It’s time to help your clients cope with the rising cost of living – Adams
According to Ofgem, the increase in the energy price cap, which was introduced on 1 April, will impact approximately 22 million customers.
Ofgem says that those on default tariffs paying by direct debit will see an increase of £693 from £1,277 to £1,971 per year (difference due to rounding), while prepayment customers will see an increase of £708 from £1,309 to £2,017.
The increase is driven by a record rise in global gas prices over the last six months, with wholesale prices quadrupling in the last year. This is before you consider the impact that the serious situation in Ukraine is likely to have on the energy supply. Add to this the rising cost of fuel at the pumps, food in the supermarket and, of course, the cost of borrowing as interest rates rise, and 2022 looks set to be a very difficult year financially for many people.
Many customers will be unprepared to face this financial difficulty. The most recent Pepper Money Adverse Credit Study found that 81 per cent of people with adverse credit said a £100 increase in their bills would significantly impact their finances.
At the same time, nearly a third (32 per cent) of people with adverse credit said they had increased their level of debt in the last 12 months, representing a significant increase compared to the previous wave of the research in Spring 2021. And, with interest rates rising, the cost of servicing this borrowing is only going to increase.
The role of an adviser
So, as a mortgage adviser, what can you do to help?
Taking out a new mortgage may only happen every few years for most customers, but a mortgage is also the single biggest debt that they are likely to have, accounting for a significant chunk of their monthly expenditure.
Opting for the wrong deal, or languishing on an existing lender’s variable rate, could be a costly mistake. Making sure your customers are provided with the right advice for their circumstances is an integral part of their financial planning.
It could prove the difference between them being able to meet the rising cost of living and falling short.
Unfortunately, not all customers are aware of their options, particularly those who have a record of adverse credit. According to the latest Pepper Money Adverse Credit Study, 12 per cent of all adults in this country have experienced some form of blip on their credit record in the last three years.
Many of those believe that this will write off their chances of securing a new mortgage. This lack of confidence could leave them stuck on their lender’s variable rate long after their deal has expired, potentially crippling their finances through unnecessary additional monthly costs.
Keeping in touch
At a time like this, brokers have a duty to all their customers to be proactive in communicating their services, the available options, and the value of professional advice.
A simple nudge could be all that’s needed for concerned customers with adverse credit to overcome those worries and seek out a better deal for their circumstances.
Similarly, a remortgage can also prove an excellent time to restructure finances and debt consolidation can prove a useful tool for some customers to reduce their monthly outgoings and improve their monthly cashflow.
Adverse credit doesn’t have to stand in the way of a debt consolidation remortgage.
So, don’t let your customers get beaten by the rising cost of living. Even if they have adverse credit, you could help them to remortgage and improve their financial position.
Pepper Money cuts almost prime mortgage rates
Across the Pepper 60 range, for those who have not had a default or county court judgment (CCJ) in the last 60 months but may have missed a payment in the last year, rates now begin from 2.9 per cent for a two or five-year fix at 70 per cent loan to value (LTV).
On Pepper 48 Light, for those who have had no defaults within the last 48 months and no CCJs at all, rates start at three per cent for a two or five-year fixed mortgage at 70 per cent LTV with a £795 fee. On Pepper 48, for those who have not had a CCJ or default in the last 48 months, rates begin at 3.05 per cent.
The range offers fee-free options and a £395 fee paying route, which both come with a free valuation and £500 cashback. Products in the range with a £795 fee have £500 cashback. The products go up to 85 per cent LTV.
Paul Adams (pictured), sales director at Pepper Money, said: “Our Pepper 60 and Pepper 48 mortgages have been developed to help customers who just miss out on a high street mortgage.
“This is often because of a low credit score but can include other factors too such as complex incomes or level of current debt compared to level of income. There are many circumstances in which Pepper Money can help almost prime customers.”
Pepper Money to host first online Specialist Lending Solutions masterclass
The event will take place 18 May from 11am to 11:45am and is for mortgage intermediaries only.
The masterclass will discuss second charge mortgages, what they can be used for, and why they are a vital tool for mortgage brokers.
Caroline Mirakian (pictured), Pepper Money’s sales director for second charge mortgages, will be hosting the masterclass and will be in conversation with Positive Lending’s head of sales, David Coleman.
To register for the event please click this link.
Pepper Money’s second charge loan book breaches £1bn mark
The lender said it had originated £1.8bn of second charge mortgages in total and £800m worth of loans had already been redeemed.
