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Blog

As Safe As Houses – The Future of Home Ownership

The UK once considered home ownership the norm. For my generation, and the generation before, the clamour to get on the property ladder was natural and continuous. But economic changes since the 2008 financial crash have ripped up the home ownership rule book.

In 2017 The Guardian reported that workers in the UK saw their wages fall by 1% a year in the period following the 2008 crisis¹. Alongside wage deflation, house prices have continued to steam ahead at an unrelenting pace until this year when the brakes began to be applied. Many people are predicting doom and gloom for the future but I believe that periods of difficulty often produce the brightest innovations to overcome challenges we face.

So what does the future look like?

Is home ownership still accessible?

What can the industry do to help?

The economic argument for home ownership

Research shows that the average price of renting a property is now higher than average mortgage repayments in every region of the UK2. The average rent now stands at £912 per household, compared to average monthly mortgage repayments of £723 for first-time buyers. On the face of it, renting a property does not make financial sense. Your cost of living increases and you are not investing in an asset that could benefit you in the future.

This is Money examined the returns of different asset classes over a thirty year period, and the value of property not only as a home but also as an investment was evident. The stock market yielded an annualised return of 9.9% (with dividends re-invested) and 5.9% (without dividends re-invested). By contrast, the returns of residential property were 5.7%3.

While we know that past performance is no guide to future returns, the economic argument for owning your own home may never have been stronger. Aside from the economic benefits, many studies claim that being grounded in a community in a home you own enhances wellbeing.

The barriers

The largest obstacle that many people face, especially first-time buyers, is the deposit. According to a BBC study4, in most regions it would take about eight years for the typical buyer to save for a deposit. This rises to nine years in the South East of England and nearly ten in London. Many young people look at a time horizon like that and simply lose hope if they are unable to draw upon the ‘Bank of Mum and Dad’.

The financial commitment of a large mortgage can sometimes outweigh the psychological benefits of being part of a community and owning your own bricks and mortar. However, no real conclusion can be drawn about these two conflicting sides of the same coin and each person would feel differently.

Nonetheless, the idea of buying a house when you’re 20, moving once in your life and maybe clearing your mortgage in your mid-forties is less achievable than it once was.

The future

Home ownership has not suddenly become a bad idea but is no longer the simple matter that it once was. I believe that the industry needs to take a fresh look at how we are supplying financial services to people of different ages, and how we can help them to achieve their aims of owning a property. I believe the industry used to be constrained by its IT systems, which meant that services could not be offered flexibly. This is the primary reason why at Saffron Building Society we have invested in our infrastructure. This will enable us to create products around the needs of the individual, rather than lining up a set of items to choose from like food in a supermarket.

Migrating to a new IT platform is risky and costly. You only need to look at the pain experienced by TSB. Thankfully, we are through that now and positioning ourselves to innovate in the market. But what will the future look like?

I think a number of themes could dominate in the coming years.

A Mortgage for life

People will adapt to the fact that they will be paying a mortgage for longer than the 25 years that our parents expected. 40 year mortgages will be more common and maybe there will be some life long mortgages. In the same way that some students never expect to pay off their loans, mortgages could go the same way.

However, the housing assets gained will be worth much more than those of our parents, and could be the source of income for retirement or for the housing of future generations. Equity release acquired a terrible name just over 20 years ago, however the world has moved on and it’s a real option for people today. I expect that product development based on needs rather than short-term income will produce major areas of innovation in this space.

Rewarding Loyalty

Mortgages will no longer be a product on their own. Currently, home owners are always looking for the best deal and switching between products. This is time consuming, and also expensive for the lender.

As Open Banking provides more context and analysis of people’s lifestyles and expenditure, lenders will understand better who they are dealing with and be able to offer bespoke pricing. This will reward loyalty and prudence and customers won’t need to look around so much. The churn costs of managing a mortgage book that is constantly revolving will be reduced. Lenders could be in a position to reduce the costs.

Brokers

This change could feel like a threat to brokers. After all, their purpose at present is to hunt out the best deal for their customers on a regular basis. However, I think the role of brokers could change as they too evolve into genuine financial planners, helping the nation’s home owners plan their finances. A forty to fifty year time horizon will become the norm rather than focusing on a product for the next couple of years.

