Category: Mortgage

Time for a Review

What I love about this industry is the constant changes and challenges we face. Often we look back and find our businesses are stronger as a result.

Take the quality metric for example, lenders decide that they were no longer talking about sales volumes but had a whole new agenda about quality. Huge metrics were drawn up for networks with various combinations with which our AR firms would be measured. Some were so complicated it was difficult to interpret them. Over time they were tweaked and more information was shared with the networks, as a level of trust was built up for the first time with lenders and their fraud and risk departments.

As a result we all know and understand so much more. We are able to recognise information that needs to be challenged from day one. Many cases that may have potentially been a fraud case don’t get through the door and once you know what to look for, it is so much easier to protect your business and deal with the right clients.

However, one of those metrics has always puzzled me – how can networks and brokers improve on the number of cases that go into arrears. I feel that once the robust advice process has met regulatory standards and the lenders have used all of the systems they have available to check previous history, what else can be done at that stage to ensure the case never goes into arrears?

Divorce, death, illness, redundancy and hard times are all reasons for falling behind with payments but they are not really events that the broker can predict when arranging the mortgage. It is however a very relevant discussion to have with the customer of course, as many of these events are likely to happen and therefore providing protection for them plays an important part in the advice process.

However, it may be time for the lender to accept that if they are unable to give the broker any information on cases that are in arrears, including client name, brokers can do no more to cover this aspect.

The lender holds the data and the lender makes the ultimate decision to lend. They have access to far more information than the broker. They currently have little interest as to whether there is a policy in place to protect the client’s income which could prevent arrears in some cases. Maybe it is time for lenders to not only review the metrics but look at addressing the issue of protecting for the future when arrears may not be as low as they are now.


Will the 2015 Election affect housing in the UK?

With the 2015 general election fast approaching, it seems pertinent in our adviser magazine to look at the possible effects that a new, or even remaining, party would have on the housing industry. As we speak, the opinion polls are generally showing a close fought game, with the possibility of a hung parliament and another coalition being spoken of. But do any of these parties offer anything other than over-inflated projections of house building and speculative changes in the approach to the industry? Insight takes a look at the main parties vying for your vote this May:

Conservative

Whilst the Conservative party and its leader David Cameron look to take advantage of an arguably unpopular Labour leader, their policies on housing still outline a determination to create more homes and to give first-time buyers the best chance to get onto the property ladder.

Some of their reforms in this current term have proven relatively successful, with many homes being purchased as a direct result of polices such as Help-to Buy and the re-established Right-to-Buy. With the new Rent-to-Buy scheme also proposed at the 2014 party conference, it seems the Conservatives are determined to continue on the path to what they feel is a healthier housing market.

Also in last year’s conference, Cameron outlined a plan to build 100,000 new starter homes, selling them to first-time buyers at a 20% discount, if they won the next election. But to some experts, this does not do enough to address some fundamental problems underlying the industry and the continuing issue of affordable housing.

Even in their own manifesto, the Conservatives recognise that “houses are just too expensive”, with some areas of the country seeing house prices now seven times the annual salary. It is clear that they recognise the problems, but whether the voters believe they can solve them, is a different matter.

Labour

Ed Milliband’s big promise to build 200,000 homes a year by 2020 has received a mixed response, with some suggesting it is simply a vote-winning speculation, instead of a policy-based plan. But according to the National Planning Policy Framework (NPPF) Plan for Housing document, “It is estimated that around 232,000 new homes are required each year, and in the 12 months ending September 2014, only 117,070 houses were completed.” This highlights a major shortfall that has made housing a hot topic in the economic and political world. Labour also hope that their “use it or lose it” policy on housing will prevent developers from hoarding usable land to sell at a bigger price.

Interestingly, some areas where the housing shortage is felt the most are where the political swing could determine the outcome of the election itself. Labour would therefore be unwise not to use this time to back up their targets with a realistic plan to help with the ever-rising waiting lists for social housing in areas such as Burnley and Brighton, two key Labour targets. In fact, Burnley has seen waiting list numbers rise from 326 in 2009 to 2,001 in 2014.

The main opposition party also pledged to double the number of first-time buyers in the market. But again, this was not backed up with any real details, leaving many scratching their heads as to Labour’s clear plans to directly tackle the housing crisis.

