So this week, Mortgage Solutions is asking: With a continued lack of property supply and huge UK firms investing in, building and/or becoming landlords for residential rental accommodation for the first time, what kind of impact might this have on the housing and mortgage markets?
Andy Hutchinson, managing director of Citra Living – Lloyds Banking Group’s private rental arm
As part of the group’s commitment to helping Britain recover, we aspire to a UK in which all people have access to stable, affordable and safe homes.
We believe there is an opportunity to support the rental market without compromising the support we provide to homeowners and those aspiring to get on the housing ladder. One in five households in the UK is already in private rental, with demand set to increase over the next five years.
For an increasing number of people that means renting, but it shouldn’t mean quality is compromised.
Citra Living is embarking on a first step to provide incremental housing stock for the private rental sector. We are also looking to partner with developers to ensure a consistent standard of properties is available to rent. We want to ensure more people have access to good quality, new-build rental properties, that they can consider their home.
Lloyds Banking Group remains fully committed to homeownership and has lent more than £9bn to first-time buyers in 2021.
We are the largest lender to the social housing sector, having provided more than £9bn since 2018 and we are a leading lender and equity provider to UK housebuilders, helping them to build tens of thousands of new homes each year.
Payam Azadi, partner at niche Advice
Lenders have always been involved in the private rental sector.
It gives a sign of confidence that UK property is still a viable entity. When global organisations look at UK residential property, they’ve obviously evaluated it. They’ve got lots of analysts and think UK property is a good bet, that’s not so bad.
As they are a big corporation, their portfolio is going to be completely different to your novice landlord. It’s a different ball game. Lloyds have a lot of insight into the property. Especially with the acquisition of HBOS, they have a lot of property data so it’s a good sign if they’re coming into it.
It will be interesting to see what type of housing structure Lloyds will go after. Will they follow Legal and General’s footsteps? Will they have purpose-built units?
It will be interesting to see what they invest in and the initiatives they approach. That will give a clue as to what areas of the sector are marked for growth.
What you will see in the UK – and it’s already happening globally – is more large institutions getting involved in the residential market. That often means large complexes with shared living areas, it’s a whole new set up.
Single buy-to-let properties will go through an evolution. Just like we’ve seen more purpose-built blocks for student accommodation.
People want all the facilities that come with these properties.
I don’t think it’ll affect homeownership. I think it’s just Lloyds trying to attract some growth; the average homeowner won’t care that they have a massive stake in the market. We already see that in the commercial market where a lot of pension fund companies own properties.
Akhil Mair, managing director of Our Mortgage Broker
There are a few ways of looking at this, both positive and negative.
The positive is that it shows Lloyds are confident in the UK rental market, they’ve said they’ll buy a large number of units which gives the sector backing.
It gives other landlords more confidence because they think ‘if a big bank like Lloyds wants to get into this, it must be a good thing’.
Landlords won’t be upset because although there is a shortage of housing, that was there anyway. Lloyds entering the market won’t disrupt anything.
On the flipside, rentals could go up and the premiums could go up.
More buy-to-let landlords are trying to make their portfolios professional including the types of properties they purchase and how they kit them out. This could increase both rental and house prices over time.
But nothing ever gets cheaper, a can of Coca Cola costs 25p when I was growing up.
Overall, I think it’s positive, Lloyds are backing the UK property market. They clearly think property is a good asset class to invest in so everyone wins.
Dan Batterton, head of build to rent at Legal and General Investment Management Real Assets
The UK needs a high quality residential rental sector that offers flexibility and choice to residents, offering long term occupational security.
The current private rented sector does not provide long-term certainty to occupiers, but the build-to-rent (BTR) sector does. Traditional build-to-sell developers produce 150-200,000 homes per year.
The growth in the BTR sector is not reducing the amount of homes being built by build-to-sell developers. A new business model and more capital is allowing for more homes to be built, BTR is providing net additional homes.
In the UK, we are roughly building 100-150,000 homes less than we require per year.
BTR is bringing new capital from long-term pension fund investors to support the building of homes. BTR will not bridge the shortfall of homes required but is adding to supply which will help with the acute shortage of homes.
Homeownership is not the only answer, it is one form of housing tenure that is right for some but not for everyone. Renting can be a positive aspirational choice and BTR is trying to deliver this through purpose-built homes with a great service.
