How will lenders differentiate between Covid debts and high risk borrowers? – Star Letter 27/11/2020
This week’s comment was a reaction to the story: Virgin Money braces for surge in bad debts while mortgage lending falls 30 per cent
Stuart Phillips said: “I’d be more interested to know how a lender is going to differentiate between a ‘bad debt’ as a result of Covid-19 and a bad debt because the client is a high risk.
“If lending volumes are expected to dip, lenders are reluctant to increase costs and adverse credit cases will rise, how is the market going to adapt to that?”
He added: “I have to assume that lenders will want to continue lending to clients who were genuinely disadvantaged because of a pandemic, but no one is really talking about that.”
Risky lending environment is a big opportunity for smaller lenders – Star Letter 20/11/2020
The first comment was from Stuart Philips, who reacted to the article: Vulnerable borrowers and first-timers most at risk from Covid-hit mortgage market – FCA Insight
He said: “Whilst 70 per cent of mortgages in the UK go to the big eight lenders who will struggle to adapt to this with very rigid credit and risk policies, there is a huge opportunity for building societies and challengers who have the ability to look at cases on their own merits.
“Outside the big eight there are still another 50 or so lenders in the market.”
Philips added: “The problem is in matching complex clients with niche lenders because there is no financial incentive for brokers to put in the extra work required in these cases. The procuration fee on a £100,000 loan is the same regardless of whether you send it straight to HSBC with a few hours work or spend days on the phone to business development managers.
“Higher broker fees for complex cases affect those who can least afford them. The Financial Conduct Authority (FCA) and the industry as whole should be looking at this for a solution.”
High LTV caution
The second comment responded to the story: Lenders seek FCA permission to re-enter high LTV mortgages at same time
Kevin Roberts said: “Lenders should be applauded for considering a simultaneous return to higher loan to value (LTV) lending, a request I hope the FCA will sanction in due time.
“Nationwide Building Society had the courage to remain in the market whilst a handful of others dipped in and out in a way that was helpful to an extent but perhaps added somewhat to the frustration of our clients.”
He added: “May I temper this promising news with a note of caution.
“Working from home for these parties may not work as well as it should after seven months or more of planning. I fear that adding more transactions to an already protracted process will lead to a further deterioration in service and timescales.”
If advisers provided the same service as lenders, we would be deselected – Star Letter 13/11/2020
This week’s comment came from Derek in response to the article: Advisers self-serving queries means lenders can stay at 90 per cent LTV lending longer – Duncombe
He said: “Everything in the article is correct, but it is based on the lenders keeping their information up to date and providing accurate information and updates, and as much as they would like to think they are perfect, they are not.
“We don’t call you because we want to, we call you because we have to.”
Smaller lender successes
Derek added: “I have to say that Accord and a number of smaller lenders are doing a great job, but larger lenders are really letting advisers down…
“This is not just down to being busier and staff working from home as relatively speaking, smaller lenders have the same percentage increase in business with smaller staff levels and are also working from home.
“They are however assessing documents in as little as 24 hours in some cases.”
“Lenders do not update their websites quickly and so information can be out of date or written in an ambiguous manner and we all know that some criteria never appears on the websites at all.
“If an adviser provided a service that was as repeatedly poor and inaccurate as these lenders, then the lenders would consider deselecting them” he added.
Derek added: “In short, advisers, carry on using the websites, sourcing systems and criteria tools.
“Lenders sort out your websites so the questions to criteria issues can be found quickly and accurately and sort out your systems and staff training.”
‘It is not just equity release brokers who are empathic, honest and altruistic’ – Star Letter 06/11/2020
This week’s comments were under the article: Advisers cannot just ‘dabble’ in equity release for extra cash – Star Letter 30/10/2020
John S kicked things off, saying: “Although I agree with the main comments that advisers shouldn’t dabble in any business area, I feel it is suggested that mortgage advisers in the residential market don’t need to be empathic, honest, responsible and altruistic.
“All we need to do is research on Trigold and choose the best rate – no experience or a deeper understanding of what makes the lenders tick required.”
“However, if you accept that non-equity release advisers already have these skills and apply them in their current jobs and could even be considered diligent and professional, why would they move into a new business area and act any differently?” he added.
