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email: gemma.reynolds@saffronbs.co.uk

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3mc; 3mc Club, Brightstar; Brightstar Club, Complete FS, Mortgage Intelligence, Next Intelligence, Platinum Options, Positive Lending (UK) Ltd; Positive Lending Club, TBMC, TMA Mortgage Club, Vantage Finance

email: holly.andrews@saffronbs.co.uk

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Blog

There’s no place like home – particularly when it comes to a Self-Build

Anita Arch, Head of Mortgage Sales at Saffron Building Society introduces us to one ‘self-build’ family who went all out to build their dream home.

One of the most satisfying aspects of what we do at Saffron Building Society is helping people fulfil their home ownership ambitions. As a mortgage adviser you’ll come into contact with people every day with a big plan or a desire to alter the direction of their lives through the purchase of their home. With improving weather on the way and the optimum seasons for construction, there’s no better time to outline the merits of a self-build mortgage to your customers.

Below is an account of how we helped a family fulfil something that was of vital importance to their future. Matthew Switzer lives in an Essex village with his wife Sarah and two children aged three and five. He agreed to tell us about his experience of building his own house. We felt this inspiring story was worth sharing with you to illustrate a real life, self-build homeownership story and what your customers can achieve.

Originally, their plan was to move to a larger house in the village so that they could provide a garden for their children to play in. However, the price of properties with the space they wanted was out of reach, which presented a dilemma. Should they move away from their home village or review their expectations?

An alternative approach

Matthew and his wife knew of some land that they believed would be an ideal location to build on. They approached the land owner and described their plan to see if they could purchase a plot. Matthew explains:
“We wanted to see if the land owner would release a plot for us for two houses. There was no planning consent at the time so we wanted an agreement which gave us the option to buy only if any consent obtained provided exactly what we were looking for. Before we went ahead we wanted a legally binding agreement. Thankfully, the land owner agreed so we prepared an application and submitted the plans.”

The application was approved. Matthew and his wife had friends who were interested in building the other property on the plot, so they were all overjoyed that the project had been given the green light.

A new start

Matthew and his wife then set about trying to plan and finance the project. Their ideal home was a three to four bedroom house with a garden that would give their children space to play. The first step was trying to secure finance which they did through one of Saffron’s specialist self-build products.

Experience and advice

Matthew’s wife is a secondary school teacher who took a break to look after her children when they were born. She was also responsible for the project costings. Matthew explained their experience along the way:

“Self-build mortgages are different from normal ones as you have to plan in stages and draw down the money at specific points. It can be stressful because before funds are released there is a lot of information to provide, such as the costings of the plan, drawings and building regulation approval. Saffron allowed us to draw-down funds as required to suit our project once we had their underwriter’s approval. Some lenders who won’t release funds until certain stages are complete. The flexibility made it easier on the cash flow during the construction phase.

The process for payments can take seven days so the details really matter. The timing of the payments is critical, as you can’t afford to have the building stop with no money to pay for the next stage. Saffron has been really helpful in guiding us through this process and explaining everything we need to know. When problems have arisen they have always been there to help, they’ve been a life saver.”

Matthew is an air traffic controller and took on of the role of project manager of the build to save money. You would have thought that his experience with a profession carrying so much responsibility would prepare him for the task ahead.

“My job at the airport means I work shifts, and this has been most helpful as I’ve been able to spend a lot of time on site. I’ve been able to speak with the builders and tradesmen to make decisions, and if I hadn’t been there they would have had to make those decisions themselves. That’s been critical to getting exactly what we wanted rather than leaving anything to chance. I have been surprised by the number of decisions I’ve had to take each day.”

Timing

The project started in April 2017 and the planning took seven months. The groundwork began the following November with the Switzer family recently moving into their new home last Summer. Has it been worth it?
“It’s been tough and there have obviously been some stressful moments. It’s a timber framed house and the frame went up in ten days. We were so excited as our dream became a reality and we could see how close we were to the end. I’d recommend it to anyone, but being prepared and having the right people to work with have been so important.”

