The Accord Supper Club Southampton – ‘Robo advice may be a threat to everyone’s business’
After a brief introduction, a participant revealed that he has always generated business through local contacts, which means building up relationships with local accountants and solicitors.
He said that, due to the nature of taking over from an existing business 18 months or so ago, at the moment his business is focused on a bit of everything.
He added: “We’ve seen a big influx of expats as well as older clients. But something I’ve noticed in the last six months or so is the return of retention clients, which is having an impact on our average case value.”
However, one broker said that the product transfer market is a big thing on everybody’s mind, as more and more lenders are working their client base earlier.
A participant revealed the importance of writing to customers three months in advance, whereas another said that it is best to keep in touch with them six months before their mortgage is due.
One broker said that being supported by a digital process may be helpful, aimed at sending clients letters followed up by emails and phone calls during the six months.
He added: “So, if they haven’t been in touch, it’s pretty clear that they don’t want to deal with us.”
However, a participant said that he works almost entirely on referral.
“It is a long purchase now that we seem to get referred, it’s fairly excruciating. So they’ve become customers for life,” he added.
Another broker said: “One thing that we’ve noticed is that we’ve now started contacting our customers annually when the first year anniversary comes up with just a quick phone call, and then from that, you’ll get a referral.”
Realising technology efficiencies
During the debate, brokers also shared their point of view about technology investment at a firm-level, such as robo advice.
One broker said it may be a threat to everyone’s business, whereas another thinks that it is not.
Another participant said that the limiting factor with robo advice is adoption by the consumer.
He added: “The customers we deal with right now are not quite ready for that yet. But guess what, the generation that’s coming up are.
“As a broker, I don’t think you need to spend hundreds of thousands. We have 20-odd advisers and we run on three admins, whereas some of our competitors have one administrator to one adviser and that’s because they use technology to automate as much as possible.”
Another attendee said that advisers are far too busy to manage all those leads effectively.
He added: “So, it would be beneficial trying to make the most of the opportunities as they come through, whether they are new leads or whether they are renewals, because actually I would say we only manage to convert 70% of renewals.”
In regards to technology replacing admin staff, a broker revealed that to make a saving to compete in tomorrow’s world, it is essential to realise the efficiency that technology will enable.
He added: “I think the back office is where savings exist. We have looked at it, we’ve invested in a new Client Relationship Management (CRM) tool, but we’re not going to realise the benefit in under a year. However, in a year’s time, I think we’ll need very few administrators.”
Relationship with builders
A broker pointed out how hard it is to forge and strengthen relationships with builders, as they seem to have their preferred brokers.
Another participant revealed that there is a builder that takes a £60 fee per case to run what is essentially the conveyancing system that the developer uses to get updates on the customer.
This means that the broker pays £60 as a fee and generally the builder will not allow the broker to charge this broker fee to the customer.
He added: “There is another developer, who shall be nameless, who essentially gets its brokers to bid on an annual basis, on a per case basis, to donate money to their charitable foundation, which they then use in the national press to say how much they are donating to charity when actually it comes from the brokers and other key stakeholders in the supply chain.”
Some brokers also said they experienced some problems with a government agencies in the new build purchase administration process.
A broker said the current housing transaction slowdown overall suggests people are working harder to pay mortgages down, rather than buying new properties.
However, another participant said that a lot of his landlords are investing in cheaper and smaller properties. Due to the HMO licence changes, he has seen a lot of clients with pots of money still to invest.
He added: “So, rather than being able to save the second home stamp duty, they are trying to save on the basic stamp duty element. So properties around £125,000 – £140,000 rather than £250,000 – £300,000 and saving a couple of thousand in stamp duty there.”
Another participant said that there are more people wanting to sell rather than retain their properties, as they cannot afford the additional second home stamp duty hit.
“I have got a client who is saving £120,000 on second home stamp duty because he’s had to sell. But then I’ve had discussions about selling into your own limited company in order to avoid the stamp duty on the larger up-size that you do later on. And basically tricks to avoid having to pay it,” he added.
