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Mortgage
Issue 25
Spring 2020
Professional
PROTECTING
THE FUTURE
The ability of the mortgage market to
adapt is facing a stern test
A helping hand Flood rising Sky’s the limit
Specialist finance How UK flooding The use of drones in
in the spotlight could affect the sector the property market
INTRODUCTION COVID-19
WE MUST PULL HELPING THE
TOGETHER HOUSING
MARKET
THROUGH
Matt Hall reflects on
an unprecedented
situation for the as they hit financial difficulties, where
there should be a fast track process
mortgage market With a partial lockdown in place, the in place and mortgage providers
have made clear there will not be any
W
UK economy and its housing market additional fees associated with this.
VALUABLE RESOURCES are navigating challenging times Mortgage lenders are likely to
W
ith the mortgage market spread “holiday” payments across
facing an almost complete The SMP’s new ‘Coronavirus hub’, which is available via the overall outstanding term of the
suspension in lending and our website, is a valuable resource which I encourage you hile the most On March 17, UK Chancellor mortgage, so borrowers will see an
current lockdown guidance to take advantage of. While I hope it will not be needed for devastating Rishi Sunak announced a package increase in their monthly mortgage
making moving to a new house very long, it brings together information and advice from impact for of measures to help UK businesses, payments once the holiday is over.
2 all but impossible, the sector is across the sector. While securing the best outcomes for our many from alongside a mortgage payment Some lenders may consider increasing 3
likely to face severe impact in customers and clients remains at the heart of what we do, the Covid-19 holiday of three months for all those the length of mortgage terms,
the short term. As the longer-term impact becomes clear, now more than ever we must all support our colleagues pandemic will struggling to meet their payments. particularly for those making interest
lenders and brokers will also need to come to terms with the and peers as we navigate through a challenging time. be a death or serious illness in the However, there are several warnings or capital only payments. ●
economic damage this pandemic will cause to the sector. Many members will be understandably concerned about family, the other impact for everyone about this “free” holiday that
Despite all of this, individuals and organisations will the stability and future of their own businesses. In light of is that on the economy. mortgage professionals will need to In some cases, specialist finance may
still want and need to buy and sell property when all this, you can find tips on effective home working and how With experts from the likes of Swiss guide their clients through. become the solution. Read our article
of this is over. So, while our focus will be on helping to maintain good mental health and wellbeing during Re warning that the pandemic could As we all know there is no such on page 6
members mitigate the immediate commercial impact on this period. result in a global recession, closer to thing as a free lunch and the first point
their organisations, we will also be supporting them in While it was necessary to protect the health and safety home people are fighting to keep their is that this will have to be repaid and
returning to normality as soon as possible. of our members, it was unfortunate to have to cancel businesses afloat and the roof over will not suit everyone. Borrowers will
Our ability to adapt and overcome will be tested the remaining dates in our popular SMP conference their family’s heads. need to contact their lender as soon
KEY POINTS
through the coming weeks and months and I believe the programme. However, we were able to hold a few of the
● While not making mortgage payments,
situation can be a positive catalyst for change. Technology conferences before the situation prevented further events borrowers are still racking up interest on the
offers a number of potential ways to deal with our issues. and importantly, we filmed the different sessions. They remaining balance
The sector has been extremely quick to pivot to remote are all available on our website now and in particular the MOVING HOME ● When the payment holiday comes to an end,
valuations and, of course, there remains areas of the advice on customer vulnerability seems more topical than the outstanding mortgage balance and
market such as product transfers and remortgaging that ever before. The government has urged anyone about to move to stop the process. As a result, mortgage payments will be higher than before
