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The main growth areas are specialist resi and buy-to-let

The main growth areas in the mortgage market are specialist residential and buy-to-let, Louisa Sedgwick, director of sales for mortgages at Vida Homeloans, has argued.

Sedgwick said education is needed to help brokers understand specialist areas. Vida provides webinars, workshops and regional blogs by key account managers.

One area Vida has seen an uplift in is expat buy-to-let since the 2016 EU Referendum.

Sedgwick said: “Any growth in the market has to come from the specialist area and the more education there is, the greater the market will grow. We’re trying to find different ways of educating brokers.

“Before we voted to leave prices were more expensive and since the vote have dropped, making the property market more vulnerable.”

Payam Azadi, director of Niche advice, agreed and said he’d done more expat buy-to-let business this year than previous years.

He added: “As lenders start looking for more margin and diversifying their proposition, they’re going to be going into the more specialist sectors.

“We have seen a lot of lenders diversify firstly into specialist buy-to-let, for example, lending on houses in multiple occupation (HMOs) and expat buy-to-let, but there’s also other sectors lenders have moved into.

“There’s another batch of lenders looking to loosen criteria around adverse credit and others looking at affordability. There are a number of strategies from different lenders. It depends on how they’re funded and what the funders’ risk models are and what margin lenders have to give back to their funders.

“Within the specialist market margins are under pressure, so it’s great saying you’re going into this sector but it’s about how much money you can make there. You’ve seen lenders look at different areas to give edge over competition.”

By Michael Lloyd

Source: Mortgage Introducer

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Limited company buy-to-let criteria is the battleground for lenders

Half a decade ago, there would have been few in the mortgage market who might have predicted limited company buy-to-let as one of the major growth areas in the years ahead. Without reckoning on some considerable government and regulatory intervention, how could they know?

But, that’s exactly what the buy-to-let sector and landlords have been subjected too, and while there appears to be no let up in that regard, the market has shifted to accommodate how landlords might wish to take their portfolios forward and how they can try and secure the mortgage interest tax relief which has been steadily cut for those holding properties in their own names.

While we might not have seen a big move of existing rental properties into limited company vehicles – blame the stamp duty increase for that – landlords are now much more likely to purchase new properties within a limited company vehicle, and because of this, even our very biggest buy-to-let lenders have needed to respond to the shifting nature of the sector.

Indeed, as time goes by, and landlords see how the ongoing cuts to mortgage interest tax relief impact on their profitability, you can’t help wondering if – even with the large stamp duty outlay – landlords might feel they need to bite the bullet and move existing properties (held in their individual names) into those limited companies.

I suspect that if these landlords are looking at holding these properties over the very long-term then a decision might be made to take the stamp duty hit now, rather than later when the property’s value might increase that payment. It is though a fine line to tread as a mortgage adviser and the last thing you should be doing is weighing into such a debate if you’re not also a specialist tax advisor.

Instead, if your client comes with you and wants to discuss this, and they have not already done so with their tax specialist and secured their advice, then you might want to curtail any conversation until they have done so. It may well be the right thing for the client to do but you don’t want to be the individual blamed for such ‘advice’ if its later found out not to be.

Overall, however, the growth in limited company business has come predominantly via new purchase activity and, as mentioned, there are now few buy-to-let lenders who are not offering products for this type of lending. Just last week the Saffron Building Society launched its limited company buy-to-let mortgage and while it perhaps won’t have the considerable impact that its mutual cousin, Nationwide, did when it moved into the sector, it is another potential product option for advisers with clients in this market.

Indeed, you might perhaps say that the limited company buy-to-let client is now incredibly well served in terms of product numbers, and the real battleground for lenders is around the criteria they offer to landlords. Pricing is competitive but what seasoned portfolio landlords are likely to want is a significant degree of flexibility in terms of the administration burden placed upon them in trying to secure a mortgage.

We’ve certainly seen a shift in this direction too, with a number of lenders not requiring business plans now or insisting on a complete run-down of every other property in the portfolio, when it is unrelated to the property which requires a mortgage. While the client’s existing portfolio should be understood, and I completely understand why lenders don’t want to be over-exposed to one landlord or indeed certain types of property, lenders might be historically viewed as over-sensitive in this area. Again, that appears to be changing as increased competition has made itself felt.

There is also an argument that we are at saturation point when it comes to buy-to-let propositions. I saw a recent roundtable of ostensibly bridging lenders who voiced a similar concern and appeared to be coming to the common-sense view that, while they might wish to be involved in the buy-to-let market, unless they could come to it without something new and unique, or they were willing to go incredibly high up the risk curve, there appeared little point in them moving in that direction.

