PRESENTER: Hello and welcome to this CEMap TV roundtable with me Mark Colegate. We are looking at the latest developments in the mortgage market, from equity release and its role as part of retirement planning, through to professional standards, through to rapid changes in technology. Let’s meet our panellists. They are John Somerville, Relationship Director at the London Institute of Banking and finance; Gemma Harle, Managing Director, Mortgage and Financial Planning Network at Quilter; and Michael Nicholls, Relationship Director also from the London Institute of Banking and Finance. And here are the three key learning outcomes. Firstly the role of equity release as part of overall retirement financial planning; secondly making the transition from mortgage broker to mortgage adviser; and thirdly using technology to support the adviser proposition.
Well, John, we’re hearing a lot about people having pretty small pension pots these days, interest rates are very low, is this an opportunity or a threat for equity release and later life mortgages generally?
JOHN SOMERVILLE: It’s a big opportunity, and what we need to do is ensure that the customer gets exactly the right outcome for the advice they’re looking for and not have to go through several different processes with lots of different advisers in order to get the right outcome for themselves. So financial advisers can look at retirement planning in a different way, just looking at the pension pots, but also need to consider their equity release colleagues in providing that final solution, and using the property’s value within the pension and retirement arena.
PRESENTER: And, Gemma, picking up on that I suppose it raises the issue of professional standards and being absolutely up to date with what’s going on. Could this potentially be quite a big spur for brokers to turn themselves into advisers?
GEMMA HARLE: Absolutely, I mean very much see that mortgage brokers do need to become mortgage advisers and not order takers, and particularly as you move into equity release and those opportunities there, you absolutely need to be listening to your customers’ needs as opposed to just pushing a product. So there’s a real opportunity, and we’re seeing more and more advisers want to move into that space, but they do need support and guidance there. The other piece we’ve seen as well in Quilter is that we did a recent survey and 54% of the over 50s are providing financial support for their grandchildren. So again the need to release capital, need to get money from their assets.
PRESENTER: And something that I just referenced in our introduce Michael was the issue of technology. How is that affecting the mortgage market, not just equity release but in general?
MICHAEL NICHOLLS: Well I think you could say that the market is at a bit of a tipping point as far as technology is concerned. You could compare it to the insurance market 10 years ago, which was dominated by telephony offerings, quite expensive, difficult to source, and then came along price comparison websites like MoneySuperMarket and Confused.com. And there are offerings out in the marketplace now for mortgages, MortgageGym, Abito, who are spending a lot of marketing money promoting a service to people who want to self-serve their mortgage needs.
PRESENTER: Well, lots to talk through there, so let’s go back to this issue about retirement planning, John. Let’s unpack a bit more. I suppose first question is if you need more income in retirement, why don’t you simply downsize your house, why would you want to take out a mortgage product late in life?
JOHN SOMERVILLE: It’s a really good point, and if you took all the emotion out of that question it would be a sensible thing to do. The disproportionate amount of rooms per household when you look at the occupants within it as people get older is quite big, and those that are looking to get on the housing ladder and get into properties that are appropriately sized for their families find it difficult to find those properties. So downsizing seems like the right thing to do; however, when you take into account wanting to stay where you are with friends and family nearby, with facilities that they know and they’re familiar with, people who get older really want to stay closer to those areas, and therefore will hang on to their own, or want to hang on to their own properties.
PRESENTER: But if you’re factoring in whether or not to downsize or take out a later life mortgage of some sort, to what extent should you think about the whole cost of moving? Because once you’ve added in stamp duty and movers’ fees and everything else, you’re probably look at, well you’re definitely looking at a five figure sum there.
MICHAEL NICHOLLS: You certainly are, and then it’s balancing that up with any interest rollup in the equity release product as well. So they would look at the different costs associated with those, and actually they kind of balance themselves out in the initial early stages, because it’s a costly process whether you move home or if you were to have to end an equity release product early, i.e. through death or having to move into a retirement home. It’s very costly in the early stages anyway and can be prohibitively so if you want to move house.
PRESENTER: Well, Gemma, what’s the FCA’s view on things like equity release; because it’s not an area that’s had the best press in the past, so I could see why a lot of people might want to steer clear of doing it, either consumers or advisers?
