Mortgage SVRs remain a ‘major factor’ but many borrowers are not interested – analysis
Customers do still revert to reversion and standard variable rates (SVRs) in certain circumstances, and so this remains a key part of the advice process.
Dominik Lipnicki, director of Your Mortgage Decisions, says: “The client’s expectation is that they will be moving at the end of the introductory period so whatever happens after that is pretty immaterial for most clients.
“But you could be made unemployed, your credit history could turn against you or we might have another crash in the housing market where loan to value becomes a huge issue and people could be in negative equity and unable to remortgage elsewhere.
“As an adviser, you should really be discussing what happens when a rate ends and if the client was unable to remortgage, but I fear that not many consumers are that interested,” he says.
Deals, deals, deals
In some cases, brokers are firmly focused on delivering the deals that clients want.
Chris Bailey, mortgage coach at Mojo Mortgages, says: “We calculate the true cost of deal for the customer on the deal period only. Throughout the process we appraise the whole market, constantly, for our customers.
“They know all their options and they are very much aware of the immediacy of the reversion rate,” he says.
However, other intermediaries have seen situations where clients slipped onto reversion rates owing to a change in circumstances.
Alastair McKee, managing director of One 77 Mortgages (pictured), explains: “The classic example is a client who took out an initial two-year fixed rate and 18 months later went self-employed. Most lenders won’t touch them until they have at least 12 to 24 months of signed accounts meaning their only option is to stay with the existing lender and their retention rates.
“Added to that, you’ll get some clients that leave things to the last minute and therefore don’t realistically have the time to remortgage to another lender and therefore a retention rate is the only viable option for them.
“All good brokers will always compare the retention rates for a lender to the open market rates so yes, they do play a major factor in the consideration of the client’s rate,” he adds.
Dangerous apathy to rates
While advisers’ focus is strongly driven by customers’ concerns about monthly repayments, brokers equally have a role in guiding borrowers’ thinking.
Lipnicki continues: “Borrower apathy to rates is immense and that’s hugely dangerous. Plenty of borrowers have never been in a situation where rates were higher, because they’ve only had a mortgage for the past 10 or 11 years and they’ve never seen it before.
“Plenty more do not remember the early nineties when mortgage rates were 15 per cent.
“People take it for granted and think that if the rate rises it will be tiny, because that’s what they’ve seen over the last few years. But of course we have plenty of potential dark clouds ahead of us with possibly Brexit, a possible global economy slowdown, the housing market and how expensive it will be to borrow money.
“Borrowers should think about the future by looking at the past and not just expecting rates to be at a low, because it’s far from certain that that’s where there will be,” he adds.
Rates go up as well as down
When the base rate plummeted following the financial crisis, lenders with lower reversionary rates were caught out.
David Hollingworth, London & Country Mortgages, associate director, communications, recalls: “When base rate did plummet, there were issues with some of the lenders that had low variable rates, because they’d never foreseen that base rate would come down so significantly. So some were unable to maintain the tracking margins they’d previously suggested they would, and used exceptional circumstances.
“Nationwide was two per cent over base maximum, but that was in the days the base rate was five per cent plus. Suddenly it was 0.5 per cent. They did honour it, but they had to remove it from new business products.
“So there are other issues that lenders have to be mindful of in terms of how they might enhance those follow-on rates.”
Spread of SVRs
Hollingworth also notes that there is a “substantial variance” in standard variable rates (SVRs) between lenders today.
“Some lenders’ SVRs are in excess of six per cent, whereas the likes of Nationwide, NatWest and Halifax are all coming in at 4.24 per cent. You’re looking at a range of around two per cent.
“You can’t just rule it out, but where you have two deals that are not identical, it’s a difficult balance whether to pay more on the first five years of the fixed rate, which is the functionality that you’re really interested in, because you might have a lower ongoing rate that hopefully you’ll never have to pay.”
“But there are instances we can point to, Northern Rock borrowers for example, who have unfortunately been left with little or no choice.
