Speaking on Specialist Lending Solutions Television in association with Together, L&G Mortgage Club’s head of lender relationships Danny Belton said that by doing so, advisers could save time and provide a better service to their clients.

“With the sources of information available today we should be seeing fewer customers placed with the high street to start with,” he said.

“There are plenty of tools available that enable the broker through some simple questions, clear understanding and a conversation with the customer to find out what their needs are very early on.

“Therefore [that’s] a great opportunity for brokers to save a lot of time and provide a better customer experience by placing the case with the right lender first time,” he added.

The panel is:

Danny Belton, head of lender relationships at Legal and General Mortgage Club

Nicola Firth, CEO of Knowledge Bank,

Doug Hall, director of 3mc

Richard Tugwell, group intermediary relationships director at Together

Owain Thomas, editor of Specialist Lending Solutions (chairman)

See all five parts of the video debate discussing the biggest issues in the sector

Click here to return to the Together specialist lending hub.

Director Kevin Roberts (pictured) highlighted the incoming change during an interview in the Legal & General Mortgage Club Awards supplement.

The club said advisers can now see how much money they are due to receive in its ClubHub and whether it is pending or has been paid.

This follows a recent update allowing advisers to see their proc fee history and the club said it will continue to update the system in response to adviser feedback.

SmartrCriteria trial extended

Legal & General Mortgage Club has also extended the free trial for SmartrCriteria until the end of the year for all new users and will remain free for selected key partners.

It said more than 4,000 members have registered and are using the system.

Roberts said the club was determined to ensure the best possible outcomes for advisers and customers.

“We believe that by harnessing technology like SmartrCriteria and ClubHub we can help more brokers to streamline the mortgage conversation and find the best solution for their customers,” he said.

“We’ve maintained an open channel between our members and the product development team to ensure that any feedback is really taken on board and we’re confident our improvements will make advisers’ lives easier, allowing them to give high quality advice efficiently.”

Delivering a speech at its annual awards, Roberts (pictured) said the club was working hard to influence the Financial Conduct Authority’s (FCA) thinking, but this needed to be replicated across the industry.

“We are working hard on our value of advice campaign and we are working hard to influence the regulator’s thinking,” he said.

“We will continue this journey and are pleased that many of you are actively supporting us. However, there is room to do more.

“Our research shows that potentially thousands of borrowers still don’t know how an adviser can help with their mortgage and as a result they are missing out.”

Engage industry and beyond

Roberts was addressing the FCA’s approach to encouraging the growth of execution-only process for borrowers taking out mortgages.

This proposal has left many in the industry worried that consumers will be exposed as they lose the protections available through advice.

Legal & General Mortgage Club’s Value of Advice research found that consumers who use brokers were more likely to switch lender when remortgaging than those who secured a mortgage direct.

And Roberts added that they were also more likely to be informed about protection options and how to protect their family.

“Now is the time for us all to be vocal about the value of advice,” he continued.

“Never has it been as important to ensure we are engaging across our industry and beyond to ensure that the value of advice can be heard and most importantly understood.”

Improve mortgage journey

Roberts also revealed that the mortgage club was continuing its strong performance with seven per cent growth over the year so far, following 12 per cent growth last year.

“Improving the end-to-end mortgage journey has to be a major focus for all of us as outside disruptors look in on our market with interest,” he added.

The club has grown its lending facilitated by £20bn over the last two years, completing £73bn of mortgages in 2018, up 12 per cent from £65bn in 2017, which itself was up from £53bn in 2016.

Of the £72.9bn total, £59.9bn was non-retention with £13.0bn as product transfers – a 82 per cent to 18 percent split.

“We are transforming the housing ecosystem through our unique understanding of the industry as the largest participant in the intermediated mortgage market in the UK,” L&G said.

It highlighted technology development in the mortgage club with its SmartrCriteria and ClubHub software, and investment in the Smartr365 broking platform.

Equity release lending up

As part of Legal & General Group’s annual results there was also growth for its later-life lending, housebuilding, protection insurance and general insurance businesses.

The Home Finance arm, which lends within the equity release and later-life sector, completed £1.2bn of lending in 2018 – up 19 per cent from the £1bn total in 2017.

L&G estimated it had a 30 per cent market share last year.

It said the flexible drawdown product, which allows homeowners to keep loan to value ratios lower by only drawing the loan when needed, had helped to broadly double sales volumes since its full introduction in 2017.

“We anticipate total lifetime mortgage volumes of over £6bn by 2020, up from £3.9bn transacted in 2018,” it added.

