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Assessing the remortgage surge

23 July 2019

Alan Cleary - Managing Director of Precise Mortgages

The number of people remortgaging has surged in recent months. After hitting a near decade-high at the end of 2018, the trend has continued in 2019. Research by conveyancer LMS found there were 52,560 remortgages in April, with borrowers taking out an average amount of £168,600.

What is the reason for so many people choosing to remortgage? An unprecedented long period of low interest rates, the economic uncertainty caused by Brexit and fierce competition between lenders have all contributed to creating a perfect storm which has resulted in many homeowners deciding to batten down the hatches. With new loans to both movers and first-time buyers remaining sluggish, more people are opting to stay put, often adding value to their existing property by carrying out improvement work.

Taking advantage

There has been real growth in the popularity of longer-term fixed-rate deals as homeowners take advantage of the low interest rates. In a world where the price of everything is going up, there is peace of mind in long-term payment security and knowing that your mortgage payment is the one outgoing that you’ve got some control over.

This is again borne out in LMS’s research, which found that 97 per cent of those remortgaging chose a fixed rate product in April 2019. Not surprisingly, five-year fixed rates were the most popular option, making up 48 per cent of purchases, followed by two-year fixed rates at 34 per cent. Nearly 50 per cent of borrowers also chose to increase their loan size.

Interestingly, the research also found that 65 per cent of borrowers decided to remortgage using the expertise of a broker, a near three-fold increase on the 22 per cent who used a broker to remortgage back in September 2016.

What this highlights is the importance of advice in the remortgage process and the vital role brokers have to play in helping customers refinance their properties. It means there is a big opportunity for brokers to reacquaint themselves with previous customers who are approaching the end of their term and those who have already lapsed onto their lender’s reversion rate. Lenders also have an important role to play by making sure they are designing a range of products to meet customer demand.

With so many people looking to remortgage, it is vital brokers and lenders work together to ensure customers can access products that help them save money and release cash they have built up in equity in their property. Brokers should make sure lenders know all of their customer’s information from the very start of an application to ensure the case can be completed quickly and efficiently.

At Precise Mortgages, we allow customers to remortgage on both our core buy-to-let and residential mortgages. We are also one of the first lenders to offer Help to Buy remortgages with zero product fees, refund of valuation and cashback to help customers make the transition from first-time buyers to established homeowners.

So whether your customer wants to unlock equity in their property, is nearing the end of their term, wants to escape from their lender’s reversion rate or simply wants to move to a cheaper product, it is up to all of us to ensure that we offer customers options and choice.

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Rising rents a sign of restructuring market, not letting agent fees

23 July 2019

Alan Cleary - Managing Director of Precise Mortgages

Last month the Tenant Fees Act came into force, preventing letting agents from charging tenants disproportionately high referencing and contract fees. At the same time, rental deposits were capped to five weeks.

As a move to protect tenants from being charged unfair and sometimes astronomical fees, it’s one that we at Precise Mortgages welcome.

We strongly support a private rented sector that treats tenants fairly, just as we want to see one that enables an environment allowing professional landlords to offer quality accommodation to those tenants and still turn a profit.

There have been plenty of warnings that the loss of this fee income would prompt letting agents to raise landlords’ costs to compensate, piling yet more pressure on them at a time when their finances are already undergoing massive change.

It’s something that has seemed the inevitable, if unintended, consequence of legislation designed to protect tenants.

Rents increasing

So it would seem to have turned out.

The private rented sector report from ARLA Propertymark showed the number of tenants experiencing rent rises increased to the highest figure they’ve ever recorded, at 45 per cent in May 2019. Year-on-year, this figure is up from 27 per cent in May 2017, and 28 per cent in May 2018.

It seems reasonable to draw the conclusion that landlords, faced with rising costs on yet another front, have done the only thing they can to manage – raised their own prices in response.

There are other factors at play here, though.

The same report from ARLA also showed the number of properties available to rent dropped marginally to 201 per member branch in May, from 202 in April.

Meanwhile, demand from prospective tenants increased in May, with the number of house hunters registered per branch rising to 69 on average, compared to 64 in April.

Year-on-year, demand is up 15 per cent, from 60 house hunters registered per branch in May 2018.

Restricted supply combined with growing demand for rented accommodation is supporting these rent rises; they are not simply a function of passing on letting agent fees back to renters on a monthly basis, easy as that explanation will no doubt seem to many.

