In an uncertain economic climate and amid regulatory change, mortgage brokers play a pivotal role in guiding clients through complex investment decisions.
This is particularly true for buy-to-let (BTL) clients and those seeking investment opportunities in the commercial, holiday-let or student accommodation sectors.
According to recent research from MFS, property investors are increasingly looking at economic data and housing statistics to help inform their decisions.
When interest rates were low, clients were less interested in the macro-economic environment
Almost six out of 10 (57%) said they would be “significantly” influenced by macro-economic indicators when making investment decisions, including information on inflation and interest rates. A similar figure (55%) placed a high importance on housing market data and forecasts regarding property prices and rental yields when making changes to their property portfolio.
While one in two of these investors (51%) monitors trends within the property market themselves, a significant number (42%) admit it is a challenge keeping up to date with the wealth of information now available.
Better informed
Consequently, growing numbers are looking to brokers and advisers for this information, plus guidance on how best to interpret the data. The MFS research shows that more than a third of property investors (35%) ‘rely’ on advice from mortgage brokers, advisers or wealth managers to inform their buying and selling decisions.
Private Finance technical director Chris Sykes agrees that today’s clients want to be better informed about a range of economic issues.
The role of a broker isn’t to know everything, but to have enough knowledge to keep clients informed and direct them to specialists when necessary
“When interest rates were low, clients were less interested in the macro-economic environment,” he observes.
Clients now look more closely at inflation figures, GDP and other economic data to understand the potential impact on future interest-rate movements.
“This is especially true in the BTL market,” says Sykes, “where investors are trying to gauge interest-rate cycles to spot the best time to remortgage.”
MFB managing director Gavin Richardson says understanding how wider economic factors underpin the housing market can facilitate more productive conversations with clients.
“For example, understanding how different funding models work for capital market lenders versus balance sheet lenders is important, particularly in relation to swap rates and fixed-rate mortgage pricing. These distinctions are important when talking through different product options with clients.”
For BTL brokers, staying updated on rate trends and stress-testing tools is crucial
He says this can help borrowers to make better decisions based on their longer-term plans.
“Obviously we can’t second-guess rate movements, but we can look at wider economic conditions and help clients understand what the pros and cons might be with certain options in different scenarios.”
L&C Mortgages associate director of communications David Hollingworth agrees it has been challenging to keep abreast of external economic factors in a fast-moving market.
“One of the difficult lines to walk when giving advice is to ensure that customers understand what could happen, and how a certain product could help them navigate this scenario, while also underlining that ultimately no one knows what will happen to interest rates,” he says.
Broker education needs to be an ongoing process because the economic climate is always evolving and lender policy changes to reflect this
“The volatility of the past two years certainly demonstrates this challenge. But advisers need to be able to paint a picture of what the breadth of opinion might be and how this affects the client — so understanding the tone of the wider economy is more important than ever.
“As a result, having an appreciation of how inflation figures are important in setting the direction of travel, and how these figures can affect swap rates that will feed into mortgage rates, should help give some context to borrowers who are unsure what to do.”
Regulatory knowledge
The Mortgage Expert adviser Darryl Dhoffer says brokers have to grapple with not just economic issues but the evolving regulatory climate too.
“Rising interest rates directly impact affordability and rental yields, requiring landlords to adjust strategies,” he says. “For BTL brokers, staying updated on rate trends and stress-testing tools is crucial. In addition, changes in tenant eviction laws and the rules around energy efficiency compliance can alter investment plans for landlords. However, there is uneven knowledge with some brokers who specialise in this field.”
Brokers need to keep abreast of a range of subjects. But we’ve got to stay within our skillset
Larger broking firms may be well placed to disseminate information to ensure all of their advisers are kept informed about such issues.
L&C Mortgages, for example, says it has put a greater focus on giving advisers regular round-ups on market movements and new data. Private Finance, meanwhile, has weekly meetings where brokers, directors and the marketing team share in-house and external information and views on a range of issues, including potential changes to inflation and interest rates.
But this can be more of a challenge for the smallest broking firms, which may rely on one person’s reading and understanding of this market information.
Our Mortgage Broker managing director Akhil Mair says brokers can enhance their expertise through networks, lender seminars, online platforms and professional courses.
He says effective networking is useful for firms of all sizes, not only for learning more about broader macro-economic issues but for giving local market insights; understanding how wider national trends are playing out within the local region.
Advisers need to be able to paint a picture of what the breadth of opinion might be and how this affects the client
Coventry Building Society senior product manager Maire Cassidy agrees.
“By building a network of reliable sources and speaking to other mortgage professionals, reading market commentary and attending industry events, brokers can not only expand their knowledge but will be able to provide a more balanced view to clients.”
Continuing professional development (CPD) can be a significant part of this. Lawson Financial director Michelle Lawson says ongoing education is important, even for experienced advisers who have worked in the sector for many years.
“Broker education needs to be an ongoing process because the economic climate is always evolving and lender policy changes to reflect this.”
However, although brokers must have up-to-date knowledge across a broad range of subjects, it is important that they do not stray into giving advice on areas beyond their qualifications.
We can look at wider economic conditions and help clients understand what the pros and cons might be
Finanze Group chief operating officer Patricia McGirr says brokers need to recognise when clients need more specialist advice than they are able to give. She says this is increasingly important in the BTL market, with professional investors often seeking advice about the more complex tax situation that has arisen in this sector in recent years.
“Brokers need to keep abreast of a range of subjects. But we’ve got to stay within our skillset. It is important to know where to signpost clients, to ensure they get relevant advice and help where it is needed. This is where professional connections and networks are key.”
Yellow Brick Mortgages managing director Stephen Perkins agrees.
“Keeping up to date with economic factors and new products and rates is crucial for brokers to ensure they’re giving the correct advice. But, while it is good to have an understanding of taxation, it is important to not give advice on this area.”
For example, says Perkins, brokers should be able to outline to clients the different taxation rules that apply for rental properties bought as an individual or through a limited company. But they should not give personalised advice on which might be the best option because this would depend on a client’s other earnings and investments, their family situation, and so on.
Understanding how different funding models work for capital market lenders versus balance sheet lenders is important
“It is important to recognise when individuals will benefit from professional tax advice and signpost them to someone who can help,” adds Perkins.
The Mortgage Consultancy director Peter Vandervennin says: “The role of a broker isn’t to know everything, but to have enough knowledge to keep clients informed and direct them to specialists when necessary.”
He adds: “One of the biggest market issues for brokers is taxation and incorporation strategies specifically for BTL investors. Understanding the legislative theory is crucial for helping clients in this area.”
Softer skills
Brokers need not just facts about economics, regulation, tax and product ranges at their fingertips. CPD should focus also on the softer skills that enable them to offer guidance to investors without inflicting information overload.
Mair adds: “Effective communication and client-centric approaches are crucial. Brokers should distil complex information and cultivate empathy, active listening and negotiation skills to empower clients without overwhelming them.”
By building a network of reliable sources, brokers can both expand their knowledge and provide a more balanced view to clients
MortgageShop.com managing director Gary Bush says: “The life of a financial adviser in 2024 is one that needs an array of skills — technical, analytical, patience, courage and perseverance.”
Working with networks, mortgage clubs, other advisers and specialist firms can help brokers develop their skills across all these areas, so they are better able to support clients and grow a profitable business.