Referring complex cases
LankyDes also weighed in, saying: “I don’t think Andy is saying that most of the people in the industry would be unsuited to it; just that they should be really serious about making it a major part of the business.
“I’m actually coming to a similar conclusion now days about protection. It is just so complex that I would rather refer it all to a specialist.”
He added: “I did one equity release ever under the grandfathering arrangement about 15 years ago. I put a lot into involving all the family in the discussions, the explanation of the deal and getting them all to sign the product confirmation letter. I also looked into the state benefits and things like that.
“I came to the conclusion after doing it that it wasn’t an area I wanted to get involved in.”
Advisers cannot just ‘dabble’ in equity release for extra cash – Star Letter 30/10/2020
This week’s comment came from Andy Wilson, who was responding to the article: FCA investigating lifetime mortgage fees over fears Covid-19 may increase unsuitable advice
He said: “It is easy to understand the mind set of some advisers, who have been battered by low business volumes during lockdown, to view equity release as a potential cash cow.
“Who wouldn’t be attracted by commissions from lifetime mortgage lenders that can be more than five times the normal mortgage commissions, and higher client fees reflecting the additional work required?”
Empathy and understanding
“However, to be an equity release adviser requires an approach to giving advice that is empathic, honest, responsible and altruistic,” Wilson added.
“You need to fully understand the potential issues around vulnerability, later life financial challenges, family involvement, alternative funding options and product features and options that can help your client in the long term.”
He continued: “Lifetime mortgage criteria can be very different to that of ‘normal’ mortgages. The various sourcing tools can help filter out unsuitable products, but experience and a deeper understanding of what makes the lenders tick, how they are funding products and why they might say ‘no’ to your client are vital to avoid the bear traps of later life borrowing.
“Also vital, in my view, is a desire to become very active in this market – you cannot just dabble and do a few cases a year. Knowledge is soon lost in a relatively fast changing market, and new products and options are emerging all of the time.”
Qualifications and industry support vital
Wilson added: “If you are thinking of transitioning some of your role to that of an equity release adviser, passing the relevant exam is a small part of the journey.
“Engaging with the various support companies and lenders will help you to become a diligent and professional adviser, with credibility and trust taking a long time to build.”
‘Clients are not an interruption of our time’ – Star Letter 23/10/2020
The first came from Arron Bardoe, replying to the article: Four vital questions to ask that will improve your advice firm – Howells
Bardoe said: “While I appreciate the sentiment of the message, I feel it should be balanced against the basic attraction of using a broker, which is the human touch.
“Many of us are fed up with robot chats; press options 1-10 when calling a bank; and cut and paste auto responses. People buy from Amazon for price, ease and speed; but more importantly they tend to be used for most low value items.”
“A mortgage is different, as it is a complicated product and for most people their largest single expenditure,” Bardoe added.
Technology has its place
Bardoe continued: “There is some merit in elements of self-serve, as we for example get clients to fill in a mini fact find before our initial chat, but otherwise they appreciate the broker taking care of everything.
“We complete the applications forms with their baffling questions, we sit on hold to Optima for an hour to get an almost robotic service, we help them complete forms and the like.”
He added: “It is true that an automated email would save me one hour each month when contacting my renewals, but I find about half of them need a personal message and not just a standardised text. For example, how is the new baby, is your son home from university or did the wedding go as planned?
“These small touches show a real connection with them and hence a client’s relationship with their broker will be stronger than with Amazon. Amazon only has loyalty while its prices are competitive, but its customers – not clients – would and do happily shop elsewhere regularly.”
Bardoe said: “We should not stop embracing and exploiting technology, but it should not be used to reduce our personal contact with clients, but instead to make their lives easier in dealing with us.
“As we have all been taught, they are not an interruption of our time.”
Avoiding the blame game
The next comments were in response to the article: How brokers can show lenders the solutions to get cases through
Robert Drury kicked off the discussion, saying: It was refreshing to read this article and see Reuben’s comments on how building up a great communication with a lender helps to gain the right outcome for a client.
“Too many times in the last six months I have read articles which seem to pitch the broker against the lender when we should be working together during unprecedented times.”