Financial planning legislation has failed in recent years, with the unintended consequence of removing advice from the reach of the mass market. Only the wealthy now have access to good advice, but as the complexity of financial arrangements increases, I suspect the regulator will re-think the approach. This will open up a new segment for those with skills and experience in financial advising.

I see a big role for brokers in the future as they look to build long-term strategies for people outside the usual constraints of product selection. And I think they will thrive in an environment where lenders and brokers share more data and collaborate on designing products for complex needs.

When will this future arrive?

At Saffron, we are planning for the future right now. Many commentators I read create headlines by proclaiming that rapid and fundamental shifts are just around the corner. Experience tells me that change in industry often happens more slowly than people predict, but that shouldn’t be reason to wait. I believe that planning to be at the forefront, rather than lagging behind, pays dividends in the long term.

Colin Field
Chief Executive Officer, Saffron Building Society

Source:
1 UK workers’ wages fell 1% a year between 2008 and 2015, Guardian
2 Renting now more expensive than buying in all areas of UK, Mortgage Strategy
3 What’s done best – cash, stocks or bricks and mortar?, This is Money
4 Buying a home: How long does it take to save a deposit? BBC

Open Banking – old news or about to change the mortgage industry?

At the start of the year, new Open Banking protocols were predicted to shake up the banking sector and pave the way for widespread changes in the mortgage market. As the year draws to a close these predictions seem a long way off the mark. Like many industry predictions, Open Banking was described as something which would yield earth-shattering changes. In my experience though, the reality is that change is evolutionary and not revolutionary. Open Banking hasn’t turned the mortgage market on its head but I feel it will bring about change that we all need to be ready for.

Before examining some of the trends we are starting to see, let’s begin with a quick reminder of what Open Banking is all about and where it came from.

What exactly is Open Banking?

Open Banking is a series of reforms to how banks deal with financial information. It was called for by the Competition and Markets Authority (CMA) and comes alongside the second Payment Services Directive (PSD2). Both came into force on 13 January 2018.

Together they mean that all UK-regulated banks will have to let you share financial data such as your spending habits, regular payments and companies you use with authorised providers offering budgeting apps, or other banks – as long as you give your permission. The objective is to bring more competition and innovation to financial services which, in turn, is hoped will lead to more and better products to help manage people’s money.

What has happened so far

According to statistics from the Open Banking Implementation Authority (OBIE), there were 720,000 uses of open banking APIs in May 2018 and this increased to 1.2 million in June2. A report by PwC and the Open Data Institute into the first six months of Open Banking found that by 2022 the market could be generating £7.2 billion. The research also found that while only 18% of consumers are currently aware of what Open Banking means for them, this should reach 64% by 2022.

As with any new technology there have been some early adopters, and while the implementation of new propositions and usage has been slow, the pace is increasing. HSBC were the first to launch an open banking app with their Connected Money4. Connected Money enables consumers to see all of their current, savings and mortgage accounts from more than 20 banks.

The Facebook/Cambridge Analytica scandal which occurred earlier this year caused great concern about the use of personal data. The general public are now much more aware of how data can be used (and abused) and understand it much better. Any progress in Open Banking will therefore be slow unless the industry can reassure consumers that data is being used to benefit them and is totally safe and secure.

What to look out for in the mortgage industry

The biggest impact Open Banking will have is to change the mortgage sales process. By enabling third party services such as online income verification and electronic valuations, which link directly into the lenders’ mortgage platforms, Open Banking will reduce the need for keying information and a reliance on paper documentation. This is clearly great news for brokers as it reduces the amount of time wasted in the search and application process.

According to the Financial Reporter5, 55% of lenders are hoping that Open Banking will increase efficiency and cut costs from the sales process. In addition, 62% of lenders are investing in mortgage hub technology and half are implementing, or actively reviewing, Open Banking functionality within the mortgage sales process.

If the processing time were deducted from a broker’s working day it would leave more time to concentrate on offering good advice and developing stronger service propositions with customers. At Saffron Building Society, we believe that technology will change the way that consumer finance operates in the future. While it will be more efficient to transact, people will need more guidance in an age when employment will be increasingly complex and unpredictable. We think that brokers will have a huge role in helping the nation’s homeowners to plan their long-term finances. If brokers adapt, and look at the broader financial landscape, they have the opportunity to offer invaluable support to homeowners.

