Good advice: ‘Helping clients doesn’t always mean making a sale’ – Star Letter 05/08/2019
Advice was the focus this week as readers had their say on the consequences of good or bad guidance.
The first comment came from Paul Fielding, who praised an adviser who helped a pensioner come into £132,800 by recommending an equity release.
He said: “Now that’s the kind of superb work by the adviser that the Financial Conduct Authority (FCA) should applaud long and loudly in the public domain, as well as realising that all decent and hard-working advisers carry out this unseen pastoral care work on behalf of clients, every day.
“That said, well done Graeme for your diligence and for helping to enhance the standing of both yourself and your fellow like-minded advisers everywhere.”
Andy Wilson also had good things to say: “A lovely story for a change. Credit to the adviser for having the knowledge to realise something was amiss.
“On a similar vein, I once saw a lady about an equity release plan who was living on a state pension and a widows war pension. She had been denied a means tested pension credit payment because her income was too high.
“However, I explained war pensions are not taken into consideration for means testing. I drove her to the local weekly benefits drop-in centre, argued the point with the adviser, she made a claim, and two weeks later had confirmation she was entitled to £204 a month in additional income.
“This helped to mitigate the amount of equity release she needed to pull out of her property to meet her living costs.
“A good adviser will understand and have a good grasp of the benefits system and can see when something is not quite right. Helping clients doesn’t always mean making a sale.”
Going beyond advice remit
This week also showed us what can happen when advisers get things wrong, as Paul Smulovitch reacted to the analysis of Primis being fined £30k when a broker gave a client incorrect advice regarding stamp duty.
He said: “I think the issue here is some advisers are so worried about losing a client by not being ‘helpful’ that they go beyond their remit.
“If you think how a solicitor works, they put all the responsibility on the client. They specify that they should have a full structural survey and seek advice on everything as they don’t want any come back.
“Lenders do the same, passing all responsibility to the valuer and the solicitor. Brokers need to understand the importance of the right advice and professionalism and know that if they are doing the right thing then the client will not seek advice on mortgages elsewhere.”
Is the solicitor to blame?
In response to the original reporting of Primis being fined £30k, John S said: “The adviser has been stupid there is no doubting that but surely the solicitors will have discussed Stamp Duty Land Tax (SDLT) with the clients before allowing the clients to enter a binding contract?
“If the solicitor did have the discussion, then the clients are not telling the truth to the Financial Ombudsman Service (FOS) and if the solicitor didn’t have the conversation with the clients then surely the solicitor is to blame?
“This is an example of FOS taking the easy option and as advisers we all pay for decisions like this. I am amazed the adviser community does not have more to say about this as one day it could be you or I on the end of a crazy decision like this.”
Huge opportunity for brokers
Lastly, Stuart Philips gave his opinion on L&G Mortgage Club’s suggestion that fewer customers should be placed with high street lenders.
He said: “There’s such a huge opportunity here for brokers in the future. Lending figures are not growing overall, and lenders are fighting for market share from each other, especially the big eight.
“At the same time there is a large segment of under-served clients such as the self employed, those with light adverse, older borrowers and such that smaller lenders have an appetite to help.
“The prime cases, remortgages and product transfers are probably going to be increasingly served through direct channels, by robo-advisers or on an execution-only basis which is a threat to the traditional broker.
“Brokers can remain relevant though, by increasing the number of positive outcomes for these unde-rserved clients. It needs to become much easier for us to place these cases and while tools like Knowledge Bank, Criteria Hub, BrokerSense, Mortgage Broker Tools etc are making this easier, but there’s still a huge gap here that could be filled.
“How do we better connect lenders who want to serve a niche with the customers who want a mortgage but feel they wouldn’t qualify with high street lenders?”
‘I used 26 lenders last year but should try to use many more’ – Star Letter 02/08/2019
This week’s top comment goes to Doug for his response to the article: ‘Fewer customers should be placed with high street lenders to start with’ – L&G Mortgage Club.
