PARADIGM MORTGAGE NEWSLETTER AUTUMN 2023 www.paradigm.co.uk/mortgages
CONTENTS 7Barclays Ramping up communications, support, and service standards Sian McIntyre 9Paradigm Protect Consumer Duty - They think it’s all over… It most certainly is not! Mike Allison 10 Paradigm Mental Health Matters Riona Mulherin 12 more2life Flexi - Helping to deliver better customer outcomes 14 Ecology Building Society How impact-led lending is helping to tackle Climate Change Gareth Griffiths 16 Paradigm BTL: “Product Arrangement Fees” 18 UK Moneyman Hear from one of Paradigm's trusted referral partners Dan Osman 19 LDN Finance Hear from one of Paradigm's trusted referral partners Drew Somerston 20 Paradigm Consulting Financial Lives 2022: Key Finding from the FCA’s Financial Lives May 2022 survey Graeme Stewart 22 Paradigm Q&A with Relationship Manager, Tom Hunt 25 Paradigm Paradigm's Marketing Month Megan Chester 4 Introduction from Paradigm Paradigm Mortgage Services Richard Howes
For Intermediary use only. Content correct at time of publishing. YOUR MORTGAGE WILL BE SECURED ON YOUR PROPERTY AND YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority. Firm reference number: 157260. Assess many types of complex income No upper age restriction Up to 4 borrowers per application harpendenbs.co.uk/intermediaries SCAN THE CODE TO VISIT OUR INTERMEDIARIES PAGE Complex Income – multiple income sources, bonus, overtime and allowances all considered up to 100% Affordability – up to four applicants using all four incomes, also JBSP/ Guarantor options are available Unusual Properties – up to three units one title - Semi-commercial, listed properties and acreage Self-employed – minimum one years self-employment required and latest years income considered Interest only – LTV up to 75% and no minimum income Later life lending – no maximum age Top slicing – BTL and Holiday Let lending If it’s complex, we might find a way
Hello and welcome to another edition of our quarterly Mortgage newsletter! Whilst, we are just coming out of a typical British summer, it seems we actually had a summer period where people took the chance in July and August to take time off and re-charge their batteries - judging by the number of ‘out of office’ emails there were in these months. We hope you had a great break if you managed to take one. However, that hasn’t stopped the inexorable rise in issues pertaining to the mortgage market. The summer saw the launch of the Consumer Duty, the Mortgage Charter, issues around Product Withdrawal notice periods from Lenders, the rise in fees in particular for BTL products, another base rate rise and the subsequent lean in to mortgage rates rising and then dropping. In addition we had the results of the 2022/23 annual cyclical scenario (ACS) stress testing of the major banks which showed they were, and are, resilient to a severe stress scenario that incorporates persistently higher advanced economy inflation. We also had increasing global interest rates, and sharp falls in asset prices, and finally Product Transfers (PTs) dominating the lending landscape. So, how do you keep in touch with this, and to a certain extent ahead of it all? In all of the above areas Paradigm have endeavored to add content, information and guidance to ensure you have the best chance of remaining within the regulatory framework. Particularly so with our Consumer Duty support, and also around taking opportunities where they present themselves. As ever, we have championed the DA community, particularly when Lenders and other third parties have perhaps not been as supportive as one might have hoped. Our website gives you the details of these in all forms of media, be it videos on the market, the economy and with our lender partners, blogs on the topical issues, and articles on looking at how your business can thrive through current market and economic conditions. You may also receive the infamous ‘Newell’s News’, or similar from your dedicated Relationship Manager. Make sure you are signed up to receive email updates from us so you don’t miss anything. Further details on business development strategies and opportunities are featured in my article in this newsletter, as I look at 5 key points which could affect your business in the next 6-12 months. It was interesting to read a report by Paragon into the mortgage market that saw them comment advisers are writing on average 100 cases per year, up from 93 and 96 per year in the previous year on year quarters. It was also reported separately, that advisers would soon represent 90% of all mortgages written in the UK - a phenomenal achievement. I have often said in the introduction to this newsletter about the importance of keeping in touch with your clients and being the one they turn to for information and advice. Never before has this been so important - for two reasons; the Mortgage Charter and business income. In terms of the Richard Howes Director of Mortgages Paradigm Mortgage Market Update 04 AUTUMN MORTGAGE NEWSLETTER
former, with the option for clients to look at interest only for 6 months, the Lenders are all “geared” up to help and facilitate this for customers. Whilst this is great and they have worked hard to secure systems are in place, it is clear they will have such client conversations and facilitate a plan if required, but without informing you the adviser of their actions and outcomes. Needless to say, this could affect future relationships with your clients and your income, so reaching out to your client base about the Charter - what it is and does is vital, and we can help you do this. In addition, business income is relevant for the PT market and for you. The disparity in proc fees for new business against PT business is stark. Whilst we accept Lenders pay for distribution not advice, the 50% differential in the acquisition against retention of business from most Lenders is poor, doesn’t reflect the work that is involved, and should be challenged. It’s interesting when looking at other industries and how they approach the retention of goods and services from existing customers and what they pay agents who sell their products for them. The same when you are retaining staff, you don’t generally pay them less when a contract ends, unless you are perhaps an over-age footballer! 05 AUTUMN MORTGAGE NEWSLETTER Such a differential affects your income, so it is vital to maximise all client retentions. Indeed, it could be argued that Lenders’ focus to the end of the year will be on maintaining and retaining their “back book”, so pricing for PT business will continue to be keen to prevent customers leaving or re-mortgaging away from them. Therefore, it is essential you control the conversation and activity in this regard. Analysis of the market* suggests that between September 2023 and December 2023 over £94.0 billion worth of residential mortgages and almost 13.9 billion worth of Buy to Let deals are coming to the end of their terms. Many lenders are still reporting that the adviser community is only completing between 40 and 50% of available PTs. Again we can help in this area, and would be delighted to speak with you about it. In terms of the newsletter, I hope you enjoy reading it. We have articles and information from several of our key lender partners, and senior people within Paradigm including pieces from Barclays and a Q&A with our Relationship Manager Tom Hunt, plus informative articles from our compliance team. As ever, if you have any feedback you would like to share please drop me a note.
