"To guarantee that every possible avenue is covered, you need to have a broad, in-depth knowledge of the market and all of its innovations."
It’s vital we make our customers aware of all potential options when shopping for a mortgage. This is a core part of our role that’s directly aligned with the new Consumer Duty requirements, which ensures we’re doing everything we possibly can to produce good customer outcomes. A key element of Consumer Duty is ensuring we support customers every step of the way and understand what they go through on their mortgage journey.
To guarantee that every possible avenue is covered, you need to have a broad, in-depth knowledge of the market and all of its innovations. This could range from staying up-to-date with the latest industry news (housing promises to be a huge talking point in the upcoming election), to discussing alternative options, such as specialist lending.
As advisers, our main role should be focusing on making sure customers know all available options to them, such as housing schemes being introduced and updated (including the Deposit Unlock and First Homes). We hold a duty of care for our customers, and we need to inform them of all the choices available to them.
Mortgage guarantee scheme extension
Set to expire in December 2023, the mortgage guarantee scheme was formally extended by an additional 18 months - with June 2025 set as the new date for expiry. This extension was announced in November 2023 during the Autumn Statement by Chancellor, Jeremy Hunt.
The scheme was originally brought in to enable newer generations to get a foot on the property ladder, and buying a home with a 5% deposit is easier for many.
Despite the extension, some mortgage brokers weren’t exactly enthused by the news, citing the fact that the scheme has been “barely used” over 2023 by lenders. This is largely down to lenders raising LTVs on their mortgage products without making use of the scheme.
Nevertheless, while some brokers criticise the underutilisation of the scheme in 2023, in just under two years (from April 2021 to March 2023) 37,376 mortgages were sold through the scheme, amounting to a value of £7 billion. Of the 37,376 deals sold, 86% of them were identified as first time buyers, the target market of the scheme.
Whether a lender is utilising the mortgage guarantee scheme or not, promoting high LTV mortgage to customers that cannot raise sizable deposits could help some move up the ladder. With this in mind, brokers should aim to promote more mortgage products that fall under the scheme. If this proves difficult due to lenders not utilising the scheme to its full potential, promoting mortgage products with similar LTVs is another option to consider.
Other housing schemes
Developers and the government currently offer a variety of housing schemes, making homeownership much more accessible. Not only do they help to address overall affordability challenges, they’re also helping to create a more inclusive landscape for aspiring homeowners. For example, Deposit Unlock allows customers purchasing with participating developers to buy a new build home with a 5% deposit.
As beneficial as these schemes may be, it’s important to recognise that there are drawbacks that must be considered when recommending them to customers. Take the First Homes scheme, which is designed for first time buyers who are looking at buying a home at 30-50% of its market value.
While this has its benefits on paper, critics have argued that high-value areas, such as London and Bath, need steeper discounts (beyond 30%) to make them affordable for claimants of the scheme. The scheme allows 40-50% discounts, but the £250k price cap limits this to cheaper properties (such as one-bedroom homes), reducing the beneficiary pool and potentially missing those in greatest need.
Housing schemes can be an excellent means of opening up avenues to a wider customer base - including those who may find it more challenging to access the property ladder. When recommending these schemes to customers, do your research and be transparent, highlighting any benefits and potential drawbacks and advising on whether a scheme would align with their financial circumstances.
Specialist lending options
The importance of specialist lending cannot be overlooked when exploring options for your customers. Look at the barriers preventing people from applying for a mortgage, and see how many customers you could be writing business for as a result.
Take self-employed customers - according to a survey by The Mortgage Lender 30% of those in self-employment have never applied for a mortgage out of fears of rejection. Meanwhile, Pepper Money outlined that 28% of people with adverse credit are concerned about their mortgage eligibility.
Specialist lending options support a diverse range of financial needs and offer alternatives beyond the more ‘traditional’ mortgages.
Navigating a potential election year
Sir Keir Starmer, leader of The Labour Party, has been preparing shadow ministers and aides for the possibility of an earlier election in May 2024 to occur simultaneously alongside local elections. While Labour have not yet produced an election manifesto, it’s believed that one of their key policies is the changing of the planning system to enable more houses to be built.
As the tides of political change roll in, it’s likely that the incumbent government will begin to introduce more schemes or incentives in an attempt to sway the polls back in their favour (Labour are currently leading the polls at 41% headline voting intention).
It’s up to brokers to ensure that they’re up-to-date with any new schemes or incentives introduced by the current government. With rumours in mid-2023 about the potential return of the Help to Buy scheme, this election could be a great way to capitalise on these potential changes to help customers get on the property ladder. Of course, we must keep in mind that some initiatives take a long time to move from ideation to the floor, and promising customers a pipe dream is not necessarily providing a good outcome.
Consumer Duty
In line with Consumer Duty requirements, thoroughly exploring all avenues is essential for ensuring your customers receive the fairest possible outcomes. By considering the entire spectrum of mortgage options, you’ll help your customers to make well-informed decisions based on tailored advice. This approach not only safeguards borrowers from unforeseen challenges, but also fosters a culture of responsible lending, reflecting a dedication to fair, transparent, and consumer-centric practices.
