Equity release used to shore up finances against the pandemic
Almost a third of plans were used to refinance a mortgage, while a fifth went towards unsecured borrowing and a further fifth were used to help wider families, according to equity release adviser Key.
In total, £755m was transferred between the generations in 2020, with 43 per cent of these gifts earmarked for housing deposits and 26 per cent for an early inheritance.
Overall plan sales dropped by 12.5 per cent, while total value of equity released dipped 4.4 per cent.
However, the average amount released increased by 9.2 per cent from £77,735 in 2019 to £84,919 last year.
Loan to values remained at a similar level year on year at 26 per cent, while average interest rates fell to 2.8 per cent in Q4, down from 3.15 per cent in the same period a year earlier.
Drawdown remained the most popular product during the year accounting for 70 per cent of all sales.
Wil Hale, chief executive at Key (pictured), said: “While 2020 is down on 2019, the fact that we have only seen a 4.4 per cent drop in the value of equity released suggests that customer demand remains strong supported by the efforts of advisers, lenders and other service providers in this challenging year.
“Discretionary spending has fallen as equity release increasingly looks to support clients’ aspirations to help their families and make their finances as resilient as possible by refinancing debt.”
Hale added: “With the end to the stamp duty holiday on the horizon, it is also not entirely surprising to see that many older homeowners have taken the opportunity to pass wealth down the generations and help children or grandchildren onto the property ladder.
“While this may change as we head into 2021 and the holiday comes to an end, I suspect the desire to help families will remain a strong driver of this market in years to come.”
FCA proposes 30 per cent price cap on CMC fees and signposting to free alternatives
With some consumers paying fees of more than 40 per cent of the redress they receive, the consultation paper out today proposes a 15 – 30 per cent cap, saving customers thousands of pounds.
The cap will apply to all claims if a consumer is awarded monetary redress, apart from Payment Protection Insurance (PPI) claims which are already capped by Parliament at 20 per cent.
The regulator proposes CMCs will be required to disclose key information, such as giving consumers more background about how the fees they pay will be calculated and better signposting to the free alternative routes to redress available.
This information must be disclosed to consumers before they enter into a contract, to help consumers make better-informed decisions about using CMC services.
Sheldon Mills, executive director of consumers and competition at the FCA, which started regulating the sector in 2019, said: “When working well, CMCs can provide useful services for consumers. However, consumers can experience harm when they do not understand the nature of the service CMCs provide and where they are charged excessive fees. The proposals we have announced today are designed to address this.
“We estimate that the proposed cap on fees could save consumers around £9.6m a year.”
Apart from PPI, the vast majority of financial services and products claims currently being managed by CMCs target packaged bank accounts, loans, savings and investments, and pensions.
The consultation is open until 21 April 2021 with the policy statement expected in the Autumn 2021.
See the consultation paper here.
Banks expect mortgage repayment defaults to rise in 2021
The end of mortgage payment holidays, as the economic impact of the pandemic hits households could be among the reasons lenders indicated in the Bank of England’s credit conditions survey that they anticipate an increase in default rates at the beginning of 2021.
However, banks tipped the availability of mortgages to increase in the first three months of 2021, according to the poll carried out in the final quarter of last year.
In the survey, banks said mortgages became more expensive at the end of last year but are set to fall in price at the start of this year.
Borrowers with higher loan to value (LTV) ratios of more than 75 per cent are expected to benefit from a wider availability of mortgages.
The end of the stamp duty holiday is widely expected to take some of the steam out of demand in the coming weeks, meaning lenders could potentially expect to compete harder for remaining borrowers.
Demand for remortgaging is forecast as increasing at the start of 2021.
Sarah Coles, personal finance analyst at Hargreaves Lansdown warned that the winter has sent a chill through the banks, as the impact of the pandemic starts to bite.
“More people are set to fall short on mortgage and credit card payments, while an outbreak of cold feet in the property market is likely to mean less demand for mortgages for house purchases,” she said.
“The heat is coming out of the housing market as the stamp duty holiday draws to a close, and much of the pent-up demand has worked its way through the system. But there are also signs that bleaker aspects of the pandemic are starting to make themselves felt.
“Some homeowners have worked through the pandemic with their income unscathed, but enormous numbers saw their income cut as they lost work or went onto furlough. Some of them made a Herculean effort and somehow stayed on top of their bills.
“Others have done all they can, and taken every available payment holiday, and are still struggling. At the beginning of this year, the high street banks expect them to start defaulting on mortgage payments.”
