‘We’re already seeing more clients with adverse credit and need more options’ – Dale Jannels
This was swiftly followed by a flood of lenders welcoming new business.
After a cautious initial approach, LTV levels initially crept up, but the question is – did some lenders open the higher LTV door a little too soon?
Were they surprised by the amount of pent-up demand or were they not quite in the right position to make such moves from a logistical and operational sense?
Focus on service levels
Only the lenders in question can answer this question, although a recent comment from Jeremy Duncombe, director of intermediary distribution at Accord Mortgages was telling after the lender temporarily withdrew all products at 90 per cent LTV level.
He said: “We have seen a significant increase in applications since re-launching last month. Our service levels are something brokers know they can rely on, so to ensure we can maintain the standards expected of us, we have taken the difficult decision to temporarily withdraw the range.”
In a similar vein, Virgin Money has also temporarily withdrawn its 90 per cent LTV products to “protect the service for existing applications” following a strong increase in demand and Clydesdale Bank has made a similar move.
Similar moves have been made by TSB, plus a few regional building societies, and I’m sure more will have followed suit by the time you read this.
No criticism of lenders
Highlighting these products being pulled from the market is certainly no criticism of these lenders.
If service levels can’t be maintained, then this is clearly a sensible move to make.
Managing risk and operational capacity has always been a challenge for lenders, and this is proving increasingly difficult in the midst of some uncertain economic conditions.
And we have seen lenders re-entering the space with limited editions such as Coventry Building Society, Saffron Building Society and Monmouthshire Building Society.
The higher LTV lending battle will be an ongoing theme throughout the rest of 2020, and this will be dictated by a number of issues from an internal and external perspective – there’s no getting away from the fact that borrowers are crying out for higher LTVs.
However, there remain question marks over house prices, unemployment figures, not to mention if and when a recession may hit.
From a lending perspective, issues remain over attitudes to risk, operational capacity and servicing the valuation backlog and pipeline cases.
More adverse credit clients
We also have to consider how this period is affecting new and existing borrowers.
We’re seeing greater numbers of clients coming through our doors with some form of adverse credit, and this number is only likely to grow.
When it comes to servicing these needs, fewer options are currently available.
Many specialist lenders are tightening criteria and it’s difficult to know if, and when, the near prime product market will experience any major improvement.
Especially in the middle of lingering uncertainty around exactly how payment holidays will affect credit assessments.
These trends will prove interesting stories to follow as lenders continue to get to grips with demand and how best to service ever-changing borrowing circumstances amid a variety of Covid-19 and wider economic repercussions.
What we do know is that specialist distributors will prove invaluable in quickly determining whether a case is viable or not. And the intermediary market in general will remain in prime position to support lenders and borrowers on this journey.
We are operating in difficult times – Dale Jannels
Some of these might be deemed relatively mundane under ‘normal’ circumstances, but we are currently operating in a world which is far from ‘normal’.
What this period has done is bring the best out of many people and highlighted some strength in adversity.
Working remotely means people have to better understand their roles, and that these roles are clearly defined.
It’s interesting to note how intermediary firms are currently coping and how they view the future.
Only third of brokers have plans for falling volumes
United Trust Bank’s latest broker sentiment survey found just 30 per cent of brokers have plans in place to deal with a significant reduction in business volumes.
It also found that 60 per cent of commercial finance brokers were “substantially reassessing” their business outlook for the year, which a few months ago, saw 37 per cent predicting business growth of over 10 per cent in 2020.
Meanwhile, the loss of third-party services was suggested to be something that only 23 per cent of brokers are ready for.
When asked about making contingency plans, 15 per cent of respondents replied they have none so far but were making preparations, while 11 per cent replied in the negative to both having plans and having any intention to form any.
Value in partnerships and referrals
There is no doubt that we are operating in difficult times and who knows what the future will hold, but the value in partnerships, strategic affiliations and referrals will only intensify over the coming period.
There are different types of worries facing clients, which require additional levels of intermediary help.
Advisers are required to support clients with financial worries and those in need of payment holidays. This is important, time-consuming work but it sadly does not help pay the bills.
However, there are also still cases out there which require speed, specialist knowledge and established relationships to find the right solutions to match individual client needs.
Especially when lenders are overhauling products left, right and centre.
These are also the types of cases which continue to highlight the value attached to packagers and our relationships with a variety of specialist lenders.