GEMMA HARLE: I think the FCA see it as it is an important part of the market. It’s such a small part in terms of the mortgage market; it’s going to be a growing market. So it’s quite small at the moment, but they know that it is an emerging market. So they’ll keep an eye on it. But as in allowing people to access their assets in later life, whether that’s through their property or through other investments, that’s what they want to facilitate without creating harm. And they recognise that you can, it is a risk, but the whole sales process that sits behind equity release engaging with the family, all that that you go through, independent legal advice, does go some way to protecting any potential harm.
PRESENTER: And, Michael, from your point of view, is there anything where technology can help on this, or are you seeing any interest, you mentioned MortgageGym earlier, I mean is there an equity release gym or some such thing?
MICHAEL NICHOLLS: I think it’s interesting because the later life market is definitely accessible in terms of technology and using the internet and I think the older population are quite happy to use that. I think with equity release there are ways that it can affect the advice process. For instance already a lot of equity release providers are using technology to cover their own compliance risks, as Gemma mentioned. So they’ll record telephone calls, they’ll record conversations so that that advice that they’ve given is adequately documented. So even if it’s not maybe there yet in terms of being able to self-service an equity release product, it’s certainly there helping companies to make the sales process and the on-boarding a lot more slicker than it was. But definitely in that market there’s more potential risk purely because of the age group of the people that you’re dealing with.
PRESENTER: And so, John, how do you, if you’re an adviser make sure that you’re client gets the best of the choices available; I mean it’s not just equity release, there’s later life mortgages in general?
JOHN SOMERVILLE: It very much depends on where the adviser is based and what kind of company they’re working in. So in a large corporate it’s very easy to move and hand off that process to another adviser who’s close by within the same firm; but if you are a smaller independent mortgage broker or equity release broker, if you need to be able to provide that full holistic process you need to be able to find somebody you can partner with or somebody you can trust to provide the extra advice that you can’t supply for yourself. And actually we probably wouldn’t want or wouldn’t see in the marketplace one adviser that can do everything, because it’s such a huge expanse of knowledge that you would need to retain. And also to be able to keep that experience going you’d need to be able to trade in all different products on a regular basis, and as we know that’s not necessarily the case, people tend to specialise, and actually being able to hand over to a trusted colleague would be very beneficial, and that’s really where we hope that people develop their knowledge.
PRESENTER: So, rule of thumb, how many of these cases a year should you be doing so that you’re maintaining a decent level of match fitness?
MICHAEL NICHOLLS: For equity release, it’s very difficult to say. But if you’re doing one or two cases a month then generally speaking the knowledge is kept up to a decent standard; if you’re only doing one case every six months that can be very difficult to maintain that knowledge. So we would recommend some form of CPD to keep that knowledge appropriate. A lot of providers are doing these sorts of CPD events and webinars, that sort of thing, to maintain that piece of knowledge. Because without doing it on a regular basis you will tend to lose that market awareness of what’s going on around you.
We’d also recommend more CPD around what’s going on in other markets. So for instance if you’re based in equity release, but you need to know a little bit more about inheritance tax, and you’re recommending something to a customer who may have a large inheritance tax bill but you can’t recommend that, then you need to know enough to think yes I need to hand this off to a trusted professional, but obviously not enough to provide advice on your own front so therefore shy away from actually doing anything that might be detrimental to the customers.
PRESENTER: And, Gemma, for you at Quilter Financial Planning, how do you manage that? Because I mean there’s a potential that a client finds that there’s all sorts of different advisers at somewhere like Quilter who want to get their hands on them. It goes from mortgage, is this an advice issue, is this is a retirement issue?
GEMMA HARLE: Absolutely, so following on from you John, in terms of we make sure that there are hands-off processes. So if an adviser isn’t particularly in that advice or licenced for that type of advice, we have routes for them to hand it across. And also you’ve got to remember the majority of clients that are going through equity release are vulnerable, and if you have a clunky sales process, a clunky process, you’re the trusted person in front of them and then you’re handing them off to somebody they don’t know, they could walk away when actually they have a need that should be fulfilled. So it’s really important that the firm’s aligned with other firms that are like themselves so that the customer journey and the way the customer’s treated is very similar so we don’t put them off.
