Earlier product transfer availability will put mortgage sector and borrowers at ease – JLM
Acutely aware of recent product rate increases, and anticipating more to follow, these customers are looking at their existing rates, seeing the disconnect between what they currently have and what they might be able to secure, and wanting to move fast before that gap gets any bigger.
Unfortunately, there’s something of an unlevel playing field right now for those customers, specifically in terms of what we can access for them via a remortgage and what they might be able to secure from their existing lender in terms of product transfer (PT).
All about the timing
The reason for that is the discrepancy in terms of when a product transfer becomes accessible for us/the client, and our ability to book a remortgage deal with another lender.
So, for example, we have just been working with a client who is six months away from renewal. At present, we can secure them a remortgage away from their existing lender which will hold for the six months, but the chances are a PT with their lender is likely to be cheaper – if it was also available now. But it’s not.
Instead, we won’t be able to access the PT offer for at least another couple of months, possibly three. Meaning we can’t really look after our clients in the way we would like; we can’t protect them against rates rising further in the meantime, and we can’t give them the total reassurance that we would like to.
Better for the lender
There is however a simple solution and one we would urge all lenders offering PTs to embrace. Simply, make those PT offers to existing clients six months out from the end of the deal, rather than the two, three or four months that many currently offer.
This would provide a level playing-field for advisers and ensure we can advise and recommend having that full information.
In a sense, and here’s something of a turn up for the books, this is really not lender bashing but an instance where lenders are essentially being unfair to themselves.
The fact of the matter is that we understand many lenders don’t really want new borrower business right now for all manner of reasons, however we’re guessing that holding onto existing borrowers, potentially over a five-year term at the current mortgage pricing, will be a profitable exercise for them plus it gives the existing borrower the peace of mind they are looking for.
Even with PT rates tending to be a little more competitive than that which is being offered to new borrowers, there is still a considerable margin to be had, there is less work involved for the lender, and they have full sight in terms of how the existing loan (and borrower) has performed during their existing term.
Sounds like a no-brainer?
Limited to remortgage options
But, given the nature of the market currently and particularly with many existing borrowers wanting to tie in rather than wait, without knowing what the PT is six months in advance, our only option is to advise borrowers on the remortgage products – which they are tending to agree to as they want the certainty.
Now some lenders have already moved to providing PT offers six months out, but these are the outliers rather than the norm, and there’s no doubting that a move by all others to this ‘standard’ would provide parity in the market, and is likely to mean – in the current environment – that far more borrowers end up staying with their lender.
Again, for lenders, what’s not to like? And for advisers it means we can advise from a position of strength, giving the client what they want with the minimum of fuss.
Lenders over to you.
Surveyors should stick to today’s reality not future caution – JLM
Quite simply, that’s not the case, and certainly from an adviser perspective there are lots of positives to focus on, especially around demand for advice and the ongoing opportunities this creates.
From our perspective though we have to segment what might potentially happen in the future, from that which is the here and now. It is after all, the present in which we advise in, not the future. If only others within our sector were willing to do similar.
The down valuation debate
For instance, down valuations are a constant source of ‘joy’ at present for the adviser community, with surveyors often leaving us with plenty to think about in terms of what they are actually basing their valuations on.
An area not often covered in the great down valuation ‘debate’ is that of equity release, but in recent weeks on every single lifetime mortgage case we are attempting to progress, there has been a down valuation on all of them.
Why this might be is certainly a question to ponder and on one specific case recently it led us to phone the surveyor up to ask why they were valuing at a price clearly below what everyone else perceived it to be. The answer was somewhat bewildering in that the lender concerned was apparently asking the surveyor to take into account a future ‘for sale’ value within the valuation right now.
Again, we are constantly told by the surveying community that their valuations are based on the specifics of the property as it is right now, as if it was selling on the day it was valued, not some arbitrary point in the future which is only likely to be guess work. So, why have any sort of go at guessing what it might be in five, 10 or 15 years’ time?
