Help to Buy remortgage lenders would have changed without government intervention – MarketWatch
So this week, Mortgage Solutions is asking brokers: How do you think these changes might stimulate the market?
Phill Green, founder and CEO of Trufe Money
If you were expecting that an overhaul from the government of Help to Buy (HTB) would mean significant changes, ideally positive, addressing its flaws then unfortunately you’re going to be sorely disappointed.
It’s no exaggeration to say the HTB scheme has very serious questions surrounding it. It’s a Christmas Tree initiative meaning that each of the players in the process gets to hang things on it allowing them to generate their own bit of profit.
It’s expensive, inflexible and un-transparent but what’s insidious about the scheme is how it’s marketed to first-time buyers (FTB) to get on the ladder.
The government will laud the 210,000+ properties purchased using the scheme but 81 per cent were FTBs, meaning 171,000 people dreaming of owning their own home have been taken advantage of.
If there was a genuine overhaul coming, I’d could talk glowingly about how the equity loans in the scheme are a fixed value amount not a percentage.
I’d be delighted to say that the mounting fees at the beginning, throughout and the end of the process were regulated.
I would be welcoming the news that the government had worked with lenders to guarantee a full suite of remortgage options and I’d be able to understand why the average purchase price for those FTB’s using HTB is 20 per cent higher than the average FTB purchase price.
Don’t worry though, the overhaul means that the scheme going forward will only be available to FTBs and we will have regional purchase price caps. So, it’s all sorted.
Adam Kasamun, associate director at LDNfinance
Allowing buyers to extend their mortgage to beyond 25 years brings the HTB scheme in line with lender criteria, which previously had perhaps made it difficult for some buyers to qualify for the scheme.
If the issue being assisted is, that in higher priced property areas for buyers, there is an inability to save enough for a deposit as a result of higher living costs, then setting an arbitrary limit on the length of the mortgage allowed is counter-intuitive.
At the moment there are at least 25 lenders that engage with HTB, all offering a different proposition to the next. With this, the majority of mortgage applicants should have an option when it comes to securing a mortgage, subject to the usual caveats of course.
Currently, remortgages appear to be a bit more restrictive in terms of offerings, with approximately 15-20 lenders allowing a remortgage when not repaying the HTB loan. I think this would have changed organically regardless of these changes being implemented.
When it comes to stimulating the market, there is no need to reinvent the wheel.
What is needed is more housing and so, while these schemes are welcome and offer an opportunity to some who otherwise would not be able to buy a property previously, if owning a home is to become a reality for everyone rather than the few, then a solid commitment to house building must be implemented and followed through.
Nicola Aborn, managing director of The Mortgage Hut
Since March 2018 around £43bn worth of property has been bought under the HTB scheme. It is safe to say that HTB has been one of the most successful government initiatives in decades as it has driven the growth of home ownership.
Extending HTB a further two years past 2021 is a welcome step for the industry. And though it will be restricted to first-time buyers, 81 per cent of current scheme users are first-time buyers so we don’t anticipate it will have a negative effect on the market.
The part of the amendment which stands out is that consumers will be able to take the equity loan for up to 35 years rather than the previously mandated 25 years. This is good news for homeowners in the scheme as they will have greater security and stability.
As an industry, we already have a diverse range of criteria for lenders to enable us to give consumers the best solution possible but there is still room for improvement.
We would like to see more lenders entering the HTB remortgage market. More lenders will mean consumers have a lot more suitable choices as it is more competitive.
Going from a market with a small number of players and options for consumers 18 months ago, we now have a very healthy and effective market for HTB homeowners looking to remortgage. We must continue to offer more choices to uphold the scheme’s successful legacy.
Comparison sites never claimed to be giving personal advice – Marketwatch
This shone a light on the role of brokers at a time when consumers may be forgoing professional advice in favour of information readily available at their fingertips – regardless of how detailed or accurate.
So this week Mortgage Solutions is asking brokers: Are price comparison sites too simplistic? How do they highlight the importance of advisers?
Greg Cunnington, director of lender relationships and new homes, Alexander Hall
The Experian report was an eye opener but would not be a surprise to intermediaries who understand there are a lot more nuances. It is also a strong reflection on why any focus on price alone is incorrect and will not lead to the best outcomes.
There are over 15,500 residential and buy-to-let mortgage products currently available in the UK, according to Twenty7Tec. This number is increasing every year, highlighting the vast number of options out there. This is a minefield to navigate for anyone looking without help.
Combine all those options with infinitely varied personal and income circumstances, the variety of property types and how they can impact a buyer’s options – you can see how product alone selection is far too simplistic.
