Brokers have had to be more understanding and compassionate in the past year – Marketwatch
So, this week Mortgage Solutions is asking: Have you had to step out of your professional comfort zone more frequently this year to find suitable solutions for your clients?
Andy Wilson, director of Andy Wilson FS
The pandemic has required advisers to step out of their professional comfort zones in some respects, but for me it was never around the advice I continued to give clients.
The comfort zone I did need to step out of was the normal face-to-face meetings with clients.
I work in the equity release market, and for me, meeting my clients on their own territory, where they are most comfortable, has always been a mainstay of my business.
So, having to resort to providing some aspects of advice by video calls was alien to me, and took a little while to adapt to. Fortunately, family quizzes each weekend soon taught me the capabilities of video calling.
One potentially risky aspect of this was the inability to check whether the client had any vulnerabilities or not.
Were they being coerced by family, in the room but out of shot? Were they feeling vulnerable due to financial pressures, health, grieving or other factors?
I think that sometimes clients on video calls may struggle with the format, and may not be quite as candid about their actual situation, whereas face–to–face allows us to bond with clients better and demonstrate more empathy and consideration.
When it became clear we could meet face–to–face again for work, I arranged this where the clients were comfortable and with appropriate Covid safety measures in place.
I had a couple of meetings in delightful gardens during the summer, and others masked up and coated in hand gel. That was also a change to the process I was comfortable with, but I had to simply adapt like everyone else.
Payam Azadi, partner at Niche Advice
Most of the challenges were around remote working.
Even though we were geared up for it with an existing cloud system, we obviously had a main office that we worked from. So we had to set things up to ensure staff could work in the same way from home.
Beyond this, we’ve got to make strategic decisions about our working practices.
Do we ever want to go back to the office and do our staff? Some people have had kids since the pandemic so that changes things.
We also have to consider downsizing. As well as that, will staff be as committed to the business when working from home or will they think, ‘now I’m working remotely, I can work for any company, not yours’.
We’re still figuring those things out.
With clients, the more challenging parts are when you’re dealing with them and all of a sudden they go quiet. When you finally hear back, they say they caught Covid and have been in hospital, so the mortgage application has to be put on hold. Or they’ve been furloughed.
That’s difficult when you’ve been working on a case for a long time.
Therefore we’ve had to be more understanding and compassionate. Not that we weren’t before but you could have someone self-employed, running a business for 10 years, making lots of money and they can’t get a mortgage.
It’s a sensitive topic to approach because as far as they’re concerned, they’ve paid their dues but now the system is essentially telling them ‘no’.
There are a lot of conversations where I have to gently tell them that I don’t make the rules.
A lot of people feel hard done by, or feel that now their backs are up against the wall they’re not getting the support they should be.
So the challenges haven’t necessarily been due to cases placed, but more about how we deal with telling people that they can’t get the finance they want.
Darryl Dhoffer, mortgage and protection consultant at The Mortgage Expert
I’d like to say as advisers we need to encompass all areas. There’s still a lack of good brokers out there who embrace the likes of second charge loans, bridging or short-term finance when looking at refinancing.
For me personally, I haven’t stepped outside of my comfort zone because I’m always looking for alternative solutions for clients. I’ve always been that way.
Where one cap doesn’t fit, I’ll look at other options.
What I have noticed is we have had to be more thorough and our planning has had to be more precise.
Communication has been key – we’re all guilty of not keeping in touch with our old client base. We’ve had to try to keep communication lines open and that’s been at the forefront.
We do this by making sure clients are aware of any new product release as soon as it comes out.
As we specialise in adverse clients, where certain mortgages didn’t fit one month, we’re focusing on getting them back on board as soon as possible. So we’ll make contact when something suitable becomes available.
We have to keep abreast, keep a diary, know where they’re at and keep communicating.
This is especially important where clients are becoming more aware of the market. They are more savvy and switched on about what’s out there.
Where they’ve had more time on their hands too, they can pay more attention to their finances and are happy to take time shopping around.
It’s not a shoo-in anymore that clients will come back to you. We have to spend time to grab them more in advance than usual and talk to them continually.
‘Recruitment is something we should always be thinking about’ – Marketwatch
Some firms may find it useful to expand at this time and get new recruits to take on some of the share of workload.
However, the pool of suitable candidates may be hard to find especially when quick hires are needed to handle current activity.
So this week, Mortgage Solutions is asking: When you look to hire new staff, where do you tend to look for them?
Piers Meptsed, managing director of Financial Advice Centre
Hiring new talent remains challenging.
Recruitment is something we should always be thinking about – not just picked up when a vacancy appears.
This means talking to potential new team members all the time and being open to new opportunities throughout the year. Panic recruitment and quickly filling a vacancy out of immediate necessity can and has resulted in disaster.
I encourage all our senior management team to be on the lookout. Asking our business connections for introductions to those they see as fitting with our culture works well too.