Of our c. 2,500 occupiers, when questioned, only one third would buy a home if they could afford to. They were renting because they wanted to, because it suited their lifestyle at the time. It may not suit them for their entire life, but it does at some points.
It is simply wrong to assume everyone wants to own a home, but it is absolutely right that people want a choice and BTR can make renting a positive choice.
Jeni Browne, director of Mortgages for Business
Big players such as John Lewis and Lloyds Banking Group investing in the private rented sector is certainly good for local tenants who can’t afford housing and have to rent. Frankly, anything that increases the number of homes in the UK is in the greater interest in the housing market.
John Lewis has unveiled plans to build 10,000 homes for rent over the next few years – roughly 7,000 of the homes are to be built on sites already owned by John Lewis, ranging from studio flats to houses. That should be applauded.
Will it make a big impact on the market? Perhaps locally. Supply and demand suggests it will be significant at some level. More rental options means more competition, and that should mean less upwards pressure on rents, making renting a more attractive option. And, theoretically, that should help potential first time buyers save to get on the housing ladder.
But on a wider national-scale, this poses no threat to standard buy-to-let landlords; until the government sorts out the housing shortage and materially increases the volume of the stock of affordable homes, nothing is going to seriously affect the demand for property to rent.
Residents of John Lewis’ estate will have the option of renting flats furnished with John Lewis products and all developments will include a Waitrose convenience store near the entrance – John Lewis clearly isn’t focusing on Lidl shoppers, are they.
In fact, private landlords should probably take heart. You are judged on the company you keep and – unlike other investors entering the sector – you don’t get more bluechip than John Lewis and Lloyds. Afterall, they have reputations to uphold that large private investors don’t have to worry about.
He joins Recognise from Allica Bank where he was also head of credit.
Keyte has 28 years experience in the industry, which includes major credit and risk roles at lenders such as Lloyds Banking Group and Allied Irish Bank. He has experience in SME and corporate lending, including leveraged finance and asset finance, as well as expertise in credit underwriting, policy and regulatory compliance.
Keyte (pictured) has joined Recognise Bank as the bank signals plans to further increase its lending following its latest successful fundraising round where it raised £14m in capital.
The bank aims to help growing companies that are underserved by the mainstream banks, it said.
“I’m delighted to be joining Recognise Bank. Its focus on building real personal relationships with SMEs completely aligns with my views on how best to support the small business sector,” Gavin said. “Every business is different, so it’s vital that lenders have people with experience of SMEs to understand both their challenges and their opportunities.
“This an exciting time in the Bank’s development, but also a great opportunity for Recognise to support UK entrepreneurs and companies looking for finance to help them grow.”
Mark Bampton, chief credit officer for Recognise Bank, said: “The UK’s SMEs are poorly served because so many of the mainstream banks have automated their lending and removed the people with real expert knowledge of business sectors and their financial needs.
“In Gavin we have somebody with a huge amount of experience of lending to the SME sector and a great understanding of what makes them tick. He will be a great asset in helping to shape our proposition as we increase our lending to small businesses by developing strong relationships with business owners and truly understanding their business.”
It’s recent capital raise will pave the way for the removal of deposit restrictions by the PRA (Prudential Regulation Authority), allowing the Bank to offer personal and business savings accounts, which in turn will enable Recognise to provide more lending to the SME sector.
On the capital raising, Jason Oakley, chief executive officer of Recognise Bank, said: “This is a major milestone in our journey to create Recognise Bank and change the complexion of SME banking in the UK.
“We set out on a mission to help the UK’s growing small and medium sized businesses, who need expert support more now than ever before. This successful capital raise is proof that we are on the right trajectory.”
Other recent appointments by Recognise include Paul Bagan as business development manager (BDM) who will be overseeing the North West and Yorkshire regions and Matthew Lawrence as regional account manager for central London.
According to the Financial Times, in the court documents the homeowners argue the percentage of equity taken by the Bank of Scotland, part of Lloyds Banking Group, was “grossly excessive”.
The action, led by law firm Teacher Stern, will be heard in the High Court and relates to mortgages agreed in the late 1990s.
Teacher Stern said that in the case of one claimant they have been left owing £1.6m to Bank of Scotland after taking out a £187,000 shared appreciation mortgage in 1998 against their £750,000 London home which is now worth £2.8m.