He said: “I know some brokers who only seem to use five to six lenders from a panel of 60+, but they have their reasons [such as] working for a new build company or [being] tied to an estate agent where speed and knowledge of the lenders’ criteria is king.
“My KPIs (key performance indicators) show 26 different lenders used last year, which is better than most, but I should try and use many more.
“Smaller lenders are great for interest-only cases, later life lending, self-build or refurb properties, properties with two kitchens, unusual income, joint application sole borrower – the list goes on and on.”
Affordability: ‘A mortgage is as good as its strongest link’ – Star Letter 26/07/2019
This week’s top comment goes to Lanky Des for his response to the article: It’s right to flex criteria for mortgage prisoners, but what about the rest? – Bamford.
He said: “The current situation, where nobody will ignore their affordability calculation for one pound is absolutely ludicrous.
“Affordability calculations have their place. I had mine many years before most lenders and very robust it has proved to be. However, they are not the be all and end all.
“I have recently had a case where one of the parties was employed and the other was a student who will graduate next year. She has a good work record, and her maintenance grant plus savings (which will still be left after the purchase) is enough to get her through next year without her being regarded as a dependent. She is no bigger risk than someone who could lose a job.
“I’ve done several such borrowings with students involved in the past and none of them have had any problem. I always look at every case as though I was the first line underwriter for the lender. If I don’t like the case it is not going to get any further.
“However, while he passes affordability on his own, they miss by miles with her included with just about every lender other than Kent Reliance. There is absolutely no sense in this at all.
“The mortgage is as good as its strongest link, not its weakest. You cannot weaken a mortgage by adding the liability of someone who is going to live in the house. It isn’t like adding a party to a bank account in the days when you gave them a cheque card and chequebook; then they could weaken the bank account.
“Now, if they are that sort of person, they would still weaken the lending by being in the household; it is just that the lender would not have their liability on it. It’s worse for everyone.
“Unfortunately, the regulator does not understand the industry and this would be over its head. It apparently does not object however to adding parents to a mortgage for the income.
“That can increase strain on real affordability as the parents’ age may dictate a shorter term than is really affordable. I will only do that where I am confident the parents will never be called upon and I am confident the couple will be fine.
“In that sense, my lendings are actually stronger than the regulator says they need to be.
“The young person or people should not be put in the position where the lender will lend merely because they can fall back on the parents.”
‘This tiny building society is leading the way’ – Star Letter 19/07/19
This week brought two such responses from opposite ends of the industry spectrum.
The first came from Andy Wilson and his response to the article: Case study: ‘A timber frame has most lenders running for the hills’ – broker.
He said: “I had the unenviable task of placing a 75 per cent loan to value (LTV) mortgage on a remote bungalow in Lincolnshire, which had been built in the ’60s as a timber framed dwelling with cedar wood shingles on the outside and not a single brick in sight.
“No lender would touch it, until I contacted The Ecology Building Society. They are probably at the far other end of the lending scale to Tesco Bank but they came through brilliantly, dealt with the application using a personal touch and made good on their initial indications that they could help.
“On the product I recommended the Ecology reduces the rather high initial product rate in chunks of 0.25% depending how many eco-friendly improvements the borrower makes to the property.
“Insulation, wind and solar power sources, heating systems, double glazing and biomass can all help to reduce the interest rate and cost of borrowing.
“The lender has been encouraging eco-friendly developments for years, including bringing back into use semi-derelict old buildings that would otherwise be demolished.
“In today’s world of everything being eco-friendly, sustainable and low energy, their approach could probably be the way forward for many more lenders. This tiny building society is leading the way.”
‘Point blank lying to customers’
The second comment came from MJ in response to the article: Sweeping changes recommended to toughen-up estate agent regulation.
They said: “[This is] Simple. The FCA should regulate, particularly as they run in tandem with mortgages, that way the rules are similar and put an end to these (in particular larger firms of estate agents) getting away with point blank lying to clients to obtain more business often to the detriment of the client.
