It may be time to resurrect the mortgage guarantee scheme – Star Letter 26/06/2020

It may be time to resurrect the mortgage guarantee scheme – Star Letter 26/06/2020


The first comment this week was in response to the article: Welsh govt’s piecemeal plans to open housing market will damage economy, warns CA 

Kevin Roberts said: “Whilst I agree with Lloyd’s comments, of greater concern to the broker community in Wales and the UK and probably doing more damage than anything at present, is lenders restricting borrowing to 85 per cent loan to value (LTV) 

As a firm we have dozens of first-time buyers with a 10 per cent deposit desperately willing to purchase.  

He added: “They are the foundation of the housing market generating work and wealth for the wider economy thus helping to sustain house price values. Most of us remember the government resurrecting 95 per cent mortgages through their Help to Buy mortgage guarantee. 

Now may be the time for government and lenders to come together again to work a solution that gets the lower rungs of the ladder moving.


Affordability inconsistencies 

The second article to get a comment was: ‘It’s sad to decline business I would have completed months ago’ – Marketwatch 

LankyDes said: “First, let me say that I have a great sympathy for young people nowadays. I’m very glad that I am 62 rather than 22. Anyone who knows me, knows I am far from being an apologist for lenders. However, I do think that they have a right to make a reasonable margin on higher LTV lending. 

Remember, not only are rates historically low but higher lending charges are also virtually a thing of the past which helps the higher LTV buyer. Although, of course it could be argued that if there were higher lending charges, there would be more higher loan to value lending. 

I think a small [house] price fall would be good for firsttime buyers. The economy has been to skewed to rising house prices for many years with people using their house as a cash dispenser. That has been used to compensate for a downward squeeze on incomes.

LankyDes continued: “I do however have sympathy for the view that people who have proven affordability should be given more leeway. The Financial Conduct Authority has a lot to answer for here, turning affordability calculators into God.  

I had my affordability calculator 16 years ago, long before most lenders. They are very useful, but they are not infallible. If they were, how could one lender give £60,000 and another £20,000 for the exact same data?  

I have a case where a small mutual has declined a 95 per cent shared ownership because it misses affordability by £15 per month, stress tested at 7.89 per cent. That is an utter nonsense when the client has paid £100 more rent for the last four years than she will be paying on a five-year fixed mortgage and rent.  

He added: “It makes a complete nonsense of that mutual’s claim to make human decisions. There are numerous other factors on this case which would give further comfort to a sensible underwriter who was taking an overview of risk, rather than a tick box mentality. 

That is a very rare case where I have overridden my own affordability calculator. I wouldn’t do it for a person who hadn’t proved their ability to run a household but for a mature lady who has brought up a family single-handedly, it would be silly not to do so. 


‘Stamp duty holiday a sensible idea for market recovery’ – Star Letter 19/06/2020

‘Stamp duty holiday a sensible idea for market recovery’ – Star Letter 19/06/2020


This week’s comment came from Matt who replied to the article: Housing market fundamentally sound but stamp duty boost needed – Lewis 

He said: “Indeed, with the risk of the market going down, stamp duty on top of any potential losses and lenders asking for more deposit, the market is nowhere near to picking back up. 

A stamp duty holiday seems sensible. As a non firsttime buyer, I believe this will play a central role in any future decision making. 

‘Big banks need to return public bailout favour with high LTVs’ – Star Letter 12/06/2020

‘Big banks need to return public bailout favour with high LTVs’ – Star Letter 12/06/2020


The first was from George Williamson, in response to the article: We cannot turn on lenders overwhelmed with 90 per cent LTV business – Montlake 

Williamson said: “The big boys need to come back to market, especially RBSNatWestLloyds and Halifax who have a moral duty to re-enter the market at 90 per cent loan to value (LTV). The UK public bailed them out last time, so now its time to return the favour. 

We are in a market that is no busier than it should be at this time, and if mortgage choice is reduced by LTV, then the lenders will start driving down house prices and force a longer and deeper recession  not a great outcome. 

He added: “As for the Bank of EnglandPrudential Regulation Authority and the Financial Conduct Authority  using LTV as the major indicator of risk harks back to caveman days, we now have fire, the wheel and our regulators need to have learned this lesson from the credit crunch. 

Using LTV bankrupted many profitable businesses for the sole reason that the LTV covenants had been breached and this was used to assess the capital adequacy of lenders. 


No mortgage applicant is risk-free

Another article which gained a response was: Property sales rebound to near pre-Covid levels – Zoopla 

Sox said: “Yes, and most of these are yet to have their mortgages agreed. What I’m seeing from some lenders this week is quite ridiculous.  

“Let’s face it, as far as risk assessment goes, no applicant is a sure thing in this environment. Standby to have cases decline for no apparent reason.