In recent years financial planning legislation has failed, with the unintended consequence of removing advice from the mass market. Currently, only the wealthy now have access to good advice. But as the complexity of financial arrangements increases, we think the regulator will review the approach. This will open up a new segment for those with skills and experience in financial advising.

Evolution, not revolution

I think that the importance of Open Banking will increase relatively slowly. However, failing to react now can store up future problems for businesses and brokers. Laggards could be lulled into a false sense of security as nothing immediately will have changed, but those who stay ahead of developments and invest in skills and technology will reap large rewards. Those who prepare will minimise the risk of failure.

The Growing Importance of Self-Employed Mortgages

The rapid growth of self-employment has been a feature of the UK workforce in recent years. This is nothing new and no doubt you’ve read about it, but it’s worth looking at the numbers to put this into context. According to the Office for National Statistics, the number of people classified as self-employed increased from 3.3 million people in 2001 to 4.8 million in 2017. At the same time, the unemployment rate fell to 4.3% in the three months to November 2017, the lowest level since 1975.

However, the number classified as self-employed has been called into question following a court hearing in June of this year. A group of 65 Hermes couriers took the delivery service to a tribunal after they said they had been denied basic workers’ rights. The tribunal found that the couriers were not independent contractors, which Hermes claimed, but instead were workers entitled to rights such as the national living wage and holiday pay. The decision was described by the GMB union as a ‘landmark’ ruling.

Tim Roache, GMB general secretary, said: “This is yet another ruling that shows the gig economy for what it is – old-fashioned exploitation under a shiny new facade…not only will this judgement directly affect more than 14,000 Hermes couriers across the country, it’s another nail in the coffin of the exploitative bogus self-employment model which is increasingly rife across the UK.”

There are other examples which highlight the change in people’s working lives. At Saffron Building Society, we had what I would describe as a classic application from an NHS doctor. The applicant was a GP and worked for two surgeries with two separate fixed-term contracts. She also did locum work, out-of-hours work and work in A&E at the local hospital.

The individual had initially received a positive response from a mortgage broker, but soon found out that the complexity of her income was going to be a real problem with lenders. The broker couldn’t find someone willing to lend. We spoke to her after a second mortgage broker had encountered the same issues and was unable to secure a mortgage.

As the largest employer in the country, the NHS is an interesting case. Not only do they employ 1.5 million people but their remuneration structure is complicated. According to the Financial Reporter, doctors and nurses often combine their earnings between basic rate income, NHS bonus income and private practice work. Consultants, as an example, can be paid up to £77,000 in additional annual bonuses on top of their basic salary. In total, 22,800, some 52% of consultants in England received a bonus between £17,000 and £77,000 last year. And this is before the inclusion of extra earned income from private work on top of their NHS earnings. A sideline in private practice is a popular move amongst NHS doctors and nurses.

The implications are clear for the industry – there are a number of questions that we need to ask and issues we need to be prepared for:

1. Historic classifications of employment are becoming blurred. When is a self-employed person self-employed? Depending on who forms the next government, will the amount of ‘self-employed’ people shrink overnight due to legislative changes?

2. Is the industry able to operate in the same manner that it once did? Rather than classifications of mortgage products such as ‘contractor’ mortgages or ‘self-employed’ mortgages, will there just be ‘mortgages’? Will the decision be made after a more detailed look at the individual’s circumstances and history and will it replace the current process?

3. There is lots of talk in the industry about robo-advice and the rise of artificial intelligence. But are computers able to deal with the judgements required in an increasingly dynamic environment? The pace of change is unrelenting. Whilst computers can make decisions on many cases, will they be able to adapt at enough pace to make sense of the changing classifications and income streams?

4. As political uncertainty increases, will there be more volatility to come in house prices and the amount of people in work?

Alan Perlis was an American computer scientist who famously said the following about complexity:

“Fools ignore complexity. Pragmatists suffer it. Some can avoid it. Geniuses remove it.”

The industry is going to have to grapple with a highly complex landscape going forward. Whilst I’d like to sell myself as the genius who is going to remove it, I know in reality that this is a problem the industry is going to have to work hard to solve. Fools and pragmatists are going to have a difficult time and I don’t believe there is a way to avoid it.

At Saffron Building Society we use technology for straightforward applications, but ask our highly experienced underwriting team to analyse each and every referral from the system. This enables us to make judgements that others have been too nervous to take a decision on. We were able to accept the application from the NHS doctor. We’re pleased to help her secure her first home.