“The sooner the better. So many first-time buyer and indeed second-time buyers get bullied into using the estate agent services whether it be mortgages and/or conveyancing, when they do not wish to use them.
“I have had clients decide not to bother to move because of the pressure that these unqualified children and their line managers apply to clients just simply putting an offer in for a property.”
‘It’s a great option, especially for first-time buyers when affordability may be an issue’ – Star Letters 28/06/19
This week the issue of longer lending terms and how they affect younger and older clients prompted two views from either end of the scale.
First was Robert Drury with his response to the article: Forty-year terms gain popularity as lenders help borrower affordability – Moneyfacts.
Robert said: “I think it is a great option to be able to offer clients a longer term especially for first-time buyers, when affordability may be an issue and as they get used to their first mortgage payment.
“Darren [Cook, spokesman at Moneyfacts] quite rightly points out that taking a longer mortgage term could lead to additional interest accumulating over an extended mortgage, which could be considerable.
“However, by maintaining that customer-adviser relationship and ensuring that our clients regularly review their mortgage year-on-year, the term will automatically become something that is reviewed.
“Therefore, an initial 40-year term may well end up being shortened, either by clients committing to overpaying as their disposable income hopefully improves over time, or by actually reducing the term with agreement from the lender.
“However just having the option to look at the longer term to begin with gives us as advisers more options to offer our clients.”
Complaints coming down the line
Second was Andy Wilson who commented on the article: Advisers without equity release qualifications could be doing later life clients a disservice – Phillips.
Andy said: “I believe that allowing mortgage advisers to provide lending advice on products running well into, or throughout, a borrower’s retirement is going to lead to complaints down the line.
“There are already an increasing number of complaints over interest-only advice received years ago which mean the retired borrowers are paying mortgages they can’t afford up to and beyond age 80 – I have seen many.
“Without the knowledge to apply a holistic view on later life borrowing, advisers may miss important options that could serve a client better.
“They will need knowledge of equity release options, which include products with interest rates close to retirement interest-only (RIO) rates, but it is more than that.
“There are currently big debates around client vulnerability, long term care funding issues, later life mental capacity and so on.
“A client may be fine and healthy at age 65, but what happens when they get to 75, are suffering from dementia and still have a mortgage to pay?
“What is the actual financial effect on the remaining borrower of one partner dying and their pensions dying with them?
“I know mortgage advisers can find this information, but can they then relate it to state benefit entitlement?”
‘Many borrowers could find a mortgage unaided; they pay us to find the right mortgage’ – Star Letter 21/06/19
This week provided several insightful comments on a range of subjects, including execution-only and the value of advice, equity release drawdown, and Shariah-compliant mortgages.
First is Andy Wilson’s response to the article ‘People using execution-only will find their journey a lot more challenging than they expected’ – poll result.
He said: “It isn’t hard to get a mortgage. If you are reasonably credit-worthy, have a decent deposit and provable, stable income then most lenders will take you on. What is hard is getting the most suitable mortgage.
“Many of my clients could do this mortgage broking job. With a liberal sprinkling of logic, use of new technology, adequate research tools and analytical skills, they could quite easily find the ‘best’ mortgage.
“However, this takes time and effort, and we have already invested heavily in being able to source the most suitable deals for a wide range of clients. We can also apply our considerable experience.
“Those that go off and try to find their own will usually end up with a ‘good’ deal, competitive in the marketplace and with a reputable lender. It may not be quite the best deal using some metrics, but many would be happy with that.
“I could service my caravan once a year, using Youtube videos, a service manual and a great deal of learning. But I don’t; instead I pay a competent dealer who has experience in all of the caravan’s systems to do it for me. They will be quicker than me, and know pitfalls and bear traps that I might easily fall into.
“I can then trust that when I tootle off to a long weekend away, the gas system won’t explode, the lights will come on, the water will leave the vehicle down a pipe and not via the floor and the wheels literally won’t fall off.
“But of course, it is not the process of getting the mortgage we are concerned with here. It is the fallout afterwards.