The other thing we do in terms of, and most networks do, in terms of we preapprove every equity release case. So a second pair of eyes over that case to protect against the fact that some advisers will only do one or two a year. So to protect that we will look at them before it even goes to a lender to check it’s suitable.
MICHAEL NICHOLLS: Yes, we’ve spoken to a lot of equity release providers and advisers in the industry, and again to put the market in its context it’s potentially a £4bn market at the moment; potentially growing to much bigger. But if you put that into the context of many tens of billions of pounds mortgage market in comparison it’s smaller, which may explain the FCA maybe hasn’t got it at the top of its radar. But we have looked at that hand-off process, and I think our view and some of the concerns there are for smaller firms that don’t have perhaps a trusted source to refer that lead to, whether there are other areas of advice that’s necessary, that could be a potential risk in the market for smaller firms that haven’t got those resources.
PRESENTER: Well, John, you’re nodding a lot there. I mean how do you, if you’re in a smaller firm, get those professional connections?
JOHN SOMERVILLE: It’s interesting really, because from, it’s a case of compliance versus ethics really when you look at is it the right thing to do to say to a customer you need to go and seek advice in this area or that area. So for instance if you need a will you’d go off and see a solicitor or a will specialist, is it OK to do that? But then where is the follow-up as well? Does the adviser follow that up to make sure the customer has followed those through? So compliantly by handing that off, it’s fine, but ethically you’d want to make sure that they’d completed that part of the process. And it’s the same with financial advice. So if an equity release adviser had a need to hand off to a professional financial adviser, but didn’t have a professional connection, asked the customer to seek that out, you would still want to or hope for that kind of professional courtesy to go back to that customer and make sure that that has been helped along the line.
And secondly from an equity release provider point of view is to remove that fear of handing that over to a financial adviser, there’s often that perceived worry that they’re going to lose the customer forever; when actually if it’s done professionally and the right outcome is observed for the customer then there’s no need to worry really in the marketplace.
PRESENTER: And, Michael, is it a case though that in most of these instances it’s somebody’s come to the equity release specialist first who then says this might be a broader pensions or retirement issue, or is it that somebody goes to the retirement specialist who then says equity release might be part of your solution, which way does it tend to flow?
MICHAEL NICHOLLS: That’s a good question, Mark. I would go with the first option definitely in terms of the marketing that’s going on in the equity release space at the moment: the awareness by the public of the products that are available and then more flexibility. So I think it definitely starts with a discussion from the point of view of releasing equity for someone in later life, and then as John’s described it may lead into other areas. And that’s where there is concern, we have concerns that it may not, depending on which route you take, actually end up with a completely holistic solution being offered.
GEMMA HARLE: And this is where mortgage guys needs to be mortgage advisers. So they’re not going straight in with the solution, they have to understand what is it you’re trying to achieve, and therefore consider all the options. Definitely can’t have somebody walk in and say I want equity release. I think the other point there around the hand-offs is you need to make sure you’ve got a very clear introducer agreement whoever you’re doing it with. And who’s going to pay? We see more where people are looking to equity release, and it is the right solution, but they’ve got other assets elsewhere. But it might be better to leave those from an inheritance point of view or whatever. But they need to get full financial advice to come to the conclusion it’s an equity release that’s the right thing for them. Is that financial adviser going to do that free of charge? Is the equity release mortgage adviser going to do their bit free of charge? So it’s who’s going to pay. So you have to have a really good relationship, and a really good introducer agreement knowing who’s paying, and be very open with the customer as well at the outset.
PRESENTER: Picking up on that, how do you go about doing that? Because at some point you must do your first deal, it’s probably very hard to have all the paperwork and the agreements on finances in place with another professional party before you’ve got a client.
