Stephanie Charman

Mortgage Intelligence Update: Buy to Let – Facing the winds of change

Head of Mortgages and Insurance Stephanie Charman reflects on an interesting time for buy to let with the upcoming changes to tax relief.

April’s alterations to tax relief will soon join several other key changes that the buy to let sector has faced in recent years. It is an interesting time for the industry, with the changes being another political step towards curbing a sector that has seen steady growth since 2008.

Once the changes are phased in, tax relief will revert to a flat rate of 20%, which means landlords on higher incomes may find themselves losing more in mortgage interest payments. But what does all this mean for buy to let going forward?

The story so far

The buy to let sector has been targeted for a raft of changes. One of the most impactful of these was the April 2016 stamp duty changes on second homes, which added 3% to the stamp duty bill. This was seen as a longer-term solution to reduce the incentive to invest.

The Prudential Regulation Authority’s consultation paper on lending standards has meant a tightening of criteria for buy to let lending. This includes stress testing against higher interest rates and increasing income cover ratios (ICRs) up to 145% or more.

Lenders have acted promptly to adjust their criteria. This means potential challenges for both those considering remortgaging who took out their mortgage under previous affordability, and investors looking to purchase another property. The effect that this has on landlords will depend predominantly on the amount of their mortgage in relation to the value of the property and the rent they receive.

Another contested change

Despite changes to stamp duty on second homes and new stricter affordability rules, it is the 2017 changes in tax relief that have seen some of the strongest protestations. To avoid the changes, some landlords will be considering a limited company set-up going forward, in order to be exempt from the reduction in tax relief.

A survey by the Royal Institute of Chartered Surveyors (RICS) revealed that as a result, investors will likely be reducing the number of properties they own. With the changes in tax relief adding to the previous alterations, the survey found that 26% more contributors expected landlords to scale back their portfolios, rather than expand them.

Although some of the extra costs may be passed on in the form of rent increases, it is just as likely to have the effect of freeing up property for first-time buyers. But with house building still not at the level required to reach government targets, affordability remains the overriding obstacle for many young homebuyers.

An uncertain future

Some lenders are already reporting a drop in buy to let lending, which has resulted in some traditionally buy to let-only lenders moving into the residential space. It seems that all involved in the sector, whether landlord, lender or first-time buyer, are keeping their eye on the effect of all these changes.

The government’s housing whitepaper, released in February, also looks to further assist developers in building the much-needed homes and streamline the planning system. The whitepaper also announced that the government would be generally changing policy towards supporting renters, as well as homebuyers, by removing agent fees and encouraging longer term tenancies.

If you would like to know more about how to join our award-winning Mortgage Network as an appointed representative or becoming a member of our Mortgage Club, call our Broker Support Team on 0845 130 7446, option 1.

Mortgage Intelligence Update: Will mortgage rates climb in 2017?

Head of Mortgages and Insurance Stephanie Charman takes a quick look at the current signs surrounding mortgage rates in 2017

It has been widely publicised that the Bank of England base rate remains at its lowest ever level. This means that many home buyers and home movers have seen relatively low interest rates. Those looking to remortgage could also currently benefit from a competitive fixed rate deal, to avoid moving onto their lender’s standard variable rate.

But is this era of low borrowing costs coming to an end? Are we about to finally see a return to higher interest rates?

The end in sight for rate cuts

After many months of rate cuts from lenders, some experts feel this period of intense competition is finally coming to an end. But despite warnings of an upcoming increase in rates in 2017, some big lenders are currently reducing their rates even further and announcing best buy contenders. It seems that as long as competition remains strong, lenders will continue to compete to reduce rates where possible to entice new business.

Uncertainty reigns

Talk of an increasing base rate took a back seat after the vote on the EU Referendum. But will Brexit’s eventual commencement actually act as a catalyst of change after a period dominated by a poor economic outlook? Only time will tell, but it was only last year that many in the market were factoring in for a rate increase that they were certain would happen. It seems that the only thing that is now certain, is uncertainty.