Matthew’s top tips for self-build

  1. Planning – you probably don’t need me to explain how vitally important this is! The project management was really tough and I didn’t realise just how much was involved, nor the importance of the order of the tasks.
  2. Experience – our friends were six weeks ahead of us on the project so it has been helpful to learn from them. You may not be that lucky with your own project but try to speak to people who have been through it.
  3. Finance – while the price of the mortgage is important, what we found vital is having someone you can work closely with. Someone very close to the project who understands what you are trying to do has been a life saver when the pressure is on.
  4. Be available – if you are not paying for a project manager you need to be available on site to make quick decisions, and ensure everything is as you expect it to be.
  5. Tradesmen – once people knew it was a self-build they were very helpful. All have been brilliant and very accommodating, so make sure when you explain the project that you assess whether those involved share your desire to get it right.
  6. Be resilient – over Christmas there were three heavy snow falls which made things difficult. We had no choice but to crack on and keep the timings on schedule.
  7. Relationships – build a relationship with your local timber and building merchant. Not only can they offer advice, but when you suddenly find yourself short on materials or the wrong thing is delivered, they will often pull out all the stops to help you out. This can avoid costly delays.
  8. Accuracy – get a quantity surveyor to look over your plans. Knowing the right amount of materials to order is vital and will help with timing and budgeting.
  9. Internal – make decisions on kitchens and bathrooms early. Although they won’t be fitted until towards the end, the location of services is often based on the fittings you plan to purchase.
  10. Involve the whole family – it’s very easy to get bogged down with the daily stresses and decisions on site. Most weekends our children came to view the house and see their bedrooms, for example. It helps them to feel part of the project and reminds everyone of the end goal.
  11. Building control – speak with your local building control officer who is there to help rather than catch you out. Our inspector has been invaluable in sharing knowledge.
  12. Costs – be prepared to accept that some things will cost more and some will cost less. It’s a balancing act and sometimes you have to reign in the luxuries a little.
  13. Energy efficiency – for us, investing in renewable energy sources and insulating the house to the highest level we could afford was really important. The fabric of the house cannot be changed easily, but changing the bathroom suite or upgrading appliances in the kitchen can all be done in the future if required. Installing solar panels or underfloor heating for example needs to be incorporated during the build not afterwards.

Matthew’s story is an inspiration to us all and what can be achieved through a self-build mortgage.

Full product details can be found here.

Brokers 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:

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

Customer experience more important than ever before for brokers

Finding the right mortgage is no longer just about getting the numbers right. Customers increasingly want something more personal and tailored to them. Figures have revealed mortgage brokers enjoyed a 23% leap in fees in 2016-2017 as more and more people turn to them for advice 1. This shift towards broker-led deals is further backed up by The Council of Mortgage lenders who reported that two thirds of mortgages are now arranged through brokers2.

The shift towards a more customer-centric experience is impacting the way deals are done – purely transactional arrangements are being replaced by rapid, tailored services with the focus on the client while mortgage lenders are taking a much closer look at their relationship with brokers.

In the battle to acquire clients, it’s clear the lines are being drawn between those who offer a great experience and those who don’t. I firmly believe it’s the brokers that go the extra mile that will grow and thrive.

Why the shift towards customer experience?

There are several reasons why house buyers are gravitating towards brokers, not least of which was the financial crisis of 2007/8. The subsequent tightening of lending criteria, combined with much tougher rules introduced under the Mortgage Market Review is in part responsible for the increasing use of brokers. Clients want clarity and certainty that their application will be successful as well as an expert to steer them through complex legislation.

In addition, the consumer has become more powerful than ever before thanks to the dominance of social media and the internet. Disgruntled customers now have a voice which can be heard by thousands, or even millions of people online. If they don’t like the service they receive, they will post about it and review it for others to see. United Airlines saw $1.4 billion wiped off its share price last year after a video of a passenger being forcibly removed from a plane went viral. Businesses, who don’t focus on customer experience or have customers share their bad experiences online, whether mortgage lenders or otherwise, risk serious financial and brand damage.

First impressions count

Brokers are on the front line when it comes to mortgage applications and they have the power to demystify the process for applicants. How they behave from the start will shape the way the relationship proceeds. Successful brokers know they are there to meet the needs of their clients, explain jargon and make the whole application as smooth as possible. They also know that in order to stand out from the competition they need to differentiate themselves.

As employment patterns become increasingly complex with zero hours contracts, self-employment, and multiple jobs, a broker can act as trusted support – someone who can navigate their way through the many products on the market and identify lenders flexible enough to help.

Improving the mortgage lender/broker relationship

In order for brokers to be able to carry out their job properly they have certain expectations of the lenders they work with. And lenders, if they want to increase market share need to be mindful of the way they interact with brokers.

According to a report by KPMG3 , there are two key things that brokers need from lenders – the ease of dealing with a lender and certainty of decision.

What they don’t want is to go back and forth between client and lender in a long, drawn-out process which aggravates the client and creates a negative experience. They want straightforward advice on the information they need to make an application and they only want to have to ask the client once about it. They also want to be able to conduct deals at speed and get clarity on the lending criteria. At Saffron, we believe that flexibility is key to making this happen.

