Prepare to pivot (and pivot again) in an ever-changing rate environment – JLM

Prepare to pivot (and pivot again) in an ever-changing rate environment – JLM

That said, these market changes and the opportunities they might provide, are only going to be as good as you make them, and it will come down to ensuring you have the clients to support, plus, of course, access to the products and solutions they require.  

In that sense, like any year, 2024 is going to be about working smart, working at maximum capacity and growing income/client and adviser numbers, and ascertaining if you have the right support for your business to do this, whether appointed representatives (AR) of a network or a directly appointed (DA) firm seeking the right distributor. 

 

Doing the best for our appointed representatives 

From our perspective, as a network, we believe a major part of our role is not just to provide our appointed representatives with the best of everything, but to also give them back the time they might ordinarily spend, for example, on compliance work or regulatory upgrades, and to allow them to invest that time, resource and money back into what they do best, advising clients. 

That seems highly important to us and advisory firms, particularly given their regulatory responsibilities are growing, plus of course, we continue to see major measures put in place, such as Consumer Duty.  

This seems even more vital, particularly as client casework has become ever more intensive, and the requirements placed upon advisers are much more sustained.  

 

The ongoing work 

Take, for instance, recent weeks and the constant changes in pricing and products we have seen from lenders. When seeing clients, this is no longer a ‘one and done’ interaction which ends with a recommendation, that ultimately the client will secure.  

The ongoing shifting of rate means that, particularly in the period after the initial recommendation, advisers are spending a lot of time constantly checking on product changes. This is a lot of work to provide the client with a ‘better’ rate that can save them money, compared to the initial one discussed and agreed upon.  

There is a huge amount of work involved in doing this, and this has to be recognised in terms of the income generated by such ongoing activity, the resource required and how different this is to the direct-to-consumer experience offered by a lender.  

Constantly checking and rechecking products is not a service that lenders are going to offer their customers directly, and there is a growing feeling that advisers may need to run two types of propositions given the constant swapping and changing of rates. 

  

Juggling tasks 

One proposition might be what we would call a ‘lender equivalency’, essentially the initial recommendation which puts the client in the same position they would have been in by going direct to the lender. As mentioned, the lender is not going to be reviewing the customer’s options over the next six weeks; they book the rate at that point in time and that is the product the customer gets regardless of what happens in the future. 

Of course, advisers wouldn’t be comfortable with this, but it can’t simply be a situation where they are spending all their time constantly reviewing the market, without being paid for this work.   

So, instead they offer a second proposition to the client which continues to check and review rates and product changes, perhaps each week, up until the last point possible and the client pays for this work. That values the work of the adviser, and ensures the client is in the best possible position at the point of completion, whether remortgage or purchase. 

This year appears to have started as 2023 ended, but with added impetus from a product/rate perspective, as lenders react to swaps and the need to be competitive. The first point here is to make sure you have access to all these lenders and providers, and can supply your clients with whole of market advice that benefits from these constant updates and upgrades.  

Perhaps you may need to shift network or distributor in order to make sure you get this access, and you are getting the best all-round service and excellent terms as well? 

And secondly, make sure you value the time and the work and effort that is required in order to get the client into the best possible position. In that sense, firms should have no qualms about charging for this re-evaluation work as it signals them out from the ‘competition’ and shows the true value of advice and the service offered. 

Overall, 2024 has the potential to be a very good year for the advisory profession – make sure you’re with the right partner to make the most of this.  

The Autumn Statement needs heavy-hitting housing reforms – JLM

The Autumn Statement needs heavy-hitting housing reforms – JLM

Certainly, David Cameron wandering into Number 10 to become Foreign Secretary feels a lot like this. Plus, we have now got another Housing Secretary after Rachel Maclean was sacked – soon there will be more MPs in Parliament who’ve held this role than haven’t.  

What this actually all leads to next is, however, far more important. Changing bums on seats is one thing, but positive policy and measures are actually what is required and, for our sector at least, the Autumn Statement on the 22 November seems like the perfect opportunity to announce something significant and game-changing, which increases activity and the number of transactions. 

To that end, and given the history of various Conservative governments over the past 13 years or so, what would feel like a big deal for the market? 

