We’re thinking specifically of lenders’ use and acceptance of automated valuation models (AVMs), particularly through the first lockdown last year, which appears in sharp contrast to the recent almost total return of physical inspections in some cases.

AVMs are a somewhat controversial subject in this space, although a large part of that controversy is bewildering.

Of course, a number of specialist lenders were unable to use AVMs because of issues relating to how they are funded and how they securitise their assets.

We would hope this has been rectified for the future, because in our view, the accuracy of the AVM should not be in doubt.

Indeed, we would go as far as to say we enjoyed the move to AVMs last year, with valuations coming in at highly accurate levels, and the models used working efficiently throughout the period. More of that please.

More accurate valuations

Can we say the same since physical valuations have become the norm again?

We’re not sure we can; indeed, the self-styled pre-eminence placed on the work of certain surveyors as somehow being more accurate than AVMs seems utterly misplaced.

A more cynical observer might think surveyors are trying to prove their worth to lenders, before their role is made defunct by technology.

The number of ‘down valuations’ – a concept some surveyors seem to believe does not exist but is a very real part of our market – is up, with some surveyors appearing to think they have a duty to ‘protect’ the lender against accurate valuations.

This concept no doubt being predicated on a belief that house prices are going to drop dramatically at a point in the future – with no-one being able to accurately say when.

Valuations based on last year

We wonder whether some surveyors have those 20-plus per cent drops in house price predictions still in their heads from last year, and are basing their values on those, rather than the current market, property supply, local comparables, and such.

It’s got to a point where we’ve had cases where the surveyor has down-valued the property by approximately three per cent on purchases, and been unable to provide accurate comparables for that decision.

This has led lenders to overturn these purchase valuations once they’ve been reviewed by their own staff surveyors.

And even after this type of result, we’ve still had to deal with a number of arrogant surveyors who dispute the black and white data they’re presented with and are still trying to flex their perceived muscles in order to get the lender to accept their flawed valuation.

If surveyors are taking this approach because they are fearful of greater use of AVMs, then they are going about it the wrong way.

Being inaccurate is likely to make AVMs more popular not less and placing a value on a property based on predictions last year, or a future drop which is not assured by any means, is only going to cause more work for all involved, and less trust placed in physical valuations.

In that sense, surveyors have been warned – the machines are on the march.

Aside from the Financial Services Compensation Scheme (FSCS) saying it requires over £1bn from regulated firms in 2021/22, and that mortgage advisers’ charge will increase to a staggering £22.9m from £3m last year, much of the focus has been on underserved product areas that could do with a boost.

Actually, let’s not put that FSCS levy aside because to say it’s obscene would be a gross understatement on so many levels.

Why the mortgage advisory profession is being punished for the sins of others in sectors they invariably don’t even trade in, is nonsensical and shows how wrong this whole system is.

This is where we need our trade bodies to step up and protect us.

Intelligence, empathy and flexibility

However, in those other, underserved areas, there is clearly some real work to be achieved here, and one of the key ones is the treatment of self-employed borrowers and what lenders are, or are not doing, to help them onto the ladder.

And how are they ensuring we do not have a new batch of mortgage prisoners forced to sit on their lender’s standard variable rate (SVR) for years and years because they can’t get a remortgage or product transfer.

Lending to the self-employed – especially after the year many of them have had – requires intelligence, empathy and flexibility to put aside traditional norms which might have worked pre-March 2020 but seem completely outdated now.

Same rationale as employed borrowers

For example, now the self-employed have posted their 2019-20 accounts, lenders should be using that along with the last three months bank statements, to check the 19-20 income is still relevant.

Yet, some lenders still want January-May 2020 bank statements and are apparently basing lending decisions on that period when many businesses will have suffered a lag in cashflow due to lockdown.

What they should be reviewing is October through December 2020 to see if the income and cashflow of those three months is now back to normal. If it is then surely we can say they are a sound risk.

Effectively, we need lenders to use the same rationale they would for employed borrowers – the 2019-20 accounts should effectively supersede those early 2020 bank statements, especially when you make the comparison with the last three months.

Of course, life will be made easier when we have the 2020-21 accounts, but that is nearly 12 months off.

In the meantime, it’s clear that a number of lenders do not appear to have the appetite to work like this.

Self-employed not worth the effort?

If you are easily fulfilling your lending targets, then perhaps the harder, more labour-intensive work of dealing with self-employed borrowers, doesn’t seem worth the effort?

