Recognising mortgage borrowers made vulnerable by the pandemic – LSL Financial Services
What impact has the pandemic had on vulnerable customers and their situations?
The tragic truth is that many vulnerable customers were made more vulnerable by the pandemic. Cancelled operations, delayed treatments and even reduced support systems as a result of family and friends not being able to visit have all had a detrimental impact on individuals.
As well as impacting physical health, the reduction in face-to-face contact and increased stressors affected many people from a mental health perspective too.
The pandemic also created a new cohort of vulnerable customers.
Many of those who lost jobs or suffered wage cuts now face financial strain, increased concerns about job security, and worries over their ability to borrow and pay back loans. With these growing groups of vulnerable individuals, it’s important to remember that ‘vulnerability’ can come in many different forms, and it’s key that brokers are able to understand and recognise each of them.
How do you see this changing in 2022?
Many customers have already started to see their overall cost of living increase drastically, and with the price of oil and gas skyrocketing, there remains the risk that many more people will start to struggle.
These hikes in turn have the power to reduce borrowers’ access to certain mortgage products and deals if their affordability assessment is impacted, forcing them into unfavourable rates or onto their lender’s standard variable rate (SVR).
Approximately two million mortgage borrowers in the UK are on a tracker or SVR mortgage. Whilst for some this might be the best option, it’s paramount that they understand how their repayments could increase.
For vulnerable customers and those already struggling with their finances, it’s important for brokers to have potentially tough conversations, illustrating how any rate rises could impact their customers’ finances and financial wellbeing.
It’s here that clubs and networks have a vital role to play in supporting brokers to have these conversations and ensuring they are achieving the best possible outcomes. Educational articles, webinars and events alongside training programmes are all great ways for brokers to get more comfortable with recognising and talking to vulnerable customers.
How has the market adapted to help vulnerable customers?
The industry has adapted in many ways to support vulnerable customers with technology, flexibility, collaboration between brokers, networks, lenders and providers, and through the increased focus on this topic from the regulator.
Brokers have ensured their approach to advice is flexible to meet the needs of their customers. Largely, sessions with customers have been virtual, and using technology such as Zoom and Microsoft Teams has been vital.
Discussing the availability and accessibility of support packages for customers in financial strain has also helped customers struggling to meet not just mortgage payments, but also those with unsecured debts. Some networks have also launched support hubs through their customer relationship management systems.
The treatment of vulnerable customers is also high on the Financial Conduct Authority’s (FCA’s) agenda. The FCA released finalised guidance for firms on the fair treatment of vulnerable customers in February 2021. This provided clarity on what it expects, enabling firms to review their approach to vulnerable customers to ensure they receive the same outcomes as non-vulnerable customers.
In addition, the FCA is consulting on a new consumer duty which aims to set higher expectations.
Do you think the removal of the additional stress test, as recently reported, will allow more complex borrowers get onto the housing ladder?
The Financial Policy Committee (FPC) originally introduced the rules to reduce the risk of homeowners becoming overstretched and therefore stuck with a mortgage that was potentially unaffordable.
However, with demand for property continuing to outstrip supply and push up house prices, many younger borrowers are struggling to buy homes. We welcome measures to help first-time buyers access the property market in a safe and affordable way, however this should be considered with caution.
Younger borrowers with limited financial experience can be vulnerable too. This may be because they have never experienced high rates in their lifetimes and may not be aware of the financial impact they could have. As a result, brokers can help to explain the varying outcomes of higher interest rates and inflation on the products they have on offer.
What can brokers do to support their vulnerable clients?
Brokers must have a flexible approach to client communications and be empathetic to any specific needs or concerns vulnerable customers may have. By listening to their clients’ needs, brokers can adapt their service appropriately to provide bespoke advice based on their clients’ circumstances, whether that be to guide customers towards specialist services, like charities for people experiencing financial difficulty, or by discussing the different options which are most suitable for them.
However, it is fundamental that fair treatment is embedded into broker businesses and throughout the customer journey.
