"When it comes to the biggest financial decision you are likely to make in your life, wouldn’t you want regulated advice?"
Away from the regulatory hullabaloo created by the FCA’s most recent Policy Statement on mortgage advice and standards, it’s perhaps more informative to look at how the market has kicked off in 2020, and whether we now have greater cause for optimism around activity levels during this year and beyond?
One point however about the regulator’s action in its support for execution-only business, and that is around the action that all mortgage advice stakeholders can be taking in order to counter any potential ‘assault’ on the business. Yes, you may find yourself in a world where it appears easier and cheaper for consumers to secure execution-only business but is this what the majority actually want?
If they’re made fully aware of the benefits of advice and the protections they are afforded by going down an advisory route, then it’s quite possible this will solidify the decision in their minds. If they’re told that a suggestion of a product by an execution-only channel is not advice, won’t they think again about what they could be getting themselves into? If they’re cognoscenti of what an adviser does when they take into account all their needs and circumstances, choosing a product based on suitability and eligibility, rather than just an algorithm, won’t that also help sway their minds?
The mortgage market, and particularly intermediaries, have a real opportunity to highlight their service offering against execution-only, and (if necessary) to make the case for advice all over again. MMR provided a natural advantage; these rule changes on the face of it are taking it away, but actually execution-only providers are taking on considerable risk and, when it comes to the biggest financial decision you are likely to make in your life, wouldn’t you want regulated advice? I know I would.
Which I suppose leads us neatly onto the market situation which, anecdotally at least, appears to have moved on at some pace. Lending figures for the end of 2019 were strong with the full anticipation that this will continue into 2020.
In particular, the market for first-time buyers appears to have improved. Nationwide’s recent statistics said that, for the period up until October 2019, 354,400 first-time buyers had made a purchase, more than double the 155k figure of 10 years ago. Similarly, those benefitting from the stamp duty exemption have enjoyed savings of over £1bn since it was introduced in November 2017, with a fifth of all residential transactions using the relief in Q4 2019, according to HMRC. This, by the way, was a quarterly record of £154m
That’s clearly good news for first-time buyers although whether it truly incentivises new purchasers onto the ladder – or merely helps those who were going to do it anyway – is still a moot point. I suspect the latter and there remains an elephant in the room in terms of actually helping more potential first-timers to get into their first properties.
That being, how to secure and save for a deposit. Recent data from Zoopla highlighted the first-time buyer hotspots in the UK, but also looked at the average deposit requirements for purchasing an averagely priced home in those areas. So, you want to buy in Barking & Dagenham? You’ll need 45k. Reading? £36k. Wolverhampton? Nearly £22k.
These are not drops in the ocean and it’s perhaps no wonder that the Bank of Mum & Dad is needed in so many transactions, and that the lending market is catering for this type of parental support with more and more mortgage products and schemes. But what of those who want to buy but don’t have access to such large deposits or a friendly parent willing to guarantee a loan or gift a deposit?
95% LTV mortgages exist but not in any great number and they come with a considerable cost. A 75% LTV first-time borrower is likely to pay 50% less on their mortgage payments each month than a 95% LTV borrower – our own AmTrust Quarterly research shows this result time and time again. So, what can be done?
I read a recent piece from Alan Cleary at Precise urging lenders to look beyond the vanilla when it comes to first-time buyers, and I have to agree. It wouldn’t have historically been the case, but high LTV mortgages must now be considered ‘beyond the vanilla’ and we need to usher in an era of first-time buyer products which cater for the incomes and work patterns of today’s younger generation. Plus, let’s look at using products such as private mortgage insurance which can not only mitigate the risk but make it more affordable for borrowers.
There are opportunities to do more – we should all be enthused by the tick-up in first-time buyer numbers but, coupled with being able to more new-builds, there are still large numbers being kept from their first property. Our industry should take on this challenge and adapt accordingly to do so.