In the meantime, competition between lenders to offer low rates continues, which makes it an opportune time for low borrowing costs and remortgage opportunities.

If you would like to know more about how to join our award-winning Mortgage Network as an appointed representative or becoming a member of our Mortgage Club, call our Broker Support Team on 0845 130 7446, option 1.

Mortgage Intelligence update: Are your clients considering the limited company option?

With changes in tax relief for landlords just around the corner, Head of Mortgages and Insurance Stephanie Charman takes a look at why some are considering the much-publicised limited company option.

With rates holding low at 0.25%, investing in property could still be a good idea for many. This is despite the tax changes that are due to begin from April 2017, at which point the tax relief that landlords of residential properties receive for finance costs will start to be restricted to 20%. This change will be gradually phased in to be fully in place by April 2020.

So why limited companies?

Limited companies set up for the sole purpose of buying and letting property, will not be affected by the upcoming changes. That’s why many landlords are considering setting up limited companies to mitigate the personal impact. As this demand for limited company loans increases leading up to April, some lenders have updated their product ranges to cater for this emerging demand.

Research from leading buy to let specialist lender Kent Reliance has revealed that more landlords are already moving their buy to lets into limited companies. In fact, the lender revealed that over 100,000 buy to let mortgage loans were issued for limited companies before December 2016. This is double the figure of the whole of 2015, suggesting that more and more people are considering the option.

But is limited company the right choice for your client?

There is no easy answer, although it may be a possible solution for some circumstances. They may be considering using the limited company strategy whether they are a professional landlord, an investor with a portfolio or even looking at purchasing their first buy to let property.

Although there is no way to avoid the changes in stamp duty on second homes, setting up a limited company and becoming a corporate entity may indeed mean avoiding the changes in tax relief. But this is a complicated area and these tax changes will often affect each landlord differently. That’s why talking to you about their mortgage needs and seeking tax advice from an accountant, will help prepare your clients for any decision on their buy to let investment.

If you would like to know more about how to join our award-winning Mortgage Network as an appointed representative or becoming a member of our Mortgage Club, call our Broker Support Team on 0845 130 7446, option 1.

Mortgage Intelligence update: Five ways your clients can help their children onto the property ladder

With plenty of options out there for first-time buyers, Head of Mortgages and Insurance Stephanie Charman takes a quick look at five ways your clients can help their children with buying their first property.

In a time when we are continually facing property price increases, it may be hard for first-time buyers to save up enough money for a mortgage deposit or have adequate affordability to purchase their first home. To help, we have put together five ways your client may be able to help their child overcome the difficulties of getting onto the property ladder.

Gifted deposit

A simple way your client can help is to offer their child all or part of the required deposit. By raising the deposit from 5% to 10%, it could help improve the child’s affordability and reduce their monthly repayments. If they do decide to gift a deposit, they must sign a written agreement to confirm it is a gift, otherwise this may be treated as a loan by lenders and could affect the child’s affordability.

Equity charge

If they don’t have the cash available to gift to their children, they could consider equity charge. This is where they put a collateral charge on the family home instead of their child paying a deposit. It is however worth bearing in mind that not all lenders allow this in their criteria.

100% guarantor mortgages

Another option is a guarantor mortgage where a charge is placed against your client’s home. This means that the amount their child can borrow is based on a combination of their own and their child’s income and assets. This could allow them to receive a 100% mortgage. However, there is associated risk, as they would be guaranteeing that the repayments are made. This means that the guarantor’s home could be at risk in the event that their child failed to pay.

Family offset mortgages

Alternatively your client could consider a family offset mortgage. This type of mortgage enables parents to offset the value of their savings against their child’s mortgage so they may pay less interest. This is because their savings offset the sum of the mortgage that interest is charged on. As a consequence they may not always receive interest from their savings.

