How will lenders differentiate between Covid debts and high risk borrowers? – Star Letter 27/11/2020
This week’s comment was a reaction to the story: Virgin Money braces for surge in bad debts while mortgage lending falls 30 per cent
Stuart Phillips said: “I’d be more interested to know how a lender is going to differentiate between a ‘bad debt’ as a result of Covid-19 and a bad debt because the client is a high risk.
“If lending volumes are expected to dip, lenders are reluctant to increase costs and adverse credit cases will rise, how is the market going to adapt to that?”
He added: “I have to assume that lenders will want to continue lending to clients who were genuinely disadvantaged because of a pandemic, but no one is really talking about that.”
Dear regulator: ‘replying to emails would be greatly appreciated’ – JLM Mortgages
In our line of work, there are easy targets – and then there is the Financial Conduct Authority (FCA).
Perhaps the easiest of all targets and we have some sympathy for those who work for this organisation especially given the large amount of – often unjustified – opprobrium that is thrown at it.
That said – and you might have sensed where this is going – sometimes criticism is justified, especially when you can see a perverse logic, or an inverted priority list.
Now, let’s caveat that again because we all understand this is a pandemic we are living through and, we might argue, that the normal rules do not apply. However, there is also a strong argument to suggest our regulator should be doing more than most to create a greater level of ‘normality’.
We all have staff working away from the office, we have all had to ensure our systems and processes can function in that environment, we have all had to keep providing the service we are paid for, we have all needed to find ways to maintain our focus and deliver our ‘end product’.
The FCA should not be immune from those responsibilities, in fact you might think it is more important for them to function ‘normally’ than most. Particularly given the ever-increasing cost of being regulated.
Six months to process AR firms
So why, for example, are we waiting an age for them to process and register our new AR firms? Why has it taken over six months and, despite constant calls, emails and meetings, this still hasn’t been done?
Why are they effectively stopping these firms and advisers from trading while we wait for them to be processed? Why have they taken people off the register for no reason, then when questioned, reinstated them with no apology?
And then there is the issue of what should be the regulator’s major priorities at this moment. Big picture strategising is one thing – we’ve seen enough of that in the mortgage market with its ongoing fixation on price but, at the same time as it is ignoring emails and calls, it is ramping up the workload of the firms it regulates.
Hence, while we have been waiting since November 2019 for the regulator to provide the guidance we asked for on business structures, it is now asking us to fill out a second Covid-19 impact study. To say this is not necessary at the moment is an understatement, especially when these requests seem designed to stop advisory firms/network principals and the like from actually getting on with our work.
How come this data is deemed so supremely important when we simply want a reply to an email?
High standards for all
So, while we understand that this might be perceived as another case of bashing the regulator, there is a lot more substance to our concerns, mostly because when the highest standards are expected of our business, why shouldn’t we expect the same from the FCA?
Given the circumstances, and given the FCA itself said it would – during this period – only be focusing on key areas, why doesn’t it now begin to deliver on what is really required for the firms it regulates? We await a response – and if they could also reply to our emails, that would be greatly appreciated.
We are keeping up our side of the bargain, so it would be good if the regulator could try and support us more.
Mortgage Solutions has contacted the FCA about the issues raised in this article.
Bluestone Mortgages resumes 85 per cent LTV lending
Qualifying loans on all credit tiers will continue to be processed using Automated Valuation Models (AVMs), while the maximum loan size for residential loans will increase to £1 million.
Bluestone said today’s news continues the momentum in lending activity which saw Bluestone resume lending from 1st June up to 75 per cent LTV on all products.
Reece Beddall, head of sales and marketing at Bluestone Mortgages, said: “Today’s news is testament to the work of the Bluestone team and the support of our funders and intermediary partners. Over recent weeks, we have been focusing on ensuring we can return to our pre-Covid product range as quickly and efficiently as possible, and it is a delight to be able to announce this to the market today.
“Ensuring underserved borrowers can continue to access the lending they need remains a priority for Bluestone and delivering an innovative and flexible proposition to these customer segments will continue to be crucial in helping us achieve this goal. We are confident that, following today’s announcement, we will be in an even stronger position to support borrowers over the coming months and as the crisis continues.”
Vulnerable borrowers and first-timers most at risk from Covid-hit mortgage market – FCA Insight
The findings were detailed in an article from the Financial Conduct Authority (FCA) which highlighted a slow rebound may produce “further widening of intergenerational disparities”.