Liberal Democrats

As the party that has seen the biggest decline in popularity since the Coalition’s inception in 2010, the Liberal Democrats and Nick Clegg are struggling to reinforce their left wing status by opposing David Cameron’s cautious approach to housebuilding. But their own plans seem slightly too ambitious for some experts, promising in 2012 to raise housebuilding to 300,000 homes a year, a full 50% higher than Labour’s own pledge.

Other plans laid out in the 2014 Liberal Democrats conference suggested that councils should be allowed to suspend Right-to-Buy privileges, until housing stock is suitably replaced in that area. More social housing to support the promise of 300,000 homes and a new Housing Investment Bank were also pledged, which would simplify the allocation of public funds and draw in private finance.

The Liberal Democrats also argue that the key factor in the housing crisis is the Government’s lack of direct control and power in the industry. In a slightly radical approach, they propose to address both the nature of the market and the supply of housing by giving the Government the role of Commissioner of Housing. This would apply to both the social housing sector and the growing private sector. These are certainly interesting policies, but as their popularity dwindles, it is surely only another coalition that would potentially see their plans implemented.

UKIP

As the political parties tussle back and forth over their pivotal and vote-winning policies such as UKIP’s (led by Nigel Farage) stance on immigration, studying their other policies on equally big issues such as housing, is often overlooked. Mark Henderson, chief executive of Home Group, suggested that “although housing may not be top of the agenda nationwide, it is a critical factor in key marginal seats”. It is indeed rarely a headline-maker in the mainstream papers, but for the thousands struggling to get onto the property ladder, it may be a key factor in how they vote this May.

UKIP’s National Housing Spokesman Andrew Charalambous has big plans for the industry. Unsurprisingly, his central stance is the link between “open-door” immigration policies and the housing crisis. He argues that the immigration policies of the current and previous governments did not factor in a potential housing shortage.

UKIP therefore propose to prioritise Brownfield land and disused industrial sites in their housing policies, protecting what they feel is treasured Greenbelt land. Mr Charalambous also points out that there are currently 700,000 properties lying empty. UKIP also plan to introduce binding planning referenda, giving local people and councils more power and incentive to build and shape their own local areas. The party definitely has some strong plans for the future of UK housing, with their views possibly bearing fruit if they become part of the Government come May.

Green Party

The party that has recently seen the most rapid increase in its supporters, could also be the party that would create the biggest movement in the industry. Voters possibly looking for a new form of Government, or disenfranchised left wing supporters unhappy since Nick Clegg’s alignment with the Conservative party, have begun to side with the Greens. This has meant a new surge in support for Natalie Bennett’s party. But where do they stand on the important subject of housing?

Like UKIP, The Green Party recognise the need to look at the number of homes currently unused, but primarily focus on an increase in social housing across the country. In their policies, they speak of “the inability of the free market to meet diverse housing needs and a lack of investment in public housing spanning over two decades”.

They clearly feel that the approach to housing needs to be fundamentally changed, ushering in an era of “housing policies under local participatory democratic control.” This type of localisation echoes throughout the party’s polices, as they seek to “increase the amount of social housing and commonly owned housing”. The Greens no doubt have conviction in their beliefs, but whether their recent rise in the polls has come too close to the election to gain political power, remains to be seen.


Something’s Gotta Give

Following recent comment that 90% of intermediaries would welcome a paperless mortgage transaction with lenders, it is surprising that despite the technology we now have at our fingertips, this is still so far away.

Yes it needs to be fraud proof but when you know that some lenders are still using fax as a type of communication we may still have quite a wait.

It will eventually happen and, when it does, it will complete the circle of speeding up the entire mortgage process. Post MMR created lender utopia and lenders now have all of the documents being submitted to them with fully completed applications at outset, saving time and therefore creating huge efficiencies.

The next big step is improving the application to completion process. The fewer phone calls there are asking where the case is in the process, the better. This would save time for both the advisor and the lender, so we are seeing a return to providing access to underwriters and even dedicated teams to talk any queries through on submission.

Years ago that function was fundamental for attracting intermediary business but gradually the cost became too much and more automated processes were implemented. The trick was to underwrite as much as possible without involving telephone calls and interaction with the broker. It worked for that particular time but now criteria is constantly changing and not always straight forward, it has got more complicated and the consequences of getting it wrong are costly.

