The changes, which followed a comprehensive study of the market, provide more protection for credit card customers in persistent debt or at risk of financial difficulties.

The study analysed the accounts of 34 million credit card customers for five years and surveyed almost 40,000 consumers.

In particular, the analysis found that in 2014 around 5.6 million people were potentially in problematic debt.

This includes two million people who were either in arrears or had defaulted, a further two million who had held a balance above 90 per cent of their credit limit for at least one year, and a further 1.6 million people who were only making the minimum repayments.

Taking back control

Under these new rules credit card firms are required to take a series of escalating steps to help customers who are making low repayments over a long period, beginning when the customer has been in persistent debt over 18 months.

After this time, firms need to contact customers prompting them to change their repayment and informing them their card may ultimately be suspended if they do not change their repayment pattern.

This means banks are required, if they had not done so already, to contact clients with persistent debt.

Persistent debt is defined as when, over a period of 18 months, a customer pays more in interest, fees and charges than they have repaid off the principal.

It is important to note that credit card firms who do not comply with the new rules could be subject to action by the FCA.

Credit card firms have also agreed to voluntary measures, which will give customers control over increases to their credit limit.

And customers in persistent debt for 12 months will not be offered credit limit increases which should result in around 1.4m accounts per year not receiving such offers.

Where advisers can help

For mortgage advisers, there is an opportunity to assist these types of clients.

These changes could be a real problem for people who are ­unable to come to an ­arrangement with their credit card lender and this may trigger increased demand for help with debts.

There is also the risk that any ‘arrangement’ entered into, may affect their credit rating and cause problems with obtaining future mortgages.

Mortgage advisers could assist by looking at remortgage or second charge options for the client. Structuring the unsecured debt over a fixed period on a capital and interest basis may be a suitable way to ensure the debts are guaranteed to be repaid if all the payments are met.

Of course, careful consideration should be given when thinking about converting an unsecured debt into a secured debt as the borrower’s home could be at risk if payments are not made.

However, a significant benefit is that the cost of the interest will be lower, potentially making payments more affordable and money that would have been spent on a higher interest rate can be used to repay the debt instead.

It’s also a good opportunity for advisers to review their client’s protection plans so that payments can continue to be met even if something happens to their circumstances.

As these types of clients are likely to either have already had or start to see more communication from their credit card providers, now is a good time for advisers to market the way in which they can assist.

Most advisers do not appreciate the complexities of this regulation or non-regulation until we start to discuss it.

Business BTL is not regulated by the Financial Conduct Authority (FCA), meaning technically anyone can start their own BTL mortgage adviser business without regulation or qualification.

However, it is not that straightforward as most BTL lenders will not accept an application from an adviser who is not part of a regulated company.

To transact non-FCA regulated BTL, some lenders insist the adviser, as a minimum, holds a consumer credit permission with the FCA. Some, in fact over 50 per cent of the lenders in the BTL market, require the adviser to have full residential FCA regulated permissions.

The result is that many commercial brokers with just consumer credit permission would be unable to advise on BTL mortgages from lenders such as BM Solutions, The Mortgage Works and even Kent Reliance.

Lender requirements

There are, however, two types of BTL that are regulated.

The first is consumer BTL. Since the implementation of the Mortgage Credit Directive (MCD) a separate FCA permission is needed to advise on this product type.

A consumer BTL is where the client has become an ‘accidental landlord’. An accidental landlord could have inherited a property or be someone who used to live in the property and has decided to keep it and let it out.

This, however, is not straightforward. If the client specifically chose to let out the property for business purposes it could still sit outside the consumer BTL regulation.

Lenders’ criteria vary around this point, so with one lender an adviser would need this FCA permission to advise on the above, but may not need it for another lender.

The second is family BTL. Family BTL is where the property is let out to an immediate member of the family and requires full regulated residential mortgage permissions.

Capital quirks

Capital raising also has its quirks.

It is natural to assume that if a client is borrowing money secured against their main residence, this would also require full regulated permission.

However, if money is raised for ‘business purposes’ then this would fall outside of regulation.

For example, the client may have a first charge loan on their home, but wish to use the equity to capital raise some money to invest in equipment for their business.

If they raise a second charge on their own home for this purpose, the loan will not be regulated, and depending on the lender’s policy, the adviser may not need to be regulated either.

