Bowmore says that increase in interest rates has led more homeowners to look at these much longer-term mortgages as a way of keeping their monthly mortgage payments affordable.

Borrowers taking out a 25-year mortgage to buy the UK’s ‘average’ property (worth £288,000) at the current average interest rate will pay £1,675.18 per month.

Borrowers taking out a 40-year mortgage with the same deposit amount will pay £1,430.56 per month.

However, whilst monthly payments are lower, longer-term borrowers will pay 29% more during the term of their mortgage. 40-year mortgage holders will pay a total of £572,000 compared to £442,000 for 25-year mortgage holders.

The figures on the sales of these longer-term mortgages, supplied by the Financial Conduct Authority show that the number of 40-year mortgage sales has increased 29%, from 1,533 in 2021/22 to 1,980 in 2022/23.

Bowmore Asset Management director Charles Incledon says: “The number of people opting for longer term mortgages has caused concern at the Financial Conduct Authority.”

“The worry is that some borrowers haven’t fully understood the potential impact 30-40-year mortgages could have on their long-term finances. There will be quite an additional amount in interest.”

“When interest rates are low, monthly mortgage payments are easier to manage for borrowers. With interest rates at their current level, 30–40-year deals maybe tempting to those struggling with the cost of living.”

He concludes: “Not only will borrowers be paying much more in the long term, but they are also taking funds away from their retirements. Missing out on that money for so many years can make a measurable difference to the size of a retirement pot.”

The post Sales of mortgages over 30-years increase 13% appeared first on Mortgage Strategy.

First time buyers are constrained by the design of traditional mortgage products

Despite the government’s recently announced extension to the mortgage guarantee scheme in its Autumn Statement, more support is needed for first time buyers.

While market commentators focus on short-term teaser mortgage rates, which give the impression of improved housing affordability, this is not the case.

The reversion rate determines affordability, typically the standard variable rate (SVR), which then dictates a lender’s stress requirements. Because of this, the amount a borrower could receive is reduced and usually by a significant amount.

Regulation also plays a part. The loan-to-income (LTI) flow limit set by the Financial Policy Committee, whilst good intentioned, also impacts first time buyers becoming homeowners.

Additionally, the traditional mortgage products on offer place all the risk onto the borrower by design – a short-term fixed rate reverting to a high rate that is set by the lender. Uncertainty in your biggest financial commitment is no way to start your homeownership experience.

Empowering borrowers

Here is where flexible long-term fixed rate mortgages offer a solution to first time buyers, by providing improved affordability, stability, and flexibility. These mortgages are empowering borrowers and give them control over the financial element of their lives.

Long-term fixed-rate mortgages do not need to be ‘stress tested’ as the rate is fixed for the whole term. As a result, homeowners could borrow more when compared with leading high street offerings.

In some instances, this could be the difference between buying a two bed or a three-bed home, or between a home and no home.

Financial stability is vital for those at the beginning of their homeownership journey, and long-term fixed rates provide homeowners with consistent mortgage payments over the entire term. Borrowers have peace of mind that if interest rates spike due to market shocks their monthly repayment rate would remain unchanged – providing peace of mind to homeowners.

As flexible long-term fixed rate mortgages now come with short early repayment charges (no longer than five years typically), borrowers are not tied in. This is a contract that is in the favour of the customer, not the lender.

Also, given there is no risk of payments increasing, people could borrow more than the LTI flow limit regulation allows for – 4.49 times – responsibly.

UK availability

Despite the clear advantages, flexible long-term fixed rate mortgages are not yet the norm in the UK. This is partly due to a cultural attachment to shorter-term fixed rate products and a lack of availability of other mortgage types.

Long-term fixed rate mortgages are, however, the norm in the US and European markets, such as Denmark, Germany and the Netherlands.

Brokers play a pivotal role in advising customers on suitable mortgage products, and this role will receive even more scrutiny with the introduction of Consumer Duty. It is important that all available mortgage options and products are on the table for their customers.

Brokers can help their customers by equipping them with the knowledge and tools needed to educate them about the long-term financial planning benefits and security these products offer.

The appeal of lower initial rates offered by short-term fixed rate products can be tempting, but it’s important to consider the long-term financial implications. No one can predict the future.

Flexibility for customers

Brokers therefore should consider whether they are presenting customers with mortgage products which provide stability and importantly flexibility to change when it suits the customer.

For long-term fixed rate mortgages to become the norm in the UK, a concerted effort is needed from all stakeholders. Lenders need to provide a wider range of mortgage options to customers.