‘Decorating, iPads or televisions; this is not what the payment break was designed for’ – Star Letter 22/05/2020

‘Decorating, iPads or televisions; this is not what the payment break was designed for’ – Star Letter 22/05/2020


The first comment was a reaction to the article: FCA considers 12-month mortgage payment holiday – reports 

Terry Arch said: “I am all for helping people out but, I have come across people who have spent their money on other things such as decorating, buying stuff for the garden, iPads or televisions.  

This is not what the payment break was designed for.  

We must not forget about the lenders cash flowThis could put those lenders at risk with no income. We need to think things through before making blanket statements,” he added. 


Scrap stamp duty 

The second comment was in response to last week’s reader comments, under the article: ‘Stamp duty should be replaced with property taxes’ – Star Letter 15/05/2020 

Michael Hall said: Window tax was dropped because of its unpopularity – and the fact owners bricked them up to save money – and it’s time for stamp duty to go the same way.  

Every potential house purchase not proceeded with because of the ridiculous ‘cost to move’ loses the Treasury a small fortune in VAT on the replacement of carpets, curtains, furniture and other renovations.  

He added: “But of course, this expenditure of moving pumps money into the economy. 


‘Stamp duty should be replaced with property taxes’ – Star Letter 15/05/2020

‘Stamp duty should be replaced with property taxes’ – Star Letter 15/05/2020


The first comment was under the article: Three options for stamp duty cuts to stimulate market – Oblix 

A user named ‘Mr Angry’ said: “Maybe now is the time to seize the opportunity to abolish Stamp Duty Land Tax altogether and implement annual property taxes in its stead.  

It’s a much more sensible system that brings in government revenue on a fairer basis and without creating a native injecting to mobility. It’s so obvious it’s amazing it’s not already in place. 


More consideration needed for mortgage holidays 

Another article which inspired a discussion was: FCA considers 12-month mortgage payment holiday – reports 

Andy Wilson said: “I would prefer to see this called a ‘payment break’ and not a ‘payment holiday’. Call it a holiday and it suggests a pleasurable experience. Far too many borrowers will treat it like one, taking the option when, in fact, they could still afford to pay their mortgage, and use the savings to spend it on something nice. 

We didn’t see any proposals for a 12-month payment break when the UK faced severe austerity measures some years ago when many were made redundant. Any suggestion of this now must be accompanied by clear messages of the possible effects of taking such a break.”

Also, the Financial Conduct Authority (FCA) might like to consider a drive to support the arrangement of more accident, sickness and unemployment policies going forward; clearly the coronavirus and its economic impacts were unforeseen but will be devastating for some,” Wilson added. 


Different payment holiday options

In response to the same article, John Azopardi said: “I am in favour of clients being shielded from the effects of falling incomes. I would like to see the FCA recommend that all lenders offer a suite of options to borrowers.  

Miss payments for three months, miss payments for six months, miss payments for 12 months, and interest only for up to 12 months. 

He added: But mortgage holders should be encouraged to seek advice before proceeding.  

Missed payments could tip someone into a higher loan to value bracket, particularly if lenders’ indexed values are starting to fall. Missing payments will accentuate the effect of a deteriorating loan to value. 


Focusing on money management 

Replying to the article: Mortgage holiday extension could hinder lending capacity – industry reactsDerek said: Mortgage holidays are certainly required by many clients, but I am concerned that these are being simply offered on request.  

Whilst all the clients I have spoken to realise that this is a pause in payment and the money has to be made up, many clients are seeing as an opportunity to have more money now whether they need it or not and are seeing this as a preferred alternative to economising. 

‘A trusted broker-client relationship prevents loss of business to lenders’ – Star Letter 01/05/2020

‘A trusted broker-client relationship prevents loss of business to lenders’ – Star Letter 01/05/2020


The first was in response to the article: Brokers lose 60 per cent of clients to lenders at remortgage – exclusive 

Alykas236 said: “Surely this says a lot more about the original brokers. In 15 years, I have lost no more than 10 clients to lenders direct.  

We always contact the client in advance and crucially have a trusted relationship so even where a lender approaches them directly, as is becoming more common, they would still ask my advice and ultimately take the same deal through us as opposed to direct.”  

They added: “This is despite the direct route often being a lot simpler, in terms of time and process. 


Up against lender systems 

Adrian Seager replied to the same article: “This is much more than simply assuming the original brokers don’t contact existing clients.  

For those of us who have been around a while, we know lenders have systematically over the last five years or more, engineered their direct telephone call factfind to a point where the existing borrower only has to confirm basically, their name, address and the mortgage account number.

After that its basically, we cannot advise you but we offer XYZ product, what do you want to do?’ Eventually they channel that borrower into another deal. Its way easier than a client using a broker. 