The failures of the past have shown us that good references from people we know and respect go a long way and have found us some of our best staff.
LinkedIn complements this network approach. However, social media driven sites are a hunting ground for recruitment agencies keen to sell their wares and we can spend a disproportionate amount of time deciphering sales pitch and rhetoric.
On the other hand, LinkedIn has enabled us to build good working relationships with them and we have found this is important as we are looking for a certain type of person to fit in with our team and not just qualifications.
In summary, we find that our team and our extended networks have been our best source of good people. We are always on the lookout and will find the time to see and speak to people interested in joining us.
This has meant we have never struggled to find staff and at time created new roles to buy in the right talent at the right time.
Hiten Ganatra, managing director of Visionary Finance
For me, it’s a case of whether they have relevant financial services experience and passion.
I look to understand their connection to customer service. We want to provide a five star service and if we look at our repeat and referral business, we get that because of the service we give.
Seeing the spark in new recruits is also important. They may not have the skill but that can be gained through training. But you’ve got to have that fire in your belly to do whatever is right by the client, because they pay our wages.
We’re looking to hire right now actually and it’s a strange one because the sector is exceptionally busy but there isn’t an overflow of qualified brokers.
Getting the qualified advisers we need is quite difficult so we are looking to the financial services apprenticeship program.
When it comes to that, you have to go by your gut feeling.
If you’re recruiting someone at a young age, they might be just doing the program for the sake of it. Then after years and effort of training, it appears they’re not actually that passionate about the job.
At the moment though, you can’t be overly critical because there aren’t many options.
Otherwise, the busy-ness in the market is a chance for the sector to open up to new kinds of recruits.
We have one lady coming from a building society and she was saying they’re making advisers there redundant because they want to go down an automated route. So there’s an opportunity from the banking sector but coming from a one-lender background to whole of market is a new ball game.
David Thomas, joint managing partner of Chadney Bulgin
We try and take new people from within and we create a structure for that.
For example, we will have a mortgage administrator. They will then move on to be a mortgage paraplanner, then trainee adviser, then an adviser. That would be our first and primary line of attack.
But some of our advisers are getting older. So we’ve set up an academy to train new people for when advisers retire.
With the academy, people start from scratch. They then spend two to three years going through various departments, to get to the point where they become an adviser.
Lastly, and most difficult, is trying to find people who are already in the role. If they are on the market, why are they on the market?
Sometimes, when you get CVs and previous roles go on for many pages it seems like the person will go anywhere. I don’t always like that as you wonder if they will be with the company for a long time.
If we need to hire someone who is experienced quite quickly, we post the job on our website and get success that way.
Local advertising is another avenue, and the last resort would be agencies.
If you’re taking someone at entry level, they do tend to be younger and then I don’t need previous experience, just the right attitude. I can train them.
I’d rather spend time training the right person than taking a chance on someone I’m not sure about.
The right person has to have common sense, which is hard to measure. At interview stage, you put them in different scenarios. Not necessarily mortgage scenarios but ask how they would react to something and see if it’s a logical approach.
You can generally find someone with a good attitude in half an hour.
‘Lenders need to get staff back in the office’ to improve service – Marketwatch
Many businesses are expected to allow staff to work more fluidly going forward, as the pandemic reshaped our thoughts around employment practices.
However, not all employees have the same systems and structures in place at home that they do in the office which has altered functions and performance.
So this week, Mortgage Solutions is asking: How has bank staff working from home affected your own operations so far and how might it impact them going forward?
Rob Gill, managing director of Altura Finance
Banks are going to have to drastically improve the way they manage people working from home. I don’t think it’s worked at all. In fact, it’s got worse with many lenders.
I suspect the huge increase in applications due to the stamp duty holiday has distorted things as well. Unless that drops dramatically or they manage to work better from home, I think they need to get staff back in the office.
With all due respect, I think it’s the lower level employees causing some delay. Using myself as an example, I was in investment banking before I started mortgage broking.
When I was in my early 20s I worked on a banking desk with more experienced colleagues who I learned from.
They were a couple of tables away and whenever I was stuck on something, which was pretty regularly, I leaned over my shoulder and just asked them. And that was something I probably did several times an hour.
All of a sudden, people who are in that position are taken away from their desks with good IT systems and support and are probably around the kitchen table with other people trying to use the Wi-Fi. Maybe a couple of them are furloughed so they’re distracting them.
And crucially, there’s no one around to ask questions.
As a trainee, junior staff member or someone without managerial responsibilities, being in touch with senior colleagues on a daily or hourly basis is very important to be able to do your job.
Now if they don’t know the answer, they either don’t answer it, try to and get it wrong or they just get it wrong completely. I know for some of the banks that has been a big problem.
All of that has broken down so they need to get back into the office to improve their systems.