Brokers must be proactive in educating themselves and their customers about the advantages of flexible long-term fixed rate mortgages, and borrowers must be aware of the long-term implications of their mortgage choices.

The government and regulators should also consider the benefits of fostering a market for long-term fixed rate mortgages, which will support many more first-time buyers onto the housing ladder than ever before. This includes providing an exemption for long-term fixed rate mortgage from the LTI flow limit.

The journey to homeownership doesn’t need to be a challenge for first-time buyers. By accepting long-term fixed rate mortgages, we can herald in a golden age of homeownership, and create a nation of happy homeowners.

Arjan Verbeek is chief executive and co-founder of Perenna

The post Blog: Heralding a golden age of homeownership appeared first on Mortgage Strategy.

IMLA’s New Normal Report for 2024/2025 predicts that intermediaries’ share of lending will keep rising to 89% this year and over 90% in 2025. This is of course good news for the mortgage advice community.

But the bad news is that the total mortgage market is still shrinking. Having contracted by 27% in 2023, the market could fall by a further 10% in 2024 to £210bn.

The reduction in market size forecast for 2024 is not just a function of higher interest rates, but also a rise in the proportion of properties sold for cash. In 2023, a record 54% of housing transactions were financed by cash, and that figure is set to rise to 58% in 2024.

There is already a smaller ‘pie’ to be shared. And this year’s rise in intermediaries’ share of business will not be enough to prevent the value of lending arranged by advisers from falling by around 6% this year.

All of which means the year ahead will see stiff competition between advisers. Those looking to maintain or grow their business levels must stay on the front foot, and this is likely to mean diversification into new sub-sectors of the market. The specialist arena may be a logical progression for the more ambitious.

Specialist lending has more than quadrupled over the past decade and has only accelerated since the advent of the pandemic and the more recent cost-of-living crisis. Many people’s personal circumstances and borrowing needs have become increasingly more varied and complex, requiring specialist borrowing solutions – and, of course, the requisite accompanying advice.

Self-employment grew from 3.3 million in 2011 to  4.39 million in 2023 representing almost 15% of the workforce, and more people may well head down this route given technological advances, the rise of the gig economy and our increasing focus on work-life balance post-pandemic.

The economic squeeze is also likely to push more borrowers into the ‘adverse’ category – for instance, the number of consumer County Court Judgements issued in Q3 2023 was 259,343 up 14.6% on Q3 2022.

Advisers who are not currently operating in these market sectors might be wise to consider familiarising themselves with this specialist territory.

In the buy-to-let sector, gross lending fell by 48% last year to £30bn and is likely to fall slightly further to £28bn this year. But reports of a mass exodus from the market have been overplayed.

IMLA’s Landlord Survey (December 2023) revealed that, despite large rises in monthly repayments, 35% of all landlords and 50% of portfolio landlords still plan to expand their property portfolios over the next five years.

This has proved to be a resilient sector which will provide a significant customer base for advisers over the long term. In the short-term we are likely to see the trend to incorporation continue, so it could make sense for intermediaries to prioritise building relationships with those tax experts who are qualified to advise on buying property within a limited company.

Regardless of the prevailing economic conditions, mortgage borrower needs will continue to evolve away from the standard requirements of the past, as life becomes ever more complex.

Advisers who act now to broaden their skill set may not only be best placed to navigate the coming challenging year, but to better serve the increasingly diverse needs of their clients as we return to growth in the longer term.

Kate Davies is executive director, Intermediary Mortgage Lenders Association (IMLA)

The post Blog: When the going gets tough, the tough diversify. appeared first on Mortgage Strategy.

The ongoing cost-of-living crisis combined with high interest rates is squeezing affordability, leaving two fifths of UK adults worse off by an average of £215 per month, compared to 12 months ago.  Additionally, advancements in technology mean that clients now expect and demand information at the click of a button.

However, this represents a significant opportunity for brokers to tune into their clients’ needs and position themselves as the helping hand who can guide them through these challenging times and help them achieve their homeownership goals.

Affordability Squeeze

Stubborn inflation coupled with the rising cost-of-living is having a significant impact on people’s homeownership ambitions, with many potential homebuyers finding it harder to save for a down payment or manage monthly mortgage payments.

Our own research found that nearly half (49%) of mortgage holders are concerned about the impact of the inflationary environment on monthly payment, while over a third (35%) of those looking to buy a home are worried about saving for a deposit.

Additionally, a third (33%) of all UK adults are apprehensive about how the current economic climate will impact their future homebuying prospects.