There has been a clear requirement for all firms across financial services to ramp up their communications, support, and service standards during what has been a highly unpredictable period for consumers and the UK economy as a whole. This is especially evident within a mortgage market which has experienced a succession of rate increases, leading to many borrowers feeling uncertain about how their mortgage payments could be affected. From an advice standpoint, this has resulted in a variety of difficult client conversations surrounding present and future borrowing requirements, and we appreciate how difficult it has been to service these ever-shifting needs in such a turbulent rate environment. It's something of an understatement to say that advisers have not had it easy in recent times, as such, it was encouraging to see IMLA’s latest Mortgage Market Tracker reveal "surprisingly upbeat market sentiment" among advisers during Q2 2023, although the data indicates growing caution about the outlook for the sector. Overall, 75% of advisers described themselves as ‘confident’ about the mortgage market, but the proportion of those who were ‘very confident’ fell from 26% in April to 20% in June, while the ‘fairly confidents’ fell from 56% to 40% over the same period. IMLA’s research also showed that intermediaries are maintaining healthy business volumes, with the average adviser placing 93 cases over the previous 12 months. The figure is slightly lower than Q2 2022 (97 cases) and Q2 2021 (95 cases), but significantly higher than any quarter in the four years preceding 2021, three of which pre-dated the pandemic. In addition, the average number of Decisions in Principle (DIPs) that intermediaries processed stabilised in Q2, having fallen for the five preceding quarters. On average, intermediaries dealt with 25 DIPs in Q2, up 2 on Q1 2023 to represent the first quarterly increase since Q1 2022. Keeping the positive news going, action has been taken, and continues to be taken, throughout the lending community and beyond. The government-led Mortgage Charter – formed in conjunction with the Financial Conduct Authority and lenders – is an initiative which offers valuable support for vulnerable UK mortgage holders. Barclays are proud to have played a leading role within this and we will continue to assist mortgage holders when and where we can. We’ve also put together an overview of the Charter, the options available, and how to apply on our intermediary website. To apply, customers need to visit our mortgage support hub which includes the full details of what support is available, including eligibility criteria and a mortgage calculator to help make sure they make the right decision. With a growing number of potential and existing borrowers relying on good, professional advice to help overcome a variety of financial obstacles, it’s increasingly important for lenders to do their bit in better supporting their intermediary partners. By this I mean taking measures to simplify the application to completion process, providing a strong Sian McIntyre Head of Acquisitions and Engagements - Life Moments Barclays Ramping up communications, support, and service standards 06 AUTUMN MORTGAGE NEWSLETTER
support network for every step in the mortgage journey and in delivering a competitive product set. Improving your Barclays experience As a committed intermediary lender, we recognise that brokers are the backbone of the mortgage market, and we are constantly looking for ways in which we can better service the needs of you and your clients in this increasingly complex marketplace. In early 2023, we tasked ourselves with the goal of improving the Barclays endto-end experience for our intermediary partners and their clients. During this time, we’ve prioritised spending time with the broker community to gain a stronger understanding of their business, how they interacted with us, where we were succeeding and where we were failing. This time allowed us to formulate a plan of attack and pinpoint short-, medium- and longer-term improvement goals. A plan which has already resulted in some highly positive service strides being made. For example, we recently announced the expansion of our LiveChat Intermediary Mortgage Experts' team within our Liverpool, Sunderland, and Glasgow sites and in June we introduced the option of referring brokers directly to underwriters for new and complex cases that cannot be resolved through our mortgage team alone. And it’s working already! Over the summer, you rated our LiveChat service at (4.7 out of 5 stars) and over 1,700 proactive updates have been given by our underwriters directly to brokers. We continue to deliver this strategy and generate even more positive impacts. In fact, earlier in the summer, I had the great pleasure in sharing a further enhancement which enables both our LiveChat and telephone support teams to amend submitted applications. Meaning these teams now have the ability to complete most changes, including amending commitments, employment type and income, purchase price and loan amount/ deposit, product selection, and more. Again, it’s working – to date, over 600 changes to applications via telephone or LiveChat. We’ve also began the process of rebuilding our mortgage application systems, a move with represents a significant investment for the business and demonstrates our commitment to the intermediary market. This digital transformation will involve ongoing development and I’m sure this will prove to be an eye-opening experience from a service and delivery perspective for everyone involved. The purpose of this piece is to not only highlight the changes we have made, and are making, to our lending proposition but to also encourage our intermediary partners to join us on this journey of improvement. After all, a huge part of this progression is to be as open and transparent as we can about what we are doing, how we are doing it and why. And your feedback and support will be pivotal in helping us reach the right outcomes to enable us to make it even easier for you to do more business with us. What’s been happening in the UK housing market Finishing up with a quick look at the housing market, uncertainty is evident across a purchase arena which remains largely subdued in the wake of a heightened interest rate environment. According to Zoopla’s August House Price Index, sales are down 21% compared to 2022. Whilst it did outline that we are still on track for 1 million completions in 2023, this figure is set to be the lowest number of property sales since 2012. In addition, based on H1 trends, cash sales are predicted to fall just 1% over 2023 compared to 2022 levels. However, the number of mortgaged sales is projected to be almost a third (28%) lower, with the biggest driver of this drop in sales a direct result of higher mortgage rates. 07 AUTUMN MORTGAGE NEWSLETTER