Shared appreciation mortgages are tied to a property’s value. Offered during a short period in the late 1990s by banks such as Bank of Scotland and Barclays before the advent of equity release, the mortgages were billed as a way to fund retirement.
Homeowners were offered the opportunity to release up to 25 per cent of the value of their home often interest free. However, on the sale of the property the homeowner would have to repay the loan in full and 75 per cent of the increase of the value of their home since taking out the deal.
The rapid rise in house prices since the loans were taken out has meant that some shared appreciation mortgage holders have seen their debt rise 500 per cent on the amount they originally borrowed.
The homeowners allege that they were “for the most part financially unsophisticated”, the bank saw “all but guaranteed high returns” and the mortgages had “trapped borrowers in their homes until their deaths”.
The FT reports that value of the claims could be as much as £50m. Teacher Stern’s case alleges that the mortgages were “fundamentally unsuitable” for consumers and “inherently unfair” under the terms of the Consumer Credit Act 1974.
Teacher Stern also led an action against Barclays on behalf of 37 borrowers who took out shared appreciation mortgages around the same time. The law firm negotiated an out-of-court settlement with Barclays on behalf of the homeowners in June.
Bank of Scotland is defending the claim and denies all the allegations laid against it.
It says all borrowers had independent legal advice and its relationship with the homeowners was fair, according to reports of the court documents.
Lloyds Banking Group has declined to comment on the ongoing case but says it continues to offer support options to all mortgage borrowers facing financial difficulty.
The case is due before the High Court in October.
This challenge has heightened as new business enquiries leave brokers so busy they cannot easily find time to dedicate to existing customers.
It’s completely understandable. In a lot of cases, those customers will automatically return to the broker for obvious reasons: Namely, the customer has a good relationship with the broker, they trust the adviser and know they will do everything to find the best deal.
But even a light-touch approach to managing existing customers will bear fruit over the long-term. This is particularly true for quieter periods, appreciating these times may be rare at the moment.
Life-long customers
Why is it beneficial to have a loyal customer base, when a regular flow of new business is coming in the front door?
It’s about trust.
Should the application hit a problem, for whatever reason, it’s more likely an existing customer will understand – due to their long-standing relationship with the broker – and know they’re doing their best to process the application.
It’s also about knowing your customers. Regular contact allows you to understand your customer’s needs throughout their mortgage term and as their own life situation changes.
They could progress from first-time buyer to home mover to remortgagee. Their needs will change at each stage. They will have requirements for other products throughout their borrowing journey too, with protection and insurance being the obvious two.
There are many tools on the market to help brokers manage existing customers. They enable brokers to handle all of their customer’s financial requirements in one place, including the mortgage, protection and insurance products.
Market updates
These systems can be costly and time consuming, but managing existing customers doesn’t have to be.
It doesn’t have to mean maintaining a complex database. Nor need it be a costly exercise of sending out regular mailings.
Instead, it can be based on a cheaper solution. Using one of the major e-mail suppliers you can automate a contact with your existing customers. One option is to give an update on the mortgage market and your company – whatever feels natural to you and your business. Even sending a straightforward e-mail at renewal can be surprisingly effective.
Or, it could be call reminding your customer that their mortgage product is up for renewal and arranging a follow-up meeting. These days, that could be on Zoom or Teams, but equally could be a simple ‘phone call.
The solution brokers arrive at will depend on their own business requirements, size and budget.
Your existing customers are your most valuable customers. Communicating with them in a simple and effective way will help to protect your business over the long run.
This has become more difficult, with brokers so busy with new business enquiries and simply not having the time to dedicate to existing customers.
This is completely understandable and in a lot of cases, those existing customers would automatically come back to their current broker for the obvious reasons: they have a relationship with that broker, trust the broker, and know the broker will do whatever they can to find the best deal.
However, a light-touch approach to managing your existing customer base could bear fruit over the long-term, particularly in periods when you may be quieter – appreciating that these times are rare.
Building trust
So why is it beneficial to have a loyal customer base, when you have a regular flow of new business coming in the front door?
Well, it goes back to trust. Should the application hit any problems for whatever reason, it is more likely that an existing customer will understand due to their long-standing relationship with you, and understand that you are doing your best for them to process their application.
Furthermore, it allows you to understand your customer’s needs — not just through the life of their mortgage term, but through the life of the customer. Over the course of their potential relationship with you, they may be moving from being a first-time buyer to homemover, to remortgage customer, and their requirements will change at each stage of the process.
