Alpa Bhakta, CEO of Butterfield Mortgages Limited, explores how large and small banks have responded to the disruption caused by the pandemic and how it is likely to shape the future of the sector.
No business or sector is immune to the impact COVID-19 has been having on society. Not only are there the immediate health implications to deal with; the introduction of lockdown measures and social distancing has completely transformed the way businesses, investors and consumers interact with one another.
There is a general acceptance that, regardless of how or when the COVID-19 pandemic is effectively contained, the changes brought about by the virus will be permanent. From flexible working patterns to the adoption of digital processes that reduce the need for physical interactions, businesses are slowly transitioning to what is now being termed as the “new normal”.
Of all the sectors adapting to the new normal, one could argue the financial services sector faces some of the biggest obstacles. Historically, large financial institutions have naturally relied on traditional practices and have been slow to embrace change. This is partly due to their size and the natural time it takes to reorganise teams, install new systems and pass the necessary due diligence checks.
The sudden rise of COVID-19 cases caught many of these organisations by surprise. When lockdown measures were announced by the UK Government back in March 2020, these companies were faced with the following challenges.
The first was overcoming the logistical hurdles involved in managing a company when the vast majority of employees were working from home. Unlike small, specialised businesses who were able to adapt to this new environment, big banks had to ensure the necessary systems and protocols were in place in order to continue operating whilst managing risks appropriately.
The second challenge was reviewing the current products and services on offer and deciding which needed to be temporarily withdrawn from the market. If we look at mortgages, the majority of high street banks decided to stop offering high LTV products. Others refused to process new applications, with stringent application checks put in place.
Unlike small, specialised businesses who were able to adapt to this new environment, big banks had to ensure the necessary systems and protocols were in place in order to continue operating whilst managing risks appropriately.
The decision to pull certain mortgage products from the market makes sense, particularly at a time when it was not known when social distancing would be eased. However, this also had a significant impact on homebuyers.
A survey of 1,300 homeowners and prospective homebuyers by Butterfield Mortgages Limited (BML) in late May revealed that over half of homebuyers had been denied a mortgage this year. This is despite having agreements in principle. Of those we surveyed, three in ten, or 31%, said they had lost their deposit due to delays in securing a mortgage as a result of the coronavirus.
These statistics are startling and bring me to the third and final challenge banks are indeed continuing to face. That is effectively engaging and supporting their clients so that these customers are in a position to confidently manage their finances and make significant investment decisions.
Banks cannot afford to overlook the importance of effective customer engagement. After all, it is in these uncertain times that people are eagerly looking for advice and support. And based on separate research conducted by BML in the summer, it is apparent that some are not satisfied with their banks handling of the pandemic.
Indeed, some 19% of homeowners have lost faith in their banks this year because of the lack of financial support available during the pandemic. This is a concerning statistic and could signal the beginning of a bigger confidence crisis if not effectively addressed. What’s more, just under a third (31%) of customers said they were frustrated by their banks’ dependence on chatbots and automated services.
This is an interesting finding. At a time when people are more inclined to use digital services, it shows that banks cannot simply rely on a chatbot to meet demands for financial advice. In other words, banks need to see technology as an instrument that can be creatively leveraged to engage with their clients and networks. It is not a solution in of itself; rather a tool that will only be effective if part of a larger communication strategy.
Over six months since lockdown measures were first introduced, it looks as though the country could be facing a new wave of social distancing regulations. This is without doubt a frustrating development. The UK Government has been actively trying to encourage spending and investment activity through targeted policies, and banks have been slowly putting products back on the market.
Regardless of what lies on the horizon, banks need to ensure they are doing everything possible to engage with their clients. This means creatively adapting to the new normal and not letting the other challenges they face overshadow their customer engagement. Failing this, they could risk losing customers in the long-term.
JPMorgan Chase & Co announced on Thursday that it would commit $30 billion to address racial wealth disparity in the US over the next five years, marking one of the largest corporate pledges towards racial equality since the death of George Floyd earlier this year.
The bank’s new initiative aims to provide $8 billion in new mortgages for Black and Latino borrowers, $14 billion in loans and investments to drive affordable housing projects, $2 billion in small business loans and $2 billion in philanthropy. It will also dedicate another $4 billion towards helping 20,000 Black and Latino customers lower their mortgage payments, which will involve grants for down payments and closing costs.