It has also closed five securitisations under its Castell securitisation platform.
Pepper Money offers second charge mortgages between £5,000 and £1m on fixed, discounted and variable rate options. Repayment terms can range between three and 30 years.
Borrowers can access up to 100 per cent of the property’s value, minus the existing mortgage balance subject to a satisfactory valuation.
It launched a range of second charge mortgages in January this year following the completions of its integration with second charge specialist Optimum Credit.
Pepper Money bought Optimum Credit in 2018 and at the time it had a second charge loan book worth over £450m.
Matt Blake, treasurer at Pepper Money, said that Finance and Leasing Association’s figures for 2021 showed that second charge lending had totalled £1.1bn, therefore hitting the £1bn mark showed that the lender was an “important player Pepper Money is in this market”.
He added: “Throughout our lending we have maintained ultra-low levels of loans in default and repossessions, and the majority of lending continues to be for either home improvements or debt consolidation.
“With the ongoing cost of living squeeze that is motivating more customers to take a more proactive approach to managing their finances, we expect debt consolidation to be a big theme in the coming months, providing brokers with a good opportunity to help their clients take greater control of their monthly expenditure.”
Newcastle Intermediaries appoints national sales manager
Wilkinson was promoted after three years as the mutual’s business development manager for the North East and Scotland.
Over his 15-year career in financial services, Wilkinson has worked in branch as well as in the intermediary and specialist lending markets for Newcastle Building Society, Pepper Money and Virgin Money.
In his new role, Wilkinson’s focus will be to manage a growing Newcastle Intermediaries’ business development team and enhance its broker proposition throughout the UK.
Wilkinson (pictured), who lives in Newcastle, said he is excited at the opportunity to lead his team to drive the mutual’s growth in the market.
He added: “Our business development managers have decades of experience and knowledge of the intermediary lending market. We pride ourselves on our service to brokers and their clients.”
Franco Di Pietro, head of intermediary mortgages at Newcastle Building Society, said: “We are thrilled to witness Mark progress within our intermediary arm. Having built long-term relationships with brokers and their clients, Mark has already proved himself a valuable asset as we look to strengthen our commitment to our intermediary partners.”
Brokers must be proactive in helping struggling clients ‒ analysis
Data this week from the Office for National Statistics revealed that around one in five mortgage borrowers have reported having difficulties keeping up with their repayments of late. Given a host of spending increases have only just kicked in, like the rise to National Insurance and the increased energy price cap, these difficulties are only likely to get worse in the months ahead.
Brokers have told Mortgage Solutions that it’s crucial for advisers to be proactive in flagging up how they can help with new and existing clients.
No need for extreme cuts
Scott Taylor-Barr, financial adviser at Carl Summers Financial Services, said his brokerage had turned to social media, running a number of campaigns around the cost-of-living crisis.
He explained this was “a way of engaging with existing clients and prospective new clients around helping them to review their finances to see if there is any area we can help them to manage costs, without putting them or their families at risk by doing something extreme like cancelling their life insurance, or home insurance”.
Taylor-Barr noted that the affordability assessments borrowers will likely have gone through suggests that the mortgage is still affordable even with increased costs, but questioned whether borrowers are willing to make the required sacrifices in other areas ‒ like ditching gym memberships or subscriptions to streaming services to do so.
Don’t overlook equity release
Samantha Bickford, mortgage and equity release specialist at Clarity Wealth Management, said it was important for brokers to be proactive in reaching out to clients to ensure they can still afford their repayments. “And if they are struggling, we are best placed to help them with this,” she added.
Bickford noted that for some clients, ditching protection premiums will seem appealing given the economic challenges, but argued that brokers should be contacting clients to help them find ways for this to remain affordable, without it being cancelled.
“Equity release is an important topic to make those in later life aware of. I have seen too many situations where elderly people are property rich and cash poor, and find themselves struggling to heat their homes or have a warm meal. Releasing equity from their property can be the answer to living more comfortably,” she added.
Keeping in contact
Dominik Lipnicki, director of Your Mortgage Decisions, said he was starting to see clients “struggling more, and in the short to medium-term it really does look bleak for many families”.
He noted that his advisers remained in regular contact with clients both by email and telephone, arguing that his philosophy was that brokers should look after clients throughout the life of the mortgage and be on hand to ensure that whatever plans that were put in place are still effective.