Getting them mortgage ready

Perhaps the best way your client can help is to make sure their children are ready for the responsibility of applying for and having a mortgage. They could make them aware of budgeting and affordability so that their children have a realistic idea of what owning a home may cost them each month. After all it is not just the mortgage repayments they have to think about.

Experts have also reported that many younger people are unaware of the extra costs that arise on top of having a deposit, such as stamp duty and surveying fees as well as solicitor fees. If they need help to save money for this, the parent could help them open up a Help to Buy ISA or a Lifetime ISA. These ISAs will support their children with their savings whilst also receiving a 25% government bonus on limited deposits.

Additionally, they could offer advice on improving their child’s credit score, as this is a common problem when first time buyers apply for a mortgage. A credit score is often an important part of lenders’ underwriting process to decide whether the applicant is suitable for the product.

If you would like to know more about how to join our award-winning Mortgage Network as an appointed representative or becoming a member of our Mortgage Club, call our Broker Support Team on 0845 130 7446, option 1.

Mortgage Intelligence Protection Update: Meet the Spencer Family

Head of Mortgages and Insurance Stephanie Charman takes a look how AIG’s Spencer Family can help advisers talk to clients about protection.

Protection provider AIG Life has announced the launch of a fictitious family called ‘The Spencers’. It seems case studies and real life scenarios are currently very effective in helping advisers talk to clients about the benefits of cover, which is why AIG have created The Spencer Family. Spanning a full four decades, this relatable family will help advisers further illustrate how AIG protection policies affect people of all ages.

AIG want to begin 2017 with a new way to explain how their protection products can benefit the lives of ordinary people and their loved ones. The extensive family covers 1,219 years’ worth of lives, to demonstrate AIG propositions and how they help people facing difficult economic and medical circumstances.

Consisting of 33 members, the Spencers will bring to life the real uses of protection products. AIG intend to make the family members a big part of their campaigns in 2017, as well as some of their literature throughout the year. The family will be used to highlight protection topics such as care needs and children’s critical illness cover.

In an under-insured nation, we embrace any way that helps you show why protection is such a good idea. If you would like to know more about how to join our award-winning Mortgage Network as an appointed representative or becoming a member of our Mortgage Club, call our Broker Support Team on 0845 130 7446, option 1.

If you want to find out more about who the Spencer Family are, visit the AIG page to discover a fresh way to ensure your clients understand how AIG products can benefit and aid them.

Mortgage Intelligence update: Are garden homes the answer to the housing crisis?

Head of Mortgages and Insurance Stephanie Charman explores whether the Government’s new garden homes are a possible answer to the UK housing crisis

A divisive plan to create nearly 50,000 homes within 14 garden villages across England has been announced by Housing Minister Gavin Barwell. Ministers have backed the building of the villages, which will be located on sites that include former airfields and much coveted green belt land. These new villages are smaller versions of the Government’s planned “garden cities”, each containing between 1,500 and 10,000 homes. But are they an answer to the UK housing crisis?

Where will the new homes be located?

Ministers have confirmed that the new villages will not be extensions of existing towns or villages. Instead, the Government has said that they will be “distinct new places with their own community facilities”. With several garden towns also announced, the whole “garden” project could deliver 200,000 new homes.

The first round of locations include sites in Cornwall and Cumbria, which makes them eligible for a share of a £6m support fund. The former Deenethorpe airfield in Northamptonshire will be one of the key locations. This 600-acre plot has been approved to include a village green, shops, a community hall and over 1,000 homes.

Other locations include an ecovillage in West Carclaze, Cornwall, where 1,500 homes will be built. These new energy efficient homes will sit alongside space for self-build and custom-built housing, as well as a brand new primary school.

Will they help solve the housing crisis?

One of the proposed solutions to the housing crisis has been the general decentralisation of housing and planning. With this in mind, Gavin Barwell said that the village development would be led by local communities, not central government. The Campaign to Protect Rural England (CPRE) also said the plans would work to relieve the crisis if “done well with genuine local consent”.