Overall, however, when it comes to finance options, the market appears to be rosy for landlords. Wider problems around increased costs and decreased profitability might persist, but the tenant demand is there, and if they can get new property at the right price, in the right area, within the right tenant demographic, then buy-to-let remains a strong investment for them. And advisers will be fully in demand to work out the best finance to support their activities.

Source: Mortgage Introducer

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First-time buyer activity reaches pre-crisis levels

The number of first-time buyers (FTBs) in 2018 reached its highest level since before the global financial crisis, UK Finance’s latest Mortgage Trends update has shown.

Last year, 370,000 new FTB mortgages were completed, a 1.9 per cent increase on 2017 and the highest number since 2006 when it was 402,800.

In the year FTBs accounted for £62bn of new lending, with £5.2bn of that taking place in December 2018.

Meanwhile, the data showed 30,000 home mover mortgages were completed in the final month of last year, as well as 34,000 homeowner remortgages.

Jackie Bennett, director of mortgages at UK Finance said: “The mortgage industry helped 370,000 people buy their first home in 2018, the highest number in twelve years, as competitive deals and government schemes such as Help to Buy continue to boost the market.

“Homeowner remortgaging also saw strong growth driven by customers locking into attractive rates, a trend we expect to continue in 2019 as more fixed-rate mortgages come to an end.

Ray Boulger, senior mortgage technical manager at John Charcol, said: “These figures confirm that virtually all the growth in mortgage lending in 2018 came from remortgaging and FTBs, with the lion’s share from remortgaging.

“Although we don’t have comparative 2017 figures for product transfers the likelihood is that product transfers also increased in 2018.

“Housing transactions last year fell below 2014 numbers and are likely to fall again this year. UK Finance is forecasting mortgage lending will be flat in 2019 and so with lower housing transactions and prices flat remortgaging will need to increase just to maintain gross lending levels.”

He added the end of the government’s Help to Buy equity share second charge scheme, which allows buyers to e-mortgage to pay off the Help to Buy equity loan, could have a “major impact” on the volume of mortgage lending post-April 2023.

This was “unless before then the private sector steps up to the plate with viable alternative lending options for FTBs with only a small deposit”, he said.

Elsewhere, December saw a 12.5 per cent year-on-year fall in new buy-to-let home purchase mortgages, with a value of £0.7bn for the month.

The fall was also evident for the rest of 2018, where new buy-to-let home purchases were 11.5 per cent lower than in 2017.

Buy-to-let remortgage completions in December 2018 however, rose 25.3 per cent when compared with December 2017, with a value of £2bn.

Matt Andrews, managing director of mortgages at Masthaven, said: “It is interesting to note the continued downturn of buy-to-let activity across the market.

“From tax alterations to regulatory updates, it seems the sector is really feeling the effects of these changes.

“In order to keep the market attractive to buy-to-let investors and to avoid further market uncertainty, greater incentives and lending products will be paramount.”

But Kevin Roberts, director of Legal & General Mortgage Club, said the data demonstrated a resilient mortgage market.

He said: “The number of mortgage products available are at some of the highest levels we’ve ever seen and combined with competitive rates, this is continuing to entice borrowers, particularly first-time buyers.

“For any borrowers unsure of how the current climate will affect them or how they can potentially take advantage of it, speaking to a mortgage adviser is a great place to start.

“Through their extensive knowledge and access to the whole of market, these experienced professionals will be able to match a borrower’s unique circumstances with the right mortgage product.”

Source: FT Adviser

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Mortgage market bolstered by first-time buyers

First-time buyers and remortgages continued to drive the UK housing market towards the end of 2018, as homeowners benefitted from competitive deals and housing schemes.

More than 35,000 new first-time buyer mortgages completed in November 2018, up 5.8 per cent when compared with the same month in 2017 and at a value of £6bn, according to UK Finance’s November Trends update.

The data showed the average age of a first-time buyer was 30 years with a gross household income of £42,000.

Meanwhile, October was a record month for remortgages, reaching its highest level in a decade, according to UK Finance.

Almost 40,000 remortgages were completed, representing a rise of 1.3 per cent when compared with the previous year.

The value, however, remained flat year-on-year at £6.8bn.

Jackie Bennett, director of mortgages at UK Finance said: “A mixture of competitive deals and schemes including Help to Buy saw even more first-time buyers get a foot on the housing ladder during November.

“Meanwhile, homeowner remortgaging activity has steadied, after reaching its highest level in a decade the previous month as a large number of fixed-rate deals came to an end.”

