Stamp duty: Time to be bold and eliminate this blight on a properly functioning housing market – Dudley BS
However, when a specific tax acts as a brake on the development of a vital industry sector, then the value it represents as a revenue source for the Treasury must be called into question.
Over the years, Dudley Building Society has been a consistent voice urging reform of stamp duty on house purchases. Now we only have to look at the jolt given to the housing market where, leaving aside the pent up demand to seek more space after the claustrophobia of lockdowns, the Chancellor’s decision to offer a stamp duty holiday acted as a considerable incentive for the market surge.
It put beyond doubt the deep loathing for a tax which, even with its allowances for first-time buyers, is and will continue to be a disincentive to purchase or move, affecting every social and economic group.
A tax on movement
In our opinion and in many others, it has become a tax on mobility, which has ramifications for everyone with ambitions to own or move for career purposes. Equally, older property owners are put off moving to smaller residences which would free up ‘frozen’ capital into the economy and release housing stock back into the system.
SDLT is now the biggest brake on social mobility at both ends of the spectrum.
Of course, the desire to own property or move up the ladder will continue even after the stamp duty land tax (SDLT) holiday is over, with senior officials at the Bank of England confident that while the market will slow down, the property market will carry on as before.
However, is the tax revenue significant enough to maintain the current status quo? Figures show that SDLT receipts in the United Kingdom amounted to approximately £8.66bn in 2020/21, compared with £11.60bn in the previous year.
Substitute taxes to make up the shortfall, such as an annual tax on property with none of the current social welfare impact of SDLT, have been talked about. Equally some form of annual local tax such as a property or land value tax would provide fiscal incentives to local authorities to release more land for residential development. However, that would be seen as an extra ‘Council Tax’, just with a different name.
The VAT gamble
Surely it is time to think laterally. With all of this activity in the market, it is worth remembering that a healthy housing market improves consumer confidence and leads to higher spending.
I have no doubt the Treasury can predict the numbers more precisely, but isn’t it more equitable to collect VAT receipts from goods people want to buy, than to collect a tax that house buyers always resent? It is already noticeable that one of the few success stories to come out of lockdown, apart from home food delivery, is the increase in spending on DIY and home improvement because of the temporary halt on stamp duty.
It will take a leap of faith to abolish SDLT and then wait to see whether VAT receipts can make up the shortfall. However, blindly following the same taxation route with SDLT will only lead to further loss of mobility and exacerbate the long term disincentives which were already growing before the SDLT holiday.
The FCA’s Consumer Duty regulation is ‘gilding the lily’ – Paradigm
Call it what you will but I can’t help feeling that the FCA’s most recent attempts to ‘beef‘ up its consumer protection in retail financial services, is a version of the above.
The regulator is now calling for feedback on its Consumer Duty regulation which will bring with it another set of principles, rules and guidance designed to do what the existing regulation is already supposed to do.
I wouldn’t say we’re close to getting to a point where the FCA is making work for itself but consider this part of the consultation – the regulator wants feedback on whether firms ‘must act to deliver good outcomes for retail clients‘ or ‘must act in the best interests of retail clients‘.
Semantics, much? The FCA suggests there is a difference in tone here. I’m trying, for the life of me, to work out what it is and how, in any, way, shape or form it really matters or differs from the existing regulation.
Working in your client’s best interest
There’s no doubting there’s a requirement for financial services regulation which insists on firms working in their client’s best interests or delivering good outcomes for the customers. Absolutely.
Which is why we have numerous layers of such regulation already. It’s why we have the Treating Customers Fairly principle; it’s why, as AMI’s Robert Sinclair pointed out in this very publication, “They have all the tools in their toolbox to do it already. They don’t need more ideas, concepts or principles.“
If this repetition or development of regulation to replace rules and guidance which already exists is a major part of the FCA’s workstreams, then no wonder we are seeing budgets rise and the fees charged to regulated firms increase.