But as well as the anticipated opposition to building on green belt land, the plans have also met some scepticism. Labour’s shadow housing secretary John Healey said: “In the last Parliament they promised a flagship ‘garden city’ at Ebbsfleet. Since 2012, we’ve had 32 government announcements on Ebbsfleet but less than 500 homes built … the country deserves a proper plan for fixing the housing crisis.”

If you would like to know more about how to join our award-winning Mortgage Network as an appointed representative or becoming a member of our Mortgage Club, call our Broker Support Team on 0845 130 7446, option 1.

Mortgage Market 2016 Review: Five Key Events that Shook the Industry

As we wind down the year and look ahead to 2017 and what is likely to be another interesting 12 months for the mortgage market, it is a good opportunity to look back at what has been an eventful 2016.

Whether dealing with the impact of a scheduled change in housing policy, or reacting to surprise announcements, we have remained resilient and worked together to ensure you are up to date and able to provide the same first-class advice to your clients.

But what events had the biggest impact on the mortgage market and how do they fit in with other alterations facing the industry?

March: Mortgage Credit Directive (MCD)

Put in place to create a framework of conduct rules, the MCD is a piece of European legislation designed to foster a single market to protect consumers across the continent. The requirements came into force on March 21st and lenders then chose to either move straight to a European Standardised Information Sheet (ESIS) or a KFI+ on a temporary basis.

But now that the UK has voted to leave the EU, the MCD has become another future consideration for the market. Experts now believe that the MCD could well be up for negotiation following Brexit, with some calling for it to be integrated into the exit strategy by the Government and to use the opportunity to implement a set of rules better suited to the UK market.

April: Changes to Stamp Duty Land Tax

When it was announced that the stamp duty surcharge on BTL and second homes would increase by 3% on 1st April 2016, a surge of investors pushed to ensure their deals were completed before the deadline. This was a big move by the government, with relatively little warning to the market given it was only announced in the 2015 autumn statement.

But despite industry predictions that the change would greatly curb the BTL market, the sector has remained buoyant and an October report from Rightmove shows that BTL enquiries are up 30% since May’s slight slump following the rush.

June: EU Referendum and “Brexit”

Despite only representing the decision to leave the EU, the shockwaves of the referendum result reverberated around the country and left many pondering the effect the eventual activation of Article 50 could have on the mortgage market. What did follow was wild fluctuations in sterling, stock prices and shifts in consumer confidence.

But advisers have generally found that consumer appetite remains strong despite the uncertainty that followed the Brexit decision. It is likely that we as a nation will have a better understanding of the possible effects that the actual exit itself will have on the industry, once it comes closer to realisation.

October: PRA Paper on Underwriting Standards

Technically known as the CP11/16 paper, the Prudential Regulation Authority’s (PRA) announcement followed a consultation on underwriting standards within the BTL market released in March 2016. Since the release of the official document in October, many have been looking at how these standards will fit in with the other BTL changes, such as stamp duty and next year’s changes in tax relief.

Now that the PRA have issued its supervisory statement on BTL underwriting standards, relevant firms will now have to apply affordability testing and use a sufficient Income Cover Ratio to determine whether personal income is adequate to cover mortgage repayments.

December: Help to Buy 2

With confirmation that Help to Buy 2, or the Help to Buy: Mortgage Guarantee Scheme, is to be concluded at the end of 2016, many are looking ahead to the market and asking whether first-time buyers will be sufficiently supported going forward.

Despite the forewarnings of when each branch of Help to Buy would end, there has been some confusion over whether all Help to Buy schemes are ending. The good news is the Help to Buy: Equity Loan Scheme still has several years left and early signs signify that lenders are now offering high LTV mortgages, which experts hope will negate the impact on the market of ending Help to Buy 2.

If you would like to know more about how to join our award-winning Mortgage Network as an appointed representative or becoming a member of our Mortgage Club, call our Broker Support Team on 0845 130 7446, option 1.