A team of experts who will work closely with you to assess suitability and to ensure your firms' needs are met. Specifically designed to help you reduce one of the potentially highest risks in your business. Provide thorough feedback and go the extra mile to develop the quality and suitability of the advice you provide. Pre-sale, post-sale, regular and ad-hoc file reviews available. Checklists and guidance are provided to help you construct compliant files prior to checking. We review all areas of business including: pensions, investments, mortgages (including specific mortgage fraud reviews), protection, equity release and annuities. [email protected] 0330 053 6061 (option 4) INTRODUCING OUR HIGHLY COMMENDED FILE REVIEW EXPERTS... Want to find out more? Click here! Or get in touch with our Relationship Managers: Sharon Ardern Consultancy Manager [email protected] MEET THE EXPERT Hi, I'm Sharon! My team and I are here to support you with all aspects of file review, including further developing your firms' competencies in this area. We work closely with the firms we support to ensure we meet their specific requirements. If you'd like to know more about how we can help your firm with your files, please get in touch and we can discuss this further.
Whilst the implementation phase may be over, Consumer Duty was always going to be something of a ‘Paradigm shift’. Now we find ourselves in the ‘reporting phase’, which brings a host of ramifications to large and small firms alike. We need to remind ourselves of the enormity of the change that Consumer Duty is due to bring about – indeed, it has a reported maximum implementation cost of £2.4bn. We haven’t really seen costs like this since the RDR, giving an indication of the sheer scale of the project and demonstrating it’s importance to the FCA. As a reminder, the basics are to: • Ensure that Principle 12 (A firm must act to deliver good customer outcomes for retail clients) and the obligations in the Principles of Business chapter are reflected in the strategies, governance, leadership and people policies, including incentives at all levels • Ensure retail customer outcomes are a central focus of the firms risk control management and audit process Effectively, the new regime means a wholly customer-centric approach in absolutely everything a firm does, from initial contact to ongoing support post-sale. In the reporting phase, the Regulator tells us that at least annually a firm must: • Review and approve the firm’s report on the outcomes being received by retail customers • Confirm whether it is satisfied that the firm is complying with its obligations under Principle 12 and that the firm’s future strategy will also meet these obligations The firm’s implementation plan will then be used as a baseline to test their effectiveness in delivering the Consumer Duty across the four outcomes and the cross-cutting rules. Assessing the spread of products is a good reporting measure, for example if an adviser recommends 100 mortgages and only 5 protection policies, that could be up for scrutiny. The file may show that the client didn’t need protection, that they were arranging protection elsewhere or that protection wasn’t mentioned or discussed, and that the risks weren’t outlined. The latter would be concerning, as under the cross-cutting rules firms are required to avoid causing foreseeable harm. Clearly, this applies across all propositions offered and in key areas, such as vulnerable customers; firms may want to review how many were identified in each product area, look at numbers of complaints or amounts of positive feedback in each channel, and then perhaps adapt their processes accordingly. Whatever happens, firms should not to not take a “fingers crossed” approach to getting it right, and should seek support from both technology for risk reporting, and from skilled Compliance Consultants to ensure they’re on the right path. Paradigm have a team of experts who can support you in all aspects of compliance, including Consumer Duty, and would be delighted to discuss further with you. Consumer Duty - They think it’s all over… It most certainly is not! 09 AUTUMN MORTGAGE NEWSLETTER Mike Allison Director of Protection Paradigm Protect
I’m pleased to be launching a new addition to our quarterly newsletters going forward, focused on all things mental health, with the ultimate goal of sharing ideas and insights which may help you support your staff, or indeed family and friends outside of work. In this edition, I’ll seek to set the scene, with future editions focusing on specific areas and sharing more resources. Unfortunately this idea behind this new addition to our newsletter has been prompted by a sense that mental health issues are getting closer and closer to home; at Paradigm, we have seen an increase in the number of people talking to us about their poor mental health and likewise, in a personal capacity I have seen this too. There was an article I read recently in Financial Reporter, whereby a survey by CoreData of 267 UK financial advisers found that 35% say regulations are negatively impacting their mental health, increasing to 52% of mass affluent advisers. It’s clear that there is a very real and concerning problem here, and it can be quite daunting if you don’t know where to begin. Understanding Mental Health Step one is to around better understanding mental health and what it actually is. According to the World Health Organisation, mental health can be defined as “a state of mental well-being that enables people to cope with the stresses of life, realize their abilities, learn well and work well, and contribute to