Graham Cox, founder and director at SEMH, suggested that the cost-of-living crisis presents brokers with an excellent opportunity to help clients remortgage.
He added: “With property prices so high, many are mortgaged up to the hilt. Suddenly, everyone’s looking to save money where they can, and saving money on their biggest monthly expense is top priority. ”
Lewis Shaw, founder of Shaw Financial Services, said his firm had seen an uptick in interest from clients looking to consolidate unsecured debt into their mortgage in order to free up more disposable income.
“That’s not to say that it’s the right course of action for everyone; however, it’s better to have a debt for longer, even if it means paying more in interest payments overall, if it means you can live affordably and sustainably than getting further into the red, which can ultimately end up in repossession,” he added.
Using specialists ‘more than ever’
Cox noted that adverse credit was becoming an increasing issue for his clients, due to “the pandemic hammering people’s finances.”
He added that this meant his firm were using specialist lenders “more than ever”.
The lender view
Paul Adams, sales director at Pepper Money, noted its own research had found the number of people with adverse credit who had missed a mortgage or secured loan payment had increased from 18 per cent to 23 per cent, and emphasised that brokers have a big role to play in helping these clients find suitable mortgage options.
Adams added: “Lenders like Pepper Money can offer a range of individually underwritten mortgages for customers with a history of missed mortgage payments, and even allow debt consolidation, which can help put customers in greater control of their finances.”
This was echoed by Steve Seal, CEO of Bluestone Mortgages, who said that the growing number of complex cases meant the specialist lending market was coming into its own.
He added: “Brokers can utilise specialist lenders’ manual approach to ensure borrowers are presented with the best solutions for their needs. For example, we are seeing strong demand for remortgaging as borrowers seek to raise capital to consolidate unsecured debt.
“Both specialist lenders and brokers have an important role to play to demonstrate to existing and potential homeowners that there are multiple flexible solutions available to meet their needs in this environment. However, it is key that specialist lenders take a prudent and responsible approach to lending and a proactive approach to affordability so that we can support our customers consistently in the long-term.”
Pepper Money adds no-fee limited edition resi products
The products are five-year fixed rates in its Pepper 60 range, which are suitable for remortgage customers who haven’t had a default or County Court Judgement (CCJ) in the last 60 months, but may have unsecured missed payments.
The products come with no application fee, a free valuation and a £500 cashback, which can be used to pay legal costs.
Rates start from 3.55 per cent up to 70 per cent loan to value (LTV), and increase to 3.65 per cent at 75 per cent LTV, 3.74 per cent up to 80 per cent LTV and 4.25 per cent at 85 per cent LTV.
The lender has also removed some two-year fixed rates at 65 per cent LTV and replaced them with two-year fixed rates at 70 per cent LTV, with rates starting from 2.9 per cent.
Paul Adams (pictured), sales director at Pepper Money, said that Bank of England data showed credit card debt had reached a record high and for many lenders outstanding debt could impact affordability, even if a customer’s profile was otherwise strong.
He continued that a low credit score could also prevent someone securing a mortgage, even if they had no record of missed payments.
Adams said: “This limited edition Pepper 60 product offers a competitive solution for customers with these circumstances and helps lower the total amount payable over the duration of a fixed rate period. This is yet another way that we are giving brokers better options to help more of their customers succeed with Pepper.”
Pepper Money adds resi mortgages with cashback and reduced fees
The products are available in its Pepper 48 and Pepper 48 light residential range for purchase and remortgage. To be eligible, borrowers should not have a county court judgement or default in the last 48 months.
It comes on both two and five-year fixed rate terms with £500 cashback, which the lender said could help pay legal costs.
The products also have lower completion fees, with two and five-year fixed rates reduced to £795, which compares to £1,295 and £995 for two-year fixed rates and £995 for five-year fixed rates.
The two-year fixed rate up to 75 per cent LTV in Pepper 48 light starts from 3.3 per cent, whilst five-year fixed rates start from 3.55 per cent.
Paul Adams (pictured), sales director at Pepper Money, said: “At Pepper Money, we are continually working with brokers on ways to improve our proposition. One insight to come from this is that the total amount payable over the duration of a fixed rate period is often the most important consideration for brokers when choosing a specialist lender.
“This limited edition product addresses that point, with lower fees and £500 cashback reducing the total amount payable over the fixed rate period on our Pepper 48 and Pepper 48 Light mortgages. We are confident that this range will help more brokers to help more customers succeed with Pepper.”