The complications do not stop there. Advisers transacting commercial mortgages will need FCA consumer credit permission if the clients are buying in their personal name, but no permission if the client is buying via a limited company.

Many of these quirks come off the back off the MCD, which was driven by the EU. It will be interesting when we finally ‘Brexit’ if the FCA chooses to sort out some of these anomalies.

Many lenders are working hard to streamline their processes and take advantage of technology so that applications are smooth and proceed as quickly as possible to offer.

However, if it all slows down at the legal work stage, what’s the point?

Not all mortgage offers are issued with a six-month offer validity; some come with just three months.

This should be plenty of time; however, it is surprising the number of cases where we have to go back to the lender to ask for an offer extension.

Lack of skills

Some of the issues appear to be the lack of skills, particularly in the specialist sector.

Large firms use paralegals to process cases, and the lack of experience often results in requests to the client, or the client’s solicitor, that are not relevant or not clearly communicated.

The client can often instruct a solicitor based on price, but many of these offer conveyer belt processes.

After paying referral fees, the solicitor may be left with just £150 to cover the cost of the service, which may work if things run smoothly, but not if issues arise.

Not all solicitors are ‘broker friendly’ meaning they will not automatically communicate with the adviser, even though the broker could be instrumental in assisting with issues.

When it all goes wrong

Good solicitors get recommendations, but we have also seen these same solicitors get swamped and the service levels then nosedive.

One recent scenario went from a portfolio client singing the praises of a solicitor for the first few completions to refusing to work with them due to lack of communication and progress, resulting in offers expiring and new valuation costs.

Another case saw a catastrophic error by a solicitor. Not only did they take three months to process a BTL re-mortgage that involved the repayment of an existing first charge and second charge, but they also took 12 days to send the client the money he was expecting as surplus from the re-mortgage.

They then sent him £270,000 instead of the £70,000 he was expecting, they had failed to repay the first charge lender and had not even applied for a redemption statement from them.

Needless to say, the new first charge lender with compromised security was less than impressed, particularly as it was the only solicitor they would allow to act for them.

Lenders helping out

Normally these types of stories are few and far between, but they seem to be increasing.

Many brokerages like ours are now employing dedicated administrators to manage the process between offer and completion.

What can be done to improve this?

Lenders do not always make things easy by adding their complex requirements to the standard legal process often driven by their risk appetite and commercial reasons.

It is good to see lenders like UTB and West One launching first charge re-mortgage products where the legal work is swiftly managed in-house, similar to second charge completions, for clients who need the guarantee of a swift completion.

In other scenarios, brokers should look to manage their client’s expectations.

Particularly with specialist cases or from specialist lenders, the conveyancing process may not be as straightforward as the client’s perception and a range of queries will need to be answered.

Checking in advance a solicitor’s capacity and experience of the mortgage type proposed may also be useful in the long run.

More than half of buy-to-let (BTL) mortgages are arranged on a five-year fixed rate as an alternative when rents are short, but if early repayment charges (ERCs) lock a client into a five-year deal it may not be the most appropriate.

A couple of lenders, such as Foundation and Precise, offer five-year fixed rates with only three years of ERCs. This benefits the borrower with a rental calculation based on five years but a commitment for only three years, however these products are few and far between.

Many lenders now have some form of offering, but income-based BTL products are not used as much as anticipated.

Why not? Maybe because the way they are calculated, and some of the conditions they come with, can make the calculation of affordability very complex.

If advisers identify a shortfall in the standard rental calculations there are a number of criteria points to consider in order to establish whether a top-slicing BTL option is a solution.

Minimum income requirements

Most lenders complete a personal income and expenditure calculation to establish any surplus income.

Advisers therefore need to gather the full details of income and expenditure up front.

Some lenders have a minimum income requirement. For example, they may only allow rental income top-up for those earning £50,000 or more (such as Metro and Zephyr).

Zephyr and Precise will, however, look at surplus property rental for the top-up, rather than just other earned income.

Some lenders have additional income top-up criteria. For example, Vida and Kent Reliance do not offer their products to portfolio landlords who hold four or more BTL properties.

In some respects this is understandable, because the surplus income can only cover so many properties that have rental shortfalls and there will be a greater risk as rates rise.

