Brokers call on lenders to increase ‘amazing’ but limited offset mortgage options ‒ analysis
Brokers have had to contend with decreasing numbers of offset deals to choose from in recent years.
According to Moneyfacts there are currently 203 offset mortgage deals available, down from 208 at this point last year. The fall is even more stark over a longer period though ‒ five years ago there were 312 deals to pick from.
And advisers have called on lenders to broaden the range of deals open to clients with under-performing savings pots.
Look at the example of equity release
Stuart Powell, managing director of Ocean Mortgages, said that offsets were an amazing product but that he wished more lenders included them within their range, picking out Accord and Scottish Widows as being particularly good in this area.
Powell added that he regards his job as helping people get a mortgage that suits their circumstances best and helping them to pay it back as soon as they can, and argued that understanding and using the facilities offered by an offset deal can “enable them to reduce the term and interest paid dramatically”.
“I hope that more lenders introduce these in the near future. I have asked BDMs to introduce these to their range but have been told there isn’t the demand for them. They used to say that about equity release, but the more lenders that enter that market, the more the market grows.”
A massively underused product
James Mole, managing director of London Belgravia Wealth Management, argued that offsets are “massively underused”, and called on more lenders to enter the market as “there is only a few to choose from”.
He added: “I’ve had clients in the past looking to release equity to make a buy-to-let investment, and it’s made sense to take the extra borrowing from the lender and then hold it within the offset account until they have use for it. The client ultimately changed their mind so they saved a fortune in interest payments on cash they didn’t even need.”
Stuart Gregory, managing director of Lentune Mortgage Consultancy, agreed that offsets can be particularly useful when borrowers have savings which “are not performing as well as they would hope”, and highlighted Coventry Building Society and Scottish Widows Bank as being “particularly effective”.
Serving a small niche
However, Andy Wilson, founder of Andy Wilson Financial Services, suggested that offset deals were a niche product which do not hold much appeal to borrowers who are not self-employed.
He explained: “Most clients with spare savings will either use them to take a smaller mortgage or will have committed them to something else, such as home improvements. Very few clients actually ask about offset, and very few we mention the option to are suited to it.”
Technology not the only answer to speeding up lender application assessments – analysis
This week Nationwide announced it was introducing an optical character recognition tool for mortgage affordability assessments, which it claims automatically verifies information on documents like payslips.
The mutual suggested that the technology will enable it to speed up affordability assessments by at least 24 hours, with the system set to be rolled out across all document types in the coming months.
Nationwide noted that with the ability to assess thousands of payslips automatically each week, it allows cases to be underwritten and offers to be made much more quickly.
Solving a problem that isn’t there
Stuart Powell, managing director of Ocean Mortgages, noted that Nationwide already had a strong process for getting a mortgage offer to the client, solicitor and broker quickly.
He added: “They are potentially solving a problem that wasn’t really there.”
Powell noted that the biggest delays in the mortgage process tend to be with the time taken to get the valuation completed, and with the legal work after the offer has been sent, arguing this is where lenders need to focus their efforts.
Stuart Gregory, managing director of Lentune Mortgage Consultancy, said that Nationwide’s technology upgrade was to be welcomed as lender processing times can cause great frustration for brokers and clients alike if documents have been supplied just after application yet the process drags on.
However he cautioned: “Nationwide needs to ensure that any queries over document content are highlighted in the right manner. In the past I’ve noticed that they reinstate a document requirement without contacting the broker and giving a reason why, leading to brokers having to follow up by phone to clarify.”
Whose tech makes a difference?
Gregory pinpointed Halifax as a lender that has made great strides in improving the uploading of documents, noting that its previous system was “cumbersome in comparison to its new process.”
Carmen Green, a mortgage adviser at Xpress Mortgages, agreed that Halifax’s upload method was excellent, noting that it allows brokers to upload documents directly to the case then call through to the team who will review them straight away, often resulting in the documents being verified there and then.
She added: “If there’s any issues they will stay on the phone to discuss them with you and if they require further documentation they will wait while you upload them. It saves the to-ing and fro-ing. They also instruct the valuation straight away so a well packaged case will usually offer within a matter of days.”