Is the future really customer-centric?

In short, yes, and there are three essential capabilities lenders and brokers need to develop to deliver improved customer experience.

  • Flexibility to make judgements on complex applications rather than relying on a robo-advice
  • The ability to quickly assess the customer’s circumstances and provide quick decisions on applications
  • A commitment to keep applicants fully informed during the process so that customers are not left frustrated during the stresses of a house move. This includes the ability to communicate in the way the applicants request – whether this is by email, phone, text, live chat, etc…

In 2019 and beyond, both mortgage lenders and brokers need to understand the expectations of the client and how they can best manage them. As customer expectations rise, so must the offerings from lenders, and brokers are an integral part of that.

Source:
1 https://www.thisismoney.co.uk/money/mortgageshome/article-5855849/More-home-buyers-using-mortgage-broker-right-way-go.html
2 https://assets.kpmg.com/content/dam/kpmg/uk/pdf/2018/04/transforming-the-mortgage-broker-experience.pdf
3 https://assets.kpmg.com/content/dam/kpmg/uk/pdf/2018/04/transforming-the-mortgage-broker-experience.pdf

Lending into retirement

In our daily conversations with brokers there is always one common talking point they raise: “what new, innovative products can we offer our customers?”

One area that Saffron has been exploring with interest is ‘Lending into Retirement’. We have now launched a ‘new’ mortgage option for an ‘older’ customer; a mortgage for those who are looking to downsize and pay their mortgage off month by month once retirement is in progress. This product area gives brokers a golden opportunity to help service the lending requirements of an *increasing number of older households.

Retirement, and our lifestyle in retirement, is changing. In the past, retirement was predetermined. People stopped working in their 60s, and began to live off their pension. This was all very predictable; the period of retirement was defined, and could be short.

Life expectancy

In 1982, average life expectancy in the UK was 72 — just seven years beyond men’s default retirement age of 65. Now, people can choose when they leave the workforce and can plan how they wish to live their lives after full time employment1. People live longer than they used to and also longer than they expect.

Last year a study showed that people in their 50s and 60s underestimate their chances of reaching 75 years of age. For example, men born in the 1940s were interviewed and only 65 per cent thought they would reach the age of 75. The actual figure achieving this age was 83 per cent. For women, their estimate was indicated that 65 per cent would reach an age of 75 but the actual figure was 89 per cent2.

Flexible working

The idea of stopping work at retirement is also changing. In a separate study, two-thirds regard work beyond state pension age as an excellent way of keeping an active mind. Just over three-quarters want to work part-time before retiring completely3. The population as a whole are increasingly looking to alter their working patterns as they get older and to continue to earn money in a flexible manner to fit in with their lifestyle. Retirement now means choice rather than limited options.

At Saffron we believe the providers of financial services need to adapt with the times. We believe in doing more to support the ambition and lifestyles of people in the modern world.

Moving home

Some people don’t think it’s possible to get a mortgage in their 50s and 60s as retirement approaches. At Saffron though, we don’t believe you should be limited by your age and we like to be flexible. Your customers may be over 40 and have seen a property they want to call home, but lenders have already said no. We say, let’s talk further and see what we can do to help.

Lending into retirement

We have just launched our ‘Lending into Retirement – Downsizing’ mortgage, a standard interest-only mortgage with a difference. As the name suggests, it is available to customers who are hoping to borrow into their retirement. This mortgage stands out, as it allows your clients to downsize and pay off their loan during their retirement.

This repayment method and a wide variety of retirement incomes will also be considered. All applications will be individually assessed by one of our expert underwriters. Our aim is to help your clients to work out what is possible.

Customers need a minimum equity in their property of £250,000 but we will consider applications below this level when alternative assets are taken into account. We may also be able to accept a lower equity limit, depending on location.

What’s important to us is to learn about your clients’ circumstances, and then we can work out what we can do to help.

Where to go for help

Full product details. Brokers 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:

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

*Older households set to rise: Daily Moneyfacts Bulletin, 21 September 2018 – The number of households in England is expected to rise by 4m (17%) over the next 25 years, according to the ONS, equating to 159,000 more households a year. Those headed by someone over 65 will make up 88% of this growth, with a rise of 54% predicted by 2041, while those headed by someone under 65 will grow just 3%.

Source:
1 HR Magazine, AON, Jan 2019
2 Independent, April 2018
3 Express, May 2018

2019 – The year of the self-build?

Brokers to benefit from increasing demand for Self-build Mortgages

By Anita Arch, Head of Mortgage Sales, Saffron Building Society

The recent festivities may seem a distant memory now but for many it was a unique time for rest, relaxation and the chance to consider new opportunities for 2019.