can be transacted entirely digitally. Our advisory board continues to examine the issues UK Finance said that, to help home movers impacted by Covid-19, mortgage the holiday
Ensuring customers do not have their credit ratings facing the market on a regular basis. We are also in providers will give customers who have exchanged contracts the option to extend ● Even if the lender agrees to this temporary
their mortgage offer for up to three months. solution, the borrower’s credit file will be
negatively impacted by using the temporary measures continuous dialogue with regulators and government to
Stephen Jones, chief executive of UK Finance, said: “It is clearly not appropriate affected and could impact their ability to get
available will be a key component in ensuring a swift ensure the concerns of our members are heard. If there are for people shielding or self-isolating to move home. Therefore, where chains credit in the future
recovery for the mortgage market. This will place matters you would like to raise, or you have ideas for how contain people in these groups, lenders, conveyancers and other professionals are ● The mortgage payment holiday will also
individuals and firms in a stronger position when things to support our members further, I encourage you to get working together to enable these customers’ moves to be delayed. extend to people with buy-to-let mortgages
begin to return to normality. Of course, the devil is always in touch. “Where people have already exchanged contracts for house purchases and set whose tenants are affected by Covid-19
in the detail and it is important that despite what is It has been encouraging to see how we have pulled dates for completion this is likely to be particularly stressful. To support these ● Lenders have offered a three-month
customers, all mortgage lenders are working to find ways to enable customers who moratorium on residential and buy-to-let
undoubtably a fast moving and unprecedented situation, together as a professional community and I am confident
have exchanged contracts to extend their mortgage offer for up to three months.” repossessions
the impact of any such measures are considered carefully. with the support of each other, we will come out of this Robin Fieth, chief executive of the Building Societies Association (BSA), added "It
It is also crucial that the sector takes a unified approach to even stronger. ● ● Meanwhile, a three-month ban on evictions
is possible that some borrowers’ financial circumstances may change during the
was also announced by the government
this guidance – all lenders should adhere to guidance to three months. If this happens, or the terms of the purchase change, we will work
ensure the best possible outcome. Matthew Hall is an advisory board member for the SMP closely with the borrower to achieve a sensible outcome." Source: The Money Advice Service
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smp.org.uk / Mortgage Professional / Spring 2020 smp.org.uk / Mortgage Professional / Spring 2020
FLOODING FLOODING
by postcode to UK Environment (2) it is possible that flood risk has “There are a number of properties that
Agency Flood Risk data to help analyse not yet been fully factored into the banks have on their books where, if
sensitivity to flood risk areas across the main credit risk models used by UK lenders knew then what we know
UK corporate SME population. banks for SME estimates. now, they might not have lent.”
Credit Benchmark revealed an Meanwhile back in January and And Cherry Mortgage and Finance
interesting disconnect between areas before Storm Ciara and Storm Dennis director, Matthew Fleming-Duffy,
FLOODING
at risk of flooding and the average PD hit, Family Building Society CEO, Mark said: “Mortgage lenders, particularly
of SMEs in the same geographic area. Bogard, revealed the regulator was lifetime mortgage providers, ironically,
While roughly 20% of all UK SMEs are asking lenders to explore how a range are very aware of flood risk. Of course,
located within an area at some risk of climate change scenarios would the UK is very exposed to flood risk.”
of flooding and almost 10% of these affect them. He explained that equity release
THE MARKET
present a medium to high risk, bank He said: “The Prudential Regulation lenders are more likely to ask the
data does not reflect comparatively Authority has just started to ask question because they are looking at an
heightened credit risk for these lenders to go on the journey to unlimited term, as the borrower could
vulnerable SMEs. understand the risks, if any, inherent live for a further 30 or 40 years, so they
While these results suggest that in lending books associated with are used to paying more attention to
there are other drivers of credit risk certain temperature change scenarios long-term risks affecting the property.
