A panel of lender representatives attending FSE London were asked by Robert Sinclair, chief executive officer of the Association of Mortgage Intermediaries, whether the regulator’s Mortgages Market Study had warranted the outrage it has provoked.
Esther Dijkstra, director of strategic partnerships at Lloyds Banking Group, called on the industry to continue to challenge the FCA’s focus on price being the main determinant of how suitable a mortgage is, arguing that the regulator needs to be convinced that this is not the case.
She also suggested the regulator should instead cast its eye over the “haves and have nots” which holds back some people from accessing advice.
Adrian Moloney, sales director at One Savings Bank, emphasised that with a “minefield” of borrowing options “advice is key”, while Chris Pearson (pictured), head of intermediary mortgages at HSBC, urged the regulator not to “row back from the mortgage market review (MMR)”.
The panellists were also asked for what advice they would give to intermediaries in order to improve their offering.
Andy Dean, head of intermediary support at Nationwide, urged brokers to look at the opportunities in specialist lending, noting there were “lots of areas showing a high degree or resilience and growth”, while Jeremy Duncombe, director of intermediaries at Accord, suggested brokers should use technology “to do all the hard work”.
Once again the mortgage industry has had lots going on over the year.
So we asked this week’s Marketwatch panel what have been the biggest lessons of 2018 for the mortgage market.
Craig Hall, head of broker relationships and propositions, Legal & General Mortgage Club
Like previous years, 2018 was no less full of changes.
Firstly, it’s undoubtedly been the year of product transfers (PTs).
For the first time, UK Finance began publishing PTs and while there was a recently acknowledged error in reporting, the market is still much larger than previously anticipated – around £150bn.
PTs are a huge area of opportunity for advisers, considering that over 187,000 transfers were execution-only.
The FCA’s competition review suggested a growing return to execution-only, but here is where we must champion advice and the invaluable role brokers play.
First-time buyers also had a successful year, with record numbers taking their first step onto the ladder.
Government schemes like Help to Buy and Shared Ownership have been crucial, as well as continuing support from the Bank of Mum and Dad.
Next year, we may even see first-time buyer transaction levels overtake home movers.
Another growth story has been the later life and retirement interest-only market.
Lifetime mortgages are set to reach £4bn this year, up from £3bn last year.
The broader later life market is expected to be approximately £60bn this year.
This is for several reasons – we’re living longer, have greater pension freedom and older homeowners are helping loved ones onto the property ladder.
Lastly, this has been the year of laying the foundations for the ‘frictionless mortgage’.
While we may only be in the embryonic stages, the market has really begun to embrace technology and change, rather than fear it.
In 2019 and beyond, it will play an increasingly key role in the market, and there are certainly plenty of opportunities on the horizon.
Esther Dijkstra, director of strategic partnerships at Lloyds Banking Group
It would be an understatement to say it has been a year of unpredictability.
Speculation about a fall in property prices, against a backdrop of uncertainty, seems to have influenced house buyers, with many discretionary purchasers sitting on their hands.
This is particularly true in London and the South East, where we’ve seen a recent dip in house prices.
Our latest Halifax House Price Index showed price growth has slowed as we approach the end of the year, falling from 1.5% in October to 0.3% in November.
While this is the lowest rate of growth in six years, it remains within our forecast range of 0% to 3% for 2018.
Despite the downward adjustment of market product transfer numbers recently by UK Finance, remortgage and product transfer volumes combined still remain a significant part of the market.
This is why maintaining strong customer relationships is more critical than ever.
The tech industry continues to grow at speed, with digital developments being made on a daily basis.
It wasn’t just tech start-ups dominating this market, but also long-standing mortgage lenders and brokers that introduced new technology, demonstrating significant investment in this space.
The lesson here is that lenders and brokers must continue to develop, innovate and keep up with competitors to attract and retain customers.
Despite gloomy market predictions and continuing flow of industry change, the buy-to-let industry demonstrated its resilience, weathering the changes and remaining buoyant.
Nick Morrey, product technical manager, John Charcol
This year has been a typically busy one for the market as a whole.
Property values have claimed the most column inches again.
Lending has been very different this year with the strong performance of product transfers, a hitherto unreported amount that is set to grow yet further.
Older borrowers received attention from the introduction of retirement interest-only mortgages but take up from lenders was low – especially from the big lenders.
One of the growing trends through 2018 has been the realisation within lenders that the total new lending pie is shrinking, and the traditionally rich vein of London purchase mortgages is currently the cause.