Over the next two years, brokers are expecting that lenders will update their systems and at the same time their entire platforms, making their product transfers easier and quicker for clients.
Another broker highlighted that he does not want the job to be too easy, but it is essential to have confidence in dealing with a new system.
“I think in some ways with all the system changes, the easier product transfers are, the easier it is for clients to do the product change themselves, the quicker everything is, the less value that we provide or display,” he concluded.
Melvin Parker, CMME
Taj Kang, CMME
Chris Schutrups, The Mortgage Hut
Cliff Lee, The Mortgage Hut
Jon Hatfield, John Charcol
Alex Taylor, AT Mortgages
Chris Blunt, AT Mortgages
Marcus Beech, Your Finance
Tim Harrison, Harrison Grey Financial Services
Louise Gray, Harrison Grey Financial Services
Kat Toomer, John Charcol
Accord Mortgages – sponsors
Ellie Tovey, Accord Mortgages
Alan Luther, Accord Mortgages
Mortgage Solutions – hosts
Lana Clements, Mortgage Solutions
Oonagh Sheehan , Mortgage Solutions
Danielle Dennis, Mortgage Solutions
Antonia Di Lorenzo, Mortgage Solutions
New lenders have radicalised equity release market – Syms
Meanwhile the number of equity release products available has more than doubled from 58 to 139 today.
In 2017, equity release lending broke through the £3bn barrier, while in the second quarter of this year, homeowners unlocked £971m from their homes suggesting the equity release market could soon be a £4bn industry.
According to the Equity Release Council’s Autumn 2018 Market Report, one of the driving forces behind this most recent rise is the increasingly complex needs of homeowners aged 55 and over.
Using the wealth locked up in their properties to boost their own finances, which have been undermined by poor returns on savings and low pension income, have traditionally been the main reasons why homeowners have turned to equity release.
Supporting social changes
However, the Equity Release Council’s report highlights how social changes, such as parents providing more support to younger generations, and the rising cost of care in later life is fuelling this recent spike in equity release lending.
As well as worrying about how they can help fund their children and grandchildren’s first step on the housing ladder, over-55s are also faced with the ever-rising costs of care, both for older parents and themselves.
Another driver behind the rise is the number of interest-only mortgages that have matured this year.
There are currently around 1.6 million people approaching retirement who have interest-only mortgages that are coming to an end, and many of those do not have the ability to repay the capital they owe.
Again, equity release is increasingly being used to offer a solution.
New entrants radicalised market
Many of the new products have been specifically designed to offer a solution to pensioners struggling to pay the capital on their interest-only loan.
Lenders offering this kind of flexibility allows the sector to grow as it gives borrowers the freedom to choose and control their retirement even as circumstances change.
It is clear that the market has evolved and I think it will continue to do so as we will see more lenders start to offer a wider range of products as the demand for more flexibility in the market increases.
The number of new entrants over the past few years have radicalised not only equity release products but the rates available, making the products even more attractive.
For example, the average rate on an equity release product just two years ago was 5.96% – now it is 5.22% and is continuing to fall, with a fifth of all products now under 5%.
Property rich, cash poor
Around 10 or 15 years ago, equity release was a fairly niche product – now, it is one of the fastest growing products in the lending market.
As lifestyles change and over 55 becomes ever younger, equity release has enormous potential for adding real value, not only to the mortgage market but also our economy and society as a whole.
With so many older people in a ‘property rich, cash poor’ situation, if they need to access cash, many have very little choice other than to unlock the capital tied up in their homes.
Brokers should make sure that equity release mortgages are on their radar as they can offer solutions to some of the biggest financial issues facing clients today.
Lenders must axe unfair restrictions for tenants on benefits – Heron
Now home to one in five UK households, the sector has demonstrated an unparalleled flexibility to provide short and long term accommodation to single people, couples and families on different incomes and at different stages in their lives.
Buy-to-let finance helps to fund an estimated 30-40% of PRS homes and many of these homes include tenants in receipt of benefits.
