This week Santander announced it would be extending its maximum mortgage term to 40 years, following its own research which found that almost half of homebuyers would consider taking out a loan over such a lengthy term in order to get onto the housing ladder.
Miguel Sard, managing director of mortgages at Santander UK (pictured), said: “By offering buyers the option of a longer-term mortgage, our aim is to address some of the affordability restrictions they face and support them in buying a home with more manageable monthly repayments.”
Review terms when rates end
David Sheppard, managing director of Perception Finance, suggested that while lenders had increased average mortgage terms in order to help borrowers move onto or up the ladder, the long-term advice should always be to reduce that term by encouraging the use of any overpayment or offset flexibility available.
The rate end review is also an opportunity to address the term, as Sheppard said: “We had one client who started with a longer term and with each remortgage this was reduced to reflect their higher income. This is the role of a mortgage broker over the lifetime of this financial transaction.”
He added that the industry should not be scared of offering these terms, but that good advice was key, with intermediaries needing to regularly engage with clients to ensure they stay focused on reducing that debt more quickly wherever possible.
Borrowers must understand the ramifications
Jane King, mortgage consultant at Ash Ridge Private Finance, said she was not keen on recommending such lengthy terms, noting she had only done this once in 15 years of advising.
She continued: “I think it is too long and once you take applicants past retirement age, as an adviser you have to be aware of the future affordability even if the lender is happy to lend.”
King added that as borrowers chop and change their term and rate over the course of their lifetime, in certain circumstances these deals have a place.
“I would rather have access to it than not as long as the borrowers are aware of the ramifications,” she continued.
Essential in the south
James McGregor, director of MESA Financial Consultants, suggested that in and around London, life is so expensive that long-term mortgages are “essential” to be able to buy a property and keep life affordable.
He continued: “Over a prolonged period property inflation should put the clients in a comfortable position as long as they continue to repay their mortgage over a 40-year term.”
McGregor added that while he always educates clients about the impact of overpayments, “the sad reality” is most people won’t be able to afford to make them.
“It is not about just finding the best deal for now, it is about helping clients live a comfortable life where they are not forced to run up unsecured debts,” he concluded.
Just a starting point
Rachel Lummis, mortgage adviser at Xpress Mortgages, said that the house price inflation seen over the last decade had priced first-time buyers out of the market, and with interest-only deals no longer an option for most, 40-year terms are now “vital”.
She continued: “When choosing a mortgage term of 40 years it’s not committing you to a 40-year mortgage, it’s just a starting point. When coming to the end of say a two- or five-year fixed rate and the customer is looking to remortgage, the term can be looked at again.”
Lummis added that she hoped to see more lenders start offering such long terms in order to increase the level of choice for borrowers and their brokers, noting that “the 40-year mortgage term is here to stay”.
The trade body noted that the “highly competitive” nature of the market at the moment, coupled with subdued activity, was spurring lenders to move into offering deals at higher LTVs and exploring specialist areas like later-life borrowing or self-employed mortgages.
However, Kate Davies (pictured), executive director of IMLA, suggested that lenders are “likely to be cautious”, noting that with lenders having to hold more capital against mortgages as a result of the Basel scheme, it may be that mortgage spreads cannot go any lower.
According to the latest Credit Conditions Survey from the Bank of England, the spreads on mortgage lending have remained unchanged over the last quarter, but are expected to widen – and increase mortgage rates – in the second quarter of 2019.
Davies added that the market was likely to continue to be challenging in terms of just how much business can be written “at sustainable margins”.
“Lenders will no doubt develop new and innovative products to meet consumers’ needs, but must do so within the inevitable constraints of the regulatory and prudential framework,” she continued.
The cautious note follows the warning from the Association of Mortgage Intermediaries earlier this month that the compression of margins was a serious concern, with “too much money chasing too little return”.
However, brokers argued that their focus had to be on finding the best deals for their clients, rather than concerning themselves with lender profit margins.
Talking as part of the latest Accord Growth Series podcast [23.54], Church, the director at Private Finance, said that although the wider media can be sometimes guilty of talking us into a recession, brokers should use the opportunity to provide practical and impartial guidance in such uncertain times.
Church (pictured) elaborated: “When people see something negative they seek comfort. And when they look online and realise they can’t find the information as readily as they would want to, they need their mortgage broker to advise them.”
Although he’s quick to admit that the insecurity surrounding Brexit “is certainly keeping us on our toes,” Church recognises that, for brokers, the underlying basics of providing solid advice to clients remain the same.
It’s always important to maintain consistent and useful communication with your clients, but it’s particularly important in times of uncertainty.
He notes that as the shift towards longer-term fixed rates increases in velocity, and perhaps replaces opportunities for more traditional repeat business, it’s important to continue to stay in touch with clients who you may begin to see less frequently.
Be prepared for challenges
The comments feature in the ‘Volatility in the market and the implications’ podcast from Accord, which is available to download from the link above.
This is the first anniversary of Accord’s Growth Series, which is providing access to content, guidance and support to brokers to drive their businesses. Over 3,500 brokers have signed up to the series.