Whilst people are talking up the concept of robo-advice, I am of the view that experienced judgement from a human being, working alongside technology, will be the way forward. Whilst not removing complexity, it will be better able to deal with it.

Anita Arch
Head of Mortgage Sales

Self-Build Mortgages – Discounted Rates

For a limited time only, our self-build mortgage has been reduced from 4.45% (variable) to 4.20% (variable). We know there is growing demand for self-build homes and we want to support our brokers and their customers who are keen to go it alone on a building project.

Self-Build on the rise

Research reveals that self-build is growing in popularity and a survey by Ipsos MORI shows that one in seven people in the UK expects to look into building their own home. That equates to around 7 million homeowners or more than 10% of the UK population. Additionally, people are no longer in love with the housing offered by larger house builders.

Problems with Self-Build

Many first-time self-builders lack experience and don’t have an adequate plan and budget in place. This can make it frustrating for you and your customers as you get bounced around trying to present the right information for a mortgage application. However, at Saffron Building Society we can work with you to make the process much, much easier.

We do things differently

We don’t have a prescriptive application approach that outlines where and when payments will be released. We will also take the time to talk with you and your customer to work out a flexible plan. Our specialist self-build underwriters review each application and can work with you to build a plan around your customer’s project. In addition…

  • We can consider up to five times income on applications
  • Unlike many providers, we accept first time buyers
  • We accept custom-build developments.

How we can help

If you want to speak to one of our specialists, and to take advantage of this limited offer our broker support team is available to take any questions, please do get in touch at Broker Support if you need anything.

Holly Andrews: 01799 582885
Gemma Reynolds: 01799 582925
Katie Sharpe: 01799 582923

Alternatively, you can download our Intermediary Guide to Self Build Mortgages for more information.

Volatility and adapting to the future

I’ve never been one for overreaction when there is a release of numbers. I firmly believe in trying to steer a steady course. Staying calm isn’t always easy; the spring statistics were certainly discouraging. A Royal Institution of Chartered Surveyors report found that demand from buyers, and new instructions from sellers, were at their lowest since 2013. The report described how the UK market being affected by the poor weather, fears about the Brexit negotiations, and even bitter infighting among estate agents to get properties on their books.

The forecast did not look good; the weather and the industry were pointing to a stormy future.

A balanced view

Warren Buffet is one of the most successful investors of all time. Among his many great comments about investing I felt this was appropriate:

“Forecasts may tell you a great deal about the forecaster; they tell you nothing about the future.”

We are living through volatile times. I think it’s vital that, as an industry, we keep the panic button at arm’s length when things get tough and the champagne on ice at the first sign of good news. If we all accept volatility in the near future and beyond, then we can stop the herd mentality that can precipitate a crash or a boom. As certain as night follows day, there will be a sage somewhere predicting an extreme event just around the corner and for this reason we need to take a balanced view.

Careful analysis

Volatile markets demand careful analysis to see whether what we read in the news does actually indicate a fundamental shift in patterns of behaviour. I think there are many good reasons to be cautiously positive about the future as there are niches which are showing growth potential. For example, the first time buyers segment has seen some green shoots springing up as it responds to the summer warmth.

In May, The National Landlord Association claimed that a significant number of homes suitable for first time buyers could ‘flood’ the market in the coming year. They estimated that approximately 380,000 landlords planned to offload a property. The report also showed that 45% of landlords who intend to sell property in the coming year plan to sell individual flats and apartments, with a third looking to sell terraced homes. These, as we know, are typically affordable options for those taking their first steps on the property ladder. Clearly, not great news for the Buy to Let sector but an opportunity for the first time buyers.

Deeper analysis

Research from Santander Mortgages highlighted that average rental prices are now higher than average mortgage repayments in every region of the UK. According to Santander, the average rent in the UK is now just over £900 per household. Compare this to monthly mortgage repayments of £723 for the average first time buyer and it’s clear that buying can cost less. The saving equates to £189 a month, or £2,268 a year for the typical first-time buyer.

At this point, I’m not opening the champagne. However, I am suggesting that despite the spring headlines we are seeing encouraging data from certain parts of the industry. While there may be more properties available, and home ownership is less expensive than renting, significant barriers to ownership still remain in the high cost of deposits or the ability to access mortgage finance.
This is where the industry needs to be creative and look for new solutions to help.