These constraints often eat away at their purchasing power, making it harder for brokers to write business while causing some clients to fall behind on their monthly expenses.

The latest figures from the Registry Trust reveal that the total number of judgments registered against consumers increased by 15.7%, from 193,670 in Q3 2022 to 224,152 in Q3 2023.

Specialist Support

As affordability challenges continue and a growing number of existing and would-be borrowers face financial difficulties, signposting will be more important than ever.

Setbacks such as missed payments can trigger high-street lenders to turn away a borrower because they don’t fit the traditional credit profile. However, this is where the specialist lending industry has a vital role to play. By adopting a manual approach to underwriting, we can base lending decisions built on customer needs and work with brokers to understand real affordability for people, even if they have struggled financially in the past.

Open Banking

Innovation in technology is also driving the industry forward. Open Banking is set to transform the future of the mortgage market, particularly in areas of affordability and expenditure patterns. By securely sharing financial data between banks and third parties, Open Banking streamlines the application journey, resulting in faster customer outcomes.

Open Banking also enables lenders to gain a granular understanding of a customer’s financial circumstances, improving financial inclusion for disenfranchised customers. This includes those who have found it difficult to prove they can afford a mortgage, such as those with complex credit or multiple income streams.

While this technology benefits both consumers and brokers, eliminating the need for paperwork, improving risk assessment, and facilitating better lending decisions, Open Banking’s full potential will only be realised if we all work collaboratively to improve awareness and understanding. For brokers this means educating their clients on the benefits of Open Banking, while lenders need to be as transparent as possible about their technology when it comes to supporting brokers and their clients along the mortgage journey.

Looking ahead

Undoubtedly there will be further challenges ahead, but brokers are well placed to help their clients weather the storm and achieve their homeownership goals. A key part of this will be communicating regularly to coach their clients through these challenging conditions as well as signposting them to the support available. Whether a borrower has complex credit or a blip in their credit history, there are always solutions out there, and it’s our job as an industry to make them aware of their options.

Reece Beddall is sales and marketing director at Bluestone Mortgages

The post Blog: Entering 2024 – turning challenges into opportunities appeared first on Mortgage Strategy.

Stagg is senior mortgage and protection Adviser at Mortgage Advice Hub (MAH), who are a part of MAB. She was the driving force behind MAH becoming a signatory to The MIMHC.

In their wide-ranging discussion, Stagg shares her personal approach to maintaining a healthy mental state which stems from her personal experiences in managing her own mental health.

She found herself struggling with the isolation of Covid and undertook Cognitive Behavioural Therapy (CBT) to help develop her coping strategies. Central to this is writing down the challenges she faces and the approach she will take to find solutions.

She takes a step-by-step approach so that she isn’t overwhelmed. Through CBT, Stagg also learns how to manage her negative thoughts and again by taking pen to paper, can find positive outcomes to the daily challenges she faces providing mortgage advice to her clients.

In the turbulent last 12 months  the mortgage market has faced, Stagg has learnt to strike the right balance between her work and home life and to better integrate the two.

She encourages all employers to become accessible, be there for their employees and is a huge advocate of ‘a problem shared is a problem halved’. Having the courage to start the conversation is always the first step to better mental health.

In forthcoming videos, Berry will be chatting with key figures across the mortgage industry about how they keep the mental health conversation going in their businesses.

MIMHC is a not-for-profit organisation that was founded to raise awareness of employees’ mental health and how the industry can take positive action to improve it.

MIMHC is made up of seven co-founding firms plus almost 80 signatory companies across the mortgage industry that represent over 15,000 individuals.

All these firms agree to be bound by MIMHC’s six Governing Rules which apply best practice health and wellbeing guidelines and are summarised as ‘The MIMHC Charter’.

The post Blog: Keeping the mental health conversation going.  appeared first on Mortgage Strategy.

Why is this important for buy-to-let (BTL)? Because, although the FCA does not regulate the sales of most business BTL mortgages, the advice can in some circumstances fall under FCA jurisdiction.

It is not always easy to locate lenders that can help

For example, under the new Consumer Duty rules, if the advice on a business BTL mortgage is linked with the advice on a residential mortgage, this will be captured by the duty.

In addition to business BTL, there are other types. These are regulated and include consumer BTL and family (regulated) BTL. However, should the client be deemed an HNW applicant, not all of the regulated protections apply, and lenders can offer more bespoke criteria around areas such as affordability.