Fundamental restructuring

There is a much more fundamental restructuring going on in the private rented sector – one that began with the stamp duty surcharge and continues today as landlords’ profits feel the pinch of reducing tax relief on mortgage interest.

There has also been the simultaneous tightening of prudential rules by the Bank of England, with tougher affordability stress tests and the portfolio rules taking years to bed in as landlords come to remortgage.

It’s not been an easy ride for landlords over the past few years, and it’s taken considerable time to adjust. Yet we are seeing that they are adjusting.

Our own buy to let lending remains strong – something that we attribute to the fact landlords committed to remaining in the market are working out smarter and more efficient ways to finance their investments.

We’ve tried to support that too, by identifying where in the market we saw ‘problem’ gaps appearing.

London’s fundamentals are not bad

London’s market was the obvious one: high house prices and proportionately lower rental incomes made yields too skinny to stand up to the tougher affordability scrutiny lenders were having to apply to new purchases and those made by portfolio landlords.

But the fundamentals of the London rental market are not bad – quite the contrary. It’s often the way with rules designed to create systemic stability; it makes sense overall, but there are going to be examples of good deals that don’t fit the new box.

Ironically, putting this kind of pressure on London’s rental market probably wasn’t the intended outcome.

Demand for flexible and high-quality accommodation in the capital is consistent and strong; capital values are typically resilient, particularly over the long-term, which is usually how landlords invest.

We recently launched portfolio top slicing, which allows landlords to use their surplus portfolio or earned disposable income to prove they can meet any financial stresses on a new loan application.

So long as the landlord’s overall interest cover ratio meets the minimum requirements there is scope to include very low yielding properties in a portfolio so long as they are balanced by higher yielding properties elsewhere.

This move puts London and other high value markets back in the game; something that tenants will no doubt appreciate at a time when supply is under pressure and rents are rising.

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Default interest rates should be scrapped

22 July 2019

Alan Cleary - Managing Director of Precise Mortgages

We believe that now is the right time to back the call for a wider debate on the practice of charging bridging default interest rates. I look forward to a time when default interest is a thing of the past.

Precise Mortgages does not and never has imposed these default interest rates. We treat each and every customer fairly, whether they are a short-term bridging loan customer or a long-term customer.

We support the recent criticism of lenders who charge defaulting customers rates as high as 4% per month or concealing rates by setting a very high standard interest rate which is discounted if payment is made on time.

The bridging sector has come on in leaps and bounds in recent years, with more than £4bn of loans being written in 2018.

However, there are still some lenders who need to take a long hard look at themselves. They’re being lauded by some in the industry whilst still profiting from non-performing customers.

It’s surprising that in 2019 there are still so many lenders who impose these charges and they need to be consigned to the dustbin of history. Practices like this are giving bridging finance a bad name and it’s vital that the industry becomes clearer and more transparent in the way it does business.

We proactively monitor customers’ accounts and don’t wait for problems to arise at the last minute. We’re constantly in contact with them to make sure things are progressing as planned.

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Why now could be the perfect time for first-time buyers to purchase their first house

16 July 2019

Alan Cleary - Managing Director of Precise Mortgages

May’s House Price Index from Nationwide makes for very interesting reading. The index report explains that whilst activity in much of the housing sector remains sluggish, one area that’s bucking the trend is the number of first-time buyers entering the market.

While most of the key indicators used to assess the health of the housing market remain subdued, first-time buyer numbers continued their recovery of recent months. In the year to March 2019, numbers reached 359,000 – that’s just 10% below their 2006 peak.

At first glance, it may seem strange that first time buyer numbers are up when, according to an article in What Mortgage, the amount those looking to buy their first property must earn has soared by 9% in just three years. What Mortgage reckons first-time buyers now need an average income of £54,000 to buy a typically-priced house in a UK city and be able to put down an average deposit of more than £38,000.

That’s a lot of money in anyone’s books, so why is the first-time buyer sector so bullish when the rest of the market is so cautious?

On closer examination of the market, it may just be that the stars are aligning for those looking to take their first step on the property ladder. On a macro-level, employment is at record levels and wage growth has finally started to outstrip inflation – quite simply, there’s more money in more people’s pockets. The extension of the Help to Buy scheme until 2023 and the removal of Stamp Duty for first time buyers on the first £300,000 for property purchases up to £500,000 have also helped.

But with house prices remaining high in relation to average earnings and raising a big enough deposit still a major barrier for many first-time buyers, perhaps the most important factor to helping first-time buyers is the considerable financial clout of the UK’s 11th biggest lender – the Bank of Mum and Dad. It’s predicted that parents will support one in five property transactions in 2019 by paying out £6.3 billion to help their children on to the property, with the average contribution rising to £24,000.