It is important for all brokers to make sure they are aware of the signs of vulnerability, which are not always obvious in the case of mental and financial wellbeing, and can confidently and sensitively ask the right questions to ensure the right outcomes are being provided for these customers.
Primis bosses heap criticism on FCA and FSCS fee blows and call for industry unity
“The sad reality of this is that these FSCS and FCA fees mean it costs more money to run a network and that will come down to all stakeholders in that network model at some point. Sadly, it might even hit consumers depending on the way the fee is restructured in future years with no end in sight.”
Jon Round, group financial services director, added: “This is just really, really bad business practice for us not to know the fees until half-way through the year.”
It’s hard to run a business with the level of fitness, properness and financial propriety expected with partial knowledge on the incoming fees, he added.
“This is not an insignificant amount of money. It contradicts the obligation to run your business on a sound financial footing,” he added.
Smith (pictured) said: “This is hitting the whole intermediary space. If you’re an Appointed Representative (AR), you’re part of a network, so we have some options in terms of how we charge this. If you’re a directly authorised firm (DA) you’ve got to pay this and you’ve got to pay all the fees up front.”
“We all represent our intermediaries who look after the end customer and this is the time to put down any competitive differences that you’ve got and stand together.”
Primis called for the industry to collaborate and work with the Association of Mortgage Intermediaries (AMI) which hit out immediately after the CP21/8 paper landed in April, which offered a five week consultation period.
AMI chief executive Robert Sinclair criticised both the regulator’s approach to getting networks in line and the huge FCA fee uplift expected to raise in the region of £10m with exact figures expected to be confirmed in July or August this year.
Against a backdrop of rising Professional Indemnity (PI) insurance costs, the industry is already reeling from a £17m hit from the Financial Services Compensation Scheme, confirmed in November last year, to pay for the scale of poor practice in general insurance, pensions and the investment sectors.
The FCA has already warned mortgage advice firms and networks growing their adviser bases to increase their compliance functions to match their rising numbers.
In October 2020, the Financial Conduct Authority (FCA) said it will be contacting firms and networks which have grown rapidly to ensure they were still maintaining sufficient oversight. It also continues to examine firms which have multiple trading names to ensure they are not illegally offering regulated advice from unregulated organisations.
Regulator admits structure wrong
When the fees consultation paper emerged on 20 April, the Financial Conduct Authority (FCA) admitted the current funding system ‘isn’t suitable’ and that it was proactively tackling rising regulatory costs by sharpening its teeth as a watch dog.
It said its increased focus on firms operating below standard will include a firmer approach to those applying for authorisation and making better use of data and intelligence to identify harm caused by authorised firms.
“We also want to work towards a system where firms which cause redress liabilities end up paying more of the bill before recourse is needed to the FSCS,” the FCA continued.
“This would be fairer and would further incentivise firms to achieve good outcomes for consumers. It would benefit firms of all sizes.”
LSL signs massive advice lead generation deal with 430 office estate agency group
The franchise group brands include CJ Hole, Hunters and Martin and Co. They complete sales on around 23,000 properties per annum and manage over 73,000 tenanted properties.
TPFG franchisees will be offered a range of advice options through LSL’s mortgage network Primis. Franchisees can either take on their own mortgage adviser and become an Appointed Representative (AR) of Primis, or refer their customers to existing Primis ARs, including LSL’s in-house mortgage brokers.
LSL is already one of the largest providers of services to mortgage intermediaries and mortgage and protection advice to estate agency customers through its own agencies, completing £32.6bn of mortgages in 2020. It currently represents around nine per cent of the total purchase and remortgage market with over 2,600 advisers.
LSL operates a network of 226 owned and 130 franchised estate agency branches, with brands that include Your Move, Reeds Rains and Marsh & Parsons.
Market growth through digital
LSL said this agreement should underline further growth of its financial services businesses after an 12 to 18-month investment period requiring one-off transition and integration costs.