Where lenders can improve
Powell pointed to introducing cashback rather than free legals as one successful way lenders have sped up the process, as the client has been able to choose the most efficient local solicitor.
“Automated valuations are also a bonus, especially when local surveyors are struggling with holidays and absence of their team which delays actual surveys,” he added.
Green noted that case ownership can have the biggest impact on how quickly a case is assessed and approved.
She explained: “Having a single case owner proves more efficient as they see all aspects of the application. Some lenders have underwriters assessing individual documents which can cause delays as they don’t see the bigger picture.”
Learning from equity release
Powell praised Accord, Santander and Scottish Widows, as well as Nationwide, for being lenders that act quickly with cases.
However, he noted that compared with equity release lenders, residential lenders were often much slower.
Powell continued: “This could be due to the additional processes – affordability and credit checks for example – but also because the equity release lenders’ processes and technology seem geared up towards a faster completion.”
Brokers unimpressed by Labour house price ‘target’ plans
A report in The Guardian suggested that John Healey (pictured), the shadow housing minister, wants the Bank of England to be given an explicit target for house price growth, in much the same way that it has an inflation target.
In order to keep growth under control, the plans would see the bank given additional powers, such as restricting the availability of mortgages.
State intervention would be ‘worrying’
Greg Cunnington, director of lender relationships and new homes at Alexander Hall, said that any sort of government intervention on house price inflation – particularly the idea of a target – was worrying.
He noted that there are a host of different factors that contribute to house prices, adding: “A property value is dictated by the price the open market deems a buyer will pay typically and that has always worked.”
Cunnington noted that ultimately borrowers are the winners from the increase in product innovation from lenders, suggesting that he would prefer to see a greater focus on “ensuring strong client outcomes rather than over regulation and state intervention in a market that is actually working pretty well.”
A new tranche of mortgage prisoners
Stuart Gregory, managing director of Lentune Mortgage Consultancy, noted that government intervention in the housing market rarely goes well, and argued that this type of proposal does not deal with the major issues in the sector.
He added that for decades the housing market “has driven the economy” and that “playing with that now won’t help the wider economy to bring fruitful rewards for all.”
“What will Labour say to those who already have mortgages who, if lending rules were tightened even more, would be a new tranche of mortgage prisoners?” he continued.
A move in the wrong direction
James Mole, independent financial adviser at Gingko Independent, said this idea might have merit if it was easy to get a mortgage at the moment, but that is not the case, and argued that this would be “a move in exactly the wrong direction”.
He continued: “I think lending rules are already too tight. I don’t mind if banks are told to strengthen their balance sheets, etc, but I do mind when you are telling people who can easily afford a mortgage that they have to rent for another 10 years because of stupidly over cautious rules.”
Brokers divided on chances of post-Brexit UK property ‘bounce’
Property pundit Russell Quirk, who founded online estate agent Emoov, suggested that despite the “Brexit shambles”, the property market is in “relatively good shape” with prices in most UK areas higher than they were before the referendum, while transactions remain broadly static.
He added that with employment so high, and the cost of borrowing still low, “the scene is surely set for a post Brexit bounce in demand – whenever that may end up being of course.”
This followed the suggestion from Sam Mitchell, chief executive officer of online estate agent HouseSimple, that a Brexit delay may lead to a spike in activity.
He said: “If anything, a lengthy Brexit delay and shortening odds on us leaving the EU at all, could see an immediate spike in activity as buyers and sellers, who have been holding off until the end of March before committing, decide they’ve had enough of waiting.”
However, brokers are split not just on the chances of a post-Brexit bounce but also on how Brexit has impacted the market already.
The bounce has started
Stuart Gregory, managing director of Lentune Mortgage Consultancy, said that his firm has already seen signs of a bounce, with more purchase deals being arranged and an increase in enquiries.
Though he added: “We have to see this with caution, as this could change rapidly should confidence be dented by a ‘No Deal’ exit, which despite protestations by many on social media, the country doesn’t seem ready for.”
What’s Brexit got to do with it?
