Healthy remortgage choice remains in high LTV brackets, say brokers
Despite a 47 per cent drop in deals available for remortgage since 4 March, there are still 1,925 products on the market, according to Moneyfacts.
The lion’s share of mortgages sit between 60 to 80 per cent LTV. Since the beginning of March the number of deals open to remortgage borrowers in this bracket has fallen by 37 per cent from 2,374 to 1,493.
At 85 per cent LTV there remains 207 deals available, after a 63 per cent fall in product numbers from 562. Furthermore, close to 150 deals are still available at 90 per cent LTV and above.
David Hollingworth, director of communications at L&C Mortgages, said: “There is still a broad choice of remortgages available in the higher LTV brackets.
“But we are in danger of talking ourselves into a 60 per cent market by giving the impression to borrowers there are no options for those with less equity who then may not bother to check if they can have a new deal.”
Hollingworth said the stand-out remortgage deals currently on the market were being offered by HSBC because of the bank’s commitment to progressing cases at all LTVs wherever possible.
And where a borrower has chosen a high LTV deal and it cannot go ahead without an in-person valuation the case can be accepted and frozen.
Secure the rate and hang on
Nick Morrey, product technical manager, John Charcol, said despite hundreds of product withdrawals a lot of the best remortgage deals were still available.
“There are more than 100 deals still available at 90 to 95 per cent LTV so my advice to borrowers in that bracket is secure the rate and hang on to it,” he said.
“Lenders are able to pre-approve every other part of the application and then it can be put on hold if a physical valuation is needed. If rates drop they could cancel the deal and go for a new rate. It’s a heads you win, tails you win situation.”
Morrey said all good brokers would be matching their clients’ to products that had completion deadlines suitable for their circumstances before they signed an application.
Brokers ‘never been more important’ as lender and product complexity grows – analysis
Competition in the market has meant that advisers are faced with a vast number of products to choose from, with regular criteria changes to keep on top of too.
But far from feeling overwhelmed at the array of deals on the market, intermediaries have argued this situation ultimately demonstrates the value they can offer to clients.
More choice, the better
Jane King, mortgage adviser at Ash Ridge Private Finance, emphasised that a wide range of choice on mortgage deals was beneficial, as “clients come in all shapes and sizes and the more choice we have, the more likely we are to be able to find the right mortgage”.
David Hollingworth, director at L&C, said the level of competition in the mortgage market currently was pushing lenders to be more creative, leading to innovation in product design.
He continued: “There’s benefits for customers but also for brokers in giving a better range of options and increasing the possibility of finding a good fit for clients, even where their circumstances may not fit with the mainstream.”
David Sheppard (pictured), managing director at Perception Finance, agreed that the more products there are on the market, the better outcomes advisers can find for their clients.
However, he did suggest that the “constantly changing criteria” ‒ particularly if these changes are not updated comprehensively on lender websites ‒ can mean that a deal which the broker thinks will easily be approved ends up being turned down.
Sheppard suggested that lenders are not solely to blame for the “ever changing landscape” either, arguing that it is often driven by government and intervention from regulators.
“A well regulated mortgage market is good for us all, but where it becomes oppressive it is not healthy,” he added.
Finding the right deal
Sheppard said that while his firm utilises a number of tools to help establish the right product for their client “no amount of technology can make up for speaking to lenders and seeing what will work”.
He added that it was not usual for lender contacts to get in touch to clarify that they will look at cases if there are certain strengths to it, even if it does not fit with headline criteria.
James Mole, managing director of London Belgravia Wealth Management suggested brokers were becoming more reliant on technology to help sort through criteria “but I do think it’s a marriage between market knowledge in your head and technology”.
Hollingworth agreed that while sourcing and technology can help “narrow the field” when sifting through deals, “advisers will still need to have that knowledge and experience to know when an enquiry that, on paper, would be declined may actually be acceptable to an underwriter”.
King said she does an affordability and property check first in order to weed out the lenders who cannot help her client, and then goes from there.
She continued: “I use my research software but always read lenders’ new emails and will always check directly that they are not offering an exclusive of some sort before proceeding. I think it is essential we use technology both as evidence of research and to save us time.
“When you have been around for as long as I have you sort of know what lenders you can use and who you can’t.”
Brokers have never been more crucial
Hollingworth pointed out that one of the many reasons borrowers go to brokers is so that they can help them work through the haze created by the vast number of product options.
Sheppard added: “The job of a broker has never been more important with the myriad of rates and complexities in the market. It is that complexity that means we can thrive even though it would be nice to have more simplicity sometimes.”