If that’s the case, why advertise you lend to the self-employed in the first place?

And why have lending policies which seem completely out-of-date and step with a pandemic situation?

Why focus on the period which could have seen the biggest short-term hit to a client’s finances, when you can use the last three months to see if a more normal situation has emerged?

We’re acutely aware that lockdown has been very tough for some people, but certainly not all, and certainly not for a prolonged period of time.

If we’re aware of that, why aren’t lenders willing to build that into their decision process and systems?

What should be the primary driver of a borrower’s risk to the lender right now?

Should it be determined by the last three months and the previous full-year or should it be the period of the lockdown which could look very different to every year prior?

We know what we would put our faith in, and it wouldn’t be the information which looks like an anomaly.

Having called for common sense lending in this area for most of last year and now this, we’re hoping that at some point certain lenders will have to face up to the new reality.

Perhaps it will only happen after they endure a month where targets aren’t hit and the rest of the year becomes much more difficult, but the sooner this happens, the better for us, and our self-employed clients.

In our line of work, there are easy targets – and then there is the Financial Conduct Authority (FCA).

Perhaps the easiest of all targets and we have some sympathy for those who work for this organisation especially given the large amount of – often unjustified – opprobrium that is thrown at it.

That said – and you might have sensed where this is going – sometimes criticism is justified, especially when you can see a perverse logic, or an inverted priority list.

Now, let’s caveat that again because we all understand this is a pandemic we are living through and, we might argue, that the normal rules do not apply. However, there is also a strong argument to suggest our regulator should be doing more than most to create a greater level of ‘normality’.

We all have staff working away from the office, we have all had to ensure our systems and processes can function in that environment, we have all had to keep providing the service we are paid for, we have all needed to find ways to maintain our focus and deliver our ‘end product’.

The FCA should not be immune from those responsibilities, in fact you might think it is more important for them to function ‘normally’ than most. Particularly given the ever-increasing cost of being regulated.

Six months to process AR firms

So why, for example, are we waiting an age for them to process and register our new AR firms? Why has it taken over six months and, despite constant calls, emails and meetings, this still hasn’t been done?

Why are they effectively stopping these firms and advisers from trading while we wait for them to be processed? Why have they taken people off the register for no reason, then when questioned, reinstated them with no apology?

And then there is the issue of what should be the regulator’s major priorities at this moment. Big picture strategising is one thing – we’ve seen enough of that in the mortgage market with its ongoing fixation on price but, at the same time as it is ignoring emails and calls, it is ramping up the workload of the firms it regulates.

Hence, while we have been waiting since November 2019 for the regulator to provide the guidance we asked for on business structures, it is now asking us to fill out a second Covid-19 impact study. To say this is not necessary at the moment is an understatement, especially when these requests seem designed to stop advisory firms/network principals and the like from actually getting on with our work.

How come this data is deemed so supremely important when we simply want a reply to an email?

High standards for all

So, while we understand that this might be perceived as another case of bashing the regulator, there is a lot more substance to our concerns, mostly because when the highest standards are expected of our business, why shouldn’t we expect the same from the FCA?

Given the circumstances, and given the FCA itself said it would – during this period – only be focusing on key areas, why doesn’t it now begin to deliver on what is really required for the firms it regulates? We await a response – and if they could also reply to our emails, that would be greatly appreciated.

We are keeping up our side of the bargain, so it would be good if the regulator could try and support us more.

Mortgage Solutions has contacted the FCA about the issues raised in this article.

A drop off in activity in the second quarter of 2021 should not be feared and may benefit lenders, brokers and borrowers, according to JLM Mortgage Services head of mortgage finance Sebastian Murphy.

Speaking on Mortgage Solutions Television in association with Accord, Murphy said: “I think most lenders and ourselves would welcome the market returning to a more normal market.

“We don’t see the market falling off the edge of a cliff.

“We just see a return to perhaps a bit more of a normal market and that might allow a bit more competition for rates and that could be a good thing for consumers, so it’s not anything to fear.”

Murphy added that he expected the market to remain strong post-March 31.

“The stamp duty holiday coming to an end is a very minor part of what’s happened to the market. A lot of it is natural migration where people want to move and need to move,” he added.

This was echoed by Accord director of intermediary distribution Jeremy Duncombe who added that the underlying housing market was fundamentally strong.

But he warned there could be capacity challenges ahead until then and that would need careful monitoring for brokers and their clients.