And it’s these specialist lenders who still have the appetite to provide funding during a time when many are struggling to access responsible and appropriate forms of finance to complete deals which have turned even more complex.
Intermediaries who don’t have referral relationships in place could be missing out on valuable revenue streams and potentially closing the door on some alternative lending solutions for their clients.
Not to mention, being able to pass over time-consuming administrative burdens, allowing more time to concentrate on the shifting needs of existing clients and other revenue generating activities.
These relationships also earn brokers a referral fee while maintaining full client retention, be this for regulated or non-regulated cases.
So, I urge brokers to engage with packagers as they can quickly recognise how to move forward with certain cases and have valuable relationships with specialist lenders who can provide the right solution in a timely manner.
These might just be the types of relationships which make a real difference in helping more clients than you might think and helping your business to survive and prosper over the short, medium and longer terms.
Three key specialist areas brokers should be focusing on – Jannels
So, let’s briefly evaluate three areas where intermediaries should currently be focusing their attention on.
Complex buy to let
In a recent trading update from Paragon, the bank highlighted its decision to focus efforts on “higher margin, professional business”.
Its specialist buy-to-let (BTL) lending grew by 1.1 per cent year-on-year to a total of £375.4m.
In addition, the quarter end pipeline figure for buy-to-let lending totalled £814m, up by 11.6 per cent from the same period the previous year, of which 92 per cent was classified as specialist lending.
This is indicative of the way the BTL market is moving.
All types of landlords are evaluating their portfolios – large and small – in terms of looking for ways to diversify, maximise yields, minimise costs and become more tax efficient.
The proportion of professional landlords is rising as some amateur landlords are selling up and moving on.
Additional market complexity and the growing proportion of business being generated by specialist lenders is only going to heap more importance on relationships, specialist distributors, quality of advice and a robust intermediary referral process moving forward.
Contributors to the Bridging Trends data transacted £732.7m of bridging loans in 2019, an annual fall of 4.5 per cent.
On the surface, this may seem somewhat disappointing, but when you consider the political uncertainty felt in the second half of 2019 it should not be underestimated.
The early weeks of 2020 have already seen a high number of enquiries with strong liquidity being exhibited among short-term lenders and competitive rates emerging.
Intermediaries can’t be expected to know all the intricacies attached to bridging finance, but this is where specialist distributors can help.
Later life lending
Research from Ipswich Building Society revealed that more than half of borrowers aged over 50 say they have fewer mortgage providers available to them compared to younger mortgage applicants.
This is despite the fact there are more than 60 lenders offering later life products for older borrowers.
This may well be the case but – as outlined by Richard Norrington, chief executive at Ipswich Building Society – the mortgage landscape for the over 50s looks entirely different now compared to just a few years ago.
However, this does not necessarily mean people’s perceptions have kept up and this also applies to some within the intermediary community.
This market is still developing but options and choice are constantly emerging for a variety of later life borrowers, especially through building societies and specialist lenders.
Interest-only revamp could benefit adverse borrowers – Jannels
The number of interest-only loans set to mature by 2020 shrank by 91,000 in 2018 to 126,000 loans, a drop of 41.9 per cent compared with 2017.
This reduction in numbers represents an industry success story for regulated providers, as lenders continue to improve their contact programmes with borrowers and ensure plans to repay are on track. And it’s important to continue this momentum in 2020 and beyond.
Interest-only is a tricky subject to tackle. It has received so many negative headlines in recent years and so many black marks from the mainstream press – rightly so in many cases – that it’s not always the easiest topic to broach.
However, despite this being abused in the past, it has also proved to be a product which allowed many borrowers to get onto the property ladder who were otherwise unable to do so. Many of whom were able to build up sizable equity pots due to rapid house price rises in many areas.
On the other side of things, it also led to the term ‘mortgage prisoners’ being coined.
Of course, those who have been around the mortgage market long enough will already realise the benefits as well as the pitfalls attached to, and created by, this product type and the additional support required by borrowers in this area.
Support is the key word here. The number of borrowers with interest-only deals is falling, but there is still a huge quantity out there who would benefit from speaking to a mortgage adviser.
This demand was further outlined in the November criteria activity tracker from Knowledge Bank which revealed that a growing number of brokers are seeking interest-only options on behalf of their clients.
Since February, the most searched-for term among brokers looking at residential criteria has been “maximum age at end of term” but searches for “interest-only” were said to have climbed to second place in the rankings, from fifth place the month before.