Surveyors are likely to hedge their bets in this scenario. Some can be notoriously negative about future house price values, even if recent history tells us that prices are likely to rise over a long-term period, especially given the supply side issues we have in this country.
And therefore, we get a down valuation that makes no sense.
Plus of course, this is an equity release case, which might lead you to wonder why the lender concerned is acting so neurotically about what the value of the house might be in future years. Well, you might argue, the client will be older, they might die sooner and therefore the lender will want to know what the resale value is potentially in a very short space of time? That we’re afraid in this case is nonsense.
Our client was 75-years-old, and the statistics show that those individuals who reach this age have a very good chance of living for at least another 11 years if they’re male and close to 13 years if they’re female. Equity release clients who are in a couple often mean that at least one of them will go beyond 15 years’ life expectancy.
Lifetime mortgage providers will know this, they will also be aware of the health situation of the client, but what they will certainly have no clue about – and neither will the surveyor – is just what the ‘for sale’ value of the property will be in 11-15 years’ time.
That is a finger in the air exercise which renders the projection the surveyor puts on it, absolutely meaningless, and essentially puts a spanner in the works for a case which makes perfect sense for both client and the lender.
Dealing with the current situation
We can understand why there is an inclination to go to a point of ultra-caution when looking at future house price values with such pressure being brought to bear by lenders. After all, if the property – as is likely – sells for more in the future, then there will be no complaints and no comeback.
However, our cases are not decided in the future – or at least they shouldn’t be. And they should therefore not be potentially derailed by a future guess that is only ever likely to be wrong.
Show us anyone who has accurately predicted the value of a single property 10 or 15 years out and got it right, and we will show you a liar.
It is almost impossible, so let’s deal in today’s reality, not the unknowns of hypothetical ‘sales’ years in the future.
Affordability uncertainties are a mortgage advice boon – JLM
In that sense, advisers who are perhaps a little longer in the tooth – and I include myself amongst this number – are having to ditch their old assumptions about affordability in the context of X times salary for clients. This simply doesn’t work anymore.
Who does this impact the most? Well, it’s an obvious point to make, but I would suggest that first-time buyers are being hit the hardest by these changes, or younger borrowers in general, especially because a lot of the ONS data on which the affordability decision is predicated, doesn’t really reflect their reality.
For example, I would suggest they are much more likely to work from home, they are more likely to have lower commuting costs – ONS assumes you commute to work and includes travel costs that most are not paying; they are more likely to be buying new-build homes, they are more likely to be paying lower maintenance costs, etc.
The ONS doesn’t really factor that in and that is having an impact for these borrowers in terms of how much they can borrow.
However, I would say there’s a part of me that thinks we shouldn’t be crying over spilt milk here.
The previous set of ONS data undoubtedly favoured advisers and their clients in terms of allowing them access to larger loans and not being truly in tune with a lot of borrower experience. We benefited from it then, so should we be upset that it doesn’t now?
What I would say is that the ONS data is still great news for advisers in that potential borrowers will need advice more than ever before in terms of wanting to know what they can afford to buy.
As mentioned, it’s not simply a case of multiplying your salary by a number and getting your maximum loan amount. The likelihood is that consumers will need to come to an adviser in order to get a clear understanding of what they can afford, and of course this will be different for each lender.
The supply focus has to be on family homes – JLM
Supply is a problem within the housing market that is not going to disappear overnight, and it is the very supply-side issues that should caution those who continually suggest we are on the verge of some sort of house price crash.
However, supply has to be broken down into its constituent parts, because for the most part, supply problems are all about the type of properties that are in demand, but are in short supply.
For example, the government appears focused on increasing the supply of properties in the UK. It has set targets of 300,000 new dwellings built every year from the mid-2020s onwards.
However, these properties don’t necessarily have to be the ones that are in demand. The target is for individual units, and what is it easier to ‘build’, ‘develop’, or ‘renovate’ – multiple small flats within converted commercial city buildings, or the thousands of much-needed family homes right across the country?