Let’s focus on innovation

In my view, we should stop worrying about what the forecasters have to say. We should stop reacting to emotive headlines. We should focus on innovation to adapt to the needs and demands of a new generation trying to manage in a period of great economic volatility.

At Saffron Building Society, our focus is on ways we can help customers. For example, we have a policy of accepting gifted deposits on all of our mortgages as a way of breaking down the barriers for first time buyers. This policy is designed to help parents and grandparents give their relations a boost to get on to the ladder.

We are also exploring new ways to price our products and have invested in our core systems to enable more flexibility. We think flexibility to build bespoke products is going to be an important feature in the future.

Warren Buffett once said:

“Only when the tide goes out do you discover who’s been swimming naked.”

If the industry thinks long term and innovates, avoiding knee-jerk reactions to the news, we can be more confident that we’ll be able to weather volatile conditions and avoid being caught with our trunks down.

Expat Buy To Let – a major growth opportunity

One of the most common requests we get at Saffron Building Society is for Expat Buy to Let mortgages. According to the Office of National Statistics, since the EU referendum in 2016 there has been less immigration, but more UK nationals have decided to uproot and move overseas. In June 2016, 95,000 people left the UK and it was estimated that by September 2017 this had risen to 135,000.

The Expat Buy to Let segment is booming as more people leave the UK but still want to take an income from UK property or let their house while overseas. The application process is very similar in some respects to that for a normal buy to let mortgage but there are certain rules and nuances which apply. I want to give you a whistle-stop tour of some of the pitfalls and problems that can occur with this type of product, and I hope it might save you some time when dealing with applications.

Where are they now?

Is your applicant still here or overseas? One of the problems brokers can encounter is that they start the application before their customer has moved overseas and are unable to confirm their new address. Lenders may need evidence that applicants are already living overseas. If they can’t supply evidence then they may be ineligible for the mortgage until they are settled in their new residence abroad. It pays to double check their location up front if the lender so requires.

Country Restrictions

At Saffron Building Society we don’t have a list of specific country restrictions but applicants must be able to prove they live abroad. We look at applications individually and make a decision on their circumstances. However, many lenders do have country restrictions in place and publish a list of countries for which they will not consider mortgage applications.

Income

Some Expat Buy to Let mortgages will stipulate a minimum income in addition to sufficient rental income. Just like a standard buy to let product, this will vary from one lender to the next. For experienced overseas investors this is not normally a problem, but if applicants are overseas on a medium-term work assignment, and looking to invest in property while away, they may not always have thought through the numbers in detail. This is a common cause of failed applications.

Proof of residency

Those living in Middle East and in Arab countries will often use a PO Box as their address. While this is not an insurmountable problem, proof of residency can be more complicated in this region. An experienced lender will be able to advise you about how to deal with Middle Eastern applications. It’s also worth bearing in mind that proof of residency is a common cause for delay, so inform people of this requirement at the start. Briefing your customers, and getting them started straight away, will avoid unnecessary hold ups.

Unsuitable property

While there may be great demand for people wanting to rent a thatched cottage in the Cotswolds, it may present a problem for many lenders. A detailed understanding of the kind of property involved will quickly help you narrow the search or even eliminate problem applications.

People don’t want Buy to Let

You may be surprised to hear that some people start an application for an Expat Buy to Let mortgage but fail to disclose that this is for a residential purchase. This quickly becomes apparent when proof of overseas residency is unavailable. As obvious as this may seem, clarifying the use of the property will save you a lot of wasted effort at the start.

Nominated Solicitor

Lenders need some certainty that they can contact the applicant in the event of future problems or default. When the customer is living overseas the communication can be more difficult. Lenders may insist on using a UK solicitor, including specific restrictions on the size of the practice, to whom they can serve notice in the event of a default. This has the potential to block the application if your customer is unable or unwilling to comply.

Conclusion

I have read one report suggesting that there has been a 30% rise in demand for Expat Buy to Let mortgages every year. The UK property market is still regarded as a good prospect for growth by many and the additional three per cent stamp duty has not deterred investors.

The Expat Buy to Let sector is complicated and applications can be time consuming. However, by asking the right questions you’ll be able to identify those genuinely in a position to apply and you can tap into a buoyant and growing sector of the market.