Jane King, mortgage and equity release adviser at Ash-Ridge Private Finance, said she had seen a “serious flurry” of offers being accepted since Christmas, though she suggested the mixture of factors behind this rise were not connected to Brexit.
Instead, she argued that vendors have realised they were over-pricing their property and were adjusting accordingly, while buyers were faced with lower prices and therefore better affordability, coupled with the recent publicity enjoyed by the Help to Buy scheme.
She added: “Since the referendum only a couple of clients I have met have mentioned the B word, mainly in respect of interest rates and a concern that they will rise. Nobody has changed their mind about the desire to purchase a home of their own which is still a massive aspiration in the UK.”
Brexit has made no difference
Andy Wilson, director at Andy Wilson Financial Services, said that in his part of Lincolnshire he’d not seen “any discernible reticence” from buyers due to Brexit, noting that few clients saw Brexit as a significant threat to their livelihoods, financial well being or prospects.
He added: “Time will tell whether this is being naïve, but for the time being most are happy to buy – and before further price rises. We ask every client ‘what is your view on house prices going forward? and most suggest there will be gentle increases – but very few fear a downturn.”
Well-priced properties are the key
James McGregor, director at Mesa Financial Consultants, said that he didn’t believe there would be a post-Brexit bounce, arguing that unless real wage growth catches up on property growth from the last five years, it will be hard to stimulate the market for a while.
He added: “What we are seeing is properties priced correctly are selling very fast. We work with a Surrey estate agent two days a week and if their vendors listen to their advice, the properties sell. Properties are only left on the market if the vendors have unrealistic expectations of what their properties are worth.”
Brokers believe apprenticeships will tackle ageing adviser population – analysis
A report this week from the National Audit Office (NAO) found that the number of people starting training schemes has fallen “substantially” since the government introduced reforms to its apprenticeship scheme.
The NAO warned it is now “very unlikely” that the government will meet its target of three million new starts by 2020.
However, industry figures are clear in their support for apprenticeships, arguing they are an excellent way to introduce new talent to the advice sector.
Bringing in fresh blood
One mortgage business that has taken a proactive approach to apprenticeships is Sesame, which launched a new apprenticeship scheme in partnership with Simply Academy in January.
The scheme is aimed at helping with staff development and recruitment, with apprentices following an approved study programme, as well as developing the skills and behaviours needed for the job.
Lisa Winnard, people and services director at Sesame Bankhall Group, noted that with the ageing population of advisers within the industry it was crucial to find ways to attract new blood into the industry.
However, she pointed out that the government levy which supports apprenticeships only covers the cost of the training, but firms will have to bear far more costs in order to bring in those trainees.
“It can take up to two years for them to become qualified, and in that time period they won’t be earning commission or earning for the firm. It would be great if the levy was extended to provide some support beyond for the training itself.
“The other barrier is that the levy is only available for people that are employed, but in our industry lots of people are self-employed,” she added.
Demand has never been stronger for advice
Last month SimplyBiz announced that its New Model Business Academy had 100 apprentices enrolled on its development programme, with plans to boost the initiative’s numbers up to 160 by the end of the year.
Richard Ardron, marketing director of The SimplyBiz Group, argued that demand for professional financial advice has never been stronger.
He added: “The SimplyBiz Group has always been passionate about promoting advice as an attractive career path, and we are fully committed to doing all we can to ensure the long-term growth of our sector.”
Attracting people to financial services
Sesame Bankhall’s Winnard pointed out that interest in these sorts of schemes often came from people that have some form of experience with an adviser, whether that’s because their family used one or they know someone who has worked in an advice role.
She continued: “You don’t find that people go through school and university dreaming of being a broker, they just fall into it.
“We do get lots of people coming to the network that are new to the financial services industry, who particularly come in through protection and giving advice there and build on those skills to move into mortgages.”
Learning at their own pace
Stuart Gregory, managing director of Lentune Mortgage Consultancy, said the financial services industry in particular should welcome apprenticeships.
He added that his firm hopes to bring on board an apprentice in the future “who we can ensure will learn, importantly at their own pace, without the pressure of sales targets as seen in some environments”.
