Broker and borrower ‘re-education’ crucial for long-term fixed rate success ‒ analysis
This week Kensington Mortgages became the latest lender to move into the long-term fixed space, with the release of a 40-year fixed rate in partnership with insurer Rothesay. It follows Habito’s launch of its Habito One proposition this year, with Perenna set to launch next year.
While brokers have suggested that the flexibility of the products will be fundamental to their appeal, others have noted that it will also be a question of how well advisers and borrowers alike understand the deals in question, as well as how open both parties are to moving away from a “transactional” relationship.
Tired of remortgaging
Habito launched its Habito One product back in March, which provides borrowers with a fixed rate period of up to 40 years. Crucially, there are no exit fees, meaning borrowers can overpay or leave at any time without penalty.
Habito noted that often borrowers have little understanding of what early repayment charges are, nor how expensive they can be, so they are not always clear on the benefits of not having to pay them.
Alan Fitzpatrick, vice president of lending operations at Habito, said that the One product had been launched based on feedback from borrowers who were tired of having to switch deals every couple of years, and wanted more certainty about their future.
Habito said that it had received strong positive feedback since it launched the product, with borrowers often complementing the firm on how quickly their cases were handled, which it argued would add to the appeal for brokers.
It has partnered with Legal & General (L&G) Mortgage Club and Dynamo to extend distribution of the One product.
A question of education
Kevin Roberts, director of L&G Mortgage Club, admitted that with such fierce competition among lenders offering shorter fixed rates, the value they offer continues to win over borrowers.
“The price difference between the likes of a two-year and a ten-year mortgage would need to narrow significantly for them to become more mainstream,” he continued. “They will almost certainly be attractive to those wanting more long-term repayment certainty, but others may need more convincing. I sense there is more work to be done here from the lenders of these mortgages to help educate.”
It’s not just borrowers who may need educating on this front, but brokers too, according to Colin Bell, co-founder and chief operating officer of Perenna.
He noted that while the conversations his firm was having with brokers were positive, there was some “re-education needed to help them understand the product details and also the long-term earnings model”.
Bell argued that the success of long-term fixed rates relies on a move away from the “current transactional relationship” between brokers and their clients, so that it is no longer centred around a rate ending.
He continued: “At Perenna, we plan to pay advisers both upfront and then throughout the life of the product following an initial period. This offers advisers the benefits of consistent income, and incentivises them to find a mortgage which is good for their clients over the long-term, in return they will undertake an annual review.
“We can see the success that this ‘subscription’ model has brought to businesses like Spotify and Netflix and we hope advisers too will begin to benefit significantly, and the benefits to customers of a long-term relationship with stability are equally significant.”
Borrowers need a way out
Rachel Lummis, founder of Xpress Mortgages, said that she could count on one hand the number of clients who have opted for a longer term than five years for a fixed rate, and warned that with any long-term deal the potential exit fees will be key.
She continued: “These long-term products will only suit some clients if there is an option to redeem the mortgage far earlier than the whole fixed rate term. Longer term products may be the next hot thing, but let’s look at the big picture first. The devil is in the details.”
David Hollingworth, associate director of communications at L&C, noted that long-term fixed rates have been talked up in the past but have failed to make an impression, in part due to the way that they have tied borrowers in, though he noted that lenders are now recognising the issue and building more flexibility into these products.
He continued: “Bringing enhanced affordability into the equation will also be interesting in how this sector develops. Being able to offer flexibility to those that could demonstrate improved affordability due to the ongoing stability of payment should appeal to first-time buyers that may not otherwise have been an obvious candidate for a long-term deal.”
However, Hollingworth emphasised that these borrowers will need advisers to help guide them around the features and potential exit fees, rather than simply be drawn by the higher borrowing amounts.
Top 10 most read mortgage broker stories this week – 22/10/2021
The Advertising Standards Authority ruling to ban Habito’s April ad for its long-term fixed rate mortgage product also caught your eye.
Mortgage Advice Bureau’s annual conference took place in Birmingham at the ICC this week, with chief executive Peter Brodnicki detailing the company’s focus on lead generation and Goodbody’s chief economist Dermot O’Leary discussing interest rate rises.