That 300,000 target might well be hit, but it’s important to look at what those units actually are, because they may not be the three or four-bedroom homes that are in such demand they are seeing significant house price value increases.
Older people need to downsize
If we accept that the UK is unlikely to be building the number of family homes it needs going forward, then where can we source more supply from? One potential answer might lie within existing stock owned by older homeowners who don’t require the space they have.
We currently have a market which is doing all it can to keep those owners in homes which are too big for them. We don’t want to see the end of generational mortgages or equity release products being utilised which allow the owner to stay put, but there will be a huge demographic who would be happy to downsize but see it as too costly to do so.
Hence, why increasingly, older homeowners are accessing the equity in their homes, gifting it as deposits to their family members, and staying put in these properties. If there was an incentive to downsize, these individuals would probably want to take it.
You’ll often hear from individuals about how they are now ‘rattling round a home’ that’s becoming unmanageable, concerned about their increased running costs. They would prefer to move to smaller properties to free up the equity they need and bring to market these perfect homes for the families who also need them.
Whether this incentive could be in the form of not charging stamp duty to owners over 60 who are downsizing, there needs to be a consideration that we have vast swathes of the country’s property stock not being owned by those who most need it.
Right to Buy needs to be done correctly
The government recently suggested reopening the Right to Buy scheme for housing associations. Hugely popular in the 1980s for council house renters, it subsequently came to pass that the money the government made wasn’t actually spent on increasing the supply of homes in other parts of the market, hence supply dropped further. We would be concerned that something similar would happen again.
Any investment has to be in building far more family homes, and while no one is going to turn up their nose at increased yearly supply numbers, if we are not building the right mix of properties, then the supply-side problems are going to go on.
With current and projected demand levels and limited supply, the price of these types of homes is only likely to go in one direction. The building of family homes needs to be the priority.
‘It is time to ban agents from selling services to both sides of a transaction’ – Star Letter 22/04/2022
This week’s comment came in response to the feature: ‘Immoral’ estate agent sponsored advisers are bad for everyone ‒ JLM Mortgage Services
Arron said: “It is time to ban agents from selling services to both sides of a transaction, as it has muddied who is their customer and whose interests are primary.
“Inflated legal fees are now becoming the norm with £500 referral fees. Together with compelled mortgage advice, none of this serves consumer interests or protection.”
Darryl Dhoffer added: “I pre-arm my clients who are looking to buy with the following – and it does seem to work with some agents: ‘The Estate Agents Act 1979 states that every offer must be put forward to the seller regardless of whether the buyer has obtained their mortgage from the broker recommended by the estate agent’.”
‘Immoral’ estate agent sponsored advisers are bad for everyone ‒ JLM Mortgage Services
Of course, there is a lot of talk in our sector about the collaborative nature of the UK property market and how we are all parts of a jigsaw puzzle that only completes when all the pieces are in place, but there are still some sections of our market who appear happy to sell that self-same jigsaw without all the pieces being there.
For instance, there’s no doubting this is a seller’s market, which means that prospective buyers, particularly those wanting to purchase for the first time, are in many cases being led – or more literally not being led – up the garden path by certain estate agents.
Pressure from estate agents and ‘advisers’ on buyers
Talk to any mortgage adviser, and we guarantee they will have a story or dozen to tell regarding recent attempts by agents to push a client into the arms of their financial services division, suggesting if they don’t use those services they will not see, let alone secure the property.
We receive anecdotal and first-hand evidence of this all the time. Agents have limited stock to sell, and when it comes to them, it tends to be offered on very quickly. It means they can be ambitious on values, achieve those values – although surveyors will often down-value – and get the property ‘sold’.
However, for certain agents, the money they are making on these sales isn’t enough for them, and they can often earn more if they push purchasers to their ‘financial advisers’ in order to secure the mortgage/life insurance commission, charge a fee, etc.