their community. It is an integral component of health and well-being that underpins our individual and collective abilities to make decisions, build relationships and shape the world we live in”. Mental health is as important as our physical health and can be intrinsically linked to this also, indeed physical health problems significantly increase our risk of developing mental health problems, and vice versa. So, where should I begin? During lockdown in 2020, I qualified as a Mental Health First Aider, and I have also recently completed a refresher course to ensure I’m up to speed with developments and aware of the correct processes to follow. This course provided me with skills that I’ve used in both a professional and a personal capacity, and would highly recommend the course to anyone considering it, especially if you are a line manager. The recommendation is having at least one for every 20 employees, and it’s worth noting that it’s expected this will become a legal requirement for firms of a certain size within the next 5 years. It’s great for beginners and I would recommend the Mental Health First Aid England course here. Is there anything within the Financial Services industry I can get involved with? Earlier this year, Paradigm were proud to sign up to the Mortgage Industry Mental Health Charter and this is again something I would recommend getting involved with. The aim of the group is to provide support to all UK firms operating within the mortgage sector, and there is Mental Health Matters 10 AUTUMN MORTGAGE NEWSLETTER Riona Mulherin Director of Marketing & Operations Paradigm
a simple charter that firms must commit to. Firms may wish to consider signing up and showing commitment to this agenda. If you haven’t heard of this, you can find out more about this important initiative on their website here. As you may be aware, next month it’s World Mental Health Day on Tuesday 10 October 2023. Perhaps you can find a way to open up communication on this matter in your office or amongst your team, even online if you are still working virtually. There is more information about this here. Doing our bit! Finally, you may have already seen but our chosen charity partner for our 2023/24 financial year is Mind – a truly amazing mental health charity who have genuinely helped save lives. We’ve done a number of activities over the year so far to raise money for this important cause, and for the week commencing 18th September, we undertook a huge challenge where several of the team collectively cycled 603 miles between all of us, the same distance as John O’Groats to Lands End, on an exercise bike. I think some of us are still recovering!! If you would possibly be able to consider donating just a small amount to our fundraising page we would be extremely grateful – click here to donate. Thank you! One last thing… I hope that anything we can do to support you and your team in this area will be time well spent. We genuinely want to hear from you on how could we better support you. Is there anything we could do more of? What are we doing right? What topics would you like to hear more about? What areas are you struggling with? We have a completely anonymous form that you can complete here and share your thoughts with us; just include your details in the box if you’d like us to follow up on this. If you have any questions, issues or would just like to speak to someone, please do get in touch. I am conscious that many people have their own mental health experiences, and some like to keep those very private whereas others are keen to share their experience. If you need someone to talk to about anything that is upsetting you, you can contact trained professionals at Samaritans 24 hours a day, 365 days a year. You can call 116 123 (free from any phone) or email [email protected]. If you would like to perhaps share your story or experience with your mental health experiences, please get in touch and we can see if this would be appropriate for a future edition. 11 AUTUMN MORTGAGE NEWSLETTER
Flexi - helping to deliver better customer outcomes Given the recent headwinds that have affected the equity release market (and indeed the wider lending industry), the news that access to our Flexi Choice plan is being widened across the whole of the market represents a significant step in the evolution of the later life lending industry. With average interest rates on lifetime mortgages having jumped from around 5.9% to just over 7% since last September (as the chart below shows), advisers across the market have had to reset and retune their propositions to this “new normal” of higher interest rates and lower LTVs. And while the absence of super-high LTVs cuts off a small element of potential new customers, higher interest rates affect everyone borrowing in later life. It is of little surprise, then, that we’ve seen average new releases come down in size, from a high of just over £111,000 for the whole of 2022 to just under £85,000 in the first half of 2023 (based on Equity Release Council new business data). Today’s equity release customers and their advisers are more focused than ever on precise borrowing requirements for specific needs in order to control their overall cost of borrowing, rather than discretionary sums for luxury purposes. 9.00% 8.00% 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% Aug 22 Sept 22 Oct 22 Nov 22 Dec 22 Jan 23 Feb 23 Mar 23 Apr 23 May 23 Jun 23 Jul 23 Lifetime Mortgage Rates Min Flexi AER Avg LT M A ER