JPMorgan will also spend an additional $750 million with its Black and Latino suppliers and commit to opening branches in low-to-moderate income communities, giving a further 1 million people in underserved areas access to low-cost bank accounts.
“Systemic racism is a tragic part of America's history," said JPMorgan CEO Jamie Dimon in a statement. "We can do more and do better to break down systems that have propagated racism and widespread economic inequality, especially for Black and Latinx people. It's long past time that society addresses racial inequities in a more tangible, meaningful way."
To address racial inequality in its own 250,000-strong workforce, JPMorgan has stated that it will incorporate diversity targets into compensation decisions for managers.
Organisations across the financial services sector have made pledges to furthering racial equity after the death of George Floyd in police custody sparked widespread protests in the US. Last month, Mastercard committed $500 million to a range of initiatives aimed at increasing financial inclusion among black communities in America. Bank of America and Citigroup have made pledges of their own, totalling around $1 billion each.
JPMorgan is the largest US bank by assets and made a profit of $36.4 billion in 2019.
UK property prices jumped by 7.3% year-on-year during September, with lender Halifax also reporting in its latest House Price Index that mortgage applications have reached a 12-year high.
Halifax’s figures showed that the average price of a residential home reached £249,870 in September, a 1.6% rise from August. This brought the annual growth rate to 7.3%, the fastest observed since June 2016, beating analysts’ predictions of 0.6% monthly growth.
“Few would dispute that the performance of the housing market has been extremely strong since lockdown restrictions began to ease in May,” said Russell Galley, managing director at Halifax. “Across the last three months, we have received more mortgage applications from both first-time buyers and home movers than anytime since 2008.”
However, Galley also warned of “significant downward pressure” that would be placed on house prices in the months to come as the housing market will eventually be dampened by the UK’s economic downturn.
“It is highly unlikely that the housing market will continue to remain immune to the economic impact of the pandemic. The release of pent up demand and indeed the stamp duty holiday can only be temporary fillips and their impact will inevitably start to wane,” he said.
The “pent up demand” of prospective house buyers has been widely credited for the resurgence of property sales since March and April, when house viewings and moves were banned under COVID-19 lockdown measures.
It is likely that the housing boom will be weakened by the reimposition of strict lockdown rules in several parts of the UK, and by the ending of several of the government’s employment support measures at the end of October.
Mortgage approvals in the UK reached their highest level in 13 years during August, according to new data from the Bank of England.
In its Money and Credit statistical release on Tuesday, the BoE said that the number of mortgage approvals “increased sharply to 84,700” during August, the highest monthly figure seen since October 2007, on the verge of the financial crisis.
The figure far exceeded analysts’ forecasts. A panel of City of London economists had expected to see only 71,000 approvals in the release.
However, other figures showed that consumer borrowing – an important driver of economic growth – increased by only £300 million between July and August, far below analysts’ median forecast of a £1.45 billion increase.
Pantheon Macroeconomics’ chief UK economist, Samuel Tombs, attributed the spike in mortgage approvals to “the release of pent-up demand following the shutdown of the housing market in Q2 and the impetus to complete purchases while the threshold for stamp duty has been raised temporarily to £500,000, from £125,000.”
The UK government’s stamp duty discount, instated in July, will run until March 2021, and record low interest rates (which could even turn negative in the near future) have helped to make borrowing cheaper.
HM Treasury also noted last week that house sales spiked by over 15% during August following changes in the UK mortgage market.
The COVID-19 pandemic, which is still ongoing, will no doubt have a profound impact on the world's economy for several months at minimum. Additionally, 2020 is an election year in the US, an event whose outcome could also have a powerful effect on a whole host of financial situations, like the unemployment rate, inflation, gross domestic growth, and more. How can you take all these factors into account to create a realistic, accurate personal budget? For starters, it makes sense to build as detailed a budget as possible, make saving a habit, file tax returns as soon as possible, and take defensive investment positions to protect against what will likely be a volatile year for the stock market. Here are four realistic ways to get your financial life in order before 2021 arrives.
