FCA urges client discussions on Libor rate switch be ‘fair and in good time’
Helen Boyd, head of department, markets policy, at the FCA, said: “Advisers absolutely should talk to clients about Libor now.”
“Act now. Don’t wait until Christmas Eve to do your Christmas shopping. As conduct regulator, we look to see if firms have taken reasonable steps to treat customers fairly.
“It is up to firms to determine when and how to transition, but the choice of replacement rates should not disadvantage customers. Communication to customers should be clear, fair and not misleading and in good time,” Boyd said.
The Libor rate was used historically as a reference rate for calculating interest on mortgages and other loan products.
However, it became seen as less robust by regulators, since it was determined by the rate at which banks lent to each other and was found susceptible to manipulation, following the financial crisis.
The final deadline for lenders to have transitioned all their existing and new mortgage business to an alternative rate is end of December 2021.
The regulator’s message — delivered today on a webinar hosted by the Institute of Chartered Accountants in England and Wales — was that the transition and communications with clients ought to begin now.
The new rate, SONIA, is seen by the regulator as an acceptable alternative, while the Bank of England base rate, which is well-established as a reference point in retail lending, is another.
There is no hard and fast rule as to which alternative mortgage lenders must choose. Instead, the line from the regulator is to ensure that the messaging to clients is clear, fair and timely.
Lenders opt for different rates
Peter Beaumont, chief executive at The Mortgage Lender, said. “We looked at a number of different options to replace LIBOR and settled on the Bank of England base rate (BBR) as the simplest and fairest replacement, which is also easy to understand for borrowers.
“All of our recent residential and buy to let lending has the BBR as its revert rate and we’re communicating with existing borrowers in advance of transitioning them onto the BBR in September.”
Beaumont added: “We felt that was the right thing for the borrowers and it’s actually advantageous given that Libor generally trends above the BBR.”
Paragon, conversely, confirmed it had chosen Term SONIA as its alternative reference rate to Libor. “This is a forward looking rate, so customers know what their repayment will be for the three months following their quarterly reset rate,” the lender said.
Paragon will be transitioning customers from June to December, and has already written to let them know.
Meanwhile, another lender contacted by Mortgage Solutions had not yet made a final decision on which alternative rate to use.
TML releases limited edition BTL fixed rate deal
The product is priced at 3.56 per cent and is available to individual and limited company borrowers. It comes with a reduced completion fee of one per cent down from 1.5 per cent.
TML has set aside a £100m tranche of funds for the buy-to-let deal.
The Mortgage Lender sales director Steve Griffiths (pictured) said: “After the success of our limited edition buy-to-let tranche at the end of last year it’s clear brokers are looking for products that stand out from the crowd to meet the needs of their landlord clients.
“Developed alongside our broker partners the latest buy-to-let tranche has reduced fees and rates among the most competitive in the market. It is also backed by our reputation for underwriting the more complex cases in the specialist lending sector.”
TML reveals semi-exclusive HMO and Lumi BTL products
Alongside the HMO product, TML is launching Lumi-branded products, mortgages designed for limited company, individual and HMO/multi-unit block (MUB) applicants through a select list of mortgage clubs and networks.
The five-year fixed rate HMO deal is priced at 3.8 per cent with a 0.5 per cent discount on the completion fee to 1.5 per cent for remortgage or purchase.
Its Lumi buy-to-let product, is exclusive to Mortgage Lender and aims to shine a light on products that stand out. It does not have an application fee and comes with a free valuation and free standard legals for remortgages, or £500 cashback for remortgage and purchase.
The five-year fixed rate is priced at 3.89 per cent at 75 per cent loan to value for individuals and limited company applicants and 3.99 per cent for HMO/MUB applicants.
Furthermore, it provides a reduced completion fee of 1.25 per cent for limited company and individual applicants, as well as 1.75 per cent for HMO/MUB applicants.
Steve Griffiths (pictured), sales and product director, said: “Increased choice in the specialist buy-to-let sector is driving better deals for customers.