Adam Wells, co-founder of Lloyd Wells Mortgages
Working from home is great when it is utilised properly. Having the ability to manage your work-life balance is great.
This year has been a learning curve for everyone.
With every bank and building society changing their process to fit the new normal there have been some issues along the way.
Service has been hit dramatically. A number of the main high street banks couldn’t cope initially, but have managed to sort their problems out and are now back to business as usual.
It’s also affected solicitors with big firms having let down a few of my clients.
It has resulted in longer application to offer times which has left some clients on high standard variable rates or having to pay for second surveys as initial surveys became out of date.
I’ve also seen purchases delayed due to legal searches taking longer to be returned. In certain cases, this has resulted in having to wait for new tax calculations being produced to extend offers.
Going forwards I expect things to return to normal, with people eventually returning to offices in the near future.
Chris Sykes, associate director and mortgage consultant at Private Finance
It works when done properly.
For example, prior to the pandemic Private Finance was already implementing a hybridised working model, enabling staff members to work from home a day or so a week if they desired to.
The back office team were quick to improve and implement systems that made this possible. Put simply, it has been a great success.
Staff have enjoyed the improved work–life balance, with parents able to spend more time with children and the like.
And productivity has been significantly improved, with commuting times taken out of the equation people can work on their terms and start early if that’s what they prefer or a bit later and finish later.
The one area that has proved tricky is training new staff, as video calls are not as engaging as being in the room together and of course all staff miss the social aspect of work. I suspect that will be the same for the banks.
Moving forward we will also be keeping the hybridised working model in place, ensuring staff get the best of both worlds.
We believe the rigidity of pre-pandemic working models is no more and this situation has accelerated changes that were in the pipeline by a number of years, ultimately we believe for the better.
Client circumstances are changing mid-application but brokers fight on – Marketwatch
However, this is with the consideration that an applicant has been furloughed or seen a change in income before the case is submitted, rather than this unexpectedly happening as it is in progress.
So this week, Mortgage Solutions is asking: Has it become more common to see client circumstances change partway through an application? How much does this disrupt the application process, if at all?
Dina Bhudia, managing director and CEO of P2M Asset Management
I have not seen situations where clients are willing to put down more money even if they’ve built up cash over time due to delays and the stamp duty holiday extension.
I think people are still being conservative and will hold those funds back.
We’ve had a few applications where people have lost their jobs or seen a drop in income partway through, which then means the case cannot proceed or we have to re-house it.
We are finding this means there is more work involved for us as advisers.
Another thing we’ve noticed very recently is on the self-employed accounts, because we’re technically a year on from the start of the pandemic, the difference between this year and last year’s income is black and white.
When lenders are assessing this, it becomes a problem even if this year’s income so far has gone up or is expected to.
Those people who were pretty much locked down last year are no longer in a position to apply for a mortgage as the accounts aren’t showing what the real income is and we won’t see that until next year’s accounts.
If a case goes outside the 18-month window in the middle of an application, lenders will say they need last year’s accounts again. This means the figures we would have put in are now dormant and we need new accounts, but unfortunately, they don’t always show any recovery.
I think lenders should also be taking projections into consideration.
Akhil Mair, managing director of Our Mortgage Broker
We have a few live examples.
We have a couple of first-time buyers purchasing a shared ownership property with five people in the chain and there has been a breakdown in communication somewhere along the chain.
That was slowing down the process and it had been lingering on for five months. Because of this my clients have pulled out of that particular purchase and are looking for a new shared ownership property.
We will use the same lender, but it will be subject to valuation, payslips and everything else.
Another live example was where a client was buying a buy–to–let property, the surveyor went out to value it and found out the EPC was not of E to A standard.
So that fell out of bed and the client has had to look for a new property to purchase. This has meant a new application along with full underwriting. It is more about the subject of security rather than the applicant, but it does slow down the process quite considerably.
The properties in both cases are of a similar value so it is not a huge change and the amounts each client has put in stayed the same.
Although these have slowed things down in terms of starting applications again, I’m giving lenders the benefit of the doubt and not expecting it to cause too much extra delay.
Underwriters are extending their working patterns and giving us day one lists of what they need, so we know exactly what documents to provide and that is speeding things along.
Richard Campo, managing director of Rose Capital Partners
Perhaps we have just been lucky, but we rarely see changes mid-application, and this hasn’t risen lately.
However, when that does happen, it is always the trigger to go back to square one and start again – is your original recommendation still suitable, for example, someone wants to start a new job on a similar income, and if so, are any changes within the lenders policy you have placed the case with?
If so, carry on as you were, if not, you may have to go to a new lender. In this instance, you may only look at a few days delay while the case is re-approved.
If there has been a ‘material change’ such as – someone leaving or losing a job, a couple becoming pregnant or warning signs that a self-employed client’s income isn’t sustainable – you have to revisit the viability of the recommendation and decide if you carry on with the lender, or to carry on at all.