And with customers now focussing more on cost of borrowing and ensuring their plan can adapt to future changes in their circumstances, plans like Flexi Choice – which has consistently delivered some of the lowest interest rates in the market since launch - provide a new approach to later life lending that can be tailored to individual needs. So, what is Flexi Choice and who does this product appeal to? With six years of experience in working with the funder behind Flexi Choice and with more than 19,000 loans and £1.5 billion under management, we have a better understanding than any other lender about where this product sits in the marketplace. A typical Flexi Choice client is aged 71 and they own a property valued at around £425,000. They typically borrow around £82,000, just under 20% of the home’s value. This very much reflects the market position of the product. Flexi Choice is not a “max cash” solution with super high LTVs. It is aimed at clients who tend to have more modest borrowing needs and who are looking for the best value in terms of borrowing rates. That’s not to say that Flexi Choice can’t provide large loans. With LTVs up to 46% and a maximum loan of £1m under the standard plan, Flexi can accommodate bigger loan requirements at a competitive rate of interest. And for those clients with houses valued at +£2m, LTVs of up to 43% can provide even larger loans up to £2m under the Flexi Premier option. How can Flexi Choice help you deliver better outcome to customers? Flexi Choice is designed to tailor the pricing of the product to the specific borrowing requirements of the individual client. That’s why it’s so important that advisers enter precise borrowing details when sourcing for the product. The flexible pricing engine operated by the funder delivers a bespoke rate that reflects the risk of the client’s borrowing needs. And unlike standard lifetime mortgage products that operate static product options with fixed LTV ‘shelves’, the pricing of Flexi Choice can flex across a wide spectrum of LTV options – from as low as 5% up to a current maximum of 46% - to deliver the best rate for the client. This means that when you enter the precise borrowing requirements for your client – both in terms of initial loan and future drawdown facility where required – you know that the pricing engine will deliver the lowest rate for that client’s individual needs. This flexible pricing structure also means that the plan can adapt to future borrowing needs, whether that’s via a drawdown facility or further advances. Flexi Choice provides greater certainty and adaptability than other standard lifetime mortgage products where static pricing could restrict future borrowing requirements in certain circumstances. Included within the plan are all the modern lending features you would expect: fixed Early Repayment Charges (ERCs), Downsizing Protection, ERC-free capital repayments (up to 10%) and a compassionate clause that waives the ERC in the event of the loan being repaid early due to the death or LTC of a partner or spouse. We call this range of features our ‘Core 4’ and you can find more details about these on our website. When Flexi Choice launched in 2017 it revolutionised the equity release market in terms of its product structure and pricing, and it has continued to provide a market-leading position ever since. The widening of this product’s distribution across the whole of the market means that now thousands more later life advisers can, for the first time, offer their clients this premier equity release solution. You can watch this recent Paradigm Lender Insights Video to find out more the product and how it works. Or for even more, get in touch with a member of our friendly adviser support team on 03454 500 151.
For borrowers – and brokers – who might not have heard of us before, you’re not alone, but there’s a big clue in our name. Ecology Building Society exists to tackle climate change, through our impact-led lending. We’re widely recognised as a sustainable finance pioneer, lending to businesses and community groups for sustainability, as well as having an established position as a leading “green mortgage” provider for residential borrowers, including shared ownership. While the mortgage rate from most other lenders tends to rise at the end of a deal – switching to SVR (standard variable rate) on maturity, for example – we use our rates to reward borrowers for reducing their homes’ environmental impact. Our C-Change discounts can save our borrowers up to 1.50% off our variable rate, in recognition of the work they’ve completed to cut their carbon footprint – which should save them money on their fuel bills too. Ecology’s founding Members created us back in 1981 with the aim of building a greener society, challenging the norm and agitating to change finance, and those original principles still guide every decision we make today. Following the traditional building society model, deposits from our savers fund mortgages for our borrowers, with our lending dedicated to efforts to create green new homes, convert and improve existing buildings, and bring disused and derelict properties back into sustainable use. In addition to residential lending to home buyers and owners, we also specialise in supporting small-scale green developers, sustainable businesses, community groups and community-led housing schemes. Since we were founded as a Memberowned organisation, environmental concerns have shifted firmly from niche to the mainstream. And over the same period, public awareness of climate change, the use of precious natural resources, and humans’ impact on the planet has only continued to grow. Our most recent financial results showed that we can operate as a successful, forward-thinking business without sacrificing ethical and environmental principles – something we know is close to the heart of many consumers. From an initial £5,000 investment by our founders, we’ve grown strongly, holding more than £300m in assets by the end of 2022. Gross lending of almost £70m last year enabled the completion of 340 sustainable properties and projects across the UK. As our membership increases further, it’s heartening that more and more people are seeing the power their money can have Gareth Griffiths Chief Executive Officer Ecology Building Society How impact-led lending is helping to tackle Climate Change 14 AUTUMN MORTGAGE NEWSLETTER