Moreover, they will have requirements for other products through this period, protection and insurance being the obvious ones.
Simple solutions
There are clearly very clever, complete customer-centric marketing tools on the market, which will allow you to manage your existing customer base in an effective and efficient manner.
Indeed, such a customer-centric solution would allow you to manage all of your customer’s financial requirements in one place, from the mortgage itself through to protection and insurance as highlighted above.
Although it’s fair to say that these can be quite costly, and also time-consuming if not managed properly.
So let’s be clear, managing your existing customers doesn’t necessarily have to lead to complex databases that you have to maintain. It also doesn’t need to be a costly exercise involving sending regular mailings to your existing customer base.
Indeed, it can involve a cheap email solution using one of the major email suppliers which can automate a contact with your existing customers. Maybe just a regular update on yourselves, the current mortgage market – whatever you feel comfortable with – or just send a manual email at renewal.
It might even be as simple as phone call to your customer to remind them that their mortgage product is up for renewal, and to arrange a follow up meeting, albeit this is likely to be via Zoom or Teams in the current environment. Or even arrange over the telephone.
In summary, the solution you arrive at will be completely dependent on your own business requirements including size and budget, but your existing customers are your most valuable customers.
Communicating with them in a simple and effective way will allow you to protect your business in the long run.
From 1 January, Dijkstra took over from Mike Jones as managing director Intermediaries for Lloyds Banking Group looking after the Halifax, BM Solutions and Scottish Widows brands.
But the landscape couldn’t be more different to the one Jones had known. Inside of 12 months, the mortgage industry, used to working in busy offices, meeting at events, and driving miles to see clients and brokers moved online. The bank’s staff were forced to work from home and new mortgage lending for the entire market fell 10 per cent.
And as the pandemic brought some sectors like travel and hospitality to a standstill, other sectors which were able to transfer online have thrived. But that polarisation has made assessing mortgage risk much harder than it previously was before.
“The impact the pandemic has had on borrowers’ livelihoods and earnings has added an extra layer of complexity to lending when you also have to take into account furlough schemes and payment holidays, for example,” says Dijkstra “And because it is a health crisis and not a financial crisis, some sectors have been more heavily impacted than others.”
Combined with the reality that banks too had to turn their staff into home workers and move online meant Lloyds was juggling operational challenges at the same time as adapting its criteria to reflect new risks. More underwriters were recruited to deal with complex borrower circumstances.
“It’s been tough for us as well, but we have bounced back quickly to delivering the service and expectations that brokers have,” Dijkstra says.
Lloyds Banking Group will not release its new lending figures, but in the context of the market’s 10 per cent drop in lending, Dijkstra says the bank has “done very well”.
“As an industry we should reflect back on last year and think, wow we did all of that. We did all come through it and we worked together; valuers, estate agents, risk people, everyone.
“Everybody was flexible. It’s something to be proud of as industry, we managed to serve customers when the market closed and then when it opened back up again.”
The stamp duty holiday
Stamp duty is currently still driving the mortgage market forward at top speed, but Dijkstra has her eye on plenty of market-supporting initiatives that will keep lending buoyant when the scheme begins to taper off in June.
Her key focuses for 2021 are supporting first-time buyers, building momentum behind their equity release products and addressing the operational challenges and new ways of working brought about by the pandemic.
From mid-April, 95 per cent deals will be back on the shelves and Lloyds is one of five lenders that have committed to offering the mortgages.
“One of the biggest difficulties for first-time buyers is getting a deposit and 95 per cent is a big way of supporting them.” Dijkstra wouldn’t say if Lloyds had any direct involvement with bringing about the government-backed mortgage guarantee scheme that was announced in the Chancellor’s Budget. But she did say the bank lobbies government on behalf of the mortgage and housing market.
Higher LTV lending
The market is hoping that further support for first-time buyers will come in the form of higher loan to income multiples. This will mean those who need help the most are able to make use of the 95 per cent deals. Dijkstra wouldn’t confirm if enhanced multiples would be made available, except to say criteria was kept under constant review. Rates for the range are also still under wraps.
Another product range that the market can expect to see more of this year, says Dijkstra, is equity release mortgages through the Scottish Widows brand.
“There is a clear customer need here. People want to support their children on to the housing ladder, they are equity rich but cash poor. It’s a really good opportunity area not just for us, but for brokers too. As their customers get older they need to be able to help with ‘at retirement’ borrowing options.”