“Is the mortgage flexible enough to meet changes in the borrower’s lifestyle or employment? Does the product term reflect big foreseeable changes coming up? Does it provide a safe harbour through the choppy waters of Brexit?
“Does the loan drop back at the end of a product term onto an exorbitant standard variable rate at a time when the borrower has suddenly just become self-employed? And if so, are there adequate product transfer options? What if there is a chance they want to rent the property out?
“Many borrowers could find a mortgage unaided. What they pay us for is to find the right mortgage and take away all of the donkey work.”
Stop treating clients like idiots
The next comment came from Mortgageswithjoy, and their response to the article Maximum drawdown facilities should not be recommended for a bigger commission – Wilson.
They said: “As an equity release adviser I struggle with this concept a little.
“Most (but certainly not all) of my clients are fully aware of the implications of putting this money into a low savings account, but equity release is for the client to spend as they want to, after all it’s their money.
“I find it annoying that the financial services sector takes away the rights of the consumer and treats them all like idiots.
“The problem with the draw down facility is that lenders charge a higher interest rate for this than having it in one lump sum and [one] lender has stated recently to me that further draw downs are not guaranteed when the customer requests them, even if the facility is built in. Future draw downs will be at the prevailing rate at that time which could be higher.
“Ultimately, paying a higher rate on future draw downs could mean faster roll up and bigger debt, but nobody seems to know how to calculate this effect. If the client wants all the money in one go, they should be able to have that choice.”
What is Shariah-compliant?
The final response came from Options Mortgages in reply to the article L&G Mortgage Club adds Shariah-compliant lender Gatehouse.
They said: “I’m curious to know what a shariah compliant mortgage is – I’ve asked Lloyds Bank and Islamic Bank of Britain in the past and both in my opinion are unsatisfactory answers as their benchmark for calculating the ‘rent’ portion is linked to base rates, so it is interest rate linked.
“As a Muslim and a certified mortgage broker of over 25 years I really do think this is a gimmick product.”
‘Utilities are providing incorrect information to credit agencies which can take months to fix’ – Star Letters 14/06/2019
This week’s top comment came from Paul Adamson with his reply to the article: Lenders ‘ignoring’ small CCJs and looking to lend, say brokers.
He said: “The situation will continue to worsen. In the past three weeks two clients have been declined for mortgages. Having dealt with both for some considerable years, I was surprised at the automatic declines, especially when told by the lenders they were due to adverse credit on both occasions.
“Having now reviewed both clients credit reports, both were anomalies, one client thanks to a gas provider showing four missed payments in a row and for the other client, a utility company showing status four then five without status one, two and three first.
“The utility companies are providing incorrect information to the credit agencies, to fix can take months. It is ok saying small CCJ’s are been ignored by some lenders, however if you want the best rates or solutions and need to borrow more than 65 per cent then you could be facing hardship for something not even guilty of.
“If you see a county court judgement and were never aware of it, apply to set it aside and have the entry removed from your credit report and force the alleged creditor to full disclosure in the county court.
“I’ve helped three or four clients remove erroneous judgements to gain them much better mortgage solutions. Of course this only helps if they are in no major rush, but it’s a sign of the times and things will undoubtedly worsen once landlord records and such are passed to credit agencies.
“Surely the agencies must take some responsibility for the data record.”
Smaller mutuals are far ahead
Another contribution came from Lisa Peach-Hill to the article: Buying with friends and family a growing option for first-timers – Sedgwick.
She said: “I am just advising four people who wish to buy together as we speak, and at first I was surprised how many lenders would consider this – initially I was quite pleased about the result until I started drilling down into the criteria.
“Many of the 21 lenders will allow four applicants, but only use the income of two. That was quite disappointing. Metro and Virgin do this well, but most of the smaller building societies are head and shoulders above mainstream lenders for this.
“I had 21 lenders on my list, including three specialist lenders who I didn’t look at due to rates. By the time I’d gone through each of them I had four lenders left to work with. Not a lot for a very straightforward prime case.