“Whether landlords are looking to raise capital to increase the size of their portfolios or for a competitive deal, we’ve got the rates, criteria and customer service to help them achieve their goals.”
Bob Hunt, chief executive of Paradigm Mortgage Services said: “We know from Paradigm members that their landlord clients continue to seek out the strongest yields, which is leading them to increasingly look at HMO and MUB properties.
“These exclusive products will support the work of our member firms who are active in the buy-to-let space particularly as we anticipate more landlord activity in the months ahead.”
TML introduces mortgages for credit impaired borrowers
The Lumi-branded range is available up to 75 per cent loan to value (LTV), across four categories to support customers with defaults, county court judgements (CCJs) and mortgage arrears.
The products are available for employed, self-employed and complex income applicants.
Rates start at 4.98 per cent for a two-year fix and 5.29 per cent for a five-year fix at 70 per cent loan to value and are open for loans between £25,001 and £1m.
It also offers criteria for unsecured arrears, bankruptcy and pay day loans outside that of TML’s standard range.
The lender said it was taking a pragmatic approach to the real-world experience many clients are facing and it was providing “a stepping-stone for homemovers or those remortgaging and, in some cases, credit repair”.
TML sales and product director Steve Griffiths said: “Now more than ever lenders need to have criteria that caters for a wide range of customer circumstances and recognise that the last 12 months has been financially difficult for many people.
Doug Hall director of distributor 3mc added: “We are seeing increasing numbers of customers whose financial situation has been impacted by the coronavirus pandemic who need products that are appropriate for their circumstances now.
“Through sharing our knowledge and challenges with lenders, like TML, the specialist lending sector is proving it can meet those needs in a responsible way.
“The launch of Lumi is great news for brokers and customers. It shows lenders are listening and able to respond to the market, improving customer choice and competition.”
Eastgate: Shawbrook and TML strategy looks to distribution, product design and two core markets
The most significant change advisers are likely to see from the Shawbrook and TML merger is a wider representation of both brands, but it also brings stability of funding and cross-pollination.
“For both of us there was opportunity to grow – for obvious reasons there were challenging forces last year and that uncertainty created opportunity,” explains Eastgate.
“But the merger had been on our agenda for some time and the pandemic probably accelerated that thinking. We looked at what TML would get and what we would get, and both believed the whole would be greater than the sum of the parts.
“This will extend the Shawbrook name into distribution we have not had much exposure to before and for TML there’s the benefit of having a savings association behind them.”
The distribution changes will not come in overnight and the lenders will take time during this year to assess how to do it exactly, but there will be extra visibility and support from both sales teams.
“The TML salesforce will be representing us, they will be an introductory gateway and that makes us more resilient,” Eastgate continues.
“A mainstream broker is probably not going to come across a Shawbrook-type deal that often, this will just open up the opportunity for someone who wasn’t aware of Shawbrook before.”
The dual branding is already visible with Shawbrook being a prominent part of TML’s latest mortgage ranges.
“The aim is to reinforce the message that TML is backed by a retail bank and to show that we are permanently in the market,” Eastgate says.
“TML competes with a lot of non-bank lenders they have just created for themselves a point of competitive advantage.”
But is there a risk of the brands overlapping and confusing brokers and borrowers, or potentially even taking each other’s business? Eastgate believes that is unlikely.
“Distribution will play a large part and then it comes down to product design,” he says.
“Shawbrook has a long history of complex transactions in the buy-to-let (BTL) and commercial markets – these are not done by the more mainstream lenders like TML and its peer group.
“We’re very clear of the markets each business will point at and rather than cannibalise each other it gives us market options where TML has an avenue to route cases if they do not fit for it.”
Core lending markets
So with a deal intended on growing two businesses, where does Eastgate believe that growth will come from?
BTL is the prime opportunity, but perhaps surprisingly he also sees potential for the commercial lending sector despite its many issues at present.
“There’s going to be huge challenges across consumer landscape so if you want to get a mortgage its more difficult than it was a year ago,” he continues.
“So many people may have no option but to rent and that’s continuing a long-term trend, so I can’t see prices falling significantly and as a result BTL demand will be strong and very robust.