Mortgage Intelligence Protection Update: A Critical Illness Review

Head of Mortgages and Insurance Stephanie Charman investigates whether the increasing number of covered conditions has made the critical illness industry too complicated for consumers and advisers alike.

When Critical Illness (CI) cover first arrived in the UK in the 1980s, it was a concise concept that originally covered just four conditions. We have now come a long way in ensuring that as many conditions as possible are covered, which is for the most part a positive thing for consumers. But has it now had a detrimental effect on the industry, over-complicating it for consumers and advisers alike?

Does Critical Illness needs reviewing?

Despite published claim statistics and the improvements to cover, CI sales in general have remained stagnant. As a result, the protection gap in the UK has also remained unchanged. This begs the question: has the continuing addition of conditions conversely dampened the attitude towards CI?

For a number of years, providers have been engaged in competition known as “condition counting”. This has been exacerbated by the general adviser preference to go with the policy that covers the most conditions, providing a perceived “value” to the protection. But this has led to a complex and confusing market for both advisers and consumers, as they struggle to understand and absorb information regarding the most obscure conditions.

However, experts suggest that we are reaching peak saturation of condition counting, and surely all a client is looking for is surety that providers will pay out when they need it most.

Ensuring clarity for consumers and advisers

Currently the five main conditions (cancer, heart attack, stroke, MS and Children’s Critical Illness) account for 88% of all Bright Grey’s claims, which highlights the importance of these central conditions. Munich Re’s Julie Scott suggests: “One simple answer could be for insurers to consider realigning the features of the product with its actual name and focus once more on the truly critical conditions that have a fundamental impact on consumers’ lives.” This would certainly help advisers to use relevant statistics to support their client conversations, such as the recent research regarding cancer survival rates in the UK.

Since MMR the onus on the intermediary has become even heavier and providers must ensure that the brokers benefit from protection change as much as the consumer. This means ensuring advisers have the means to effectively match consumer circumstance to policy options, so that consumer outcomes are effectively and consistently met. This will in turn result in more positive protection stories with substance, instead of simply publishing statistics that are read by few outside of the industry.

Creating a brighter future for Critical Illness

Providers need to simplify and expand at the same time. This may seem contradictory, but if expanding means offering more than just financial protection, then the simplifying can happen within policies. I wrote last month about Friends Life’s Global Treatment, which is the sort of outside-the-box thinking that is becoming vital as we move into an era where advanced treatment means more people are surviving disease and illness.

Some experts believe in a more radical approach to changing CI. But as long as the condition counting ends, definitions become more concise for consumers and providers continue to vary how cover is delivered, we will hopefully witness a shift in attitudes. Advisers are financial experts, not medical, which is why there is currently some timidity to enter a CI market saturated with complicated and esoteric criteria. To help you, we have a protection helpdesk of experts ready to assist in locating those tricky cases and deal with obscure conditions.

If you are interested in becoming an appointed representative of our award-winning Mortgage Network or a member of our Mortgage Club, contact the Broker Support Team today on 0845 130 7446 opt 1.

Mortgage Intelligence Protection Insight: Help your clients stay protected and healthy in 2016

Head of Mortgages and Insurance Stephanie Charman takes a look at how policy options such as ‘Vitality Optimiser could change the way clients engage with protection in 2016 using new trends such as wearable technology. Steph also suggests how both appointed representatives and directly authorised advisers could benefit from the added-value and direct consumer interaction protection providers offer their clients.

When it comes to protection, I believe saving your client money whilst increasing the value of their policy could be the key to sales in 2016. But with obesity and other health issues on the increase, your client’s BMI or general health could affect the cost of the policy, leading to loaded premiums and possible affordability concerns.

That’s why saving clients money when buying the policy and then encouraging them to stay healthy during the term itself could also be crucial to protection sales over the next year. I think that one of the providers currently making their mark in this respect is Vitality, especially in combination with Vitality Optimiser: their flagship policy option that rewards consumers for actively engaging with their protection cover.