So access to people is coming back, talking through any queries with underwriters, submitting the case on line and emailing documentation straight away with the opportunity to discuss that case if needed to establish any additional information required at that time.

Clear guidance from a case handler, dedicated teams and ongoing progress updates via the channel of your choice, are all likely to return this year. So with all that in place, service will be at another level, so what next?

Rates are at an all time low, if service does reach the levels lenders are talking about then to attract a bigger market share ‘something’s gotta give’ and the only thing left is criteria.

This is not an easy one as criteria has hardened over the past few years and there is still reticence to trail blaze in this area. In fairness there have been a few new ideas coming through but it will require some of the big lenders to take brave and innovative steps to make significant criteria changes, which are not easy in today’s world. However, I do have faith, as this industry is one that manages to survive and improve all the time, so I am watching with interest to see what happens next.


Treading a Fine Line

A topic that has grabbed my interest this month is the new free and impartial guidance service that the Government is setting up called Pension Wise: Your Money, Your Choice, which will help the consumer better understand how to manage their pension arrangements.

My understanding is that this set up will be similar to the Money Advice Service, where guidance is given for free but there is no advice. I have to assume that the purpose of this is to provide sufficient information on the options available to the consumer to help them make a decision that will dictate their retirement lifestyle.

My question is: will the service provide enough information for the consumer to make the right choice? Surely, without the advice to accompany the guidance there could be some unintended consequences. If we take the product of mortgages as an example, unlike pensions most people know what a mortgage is and how it works, even if they don’t have one. The process is now elongated due to the implementation of MMR with regulation of advice in place to protect the consumer and deliver the right outcome to them.

The result hopefully is that most people will end up taking advice to obtain the house they want. In my mind, guidance is all part of the advice process, explaining how it works, what is needed, and the choices along the way, taking the consumer on a journey until the process is completed.

There is a fine line between guidance and advice but the Treasury website does appear to recognise this and states: “The guidance service will complement professional regulated financial advice and other services, pointing consumers to reliable sources of further help and information as needed and helping consumers recognise the value of further specialist help and advice.”

Moving house and having a pension in retirement are two of the most significant transactions a consumer will ever make and, in my opinion, advice is absolutely key to ensuring customer’s make the right decision for them both now and in the future.


Try & Divorce Your Mortgage

I have recently been helping a friend, Mrs C, rescue what is left of her equity to prevent her losing everything. Unfortunately, her ex-husband has systematically drained her savings and the equity from two houses. Believing him once and starting again with a smaller house to repay the debts he had created, meant the second time ended in divorce. However, he is the main wage earner and agreed to continue to pay the mortgage payments, as he refused to redeem the mortgage and, as we know, a joint mortgage means he can do that.

Unsurprisingly he didn’t keep up with the payments but ensured he regularly visited the house, mowing the grass, mending fences and intercepting the mail. However, he did slip up and missed a letter sent to Mrs C detailing £16,000 of arrears on top of the mortgage debt because of numerous missed payments. The letter stated that if the lender wasn’t contacted the case would be sent to the litigation department. Distraught and expecting people to arrive and seize the house, she asked for my help. My experience to date has been an eye opener at how easy it is for someone to do this if they know what they are doing. And how difficult it is to find a way out of a situation where you are both joint mortgage holders.

Data protection protects Mr C from Mrs C knowing what he has said or agreed, although the letters regarding the account position are sent to the same address but in separate envelopes. I am surprised that Mrs C never received a phone call from the lender to check she was aware of the situation as she had made no contact with them.

My first step was to gain written permission by email allowing me to speak to the lender on her behalf, only to be told that for security reasons only a faxed letter was acceptable. It took the lender two days before the fax was found and added to the account details.

Numerous phone calls and incorrect information followed. In addition to this, only faxes are acceptable to send documentation through, i.e. formal offer on the house, the ex-husband’s agreement to sell. This form of communication is not very consumer friendly, especially when everyone has email and very few people have access to a fax machine.

Each call involved me having to go through the entire story in addition to the security checks. I had not once been able to speak to the same person and often the notes on their screen were incomplete. The most recent exchange of information meant that I had to read out the latest letter as this was not on the file and the person had to go and to speak to their manager to understand what it meant. Despite the fact the letter had things like phone extensions and reference numbers, it was not traceable.