influencing the banks’ credit views of and what that looks like. Christine Whitehead, emeritus
their SME customers, consensus PDs “They have told us they will help us professor of housing economics at LSE
appear to currently show no clear link with that, we’re not climatologists, London, summed up the concerns:
between different levels of flood risk so it’ll be quite interesting to see. It’s “I have nightmares about this,
What does the recent flooding mean for the UK mortgage market? and differences in portfolio credit risk. relatively easy for them to give us a few literally, because in a certain wider
Will mortgage companies have to take the risk of flooding into These results suggest that:
(1) there are many other drivers
scenarios, a bit like stress testing – if
this happens what does it look like for
environment the capital value of
housing may start to look like the
decisions about access to finance? of credit risk that would need to be your mortgage book?” capital value of retail and that is a
4 taken into account before anyone Mark Cunningham chief executive really scary thought.” ● 5
We take a look at a fast-changing picture can estimate the marginal impact of and co-founder of residential property
increased flood risk; but data company, Whenfresh, added Liz Booth is a freelance journalist
Responding to the new government Coasts Strategy (although Covid-19 FLOOD RISK AREAS
T
investment, Simon Welton, market crisis may impact timings). Lawyers
head P&C, UK & Ireland, at Swiss Re have been suggesting the result might
Figure 1: Figure 2:
his winter has been warned: “It will still take time for this be a sea-change in approach. Instead of
Percentage of UK SMEs within flood risk zones Average consensus probability of default for
one of the wettest on money to translate into actual schemes building “limitlessly high walls”, they UK SMEs by flood risk zone
record in the UK, with to protect or alleviate the risk of flood. suggest the plan will be to help people
floods affecting large This investment should be part of a rebuild water-damaged homes or to 8% 1.10%
swathes of northern concerted and coordinated effort by move away from flood-risks areas. 7%
England. In its recent the government, insurers and the 1.05%
Average Consensus PD
Percentage of entities
pre-Covid-19 crisis budget, the UK wider business community to build ENTERPRISE RISK 6%
government doubled investment in more resilience into our infrastructure So, what does this mean for the 1.00%
5%
flood defences to £5.2 billion in the and help mitigate the growing danger mortgage market? Financial data
next six years, as well as gave flood of climate change on our lives.” analytics company, Credit Benchmark, 4% 0.95%
affected communities more than This begs the question: what can has recently looked at the credit risk 3%
£300 million to cope with the the country do in the face of climate for UK small and medium enterprises 0.90%
immediate impacts. change and a broad expectation that (SMEs) and flood risk. It has collected 2%
On top of that, the Association the UK will experience a greater UK small and medium enterprise 0.85%
1%
of British Insurers said its members amount of rainfall in the future? And (SME) probability of default (PD) data
were expected to pay out more than how will property lenders react? from all major UK banks as part of their 0% 0.80%
£360 million to insured homes and Later this year, the Environment credit portfolio benchmarking service. High Medium Low Very Low High Medium Low Very Low None
businesses. Europe wide, Storm Ciara Agency is to set out its policies to The SME dataset consists of more
caused insured damage of more tackle flooding in the long term as well than 140,000 monthly observations
Average flood risk Average flood risk
Source:
Credit Benchmark
as publishing an updated Flood and
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than €1bn. and these observations can be linked
smp.org.uk / Mortgage Professional / Spring 2020 smp.org.uk / Mortgage Professional / Spring 2020
SPECIALIST FINANCE SPECIALIST FINANCE
SPECIAL MOVES
Paul Huxter highlights the option of specialist
finance after a big year for loan-to-value lending
T
here are many reasons All this indicates that clients are
and situations why borrowing at higher loan to values and
the need for specialist having to push income multiple limits.
finance arises, but how Property price increases mean larger
do you know what deposits and higher LTV borrowing.
product and which Ahead of the Covid-19 virus outbreak, the borrower’s circumstances can
lender to go to? prices were already falling in the South also deter High Street lenders. When
UK banks recently revealed East, but they are still the highest clients need specialist finance many
how they are going to implement average prices in the UK. Purchase of them won’t know that there is
“payment holidays” of up to three market is driven by home movers, re- the option of going for specialist
months for households affected by mortgage business declining as is BTL. finance and, if they do, they may
the coronavirus. So, at a time when The product transfer market is a not understand the products
families may find themselves in major contributor. These execution- available. This is why they will need
6 a difficult financial situation, it is only sales direct with the lender are a knowledgeable specialist finance 7
helpful to look back at the last year cutting out the client’s broker. With broker to explain these products to
to get an overview of why specialist these product transfers the clients them for the client to then make a
finance is required and what products will not be offered any extra finance. decision on the product that will be
are out there to help your clients. If these clients want to borrow more most suitable for their situation.