While as lenders we can’t dictate who a landlord lets their property to, we can encourage an inclusive PRS by making sure that our mortgage conditions don’t unnecessarily or unfairly prevent landlords from letting to any particular group of tenants.
As a seasoned buy-to-let lender, at Paragon we have extensive data stretching back over two decades and we can categorically state we have seen no evidence whatsoever to link any particular group of tenants – including tenants on benefits – with a trend in higher mortgage arrears or losses.
Should not take regulation
Our approach has always been to focus on the sustainability of the rental value of each individual property with due regard to its condition, location and local competition.
This involves careful and often time-consuming valuation work from our expert surveyor team.
It’s this careful underwriting and valuation work that provides us, as a lender, with the central assurance that we need: the assurance that a competent landlord will be able to achieve a rent to meet their costs.
This is irrespective of whether some of the income used to pay that rent comes from government or local authority benefits.
At Paragon we have campaigned for some years within the industry for lenders to do away with unfair and unreasonable restrictions on lending to landlords who let to tenants in receipt of benefits.
We would favour an industry-wide agreement to get rid of these type of restrictions and have championed this through UK Finance.
It should not take regulation or legislation to get lenders to do the right thing.
Mortgage Solutions last week reported on a case where NatWest asked a landlord letting to a tenant on benefits to choose between finding a new tenant or paying thousands of pounds in early repayment charges to find a new lender.
The FCA should refrain from further tinkering with the advice rules – Davies
Our concern with the recent Financial Conduct Authority (FCA) interim report of the Mortgages Market Study is that it makes a lot of assumptions about what consumers want – but is not clear that these are supported by informed consumer research.
Some of the suggested changes to the advice regime could lead to some borrowers taking decisions and going down paths that ultimately prevent them from identifying the most suitable mortgage.
Following extensive consultation, the Mortgage Market Review (MMR) ushered in an enhanced advice regime that was centred on finding the most suitable deal for borrowers.
Lest we forget, this has only been in place for four years, and was introduced during a period of historically low interest rates and a relatively subdued market.
The effects are still working through the system, and the precise benefits to consumers have yet to be fully analysed. So it feels premature to be considering making further changes now.
Risk that consumers who need advice may avoid it
The interim report suggests that some consumers might prefer to avoid the “cost and inconvenience” of advice – and would benefit from having more choice in terms of how much advice they need, or even whether they need to receive advice in the first place.
Clearly there will be some consumers who are able and prepared to do a lot of their own research in terms of identifying a suitable product – but not all consumers will have the same capability.
And not all will appreciate how much there is to find out and consider, which is precisely where an experienced adviser comes in.
The main risk, in relaxing the existing advice rules, is that consumers who really need advice might be tempted to avoid it, and end up buying products on the basis of incomplete information, or without having fully considered all the options and implications.
If the MMR concluded that it was sensible for the majority of sales to be advised – what has changed so much over the past four years?
The current emphasis on advice helps to ensure that products are suitable and that lenders lend responsibly.
Unless there is a compelling case for further change, we believe the FCA should refrain from further tinkering with the advice rules – and let the advisers judge what will best serve consumers’ needs.
Very real risk the new build sector could grind to a halt after Help to Buy – Philips
Available on new-build homes only, the idea is simple – the government lends buyers up to 20% of the cost of the home, the buyer then only needs a 5% cash deposit and a 75% mortgage to make up the rest.
The government part of the loan – the 20% – is interest-free for the first five years. In the sixth year, interest is due, initially at a rate of 1.75%.
For many, the scheme was too good to be true.
It is perhaps no surprise that between the scheme’s launch in April 2013 and its fifth birthday in March this year, almost 169,102 properties were purchased using a Help to Buy loan.
But, while Help to Buy has undoubtedly been a huge help to a generation, have we become too dependent on it?
House prices increased
Critics of Help to Buy say it has inflated house prices, with many concerned the scheme has done more harm than good.
Nicknamed the ‘Help to Sell’ scheme by some, the increasing demand seems to benefit existing homeowners, and property developers, rather than the buyer themselves.
There are also fears that when the initiative is withdrawn, any rise that has taken place will be undermined with potentially disastrous results.