For the Tories to have any chance of winning the next General Election, perhaps the big policies lie in other areas, but in the here and now there’s certainly a need to secure some sort of economic growth, and to also somehow change the narrative in terms of how the UK has become a high-tax economy.  

  

Think of downsizers as well as buyers 

In the housing and mortgage markets, what tend to be the go-to areas of intervention and attempted stimuli? Clearly, the big lever to pull is always stamp duty – which brings in significant money to the Treasury coffers – and again there is the opportunity to deliver some real change here. 

The government should be looking at both ends of the market, and in our belief, there is time for a stimulus, because by the time any transactions come through, the tax ‘hit’ is actually going to be put off to a point where the General Election will have probably already happened.  

In that sense, there is the opportunity to abolish stamp duty for any first-time buyer, regardless of the price of the property they are buying. They could also increase the threshold to take more purchases out of the tax, and they should certainly introduce a policy that either gets rid of or reduces stamp duty for those people over 55 who are downsizing. 

At the moment, we have far too many people living in far too many properties that are simply too big for them. These family homes are being kept in the family because of the cost of moving, of which stamp duty is a significant part. Equity release has also not helped as it has kept single, older people in homes which would normally come to market for families to buy.

Scrapping stamp duty for older homeowners’ downsizing would free up a significant number of larger three, four, five-bedroom homes and bring them to market. 

 

Incentivise productivity 

The number of homes available to buy remains a massive issue. New-build development has fallen off a cliff since the end of Help to Buy, and while this had its issues as a scheme, some sort of Help to Buy alternative is required.  

It is no wonder the government scrapped its new housing targets given they had no chance of ever meeting them, and we desperately need some policies that encourage developers to build, rather than sitting on land because it’s more profitable to landbank than actually build on them. 

In other areas, to help incentivise and encourage business, the government should be looking at cutting corporation tax, while it might also wish to review IHT allowances and up those to reflect the change in society over recent years, particularly in terms of house values and how much of the allowance this asset now takes up. 

Overall, this has to be an Autumn Statement which delivers something big and bold. We’re all acutely aware of how purchase activity has stalled over the last 12-18 months; interest rates are moving in the right direction in terms of helping affordability, but there are some significant government costs for buying/selling, that if jettisoned could add real impetus to the market.  

We need encouragement for first-timers, encouragement for downsizers, and encouragement for builders – with potentially less than a year until we elect a government, what has this administration got to lose? 

Mental health support charter MIMHC confirms three new signatories

Mental health support charter MIMHC confirms three new signatories

The MIMHC has around 77 signatories representing over 15,000 individuals within the mortgage industry.

The charter was co-founded by Crystal Specialist Finance, Coreco, Chartwell Mortgage Services, Landbay, The Brightstar Group, Knowledge Bank and SimplyBiz Mortgages.

It aims to provide guidance, hints, tips and a simple framework so member companies can “embrace, then tailor bespoke services which best support their staff”.

The charter has six governing rules, around mental health awareness around employees, encouraging open conversations, good working conditions, effective people management, monitoring employee mental health and wellbeing through survey and manager contact and having a named contact for mental health support.

Scott Howitt, sales director at Chartwell Mortgage Services and founding member of MIMHC, said: “It’s fantastic to see new companies sign up to the charter as this will undoubtedly increase the provision of mental wellbeing support available to individuals working in the mortgage sector.

“The recent additions continue to demonstrate the diversity of our signatories which now include small and medium sized broker firms, mainstream mortgage lenders, challenger banks, insurers, mortgage clubs, mortgage networks, trade publishers and conveyancers.  Despite our activity and the growing profile of MIMHC, we still have work to do.”

He pointed to the results of its 2023 survey showing that 42 per cent of respondents were offered zero health and wellbeing support from their employer or did not know if there was one in place.

“We will not be satisfied until all companies operating in our sector deliver even the most basic of mental health support which might just be encouraging conversation no matter the topic,” Howitt noted.

Top 10 most read mortgage broker stories this week – 21/07/2023

Top 10 most read mortgage broker stories this week – 21/07/2023

The news that Paragon Bank would be closing its intermediary subsidiary TBMC was also of interest to readers, as was Coutts’ decision to allow people to take a mortgage with the bank without a prior relationship.