View our Expat BTL Mortgages

The Self Build Boom

In 2018 we have seen a surge in the number of self-build enquiries at Saffron Building Society. Self-build and custom-build continues to attract attention in the media and from the general public. An Ipsos MORI poll suggested that one in seven Britons expect to consider building their own home, which would equate to around seven million people. This growth has obviously been encouraged by wall-to-wall coverage of property on TV and in the media. Kevin McCloud started wowing us with his Grand Designs back in 1999, and giving us all the belief that we too could create our own detached waterfront property and enjoy sunsets with a cocktail. However, there are other drivers pushing people towards self-build.

The rise of self-build

The 2017 Home Owners Survey reported that the quality of housing was a major issue. 57% of adults considered the quality of available housing to be a serious problem, up from 52% the year before. In addition, new builds are not winning in the popularity stakes, with almost twice as many people preferring an older home (49%) to a newly built one (19%). In a separate survey, respondents said that new homes were poorly built, lacking character or charm, and with smaller rooms. Obviously, it would be wrong to categorise all new builds in this way but it’s possible to see the trends.

The general public seem to be exposed to aspirational images of what they could have while being very dissatisfied with the housing stock presently available.

The rise of new entrants

In financial services, we’re all accustomed to hearing about new fintech companies shaking up the market and providing innovative new propositions. The construction industry is experiencing a similar revolution. In May, City AM reported on a company which is developing a new construction technique designed to solve current problems. The founders believe that three problems need to be addressed in the current market – affordability, sustainability and quality. Anyone able to overcome all three will be well positioned to free the UK market from its current restrictions.

The company manufactures parts off site, then delivers and assembles them in a location of the buyer’s choosing. The entrepreneurs believe this is the first time that modular housing has been supplied to a higher standard than the average new build, but at a lower price. This is achieved through the use of new materials, specifically ‘cross-laminated timber’ or CLT. CLT is increasingly being considered within the housing sector in the UK for its low environmental impact and versatility. And it’s particularly useful for modular or custom housing because it’s easy to modify.

When you have all the ingredients for change in place, a revolution can happen quickly. However, there is one obvious drawback.

What’s stopping the revolution?

According to City Metric, only about 10% of house construction in the UK is currently self-build. This is dwarfed by Europe, where the proportion is on average over 50%. Why is this? Many commentators usually jump on the fact that our densely populated island simply does not have the available space. However, both Belgium and the Netherlands have more people per square kilometre than the UK and City Metric believes that what’s holding the country back is more than just a question of land.

Britain differs from the rest of Europe in the way that planning occurs. Other than a few ‘permitted developments’ there is no right for landowners to develop their own land. In Germany for example this is a constitutional right. Britain has a planning system in which each new site can be contested. It’s a complicated area and the detail probably isn’t important for this article. However, the main point is that while planning consent for new homes is difficult, the government is looking at ways to speed it up.

The best example of this is the much heralded Graven Hill in Oxfordshire. Graven Hill is the brain-child of an entrepreneurial local council which has bought hundreds of acres of disused Ministry of Defence land, created the plots, the street layouts, the schools, nurseries and cycleways – in short they’ve created the foundations of a community. Buyers pick a plot and then design their own custom-built home, which gets fast-tracked through the planning system. Lots of councils are watching to see how the scheme develops. If it’s a success, and early indications are that everyone involved is benefiting from it, then the planning regulations could be freed up all over the country.

If this happens, the two biggest barriers to land and regulation come crashing down, and the way will be clear for more self and custom building.

What brokers need to know

There is a growing body of evidence to suggest that self and custom-built homes will assume an increasing proportion of the mortgage market. Specialism and expertise in this area may yield high returns in future if demand continues to grow. If you are unfamiliar with the intricacies and nuances of self-build, then it could pay to invest some time to learn more about it as part of your future plans.

View our Self Build Mortgage

Father’s Day Brings Opportunity

A gifted deposit could be a solution for your First Time Buyer clients

On ‘Father’s Day’ many Dads from up and down the country will be receiving an array of gifts and cards from their children showing how much they are loved and appreciated.

Although it’s great to get recognition in this way I suspect many parents prefer the traditional role of ‘provider’ and would actually feel more comfortable ‘giving’ to their children, rather than ‘receiving’. Father’s day is perhaps the perfect time to reflect.