And there is also the risk that the housing market will become dependent on the underwriting by government, again, putting taxpayers at risk and making it very difficult politically to shut the scheme down.
Must end eventually
But, it cannot go on indefinitely; it has already been extended until 2020 and the government can’t just keep on giving away money.
While the government has pledged to build 300,000 new homes every year, we are more than ever in a situation where first-time buyers can’t actually afford them.
Help to Buy has also encouraged lenders to offer higher loan to value (LTV) ratios, with the number of products available at 95% more than doubling since the scheme began.
But once the scheme ends, lenders won’t be prepared to accept deposits as low as 5% on new builds because of the risk.
Much like a brand new car that loses value as soon as it is driven off the forecourt, new build homes fall in value as soon as the property is purchased, making most lenders highly reluctant to offer 95% LTVs on them.
But unless lenders start to offer higher LTVs on new builds now, as soon as the Help to Buy scheme does end, there is a very real risk that the new build sector will grind to a halt.
Lenders may not be as open to short leases as it seems – Arnold
There remain, however, many areas where leasehold properties account for a significant proportion of the housing stock and this is unlikely to change any time soon.
So, what do you need to know about leasehold properties and how can they provide opportunity for you to add value to your clients?
The important dynamic to be aware of is that there can be a disparity between the appetite that lenders express for leasehold properties, with short leases in their lending criteria, and the guidance notes they provide for surveyors.
Lender criteria vs surveyor guidance
Many lenders, within their criteria, state they are able to lend on properties where the remaining period on the lease is just 30 or even 25 years beyond the end of the mortgage term.
So, for example, on a mortgage with a 25-year term, a lender’s criteria might only require a leasehold property to have 50 years remaining on the lease.
However, within their guidance notes, lenders will also stipulate to surveyors valuing a property that the property should be readily resaleable for owner occupation.
This could effectively increase the minimum period remaining on a lease to at least 80 years, because of something known as marriage value.
A flat with a long lease is worth more than a flat with a short lease and the marriage value is the increase in the total value of the property after a lease extension.
Share profits with freeholder
Under the Leasehold Reform, Housing and Urban Development Act 1993 a leaseholder has to effectively pay compensation to a freeholder if the lease drops below 80 years.
So when the lease is extended, the leaseholder has to share 50% of the increase in value with the freeholder, which could run into many thousands of pounds.
This means a surveyor valuing a property with a lease approaching 80 years remaining, needs to factor in the potential impact on the property value should it fall below 80 years.
In fact, a leaseholder has to own the property for at least two years before they are able to extend the lease – effectively extending the deadline to 82 years.
As a result many lenders will start to ask more questions if a lease drops below 85 years.
Guide clients through complexity
In these cases a surveyor familiar with lease extensions can help keep the deal alive by creating an asset that will meet the criteria required to make a property readily resaleable.
Indeed, there is also opportunity to review your client book and revisit those clients whose lease may be approaching 80 years to discuss extending the lease ahead of a remortgage.
This will make the process more straightforward, your client may need to raise funds through a remortgage to pay for the lease extension, and you could even benefit from referral fees.
A short lease can be a hurdle to securing a mortgage, but it can also provide an opportunity to guide your clients through a potentially complex process.
A tale of two cities: Johannesburg and Cape Town – Izard
The former encompasses everything you would expect from South Africa’s main financial hub – striking high rise office blocks, a diverse population and a bustling business atmosphere.
Meanwhile, some 868 miles to the south of Johannesburg is Cape Town, which offers some of the most spectacular scenery in the world and a vibe akin to Nice or St Tropez.
The city was named the best place in the world to visit by the New York Times in 2014 and it is not hard to see why.
In this, the final instalment of my South African journey I will be looking at what opportunities the two cities present for high net worth property investors.
Cape Town’s Atlantic Seaboard is known locally as ‘Millionaire’s Mile’ and is home to some of the country’s most sought-after properties.
It has attracted strong inward migration from other parts of South Africa due to the quality of life it can offer.