The plan is to scale up their equity release operation this year, using their business development managers to spread the word through brokers. Dijkstra is determined to grow the distribution of equity release mortgages in the mainstream mortgage market, and says it is currently too narrow and reliant on “two main distributors”.
“Our reasons for entering the market are to address customer and regulatory concerns and offer the flexibility that’s being asked for.
“But you have to be in the market to support that change. I think about it terms of swimming, you can read books about it and watch people doing it but unless you are in the water and you start to swim, you won’t be able to do it and you will drown.”
Finding balance
A huge operational challenge for Dijkstra is to decide which parts of Lloyds’ lockdown working life will remain, and which will return to pre-pandemic norms and how the bank interacts with brokers is a major focus.
With the vaccine roll out in progress, her team has started to look at new ways of working. They want to find how the way in which customers and brokers want to interact with the bank has changed bearing in mind the national mood that a work/life balance is more of an expectation now rather than an aspiration. Behind the scenes they are already experimenting with new approaches.
Dijkstra says the bank is already reviewing the number of offices it has and whether they will still be needed and she is sure other companies in the mortgage sector will be doing the same.
“We have a brilliant opportunity to redesign how we work and to do it from everyone’s perspective, the broker, the BDM, the national account manager, networks and mortgage clubs.”
One role destined for long-term change is the BDM.
“When I practically think about BDMs, do I think that we will all jump back in the car and get on the road, no. There will definitely be a hybrid [solution].”
She says it’s difficult to design how the job role will look on paper so it will be a case of trying new ways and finding out what works best.
For now, Dijkstra and the intermediary team will be working full throttle to support brokers and borrowers as the stamp duty extension prolongs the mayhem for a few more months. But as the bank crosses the half year line, mortgage brokers can expect to see much change across Lloyds’ trio of brands.
The bank put £4.2bn aside in impairment charges, up from £1.3bn last year.
However, the figure was lower than the £4.5bn to £5.5bn Lloyds Bank predicted it would need in July as the economy improved in the second half of 2020.
Lloyds said it expected the economy to continue stabilising in 2021 resulting in lower impairment charges for this year.
The bank’s net income also took a 14 per cent hit to £14.4bn and its net interest income (NII) dropped 13 per cent to £10.8bn. Lloyds said the decline in interest income was driven by lower rates and a change in its asset mix.
Overall, its net interest margin was 2.52 per cent for the year.
Mortgage book growth and borrower stability
Its mortgage book increased three per cent to £277.3bn its full-year results showed, with £6.7bn of that coming in Q4.
Lloyds said this reflected the strength of the property market which has seen heightened activity due to the stamp duty holiday and pent up demand following the reopening of the sector.
It did not give a figure for new mortgage lending issued in 2020.
The majority of its borrowers have recommenced mortgage payments following forbearance resulting from the pandemic showing a return to financial stability for its customers.
The results showed of the 489,000 mortgage holders with loans totalling £61.9bn who had paused payments, 428,000 borrowers with mortgage loans valued at £53.8bn had resumed.
Lloyds Bank’s mortgage book loan to value (LTV) average remained low in 2020 at 43.5 per cent, slightly down on the 44.9 per cent average in 2019.
Likely due to the lack of available high LTV products for the majority of 2020, just 0.3 per cent of its mortgage holders had a 0-10 per cent equity in their homes while 7.8 per cent had 80-90 per cent.
The average LTV for new business was higher than its total loan book at 63.9 per cent, a decline from an average of 64.3 per cent in 2019.
Antonio Horta-Osorio, outgoing executive director and group chief executive of Lloyds Banking Group, said 2020 was a challenging year for everyone, “but across the UK we saw people and communities come together to support each other and adapt to a completely new way of life.
“Despite the challenge of a global pandemic, our customer-focused business model enabled us to deliver a profit for 2020. Our results continue to demonstrate the strength of our customer brands, our balance sheet and our strategy.”
New CEO
Lloyds Banking Group also announced it appointed Charlie Nunn as its group chief executive and executive director, replacing Horta-Osorio who confirmed his resignation last year.
Nunn will take up the role on 16 August.
In the interim, William Chalmers, current group chief financial officer will take on the role of acting group chief executive when Horta-Osorio steps down on 30 April.