2019 saw an increase in higher loan- money – it an opening for brokers to The majority of sales are advised, so
to-value (LTV) applications, with get in contact with those clients and the client is guided through the whole
5.9% of mortgages before Q3 2019 offer them finance through a second process, simplifying and streamlining
having LTV ratios exceeding 90%, charge mortgage. This is a call that the application process. Specialist
this is the highest since Q4 in 2008. brokers should be making once a year finance offers flexibility in criteria
The share of mortgages with LTV to their clients as those clients may and underwriting, which is needed
ratios of 75% or lower fell in the not realise that they are able to get a for clients who may have complex
quarter to 58.9% vs 63.1% Q1 2019. second charge mortgage. situations.
There has also been an increase There could be a number of Most applicants will be eligible
in higher loan-to-income lending reasons they may need a for specialist finance, which is great
(greater than 4x income for a single second charge mortgage – for people with adverse credit. Most
buyer or greater than 3x income for refurbishments, tax bills properties can be used as security
joint applications). This currently sits or to pay for a wedding for finance. This includes residential
at 47.2%, its highest since Q1 2007, – whatever it maybe funds. This unique type of property and commercial properties, plus land
1.9% up on 2018. – they can do financing helps people bridge a with or without planning permission.
New lending at loan-to-income that with a financial gap. These loans are short Currently, interest rates for specialist
of 4 or above is steady at 10.8%, but second charge If they have had bad credit since term and interest-only, and can be finance products are at an all-time low.
there has been a 2% rise since 2018 mortgage. they took out the original mortgage or agreed on relatively short notice Put simply, specialist finance can
5.9%
of lending where the joint income may have missed a mortgage payment when the applicant has a deadline change lives. It can stop a person
is loan-to-income of 3 or above at or two – specialist finance will take to meet. They are often used to fix a losing their business or having their
36.4%. Re-mortgage cases share that into considerations and can lend broken property chain, to purchase home repossessed. Where the high
fell to 28% of advances. Further on that. a property at auction or buying streets don’t lend, when your clients
borrowing business accounts for an ‘unmortgageable’ property to need urgent financial help, specialist
6.4% - highest since Q3 2008. OF MORTGAGES BEFORE BRIDGING THE GAP undertake refurbishment work but finance companies will.
Q3 2019 HAD LOAN-TO-VALUE Bridging finance can also help many they can be used for any legal purpose.
SHUTTERSTOCK
people who think they may not It shows that the need for specialist Paul Huxter is head of sales at
RATIOS EXCEEDING 90% be eligible for a large amount of finance is increasing, especially as Enterprise Finance
smp.org.uk / Mortgage Professional / Spring 2020 smp.org.uk / Mortgage Professional / Spring 2020
VACA N T P R O P E RT Y VACA N T P R O P E RT Y
L
ate last year a report guardians greatly reduce both the risks KEY STATS
emerged revealing that to the buildings, and, consequently,
As of September 2019:
the UK had 617,527 also cutting the costs to local
● the UK had 617,527 empty buildings
empty buildings. Of this, authorities and owners of security
● 445,310 were residential dwellings and
445,310 were residential or dealing with the aftermath of
● 172,217 were commercial buildings
dwellings and 172,217 vandalism or neglect. The surrounding
were commercial buildings. environment benefits from having less
Liverpool City Council topped the eyesores in the area and the community
league table with 11,073 residential benefits from the economic input from undergo redevelopment planning and
buildings while Manchester had 10,531 guardians living in a building that fund raising. And yet there are also
vacant properties. Bradford was host would otherwise stand empty.” hundreds of thousands of people who
to the most commercial buildings It explains that approximately a third want to find affordable accommodation
with almost 8,000 business premises of property guardians are key workers, nearer to where they work.”