“I am expecting a capacity challenge for particularly the legal profession, the conveyancers and lenders as well,” Duncombe said.

“So that will impact brokers and I think some of those managing messages need to start now.”

SimplyBiz head of strategic development Richard Merrett agreed about the issue of capacity within the market getting worse.

And he added that brokers should be preparing their businesses for as many eventualities as possible, including cherishing clients.

“Diversify your business as best you can, so you aren’t just a home for purchase and remortgage – and if that means you don’t have the capacity to do it yourself then know when to refer it on,” he added.

Speaking on Mortgage Solutions Television in association with Accord Mortgages, the distributor noted advisers would need to continue adapting and adopting new technologies to maintain good customer relations.

SimplyBiz head of strategic development Richard Merrett said: “The key point, yes there’s embracing technology, but now more than ever, the consumer wants to speak to someone and be able to get advice – that’s absolutely crucial.

“It’s about good advisory firms utilising the tools they now have and layering them into a good advice business.”

He added that brokers would need to keep in contact with clients over the winter and spring.

“What we’ll see now is a bit more adoption of marketing-based tools, so, helping brokers stay in touch with clients,” Merrett continued.

“That’s going to be absolutely crucial going into the next six months of lockdown – being on top of all your clients, being able to speak to them and being able to service them.”

JLM Mortgage Services’ head of mortgage finance Sebastian Murphy agreed that advisers needed to make themselves more efficient and technology could help with that.

“With the volumes you’ve got, if you don’t change as brokers and start using those tools, you’re going to get left behind,” he said.

“You’re going to find your colleagues down the road using affordability and criteria tools will be far ahead of you in terms of choices, of lender spread and will be offering a much more professional service.”

And Accord director of intermediary distribution Jeremy Duncombe echoed that the threat of robo-advice had faded sharply.

“The last six months has shown there’s so much complexity out there that people want to have that conversation, but they don’t mind if that conversation is over video, face-to-face or on the telephone,” he said.

“So the value of advice has grown over the last six months and the value of an adviser is probably more important than ever.”

Packaging cases right first time was mostly seen as a benefit to lenders, but there was now a realisation this could help brokers and borrowers benefit significantly, a panel discussed on Mortgage Solutions Television in association with Accord Mortgages.

Jeremy Duncombe, director of intermediary distribution at Accord, highlighted the current situation.

He emphasised that spending an extra 20 mins packaging a case up, speaking to your business development manager (BDM), or waiting for the next item in the post to get everything up front can save hours or even days.

“And with service levels being as they are across the industry, saving that three or four hours later on is a better investment in time by spending 20 minutes up front,” Duncombe said.

He added that a lot of calls and traffic coming into the lender could probably be self-served which would save advisers time and create more capacity to underwrite cases.

“And if we really put it in simple terms, the less time we spend answering calls that can be self-serviced, we can stay out longer for example in 90 per cent LTV lending,” Duncombe concluded.

Forge relationships with BDMs

JLM Mortgage Services head of mortgage finance Sebastian Murphy agreed brokers should be “forging good relations with their BDMs and almost getting cases pre-agreed verbally before they submit”.

“This would without a doubt speed up the process but also stop them putting cases to lenders which have now changed criteria and won’t do that type of lending anymore,” he added.

Meanwhile, SimplyBiz head of strategic development Richard Merrett noted: “Where lenders can help is being as clear as they possibly can, not just in separate packaging guides but pointing out to a broker what is going to be needed in every single case.”

This could include radio buttons or warnings on submission to ensure advisers had included the most important documents.

Jeremy Duncombe, Accord’s director of intermediary distribution said: “This is a position we weren’t expecting to be in, in March this year. So, all lenders are trying to react in terms of capacity and how we provide service.”

He explained the lender has been balancing capacity and demand and received too much business to continue to lend within its chosen range, so it has had to limit both its LTV and criteria.

He added that all its staff have been working from home, with many initially having to look after children and some being redeployed into different parts of the business, including collections and recovery.

Richard Merrett, head of strategic development at Simplybiz said the industry has to be thankful it is still operational and not suffering like travel or tourism, for example.

“The fact we have too much to do is a bit of a champagne problem,” he added.

“But, it is very challenging. People doing this job for a long time are having to relearn what they’ve known in the past because of the swaths of changes to products and criteria and then set against the backdrop where they can’t get the same level of service or support. Very tough working conditions,” but added this should really be viewed as a positive again, given some of the situations people are struggling with.