Built 2,500 homes

In housing, L&G Capital’s housing businesses sold or completed for rental around 2,500 homes in 2018 and the firm said it would continue to grow its multi-tenure business across build-to-rent, build-to-sell, later living and affordable housing.

It took over full ownership of Cala Homes in March 2018, and with this increased house building capacity said it was “positioned well for further growth”.

Legal & General Surveying Services delivered 539,000 surveys and valuations last year.

“The traditional home buyers survey has been rebuilt for the digital world and has launched as SmartrSurvey, which is sold via business partners and directly to consumers,” L&G added.

Insurance premiums up

UK retail protection gross written premium income (GWP) increased 4 per cent to £1.28bn, up from £1.23bn in 2017 with new business annual premiums up to £175m from £172m.

“In H2 we expanded our partnership with Barclays launching a new non-advised proposition for family protection in addition to renewing the existing advised mortgage protection offering,” L&G said.

Meanwhile in general insurance, GWP was up 11 per cent overall on 2017 with growth across the range of channels and products.

This included three distribution agreements for its household insurance business which will be supported by its digital SmartQuote and SmartClaim propositions.

Profit up 10%

Overall, the L&G group saw operating profit rise 10 per cent to £1.9bn, up from £1.72bn in 2017.

It completed £10bn in annuity sales – £9.1bn in pension risk transfer sales and £800m of individual annuity sales. These were up from £3.9bn and £671m each respectively.

Group chief executive Nigel Wilson noted the business had been resilient and performed strongly despite 2018’s political uncertainty, asset market declines and slowing economic growth.

“We became the UK’s first £1trn investment manager, executed a record £9bn of pension risk transfer deals and invested billions in the UK’s future infrastructure and cities,” he said.

“Our strategy positions us well despite the broader environment, our current trading is strong and we expect this momentum to continue in 2019,” he added.

Speaking at Mortgage Solutions’ The Mortgage and Protection Event, Roberts warned that as market competition continues to bite lenders may increasingly look at other routes for client acquisition.

He also suggested lenders could be pushing the Financial Conduct Authority (FCA) to consider widening regulation around execution-only.

Roberts noted that he spoke to a lot of lenders regularly and that they were starting to feel the squeeze with mortgage rates coming down significantly as the base rate has risen by 0.5%.

Lenders can’t bail brokers out

He told the Manchester audience: “Your proc fees have increased over the last four years, you can see the emergence of proc fees on product transfers.

“Lenders are now paying more proc fees to the market. And this is at a time when the mortgage rates have actually come down.”

But he warned that the current level of proc fee payments was unlikely to grow with an expected plateau coming.

“In an environment where lenders are paying more in procuration fees, where mortgage rates have come down and base rate has gone up, lenders are starting to feel the squeeze,” he said.

“I don’t think we can rely on lenders to bail us out and to keep our businesses’ turnover increasing.

“If the cost of acquisition in this channel is increasing and they are starting to feel the squeeze, lenders may start to look at other acquisition channels for their business.”

Lenders backing execution-only?

As a result of this situation, Roberts also raised the potentially controversial point that lenders could be pushing the FCA to be more open to execution-only business.

“If you look at the Mortgage Market Study (MMS) – the FCA has a real focus on trying to drive more execution-only business,” he said.

“Where is that push coming from? Who’s the driver? Who’s giving a push to the FCA?

“Yes it could be some people in the sandbox, some fintech or digital firms, but it could also be lenders as well.

“They may be looking and they may be hoping that regulation changes to allow them some more execution-only business,” he added.

Retention fees here to stay

Speaking immediately after Roberts at the Manchester event, Accord director of intermediaries Jeremy Duncombe addressed some of the points around proc fees.

“Just so you know, we are not looking at dropping our proc fees,” he said.

“Retention proc fees are in, they are here and they are here to stay.”

In the new role Catch will be responsible for broadening L&G’s HF reach with mortgage advisers.

She will take up the position on July 9.

Catch joins from L&G Mortgage Club where she was relationship development manager and focused on developing the club’s later life proposition.

The move is aimed at supporting L&G’s ongoing strategy of bringing the lifetime mortgage and mainstream residential mortgage markets closer together, the company said.

Catch will lead L&G HF’s engagement with mortgage brokers, including those not already operating in the retirement lending market.

And she will also focus on encouraging brokers to provide a more “comprehensive service” to customers looking to borrow in later life.

Steve Ellis, chief executive of Legal & General Home Finance said: “Marie is already highly regarded among brokers and lenders in the industry.

“She has done a fantastic job at Legal & General Mortgage Club in recent years, supporting the growth of the retirement lending sector encouraging more advisers to join this growing market and helping lenders to build their propositions.