This will always be the most significant disruption as it could lead to the application being cancelled by you.
We are required to tell a lender any of this anyway, the bigger issue is that we have a moral obligation to our clients to ensure they don’t take on a commitment they can’t afford.
I personally have never wanted a client knocking on my door after being repossessed on a mortgage due to issues I was aware of. That has never happened, and I hope it never does.
Mortgage advising is an opportunity for unemployed to reinvent themselves – Marketwatch
So, this week Mortgage Solutions is asking: Could a potential unemployment crisis present an opportunity for the mortgage industry to promote itself as a suitable career path, especially as it’s currently thriving?
Siobhan Holbrook, founder of Mortgage Light
The property market has remained buoyant in otherwise tough economic circumstances, not least because of the various measures rolled out by government.
We all know these schemes have helped homebuyers, but a thriving residential market also supports the thousands of people working in the industry – and creates employment opportunities for those looking to build a career.
To become a mortgage broker, you don’t need to have a university degree to obtain the required qualifications, which is appealing to many people who in an uncertain economy might be eager to get into the workplace and avoid costly tuition fees.
Mortgage brokerage is as much about your individual and soft skills as it is your academic background.
At Mortgage Light, we’re most interested in how our new recruits connect with people – their clients and their colleagues.
Many of our team have a background in estate agency; the mix of property knowledge, sales experience and a personable approach lends itself very well to mortgage consultancy.
However, anyone who knows how to build a rapport with customers and deliver a personal service – whether your background is hairdressing or car sales – will often have some of the skills required to be a good mortgage broker.
First and foremost, our brokers should be able to listen and understand the needs of our customers. A ‘here to help’ mentality is a crucial part of our ethos.
The understanding of the technical aspects of the products will follow and be built on through a dedicated and comprehensive training programme designed to ensure that whatever our customer’s circumstances, we will find them the best possible mortgage option possible for them.
Chris Hall, head of operations at Mortgage Guardian
Few sectors have been spared the impact of Covid-19 with retail and hospitality sectors being hit the hardest, as well as the wider economy.
In comparison, the mortgage industry has not only got off lightly but seems to be thriving.
I spoke with John Somerville, head of professional education for the London Institute of Banking and Finance. According to him the mortgage market has been bolstered by the stamp duty holiday, and that has reflected in the numbers of people wanting to take on mortgage advice qualifications.
As Britain continues to plunge into the deepest recession on record, the latest figures from the Office for National Statistics (ONS) confirms we are also witnessing the highest level of unemployment in the last five years.
Whilst job losses are unfortunate, there are real opportunities within the mortgage industry for people willing to reinvent themselves by qualifying for a new career.
Generally, people with sales, customer service and administration experience have traditionally had a smoother transition into advising roles.
We have taken in quite a lot of people from the retail and hospitality industry who have these common core skills and recognise the need to adapt in order to survive. Younger people bringing in digital skills is on the up as they naturally understand mobile trends.
However, another concern is our industry reaching saturation point.
Whilst our preference has been to work with advisers with previous experience, we have developed into supporting newly qualified mortgage advisers with interesting backgrounds.
The newly qualified benefit from low start-up costs and a comprehensive training process to help them become successful mortgage advisers.
All they need is come to us CeMAP qualified and we will do the rest.
Martin Wade, director of Access Equity Release
The mortgage industry offers huge opportunity for those looking for alternative careers in the wake of Covid-19.
Arguably the biggest change has been an acceptance of alternative methods of advice delivery. Historically this has largely been delivered face-to-face, either from an office or in clients’ homes, often involving much travel and evening appointments.
These working practices have not suited everyone and those with a requirement for greater ties to home have often found the work incompatible with home life.
With more widespread acceptance of remote advice by advisers and clients, these barriers no longer exist.
While not the most exciting or glamorous career, it does offer great opportunity and is very rewarding helping people sort their finances.
With both employed and self-employed routes, office hours to fully flexible hours, basic salaries to uncapped commission, the rewards can be very good.
Initial barriers to entry are relatively low, even if you go on to gain the equity release qualification. There are plenty of learning channels available for those wanting to harness the opportunity and embark upon a new stage in life.
Like all jobs, entry and qualifications do not mean you are the finished product. Experience counts a lot, placement and knowledge of the lenders can all be learned, eventually.
The key for a successful career move is being people orientated, a desire to help and an ability to build rapport and trust. What sets us apart from the competition is good old fashioned customer service.
Broker remuneration should be a by-product of delivering good advice – Marketwatch
This raises the question of whether some advisers are being financially rewarded for simply selling products rather than the work that goes into finding suitable solutions for clients.
Payscale suggests that as of January this year, the average salary for a mortgage broker working in the UK was £25,887, rising to £35,000 for those with 20 years’ experience.