The problem they have is getting those individuals to their ‘advisers’. So, what better way to do this than by frightening them. By telling them that, unless they use their adviser, they won’t get to see the property and they certainly won’t have their offer put forward to the vendor.
A lot of the time this is targeted at first-time buyers who effectively don’t know any better, who might think these strong-arm tactics are part of the ‘cut and thrust’ of buying a first home. Who accept it when an agent tells them that they are selling properties to the first two or three people who view every time, and that they need to be part of this early group – and the only way to do this is by using their adviser.
Vendors are being ripped off too
And what about the vendor? Well, the agents simply tell them that those individuals who don’t use their advisory services are “not serious” or “are playing games”. The vendor accepts this version of events and is blissfully unaware that the right buyer for their property, the buyer who might be in the very best position, has not even been allowed to view or had their offer put forward.
We recently had a purchasing client of ours who went through this exact experience. They (thankfully) knew something was up and came back to us to check whether they had to go down the agent-adviser route.
At that point we were able to point out, what they would be getting from that adviser. Access to a limited panel of half a dozen lenders for their mortgage product; a hugely-inflated adviser fee for their trouble; a requirement to use the agent-adviser’s conveyancing service which was also extortionately priced; a range of life insurance policies with big premiums and big commissions. We could go on. Essentially, they would be sold to within an inch of their life all while feeling they have to accept everything in order to get to see a property they like the look of.
The problem is, of course, despite this being completely immoral, the agent couches it in terms which appear not to contravene any rules – and what can the prospective purchaser do? We suggested they knock on the vendor’s door and make them aware of the situation and what they were being asked to do, in the hope the vendor might vote with their feet. However, by then, that house might be already offered on, at which point it becomes much less of a concern to the vendor.
Be on guard
The main culprits are the big corporate agents bullying people into taking hugely sub-standard advice services with, quite frankly, crap mortgage propositions.
Which means we have to be on our guard here. The nature of the market is always competitive – that is a given – but these firms actively work to put the client in a worse financial situation than they would be if they came through reputable advisory practices.
Let’s therefore ensure consumers are aware of these practices and the consequences, and let’s ensure vendors do not instruct agents that ‘go after’ clients in such a way.
It’s a practice that should be consigned to the past but is very much evident in the here and now.
Limited company lending – why such a niche? – JLM
How many articles have you seen and read about the increasing ‘professionalisation’ of the sector? Of the decline in ‘dinner party’ landlords? An odd phrase we’ve never quite got to terms with, but there you go. Or of more landlords treating their property portfolio as a business? Or of the sector as a whole moving towards a much more professional and portfolio approach? Answer: lots.
And yet, there are some nagging issues in mortgage market circles which don’t show this progression at all. Which do not really acknowledge it. Which treat landlords and buy-to-let like it is somehow still 2008/2009, like it is still a sector dominated by individuals with one or (at most) two properties, who come with huge risks and should be treated as the riskiest of all potential borrowers.
Just recently, we were asked to cast our eye over the product ranges of various buy-to-let lenders, particularly the larger banks, the high street operators who provide finance to landlords.
What is downright surprising – especially in 2022 – is just how many of these do not lend to limited company buy-to-let borrowers, preferring only to lend to individuals investing in property. This, despite the sector, moving in this direction ever since the cuts to mortgage interest tax relief and the changes to stamp duty.
All advisers will be acutely aware of the benefits for landlords in purchasing via a limited company – hence the huge increase in this type of borrowing, and a much larger specialist lending product range aimed at this borrower. However, when it comes to more ‘mainstream’ lenders active in the buy-to-let space, there is still a reticence to go there.
Do they deem limited company borrowers more risky? If so, why? After all, when it comes to the provision of mortgages to this demographic, they are doubly safe – not only do you have the company guarantee, you also have the personal one of the director(s).