in the world, and that small changes can effect bigger change over the long term, to benefit current and future generations. We have ambitions to carry on growing so we can empower more borrowing Members to realise their sustainable home aspirations, whether as individuals or in collaboration, as well as build on the support we offer to sustainable small businesses. To be able to achieve those ambitions and deliver on our mission, we understand how mortgage intermediaries will play an increasingly important role in helping us to reach a larger group of borrowers. As a smaller lender we can offer personalised service and unique expertise to borrowers and brokers but, understandably, our size restricts the scale of our direct mortgage distribution channels. In addition, in the green property space, many of our existing and potential borrowers will value brokers’ professional advice to organise finance as part of what might be a complex and time-consuming building project. Self-build is a core lending sector for us and our members who construct their own homes often demonstrate great creativity and tenacity to overcome practical challenges and reach a successful outcome. We seek to show similar innovation and imagination in developing our product and lending proposition so we can meet our borrowers’ needs and increase our impactled lending. Earlier this year we launched new mortgages specifically for off-site construction (factory-built homes assembled on site), to complement our wider range of self-build mortgages. Since then, we’ve expanded the number of approved suppliers borrowers can work with, from four to seven. Off-site construction – sometimes called Modern Methods of Construction (MMC) – can help to deliver higher build and environmental standards as well as speed up the construction process, a vital benefit when the UK has such a massive shortfall in housing supply. We’re also working hard to improve the service we offer to intermediaries and their clients, and will continue to seek out and listen to their feedback as we invest in our systems to make them quicker and simpler to use. To find out more about our service for brokers, our lending criteria, and how to submit applications and track cases, visit our Intermediary Hub. The Hub also includes product information specifically tailored to brokers, to help advisers to comply with the new requirements of Consumer Duty, which came into effect in July. 15 AUTUMN MORTGAGE NEWSLETTER
By Richard Howes, Director of Mortgages Paradigm Mortgage Services One of the consequences of the rise in interest rates the market is experiencing has seen BTL products struggle to fit within the Interest Cover Ratio (ICR) in order that Lenders can lend in this product space. It appears high product arrangement fees are becoming the “norm” in the BTL space for specialist Lenders and the advent of fees up to 5% fee appears to be embedded in many Lenders new business product ranges. This approach helps to overcome the ICR difficulties Lenders, advisers and borrowers now face. The higher the fee charged means the Lender is able to reduce the product pay rate, which in many cases is the key driver behind leverage in BTL. I thought it might be interesting to dissect this principle of higher fees by way of allowing our broker partners to have more insight into a Lenders requirements for lending in this space. An area which has been the subject of intense scrutiny recently is that Lenders are funded in a variety of ways - Warehouse funding, money markets and access through retail funding. In all these models a level of upside on the funds is needed to ensure they are generating a commercial return for the Lender. Because the key component of pricing is SWAP rates in the market, the Lender will set a minimum hurdle rate that they need to achieve to cover the SWAP and other financing costs, combined with the return the Lender desires on the funds provided. Coupled with the Lenders overheads and costs associated with providing the mortgage finance the current market has forced rates up to a point where many properties are now restricted on Loan to Value as the rental will not sufficiently cover the Lenders ICR requirements. The specialist Lending sector. In particular has been quick to increase the arrangement fee being charged at the outset. This additional income is treated as part of the overall level of return to the Lender, meaning the interest rate can then be reduced to compensate. A positive of such a scenario is the rate being used in the ICR calculation then provides the ability for borrowers to raise more funds, achieve their lending ambitions and take out the BTL mortgage they were originally seeking. The Lender still makes the same commercial terms they set out originally, in effect deferring the interest payments through the fee, allowing for a preferential interest rate at the front end. In practice this might look like 2 Year Rate at 6.75% with a 2% fee can be repositioned as 6.25% with a 3% fee and a 5 Year Rate at 6.25% with a 2% fee can be re-priced at 6.05% with a 3% fee – over a longer period it would need a fee of 5% to get a bigger reduction down to 5.65% Whilst this is not an ideal situation, it does keep the BTL market open in the current environment and perhaps choice is the key measure here as Lenders will offer a variety of fee and interest combinations to best meet the borrower’s needs. Higher fees can be an option for Lenders to provide the best interest rates available to borrowers in the current market to achieve their goals. The overall cost of the deal, which factor in the rate and fees, together with a borrower’s leverage requirements, needs to be borne in mind when choosing the right option. BTL: “Product Arrangement Fees” 16 AUTUMN MORTGAGE NEWSLETTER
OCT 10 Forest of Arden, Meriden Midlands OCT 11 Aston Hall Hotel, Sheffield Yorkshire OCT 17 Pennyhill Park Hotel, Bagshot Surrey OCT 18 The Shard, London (Please still pre-register your interest in attending this session and we will update you once the venue is confirmed) London REGISTER FOR OUR FORUM EVENTS! Our Forum events are back this Autumn! We are delighted to bring you the dates and locations for our upcoming events, where our CEO, Paul Hogarth and other members of the Paradigm Consulting team will bring you important updates on our business, the market, the new Consumer Duty and much more. Registration will begin at 9:00am with the session ending at 1:00pm followed by lunch & networking. networking. Timings may be adjusted slightly for the London forum, with a 9:30am expected start for registration. A full agenda will be released in due course. www.paradigm.co.uk/compliance [email protected]