So, this week Mortgage Solutions is asking: Does the average basic adviser salary sufficiently cover the work that goes into the advising process?
Will Hale, CEO of Key Equity Release
Base salaries vary widely for employed advisers and clearly many mainstream mortgage and equity release advisers operate self-employed models.
Whether adviser remuneration is sufficient to cover the work that goes into the advice process will much depend on the nature of the business.
While fixed or minimum advice fees can help ensure much of the cost involved in delivering the advice is covered, this will not always be the case on complex cases for relatively small loan amounts.
It is also important to acknowledge all the other costs that go into running an intermediary business – regulatory fees, professional indemnity cover, customer acquisition expenses, sourcing and CRM systems.
Customer charges and lender procuration need to cover these costs on top of the investment in advisers in order to ensure that the service provided is of the standard required.
Avoiding poor customer outcomes driven by incentive-based remuneration models needs to be at the centre of the thought process of all intermediary firms.
We pay our employed advisers a good base salary with additional rewards for those whose hard work allows them to help many customers
Customer feedback, complaints and file review assessments all have a significant bearing on adviser remuneration.
Furthermore, we ensure there is no remuneration bias in the outcomes that customers receive through a series of checks and balances.
These include a proprietary adviser portal that combines integrated fact find and sourcing capability to ensure that every recommendation meets the customer’s needs and priorities at the lowest possible cost.
However, getting the culture right is also vitally important – the customer must be at the centre of everything with remuneration a by-product of delivering a great service and consistently good outcomes.
Howard Reuben, owner of HD Consultants
The average adviser salary does not cover the work that goes into the process.
Salaried staff are more likely to be mortgage salespeople, rather than someone who carries out the full role of a true adviser.
Advisers are taking the time to fully understand the client’s financial needs for their debt plans and considering how the implementation of that debt would impact their financial security should circumstances change.
Life insurance, income replacement strategies, estate planning and family insurance plans should all be part of an adviser’s fact find. This could take many hours per client to complete.
The basic salaried staff business model will only survive for fast turnover, quick sales centres. The difference between having customers and clients is one gets sold to, the other receives a professional advice service.
Customer-based roles can be done with a basic salary model, client-based roles deserve to be properly remunerated, and this also means by way of a fee.
The employee can’t possibly maximise any benefit and reach their full earning potential if they earn a basic hourly wage while the employer retains the majority of the procuration fees.
The salaried model leads to downsizing, furlough and redundancy. The commission-based business model has not only provided financial security for companies and their advisers, but along with the current heightened drive for financial advice, these robust firms are busier than ever.
In my firm, we have not furloughed admin staff, nor have we ended any self-employed contract due to them being a financial burden. This is because, quite simply, I don’t have fixed salary costs to pay.
Darryl Dhoffer, mortgage and protection consultant at The Mortgage Expert
As whole of market advisers, we should always be offering clients the best advice based on their circumstances and requirements. Not because of any company or lender commission incentives.
If the company offers an incentive that is not dependent on lender choice or the amount of business written, this would be a good way of rewarding advisers while not being to the detriment of the client.
The benefits of a commission-free model depend on the experience of the broker and the support offered through back office, compliance, CRM systems and leads.
If these are a good standard, the broker is scaled on the level of experience and more importantly niche mortgage fields, then this could be reflective in the salary. The old saying ‘you pay peanuts, you get monkeys’ comes to mind.
All our advisers are self-employed – our fees are transparent from the start and we charge a fee dependent on the complexity of the case. We also tell clients we receive a procuration fee.
In my experience, a reputable adviser will always charge a fee and receive a commission. A lot of work can go into a mortgage application especially in niche areas or complex client profiles which I can only see growing.
Undervaluing the mortgage advice and application process by not charging fees, and only receiving procuration fee or company commission could lead to bad, unsuitable advice and practices, by selecting lenders that offer higher procuration fees, or base the business profile on volume.
Also paying a salary with no commission could make an adviser complacent, lazy and again, lead to poor advice practices.
‘Increasing LTIs where prudent would help more first-time buyers’ – Marketwatch
But with house prices reaching all-time highs, even those who have raised more than the minimum amount needed for a deposit can still be shut out if their income does not allow them to borrow enough for the property of their choice.
So, this week, Mortgage Solutions is asking: Would increasing loan to income (LTI) multiples up to a certain value be more beneficial for first-time buyers? And, do low deposit schemes create too much reliance on government intervention?
John Phillips, national operations director of Just Mortgages and Spicerhaart
Increasing loan to incomes where prudent would certainly help more first-time buyers get onto the housing ladder.
While it is difficult for first-time buyers to save a 10 per cent deposit, another hurdle they currently have to overcome is the fact they are treated differently to other clients.
While it is hard to say whether it would be more or less beneficial than the government-backed 95 per cent loan to value (LTV) mortgages, it certainly would help more people onto the ladder.