The reason for this article is not to name and shame the lender but to flag to all lenders that when interest rates rise, the number of people facing financial problems will increase, and if the contact with the lender is anything like my experience they need to go back to the shop floor and review it now. I understand all about processes. We live in a world where processes protect us but with arrears and repossessions, emotion and the end result of losing everything you have, makes people panic. My sense of fair play has made me determined to make sure the correct process is followed and that Mrs C ends up with her equity. Instead of giving up on life, she has been able to continue at work, with some hope of survival and escaping from her ex-husband and the mortgage.

So, if you think going through a divorce is difficult, try divorcing your mortgage – it’s pretty much impossible.


Purchase Deals Squeezing Out Remortgage Business

With a number of lenders updating their rates, it really does feel as though Christmas has come early. Some lenders are even offering their lowest ever rates on products, which is fantastic news for consumers and brokers.

Following a recent product update that we sent to our network, we received a number of phone calls from brokers asking if we had made a mistake in the communication about the Halifax products at 2.99%. We hadn’t but the brokers couldn’t believe the lender was offering a rate that low.

That is a great feeling as a network. The climate is definitely changing and, alongside a stream of great new products, we are experiencing increasing proc fees, new lenders entering the market, and even that long forgotten species, the exclusive, is back.

So patience has paid off and we are entering a more exciting time for intermediaries right now. One thing the credit crunch has proved to the shareholders and boards of the larger lenders, is that if you are falling short on mortgage volumes there is only one channel that can deliver the volume needed and that is the intermediary channel. Branches in many quarters cannot deliver the service or the volume that intermediaries can and that’s all good news for us as brokers.

However, it doesn’t mean brokers can cut corners and post MMR it has certainly not decreased the time spent on the mortgage process. In addition to all of this, the regulatory focus has changed over the past few years and it is clear that the emphasis is very much on conduct risk and ensuring the customer’s needs have been fulfilled. Affordability is very much at the door of the intermediary, it is essential that client’s bank statements and their lifestyle are dissected sufficiently to advise on the correct mortgage product and give suitable advice. Failing to do this is a cost that no-one wants to pay, and so being vigilant in this area is key alongside keeping up to date on different lender criteria, which is of course all part of the job.

The big surprise this quarter has been the lack of uptake of remortgages. The time is right, the price is right and there is plenty of business there for the taking, yet the remortgage market simply has not taken off despite all the predictions that it should. My own view is that intermediaries are finding it hard to process all of the purchase business that is coming in with simply not enough time to go back to the existing client base to drum up a new stream of business. That is unfortunate because for the first time, intermediaries are on a level playing field with the lenders, whereas pre-MMR the process for the lender was quick and slick with a huge advantage over the intermediary, this advantage has now gone.

So, you could say things are definitely looking up for intermediaries and opportunities are there for the taking. The difficulty in recruiting good advisers is still a challenge and that is the stepping stone to building a business. Talking to some of our AR members, taking on administrators with the ability to progress to adviser status, has been a worthwhile investment and they are now reaping those benefits. It also means there is always another recruit in the wings so that the business can grow and also cover the unexpected event. A dedicated person for life insurance has also been a winner and some of our most successful firms feel that has transformed their businesses, and has duplicated that approach for General Insurance. Although it is smaller income on each case, it builds up to a substantial annual income when someone is specialising in that area.


Looking into the Crystal Ball

It will be interesting to see what the mortgage market will look like five years from now and how MMR has changed it. In my view, MMR certainly will have changed the way the mortgage market works.

So far MMR has impacted the market in many ways. Intermediaries have been managing increased business levels at the same time as getting to grips with all of the different lender nuances in affordability calculations and what documents they require.

However, lenders have had to overhaul the way they operate in branch. Their mortgage advisers have all been trained to give fully advised sales and mortgage appointments are taking 2-3 hours for each case, so we are all working in a level playing field. I think it is fair to say that lenders have been surprised at the time it now takes to arrange a mortgage for a customer from start to finish, and appointment booking has been a challenge.

With customers unable to get an instant appointment and possibly having to book an appointment quite far in advance, lenders may well lose that business. Where will this lead? Do the branches sell enough mortgages to provide the lender with the volume they need? And is the process of training and retaining a direct sales team cost effective?