The agreement covers the five year period to April 2026 and LSL will be offering a digitally-driven service which combines face-to-face advisers with a central team providing video and telephone advice, all supported by Mortgage Gym technology, acquired in February 2021. The Mortgage Gym technology confirms mortgage eligibility within 60 seconds, matching borrowers to potential lenders and will drive broker productivity, according to LSL.
LSL said: “The customer relationship management system helps engage customers at the right time and quickly and cost-effectively confirms mortgage eligibility of a potential house purchaser, including the likely sums that could be borrowed, adding confidence and budget clarity to the buying process.”
Face-to-face advice will be provided by introduction to local advisers with franchisees also having the option to offer mortgage and protection advice as an AR of Primis Mortgage Network. LSL is already recruiting the additional advisers required to meet the rising referrals from around 23,000 annual house sales, with the service expected to be fully operational by 2021-end.
LSL and TPFG also plan to collaborate on a specialist buy-to-let advice service for landlords to service both groups’ customers.
David Stewart, group chief executive officer of LSL, said: “We have previously set out our ambition to accelerate the growth in our financial services division including Primis Mortgage Network and this agreement underlines the scale of this opportunity.”
Gareth Samples, group chief executive officer of The Property Franchise Group, said: “Together we will develop a new digital mortgage journey that really meets the needs of our customers and our franchisees. I believe LSL has an unparalleled understanding of how to provide high quality mortgage and protection advice to estate agency customers and I look forward to building a market-leading digital and face-to-face service to the significant benefit of both groups.”
LSL’s preliminary results are out tomorrow.
The LSL interview with Toni Smith and Jon Round from Primis
In February this year, Primis and Personal Touch Financial Services (PTFS), appointed representative networks of LSL Property Services, came together under the Primis brand.
Since LSL acquired PTFS and its 2,300 registered individuals (RIs), the firms have undergone significant alignment, including integrating sales, operational and proposition functions under a single executive team.
Primis COO Toni Smith said the brand is rolling out the Toolbox technology, the PTFS operating platform, to the rest of the network and completed 200 training events for 3,000 RIs, which ran over 14 weeks from May this year.
At the time of writing, Smith said there are 187 applications to join the network from RIs, with plenty of multiple broker firms in the mix.
The group’s annual mortgage completion figures, reported in March this year, jumped from £21bn to £29bn for 2018. This was a total market share of eight per cent, which has already risen in its H1 results.
LSL’s financial services brands include network Primis, formerly trading as First Complete, Pink Home Loans (Advance Mortgage Funding) and Personal Touch Financial Services, mortgage club The Mortgage Alliance (TMA) and Embrace Financial services, an appointed representative of First Complete. Other brands include Linear Financial Solutions, Mortgages First and RSC New Homes, First2Protect insurance services and Mortgage Gym.
LSL’s first-half results this year confirmed the group’s share of the UK mortgage market is at 8.5 per cent. It also secured a 10 per cent increase in the group’s protection completions in H1 and a seven per cent rise in general insurance completions.
UK Finance product transfer data for Q2 out last week showed 292,500 homeowners switched product with their existing provider, with 164,100 on an advised basis representing £41.4bn of mortgage completions.
Last year, almost 1.2m people took a product transfer with their existing lender worth £158.7bn of lending activity, around double the figure for remortgages.
LSL reported its product transfer business in H1 this year at £4.2bn, or 28 per cent of the group’s total mortgage completions which were £14.7bn. This represents an 8.5 per cent share of the UK mortgage market.
The network currently has 860 broker firms in its network and says: “We understand that Primis is the largest network by mortgage volume as confirmed by most of our lender partners.”
“We would always claim one of our unique selling points is the mutual benefit to the people joining us and the business. It’s a triangular effect – 184 events this year – the market, the proposition, what’s in your kitbag, challenging brokers to do a proper job every single time you sit down with a customer,” says Smith.
She adds that cascading product and technology knowledge and teaching businesses how to run a business are key strands of Primis’ purpose.
“Great brokers are not necessarily great business people,” adds Smith.