available. (teachers, nurses, doctors, police and However, he warns “So far this year,
Sadly, as the country battles emergency services workers), who the increasing legislative and regulatory
Covid-19 the expectation is that more choose to be property guardians so that landscape for the private rental sector
businesses might collapse – and more they can live nearer their work. has only put pressure on owners of
buildings could be left vacant. From a In the past year the Association these properties to keep them empty
mortgage perspective, empty buildings reports a steep rise in the number of and not to put them to good use while
are bad news. Even if a mortgagee is applications to become guardians, their future is decided. We hope the
living and working in a building, the rising to more than 60,000, double the support we provide together with the
spectre of empty buildings around 2018 figures. safety standards the PGPA imposes
them can depress an area and raise the The property guardian model on its members will help to redress
risk of crime. first began in the Netherlands in the the balance.” ●
1990s, where there is also a serious
8 SO, WHAT CAN BE DONE? housing shortage and private rental Liz Booth is a freelance journalist 9
The property guardian sector’s accommodation in the cities can
standards bearer, The Property commonly take up to 70% of an
Guardian Providers Association average person’s income. The guardian
(PGPA) is an association of property sector has grown there to provide EMPTY PROPERTY
owners and guardians who can occupy approximately 30,000-35,000 people
otherwise empty buildings to better with affordable accommodation, ● More than 600,000 residential and
commercial buildings lie empty in the UK
protect them. which for a country with 17 million
● Local authorities and property owners
As the PGPA said “Empty buildings population, would equate to more than spend £100 million to secure and repair
are at significantly greater risk than 100,000 people in the UK. Property vacant buildings, targeted by vandals,
occupied properties, from vandalism, guardians in the UK could also become arsonists and squatters
arson and squatting, as well as the a significant support to help ease ● Regulations designed for short-term
impact of weather and general neglect. accommodation shortages. assured tenancies are being inconsistently
FILLING
Local authorities and property owners The chairman of the PGPA, Graham and inappropriately applied to the guardian
spend £100s millions to secure and Sievers said “There are hundreds of sector, restricting empty properties being
put to good use
repair vacant buildings, targeted by thousands of houses, apartments,
vandals, arsonists and squatters. offices and public buildings standing Source: Property Guardian Providers Association
“By occupying them, property empty across the UK, while they
THE VOID
Empty properties can create extra risk, either because they reasons behind that. It is about to produce a report focused on the
London issues.
THE RICH LIST
Not every home is left empty as a result of a failed mortgage or disrepair.
Action for Empty Homes is a charity that monitors empty homes and the
average prices for residential properties being well out of the reach
of households on average incomes.
In Islington, for example, the typical cost of a two-bed home is more
than 12 times the average income – a couple both earning the average
are falling into disrepair or because of the possible impact on It explains London is a prime location globally for wealth investment wage would need at least three mortgages to buy a home. The charity
mortgaged properties nearby. Liz Booth finds out that the in residential property. New tower blocks containing luxury apartments
have sprung up across the capital. As of January 2020, more than 500
said many people have expressed concern about the impact of so-called
buy-to-leave on the London housing market, with the finger of blame
problem is not just at the bottom end of the market more applications have been agreed for high-rise developments. At the
same time, London is at the epicentre of the UK housing crisis, with
frequently being pointed at foreign investors for the growing number
of ‘lights out’ unoccupied tower blocks in central parts of London.
IKON
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DRONES DRONES
VIEW FROM 76,000
Loss adjusting firms are assessment of the rate of erosion,”
particularly keen to make them explains a spokesperson from
part of their arsenal. For instance, Angell. “This enables us to provide
Crawford has its UK Drone ongoing analysis, showing which
ABOVE
DRONES OPERATING Network, working with drone
service provider Iprosurv to provide
areas and coastal properties are
likely to be exposed to risk sooner
IN THE UK'S SKIES access to more than 240 Civil than others.”