There is also the added element that with the more complex client scenarios, a manual underwriting assessment is required.
It is not only circumstances that mean advice is key, but also the myriad of options available. All clients should seek advice on something as important and complex as a mortgage, which a comparison site cannot offer.
For clients who worry after rejections, we can see from the eligibility stats that if they have applied based on price there was a good chance they would be rejected, and there is still a good chance there will be options out there on the market for them. Therefore, a comparison site should be used just as a rough guide, but advice should be taken from an intermediary before any lender is approached.
Miles Robinson, mortgage sales director, One 77 Mortgages
In my view, comparison websites are informative tools to give clients an indication of rates and eligibility of mortgages, essentially a simplistic overview of what is available to a client. These tools can be very useful for clients that are not quite ready to fully commit to the mortgage process or are in early stages of a purchase or remortgage and just wanting an indication.
We live in a world where consumers want answers at their fingertips, comparison websites fit that purpose, however as a business we have found that at the point clients are ready to commit most ‘want help’. For a comparison website to provide an ‘advised’ recommendation of the suitability of that mortgage is questionable, therefore does that constitute advice?
The comparison website is asking a client to input all the correct information and then confirming the lowest rate product is the best for them without any interaction from a qualified adviser.
A comparison website is also relying on a consumer to input the correct income and commitments as the lender would see them and for complex incomes or multi-income streams or multiple commitments both credit and non-credit, these are where the variables happen and I assume this is how a third of cases result in a decline, simply a client not understanding what they need to provide or what should or should not be taken into account.
In summary, comparison websites are great for initial checks and eligibility but having a qualified adviser to help you through the application is priceless.
David Hollingworth, associate director at London and Country
Comparison sites have been part of the market for some time now and given the strength of comparison sites in many sectors of personal finance such as insurance and energy, it’s highly likely that mortgage customers will have looked at comparison sites before talking to an adviser.
Comparison sites have never claimed to be giving users advice on personal circumstances. Although it has become easier for borrowers to customise and filter the best buy listings, there is still much more to securing the right deal.
Advisers can ask questions around lifestyle to help the customer determine the right approach for them, before factoring in their individual circumstances to make sure they can pinpoint the right deal and criteria.
Comparison sites recognise that and we work in partnership with several to provide an advice option to customers that do not want to, or are not confident enough, to apply for a deal without greater reassurance.
The figures from Experian highlight the fact that qualifying for a deal and meeting the quirks of lender criteria is just as important to the success of an application as finding the cheapest rate. Of course, sites are and will continue to develop eligibility tools to improve that success rate.
It still won’t constitute advice and we know that although consumers like and expect to be able to interact online, they will often still need the assurance of advice. Brokers need to ensure that customers understand the added value that can bring.
First-timers: Equity release interest and a smaller mortgage is cheaper than a high LTV deal – Marketwatch
According to UK Finance figures earlier this year, this group reached a 12-year high in completions.
So given this and other positive sentiment around the market, Mortgage Solutions asked our panel what the reason behind this rise is, and if they expect the trend to continue this year?
Andy Wilson, founder of Andy Wilson Financial Services
We are also seeing an increasing number of first-time buyers. The reasons for this seem to be varied.
Many are using new build Help to Buy, and the Lincoln area is seeing a lot of new housing developments.
Our borrowers are also aware that the Help to Buy scheme will be withdrawn relatively soon with no indication of a replacement, so now is the time to move.
Others are using the Help to Buy ISA funds. Couples who started ISAs in December 2015 and have paid in the maximum can now receive free government money of £3,000 towards their deposit.
In 12 months’ time even sole buyers will be able to do so, having paid in the maximum qualifying sum of £12,000.
Some first-timers have received parental or grandparental help with deposits.
We have arranged a number of equity release cases to help with this.
Where the applicants can afford to also pay the interest on lifetime mortgages the total payments on both mortgages is less than if they took a higher loan to value (LTV) house purchase mortgage at a higher interest rate.
I believe there is a good deal of confidence in this market now, with fears over Brexit subsiding. Many we speak to do not care much about the possible effects of Brexit, simply because no-one seems to know what will happen.
Any fears over interest rates rising can also be alleviated by using a five-year fixed rate to ride the borrowers through uncertain times – the pricing for five-year deals is very close to two- and three-year deals, which was not previously the case.
I see no reason why the numbers of first-time buyers will not be sustained over the next six-to-12 months unless Brexit serves up a curve ball.
Jeni Browne, sales director at Mortgages for Business
It’s the perfect storm for first-time homeowners at the moment, with more reasons than ever to buy their first home.
Those who may have been put off taking the plunge by Brexit, will be encouraged to act sooner than later by first-time buyer Help to Buy incentives either ending or being restricted in the next few years.