We should also seek to answer from where this work is coming from. By that, I mean is it based on a mortgage market, for example, that repeatedly gets it wrong? That does not get good outcomes for clients? That is inundated with hundreds, if not, thousands of complaints to intermediary firms week-in week-out?
You’ll have already guessed my answer to those questions. Of course it’s not. The number of complaints about residential mortgages upheld by FOS was actually down last year on 2019.
The endless paper trail
So, what will this mean for firms in the future? Robert seems to think more bureaucracy and documentation to evidence compliance, with firms not materially changing anything. The fact being they are already doing this anyway.
I’m all for ensuring consumers are protected, that regulation works in their best interests and that advisory firms are upholding the very highest standards. In a way, the FCA should be proud of its record here because, when it comes to the mortgage market, that is exactly what it has achieved.
But, more regulation for regulation’s sake, is not the way to move forward. This further round reminds me of that old advert about littering with the teenager throwing rubbish on the floor and saying, “It’s alright, my Dad says it gives people jobs.“
Even more galling here is that the mess didn‘t exist in the first place, and advisory firms are being told to use their investment and resources to tidy things up.
Time to spread the word to all clients on equity release – Wilson
That is certainly a credible picture to paint, and it’s clear that homeowners are now much more likely to be aware of equity release and the options it provides.
That said, further research from SunLife reveals this is by no means universal, and I would probably suggest that for every new client we have that is taking out a later life product, we have thousands upon thousands of older homeowners who are effectively in the dark when it comes to the options available to them.
The research revealed that, of a survey of 1,000 over-50s homeowners, nine out of 10 were (at best) unsure of how equity release worked, with common misconceptions coming to the fore around how it might mean they lose their home, not knowing the cash lump sum was tax-free, and believing children might be liable to pay off any debts somehow left behind.
Education, education, education
So, even those who are clearly in the potential borrower demographic for equity release need educating on the possibilities, the actual key parts of the product and what it means for them, and the roadmap through to advice.
However, I’m also very much of the opinion that this is not a solution purely for one type of homeowner – those living in high-value homes. From my perspective, later life lending need is pretty much classless in that there tends to be a requirement across all types of homeowners.
I’ve talked a lot in the past about how incomprehensible it is to me that we have pensioners sitting in properties worth hundreds of thousands of pounds feeling they can’t put the heating on when they need it because it costs too much. Or who are putting up with a standard of living far below what they could actually afford if they were provided with advice where they could access that equity.
By the same token, I absolutely get the growing draw towards later life lending/equity release from those living in much higher-valued properties who, for example, want to access their equity to help children with their own deposits or want to carry out renovations, or indeed want to use that money for experiences, new cars or holidays.
Paying for care
And then we have those who may simply want to utilise their equity to supplement their pension provision, or to ensure they can afford for long-term care needs for themselves or their partners.
In a way, equity release or later life lending can provide a solution for older homeowners who sit at all levels of income and housing wealth, who have a variety of needs which range from the basic to, what some might describe, as opulent. That in itself is the beauty of these products, that with the right advice of course, they can be used to provide for any number of client needs.
However, perhaps the biggest opportunity for advisers in this space is the sheer number of homeowners who simply don’t know what they don’t know; who have a need but no understanding of what they could achieve, or that their greatest fears about equity release/later life lending are simply unfounded. There lies the big opportunity for our sector and one that if we can focus on is likely to drive significant business growth for all.
‘Mental health will become a bigger part of the conversation going forward’ – One to One with Sesame’s Michele Golunska
VH: What evidence have you seen at Sesame that mortgage brokers are under strain/have been more stressed than usual during the pandemic?
Michele Golunska: In response to the pandemic, we saw an increase in calls to our helpdesk from brokers asking for assistance. This covered a wide range of needs, from understanding changes in government support to helping brokers navigate their way through the high level of changes in product criteria and affordability that were taking place. This was in addition to other information we were gathering, such as product providers telling us about an increasing number of customer claims due to mental health issues, with more people suffering from higher levels of anxiety and stress through this challenging period.