Halifax increases LTI to 5.5x income and boosts affordability for nurses
Big banks likely to fill ‘void’ left by Help to Buy
Virgin Money partners with Hometrack to identify back book risk from climate change
Older homeowners see property wealth grow by £800 a month post-stamp duty holiday
ASA bans Habito One advert over ‘misleadingly exaggerated’ April interest rate rise claims
Google fraud focus requires advice firm action – Stonebridge
Government earmarks £450m to upgrade UK’s boilers
BoE could hike bank rates three times in 12 months – O’Leary
Technology and lead generation must target customers earlier in mortgage journey – Brodnicki
Cambridge brings back top slicing for buy-to-let mortgages
ASA bans Habito One advert over ‘misleadingly exaggerated’ April interest rate rise claims
The adverts, which were streamed and on TV in April this year, showed a cartoon woman being shown a newspaper with a headline reading: “%INTEREST RATES RISE! Homeowners could get stung”.
She is then attacked by wasps, which have percentage signs on them, with a voiceover then saying: “Don’t get stung by rising interest rates. With Habito One, repayments are fixed for the life of your mortgage to give you ultimate peace of mind”.
The woman then uses her phone to access the Habito One product, which creates forcefield around the woman and her house, preventing the wasps from stinging her.
The advert received ten complaints, some of which said that interest rates were low at the time whilst Habito’s were high.
The complaints also also targeted the fact the advert exaggerated the likelihood of mortgage rates rising and the risk this posed to customers, especially if they did not opt for a long-term fixed rate mortgage.
Complaints also said Habito’s tag line that the mortgage process was either hell or Habito contributed to a negative perception of the wider market.
ASA said that whilst there was uncertainty around future changes in interest rates, and it was a concern for some consumers, the advert was misleading.
It said: “While interest rates might well rise, future trends could not be predicted with any certainty. Taking into account the imagery in the ad illustrating potential consequences in extreme terms and the sense of certainty with which they were presented, we considered that the impression created by the ad misleadingly exaggerated the likelihood that future rate rises would be significant compared to current rates and the risks of the rest of the mortgage market compared to the Habito One product.”
It pointed to research which showed that interest rates for a £200,000 loan for a £250,000 house at 80 per cent loan to value (LTV) started at 1.64 per cent for a five-year fixed rate.
In 2019 this varied between 2.51 and 2.92 per cent, and in 2018 this varied between 2.87 per cent and 2.93 per cent, which ASA said showed interest rates currently were low compared to recent years.
As part of the ruling ASA said that the adverts must not appear again and Habito should ensure future adverts “did not exaggerate the likelihood of future significant interest rates” or the “risks of the rest of the mortgage market” compared to its Habito One product.
Habito’s chief marketing officer Abba Newbery said that it was “disappointed” about the decision to the ban the advert.
She said: “While we of course respect and accept the ASA’s ruling, we refute the claim that our ad was misleading. Since it first aired, there have been numerous news reports from economists warning of interest rate rises in line with rising inflation. Senior policy-makers at the Bank of England have signalled at least two rate rises for 2022 with latest reports suggesting a rate rise as early as November this year.”
She added: “Habito One is the first mortgage of its kind: a long-term fixed rate mortgage designed to remove uncertainty, vagueness and potential risk – such as potential future interest rate rises – from homeowners’ home-financing decisions.
“We stand by our product and our claims and are unapologetic about our mission to save people from the uncertainty of home financing hell.”
Habito launched the 40-year fixed rate product in March this year, which is available between 60 and 90 cent LTV. Rates for the products start from 2.99 per cent for a 10 to 15-year mortgage term and increase with term length.
The firm has previously received complaints for its advertising, none of which have been upheld, including a “mortgage kama sutra” advert with suggestive sexual positions and a werewolf advert which received over 100 complaints.
Remortgaging could save average homeowner over £3,000 a year
Research from Habito has found that an average homeowner can save £294 a month by remortgaging to another lender, rather than sticking with the standard variable rate (SVR) or reversion rate of one of the bigger high street lenders.
This could lead to a saving of £3,258 per year, which the broker says could help borrowers with the proposed 1.25 per cent hike in NI.
The increase in NI, which is going to be used to finance NHS social care, would mean someone earning the average UK salary of £31,461 would pay an extra £274 in taxes.