“Therefore the reversion rate should be inconsequential, but ultimately if two deals look pretty much identical and one has a lower reversion rate, all other things being equal, you’d suggest that is the better approach,” he concludes.
One77 Mortgages enters digital advice space with eKeeper’s Burrow platform
The upgraded system was designed to on-board clients and to give them an indication of their borrowing capability and eligibility for a mortgage. If the client’s situation is deemed complex or requires advice, the system will stop and suggest that they call One77 Mortgages on the phone.
The new version covers residential purchases and remortgages. Buy to let will be added in a later release.
“The idea is different from the likes of Habito or Trussle. Ours is a front-end tool that enables the client to understand how well-positioned they are to apply for a mortgage,” said Miles Robinson, mortgages sales director at One77 Mortgages.
“Other systems aim to get the client to transact with them and ultimately to apply for the mortgage with little interaction with an adviser.
“Burrow enables the client to get an indication of their borrowing capability. At the end of the process, the client receives a mortgage report that presents a score as to their eligibility for a mortgage. If they are in a position to proceed it will produce a high score.
“It’s almost a red-amber-green rating, essentially telling the client how well-placed they are to be a client for a mortgage. This is unique in the market — usually it’s just a ‘yes’ or a ‘no’.
“Then we want to talk to the client to provide a full recommendation, but it’s the client’s choice whether they want to talk to us,” Robinson added.
Customers dictate transaction
Alastair McKee, managing director One 77 Mortgages (pictured), said the new technology would enable the brokerage “to compete with the big boys that have millions of pounds of funding and are able to develop these systems.”
“We know from our website traffic that from 7.30pm to 10.30pm there’s a massive surge in demand. That indicates to us that there are customers who’ve got the kids to bed and are thinking, ‘right, we need to sort something out on the mortgage side’.
“Hopefully it puts the power back into the customers’ hands because they can dictate to us when they want to transact, rather than the other way around,” McKee said.
Available to eKeeper users
One77 Mortgages collaborated exclusively with eKeeper, which owns a CRM system used by brokers for day-to-day mortgage transactions. The resulting technology will eventually become available to eKeeper’s wider user base of brokers.
Phases two and three of the technology will develop an apply function enabling the client to fill in employers’ details, three years’ address history, to verify identity and to drag over bank statements.
Digital broker Burrow was acquired by technology provider DPR Group in 2018. DPR already owned the eKeeper mortgages system, as well as a banking origination and servicing platform used by mortgage lenders.
Lenders ‘ignoring’ small CCJs and looking to lend, say brokers
Teacher Sarah Arrowsmith and her fiancé Ross Tredger were poised to submit an offer on a home when she learned of the CCJ against her, The Mirror reported. Arrowsmith had earlier disputed a parking ticket and believed that it was cancelled, but when the CCJ showed up on her credit record her mortgage application was declined.
“That’s business as usual for a broker like us,” said Miles Robinson, mortgage sales director at One 77 Mortgages (pictured).
“There are lots of lenders in the market now that can assist in a situation like that. A first-time buyer with a credit blip, even when it’s a high loan-to-value (LTV), should find it a lot easier to source a mortgage.”
The number of CCJs issued to consumers jumped by five per cent to 321,044 in Q1 2019 compared to Q1 2018, figures from the Registry Trust show. The average value fell by six per cent to £1,398.
“Individuals have more regular commitments these days. Mobile phones, gym membership and pay TV mean that there are more payments potentially to fall behind on. And more organisations are using CCJs as a way to chase debt,” said Paul Adams, sales director at Pepper Money.
“From a lender point of view, we look at the past but we don’t let that dictate whether this person will be a reliable customer for the future,” Adams added.
CCJs for as little as £20
Robinson agreed: “Telecommunications providers are probably the worst culprits of slapping on a default or CCJ. If you haven’t paid for four months they’ll put a CCJ against you. I’ve seen them for as low as £20. A lot of lenders now understand that and are ignoring those.