Mortgage lenders are now creating more products with 90-95 per cent loan to value ratios, so these first-time buyers need less of a deposit than in recent times, making their dreams a bit more in reach.
The slow housing market, largely due to the political uncertainty surrounding Brexit, makes it an excellent time for house buyers with no property to sell, enabling them to get houses at a lower price.
It’s also now that the impact of George Osborne’s tax restrictions from 2015 are really biting the buy to let sector. The more amateur landlords selling-up has increased the number of lower level properties available.
This opens-up more houses for first-time buyers at the lower price point.
Over the next six months I predict that this trend will continue if Brexit remains at a stalemate.
David Pinnington, director of intermediary relations at Finance 4 Business
I think the answer is quite simple, 12 years ago we were at the start of an ominously dark period of recession, the mentality of “if you have a pulse, we’ll lend” era ended overnight and the slow recovery began.
It understandably took lenders a while to feel comfortable raising the LTV’s back to 95 per cent and we’ve in more recent years seen the introduction of the government’s Help to Buy initiative.
Add these two factors together and include a consistently growing population and the lowest unemployment rates since 1974, it’s not difficult to see why based on 12 years ago this market is at such a high.
And where do we see this heading in the next six months? It’s time to polish off the crystal ball.
With the very recent change in Conservative leadership and the fast approaching “final” Brexit deadline, who knows what lies in store, not just for the first-time buyer market but for everyone else.
I’m a great believer in you can only deal with the here and now, on this proviso I’d say the market will remain buoyant, caveated with the fact that a bunch of egotistical maniacs are capable of ruining this in October.
PRA changes are ‘forcing landlords to take products which do not fit their plans’ – Marketwatch
So, this week Mortgage Solutions asked brokers whether they see borrower demand growing, what the reason behind this is, and how likely they are to recommend them for their clients.
Simon Jones, director at Affinity Mortgages
Over the last three years we have seen a general shift away from two-year fixed rates to five-year products, with cost of funds being a key driver of customer behaviour.
The discrepancy in rate is largest between 95 per cent loan to value (LTV) and lower brackets, however this gap has reduced significantly over the last five years. The difference between two-year rates at 80 per cent LTV and 90 per cent LTV now averages 0.5 per cent, whereas it is just 0.25 per cent on five-year products at the same LTVs.
We still see some reluctance from some first-time buyers to lock in for longer at initial purchase due to the general uncertainty surrounding their future. For this reason, we are doing more two-year fixed rates in this area, peppered with the occasional three-year rate, especially at higher LTVs.
This changes when you get to second-time buyers and re-mortgage application, with lower LTVs, where the demand for five-year products jumps massively. These are specifically prominent in buy-to-let applications where a greater loan size can be achieved due to more generous stress tests.
A key driver of longer-term products is the impending uncertainty around Brexit, which thankfully, the length of this commentary prevents me from remarking on further.
Another factor is the education from our lending partners who have advised that swap rates are lower than they have been in a while, which in turn has led to more competitive short term rates.
Coupled with this is the confidence lenders have in the base rate holding at current or similar levels, which enables us to impart invaluable information which the clients are then able to use in their decision as to which products they opt for.
James Chisnall, director at City Finance Brokers
Rates are fantastically low at present and with all of the uncertainty around Brexit, why wouldn’t someone want to fix long term?
Especially when the alternative is to go on either a variable rate which is likely to only increase, or fix for two years and take a gamble on what the client will refinance to when their deal ends?
With the pricing of longer term fixed rates being such great value, and not a million miles from two year money, we are seeing a great deal of borrower demand.
By the time you’ve factored in the cost of refinancing in two years, the difference in pricing is often reduced further and you have the certainty of being able to budget for longer, meaning this would be a great recommendation for many clients.
However, what we recommend very much depends on the individual client and their future plans. Somebody looking to sell within a few years might not be suited to a longer term fix and its accompanying exit penalties, for example.
A lot of buy-to-let landlords are being forced down the five-year route as these products have more generous interest cover ratio (ICR) calculations compared to two-year rates. Many landlords, particularly portfolio clients, want to have the flexibility that shorter term rates offer.
The Prudential Regulation Authority (PRA) regulation has seen that change dramatically and a huge number of landlords are being forced to take a product which does not really fit their future plans and aspirations, yet is the only way to get close to the borrowing requirement.
Alex Smith, senior mortgage and insurance adviser at Capricorn Financial
I have definitely seen an increase in the demand for longer term fixed rates, with five-year fixed rates being the most common.
The narrow spread between two- and five-year fixed products at certain loan to valuations makes it easier for borrowers to consider a longer product term.