Consider selecting a one-digit number as your regular savings percentage each payday. Too many people focus on amounts, which can be misleading and lock you into an outsize amount when your paycheck size varies. Instead, decide to put aside 5%, for example, out of each cheque you receive and you'll be better able to stick with the plan for the long run.
Know what lies ahead, especially if you plan to make any changes to your monthly expenses like purchasing a home, renting an apartment, buying a car, or taking out a student loan. The point of budgeting is not always to minimise expenses; it's simply to identify where money comes from and where it goes. After doing that, and only after doing it, will you be able to manipulate various elements of the income and outflow.
Step one is to know what you have and what you spend each month. For example, an excellent way to plan for education borrowing is to use a student loan repayment calculator for estimating monthly payments. That way, there's no guesswork about what your obligation will be, and you'll be fully able to place the item student loan payment onto its proper line in the budget. Go through each of the ways you spend money and make sure there's an entry for each one. Many people fail at budgeting not because they spend too much but simply because they don't know how much they spend and lose track of their overall finances.
If you have money coming to you after you file your tax return, send the forms in via an e-file program as early as possible. That way, you could have the cash by February. If you plan to owe money to the government, wait until the official filing deadline, or a few days before, to file and pay.
For numerous reasons, 2021 could be a roller-coaster year for the stock market. That's a good reason to purchase silver and gold as a hedge against market uncertainty and potential inflation. Be careful not to put your entire portfolio into metals, but only about 10%.
Halifax’s house price index, released on Monday, revealed that the average UK property sold for £245,747 during August, the highest level since records began.
The widely followed index recorded a 1.6% increase on house prices in July and a 5.2% annual rise. This figure fell below analysts’ expected 6% year-on-year increase.
The UK has seen a house price boom in recent months, following the imposition of a stamp duty holiday on home purchases below £500,000 in England Northern Ireland which came into effect in early July. Lockdown measures in the wake of the COVID-19 pandemic also drove many first-time buyers to delay their search for a home, leading to a swell of demand as lockdown restrictions eased.
Halifax noted this demand surge in its release. “A surge in market activity has driven up house prices through the post-lockdown summer period, fuelled by the release of pent-up demand, a strong desire amongst some buyers to move to bigger properties, and of course the temporary cut to stamp duty,” the lender wrote.
However, Halifax also warned that the price increase will likely be curtailed soon: "Notwithstanding the various positive factors supporting the market in the short-term, it remains highly unlikely that this level of price inflation will be sustained.”
Nationwide, a rival lender to Halifax, released its own figures last week that showed prices at record highs in August. According to Nationwide’s data, prices rose by 2% between July and August, and 3.7% from the same period last year.
Tiba Raja, Director at Market Financial Solutions, offers Finance Monthly her insight into the pandemic's impact on the lending market.
Economists and politicians are currently grappling with the question of how to bring about a post-pandemic economic recovery for the UK. So far, the government has introduced policies to stimulate investment, productivity and economic growth to this end. While these reforms have delivered measured success, more works need to be done. Businesses need to take a step back and understand how the pandemic has affected their respective industries.
This is particularly important when it comes to the lending market. Any attempt to support the economic recovery of the UK must include measures that support property investment. For this reason, I have listed below what I see as the three main ways COVID-19 has affected the lending market.
One key trend is the speed in which borrowers are now needing their loans deployed to ensure they can complete on a property transaction. Recent government intervention, namely the stamp duty land tax (SDLT) holiday, has resulted in increasing competition and rising house prices. The first Nationwide house price index (HPI) following this policy’s introduction showed an annual 1.5% rise in general house prices, in contrast to the 0.1% decline the month prior.
When coupled with the fact that the SDLT holiday ends on 31 March, 2021, borrowers are keen to act quickly to reduce their chances of losing out on potential property opportunities. What’s more, there is likely to be a surge in activity in the final month that the SDLT holiday is in place. This means that lenders have to act quickly and ensure they have access to in-house credit so that loans can be deployed as soon as is viably possible.
When coupled with the fact that the SDLT holiday ends on 31 March, 2021, borrowers are keen to act quickly to reduce their chances of losing out on potential property opportunities.
