Recent headlines on the front pages of the national press such as ‘Millionaires push house prices to a record high’ have focussed on rising house prices, in London especially.
House prices have shot up at the fastest rate for more than two years. This is something we’ve been talking about a lot over the past few months but with the year drawing to a close it seems we are reaching a stage when we are pricing many people out of the market.
Lenders have come under fire for promoting dangerous levels of debt. I remember the launch of the 125% mortgage, and Abbey’s 5 x salary deal has once again raised the issue of affordability and irresponsible lending.
I’m glad to see that the so-called offending lenders have strongly defended their positions and have been able to reassure us that not only are their affordability criteria robust, but for many potential home owners this type of lending is their only hope of getting on the property ladder.
And that is the crux of the matter. Lenders would not be offering these deals if there wasn’t a market for them. But we are all caught up in a vicious circle of house price affordability in this country.
There is a school of thought that says salaries will cap house prices and keep them affordable but certain areas – including whole towns and cities – are proving to be exceptions to this, especially in places where buy-to-let investors are replacing first-time buyers.
Spiralling house prices result in borrowers becoming more creative to maximise their borrowing potential, using self-certification or inflating their incomes to achieve better mortgage offers.
That they can afford the higher prices through such creative borrowing techniques stimulates competition in the housing market further and means house prices climb higher. In short, greater indebtedness fuels house prices rather than dampening them down.
Most lenders are cautious. They will study a comprehensive fact-find including a detailed analysis of assets and liabilities as well as income and regular monthly outgoings before making a mortgage offer.
The brokers I deal with don’t think the affordability of the mortgage is an issue. They tell me that lenders’ carefully thought through and comprehensive affordability calculations and tests are spiked within a month by the additional significant debt borrowers incur within a month of completion by spending on carpets, furniture and decorating.
At our roadshows I urge brokers to embrace technology by using techniques such as cutting their phone bills by using Skype, reducing the need for home visits by using a webcam and expanding brand and market presence with a website. These three relatively inexpensive moves can save time and money. They will also open up new business streams and could ultimately make the difference between survival and extinction.
I’m a fan of the significant investment lenders have made to improve the electronic transmission of monies, which has resulted in a major acceleration of the mortgage process. Edeus, as a new player with no legacy and the opportunity to launch with a market-leading proposition, has made speed of doing business a key part of its proposition, offering to pay borrowers mortgage funds in as little as five days from application and make payments of commission to networks and brokers just five days later.
But some lenders are abusing technology to mask the flaws in their propositions. Nationwide has launched an internet-based mortgage application process. The single benefit of the process is that consumers can complete the application paperwork at their leisure, although it has to be said the lender will also benefit by alleviating bottlenecks in its branches.
But the risks far outweigh the advantages. Even if your lending proposition is as simple as variable, fixed or tracker rates, there should be an element of advice. The Nationwide-style execution-only approach devalues our industry and creates a rate-driven market.
Earn 1million a year by broadening your offer and keeping clients loyal
There is an entrepreneurial spirit among mortgage professionals which means they are always seeking the next challenge or adrenaline charge, whether it might be climbing mountains, bungee jumping or running marathons.
For many intermediaries, counting the commission they earned the previous week provides enough of a buzz. But for those who are up for a challenge, I have one for you… try to earn 1m in nine months, and then go onto earn 15 years’ worth of income in just five years.
Here’s how you can achieve this:
• Ensure that you are advising clients on four product areas to ensure their loyalty. This should not only secure their repeat business but also mean your clients are no longer vulnerable to financial planners who will be keen to deal with your clients’ protection needs, but may well convince those clients that all their needs can be catered for under one financial roof.
• Double your earnings without doubling your costs. Brokers who only focus on mortgage business and avoid associated product sales are depriving themselves of at least 50% of their earnings potential. And this additional 50% can be earned as part of the same client meeting, which will drastically improve an intermediary’s productivity into the bargain.
• Complete three mortgage sales, three life and general insurance cases and two conveyancing cases, every working day for 40 weeks. Based on typical commission rates, you will earn 1m.
• Remember, it’s not the mortgage loan that needs the protection, it’s the people involved – even when it comes to buy-to-let. Anyone with a spouse, children and business interests will already be thinking about critical illness, term and key man insurance so they don’t need you to paint them disturbing scenes but they do need to know that you offer advice on these product areas so they can consult you on them in the future.
• Specialisation is key. Just as his club allowed Newcastle United’s Alan Shearer to focus on scoring goals without expecting him to drive the bus, polish the boots, play in goal and cut the grass, so mortgage brokers should offer the same intensity of focus. They should be sellers, focussing on advice and leave the administrators get on with the administration. Sellers are the only people generating income for your business and they require a support mechanism to allow them to do their job well.