So with so many things currently looking as though they’re going in first-time buyers’ favour, are there any dark clouds on the horizon?

Well, the recent admission that the government is way off track on its ambitious pledge it made just two years ago to increase the number of properties built to 300,000 houses a year is a concern. Then there’s the Bank of England’s warning that interest rates are likely to increase several times over the next three years as a guard against inflation – and that’s assuming the UK avoids a no deal Brexit. Which brings us to the ongoing confusion over when the UK will finally leave the EU and, when we finally do, whether we’ll leave with a deal or not and the effect it will have on the UK’s economy.

But maybe the biggest obstacle to first time buyers realising their home owning dream is the continued reluctance of some high street lenders to lend, especially if they’ve only got a small deposit or if they’ve got some skeletons in their credit history cupboard.

This is where we can all help. Competition among lenders is driving rates down and has led to the creation of longer-term fixed rate deals. Here at Precise Mortgages, we’ve designed residential mortgages for those looking for an alternative to high street lenders, those buying new build properties or those with a less than perfect credit history. We’ve also recently reaffirmed our commitment to the Help to Buy scheme by extending our offering to Scotland and launching Help to Buy remortgage products to help early adopters of the scheme make the move to becoming established homeowners.

I believe that with the backing of lenders and the opportune alignment of factors in first-time buyers’ favour, particularly if they’ve got financial support from their family, now could be the ideal time for them to take their first step on the property ladder.

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Specialist lending isn't all about numbers

08 July 2019

Alan Cleary - Managing Director of Precise Mortgages

When it comes to the business of specialist lending — be that residential, buy-to-let, bridging or second charge loans — we often write about it in the media in terms of numbers.

How much can your client borrow? What’s the maximum LTV, loan-to-income, gross development value? What’s the rate, what’s the fee, what’s the proc fee? We are governed by numbers: the bank base rate, Libor, inflation, cost of funds, profit margins, risk capital ratios, interest rate stress tests, affordability… I could go on and on.

But, as anyone who works in the industry knows, while numbers are important, so are people.

We seem to write far less about just how critical people are in this business, but it is relationships and experience that really make this market work. This is especially true in the bridging sector, where the community of lenders and brokers is really quite small.

In bridging, people buy people. It’s a totally different approach from the residential market, and even buy-to-let, where people buy products.

Brokers know better than anyone just how fundamental relationships are to getting cases completed. There also needs to be trust between lender, broker and borrower before the funds are released. In a market where some lenders come and go, that becomes even more important.

At Precise Mortgages, we’re acutely aware of the value of looking after our relationships.

We’re proud of our approach to both people and product. It’s no use being cosy with developers whose cases don’t add up; there’s also no point in offering the best rates in the market, but failing to understand what brokers and borrowers need from us to make a case work.

We also understand the value of cross-pollination between the different markets we’re in: a lot of the responsible lending practices we learned in the residential market have served both us and our borrowers well in the short-term sector.

Remember the days when some bridging lenders were charging borrowers interest on money they hadn’t even drawn? And then charging fees on that interest? Gone, largely, in no small part down to the determination of lenders, such as ourselves, campaigning to stamp out sharp behaviour that just isn’t treating customers fairly.

There’s also value that the bridging market can add to the residential side, and I think it’s becoming increasingly apparent. Mainstream mortgage lending likes tick-box process, it likes big volume because it’s low margin and that means keeping costs as low as possible.

Increasingly, that’s not serving all customers well. Most people don’t fit into boxes, and as the way we live and work evolves — longer working lives, a rise in part-time jobs and flexible contracts, more and more self-employed and complex incomes — that’s just going to become more common.

This is where relationships become vital; when a borrower or a case makes common sense, but it falls outside the typical numbers, being able to have a conversation can be the difference between securing a home or losing it.

Bridging brokers know this, it’s their bread and butter. There are plenty of mainstream brokers who know it too, and they do a roaring trade in helping customers who don’t meet high street criteria. We believe that more mainstream brokers can benefit from learning about how relationships with a specialist lender can help them serve more customers better, too.

The key here is balance, and it’s something we’re committed to. That’s why we run workshops around the country, educating brokers about our products and processes so they get to know the numbers. It’s also the reason we’ve expanded our sales team. We now have more BDMs in more parts of the UK than ever before, because we know that quickly being able to get hold of someone you know matters.

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