The broker added that in a study of 2,000 homeowners, 27 per cent were on the lender’s highest SVR, whilst 18 per cent were not sure if they were, meaning many could secure a lower rate.
Rosie Fish, team lead at Habito, said: “Remortgaging is often made unnecessarily confusing and should be viewed more like switching utility or broadband provider, but with a bigger potential return.
“If you’re not sure what mortgage rate you’re on or would like to know your options, speak to a free mortgage adviser. A mortgage switch could balance out those unexpected new tax bills, with extra savings to spare.”
‘Lethargy or lack of understanding’ can dissuade borrowers from switching
Brokers said that many borrowers could save significantly if they remortgaged, but a lack of awareness and increased ease of product switch could dissuade some people.
Chapelgate Finance’s associate director Colin Payne said: “I can only put it down to lethargy or lack of understanding as it would be incredibly rare for the SVR to be the most appropriate rate for a borrower.”
He added that some borrowers may feel due to a change of circumstance they could not remortgage or take advantage of another rate, and others may not know a better rate would be available. He said many could benefit from switching products even if it was with an existing lender.
Payne said: “In terms of process, remortgaging nowadays is as easy as it has ever been, offers are generally issued quickly and the legal process is becoming more streamlined but importantly if a remortgage isn’t possible a rate switch with the existing lender should be the default position.”
However, he added some clients who were in the last year or coming up to the last year of their mortgage term could benefit from switching if the early repayment charges were one per cent or 1.5 per cent, especially with the availability of sub-one per cent five-year fixed rate deals.
He also said Nationwide had allowed a borrower to secure a new rate, but delay submitting their application as long as an offer is received within 90 days.
This could allow borrower to secure an ultra-low rate but complete later.
L&C Mortgages associate director for communications David Hollingworth said: “Given the current historic low in mortgage rates it seems like a no brainer for borrowers to be considering their options.
“However, it’s also easy to use lose track and many borrowers may be worried that they won’t be able to qualify for a new deal, perhaps because they have been affected by the pandemic. Those that have been furloughed or the self-employed that took a hit in the last 12-18 months for example may mistakenly assume that lenders will not be offering their standard deals. That’s where it remains important for advisers to stress their ability to find the right deal and lender to meet the borrowers’ needs.”
He added that those currently with a deal may struggle to make it worthwhile switching, but it would be in the best interest to “start the ball rolling early” as lenders would be able to make offers that are valid for up to six months.
John Phillips, national operations director at Just Mortgages, said it was “disappointing but unsurprising” that borrowers were unaware of cheaper rates that were available.
“There is a level of apathy from some borrowers who believe that remortgaging isn’t worth the hassle, and in these cases its crucial they seek advice from a broker. A good broker will make the process as quick and painless as possible, and potentially save the client thousands of pounds,” he added.
He also said a change in circumstances could make remortgage seem more difficult, even for brokers.
Phillips added: “From the broker’s perspective, remortgaging can be a challenge as it requires a lot of forward planning and organisation. Our client servicing team proactively contacts all clients whose mortgage is due to end within six months.
“At the point at which the client is ready to remortgage, they are then passed on to their original broker, where possible, and they can then provide them with the expert advice they need to get the best deal possible.”
Habito added to Tenet’s lender panel
The tie-up means that Habito’s fixed rate buy-to-let (BTL) mortgage deals, which range from two to 10-year terms with rates starting from 2.85 per cent, will be available to the 700 mortgage advisers who are part of the Tenet network.
The products are available to self-employed, first-time, retired and older landlords, and cover both purchase and remortgage deals.
Habito moved into BTL lending in 2019, and provides deals for individual, limited company and portfolio borrowers.
Ben Wright, director of strategic development at Tenet, said that its panel was going from “strength to strength”.
He added: “Continuing to expand the selection of quality products accessible for our network is central to our ambitious growth plans, and we’re excited to start seeing the benefits that Habito’s BTL offering brings for our members and their clients on the journey to greater financial wellbeing.”
Alan Fitzpatrick, vice president of lending at Habito, said that Tenet’s lending panel was “well regarded”.