This and the slower pace of house price inflation, and ever burdensome cost of stamp duty, means people tend to have a longer term view with property purchases overall and their mortgage choice is beginning to reflect that.
However, longer term fixed rates are not suitable for everyone, and it very much depends on where the individual is in life.
For example, those upsizing to family homes tend to favour five-year fixed term products provided there are no plans to disturb the mortgage in order to capital raise for home improvements in the short term, or make a large lump sum overpayment to reduce the mortgage.
Conversely, first-time buyers are often better suited to short term products, and those with smaller deposits of five per cent may find a five-year deal too expensive to begin with.
From an advice perspective, the length of fixed term a client embarks on is one of the most important considerations given the potential downside of stiff early repayment penalties. By taking the time to understand a client need and ensuring they understand the benefits and limitations of the various product terms on offer I’m happy to recommend them, and do so on a regular basis.
‘Our advisers regularly see clients whose focus on price alone has not led to a good outcome’ – Marketwatch
Leonard said that the regulator’s focus on mortgage price alone is a “sad thing” and the industry must push back on that being seen as the only good customer outcome.
So, this week Mortgage Solutions asked brokers what the other key factors are in order to make up the best deal for customers and how they document those in compliant terms.
Carl Wallis, head of group compliance at Sesame Bankhall Group
The reasons why an adviser hasn’t recommended a potentially cheaper mortgage are usually stated within the client file, as this has been a point of ‘best practice’ for some years. The reason may need to be made more explicit within the closure letter in some instances, but this new rule is unlikely to lead to significant process changes for most firms.
A couple of sentences within the suitability report, backed up by evidence of the research undertaken, should suffice for this purpose.
A key finding from the FCA’s Mortgage Market Study was that 30% of consumers using an intermediary didn’t get the cheapest deal. But this figure alone does not tell the whole story.
The base research used to provide this figure highlights that the 30% includes direct deals and other mortgages that the advice firm does not have access to.
The base research states that, when limited to the deals available to the firm this figure falls to 15%, meaning that advisers recommend more expensive deals to roughly one in seven customers.
Given the diversity of individual customer circumstances and requirements that could lead to the discounting of potentially cheaper deals, the figure doesn’t appear to be excessively high.
Under FCA rules, firms are perfectly entitled to limit their scope and range to exclude direct deals and use panels, so long as this is clear within disclosure documentation. The proposed new rule only applies to deals within the firm’s ‘scope and range,’ so will only be relevant in the minority of cases.
What the proposed new rule will do is put a heightened importance on both the accuracy of sourcing software and the evidence of appropriate research within client files.
Dominik Lipnicki, director at Your Mortgage Decisions
Our advisers all too regularly see clients that have made mortgage decisions based on rate or price alone and this has not always resulted in a good outcome for them or their family.
I think that it is imperative that a thorough fact find takes place, ensuring that advisers have a clear vision of clients plans and aspirations.
Planning now for major events such as having children or big expenses like weddings, home improvements or further education is crucial in good mortgage planning.
Focusing on price alone may often be too bland, a perfect example is when clients are concerned about interest rate rises and believe that rate may well be significantly higher in two years than they are now, the cheapest product now might be a two-year fixed but is it the most suitable?
For some clients, flexibility may well be worth paying a little extra for, if they have a plan that will enable them to save overall. The real selling point of a good adviser is the ability to think outside of the box, ensuring that the solution is tailor made and will stand the test of time.
It goes without saying that our advisers source on total to pay first and need a clear justification as to why the top product has not been selected.
Getting clients to be happy with the payment today is easy, ensuring as far as possible that the decisions our clients make today, still work when the fixed rate ends or when their children go to university is the real aim.
Lilla Dilliway, director at BlueWing Financials
There are essentially a number of things that brokers should consider before making a recommendation to a client: lending criteria, affordability, price (cost) and what I’d call “other factors”.
Price is only one part of the mix – once we identified the potentially suitable lenders based on criteria and affordability, we have to look at who offers the cheapest deal, but the recommendation process does not necessarily stop there.
Other factors may include a client’s preference for not dealing with a certain bank or the situation requires fast turnaround time and the lender offering the cheapest deal would not be able to meet the deadlines.
Of course, it is important that we offer the “best deal” for the client, but it may not be the cheapest deal.
In line with the Treating Customers Fairly and Know Your Customer guidelines as well as the various conduct rules, our recommendation has to be documented, justified and proven to be the most suitable for the client, so if the FCA wants to focus on recommending the cheapest deal and then justifying if we do not do that, it should not be anything new.