Big decisions such as changing career; relationships being taken to the next stage – should we move in together?; whether to start a family; stepping onto the property ladder for the first time or buying that ‘forever home’ are all big life choices many will have considered over the holiday season.

At Saffron we often hear that mortgage brokers see an upturn in enquiries following a holiday period where their customers have had time to think and consider the future. What we are also seeing is further diversification in property buying and the types of mortgages intermediaries are assessing for their customers. Self-build mortgages are one specialist area growing in popularity.

A self-build property can feel unobtainable to many as it reminds them of Kevin McLeod from Grand Designs discussing a multi-million pound project overlooking the sea. However, the popularity of self-build projects is starting to grow and there is more and more support available to turn more modest ideas into reality.

Self-build properties are cheaper

The average self-builder saves 15% to 20% on what it would cost to buy the same property1. With such huge savings and the ability to create your own space to live in, it’s increasingly becoming a more viable option for many.

A self-build property doesn’t need not be a ‘grand design’. It can be a renovation to your customer’s existing property, or a conversion to a barn or basement, loft or garage. In essence, any large extension could be classified as a self-build construction.

How we can help

Saffron has years of experience providing finance for people looking to build their own homes. We can support you and your customers along the way with a mortgage which will release funds at several stages as the build progresses. We also have lots of useful information on our website, including our Intermediary Guide to Self Build Mortgages.

If you want to know more about our Self Build Mortgages, product details can be found here. Brokers 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:

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

Sources:
1 National Custom and Self Build Association (NaCSBA)

Understanding the next generation of home owners

I read an article recently which reported that over a third (35%) of people born between 1980 and 1995 prioritise saving for a deposit on a home over their retirement1. The next generation of homeowners has not lost its appetite for property ownership but, as we all know, the ability of first time buyers to get their finances in a position to secure a mortgage is difficult. I thought it would be useful to research this generation of people to get a better understanding of what they really think about their future prospects.

By now you may have realised that I’m talking about millennials. What I’ve discovered, from some excellent reports I found, is that this over used word carries an enormous amount of prejudice and misconception. However, if we are to be able to help the next generation on to the housing ladder then, as an industry, we need to be able to understand what motivates this demographic. Only then can we begin to identify the products and services which can support them and deliver what they need.

Financial worries

Millennials are the first modern generation to be worse off than their parents. A report by The Resolution Foundation2 argues the squeeze on disposable income for millennials cannot just be attributed to the recession. Various shifts and changes in the structure and characteristics of employment explains their weaker position.

Millennials are more likely to be working in ‘non-standard’ or ‘insecure’ employment. At 25, one fifth (20%) of Millennials who had reached that age worked part-time compared to just 15% of the previous generation (Generation X). More Millennials work in less well paid industries, such as hospitality, retail and transport and there has been a drop in starting pay and lower levels of job mobility. Factors such as these can help explain the stunted growth of Millennial salaries.

Psychology

According to a study from KPMG, millennials need to know the reason for doing a task before they do it. As the generation of immediate gains, they prefer to understand the value of doing something upfront before they set off. Why should they invest their time in a task and how does it fit into the bigger picture? This need to understand the reason for doing things can translate into an impatience with unnecessary process.
Millennials are more confident when it comes to challenging the system. They are less afraid to ask questions, make comparisons or question ‘the norm’ of things. If they’re thinking something, they’re most likely to express it.

In the job market, millennials stay within a given role for a maximum of three years. With the degree of networking, peer-to-peer comparison and the ability to find new employment online it’s not surprising to understand how quickly millennials become eager for the next challenge. In addition, there is a stronger desire to have a work-life balance. The previous generation hoped for work-life balance. Millennials simply demand it and it’s expected as a norm on any job specification.

Technology & Globalisation

The internet was born at the same time as millennials and evolved with them. As a result, millennials are considered to be digital experts and the world’s first connected generation. They expect to be able to use digital devices for all their financial services requirements. Not only that, they expect the service to be quick and simple to use. Any flaws in the experience will leave them looking for alternative options.

In addition, millennials accept and embrace globalisation. They travel more frequently than past generations, and aspire to own a home and potentially move and live overseas. Their goal is a flexible lifestyle and they expect to be able to access products which will help them achieve it. They perceive Brexit to have the potential to damage the chances of both, which is why this generation is so angry about the current direction of political travel.

What does this all mean?