He continued: “We recently announced a price cut across our BTL deals, many of which come with cashback offers, which we hope will be well received by Tenet’s network.”
Poor credit househunters on the rise as pandemic takes toll on family finances
Families placed in a financial squeeze over the last 18 months have been forced to make tough choices between paying the mortgage or rent over other household bills.
The result, say brokers, is a rising number of households falling outside mainstream mortgage criteria forced to reassess their borrowing options.
Impact Specialist Finance has recorded a 28 per cent rise in adverse credit mortgage enquiries in the last six months compared to the same period last year.
Online mortgage broker Mojo said it had also received an increase in applications from applicants with credit issues.
Between June 2019 and June 2020 the broker saw the proportion of mortgage applicants it could not place with mainstream lenders rise from 16 per cent to 28 per cent, with its proportion of high street-worthy clients falling from 84 per cent to 72 per cent. This split remained the same between June 2020 and June 2021.
Meanwhile, Habito has recorded a slight increase in clients with a poor credit history between quarter one and two this year. The broker said the proportion of applicants answering yes to either incurring CCJs, being made bankrupt or repossessed in the last six years, or those who have taken out a payday loan, defaulted on a mortgage payment or made a late mortgage payment in the last two years rose from around 4.5 per cent to 6.5 per cent.
Dale Jannels, managing director of Impact Specialist Finance, said: “We’re receiving a lot of enquiries from clients who want to move home or buy for the first time but have incurred some sort of adverse credit and want to know how much they can borrow in six to 12 months time.
“There are lots of reasons people have struggled during the pandemic. The loss of a job may mean they have had to prioritise paying the mortgage or rent over other bills.
“It’s good that people are planning ahead to find out now what their borrowing options are.”
Jannels says it is often small bills such as a parking fine or a catalogue bill that get overlooked or not taken seriously but wind up as a default marring a borrower’s credit history.
Director of mortgages at Mojo, Cassie Stephenson, said it was not just the impact of furlough or unemployment that led to an increase in families being shunned by the high street banks.
Lenders’ reaction to the pandemic has been to tighten criteria so that only those with high levels of equity and income are guaranteed to get a mortgage.
“Credit risk committees play an integral role in how lender criteria is managed and it’s clear these groups have had to tighten rules significantly to minimise the amount of ‘bad debt’ on their books over the past few months,” she said.
“This is also the reason why initiatives such as the newly-introduced government backed mortgages [for high loan to value deals] and products specifically designed for those with impaired credit are so important to supporting first-time buyers.”
Metro Bank launched its near prime mortgage range in February and is currently the only high street lender openly offering loans to those with a less-than-perfect credit history.
Supporting the bank’s decision to launch the range were findings from accountancy firm PWC that suggested there could be up to 14 million people in the UK with a less than perfect credit history.
In partnership with YouGov, the bank conducted a survey that revealed more than eight in ten people with adverse credit history thought banks and other lenders weren’t interested in helping people like them.
The survey also showed that more than four in ten of the respondents have been prevented from getting a mortgage or remortgage as a result of their credit history.
Charles Morley, director of mortgage distribution at Metro Bank, said: “It’s easy to feel let down or cast adrift when you’re a borrower with historic credit issues. However, there are still options out there for those looking to get on the housing ladder, remortgage their property or move home.
“So if you have a CCJ or missed payments against your name it’s worth assessing your options in the market – there are opportunities out there to get a mortgage that’s right for many customers.”
Sesame Bankhall hires propositions director; Mojo appoints mortgages director
In the new role, he will spearhead the growth of the group’s wealth, protection, later life and mortgage services to its directly authorised firms and mortgage network advisers. He will start on 7 June and report to CEO Michele Golunska.
Ross will manage the propositions team, which includes Emma Thomson as its head of protection and general insurance propositions, along with Alex Beavis as mortgage and later life lending propositions director. They will also both join the company in June.
He was most recently director of financial planning proposition at Charles Stanley & Co for just over two years.
Before that he worked at 1825 Financial Planning for around four years, initially as head of proposition delivery for around two years and then as head of business readiness for nearly two years.
Michele Golunska, chief executive of Sesame Bankhall Group said: “Craig is a senior figure with an excellent track record in the design and build of new products and business services for advisory firms.