Aviation Authority registered pilots Although drone usage is taking
across the UK. off in the property market, there
“We do a lot of work with the are some obstacles. For Mr Barnett,
insurance profession on storm cost is prohibiting greater use in
and flood damage claims,” insurance. “It’s too high,” he says.
explains Rebecca Jones, owner “A number of drone operators have
Sam Barrett explores the increasingly effective and cofounder of Iprosurv. “We approached us to help us inspect
can fly a drone over a flood area to old hotels or difficult buildings,
use of drones within the property market determine the level of water and however their fee was higher than
how many properties are affected, the total insurance premium we
enabling an insurer to set reserves, were charging.”
prioritise claims and determine As with anything technology-
D
interim payments. With other types based, this is likely to change.
of claims, footage can be shared Five years ago, it would have cost
rones are Surveys such as this can be used by with forensics experts to help them around £1000 to fly a drone, today,
10 increasingly interested parties, such as insurers,” determine what caused the loss and a basic drone inspection is in the 11
commonplace he adds. what remedial work is required.” region of £300. This could clear the
among estate agents, Insurance is certainly an area The insurance profession is not runway for drones to be used in
enabling them to where drones are playing a larger only using drones when catastrophe building surveys, providing buyers
take aerial shots part. Douglas Barnett, director of strikes. Ms Jones says they can also with more insight into the state of a
that flaunt the size and character mid-market and customer risk support risk management activity. property. Aerial photographs could
of a property (and sometimes even management at Axa Insurance, says “We can fly a structure and, by show whether a roof needed to
screening off the less than perfect that drones are most useful in a post- running the drone data through be replaced with thermal imagery
neighbour). But, as well as being event situation. “When we want to analytical software, produce a revealing a property’s energy
a powerful marketing tool, these quickly assess the damage a storm has report that identifies any potential efficiency.
unmanned aerial vehicles are being caused to a block of flats or where we risks,” she explains. “It could But, as their application
put to good use in other areas of the can’t access a building because fire has highlight a potential leak on a increases, it is also essential that
property market too. made the whole structure dangerous roof, preventing a business from operators abide by the regulations.
Surveying is an obvious example, to enter, a drone can be used to assess suffering a large loss due to water From November 2019, anyone
as Philip Angell, CEO and Chartered the damage.” damaged stock or as a result of a fire flying a drone must register and
engineering surveyor at Angell if it the electrics are affected.” pass a theory test, with stricter
Surveys and a member of the Royal Drones can also be used to assess rules for commercial operators.
Institution of Chartered Surveyors
(RICS), explains: “A drone can
DRONES CAN ALSO BE USED broader areas, identifying regions
that might be more prone to flood
“Operators must get a permission
for commercial work from the
capture images that it would TO ASSESS BROADER AREAS, risk or coastal erosion. As an Civil Aviation Authority, even
be difficult and, in some cases,
impossible for an individual to get
IDENTIFYING REGIONS THAT example, Angell Surveys conducts
regular surveys for the Isle of Man
where there’s no specific charge
for the drone flight and it’s offered
themselves.” ECONOMIC BENEFITS OF DRONES MIGHT BE MORE PRONE TO FLOOD government to monitor the rate of as a way to enhance the service
As an example, he points to a
recent internal inspection his firm
RISK OR COASTAL EROSION coastal erosion.
“We carry out aerial surveys at
provided,” explains Ms Jones.
“Safety must be of the upmost
carried out on a property that had In its report, Drones impact on the UK economy, PwC low tide, comparing the results importance.” ●
found that, by 2030, there could be:
been destroyed when a mains water with historical data to produce
● £42bn increase in the UK gross domestic product
pipe running underneath it burst. both a quantitative and qualitative Sam Barrett is a freelance journalist
● £16bn in net cost savings to the UK economy
“The property was deemed unsafe
● 76,000 drones operating in the UK’s skies
to enter but we were able to fly a
● 628,000 jobs in the drones economy.
drone inside to document the visual
GETTY
condition and contents.
smp.org.uk / Mortgage Professional / Spring 2020 smp.org.uk / Mortgage Professional / Spring 2020PROTECTION PROTECTION
WHAT IS A TRUST? TO PAY OUT THE SUM ASSURED AS Life interest trusts – A beneficiary has
Trusts – the word conjures up QUICKLY AS POSSIBLE an interest in possession, so the funds
thoughts of hefty documents thick Even if a client has left a valid will, it in the trust are effectively held for
with legalese. But they don’t have can take weeks or months to legally them during their lifetime, after which
to be like that. Simply put, a trust is prove the will. Until then an insurance another beneficiary is appointed.