MICHAEL NICHOLLS: Yes, very much so. So the way that our industry is broken down, and when you look at, Quilter’s a great example of the way that they can help all of their advisers with introducer agreements, and to introduce them to other firms within the Quilter network that would actually be able to help them with that. So that’s an ideal situation to be in. If you’re in a large corporate, a bank or a building society, then again there’ll be internal processes involved. So really then it’s the smaller firms that fall outside of this catchment that would then need to go and seek advice themselves really to find who would be most appropriate in the marketplace, who other firms, likeminded firms use, and go and explore that in a little bit more detail. There are many advisers out there with open doors really with just that customer ethical outcome at heart, and it is down to the individual unfortunately to go and find those people.
PRESENTER: And, Gemma, just going back on what you were saying earlier, I mean let’s keep with this example of somebody wanting an equity release product, but once for whatever reason that product has been set up, it’s been sold, what should you do as the adviser: is that now off your books, should this be the start of an ongoing relationship, how often should?
GEMMA HARLE: From a regulator’s point of view it is off your books. There’s no obligation to actually go back and revisit that customer. But from an ethics point of view you should definitely touch base with your customer, a few nudges each year to say how are you, how’s it going? Because these are older customers, and they’re going to have events throughout that, and severe events, death etc. of loved ones. So you’ve got a moral responsibility to look after them. And also on a commercial aspect they’ve got family, they’ve got people, so you’re actually building your business as well, but you absolutely have a moral responsibility to keep in touch with them.
PRESENTER: If you had to turn a moral responsibility into dates in the diary to call them, is this a once a year thing, is this every six months, once every five years, what’s a good rule of thumb?
GEMMA HARLE: A rule of thumb I’d say is a year, but you would have seen, the adviser would have seen the customer. And some people that go into equity release absolutely not, maybe a couple of years is fine. It depends what they want the money for. It depends whether they’re going into drawdown, how they’ve been set up. But rule of thumb I would say is a year just to touch, any customer, why wouldn’t you keep in touch with them?
PRESENTER: And, Michael, presumably for a lot of people getting involved in things round equity release, it’s about intergenerational movements of money. So you have got an opportunity to be talking, when the decision’s made it’s perhaps not necessarily just a decision made by the two people say who own the house, it’s also a decision being made partly by their children and perhaps even grandchildren are involved in it.
MICHAEL NICHOLLS: Yes, and going back to what Gemma was saying about the opportunity to go back to see the client. The interesting thing Mark is that in the equity release space now products are so flexible that there’s almost, there is a re-broking opportunity there that, there’s almost a secondary market in equity release now, where the early repayment periods on a lot of products are so much shorter now that people are actually coming back for another slice of equity release five, six, seven, eight years later. So in some respects as Gemma said you can think of equity release clients as any client you should keep in regular contact with to review the deal that you did for them and whether it’s still appropriate.
PRESENTER: Where’s the dividing line between being absolutely up to date on what the latest products are, and churning a vulnerable old client?
MICHAEL NICHOLLS: There’s probably, it’s a fine dividing line in such a quickly developing market. And again it probably goes back to what John said about the number of deals you should be doing. Again certainly in the last two or three years the market has moved incredibly fast. It’s grown incredibly fast. It’s still small as I said earlier compared to the overall market. But if we look at the qualifications in that area, we’re looking at updating our qualification for the new products that are coming out all the time. So CPD as we mentioned earlier is an important area for advisers to carry out to make sure their knowledge is up to date.
PRESENTER: And, Gemma, you’ve mentioned this line about turning someone from being a mortgage broker to a mortgage adviser. How would you distinguish between the two; what are the characteristics of being the adviser?
GEMMA HARLE: An adviser is somebody that would ask you what you’re wanting to achieve. They wouldn’t enter into our product conversations until they’ve done a full fact find, understand your aspirations, understand why you want the money, what’s your financial goals before they move into product solution. A broker to me is somebody that contacts you and says I’ve got the best two-year fix, or I’ve got this. So there’s a real difference. And they look at it from a holistic point of view, even if they don’t have permissions, they consider what your overall financial needs are, and they should refer if there’s other things that come out. They’re looking after your, they’re a financial adviser, whether they’re just a mortgage adviser or just a protection adviser, they’re advisers, and should be able to articulate the value in that advice. You know, if you just want a broker go onto Money Supermarket and do that yourself. They should be able to articulate I’m an adviser, therefore you get this, and you get protected, and I will keep in touch with you. Articulate what your service is.