“Craig’s in-depth financial planning knowledge will be hugely beneficial in his new role leading our propositions team, who will help to deliver an exciting new range of market-leading investment, protection, and mortgage services.”
Mojo hires new director of mortgages
Online mortgage broker Mojo Mortgages has appointed Habito’s vice president of operations Cassie Stephenson (pictured) as its new director of mortgages.
The broker is looking to increase its mortgage adviser team to 50 mortgage advisers in the next 12 months as enquiries to its site and submissions nearly doubled during the pandemic compared to pre-pandemic levels. The team currently has 20 mortgage advisers along with a separate applications and customer service department.
Stephenson was vice president of operations at rival online mortgage broker Habito for nearly three years and before that she worked at Atom Bank as an intermediary support manager for residential mortgages operation for nearly four years.
She has also held senior roles at Tesco Bank and Lloyds Banking Group.
Mojo Mortgages CEO and co-founder Richard Hayes said: “Cassie’s appointment will play a pivotal role in the future of Mojo as we continue to revolutionise the way consumers access mortgages, advice and information to an industry that still continues to baffle many people.
“We want to help customers to fully understand the process and become more financially confident by empowering them to learn more about mortgages and, of course, find the best deal for them. Not only for those that come to us, but across the wider industry.”
Habito brings back 80 per cent LTV BTL deals
For landlords with a 20 per cent deposit, Habito is offering two-year fixed rates that start from 3.89 per cent. Five-year fixed rates start from 4.15 per cent.
At 75 per cent LTV, Habito has reduced rates on five-year fixes for individual and limited companies with deals starting from 3.49 per cent. They come with £500 cashback.
Habito’s individual fee assist 75 per cent LTV five-year fixed rates start from 3.54 per cent and come with £750 cashback and free conveyancing included.
Alan Fitzpatrick (pictured), director marketplace operations at Habito, said: “The changes to our buy-to-let lending range comes as a result of brilliant broker feedback and we’re sure that it will positively impact both our broker partners and customers who come to Habito directly.
“Ultimately we hope our updated product LTVs and rates, with the continuation of our cash-back offers, will provide landlords with more choice.”
Habito launched its first range of BTL mortgages in 2019.
Crystal hires former Habito and Ocean Finance heads to senior team
Shilton has 25 years’ experience in the mortgage and consumer credit sector and was chief executive of mortgage lender Ocean Finance for six years. He will consult the Crystal Group board on its growth strategy.
Sreedharan (pictured) has been appointed into the newly created role having previously consulted for CSF.
Her prior experience includes a one-year tenure as director of sales and operations at Mojo Mortgages and two years as vice president of operations at Habito.
At CSF, she will be tasked with transformation and change in the project management department.
Jo Breeden, managing director of CSF, said: “Our five-year plan has huge emphasis on driving technology innovation in the specialist sector. We aim to use data wisely and create best-in-class interaction so every application delivers a positive outcome for our broker partners and their clients.
“I feel incredibly proud that Gareth and Kala, people of such amazing calibre and integrity, are choosing to be part of our journey.”
Top ten most read mortgage broker stories this week – 12/03/2021
Concerns that restrictive loan to income (LTI) policies could freeze first-time buyers out of the market, drove an analysis of the impact of LTIs on first-time buyers to the top of the most read stories this week.
Elsewhere, innovation from Habito in the form of a 40-year mortgage and Metro’s foray into near prime lending grabbed attention.
Updates to the cladding guidelines and an extension to the eviction ban made for a busy week in the mortgage and housing markets.
Loan to income changes could shut first-time buyers out of 95 per cent market – analysis
Mortgage commitments soar as high-LTV lending plummets and rates rise – FCA
Metro Bank launches near prime mortgage range
TSB reduces high LTV rates and Accord amends affordability calculations
Tightening mortgage affordability will limit house price rises – OBR
RICS updates EWS1 cladding guidance to ‘unlock’ the market
Updated: Habito launches 40-year fixed rate mortgage with £1bn fund and stepped LTIs
Eviction ban extended – but still no financial support for tenants
NatWest cuts rates and sets up stamp duty broker support line to push cases through
Virgin Money and Atom Bank execs join Perenna ahead of 30-year mortgage launch