In the months preceding COVID-19, the number of specialist financing firms entering the market was growing. As more and more brokers and borrowers became aware of the benefits bespoke loans could offer, demand for such services grew, and many new firms were keen to meet this demand.
However, as the reality of the pandemic hit, many of these firms found themselves unequipped with the experience needed to properly navigate these choppy waters. Established lenders, on the other hand, were able to rely on the quality of their services and the strength of their client-broker relations, leaving them as the only option for those seeking fast finance during the lockdown.
Specialist lenders that managed to continue through past lockdown are now experiencing a newfound appreciation of their services, a trend unlikely to end anytime soon. After all, borrowers and brokers benefit from specialist lenders due to their ability to deploy loans quickly and also tailor their products and services to the individual needs of each client.
Finally, it is being reported that the those who are taking advantage of the mortgage payment holiday scheme are struggling to take on new debt. Given that the Financial Conduct Authority made it especially clear at the time that participation in this scheme wouldn’t affect one’s credit rating, the fact that some applicants have reported traditional lenders denying mortgage applications has left many prospective buyers worried and confused.
Of course, it is understandable that in these uncertain times, lenders would view a failure to meet previous mortgage payments as a negative mark on an applicant’s application. However, given the completely unprecedented nature of the times we now live in, lenders should not be penalising those that were simply following advice and taking advantage of a government-backed scheme. What is needed is for lenders to properly assess each application on a case by case basis before making a final decision.
Ultimately, I am optimistic that the lending market will make the changes needed to properly equip itself for the current climate. The property market is experiencing a mini boom, which is positive news for all those involved in real estate, including lenders. I look forward to seeing a sector primed and ready to play a leading part in the UK’s economic recovery.
Michalis Michael, CEO of DigitalMR, explores these findings and what they mean for the future of banking.
When we are finally on the other side of the coronavirus pandemic, several key sectors will be remembered positively for the way they took charge and handled the crisis, from healthcare to supermarkets and logistics companies.
Banks, on the other hand, are unlikely to fare as well in the eyes of consumers. A social intelligence report compiled by DigitalMR analysed customer sentiment amongst the top 11 global banks during the period of February 2018 to April 2020 and found customer relationships hit an all-time low during the peak of COVID-19.
In today’s digital world, dissatisfied customers can switch provider with the click of a button and, if banks are to emerge stronger, they must take heed of lessons from the lockdown period and prioritise customer experience in a way that they have never done before.
Here are five of the main customer service lessons banks should take from the coronavirus lockdown according to artificial intelligence.
The banks that received the most positive sentiment during lockdown were those that were reactive and quick to adapt their approach in line with what their customers truly needed. Unfortunately, they were in the minority and, despite so much bank advertising claiming to be "by your side" and "in this together", many failed to practice what they preached. In such times of adversity, banks needed to truly demonstrate they were listening to their customers by providing personalisation and products that reflected their needs at specific moments in time. Moving forwards, they must take a more customer-centric approach and provide real solutions in response to new and emerging challenges their customers are facing.
The banks that received the most positive sentiment during lockdown were those that were reactive and quick to adapt their approach in line with what their customers truly needed.
Our world today is undeniably digital, and the pace at which disruptive technologies are arriving is accelerating. Arguably, digitalisation in the banking sector moved at an even rapider pace during lockdown, when even those unfamiliar with online banking were forced to bank from home as banks scaled back physical channels and human-led advisory. Despite this, many banks did seemingly little to speed up and optimise their digital processes to account for a surge in online enquiries and applications for Government support, such as the Coronavirus Business Interruption Scheme [CBIS]. To put themselves in better stead post-coronavirus, banks must become innovative and embrace digitalisation so their responses to emergencies like COVID-19 are quicker and more effective. There is no getting away from the fact that digital transformation is vital if they are to be fit for purpose when it comes to lending in the future.
Our analysis of customer sentiment throughout lockdown shows that lengthy wait times to speak to a customer service adviser was one of the main frustrations, with some customers experiencing waiting times of four hours plus, and banks like Barclays pulling their customer service functions completely.