UK Moneyman has worked in partnership with Paradigm since going directly authorised in 2015 and were delighted to be added to their referral partner offering earlier this year for firms needing support with Equity Release and all aspects of Later Life Lending. As part of Consumer Duty planning, firms will have been considering all their current referral partner relationships and one talking point that came up for us in our conversations with Paradigm was the topic of genuine independence. When we launched, we wanted member firms considering referring to us to rest assured that ALL options are being considered for their clients, as we are aware not all firms are able to offer this. When we talk about ALL options, we are not just talking about all Lenders in the market. Rolling up interest is not a step for clients to enter into lightly, so as well as the usual range of Equity Release solutions we can advise on RIOs, Home Reversion and, we think importantly, nonlending alternatives such as Local Authority/Charity funding. For example, we had a case last year where a married couple in their early 60s with care needs came to us asking for £50,000 to landscape their garden and fund adaptions in their home for their disabilities. We were able to reduce that advance down to just £25,000 by making the clients aware that they qualified for charity funding for some of the adaptions, this after their Local Authority had turned them down for a grant. This will save them thousands of pounds in interest over the term. Working on a whole of market basis, we are often also able to offer early access to new and limited distribution. One such product has been LiveMore Mortgages Property + lifetime mortgage which considers a wider variety of property types, including being the only product currently to consider properties with spray foam loft insulation. As a qualified former social worker, Dan Osman (UK Moneyman’s Head of Later Life Lending) is not only familiar with the benefits system and grant availability but has extensive experience of working with vulnerable adults. Training has been expanded in line with SOLLA’s Later Life Lending Advice Standard and vulnerability policies are under continual review. We believe that these are key elements in later life lending which, along with a client-focused, holistic advice ethic, contribute to achieving the best client outcomes possible. More about us • Dedicated and highly responsive team committed to providing a 5 star service to your clients • Highly experienced team, SOLLA, LIBF/Air Academy Later Life Lending Accreditation • Genuine whole of market equity release proposition • Robust vulnerability procedures and training designed to protect clients and those acting on their behalf using powers of attorney • We are able to provide free 45 minute later life lending CPD webinars, tailored to fit with your needs or specialist area of interest We’d love to hear from you Referring clients is a simple process with a generous procuration fee split. As well as keeping you updated, we also look to engage with the borrower’s family members where appropriate to ensure they have been looped in on what’s going on. If you have a case you would like to discuss with us, you can speak to Dan on 07732 603230 or email [email protected]. 18 AUTUMN MORTGAGE NEWSLETTER Dan Osman - UK Moneyman Head of Later Life Lending Trusted partner for Equity Release referrals
As a Paradigm member and trusted partner of large loan referrals, LDN Private Clients is the exclusive HNW adviser arm of renowned mortgage intermediary LDN Finance. With over 80 years of combined adviser experience, the experts at LDN Private Clients have been assisting clients in their search for high value property finance. Here, associate director Drew Somerston explains why clients are drawn to purchasing prime property, and how they are financing their purchases. In the large loan and HNW mortgage market, we are seeing lenders look to substantially increase their focus. A large part of this is based on the property market holding strong in the prime market, despite challenges across the general market. It’s therefore unsurprising that competition remains fierce in the prime market as we continue to see best and final bids with multiple offers at the table. The key areas include sought-after golden postcodes; Mayfair (W1), Belgravia (SW1X), South Kensington (SW7) and Notting Hill (W11), all of which are benefiting from robust sales with properties retaining their value. To secure these purchases quickly, some HNWIs are opting for high value mortgages, set up on an interest only basis to keep the initial monthly payments lower as they look to repay the loans through overpayments in the early years of the term. We are also seeing an increase in large Buy-To-Let portfolio landlords looking to restructure to raise capital and fund property refurbishment works to satisfy EPC legislation coming into play in 2025, as well as a move towards holiday lets to take advantage of favourable tax strategies. At LDN Private Clients we have direct access to several high value underwriting teams at major high street banks, typically for loans over £1 million with increased flexibility and manual underwriting. Many HNWIs do not fit the normal mortgage affordability criteria due to their complex income and asset structures. As a partner of Paradigm, we often assist other intermediaries who cannot find a home for these clients, working closely with them to find an alternative private bank option. A recent example of this saw us assist a firm with a high-profile sports star client. The high street banks couldn’t get comfortable with the case due to the possibility of the client’s income coming to an end in a few years. However, we were able to get a lender to look at the client’s assets and profile, demonstrating opportunities to supplement their income. The private bank approved the case and it progressed to completion. There are many ways to finance a multi-million-pound purchase but in the HNW space, it is critical that the client is supported by a knowledgeable adviser who will deliver the best outcome. If you present us with a case, we will work with you to provide both short-term debt solutions or longer-term tailored facilities secured mainly against UK real estate, but also alternative asset classes such as luxury vehicles, art, and wine. If your client is in need of some advice in this space, we are on hand to help. Get in touch for assistance from an expert team of experienced property and asset finance advisers who provide specialist debt advice for high-net-worth (HNW) individuals and private clients across the globe. Contact the team on 0203 903 9875 or email enquiries@ ldnprivateclients.co.uk. The magnetism of prime property and the challenges of obtaining mortgages and finance for these transactions 19 AUTUMN MORTGAGE NEWSLETTER Drew Somerston - LDN Finance Associate Director Trusted partner for Large Loan referrals