Portfolio landlords are less risky and expected to increase
Talk to a portfolio landlord – with perhaps 30/40 properties within a portfolio – and they are often staggered that, due to this lack of limited company lending by the mainstream – they are often having to pay twice as much in interest costs compared to the rates they offer to individual landlord borrowers.
Again, this is despite the fact that the risk is less. A portfolio landlord with those number of properties could have 10 properties vacant and still cover all the mortgage payments of the entire portfolio.
Compare that to an individual landlord, with one or two properties, for whom a vacant property may well mean they can’t cover the mortgage payments of one or either.
So, why steer clear of a sector of the market which has grown significantly, is likely to grow, and in all honesty, represents less of a risk than the ones you are currently active in? Perhaps it is purely down to the legacy systems and processes they have in place? Perhaps they don’t want to spend the time or the resource on updating the systems in order to work with limited company landlord borrowers? Perhaps what works for them now is deemed enough, because there are enough individual landlords to service?
It seems like an odd and somewhat dangerous game to play. If the buy-to-let sector is becoming more professional and limited company buy-to-let is likely to grow further and dominate, then at what point do you acknowledge and recognise that demand and need? When you’ve run out of individual landlords to lend to? A point when it will be too late to change tack, because the market will be far in advance of your offering? At that point it really will be too late.
Activity within the private rented sector and the notion of buy-to-let investment has already changed significantly. Landlords take this seriously and use limited company vehicles seriously – it would be a real positive for the market if a number of large-scale mainstream lenders did the same.
House purchase demand remains – does the supply? – JLM
In the mortgage market, we get ‘harmony and understanding, sympathy and trust abounding, no more falsehoods or derisions, golden living dreams of visions’ – yet we’re afraid of a prediction beyond our pay grade.
It would be nice to think we can accept such claims with full confidence.
However, before you grow your hair long – difficult for some of us – and frolic around your offices paying homage to the mortgage Gods, have some consideration for the purchase side of our market, which judging by some predictions, will barely get out of second gear.
We’re not as convinced as some that this will be the case.
Demand for purchase just as strong
Perhaps instead 2022 will be the dawning of the year of transactions. Certainly, that flood of demand for ownership we saw last year doesn’t appear to have become a trickle – we are working in a marketplace where people are buying houses, often very quickly, and we are even seeing cases of gazumping.
The demand drivers that existed in the last year and a half haven’t really gone away just because the stamp duty holiday ended. Indeed, some people are still waiting, for example, to find out how their work situation might play out in the future.
Many employers are still yet to make decisions about whether to keep offices open, and who will be required in, where, and for what part of the working week.
When this comes out in the wash, we’re likely to have more homeowners deciding they are either in the right or wrong property, which will mean further purchase transactions as those decisions work their way through.
For landlord borrowers too, there is a perception that this will be the year of remortgage and refinancing and little else. But what are landlords refinancing for?
In our recent advice experience, two-thirds of landlords are capital-raising alongside the remortgage, armed with the confidence and equity of recent house price increases behind them, in order to do this.
However, they are not doing this to carry out works to improve their existing properties’ energy performance certificate (EPC) ratings, for example.
They are capital raising in order to purchase more and add to their portfolios because they believe this to be a strong private rental sector (PRS) to purchase in. So, alongside that landlord remortgage activity we can expect the professional and portfolio players in particular to be looking at what is available to buy.
Supply levels to suppress demand
And it’s that latter point that will be crucial here in terms of how purchasing performs. If 2022 is to be a subdued year, it will be because property remains in short-supply, both new-build and ‘second hand’.
January tends to take a few weeks to get going for the market, and we wouldn’t want to suggest this is indicative of the year ahead, but we’ve talked to a number of agents at the start of the year, and some are suggesting they have not been taking on the numbers of properties onto their books they would normally expect.
Perhaps it is just a slow start to the year? Perhaps it is something to do with the current pandemic circumstances where we’re being told to work from home again where possible? Perhaps some would-be sellers still feel a little in limbo? Perhaps, perhaps, perhaps.