Building a friendship 

Keeping in with the broker-client relationship theme came a comment under the article: Greater home working will bring flexibility to clients and brokers – Knight   

Andrew Forsey said: “The current climate has changed everything we do and has brought people closer together. The meaning of know your client is stronger than any corporate message.  

“I have been talking to clients in Pakistan and other parts of the world who have been struggling to get back to the UK but still want their mortgage arranged.

“The humble broker with client relationships has turned into a friendship. No bank or insurance company can compete with the personal touch.” 


Trusted advice 

The last comment was to the article: Brokers warn mortgage holidays should be ‘last resort’ for borrowers 

John Azopardi said: “I guess it depends on how close you are to your clients and whether they consult on a switch to interestonly.  

One would hope that there are sufficient warnings built into the interestonly system for clients to be made regularly aware by lenders that they are not paying off the debt. Let’s see how the current situation plays out.” 


‘Switching to interest-only is far more detrimental than a payment holiday’ – Star Letter 24/04/2020

‘Switching to interest-only is far more detrimental than a payment holiday’ – Star Letter 24/04/2020


This week a debate was sparked under the article: Brokers warn mortgage holidays should be ‘last resort’ for borrowers.  

One comment was made by Stuart Phillips, who said: “Why would a lender look negatively at a payment holiday? It was taken with the consent of a lender and the payments added to the balance. 

Suggesting switching to interest-only is bonkers, that’s a far more detrimental option in the long term. 

He added: “People should use the tools they have available to get through this as best they can. Payment holidays were a sensible way to take pressure off a household in the very short term.  

Savvy borrowers can put the savings aside, and repay the holiday if it’s not needed, giving them a little extra liquidity in uncertain times with the option to avoid an overall increase in interest paid. 


Get a second opinion

Another article to provoke a range of responses was: ‘Challenging a valuation is akin to reinventing the wheel’ – poll results.

Derek said: “Lenders need to take more control of the valuers they employ and not just roll over and agree with whatever they say. I have recently had a valuation on a buy-to-let multi block unit.  

The valuer would not put a value on the property because in his opinion, an external metal access stairway, did not meet building regulations. Even when we had confirmation from the council building regulations department that it would meet standards, the lender refused to proceed stating that they have to accept their valuer’s opinion.

The coronavirus situation could cause numerous valuation issues if lenders do not get a grip of their valuers,” he added. 

Corby Macdonald chimed in with his own experience. He said: “I had one challenge, where the valuer had used a comparable from a property that was 18 months old, we did the same and told we were not allowed.  

“The key problem is the lenders just roll over to the surveyor and their processes to challenge the valuation are so loaded against the broker it becomes a futile waste of time.  

He added: “I believe that once a valuation is challenged it should be panelled out by the lender to a second company with no knowledge of the previous valuation to review everything and come up with the valuation, which is binding on all sides.  

“This will lead to a genuine second opinion being obtained. We are mortgage brokers not surveyors, we do our best, because a down valuation costs us business.” 



‘The phrase mortgage holiday has caused problems for borrowers’ – Star Letter 17/04/2020

‘The phrase mortgage holiday has caused problems for borrowers’ – Star Letter 17/04/2020


The first came from Arron Bardoe, under the article: One in nine borrowers freeze mortgage payments 

He said: “While a godsend for many, I am concerned this holiday is being abused. 

Anecdotally, I am aware many such requests are from borrowers entirely unaffected by Covid-19, but many lenders simply do not have the resources to vet the requests. 

The problem seems to have been caused by the government’s phrase mortgage holiday rather than deferment. Santander has helpfully put an indication of the cost of such a request on its system to ensure borrowers are aware of the cost,” Bardoe added. 


Knock-on effect on credit and cashflow 

He continued: “Thereon, with the sheer volume of requests, it is likely lenders will struggle to ensure credit records are corrected in time. Even if they do, other lenders will be able to see if borrowers have used the payment holiday as the mortgage balances will have risen on the previous month with no record of a missed payment. 

As the pandemic is unlikely to be resolved for one to two years, a prudent lender may be cautious in lending to borrowers who have had cause to use the deferment during the first lockdown. 

Lastly, let us also not forget the effect on the cashflow for banks, who will be foregoing £1bn in revenue over the next three months. 


Improving new-build quality 

The next article which received a response was: Govt talking to HBF on Help to Buy, stamp duty and re-opening housing market 

MCFC1894 said: “Builders were dreading the end of Help to Sell and the huge profits and bonuses that came with it.  

Its shameful they are using this crisis to hold their caps out for more taxpayers’ cash. Builders should rebate both owners and the government on leasehold houses that help to buy loans are secured on.  