Eastgate notes the lender has been taking “very conservative views” on commercial properties with a focus on particular sectors away from those in challenging situations, and investors are returning.
“Commercial is very different, but there are parts that have been very resilient, for example, warehouse storage and semi-commercial have done very well,” he says.
“So these are the core markets for Shawbrook and TML but under slightly different situations, and that being the case, I believe for both firms growth will be underpinned by these two markets.”
Small and local businesses have done, perhaps counterintuitively, “really well” during the pandemic year as has warehouse and distribution space with the increased reliance on mail order.
“There are selective markets that we can rely on,” he adds.
‘Off the pace on bridging’
And then there is the bridging market which the lender notes is “very robust” at the moment, fuelled in large part by the stamp duty holiday, but also the need to renovate and convert properties.
Eastgate admits that after being in the market for 10 years the lender’s proposition in the area had “come off the pace”.
“So we have done a lot of with our bridging proposition after recognising that we needed to do some work on it – we’ve focused a lot of our investment in improving products and processes,” he says.
“It’s a big market for us and remains an attractive market. I think it will increasingly see people buying properties to add value.
“And it will be interesting to see how commercial spaces become residential spaces as planning regulation changes – we want to be well set to take advantage of that trend.”
Overall, Eastgate believes the housing market will remain resilient through the year and even if there is something of a dip, he argues the long term returns from property investment warrant confidence in a rapid recovery.
TML hires BDM and Blueberry Mortgages adds underwriter
McCawley was key account manager for three years at Foundation and has previously held positions at Aldermore Bank, Royal Bank of Scotland and Vitality.
In total, she has more than 15 years’ experience in the sector.
McCawley said: “When you join the team it also feels like you’re becoming a part of a big family – it’s got a unique culture and approach to lending.
“In my new role with The Mortgage Lender I’m looking forward to supporting all the brokers I already have good relationships with, as well as making new connections.”
McCawley is the latest addition as part of its recruitment drive. The lender said it was on track to increase its staff numbers from 133 to 153 by the end of Q1.
David Eaves, head of sales at The Mortgage Lender, added: “It’s great to have Sarah join the team. She’s got a fantastic reputation in the industry, strong relationships and bags of experience.
“She’s already proving to be a real asset to our ever-expanding team at The Mortgage Lender.”
Blueberry adds underwriter
Blueberry Mortgages has expanded its team with the appointment of Charlotte Hagyard as specialist underwriter and marketer.
Hagyard (pictured) has a background in business development and eight years’ experience in the property sector.
Her previous roles include business development manager (BDM) positions at property management company HD Property and engineering consultant Independent Safety Evaluation.
Alex Hamilton, head of specialist lending at Blueberry said: “We are delighted to announce that we have appointed a new specialist underwriter. Alongside her experience as a BDM, she brings with her exceptional marketing experience and we are confident that she will be a great additional to our specialist lending department.
“We are all confident that Charlotte will take on her responsibilities with the same enthusiasm and professionalism as we have already been shown.”
Nationwide cuts rates, Foundation lifts LTVs and TML adds Help to Buy – round-up
A two-year fixed at 75 per cent loan to value (LTV) with £999 fee has been reduced by 0.05 per cent to 1.54 per cent and the equivalent option at 85 per cent LTV has been cut from 2.99 per cent to 2.64 per cent.
For existing borrowers, a two-year fixed at 80 per cent LTV has seen a reduction from 2.04 per cent to 1.99 per cent with a £999 fee. Furthermore, a fee-free five-year fixed product at 85 per cent LTV has been reduced to 2.99 per cent from 3.29 per cent.
Changes are effective from 10 February.
Henry Jordan, director of mortgages at Nationwide, said: “In the last year we have spent much more time at home, and it has allowed more people to really evaluate what they want from a property.
“Whatever people are looking for in their new home, these latest reductions for house purchasers will help make the cost of moving home even more affordable.”
Foundation introduces 85 per cent LTVs and cuts rates
Foundation Home Loans has launched two products at 85 per cent LTV and cut rates on mortgages at 80 per cent LTV.