To try to hit their lending targets many lenders see the need to compete on criteria – not rates.
Some changes have come in already but I think 2019 will see a lot of lenders bring out changes that could have been done years ago.
The interesting aspect is if they all loosen criteria in certain areas, self-employed, interest-only and joint borrower sole proprietor as examples, then everyone will do so.
When everyone does the same thing then no one will stand out.
True invention will be required, which is not easy for the larger lenders.
Another aspect of broking that has changed this year is sourcing of criteria.
To a certain extent, Knowledge Bank and Criteria Hub have managed what brokers have sought for years – one place for multiple lenders’ criteria.
They will not be the last in this space I am sure.
Brodnicki also emphasised that the while the growing penetration into the product transfer market was welcome, this was also an easy target for big brands entering the market.
Speaking at the Financial Services Expo, Brodnicki said: “If your business is reliant on procuration fees, I really fear for your business because you’re reliant on too many external factors and I can’t see any of those being positive in the foreseeable future.
“So [you need] to widen your footprint in terms of how you generate leads. How you retain customers has got to improve, it can’t just be a review date in three years’ time, and the products you sell.
“I think our industry has got to widen its footprint in terms of the services and products we offer to customers and technology will facilitate that and offer more value.
“If you stay as a one-trick pony, if you don’t become a hybrid, you don’t offer customers what they want, when they want how they want it, then you haven’t really got a business I don’t believe,” he added.
Product transfers an easy target
Brodnicki noted that technology would help improve the application and advice process but also pointed out that it would enable new entrants to target certain parts of the market.
And he suggested that brokers had potentially just a couple of years to change until technology fully caught up to the market.
“Switches is an easy market for people to target when coming in externally when they’ve already got big brands, when they’ve got customer data and technology will help them target that,” he continued.
“So I think that’s where we should be watching.
“The rest is inevitable, it’s great for us and our customers, I can’t wait for it all to come, but it’s the rest of it which has been underestimated in, how it could affect our lead sources and customers that we’ve been used to getting in the way we have been for many years,” he added.
Brodnicki’s point was supported by Lloyds Banking Group director of strategic partnerships Esther Djikstra, who echoed concerns about how customers will react to new players and technologies.
“I agree with Peter that where the customer moves and customer behaviour will be very important but it’s very hard to predict,” Djikstra said.
She added that while Open Banking had seen a slow uptake so far, from those who were using it “once services are offered it can flip very fast”.
Consumers will increasingly look to transact online when buying a home, and brokers need to consider how the change could affect their business models, Dijkstra said.
She told Mortgage Solutions: “The question is more when, and not if.”
And added: “A big question for brokers to reflect on is ‘where customer leads are coming from now, and could that change with things going more and more online’.”
Dijkstra acknowledged that “not much has happened yet” in terms of Open Banking but added that the mortgage industry should be paying close attention to see how customers react and engage.
In this digital age, advisers will need to consider their contact programmes with clients, especially in light of the types of business being written in the market.
Dijkstra said: “We have shifted in the last 18 months to retention – remortgages and product transfers are together a large part of the market.”
This means a contact strategy with customers is all the more important and advisers should look to telephony and proactive different ways to keep in touch, she added.
Developing open APIs
Halifax, part of Lloyds Bank, recently went live with an application programming interface (API) connection that pre-populates applications with the lender when select advisers use platform Smartr365.
The process has been a “learning curve” and taken a lot of effort to become operational, Dijkstra said.
At the same time, Dijkstra explained that Lloyds has learned from Open Banking and is now aiming to dovetail the two initiatives into a secure process, which advisers can use for a more seamless mortgage application.
There is no set timeframe for when Lloyds APIs will be widely available, but it will be up to advisers on how they adapt and use the technology, according to Dijkstra.
She said: “As a lender, we’re not going to say you have to deal with us in a certain way, because we don’t mind… It’s a broker call, how they want to use it, it’s their decision.”
Dijkstra added: “A lot of people think pre-population APIs have to be connected to a sourcing system, and that’s not the case…
“I think where we will end up as an industry is that different brokers will have different solutions.
“Some brokers will do it through sourcing systems, some will do it directly into their systems.”
The security risk
Fraud is a significant worry, and the security of users will need to be watertight before both open APIs and Open Banking within the mortgage process can be widely adopted, Dijkstra said.
