force across the EU in December.
Although that falls within the transition period, the UK position is that its existing rules are already in line with what 6MLD requires.
This has led to speculation that, once the transition period is over, the UK will use its new-found freedom to diverge from the EU in this area.
The prospect of ‘regulatory arbitrage’ is held out by some as a means by which the UK – and particularly its financial sector – can retain its competitive advantage over its continental neighbours.
This seems unlikely, however. Along with other developed countries, the UK is a signatory to the Financial Action Task Force (FATF), established by the G7 in 1989 to set the global standards in the fight against money-laundering and terrorist finance.
The FATF now has 39 members, including all of the world’s major financial centres.
And it has also recently made clear that it is in no mood to let up, issuing a statement at the height of the ‘lockdown’ in April, highlighting the increased risk of financial crime as a result of the coronavirus crisis.
In reality, the UK has no reason to want to lower the guard against money-laundering. Any sign that it is leaving itself more exposed to dirty cash will have a powerful negative impact on legitimate investors, who rightly see the UK’s strong regulatory regime as an important factor in maintaining a well-functioning market.
Recent tough enforcement action – such as the £38m fine levied by the FCA on the UK arm of Commerzbank – suggests that, if anything, the UK will be leading the way.
Rapid equity release growth has hindered advice but support is available – Wilson
Despite the findings of the report, significant efforts are being made to deliver a high quality service to the customer, but clearly there is still work to be done.
In recent years, the pace of change in the equity release market has been rapid, and significantly faster than in the much larger and more established general mortgage market.
We have seen lenders come and go, and the number of cases and amounts being lent increasing significantly. Coronavirus has slowed the growth, of course, but there is still so much potential.
Such growth will inevitably lead to a swift increase in the number of advisers, many of them migrating across from general mortgage advice.
Unfortunately, inexperience and lack of engagement with the available support can mean some advisers may not be hitting all of the required points needed to deliver bulletproof sound advice.
In depth advice
The starting point is the first client meeting where a thorough understanding of the client’s situation is gained simply by talking and note taking. This is not the same as filling in a form.
An equity release plan can be an emotive subject; it is therefore important to understand what is driving the client’s thoughts, and to share their views and feelings about what you are telling them.
The FCA did note that advisers were not making enough reference to the actual words that clients used to express their feelings about things.
Where equity release is recommended, we must be careful to also explain why other alternatives were not.
Can they downsize? Pay the interest? Sell an asset? No? Challenge it – why don’t they want to? And make sure you record their answers in your suitability report.
Advisers should also be prepared to challenge their client’s assumptions about things.
I see clients who have a nest egg in the bank which they say they do not wish to touch. However, sometimes the amounts held are significant, and so we have a conversation about the cost of borrowing whilst the savings languish in a low interest account.
Using some of the savings and borrowing less initially makes more financial sense in some cases, and a drawdown plan can be put in place to provide for the future when the savings run out.
There is a good deal of support for the equity release adviser, including the Equity Release Council who have stepped up their game in recent years in helping advisers deliver high quality services.
This includes the recently revised ‘adviser checklist’ which has just been released and which provides a good summary of all matters that should be considered.
Also supporting advisers are the teams at Answers in Retirement and Advise Wise. These both have intelligent sourcing platforms, and a range of other materials to help the adviser do their job compliantly, ethically, responsibly and with integrity.
Property chains less likely to break under simultaneous exchange and completion – Bessant
Since then the position has become more fluid but what is certain is that the property market has not found its equilibrium and may not until well into 2021.
The stark reality is that tens of thousands of homeowners have already been or are likely to be made redundant as companies emerge from lockdown and furlough funding ceases.
The result is that many transactions will no longer go ahead, and the continued uncertainty over the trajectory of the pandemic means that even the most committed buyers and sellers will be nervous of exchanging contracts.
Chains may be affected by Covid-19
One problem with the system of conveyancing has always been that of the ‘chain’ of transactions.
It is not unusual to see chains of five or more transactions, all of which fail if just one buyer or seller drops out before exchange of contracts.
Usually, however, once contracts have exchanged the parties can be confident that matters will be successfully completed on the contractually agreed completion date.
But the current crisis has introduced a great deal of uncertainty into the process; there are very real risks that one or more transactions in a chain might be affected by a Covid-19 related problem – for example, a seller having to self-isolate, removers being unavailable, transfers of funds being delayed.