Primis CEO Jon Round (pictured) said: “We have historically worked with Twenty7Tec. I think that’s the software most of our brokers will be using moving forward. It’s the closest connection and the strongest software.”
He suggests that choices of sourcing system available in the market will narrow over time.
He adds: “You’ll probably have multiple solutions for a while. It will take time for lender systems to connect up [to distributors]. Lenders will want to try to connect with most of the larger distribution groups but they may not have the capability. They have the same issues many of the networks have that they will have to wait to be connected up by their software provider.”
Smith adds that the group will be ready to showcase its software in September and its initial Application Programming Interfaces (API).
In September last year, LSL entered a partnership with MortgageGym, which is an automated advice and artificial intelligence services firm, valued at £12m, which also only launched last year.
Regulated by the Financial Conduct Authority, MortgageGym offers a free 60-second mortgage-matcher and mortgage advice, which includes full integration with Experian credit files and mortgage lenders’ live scorecards.
Round says: “Our plans with Mortgage Gym further demonstrate our commitment to investing in technology for our members. Mortgage Gym will allow our brokers to place cases more quickly and easily, encompassing the whole point of technology in the mortgage market – to support the human aspect of the application process.
“We look forward to working with the team at Mortgage Gym to help more brokers embrace the technology that’s out there and produce the best possible outcomes for their clients.”
He adds: “If you go back three or four years, the discussion with the broker was all about what system or platform a network has and the technology was more the domain of the administrator. Now when you think about which network to join it’s all about tech offering and asking how it’s going to grow your business.
“If you can’t show the platform in place and how you’re going to keep pace, you can’t compete,” he adds.
I ask Round and Smith if the advisory market has peaked in terms of business volumes given the momentum being created by product transfers and execution-only regulation.
Round said: “Unless regulatory change drives it in another direction, I can’t think why people would look for less choice.
“The mortgage journey is never going to be simplified back to its unregulated status, to a few tick boxes. It’s always going to have rules and compliance and be complicated to an extent and so you’re really going to want to talk to someone about that.
“To go and just have a conversation with one lender, why would you do that? Some have fantastic digital propositions – but are they getting traction? No, they’re really not.”
Round suggests that the broker models that will work will be extremely well diversified, with a polished proposition aligned with better technology tools – the bionic broker model.
He continues that later life lending still needs plenty of product flexibility to create truly inter-generational products that can qualify a mortgage through the generations passing property title from one tier to another without a property sale and the advice to go with it.
“It’ll get there,” he adds.
Round says this market never sits still, which is why it remains exciting.
“That’s good because we’re competitive and you can be nimble and win but it does constantly mean you have to keep thinking. Its that sort of vibrancy. It’s a fascinating market.”
West Brom fans surge in influence over UK mortgage advice channel
With Kevin Roberts taking control of the Legal & General Mortgage Club next month, the powerbase of the West Midlands football club’s fans has grown noticeably in the UK mortgage market.
Mortgage Solutions understands that Roberts is a vocal fan of the club.
He joins fellow Baggies supporters, LSL group financial services director Jon Round and Simply Biz CEO Martin Reynolds at the top of the industry.
According to 2016 annual reports, the most recent data available, L&G Mortgage Club facilitated £53bn of mortgages in one year – around 21% of the market.
Meanwhile LSL Group, which includes networks First Complete and Pink, said it arranged total mortgage lending of £17.4bn in 2016, representing 7.1% of the overall market.
SimplyBiz did not supply figures at the time of publishing, but with only the L&G Mortgage Club and LSL included, this accounts for more than 28% of broker market completions.
This influence is set to grow with LSL announcing earlier this week that it had agreed the purchase of rival network Personal Touch Financial Services.
(Bit of Friday fun never hurt anyone – ed.)
Ex-Sesame’s Lisa Martin to join LSL
Martin (pictured) will bring over 30 years’ of experience in the mortgage and financial services industry to her appointment at LSL, where she will play a key role in supporting expansion plans for the firm’s Appointed Representative (AR) and Directly Authorised (DA) businesses.