PRESENTER: And, John, we’ve been talking about mortgages and equity release at the later life stage, but how does that picture change in terms of who you as an adviser need to interact with in terms of advisers in other parts of financial services when the mortgage is at the start of life? So say a couple in their late 20s, they haven’t, probably haven’t really started thinking about things like pensions.
JOHN SOMERVILLE: However, yes, an interesting point. I’ve done a little bit of research on this recently as it happens, and when you look at saving for later on in their lifecycle, so children will be coming along, so they may have bought their first house. But actually when do you start putting money together to pay for school fees, so average private school education is something like £19,000 a year. So if you’re going to find money for that. So financial planning very much comes into that realm, alongside the mortgage advice. And of course a good mortgage adviser would recognise that. Secondly of course the intergenerational lending that’s going on at the moment. So if you have children or children are going to come along later on in life, the grandparents may want to get involved as well. So a referral from those people who have just bought their house, a referral to their parents, and actually what do they want for their children, also potentially their grandchildren, that whole relationship should develop from those very early stages.
PRESENTER: Gemma, you mentioned a little earlier in the programme that figure, I think was it 54%?
GEMMA HARLE: 54% of the over 50s are supporting grandchildren, and children.
MICHAEL NICHOLLS: I know.
PRESENTER: I was going to say, can you just unpack that a bit more? I think that’s an extraordinary figure, when you dig down into it, what are they, how much are they supporting them?
GEMMA HARLE: So whether it’s school fees, it can be more affluent people, or whether it’s just general university fees, nursery fees, just support, direct support. So not necessarily their whole financial wellbeing, but they are contributing to yes.
MICHAEL NICHOLLS: I was going to say there’s also a percentage, I believe the figure I saw recently, it was something like 30% of equity release is also used to pay off unsecured debt at the point of drawdown of the equity release. So that’s been another shift in the equity release and later life lending market probably in the last 10 years that it is now seen as an acceptable way in later life of actually paying off the mortgage and paying off additional debt as well as helping the family, which probably 10 years ago it was very much frowned upon that that would ever come into an equity release equation to actually replace one form of debt with another.
GEMMA HARLE: The other thing is the change in children’s view of their parents in terms of before it would be you’re not taking a mortgage on your property, that’s my inheritance, you can come and live with me. Now they’re saying actually no, raise your money on the property, I’m happy, I’d rather you stayed in your own home. So there’s much more support. The children are much more accepting of that. And if you go back to mainstream mortgages now, the average term on a mainstream mortgage is beyond 30 years, 35 years. So the idea that we’d all be mortgage free by the time we’re 60 is now, it’s gone. So it’s just a different view.
PRESENTER: But having this, carrying perhaps this higher level of debt into retirement that you’ve mentioned there, how does that sit alongside the fact that we keep hearing all these statistics about more of us are going to be, being blunt, iller in later stages of life for longer?
JOHN SOMERVILLE: Correct yes.
PRESENTER: Is there a danger that there’s no pot of money left to fund anything apart from most basic care for that?
JOHN SOMERVILLE: Yes, and that’s where good planning comes in I guess. So making sure that the need from the equity release adviser is fully explored. So that it’s not a case of a knee jerk I want to get as much money out as possible; it’s asking the question why do you need that money, what’s it for, what’s it aimed to give you? And do you need it all now? Can it be phased, is there something that can be done? And that’s really the main difference between somebody who’s dealing with it as a transaction, as opposed to as Gemma’s quite rightly said, as opposed to somebody who actually wants to plan for this correctly over a longer period of time.
Of course if the money runs out there’s only a certain percentage that you can take, and it depends on underwriting and what have you, so there’ll always be some money left within the property. But equally there’ll only be so much they can ever draw down, and at that point there will always be state benefits. But again it’s really did they imagine their later years being looked after by the state or actually looking after themselves, which of course is the aspiration of all of us that we’d want to maybe maintain and look after ourselves at that point.
PRESENTER: And just a final thing to pick up on with this, Michael, certainly in the pension space one thing whenever they do research is, and they ask people how long they think they’re going to live for, people get it completely wrong. They don’t realise how long they’re going to live in retirement. Is that also a problem in the equity release space, people think they might need the money for 15 years, actually statistics tell them they’re likely to live for 20?