The best way to support first-time buyers is for lenders to treat them like other clients.
While we understand there are regulatory restrictions for lenders, affordability is a better indicator of risk. By assessing affordability, rather than using strict loan to income multiples, lenders can accurately assess each situation individually.
This will take into account an applicant’s full circumstances, not just whether they are a first-time buyer. Then, lenders can increase LTI for clients who can afford it, not just those who are already on the housing ladder.
Rates for these increased LTI products should still be the same, as if the affordability checks demonstrate the client can afford the product, it wouldn’t be fair on customers to make them pay more.
While some may feel increasing loan to income multiples may be a risky move, this doesn’t necessarily have to be the case.
If lenders are assessing affordability, then it would actually be prudent of them to increase loan to income multiples for certain cases.
Rupi Hunjan, CEO and founder of Censeo Financial
I think you need a mixture of both because you can have a low deposit, but the income still will not meet everyone’s requirements.
Now, people are elated at the fact they can have a low deposit but if the income multiple doesn’t work then they still can’t buy a house. The fact they have a low deposit is just one part of getting a mortgage.
The income multiples and stress tests are important as well as it still has to be responsible for lenders and fit within their criteria.
The 3x or 4x loan to income multiple is just a rule of thumb, but overall affordability will always need to be primarily based on the debt-to-income ratio.
Existing schemes do not make people with low deposits or incomes more reliant on government intervention because that has always been there.
The housing market has been overwatered politically, economically and socially. There always seems to have been some sort of government assistance.
We had the mortgage indemnity guarantee in the past and more recently of course, the Help to Buy and the 95 per cent loan to value (LTV) mortgage guarantee scheme.
Much of this support is there because of inflation and house price rises. Maybe if there was never any government intervention in the first place and we had a pure market, we would not be in a position where some people need additional help.
But because we have never had a pure market, government help is always needed.
Richard Campo, managing director of Rose Capital Partners
From my perspective, the issue is far more about deposit levels than income multiples.
Our clients are predominantly in London and the south east of England and a typical first-time buyer has to spend around £500,000 or more on their first property.
With lenders favouring people with a 15 per cent deposit or more, that simply freezes out clients who don’t have that amount of money or can’t rely on family to help them.
If you use that as an example, being able to buy with a five per cent deposit or £25,000 is far more achievable than a 15 per cent deposit or £75,000. A mortgage is typically cheaper than what people are paying in rent, so opening up the small deposit market to new buyers is a great thing as the income is rarely the issue.
Lenders only pulled out of this area of lending due to fears of a house price crash following Covid-19, then they have been cherry picking the lowest risk clients ever since due to a lack of capacity that lockdown and other restrictions have created for them.
I don’t blame them for that, but it hampers the market if you freeze out first-time buyers.
I don’t agree that you should raise LTIs for first-time buyers though. I feel that affordability works on simple curve – the more you earn, the more you can afford to borrow.
Once you have cleared your utilities, food and essential costs, which are broadly the same for everyone, higher earners simply have a greater capacity to borrow more.
Pushing bigger loans on lower earners I feel would be recipe for disaster. I strongly suspect any government-backed guarantee will cap LTIs at 4.5 times income for that reason.
Smaller LTV bands are a good idea but complicated in practice – Marketwatch
However, inflated house prices have pushed a number of borrowers into different LTV tiers meaning they now have to pay significantly higher rates on their mortgage loan than previously expected.
So, this week, Mortgage Solutions is asking: Should there be some leeway for borrowers just outside of LTV limits?
Adam Hosker, director of Bespoke Finance
I was loading into play Call of Duty one night and a friend asked me: ‘House for £600,000 with a £75,000 deposit, for 30 years. What do you think the monthly repayment will be?’
After opening Twenty7Tec on the other tab, I told them: ‘It will be £2,300 ballpark but ideally you would want a £90,000 deposit, because then you would be down at 85 per cent LTV rather than 90 per cent LTV. Then you’d be paying around £2,000.’
It was then I was reminded of a debate I had the other week. My friend was not at 90 per cent LTV, he was at 87 per cent LTV, right in the centre of two LTV brackets.
Which begs the question as to why we have arbitrary rigid five per cent brackets?
If my friend would be paying £2,300 on the upper bracket and £2,000 on the lower bracket, wouldn’t it be rational to have a rate in the middle where he’d be paying £2,150?
Likewise, if I was a lender with an uncompetitive product at 80 per cent LTV and a competitive one at 85 per cent LTV, I’d be asking the credit risk department to consider increasing the maximum LTV by just 2.5 per cent.
What difference might a 2.5 per cent LTV make to risk? Very little. What difference does 2.5 per cent LTV make when it comes to winning new business? It’s an untapped market.
I’ve made a business case for lenders to adopt smaller brackets of up to 2.5 per cent. Meanwhile, some of my colleagues ask why have brackets at all?