“Marie clearly recognises the importance of creating more flexibility and choice for customers borrowing in retirement and I’m delighted to welcome her to the Legal & General Home Finance team.”

Big plans

Catch added: “From the reclassification of retirement interest-only (RIO) to the rapid growth of the lifetime mortgage market, this is a really exciting time for the retirement lending sector.

“The mainstream and lifetime mortgage markets are now closer together than ever before, and this is great news for older homeowners who want flexibility and choice in how they borrow in retirement.”

She added the firm had big plans for the future of retirement lending and that she was “thrilled” to be taking on a role.

It comes after L&G’s recently launched the Optional Payment Lifetime Mortgage (OPLM), which allows residential monthly interest payments on a lifetime mortgage.

Legal & General Home Finance has also partnered with Twenty7Tec this year, allowing its lifetime mortgages to feature on Mortgage Source, the residential mortgage sourcing platform.

Even though volume levels may be low compared to the wider market, research by the Intermediary Mortgage Lenders Association (IMLA) found that specialist mortgage lenders’ gross annual lending increased by 19% year-on-year in 2017.

One reason for this increase is that these lenders are able to deal with more complex applications that would normally be rejected by the high street.

For example, those with complex sources of income may not receive a regular stream of income.

Or, a small blip in someone’s credit history is often due to credit issues that can be easily explained, such as a missed phone bill, change in bank account or even an expired credit card.

These individuals often aren’t repeat offenders and often have a good payment history before and after such an event.

Not seen that way

Unfortunately though, high street lenders don’t see it that way.

As a result, some brokers have shied away from the opportunities specialist lending can bring – not wanting to deal with supposedly ‘challenging customers’ and often unfamiliar lenders.

Figures from the Registry Trust showed the number of consumers with County Court Judgements hit a record high in 2017, with 1,138,058 judgments registered in England and Wales.

This means specialist lenders are going to have an increasingly large role to play in helping these borrowers get the financial assistance they need.

It is worth remembering though that it is not just potential borrowers with adverse credit who are given the computer says no.

Complex incomes

The self-employed, contractors and entrepreneurs, all of whom could be very successful, will also likely receive this answer and it is these types of borrowers with complex incomes that tend to make up the majority of specialist lending cases.

Some may be freelancers and have varying monthly incomes, while others may draw income from a salary and dividends.

Unusual income patterns and habits have become increasingly common, however lenders who use automatic credit scoring will often turn these customers away as they do not fit the normal lending criteria.

Brokers need to be aware, however, that these customers will only continue to grow in numbers as the UK workforce evolves.

Look at the self-employed for example; now accounting for nearly five million people and 15% of the workforce in the UK.

Manual underwriting

As such, there is a clear need for mainstream lenders to adopt a manual approach to underwriting. This human touch will not only allow them to take each borrower’s personal circumstances into account, and provide greater flexibility, but also enable them to better understand the customer.

The good news is that overall, brokers are becoming more holistic in their approach.

It’s no longer a question of whether someone is a ‘good customer’ or a ‘bad customer’; instead, brokers are taking the time to ask whether a customer simply needs a different lender better suited to their needs.

Yet to understand which lender is best suited, it’s important that brokers do their own research to obtain a greater understanding of this market and the variety of lenders out there.

We look forward to seeing more and more brokers taking advantage of these opportunities, so they can help every single customer find the best solution for them, regardless of their circumstances.

The lender has previously been restricted to areas around its Cambridgeshire home, but has now taken the step to move to a national basis.

It said that following a series of improvements to its Buy to Let criteria and product range it was taking its landlord proposition to a wider audience as part of an ongoing managed growth strategy.

The mutual will accept cases from brokers who are part of the L&G Mortgage Club and also borrowers coming directly.

Growing mortgage book

Tracy Simpson, head of lending at The Cambridge said the building society was looking forward to working with brokers nationwide.

“We’ve been investing heavily since 2015 in IT infrastructure, processes and people needed to support higher levels of lending and this announcement is all part of growing our mortgage book by capitalising on this investment,” she said.

“We’re very conscious that intermediaries and partners value a high level of service and a considered, personal approach to underwriting so by working with Legal & General Mortgage Club we know we can offer a strong proposition to more landlords while maintaining these standards.”

Legal & General Mortgage Club head of lender relationships Danny Belton added that it was great to see The Cambridge had extended its buy-to-let proposition.

“This is a bold yet positive move for The Cambridge. Legal & General Mortgage Club works closely with The Cambridge in developing their proposition, and it is one that our members have requested more access to,” he said.