It’s wrong to categorise all people born between 1980 and 1995 as having precisely the same set of characteristics. However, the research can give us an indication of behaviour and guide the industry in developing products and services for this generation. I would summarise the four key considerations as follows:
1. Millennials live at home longer. This delays their move to purchasing a house of their own but puts pressure on the family to accommodate young adults at home. Could there be a product which enables you to extend the family home in the short to medium term and helps to save for the equity for a first time purchase?
2. There is going to be more flexible working as millennials regularly shift from one job to another. This means an increase in complex income and contract work.
3. The sales process for a mortgage will need to explain what and why things happen in the application process. Research shows that three out of ten homeowners become stressed by mortgage applications4. Brokers and lenders will be able to gain market share if they can provide an unrivalled experience. Positive customer experience has a high chance of being shared amongst peers, colleagues and friends via social media via social media.
4. Digital services will be increasingly important and the service should be flawless.
Millennials have the same aspirations for property ownership as their parents. If the right propositions are designed around their unique characteristics then lenders and brokers will be well placed to help the next generation of home owners.

Is 2019 The Year Of The Developer?

Developers are nervous about the year ahead but can see opportunities, which gives them cause for optimism. Although things are expected to be volatile and uncertain, the outlook is not pessimistic. That’s the key message we took from one of our recent round table events, where we invite people from the industry to talk about trends, issues and opportunities. I wanted to share some of the findings with you as I see the Development segment of the market as one where there could be growing demand for brokers.

The housing market

As you’ll no doubt be aware, the government has set itself an ambitious home building target to ease the housing crisis. Rather unhelpfully to the people in charge, their targets and forecasting came under serious pressure last year. In July, a survey by Knight Frank1 concluded that almost 90% of housebuilders believe that construction of 250,000 additional homes a year is the most that can be achieved by 2022, 50,000 short of the government’s 300,000 target.

In addition, The Telegraph reported on 2nd September that the Government’s housing target may be too high after The Office for National Statistics forecasted that fewer new households would be required than had previously been thought. Oxford Economics claimed that the original projections and “hysterical” discussions of the housing shortages had been unjustified.

One thing is clear. While people may disagree about the projections and the number of houses that can be built each year, we all agree on the need for more. This should come as music to the ears of developers, but we found out that things aren’t as straightforward as they used to be.

Business Planning

Planning the economics of a development has become extremely difficult, and this is being driven by two factors. The first is the increasing volatility in material and labour costs. It was reported in September 2018 that building costs had increased by just under 5% over the previous 12 months3. More expensive imported materials and components remained a significant driver of cost inflation, attributable to the fall in the value of Sterling.

Labour costs also continued to rise steadily too, with contractors reporting difficulty in recruiting skilled labour, particularly carpenters and bricklayers. In our round table discussion one developer told a story which brought this aspect to life. He explained that finding reliable bricklayers had become extremely difficult. In one example, he explained that he had agreed a price of £200 per day for a team but they didn’t turn up as they received a better offer from another developer. Eventually, he had to pay £450 per day to make sure he could secure the labour he needed.

Modern Methods of Construction

Modern construction methods have been heralded for their potential to provide high quality housing quickly. The Royal Institution of Chartered Surveyors (RICS) released a paper last year urging the government and construction industry to boost diversity in construction skills by embracing modern methods. In this country we are slow to embrace new ways of building homes, and one developer contrasted this with the European approach where self-build, custom build and developments all use new technology. However, change is coming.

Developers are changing their attitude but this presents a challenge for the lending industry. It was indicated that if modern methods are to be adopted, lenders will need to be convinced that the property is capable of being mortgaged by conventional mortgage providers. Modern techniques can make some lenders nervous as they have to feel confident about the long-term value of the property. As a broker, it is important to keep this in mind when dealing with developers and self-builders.

Lending Culture

Brokers and developers at the event talked about the different types of lending model they had experienced. They categorised this as a relationship or transactional model, with some lenders looking to build a long-term relationship with developers, and others lending in a highly commercial way with numbers driving all decision making.

There was concern among developers that lenders employing a transactional approach will be the first to pull away the rug if there is a recession. At Saffron, our aim is always to be as flexible as possible and keep our eye on building long-term relationships. We think it’s important that brokers, developers and lenders work closely together to avoid any surprises and to make sure that everyone buys into the plan. The experienced developers in the room talked about bad experiences in the last housing crash, when they felt that lenders were reacting prematurely.

The Year Ahead

There is great demand for developers to increase the number of properties but the current global uncertainty makes planning difficult. For brokers, the development market could be a buoyant part of the industry but our experience tells us that 2019 could be another volatile year.

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.

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Best Service from a Mortgage Provider - Moneyfacts Awards 2014