Sebastian Murphy, head of mortgage finance, JLM Mortgage Services said: “I think what most brokers may be struggling with is the contrast between the different lenders. Some lenders have got it right and are doing really well. Others are really struggling and regrettably the end of March can’t come quick enough for a few of them.”

See below to watch the video, hosted by Owain Thomas, features and contributing editor, Mortgage Solutions.

There are numerous reasons why people remortgage. Essentially it boils down to reaching the end of their current special rate, wanting to save money on a better rate, and wanting to increase borrowing or release equity to fund a commitment.

The driving force behind many people’s decision to increase borrowing on their mortgage is often the need to consolidate debts. And why shouldn’t they?

If you have, for example, recently spent £20,000 on a credit card in order to renovate your house, and you’re paying the minimum amount each month while accumulating interest at roughly 20 per cent, then it might be a better decision to add that money to your mortgage where the rate is a lot less.

This is part and parcel of the provision of a remortgage advice service. Advisers would normally conduct this type of business with their eyes closed.

And yet, for certain advisers this type of remortgage plus additional borrowing in order to pay off debts business, is now off limits.

They are essentially being stopped from doing a core part of their advice work, seen by some as too risky to take on.

The fear being that a move from short-term to long-term debt and unsecured to secured lending will be frowned upon  and could eventually lead to sanctions and punishments.

Other advice areas restricted too

There are other areas advisers are being told to steer clear of – such as limited company buy-to-let or bridging or later life.

It means their range of work is slowly being eroded, along no doubt with their client base, who having seen that they can’t be helped when they need it, are much more likely to go elsewhere.

And where is elsewhere? It is increasingly likely to be the aggregators or the online advisers.

In other words, in the current environment where direct threats from lenders, and execution-only operators, continue to grow, the very principals and bosses of advice firms who should be protecting their advisers are actually inflicting something like ‘death by a thousand cuts’.

They are driving the very clients who need advice, down routes where they are less likely to get it.

Advisers who currently find themselves in such a predicament, probably need to ask themselves how long can this be sustainable?

Are you allowed to do this type of core business? If not, why not? And if not, perhaps you need to move on.

This week, Mortgage Solutions is asking: How do you ensure the tax advice your landlord clients receive is up to standard?

Rory Joseph (right), director  and Sebastian Murphy (left), head of mortgage finance at JLM Mortgage Services 

This is a fundamental part of working with landlord clients today and we work with an accountant or tax adviser, so if clients do not already have a relationship, we’re able to refer them on. 

There is clearly a lot of ‘noise’ around limited company or special purchase vehicles for landlord clients, and rightly so, given the cuts to mortgage interest tax relief. Go on a number of the landlord forums and there will be ‘advice’ given which effectively amounts to: ‘limited company is the only way to go’. 

That is not necessarily the case, and it is important advisers make that clear. It does not stop you from giving your advice and recommendation, but you should ensure that the accountant or tax adviser confirms this is the best option for the landlord. 

It’s been said many times before, but this is ultra-pertinent for advisers – you don’t want your client to see your provision of mortgage advice as a cheap form of tax advice, because that’s not what it is. You don’t want to be carrying the can for a client who chooses to go down this route without the necessary tax advice leading the way. 

The onus should be put on the client. Be confident in sending that client off to a tax adviser or accountant, because it will be far better for you in the long run. 

There are many landlord clients for whom the limited company route might seem like a no-brainer, but it is far better to have the confirmation you need before proceeding. It needs proper consideration by a specialist so make sure you’re comfortable reaching that conclusion, before they go ahead.  

Jeni Browne, sales director at Mortgages for Business 

We have a clear policy that we do not offer tax advice. We can talk on a very high-level about the subject of tax, for example, the ways rental income is taxed personally vs limited company, but anything more specific than this is beyond our remit, and we never advise on individual situations.  

As a business, we are very conscious that our clients need to be receiving tax advice concerning their property investments and that this advice needs to take account of all clients’ circumstances.  

What we do is encourage our clients vociferously, to get advice from an appropriately qualified professional. Additionally, we support our clients by directing them on what appropriate questions they should be asking.  

We reinforce this by asking our clients to sign a disclaimer to confirm that they have sought appropriate tax advice or, in the absence of this, are wholly comfortable with the way they structure their affairs and how this may impact their tax position. 