In third place was “self-employed one year’s accounts”, followed by “capital raising for debt consolidation” in fourth place and “right to buy” in fifth.
Specialist borrowing boom
This data helps to identify the many forms of specialist borrowing scenarios that are presenting themselves to brokers on a daily basis.
And there is no question that these will grow both in popularity and volume as more and more credit-worthy borrowers are falling short of the strict underwriting requirements of mainstream lenders.
Lenders have to be fully aware of this ticking time bomb and be in a position to start providing responsible and appropriate solutions to such customers.
Retirement interest-only (RIO) is a step in the right direction but as we’ve seen through recent Financial Conduct Authority (FCA) figures – where only 660 RIO mortgages were reported to have been taken since they were introduced by the FCA’s rule changes in March 2018 – as yet this is not making the impact which was expected in some quarters.
With a big spike in homeowners coming towards the end of interest only deals in 2030, there are still many customers that need to understand the options currently available and as an industry, we need to continue to investigate and develop new ways of helping such customers in the next ten years.
Impact launches specialist case referral service
The packager has set up a dedicated team to deal with enquiries and manage cases all the way through from application to completion.
Areas of the market available include bridging, commercial, later life lending including equity release, specialist residential and buy-to-let.
The service includes a guarantee that it will not cross-sell either now or in the future to any clients referred to them for mortgage advice.
Impact will deal with the client directly and cover all compliance and regulatory needs, with a percentage of the lender’s normal recommended procuration fee paid to the introducer.
Impact managing director Dale Jannels told Specialist Lending Solutions the exact level of fee would depend on the referring broker and volume of business, but it will be in the region of 40 per cent of the normal lender’s broker proc fee.
And he added that the firm will usually speak to all clients within a couple of hours of receipt of the enquiry at the latest, although it will usually be quicker than this.
Impact managing director Dale Jannels (pictured) said: “Intermediaries cannot be expected to be experts in all areas of the mortgage market, especially when it comes to some of the more niche areas of specialist lending.
“These are often complex transactions which require speed, specialist knowledge and established relationships in order to find the right solutions to match individual client needs.
“Those intermediaries who don’t have referral relationships in place could be missing out on valuable revenue streams and potentially closing the door on some alternative lending solutions for their clients.
“Not to mention passing over the admin burden which will allow then to concentrate on other revenue generating activities which they are more familiar with.”
Brokers still not using suitability letters ‘scares me’ – Jannels
Impact Specialist Finance managing director Dale Jannels said the number of brokers who were still submitting business without suitability letters signed by clients scared him.
Jannels said brokers need to make sure they are backing up the advice they are giving.
He told Mortgage Solutions that while it was not the majority of brokers, it was still a significant number, which he feared could be leaving themselves open to future action led by claims management companies (CMCs).
With the Financial Conduct Authority’s payment protection insurance (PPI) claims deadline passed in August, claims firms have been looking in to other financial sectors for potential consumer detriment, and mortgage advice has been a target.
“It’s not set in stone so they don’t have to do it, and it’s not a regulatory requirement of getting the client to sign,” Jannels said.
“But you’re going to get CMCs coming through in the next 10 years – they are already looking at issues and cases from 10 or 15 years ago.
“So if they are not getting everything written down they are in trouble. It scares me and they are opening themselves up to problems,” he added.
Impact added to SmartrRefer panel
As a result L&G members will have access to the master broker and packager’s range of options across second charge, bridging, buy to let, commercial and credit impaired deals.
Dale Jannels (pictured), managing director at Impact, noted that this was an important relationship for the firm given the size of L&G’s mortgage club.
He added: “Impact has come a long way since our rebrand at the beginning of 2019, and relationships such as this will help us to reach the next stage in our development as a company and to further establish ourselves as one of the UK’s leading specialist distributors.”
Craig Hall, head of broker relationships at Legal & General Mortgage Club, argued that getting advice has always been crucial, but this has been heightened by an environment where borrowers’ finances are becoming more complex.
He continued: “With this is mind, it is great that our advisers can now refer cases to Impact Specialist Finance to help ensure the borrower receives the correct mortgage advice for their circumstance.”
Help to Buy has specialist options worth pursuing – Jannels
From the launch of the equity loan scheme in April 2013 until 31 December 2018, 210,964 properties were bought with an equity loan.