Crisis-stricken customers need quick support and solutions, and banks must work hard to address efficiency if they are to improve customer experience moving forwards. Much of this will be achieved by enhancing digital self-service for customers and implementing immediate measures to ensure they have the operational capacity to act quickly. COVID-19 has proven that automation and using data to make efficient decisions is essential for handling increased demand for credit and delivering faster decisions.
Despite the Government saying in March that banks were required to grant temporary reprieves on mortgage repayments to help families struggling financially during the crisis, our research shows that many failed to issue them. Whilst payment breaks are not a long-term solution for those in financial trouble and could raise bank liquidity concerns, customers in distress need to know that they can turn to their bank for extra support. Many consumers will be considering a switch post-lockdown, so it’s critical that banks offer the trust and services that they demand.
Another key concern amongst customers during lockdown was inconsistencies surrounding fraud, with many consumers worried by their bank’s lack of response to fraud calls, and banks such as HSBC reported to have been overzealous with fraud concerns by cancelling cards when not required. According to Proofpoint, a cloud security and compliance specialist, 80% of accredited banks were unable to say they were proactively protecting their customers from fraudulent emails, and 61% have no Domain-based Message Authentication, Reporting and Conformance [DMARC] record whatsoever, putting customers at heightened risk during the pandemic. To regain customer trust, banks will need to enhance their fraud detection activities to mitigate new financial crime typologies, as digital transactions increase and electronic payment growth accelerates.
Whilst our findings related to banking customer sentiment during lockdown are somewhat scathing, banks can still emerge stronger from the crisis if they learn from their shortcomings, implement the necessary immediate measures and take advantage of opportunities. By embracing digitalisation and using artificial intelligence to inform their responses to customer needs, banks can successfully navigate the new normal, support disproportionately affected customers and renew consumer confidence.
Paresh Raja, CEO of Market Financial Solutions, examines the impact of the SDLT holiday so far and the importance of reinvigorating the property market.
With a value of £1,662 billion, the UK’s real estate market is a vital contributor to economic growth and productivity. That’s why the government’s plan to support the UK’s post-pandemic recovery has focused so heavily on real estate. After all, it was one of the first sectors to benefit from the initial easing of social distancing measures, ensuring that buyers and renters were once again in a position to move homes and initiate new property transactions.
Most recently, Chancellor Rishi Sunak took the bold step of announcing a new Stamp Duty Land Tax (SDLT) holiday applicable to all property transactions until 31st March 2021. The government estimates that this will see average SDLT bill cut by £4,500, with nine out of 10 buyers purchasing a main residential home exempt from the tax.
The move aims to encourage buyers back to the real estate market, and so far, it has been having measured success. Estate agencies have noted a spike in enquiries – importantly, these enquiries range from first-time buyers to non-UK residents seeking a buy-to-let property. While it is too early to tell whether the holiday will bring about a stable and sustained increase in real estate transactions, the fact prospective buyers have acted immediately following the SDLT holiday announcement is promising.
With a value of £1,662 billion, the UK’s real estate market is a vital contributor to economic growth and productivity.
The SDLT holiday provides the financial incentives needed to reignite interest in property, but one feels it will only have limited success. This is because homebuyers will still struggle when it comes to finding the right type of finance needed to complete on a sale.
When lockdown measures were first introduced, mainstream mortgage providers decided to retreat from the market by limiting their product and service offerings, freezing new applications and delaying the deployment of mortgages already agreed to in principle. This had dire consequences for those in the middle of a property transaction, increasing the risk of chains collapsing.
In response, brokers and borrowers turned to established specialist finance providers who remained committed to meeting the needs of the market. Bridging loans became a popular option due to their speed, flexibility and ability to be tailored to the individual needs of each borrower. While transactions did decline during lockdown, a proportion of those completed was due to specialist finance.
Now, banks and mortgage providers are once again returning to the market. However, the range of mortgage products available is still limited. There are also fears that these traditional lenders will only deploy loans for a handful of cases in order to minimise their risk exposure. Indeed, there are already reports of banks not deploying mortgages to borrowers who take advantage of the COVID-19 loan repayment holiday scheme.