He continued: “If we want the industry to continually improve we need to focus on our clients, and the service we provide.”
Apprenticeships are not just for young people
Outside of the mortgage market, Propertymark Qualifications – the sister organisation of Propertymark – highlighted the fact that apprenticeships are not solely the preserve of young people entering the jobs market for the first time.
Last year Propertymark launched the Level 2 Junior Estate Agent Apprenticeship Standard, a scheme which offers apprentices the chance to get practical, hands on experience and training in the estate agency sector, alongside studying for an industry-recognised standard.
Mike Smith, head of Propertymark Qualifications, said: “It’s important to remember that apprenticeships, including the Junior Estate Agent, are open to people of all ages – from school leavers, through to those considering a career change.”
Brokers confident about prospects in second half of 2018
Mortgage Solutions polled brokers on their confidence levels for the rest of the year, with 47% of brokers forecasting they will have an improved second half to the year. Around one in five brokers expect to do the same levels of business, with a further 20% expecting business levels to drop in the coming months.
Uncertainty can be a good thing
James McGregor, director at MESA Financial Consultants, noted that there is a strong remortgage market currently, with many borrowers appreciating the need for advice from professional advisers, and pointed to the uncertainties of Brexit and interest rates as driving further business.
He explained: “I believe uncertainty is a good thing for advisers, as we can be the sounding board to bring normality back in to people’s thoughts amongst all the mess.”
Stuart Gregory, managing director at Lentune Mortgage Consultancy, agreed, suggesting that brokers could benefit from the current Brexit uncertainty with borrowers looking to “take control of their own destiny”.
He continued: “The mortgage borrowers in the UK need to ensure that they don’t rely on others, for example the Bank of England, to give them clues on how to protect their futures.”
Keep pushing yourself
Helen Pierson, head of business development at Mortgage Bureau, said her firm has historically had a better second half year, which she put down to the brokerage’s “continuous drive for growth”.
She continued: “It sounds like management consultancy ‘poppycock’ I know, but having a clear vision of where you want to be focuses the mind on getting there.”
Pierson added that having a new build specialism was also driving increasing levels of business.
She said: “For schemes such as Help to Buy, it’s not unusual for a firm like Mortgage Bureau to be asked to complete Help to Buy forms for a client purchasing new build and using their own broker. It’s an acknowledgement of the value of and need for specialist knowledge, even by our mainstream broker peers.”
What can brokers and lenders do to drive more business in H2?
McGregor called on lenders to focus their marketing and product offering on first-time buyers, arguing that with prices reducing across the country this could encourage would-be buyers to take the plunge.
He added: “This is the same with brokers; by bringing in a new tranche of first-time buyers this will move the market on, as it would allow others to step up the ladder.”
Pierson added that margin pressure and strong competition meant lenders had less room to manoeuvre on rates, but suggested that improving criteria was one way they could help drive more business.
She added: “For a broker, keeping up to date with, who’s doing what – for example what each lender includes under ‘essential living costs’ and how net profit is determined for self-employed clients is absolutely pivotal in maximising the number of cases you can place.”
Should the Bank of England target 0% house price growth?
The Institute for Public Policy Research (IPPR) this week suggested that the Bank of England should be given the additional target of 0% house price growth, to go alongside its current 2% inflation target.
It called for the Bank of England to have the power to demand buyers deliver higher initial deposits, with stricter limits on loan-to-income ratios.
In its paper, On Borrowed Time: Finance and the UK’s current account deficit, the IPPR suggested that the central bank should aim to keep house price growth effectively frozen for five years in order to give salaries a chance to catch up and “break the cycle of ever-rising house prices driving property speculation, crowding out investment in the real economy”.
The idea has been given short shrift by intermediaries however.
“Completely unthought out nonsense”
Stuart Gregory, managing director of Lentune Mortgage Consultancy, argued that the Bank of England already has more than enough powers in its arsenal, and suggested that “sometimes think tanks think too much”.
He added: ‘Freezing house prices would cause havoc and would restrict onward options for borrowers and lenders alike. What about the lives of property owners, who would be restricted to the point that they may not be able to move home if they are relocated by their employer?”