The research found clear access to the mortgage market had been reduced for first-time buyers and those with limited savings, and further effects of the pandemic could hit vulnerable people.
“Should this trend continue it risks widening the gap between established homeowners and those hoping to become property owners, between younger and older generations,” it said.
“Even in a scenario where the mortgage market remains fairly resilient overall, the market contours and structure may be shaped further by the pandemic, with potential consequences for vulnerable borrowers.”
High LTV borrowing contracts
Published on its Insight website, the paper was written by FCA head of research Karen Croxson and household finance technical specialist Philippe Bracke who analysed mortgage industry data through to the end of August.
They noted there had been a significant drop in high loan to value (LTV) lending and a notable increase in rates for this segment.
And while the market was beginning to recover there could be significant side effects of a fragmented or limited return to operations.
“One change may be more lasting,” they said.
“If the drop in availability of high LTV mortgages persists, along with increased rates for these products, this will impact lower income, lower wealth borrowers disproportionately.
“With these households more likely to be younger, this in turn may imply further widening of intergenerational disparities.”
Capital raising important for economy
In contrast, while remortgaging was largely stable the number of people taking out equity when doing so dropped dramatically.
If this trend continued that could also hit the national economy, they warned.
“As might be expected, the pace of remortgaging was interrupted by the onset of the lockdown, but has remained within the range of remortgaging activity seen over the previous five years,” they said.
“In comparison with the gyrations seen in home-buying this amounts to remarkable stability and suggests people were still able to switch provider – a positive indicator for competition in this market.
“Again though, those remortgaging are typically established homeowners with significant equity. So, we may be looking at another example of how recent events have been less damaging to the financial outlook and choices available to older generations, while restricting the choices of younger first-time buyers.”
They added: “If future data releases show that equity extraction bounces back, it will be a reassuring signal for the economy, given the role that housing wealth plays in consumer behaviour.”
FCA chiefs fail to explain why borrowers were not told payment holidays would affect lending decisions
In a session with the Treasury Select Committee, neither FCA chief executive Nikhil Rathi or chairman Charles Randell explained why it took so long for consumers to be told about the impact of taking a payment holiday.
Rathi and Randell were being grilled on the subject by Labour MP for Mitcham and Morden Siobhain McDonagh.
McDonagh set out the timeline of the details being published compared to statements from ministers and the FCA.
“On 18 March the business secretary reassured those seeking a three-month payment break that it would not impact their credit record. On 20 March the FCA confirmed this,” she said.
“However, the FCA did not tell borrowers at this point that the mortgage payment holiday or deferrals could still influence banks’ willingness to lend to them, even if their credit scores or ratings were unchanged.
“Why was it not until the 22 May that the FCA added these warnings to the mortgage advice page and until 1 July for similar warnings to be put on the FCA’s loans, credit cards and overdraft webpage?” she asked.
Agencies or lenders
Randell said there were two different elements being considered in the situation – credit files maintained by credit reference agencies, and lenders making decisions about customers requiring the full detail of the borrower’s position.
However, he did not explain why there was a delay in being clear about the situation.
Rathi (pictured) said of the latest measures first announced Saturday: “We’ve been clear that the credit file masking is there for three months.”
He added that the FCA had been clear over the last week, that the credit score break did not mean lenders would ignore the additional indebtedness when making affordability decisions.
“It is important that when a lender makes a future lending decision they have an understanding of the overall indebtedness of a consumer,” he said.
‘We’re being straight now’
McDonagh responded sharply: “That’s not answering my question.
“To the lay person with a mortgage, they were told in March that if they took a payment holiday it would not affect them in the future.
“It took the FCA three months to put onto the website that indeed it would be taken into account.”
Rathi, who joined the FCA as chief executive in October concluded: “I wasn’t there in March, but we are being straight with borrowers now.”
Housing industry ‘crucial part’ of Covid response says Jenrick
In a letter to the housing industry Jenrick applauded the sector for reacting with enormous agility to the extraordinary circumstances presented by Covid-19.
He said the “determination to keep building, repairing, buying and selling the homes our country needs has been a crucial part of the economic response to Covid-19”.