“There are lenders who might not lend, particularly at high LTV, but the market as a whole isn’t looking for reasons not to lend.”
He added that “money is a lot cheaper to borrow,” and that rates from specialist lenders “are a lot more competitive than they’ve ever been.”
Whereas a first-time mortgage from the high street might offer 1.9 per cent interest, a specialist lender could be about 2.7 per cent.
“You’re looking at a small difference per month, and yes the rate’s a bit higher, but you still get your first home and two or three years down the line you re-mortgage back to the high street,” Robinson said.
New market dynamic
Danny Belton, head of lender relationships at L&G Mortgage Club said that the “new dynamic”, which the increase in CCJs has brought to the market, is driving growth faster in specialist compared to mainstream lending.
“The number of customers with CCJs has dramatically increased over the last five years. The dynamic is changing in that we’re finding a parking ticket or a missed phone bill, or a dispute about a very, very small amount of money, ends up being a CCJ,” Belton said.
“The more vanilla, high street lenders tend not to accept it and that opens up the market to specialist lenders. We’ve seen an increase in the amount of business being written through specialist lenders and that is probably outperforming the normal market growth,” he said.
“A number of the regional building societies have moved into this sector and are helping customers in that respect. That’s another area where we’ve seen growth outperforming the market,” Belton added.
Lenders more open below £500
In Arrowsmith’s case, the ticket was issued by private carpark management service Parking Eye, at a branch of Halfords where her car was booked for a service. The retailer repeatedly assured Arrowsmith that she was not liable for a fine and that the ticket would be stopped.
However, a CCJ was issued against her and she did not receive the letters because she had moved home.
Parking Eye told The Mirror it had no record of any communication about the matter.
Stephanie Seddon, mortgage and protection advisor Just Mortgages, added that many lenders will look at a case particularly when the CCJ is for an amount below £500.
“Leeds Building Society and Accord are a lot more open about CCJs. They know that unpaid parking tickets can lead to CCJs quite easily,” she said.
“If the situation is like the one described, particularly with someone who is a teacher, they will usually be prepared to underwrite manually. Kensington and Precise are good lenders too, because they specialise in adverse credit cases.”
Recruiting young talent: Industry must shift perceptions of ‘boring’ broker – poll result
The results showed that 33.3% said yes, 58.9% said no, with 7.8% unsure.
Spreading the word
An image change is necessary, according to Leamington Spa mortgage consultant Rachel Dixon, to make the job more attractive to the younger generation, and to encourage more women to enter the industry.
She said: “When you’re 16, 17, if you hear about [being a broker] you’ll think it’s all about numbers. They think it’s boring.
“But that’s only a small part of it. It’s also about building a relationship with your clients and talking to people, and being someone who can listen.”
On top of shifting perceptions of what being a broker is about, Dixon said the industry also needs to be more welcoming of female talent.
“It’s also a male dominated industry, I still go to events and roadshows and there aren’t very many women in the room.
“There has been times when people asked me ‘whose secretary are you?’, that needs to change.”
Dixon argued that the image shift needs to start with education at schools, such as having stands in career fairs, to bigger promotion campaigns.
Dixon continued: “If you want to recruit young blood, they need to know about the options.
“We can’t complain that we don’t have people in the industry if we don’t have education in the very early stages.
“So you need to have the banks and building societies coming out and promoting that it’s a great career, and encourage more women to enter the industry.”
Alastair McKee, managing director of One 77 Mortgages, said recruitment issues do not stem from image concerns – but rather is a matter of funding and resource shortages.
McKee commented: “The industry has probably got a good image, most people have an interest in property and how you finance the property.
“So I don’t think it’s the industry per se that fails to attract, it’s more the lack of resources or funds.”
While bigger firms are starting to regain the confidence after the credit crunch to go on recruitment drives, McKee said smaller firms with more limited budgets struggle to accommodate for hiring costs – especially as networks tend to require newcomers to be qualified.