Through our case notes, evidence of research, affordability calculations, suitability letter and so on, a broker should already have all the evidence to explain why the cheapest deal was not recommended and why the recommended deal was the most suitable one for the case.
Lender closures: Is a code of conduct needed? – Marketwatch
Last week Tesco Bank stopped new mortgage lending and is exploring options to sell its existing mortgage portfolio.
So, this week Mortgage Solutions asked brokers whether lenders should agree to a code of conduct in how they will treat customers during a closure process, should it arise, and what its key requirements should be.
Lisa Bird, chief operating officer at The UK Adviser
We would welcome a code of conduct, which would benefit both lenders and their customers. It would provide consistency to the industry and allow all clients to receive the same high-quality treatment – something which we pride ourselves on.
Lenders have to adhere to FCA rules and treat customers fairly, however, due to the saturated sector, some lenders haven’t survived in the last six months – this has affected the lending pipeline and left some customers in difficult situations.
We believe in treating customers fairly, and lenders should have a duty to do so too. This shouldn’t change if the lender leaves the market, and the code of conduct should include steps to protect customers in this event.
Everyone in the process is affected if a lender disappears, however, advisers can go some way to helping a client in a conundrum, if they are provided with information from the lender. Advisers will then be able to let the customer know if they should opt for a different lender. It doesn’t prepare us for a lender leaving the market, although the advantages of using an adviser means that they can quickly adapt an application and share it with an alternative provider from the preferred panel.
We welcome lenders visiting our head office and speaking to our franchisees and advisers. This enables everyone to keep up with trends and changes in the market, and build relationships with lenders which will allow advisers to provide the best service and insight to a customer.
Gary McKenna, mortgage and insurance consultant at Hawke Financial Services
I personally do not think lenders should need to agree to any extra code of conduct around leaving the market place nor how a pipeline is managed – it is not something we would like see become common with lenders and obviously keen to see lenders last the course.
The only time we have experienced poor service and issues is when mortgage offers have been retracted (which is very rare) and subsequently those lenders have either pulled out of the market for funding reasons or gone into administration – in these circumstances I think there needs to be protection to the clients which is expected from a binding mortgage offer.
In my opinion, Fleet Mortgages did this very well, their new funding line was in process of being agreed so they closed their doors temporarily and honoured the pipeline in which we had two or three offered cases and they completed with no issues. Once they were ready they came back to the market in a positive manner.
Lenders do already have a code of conduct around this point which is TCF – whether the lender is slowing down, stepping away or unfortunately found themselves in a tricky financial position they have a duty of care to clients which should be visible in all aspects of their business not just when a pipeline needs managing out.
Jonathan Burridge, development director at JLM Mortgage Services
We already have a customer outcome-focused regulatory regime at present and yet more layers of regulation, whether voluntary or legislative, are not really desirable.
Realistically it is not in lenders’ interest to make the customer journey any more sticky than it need be because as we have seen, in many instances, lenders are continually forced to address external pressures of funding or regulator pressure, be it from the Financial Conduct Authority (FCA) or Prudential Regulation Authority (PRA).
Funding has been an issue and it is certainly a consideration that an adviser may bear in mind when looking at case placement but hopefully these issues are rare and actually the lenders affected have taken steps to honour what they could and compensate where they could not.
Sometimes the stickiness of the customer journey can be put down to the lender’s approach to underwriting and this can often be exaggerated by a ‘generalist’ adviser attempting to deal with a niche lender that they have had limited exposure to. Specialist knowledge in this part of the market is vital.
A ‘standardised approach’ might seem like a lovely concept in theory but by its very nature the niche/complex prime market is non-standard. In that sense a ‘standardised approach’ doesn’t really work and it may be a pipedream given the number of lenders and the very different ways in which they operate.
‘It’s clear comparison sites are looking to enter the product transfer market’ – Marketwatch
In this respect, product transfers and digital advances represent two of the key factors they should be focused on in the next five year time.
So, this week Mortgage Solutions asked lenders to reveal their future projections on the broker market.
Chris Pearson, UK head of intermediary mortgages at HSBC
We anticipate the mortgage market will steadily grow in gross lending terms for 2019. There is a slightly wider bandwidth to our expectations this year given macro-economic uncertainties facing the UK.
Additionally, product transfers remain an important area for brokers to add value to customers and we see no reason why the broker share of this market won’t continue to gain traction.
With some good value longer-term deals available across the market, perhaps representing the right advice for some customers, the frequency of customers looking for refinancing options will move out a little.
Importantly, the need to maintain a regular dialogue with customers remains vital. The economic position is one of stable but gradual growth and, aside from Brexit, a relatively benign picture.