James Mole, independent financial adviser at Gingko Independent, described the idea as “drivel”, stating that think tanks are guilty of coming out with “completely unthought out nonsense time and again”.
He added: “The idea that that somehow the Bank of England could or would artificially influence the housing market on such a large scale is ridiculous. Just think of the knock on effects on the other markets, both UK and worldwide.
“The solution to a housing shortage is simple, we need to build more houses. In order to do that the government need to either incentivise developers or become developers.”
It might work in London
However, James McGregor, director at MESA Financial Consultants, argued that for the capital it would actually be a welcome move.
He explained: “With less buy to let finance accessible, additional stamp duty for second homes and the new tax changes coming in for landlords there has definitely been a decrease in a certain property type over the last couple of years. For example flats in Twickenham, where we are based, have already reduced 5% in the last year and I don’t see any let up here.
“I do not think it is relevant in the rest of the country, which would be the biggest problem if this power was given to the Bank of England,” he concluded.
Increasing underwriter access boosting application successes – brokers
In recent years, a host of lenders have opened up access for brokers to discuss cases in detail with underwriters in a bid to process cases more efficiently.
Paul Flavin, managing director of Zing Mortgages, said that if brokers have to go through a helpdesk, they are likely to get different answers to the same question depending on who they speak to.
He continued: “Speak to an underwriter and it’s a whole different matter. You are actually talking to someone with the authority to pass a case, so for an adviser there is more confidence in the advice offered.”
A better chance of case approval
Stuart Gregory, managing director of Lentune Mortgage Consultancy, said that access to underwriters can help boost the relationship between all parties.
He continued: “It enables the underwriter to better understand the case. I’ve had cases where speaking directly to an underwriter has explained a situation which they weren’t previously comfortable with – and led to a mortgage offer being issued.”
Sebastian Riemann, financial consultant at Libra Financial Planning, praised Accord for making a point of allowing brokers to speak with the underwriters assigned to specific cases.
He added: “This makes it easy to supply the correct information at the first attempt and also explain complex or difficult scenarios. Having one individual assessing a case also provides for consistency in how the rules are applied.”
Andrew Montlake, director at Coreco, said that speaking to the person who will sign off the case, rather than going through a third party, ensures “things do not get lost in translation”.
He adds: “I have had examples of numerous cases having issues and a 10 minute chat with the underwriter clears things up. This works both ways and sometimes the underwriter can make what seems to be an irrational decision make perfect sense and means the broker will think again and accept their decisions. It is all about communication.”
He noted that lenders such as Clydesdale and Halifax are particularly good at this, while the high value lending teams at Santander, NatWest and Barclays also use underwriter access well.
Note who you are speaking to
Flavin argued it was important that brokers always make a note of the underwriter they are speaking to, as well as the time and date of the conversation. This way, if the submitted application is handled by a different underwriter who then finds fault with it, there is the possibility of redress with the lender.
He added: “This also applies to helpdesk staff, but if it’s the helpdesk advice that’s incorrect there’s less chance of anything happening than if the advice came from an underwriter.”
Previously, BDMs were essentially case managers, updating brokers on whether a case had been accepted or rejected and the reasoning behind the decision. With increased access to underwriters, is that role changing?
Gregory said: “There are great BDMs who can create this contact point, but also there are some BDMs who you only hear from when they want a vote in some industry awards, or if they are going on holiday. A good BDM relationship is regular contact, even just by email, on a monthly basis.”
Riemann added that BDM support is still essential as “they are the first underwriters in the process, who can discuss criteria and suitability of potential cases”.
It’s the best ever time to remortgage but brokers worry about borrower apathy – poll result
Last week Mortgage Solutions polled brokers on whether now is the best ever time to remortgage. A massive 81% said yes it is, though a sizeable 15% argued that historically there have been better products available for the right borrowers.
According to data from UK Finance, around 36,800 borrowers remortgaged in July, up by 10% from last year, while that business was worth £6.7bn, up 12% on the previous July.