McKee continued: “Most brokers in the UK are in smaller firms, and that tends to mean one, two, or three-man bands.
“But if you’re a small firm you probably won’t have the funding to pay for someone to go through CeMAP, the product training, and pay close supervision to see that they’re fit and proper for the job.”
He added: “Lots of networks won’t allow firms to take on a trainee, they require you to take on people with full CeMAP and with x amount of experience, so you have your hands tied behind your back.
“Don’t underestimate the amount of time and energy that goes into the [recruitment] side.”
In contrast, Trinity Financial communications director Aaron Strutt argued that the industry is not facing a recruitment problem for fresh talent, and is in fact an attractive option for many.
Strutt commented: “The mortgage industry might look boring from a younger person’s point of view. But when it comes to finding a career, it’s still quite a good route for a career and an attractive option.
“If you go to the road shows with one man bands, then they may not have the need to take on younger people.
“Whereas if you’re going through a lot of the firms in London, they’re quite keen to attract younger staff then train them.”
Strutt added that recruitment programmes such as apprenticeships schemes have been successful, and stressed the career attraction in being a broker.
He continued: “At the minute there are a lot of people who are keen to learn to get a career, and we still get lots of emails from people looking for broking roles.
“The apprenticeships schemes have worked quite well for us. It’s not necessarily a quick route, but you get there in the end.
“If you do your qualifications and do your CeMAP then there’s a lot of opportunity out there.”
On GDPR: ‘Pretty shocking, to be honest’ – poll result
The latest Mortgage Solutions poll asked brokers for an update on their GDPR preparations by 25 May.
Just over half of respondents are either on track, or ahead of schedule for the compliance efforts, while 6.8% are falling behind. However, a concerning 24.3% are unprepared, and a 17.5% entirely unaware of what GDPR is.
“There is no doubt that this is going to have a huge impact on how we operate, and the products we advise on such as mortgages, protection and general insurance,” said Daniel White, managing director of White Financial Services.
He continued: “As business owners and advisers, we all have a responsibility to ensure we are fully prepared in good time for these changes, and it’s something that needs to be embraced by every business – like any regulatory change.
“I’m very surprised at the percentage of unprepared and unaware – more so the unaware. GDPR is spoken about quite commonly these days so it is quite difficult not to become aware of the changes.
“It is so important that not only do we ensure our businesses are protected, but our clients are, as well,” White added.
“It’s worrying that a combined 48.6% of firms are essentially not prepared. At the very least most should understand what’s required of them with the new regime and how it will impact their businesses, and the changes required,” said Alastair McKee, managing director of One 77 Mortgages.
He continued: “For example, will they have enough time to implement the changes considering most are behind or are unprepared?”
But McKee also noted that GDPR could create conflicts with regulatory requirements.
“As a business, we have a regulator that tells us we need to keep data on file to defend any claims which, if you interpret the new GDPR rules literally would mean you’d have a conflict, and I’d assume would ask ‘who’s rules do a follow, GDPR or the regulator?’”
“I know the answer,” McKee added, “but it would be good for some clarification from the regulator for the smaller firms or firms that are unprepared or confused by the potential changes.
“I’m slightly concerned that 17.5% are entirely unaware,” said Matt Lowndes, managing director at Coreco.
“This is a massive new regulation and to know nothing is pretty shocking, to be honest. AMI have been sending out regular communication on it, so it surprises me,” he continued.
Lowndes added: “The ICO has a very good section on their website regarding the changes. It provides a checklist and I’d advise brokers to check it out ASAP.”
Craig Calder, director of mortgages, Barclays was recently featured in Mortgage Solutions urging businesses to get started on their GDPR preparations. Separately, Mortgage Solutions has compiled a seven step GDPR guide, which you can find here.
Housing ‘bubble alert’ issued by mortgage adviser for 19 UK towns and cities
The research confirmed the “gap” is a measure of affordability by comparing the percentage difference between annual drop in lending against annual house price changes.