The mortgage market represents one of steady growth in gross lending terms. Technology continues to move on at pace and this should continue to make it easier for customers to interact with their financial services providers.
Typically we should see much a much improved ability to utilise customer data in a way that saves them time, helps manage their finances, reduces paper work and speeds up decisions through the journey.
Connectivity from broker point of sale and advice systems through to lender platforms is beginning to emerge in the mortgage sector through the use of application programming interfaces (APIs) and bank, fintech and broker collaboration. I suspect this is just the starting point for further such integration across the wider journey over the next five years.
Graham Felstead, head of intermediary mortgages at NatWest
The broker market is becoming more and more influential, as customers choose to turn to trusted advisers, who can give them a huge amount of variety.
As a lender, we want to help brokers make informed choices on behalf of their clients, and make it easy for them to do business. A key part of this is using digital innovation.
We’ve introduced our secure upload facility which is speeding up the application process, and brokers tell us that they love it. Innovation is inevitable, and necessary, and we need to not just keep up, but help lead the way.
It’s something that we’re constantly focused on, and we’re looking at all the areas it can be used to help customers and brokers. For example, advances in Blockchain technology have the ability to make the conveyancing process less painful and it will be interesting to see the part that APIs play within the intermediary sector.
It is clear that comparison sites are looking to enter the product transfer market as evidenced by Nationwide working with Money Supermarket. Brokers therefore need to ensure that they maintain the strong relationships they have with their customers so that they return to them for advice.
Our number one priority needs to be on being the lender who supports brokers in this changing market, and we’re always looking at new ways of doing that.
Damian Thompson, director of mortgages at Aldermore
There should be a sense of optimism among brokers; 70-80 per cent of residential transactions are currently through an intermediary, up from 50 per cent ten years ago, showing their guidance has never been more important as borrowers’ circumstances diversify and processes remain complicated.
We’d expect market size to remain relatively unchanged over the next few years. But we may see renewed home mover confidence as Brexit uncertainty settles and an increasing portion of baby boomers retire and look to unlock wealth in their homes through the wider choice and access to flexible credit, with some seeking to downsize.
First-time buyers should grow too as product choice increases and rates remain low, with many seeing the benefit of Help to Buy before it ends in 2023.
Digitisation also adds exciting possibilities in optimising the application process through enhancements in sourcing while API enablement promises to speed up execution and improve service. As comparison tools become more reliable, straightforward borrowers may increasingly go direct to lenders.
There is an increasing proportion of complex incomes and the self-employed among the next homeowner generation, alongside increased landlord paperwork and the rise of later life lending, which will require expert broker advice.
Regulatory change may have muted buy-to-let activity but there are still opportunities, especially as nearly 90 per cent of lending is currently via brokers.
We expect movements in refinancing the late-2015/early 2016 activity surge, assisting landlords as many diversify their needs away from a growth strategy and guiding the shift toward professionalisation.
Lenders that can ease the increasingly complicated mortgage process by providing streamlined instruments, such as pre-prepared business plans and portfolio documents, alongside smooth, quick lending facilities via brokers, will be the big winners over the next five years.
‘I win customers through social media but not enough to discard other lead generation’ – Marketwatch
Over the last few years businesses have started to use social media platforms as a channel to attract new customers.
So, this week Mortgage Solutions asked our brokers whether social media has helped them win more business, and if so, how?
Chris Hall, mortgage and protection adviser at Mortgage Guardian
I do not think it can be disputed that the number of mortgage brokers taking to social media has dramatically surged in the last three years.
Although visual growth on social media has been impressive I am yet to be convinced that this is the most beneficial way for me to recruit new clients at the moment.
I do attract customers through social media but not nearly enough to discard other lead generation activities, particularly word of mouth and not forgetting repeat business.
Social media is a great tool for building trust and recognition, however I find that potential new clients will want to connect with me on a personal level first before doing business. People buy from people they know, like and trust when connecting and engaging on their personal social media platforms.
The concept of social media is still the same in my opinion but volume has risen with technology making social media more accessible than ever. Sales messages have risen immensely which is clearly not the way I would want to try and connect on a personal level.
I do tend to find though that a new client will often check out my various profiles on social media platforms before calling me regardless of how they found out about me. That’s great because it makes my job easier when they do actually call.
Just like many, I am not yet a social media expert but I can only see things getting better with time.
Miranda Khadr, founder at Yellow Stone Finance
Social media can provide a good channel to reach new clients. At Yellow Stone Finance we have a LinkedIn profile, Facebook page and Twitter account. Each of the platforms helps to reach a different type of audience.
Our LinkedIn profile for example is really good at getting our brand in front of professional clients who might be looking for business funding or development finance. It also helps us to reach broker firms with whom we might establish referral relationships in the future.