Gifting a mortgage deposit, whether on Father’s Day or not, is probably one of the most significant gestures a Father (or parents in general) can make to their children. These children, have the potential of course, to become your ‘first-time-buyer’ clients. Facilitating that first step on to the property ladder will be life changing and creates a clear opportunity for brokers.

Home ownership remains important on many levels both socially and economically. Our homes are a place of sanctuary, security and where significant life events and family occasions will take place. A funded deposit opens the door to helping your clients to secure the best possible mortgage for their first property.

A ‘life changing’ gift

Arguably, your first-time-buyer clients are facing some of the most significant financial challenges for decades, particularly when it comes to house buying. Saving for a deposit is a well-known obstacle.

As a result increasing numbers of parents and grandparents who lived through an unprecedented period of economic, social and cultural improvement, are prepared to gift or loan monies to their offspring for a mortgage deposit. Such gifting is helping them to get onto the property ladder much earlier particularly when used alongside one of the many innovative first time buyer mortgages the broker community has access to.

What has changed?

It’s important to reflect how recent history has affected access to homeownership. Although there have clearly been economic peaks and troughs during the last 50-60 years the financial gains made by the so called ‘Baby Boomers’ (born: between 1946 and 1964) and ‘Generation X’ (born: 1965 and 1980) have been significant. The baby boomer generation alone owns more than half of Britain’s £11 trillion of wealth, giving a clear ability to gift funds to their children (many who are now in their 20’s and 30’s and far less financially secure). This situation gives brokers the opportunity to tap into the first time buyer market in a different way.

Gifted deposits open up first-time-buyer market

Helping secure a mortgage deposit through this method is seen by many as the ultimate ‘financial’ gift. The bigger the mortgage deposit, of course the more financing options are potentially available through specialist broker offerings.

Father’s Day and the opportunity to ‘give’ may come and go but I am confident we’ll see more lending activity serviced by brokers’ utilising this opportunity in the fist-time-buyer market.

Parenting is often built on positive shared experiences – facilitating homeownership through gifting the deposit has to be one of the most meaningful gestures that can be given to the next generation. It’s a solution that benefits brokers, their clients and lenders alike.

Retirees and mortgages…a new approach?

It is time that the industry refreshed its approach to people over 60. The image of people giving up work and then living sedentary lives is out of date, as many over 60s view their mature years as empowering and their retirement as liberating. The new spirit of the older generation is best summed up by a quote from Philip Johnson, the American architect:

“There’s no such thing as old age. I’m no different now than I was 50 years ago. I’m just having more fun.”

This month, I want to take a look at some of the trends that are inspiring a new approach to the older generation and what the industry can do to help.

Changing behaviour

The 2016 Department of Work and Pensions report ‘Future of an ageing population’ revealed that the number of people working beyond their 65th birthday has more than quadrupled in the last 20 years. There are now a record 1.2 million over 65s working in the UK, while there were just 272,000 in 1997. The potential for earnings has increased substantially over the years.

The report also highlights the need for appropriate housing as the population ages. Suitable housing can significantly improve life in older age, while unsuitable housing can be the source of multiple problems and costs. Poor quality housing costs the NHS an estimated £2.5 billion per year. Adapting existing housing stock to meet this demand is seen as critical, and ensuring that new housing can adapt to people’s changing needs as they age will also be important. Suitable housing reduces demand on the health and care services, enabling people to work flexibly and for longer.

The final trend to consider is that ‘baby boomers’ have acquired great wealth over their lives. A report last year by the Resolution Foundation has revealed a pensions windfall, and the housing boom of the 1990s and 2000s has accelerated wealth inequality between generations. Asset-rich retirees have many options open to them.

What does this mean for the mortgage industry?

The industry has to be creative, and develop new, more flexible ways of meeting the increasingly complex needs of older people. There must be products suitable for:

  • over 60s looking to help their children and grandchildren onto the property ladder
  • people adapting their homes to make them more suitable
  • those needing to care for relatives over 60

If the industry can create mortgages specifically for properties which are to be adapted for the occupants’ changing needs I think more new applications can be expected. These could well come from retirees with part-time jobs. In the past, many standard mortgage providers have classified such applications as extraordinary but they could well become more popular in the future.

More and more deposits could come from the wealth of parents and grandparents. At Saffron Building Society we’ve tried to look at new ways to help and we accept gifted deposits on all of our mortgages. We think it’s an essential way to allow the older generation to help those struggling to save for their first home.

