SC: We took a poll of attendees at the RBS roadshows last year, asking questions about the Government’s shared equity schemes, and it was staggering how little understanding there seemed to be out there. We realised that there is a lack of knowledge of the market, who can access it, and what the benefits are. We would like to start the education process to help the brokers understand the options. We also have to educate consumers – there is a conception out there that these schemes are only for key workers, when really it is open to everybody.
NH: We have to be careful about educating people. If you introduce these schemes to a lot of brokers, then there is a risk that they get involved in an area that they do not fully understand, wasting the time of the lenders. You have to have brokers that know what they are doing. The education has to be for everybody, so that they can help borrowers go in the right direction.
SC: We are seeing more business coming through, and our underwriters are still learning how to deal with shared equity – it is not like sausages coming out of a factory. We manually underwrite each case, so we need more detail than usual to do so.
IA: It is quite staggering, the lack of knowledge. We have seen brokers that do not know the difference between shared equity and shared ownership. We have seen brokers scrabbling around and viewing this as something to fill the gap in their income. We want to do some business, but we do not want it to be our main business, which is partly why we have introduced the 5% deposit requirement. Lenders do not want to be over-exposed.
NH: Should brokers have to sit an exam before getting involved with HomeBuy schemes? No. It should be regulated through the lenders or the networks. Networks can regulate whom they let do business through the scheme. They need to realise that if they let everyone into it it could destroy everything for everybody.
NV: In Birmingham, the authorities went round promoting Open Market HomeBuy, and all the brokers know about it now. But just down the road in Leicester, they do not know anything at all. It is different for different areas. But an important point is that while a borrower can use any broker they want for the mortgage, they have to see an IFA on the HomeBuy Agent’s panel first for the free assessment.
AF: Brokers cannot charge for this, and that is where we need to start. Yes, HomeBuy generates income, but it is a demanding process. In this market, it is a good product, but people can still fall into arrears. There is a danger that brokers could start to abuse it, because it is a route to market. We have to be responsible in the way we approach these schemes – the lenders can help us control the way it is distributed. They could look at tranches, for example. But we need to spell out the limitations of the products, there is a lot of work that goes into each sale.
NH: We definitely have to control it. Brokers naturally want to get into it, but they have to be filtered. The lenders do not want too much of the market.
PB: Currently about 30% of our business comes through the shared equity route.
IA: But we are in a market of low transaction levels, so it is possibly a little disproportionate.
PB: There are limitations around the new-build schemes, and possible exposures with the sites. There are far fewer lenders around so we are reaching the ceiling limits far quicker that we did before and having to pull back.
AF: There is a degree of education that the agents themselves need to go through, as the lending situation has changed. Not allowing the borrower to put the fee onto the loan is blocking the entry to the market for some borrowers.
NH: Within brokers’ databases there are people who qualify for this, but intermediaries will not pass them over to specialists without getting something in return. There has to be an incentive for them.
PB: There are challenges in making the process work. It is a quite manual underwriting process, as the circumstances of each case are unique. We have to make sure the units can handle that, as there is a lot of information moving quickly – you cannot just press a button.
IA: It is similar for us. The knowledge in the processing teams is improving, but there are still more complications than a normal product.
AF: The lender systems have struggled to understand the schemes, as it is 100% lending, but the risk is not 100%. We have to make sure that they understand that. We cannot insist that the borrowers use us for the mortgage after the assessment, but we find that in most cases they think that because we have given them such good information they want to use us for the deal.
NH: As long as you are doing a good job and adhere to the service agreements, you will stay on HomeBuy agents’ panels, but they do knock people off if they slip up. Brokers have to be able to refer borrowers over, and they have to be paid for it.
AF: We need more lenders to come into the market. People like Principality Building Society came in, opened the floodgates, and then left quickly. There are not many lenders left, now Abbey has firmly pulled out. It is great news that Nationwide has come in for HomeBuy Direct. And in terms of information, there is a great piece of literature by the Homes and Communities Agency, which you can download and give to your consumers.
NH: The network has to be able to say that only certain people can deal in this market, so you have to go through them.
IA: Quite a few networks and clubs tried that with equity release, but it did not really work because brokers are quite territorial with their clients and will not hand them over.
SC: We use various media to educate brokers on the products we have available, but I feel we need something like a ten point checklist on what they need to be aware of, what they have to demonstrate to get onto a panel, things like that. We need to make brokers aware that we want the business but we want it from those advisers that understand the market.
IA: Some of the panels have massive waiting lists and they will not put anyone else on there.
NH: We need to involve people like London & Quadrant, to get together a panel of advisers who the cases go through. They have to be used for the first assessment. We find that seven out of ten will come back and use us. There are brokers that want to get involved, but they have to be assessed and signed off to be able to do the scheme.
PB: Do we need a voluntary code, or an agreement on best practices? Something a broker needs to be looking at before even thinking about joining the market? Or it could be mandatory, a first step towards that specialist role?
IA: The best chance is for more lenders to come in. If more lenders do not come in, but the demand gets higher, lenders will have to further tighten their criteria as there is the potential for exposure.
AF: I am surprised that Northern Rock is not involved, because of its Government backing.
SC: Different lenders have different commitments – we have quite a big stakeholder that we need to keep happy. Shared equity amounts to about 10% of our business at the moment, so we are not hugely overexposed, but more lenders would help.
PB: One of the challenges for lenders entering the market is that you have to have a robust system. If you do not, it will be too time consuming to work in this sector. That is a major concern.
SC: We are considering offering some exclusives, but from what I have heard today, I want to be careful about how we distribute them.
AF: It does not have to be a great product. It is the HomeBuy arrangement that seals the deal, not the mortgage itself. Brokers have to remember that they will only get a proc fee on 65-70% of the transaction. We probably break even on the product – you have to cross-sell protection on the back of it, that is essential or else you will lose money. There is also a definite retention element to it, as you can look at staircasing upwards for example.
NH: With our retention, we probably have 70% of the people we worked with, four years ago, coming back. It comes down to keeping them involved right the way through, reviewing their GI on a regular basis.
AF: Also, if you provide a first-time buyer with a way to own their first home, then they will tell their friends and you get recommendations. n