a legal form which holds money or company cannot pay out the sum Statutory trusts – In England, these
other assets for someone else. Often, assured to anyone. And if the will is are trusts under the Married Woman’s
they are an inexpensive, simple and disputed for any reason, it can take Property Act, 1882. These are simple
efficient means of making protection years for the courts to settle it. trusts which can be used to gift
better value for your clients. So, in short, a trust gets the right the payout of life cover to a spouse
There are three good reasons to put money to the right people at the right and children. They’re designed to
a protection plan in trust: time. They can make life easier for a protect families against the threat
● To get the full sum assured to the client’s family and beneficiaries after of bankruptcy - due to this they’re
beneficiaries without paying more their death. However, to be attractive inflexible and can only be used for
tax on the estate. to your clients during the protection single life cover policies.
● If a claim for £100,000 of life cover sale, a trust needs to be quick and Within the trust, your client is
is made, and the plan is not in trust, easy to set up, inexpensive and known as the settlor and they must
the sum assured will pass into the understandable for all those involved sign the trust form (for jointly owned
client’s estate. If the value of their in it. covers, both clients must sign), the
estate, including the £100,000 appointed trustees will need to sign
payout, is sufficiently large, they SETTING UP A TRUST the form too. If a trustee dies, or
will pay inheritance tax (IHT) at A range of standard wishes to stand down, most
40% on every £1 above the current
IHT threshold – which is £325,000.
trust forms are often
provided for free by
DISCUSSING THE insurers have a Deed of
Appointment form, that can
For example, in an estate valued insurance companies BENEFITS OF TRUSTS be completed to change the
12
at £500,000, the £100,000 payout
would attract £40,000 of IHT –
and many, also
offer technical help
WITH YOUR CLIENTS trustees within a trust.
Beneficiaries of the trust 13
leaving only £60,000 available to your too. Standard trust DURING THE PROTECTION do not need to sign the
client’s family.
● If their plan is put in trust, a
forms are simple
to complete (often SALE CAN HELP SHOW trust form - they do not
even need to be told they
payout of £100,000 would be running to just a A CLIENT THE DEPTH OF are a beneficiary of the
held separately out with the
client’s estate after their death and
few pages), easy to
understand and will YOUR EXPERTISE trust until after your client’s
death. This can be a helpful
IT’S ALL
therefore would not be subject to meet the needs of point if the beneficiaries |
IHT. The full sum assured could then most clients. are children.
be passed to the beneficiaries. It is best to set up a trust at After a successful claim is made,
the same time as completing the trustees are required to distribute
TO GET THE SUM ASSURED TO THE the application for life cover. the payout according to the trust
RIGHT PEOPLE You will find that most plans are form wording.
ABOUT
A trust document, also known as a written under a discretionary trust. The trustees your client appoints
trust deed, will clearly show who These offer the greatest flexibility are not paid for managing the trust,
should benefit from a life cover – your client can leave instructions but they can recoup any necessary
N
payout. Without a trust, the payout setting out what they’d like the expenses they incur. The trust deed
will go to either the beneficiaries trustees to do with a payout under gives trustees the powers to invest or
TRUSTS
ot all advisers named in a will, or if there’s no will, certain circumstances, but any action borrow money – however, trustees
consider adding a the state will decide who should taken is at the trustees’ discretion so must always act legally and in the best
trust to their service get the money, based on the laws of they can act in the best interests of the interests of the beneficiaries of the
during the protection intestacy. beneficiaries at the time. trust.