What this was telling us is that if more of our customers are dealing with mental health issues, then it’s likely that more mortgage brokers will be dealing with these same issues too. Health and wellbeing, home schooling, social restrictions, worries about cashflow and workplace issues – are all things that can lead to increased levels of anxiety. Some of these issues might only be short term, but it will still have an impact.
VH: As a company, what have you done to help deal with the stress or ease the situation?
To help firms trade safely and look after their staff and customers through the pandemic, Sesame Bankhall Group launched its Covid-19 Adviser Support Hub in March 2020 to provide advisers with a wide range of practical information and useful tools. The first thing we wanted advisers to focus on was their personal wellbeing and this was therefore the first section on the Hub. It contains hints and tips to help advisers and their customers to stay healthy – both physically and mentally. This includes support articles, guides, and resources to help advisers and their customers to feel more at ease about the uncertainty created by the pandemic.
The success of the Hub exceeded our expectations and led to the development of a follow-up Bounce Back Hub, which was launched in May 2020. Both hubs have so far been viewed over 40,000 times by advisers from across the financial services industry. As a result of this success and the adviser engagement it’s created, a decision has been taken to integrate this content and the topics covered into future adviser support activity. This will ensure there’s a continuing presence and home for this valuable content.
VH: How much obligation do you feel to support your brokers?
We feel that we have a duty and responsibility to raise awareness of the challenges brokers face on a day-to-day basis, many of which were amplified during the pandemic. Attitudes in society have undoubtedly changed to a point where mental health is viewed by many in the same way that they see a physical impairment. Something that needs to be understood and treated, rather than ignored. And certainly not something that’s seen as a sign of weakness. Coronavirus and the period we’re living through has brought all of this into sharper focus by heightening the issues that were already there. At Sesame Bankhall Group we’ve ensured that brokers have access to the right support when required, and that’s something we’ve been working hard to put in place through various initiatives.
VH: Have there been any cases where you felt the need to refer them for help or extra support?
In April 2020, we took steps to enhance our health and wellbeing support for our Sesame members. We funded the cost of member support services with the specialist independent provider Care first. This is an assistance service that our group already offers to all our employees. This move provided our members with personal access to helpful material, along with a team of professionally qualified counsellors who offer expert health and wellbeing support.
The initiative with Care first was just one part of a much wider package of support. We’ve worked closely with advisers throughout the last year, circulating information on financial support packages, and running working groups and clinics to understand the common root causes of anxiety and stress within our member and client base. This includes detailed work with some of our member firms to understand their business solvency and key financial triggers, assisting with the creation of action plans to improve the financial resilience of their firm.
We’ve also run sessions with advisers supporting several key topics which bring out struggles connected to mental health. For example, hosting an industry session for women that included a discussion about the menopause. This reflects our view about the importance of supporting and contributing to the sharing of lived experiences.
We’ve also bolstered our support for advisers in areas such as vulnerable customers. This issue was already high up on the industry’s agenda, but it’s been heightened further by the Covid-19 pandemic. The impact of the crisis has pushed more people into the potentially vulnerable category. It means that an adviser’s role in making sure that clients make the right long-term financial decisions is more important than ever. It also serves to highlight the steps that advisory firms need to take to ensure that both their customers and their business are protected.
VH: In a partnership/business arrangement like the one Sesame has with its ARs, what part does mental health play?
A higher level of mental health claims tells us that more people in society are suffering. It’s therefore about people feeling comfortable talking about these issues. Financial advisers are just one business community amongst many in the UK, who have the same personal and business concerns as everyone else. However, what’s significant is that advisers are looking after their customers too through, and as we emerge from, this challenging time. More advisers have worked remotely due to the coronavirus crisis, posing initial challenges but also opportunities for how advisory firms operate. It’s very important to get the balance right to ensure advisers take care of themselves and their clients, as well as continuing to trade safely as a business.