With LinkedIn, we tend to share press coverage, our blogs or other information about the business. We take a similar approach with the content we use on Twitter and we tend to use more visual content, such as infographics or pictures, on Facebook.
One misconception is that social media gives brokers an opportunity for free promotion. The channel may be free, but in order for it to be successful, it is worth investing in the content you use to populate your social channels – this might be an investment of your own time, or money to pay someone else to create the content, but it is still an investment.
The great thing is that a good idea can go a long way and achieve a lot of traction. For example, at the height of the media frenzy around a Brexit deal, we ran a royalty-free image of Theresa May, with the “A good deal, is better than a bad deal” and our logo.
This was a simple idea that worked because, while being a bit cheeky, it was also quite neutral and did not say anything negative or derogatory.
Rob Jupp, Group CEO at The Brightstar Group
In my mind there is no doubt that, used correctly, social media can help brokers to win more clients and grow their business. The key here is using it correctly.
We have all heard horror stories of a poorly considered tweet or social post creating havoc in someone’s career, but this can be avoided if you understand that anything posted on social media has the potential to appear on the front page of a paper and so filter your own activity accordingly.
This does not mean that your profile needs to be filled with entirely professional content.
One of the reasons that social is so powerful as a channel is that provides a platform in which you can share a bit of your personality and build a rapport with followers, and for brokers this can help to build trust with potential clients.
I am quite active on Twitter and have more than 4,000 followers and anyone who follows me will know that I use it to communicate business announcements and share press coverage, but I also talk a bit about my life and interact with people.
I’m not saying I get it completely right, but it does demonstrate that you can show a human side on a professional profile.
So, my tip to brokers would be engage with social media and don’t be afraid to be yourself. With a bit of common sense, it can be a great way of establishing an initial relationship with potential new clients, before you have even met them.
Brokers: What does ‘doing the right thing’ look like? – Marketwatch
Speaking about the future of financial regulation, Bailey said regulated firms should be focusing on culture with principles and outcomes being more important to the regulator than rules.
So, this week Mortgage Solutions asked our brokers what ‘doing the right thing’ means to them and what they expect from the regulator from now on.
Lilla Dilliway, director and mortgage and protection adviser at BlueWing Financials
Fundamentally, I agree with Mr Bailey that staying within the rules is not enough and principles and consumer outcomes have to be at the forefront.
For example, a client with missed payments/defaults on every account ever held could in theory get a mortgage, but is recommending a mortgage always the right thing? There have been instances when I advised clients to sort out their finances first and then consider taking a mortgage whilst I acknowledged that technically I could arrange a mortgage for them.
Had I just given a mortgage, I would have stayed within the rules, but I don’t believe that it would have been the right thing to do. That is not to say that I don’t arrange mortgages for people with adverse credit history, far from it, but I do consider whether I truly treat the customer fairly given their vulnerability in financial situations.
A quote from the FCA chief’s statement: “I see rules as a means to deliver outcomes, and it is important not to focus too much on rules as the beginning and end of the process of regulation. Outcomes matter at the end of the day.” In my opinion, rules and principles matter, as they set a framework, and whether an outcome is “right” may be a matter of viewpoint. Did I do the right thing to turn down an adverse credit business when I thought that the client should get themselves in order first? I believe I did, but the client may disagree.
Robert Winfield, managing director at Chartwell Funding
So ‘doing the right thing’ is the new buzz phrase at the FCA. If this means continuing in the same vane as we do now it will be happy days as none of our business owners want to be forking out on any more FCA new ideas.
The fact that we have to give best advice at all times, show detailed client interrogation in a fact finding document, produce market research information, provide bespoke client ESIS documents, justify everything in a detailed suitability report, positively identify every client, obtain documents to confirm their earnings, scrutinise bank statements to confirm solvency and finally submit everything securely using a lenders portal is surely doing the right thing.
If not, I think it is high time the FCA actually showed us some rules with processes to follow as opposed to relying on us to interpret their principles and best practices to decide what is best for our businesses.
At present, I am very happy that my business does the right thing for our clients but I am not convinced the FCA does the right thing for their clients – us mortgage brokers – with escalating fees and constantly trying to reinvent the wheel. Perhaps the new buzz phrase should be ‘are we doing the right thing?’
Robin Fawke, partner of Hawke Financial Services
I think that the customer outcome has to be at the forefront of a broker’s mind when giving advice and making recommendations and I entirely agree with Andrew Bailey.
As an organisation I do not think you focus purely on the rules. A business that is built on reputation and recommendation needs to be client-centric, ensuring clients understand the products they have been recommended, making sure they are clear on the costs, benefits and potential risk. This all has to be built around the rules.