Addressing the latest set of restrictions which begin today, the letter noted: “We can all play our part in ensuring that building and repairing homes can continue safely during this period and that people can buy, sell and move home.”
It continued: “Buying, selling and renting a home can continue, in a Covid-secure way, as it has in recent months.
“Estate and letting agents can operate, show homes and sales suites can remain open and property viewings, mortgage valuations and surveys can take place.
“Our guidance on moving home must be followed. Home repairs and maintenance can continue.”
Continue working safely
Home Builders Federation executive chairman Stewart Baseley and Federation of Master Builders chief executive Brian Berry co-authored the letter with Jenrick.
They reiterated that house building – and its supply chains – should continue working securely.
“The government is clear that work can continue if this is done in line with public health guidance. Construction and other site workers can go to work,” they said.
The letter concluded: “We are committed to supporting the sector through this emergency to continue working safely to build, buy and sell the homes we all need.”
Accord’s Duncombe: ‘The last three months have been our busiest ever’
Jeremy Duncombe, Accord’s director of intermediary distribution said: “This is a position we weren’t expecting to be in, in March this year. So, all lenders are trying to react in terms of capacity and how we provide service.”
He explained the lender has been balancing capacity and demand and received too much business to continue to lend within its chosen range, so it has had to limit both its LTV and criteria.
He added that all its staff have been working from home, with many initially having to look after children and some being redeployed into different parts of the business, including collections and recovery.
Richard Merrett, head of strategic development at Simplybiz said the industry has to be thankful it is still operational and not suffering like travel or tourism, for example.
“The fact we have too much to do is a bit of a champagne problem,” he added.
“But, it is very challenging. People doing this job for a long time are having to relearn what they’ve known in the past because of the swaths of changes to products and criteria and then set against the backdrop where they can’t get the same level of service or support. Very tough working conditions,” but added this should really be viewed as a positive again, given some of the situations people are struggling with.
Sebastian Murphy, head of mortgage finance, JLM Mortgage Services said: “I think what most brokers may be struggling with is the contrast between the different lenders. Some lenders have got it right and are doing really well. Others are really struggling and regrettably the end of March can’t come quick enough for a few of them.”
See below to watch the video, hosted by Owain Thomas, features and contributing editor, Mortgage Solutions.
Paragon resumes BTL lending on student lets
The specialist buy-to-let mortgage lender is offering a range of two-year and five-year fixed rate options, available on Houses in Multiple Occupation (HMOs) and multi-unit blocks.
A 70 per cent loan-to-value (LTV) range starts at 3.05 per cent over two years, rising to 3.44 per cent when spread over a five-year term.
For landlords looking for 75 per cent LTV products, Paragon offers a rate of 3.35 per cent on a two-year fixed rate and two five-year choices are offered at 3.74 per cent and 4.2 per cent respectively, both with £350 cashback.
Two-year mortgages incur a one per cent fee and two per cent is charged on five-year deals. A free valuation is included with these products.
Moray Hulme, Paragon director of mortgage sales, said: “We are pleased to have re-entered the student market, offering intermediaries some strong products that we feel are well suited to meet the robust demand we are currently experiencing. We wanted clarity on whether students would return for the 2020/21 academic year, which they have done even if lectures are being held remotely.”
Covid-19 is not a reason to speak about protection, advisers should already do it – Marketwatch
And now, with the Covid-19 pandemic making people more aware of their own mortality and the reality of how their lives can change unexpectedly, discussions around preparing for worst case scenarios have become part of the everyday conversation.
So this week, Mortgage Solutions is asking: Has the pandemic changed the way you advise on protection?
Dina Bhudia, managing director and CEO of P2M Asset Management
We already position protection quite early on in the conversation.
I do find clients are more receptive in terms of having the time to think about it because people are working from home and have longer to converse about something personal rather than allocating time to come to our office. And, there is an element of fear as people are scared of Covid-19 and its potentially fatal consequences.
We’ve had people just call us up saying they have been thinking of life cover and critical illness asking to do a quote, even when it’s not mortgage related.
During the mortgage process, I think they just assume it’s part of the process compared to before where they were a little bit reluctant to discuss it.
Everything related to protection including private healthcare has become more prevalent to people because the NHS is under strain, so people want to consider those options.
Also, where people are working from home and not spending on travel, they have more disposable income to spend in this area.