MICHAEL NICHOLLS: Yes, I think you’re right to a certain extent Mark. But I think on the flipside of that the market has developed so much more in the last five years even that those kind of products, we talked about retirement interest only mortgages have only been mainstream in the year or so. So equity release is not any more kind of a one hit, there’s an ongoing need, and it can be something that can be looked at throughout later life. And as John said it’s all about planning effectively. So you’re not taking one chance on this is how it’s going to pan out, you’ve actually got a fall back, and things like drawdown and being able to change schemes after a certain time to another scheme are still there.
PRESENTER: This brings us I think on to our final topic, which I mentioned at the start, which is technology. Michael, you’ve mentioned MortgageGym at the start of the programme. If you’re a mortgage broker or adviser, should you be worried about things like MortgageGym, are they going to do unto your profession what Zoopla did to estate agents?
MICHAEL NICHOLLS: Well I think the availability of online self-service or execution-only mortgages is now back on the FCA’s agenda. It seems to want to make execution-only sales more easy to effect, and I think that will happen over the coming years, simply because there’s more technology out there and it’s more readily available. The interesting thing from the point of view of a mortgage adviser is concerned is that I think technology will suit people who fit the mainstream of a mortgage borrower. So people with clean credit, with a good deposit, you know, in a well-paid job, etc.
PRESENTER: So all the dream clients will disappear.
MICHAEL NICHOLLS: The kind of mainstream clients who previously may have gone to their parents and asked them how they got their mortgage, and they’ve listened to their parents and go to the same adviser, that may still happen, but I think more and more people will use technology in the way of MoneySuperMarket etc. for mainstream cases. The good news for mortgage advisers is there’s a lot of people who don’t fit the norm and fit the criteria of a mainstream mortgage borrower. Whether it be self-employed, whether it be people working on contracts, people in certain types of employment with different patterns of salary and wages etc., who will still need to access face-to-face bespoke advice. So I don’t think personally mortgage advisers or brokers have too much to worry about at this stage.
PRESENTER: Gemma, would you go along with that?
GEMMA HARLE: Yes I would. What technology will do will enable more of the admin and grunt work to be done through technology, which will enable advisers to spend more time giving advice. And the research that we do, we absolutely believe in face-to-face advice, shows that customers value that. They don’t value having to send in their payslips and all of that, why can’t that all be done seamlessly? But actually having a professional that helps them make the decision, that tells them what the options are, is absolutely valued. So I just see it as an enabler, and I don’t think it will be, somebody that will come in and do that will be a Google, an Amazon or something like that that will change our market. Because we’re so far behind, we’re behind the GI market in terms of technology that’s available in the mortgage industry. But I think it will free up advisers to be proper professional advisers and enable a lot of the paperwork to be done by the machines.
PRESENTER: So how are you using technology at Quilter to free up? So I suppose when you’re the customer and you go and see the adviser, all of that finicky background stuff like payslips and things is easily dealt with.
GEMMA HARLE: Well it varies because we’re a network. So within that are firms that run their own businesses. We keep them safe. We help them, we help them develop. But they can adapt, they can use certain technology that they want to. So some are using the open banking, some of them are using the digital bank statements. Some aren’t, some are still using paper for everything. So what we do is help them. We provide business consultancy to help them adapt their business and future proof their business. And look at making sure as well that they’re using the technology to collect as much information about their customer as they can to help with that particular need, but also future needs. Because we see mortgages the first time you move into the advice arena as a consumer, but throughout that journey you need accumulation, you need de-accumulation advice, so using technology to capture as much information.
PRESENTER: John, would you agree that perhaps the dream clients over time will move online and away from the market, or do you think that when you buy something as important as your home you actually want a human being to talk to about it? There’s something really important about that.