Across our industry and society in general, the desire to understand the issues and challenges around mental health has developed significantly. This includes recognition of heightened skills and the creation of safe environments to deal with these delicate issues, which help to open-up conversations rather than close them down. Only by understanding some of these issues better can we provide educated insight, skills and resources that are required to help people access the assistance they need. The one thing we know for certain is that mental health will become a bigger part of the conversation going forward – between all of us.
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.
Mariella Frostrup: Women in the mortgage industry must ‘be unafraid, unapologetic and angry’ – WEFF Annual Lunch
She is an advocate of the 5/2 anger diet: five days spent being angry and two days keeping a lid on things. Frostrup admits that the two off days are a struggle, but she’s far from apologetic. In her view, women apologise far too much.
Mariella Frostrup has written for national newspapers, fronted Panorama and made a cameo appearance on Absolutely Fabulous, but she is perhaps best known for her gravel-voiced presenting on BBC radio.
Fittingly, as guest speaker at October’s Women’s Executive Finance Forum annual lunch on 10 October, she urged more women in the mortgage industry to find their own voices and speak up. Being shouted down, she said, is far more familiar to women than speaking up, and that needs to change.
Frostrup observed that women are too quick to understate their achievements or apologise for their opinions and the way they are expressed, playfully illustrating the point with her own introduction: “I’m not even entirely convinced that 30 years of low-level broadcasting gigs qualifies me as a high-profile woman of the media”.
Addressing the room of WEFF members, female and male, Frostrup’s passionate speech beseeched women to develop the confidence to speak up and tell the world that you deserve your success.
Finding her voice
Frostrup found her own voice through reading. She had a challenging upbringing, moving from Sweden to Ireland as a child, where she was isolated as the only non-Catholic girl in the class. Her parents’ relationship was acrimonious and ended in divorce. Her journalist father drank himself to death by the age of 44. Her mother’s subsequent boyfriend mainly engaged with a teenage Mariella by teaching her to shoot guns in the Wicklow hills.
Reading novels was Frostrup’s escape – she says the characters she found in books helped her to grow emotionally and taught her how to connect with other people.
Just before her 16th birthday she ran off to London and began her life in the capital, living in a squat off the King’s Road. She got a job in PR, before moving into TV presenting and working as a film critic and journalist. Her love of books remained undiminished.
In 2000, Frostrup was asked to be a judge of the Man Booker prize for fiction. Among her accomplishments, she has curated two books: Desire, a collection of erotic fiction and Wild Women, a celebration of female explorers.
She was inspired to write Wild Women, by the “conspiracy of silence around women explorers”.
“Their stories are incredible testaments to women’s courage, curiosity and pioneering spirits,” she said. Frostrup questioned why it should be that we have all heard of Ernest Shackleton, who failed to get the South Pole, and Christopher Columbus, who had no idea where he was and swore his crew to silence over his ignorance.
And yet Isabella Bird and Dervla Murphy, among the most famous female explorers, are not household names. “Look them up,” she added.
Her career has involved taking paths in many directions, but her commitment to women’s rights has not waivered.
She first came across feminism in the seventies, at a time when many feminist women aped the characteristics and sexuality of men in order to be heard in a masculine world. Seventies bra-burning was followed by eighties power dressing in shoulder pads.
“But that’s not what equality means,” said Frostrup. It is not the world she wants her own daughter to grow up in.
“We want a brand new world. One that has the yin and yang of male and female influence,” she said.
In 2011, she set up the GREAT initiative (Gender Rights Equality Action Trust) with her husband Jason McCue and friend, human rights lawyer Karen Ruimy. The initiative aims to be a voice for change and a catalyst for real equality, something Frostrup says this country has yet to achieve, despite our laws.