The logical reasoning for the expected growth in second charge loans was that since the MCD applied equal weight to first and second charge mortgages, brokers would consider and adopt the latter as part of their holistic advice offering.

However, over a year and half later, we are only now starting to see the momentum predicted. In the first of two articles looking at why second charge loans were slow in getting off the ground, we will focus on sourcing systems and broker awareness.

Sourcing systems

The initial effect of the MCD was the opposite of what was originally expected; second charge loans dropped by 41% in April 2016 and growth remained largely flat throughout the year, with H2 2016 showing an annual drop from 24% in June to 4% in December.

It wasn’t until the beginning of this year that the market got back on its feet and activity increased, reaching a nine-year high in May.

Part of last year’s slowdown was caused by the fact that sourcing systems were not able to provide all the information that brokers needed to make an informed choice, which ultimately inhibited their ability to provide the best and most suitable advice to their clients.

Keep moving

Yet we know technology never stands still.

Developers soon recognised the importance of offering a comprehensive sourcing solution for their users, and Twenty7Tec was the first major tech provider to launch a tool that compared the cost of a remortgage against a second charge loan, followed by Iress and then Mortgage Brain.

It’s too bad that this software wasn’t available when the MCD was first introduced, but technology providers have taken a major step forward since then.

As a result, brokers now have the ability to research the market properly and thus have real confidence in the advice they give to customers.

Broker awareness

Today’s sourcing systems can now provide brokers with all the information they need to get to grips with second charge loans, yet there are still many who feel this is unfamiliar territory.

In reality, this burgeoning market is only an extension of first charge loans. Although rates and lenders may be different, the same advice processes and standards apply.

As such, lenders and distributors simply need to educate brokers in order to help them understand the benefits that these loans can offer.

What next?

We are certainly getting there in making second charge loans mainstream, but we still have a way to go. For a start, it’s not just brokers who need greater awareness.

In my second article on this topic, I will look at the role that master brokers play, and also consider the benefits that second charge loans can provide for consumers.

As part of this campaign it carried out research based on a survey that indicated more than five in ten UK consumers, (55%) were unaware that a mortgage broker could offer more product choice than a bank or building society.

Speaking at Mortgage Solutions’ Mortgage and Protection Event to launch the research, Duncombe explained that brokers needed to adapt to the current market as threats to their business came from multiple directions.

The Value of a Broker research, supported by analysts from Censuswide, draws on a survey of 500 individuals who have bought a home in the last 12 months with a mortgage, and 500 first time buyers who plan to buy in the next six months.

The research revealed that nearly half (48%) of homeowners and those looking to buy who did not use a broker chose not to because they felt that their bank or building society offered them a good deal, 15% thought that they would get a cheaper mortgage going direct, and almost one in five (19%) consumers “did not see the value” a broker would add.  Almost a fifth (19%) of all respondents surveyed thought that brokers and banks had access to the same mortgage products and deals. This was despite there being 3,721 products available to consumers who went direct, compared with 29,886 for those who used a broker.

Lender impartiality

When asked whether they agreed with a series of statements about mortgage advice, one in seven (14%) thought their bank or building society would be able to give them access to the same impartial advice as a mortgage broker.

The Legal & General Mortgage Club Mortgage Myths campaign aims to put the spotlight on misunderstandings like these, highlight the valuable role of independent advice from a mortgage broker and encourage consumers to speak to an adviser about their mortgage options.

The survey also showed that the majority of borrowers were unsure about the role of a broker and how an adviser could help them with finding a mortgage. Less than half of respondents (44%) correctly identified that a mortgage broker works primarily for the borrower, while over a quarter (29%) thought brokers worked on behalf of the lender.

Consumer misconceptions

Jeremy Duncombe, director of Legal & General Mortgage Club, said: “These findings show there are a number of misconceptions consumers hold around the role of a mortgage broker, particularly when it comes to understanding who the broker is there to support. As an industry, there clearly is a significant amount of work to be done to change these attitudes, educate consumers and promote the advantages of using a mortgage broker.

“Although some consumers appear to believe they have secured the best deal possible by going directly to their lender, without speaking to a broker they could be missing out on thousands of mortgage products that might be even better suited to their needs. Brokers can offer consumers exclusive rates to their benefit and provide them with access to specialist lenders if they haven’t been successful on the high street.

“Ultimately, we hope our campaign will encourage brokers and the wider industry to dispel the myths surrounding mortgages and encourage consumers to speak to a professional mortgage adviser, who can guide borrowers and provide best advice when making the biggest financial decision of their lives.”