Jeremy Duncombe, director of intermediary distribution at Accord Mortgages said: “While we can’t predict what will happen over the coming months, it always helps to be prepared by discussing the potential challenges facing the industry.
“Brokers are busy people and our podcasts, which share the insight of key industry figures such as Shaun, are easy to listen to while on the road. We’re thrilled with the response to the series so far and have developed our 2019 content plan based on broker feedback to ensure we’re addressing the topics they want to know about.
“The Growth Series was launched to offer brokers materials to expand their businesses. In its first 12 months, content has included how to generate more leads online, using LinkedIn successfully, an online lead generator and a buy-to-let guide to understanding tax changes which brokers can download, brand as their own and send to clients if they wish.”
A video discussion, sponsored by Accord, touches on the Growth Series and a raft of other industry topics from technology advances to mortgage commission fees and will be coming shortly.
They were the only two active lenders in the top five, with seven of the top ten lenders with more customer complaints either inactive or closed book, highlighting borrowers’ concerns about customer treatment in this sector.
Al Rayan Bank was the most complained about home finance providing institution according to the FCA’s methodology, which takes the number of complaints received per 1,000 customers.
The regulator includes data from firms that report 500 or more complaints within the six month reporting period of July to December, or 1,000 or more for an annual reporting period.
Al Rayan received an average of 76.57 complaints per 1,000 customers in the second half of 2018, with M&S Bank in third place at 60.65.
Blemain Finance, Bradford & Bingley and Standard Life Assurance were the inactive lenders who completed the top five with rates of 66.37, 42.21 and 40.98 complaints per 1,000 balances outstanding.
An M&S Bank spokesperson told Mortgage Solutions: “Delivering the exceptional levels of service our customers have come to know and expect from M&S Bank is our absolute priority and we always act on the insight from these cases.”
Al Rayan highlighted that only 47.3 per cent of complaints were upheld with the majority rejected.
A spokesperson from Al Rayan added: “We take any complaint very seriously. In the case of our home purchase plans, we introduced a new loyalty rate for customers coming out of fixed rate deals.
“This loyalty rate proved very popular with our customers, leading to an increase in complaints.
“We value the feedback received from customers and have taken steps to address any concerns. We are always looking to enhance our processes with the aim of improving customer service.”
Upheld and intermediary complaints
In terms of complaints upheld, high street lenders came to the fore as TSB topped this list, with 82.8 per cent of its complaints upheld by the regulator.
Ulster Bank, Phoenix Life, Coventry Building Society, HSBC and Virgin Money completed the top five, with upheld rates of 78.9 per cent, 77.8 per cent, 76.8 per cent and 75.6 per cent respectively.
Data for home finance intermediary complaints is sparse, with only six intermediaries listed.
Sainsbury’s Bank topped this list with 34.5 complaints per 1,000 sales, followed by London & Country at 17.17 and Connells at 17.09.
Mortgage complaints rising
Home finance complaints per 1,000 balances outstanding rose slightly to 9.8 from 9.6, in contrast to the wider trend.
While home finance only accounts for three per cent of the FCA’s complaints received, the figure is the highest of the five key areas regulated, with only insurance and pure protection coming close with 9.5 complaints per 1,000.
Overall, the FCA noted that complaints decreased by five per cent, falling from 4.13m to 3.91m during the second six months of 2018.
This is the first time the number of complaints has fallen since firms were required to change the way they report complaints, in 2016.
In total 3,181 firms reported receiving one or more complaints during 2018 H2, with 231 of these firms reporting 500 or more. These firms accounted for almost 98% of all complaints reported.
PPI dominates
Payment Protection Insurance (PPI) continued to be the most complained about product, making up 40% of all complaints.
This, however, was a decrease of 8 per cent from 1.72m in 2018 H1 to 1.58m in 2018 H2, but there was a change in reporting allowing firms to exclude any where it was established the complainant had not purchased a PPI policy from the firm.
Excluding PPI, total complaints decreased from 2.41m to 2.33m over 2018.
Current accounts complaints, in second place, decreased by 13% over the half-year. By contrast, credit cards, the third most complained about product, saw an increase of 10%.
FCA executive director of strategy and competition Christopher Woolard, said: “It is encouraging to see that complaint figures have dropped and firms are dealing with [issues] more quickly.
“We expect firms to continue to focus on ensuring their customers are well served and that they respond quickly where consumers complain.”
Lenders told the central bank that demand for house purchase lending was “unchanged” in the first quarter of the year, but was expected to drop in the second quarter. In contrast, demand for remortgaging had increased significantly in the first quarter, with lenders predicting further growth here.
Despite these demand fluctuations, lenders told the Bank of England that supply of mortgage deals had increased slightly in the three months to the end of February, and was likely to be unchanged over the next three months.
While spreads were suggested to have remained unchanged over the quarter, they were forecast to widen in quarter two. Meanwhile default rates were reported to be stable.
Subdued market leads to competition
Mark Harris, chief executive of SPF Private Clients, said he was not convinced by the suggestion that swaps would widen, arguing that a subdued housing market was resulting in “a very competitive lending market”.