That is yet to be proved but in the current market recruitment is not easy and it takes time and money to train people up to competent adviser status, only to lose some who feel they could earn much more as an intermediary.

In every business, if you are looking at cost efficiencies and improved service you would question the business model. When the cost of operating something in-house becomes too expensive, outsourcing is an attractive option. Many years ago when MMR was just a rumour, I suggested at a conference to a panel of lenders that maybe they should consider outsourcing mortgage advice to intermediaries. Needless to say they felt that shareholders would never consider that, well I am convinced that it may well become an attractive option.

Firstly, intermediaries have the capacity to deliver far more mortgage business than the branches. There are no expensive recruitment costs, no training costs, no perpetual topping up of advisers, and no delays in arranging appointments for the lender.

By outsourcing the mortgage advice, the lender is able to concentrate on delivering the mortgage, selling current accounts, savings accounts, ISAs, credit cards etc., all the services that are becoming more important to banks and building societies. Suddenly we are playing to each other’s strengths and the customer gets a very rounded service ensuring all aspects are covered. There is clarity in who does what and it offers an opportunity for a different relationship between lenders and intermediaries.

Each lender will look at future business differently. Again, it will depend on retention strategies and what they need in their back book, as we have seen a period when lenders needed customers to move on and periods when they need to retain them but that would be possible to agree a solution.

Effectively lenders become intermediary only lenders. It would be easier to manage business levels, manage service and everyone ends up with a satisfied customer. Lenders will have a fully advised sales force of circa 10,000 to provide advice on its mortgages for the cost of a proc fee.

When I suggested this all of those years ago, the feeling was that shareholders wouldn’t like the idea but as we know, everything changes in this industry and some lenders are already looking at such a proposition, so we should all watch this space.


Double Dip to Double Digit Growth

I am sure for many of you reading this article it feels like we have been on a long journey through the housing market downturn and out the other side.

It was five years ago when the Bank of England lowered the base rate to 0.5%, a historical low. Even now, experts are predicting that it may be next year before we start to see interest rates rising and, in my view; the increase will need to be gradual in order to limit the shock to the system for consumers who have been used to paying such low interest rates for years.

Bank policy makers have been looking at increasing rates since 2011 when three members of the Monetary Policy Committee (MPC) voted for an increase. Things have moved on since then and the UK economy has expanded by 0.8% so far in the first quarter of this year, making that five consecutive quarters of growth. Although higher interest rates will be needed to keep inflation in check, on the assumption that growth continues at recent rates, in my opinion, we are unlikely to see the end point for interest rates for a few years. Even then interest rates will potentially be lower than the average rates before the market downturn.

This is a strong picture compared to 2011 when there were only glimmers of growth, and the favourite phrase at that time was “signs of green shoots appearing”. However, at the beginning of 2012 we were all watching and waiting for a double dip recession and there was also speculation on a triple dip recession reflected by a weaker sterling. Since then there has been a complete turnaround in market conditions and the pound’s 10% surge in the past 12 months made it a top performer amongst the 10 developed nation countries tracked by Bloomberg Correlation-weighted indexes. This all indicates to Britain being on course for a sixth straight quarter in the three months to June, the first since the financial crisis.

We are no longer talking about double dip recessions but instead are talking about double digit annual house price growth. According to Nationwide, there have been two months of double digit house price increases and May was 11.1% up year-on-year and 0.7% up on April 2014. The is lower than April’s month-on-month increase of 1.2% but Nationwide say that the slowdown could be attributed to the new mortgage lending rules which officially started in April. Interestingly, the average house price is now £186,512, the highest figure since records began in 1991.

The Bank of England’s twice yearly Systemic Risk Survey showed that 40% of UK banks, building societies and asset managers said the risk of decreases in house prices posed a “key risk” to the economy, compared with 36% of respondents in November 2013 and just 14% in the H2 2012. The Bank also reported that the perceived probability of a fresh financial crisis had fallen to a new low. Almost two-thirds of the 72 participants considered the risk of a “high impact” event to be “low” or “very low”, while just 3% considered it to be “very high” or “high”, the lowest number since records began in 2008.

We should take comfort in what these key industry indicators show, as after all we want to be moving on from the crisis and looking forward to a healthy market to operate in.