Just have the sourcing program talk to lenders’ API to provide quotes based on risk.
Adam Wells, co-founder of Lloyd Wells Mortgages
The biggest difference between brackets at the minute is between 90 per cent and 85 per cent.
Using Halifax as an example, today their two-year fixed rate is 3.09 per cent at 90 per cent with a £999 fee. If you have a 15 per cent deposit then the rate drops to 2.48 per cent, a difference of 0.61 per cent.
According to Rightmove, the average house price in Bristol is £336,637. The difference between a 10 per cent deposit and a 15 per cent deposit is £16,832.20.
Taking this into consideration, you could argue that a product at 87.5 per cent would make more sense.
With a lot of lenders, such as HSBC, once you are able to put down a deposit of 15 per cent, the affordability becomes more generous.
With the risk of property prices dropping, depending on the stamp duty holiday extension in the budget on 3 March, a buyer completing with a 15 per cent deposit today, might find themselves with equity of less than 15 per cent in a few weeks’ time.
The best thing to do is to speak to an independent mortgage adviser and make sure that you are not stretching yourself and that should anything happen you are fully protected, should your situation change.
Chris Sykes, associate director and mortgage consultant at Private Finance
In simple terms it is a good idea, LTV bands are banks pricing for risk so it would make it easier for borrowers and be good for borrowers to take advantage if they can manage an extra one to two per cent but not an extra five to ten per cent.
However, in practice the mortgage market is already hard enough for many buyers to navigate without a broker.
Introducing smaller LTV bands would make things more complicated for lender product teams as well as more complicated for buyers not using brokers to navigate the market.
Pricing for risk is done by some lenders, specialist building societies or private banks mostly, but mainstream lenders are not equipped to deal with the complexities behind pricing in this way.
We may see open banking one day meaning lenders embracing technology can price for risk, but it could make it very complex to insure you are getting the best deal when you don’t know what they would be until submitting an application to a lender.
I do not think this is relevant to the underwriting of a case, it is more relevant only to the pricing of a case, as generally someone’s borrowing power doesn’t change with the LTV until you get to the high 80 per cent LTV and over levels.
Protection, communication and interest-only will be post-stamp duty holiday focuses – Marketwatch
But in a calmer market, advisers would have the time to identify business opportunities that deserve the most attention, rather than those demanding it.
So this week, Mortgage Solutions is asking: Have you decided what area of business you want to focus on or diversify into once the market settles?
Akhil Mair, managing director of Our Mortgage Broker
To be honest with you, we focus on all sorts anyway so I’m not sure the pandemic has changed very much of that.
We are not really going to change our focus as it remains on all parts of mortgage finance.
But what we might want to do is spend more time asking clients questions about life insurance.
Some of our furloughed clients did not have relevant income protection or other applicable insurances that would have helped to save them from repossessions and displacement.
So that’s one area that would make sense to look into further – the different kinds of insurance available to our clients.
With regards to mortgages, we may want to do more bridging finance. There will be weird and wonderful properties coming up and onto the market via repossessions or people who just want to sell off their portfolios quickly.
So we will focus on bridging as a product area alongside enhancing our time and effort spent advising on insurance.
Martin Wade, director of Access Equity Release
As a company that took pride in its face-to-face delivery of advice, we have had to learn new skills and embrace new technology and we very much believe that this is here to stay.
We are of course looking forward to the ability to see all clients in person, but we understand there will be people who no longer want this and where for all sorts of reasons it just isn’t possible.
The diversification we seek is on mastering different delivery methods for advice. Phone and Zoom are a given but the process of advising this way necessitates a change in delivery and approach.
Equity release is by its very nature a fully advised process and one which, whilst not irreversible, should always be viewed as a lifetime event.
Vulnerability presents itself in many ways, not just physical or mental, but also through outside influences and perhaps the lack of ability by some to comprehend planning. This might feasibly embrace a period of 25 years or longer.
Sat face–to–face with a client, it is easier to spot concerns or hesitations. Some of these nuances are less readily spotted over Zoom and even harder to see over the phone.
We are therefore building skills in our advisers and enhancing our advice process which embraces all of the core values of the Equity Release Council’s adviser checklist and Statement of Principles and develops the ability to communicate clearly and concisely without always having the benefit of physical appointments.
Jonathan Clark, partner and mortgage and protection planner at Chadney Bulgin
Like most brokers, Chadney Bulgin’s 2020 meant an almost overnight switch from ‘famine to feast’ which while welcome, proved challenging.
As is often the case, the sudden surge in mortgage applications meant that some of our busier advisers ‘dropped the ball’ on protection, end of rate reviews and ancillary products such as general insurance.
As a well-established firm with 28 years’ worth of clients, it’s more important than ever that these clients are serviced properly which means a thorough assessment of their potential protection needs at the outset, a timely reminder and review of their options as their rate expiry approaches and offering them appropriate add-ons such as general insurance.