Protection can be easier for mortgage advisers to bring up now because often they can be reluctant to talk about it as it’s a sensitive area. The dynamics of advice change. With mortgages, the client needs you. With protection you are selling a concept.
The problem with sole mortgage advisers is protection can become a secondary conversation. But they aren’t looking at it as a two-step conversation anymore, they are looking at it as one process.
Advisers are also mindful of the future. If mortgage business and applications decrease, they are getting wiser with holistic advising and thinking they have to encapsulate what they can because we don’t know what’s ahead of us.
On a practical level, where advisers aren’t doing face–to–face meetings or seeing business development managers, they can take the time to talk about these things more.
Darryl Dhoffer, mortgage and protection adviser at The Mortgage Expert
We bring it up very early on in the fact find. We don’t just talk to the client about mortgages, we make it very clear that we are looking at a fully protected mortgage.
It’s important we address things very early on. If we left things and then looked at protection later, it can cause complications and delays in the application process.
Everyone knows someone who’s been affected by Covid-19 and knows what impact it had so clients are more receptive to speaking about protection.
There are a lot more questions that need to be asked now too.
As soon as we had the first lockdown and realised the impact of Covid-19, we changed some of the questions we ask during the fact find immediately to fall in line with that. We didn’t delay. Our clients are prepared and we prep them very early on in every stage.
Protection questionnaires are comprehensive so we’ve tried to engineer our questions to be in line with what insurance providers would ask.
Advisers have a duty to bring protection up from the start, pandemic or no pandemic. We’ve always looks at fully protected mortgages from the outset, so our way of working hasn’t changed.
In terms of other brokers, they have a duty if they want to class themselves as fully compliant mortgage and protection advisers and they should bring it up early in the journey.
Covid-19 shouldn’t be the factor for it, they should already be doing it.
Akhil Mair, managing director at Our Mortgage Broker
As we grow older, get married, build families and start businesses, we come to realise more and more that life insurance is a fundamental part of having a sound financial plan.
Depending on your type of policy, life insurance is fairly cheap, which means there’s no excuse not to get coverage now. Plus, over the years, you’ll find comfort in knowing money will be available to protect your loved ones in the event of your passing.
We have always discussed the importance and cost of types of life cover at a very early stage when arranging our clients’ mortgage.
All our advisors ensure they ask the relevant questions at the fact finding stage in order to obtain a clearer financial and cover in place.
In the vast majority of cases, our clients main concern is to obtain a mortgage offer but it’s our duty and reasonability that we provide our clients with relevant life cover and protection quotes in order to ensure they and their families are supported in any circumstance.
‘Enormous stress and strain’ on brokers as high activity drives sleepless nights – Crystal
The majority of brokers have not been getting enough rest as the market goes through a busy period, caused by pent up demand and the stamp duty holiday.
Some 23 per cent of respondents said they never slept for eight hours and 62 per cent said they only got enough sleep a few days a week.
When asked about overall contentment, 35 per cent of brokers said they were moderately content while 16 per cent said they were disillusioned with their working lives.
However, most brokers are satisfied with their work as a quarter were happy with how things were going and 22 per cent said they loved their job.
Over 100 mortgage professionals were surveyed, and 95 per cent were directly authorised mortgage brokers or appointed representative while five per cent were professional introducers.
The findings echo some of those from Twenty7 Tec which highlighted that it was seeing thousands of searches being conducted by advisers late into the night.
‘Enormous stress and strain’
The survey forms part of CSF’s initiative to support mental health both in and out of the workplace. The company partnered with mental health charity Mind in August as part of this campaign.
Jason Berry, CSF’s group sales and marketing director, said: “I’m not surprised that our sector is seeing a huge number of brokers not receiving enough sleep.
“The pent-up consumer demand which built from the last week of March to the end of June has seen recent transaction levels rocket and many brokers are undoubtedly working harder than ever to satisfy clients.
“The stamp duty holiday and revised permitted development rules, which make planning consents easier, are helpful but both are likely to mean the high consumer demand continues.”
He added: “On the surface this appears to be great news but there will be enormous stress and strain on our broker community which is heightened further by the latest Covid trends.
“We already have 16 per cent of brokers totally disillusioned and I fear this will increase significantly in the coming months. I hope our health and wellbeing campaign can deliver expert hints and tips but most importantly supply meaningful tools which support those brokers most in need.”