But Steve Seal, director of sales & marketing at Bluestone Mortgages, said: “Whilst it’s promising to see an increase in remortgage and first-time buyer activity, not all buyers are experiencing the same level of growth – particularly borrowers with complex financial backgrounds.

“Self-employed workers, contractors, freelancers or those with credit blips are all growing pools of borrowers struggling to access lending via traditional means.”

He added: “As we enter 2019, we hope to see more lenders accommodating the needs of all types of customers.”

UK Finance also found the buy-to-let market had seen 9 per cent fewer new home purchase mortgages in November 2018 than it did a year earlier, while remortgages in this sector increased by 9.5 per cent.

Bennett added: “In the buy-to-let market new home purchases remain subdued, while remortgaging continues to grow as landlords lock into attractive rates.”

Matt Andrews, managing director of mortgages at Masthaven, said: “The first-time buyer market continues to remain strong thanks to stamp duty relief and government initiatives such as Help to Buy.

“This trend should only continue throughout this year, following the extension of the equity loan element until 2023.

“The withdrawal of Help to Buy ISAs, however, will affect this segment of buyers, so it’ll be interesting to see how these figures play out.”

Source: FT Adviser

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Mortgage market going strong despite Brexit

Despite Brexit uncertainty dominating the headlines in 2018, the mortgage market has proved resilient, with lenders offering an ever-growing choice of products at competitive rates.

Property prices have slowed in many parts of the UK over the past year, notably in London and the South East, creating opportunities for buyers who might otherwise previously have been priced out of these areas. In contrast, places such as Yorkshire and Humberside, and the East Midlands, have seen prices accelerate.

Looking ahead in 2019, it is anyone’s guess what the full impact of Brexit will be both on property prices and the mortgage market.

Purchases

A limited supply of available properties has helped support property prices over the past year, and this is expected to continue in 2019.

Brexit is prompting many buyers and sellers to adopt a ‘wait and see’ approach until we leave the EU. This means that the number of properties being sold is likely to fall over the next three months, according to the Royal Institution of Chartered Surveyors.

Purchase activity may therefore be muted as we head into the New Year, despite the latest figures from UK Finance showing a more upbeat picture, with homemover mortgage numbers completed in October up 4 per cent compared to the same month last year.

Those struggling with affordability will still be able to make use of Help-to-Buy, which will continue to provide a boost for the new build market. The government’s confirmation that the scheme will continue to 2023, albeit within different parameters, will at least give clarity to developers and their forward planning.

Buy-to-let

Buy-to-let purchase activity has been hit by a raft of changes over the past few years, including the 3 per cent stamp duty surcharge on second properties, and the gradual reduction of mortgage interest relief.

This has meant that existing landlords have been more focused on managing their costs and protecting against future rate rises. Remortgage activity has been high as a result and fixed rates have been the product of choice.

Many landlords are opting for longer-term fixes, with five-year deals proving especially popular. Lenders are becoming increasingly flexible too, with some reducing stress rates on long-term fixes.

However, advisers will need to maintain a focus on the product being right for the customer, and not just choosing it based on lending criteria.

The increased use of limited company structures appears likely to continue, as landlords consider whether the structure can help them counter changes to tax relief. However, brokers will need to ensure that the right tax advice is sought by clients.

First-time buyers

The past year has seen strong first-time buyer numbers, with schemes such as Help-to-Buy providing much needed support to those wanting to get on the first rung of the property ladder.

Buyers may also have been helped to a degree by a reduction in competition from landlords. There have been other positives too, including improved product options and first-time buyer stamp duty relief.

Lenders are increasingly willing to offer mortgages to those with only a 5 per cent deposit to put down, and there is also a wide choice of innovative deals available to those who are reliant on financial support from the ‘bank of mum and dad’.

Where next for interest rates?

Given current political and economic uncertainty, it is extremely difficult to predict when, or even in which direction, we will see interest rates move next.

The Bank of England has consistently suggested that rate rises are likely to continue, albeit at a gradual pace. However, if there is a disorderly Brexit, inflation could rise on the back of any further weakening in sterling.

Higher inflation could lead to the BoE increasing interest rates, but there is also potential for the BoE to decide that the economy needs additional support, which could actually result in a cut in the base rate.

Either way, borrowers are likely to continue to lock into fixed rate mortgages to protect themselves against any potential shocks, and to give peace of mind that they know where they stand at a time when everything else is so hard to predict.

Source: FT Adviser

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How are emerging technologies changing the mortgage landscape?