In such circumstances, every transaction will be delayed, with consequent additional costs such as extra legal fees for dealing with the service/receipt of a notice to complete, payment of penalty interest under the contract, and consequential losses such as removal costs, storage and temporary accommodation.
At its worst, transactions might not complete at all, leading to the risk of losing a 10 per cent deposit due to failing to complete within 10 working days of a notice to complete having been served, and claims for damages for breach of contract.
It is also worth noting that if sale and purchase transactions fail to complete then mortgage advances will need to be returned and brokers will not receive their arrangement fees from the lenders.
Worse still, the current uncertainty over jobs raises another frightening prospect for anyone contemplating entering into a purchase with the help of a mortgage.
It has always been the case that lenders retain the right to withdraw their offers of mortgage finance if, for example, they become aware of the borrower having overstated their earnings, or of a change in the borrower’s circumstances.
In more normal times this is a known and generally acceptable risk for borrowers to take when committing to an exchange of contracts.
The situation looks very different today. Buyers and sellers are rightly very nervous of exchanging contracts for completion in a few weeks’ time in circumstances where there is significant risk that they, or anyone in the chain, might have their mortgage offer withdrawn.
Minimising risk with simultaneous exchange
Our experience of conveyancing during lockdown showed that by dealing with the transaction through a simultaneous exchange and completion it was possible to get through the process and to do so in a way which minimises the parties’ risks and leaves none of the uncertainty that the period between exchange and completion can create.
In the future, at least while we are living in uncertain times, we are likely to see behavioural change among both buyers and sellers, with those who want to move having a much firmer commitment to a sale going ahead.
While it is true that if one party in a single transaction or a chain changes their mind at the last minute then the whole arrangement still collapses under simultaneous completion, our experience over recent months is this is less likely to happen.
Both simultaneous and deferred purchasing present shared issues, for example if one party pulls out then unnecessary removal costs and other potential ancillary costs associated with the move could be incurred.
However, as we pointed out earlier the costs associated with a failure of a conventional exchange and completion are often potentially far higher.
Plainly the most appropriate conveyancing process will be dependent on a number of factors and will most likely evolve as the market does.
That said, in my opinion, the risks a simultaneous exchange and completion avoid, and the psychological advantages of a transaction that is completed in a single, simultaneous transaction are currently far greater than the disadvantages attached to it.
I would therefore urge brokers to discuss or raise awareness of simultaneous completion rather than leave the decision to the clients’ lawyer who most likely will opt for the status quo.
FCA must act on ‘unacceptable poor quality’ equity release advice – Lynda Blackwell
This followed media reports of things not being well in the sector, of poor outcomes for older consumers, for whom, as the FCA has just reminded us again, the ‘consequences of their decision [to take a lifetime mortgage] are likely to have significant impact on their financial wellbeing for the rest of their lives.’
It’s very important to get lifetime mortgage sales and advice right, particularly given the vulnerability of many later life borrowers who don’t fully understand these products and the long-term implications of taking one out. They rely on a specialist adviser to look after their interests and ensure that a lifetime mortgage is the right product for them.
Spotlight on the sector
So, how did the sector fare? Can we look at the findings and rest easy, reassured that customers are well looked after, that the quality of advice in the later life sector is high? Are they receiving the sort of service that is commensurate with the standards expected of specialist advisers looking after the interests of older and particularly vulnerable customers?
No. We can’t. The review makes for very sorry and worrying reading. The FCA found unacceptable poor quality advice causing major harm for consumers likely to be vulnerable.
It’s noticeable that numbers aren’t mentioned in the report. There’s no mention of the ‘vast majority’, ‘most’ or a ‘small minority’ or a ‘few’. Instead we have ‘mixed’ results. There is some mention of cases where it was the right choice for the customer. But mostly it’s about the poor cases, where it was clear that it was not in the customer’s best interests.
There was one solitary reference to a ‘better example’ amidst lots of very poor examples – not even a ‘good’ example, just ‘better’ than the rest. All firms were asked to take action to address the findings. This suggests sector wide failings.
The FCA has acknowledged there is real, significant harm being caused to older consumers. They mention in the report that what they see today echoes the findings of their review into the quality and suitability of advice back in in 2015.
And yet, notwithstanding clear evidence that things haven’t improved and that vulnerable customers are being harmed, all that we have from the regulator is an end of term report saying that advice standards are ‘still not up to scratch’.