He added: “Let us not fall into a blame culture but instead actually try to by civil, courteous and grateful for the assistance we are often offered. I for one find that a simple thank you or an acceptance of a situation, whilst offering an alternative view on an application, can reap dividends.
“Last year I was fortunate to have excellent service from both the smaller lender – Leek Building Society – but also the larger Nationwide Building Society and found both their mortgage department and their business development managers (BDMs) most helpful. This then led to further assistance on follow up cases during the year.”
Stuart Phillips said of the same article: “The problem is the communication. Those clients were lucky they had a dedicated broker, willing to put the time in to find a lender willing to have that conversation.
“With over 50 smaller lenders like Ipswich, these cases can seem like a huge commitment of time and effort and when you are paid only on successful outcomes. How many brokers would have moved onto an easier case?”
He added: “Unavailable BDMs, poor criteria documentation, lack of access to underwriters and long hold times with lenders.
“The present system is not making it easy for brokers to get to the right lender to even have those conversations.”
‘Before brokers criticise lenders, imagine if the tables were turned’ – Star Letter 16/10/2020
The first was from Andy Wilson, who replied to the article: ‘I hope brokers don’t want lenders to control volume with criteria changes’ – Marketwatch
He said: “Before brokers criticise lenders too much for trying to manage their service levels however they can, just imagine the tables were turned.
“You’re a broker, but for reasons beyond your control, you can only work three days a week when previously you used to work six days a week.”
He added: “Enquiries however are increasing, not reducing. What do you do? Accept everyone, and struggle to keep all the plates in the air at the same time, getting yourself a bad reputation, which in lender terms, would mean do nothing, cross fingers and pray it gets quieter.
“Or cherry pick, and only take the ‘best cases’ which produce the biggest income or can get through with the least amount of effort, for example, lenders applying criteria changes.
“Or would you put your fees up to deter all but those who see your value, for example, pricing to manage levels?”
“Find that stressful? Imagine managing a team of more than 100 who are in the same boat,” Wilson said.
He added: “We’re not the same as lenders, but it’s not an easy choice to do anything that adversely impacts our clients – in the same way lenders really don’t want to upset their brokers.”
No ideal solutions
Stuart Phillips added to Wilson’s sentiments, saying: “I agree with John, I think brokers want a stable supply because we don’t control when our clients get an offer accepted. I can tell my clients to find a place in 48 hours or can I ask them to wait until the next tranche of funds is available.
“Andy Wilson rightly says that there are three options, throw open the doors and give poor service, decline arbitrarily or jack up the price until demand meets supply.
“If you have to pick one price is fairest, but none are ideal.”
Phillips said: “I subcontract some work and prices have risen – I don’t call it unfair; I just have to decide if that support still represents value.
“Clients can do the same. Buy now and pay more interest for a 90 per cent loan to value (LTV) deal or save until they’ve got 15 per cent deposit.”
“Clients can put a number to that and make an informed decision.
“Telling them that they might get it if they are lucky is the very opposite of that and for the life of me, I cannot understand why this is a complex point. Especially since it’s a somewhat level playing field and we all get the same price we have to communicate to our clients,” Phillips added.
Broker job to warn of risks
Phillips also responded to the article: Without the facts it’s best to ‘keep your mouth shut’ – JLM
He said: “Keeping your mouth shut seems awfully close to turning a blind eye.
“I believed that brokers were supposed to give clients advice including the risks and allow them to make informed decisions.
He added: “If a client is thinking about starting a family you better believe I’m going to be asking them what happens to that plan if house prices fall and they are trapped in negative equity in a house too small for them?”
“What I think you miss is the wider impact of lender attitude to risk in future, the repossessions that may result from those highly leveraged and out of work and the seizing up of the market from those who can’t move due to a negative change in circumstances.
“Clients have a right to take risks if they want, but it’s definitely not our place to encourage,” Phillips said.
‘Give transactions a cutoff date to meet stamp duty deadline’ – Star Letter 09/10/2020
This week’s first comment was under the article: Conveyancers could struggle to complete transactions ahead of stamp duty deadline – Sinclair
Sox said: “I couldn’t agree more. I flagged this with my colleagues a few weeks back as we were getting quotes of 19 weeks from our local conveyancers and with some lenders also running five weeks behind, five months is really not very far away with around 115 working days left.