Mortgage lending is expected to increase slightly in 2019 and the Bank of England may raise the base rate which means that competition on rates between lenders will continue. But there are other ways for borrowers to differentiate between lenders – apart from on price – such as customer experience, speed of service, an efficient service and making the customer journey easier.

Teleperformance, which provides digital integrated business services, has carried out some research and found that it takes 18 to 40 to days to go from mortgage application to final mortgage offer with the bulk of that being taken up by the time it takes to carry out a valuation.

The mortgage application requires original copies of utilities bills and bank statements but that slows down the process. Some lenders now accept digital versions, which is good because 69% of consumers receive paperless bank statements, and that goes up to 75% amongst 18 to 24 year olds, according to a research by ID verification software firm GBG.

Can identity data be used to speed up the mortgage application process and make it more accurate and less susceptible to fraud? Is it FCA rules or lender procedures that dictate borrowers having to produce hard documents?

There is continued growth in the use of artificial intelligence and Robotic Process Automation (RPA), which relies on data to perform repetitive and automated tasks, thus eliminating human error and freeing up humans to do other things.

Teleperformance has found that within the mortgage market, the five key metrics that influence customer decisions are brand, price, accessibility, customer experience and speed of service. The big lenders are strong in the first three but lose out in the customer journey and responsiveness offered by small lenders and fintech players.

Digitisation covers a host of other applications such as digital signatures; and does open banking, now a year old, hold the most potential for change in the mortgage market?

How far down the line is the mortgage industry with accepting electronic documentation instead of customers having to produce paper copies?

Kris Brewster, head of products, proposition & corporate communications, Skipton Building Society: We currently ask for payment documents and will accept scans but we are moving away from that and towards getting as much automation as possible into our back office processes. We use a combination of technology – automated valuations, income verification, access to data through open banking. All parts of the mortgage chain are starting to link up, even into conveyancing and Land Registry, so for us all the information is there, it’s about linking that up. I expect everyone across the industry is working on exactly the same thing.

Are consumers demanding the move from the conventional paper-based application to a more digitised process? People are used to home shopping, ordering goods online with delivery the next day. Is that shaping the way to build a lending process?

Matt Ward, head of mortgage service delivery, Santander: Very much so. I think there’s a consumer expectation that they should be able to communicate with their bank in the same way they would in any other area of their life. There’s a drive from consumers and intermediaries towards electronically submitting documentation and the challenge for the industry is to ensure we’re keeping this secure.

How much impact does regulation have on digital documentation?

Paul Clampin, chief lending officer, Landbay: The challenge is to work within the regulatory framework particularly anti-money laundering. The test for lenders is proving that the customer is who they say they are and that the security is adequate. Landbay is a fintech lender so we’re able to take applications to completion in 18 days but that’s where we have been provided with the information very early on in the process.

We’ve been able to automate large parts of the buy-to-let market because 97% is still intermediary based and they tend to do things in a formulaic process. The biggest change to the buy-to-let market and lenders generally will be the development of a single source of application data but that has not been developed fully.

How can sourcing systems and APIs move the application process on?

Paul Clampin: If all brokers use the same sourcing system for quotes and then send the application to lenders, they can immediately respond with an indicative quote on price and what information they’ll need. I think we’re a long way away from that, but something like that was piloted in 2003. I think that’s more likely to happen in the residential side or maybe the complex prime side of the market than it is for buy-to-let which has more complexities.

Andrew Asaam, director of mortgages, Virgin Money: I think that’s going to happen in 2019 and it’s going to be a game changer. It’s not for all intermediaries but scale intermediaries will get operational benefits from having a digitalised process.

Kris Brewster: We’re working on direct submission via APIs with various sourcing systems. I would expect that to be in place soon and that will be the long-term future for submission using data, cutting out the inefficiency, cutting out the rekeying and the manual work that broker admin teams have to do. There would be a strong push for that and it will take different lenders, different times to join that party but I suspect in the long run everyone will have to play in that way.

Andrew Asaam: I think we’re all digitising our processes, we’re just on different parts of the journey depending on funding and legacy systems. Digitisation of the ultimate customer journey involves signatures, documents, appointments, omni-channel with data consistency, APIs and all this will happen over the next 12 months.

Kris Brewster: One dilemma is around building systems yourself or using a partner. Thinking about the approach to APIs, it’s about getting that balance between what you own and what is with your partner. It is quite a change for a lot of lenders if we’re used to controlling all of that process ourselves.

Paul Clampin: It’s also about legacy systems. How quickly you want to move and your ability to move which determines whether you use a third party or do it yourself.