Remortgage business is expected to grow even further in the coming weeks and months, with consumer data firm CACI claiming that more than £35 billion worth of mortgages are due to mature in September and October, 70% of which came from intermediary business.
Stuart Gregory, managing director of Lentune Mortgage Consultancy, said that the key element for the remortgage market isn’t the availability of credit or products, as competition is fierce. Instead, the problem remains borrower apathy.
He continued: “Many borrowers still haven’t reviewed their mortgage in many years, and probably aren’t aware of the options available to them. Lenders could help stimulate the market by asking in marketing ‘when did you last review your mortgage’. Some may get a pleasant surprise.”
A previous Mortgage Solutions poll of brokers found that while intermediaries agree a clear strategy for contacting clients about remortgaging is worthwhile, around 10% have no such strategy in place, while one in five rarely stick to the plans they do have.
Jenny Watts (pictured), chief operating officer at digital adviser Habito, suggested that recent hints from the Bank of England that base rate may rise before the end of the year is only likely to increase the volume of remortgages already being seen.
She continued: “Borrowers who are already on an SVR or are coming off their initial rate over the next six weeks will hopefully be looking to lock in the current low rate environment and save themselves thousands of pounds a year. However, many will be put off triggering into action because they’ve had a poor experience in the past and find the process overly complex and opaque. It is up to the broking industry to make switching as painless and easy as possible and end the inertia tax. No one should be on SVR.”
Aaron Strutt, director at Trinity Financial, noted that rates are “incredibly cheap” at the moment, with few signs of that changing even if base rate does rise.
He continued: “There tends to be more options available when borrowers switch lenders rather than opting to stay with their existing bank or building society. For example, more of the providers are offering offset mortgages and competitively priced ten-year fixes and they may not available when borrowers stick with their existing lender.”
Brokers say harsh affordability assessments slowing market – poll result
According to the British Bankers Association (BBA), mortgage approvals dropped for the third straight month in March. Just 41,060 purchase deals were approved, down from 42,247 in February and 44,240 in January, while remortgage approvals dropped to their lowest level since November 2006.
This was then reinforced by data from the Bank of England at the start of the month.
Mortgage Solutions has polled brokers over the last week on why they think the approvals process has slowed in such a pronounced way. By far the most popular answer was the harsher affordability assessments put in place by lenders – almost half of respondents thought this was the main factor, followed by a third putting the blame on uncertainty around Brexit and the upcoming election. Around 10% blamed squeezed household budgets, with the same number pointing the finger at a lack of support for first-time buyers.
Stuart Gregory, managing director of the Lentune Mortgage Consultancy, pointed out that the market is on tenterhooks waiting for the results of the FCA’s review of the Mortgage Market Review. He said: “Lenders are understandably reticent about showing too much leniency on income assessments, so as a result the FCA’s findings are eagerly awaited.”
Gregory suggested that these issues have meant lenders that may previously have been overlooked have instead seen greater interest from intermediaries. He explained: “If anything however it highlights the benefits of many smaller lenders in the marketplace, specifically smaller building societies who continue to support the public, and brokers, by taking a more even approach.”
Adam Hosker, founder of Bespoke Finance, said that the reduced activity seen today is down to a combination of the restricted affordability of homeowners, rising house prices and the constraints placed on the buy-to-let mortgage market by the Government.
He continued: “The perceived attack on landlords has property investors thinking twice; they are having to deal with the removal of mortgage interest relief, an extra 3% stamp duty bill on purchases, PRA rental affordability calculations and portfolio assessments. What’s changed to cool down the market in the South East? Deals no longer stack up for property investors. When rental yield was already tight in high-priced and under-supplied London, the new buy-to-let stress tests can make things seem impossible.”
What about Brexit?
Hosker questioned whether Brexit and the upcoming election are really making a difference. He said: “I am yet to see a client put a purchase on hold due to perceived uncertainty due to democracy. It would be wrong for us to project the unknown of Brexit on the public’s attitude to get on the property ladder.”
Gregory added: “With regard to various political influences on the property market, I do think the general public are virtually at the point of ‘what’s the worst thing that can happen?’ A year does not go past without some form of political interference in the housing market, so it is effectively the new normal.”