Introduce transaction cutoff date
“Really, I think from 1 November all clients should be warned that it might not be successful and additional checks will have to be undertaken to ensure clients have the extra cash needed for the higher stamp duty just in case.”
They said: “One way to deal with an extension could be for the government to give a cutoff date for all those in the chain having already had their mortgage offers and then allowing those to complete as soon as they can even after the deadline has passed.
“I appreciate this is easier said than done and there will be last minute changes to chains, but it seems a fair way of allowing those last few cases to take advantage without putting the conveyancers and solicitors under immense pressure.”
“I remember the last time this happened with stamp duty on second properties and I really felt for them, it was an almost impossible task even then, never mind all the other issues we have now caused by Covid-19,” they added.
Quiet period needed for mortgage industry
The next comment was in response to the story: Boris Johnson plans 95 per cent mortgage scheme
Arron Bardoe said: “If he does launch the scheme, he needs to wait until lenders, solicitors and local authorities have cleared their backlogs.
“A report at the weekend indicated some solicitors may suspend or caveat accepting new instructions from January over fears they cannot ensure completion before the stamp duty land tax holiday ends in March.”
He added: “Added to this is that many of us are inundated, so we do not need more work.
“If the scheme is launched, it could be targeted for April when the housing market is likely to slow down.”
Review benefits of waived stamp duty
In response to the article: Stamp duty holiday savings hit £108m in two months – Benham and Reeves, Matthew Gamble said: “I think the government and chancellor need to have a cold hard look at stamp duty and the benefit of reducing it…
“Lowering or abolishing reduces tax take but is this a classic case of lower rate equals higher revenues.”
He added: “Also, if more people move, it’s job creation for brokers, estate agents, solicitors, removals firms and subsequently trades such as DIY, electricals and furnishings. The spinoff is vast.
“Also, with employers pivoting to working from home now, being on the commuter belt might not be as essential as it once was, potentially regenerating other pockets and regions with homes and good schools.”
“I think it’s just a win-win and a population that can move home easier is good for the economy.
“You can still clobber landlords if you think they are enemy number one – they are not – but it certainly needs to be reviewed just how much good and stimulus waiving stamp duty for has done in a short period,” he said.
‘We have fewer issues where BDMs are still in contact’ – Star Letter 25/09/2020
The first this week was under the article: Correctly packaged cases will complete quicker – iVent2020.
Terry Arch said: “It’s okay asking to ensure the case is packaged correctly, but a lot of the problem is if there is a query and the broker responds to it, some lenders take 11 to 18 working days to get back.
“Then, if there is another query, a further period of the same length can result in an excess of 22 to 36 days before it goes to valuation. The issue at present is Covid-19 is causing lenders to be extra cautious.”
BDMs necessary in reducing underwriting hold-up
The second comment was in response to the article: Mortgage brokers disputing more underwriter decisions than before pandemic – analysis.
Arron Bardoe said: “I suspect these issues will continue until the business development managers (BDMs) are allowed to engage with brokers again, as we are experiencing fewer issues where the BDMs have been able to maintain contact.
“For some lenders, the BDMs are helping with the backlogs of admin and most seem to be dealing with herculean levels of enquiries.”
He added: “However, one might argue that a BDM’s role is to educate brokers, so it is only the right business is submitted and that it is packaged correctly.”
‘Lenders should price mortgages to manage service levels and increase margins’ – Star Letter 18/09/2020
This week’s comment was in response to the article: Accord’s Duncombe on 90 per cent lending, capacity – and the cliff edge that worries him
Stuart Phillips said: “I don’t really understand why lenders won’t use price to manage service levels.
“Lenders have been complaining for years about making no margin and have been managing affordability based on much higher interest rates anyway.”
Phillips added: “An increased rate on 90 per cent products sends a clear message to clients about the risks involved and allows them to make informed decisions about whether to proceed, either by borrowing less, buying lower value homes or increasing loan terms.
“I think most clients would appreciate being able to make that choice themselves rather than blindly rolling the dice and creating this feeding frenzy?”