Stress-test benefits boost take up of five-year deals – Poll
More than 40 per cent of respondents said they had been advising ‘a lot more’ five-year deals than two-year deals due to the borrower’s affordability needs. A further 23 per cent said they had been recommending more five-year deals but only marginally.
Brokers said that while five-year deals offered by some lenders have more lenient stress tests, it should not be the only reason for the recommendation.
Matthew Arena, managing director of Brilliant Solutions, said: “Borrowers on the cusp of meeting a lender’s affordability criteria may need to opt for a five-year fixed rate to get the finance, which could account for the rise in five-year recommendations. But what a borrower needs to do in order to get a mortgage may not always be in their best interests.
“The adviser must take into account all the borrower’s circumstances before recommending the deal, and not fall into the trap of being an order taker. As long as the deal is still appropriate for the borrower, a five-year deal can be useful for its affordability benefits.’
Your Mortgage Decision director Dominik Lipnicki said his team of advisers were recommending a lot more five-year fixed rates than two-year deals, but it was not because borrowers may be able to get a lower stress test.
“Homeowners want a five-year fixed rate because they are looking for stability and less risk over the short to medium term,” he said.
Lipnicki said he thinks one of the biggest responsibilities advisers have is to make sure borrowers understand the current low rate environment is not normal.
“You have a generation of buyers who have never known interest rates to be higher than they are now,” he said. “It is our duty to tell them how exceptionally low they are, particularly five-year fixed rates. A significant increase could have a big impact on their budget.’
Spoilt for choice
Five-year fixed deals are currently in abundance. Last month, analysis from Moneyfacts revealed that 1,542 five year fixed rate mortgages were on the market, nearly twice the number available five years ago.
Furthermore, fierce competition for borrowers among the high street banks and a fall in the swap rates for five-year money has seen the cost of deals tumble.
The difference between the cheapest two-year deal from NatWest at 1.21 per cent and the cheapest five-year deal from TSB at 1.54 per cent is now just 0.33 per cent, according to Moneyfacts.
David Hollingworth, director at L&C, said: “The margin between short and medium-term rates has become so narrow that borrowers are increasingly attracted to the greater security of a five-year fixed rate. With an uncertain political and economic outlook that preference for security is only increased.”
Hollingworth added that while taking advantage of lenders’ different approaches to stress testing can be helpful for borrowers using a five-year deal, there is a risk that some may select a product based on what they can borrow rather than focusing on whether it is the right deal for them.
“For advisers it’s important that the affordability element is not the primary focus and that customers are opting for a longer term deal for the right reasons,” he said. “Most fixed deals will tie the borrower in throughout the fixed rate period so the consequences of locking in for too long could be a substantial early repayment charge.”
Former mortgage adviser gets place in England squad
Aston Villa defender Mings worked part-time at L&C Mortgages while playing non-league football at Yate and Chippenham, after winning a sports scholarship to Millfield School.
In an interview with The Sun, he said: “I can’t say that while I was at my desk cold calling or trying to remortgage that playing for England was a real achievable goal.
“I couldn’t see playing for England at all. I had other goals at the time when I was a mortgage adviser and had different goals when I was playing non-league football.
“Playing for England seems a different world away and I just needed to get back into the professional game at that point,” Mings told The Sun.
Mings may make his England debut this weekend against Bulgaria or next week against Kosovo.
The 26-year-old has worked his way up having lived for a spell in a homeless shelter with his mother and sisters and battling knee and back injuries. He played for Ipswich and Bournemouth before moving on loan to Villa last season.
He said that his past experiences had given him the “ability to empathise with other people outside the game or others not as fortunate as me.”
Intermediaries split on including lender funding in advice ‒ analysis
Recent months have seen a succession of lenders announce successful securitisations, including the likes of LendInvest, Belmont, Kensington and Pepper Money. Just this week Bluestone raised £210m of funding through its inaugural securitisation.
Lenders have also been known to trumpet other funding lines they may have established, such as The Mortgage Lender with TwentyFour, and Landbay with an unnamed institutional investor.
Tesco Bank’s decision to sell its mortgage book has also raised questions about what happens to a borrower when their lender elects to parcel off part ‒ or all ‒ of its lending to investors.
But should considerations of a lender’s funding model come into the advice equation?
Focus on rate
David Sheppard, managing director of Perception Finance, said that he was unconvinced that brokers are too focused on any likely securitisation when recommending particular lenders or rates, arguing the brokers’ role is to secure the most appropriate rate “taking into consideration all the facts on the case”.