Alex Maddox, product & capital markets director, Kensington Mortgages: Risk is a key issue with third parties. How do we deal with prequalification from price comparison websites? If a customer has been prequalified with a credit check, and it’s not the credit reference agency we use internally, how do we deal with that, do we check it again? If it gets sent out to multiple lenders does everyone do their own credit check?

How advanced are lenders in respect of Robotic Process Automation (RPA) and artificial intelligence?

Matt Ward: I think quite a lot of lenders use RPAs particularly in larger organisations. We certainly use RPAs where we believe we’ve got repetitive processes, particularly those of a legacy nature where you’re moving data from one system to another. It’s a highly accurate manner in which to manage this.

Mike Sloman, SVP business development, Teleperformance: It’s quite ironic that one of the beauties of RPA is that it works best with legacy systems. When you have multiple legacy stable systems that are easy to automate it actually takes away a lot of the business case for replacing systems or putting new platforms in.

Kris Brewster: Our robotics at Skipton is in the pilot phase and we expect to be using that properly across real life processes in early 2019.

Puneet Taneja, EVP operations, BFSI at Teleperformance: The progress made on the use of robotics on the servicing side is much higher than in originations. If you look at appointment bookings today in most branches you still have a long, drawn-out process and we see opportunities for robotics to take a much more active role.

Alex Maddox: We used robotics in servicing first but we’ve now rolled it out to underwriting and even integrating with external parties to pull in data as an alternative to APIs. So it can be used everywhere but I think servicing is a good starting point, it’s a lower focus from a risk point of view.

Can RPAs help with underwriting?

Paul Clampin: I think it works more in residential because data sets are more established and more predictable than other markets such as complex buy-to-let, although standard buy-to-let might be easier.

Alex Maddox: I think it’s a journey. We’ve all been using rules-based engines to speed things up but that’s the first step on the customer journey. You need certain information to feed into those rules so how do you pull that in through robotics or APIs?

As we are a specialist lender, there will always be a lot of human interaction in every single case because our customers have some kind of complexity to their situation and it’s complexity that’s difficult to automate. But the complex part of the market is either in the top end of the buy-to-let space or is a relatively small percentage of the owner-occupied market. So there’s a lot of standard business out there that could be automated very efficiently and provide a great customer experience.

Andrew Assam: There are two challenges here. It might prove payment of rental amount but it does not factor in SVR plus 3% for stress testing requirements and the deposit raising is probably an even bigger constraint. So I think taking rental payments into account helps but I’m not sure it’s enough.

Matt Ward: Rental information will show consumers’ ability to repay, or commitment to repay, so clearly you will improve your view of them from a risk perspective.

Alex Maddox: It’s similar to the mortgage prisoner analysis where someone has exhibited an ability to pay off a certain amount but is that suitable evidence that they will be able to pay the same amount going forward? On all of our models historical payment is one of the best predictors of future payment ability, but unfortunately it doesn’t tick the regulatory box, because of the 3% interest rate stress test.

What future does robo advice have?

Kris Brewster: I would expect to see more development of robo advice or guided execution only solutions for customers particularly as remortgaging increases. There is technology to help support the advice process and there are cases that don’t necessarily need all the skill of an adviser.

Matt Ward: It’s an interesting challenge because we’ve been finding there are lots of digitally savvy customers that are capable of using online resources. If they wish to interact in this way, that’s absolutely fine, but those that are ’digitally savvy’ may not be ’mortgage savvy’. How do we know when it may be best to just put that customer straight into an advice process to make sure they have help from the outset? This is a market that everybody’s going to start to explore I would imagine.

Alex Maddox: One of the areas where AI is being used is chatbots – and that’s across finance not just in mortgages with different levels of success.

Matt Ward: It could be hybrid solutions that customers will be looking for in the future – a live chat, then a video conference with an adviser while they’re filling in their forms so they can talk things through.

Paul Clampin: The challenge with robo advice is ensuring it’s fit and proper for each individual circumstance, that’s very complicated. I don’t imagine lenders are going to use robo advice, their professional indemnity insurance would be quite interesting too.

Andrew Asaam: The regulator does want robo advice and there is a lender actively talking to the FCA about it and could be ready to launch in around three to six months. We’re being disrupted in a huge way with aggregators, fintechs, digitisation of unified services and in three to five years the industry will look very different.

How can customer retention be improved?

Kris Brewster: There’s potential to support customers post mortgage completion apart from an annual statement. We know people are not moving as often, they are home improving and borrowing more, particularly as they get into later life. I think there’s scope to improve the customer experience, and this is a new area that could be better developed.