The luxury residential market in Cape Town saw property prices increase by 19.9% between December 2016 to December 2017, according to Knight Frank’s 2018 Wealth Report.
This was due in part to the lack of supply and development opportunities in the area.
Johannesburg’s luxury residential market however saw a 0.1% decrease during the same period.
Nevertheless, the average asking price for a four-bedroom property in the prestigious Sandhurst suburb of Johannesburg still commands around R 20,000,000 (£1,109,180), while those looking to buy in the suburb of Clifton in the Atlantic Seaboard can expect to pay around R 51,000,000 (£2,816,633) for a similar property.
Both cities also offer investors some attractive rents and yields.
Those looking to invest in Johannesburg can expect to see yields of 9% for industrial space, 8% for retail and 8.5% for office space, according to Knight Frank’s Africa Report 2017/18.
Similarly, Cape Town enjoys yields of 9% for office and industrial space and 7.75% for retail space.
South Africa has had some much publicised economic and political woes over the past decade but the country has not lost its appeal to high net worth individuals.
Knight Frank’s Wealth Report explains that while wealthy South Africans are likely to continue moving money abroad and acquiring dual citizenship, the majority aren’t relocating overseas but are remaining in the country.
There were 500 individuals with wealth of US$50m plus in 2017 and this is predicted to reach 600 by 2020, according to the report.
Those with a smaller but still substantial wealth of US$5m plus are also on the rise and expected to reach 12,430 by 2020, up from 10,350 in 2017.
We see a lot of interest from South African residents looking to diversify their asset base into the UK, particularly London.
Meanwhile UK residents looking to buy in South Africa can utilise their existing asset base in the UK and leverage it in order for them to buy a property abroad, which can prove to be cost effective.
South Africa, especially Johannesburg, has a growing financial and tech community and for young entrepreneurs in the UK and Europe, the country can offer a vibrant lifestyle and in the main, cheaper property prices than here in the UK.
Cape Town’s property market has much in common with London.
Despite what headwinds the market faces, as an asset class, it will continue to hold its appeal to high net worth clients.
The first two parts of Peter Izard’s South Africa series gave an overview of the market and explained why the 100% mortgage is still available.
Government must learn landlords are not just a cash cow – Young
The new regulations being introduced reclassify far more properties as houses in multiple occupation (HMOs), which means greater licensing requirements and thus increased costs for landlords in order to meet them.
Advisers should ensure they are fully aware of the changes, how they might impact on their client’s property and what might that mean in terms of access to HMO finance.
And landlords should not think this is the end of the matter by a long chalk.
Those who might have taken an interest will have heard of more measures that are on the horizon or could be introduced if the opposition win the next General Election.
These included banning ‘no fault’ evictions, three-year tenancies, banning letting agent fees and giving cities powers to introduce rent controls.
Rental sector Armageddon
Now, some of those policies seem eminently sensible – a number of landlords would welcome longer tenancies as it provides greater certainty.
However, my views on rent control are well known – welcome to private rental sector Armageddon if that ever sees the light of day.
This ongoing intervention, by all political and regulatory stakeholders is the price that must be paid for being involved in today’s buy-to-let sector – one that might seem a world away from the norm a decade or so ago.
However, while pressure is heaped upon landlords, those in power don’t appear to acknowledge that the knock-on impact for tenants is just as, or perhaps even more, intense.
Just last month, the government announced its own figures on private rents which showed that across the UK, the cost of renting had risen by 0.9% in the 12 months to August.
There is no doubting that the intervention we see so readily across the piece is contributing to the rent rises – how could it not?
Tenants will be the target
Landlords have so many more pressures to cope with – including the cut to mortgage interest tax relief, running limited companies, increased EPC requirements, HMO licensing laws, plus of course the stamp duty surcharge.
Where can they go to recoup some of this cost and ensure that the portfolio remains profitable?
There really is only one place, which is why tenants will continue to feel the squeeze on rents until the government starts to view the sector as an important part of the UK’s housing supply, and not just a cash cow or the ‘root of all evil’.