Number of people with severe forms of adverse credit rises – Pepper Money
A study on adverse credit of 4,192 adults conducted by YouGov on behalf of Pepper Money showed that 492 had experienced adverse credit, which is defined as anyone who has missed credit payments.
Between spring 2021 and October, the number of people with adverse credit with a county court judgement (CCJ) registered against them rose from 22 per cent to 27 per cent.
Over the same period, the number of people with adverse credit who have missed a payment on a mortgage or secured loan increased from 18 per cent to 23 per cent.
The study also found that the number people with adverse credit who decided to enter a debt management plan went up from 27 per cent in spring last year to 33 per cent in October.
Despite the increases, Pepper said the number of people who had some form of adverse credit over the last three years remained flat overall at around 12 per cent of the population.
Paul Adams (pictured) sales director at Pepper Money, said the Pepper Money Adverse Credit Study provided essential insights into the millions of people who have experienced a blip on their credit history.
He said: “While the total number has remained relatively flat over the course of the last year, we have seen an increase in the number of people reporting more severe forms of adverse credit such as CCJs and missed payments on secured and unsecured loans.
“However, just because customers have slipped up in this way does not mean that they should be prevented access to suitable mortgage options.”
Pepper launches free energy-efficiency property check for landlords
The specialist lender said the initiative was aimed at helping customers make their homes more energy efficient. In addition to a free energy efficiency survey, and EPC certificate, customers will be offered a tailored action plan.
Proposed government rules require all rental properties to raise minimum energy efficiency standards from A to C within three years, up from a minimum of E now is a huge challenge for the industry.
Data suggests 60 per cent of the UK’s current housing stock is rated D or below and research estimates average upgrade costs range from £6,000 to £10,000.
The regulations are expected to be introduced for new tenancies first from 2025, followed by all tenancies from 2028.
Pepper Money said it could offer customers a second charge mortgage to finance any energy efficiency improvements recommended by the suggested plan. For any customers who undertake the suggested works, a second EPC can also be claimed to validate the improvements.
In January, Pepper Money improved its criteria to remove restrictions around properties with solar panels. Last year, launched a partnership with Ecologi which committed it to providing ongoing financial support for tree planting and carbon reduction activities.
Laurence Morey, (pictured) chief executive of Pepper Money, said: “At Pepper Money, we understand that we have an active role to play to change the way our industry is impacting our environment. We know this won’t happen overnight but will be the result of many consistent positive changes and helping our customers to better understand the impact they and their properties have on the environment.”
Danny Belton, head of lender relationships, at Legal and General Mortgage Club added: “This is a strong statement of intent by Pepper Money, which has recognised the size of the challenge currently facing the industry. By providing free EPCs and an option for customers to borrow to make improvements, this initiative is directly enabling positive outcomes. In the long term, this will mean that not only will more customers have an accurate picture of the current state of their property, but also that they will have access to the knowledge and resources they need to make their homes more environmentally efficient.”
Funding the cost
Pepper Money is the latest provider to join the raft of specialist lenders targeting this market to support landlords meet EPC requirements.
Sundeep Patel, director of sales at Together, also suggested some tips for landlords in this position and the brokers who may be advising them.
He said: “If your property is found to fall short of the required rating, you could face a fine of up to £30,000. Plus, you’ll have an unlettable property on your hands, which is not only a waste of essential residential resource, but also means you’ll incur a loss of rental income.”
Patel said regardless of whether there would be general upgrades or a larger scale of improvements, short-term funding like a bridging loan or a longer-term arrangement such as a second charge loan could prove a good choice.
Patel said: “Securing a bridging loan against your rental property, or another property in your portfolio, could allow you to make the investment necessary – if you’ll need less than 12 months to complete the required work. After you’ve made the improvements, and potentially increased the value of your property, you could refinance onto a new buy-to-let mortgage.”
He added for consumers with a great rate who do not want to refinance, a second charge loan could be more suitable.
“The second charge mortgage will run alongside, but independent of your current one – so if you want it to end sooner that your existing buy-to-let mortgage, it can. In fact, you can borrow over as little as four years.”
Tactics to prepare for the eco-changes include switching to LED lighting throughout the property, insulating walls and installing a new energy efficient boiler. Landlords can also replace old windows with double or triple glazing, install a smart meter and consider solar panels or ground source heating.