Matt Ward: I agree. We could be more visible to the customer so they have an understanding of how they can interact with us, for example, a notification of the next deals that are available for them or reminders that they can overpay.

Alex Maddox: There’s a bunch of fintechs out there who are trying to engage with customers during the mortgage life so if lenders don’t start to engage, someone else will and you will lose your customer.

Kris Brewster: The challenge of retention is huge and I think one of the other changes is that aggregators will enter the mortgage market over the next 12 to 18 months acting somewhat like brokers but also with a lot of technology. They could do to the mortgage market what they have done to the home insurance market and disrupt it.

When interest rates start to go up some people may move into arrears. Can AI help to predict which borrowers are going to be affected and who might struggle in the future?

Alex Maddox: Our outcomes, which are based on machine learning, are the same ones that we use to predict arrears. They’re the same ones that we use to work out what headcount we need to cover arrears, based on the level of arrears that we expect. So it’s a single application that runs across the whole business.

What’s more interesting with digitalisation is identifying vulnerable customers. You have to train your staff to identify vulnerable customers early and if you can overlay technology on top of that then we should all do that.

If we can use open banking to help us really understand the customer’s true situation then we should be able to put together a better forbearance strategy working with the customer to help them out in that situation. But customers will have to be ready to open up their bank accounts to us and let us work with them or let their tax adviser work with them. The more information that is shared between the different parties the better and more successful the forbearance strategy will be.

Other points

It was also noted that speech analytics can detect people who have rung more than once to ask trigger questions such as what would be the impact on their mortgage if the rate goes up by 0.5%. You can build an algorithm that pulls up a list of people asking similar questions and red flag them.

There are systems now which alert the borrower to a better mortgage deal, even though they’re not specifically looking. It was pointed out that the deal would have to be appropriate to the individual’s circumstances which could be a challenge.

Post offer process

There was a discussion around the post offer process which can be slow with customer feedback showing frustration around valuations and particularly conveyancing. There are technology firms working to improve the visibility of the process and show the customer where they are in the journey. All well and good as far as communication is concerned but that doesn’t help the process move on if there is a weak link. If you are in a chain of five properties and one takes three months to complete, the fact that somebody else can do it in a week is irrelevant because you’ll still be waiting.

ID verification

A customer has to provide ID documentation to the estate agent, intermediary, lender and conveyancer. Could there be one ID hub instead that each part of the process can access? Regulation demands that each supplier is satisfied that their ID verification is robust but some lenders will accept the broker’s ID checks. It boils down to reliance on third parties and is that a regulatory issue or a risk appetite issue?

It was suggested that there could be some kind of block chain or ledger type technology that can allow information to be passed along with the case as it transfers from the first interaction right through to completion. We are quite a long way from that but it could be an interesting solution.

Risk based pricing

There was a discussion on the move from big data to small data. Organisations may be rich with data, but do they actually know their customers? If you have the right data about people this can result in risk based personalised pricing but we’re quite a way from that at the moment. Retention is the obvious place where you could start using your data to offer bespoke pricing based on risk and capital usage. It’s harder in the new business market because there’s a more competitive force.

So to conclude, technology is evolving all the time and 2019 looks like a year where even more technological development will enhance the mortgage and house buying process. From mortgage application through to back office systems and processes as well as post mortgage completion, there is a great deal of work going on behind the scenes.

Source: Mortgage Finance Gazette

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What can the mortgage market expect in 2019?

The mortgage market saw a fair amount of product innovation last year and that it likely to continue into 2019. In particular, equity release and the later life lending market is set to grow further as the older population increases. ONS figures show that in 2017, around 18.2% of the UK population were aged 65 years or over, up from 15.9% in 2007; and it is projected to grow to 20.7% by 2027.

Bank of England base rate went up twice last year to end 2018 at 0.75% – the first rises in a decade – but will the rate go up again in 2019? It is unlikely there will be any movement until we know what is happening with Brexit and even then any increases will be small and steady.

House sales have fallen in the past two years and RICS believes sales volumes will weaken by around 5% in 2019. It also thinks house price growth will continue to fade in the first half of the year and come to a standstill by mid-2019 taking the annual figures to a static 0%. Others agree that house price growth will stagnate with national estate agent Jackson-Stops predicting an average increase of 1% this year and Strutt & Parker forecast 2.5% growth.

NAEA Propertymark reports that the number of house hunters registering with estate agents is down as is the supply of housing for sale. It says almost two thirds (62%) of estate agents think the trend of renovating rather than moving will continue this year.