She added: “What happens when it goes wrong? We need to think that through beforehand, particularly when you think of the mortgage space because those are big amounts.”
Nonetheless, the journey into Open Banking and open APIs has started at Lloyds and the possibilities for mortgages are not confined to pre-populating applications.
Dijkstra said: “We’re looking at more APIs, there are other ones –when you have the completion, the redemption, these could also go through API.”
She added: “This will be forever evolving…. It’s still relatively early days in terms of our first step.”
But what if mortgage deals came with improved terms or product rates for customers according to their level of protection, or indeed, whether they have protection in place at all? Is this something that would be looked upon favourably by lenders, or would the Financial Conduct Authority view such agreements as incentivised selling?
This week we’re asking our panel of experts whether they think there is a case for introducing such an initiative and, if so, how it could work in practice.
Terry McCutcheon, CEO of The Finance Planning Group, argues that protection advice should be a key part of every mortgage broker’s advice remit and intermediaries should not need further incentives to encourage clients to take out cover.
Andy Philo, director of IFA distribution at Vitality, says that while protection-linked mortgage terms and rates would not be unethical per se, advisers would need to ensure customers are opting for the deals most suitable for their needs, rather than those with the most attractive headline offer.
Esther Dijkstra, director of strategic partnerships, Lloyds Banking Group, believes that while the industry may not be ready for such a move, brokers should continue to integrate clients’ specific needs into their protection advice.
Terry McCutcheon is CEO of The Finance Planning Group
Mortgage and protection advisers should not really need further incentives from the lenders to encourage mortgage borrowers to take out protection. Likewise, I would question how appropriate it is for lenders to be offering better deals or more favourable rates to borrowers who are fully protected and were able to repay their mortgages in the event of death, critical illnesses, unemployment, or long-term sickness.
A great idea in theory and of course better for the lenders, as it will help reduce their repossessions, but the FCA and MCD policymakers are likely to frown at any type of incentive schemes.
One idea would be for lenders to insist on protection being in place before the mortgage offer was sent out. As this is unlikely to happen, what is the answer to this industry-wide problem of borrowers not taking out sufficient protection?
The clear answer is that offering borrowers advice on protection should be an integral part of every mortgage and protection adviser’s application process.
At Finance Planning we care enough about our clients to feel responsible for what happens to them after they move into their home. Our advisers understand the social and moral responsibility of ensuring our clients are protected if something unfortunate were to happen to them. Our advisers will discuss “it won’t happen to me” scenarios, and use real life examples such as the recent tram crash in Croydon to emphasise the point that these things do happen.
Good protection advisers will help their clients to understand the risks of not taking out sufficient protection and persuade their clients to protect themselves without the need for further incentives.
Andy Philo is director of IFA distribution at Vitality
It is widely accepted that protection is sold rather than bought. If you also agree that it is undersold, as the trillion-pound protection gap suggests, then there is clearly a lot of work to be done at the point of customer contact.
Protection can often be an afterthought. There is a paradox that when mortgage lending is more freely available, protection sales reduce and vice versa. So on the face of it incentives and favourable rates seem to have merit in terms of moving protection to a front of mind purchase. The idea isn’t unethical in itself, but it’s important that it’s communicated through advisers to ensure people are buying the right protection product for their needs, not just the ones with the best deal attached to it.
Distributors have a professional and moral responsibility to provide protection advice. I would question whether, in the future, if a client hasn’t been advised properly about protection, advisers may be leaving themselves exposed to future mis-selling claims, or ‘non-mis-selling’ in this case. It looks like there will be a time limit on PPI mis-selling and you have to wonder what the next ‘opportunity’ for legal action will turn out to be.
However, lenders too should take a greater responsibility to insist protection advice is taken when they are lending. I’m not suggesting compulsion as this could mean lenders putting packages together for ‘simple’ products and cutting out advisers, and we do not want that outcome. We have a professional adviser market that can offer comprehensive advice. So, while some form of incentives may help to make the product more attractive to the customer and therefore aid the sale, the most important task is finding the right product for their individual needs, which is a service that an adviser is best-placed to provide.
Esther Dijkstra is director of strategic partnerships, Lloyds Banking Group
Protection is a key decision people should consider, regardless of whether they have a mortgage or not. Everyone will have individual needs depending on their personal and financial circumstances and preferences.
Buying a property – whether it’s a first home or a step up or along the property ladder – is a big event and a good time to consider what type of protection they may need for themselves and perhaps their family.