 

MPowered Mortgages to reprice five-year fixed rates

 

Coventry BS to update products

 

Halifax to increase two and five-year fixed rate homebuyer deals

 

Coutts to allow customers to proceed with mortgage without ‘full banking relationship’

LiveMore launches 10-year fixed rate range

A moment of base rate calm will soothe the mortgage market frenzy – JLM

Natwest and Santander confirm detail of Mortgage Charter support

Mortgage broker firm TBMC to close operations

 

MPowered Mortgages reduces cost of two-year fixes

 

Swap rates levelling off in ‘glimmer of positivity’ for mortgage pricing

Incentivised execution-only mortgages look odd under the Consumer Duty glare – JLM

Incentivised execution-only mortgages look odd under the Consumer Duty glare – JLM

Of course, this hasn’t always been an anti-adviser approach  – there have been various points when we held an advantage but there are times when lenders’ dual pricing did not put us in a positive position. 

At present, on the whole, dual pricing doesn’t seem to exist in any meaningful way. We suspect that has much to do with lenders getting the vast majority of their business through the intermediary channel and (we hope) an acceptance that independent advice is a good thing and places customers in a better position than the alternative. 

However, there will always be breaches of this ‘agreement’ and we currently have one of the top lenders offering better mortgage rates to those borrowers who execute through its digital-only channel. 

The price differential is not huge, but it is there and fundamentally we believe this presents some serious issues, not least for the borrower themselves who are essentially waiving away their advice rights by choosing to execute with the lender via this channel. 

 

Hard to ignore 

Not that the borrower is likely to be aware of this. However, the fact this lender is actively offering a price/cost incentive to give up those rights based on a slightly cheaper deal should not go unnoticed or uncommented by our profession. 

We fully understand that in the world of lending, there will always be outliers and approaches that are different but fundamentally you expect there to be a level of transparency. With Consumer Duty approaching, you also expect there to be a focus on putting the customer in a position of protection.  

This approach certainly doesn’t do that.  

Of course, at the heart of this, you worry about what sort of product/price/term the borrower will be accepting via this channel without advice. We saw a spate of borrowers in the immediate aftermath of the mini Budget feeling the need to go it alone, acting quickly without advice, choosing products wholly inappropriate for them and ultimately likely to cost them considerably more. 

There are other examples of course – the first-time buyers, or indeed any borrower, who might see the cheaper rates and cheaper costs available for a five-year fix right now, but soon realise they have no flexibility should their plans, needs and circumstances change in a shorter timescale. 

As advisers will know only too well, first timers often work in a much shorter time horizon, where a five-year, slightly cheaper fix, is simply not going to work for them. 

  

Fewer protections 

However, what seems truly odd here is that a lender who is likely to get the vast majority of its business through the intermediary channel seems so comfortable in a borrower executing digitally, not getting any advice, losing access to the Financial Ombudsman (FOS) and Financial Services Compensation Scheme (FSCS), and ultimately putting their own mortgage life in their own hands, just for the sake of a slightly cheaper rate. 

As mentioned, in the world of Consumer Duty, allowing a customer to waive their advice rights and protections seems really odd, and we wonder whether the Financial Conduct Authority (FCA) might want to review what is happening here.  

Also, why not spend the money that’s being used in developing these channels on improving the systems that advisers have to use?  

After all, these lenders are happy to take the business, to not have the risk of providing advice themselves, to have a cheaper source of distribution, etc. Why not focus money and resources on developing these relationships and the way business is placed via advisers, rather than adopt a policy which effectively disadvantages those who take advice? 

At the very least, make the prospective customer think about going down this route, fully aware of what they are giving up and where they can find advice, and what benefits this might deliver.  

Far better than thrusting a cheaper rate under their noses and expecting them to make their own decision based on less than full information.  

Top 10 most read mortgage broker stories this week – 06/04/2023

Top 10 most read mortgage broker stories this week – 06/04/2023

JLM Mortgage Services’ blog on procuration fees, along with an interview with HSBC’s Chris Pearson were also among the most read.

Analyses on remortgages and sourcing systems also proved popular with readers.