John Goodall, chief executive of Landbay, agreed that demand was likely to ebb away.
He added: “The key driver for the increase in demand for house purchase borrowing in Q4 2020 was the stamp duty holiday. It does not surprise me that demand is likely to fall in Q1 this year as buyers will no longer benefit from this tax break.
“I agree with the data showing an expected rise in remortgage business during the start of this year. We are experiencing high levels of applications in the buy-to-let space and expect this to continue over the next few months.”
Montlake using celeb-driven app Clubhouse to educate on mortgages
The app is still in the beta stage of development and only available on iOS, but has already made headlines because of discussions involving American comedian Kevin Hart and Chet Hanks, Tom Hanks’ son.
The audio only app launched in April last year and consists of rooms where discussions are held. People who set up the rooms are moderators and can bring people to the stage to join in on a discussion.
Users can join on an invite-only basis and so far, rooms on Clubhouse have included advice from professionals in various industries, how to be a millionaire and light–hearted musical auditions.
Montlake said he heard about the app and thought it sounded like an interesting medium to connect with people who had questions about mortgages.
He added: “There were some invites floating around the mortgage industry, so I asked for one and started that way.
“I noticed there were a few rooms about investing in property but not many about the mortgage market so thought it would be helpful to begin discussions on that.”
So far, the Coreco MD has held one session which took place this week and lasted for an hour. It had 12 participants including Sebastian Reimann, mortgage and protection consultant at Libra Financial Planning.
More confident to ask questions
Montlake has already embraced the transition to digital during the pandemic, as conferences formerly held by his firm have turned into webinars, so for him Clubhouse was an extension of that but for a wider and more reserved audience.
“Because it’s just the voice and not people on camera, they feel more confident to ask questions so there can be a lot of engagement,” he added.
Although the app has gained traction with younger users, Montlake said the participants in his room were of various ages and ranged from first-time buyers to homeowners.
He added: “It’s more akin to something like LinkedIn rather than Snapchat.”
He said this highlighted the need across all demographics for more knowledge around mortgages and the benefits of the advice process.
While it was important to make sure the information given on Clubhouse did not venture into advising or recommendations, Montlake said he gained a mortgage lead from the app following his first discussion.
“That’s very good for the first time on any social media platform, so I think it’s interesting to see where it can go,” he said.
Montlake plans to continue to hold discussions while advertising them on social media to get more people involved.
He added: “It’ll be weekly and I’ll keep doing it until I’m just talking to myself. I’ll see how it goes and whether other brokers join.”
MAB rolls out instant messaging service for customers
The broker has now invested in fully integrating Nivo with their MIDAS mortgage broking system so that its 1,500 advisers can invite customers to launch automated journeys which then step them through key stages of the application journey.
MAB said its customer satisfaction score had been particularly high when trialling the service in the final quarter of last year.
Through the service, customers can share information and evidence documents. All customer information and documents are then stored against the customer’s record on MIDAS with no re-key required.
The integration has been developed as a bespoke, cloud-based, microservice that also supports the advisers in meeting their compliance obligations.
Further enhancements such as e-signatures and ability to verify identities through secure instant messaging are being worked on by MAB and Nivo.
Ben Thompson (pictured), chief executive of Mortgage Advice Bureau, said: “We’re really pleased to be working closely with Nivo. By integrating Nivo with our MIDAS technology, this allows our advisers and customers the opportunity to share documentation in a secure and efficient way.
“This is particularly key in the current Covid-19 pandemic and shows how we continue to adapt to change and provide new ways for customers to receive advice and transact as part of our wider digital customer journey.”
Mat Elliott, chief development officer at Nivo, added: “We’re very proud of the range of five-star reviews and speed, efficiency and security benefits that our technology has delivered to date, so it’s exciting to be partnering with MAB on getting our service in to the hands of tens of thousands of new applicants each month on the back of this rollout.
“We see this as just the start, and with Nivo’s technology and innovation strengths, combined with MAB’s brand reputation, knowledge and market position we believe there is an amazing opportunity for us to transform the MAB mortgage experience.”
Residential transactions reach ‘fever pitch’ in December – ONS
Compared to November, this was a 13.1 per cent increase, driven by continued pent up demand and the incentive of the stamp duty holiday.
Although transactions steadily rose since the reopening of the property market and the stamp duty holiday announcement, the total number of sales for the year dropped 11.5 per cent to 1.04 million.
This was dragged down by the second quarter of 2020 which saw the lowest number of quarterly transactions since Q1 2009 due to pandemic-related restrictions.