It is, however, good to see new products, such as Precise’s, come to the market without this restriction and with a different affordability model because this creates choice.

Rental coverage requirements

Another complexity is that, in almost all cases, there will still need to be a minimum level of rental coverage.

For example, Kensington will allow top-up to be used but only if the rent already covers the mortgage by 125 per cent as a minimum—although they will offer their products to portfolio landlords and limited companies.

The complexity arises because each lender’s minimum rental coverage is different.

Among the better lenders are Precise at 110 per cent, Vida at 115 per cent, Bluestone at 112 per cent and Kent Reliance with no minimum.

What they base this on can vary. For example, some base it on a notional rental calculation of 5.5 per cent and some on the pay-rate of the product.

With so much variance between lenders, it’s no surprise that the products allowing the applicant’s income are not as widely used as they could be.

To help, some lenders now offer a calculator on their websites to make it easier for advisers to navigate this area.

It is important that advisers don’t always default to a five-year fixed rate and instead consider the other options where they may be the most appropriate recommendation for their clients.

Liz Syms, CEO of Connect for Intermediaries (pictured),  said UTB’s aim was to broaden its distribution as it expands the range of loans and mortgages it offers through first charge mortgages, second charges and bridging.

She said: “It is testament to the reputation that Connect for Intermediaries and our brokers have, that a quality specialist lender such as UTB has chosen us to partner with us for the next stages of its growth plans.”

Mike Walters, head of sales for mortgages and bridging at UTB said the partnership with Connect for Intermediaries would enable UTB to expand its lending into a number of new and existing areas.

He added: “Connect has an excellent reputation for its in-depth knowledge of the specialist market and for the quality of its mortgage and loan submissions.

“As such they make an ideal partner and we look forward to working closely with the Connect team as we continue to evolve and grow our mortgage and bridging business.”

So how is the market currently faring and what are both lenders and brokers seeing?

I spoke with Liz Syms, CEO at Connect Mortgages, and Grant Hendry, head of national accounts at Foundation Home Loans, for their views. We agreed there is plenty to be positive about.

No mass departure

The big changes over the last few years have not been nearly as bad as many predicted, but both landlords and lenders have faced a steep learning curve.

Many commentators initially expected dinner party landlords to exit the market and sell, rather than face increased tax costs or stricter regulation.

However, the true number of those selling-up has been far lower than predicted.

Tax changes have made many landlords think about their portfolio management – and the larger ones are thriving.

While there are tighter margins, it has highlighted two main landlord groups – prepared and unprepared.

Those that are prepared have already future-proofed their business. Setting up a limited company structure has kept their business models viable, for example, while sound financial advice has helped them avoid shedding any huge assets or losses.

Remortgaging remains high

Remortgaging and fixed rate products still account for the lion’s share of lending.

Fixed terms keep costs down and provide certainty of payments during a time of economic uncertainty.

That is why demand for five- and ten-year fixed rates is increasing.

With rates still at near record lows and these products proving very popular, landlords are likely to remain in this market.

Short-term lets

A weak pound combined with an influx of expats and international buyers is also driving demand for holiday buy-to-let.

A professional holiday let run correctly will be treated as a business by HM Revenue and Customs, but landlords can off-set their mortgage interest against their rental income – even if the property is in their own name.

Airbnb adds another factor to the holiday let equation, with many lenders now offering short-term let products in response.

It’s a lucrative opportunity and affordability can work in a very similar way to holiday lets.

The Northern powerhouse

Smaller returns in London and the South East mean that landlords are now looking elsewhere for new opportunities.

The North is attractive not just for higher yields, but good value for money too.

It’s a buyer’s market and savvy landlords with liquid capital can snap up a good deal quickly.

Student cities like Manchester, Sheffield, and Leeds are where many are focusing.

With strong demand for high quality student accommodation and houses of multiple occupation (HMOs), landlords can make the most of secure long-term returns here and maintain profit levels.

What next?

Ultimately, buy to let is here to stay.

Some renters may be unable to buy and for others, renting is a lifestyle choice – so the private rental sector will continue to be an important part of Britain’s housing market.

Even with the potential for further tax changes, there is plenty of business here for brokers.

Advisers should get in touch with clients to review their assets and assess their long-term profitability.

This will enable them to future-proof their client’s portfolio and also help to mitigate any upcoming changes.