The mortgage broker plays a key role in this part of the process with their clients, by explaining options and giving advice on the most appropriate way for the customer to cover their needs accordingly. Because of the varying level of protection needs from borrower to borrower and also different risks from a health perspective, linking protection and mortgages to make the protection sale conditional on obtaining a better mortgage product may not be the best option for all borrowers at this point. However, there is definitely merit in ensuring a discussion around the borrower’s specific protection needs forms part of the mortgage advice process, and this will also help generate a better awareness of the bigger picture – longer term financial security.
It is important that people are considering protection at key stages in life, and in particular when they commit to buying a home. It is where mortgage brokers play a key role in supporting customers by helping them understand their options and what can be a relatively small investment which will protect their future and their family should the worst happen. If they do find themselves in that situation, we as a lender can help find solutions that may be suitable for them, such as payment arrangements and term extensions.
Helping to put borrowers in a more informed position around appropriate financial protection, especially as Support for Mortgage Interest benefit – the current welfare mortgage safety net – is changing. No-one wants to get that call from a customer, but we’ll sleep better if we know our customers are protected.
Esther Dijkstra, Lloyds Banking Group’s director of strategic partnerships (pictured), confirmed Nicola Goldie, Jo Brown, Jonathan Buckle and Claire Aston in national account roles.
Ex-Colleys surveying and valuation manager, Caroline Drewett will oversee the Legal and General and Stonebridge accounts, with ex-Legal and General team member Nicola Goldie looking after the LSL and Mortgage Advice Bureau advisers.
Jo Brown, who has over 20 years’ experience in the Lloyds commercial team, will become national account manager for Sesame Bankhall and Openwork.
Jonathan Buckle, most lately retail product and general insurance manager with Lloyds will look after Countrywide, Mortgage Intelligence and Simplybiz.
And finally, Claire Aston, previously regional manager for Halifax in the Midlands, has been appointed to provide maternity cover for national account manager, Keely Mitchell, from June for Intrinsic and Tenet.
Dijkstra said mortgage advice group allocations ensure none of the account managers are assigned more than one large estate agency brand, to ensure conflict is avoided. Allocations also take into account the size and complexity of the big Appointed Representative networks.
She said: “These relationships are about mortgages, valuation relationships, conveyancing, asset management and protection, hence a delicate balancing act and the importance of getting the right person into each role.”
Meanwhile, in response to Nationwide’s buy-to-let arm TMW’s move to increase rental coverage from 125 to 145% at the end of April, Dijkstra said Lloyds is unlikely to take a similar stance.
“Nationwide’s move to increase rental calculations to 145% will apply to high-net-worth borrowers as well as standard taxpayers, which is a very blanket approach. Our plans on this will be out in due course,” she said.
However, she warned brokers the mis-selling risk for buy-to-let advice is high, so Lloyds wants to be sure its automated offers and affordability calculations will help brokers offer the right advice and distinguish between the two different tax brackets.
The Nationwide move followed a series of government and regulatory interventions to decrease the lending risks associated with buy to let, and stave off the likely landlord affordability pressures brought by the mortgage interest tax relief changes phased in from 2017. Nationwide said the move was a bid to ‘protect positive cash flow’ for buy-to-let landlords.
Speaking at the London leg of Legal and General Mortgage Club’s roadshow, Esther Dijkstra (pictured), director of strategic partnerships at Lloyds Banking Group, said the lender was looking at making its risk appetite more relevant to the customer base.
She said: “To give an example, if you look at customers in certain areas like London then interest only makes more sense just because of house price versus income in the city. So we could start to consider criteria changes similar to that.”
When pressed by Stephen Smith, Legal and General’s director of housing partnerships, if it was something that Lloyds was seriously considering, Dijkstra said: “Yes we do look at London markets, for example, as a region and the specific customer base within that.”
During the event, Dijkstra also lamented the pace of change and investment in mortgage technology, explaining that she was “surprised” at the lack of progress the sector had made within the last two years.
However, she remained sceptical that robo-advice would take off in lenders’ branches any time in the near future.
“One thing that’s difficult with robo-advice is that you immediately enter the area of systemic risk,” Dijkstra added.
“We all know regulation is about interpretation, and at that point in time you might implement something that you think is right, but as time moves on it may no longer be deemed acceptable by the regulator. That’s a big headache to get over before you take the risk of implementing something like that.”