Regulation is not the only consideration here; access to the right lender options is important. Some advisers specialise in HNW clients, who often have particular requirements, such as large loans. Sometimes the HNW applicant resides offshore as either an expat or a foreign national.

Finding the right solution for this type of client isn’t as easy as checking the sourcing systems and selecting a product

Even if someone is defined as HNW due to assets, they may also have a large income. With higher interest rates, landlords can struggle to borrow the higher LTVs because of the rental affordability calculation. HNW applicants could use their income to access income-based BTL or top slicing to maximise their borrowing.

Advisers looking after HNW applicants must also be well versed in offshore income and offshore limited companies. While specialist BTL lenders will consider lending to UK limited companies, it is not uncommon for HNW applicants to hold their assets in an offshore company, or for an offshore company to be the shareholder of the UK company.

Not all BTL lenders are able to cater for these types of client. Some may cap the maximum loan size or restrict lending to companies based in the UK only.

The table below shows some of the lenders that can assist HNW clients at 75% LTV on a £3m BTL purchase.

Most of the data was sourced from Twenty7tec but the offshore company column was sourced from Business Moneyfacts. The latter also highlighted Gatehouse as a possible offshore company lender. However, Gatehouse’s website indicates it lends to UK companies only, with a maximum loan size of £1m.

Neither system highlighted lenders such as Octopus or Shawbrook, which offer some or all of these solutions. Many private banks can also help but are not available to source on traditional sourcing systems.

You will need to use multiple systems, cross-check the information with lenders and perhaps use packagers and distributors that specialise in these areas

I also question the information from Twenty7tec and Business Moneyfacts. Interbay and Kent Reliance are both part of One Savings Bank, yet there was conflicting data on expats and offshore companies.

When looking at other search options, Octopus and Shawbrook appeared on Ignite, but again one could not search for lenders that would consider offshore firms.

The fact is finding the right solution for this type of client isn’t as easy as checking the sourcing systems and selecting a product. Solutions offered can be bespoke, and it is not always easy to locate lenders that can help.

You will need to use multiple systems, cross-check the information with lenders and perhaps use packagers and distributors that specialise in these areas. But the rewards are likely to be worth it!

Liz Syms is chief executive of Connect Mortgages

This article featured in the November 2023 edition of MS.

If you would like to subscribe to the monthly print or digital magazine, please click here.

The post Buy-to-Let Watch: Worth the effort? HNW loans appeared first on Mortgage Strategy.

My alarm goes off at…

…a rather unpleasant six in the morning.

I spend the first hour of the day preparing the kids’ breakfast and lunches for school, and then making sure they get out of the door on time.

I wanted to work in the mortgage industry because…

…who knows! I won’t pretend it was something I had planned but, when I finally realised that my dream of being a professional footballer was over (not through injury but from being decidedly average at best), I just fell into a profession that seemed interesting and an important part of the overall UK economic landscape.

There’s always something new to learn and understand in this industry

I took a job at Cheltenham & Gloucester, where I started underwriting, which continued throughout my career until I moved into my role as a business development manager (BDM) in 2018. Looking back, this underwriting experience was a vital part of my success in subsequent BDM roles, for which I am hugely grateful.

Something that surprised me about the job…

…was how varied the role was, and continues to be, and how involved I could stay across the life of any given deal.

The old saying that every day is a school day is absolutely right. No two deals we look at are the same, so there’s always something new to learn and understand in this industry.

A misconception about my role is…

…that BDMs spend their day having lunch or playing golf with brokers! I spend my days getting stuck in to deals to help shape them; talking to the legal team to ensure completions are on track; picking up with the underwriting team constantly; and talking to our brokers to manage expectations and help deliver for their clients.

I continue to learn from great people — internally and externally — which is a big part of why I love this business

There are long days where I can still be putting together credit papers late into the evening, but this is part of the role that I really enjoy. As a BDM with Shawbrook, we can get involved with deals and liaise internally and externally, and there’s never a dull moment.

My typical day entails…

…logging on from around 7am to check any important emails that may have come in. Then, as soon as the kids are packed off for school, it’s back to the laptop again with a tea on the desk.

After this start the day will vary but I could be off into London to meet with our broker partners to discuss current deals, new deals, criteria and the market in general. Other days it will be working with the underwriting team and the larger-loans team to ensure that deals are progressing in the right way, or meeting with clients on site to discuss how we can work together to support them on their property journey.

That early underwriting experience was a vital part of my success in subsequent BDM roles, for which I am hugely grateful

Also, as part of the national relationship manager role, I spend time looking at the London region as a whole and ensuring that, as a team, we have the right strategy in place to provide the service our brokers and customers deserve.