With this metric, Cleveland was most at risk, with property values rising 11% between Mar 2016 and Mar 2017, while lending fell 0.9%. Following Cleveland was Blackburn, with a gap of 6.8%, and Blackpool, at 6.2%.
The largest fall in lending was in Darlington and Sunderland, where borrowing fell 1.4%, or by £46m and £27.5 million respectively.
Of the 19 towns and cities highlighted in the research, only four were in the South, despite London being “traditionally seen as a bellwether for house price growth nationally” — suggesting that the Northern markets have “already caught a cold.”
“Shrinking mortgage lending sticks out like a sore thumb when you have continued annual house price growth,” said Alastair McKee, managing director of One 77 Mortgages.
Indeed, according to a Royal Institute of Chartered Surveyors (RICS) report out today, the number of new buyers and sellers in the property market continued to fall in September — to the lowest level since the Brexit vote.
The falling lending rates come despite near-record low interest rates, and One 77 Mortgages said that “the shrinking risk appetite in all these areas could be a result of high valuations and stricter lending criteria impacting how much buyers are able to raise to fund their purchases.”
If the Bank of England were to raise interest rates, these property markets would be at particular risk from changing lending conditions.
McKee added: “Buyers have to be careful that, with interest rates still temptingly low, they don’t jump in with both feet by borrowing too much in a local market that is possibly braced for a fall.”
Broker says ‘double-dipping’ fee claims sensationalist
The original claim came from independent broker One 77 Mortgage, stating that despite the fact that all brokers receive a procuration fee from lenders for their work in arranging mortgages, an extra charge for ‘advice’ is levied on customers in approximately 75% of purchases — a practice it referred to as ‘double-dipping’.
It stated that an additional fee, averaging £400, was ‘slapped on’ 926,220 of the 1,234,960 residential property transactions completed last year, setting consumers back a total of £370,488,000. One 77 also argued that many consumers don’t realise that mortgage broker ‘advice fees’ are not mandatory and they could save an average of £400 each by shopping around.
One 77 Mortgages only takes the procuration fee paid by the lender and its managing director Alistair McKee had stated: “It’s truly shocking that brokers are double-dipping on fees in this way and stinging the consumer in the process. This is a colossal sum of money that’s being thrown away unnecessarily, in many cases by the people who can least afford it.”
Richard Bousfield, managing director of The Surrey Mortgage broker, told Mortgage Solutions: I think the way up front fees have been characterised as ‘double-dipping’ is quite frankly sensationalist. I do charge a fee of £395 which is invoiced when the customer applies for a mortgage. I’m quite transparent to customers about this and as a professional I deliver a good service. If people don’t want to pay the fee they are free to go elsewhere.
”There’s a lot of work involved these days in arranging a mortgage and this fee justifies my time. It should also be made clear that not all applications go through, yet I will still have done the same amount of work.”
He added: “I give a personal service to my clients and the majority of my mortgage clients are dealt with face to face. I think the editorial was more of an advert for the company in question and using phrases such as “scamming” and “slapping extra charges” is ridiculous.”
However, Alistair McKee was in no mood to tone down his comments. In reply he told Mortgage Solutions: “The issue of administration is a bit of a distraction. A lot of companies feel they need to charge additional fees because they are uncompetitive and have high overheads. But administrative overheads are a fact of life and we control ours tightly to remain competitive.”
David Hollingworth, press spokesperson for London and Country, said: “We are the UK’s largest fee-free mortgage broker and have never charged a fee. Our customers clearly value the fact that we don’t charge them a broker fee in addition to receiving the procuration fee from the lender. Providing advice from across the market without a cost to them is something that brings customers back to us time and time again.
“Just as with any other fee, borrowers need to factor in broker fees to their assessment of what will provide the best overall value for them. Some may be happy to pay a fee but for advice to be readily available to as many borrowers as possible, we think a no-fee proposition remains crucial.”