Staying fit and saving money

Did your clients receive any wearable technology under the tree this Christmas? If they did, they could be taking advantage of the latest benefits offered by policy options such as Vitality Optimiser. By offering rewards and even discounts to consumers if they stay fit and healthy and improve their “Vitality Status”, consumers can now actively engage with their policy, taking control of their own health-tracking using a points system. Reward can be a big incentive for clients, as they look to increase their “Vitality points” and monitor their healthy lifestyle every year.

Globally, wearable technology sales are expected to rise from 17 million in 2013 to 187 million by 2020. Sales are also on the increase in the UK, as we catch up with the engagement of the new trend in the US and China. I think it is inevitable then that more providers will embrace this consumer-focused market that helps clients directly reduce their premiums and increase their health, a win-win situation for provider, consumer and adviser alike.

Increasing client engagement can optimise sales

I understand that income protection faces possibly the strongest customer objections, despite being a vital cover for consumers. Protecting your client’s income is very real, but income protection accounts for less than 1 in 10 protection sales.

Tackling assumptions about state and employer support, as well as the surprisingly affordable cost of income protection, can often be the best start to the conversation. To help you even further, Vitality are offering an additional 5% discount on premiums on income protection policies with Vitality Optimiser, up until 29 January 2016. This means that consumers now have the potential to receive up to a 30% discount with Vitality Optimiser.

I believe that with the upfront discounts offered and the activity-tracking encouraging constant engagement with the brand, advisers will find that clients are also more likely to renew their plan, increasing your sales further.

If you want to find out more, there is a sales aid available to help you explain exactly how Optimiser works with your clients. Alternatively, call our National Protection Sales Manager Bernie Buron on 07764856553 to talk about how you can increase your sales in 2016.

If you would like to know more about how to join our award-winning Mortgage Network as an appointed representative or becoming a member of our Mortgage Club, call our Broker Support Team on 0845 130 7446, option 1.

Mortgage Intelligence Update: A helping hand in a changing BTL sector

Stephanie Charman highlights how Mortgage Intelligence has helped appointed representatives and Next Intelligence club members work through the number of changes in the BTL sector with additional support and services.

The BTL sector seems to have grown as fast as it has changed in recent years. There has been a raft of recent alterations to rules and guidance surrounding the sector, which has seen some complicated scenarios cropping up for advisers.

But we also know that BTL is a big part of what our advisers do at the moment, which is why we have done what we can to help them service clients effectively and grow their BTL business even further.

A winning combination

This year we have expanded our lender panel to ensure we provide a comprehensive offering for advisers in such a changing environment. We have several new lenders that have joined to provide new propositions and options for adviser clients, such as Fleet Mortgages and Kent Reliance who specialise in BTL lending.

But we also know that this makes understanding all the different lenders and what they offer a new challenge and keeping up to date can become time consuming. That is why advisers call our Broker Support Team to talk through the latest lenders. They are experts at knowing who might be able to help advisers in a variety of BTL scenarios.

We believe the winning combination of an expanding and comprehensive panel with our experts on the Broker Support Team will help more advisers not just service their clients effectively, but also save time calling around all the different lenders.

The hub of knowledge

Lenders are continuing to develop their criteria in response to market conditions and to prepare for future changes. We want to help advisers keep up to date with all the lender changes in the sector. That’s why we have created the fantastic new BTL Hub on Broker Zone, our adviser website for appointed representatives and club members.

This is the new home for BTL, where advisers can find everything they might need to understand any changes and get to grips with lender propositions and offerings. We also have recordings of all the latest BTL webinars, hosted by lenders, including Q&A with advisers.

With criteria changes a focus for many lenders in 2016, we have ensured that advisers are armed with all the latest knowledge to help clients. The BTL Hub is full of guides and datasheets on how lenders define a HMO, calculate affordability, exposure, rental calculations and general lender criteria and overviews.

If you would like to know more about how to join our award-winning Mortgage Network as an appointed representative or becoming a member of our Mortgage Club, call our Broker Support Team on 0845 130 7446, option 1.