However, the other fundamentals of the market do seem to suggest that purchase activity can be relatively strong this year if we get the supply, we need to meet demand. Alongside what will undoubtedly be a strong year for remortgaging and product transfers, advisers hopefully have everything at their disposal to have a successful and profitable year.
JLM offers carbon neutral house buying process to clients
The network worked with non-governmental organisation Carbon Neutral Britain to identify the emissions released from the moment a client begins looking for a property.
This includes the emissions involved in the online property portal searches, communications with the adviser and lender, and the travelling a surveyor and removal company does between properties.
It has been estimated that the emissions involved equate to 0.338kg CO²e (Carbon Dioxide Equivalent) per purchase completed.
The option will be free for the client and JLM will offset 1000kg CO²e for each purchase completion. This will be done through projects completed by Carbon Neutral Britain which aim to reduce the amount of carbon dioxide in the atmosphere.
JLM’s clients will be given a Climate Positive status which will document the offsetting process including the projects that have been supported or the trees that have been planted.
The business will also offset its own carbon footprint through the initiative.
Sebastian Murphy (pictured), head of mortgage finance at JLM Mortgage Services, said: “Today we begin the process of ensuring the carbon emitted during the home buying process is offset for every single purchase completion that JLM are involved with.”
He added: “Over the last year, the industry has talked a lot about the environment impact of our homes, what is required in order to meet the emission targets, and what both homeowners and we as an industry could, and should, be doing to support that.
“We felt it was time to ensure that we backed up the talk with action, and not only will we be offering this free of charge to all purchase clients who use JLM for their advice, but as a business we have moved to a carbon neutral status.”
“This is such a huge issue it can seem overwhelming in terms of what we can do as both individuals and businesses within our marketplace. However, there are positive changes we can make and we would urge other businesses – indeed all businesses – within our industry to explore what else they can be doing to also make those changes required,” Murphy said.
Mortgage clients must also be considered in industry equality efforts – JLM
We don’t wish to prejudge these findings, and what they might be able to tell us all about the industry in which we work, but we suspect that at best it will leave us with plenty to work on. This is an area which seems to have been neglected.
And that’s just from an employment point of view, let alone what we may or may not be offering and providing to our clients.
If we’re talking brass tacks in this regard, then of course, every single person who wants mortgage advice should be able to secure it, but whether they feel like they have access to it, is another thing entirely.
Perceived and actual barriers
For some, advice may appear to be a closed door, with firms perceived to be out of step with their requirements or unrepresentative of their personal situation.
For others, there may be an underlying vulnerability or disability that appears to have placed significant obstacles in the way when they were seeking the advice they needed.
Just recently, one of our AR firms posted a video of one its advisers communicating in British Sign Language (BSL). He outlined how he could work with individuals who were deaf or hard of hearing and the services he could provide either via Zoom or face-to-face.
It got us thinking about this potential demographic and their experiences when trying to secure mortgage advice from a firm without an adviser who could sign.
Of course, it wouldn’t have been impossible by any stretch, but how much easier might it have been if they had been able to converse with a BSL-proficient adviser?
Sitting in on the interviews, the managing director said having an adviser who can converse in BSL greatly enhanced the client experience.
This got us all thinking about what we might do to try and broaden the reach of advice for these individuals.
Firms, for instance, might wish to think about putting their advice staff through BSL training, adding another much-needed advice option for deaf and hard of hearing clients.
And what other clients might benefit from a more nuanced approach? We know there are all levels of potentially vulnerable clients, for example, that would undoubtedly benefit from advisers who are immersed in their needs and have a specialist approach to them.
We need to think far more about the clients we serve, and the potential individuals who might not see an advice ‘home’ for themselves.
Not only are these prospective clients missing out but so are we as an industry.
The Association of Mortgage Intermediaries is still seeking responses to its diversity and inclusion survey, click this link to take part: https://emea.focusvision.com/survey/selfserve/2cc7/210700?list=7#?