He continued: “Ultimately, even if the lender does opt to securitise their mortgage book then the terms of that mortgage will be unchanged for the borrower. It would be impossible for any broker to second guess what a lender may be planning, as evidenced by the news about Tesco Bank.”
Clients left in the lurch
James McGregor, director of Mesa Financial Consultants, suggested that it is important for advisers to keep funding lines in mind when working with clients.
He said: “As we have seen through the last recession, when lenders stop operating as lenders it can have a huge detrimental effect on the client, for example leaving them unable to switch to cheaper options or to remortgage away.”
McGregor suggested it should be “high on the agenda” for brokers, adding: “As advisers we want to make sure lenders will be there for our clients for the full term of the mortgage.”
At the back of a broker’s mind
David Hollingworth, director of L&C, said that it was difficult for brokers to assess how secure a lender’s funding line may be to the extent that they would ever rule out their products.
However, he added: “With a fiercely competitive market and some lenders withdrawing from the market, such as Magellan and Secure Trust, it may be something that sits in the back of the mind of advisers, especially if they are looking at two similar deals.”
Hollingworth also pointed out that it was likely that lenders would continue to publicise details around securitisation and agreement of new funding lines “and it certainly shouldn’t do any harm to broker confidence”.
Funding not important
Andy Wilson, founder of Andy Wilson Financial Services, said that he had “very little interest” in knowing how lenders are getting their funds together.
“It’s largely irrelevant; as long as our clients are granted the mortgage they are promised then it is of little consequence to us or them where the mortgage money originated from.”
He continued: “If a lender says it will lend, I do not believe we can know with any certainty the source of the funds, and nor do we need to.”
Brokers welcome inter-generational options but want more high LTV deals ‒ analysis
Data released by Defaqto this week revealed that there has been a 40 per cent growth in inter-generational mortgages over the last two years, deals which involve a parent or grandparent offering some form of security deposit whether through their savings or their own property.
It found that in total there are 13 lenders now offering a form of inter-generational mortgage, and this follows a report from the House of Lords back in April which suggested the FCA had a “key role to play” in promoting the development of more inter-generational deals.
Handing over the deposit instead
David Sheppard, managing director of Perception Finance, said he has not seen a huge demand for this sort of mortgage of late, and suggested this may be a result of parents and grandparents feeling more comfortable simply gifting the deposit.
He continued: “We have also seen a few family members look to lend the money for the deposit and use NatWest or Santander for their flexibility in this regard. This is an area that could benefit from a bit more competition from other lenders in my view.”
Sheppard called for more lenders to provide a family offset mortgage, where the borrower still puts down a traditional deposit, but the parents can link their savings pot with the child’s mortgage in order to reduce the balance upon which interest is paid.
He continued: “The money could be ring-fenced from the borrowers and instantly available to the parents should they need it, but would reduce the term of the mortgage with lower interest charged, which would be especially good with some clients taking longer term mortgages these days.”
Family support can be stretched
David Hollingworth, director at L&C, said these were “really useful products to have”, though noted that gifting a deposit remained the main way that parents will look to help their children get onto the ladder.
However, he added: “Rather than gift the cash, these products are a way for parents to help their child achieve their aim but retain ownership of the money. With multiple children, that might help at a later date.”
Hollingworth highlighted that the options around joint borrower, sole proprietor have “gained a bit of momentum” as another way for parents to help, due to the additional rate on stamp duty.
What about high LTV deals?
Sebastian Riemann, financial consultant at Libra Financial Planning, suggested that more high LTV deals, coupled with a cooling of house prices, would be more effective in helping first-time buyers than inter-generational deals.
However, he noted that there has already been a “significant increase” in high LTV deals, with lenders taking reduced margins.
“I’m not sure there is much scope to improve on these further. You could find that irresponsible positions are adopted by some lenders similar to what we saw in 2006/7. If there is no profit in offering particular rates or the risk taken to accommodate these is too high you simply end up building an unsustainable bubble yet again.”
Perception Finance’s Sheppard agreed that high LTV deals would be more helpful, but admitted: “I do not think there is much interest to go higher than 95 per cent LTV in the market right now, especially with the added regulatory burden this would bring to lenders”.
L&C’s Hollingworth noted there was a “good selection” of rates up to 95 per cent LTV now, but added: “So often the case is they can only afford to borrow so much, and the deposit they need then gets bigger as they are trying to bridge the gap with the purchase price.
“That’s where you still have parents often intertwined with the aspiration of the child to buy.”