Sesame announced yesterday that Martin would be leaving the group only three weeks since been appointed director of mortgages at the company, where she previously held the post of director of operations and sales.
Martin’s departure from the business followed just weeks after Sesame’s former managing director of mortgages, John Cupis, left the group to join Openwork as mortgage director.
Earlier this month, Sesame conducted a strategic review of its business, which saw it confirm the continuation of its mortgage club PMS and its AR network, but halt its AR proposition for its wealth arm.
Jon Round, LSL’s group financial services director, said ‘I am absolutely delighted to bring in someone of Lisa’s calibre to join what is already a really strong executive team. This new role has been created to support the significant expansion plans for our AR and DA businesses, and I’m sure that Lisa will make a major contribution to our continued successful growth.”
A checklist of the FCA’s fraud requirements
At its recent annual Financial Crime Conference, the FCA spelt out its expectations regarding financial crime. Attendees were left in no doubt that the FCA is looking to be more proactive than the FSA ever was.
The regulator confirmed that financial crime prevention is central to its agenda and is very much key to the objective ‘To protect and enhance the integrity of the UK financial system.’
To deliver this objective, the FCA is looking for firms to have sound systems and controls in place; in terms of financial crime specifically, this means firms must be able to identify financial crime risks. For example, the FCA expects firms to know who their clients are and where their money comes from; in addition we have all been aware of lenders putting tighter and tighter controls in place.
So how do you protect your business, deliver on ‘know your client’ and avoid the typical fraudulent application scenarios?
The reason that self certification mortgages were abolished was to help to get rid of the risk of borrowers over-stating their incomes. Despite this, some potential borrowers continue to attempt to inflate their income while others will claim fictitious employment or rates of income.
Let’s be clear, this is not just ‘pushing it a bit’ this is fraud and any broker found allowing this to happen, or worse still, endorsing it, runs the risk of losing their livelihoods.
Awareness and prevention comes from document collection and thorough checking, this means comparing payslips with bank statements. If the profile does not match, telephone the employer and use the internet to validate what the client is telling you
Undisclosed credit is another common fraud; this usually goes hand in hand with hidden addresses, which may also be linked to an undisclosed or hidden adverse credit history. Even though your client may not make you aware of these, it is for you to be confident that there are no such skeletons in the closet.
You can do this by obtaining a copy of the client’s credit file and by reviewing their address and voters roll history, as well as assessing their loan commitments and repayment record.
A third type of fraud is occupancy fraud or scheme manipulation; of course different mortgage types, such as buy-to-let, will attract different lending criteria and interest rates than a standard residential mortgage.
Manipulating the mortgage type to suit more favourable loan conditions and so circumvent the relevant credit score, LTV or lending policy is clearly unacceptable. Precise has rightly announced recently that brokers will be struck off for repeatedly placing what should be residential applications as buy-to-let cases.
Avoiding this type of fraud is simple: use your common sense, ask whether it is realistic for the client to be earning what they say they are, given the job they claim they are doing. Also investigate how they have accumulated their deposit, where they are buying and why and whether a property of this type, in this area, fits with their profile.
Finally, be very aware of who you are getting your business from. Market contacts can be a great source of business, but some introducers might also attempt to place fraudulent cases through your business. Tactics to catch you out can include the introducer contacting you out of the blue to place clients with you, accompanied by a reluctance to sign any paperwork.
All too often the parties involved wait to see how it goes and in time the need for such documentation is forgotten. Such contacts may look to deal with the client exclusively and may even attempt to influence the choice of product, lender, valuer or solicitor.
Keep your wits sharp with introduced business – always complete appropriate due diligence on the person introducing the business to you, especially if they have come to you unsolicited. Also complete an agreement and pay close attention to the clients passed to you, it could be that the first two or three cases are legitimate and then when your guard is lowered some more dubious cases will be passed to you to see if you notice.