Over the years, our firm has seen some clients benefit from excellent tax advice as well as some who are given bad advice, which has ultimately cost the client significant amounts of money.  

Because of this, we have taken the decision not to recommend or introduce to tax advisers or accountants, owing to the reputational risk to us should bad advice be given.  

However, as nothing is better than a recommendation, if a client has an accountant or tax adviser who they speak of very highly, we may share this contact with a client who needs an accountant, but always with the caveat that we are not personally recommending them. 

Richard Campo, managing director of Rose Capital Partners 

We are very careful to ensure our clients get the best possible advice when it comes to tax. We have a very active relationship with an estate planning firm.

Being central London based and dealing with a fair few investors, the tax liabilities our clients have and are building up can be quite immense. 

However, we are extremely clear that we do not offer tax advice but will refer to an excellent firm. We recommend that they take tax advice first, then we can arrange the most suitable finance, as the structure makes a huge difference on the lenders we use.  

In a simple example, if using a limited company is best advice, a client may save tens of thousands in tax payments, while only paying a few hundred more in the higher rate on a comparable high street buy-to-let provider. So overall that is best for them.  

We let the tax take the lead and we follow. 

Tax has become such a complex and divisive issue, we feel it is essential our clients get excellent advice as early as they can to mitigate any issues down the line. Not all clients take our advice of course, but we certainly do recommend that they do. 

Up until now, as pretty much everyone will know, this has been a process fraught with frustration and delay, so it’s positive to see that market get its act in order.

But, what of the mortgage market? And what of our networks? As an appointed representative (AR) firm, how easy is it to switch?

Well, even we might accept that this can’t be simply done with a text message, but we’re also certain this could be made a whole lot easier for AR firms.

All cloak and dagger

At present changing networks involves a lot of pain and the prospect of losing all income for six or so months.

That being the starting point, it is perhaps no wonder firms tend to stay put longer than they would like, and that network principals have every incentive to make things as difficult as possible for them, which seems incredibly anti-competitive.

Of course, what makes the possibility of switching even more difficult is the ‘secret society’ way in which some networks operate.

It’s like the prohibition speak easy joints of 1920s America, or the hellfire clubs of 18th Century Britain, in that everything is all cloak and dagger.

You don’t know what you don’t know, and it’s unlikely you’ll get any transparency on key areas to allow you to make an informed decision about whether you should be joining one network over another.

More transparency needed

In this world, everything is hidden under a commercial cloak, so we have networks quoting a nominal fee, say 10 per cent, but then also charging monthly fees for the Financial Ombudsman Service (FOS), Financial Conduct Authority (FCA), professional indemnity (PI) and the like.

At the same time, we have double-dipping – under-reporting gross commissions and then deducting the network fee off the net commissions and procuration fees.

In an age where information is king, and ever more information is available to help all of us make the decisions we need to – indeed in our market where Freedom of Information and subject access reports can be requested and viewed – it seems odd that networks are not required to be much more transparent about the way they operate.

How else can AR firms make a choice without being able to compare apples with apples?

How do advisers compare?

It seems such a small request, and absolutely necessary in order to make a switch, but why are networks not providing a full lender panel list on their websites?

Why aren’t they confirming what business they can and can’t transact?

Why don’t they say who they refer to and what is paid away? Why don’t they outline the fee scale for each business type?

Why aren’t they outlining whether they pay gross lender proc fees or gross life commissions received, whether they deduct from this and by how much?

And why won’t they confirm whether they load premiums and by how much, because this is not just important for the firm but the client as well?

There has been a lot of talk about an FCA-endorsed broker comparison website but why not start with a rating system for networks, based on speed of payments, fairness, compliance, ease of joining and leaving, and so on.

The network-comparison business that exists is a glorified recruitment agency for a very small number of networks, so it would need to be independently run and monitored to give confidence to firms.

One for the Association of Mortgage Intermediaries (AMI) perhaps?

Seven-day switching

And then we’re back to the ease of switching, or rather the lack of ease.

Why can’t the network market have ‘seven-day switching’ where a currently authorised Competent Adviser Status adviser is moved from network A to network B with all their pipeline and fees following them, and the new network automatically receiving pipeline payments?

At the risk of being branded evangelists, we pride ourselves on always disclosing gross received fees, of complete network fee transparency, of never loading life premiums and of being fully whole of market in its truest sense.

We would welcome a level playing field and some proper competition, and I’m sure AR firms would certainly feel the same way.