“I’d like to see more mainstream lenders review policy on this, as its a great way to help non-homeowners onto the property ladder. Of course there are dangers of people being unable to pay the mortgage if the living arrangements fail, but is this not the same risk as couples who buy together splitting up?”
Tenants on benefits
The subject of landlords letting to tenants on benefits also provoked several comments.
One such contribution came from Paul Barrett, with his response to the article: Metro Bank latest lender to remove landlord restriction for tenants on benefits.
He said: “Still not interested. I don’t care whether my mortgage lender will now allow housing benefit (HB) tenants or not. The business proposition is still unviable.
“The eviction process would need to be changed to facilitate removal of a HB tenant after two months of rent default. Which is one month and one day. Then the following day the HB tenant booted out.
“As this will never occur I will never take on a HB tenant at the outset of a tenancy. Then there is the not so minor issue that HB is rarely keeping up with market rents. So why would I let to HB tenants when I could make more profit out of non-HB tenants. Then there is the issue that councils require a signed assured shorthold tenancy before they will consider whether the tenant applicant qualifies for HB.
“So what happens when the HB application is rejected? I would be left with a tenant with no means to pay any rent. So then I would have to evict the tenant as if the tenant vacated then they would be deemed to be intentionally homeless and therefore the council would have no housing duty towards the tenant.
“Then there is the issue that after eviction there would be no chance of civil recovery of unpaid rent from the evicted tenant. HB tenants generally don’t have two pennies to rub together.
“Then there is the problem of Universal Credit and tenants witholding the full contractual rent from the landlord (LL). Then there is the problem of claw back if rent is paid directly to the landlord.
“If the general public actually understood why landlords are rejecting HB tenants they would appreciate that a mortgage lender now allowing HB tenants is a minor issue in the overall scheme of things.”
Changes will make no difference
In the end, the last contribution to the same article came from Dougie.
He said: “All valid points and that’s why lenders allowing tenants on benefits will make no difference to the rental landscape.
“I noticed some letting agents in the North East seek out these types of tenants, but watching on TV how much time and effort these poor agents spend on being social workers rather than letting agents.”
‘Keep pension and mortgage separate, there are better ways to raise a house purchase deposit’ – Star Letter 07/06/2019
This week’s top comment came from Andy Wilson, with his response to the article: Make it easier for lenders to offer higher LTV deals’ instead of targeting pension savings – analysis.
Wilson said that for years the financial services industry and government have been repeatedly warning of the pensions crisis and the need for those of working age to take out their own pensions in an attempt to stave off poverty in retirement.
He added: “The state cannot provide anything but a very basic pension so for those with the means to do so then making their own arrangements is vital.
“So why are we even considering allowing youngsters to transfer some of their future income to support a mortgage in their youth? Everyone realises that money paid in to a plan during the early years of a career will grow the most and make the highest contribution to pension wealth – so this idea seems to delay any meaningful investment in their future.
“The same arguments were responsible for the demise of pension linked mortgages in the 80’s and 90’s, when the magical ‘tax free cash’ could be used in place of an endowment plan to pay off a mortgage debt when the client retired – and suggestions of retiring at age 50 were common. How did that work out then?
“To these youngsters I say: keep your pension and your mortgage separate. There are better ways to raise a house purchase deposit.”
Catch-22 for first-time buyers
Another contribution on the subject came from Lisa Peach-Hill, with her response to the article: Use pensions to fund first-time buyer purchases, says housing secretary Brokenshire.
She said: “There are positives and negatives about this idea.
“It is a catch-22 situation at best for first-time buyers, without owning a home they are unlikely to build significant wealth, and without the ability to build wealth due to high rent payments, no home security and the higher living costs that result from that, how can they fund their pensions to the degree needed to provide an acceptable level of income?
“For those on low to average incomes it is very difficult.
“I accept that pensions are an important aspect of future financial planning, but the first-time buyers have needs now. They need homes now, while they are putting roots down and having families.