JOHN SOMERVILLE: I think that technology will take people to a point. So within the process there will be those that will adopt the technology to get as far as they can. But when it comes to actually the decision making process itself, there’s nothing to substitute that human interaction. And actually the view that I’ve gained recently is that that isn’t going to be around for a very long time either. We’ll be looking at artificial intelligence within financial planning for quite some time, but what it’s proving is that people will quite happily transact to a certain point, but when they really want that crucial decision they really need to speak to somebody who’s a professional. So I actually think that what it will do is it will do exactly as Gemma and Michael have just explained. It will free up that little bit extra time for the adviser to spend that quality time to help them think through their final decision process.
Also within the mortgage market unfortunately there are bigger things afoot regarding the whole transactional part of the process, so land registry and all the rest of the legal proceedings that need to go on, and unfortunately that part of the process is a long way off being made into a technology process, and of course that will slow things up considerably for years to come unfortunately.
PRESENTER: Well on that Michael, is there any evidence with technology that it’s getting quicker to sort out a mortgage than it was say 10, 20 years ago when we were all paper based?
MICHAEL NICHOLLS: I would love to say yes, but certainly anecdotally the evidence that I hear from the market is that 15 years ago you printed off an application form, you filled it out in hand with your client, you got the documents, you put them into an envelope and you posted it, and maybe four/five weeks later you may get a mortgage offer. As a broker pointed out to me recently you now input the application form, you now collate the information and send it online, and four or five weeks later you may get a mortgage offer. So I’d love to say it’s made the whole process quicker, even to offer, as John was saying after offer when it becomes the legal documents, that side of things, that’s still pretty slow, but I would probably say in the main no.
PRESENTER: Gemma, why is that happening?
GEMMA HARLE: Well you have to yes, it’s not good enough, and you have to look at how many lenders actually operate in the market. And we’re whole of market so we deal with 60 odd lenders, and I would say it’s been in the industry a long time. When I started we kept saying to lenders can we have a common application form, because you all need the same amount of data, you need certain things. We have not got any commonality even that, so that was back in the days of paper when you would have thought it would have been easy. Haven’t been able to agree that, so I think it’s, the lenders need to work together, and perhaps that will come with the open APIs. Perhaps they will have to do more of that. But I think that’s part of the stumbling block, you’ve got very different, you’ve got big banks in there, then you’ve got challenger lenders, you’ve got the niche lenders, you’ve got equity release, you’ve got, it’s not joined up.
The only thing I think has improved is sourcing systems are better, easier to use, both for equity release and in the mainstream. They are better, they are easier. But other than that it’s hard to think. Client portals that are in use, some distributors have really good client portals so that helps. But it’s help it’s not a game changer.
PRESENTER: In the round John, would you say that the industry’s better at lending to people than it was in the past? Has it got a better grip on who it’s lending money to and whether they’re a good risk and they should be borrowing that much?
JOHN SOMERVILLE: Yes, I would say that’s absolutely correct, yes, and it’s simply because the availability of data. And what will improve that further is the UK are an early adopter of open banking, and that open banking information will only add to the quality of the data that is available to lenders, and will enable them to make better more qualified decisions. And hopefully a little bit speedier as well. I think that probably help a lot when people grasp and understand really what open banking is all about.
PRESENTER: And, Michael, looking ahead to the future, what’s some of the innovation you’re seeing coming? We’re hearing a bit more these days about so called green mortgages, what are they?
MICHAEL NICHOLLS: So green mortgages are mortgage products that relate to the type of property that’s being constructed, and it’s a small but growing part of the mortgage market. So these are products that relate to properties that have a low carbon footprint, are made from eco-friendly materials and meet other kind of criteria that make them a green kind of product.
GEMMA HARLE: Another point of that, it means that the monies need to become, be ethically funded. So the lender needs to be secure in ESGs or whatever.
MICHAEL NICHOLLS: I think that whole area will continue to grow. At the moment it’s a very small select part of the market, but already there are new modern methods of construction. There are a number of providers who can design your home in a factory, as opposed to on a building site. Deliver it to your specification. I think lenders have probably got to catch up with that as it becomes more popular, but it’s certainly something that we’ve kind of imported from the States and Northern Europe where it’s very popular. So I think modern methods of construction can provide a solution in this country, particularly where there are areas of housing shortages and difficulty in first time buyers getting on the property ladder.