Until the UK has real equality Frostrup will continue to publicly campaign for women’s rights, and tackle men in parliament and men in the media with her “volcanic rage”.
‘If she can see it she can be it’
Megan Rapinoe is the co-captain of the US football team. She helped to lead the squad to its fourth World Cup title this summer.
Despite her success, Rapinoe has earned herself another title. Unapologetic. A label rarely applied to men.
“She is unapologetically gay, unapologetically political, unapologetically angry,” said Frostrup, and she was criticised for daring to think she was worthy of her success when she yelled, “I deserve this” holding up her World Cup trophy.
Frostrup applauded young activist Greta Thunberg’s anger and the rage she showed when she shouted at her elders for not acting on climate change. Thunberg, said Frostrup, is unafraid to show her anger, unlike many girls or women who are scared to speak up for fear of being called hysterical or emotional. More labels reserved for females only.
These are the role models women need, said Frostrup.
A quote from The Geena Davis Institute on Gender in Media, “if she can see it she can be it”, sums up the responsibility that men and women have to be a positive influence on young women, said Frostrup.
Women need more role models, she said, and they also need to be role models.
But the responsibility does not just lie with women. Men must be role models to their daughters, and young men, just starting out in their careers, can be powerful allies in the fight against gender inequality in the workplace.
Frostrup applauded WEFF members, men and women, for being change makers, against whom she did not have to rail, admitting that being angry is rather tiring.
She left the room with some parting advice. “On a bad day remember there is someone worse off than you. On a good day, speak out loud and proud – I deserve this.”
WEFF Leadership event 2019: ‘It’s not up to you as a business to decide what is a crisis’
Mortgage Solutions group editor, Victoria Hartley offers the highlights of our first Women’s Executive Finance Forum’s leadership event of the year on crisis communications.
“A really important thing to bear in mind is that actually, a lot of the time, it’s not up to you as a business to decide what is a crisis,” said Emma Dean, associate director, Hanover Communications.
When a crisis hits it pays to be flexible and approach each situation individually, added our crisis communications key note speaker.
Dean asked the audience for the names of companies which had done crisis management well in living memory.
Virgin was a name offered by a couple of people in the room for its proactivity after the East Coast mainline derailment with Richard Branson visiting the site and offering clear leadership.
Another WEFF attendee agreed saying Virgin Holidays had proactively averted her own honeymoon disaster after Hurricane Ivan caused huge damage in Grenada but the travel company stepped up with several reassuring emails and phone calls that the honeymoon would go ahead, just not to that location.
What are crisis communications?
Dean said PR escalates to crisis communications when a company has not only lost control, but it is becoming a business problem.
Every level of a company from the CEO and board, internal and external communications all the way down to the lowliest staff can potentially become involved in crisis communications.
“Why is that? Because at the end of the day, a crisis can escalate to the point where it’s no longer just a PR problem, where the PR manager is not going to be the one with their job on the line ultimately, it’s going to be the board and ultimately the reputation of everybody who works for that company,” says Dean.
“So it’s in everybody’s interest to help those teams getting it right and to be learning actually about how the business operates.”
Nominating the right spokesperson with a close enough working knowledge of an often complex topic but is also sufficiently media trained to be able to deal with questions under pressure, sometimes for sustained periods of time is not easy, she said.
Creating a plan of action
Firstly, it is identifying where a crisis could come from and doing that places you on the front foot. Dean said identifying potential risks, then putting tool kits in place, training and messaging is critical so leaders are ready in the event of a call at 8pm on a Friday night.
Start with the business risk register to identify the issues and activities resource should be targeted at. Share it around the business and brainstorm the additional risks departments feel they could face, from a product perspective, or a customer one, for example.
“It can get your brain and your team’s brains working the right way should a situation occur,” she adds.
Don’t just focus on external risks, look at internal potential issues too. Dean said from a cyber security perspective, the vast majority of data breaches occur because of human error inside a business. So communicating with people about their roles and responsibilities from that perspective is incredibly important.