Introduction On the 26th July the FCA published their Financial Lives 2022: Key findings from the FCA’s Financial Lives May 2022 survey. The FCA commented: “The survey takes place approximately every 2 years and is designed to provide longerterm trend data. Our third Financial Lives survey was conducted largely in May 2022. In this report, we compare the results with those from 2 previous surveys in 2020 and 2017. We also draw on a short survey conducted in January 2023 that focused on the impacts of the rising cost of living on people around the UK.” We believe this will be of interest to many firms, and especially perhaps to vulnerable client champions, and we provide a brief summary of the findings below. The fieldwork: The fieldwork for the survey took place between 1st February 2022 and 6th June 2022. Over 60% of the 19,145 survey respondents completed it in May 2022. Results showed that the financial circumstances of adults around the UK worsened in the six months to January 2023: • 77% (40.9m) of UK adults felt that the burden of keeping up with their domestic bills and credit commitments had increased. • 70% (33.1m) had seen their financial situation worsen. • 71% (26.9m) either had no disposable income (15%) or had seen their disposable income decrease (56%). • 29% (15.3m) had seen their unsecured debt increase. • 29% of adults with a mortgage in May 2022 and 34% of those renting in May 2022 had experienced payment increases- in total, therefore, 18% (9.6m) of UK adults had had mortgage or rent payment increases. Using Savings and investments to live on: • In the 6-months to January 2023, almost 6 in 10 adults (57%) had dipped into their savings and investments, including pension savings, or had stopped saving. Cancelling policies: • In the 6-months to January 2023, 3.6m adults cancelled at least one general insurance or protection policy, specifically due to the rising cost of living. Mental wellbeing: • 54% of UK adults reported in January 2023 feeling increased levels of anxiety or stress due to the cost of living, this rose to 85% of those who were not coping financially or were finding it very or quite difficult to cope. Consumer Duty The FCA highlighted that the Consumer Duty is a key tool for securing good customer outcomes as firms must act to deliver them. Customer Support: In the 12-months to May 2022, 84% of those who used customer support services in the last 12-months agreed that it helped them achieve what they wanted to do, but 16% said it did not help at all. Financial Lives 2022: Key Finding from the FCA’s Financial Lives May 2022 survey Graeme Stewart Head of Consultancy Paradigm Consulting 20 AUTUMN MORTGAGE NEWSLETTER
Adults with one or more characteristics of vulnerability were more likely to report that customer support services did not help them at all. Products and services that meet the consumers’ needs and offer fair value: Whilst over 2/3rds (68%) of adults said they always shop around for insurance products, far fewer (44%) reported doing the same for other financial products. When they shopped around, most found comparing products straightforward. Communications consumers find helpful and can understand. For 4.9m adults who had used provider communications to make a decision in the year to May 2022 the communications did not help at all. This was particularly the case for consumers with characteristics of vulnerability. Confidence and trust in financial services In May 2022, only 41% of adults, or 21.9m people, had confidence in the UK financial services industry, and just 36%, or 19m people, agreed that most financial firms are honest and transparent in the way they treat them. Frauds and scams: 6.6m adults were subject to potential fraudulent banking activities in the 12 moths to May 2022, while 4,7m received one or more unsolicited approaches about investments, pensions or retirement planning. Consumers with characteristics of vulnerability: Proportion of adults who show characteristics of vulnerability by the four drivers. Poor Health 2017: 5% 2020: 6% 2022: 7% Life Events 2017: 19% 2020: 21% 2022: 20% Low Financial Resilience: 2017: 23% 2020: 23% 2022: 24% Low Capability 2017: 27% 2020: 21% 2022: 19% PARADIGM COMMENT This snapshot of a very detailed report indicates that the FCA are likely to continue to question firms on their approach to vulnerable clients, particularly through the Consumer Duty lens. Other related compliance updates that firms may find useful: • 10th July Financial Ombudsman Service (FOS): Warning of increase in “hybrid” scams. • 11th July PS 23/8 Mortgage Charter: enabling provisions. • 18th July PS 23/9 Finalised Guidance on supporting customers in financial difficulty & Cost of Living: Good and Poor Practices in the General Insurance Market. • 26th July Consumer Duty and Vulnerable Clients: an important reminder ahead of the introduction of the Consumer Duty. 21 AUTUMN MORTGAGE NEWSLETTER What does the FCA mean to people: • 65% of adults were aware of the FCA. • 34% were aware of the Financial Services Register of firms. • 30% were aware of the FCA’s consumer helpline. • 22% were aware of the FCA’s ScamSmart website. In the foreword of the paper, Nisha Arora, FCA director for Cross-Cutting Policy and Strategy commented: “I encourage financial services firms to use these results to better understand the needs and experiences of their customers and target markets, as they are required to do under the Consumer Duty. Similarly, I encourage consumer bodies, the Government, policymakers, academics, other regulators and those with an interest in personal finance and the regulation of financial services to use the survey results.”
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