When will the FCA say enough is enough?
This is a regulator with a statutory objective to protect consumers and a Mission Statement focused on the vulnerable. Just what will it take for the FCA to say enough is enough? What are they going to do that makes this sector sit up and acknowledge that the outcome for often vulnerable customers just isn’t good enough? What is it going to take to fix this very broken market?
I know there are good advisers out there who suffer from the poor conduct of others, and who must be very frustrated to read the FCA’s report. There are also big, structural issues in the market that don’t help.
I have referred before to the lack of real customer choice in this sector, meaning that many customers who would never of their own volition choose a lifetime mortgage end up with one.
The simple fact is that their income in retirement means they cannot afford to make the payments or don’t want to take the risk that things might happen subsequently (such as huge care costs) that mean they can’t make their payments and could lose their home. No one, particularly older and more vulnerable customers, would ever risk losing their home.
An alternative approach
The FCA’s income-based affordability rules were developed at a time when most borrowers paid off their mortgages before they retired and could get by on their pension, mortgage-free. Times have changed.
The fact is that increasing numbers of older consumers need additional money in retirement and are looking for property-based solutions. Those who had future earning capacity but no assets at the start of their mortgage are now asset-rich but cash-poor as they head into their retirement. They need a different approach – one not based on income alone.
Why can’t their housing wealth be sufficient collateral for a mortgage? The FCA has already relaxed its approach by allowing the sale of an older borrower’s home to be a suitable repayment strategy for Retirement Interest Only Mortgages. Why can’t it be a suitable strategy for older borrowers, asset-rich but income-poor more generally?
It surely can’t be enough for a regulator to simply observe that customers are being harmed. It must take action to protect them. It’s time for the regulator to step up to the plate and get this sector sorted.
The good market news far outweighs the not so positive – Ying Tan
Let’s get the not-so-positive news out of the way first.
Barclays has stopped accepting new purchase and remortgage applications for multi-unit properties, special purpose vehicles (SPVs) and limited liability partnerships (LLPs).
This is not overly surprising news when coming from a mainstream lender, and it will be interesting to see how long it is before Barclays returns to this type of lending.
Let’s hope it is just a temporary measure.
Ipswich Building Society has pulled its five-year standard and five-year expat buy-to-let fixed rate products.
The decision to slow the influx of applications has been made to sustain service levels after the lender experienced a 40 per cent increase in overall applications over a seven-day period compared to the previous week.
It will continue to offer its two-year standard buy-to-let and expat buy-to-let fixed rate products for purchase and remortgage purposes.
Despite the pulling of any product range being tinged with some degree of disappointment, when the reason is due to heightened demand, then it becomes far easier to take.
In terms of rate changes, The Mortgage Works (TMW) and Hampshire Trust Bank (HTB) have both increased rates on their specialist buy-to-let products.
TMW has raised rates by up to 0.5 per cent, an average increase of 0.3 per cent, for its limited company mortgages. Meanwhile, HTB has upped its lending rates by 0.25 per cent for all specialist mortgages buy-to-let and semi-commercial products. Again, these moves are not ideal for the sector but are completely reasonable under current market and economic conditions.
Now onto more positive news.
Fleet Mortgages has launched two- and five-year fixed products up to 75 per cent LTV across its standard, limited company and homes in multiple occupancy (HMO) offerings.
Fleet limited its lending to 60 per cent LTV in March in response to market conditions caused by the coronavirus pandemic, so this represents a move in the right direction.
Foundation Home Loans has made a number of changes to its buy-to-let range.
The specialist lender has increased its LTVs to 75 per cent, including HMOs and multi-unit blocks (MUBs). It has also introduced a number of criteria changes across its BTL range, including the re-introduction of a 125 per cent interest cover ratio (ICR) for limited company borrowers and basic-rate taxpayers.
InterBay Commercial has launched an enhanced product range for HMOs and MUFBs, which is available for purchase and remortgage applications. Properties up to 20 bedrooms/units can be considered with a maximum loan size of £1.5m up to 70 per cent LTV.
Larger loans will be considered on a referral basis and intermediaries should contact their senior business development manager to discuss specific cases.
LendInvest has introduced a range of updates to its buy-to-let product range, including a series of special offers available for a limited time. The lender has also reintroduced its 75 per cent LTV products for standard HMO cases up to six bedrooms, with rates available across two- and five-year fixed rate products.