 

Lender confidence boost sees more sub-four per cent mortgages on offer – Rightmove

 

BTL lenders are refusing to lay low despite the subdued market – Armstrong

 

Natwest cuts rates; Santander lifts tracker rate – round-up

 

How do you solve a problem like product transfer proc fees? – JLM

 

‘We are 100 per cent committed to the broker market’ – HSBC’s Pearson

 

High street domination of remortgages ‘inevitable’ but no bad thing ‒ analysis

 

Sourcing systems trying ‘to be too clever’ ‒ analysis

 

Current base rate may need ‘earlier and faster reversal’, says MPC member

 

Santander reduces new business and product transfer rates

 

Cov BS and TSB lower mortgage rates – round-up

 

How do you solve a problem like product transfer proc fees? – JLM

How do you solve a problem like product transfer proc fees? – JLM

We’ve read a number of comments recently which can be effectively paraphrased as “thank goodness for PTs”, and speaking to a major distributor recently, they are now running at over a third of all their business being PTs.

For advisers, it’s an obvious point to make but the impact on income can be sizeable, especially when (as we know) only one lender, Lloyds Banking Group, pays a full proc fee for PT business, and only two others pay more than half.

Which is why our sector should continue to press for greater parity of proc fee payment in this area, and to continually question why a lender community which doesn’t want the liability of advice, isn’t willing to pay the same amount for a PT as it does for a remortgage.

 

The work required for a PT

We had a recent client contact us who had taken a direct deal with their existing lender last time they remortgaged, and were adamant they were not going to do this ever again.

Even if the PTs on offer to them now turned out to be the most suitable product for them, they wanted the full reassurance and protections that come with advice, and – somewhat ironically – so do lenders.

It seems an obvious point to make but we’ve seen in recent years that lenders don’t want to deal with the public when it comes to their mortgages. Of course, they have in-branch ‘mortgage advisers’ but fundamentally they don’t want the responsibilities that come with giving ‘advice’ even if it is just on their own products.

Conversely, we do want to deal with the public, we do want to provide them with the advice they require, and afford them the protections they get, make sure they have access to the entire market, and know that if we do recommend the PT, then it is going to be the most suitable for them, not just the result of a tick-box exercise.

 

Paying for the effort

So, given this, why aren’t we seeing more lenders following Lloyd’s PT proc fee lead? In the world of Consumer Duty, where positive outcomes and fair value are the be all and end all, why don’t lenders facilitate a system whereby they recognise the same work is involved and pay accordingly?

This is often a point that is pooh-poohed by many. You can’t possibly be carrying out the same amount of work on a PT as a remortgage, they argue. But, that’s exactly what we are doing in order to get to the point where we can recommend the PT.

How can we be certain the PT is right if we don’t understand the client’s needs and circumstances, how they might have changed since the last time they mortgaged, for example? We have to go through the full process in order to get there.

If there is any time saving in this for the adviser, it is marginal, and it is certainly not taking us half the time of a remortgage, which means we should only get paid half the proc fee.

The lenders offering small numbers of PT options do not do any of this work, do not review, do not take into account the equity in a property might have grown, the balance will have fallen, the financial situation will have developed, etc.

 

Borrower suitability

Plus, under Consumer Duty of course, there is an ongoing commitment required to the mortgage customer – annual reviews and the like. Will lenders carry this out? Will they even want to or have the capacity to do so? Again it all adds to the point around lenders not wanting, or increasingly being able to, deal with mortgage customers.

And the other point to make here is that it seems very difficult to argue a client has picked a direct PT product which is ‘execution only’, when the lender has only offered them a limited number of product options and told them to pick the one they want.

If you have narrowed down the number of products you offer, that in itself is pushing an existing borrower in a certain direction.

Overall therefore, we’re not in full Bob “Give us your effing money” Geldof mode, but we are certainly asking for lenders to look at the fairness of their current PT payment model, to accept they would much rather intermediaries be the ones carrying out this advice process, and to move towards parity in order to recognise the benefits for borrowers (and they themselves) that such a move would bring.

Fees are out of hand in buy-to-let – JLM

Fees are out of hand in buy-to-let – JLM

This is being written before the Bank of England’s Monetary Policy Committee Base Rate decision, but we anticipate a further rate rise and – somewhat conversely – product rates to continue moving in the other direction, albeit still above their pre-mini Budget levels. 