Help to buy, as per the new proposals, should only be open to firsttime buyers. Developers should concentrate on improving the quality of their product. 


Appreciating lender efforts 

The final article to prompt an interesting reply was: ‘Brokers will not hurry to use lenders who let them down in this crisis’ – Marketwatch 

Bardoe again had something to add to the discussionI agree that brokers should remember the lenders that have let them down, but also those that have stepped up to the mark. 

It is only when we are most challenged can we truly understand the lenders that have customers and brokers at the heart of what they do. 

Broadly, the mainstream has all been good with sensible changes to criteria and an evident effort to change their practices to cope with the current situation. In turn, these have been communicated well and quickly. 


Ramping up processes 

Bardoe added: “Our business development managers are fielding more calls and taking on more duties with some banks reallocating broker support staff to help borrowers worried about how they will make their payments – the right call in my view. 

Automated valuation models have been fast-tracked and most lenders have maintained a system of contact on cases. I have one urgent case where Sally Hall of the Halifax was able to go above and beyond to help meet an exchange deadline of the last tax year. 


Looking to the future 

Bardoe continued: “Conversely, I have had two lenders create forms asking for clients to explain their contingency plans in light of Covid-19 for buy to let applications; one of these was postoffer. 

Heaven knows how most customers would be able to answer this question, but it does seem to be an effort to decline cases. Fortunately, my clients were in good financial positions, but I imagine some borrowers have now had their offer withdrawn or application declined as a result. 

Bardoe added: “To determine a long term contingency for the average borrower, one would need to know for how long it will last, but even the government has yet to decide the term of the lockdown and there is still no vaccine indicating we will have some effects for one to two years. 

Post this pandemic, will these lenders now include this as a standard question or require a contingency fund for all applications? Perhaps they should throw in a world war and zombie apocalypse? 

Notwithstanding the above, I would like to finish with my thanks to all lenders and their staff for their hard work at the moment. 

‘Physical valuations should be approached pragmatically, not stopped’ – Star Letter 09/04/2020

‘Physical valuations should be approached pragmatically, not stopped’ – Star Letter 09/04/2020


The first was in reply to the article: RICS calls for stamp duty holiday to ‘reactivate’ housing market. 

Joe Black said: “I have no understanding why the plug has been pulled completely on physical valuationsThis seems to have come from valuers themselves.  

Why are they not able to look at, for example, a part complete new build in the open air with no one there? Or an unoccupied property? A pragmatic approach should be used rather than a complete stop on valuations.” 


Keeping the economy alive 

Last week’s Star Letter ignited a debate: ‘Networks should completely waive broker fees not postpone a debt’ – Star Letter 03/04/2020 

The first comment came from Aga Moczynska, who said: “The dilemma is similar to the one where the tenants demand from landlords to waive rents. In reality, if we want the economy to survive, we should continue meeting our obligations wherever we can.  

It’s a domino effect and every non-payment has a knock-on effect on a string of connected entities. I run a brokerage under SimplyBiz umbrella and think it is very fair to offer payment holidays in this format. I don’t think it is okay to expect continued service with no remuneration. 

Paul Smulovitch also responded: “It would be an incredibly welcome goodwill gesture for networks to support brokers in this way as I can only imagine the number that will lose cashflow as transactions dry up and deals don’t complete.  

“The market will shrinkpeople will lose their jobs and companies so in the short term, the networks taking a hit on fees could keep the appointed representatives in business for them to then collect future fees in the longterm.  

It’s all about networks being sensible and looking at the bigger longterm picture,” he added. 

‘Networks should completely waive broker fees not postpone a debt’ – Star Letter 03/04/2020

‘Networks should completely waive broker fees not postpone a debt’ – Star Letter 03/04/2020


All the comments this week were in reference to fees charged to broker firms during the coronavirus pandemic. The first came from Corby Macdonald, who responded to the article: SimplyBiz gives members three-month fees payment holiday.

He said: “Nice to see a network thinking about their brokers, though it would be better if they waived their fees, not just postpone a debt.” 

Macdonald also had something to say earlier in the week, with regards to the regulator supporting smaller firms, as he replied to the article: FCA preparing fees support package for smaller firms – exclusive 

He said: “This shouldn’t be just about the Financial Conduct Authority (FCA), what are the networks doing for their brokers? Whilst our business is curtailed, with the withdrawal of products etc, is it right that networks are still charging broker fees? 

Bria Gibson replied to Macdonald, and said: “I cant see the networks reducing their fees as the income and commission skim will also reduce due to less broker activity. On balance, the networks primary concern will be focused on their own self survival and profits for shareholders. 

Macdonald responded: “If they lose too many brokers, then the shareholders may regret a profit first attitude.”