When discussing cultures and principles, I would question how these can be reflected in firms/banks that push for a fully automated mortgage process where a customer’s understanding is not fully tested. This is particularly important with more vulnerable clients. In this automated environment are the systems not built purely on rules?
I am not old school, but some technological innovations need to be tested to ensure that they are delivering the regulators and firms ‘public interest objectives’. What impact may clients experience in the future and how rigorous is the testing of these innovations before they go to the public?
In the main I agree with the statement and as with every business, change and innovation need to be embraced. A change for change’s sake though can sometimes encumber and frustrate. I welcome any change that benefits the ‘public interest’ and just hope that as these are made to regulation, transformation or delivery, they are well tested and fit for the purpose.
‘Lenders need to start considering non-sterling income on applications’ – Marketwatch
So, this week Mortgage Solutions asked our panel what is missing in the mortgage market and what products brokers want to see in the next coming months.
Raymond Boulger, senior mortgage technical manager at John Charcol
Choices for first-time buyers will reduce in under four years unless the market responds to the withdrawal of the Help to Buy (HTB) Equity Share second charge scheme.
With HTB accounting for 40-50 per cent of many house builders’ sales this is critical for the government’s house building target as well as the sector.
The situation is compounded because despite a wide choice of 95% LTV mortgages most lenders impose a lower maximum for new build properties, especially flats. To avoid a politically damaging hit to new build sales around the likely time of the next general election it is just as much in the government’s interest as the industry’s to facilitate a replacement for HTB.
A private sector HTB type facility is the solution, but not one limited to the new build sector. This would be healthy for the housing market as it would align the cost of buying new and second hand properties, forcing developers to compete on a level playing field. Like HTB, the equity share should be parri passu (on an equal footing) but, unlike HTB, it would also need to charge interest to be commercially viable.
The reason such a structure makes sense is the huge marginal cost of the top five per cent of a 95% LTV mortgage. Despite the spread between high and low LTV rates falling significantly since 2017 the marginal cost of the top five per cent of a 95% LTV mortgage is still around 20 per cent. This compares with unsecured loan rates for amounts between £7,500 and £15,000 starting at 2.9%.
Greg Cunnington, director of lender relationships and new homes at Alexander Hall
We have seen more innovation in terms of criteria, and dare I say it, lenders going up the risk curve than I can remember seeing. It certainly makes things exciting for advisers as new opportunities are coming into play, even this week we can see the positive Halifax LTI changes, and of course the real winner here is the client.
However, we are now in a position whereby lenders do not want and cannot compete on rate anymore with margin so low and any further positive tweaks on policy are making credit departments nervous.
As such one arena where actually there is some room to play in is innovation on product.
In my view, an obvious starter point is for more offset options. The likes of Scottish Widows, Accord, Barclays and Coventry offer really good offset propositions and get some very solid business and clients from these products. Some more entrants and enhanced product options here would be greatly received in what is a strong market.
We have also seen some genuine steps in product innovation this year. Santander brought in a one-year fixed rate buy-to-let product which landlords really liked. Some more product innovation for first-time buyers would also be well received. We have also seen some positive first steps in products to help the inter-generational lending market. I can see this becoming a more mainstream part of the first-time buyer market. With increased marketing, education and products hopefully we are not too far away from seeing some strides here.
Mark Dyason, managing director at Thistle Finance
The UK lending market continues to innovate at a steady pace but some borrowers are still being left behind.
One group of people still being chronically under-served are international investors and buyers. A key reason for this is because those with non-sterling income are being unjustly overlooked because of the moderate additional risks associated with this type of customer.
Many lenders are turning these types of deals away almost immediately without carrying out basic due diligence. This is a mistake.
These enquiries usually come from those with higher incomes, though that income is paid in for example, in US dollars or Euros, rather than British Pounds.
Lenders are still struggling to get their head around this, and will simply turn away deals if the borrower doesn’t receive their income in British Pounds.
This creates a strain on the affordability models used by most lenders because they are not adaptable and capable of measuring the true credit risk of these applicants. Lenders are careful to ensure that if the currency of the customers’ income drops in value against the Pound, there is enough of a buffer to ensure the repayments on the loan is still affordable. However, the buffer they are factoring in is simply excessive.
As a packager, we are also keenly aware that better tech will improve the speed of deals — a crucial advantage when deals are often being rushed through against tight deadlines.
What we would like to see is a greater appetite among lenders to improve the technology they use to measure customers’ reliable income and credit risk. To a lesser degree, this will also help a relatively small but significant number of UK customers who also have overseas income they have been unable to leverage in the past.