With a cyber attack, for example, everyone potentially will need to be involved so internal communications becomes critical. The reputation gap, or discrepancy between what a business says, how it presents itself and what it actually believes is also at risk during a crisis.
So, put a protocol in place, which is a single document with who does what, when and how if a crisis hits, importantly with up-to-date contact details. Lay out the correct dial in details in an emergency. Decide who needs to be involved and then who the smallest number of people needed to approve a press release or line of action are, and then try to whittle that down to even fewer people.
“It’s amazing how simple, practical things can go amiss in a crisis,” said Dean.
“The worst thing that you can do, and this is the one thing I hope you will take away from today, is start from scratch in the midst of a crisis.
“Because that is not when you’re going to do your best work, it’s not when you’re going to represent yourselves and your business in the best possible way, and more often than not it’s going to lead to confused, contradictory rushed statements that aren’t particularly audience-friendly,” added Dean.
The social media angle
Avoid bad customer service on social media, says Dean, as with the right level of organisation you can set up a template for Twitter, Linkedin or other social media responses.
Don’t duplicate from press releases. Reorganise the message to make it work for the medium and the customer and don’t just tell people there’s a problem and to contact customer services. Offer a screenshot of a document with all the numbers clearly listed – don’t make consumers scroll down to find what they need from several different tweets, for example.
If your communications toolkit is already available, with templates of documents and the wording for a crisis, you can tweak wording for each situation which is faster than starting from scratch.
Practice makes perfect
For the absolute gold standard in crisis communications, do a crisis simulation suggests Dean.
“It’s about stress testing that scenario in real time, getting everybody in the room who would be there on the day. It’s quite entertaining to watch this when you’ve got the legal team giving the CEO advice and the PR team giving the CEO advice. Who are they going to listen to?”
Dean said the lawyers will always tell you to say nothing and PRs will always tell you to say something.
Stress testing allows you to fine tune your processes and decide who, in the event, should be your spokesperson and do media training ahead of a situation. Or after the storm has died down, who will be going in to give evidence to the Select Committee, because that’s a ‘whole different kettle of fish’, she added.
“I had a CEO in a select committee by himself because the other people dropped out at the last minute. He was there for two hours and he’d never done it before. He did fantastically well but how many people in your business would be able to have really intense scrutiny for two hours?” she added.
But don’t be afraid of the unexpected and don’t let it put you off making a start, said Dean
“This will only make your businesses better at dealing with a scenario, which can only mean that if a situation occurs, that your reputation will withstand it.”
She added: “With the best crisis management, you don’t know it’s happened because it’s all been done behind the scenes and it’s gone away so quickly that as a customer I haven’t noticed that it’s been an issue.”
What the WEFF attendees learnt
1. Assess where the highest risks could emerge from within your company. Put toolkits, training and messaging in place.
2. Put a protocol in place. Compile a single document with who does what, when and how if a crisis hits, importantly with up-to-date contact details.
3. If your communications toolkit is already available, with templates of documents with wording for a crisis you can tweak wording and language to tailor for a situation which saves time instead of starting from scratch.
4. Start preparing now.
5. Don’t be put off if it’s not directly your department who would lead emergency communications. Ask for examples of best practice from the companies or PR agencies that do it well.
Case study: Why clients are covering costs with cashback
Joseph Brookes runs PBS Mortgage Solutions in Bolton. He started working independently as a broker under the Intrinsic network, six months ago, following 10 years with RBS.
His clients are extremely varied, although he deals with a large number of high LTV cases on modest loan sizes. Increasingly, he has found that cashback options are proving popular with his clients and stacking up well on costs.
He explains a recent case where the cashback enabled the borrower to go ahead with his purchase and get the property he wanted without delay.