The new mortgages include a two-year fix with a rate of 4.34 per cent and a five-year fix at 4.69 per cent. Both products have a fee of £995.
Rate cuts include a two-year fix at 80 per cent LTV which has gone down to 3.64 per cent from 3.79 per cent and its five-year fixed alternative has been reduced from 4.29 per cent to 4.04 per cent.
For first-time buyers, a two-year fixed mortgage at 80 per cent LTV has been reduced by 10 basis points to 3.79 per cent and a five-year fix has been cut by 20 basis points to 4.19 per cent. These mortgages have a £595 fee.
George Gee, commercial director at Foundation Home Loans, said: “There is undoubtedly a growing demand in the residential space, and Foundation is looking to meet this demand with keen pricing on our near-mainstream 80 per cent LTV rates, and the introduction of two new options at 85 per cent LTV.
“With 2020 having a significant impact on many individuals’ income and the financial situation of many existing borrowers, we anticipate an increased number of clients will require specialist residential finance.”
TML enters Help to Buy
The Mortgage Lender has expanded its recently launched residential range with Help to Buy mortgages to serve borrowers using the scheme in England and Wales.
The products have a maximum loan to value of 75 per cent and include a free valuation. The rate for a two-year fix is 3.77 per cent, while the five-year fixed has a rate of 4.2 per cent.
Steve Griffiths, sales and product director at The Mortgage Lender, said: “After relaunching our residential range a couple of weeks ago brokers said what they really need right now is Help to Buy products for people who have impaired credit, complex income or are self-employed.
“We’re delighted we’ve been able to act quickly and launch Help to Buy within weeks of returning to residential lending with our core product range.”
TML’s Beaumont on Shawbrook deal: ‘Where we end, they start’
Beaumont (pictured) noted that the deal eventually became a natural progression of the relationship built between the two lenders and gave greater funding security to TML.
And in a reassuring step for employees, he pledged that rather than job losses, TML was able to speed up its rate of recruitment as it looks to expand its footprint in the market.
“It has been a long time in the making,” Beaumont told Mortgage Solutions.
“Discussions have been occurring over several months. When Shawbrook made the initial investment three years ago there was always an ambition that we would work with them more closely.
“We had conversations about funding in the residential range and then that culminated in this agreement.”
Beaumont confirmed that TML will continue operating as a separate regulated entity and retain its brand but “with the benefit of funding from a retail bank”.
“We are going to become their specialist residential and buy-to-let arm,” he added.
“We have got different product ranges so that’s completely complimentary. We are going to stick to what we are doing best and will look at other product suites in the future.
“Where we end, they start – they don’t do what we do.”
One of the most important developments for TML from the deal will be securing another source of funding, meaning it will not be wholly reliant on capital markets anymore.
The difficulties that can cause were most evident last year when the markets effectively shut down for several months, leaving some lenders struggling for capital and unable to fund their operations.
Beaumont also noted the deal would help address the possibility that the Prudential Regulation Authority (PRA) may want lenders to put more capital aside.
“It’s a good time to be doing it. The specialist mortgage could have some challenges ahead,” he said.
“But the timing was right for us and Shawbrook, and if you take the pandemic away we would still be having the conversations.
“We built it as a business we wanted to sell.”
Recruitment, not downsizing
Mergers and acquisitions can often lead to job losses at one or both of the businesses involved, however Beaumont was adamant that this would not be happening at TML.
“No, far from it,” he said. “We are recruiting right now – we have 134 employees and will be going up to 150.
“The investment is going into the business so we’ll be able to recruit faster and harder.
“Existing jobs are secure – we’ll carry on our growth path but don’t have to worry about our funding and balance sheet, we just focus on growth strategy.”
Beaumont said the three-year long arrangement where the management teams had worked closely and identified similar cultures in the organisations meant they knew what they were getting into with the deal.
Ultimately, coordination may come in technology development for TML, its brokers and customers, with the lender planning a significant digitisation strategy for the next two years.
“A lot of time, money and investment is going into developing that. It will be a part of the harmonisation as we get to know Shawbrook,” Beaumont said.