Don’t be self-conscious about conducting the necessary checks. After all it is your business and your livelihood that will be lost if a fraudulent case slips through the net.
Finally remember the old adage: ‘if it seems too good to be true, it probably is’.
Fraud week on Mortgage Solutions
This week, Beaumont Legal will highlight the dangers of using the cheapest conveyancers while Ipswich Building Society looks at how smaller mutuals are fighting fraud.
xit2’s Mark Blackwell asks if the Help to Buy will hinder the battle against fraud and our Marketwatch column looks at whether the industry needs to pull its own socks up on this issue.
Jon Round of First Complete has signs brokers need to watch out for in their own business and credit agency Equifax have some top tips for mortgage brokers to pass onto clients.
Mortgage Solutions’ reporter Julia Rampen talks to Santander’s financial crime manager Tracey Carr to find out what steps the lender is taking behind the scenes and we round up the biggest frauds of the year in our Hall of Shame.
Stock market shocks show government must tread carefully
The announcement of this rocked stock markets across the world and maybe led to the Bank of England’s pre-emptive statement in its financial stability report, warning that mortgage borrowers face a major income shock when interest rates rise.
This brings home the importance of careful communication and orderly transitions from one initiative to another. Sudden starts and stops of different government initiatives cause a big shock to the market.
Stock markets are particularly prone to over-reacting as has been proven in the last couple of weeks, but our clients and the wider economy can also see sudden spikes or drops when something is suddenly introduced or stopped – just look at the effect of the end of Stamp Duty relief last year.
The warnings by the US Fed and the Bank of England are carefully crafted to help people and economies to prepare for what might happen when stimulus is withdrawn and interest rates rise, in order to help mitigate the effect of these actions.
With the Chancellor’s spending review announcing new initiatives for affordable housing and the introduction of the Help to Buy mortgage guarantee scheme in January, it is vital that any initiative has a phased approach.
If the MIG scheme is suddenly introduced in January and the market gets used to having all high LTV loans underwritten by the government and then this suddenly ends it is likely to cause more pain across the market than if it were never introduced.
The most important thing is confidence and so much of this is based on communication. The current activity in the mortgage market is much more down to renewed consumer confidence based on announcements that more lending is taking place than it is on any actual initiatives.
We all play a vital part in this process of communicating and maintaining confidence. So, it is key that we raise the prospect of what might happen in the future so clients are prepared. This way we can work to lessen any sudden shock when interest rates rise or an initiative suddenly stops.
Jon Round is financial services director at LSL Property Services
What the Bank of England needs to learn from Manchester United
Mark Carney has, perhaps shrewdly, been noticeably silent in the months since he was appointed. However, with just a few weeks to go, we are still waiting to find out what he thinks on any of the key subjects that will affect the British, or even the global, economy over the forthcoming months.
Almost all of the commentary was immediately after his appointment, which gave a bit of an insight on what he’s done in the past, but very little on what his judgements or opinions are on the future or the way he will approach his new role.
It seems odd that Mervyn King has been stepping up his press profile and expressing some strong opinions, over recent days, given that he will no longer be doing the job, yet we won’t know what the new governor will think until he is actually in position.
This uncertainty is made all the greater by the fact that he is a Canadian who has never lived in the UK. Carney looks to be a very different character to Mervyn King, but this long period of silence before the handover leaves a time of uncertainty which you would never have in other walks of life.
Take Manchester United for example. Within 48 hours of Sir Alex Ferguson saying that he was retiring the club had announced the new manager.
Manchester United’s handover period was only two matches eliminating any insecurity that may have destabilised the club.
Mervyn King has recently hit the headlines with less than positive views of Help to Buy. Whilst Mervyn’s views remain mildly interesting, what we all really want to know is what does Mark Carney think, but it looks as if we will still have to wait a while for this.
I hope that when the new governor finally does take the helm the transition will be as smooth as it appears to be on the football scene and he will help to guide the UK economy back to the Premier League.
Jon Round is financial services director at LSL Property Services Group