Measures which might appear to be pro-tenant could be anything but, and if supply of quality private rental homes continues to slip, then the government of the day is going to have an almighty issue on its hands.
There needs to be a much more measured approach and an acknowledgement that without private landlords we no longer have tenants to protect.
Brokers must bridge retirement interest-only vs equity release divide – Wilson
However, sometimes we can be guilty of putting those divides in place ourselves.
The client has little control over these divides, and while advisers go out of their way to ensure the correct advice and recommendations are delivered, it does not make for a smooth process.
It means there can often be a sense that something has been lost and the client could have had a much better experience.
Looking at the later life market, I can’t help feel that the introduction of Retirement Interest-Only (RIO) products, the categorisation of them within the residential/mainstream mortgage sphere, and some of the requirements – or perhaps I should say lack of requirements – from certain lenders has delivered a skew-whiff marketplace.
Divide in the RIO market
While I of course welcome more lenders bringing RIOs to market, and the broadening of the product choice for later life borrowers, there does seem to be something fundamentally out of kilter with how the market should be operating.
The problem is that we have a disconnect here, a divide.
It comes down to where these products sit, adviser qualifications and authorisation, who offers what, and where the client should go to ensure they have all the later life lending options available.
Depending where they get their advice, clients may find they do not have full access and might end up with a product based on the adviser’s authorisation rather than their own needs.
That cannot be right and, as was voiced by many trade body representatives at the Financial Services Expo in London, there needs to a greater collaboration between both RIO, equity release, lending into retirement and other parts of the later life sector, so such outcomes do not become the norm. Down that particular path, trouble doth lie.
RIO not a backdoor into later life
One suspects the industry is going to have to deliver a solution here because while the regulator might reconsider its stance, these decisions often take time.
For what it’s worth, many lenders offering RIOs are leading the way – only allowing advisers who have mainstream and equity release authorisations or qualifications to write such business.
In this way, we can help ensure that all options are on the table for the client, and one might suggest this becomes an official industry norm, with those operating outside it being a very tiny minority.
Operating in such a way goes a long way to bridging the divide but it will also require advisers to ensure they have the skills, experience and regulatory bits of paper to be able to operate in both zones.
More advisers are needed in the later life sector, but we should not consider the provision of RIO products as an opportunity to step over the threshold of what might be perceived as a backdoor in.
Yet more changes for buy-to-let market to get to grips with – Ying Tan
From the 1st of the month the three-storey requirement will be removed and all properties with five or more people living in two or more households and sharing a kitchen and a toilet will require an HMO license.
And while the sector gets to grips with another change, it’s been a busy old month on the lender front too with a number of criteria changes and rate reductions.
Santander and TSB
Santander has announced the maximum number of mortgaged let properties on completion is three (with any lender).
The maximum number of let properties (mortgaged and mortgage-free) on completion for remortgages without capital raising (which meet its transitional eligibility criteria) is now 10.
TSB has been busy making some changes to its buy-to-let range, moving the end dates for buy-to-let products to the end of December and introducing a number of rate reductions.
Two-year fixed rates between 60% and 75% loan to value (LTV) have been reduced by 0.10%, while three- and five-year fixed rates up to 75% LTV have been reduced by 0.30%.
LendInvest and Virgin
LendInvest announced a criteria change, on the back of ‘feedback sessions’ and will now include purpose-built studio flats to its policy.
The studios must have an internal area of more than 30 sq/m, be located within London and have adequate sales demand/liquidity.
Virgin Money became the latest lender to respond to the recent rate rise increasing its Standard Variable Rate and Buy to Let Variable Rate by 0.20%.
Clydesdale and Kent Reliance
Clydesdale Bank has also introduced a number of rate changes, reducing rates on several of its products.
Its two-year fixed rate up to 60% LTV has been cut from 2.59% to 2.39% and its two-year fix to 75% LTV has been reduced from 2.84% to 2.64%.
Finally, Kent Reliance has decreased its 75% and 80% LTV five-year fixed rates for buy-to-let standard and buy-to-let specialist products.
The new rates will now start from 3.79%.