“Paul came to me for mortgage advice earlier this year. He’s in his thirties, works in financial services and was living with his parents.” said Joseph.
“He was looking to buy his own home on his own, and had scraped together enough to cover 10% of the purchase price. He was looking for a relatively high LTV deal, and his budget was tight.
“He needed a little more money to cover buying costs, or he would have to wait a few more months until he could save more, which meant potentially losing the property. The property was a three-bed terraced house in Bury, Greater Manchester, costing £90,000, in exactly the location he preferred.
“Luckily, we found him a deal that meant he didn’t have to miss out on this house.”
The fee-free cashback mortgage from the Post Office, provided by Bank of Ireland UK, offered Paul the ability to go ahead with the purchase now. His upfront costs were minimised and the £1,000 cash helped cover his moving costs, so he could get on with the purchase. In fact, the cashback was literally used to pay his legal costs and the conveyancing firm took its fee from the advance on completion day.
“I use Post Office Mortgages regularly because their rates are attractive, fees are transparent, the cashback deal is very competitive on modest loans and the underwriting system is the best I’ve dealt with. Some lenders offer a smaller cashback but charge a mortgage fee, but I prefer this product because it’s very easy for the client to understand.”
“The deal has now completed and Paul is really pleased to be in his home,” said Joseph.
“This sort of cashback deal works well with smaller mortgages like the example above, where the fees make a large difference to the overall cost, but a small difference in interest rate doesn’t have such a big impact.
“In this case the cashback deal was the best overall on total cost, but sometimes it is about more than that for clients, especially those on modest incomes. People want to have the lump sum of cash in their pocket, to cover fees or to spend on whatever they choose, and they often prefer that to a £20 a month saving.
“This client was instantly drawn to getting the £1,000 cashback and the fact he could be moving sooner than expected.”
The larger the mortgage, the more interested the client becomes in rate, and cashback isn’t always as important, Joseph explained: “Wealthier clients have readier access to cash to pay their upfront costs now. Understanding these differences in how your client manages their finances helps you find the right product for their needs.”
See more from Post Office for Intermediaries here.
Remortgage or product transfer?
In the past almost invariably customers remortgaged to a new lender at the end of their product period.
Unless they had specialist needs or a poor credit history, they were probably eligible for one of thousands of competitive mortgages.
The product transfer market was – and still is – dominated by direct to lender business.
Things are changing and intermediaries are increasingly helping clients get a new deal with their existing lender.
This developing sector of the mortgage market means the decision to remortgage isn’t always clear cut.
As always, the right path for each of your clients starts with them.
New regulations mean that many borrowers who took out a mortgage five years ago could find they don’t have the same borrowing power under current rules, or perhaps they’ve seen their property’s value dip to an extent that they’re now in a lower equity position than they previously were.
Also, some borrowers prefer to take the path of least resistance when it comes to getting a new deal at the end of their current fixed or tracker product. Many will understandably be tempted by a mortgage process that takes little time or effort, especially if the product transfer rate is cheaper than a move onto their lenders reversionary rate.
On the flipside, others will be able to make substantial savings by remortgaging to a new lender and, if they are budget conscious, you’ll be able to guide them to some great cheaper deals.
As with all your clients, it’s horses for courses, but when is a remortgage a sensible approach and for which clients is a product transfer worth considering?
Ripe for a remortgage?
If your client has plenty of equity, and no change in their circumstances, they’ll have a great choice of deals and will hopefully be able to make savings by switching to a new lender.
Assuming they are in no rush, are happy to fill in forms, and confident about their property’s value, a remortgage could get them the cheapest deal available.
They’ll need to go through new affordability checks and a valuation of course, but if it all stacks up, you will receive a procuration fee.
Of course, a remortgage will take a little longer and a bit more legwork than a product transfer, so it may not be for those clients who specify they don’t want the hassle.
Product transfer preference
What if your client just wants a good deal with the minimum of fuss? They’ve already told you they don’t have time for lots of form filling and would rather you do most of the work for them.