We have seen new lenders come into the market and more are set to enter in 2019 and they have the advantage of starting their journey with new systems. Technological development is going to be even bigger this year and we will see its impact throughout the whole housing chain. From viewing houses in the comfort of your own home to the rise in digital brokers, improvements in mortgage applications, enhancements in the surveying process and conveyancing journey.

Fintechs will work even more closely with established banks, building societies and specialist lenders. And the impact of open banking, which is still in its infancy and is a year old this month, will accelerate as more people get to understand it.

It will be a turbulent year for the UK as it withdraws from the European Union. Competition among mortgage lenders will continue as interest rates remain low and mortgage lending is likely to tick along at similar or slightly higher levels to 2018.

Source: Mortgage Finance Gazette

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Brokers see fall in mortgage business

Mortgage brokers have seen the biggest drop in business volumes in more than two years, according to the latest Mortgage Market Tracker from the Intermediary Mortgage Lenders Association (IMLA).

The average number of cases brokers handle on an annual basis dropped by 10% in Q3 2018, from 90 to 81 cases. This is the largest quarterly drop since Q1 2016, when annual average cases fell 11% (82 to 72 cases) in Q1 2016 (Chart 1).

For the first time since 2016, the percentage of brokers who professed to be “very confident” about their own business’ fell, from 68% to 60%.

The drop in mortgage broker activity reflects the drop in the number of mortgage purchase completions on a year-on-year basis. According to UK Finance statistics, the number of first-time buyer, homemovers and buy-to-let investors in Q3 2018 all fell compared to a year ago (Table 1).

Table 1: Number of loans completed, quarterly

Type of loan Number of loans Q3 2017 Number of loans Q2 2018 Number of loans Q3 2018 Percentage change YoY
FTB   96,700 92,900 96,200 -0.5%
Homemover
104,900
89,200 100,000 -4.7%
Remortgage
111,100
113,800 120,800 8.7%
BTL
19,700
15,900 16,700 -15.3%
BTL Remortgage
39,300
41,400 40,800 3.8%

Source: UK Finance

Conversely, remortgage activity continues to remain strong. Quarterly figures for residential remortgages were up more than 6%, annual remortgage activity for both residential and BTL loans grew compared with Q3 2017.

Separate IMLA research also suggests that fewer brokers are feeling positive about the mortgage market in 2018.  In H1 2018, a third of brokers (33%) felt the current market would “improve a little” but by H2 2018 that had fallen to just a fifth of brokers (20%).

The quarterly IMLA Mortgage Market Tracker – which uses data from BVA BDRC– found that for those who move forward with a property transaction, the market continues to work well with nearly nine in 10 (88%) of all mortgage applications via intermediaries leading to offers.

Kate Davies, executive director of IMLA, commented: “These latest survey results show that sentiment among buyers and movers is currently at a low point.  Whilst the Brexit negotiations remain so complex and uncertain, many people may be adopting a ‘wait and see’ approach before moving forward with a property purchase.

“While the national uncertainty doesn’t help the prospects of our mortgage brokers, it’s encouraging to see that when an intermediary does apply for a loan on their client’s behalf, they are being accepted. Mortgages going from application to offer remain at more than two-year highs as intermediary lenders continue to find solutions for clients.”

Source: Mortgage Finance Gazette

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Mortgage market subdued after summer highs

Remortgage levels have steadied after a period of strong summer growth as activity across the mortgage market softened, according to trade body figures.

UK Finance found 35,600 homeowner remortgages and 12,300 buy-to-let remortgages were completed in September – down 0.6 percentage points and 0.8 percentage points respectively on the same month a year earlier.

Jackie Bennett, director of mortgages at UK Finance, said the figures showed remortgaging for residential and buy-to-let properties had levelled out after a period of strong growth, reflecting the number of fixed rate loans reaching maturity.

Meanwhile purchase activity across the residential market fell in September, with 29,400 new first-time buyer mortgages completed in the month – from 35,400 in August and 30,800 in September 2017.

New homemover mortgages also fell to 29,400, down from 38,000 the month before and 32,100 in the same month a year earlier.

Ms Bennett said: “Demand for house purchases for both first-time buyers and homemovers has also lessened, as affordability constraints continue to bear down on consumer demand for new loans particularly in London and the south east.”

The buy-to-let purchase market also softened in September with 5,200 new mortgages completed in the month, 18.8 percentage points fewer than in the same month a year earlier.

Ms Bennett suggested the lending in the buy-to-let market remained subdued as a result of recent tax, regulatory and legislative changes.

Mark Harris, chief executive of mortgage broker SPF Private Clients, said the mortgage market was inevitably subdued as people delayed decision-making while political and economic uncertainty continued.