Stamp duty speculation
Andrew Montlake, managing director at Coreco, said: “December saw property transactions reach fever pitch as people rushed to beat the stamp duty deadline. The worry now is of a collapse in property transactions from April onwards when the stamp duty holiday ends, although overall levels are likely to be roughly the same as in 2020.
“Many people are banking on the chancellor caving in to pressure and extending the deadline, but for now activity levels in the property and mortgage market are nothing short of frantic.”
Mike Scott, chief analyst at estate agency Yopa, added: “These figures show that the housing market returned to normal quickly after it was closed during the first lockdown, and wasn’t affected by the second lockdown when estate agents were allowed to stay open and conduct viewings.
“We expect that the market will remain very active in the first quarter of this year, with the number of sales peaking in March as buyers rush to beat the stamp duty deadline, and then slow down in the second quarter before recovering to normal levels in the second half of the year.”
He said: “Slowdowns after previous stamp duty deadlines have been quite shallow and brief, and we expect the same to happen this time, especially since life will hopefully be returning to normal later in the year and moving house will be easier.”
Lenders relax rules over local authority indemnity insurance as stamp duty deadline looms
NatWest has historically only accepted the insurance for remortgages but said from December it is temporarily excepting it for purchase cases.
Skipton has changed its policy for purchase cases where search information is ‘significantly delayed’.
Around 20 councils in England and Wales are reporting turnaround times of between 40 and 60 working days to deal with local authority search requests, according to Searchflow’s website.
York is not currently processing any requests while Bedford and Hackney Borough Councils are quoting 180 working days. Hackney Borough Council was the victim of a cyber attack in November which has left it unable to provide the information.
To help reduce delays that homebuyers in these areas are experiencing, some lenders have agreed to accept the conveyancer’s indemnity insurance in place of the searches.
Alex Beavis, head of mortgage products at Skipton Building Society, said: “Skipton Building Society now accepts indemnity insurance for local authority searches on purchases, to provide an additional option for conveyancers should local searches be significantly delayed due to the exceptional demand associated with the stamp duty rush, plus the added pressures of working through the Covid-19 pandemic .
“This move is designed to take some pressure off purchase chains, keeping the market moving and hopefully helping more borrowers meet the 31 March deadline.”
NatWest said it would also accept the insurance on a temporary basis for purchase cases.
Not all lenders, however, will proceed to completion without the searches which means brokers are having to give their clients an additional mortgage option of a lender that accepts the insurance.
Andrew Montlake, managing director, Coreco, said: “Borrowers who definitely want to complete before the stamp duty deadline are being offered extra choices. We’re showing them the best deal for their circumstances and if necessary an additional deal from a lender that accepts indemnity insurance.”
Barclays and Halifax will accept the insurance if the conveyancer is comfortable going ahead without reviewing information that could affect the property but Santander and Nationwide will not.
Mortgage Solutions has contacted HSBC.
David Hollingworth, associate director, communications, L&C, said: “Together with the search provider we are able to identify cases that will be affected by the delays at an early stage and then consider whether any of those cases could run into issues with the lender if indemnity insurance was used.
“That helped to flag a small number of cases and allow for appropriate action to be taken in placing with a lender that would be able to progress to completion.”
He added: “Skipton’s move to address this issue is a welcome one.”
Calling all lenders
Brokers are calling for more lenders to follow Skipton and NatWest’s lead.
Lea Karasavvas, managing director, Prolific Mortgage Finance, said: “Most lenders are aware of the issue in Hackney and are starting to accept indemnity insurance, but there are still a lot that will not. One way around this is for the buyer to instruct private searches which is when someone goes into the local council offices and has to manually look through the documents but as you can imagine the delay on this can be considerable with some solicitors saying this will take over six months.
“With most buyers wanting to complete by 31 March, this can mean that most people buying in Hackney where the average purchase price is over £500,001 will be stung with an extra £15,000 on their stamp duty bill as they will miss the deadline.
“If possible we need all lenders to take this into consideration and accept the indemnity insurance but they understandably need to listen to their own legal advice on whether they can or not.”
Risk to buyers
Indemnity insurance can be arranged to protect buyers from any search entries that could damage the property value but were not uncovered because the information was unavailable, for example a planned development that would be disruptive to the house. But proceeding without seeing searches can also put the buyers’ safety at risk.
Beth Rudolf, director of delivery, Conveyancing Associations, said: “For the buyer, insurance in place of the authority information is not always a good thing, albeit often worth it to enable their transaction to proceed.