There are now more buy-to-let products and criteria ranges than before the credit crunch.

As such, brokers are more important than ever for landlords and they can support this vital part of the market through this next transition phase.

The changes to the mortgage interest tax relief in particular, has meant many investors are now considering limited companies for their buy-to-lets.

Indeed, many investors are still unaware of this particular change and its impact.

We are now seeing some receive their first increased tax bills as the phasing starts and these investors are turning to mortgage advisers for guidance on options.

There is a common understanding in the market that advisers should not get involved in tax advice, but recommend the client speaks with a specialist tax adviser.

If, after receiving the appropriate advice, the client decides to move their portfolio from individual names into a limited company, this is where the adviser needs to ensure they have sufficient knowledge of this particular area specifically.

Key questions

For example, does the client want to use an existing trading business or set up a new special purpose vehicle (SPV) and what is the difference?

Which lenders will accept a trading business and what Standard Industrial Classification (SIC) codes are acceptable to a lender for an SPV?

Will the lender you wish to recommend require a personal guarantee, a debenture or a floating charge?

What do these mean, what are the implications and how will you explain these to the client?

Who will be underwritten? Is it just the directors and majority shareholders or all shareholders?

Another important consideration is how will the deposit be funded.

Moving a property from individual names to a limited company is not a refinance, it is a sale and purchase and therefore the limited company will need to have funds to cover a deposit.

This may be do-able for one property, but what about if ten properties are being transferred at the same time?

Will the lender you are considering accept a concessionary purchase or a director’s loan to the company.

If they accept a director’s loan, will they allow this to be a paper transaction rather than a physical transfer of the cash?

Majority declined by deposits

Being able to present to the lender’s underwriter exactly how the deposit will be managed is key for the underwriter to understand and approve the application.

One lender recently advised me that they reviewed all their declines for these types of applications; 60% had been declined due to a misunderstanding around the deposit but it could have proceeded if both the adviser and the underwriter had had the correct understanding.

By spending some time to fully understand these areas, advisers can ensure they are in the best position to give the right lender recommendation that won’t lead to future complaints, while taking advantage of this big opportunity.

HSBC UK for Intermediaries will provide rates through Connect from 1.54% for a two-year fixed rate and 1.84% for a five-year fixed rate, both at 60 per cent loan-to-value (LTV).

Different rates will be available at higher LTVs and HSBC will pay Connect’s brokers a gross procuration fee of 0.40% on every deal.

Connect’s members will be able to introduce clients up to age 80 and HSBC will accept earned income from both employed and self-employed borrowers.

It will also accept a wide range of property types and extend products to UK expats, including people living in 22 different specified countries, earning income in up to 165 different currencies.

Liz Syms (pictured), CEO of Connect for Intermediaries said: “While the Connect network is well known for specialist lending and buy-to-let, it is less well known that we have an extensive and flourishing mainstream residential panel too.

“The addition of HSBC helps to reinforce the strength and depth we have across every lending area, providing our network members with extensive access to lenders and rates across every part of the mortgage market.”

This final report, following consultation, confirms the FCA’s findings from its market study focussed specifically on first-charge residential mortgages.

It confirms that overall the market works well in many respects, but did fall short in some areas, leading to harm for some consumers.

In this final report, the regulator was keen to justify the findings from its interim report where questions were raised during consultation, in particular in relation to arguments that it was too focused on price.

The result is there were a few key areas where the regulator believes the market could work better.

Criteria clarity and lender panels

Making it easier for consumers to chose the right mortgage is one of these.

Interestingly, the FCA identifies that tools available to intermediaries are also limiting, meaning that intermediaries still rely extensively on their own experience, and the challenge this represents given the number of lenders and wide-ranging criteria.

The report focussed on mortgage transaction data from 2015-2016, but since then, new tools such as Knowledge Bank and Smartr Criteria have emerged addressing this in part.

However, the report did identify a lack of transparency around some of the eligibility criteria used by lenders.

In particular, the FCA found consumers missed out on cheaper (but just as suitable) mortgages due to credit score and loan to income (LTI) criteria.

The implication it suggests is that if lenders were more open about these parts of their criteria, consumers would be able to make better choices and find a better deal.