As mentioned, in the residential space, it’s possible to see progress, however that unfortunately is yet to be matched by anything that is happening, or rather not happening, in the buy-to-let sector. 

 

Fees not matching rates 

Rates have come down off their autumn highs, but there is little to get excited about and much to be genuinely perplexed by, not least some of the huge arrangement fees that are accompanying a lot of the ‘better priced’ products at the moment. 

We recently worked on case for a landlord client, looking for a £125,000 mortgage on a property in Fulham valued at £800,000. One lender – who shall remain nameless – came back with a half-decent rate but a huge seven per cent arrangement fee was the sting in the tail.  

That’s nearly £9,000 on a £125,000 mortgage.

A two per cent fee in our view is bad enough, but one nearly quadruple that amount is bordering on the immoral, and makes you wonder whether the rate on offer is making the need to make profit/margin elsewhere on the deal, even more of an imperative. 

Certainly, you can see this in the buy-to-let sector where we have a real mixture in terms of the way lenders are funded. But, we should point out, the exorbitant fees being charged are not just the preserve of the capital market-funded lenders, or the specialists in the sector. 

‘Mainstream’ buy-to-let lenders are also seeking to recoup a significant amount of money from the landlord via the fees, especially if the rate is slightly more competitive. 

Hence ,we looked at a mid-three per cent tracker rate option for the same client that would require close to a £4,000 fee, and you could pay over that for two-year fixes, while a specialist in the field – again on a discount product, this time for a house in multiple occupation (HMO) property – would be charging close to £5,000 on the same loan amount.  

Less competitive rates – in the mid-four per cent for a discount range – are available with a much more acceptable fee, less than £1,000, but as we know, the loan to value (LTV) has to be right in terms of being able to access this and the client has to be comfortable with rates probably rising again, at least once, in 2023.  

  

Unfair to borrowers 

No one can truly believe that a fee over two per cent for a buy-to-let mortgage is in any way fair, even if lenders are currently facing difficulties in terms of marrying up their pricing with the profit margin they need to achieve, against a backdrop where demand may not be what we wish it to be.  

It is not ideal, but at some point, buy-to-let lenders – particularly those who are all currently working around the same product price points – are going to probably have to sacrifice margin, in order to secure business. Either that, or they simply won’t do any business at all. 

Ramping up the fees to the point where they are simply unrealistic is not a strategy that is going to get any traction this year. For those who think it is, they are likely to be counting the cost in terms of vastly reduced business volumes.  

‘And so this is Christmas…now what do we want for the new year?’ – JLM

‘And so this is Christmas…now what do we want for the new year?’ – JLM

So, what can we expect or – more to the point – what do we want to see in the new year? Let’s have a whistlestop tour of where it would be nice to head. 

 

Service level woes 

Firstly, let’s start with lenders. How many have covered themselves in glory during the last 12 months? Certainly, service levels among many of the established players – and those not so established – were incredibly poor for a lot of the year. 

To give lenders their dues – and this is clearly a problem right across the UK economy but particularly the mortgage and housing market – getting the right recruitment to fill vacancies is difficult and the shift to a work from home/office mix is tricky at present. 

However, lenders have also not helped themselves in many instances, taking on huge amounts of business when they could barely process that which was already within their pipelines. It has ended up where a strategy of pumping up the price in order to stem the volumes has become the norm, however when everyone is following the same strategy, we end up with the results we have had to deal with this year.  

Plus consumers pay infinitely more than they really should.  

It also leaves us in a weird position where some lenders are currently telling us that it will take days to get an offer on new business submitted but appear to have conveniently forgotten the business which we sent in three months ago, which is sitting on a metaphorical desk somewhere and hasn’t been actioned at all.  

 

Redistributing resources 

Far be it for us to tell lenders how to do their jobs, but a move which takes resource out of new business to deal with the existing backlog/pipeline problem would be preferable, especially away from the business which is not complex and goes through the system easily anyway. Service could be improved considerably and let’s hope this is a priority. 

You would hope lenders are committed to putting more resource into getting on top of service issues, because their new targets for 2023 are unlikely to be less than this year, and the market is likely to be fiercely competitive because they will need to hit the ground running, which is likely to mean a lot of to-ing and fro-ing when it comes to price, but also criteria. 