But for brokers, not much is expected to change. They will still be meeting, virtually at least, TML business development managers and if anything the product range is likely to widen as the new funding becomes available.
“We’ve got ambitious targets for our residential and buy-to-let growth,” Beaumont concluded.
Shawbrook buys The Mortgage Lender
The full acquisition of TML follows Shawbrook taking a minority share in the business in 2018, although the final cost has not been revealed.
Shawbrook said it intends to retain the TML brand and that it was “business as usual” for the firm.
It added that the main driver was to strengthen its position and distribution in the residential and buy-to-let markets.
“The acquisition, which has regulatory approval, will extend Shawbrook’s Property Finance product range and significantly increases its distribution network,” the bank said.
It added that it would be business as usual for TML with its growth plans reinforced through access to Shawbrook’s retail savings business.
The transaction is the second significant one in 18 months in the specialist lending market following the merger of OneSavings Bank and Charter Court, parent company of Precise Mortgages, in October 2019.
‘Wider intermediary audience’
Shawbrook Property Finance managing director John Eastgate said the move was an exciting opportunity for both organisations.
“It positions Shawbrook in front of a much wider intermediary audience and reinforces TML’s growth plans with the strength of a retail savings franchise,” he said.
“It will also allow us to maximise the benefits of our substantial investment in digital and enhance our offering to intermediaries.
“The combination of the two businesses creates an even more powerful force in the specialist lending market.”
He added: “We have built an excellent relationship with TML management over the last three years.
“This acquisition is a natural extension of that relationship, and the experienced TML leadership team will strengthen our existing management as we enhance our presence in the specialist lending market.”
Progression of the partnership
TML chief executive Peter Beaumont said the deal was great news for the business.
“We’ve worked closely with Shawbrook Bank for the last three years, and this is a progression of that partnership and a great strategic and cultural fit for both businesses,” he said.
“It will underpin our growth and the expansion of our proposition. The backing of an established retail savings franchise provides us with the security that will help us to grow, and to challenge the larger players.
“But it’s very much business as usual. We will be retaining our brand and will be a separate regulated entity, however we will soon begin to leverage from all Shawbrook has to offer to make our business stronger and more successful.
“We will also be investing in the business to accelerate our digital transformation and build on our success as an originator in the specialist intermediary-only mortgage market.”
TML founder and chairman Trevor Pothecary added: “I am proud the company I envisaged over six years ago has grown into a thriving specialist mortgage lender.
“We are delighted to become part of Shawbrook Bank which marks the next chapter in our growth and is an exciting time for our team, intermediary partners and customers.”
TML cuts rate and launches products in BTL overhaul
As part of the move, TML has cut the rate on its five-year fixed at 75 per cent loan to value (LTV) from 3.69 per cent to 3.56 per cent with all other fees and features unchanged.
A five-year fix at 70 per cent LTV with a rate of 3.49 per cent has been introduced.
TML has also launched a mini multi-unit block product for blocks of two units with a minimum loan of £150,000 and a five-year initial fixed rate of 3.74 per cent at 75 per cent LTV.
The special edition and Mini MUB products are whole of market for purchase or remortgage and available to individuals and limited company applicants with a 1.5 per cent completion fee and a £150 application fee.
TML added that exclusive introducer partners also have access to a new five-year fix large loan product for mortgages between £500,000 and £750,000 with an initial rate of 3.48 per cent at 65 per cent LTV and a reduced completion fee of 0.5 per cent.
TML has also continued its move away from using London Inter-bank Offered Rate (Libor) linked products.
On 22 October it replaced its range of BTL products with new ones linked to the TML Buy to Let Base Rate in line with the industry transition away from Libor before the end of 2021.
TML sales director Steve Griffiths said: “This is the first time The Mortgage Lender has launched a special buy-to-let tranche and we’re delighted to have been able to do so with a top quartile rate.
“All of the changes to our products provide competitive criteria and rates for niche segments of the buy-to-let market and have been developed alongside our broker partners who have told us what they and landlords want.”