He continued: “With supply outstripping demand, this is keeping a lid on any mortgage rate increases as lenders compete with each other to attract business. The market is ultra competitive and because of this we expect pricing to remain where it is, with lenders continuing to accept tight margins.”
No change is good news
Jeremy Leaf, former residential chairman of the Royal Institution of Chartered Surveyors and now an estate agent, suggested that the fact that there had been little change from last quarter was actually good news, as the “doom and gloom hanging over the property market” might have resulted in a fall in activity.
He continued: “The spring market has brought more realism to some buyers and sellers and we are seeing evidence of a little bit more optimism although it is very patchy and varies considerably, even in areas which are close to one another.”
On average, 23 per cent of homeowners have converted living space into an additional bedroom, with a quarter of respondents making these adaptations within the last two years, the lender found.
Alongside bedrooms, building outhouses in the garden, ground floor bathrooms and step-free access to the home were all noted as necessary improvements when living in an inter-generational household, with one in ten homeowners expecting that they will one day be taking care of their elderly parents in their home.
Regional overview
The report revealed that across the country the distribution of inter-generational families differs, with more people living with adult relatives in cities such as London or Birmingham, with increasing housing costs likely to be a contributing factor.
Londoners are most likely to live in a multi-generational home, with 35 per cent currently in this situation, while East Anglian residents are the least likely to live with adult family members.
Property prices holding firm in city centres and dropping elsewhere is thought to be a key factor in this national split.
Hannah Bernard, head of Barclays Mortgages, said: “As more of us are living with several generations under one roof, it’s interesting to see how, as a nation, we are adapting our properties to the changing needs of our homes.
“If you live in a multi-generational home or expect to in the future, it’s important to think about whether you need more space in a new property or if you can simply adapt your home to suit your needs.
“We understand the factors that need to be considered in these circumstances and want to help families stay in control of their finances as they plan for a change in their home – whether it’s a big move, a re-mortgage or home improvements.”
The enforcement team, which is led by National Trading Standards, will build on the previous work of the organisation’s estate agency team by incorporating oversight of letting agents too.
It is funded by the Ministry of Housing, Communities and Local Government. Letting agency regulation will be led from Bristol City Council while estate agency regulation will continue to be operated from Powys County Council.
The team will be responsible for issuing prohibition and warning orders to firms found to to be unfit to operate as estate agents, approving and overseeing consumer redress schemes and ombudsman in the sector, and issuing guidance on estate agency work in the UK and relevant letting agency work in England.
James Munro, head of the National Trading Standards Estate and Letting Agency Team, said that bringing the two functions under one team meant there would be a single point of contact for enforcement work, adding: “This single team approach will help us uphold consumers’ rights and enforce the law.”
Heather Wheeler MP, housing minister, continued: “There is no place for unfair fees – now, with this new enforcement authority, we will be able to stamp them out.”
Shinwell has been at HSBC for three years and was previously head of strategy and planning for the bank’s retail products.
HSBC head of retail products Tracie Pearce said Shinwell would help manage and continue the lender’s growth in the mortgage and savings markets.
“Aaron has spent almost two decades in the financial services industry, working for some of the biggest names across different disciplines, much of it involving mortgages and savings,” she said.
“With us, Aaron has played a leading role in a number of initiatives focussed on commercial management and improving customer experience, so this temporary change in role is perfect for him.”
Strategic priority
Shinwell highlighted that the mortgage market was a strategic priority for the lender and that it had been making inroads by expanding intermediary distribution.
“Alongside improvements to our customer journey, we are making applying for a mortgage, getting a decision in principle (DIP) and a formal offer through to completion a much smoother process,” he said.
“We are continuing to look for opportunities to do this while giving more brokers access to our mortgages.”
The broker team is led by Craig Hall, head of broker relationships and propositions (pictured) and includes key relationship managers, Paul Hopton, Clare Beardmore, Adam Sheldon, Zara Bray and telephone account manager Louise Turton.
Paul Hopton, who has worked at Legal and General Mortgage Club for four years, will be responsible for the club’s later life lending proposition.
Clare Beardmore and Adam Sheldon, who both joined from Leek United Building Society will focus on new build and buy to let, while Zara Bray who joined from Legal and General’s wealth management division will be responsible for specialist lending.
Louise Turton will also work closely with the team, assisting with broker insight and the broader proposition development.
The club will hold a number of specialist events throughout the year. It hosts its tenth new build forum on 22 May and has plans to hold a buy-to-let and later life lending forum later in the year.
Craig Hall, head of broker relationships and propositions, Legal & General Mortgage Club, said: “As borrower demand changes, the need for brokers to focus on ‘advice rich’ areas, such as new build, buy to let, specialist and later life lending grows.
“We are continually looking to support advisers wanting to operate in these areas and the completion of this team will ultimately help us achieve this.
“The team’s combined experience of the industry will play a crucial role in further developing relationships with our key partners as we look to expand and diversify as a mortgage club. We’re dedicated to investing heavily in our people and the education of our members and we believe the creation of this team is testament to that.”