Existing products will also have to be reviewed. Lenders need to be more flexible in their approach to the intergenerational market. I don’t see a reason to have rules which can’t be amended in the product design. For example, why have an age restriction? If the application looks sound from a risk perspective, does age really matter? Clearly, the products have to be compliant and sold in a compliant way, but can the parameters for acceptable be more open?

But this need for flexibility applies to all segments of the market. There is a requirement for greater emphasis on the needs for borrowers of all ages to have more choice available to them. But can the industry adapt?

Many commentators talk about artificial intelligence and how it won’t be long until advice is effectively replaced by computers. But there is a tension between a demand for more flexibility and what robo-advice can realistically deliver. I think a mortgage broker’s service is irreplaceable. Consumers will always appreciate the good judgement and experience of someone investing energy and commitment into helping them to secure their new home or review their mortgage arrangements on their existing home. As the makeup of society and housing becomes more complicated, the industry needs to change. But maybe it’s in ways that are not as simple as first thought. For those organisations willing to take a fresh look, with the flexibility to tailor their approach, the retirement market is likely to hold increasing levels of opportunity.

Anita Arch
Head of Mortgage Sales, Saffron Building Society

Source

Saffron Announces New Fixed Rate Mortgage Options

Greater choice for Landlords, First Time Buyers & Owner Occupiers

Saffron Building Society is pleased to announce a range of new and improved mortgage products enabling customers to make the most of the upcoming ‘house buying season’.

This new set of mortgage options will be of particular interest to a variety of customers:

  • Existing landlords who want the security of a competitive fixed rate
  • First time buyers who have a limited deposit
  • Existing homeowners who are either moving house or looking to remortgage an existing property

New – 5 year fixed rate – Buy to let (BTL)

A fixed rate product that aids affordability by rental cover being assessed at pay rate

Rate: 2.87% fixed until 31.12.2023 to 75% LTV
Arrangement fee: 2 %
Early Repayment Charge (ERC): 3 % for 5 years (Flexibility with overpayments)
Loan: Min loan £30k, Max loan £1m
Term: 40 years
Purpose: For purchase or remortgaging
Maximum Age: No maximum
Rental cover:
• Purchase or remortgage with additional borrowing 140% of pay rate
• Debt for debt remortgage 125% of pay rate
Regulated BTL: Accepted
Minimum income: None

First Time Buyer (FTB)

Reduced Fixed rate products aimed at people buying their first home, who have a limited deposit.

Rate: Now 3.57% fixed until 30.11.2021 (was 3.77%) to 95% LTV
ERC: 3 % for 3 years (Flexibility with overpayments)

Rate: Now 3.87% fixed until 30.11.2023 (was 3.97%) to 95% LTV
ERC: 3 % for 5 years (Flexibility with overpayments)

Arrangement fee: None
Loan: Min loan £30k, Max loan £500,000 (Up to £1m within the M25 subject to max 90% LTV and underwriter assessment)
Term: 40 years
Purpose: For purchase or remortgaging
Maximum Age: No maximum

Owner Occupier (OO)

Fixed rate products for existing homeowners who are either moving home or looking to remortgage an existing property, who want to benefit from a fixed rate

Rate: 2.27% fixed until 30.11.2020 to 80% LTV
ERC: 2 % for 2 years (Flexibility with overpayments)

Rate: 2.57% fixed until 30.11.2023 to 80% LTV
ERC: 3 % for 5 years (Flexibility with overpayments)

Rate: 2.57% fixed until 30.11.2020 to 90% LTV
ERC: 2 % for 2 years (Flexibility with overpayments)

Arrangement fee: £999
Loan: Min loan £30k, Max loan £1m up to 80% LTV, £500,000 above 80% LTV
Term: 40 years
Purpose: For purchase or remortgaging
Maximum Age: No maximum
Interest only up 70% LTV
Manual underwriting: We can review any case that doesn’t fit into an easy ‘yes’

All applications will be individually assessed by a skilled underwriter and you will receive a efficient and personal service.

Full product details can be found on our website and you can easily submit a case via our online broker portal.

If you have any questions please speak with our Business Development Mangers, who will be happy to help.

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Best Service from a Mortgage Provider - Moneyfacts Awards 2014