A product transfer could be suitable because it will usually be easier for them as well as you. You can do most of the transfer yourself and they simply need to sign. No legal work, often no valuation and no affordability check.
Obviously, you will check the market to see what else they can access but, if they aren’t interested in the extra work, or the savings are negligible, it’s their prerogative to go for the easiest option.
And now that more lenders are paying procuration fees for transfer business, you still get financial recognition for your time. The amount differs between lenders, although with Halifax Intermediaries you get paid the same whether a case is new business or a product transfer.
Know their limits
Maybe your client doesn’t have the remortgage options they were expecting after a change in circumstances. Perhaps they’ve moved into a low equity position since they took out their last mortgage, taken a new job or faced other life changes.
Whatever the reason, if they would struggle to get a mortgage from a different lender, a product transfer should still be available to them if they are up to date with repayments.
These clients are usually better off with a product switch than moving onto their lender’s reversionary rate, not only because they could save money, but also because they have the choice to protect themselves from potential rate rises by taking a fixed deal.
What about the intermediary?
The fact is, there are certain steps you need to take regardless of whether the client ends up with a remortgage or product transfer, such as ID verification, a fact find and a mortgage search, not to mention all the fixed costs of running your business.
The front end of the advice process remains the same and intermediaries understandably want financial recognition for their efforts on product transfers.
Lenders will hopefully move towards a position of parity as intermediaries take a larger share of this significant market – some are already there.
As intermediaries, you are already used to change, and the product transfer market offers new business opportunities that are worth exploring. Lenders are improving their systems and processes so they are better geared to intermediaries advising on and transacting product transfers on their client’s behalf.
But most importantly, by advising your clients on all of their switching options, including those with their existing lender, you are giving them the full picture, with no filter.
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Ask the Expert: How can I get my self-employed client’s application through smoothly?
Yet, those who are self-employed can often struggle to access mortgage lending.
So what can brokers do to help these clients?
Specialist knowledge pays dividends
Although mainstream lenders are able to lend to self-employed workers, they may have more rigid criteria than other flexible specialist lenders, perhaps perceiving them to be a ‘riskier’ group with weaker job-security or insecure incomes.
In these circumstances a broker’s relationship with specialist lenders can be pivotal. Specialist lenders tend to be better placed to deal with self-employed or complex income cases as they will assess cases on their individual merits and provide a bespoke solution.
Preparation is key to good outcomes
Once a lender has been secured, brokers will want to guide their client through the approval process as quickly and as smoothly as possible. There are several steps that brokers should follow to present the best possible case to the lender;
1. Check your client is using a certified or chartered accountant. It might seem obvious, but lenders often won’t accept information from a bookkeeper so checking this early will save time later.
2. Lenders will often require the applicant’s tax calculations and corresponding tax year overviews if the HMRC SA302 forms are not available. Check with your client that they have these or that they can obtain them from their accountant before applying.
3. Check the lender’s thresholds. Some lenders will accept clients if they’ve been self-employed for only 12 months. Where the applicant has only been self employed for 12 months the accountant will generally need to provide a finalised set of accounts for the first year as well as a projection for the current year.
4. Should your client’s business have made a loss in the last few years or seen a reduction in net profits, an explanation will need to be provided to the lender. Whilst this doesn’t necessarily mean the client won’t be approved for the loan, they should get the opinion of their accountant prior to submitting the application.
Detail, detail, detail
Other points that a broker should consider include providing a company’s accounts as evidence of positive net worth. Having positive assets versus liabilities can be crucial in getting a loan approved and can work as a substitute to a salary history.
If your client is a fixed term contractor rather than fully self-employed then a lender will accept the contractor’s daily rate as a guide for salary, subject to meeting separate criteria.
The devil really is in the detail and making sure your client has all the necessary documentation prior to submitting the application will make a significant difference to the outcome.