“It is shocking to think most of them will be lifelong tenants due to high property price to earnings ratios – and without the help of bank of Mum and Dad many of them will never own their own homes.
“What about those young people without wealthy or financially secure parents to help them out? Why should they be expected to pay into pensions for retirement (which could be 50 years off) when they need that money now to build a deposit?
“I think Brokenshire’s attempt at product innovation should be applauded and at the very least explored – it shouldn’t be used as cannon fodder in Westminster.
“It is ok for these MPs to sit around jeering at these things? I bet they are all homeowners with nice fat pensions and have little idea of the struggles young people or tenants face getting onto the property ladder.
“Hopefully there will be someone who can take the fledgling concept from this stage and develop it into something useful – if these young people can’t afford to buy homes and become lifelong tenants, what happens to the UK property market in 10, 20 or 30 years’ time?”
‘When advisers suggest easy sell of free money to get lower rate, Help to Buy seems like a no-brainer’ – Star Letters 31/05/2019
This week’s top comment came from Andy Wilson, with his response to the article: First-time buyers should never be offered execution-only – Mojo Mortgages.
He said: “Very few first-time buyers can see much beyond the here and now. Almost none have lived through periods of high interest rates or been exposed to the effects of financial crashes or recessions, and so are not tooled up to understand what can go wrong financially and the effects that significant financial changes could have on them, and for example whether longer term fixed rates might insulate them to a degree.
“I often ask clients, and particularly first time buyers, to think back five years to what their situation was like then, and could they have seen themselves where they are now, five years later?
“Many now have completely different jobs, partners and even children, and many could not have predicted where life would take them. I then contrast that with whether they can accurately predict what will happen to them over the next five years. Unsurprisingly, not many can even try.”
Another contribution comes from Dougie, with his response to the article: Brokers urged not to ignore Help to Buy alternatives – analysis.
He said that it is a bit late to warn about Help to Buy (HTB) now.
He added: “Like Stuart Powell, I saw the problems of Help to Buy right at the start and have always discussed the alternatives as a result. Only one client has ever insisted on the HTB while all others decided on an alternative approach.
“Greg Cunnington may be pointing out that 90% of HTB went through a broker but I would expect that a further check would show that most of them were arranged by tied advisers linked to the builder. For the uninformed client, the HTB scheme seemed like free money.
“When the developer says you have to use their adviser and possibly suggests a ‘non-existent in reality’ incentive to do so and that adviser then suggests an easy sell of free money to get a lower rate mortgage, HTB seems like a no-brainer.
“I have just rearranged my friends son’s HTB mortgage to repay the loan. It has cost him £4,800 more over five years than if he had taken a 95% mortgage. I am now having to remortgage another client with a HTB arranged elsewhere and as they became used to the lower costs they now feel they will struggle with a higher loan or paying interest on the HTB. The HTB arrangement allowed this couple with no children to be able to afford a four bedroom detached house which has increased in price and is now outside their affordability.
“At least the builders advisers and especially the builders themselves did well out of HTB. Funny how new house prices seemed to go up by 10% in our area as soon as HTB was announced.”
‘Brokers should punish bad practice from lenders and help clients get rewarded’ – Star Letter 17/05/2019
This week’s top comment came from Dougie, with his responses to the article: Mortgage complaints to the FOS jump 13%.
He said: “I put in six complaints to the Financial Ombudsman Service (FOS) on behalf of clients last year because of poor remortgage issues with a few zombie lenders – my clients won all cases because of well thought out letters.
“Some at first offered £25 so I recommended clients reject this and on the complaint being forwarded to FOS they recommended on average £250. So the lender paid over £575 for each complaint and £250 to the clients.
“Got a standard letter drawn up now so zombie lenders might find they have to start servicing existing clients better or throw away thousands in extra staff time and paperwork for complaints as well as money. All brokers should punish bad practice from lenders and help clients get rewarded for time wasting and poor outcomes.”