sale. It’s true that Some types of trust can leave the You may also come across the Discussing the benefits of trusts
some trusts can decision of who should benefit until following types of trusts: with your clients during the
be complex and time-consuming later. The advantage of having this Absolute or bare trusts – Trustees hold protection sale can help show a client
documents that some would rather flexibility would be if a client knew any payout for the beneficiary until they the depth of your expertise as well as
Ian Smart explains why trusts can provide leave to a solicitor. their circumstances were going to can claim it, for example, trustees can provide peace of mind that they’re
a simple and efficient means of making Nonetheless, they can present change in the future – for example, if hold funds for children until they turn fully prepared in case the worst
considerable advantages to clients and more children were likely to be born. 18. These trusts are very simple, but should happen. ●
protection better value for clients can be counted as another string to With this type of trust, the trustees inflexible in terms of the choices the
your bow when it comes to the value can change beneficiaries accordingly, trustees can make in best interests of Ian Smart is product architect at
of seeking professional advice. even after a client’s death. the beneficiaries. Royal London
smp.org.uk / Mortgage Professional / Spring 2020 smp.org.uk / Mortgage Professional / Spring 2020PROTECTION PROTECTION
SERVE AND DIFFERENT TYPES OF PROTECTION
Not only does the word protection
confuse customers so do many of
The next step is to talk about these
areas, what the consequences would be
and how long could they keep paying
comes to keeping up the repayments
on their mortgage.
As advisers, we normally say about
PROTECT
the product names – IP, CI, FIB – their mortgage for should any of those 10%-15% of the mortgage payment.
can all lead to confusion. Here is a things happen. Clearly understanding However, it is worth converting this
brief summary of how advisers can any existing provisions to help in these into actual monetary amounts. So,
approach the subject of protection and areas is extremely important. for example – your mortgage is £900
associated products: All of this conversation can be done a month and we find that the usual
● When the mortgage is being applied with no reference to actual products amount required to fill the gaps costs
for, point out to the customer the – remember the product name is not about 10%-15% of that – so in your
statement on their documentation important, it is what the product does case £90-£120 p/month. Where
Andy Walton explains the importance of having a conversation with that says, “your home may be to support the customer that would you fit between those amounts?
customers about protection early in the home buying or moving process repossessed if you don’t keep up is important. With an agreed budget you are
I
your repayments”. All our products do one most now able to go away and create a
This is the stepping stone from important thing – they pay cash to the protection portfolio and come back
n my experience, it is It is simple but this can be the most the mortgage to the protection customer when they need it most. with solutions for the customer that
important to have a process effective way to put protection on the conversation. Focus on that and the benefits will work. This is the next phase of the
in place which advisers can agenda early on – without mentioning ● Ask the customer what could stop rather than talking about a product protection journey which I won’t go
follow to help them talk about protection directly. them keeping up their repayments. called “income protection” etc. This into detail right now.
protection with customers. As we know many customers do not ● Document their answers. This now will help customers prioritise the gaps So, positioning protection in the
In short, at the beginning even understand what we mean when gives you a list in the customer’s own they will see for themselves. right way works – asking the right
of a mortgage appointment with a we say “protection”. It is extremely words of what could stop them paying questions at the right time will lead
customer – whether that’s telephone rare that a customer asks us to arrange their mortgage. Many of the things HOW MUCH DOES IT COST? to engaging customers with healthy
or face-to-face – the conversation their mortgage and all protection needs they tell you are the very things we The final piece of the puzzle is to budgets – all an adviser needs to do
can start with: “Hi, I’m a specialist in to cover the mortgage. However, it is can help them with such as being establish how much the customer is then is advise on the right solution. ●
14 mortgages and can help you find the most also rare (if we ask the customer the off work, serious illness, willing to spend per month to cover 15
suitable product for your needs and I above question) that they say they accidents or death. the gaps that most will have when it Andy Walton is protection proposition
also specialise in helping you keep up the aren’t interested in keeping up the director at Mortgage Advice Bureau
repayments on the mortgage once we’ve repayments on their mortgage.
arranged that for you. By gaining their agreement at
“To start with, we look at your outset, there are two distinct parts to
mortgage requirements and later we the mortgage process which means
will look at ensuring you can keep up the the agenda is set and customers tend
repayments – is that ok?” not to change their mind later.
smp.org.uk / Mortgage Professional / Spring 2020 smp.org.uk / Mortgage Professional / Spring 2020You can also read
