Keeping on top of good advice

The realm of broker advice has evolved beyond recognition over the last decade. Notwithstanding the advent of increasing regulatory scrutiny, fiscal policy changes and a cost-of-living crisis have meant the economic pressures have increased demand for specialist mortgage products and advice. Fewer borrowers than ever fall into the category of vanilla lending and further changes in the shape of Basel 3.1 will likely change what markets lenders can and choose to participate in.

Staying on top of the changes to meet the gaps in the new markets is a challenge but one every broker will appreciate needs to be met. As the size of the overall mortgage market contracts, it will make sound business sense for advisers to diversify into new sub-sectors, and specialist areas are a logical progression.

Buy-to-let

If the cost of finance over the last 12 months was not enough, then political and fiscal reform has come thick and fast. Chancellor Jeremy Hunt announced he would abolish the Furnished Holiday Lets (FHL) regime from April 2025 and reduce the capital gains tax (CGT) rate for property sales. Combined, experts say the two changes provide further encouragement to landlords to either leave the market or professionalise their operations.

The Renters (Reform) Bill was the Government's cornerstone to transform the private rented sector, promising more security for tenants; plans to abolish section 21, get rid of fixed term tenancies and introduce a new registration scheme for landlords. Whoever wins on 4 July will need to start from scratch when it comes to developing new legislation around private rented housing which will mean even greater uncertainty for landlords who have already been waiting for five years for answers on how they must run their businesses going forward.

The push for net zero will continue notwithstanding recent U-turns. Lenders are increasingly having to take responsibility for the quality of their portfolios so the pressure will intensify as policy makers bear down on banks to reduce their Scope 3 emissions. The cost of being a landlord is not going to diminish.

Our aging population

The most recent UK Census was performed on March 21, 2021. The initial assessments conducted by the Office for National Statistics illustrate, and in some cases confirm, how British society has changed over the previous ten years.

The 2021 census figures show the size of the usual resident population in England and Wales was 59,597,300 - some 56,489,800 in England and 3,107,500 in Wales - the largest population in this jurisdiction on record with over 3.5 million more people living in England and Wales than were in 2011.

We all know the UK population is aging and with persistently limited housing supply, the cost-of-living squeeze and modern medicine improving life expectancies, it’s no surprise that the 2021 census showed there were more people than ever before in the older age groups. According to the data, the proportion of the population aged 65 years and over last March was 18.6%, up from 16.4% in 2011.

Our population is aging and growing is just one dynamic. As they do so, their behaviour and expectations change too.

Self-employed

There were around 4.25 million self-employed workers in the United Kingdom in March 2024. After the Covid-19 pandemic, however, self-employment fell to levels not seen since the middle of 2015 and has struggled to recover to its pre-pandemic peak. Interestingly, however, is that almost half of all self-employed working people (48%) in the UK are aged 50 and over, according to ONS data analysed by the over-50s digital community, Rest Less. The proportion of over 50s becoming self-employed has grown year on year for the last decade, despite the Covid-19 pandemic. Multiple income sources are common in many groups of borrowers these days.

Consumer Duty

The regulatory focus has been for so many years about the product (indeed we are still regulated this way) and the sales transaction that it feels we are at last trying to address the bigger picture. The issue is that culturally and practically for firms it is akin now to suddenly deciding to drive on the other side of the road, change learned behaviours, and re-do all the signage. Accidents are inevitable.

The vulnerability landscape keeps evolving and this makes identifying and dealing with borrowers vulnerable or otherwise quite tricky for many firms.

For brokers, the key question is whether their advice has done enough to avoid ‘foreseeable harm.’ Has protection cover been offered? If it has been and then been refused can we prove it?

Greener homes

The deadline to deliver greener homes in the private rented sector may have been scrapped (for now) but the cost is still sitting in that property. At some point, tens of thousands of pounds will need to be spent to make our homes fit for purpose.

It’s important because low energy efficiency has an impact on borrower affordability. Energy bills have rocketed over the past three years. EPCs are not perfect but they are the measure lenders are using to understand their emissions exposures on back books in every market.

For brokers, this measure will start to impact value and affordability.

First-time buyers

With the withdrawal of Help-to Buy, a staggering array of other products has evolved to help support first-time buyers. Deposit Unlock, First Homes, joint mortgage sole proprietor, guarantor, and gifted deposits are all market and government options to help the first-time buyer and new build market. All have their place, but none can realistically be expected to turn the dial.

Ultimately, affordability is one part of the problem. Supply is the other part. But a quantum step change in the volume of supply depresses prices – again not helpful politically to a government that supports homeownership and needs prices to rally. Election promises will come thick and fast and will probably centre around the quick fixes of affordability rather than supply.

Technology

Technology clearly has its advantages in terms of injecting consistency and efficiency into decision-making. But it is far better placed augmenting human potential than trying to replace it – even if the costs savings appear attractive to organizations.

When facing a multitude of tech solutions, choosing the right one may feel overwhelming. We believe the potent blend of automated fact finding and decisioning and manual underwriters are the future. With a role augmented by technology, pragmatic and nuanced decisions can still be made and contact with a person still be made available because at an individual level, risk and circumstances are rarely identical. Costs savings are important, but so is nuance. In underwriting terms that translates to experienced pragmatism.

For brokers the challenge is slightly different. There is a real return to a one-stop shop and convenience is driving a lot of consumer behaviour. Which combination of technology will allow brokers to deliver the best comprehensive service is a key issue.

Sources of support

Our quick list is by no means exhaustive of the issues facing brokers. Working from home, building a business, and maintaining well-being, are some of the issues we have not covered here.

But in terms of markets and products, and operational effectiveness, lenders can and should be available to support their registered brokers in many of these issues. So are networks and clubs – many of whom offer training and technology solutions as well as personal support for brokers. Trade bodies too have some resources available to help inform brokers’ thinking about their businesses.