The total value of these equity loans was £11.71bn, with the value of the properties sold under the scheme totalling £54.48bn.
Most of the home purchases in the Help to Buy: Equity Loan scheme were made by first-time buyers (FTBs), accounting for 171,053 (81 per cent) of total purchases.
The mean purchase price of a property bought under the scheme was £258,223, with buyers using a mean equity loan of £55,498.
In London, the maximum equity loan was increased from 20 per cent to 40 per cent from February 2016, and from then to 31 December 2018, there were 12,511 completions in London, of which 10,635 were made with an equity loan higher than 20 per cent.
These figures highlight how invaluable this initiative has been for many homebuyers since its introduction, and how the take-up is unlikely to slow-down anytime soon.
Be aware of all options
Considering this growth, the recent story on Mortgage Solutions Brokers urged not to ignore Help to Buy alternatives – analysis offered a timely reminder that intermediaries need to ensure buyers are aware of all their borrowing options, both inside and outside of this scheme.
From my perspective, I agree with most of the sentiments included within the article, especially when it comes to the importance of the advice process.
Help to Buy has benefitted from an increased profile in recent times and this has helped more FTBs recognise its attributes – which is a good thing – although it’s prudent to point out that it should not be considered an all-encompassing solution.
And, on the flip side, despite this rise in lending prominence there are still pockets within the market where it can prove valuable for a certain type of borrower which often goes overlooked.
Support for credit impaired borrowers
Now I could well be wrong here, but I believe this type of product is seen by most borrowers, and a strong proportion of intermediaries for that matter, as being one which sits squarely in the domain of mainstream or high-street lenders.
This means the role of specialist lenders can often go ignored, which is a shame.
We work with specialist lenders who can provide Help to Buy solutions for borrowers with an adverse credit history, individual voluntary arrangements (IVAs) or even bankruptcy issues, and this is an important part of the scheme which we tend to hear very little noise around.
So when you’re looking at alternative solutions for your clients, keep in mind the specialist offerings available within Help to Buy.
They might not be applicable for everyone, and still form a small proportion of the overall lending figures, but they should be playing a bigger role in supporting more credit impaired borrowers get a foot on the property ladder for the first time or even back onto it after falling off.
Impact signs packaging deal for United Trust Bank’s specialist solutions
The deal covers UTB’s mortgages, bridging finance, development finance and structured finance products.
Dale Jannels, Impact managing director, said that the deal would further strengthen Impact’s proposition in specialist lending.
He added: “UTB is making waves in the specialist lending market. Our intermediary partners and clients can access bespoke and flexible funding solutions for a wide range of borrowers through this new packaging agreement.”
Buster Tolfree, UTB commercial director – mortgages, added: “We are consistently expanding our products, services and presence in specialist lending and we look forward to a new and successful partnership with Dale and his team.”
Impact Specialist Finance rebranded from its former name All Types of Mortgages in January 2019.
TSLE2019: Undisclosed lender high-pressure selling with product transfer offer – Jannels
Speaking at The Specialist Lending Event 2019, Impact Specialist Finance managing director Dale Jannels highlighted brokers to be aware of lenders becoming increasingly aggressive in this regard.
And he warned this could leave clients confused and vulnerable to making incorrect decisions.
“Right now, there are high street lenders writing to your clients four months out,” he told the audience at Sandown Park.
“And in one example four months out on a maturity from a fixed rate, the letter said you have two weeks to take this deal.”
‘Won’t get another mortgage’
Jannels outlined how this had left the customer confused and scared that they were not going to be able to get another mortgage closer to term-end.
He warned that this could have potentially severe consequences for those borrowers who may be coming to the full completion of their mortgage term.
“If you take that further to over-65s who are then coming to their product maturity, that letter goes out and says: ‘We want our money back please’,” he continued.
“It doesn’t say go and speak to a mortgage adviser, go and speak to an equity release adviser, go and seek other options, there are other options available – it just says we want our money back.
“So there are a lot of clients at the moment panicking and possibly panic selling their properties when they don’t actually need to, or downsizing,” he added.
The Specialist Lending Event 2019 continues next week with registration still open for the events at York and Liverpool.
They are being held at:
12th February – York Racecourse, York
13th February – Aintree Racecourse, Liverpool
More information and free registration can be found on the Specialist Lending Event 2019 website
Follow the coverage on #TSLE2019.