Mortgage advice consultation will mean borrowers get ‘right advice for them’ ‒ UK Finance
That’s the conclusion of Sue Rossiter, principal of mortgage regulation at the trade body, who noted that the current regulatory guidance had become “difficult to work with” as lenders attempted to develop ways of working which “reflect how we conduct business today”.
Rossiter noted that many lenders had reacted to customer demand and opened up their activities nationwide, which meant they could not always speak with a customer face to face.
She added: “Some lenders have come to think that even answering technical questions on the phone is “interaction” and that therefore the customer would have to receive full advice, when they only want to know how to load up a payslip.”
Rossiter argued that the amount of interaction between the adviser and borrower, and how they interact, should not be relevant in determining whether the borrower has received regulated advice.
“Customers should be able to ask for factual information ‒ and firms should be able to supply it as many times as they like – without the interaction constituting regulated advice,” she continued.
Rossiter noted that some have warned that lenders being able to price differently for execution-only and advised deals will push people away from advice.
But she said that while there will be some borrowers who withdraw from an advised sale at the very end of the process, “maybe there is an opportunity for both lenders and advisers to reconsider their charging structures”.
Advice is a central part of the process for a reason
However, David Hollingworth, director at L&C, argued that if lenders are allowed to have a price differential “then you are leading people one way over another”.
Hollingworth added that advice had been made a central part of the mortgage process in the Mortgage Market Review because there was a danger that borrowers felt they had received advice when they hadn’t, and this needed to be a remembered in the conversation around what place execution-only has.
He continued: “Lenders say they are unclear around what they can and can’t say, and suggest it should be clear to the borrower when they are receiving a formal recommendation. But it works both ways ‒ it should also be made very clear to a borrower when they aren’t receiving advice.”
Brokers say conveyancing consolidation a concern due to resulting ‘horrendous’ service levels – analysis
New analysis of the conveyancing market by Search Acumen revealed the number of active conveyancing firms in the market has now dropped below 4,000 for the first time, as larger conveyancers wipe out their smaller rivals.
The study found that the largest 200 conveyancing firms now account for 39 per cent of cases, while the largest 1,000 firms control more than three quarters.
Andy Sommerville, director of Search Acumen, noted: “As smaller firms that tend to operate on a more local scale are increasingly squeezed out of the market, we risk seeing a consequent fallout of their specialist knowledge.”
Market is putting conveyancers under pressure
David Hollingworth, director of L&C, noted that the lower transaction levels in the market will make life harder for conveyancing firms, with remortgage business lending itself “to those that are best placed to take on high volumes and be highly process driven”.
He added that as margins tighten some smaller firms may elect to concentrate on their core local market rather than try to “gear up” to higher volumes with lower margins, but argued: “That doesn’t mean that there isn’t room for smaller firms.”
Big firms are horrendous
James Mole, managing director of Belgravia London Wealth Management, slammed big conveyancing firms as being “horrendous to deal with”.
He argued that too often their business model relies on employing mostly administrative staff, with conveyancing solicitors overseeing them, which results in each conveyancer having a huge case load. “Getting a response out of them can be difficult”.
Mole suggested the opposite is true of smaller firms, as “they take care with the cases they work on and you end up with a better result”.
What do advisers look for?
Hollingworth argued that brokers are unlikely to focus on the size of a conveyancing firm so much as how confident they are that service levels can be maintained consistently.
He added: “For our part we look to have a range of options open to us in order to ensure that service is less susceptible to the ebb and flow of volume.”
Hollingworth also suggested that technology will play an important role as those firms that can ease the process and improve communication levels with brokers and borrowers alike will gain more traction.
You get what you pay for
Mole noted that clients tend to prefer the “big factory style firms”, because they may offer a cheaper service.
“But I think you get what you pay for,” he added.
Lenders praised but urged to improve product transfer process for additional borrowing – analysis
The call to improve the capital raising process came as UK Finance revealed the number of homeowners completing product transfers in the first three months of 2019 dipped slightly to 290,000.
However the advised share of this market grew by 8.6 per cent to account for 161,100 transactions worth £22.7bn.
And earlier this week Accord revealed it had seen a big increase in online product transfers from advisers, up by 53 per cent between April 2018 and March 2019.
So with advice dominating the product transfer space, brokers have been keen to help lenders focus on their propositions.
Losing customers through the back door
David Hollingworth, director of L&C, noted that the improvements in the protect transfer space had “happened quite rapidly”, pointing out that lenders have realised that they need to put increased effort into retaining existing customers and brokers can help them do that.
“Lenders want to keep hold of those borrowers, they can’t afford to lose too many through the back door when it’s getting harder to attract them through the front,” he added.