A perk of the job is…

…working with great people, both internally and externally. I continue to learn from both, which is a fundamental part of why I love this business.

My favourite work memory…

…is at the end of my first year as a BDM — not only hitting my target but exceeding it by 20%.

Having made the jump from underwriting team leader to BDM, I was a little nervous, so to end the year on such a high gave me the confidence to push on. I’ve not looked back.

To unwind after work, I…

…use both my season tickets for the West Ham men’s and women’s football teams.

It was a profession that seemed interesting and an important part of the overall UK economic landscape

My weekends are spent watching the men’s team with my son on Saturday and watching the women’s team with my daughter on Sunday.

It’s great to spend time with them both, doing something we all enjoy.

After that — if I get any spare time — I try to fit in a round of (fairly average) golf.

This article featured in the November 2023 edition of MS.

If you would like to subscribe to the monthly print or digital magazine, please click here.

The post Day in the Life of… Daniel Standing, national relationship manager, Shawbrook Bank appeared first on Mortgage Strategy.

That’s 21 housing ministers that I have worked with since 2004, when I started working with Government on behalf of the mortgage sector, that was on the Housing Act 2004. Talk about a revolving door, which this time sees Lee Rowley walking through it for a second time.

With so many people tasked with leading the UK’s housing strategy and policy during my tenure as head of mortgage and housing policy at the Building Societies Association (BSA), I started to think about what had been the big achievements during that time, and what do I think should be on Rowley’s priority list.

It proved to be quite a depressing exercise, as I realised that my asks of today’s housing minister are pretty much the same as they were 20 years ago.

Simply put, we need a long-term government plan and a firm commitment to resolve the housing supply conundrum, to support first-time buyers onto the property ladder and to ‘green’ our homes, both new builds and existing properties.

Looking at what has been delivered during the last 20 years, rather than addressing the fundamental housing supply issue, we have had a bellyful of interventions focused on increasing demand for homes, which has often achieved enhanced profits for house builders, and enhanced house prices; rather than providing more families and individuals with a place to call home.

We have seen very little corresponding action on providing the much-needed increase in homes available, other than worthy targets that have not been achieved by any governments – Labour, Conservative or coalition – during this time.

Looking more closely at when we have seen activity to support the housing market of the day, and I’m drawn to activities during periods of crisis. There was government support during the financial crisis between 2008 and 2010, and more recently during the Covid-19 pandemic.

These interventions, which were largely led by Treasury rather than DLUHC where the housing minister sits, were centred on mortgage support rather than housing specifically, ensuring people were able to remain in their homes during the unsettled times.

It is times like this, when there is a burning bridge so to speak, that Government and industry come together to deliver for consumers. It would be great if the same could happen with a forward look, we are always willing.

It seems to me that with 21 housing ministers in the last 20 years, seven of which have been in the last two years, we are taking the same approach over and over again, expecting (hoping) for a different outcome. It won’t happen, we need change.

So the priorities I would like Mr Rowley to focus his attention on remain; to create a long-term plan and firm commitment to resolve the housing supply conundrum, to support first-time buyers onto the property ladder and to ‘green’ our homes, both new builds and existing properties.

To achieve this, I would urge the Prime Minister to recognise the importance of strong and effective housing policy for the nation by promoting the housing minister to secretary of state for housing. Creating a cabinet position would help the minister deliver on his priorities with the necessary support that is required from across Government departments.

Paul Broadhead is head of housing and mortgage policy at the BSA

The post Blog: Happy 21st – but who’s getting the key to the door! appeared first on Mortgage Strategy.

Starting from 6.04%, LendInvest’s new residential range offers flexible mortgages for key workers, self-employed, those with multiple income streams and customers with a more complex credit history.

LendInvest’s refreshed residential range follows rate cuts across its buy-to-let and bridging products.

These product changes come at the same time as LendInvest announces its first ever Black Friday sale for Bridging Finance, which offers customers free valuations.

LendInvest head of sales Paula Mercer comments: “As inflation falls and the Bank of England base rate remains static, we have been moving quickly to ensure those benefits are passed on to our residential customers who may struggle to get a mortgage elsewhere.

“Today we are delighted to announce these rate reductions, and are at the same time looking to the Chancellor, and his Autumn Statement to provide further support for these borrowers, including first-time buyers. ” 

The post LendInvest cuts resi rates ahead of Autumn Statement appeared first on Mortgage Strategy.