Just like we saw in the aftermath of the global financial crisis (GFC), it is during times of economic recovery that the need for creative solutions that support growth and stimulate investment are needed. And similar to what we witnessed in the months and years following the GFC, specialist finance is rising to the call by ensuring that homebuyers are able to act confidently and quickly.
At this critical moment, it is important that buyers and property investors have access to the finance needed for new home purchases. This requires research and a full appreciation of all the products and services available beyond just the high street.
Failing this, there is a real risk of the SDLT holiday only having limited success.
The coronavirus outbreak has waylaid the best-made plans for the finances of many people, so successfully managing your money through 2020 is now looking to be much trickier than it was before. However, many of the same principles still apply.
Whether it's saving for a rainy day or creating a budget to help you take control of where your money is going, managing your finances will help you stay on top of your bills and create a financial cushion for your future. You can start taking steps to become more financially literate at any time, so this guide will provide you with some tips on how to manage your money effectively in 2020.
Whether you choose to write out your budget with a pen and paper or you prefer to go digital and use a spreadsheet or an app, having a budget in place each month is vital to managing your money efficiently. Budgeting is a great way of seeing clearly what you have coming in and going out, so you can see if you’re overspending in a certain area and redirect that money to savings or debt payments.
Many people have additional payments to make each month in the form of loans or cards, so you should make 2020 the year that you tackle your debts. It makes sense to pay off the debts which charge the highest rate of interest first, and then pay off the rest afterwards. Some examples of debts you should look to pay off include credit cards, store cards which typically have a very high rate of interest, and personal loans.
It makes sense to pay off the debts which charge the highest rate of interest first, and then pay off the rest afterwards.
A good tip if you have a few debts is to list out all of the loans or cards you have, along with the minimum payments you need to make as per the terms of your agreement, and the interest rate. You can then categorise these from highest to lowest, so you have a clear view of what needs to be paid.
If you haven’t been checking your credit score on a regular basis, this is the year to start that habit. You can use online tools to get a free credit report that will show you any errors or potential fraud that you may be victim too, as well as give you a good overview of your finances. It’s important to have a good credit rating for larger future purchases such as a mortgage on a property, so it pays to check in every so often and see how you’re performing.
So many of us push the idea of saving for retirement to the bottom of our priority list because if feels like such a distant problem. But you can never start saving too early and having a plan in place from an early age will provide you with greater security when the time comes to leave your career.
Pension specialists Reeves Financial point out that "no matter how old you are it is never too late to think about financially planning for your retirement and paying into a pension scheme. It is actually a tax-efficient way of saving money”. So, if you’re currently without a pension plan, now is the time to do your research and set one up so you can begin preparing for the future.
Some people can find it difficult to get motivated by savings, and it’s understandable – there are often things we want or need to spend our money on more immediately. But it’s often easier if you set a goal so you know what you’re working towards. The first step with any savings plan is to have emergency savings in place – money set aside should something happen out of the blue, such as your car breaking down or if your boiler breaks.
Aim to have two to three months’ worth of expenses set aside in an easy-to-access account for these moments. After you have that saved, you can think about longer-term goals you may have, such as taking a holiday, planning for extra money to have on hand when you have a child or for a wedding. You’ll be surprised how quickly your money piles up, even if you just save £50 a month towards your goals.
It can be all too easy to bury your head in the sand when it comes to money, particularly if you’re worried about your finances. But having control over your money and how you manage it is the best solution to help you tackle your worries head-on and plan for the future. With these tips, you’ll be in a great position by the end of the year to feel more financially secure and able to start building your nest egg.
Choosing a holiday home
A holiday home acts as not only a great source of income but is a second home for you and your loved ones. Due to the high turnover of tenants in holiday homes, short stays are the key selling point that attracts visitors to staycations. Due to this, holiday homeowners can expect to earn £22,000 on average per year according to one report, and even more during peak times and in sought-after holiday locations, such as luxury Lake District cottages that are extremely popular among walkers and outdoorsy travellers, among other picturesque holiday hotspots.
A holiday home must be available for letting as a furnished holiday home for at least 210 days per year. This leaves a third of the year (22 weeks) for you to enjoy, refurbish or renovate your holiday home. Many holiday home letters choose to keep it on the market all year round, particularly during peak times, and block out weeks to enjoy their own holiday there, which can be a bonus of choosing this mortgage type.