Finally, Platform has reintroduced standard BTL fixed rates at up to 75 per cent LTV for purchase and remortgage in England. The maximum LTV for purchase and remortgage remains at 60 per cent LTV in Scotland and Wales.
As you can see, the good news far outweighs the not so positive and indifferent news. A trend which will hopefully continue into the summer months.
Markets disappointed by only £1bn increase in QE – Maddox
Furthermore, policymakers announced the expansion of quantitative easing (QE) by £100bn, disappointing the markets which were expecting a higher stimulus.
This means the total QE target of £745bn should be reached at the end of this year.
The MPC stated in its minutes that the fall in global and UK GDP in Q2 would be “less severe than set out in the May report”, but it would be difficult to make a “clear inference” about the recovery thereafter.
It added: “recovery in demand and output was occurring sooner and materially faster than had been expected”.
GDP fell by 10.4 per cent in the three months to April 2020, and monthly GDP fell by 20.4 per cent in April 2020, following a six per cent fall in March.
The minutes also highlighted that UK households were likely to behave cautiously despite the relaxation of Covid-19 restrictions, therefore there was a risk of unemployment being “higher and more persistent”.
Meanwhile, Office for National Statistics (ONS) data showed that inflation had fallen sharply to a four-year low from 0.8 per cent in April to 0.5 per cent in May.
This is well below the Bank of England two per cent target with the drag in inflation the result of the collapse of demand due to the pandemic.
Three years at zero
The market now expects the BoE base rate to remain at close to zero basis points (bps) for the next three years.
Interestingly, while negative rates have started to be a hot topic in the markets, governor Andrew Bailey noted that negative rates were not discussed during the MPC meeting, pushing away the talks to a further rate cut for now.
Forecasts for three-month London Inter-bank Offered Rate (Libor), two-year, three-year and five-year swap rates remain at 25bps for the next three years.
The forecast for 10-year swap rates remains at 50bps.
Non-banks need financial support to help borrowers in the future – Young
One future takeaway might be how we balance government support with the provision of mortgages by specialist, non-deposit taking, lending institutions.
It seems likely this period will result in greater numbers of borrowers requiring specialist mortgage loans; buy-to-let, self-employed, contractors and freelancers or indeed the credit-impaired.
It does not take a genius to work out that these borrower demographics might grow as a result of the economic impact of Covid-19.
And where will they turn for mortgages? Specialist lenders will probably fill this particular breach so there will need to be a change in thinking around government support and who can access it.
Specialist lenders have, once again, been placed in a tricky position during the crisis because, for the most part, they have not been able to make use of the government and Bank of England money that has been freely available to deposit-taking organisations.
The capital markets have effectively been closed for the past six to eight weeks, meaning the spreads have widened, and the cost of funds have moved from 90 basis points over the London inter-bank offered rate (Libor), to a peak of 310 points over Libor.
Obviously the cost of this money was far too much to be passed onto borrowers.
Hence, the decision by many specialists to either cease new business entirely or to pull back considerably. It has meant less lending and tighter criteria.
The fact is that advisers would not have been able to sell mortgages to clients at the costs we would have needed to put on our loans.
It has meant a specialist lending sector under severe pressure, and while there are some green shoots starting to be seen, this is a long-term ‘game’.
There has been some talk that we might see movement in the capital markets by September or October. Other commentators have suggested the market could be in limbo until the Spring of 2021.
That has serious repercussions for a number of lenders and it could mean the difference between survival or not.
It would be incredibly frustrating to see fewer lenders and products in the specialist space, at a time when the need for these mortgages is only likely to grow.
Need for a solution
Fleet has been fortunate in that we negotiated lines with our funders to keep lending during this period, albeit at a reduced level. But it would have been incredibly helpful to have access to the government support.
This was not, however, possible.
If there are further waves of Covid-19, or indeed future virus strains which have a severe impact on our market, then we need to find a solution here.
Specialist lenders contribute a great deal in terms of helping borrowers who would otherwise not be helped by the mainstream players.
We talk a lot about the depth and breadth of the UK mortgage market and the recognition that this is not supplied in its entirety by deposit-taking banks and building societies.
That being the case, I’m sure a solution can be found to support those lenders during future turbulent times – the benefits for the market and those borrowers would be huge. We must keep working towards it.