John Somerville is head of regulatory relationships, corporate and professional learning at The London Institute of Banking & Finance
Over the past two years, most people have wanted mortgage advisers to help them get lower rates.
For many advisers and their clients, those were purely transactional relationships; all that mattered was the cheapest deal. Thanks to the coronavirus pandemic, clients now need full, professional advice on how best to manage what is likely to be their biggest single debt and outgoing: their mortgage.
Most banks and building societies have allowed three-month payment holidays, and the Financial Conduct Authority (FCA) has said these should be extended if necessary.
People who have been furloughed are still receiving at least 80% of their salary, but many will be concerned about what the future holds. A mortgage holiday doesn’t mean that the debt has gone away, however.
And the interest is still piling up. Even more importantly, the economy is likely to face a hard landing. People will be concerned about whether they could lose much of their income or face a permanent reduction.
That is a very profound threat to people’s financial and mental wellbeing.
Helping to manage some of the financial challenges is where a good mortgage adviser can really help.
The pressure is on banks and building societies started offering mortgage payment holidays when the lockdown began in March.
At the same time, the government launched its furlough measures, paying 80% of salaries up to £2,500. These are expected to be wound down from August. That wind-down will include having companies ‘share’ some of the costs.
Whatever the final details, it is likely that, by the end of the summer, a sizeable number of people will have to scramble to find a way to meet their financial commitments.
The Bank of England cut the Bank Rate to a record low of 0.1% in March, and also eased some regulations to help banks continue to lend.
Borrowing was already cheap, which means there are many households with a range of debts beyond a mortgage.
But low interest rates do not equal easy-to-manage finances, even when people are in secure employment. So, advisers should reach out to clients offering help.
Clients who seemed in a strong financial position pre-crisis may now be facing complex and difficult financial decisions.
Owners of buy-to-let (BTL) properties, for example, where the tenants are no longer able to pay their rent, could be squeezed hard.
The looming economic crisis will be a challenge for mortgage advisers as much as their clients. A mortgage adviser’s responsibility is to get the best outcome for their customer, considering that customer’s financial needs and outlook. But there has been a seismic change in the financial landscape.
Many people will be in difficulties they never expected to face. They might have very little clarity on what the coming months will hold for them.
They could be worrying about losing face, and may struggle with anxiety or more serious mental health problems that cloud their judgement.
Advisers will need to provide not only detailed, up-to-date knowledge of the market and the government schemes, but also empathy, honesty and integrity.
They will also have to help their clients to be honest about what may be embarrassing and distressing personal matters.
That means establishing trust. Don’t take it for granted that clients you already know will be happy to open up about changed circumstances.
And remember that it is not easy to build trust even in person. Via video-link, it will take real skill – social, emotional and specialist financial.
Understanding how people feel about profound financial dislocation, and helping them manage it, is not something that a computer programme can handle.
How advisers help people keep their homes through this crisis will be the acid test of the industry. You might want to consider developing or updating your skills. CeMAP Diploma will help you understand more complex mortgage scenarios and to develop your research skills.
Some clients may be looking to access the equity in their homes to meet unforeseen expenses.
The Certificate in Regulated Equity Release (CeRER) – a growing part of the market – will train you to understand different customer needs, the many products available and how to advise on the risks.
The banks How banks manage this crisis will also be a hard test. In the property crash of 1989, many lost their homes when banks held them to mortgage terms.
The financial crisis of 2007-8, when the banks were bailed out, has arguably strengthened the position of the customers. A bank that cuts people loose for the sake of six months while they struggle to get back on their feet will have to explain itself.
However, very low interest rates, an inverted yield curve, and the competition in the mortgage market that comes from ring-fencing mean that banks are operating on slim margins.
Mortgage advisers will have to work hard to keep up with what banks are reasonably willing to do to help their mortgage customers get through this.
The bottom line will be trust. If banks can trust advisers to get it right, if clients can trust advisers to do their best for them, and if advisers can build that relationship with both the market and clients, many people will be helped to avoid the hardest landing and lay stronger foundations for the future.