Not only this, but holiday homes are entitled to tax relief. Some of these benefits include claims for Capital Gains Tax reliefs for traders, entitlement to plant and machinery capital allowances for items such as furniture, equipment and fixtures and profits from your holiday home earnings counting towards pension purposes.
Buy-to-let is appealing to more buyers due to the low-interest rates for savings and strong demand for rental properties from young people who are struggling to get onto the property ladder themselves.
Buy-to-let (BTL) mortgages are a great investment for those who wish to own a property and rent it out for additional income for long-term tenants rather than as a place to live. The rules around BTLs are similar to a regular mortgage, however, several key differences should be considered if a buy-to-let property interests you. Buy-to-let is appealing to more buyers due to the low-interest rates for savings and strong demand for rental properties from young people who are struggling to get onto the property ladder themselves.
However, some points to consider before choosing between a holiday home and buy-to-let are:
Why are holiday homes on the rise?
Holiday homes have many positives pushing their favourability, such as ROI and growing staycation popularity. In addition to this, holiday homes can be rented out for far more money than you could a normal rental property due to the high turnover. This means that over the year you could generate a much bigger income depending on the amount of business taken on, leaving a holiday home much more flexible than a buy-to-let mortgage.
Furnished holiday lets are also taxed differently than buy-to-lets. They are classed as a business which means you can still claim tax relief on mortgage interest which is appealing to the mass market. In contrast, that relief is being reduced on buy-to-let properties, which is something to consider within the ever-changing market.
What are the key misconceptions among buyers in relation to mortgages?
Most buyers are scared of a mortgage payment, as they feel the weight of it when compared to renting. I like to educate my clients on the difference between buying and renting. Take for example $1,500 a month in rent, which translates to $360,000 in 20 years that you will pay a landlord. Now, if you had a mortgage for the same amount of money, you keep this money and in most cases, there will even be a return of investment.
What are the key challenges that your clients face before applying for a mortgage and how do you help them overcome them?
Honestly, down payment and affordability are the key challenges that most clients face. I have several down payment assistance programs available for clients who have been trying to save but would qualify for a certain program which benefits them. I also educate my clients on the benefits of buying what they can afford. Most people want $100,000 more than what they can afford - I have clients who want a $500,000 mortgage but only qualify for a $400,000 mortgage. It is interesting to see how most people want $100,000 more than what they qualify for in terms of mortgages. This trend of wanting more is always a variable even with clients who want a $1,200,000 mortgage.
What strategies do you implement to minimise financial burdens in regards to mortgages for your clients?
I qualify my clients based on what they can afford. I also give them realistic expectations. It is better to try to pay off what you might owe little by little than to think that your mortgage payment will be lowered with a refinance in the future. A mortgage is a long-term commitment and home prices and rates have many ups and downs during its lifetime.
Most buyers are scared of a mortgage payment, as they feel the weight of it when compared to renting.
What are the particular challenges that mortgage brokers in the US have been facing over the past year in relation to changes in what customers expect in terms of products and services?
Mortgage brokers have the best options. As brokers, we can shop around several lenders and give our clients the best rates and terms, while direct lenders can only provide what their one lender can offer. This is the lenders’ biggest challenge. In some cases, they can shop around different lenders but this comes at a higher cost for the client.
What motivates you about helping people with their mortgages?
I keep trying to perfect my entire process by adding value. I want my clients to save money and enjoy the process. Each loan has some sort of complication and I am addicted to helping my clients overcome them, as seeing them happy is very rewarding.
What would you say are the specific challenges of assisting clients with mortgages?
We need more programs. I think it’s time for the 40-year fixed mortgage loan and cheaper down payment assistance programs to become present - this will open the doors to a lot of new buyers. We have all types of buyers and need all types of programs.
Buying a home has been a cornerstone of the American Dream. It brings us joy and gives us a sense of pride. It also stimulates the economy by providing work to architects, engineers and contractors. A proud homeowner will eventually also want to buy a barbeque grill to add to their new home and that continuous investment in their house will continue for years to come. Projects are never-ending - I am a homeowner and there is always a project we want to do in our home.
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