Importantly for intermediaries, the FCA also found a correlation between clients getting better value mortgages where the intermediaries had large lender panels.

The regulator further commented that some intermediary panels focused on covering a broad range of consumer circumstances, such as the self-employed, rather than having a number of lenders that could assist with that circumstance to give more choice and deliver a cheaper mortgage option for the consumer.

The FCA was clear in that it wished to see more efforts from the industry in providing transparency of qualification information and it wishes to work with lenders and the industry to achieve this.

How to compare brokers

Another area of focus is giving consumers a choice in relation to the advice they need.

The FCA recognised that since MMR, its rules have been based on suitability and do not refer explicitly to price.

The impact being new mortgage sales are almost all advised and while this leads to sales of suitable mortgages, some consumers are being channelled into an advised route when not needed and some consumers are still not ending up with the cheapest solution even though the mortgage is otherwise suitable.

When advice is required, the FCA found that the choice of intermediary can affect the cost of borrowing.

It wants to improve how consumers are able to compare different intermediaries and ensure, given that their findings relate specifically to the size of an intermediary’s panel, consumers will be able to clearly see both the product ranges offered and whether they use a broad or narrow range of lenders.

The FCA believes this will incentivise intermediaries to use more lenders.

The plan is to use the SFGB to build this based on the existing Retirement Adviser Directory, which can be seen here if any intermediaries would like an indication of what this may look like.

Mortgage prisoners and switching

The final points addressed in the report relate to rate switching and fair treatment for consumers who are unable to switch.

Around 10% of customers could switch to a better deal and do not.

It is a concern that the FCA found evidence that some consumers’ inactivity is being exploited.

For example, some lenders are segmenting customers and focussing their rate switch offering only to clients they feel may remortgage to another lender. The FCA plans to complete more analysis on this.

Some 150,000 consumers have been classed as ‘mortgage prisoners’.

The definition of this is consumers who, despite being up to date with their mortgage payments, cannot get a better deal as they are either with inactive or no longer authorised lenders , or they no longer meet the stricter post-Mortgage Market Review (MMR) criteria.

Food for thought

I welcome the fact that the FCA is committed to finding a way to make switching easier for customers who are up to date with payments and not borrowing anymore.

The FCA is now consulting on changes to responsible lending rules to deliver this.

Overall, the final paper is broadly in line with expectations.

I think it is important, for a number of reasons, for the industry to have a centralised list of advisers and the report does give food for thought for intermediaries to consider in relation to their business models and lender panels going forward.

Rather than chasing yields some professional landlords are adding capital value to their properties through refurbishments.

Sometimes this could be turning a three bedroomed house into a four bed and increasingly shrewd landlords are also using permitted development rights.

This allows owners of a building to make certain changes, including improvements, extensions and changes of use without having to make a planning application.

This could enable landlords to extend the ground floor of a house for example, or extend it to accommodate more people, thereby improving not only the capital value of the property but also the yield.

However even projects that do require planning can still be lucrative for property investors.

Rising rent and value

For example, one professional landlord client of Connect purchased a buy-to-let, rented it out but realised shortly afterwards that they could be making more of the property.

They applied for planning permission to develop it into two self-contained flats and this was granted.

When the existing tenant moved out, the landlord rescinded their original loan and took out a short-term loan to convert the property.

The work involved creating the two separate entrances and adding a new bathroom and kitchen. This took only around three months and created a substantial increase in the potential rental income and property value.

While the client had to pay early repayment charges when rescinding the original buy-to-let loan, by refinancing one of the newly-created flats just three months later with the same lender, the lender refunded the early repayment charges originally paid.

More lenders considering refurbishment

It is interesting to see more lenders adding refurbishment options to their offering to help this type of investor.

For example, Shawbrook have bridge loans that are suitable for heavy refurbishment and commercial property refurbishment; it also has a term loan for lighter refurbishments used as a retention which is released when work has been completed.

Precise has also launched a new offering that means two valuations are completed on day one, a current value and a post-works value.

A bridge offer is issued based on current value but at the same time a long-term offer is issued based on the post works value, giving the property investor the guarantee of the long-term mortgage while knowing the amount that can be released from day one.

Brokers experienced in this area can help guide the client in relation to the finance options and structure needed to make these types of investments a success.

And they can benefit from the increased income stream of adding bridge products to their recommendations.