Losing this business to a competitor is inexcusable, especially as we’ve started to see lenders be a bit more proactive in retaining customers at rate end, sometimes taking the business from right under the nose of the busy broker.
In terms of new areas of business, we have noticed a steady increase in the maturity of existing interest-only mortgages where an insufficient repayment strategy is in place.
This presents more complex advice needs such as considering retirement interest-only or even equity release mortgage products, but only after other options such as downsizing have also been explored.
All our advisers carry the qualifications necessary to advise on this area, but specialist training is essential to maintain up to date knowledge of products and criteria.
Not to mention the complexities and sensitivities that such cases can present – we all know the Financial Conduct Authority’s view on advisers that ‘dabble’ in this market.
First-time buyers are not waiting for price drops, they are ready to buy now – Marketwatch
Buyer demand has kept the property sector exceptionally busy and driven house prices up. But speculation that house prices will fall once the dust has settled could mean the market becomes friendlier to first-time buyers later in the year.
So this week, Mortgage Solutions is asking: Have your first-time buyer clients hinted at waiting until the market calms down to make a purchase?
Rachel Dixon, mortgage adviser at RH Dixon
Since January, my first-time buyer enquiries have outweighed any other type of enquiries that I’ve been having.
I feel that many first-time buyers have been waiting in the wings for high loan to value (LTV) mortgages to return, and they’re now back out in full force.
What I have noticed especially in my area is that multiple first-time buyers are chasing the same property which has meant that sellers have achieved their asking price. I’m certainly not seeing or being asked if the house prices will drop.
Whilst there is optimism, we certainly have a market.
Moving forward into Q2, we really need to see how the rest of the market reacts.
I think it’s highly likely that first-time buyer enquiries may well outstrip the demand and property supply could be an issue.
There is certainly the appetite for them to get onto the property ladder, we just need the supply of properties in order for this to happen.
The return of high LTV lending is good news but I would like to see a few more lenders back at 90 per cent LTV for flats and apartments as this is where many first-time buyers look for their first home.
Sam Murphy, founder of Mortgage Medics
January is historically a month in which we receive an increased number of enquiries from first-time buyers.
This year we saw 64 per cent of new enquiries coming from first-time buyers which is significantly more than we saw in Q3 and Q4 last year, and more than we typically see in January.
The re-introduction of high LTV mortgages has also boosted confidence.
When the first lockdown sent the market into chaos, those with smaller deposits were most disadvantaged as 90 per cent and 95 per cent LTV mortgages disappeared almost overnight and interest rates at 80 per cent and 85 per cent increased significantly.
This caused many first-time buyers to shelve their home ownership plans until the high LTV market showed signs of recovery.
We’ve definitely seen signs of this recovery in recent weeks with many lenders returning to the high LTV space and income criteria relaxing a little as some lenders start accepting bonus, overtime and commission again.
We haven’t heard of potential price drops influencing many prospective FTBs.
The future of house prices is impossible to predict, but what we can tell our clients from previous cycles is that when house prices dip, the availability of high LTV lending reduces and the cost of the options that remain often increase.
For those thinking house prices will dip in Q2 I’d warn that the availability of lending, or lack thereof, might mean you can’t take advantage of ‘cheap’ property prices.
Looking at the bigger picture, the demand for housing and homeownership has historically caused house prices to recover relatively quickly. Whilst we can’t always rely on past performance when it comes to the future, it’s hard to imagine a situation where house price inflation remains flat or negative for a sustained period of time.
Then again, if 2020 taught us anything it’s that you shouldn’t rule out the improbable too quickly.
Andrew Nicolaides, director of Elite Mortgage Finance
I have had a bit of a mix. Some first-time buyers are struggling to find competitively priced properties due to the high demand of buyers looking to complete before the stamp duty holiday deadline.
This has driven the property prices higher which would in a way cancel any potential stamp duty saving. The other issue we are having in the current market is that valuers are down valuing the properties because, due to the demand, they are selling above market value.
I wouldn’t say that the return of high LTV mortgages has given first-time buyers the confidence to proceed with purchase plans.
I would say that by offering higher LTV mortgages there are more purchasers able to obtain a mortgage especially in London where the average flat price is £558,686, as quoted by Rightmove.
With a 10 per cent deposit a purchaser would need £55,869 compared to a 15 per cent deposit of £83,803 which is a substantial difference.
The possibility of price drops has inspired first-time buyers to wait for that to happen.
I have also been advising my clients not to rush to purchase a property now unless they feel it’s the right property for them, and they are prepared to pay slightly more to obtain it.
I feel that after the 31 March, unless the government extends the stamp duty holiday, we will start to see property prices dropping.
Lots of people are struggling financially due to the pandemic and with the furlough scheme ending in April I believe that there will be more property coming on the market for sale.