Hollingworth argued that Halifax deserved credit for leading the way on paying brokers proc fees for product transfers.
He said: “Halifax does offer existing borrowers a different range, and they get criticised for that, but they were the front runner as a big lender doing this before most others got on board.
Delivering a slicker journey
Greg Cunnington (pictured), director of lender relationships and new homes at Alexander Hall, said the product transfer market looks a lot better today than a couple of years ago, with investment in systems and processes from lenders resulting in “a much slicker journey”.
He said: “In particular some systems will show the automated valuation of the property and the available rate options at the early stages. This makes it straightforward to advise a client of their options and to have the information to then compare with the other options for the client in the market.”
Cunnington noted that Nationwide, Santander and NatWest all have easy to use systems which has won them praise from the broker team.
Andy Wilson, director of Andy Wilson Financial Services, agreed that Nationwide has an excellent system for existing borrowers. He added: “Nationwide offers the same products for switching as they do to new customers so they are very fair. Their products are usually very competitive in the wider market too.”
Cunnington noted that many clients are looking to release equity for home improvements or debt consolidation, so it would be good to see functionality for additional borrowing added to lender systems so that it could be processed simultaneously with a product transfer.
“Some lenders such as Barclays and Halifax already allow this which is great to see, and it would be good if this was the norm across the industry,” he continued.
Hollingworth agreed, noting that on cases where it is not a like-for-like switch “making those processes more seamless would be welcome”.
Hollingworth also argued that the development of the product transfer market was a sign that brokers need to concentrate on becoming a one-stop-shop for their borrowers.
He explained: “Brokers need to get the message out there that they can flip the borrower onto the new rate if that’s the right thing to do, but will check that deal out and take into account the whole of the market.
“For customers to understand they are getting all of that checked in one go, that should have some appeal. It’s quite an important message.”
Broker focus should be on clients, not defending lender profit margins – analysis
This week the Association of Mortgage Intermediaries (AMI) warned that margin compression by lenders was becoming a “serious concern” with “too much money chasing too little return”.
In its quarterly bulletin the trade body cautioned that lenders have been relaxing their criteria, opening up lending to those with previous debt issues and competing for high LTV market share, despite repeated warnings from the Bank of England about “scaling up the risk curve” in recent months.
James McGregor, director of MESA Financial Consultants, warned that the industry was not learning lessons from the financial crisis.
He said: “There is just no challenging the larger banks due to their cost of funding, which ironically de-risks the banks the more lending they do. The FCA should really start to rein them in, but it doesn’t seem to matter as we found out in 2008 the taxpayer will pick up the bill if all goes tits up.”
McGregor added that he did find it concerning, but the job of a broker is to highlight the best financial products for their clients.
“If we were advising on risks banks take, we would be advising clients not to use anyone,” he added.
Lenders may suffer but clients won’t
Andy Wilson, director of Andy Wilson Financial Services, pointed out that brokers need to use their resources to find the best priced deal for a client, adding “If the lenders have got it wrong and sell their wares too cheaply, they will suffer, not our clients”.
He suggested that the pressure must be on the bigger institutional lenders to maintain strong market share for the sake of their share price, and they may be more willing and able to trim margins for a short period.
He continued: “This does not affect so much the smaller building societies who historically do not chase business based on the keenest rates, and who have a much more conservative attitude towards keen pricing, instead relying on niche products and service to fulfil their targets.”
Affordability rules ‘keep a lid’ on loosening
David Hollingworth, director at L&C, said that the increased competition in the market is a good thing for borrowers and brokers alike, noting that borrowers are always interested in getting the best deal they can and brokers are not going to turn down the chance to secure a winning product for their clients.
He added that lenders reacted to the MMR with significantly tighter criteria, but suggested there was always going to be some room to be more flexible on lending.
“However, it’s not in the interest of anyone for the market to loosen underwriting standards to such a degree that there’s a shift back to ever higher lending amounts,” he continued.
“The affordability rules backed by maximum LTI limits should keep a lid on that, and as AMI points out the regulator has been clear that it does not want to see a radical loosening in underwriting standards.”
Race to the bottom
Paul Flavin, managing director of Zing Mortgages, said it had been a “race to the bottom” with rates, noting that the wiser lenders had left the “rate race early in the game”.
He continued: “I would hate to think that, as brokers we now become responsible for checking the financial credibility of a lender prior to making a recommendation. That said, we do seem responsible for most things that go wrong while financial institutions plough on regardless knowing that the public are there to bail them out if it all goes wrong.”