“For example if there was a loft conversion then the buyer might assume that the loft conversion can be safely used as a bedroom when in fact the building control inspection might have revealed safety issues that mean that it can only safely be used as storage.”
Last year, the Conveyancing Association recommended that sellers should obtain the searches when their property is listed for sale that way by the time a buyer has made an offer the information is likely to have been returned and any issues uncovered can be dealt with by the seller cutting out delays.
Estate agent’s ‘£1’ ad receives complaint as sellers face £300 bill to use own solicitor
The advert, which remains on My Online Estate Agent’s home page, has two buttons which say “Sell for just £1” and “Let for just £1” and a large heart which also reads £1.
After clicking on “Sell for just £1” vendors are taken to another screen which in smaller print explains by using the estate agency to sell your home you are agreeing to using its recommended conveyancing partner for a fixed fee of £595.00 excluding VAT.
Homeowners who do not want to use the firm for their conveyancing requirements have to pay £300 to opt out of the service.
The Advertising Standard Agency (ASA) received a complaint that the advert was misleading from a member of the public who knew the company’s conveyancing policy and fee structure.
The ASA approached My Online Estate Agent with the concerns and the company agreed to remove the advert.
A spokesman for the ASA said: “We have received an assurance from the advertiser that it will remove the claim from its website.
“We understand that might take a couple of weeks given some broader changes it is carrying out. Nevertheless, we expect to see the claim removed as soon as possible and will take further action if the advertiser does not comply.”
A spokesman for My Online Estate Agent said: “My Online Estate Agent (MOEA) is fully cooperating with the ASA to resolve the transparency of fees relating to our services.
“In consultation with the ASA we have agreed to make adjustments to the presentation of fees, terms and conditions on the MOEA website that overcome the matter to their satisfaction.
“Some of these changes will be immediate, while others will take a little more time to address. As MOEA are fully complying with the requirements of the ASA no formal action has been brought against MOEA. We are fully committed to ensuring our obligations remain in accordance with the Advertising Code.”
Estate agent adverts banned
The ASA has also issued formal rulings to two other estate agents, Manchestersalerent.co.uk and OverStreet.co.uk for advertising properties for sale that were no longer on the market, banning them from continuing to advertise the homes.
The same four-bedroom detached home was advertised on OverStreet.co.uk and Manchestersalerent.co.uk for sale in July but had not been on the market since 2017.
Both companies were ordered to remove the listing.
Coventry BS reduces remortgage like-for-like stress rate
Product fees can be added to the overall value of the remortgage, but early repayment charges cannot.
The mutual said this would give switching clients who do not require further borrowing more options and wider access to its range.
It also said it would allow it to lend to more customers.
Jonathan Stinton (pictured), head of intermediary relationships at Coventry Building Society, said: “It’s a challenging environment for many borrowers, and we know how important some flexibility can be.
“The change to our stress rate in like-for-like remortgages will improve access to our remortgage products while maintaining our prudent approach to lending.”
Nationwide warns of ‘peak period ahead’ and returns 90 per cent LTV max term
The mutual also revealed it has halved application to offer time to 15 working days for standard cases from its situation at the start of December.
Nationwide said it was still receiving a high level of applications as borrowers look to take advantage of the stamp duty holiday noting it had added additional resource to its teams to help process as many cases as possible by the deadline.
Nationwide Building Society director of mortgages Henry Jordan said: “The changes we made at the end of last year continue to have a positive impact on our service levels with the time from application to offer halving in recent weeks.
“However, with the stamp duty holiday ending in March, we are likely to enter a peak period.
“We are grateful to all brokers who continue to submit new cases while, at the same time, managing their clients’ expectations on the likelihood of their application completing before the deadline.”
High LTV expansion
Nationwide added that it was continuing to expand its higher LTV lending.
When reintroducing its 90 per cent LTV deals last summer Nationwide tightened criteria including temporarily restricting the maximum loan term to 25 years.
Lending at all other tiers remained at a maximum term of 40 years throughout the pandemic.
And analysis from the mutual’s house price index affordability report showed that in 2020, around 70 per cent of first-time buyers took out a mortgage with an initial term of over 25 years, up from 45 per cent in 2010.
Jordan continued: “As a responsible lender we initially made a cautious re-entry back into the higher LTV market.
“However, as we become more comfortable lending in the current market, we are now in a position to revert to offering 90 per cent LTV mortgages available with a maximum term of 40 years.
“We know that many borrowers, particularly first-time buyers, will opt for a longer term mortgage in order to help make their monthly mortgage repayments more manageable.”