He said: “This is likely to continue into the spring, until we pass the Brexit deadline in March, by which point some of that pent-up demand may be released and the market could well pick up.”

Mr Harris added: “UK Finance figures do not appear to take into account product transfers, which will have a significant impact on remortgage numbers.

“This market is much larger today than 12 months ago as borrowers opt for the simpler process of sticking with the same lender and moving onto another rate, rather than starting a new application with another lender.”

Source: FT Adviser

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Uncertainty in the UK

Gary Styles, director of GPS Economics, takes a look at the political and economic uncertainty and what that means for the mortgage and housing markets.

There was never going to be a good time in 2018 to assess the prospects for the mortgage and housing market whilst the machinations of Brexit continue and the dynamics of the world economy evolve. We all hope that the fog of uncertainty will lift in the next couple of months but we cannot be sure of that. Many of us believe that November will represent the time when we get down to brass tacks and a deal is finally agreed between the EU and the UK.

In the meantime, we all need to plan and in most cases to focus on the most likely outcome – however dull and ill-specified.

During the latest forecast round I have tried my best to ignore the vastly differing assessments coming from the respective vested parties as we all know they are unlikely to be correct. Our experience in the run up to the EU referendum in June 2016 has aptly demonstrated that even the most respectable economic houses and authorities get drawn into the political sphere and often damage their own long term reputations as a result.

The shifting UK economic background 
The UK economy and labour market have both been very supportive to the mortgage sector in recent years. GDP growth has averaged over 1.75% over the last two years and the unemployment rate fell from 5.1%% to 4.4% over the same period. The latest readings from the labour market show unemployment at 4% and regular average earnings growth of 2.9%, the highest earnings growth since mid-2015.

However, the UK’s overall growth performance hides a disappointingly unbalanced picture. The often promised investment and export-led growth has been replaced by the more typical pattern of debt and consumer-led growth.

The UK economy slowed sharply in the first half of 2018 although the more recent indicators for Q3 are far more encouraging with output up 0.7% in the three months to August. GDP growth for the whole of 2018 looks on track to be near 1.4%, which is still around 0.3% lower than in 2017 and well below trend.

Interest rates are expected to rise further in 2019 as import costs including fuel costs rise on the back of a weaker exchange rate and firmer global commodity prices. It seems likely that many commentators have underestimated how quickly interest rates will need to rise even against a backcloth of weak domestic output indicators.

Key mortgage and housing numbers 
The latest mortgage lending data for August from the Bank of England shows the mortgage market continuing to ease particularly in the house purchase market. The underlying number of house purchase approvals is down by around 2% when compared to the same period last year. The recovery in remortgage and other secured borrowing has helped to soften the speed of the overall slowdown but the direction of travel is clear.

We expect ONS annual house price growth to ease to around 2% by the end of 2018 with the Nationwide and Halifax annual growth measures between 0 and 2%. Assuming the UK negotiates an acceptable deal with the EU by November, house prices look set to ease by 1-2% during 2019 before recovering a little in 2020. The regional picture will be diverse with London and the South East weaker than the overall picture partly due to the disproportionate impact of higher mortgage interest rates.

Higher interest rates, weak transaction activity levels, squeezed real incomes and a somewhat uncertain medium term outlook will all act as a drag on the market. The gross mortgage market looks set to be around £265 billion in 2018 around 3% up on the £257 billion achieved in 2017. The composition of the market has shifted significantly but the total volumes remain lacklustre.
We expect total gross lending to ease to around £252 billion in 2019 and 2020. Net mortgage lending looks likely to fall sharply in 2019 as the rate of repayment continues to accelerate. In 2017 repayments of principal were running at 16.2% of the outstanding stock of mortgages and this appears to have risen to nearer 16.5%. We expect net mortgage lending to be around £40 billion in 2018 and less than £30 billion in 2019 and 2020.

Risks and issues 
We face a very uncertain six months or so as we navigate our way out of the EU and cope with the big upheavals in the world economy. It would be easy to fall into the trap of becoming too gloomy and ignore the underlying resilience of the UK economy. 2019 does not look like being a good year for the housing and mortgage market but the medium term prospects are far from negative.

Lenders need to be prepared for the risk of higher interest rates than widely expected and for more competition in the retail funding markets as the cycle progresses. The mortgage market is likely to look fragile in 2019 but if we can cope with the political and economic events of this year we can respond to most economic shocks. However, Mark Carney may well wish he had taken an earlier exit from the Bank of England rather than extending his pain into early 2020.

Source: Mortgage Finance Gazette