In a way, we hope the return of greater levels of competition next year, heralds the return of lenders genuinely competing for business from within the intermediary sector. We want business development managers (BDMs) to be troubleshooters for us as advisers, knocking on our doors and helping us find solutions for cases.  

Consumers come with more complex situations, incomes and the like, than ever before, and we know BDMs are keen to get involved in these cases, to find a way to meet both our and the client’s expectations. A more bespoke lender offering would not only chime with the Consumer Duty but also allow BDMs to do what many are very good at and would help solidify the strong relationships we already have with them.  

 

Glimmers of hope  

Overall, even with some media headlines suggesting the year ahead is littered with trouble and obstacles to overcome, we should be positive on what is achievable for our clients, and also that the ‘negatives’ are somewhat overdone.  

For example, we’ve recently seen an upturn in purchase activity, and (if as expected) product rates continue to fall and house prices become a bit more affordable, then this presents a better environment for purchasing, particularly for those who have been sitting on their hands recently. And while house prices are likely to fall, even with some of the predictions we are seeing, we would only be back at levels seen 12 months ago. 

There is much to be positive about. There are, understandably, a lot of worried consumers out there and that means advice has become much more of a non-negotiable. If lenders can work with us advisers to deliver the products and solutions they need, then we firmly believe 2023 will be a good one, without any fear.  

Stop punishing existing borrowers – JLM

Stop punishing existing borrowers – JLM

It is very early days but, judging by the direction of travel since Hunt took to the airwaves, that hope is beginning to solidify into more concrete market changes, and it appears there has been some success here.  

However, at that very point a number of big, mainstream, residential lenders were sending out communications to advisers announcing some eye-watering increases to their fixed-rate mortgages. 

You’ll understand the irony of all this, and you’ll no doubt be wondering how measures designed to induce the opposite, have instead been followed by bigger increases to mortgage pricing, thus resulting in even more worry, stress, and frustration to advisers and clients alike. 

  

Mortgage rates were already climbing 

It’s hard to fathom how we have got to this point, and clearly, the government has a major role to play here. However, rates (as we all know) were rising prior to the Kwarteng/Truss ‘intervention’ and not for any reason to do with the costs of funds, but for the vast majority, all to do with service levels (or lack of them) and a strategy which deemed price rises the best option to deal with strong demand. 

And here we are again. Just at the point when the cost of funds begins to turn back around, we have a number of lenders upping product rates, not only for new business but more bizarrely for existing customers.  

Harsher critics of this approach might be referring to it as ‘The Great Mortgage Swindle’.  

How else do you justify an approach whereby your existing borrowers are being asked to pay significantly more for renewing with you? Even when – as we all know – the cost, resource and time required to process a product transfer electronically is significantly less than that required for new business. 

  

Holding on to loyal borrowers 

Are we at a point where these lenders don’t want to hold onto their existing borrowers? To increase rates by more for existing borrowers than for new business at this exact point in time seems not only utterly depressing, but absolutely bonkers.  

Not forgetting it is a total liberty on the part of the lender and could be said to be sheer profiteering at a time when the likelihood of many borrowers ticking a box for such a product is heightened. 

We would like to hear the reasoning behind such a decision. And to do it right now? If they are too busy then, follow the lead of others, and simply stop taking new business in order to get on top of the pipeline.  

Don’t bite the hand that has fed you by punishing existing borrowers.  

  

Signs of market stabilising 

All anyone has talked about in the last few weeks is the cost of mortgages, the payment shock for borrowers and the problems those that want to purchase are finding in terms of securing mortgages at a price which still makes it viable to buy. 

The start of the week presented a hint of light. That rates may not need to rise as fast as we have seen them, and that the markets may be shifting – albeit slightly – and the big fears for rates, particularly over the next 12 months, may not be realised. It perhaps gave lenders a chance to reassess what they have done in the past three weeks and to give serious thought to whether they needed to continue in their most recent direction.  

Instead, we were ‘treated’ to this news from some of our bigger lenders, which is particularly galling for those borrowers already with them. It would appear that some can’t help themselves and that, for many mortgage borrowers at the moment, every silver lining comes with an almighty cloud.  

Shame on those concerned.