PRESENTER: But surely one thing here in the UK is that we seem to be addicted to quite old property, and there’s a huge amount, certainly around here in London, of Victorian, Edwardian property. They’re not that efficient. Could you see people developing mortgages to improve properties that already exist, rather than building things from scratch?
MICHAEL NICHOLLS: Yes, I think that market is open to specialist lenders at the moment. There are specialist lenders out there that will do refurbishments and property developments, and also finance for self-builds for people who choose to build their own properties through using mortgage finance. So I think there will be more creative ways of people actually buying their own homes and getting finance to actually support that.
PRESENTER: Gemma, we’ve referenced in the course of this debate the fact that mortgages now are perhaps not just 20-25 years, they’re much longer than that, do you worry long term that’s a problem for the industry? We’re ultimately encouraging people to borrow money to buy something that fundamentally they can’t afford, and that is not going to end well for everyone.
GEMMA HARLE: I worry if we move into more execution only, because you could then, you’d get advice, just say you did get advice at the outset, you’re never going to go near a financial adviser, but you could have re-mortgaged and re-mortgaged, and your circumstances will have changed. And you haven’t had that conversation, you haven’t had the opportunity for conservation about protecting your home, so having your mortgage protected, your income protected, you haven’t had that conversation. So I think if we move more away from advice into automation and stuff, I think that is a bit risk. But I think if we can support advice, and make sure that the advice is adding value, and it’s not too expensive, and they have access to it, then I don’t think that’s an issue.
I think the thing we have to consider as well about the innovation piece is looking at more intergenerational lending, how can we do that? They’ve done that in other countries abroad quite successfully. And also going back to house building, we need to build houses that are suitable for the fact that they house bigger families, because people can’t move around so much. And we’re going to have be, I was saying that equity release can be used to avoid you moving in with your kids, but there’s going to be more of that as people live longer. So I think it’s the type of property we’re building. And then the other piece, which I don’t know whether it’s just pie in the sky, is could lenders look at offering better rates on properties that are much more environmentally friendly? If they’re insulated, all of that, could there be a differentiator somewhere along there? Not sure you’d get the big five banks to agree to that, but.
PRESENTER: Well you’re quite a big player in the mortgage market, couldn’t you demand that that’s what your clients want, and force somebody to create it?
GEMMA HARLE: I’d love to yes. Somebody’s got to start that, and I think the new build stuff that is good is good. It’s much more environmentally friendly, particularly at the work that L&G’s doing. That’s really good for market.
PRESENTER: John, final thought from you. Is now a good time to be a mortgage adviser, and what are the main opportunities and challenges over the next few years?
JOHN SOMERVILLE: Yes, I think it is particularly exciting at the moment, and I think that the amount of innovation and change within the product design that’s going on is exceptional. I think lenders are starting to learn and adapt from their customer base, rather than dictating to them as they’ve done in the past. Really down to many years of having low interest rates has given the providers something a little bit more to think about, to appeal to niche markets, but also to avoid the mainstream and actually do something of variety across the piece. So it’s appealing to more and more consumers. Equally with the changing market dynamics, so you’ve got people who are getting on the housing ladder later, they’re having to borrow throughout their lives, and then have to repay from a product to release equity.
The mortgage customer now is a lifelong customer, not a one transaction 25-year mortgage that they used to have. It literally is a lifetime commitment that goes on even beyond whether or not that property’s been repaid. And equally there are many customers out there at the moment that really need help and advice with those that are still stuck in the trap of having interest only mortgages with no repayment vehicles, and where those people are aiming for and what they want. At the moment unfortunately with no plan they’ve kind of dug their heads in the sand, and we know that this is an ongoing problem if it’s not solved. And really it’s the guys on the ground that can really help them.
PRESENTER: We have to leave it there. Thank you very much for watching. Just remains for me to thank our panel. John Somerville, Gemma Harle and Michael Nicholls, thank you all very much for joining us.
MICHAEL NICHOLLS: Thank you.
PRESENTER: From all of us here thank you for watching, goodbye for now.
And here are the three key learning outcomes. Firstly the role of equity release as part of overall retirement financial planning; secondly making the transition from mortgage broker to mortgage adviser; and thirdly using technology to support the adviser proposition.